Brand Strategy

Managers and management gurus are all agreed on one sovereign point: that in a world of intense and growing competition, the Brand is King. The world's great brands duly grew enormously in value over the Nineties - thus, Coca-Cola's super-brand swelled to an apparent worth of gigantic $150 billion, the difference between its assets and its $169 billion market capitalisation.

But the mighty are fallen indeed. Before the Easter gyrations on Wall Street, Coke had lost $62 billion of fizz, a fall of 37% in value. Another great brand, Gillette, fared even worse. Its capitalisation collapsed by half to $32 billion. The two downgraded companies have one other thing in common. Both are core holdings of the world's master investor, the Sage of Omaha, multi-billionaire Warren Buffett.

Both fit perfectly into his celebrated investment formula. He likes to invest Berkshire Hathaway's billions in world-wide brands which enjoy dominant shares of markets whose continued growth can be expected as far ahead as Buffett's long-sighted eye can see. Both companies have crashed into severe management problems after the loss of ace chief executives. To that extent, the setbacks may be temporary. But these are by no means the only troubled global brands. Is the Buffett formula fading - or even failing?

The "Brand is King" theory was always somewhat paradoxical, since consumer tastes in the Nineties, far from being committed to one beloved brand, were continuing to fragment; consumer power, too, plainly increased even as brand values soared. The New Millennium has tightened the screws. The consumers are continuing to gain power while the unluckier household names are struggling with eroding brands. Some of the erosion reflects the very competition that the 'power brand' is supposed to surmount. But other, more insidious forces are at work.

They include the momentous events in cyberspace. None of the e-retailers, for all the hype, is especially large in sales, but combined they are moving enough goods to skim some cream off bricks-and-mortar profits. It only takes a 10% shift in trade to push many stores into loss. Whatever the reason, the High Street brands - like Marks & Spencer, Somerfield and Arcadia - have also been in deep trouble. But such travail need not mean that the brand is dying. It may merely be misunderstood, and consequently mismanaged.

Focusing on the product brand, however intelligently, is too narrow a concept. The true brand is the sum total of the perceptions of all the constituencies which contribute to revenues and profits. Among other insults to its constituents, Coke's now axed CEO, Doug Ivester, alienated his mighty bottlers with extortionate price rises for syrup: adding stupidity to injury, one of the affronted bottlers actually has the son of Coke's biggest investor, the even mightier Buffett, on its board.

As for M&S, among many and varied failings, it alienated the affluent middle-class shoppers with falling quality. Its subsequent reforms have driven home the point made above about the total brand. St.Michael, while dearly beloved by the Marksists themselves, was never really a brand. That honour went to Marks & Spencer, or 'Marks & Sparks', which has now been brought to the fore as St Michael is relegated. The future hinges, however, on whether the new management can restore the stores to their old reputation as places where high quality and excellent service provide high Value for Money - VFM, rather than absolute price, being the critical factor.

Research shows conclusively that customers desert even the strongest brand if prices are raised above the perceived value. Loss of customer support is, of course, bound to be devastating. But you can't afford to lose support anywhere in a climate of rapidly proliferating alternatives. The employees, for example, are the visible face of the brand. The suppliers are its prime agents of quality - squeeze their prices or unceremoniously dump them and, as M&S has literally found, there is trouble in store. Nor can you ignore the opinion-formers, who can rapidly undermine any image.

But even if brands are collectively losing power, their continuing high value in the marketplace is a reality, and probably a lasting one. Killing a brand is much harder than killing a company. Who remembers the British Motor Corporation, or British Leyland, or Austin-Morris before them? Yet just one brand rescued from these wrecked hulks, MG, has emerged from decades of mindless neglect, and a period of total absence, as the core of Alchemy's plans to profit from the dismembered Rover Group.

The Net entrepreneurs know all about the permanance of brand value. Their massive marketing spends are intended to reinforce 'word of mouse' and 'share of mind' - i.e, brand strength. The theory is that, if you capture the mouse clicks and the customer recognition early on, no competitor will ever break your grip on the market. What Microsoft did to Netscape's hold is an exception, impossible without equal monopoly power. The theory sounds convincing, but cannot be fully tested in an internet marketplace that is still immature.

The Net giants may themselves face brand problems, which could prove much more important in the long run than the bursting of their stock market bubbles. America OnLine, Amazon and e-Bay are very vulnerable to competition, as AOL found when confronting free internet service providers. Competitors do not need to attack on a broad front. They can pick off the most succulent sectors, gaining customers who have already been made internet-friendly by the big brands.

Brands are never safe unless there is compelling reason for customers to buy from you and nobody else - look what happened to IBM, a still marvellous brand. It lost 70% of its market share once corporate buyers realised that they could buy perfectly good alternatives to IBM without risk. The essence of today's marketplace is that perfectly good alternatives exist for everything - even Coke. The total brand is only as good as the total company that owns it. Total goodness is the true King.