Thursday, 16 January 2014

What is a Brand? And why they might be dying.



Ad men and Advertising is driven by Brands. 
Marketeers are driven by brands. 
Company Balance sheets are driven by the values of those brands.

And yet, we may be seeing the end of them.

A brand is something a consumer is prepared to pay more for, a premium price. "Prepared" is the key word.

Largely, how Brands started, was with Sugar believe it or not when it was a hugely valuable commodity.

In the old days...you went into a grocer's store and asked for sugar which he kept in a large, open, hessian sack, behind the counter. 

If you had a jar,  the grocer filled it, weighed it and handed it back to you and you paid him. If not, the grocer had some sort of a container that he'd fill and sell to you.

But there were problems. 

The amount of sugar you got every time you went in, was different. The hessian sack wasn't always clean and the sugar not always hygienic, as flies circled it. The quality was different because the grocer bought it in bulk from different suppliers so it was never consistent. The taste varied. And so on.

So the grocer decided to bag the sugar. 

In doing so, standardising the weight, the quality, the hygiene and the named it something - they branded it.

What that meant was the customers knew what they were buying consistently and they were prepared more for it in return. That's the essence of a brand.

When I go into McDonald's for example, I get the same burger in Dublin as I do in LA. Or Coke tastes exactly the same in Jamaica as in Norway. That's a brand.

However, because of all that preparation in developing consistency as well as the advertising costs, brands demand a premium price. You trust it more than the hessian sack of sugar and so you pay more for it.

Straightforward.

Also, you'll develop loyalty to that brand for one reason or another. Maybe it makes you feel better buying a branded coat. Or perhaps you like the taste of a brand of sausages and are loyal for that. Or the packaging you feel, makes you look cool. And so on.

Loyalty to brands is a cornerstone of marketing because advertising can only get you to try a brand once. And if you like it having seen the Ad and tried it, you'll stay with it and so hence the long return on that advertising/marketing investment.

All good. 
Until that is, a recession hits.

What we're seeing now in Ireland and the UK certainly, is a pull back on brands. A major break in that loyalty.

The main reason is of course affordability but what's totally shocking is the quick reaction of consumers to switch to lower cost products. They're leaving established life-long brands and buying products they know nothing about, because they're cheaper. They're doing so without as much as a thought.

In retail for example, they're flocking to the discounters and buying products that they're unfamiliar with. In a lot of cases, brand names they've never heard of nor know nothing about that brand's heritage. It could have been produced in a shed.

In other retail, they're opting for lower cost products rather than the brand they trust and buying 'off deal'. Bogof and twofors (Buy one get one free, two for the price of one).

They're not prepared to pay the premium. And it's obvious even in my fridge. 

Established brands are reacting by reducing their prices, reducing in other words, their 'premium'. It's understandable - they have to sell - but it will kill them ultimately.

How many years did friends of mine develop Sony as the top end brand? How much money was spent on building that premium brand? And then I walk into Tesco on Saturday and lo and behold, there's Sony on the shelves. Any wonder Sony shares are graded at 'junk status'?

You see, as I said, if a company loses the value of their brands, they lose the Balance Sheet. As they trade their brands down in price, their brands have lower sale value should anyone want to buy them. And consequently, the company who owns the brand, eventually has a lower sale value in turn.

I looked after BMW when it had exclusive brand status. Now I see the BMW One series cheap version, at every traffic light. My 3 year old BMW car was then 80,000 euro new, and it's now 45,000 euro new. I do understand the short term gain in reducing prices, but understand too, the long term brand loss. I won't buy BMW or Sony again.... and I was a long term brand loyalist.

Consumers ultimately decide whether a brand survives. And right now I get a sense, they don't want them anymore. Shocking but we need to get our heads around it.

Brands aren't dead. 
But they might be dying.