Last month, in just a few hours of heavy trading on "Marlboro Friday," Wall Street effectively declared brand equity dead. The same moneymen who in the 1980s paid stunning multiples for corporate America's crown jewels dropped those shares like so much cubic zirconia. If market leaders like Philip Morris and Procter & Gamble were embracing price-driven promotions in the face of new competition from private labels and discount brands, surely weaker players wouldn't be far behind. Less certain was the changing value of a brand and marketers' commitment to such investment.
And what about the future of Madison Avenue strategists, who have spent clients' billions to win consumer loyalties? To look beyond the immediate stock-market shock, ADWEEK's Noreen O'Leary assembled a panel well-versed in how brands take hold of America's imagination: Charlotte Beers, ceo of Ogilvy & Mather Worldwide; Keith Reinhard, ceo of DDB Needham Worldwide; Ed Vick, ceo of corporate identity specialists Landor Associates; Andrew Parsons, director of McKinsey & Co.'s North American consumer products division; Larry Light, chairman of the Coalition for Brand Equity; Nigel Bogle, ceo of Bartle, Bogle, Hegarty/London; and David Halberstam, the Pulitzer Prize-winning author whose new book, The Fifties, explores the influences that helped create modern consumer culture.
The opening question: Why are brands under such sharp attack, and will they survive?
VICK: Frivolous and overpriced brands, brands that bring no benefit, are under siege. But consumers want brands, they want products and services that send a message that they can be trusted, that there's something of benefit inside that package.
They want brands because they want that reassurance.
LIGHT: It is absolutely not true that brand loyalty is on the decline. What is up is multibrand loyalty. People used to say, "This is my favorite exclusive brand." Now they see more than one brand to which they could be loyal because they see more than one brand that is good quality and provides value. That's an important principle because it coincides with another law of the marketplace: competition leads to concentration. It doesn't lead to more brands, it leads to fewer brands.
The fact is we just have too many brands out there. This has nothing to do with the economy. For many companies, 20-25% of the items they sell account for less than 10% of their sales. Procter & Gamble has said 25% of their items account for less than 2% of their sales. If UPC codes don't throw some of these brands off the shelf, shareholders should. Now we are seeing an inevitable pruning of the marketplace.
BEERS: Brand management's not really the game it used to be. People set about to dilute their brands while at the same time talking passionately about brand equity. So you can see the paradox. You have 6,000 new products in a period of six months, and 5,400 of them were clankers. Isn't that a shortterm, expedient way to do brand management?
REINHARD: Brand management has really been about career management. If it were about brand management, when those executives moved on, what they would leave behind would be of value not only for short-term profits but also for future profits. Those profits can be determined by how much they increased the value of the brand. And we know how to measure the value a brand adds to goods and services. But it's not just about resorting to short-term devaluing tactics with trade and consumers. These "career managers" have also taken prices up. When they take the price up beyond the consumer price index--this happened in the cereal industry--then the consumer says, "Wait a minute. No way is this of value."
BEERS: It's a betrayal.
REINHARD: Consumers say, "You've betrayed my trust and I will go elsewhere." So this won't work until we understand that the brand manager is responsible for building brand equity and we find systems to measure how much equity has been enhanced and somehow the reward system includes that component.
LIGHT: Change is already happening. In the '60s--in the heyday of brand building--the focus was on awareness through trial. Marketing was about having impact, getting more people to try products, expanding the product base . . .
BEERS: That's because you were looking for new users.
LIGHT: But today, we realize that trial approach only works in a market where per-capita discretionary income is on an ever-increasing upward trend. In mature markets--where we are now--the battle is truly for share. We talked about share in the old days, but it didn't really matter. Share could remain constant, and if the market grew, you grew with it and got your promotion. Today the good marketing succeeds and the bad marketing gets exposed.
HALBERSTAM: That became obvious with the American auto companies. As they narrowed down, you not only had fewer choices but the companies to whom it was narrowed-- the survivors--picked up all kinds of bad habits. We ended up with the Big Three, a de facto monopoly, with de facto monopoly unions. Then the Japanese sounded the alarm clock and we had to wake up. One of the things American automakers began to do in the '60s and '70s was to substitute advertising for product quality. The marketing part of the equation went way up. More money was spent there; more talent went into it. The manufacturing divisions of these companies became less important. The car companies and ad agencies had this marvelous new toy, network television, with brilliant people producing it and pervasive images reaching into every home. Inevitably, imagemaking became the substitite for quality.
PARSONS: We substituted advertising for value in packaged goods also. And what we saw was a substantial increase in margins for most packaged-goods manufacturers in the United States but very little volume growth. In order to achieve earnings growth during this time, manufacturers created an increasing gap between private label or the discounted brand and the premium brand. What we are seeing now is a natural period of adjustment as the true value consumers are prepared to pay for brands and products is becoming clearer.
