Commodity Status is in the Mind

When I was six I believed in the Tooth Fairy. Every time I lost a milk tooth I would carefully wrap it in tissue paper, place it under my pillow and awake the next morning to find it had been transformed magically by the Tooth Fairy into a shiny 50p piece.

Ever the sceptic, when I turned seven and lost my next tooth I feigned sleep, hoping to catch a glimpse of the fairy on her next visit. Imagine my surprise as, through half-closed eyes, I watched my father gingerly performing the switch in the middle of the night. I cried for a week and stopped believing in the Tooth Fairy. From then on, my remaining milk teeth, along with the occasional unfortunate fairground goldfish, departed this world via the Ritson family toilet.

Last week, for the first time in 25 years, I thought of the Tooth Fairy again. I was asked to address a group of wine producers on building brands in the wine trade. Foolishly I had put together a 'how to build brands' session for the group. It was only as my presentation progressed that I gradually realised my audience were actually more interested in the subject 'can we build brands?'.

The group was unconvinced that brands could ever work for wine, and the reasoning was sound. 'Consumers don't buy brands, they buy grapes, regions or countries.' 'The prices of most wines don't provide the kind of profits that would support brand-building activities.' 'The wine market is very fragmented and producers are too small to be able to build brands successfully.' 'Retailers don't respect brands, they want supplies of cheap, good quality wine.' 'The reason there are 10,000 winemakers and only a handful of brands is that they don't work for wine.'

All strong arguments, commonly associated with the 'commodity' mind-set. This mind-set affects managers who refuse to believe in brands and cling instead to the enduring product-based origins of the market. I have encountered it many times in industries as diverse as petrochemicals and financial services. And I have heard the same arguments as those voiced by the winemakers from chief executives to sales teams.

And, of course, they are all completely wrong. History teaches us that while markets begin with commodities, they eventually evolve into brands which will go on to dominate the sector.

At some point in every market, a manager breaks the commodity mind-set and realises that if he or she could build a brand, all the reasons against branding would disappear. Brands draw consumers' focus away from just product and price. They provide increased margins and better bargaining power with re-tailers. They grow the company, allowing it to acquire smaller commodity competitors and increase in scale. No matter how powerful the argument for commodities, brands eventually triumph - in every market.

Imagine the power of the commodity mind-set before the advent of bottled water. The commodity, in this case tap water, has unbeatable distribution.

It is fresher, better for you, and in taste tests compares favourably with all of its rivals. Oh, and it's 500,000 times cheaper than any branded competitor.

Yet, despite these apparent disadvantages, branded bottled water is successful.

It's one of the most profitable and fastest-growing markets in the world.

A lot more attractive than wine-producing at any rate.

The day I stopped believing in the Tooth Fairy was the day I stopped receiving my 50p. Before the benefits of branding can be enjoyed, you must first believe in brands.

For those who can never break the commodity mind-set, brands and the myriad advantages they bestow will never exist.

30 SECONDS ON ... WINE CONSUMPTION

- The UK wine market was worth £7.63bn in 2002 (Mintel). The average price of a litre increased from £6.66 in 1997 to £7.75 in 2002.

- ACNielsen figures suggest that once a wine exceeds the £4 mark in the UK, its sales plummet. On average, shoppers do not spend more than £7-£8 a week on wine and so can afford two bottles if the price is below £4.

- In the UK, 17% of bars, restaurants and on-trade establishments fail to display a single bottle or label when selling wine (ACNielsen). About 60% of on-trade premises offer a choice of fewer than five wines, with more than a third offering two or less.

- Stowells of Chelsea was the biggest-selling wine brand in the UK in 2001. Other leading brands include Jacob's Creek and Ernst & Julio Gallo.

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