Wednesday, November 11, 2009

Why Spiderman and I love brands.

There's no doubt that brands are tremendously valuable. In his book, the Brand Gap Marty Neumeier lays out a calculation on Coca-Cola to show that the Coke brand is worth around 60% of the company's overall market value. For the record, the Coke brand is evaluated at just under $70 billion (Interbrand). Whether you're looking at Hermes, McD's, or President's Choice, you arrive to this conclusion: brands are among the most valuable assets that a company has. This even applies to business to business companies. Check out Intel or IBM's balance sheet and its very clear that there is a disproportionate value coming from intangible assets and brand. What is particularly interesting is just how valuable these assets are in aggregate. According to the Economist on Brands and Branding (2009), if you add up the value of Interbrand's Top 100 brands, you have $1.2 Trillion in value - equivalent to the 11th largest GDP in the world squeezed between Brazil (#10) and India(#11). That's a lot of economic clout. However, I don't love brands because they are valuable or powerful. The reason that I love brands is the same reason Spiderman would: Brands mean accountability and responsibility. As Uncle Ben told Spidey: "With great power comes great responsibility" and brands inherently can't shirk either accountability or responsibility. Let's look at a couple of examples.

Brands force accountability
Strong brands are underscored by favorable brand image (Keller, 1993). In other words, reputation matters. Have a good reputation and customers come back. Screw your reputation and customers flee. Since a brand (and its underlying reputation) is one of most valuable assets that a company has and since the brand can live forever, companies have every incentive to manage it responsibly. If it is not managed that way, accountability will be forced upon the brand.

In 2008, twenty two customers died from listeriosis after eating Maple Leaf meat products. (Government of Canada). Maple Leaf management responded quickly and ethically. They performed a product recall, improved production processes, and introduced new safety standards. (In addition they have also been dealing with the victims' families). In this example, Maple Leaf seemed to take the "carrot" approach to repair the brand by taking accountability for their problem. But, even if managers did not want to go the responsible route, the brand would serve as a "forcing mechanism" to impose accountability as we shall see in the next example.

Remember the Exxon Valdez oil spill in 1989? The Wiki version of the story is that Exxon oil tanker was on autopilot when the ship accidentally struck a reef. The result- the oil tanker drained about 40 million litres of crude oil into the sea - one of the worst environmental catastrophes of all times. Exxon executives were very slow in response, resistant in taking responsibility, and inadequate in clean up response. It appeared that Exxon executives wanted to shirk the responsibility of the clean up. Here is an example where the brand forced accountability. The public image of Exxon suffered (and still does today) and through the will of the people who demanded Exxon take responsibility for its damaging actions, the government took the company to court. To date Exxon has spent approximately $2 billion cleaning up the spill (and $1 billion to settle related civil and criminal charges). While not perfect, accountability is enforced on a brand even when the company is reticent.

This takes us to aninteresting irony. There's a segment of folks who paint brands with an "unethical behavior" brush. Some of them say we that ought to get rid of brands because they dupe the consumer, disregard laws, pollute, and cheat. What is ironic about this is that if you really want to stop unethical behaviors in business (or anywhere), you need to have accountability for transgressions. This is precisely what brands do. Ultimately, the most valuable and powerful brands are the ones that have the greatest incentive to be responsible - and have accountability enforced upon them.

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