Though Akshay Mehrotra, Head-Marketing, Bajaj Allianz feels that when it comes to an intangible product like life insurance it is the trust factor instead of a brand that plays an important role in convincing an investor, he really does not hesitate in accepting the fact that in an overcrowded market, like the one they are in, it’s the strong and powerful brands that always have an edge over the others when it comes to choose one. And in industries such as Banking & Financial Services (BFSI), the brand sometimes is considered to be the representative and proxy for the credibility and reliability of the company.
Though there are critics who feel that the brand strength does not protect an investor when market tastes change, when competitors develop more effective business models, or when disruptive new technology displaces a product, the truth of the matter is that the same holds true for any other factor too that affects shareholders’ wealth. So do brands really matter to shareholders? The concluding answer is that in the new-age stock trading scenario, where market information is discounted within a few milliseconds, a brand’s existence or non-existence might not matter in the extremely short term. But it surely does over the long term, both directly and indirectly, as the brand plays a more expansive role as time passes.
NIGEL PIERCY, PROFESSOR OF MARKETING & STRATEGY, AND ASSOCIATE DEAN, AT WARWICK BUSINESS SCHOOL, UK
It’s a means to an end, not an end in itself
Investors should always exercise some caution before accepting management assurances that the strongest brand always wins
There is a lot of evidence that successful major brands constitute an important asset providing competitive strength and enhancing performance in the marketplace. For many buyers brand identity provides security in a purchase, it encourages repeat-purchase, & product recommendations. This alone underlines why the owners of a business should be looking closely and carefully at investments in branding and the results in brand strength compared to competitors. However, there is more to it. The smart investor needs also to be wary of the dangers of mindless expenditure on brands that create little value, and the underlying vulnerability of brand-based strategies.
Branding is a productive investment only if it builds value for customers and hence for shareholders. The brand is a means to an end, not an end in itself. Investors need to ask probing questions about whether management is prone to “blind faith branding”, which assumes that all expenditure on brands is productive expenditure. It is not. Investors should also be fully aware of the weaknesses of building corporate strategies around brands and exercise some caution before accepting management assurances that the strongest brand always wins. Most obviously, the more successful a brand, the more vulnerable it is to imitation and counterfeiting – imitation is the quite legal development of close substitutes by competitors, while counterfeiting is illegal but difficult to avoid. Management claims about the robustness of strong brands may exaggerate just how sustainable they are.
It is also apparent that traditional strengths of brand-based competition may be increasingly questionable in 21st century markets. Having the most valuable brand in the world did not protect Coca-Cola from a change in drinking tastes across the world or an anti-US backlash in some areas. The strength & value of IBM’s branding did not protect it from Dell’s direct business model in the 1990s or competition from cloud computing right now. The now-classic case is the emergence of generic (unbranded) cigarette products in the US in the 1990s.
Faced with loss of business to generic tobacco products sold in gas stations, the big brand owners did the unforgivable – they cut prices to protect market share. The investment community reactions was quite clear – if faced with competition the only thing you can do is cut prices, then that means brands are not worth much, and the question becomes where has the money gone.
Though there are critics who feel that the brand strength does not protect an investor when market tastes change, when competitors develop more effective business models, or when disruptive new technology displaces a product, the truth of the matter is that the same holds true for any other factor too that affects shareholders’ wealth. So do brands really matter to shareholders? The concluding answer is that in the new-age stock trading scenario, where market information is discounted within a few milliseconds, a brand’s existence or non-existence might not matter in the extremely short term. But it surely does over the long term, both directly and indirectly, as the brand plays a more expansive role as time passes.
NIGEL PIERCY, PROFESSOR OF MARKETING & STRATEGY, AND ASSOCIATE DEAN, AT WARWICK BUSINESS SCHOOL, UK
It’s a means to an end, not an end in itself
Investors should always exercise some caution before accepting management assurances that the strongest brand always wins
There is a lot of evidence that successful major brands constitute an important asset providing competitive strength and enhancing performance in the marketplace. For many buyers brand identity provides security in a purchase, it encourages repeat-purchase, & product recommendations. This alone underlines why the owners of a business should be looking closely and carefully at investments in branding and the results in brand strength compared to competitors. However, there is more to it. The smart investor needs also to be wary of the dangers of mindless expenditure on brands that create little value, and the underlying vulnerability of brand-based strategies.
Branding is a productive investment only if it builds value for customers and hence for shareholders. The brand is a means to an end, not an end in itself. Investors need to ask probing questions about whether management is prone to “blind faith branding”, which assumes that all expenditure on brands is productive expenditure. It is not. Investors should also be fully aware of the weaknesses of building corporate strategies around brands and exercise some caution before accepting management assurances that the strongest brand always wins. Most obviously, the more successful a brand, the more vulnerable it is to imitation and counterfeiting – imitation is the quite legal development of close substitutes by competitors, while counterfeiting is illegal but difficult to avoid. Management claims about the robustness of strong brands may exaggerate just how sustainable they are.
It is also apparent that traditional strengths of brand-based competition may be increasingly questionable in 21st century markets. Having the most valuable brand in the world did not protect Coca-Cola from a change in drinking tastes across the world or an anti-US backlash in some areas. The strength & value of IBM’s branding did not protect it from Dell’s direct business model in the 1990s or competition from cloud computing right now. The now-classic case is the emergence of generic (unbranded) cigarette products in the US in the 1990s.
Faced with loss of business to generic tobacco products sold in gas stations, the big brand owners did the unforgivable – they cut prices to protect market share. The investment community reactions was quite clear – if faced with competition the only thing you can do is cut prices, then that means brands are not worth much, and the question becomes where has the money gone.
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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