Branding Strategy Insider

The Impact of Culture on Branding

Culture is the cumulative concept that encompasses knowledge, belief, customs, practices and any other habits acquired by people as members of society. A culture operates primarily by setting loose boundaries for individual behavior. Culture, in effect, provides the framework within which individuals and households function. A major consequence of culture is its impact on consumption patterns of individuals and institutions. Depending on the underlying cultural philosophy consumers tend to follow certain consumption patterns. Successful brands have been able to adopt their branding strategies in line with this dominant cultural philosophy and weave their brands into the cultural fiber.

One of the underlying premises of branding is its ability to reduce customers’ search cost and perceived risk by standardization of images, messages, communications, attributes and features. As such brands generally strive to maintain their defining brand identity, brand personality, brand images and brand elements across markets. This standardization which forms the fundamental building block of a brand itself poses the first challenge in cross cultural situations. Many a times, brands will need to adopt their offerings to different cultures and this violates the standardization principle. Therefore deftly handling the standardization and adoption issue becomes extremely crucial.

One of the biggest implications of globalization for brands seeking to expand to foreign shores is the task of balancing standardization with customization. When some of the world’s biggest brands expand beyond their home markets, they are tempted to repeat their tried and tested formula in the new market as well. In fact this has been the path followed by many brands. The assumption in such a case is that customers would be too eager to consume the great brand because of its authenticity, heritage and associations. But this tendency is gradually changing as global companies are learning about the unique needs of the customers in different markets along with the pressures of lifestyle, economic and cultural conditions.

Consider the success of global brands in the Indian market.

Lessons from the Top 100 Global Brands

The economy may be in freefall and advertising forecasts bleak, but this year's Millward Brown Optimor BrandZ survey reveals the world's first $100bn brand - Google.

While this news may be of little surprise and will provide cold comfort to struggling broadcasters (famously, the brand has never advertised on TV), the research does, however, underline the enduring power of strong brands. It also serves as a timely reminder that pulling back marketing support may well provide a quick fix to a company's bottom line, but is often to the long-term detriment of the business.

Despite the turbulence in the global economy, the value of the top 100 brands has risen by 2% in the past year to $1.95tn. A total of 85 of the top 100 brands remain in the table from last year. By category, the biggest faller was insurance (-48%) followed by cars (-22%) and financial institutions (-11%). On the flip side, mobile operators experienced the biggest growth in brand value (+28%), followed by soft drinks (+24%) and coffee (+18%).

There are also reasons to be cheerful -in the UK-, which is outperforming the broader market. The value of the top 10 UK brands has grown by 11% over the past year, compared with a 2% rise for all global brands. UK brands also account for half the growth in the global mobile category - the strongest brand category in the world. Vodafone and O2 together account for more than a quarter of that category-wide growth.

The recession is clearly not having a negative impact across all brands and categories; one of the big positive trends is the growth in popularity of activities undertaken at home that traditionally would have been done elsewhere. The ease and convenience of online shopping, for example, has been the driving force behind brands such as Amazon (+85%) and eBay (+16%).

Top 100 Brands Wield Power Over S&P 500

In the managerial pecking order within most firms, finance occupies a more central role than the flimsy business of marketing. Financial people use complex terms like ‘derivatives' and ‘collateralised debt obligations', and deal with multibillion-dollar/pound sums on a daily basis. Marketers are a simpler mob, occupying their time with more basic duties, such as brand building and customer satisfaction.

However, when you think about it, shouldn't it be the other way round? Shouldn't the marketer, who builds the brand and works with the consumers who pay for everything, have a more exalted position than the manager who simply accounts for and invests the resulting income? Given the corporate shenanigans in the financial sector that have emerged in the past 12 months, doesn't it make more sense to trust the marketers who generate value, rather than the incomprehensible financial markets that just seem to lose it?

This week's publication of the annual BrandZ Top 100 Global Brands provides empirical evidence that marketing does indeed beat finance. As you probably know, every year Millward Brown Optimor surveys more than 1m consumers across 30 countries to measure the equity of most of the major brands in the world. It uses this data to create the Top 100, detailed further on in this blog post.

Since 2006, it has also used its data to buy a portfolio of shares in the firms that own the best-performing brands. Each April, Millward Brown Optimor reinvests the money based on that year's survey results, rather than using complex financial data or expert assessments of company potential.

For the past three years, the BrandZ Top 100 portfolio has beaten the market. As you can see from the graph below, it has been enjoying a significant lead over the S&P 500 - the value weighted index of the 500 biggest companies listed on the US stock markets. During the good years, between April 2006 and April 2008, a $100,000 investment in the BrandZ portfolio would have generated almost $20,000 more in returns compared with the average.

The Reality in Ranking the Top Global Brands

Twenty plus years ago a widening disparity began to appear between the tangible net assets of a company and the actual price that would be paid to buy that company. This created a maelstrom of merger, acquisition and defence as companies scrambled to value their most precious assets - their brands.

Interbrand emerged from this era as the industry leader in brand valuation and, since 1999, its joint publication with BusinessWeek of the top 100 global brands has solidified that position. Each Summer Interbrand tells us what the world's most valuable brands are and, unlike other marketing surveys, the managerial world listens.

How does it do it? To cut a long story very short, Interbrand uses three sources of data to value a brand. First, the expected earnings the brand will generate for the next six years. Second, the percentage of earnings that can be attributed to the brand, as opposed to other decision-making factors such as location. Third, the relative strength of the brand. The higher the brand strength, the less risky the six-year earnings predictions and the more likely they are to materialise.

Combining these figures produces remarkably precise calculations. Last year, for example, Interbrand informed us that Intel's brand was worth $30.9 bn, down 4% from 2006. As marketers, we are typically afraid of numbers, especially big ones that are derived using super-complex financial calculations.

