Dispelling the many myths
BRANDING has become a buzzword of the nineties. As the SA business community is waking up to the pivotal role of branding in business success, a myriad of branding definitions are emerging.
The problem, says Jeremy Sampson, MD of Interbrand Sampson strategic branding and design consultants, is that everyone is now claiming to be the keeper of the brand. While some are competent, he maintains, many have ventured into areas where their competency could be challenged.
With more than 26 years' experience in branding and design locally and in Europe for companies such as Eskom, SA Breweries, Telkom and Absa, he is able to dispel myths.
One myth is that the modern concept of a brand is difficult to describe.
"Not really. Think of a product as a physical entity made in a factory, while a brand is a psychological entity made in the mind. Put another way, a brand is a mixture of tangible and intangible attributes symbolised in a trademark which, if carefully managed and nurtured, is capable of exercising a powerful influence."
Myth number two is that the concept of a brand is new.
"If your favourite tipple is a glass of Moet & Chandon champagne, you are enjoying a work of art with a heritage dating back to 1743. If you prefer Coca-Cola, that dates back to 1885 and both Lion Lager and Castle Lager are over 100 years old. It is also sobering to consider how many top brands of half a century ago remain today's brand leaders."
Myth number three is that brands are the exclusive domain of products and services in the FMCG (fast-moving consumer goods) sector.
"No longer. Today just about anything has the potential to be branded, from theme parks to countries. However, perhaps the main activity today is to brand companies and develop corporate brands.
"As Fortune magazine (December 29 1997) puts it: 'A company's brand can be its most valuable asset … and during the past decade, as this essential fact has become increasingly obvious, companies with great brands have been amply rewarded by the stock market'.
"Perhaps another angle to this is that today the cost of creating and launching new product brands is so high, and full of risk, the legal stages so complex and time-consuming, that it is easier and more cost-effective to hook onto an umbrella brand."
Myth number four is that scientific analysis of brands is still in its infancy.
"The fact is that brands are best analysed holistically from a marketing, financial and legal standpoint. Only then do you get the true picture. Since 1985 the London-based Interbrand group, which I represent in South Africa, has done precisely this. Its track record is such that it has valued more than 1 600 brands in more than 30 countries to a value in excess of $100bn. In South Africa work has included valuing all SAB's beer brands."
Myth number five is that a brand represents a small fraction of a company's assets. This certainly used to be true, but over the best part of a decade in the eighties this all changed to the point that it is estimated that about 60% to 70% of the market capitalisation of the London Stock Exchange is goodwill and that a very high portion of this is brand value.
The market capitalisation of some major brand-owning companies shows that the brands (largely intangibles) are now totally dominant.
Coca-Cola's stock-market value of $164.8bn is dividied into Net tangibles of $6.6bn and intangibles valued at $158.2bn or 96% of the total value. In the case of American Express's stock-market value of $41.6bn, the intangibles make up 84% of the total value, while intangibles account for 83% of IBM's total stock-market value of $111.2bn and for 97% of Kellogg's total stock-market value of $19.5bn.
Myth number six is that brands, like products, have life cycles.
"In practical terms most brands need have no life cycle at all. Clearly world power brands such as Coca-Cola, Gillette and IBM go back generations and continue to be highly successful. But to survive, just like anything else, brands have to be nurtured and invested in. The indefinite potential of a brand is recognised in law."
Myth number seven is that brand evaluation cannot be put on the balance sheet.
"Not in South Africa perhaps, but over a decade ago in the UK and Australia this was already happening."
Myth number eight is that brand valuation is only for balance-sheet purposes.
"From our experience balance sheet valuation is just one of many reasons to value brands. Today the challenge to chief executives is to add value and build shareholder value. So for investor relations alone, an idea of value of the individual brands owned by a group give an indication of the rating that group should enjoy. Given that it could easily take the profession a decade or more to reach agreement, chief executives cannot afford to fall behind the changing demands of the marketplace."
Myth number nine is that the accounting world knows how to value brands.
"Accountants seem totally at home valuing tangible elements and have developed impressive methods of achieving this. However, when it comes to intangible elements such as brands there is a great unease and considerable diversity of opinion. Both the International Standards Committee based in the US, to which South Africa is reasonably close, and the UK's Accounting Standards Board are in the process of developing standards. But to date the two bodies have drawn different conclusions."
Myth number 10 is that the more you invest in a brand, the more valuable it becomes.
"Sadly, there is no connection between investment and resulting value. Clearly Pepsi-Cola in South Africa spent millions to re-establish it, but then lost the lot. And all this from a global brand valued at $9.3bn. Methods of valuing brands that are income based include 'royalty relief' and 'discounted cash flow' methods."
So who then is the keeper of the brand? Sampson says the ownership of a brand rests in the final analysis with the person who uses it - without a customer there is no brand.
"Many examples exist from the past of customers voting with their feet when their favourite brand was changed too much, perhaps the best known being Classic Coke and the speed with which CocaCola had to back-track. But having accepted this, which may be unpalatable to some, the custodian of a brand is the company that owns it."