By: Tim Calkins
It is time to ask tough questions about brands and branding. The global economy continues to struggle and companies across industries are retrenching. For many organizations, the main issue is no longer the pace of growth, the issue is finding any growth at all. If the economy fails to snap back over the next several years thousands of companies will be looking at bankruptcy and liquidation. Even if the economy slowly improves, as many people suggest, organizations will struggle. Times are tough.
In this environment, everything is up for debate, or should be. How deeply should we cut costs? Can we get by with fewer people? Should we roll back salaries? Do we really need to hold a big sales meeting this year?
Branding is up for debate, too. Many business pundits believe that this is a particularly good time to invest in brand building. With everyone cutting spending, the logic goes, companies that continue to invest will stand out more than ever, making this a fabulous moment to build a strong brand. There is truth in this advice, but it ignores the reality of the situation all too many companies are facing.
For most companies, this is simply not the time to roll out the typical big branding initiative, complete with a new logo, website and advertising campaign. These branding programs are frequently positive, and sometimes they deliver impressive results in the long run. But an organization fighting to survive has other more pressing priorities; it needs to generate cash now. Investing for the future is a wonderful idea, but when creditors are circling the future is immediately at hand.
It is time to ask tough questions about branding. In particular, there are three questions that every organization should answer honestly in this time of economic uncertainty.
1. Is our brand valuable?
People love their brand. They wear the brand logo on shirts and caps, and feature the logo prominently on the front page of every presentation. The brand provides a sense of identity. It is a point of great pride.So answering this first question isn’t as easy as it seems. The immediate answer is almost always the same: “Of course! Our brand is our most valuable asset.”
The truth is that many brands in this world add little value; they are almost worthless. The brand might be well known, with a long history and positive imagery, but it doesn’t contribute much to the business.
Brands create value when people will pay more for the brand versus other brands, or versus an unbranded alternative. People will pay more for Coke than for an unbranded cola, for example, and this makes the Coke brand valuable. Business executives will pay far more for a consulting project from McKinsey than they will for a consulting project from an unknown firm, and this makes the McKinsey brand valuable.
Many brands fail this test. While customers may have a favorable impression of the brand, they won’t pay more for it. This doesn’t mean the brand is a flawed brand or a bad brand, it just means the brand doesn’t have much value. People won’t pay more to buy Parkay margarine, because there are lots of fine brands of margarine. Despite its high awareness, Parkay has little real value. People probably won’t pay a lot more to buy Dow branded calcium chloride, either, or Acco branded paper clips.
Understanding the real value of your brand is particularly important when times are tough. Companies that have a valuable brand have to be particularly careful about protecting it because brands that add value are incredibly important assets. Spending has to be maintained at all costs and quality has to be preserved. If anything, managers should increase spending behind strong brands in a down economy.
With less valuable brands, however, executives can take a very different approach. These are the brands to look at for spending cuts, aggressive discounting and major cost reductions, even at the risk of reducing quality. There is simply less to lose.
Before any of this can happen, however, a manager has to look at each brand with a realistic eye. Is the brand really valuable? Or do we just like it because it is ours?
Question 2: Do we really understand our brand positioning?
Brands have to stand for something. One of the first and most basic marketing and branding lessons is that you can’t be everything to everyone. People are different and customers are different. Trying to please everyone with the same brand inevitably creates mediocrity; you are fine for everyone and perfect for no one. This is dangerous approach in a world full of competition. As Al Ries and Jack Trout wrote in their classic book Positioning, “If you try to be all things to all people, you wind up with nothing.”
In a down economy it is more important than ever to understand your brand positioning. If you know precisely what your brand means and how it differentiates, it is much easier to make smart decisions. When spending needs to be cut, for example, it can be done in a way that preserves and reinforces the core positioning. If a brand is built on hand crafted quality, for example, automating production would make little sense.
Without a clear understanding of a brand’s positioning there is a very real risk that important programs will be eliminated when the business struggles, hurting the core of the brand. This can cause long term damage; when the economy eventually improves the brand may not be positioned properly to benefit from the upturn.
Question 3: Do we need to prune our brand portfolio?
Brand portfolios tend to become more and more complicated over time. This is true in many organizations. Each year, the company creates a new brand or two, and introduces several sub-brands and adds a new ingredient brand. Gradually and slowly the portfolio becomes more and more complicated, and difficult to manage. Before long, it is a mess.
A complex and unwieldy brand portfolio is a major strategic issue in the best of times; it creates confusion among customers, fragments spending and leads to internal disputes. In a down economy, an unwieldy brand portfolio can be deadly.
The General Motors brand portfolio, for example, was a huge problem for the company. GM simply had too many brands. In early 2009, GM’s brand portfolio in the United States included Chevrolet, Cadillac, Pontiac, Buick, GMC, Saturn, Saab and Hummer. The problem was compounded because many of the brands at GM lacked a clear position in the market. As a result, the brands ended up competing with each other, leading to cannibalization, insufficient spending on each brand and infighting.
GM has recently made some tough calls on its brand portfolio. The company is now in the process of killing off some well known brands. This won’t solve GM’s problems, but it is an important first step.
In a down market, companies have to be particularly relentless at managing the brand portfolio. When spending needs to be cut, for example, it is tempting to just reduce it on all brands equally. This is easy and seems fair to all involved. But it is rarely the optimal approach; it would be far more impactful to focus the cuts on the less important brands while protecting the brands that really matter.
In some ways, a down economy is the perfect time to prune the portfolio. When times are good and spending is up, it is often possible to support multiple brands. It is ok to be sloppy. Most people hate pruning brands; it is painful and thankless work. People rarely get promoted for killing brands and eliminating products. Instead, employees and customers get angry.
When the economy is tough, however, there is a new dynamic and a new urgency. People have to make decisions because they are forced to. General Motors, for example, finally restructured its portfolio. But the company had to go into bankruptcy first.
When optimizing a brand portfolio, the first step is to look at the overall portfolio and the role of each particular brand. Redundancy should be eliminated; each brand should have a clear and distinct positioning. Brands that contribute little should be dropped: sold, discontinued or folded under another brand.
The second step is to look at all the sub-brands, endorsed brands and ingredient brands. Do these actually have any meaning for customers? Do they have a clear role in the portfolio? Do customers know the difference between the Premium Select, President’s Collection and Royal Choice sub-brands?
If not, they should be eliminated, because having too many sub-brands creates confusion and inefficiency.
The final step is to look at the products sold under each brand. Is each product important? Does each product have a clear role? Does the product fit with and support the overall the brand positioning? Is there an opportunity to simplify things?
The ultimate goal is to end up with a tight, focused brand portfolio, with a few important, distinctive brands. Achieving this will make it easier to navigate through the down times position the company well for the eventual rebound.
Branding is always important. Brands have enormous value and can endure for hundreds of years. But in a down economy, it is critical that business leaders approach branding with a critical eye and ask tough questions. This is the only way a company will make smart choices.
Ultimately, a company needs to protect the brands that have great value and will drive an eventual recovery. By asking hard questions, companies can emerge from a downturn with a stronger brand portfolio, well positioned for the future.
Tim Calkins is clinical professor marketing at Northwestern University’s Kellogg School of Management. He teaches marketing strategy and branding. He is the author of Breakthrough Marketing Plans (Palgrave, 2008) and co-editor of Kellogg on Branding (John Wiley, 2005). He began his career at Kraft Foods, where he spent eleven years managing brands including Miracle Whip, Parkay and Taco Bell.