The reality, however, is that despite the apparent precision and current dominance of Interbrand's top 100, I would argue that much of it is actually a load of old tosh.

Top Brands Illustrate Marketing Power

It is time to stop speculating about brand equity and turn, instead, to the ice-cold empiricism of financial brand values. Monday saw the annual publication of the BrandZ Top 100 brands from Millward Brown Optimor and, as usual, there were a host of winners and losers.

The first slice of good news was domestic (FYI - I'm based in London). Although only six British brands made the Top 100 list, they grew their value at an average rate of 33% - significantly higher than the 21% average of the Top 100 as a whole. Vodafone led the British contingent growing in brand value by a whopping 75% to $37bn (£18.7bn). But the BrandZ data that drives the Top 100 also recorded a slowing in Vodafone's brand momentum, suggesting that the good times may not continue.

Another big winner this year was McDonald's. The world's eighth-biggest brand recorded a 49% rise in value to $49.5bn. Impressively, it also recorded a brand momentum score of seven, suggesting its gamble to divest the other brands in its portfolio and focus on its main cash cow appears to be paying off. I must now eat humble pie and accept that you can revitalise burgers and fries in the 21st century.

I did get one prediction right this year, though. Robert Polet, who took over as chief executive of Gucci Group after two decades working for Unilever, is just as good as I told you he was. His main brand, Gucci, increased in value by 43%, and with a brand momentum score of 10, it seems Polet's revolution will continue to deliver results.

Brand values can go down as well as up.

Brand Extensions and Global Branding

If you are in the process of building your brand globally, especially if your brand is in its infancy in some regions or countries, here is something else to watch out for with brand extensions.  If a particular extension, especially one less central to the brand’s promise, has a strong presence in a market place before you have a chance to establish the brand essence, promise, and core meaning in that market place, it could be much more difficult to position the brand correctly.  It would be better to withhold that extension from the market place until the core brand meaning is established there.

Brand Extension Questions
You should answer these questions as you consider each possible brand extension:

Business Questions:

•    How “big” is the category or segment?
•    Is the category or segment new?
•    Is it growing?
•    Is there “room” in the category or segment for a new brand?
•    Do you have or can you acquire the assets and competencies necessary to compete successfully in the new category or segment?
•    Have you identified a profitable and robust business model for competing in the new category or segment?
•    What type of competitive reaction might you expect as your brand enters the new category or segment?

Brand Questions:

•    What are your brand’s primary benefits?
•    Does the brand uniquely own those benefits?
•    Do those benefits matter in the new category?
•    Do they matter enough vis-à-vis other (competitive) brands’ benefits to make your brand preferable, at least among some sub-segment of the category?
•    What impact would entry into the new category have on your brand’s essence, promise and equity?

Sponsored By: Brand Aid

Speedy Starbucks has grown too fast

Howard Schultz took a deep breath and began to write. It might have been Valentine's Day but the subject of his letter was anything but romantic. Instead, the 55-year-old New Yorker was about to sit down to write a letter of complaint slamming Starbucks and its current business practices.

Schultz's letter criticised the Seattle-based company for growing its global chain of 13,000 coffee shops too quickly. As a result, he accused the company of commoditising itself and losing much of the romance and soul that were once central to its brand. His 800-word composition left no room for doubt: Starbucks had grown its business at the expense of its brand.

It was a damning indictment of Starbucks' marketing strategy over the past decade. In and of itself, the letter was not remarkable. It is the kind of complaint routinely posted by disaffected customers or posted on blogs by unhappy former employees. To appreciate the magnitude of this particular letter, you have to know who the author is. Schultz is not a Starbucks customer or ex-employee; he is the company's chairman.

What is even more remarkable is that Starbucks appears to be doing just fine. Its growth targets, share price and underlying sales are all relatively strong and its expansion into Asia seems to be on track.

Building a Global Brand

While many consumer goods markets in the West are stagnating, 65% of the world’s population is living in societies that are experiencing economic growth of 5% or more a year.  While the baby boom occurred between 1945 and 1960 in the U.S.A., much of the rest of the world is still experiencing a baby boom that began in 1975.  The average person has seen his or her standard of living double in the past 15 years, far surpassing that of the USA or Western Europe.  Put very simply, the majority of the growth potential in consumer markets exists outside of the USA and Western Europe.

Benefits of Global Branding

In addition to taking advantage of the outstanding growth opportunities, the following drives the increasing interest in taking brands global:

•economies of scale (production and distribution)
•lower marketing costs
•laying the groundwork for future extensions worldwide
•maintaining consistent brand imagery
•quicker identification and integration of innovations (discovered worldwide)
•preempting international competitors from entering domestic markets or locking you out of other geographic markets
•increasing international media reach (especially with the explosion of the Internet) is an enabler
•increases in international business and tourism are also enablers

When to Leverage a Single Brand Globally

A company is more likely to leverage a single brand globally if:

•it is already operating worldwide (one brand is more efficient)
•the brand is an extension of the owner and his or her personality
•the brand’s relationship to its country of origin creates positive associations (like a watch brand from Switzerland or a gourmet food brand from France)

Global Brand Constants

At a minimum, when going global, the following elements should remain constant throughout the world:

•corporate brand
•brand identity system (especially your logo)
•brand essence

Global Brand Variables

The following elements may differ from country to country:
•corporate slogan
•products and services
•product names
•product features
•positionings
•marketing mixes (including pricing, distribution, media and advertising execution)
These differences will depend upon:
•language differences
•different styles of communication
•other cultural differences
•differences in category and brand development
•different consumption patterns
•different competitive sets and marketplace conditions
•different legal and regulatory environments
•different national approaches to marketing (media, pricing, distribution, etc.)