BOGLE: In the U.K. there has been a fundamental change going full steam for the last five years. Grocery retailers, of which five or six dominate our market, have built fantastically strong brands through the use of good advertising and enormous product innovation. You have retailer brands like Sainsbury, Tesco and Safeway which shoppers respect highly. They go there once a week for all their shopping, and there's a strong relationship there. At Sainsbury's, 50% of their business is in their own retailer brand. You also have strong manufacturer brands, like Kellogg's, Nestle and Coca-Cola, and all those names will be in the top 20 grocery brands in the U.K.
So what you have in the middle now is a new definition of manufacturer label. It's the second or third brand in the market. The whole supermarket structure is changing: You don't want to be the third brand in the baked beans market, in a market where you have the Sainsbury brand at 60-70% of the price of the leading manufacturer. The leading brand will command that premium because it has the emotional values as well as the relationship with consumers which may be 50 years old. So both those things can coexist. What's interesting is there's an increasing raft of brands in the middle now which are under-supported, not clearly positioned. They don't have have a clear benefit and they are simply disappearing.
LIGHT: One of the laws of the packaged-goods marketplace is that the retailer in the big-product categories can say if there are going to be only three major brands in a category, "I will take one for myself." From 1850 to about 1920, that was the major form of branding in this country. Store brands sold that way, and we still have some of that legacy, like 80'clock coffee from A&P and Craftsman tools from Sears. It's coming back. As a marketer of national manufacturer brands, your future in the supermarket now has to be number one or number two, because you'll be facing strong competition from store brands.
VICK: Private label is just a brand created at the point of sale. It's a good quality product. You simply change the package-- we do a lot of this--and you make real brands out of them. Sales go up 15-20% because it looks like a real brand. Fundamentally, the issue is that products without differentiation, that cost too much money, are going to be in trouble. Products with a real differentiation that are priced fairly are not going be in trouble.
BEERS: Wait a minute, that's a little simplistic. The relationship between the product user and maker is profoundly affected by the emotional terrain in which it operates. There is an aspect of value that is emotional, intangible. It involves the fabric, the texture, the provocative aspects of the brand, which agencies have forfeited in this get-itright, get-it-literal environment.
If the client is going to move people, if things are going to change their lives, if categories and world brands are going to be transferred rapidly, then someone has to own the brand, someone has to house the brand. That's the natural role for agencies. It automatically defines the value of an agency. If the agency is a steward to the brand, then you have someone who can tend to the emotional needs of the brand. That's why I like what Keith's saying about measuring the equity of a brand. Because when you get right down to it, much about what a brand is is not just a finite, factual quality.
BOGLE: Brands are frequently a mixture of feelings and facts, product benefits and emotional benefits. We all have the same data showing that increasingly people are concerned about the motives and conscious of the company behind the product. Now one of the most important measures of which brand of tuna fish 1 buy is how it's caught. It's not just what will it taste like.
VICK: One of the things happening within the last couple of years is the companies that market these products are beginning to see themselves as brands, as corporate brands. Before, they were often just a monolithic company behind all these various brands. Now they're beginning to realize the company itself is a brand in a sense. The chief executive becomes the brand manager handling the biggest brand that the company owns, which is the company itself.
REINHARD: With the post-materialist scenarios of the '90s, what the company stands for becomes a real part of the brandvalue equation. You would buy a Chevy or a Ford based on how you felt about the overall philosophy of the maker. While this is not the dominant part of making a purchase decision, studies show people are moving in that direction. The Body Shop is an example.
LIGHT: Quality is more than just product performance.
BEERS: But we have to define that.
LIGHT: Quality includes the quality of the relationship.
REIHHARD: You have to do it brand by brand. I'd like to hear what Nigel says about Levi's brand equity. (Levi's is a BBH client in Europe.) How do you measure it? How do you define it?
BOGLE: It's a mixture of rational and emotional values . . . something to do with Levi's durability and how long they last, and so on. But most of the values have to do with intangibles, with the fact they come from America.
BEERS: The brand acts as a transfer of American culture.
BOGLE: The values of provenance, heritage, authenticity, pedigree, those kinds of values are becoming increasingly important. People want to look beyond the purely materialistic value of brands. It will be important to them that the brand of jeans they wear is American. They will look to Japan to bring innovation in technology. They will pay a premium for those things.
VICK: There are categories where the origin of product is a benefit. If the origin is English, like British Airways, you might assume a higher level of service. If the origin is American, you might assume a certain hipness or avant garde.
BOGLE: The world's become a cultural bazaar. People can pick and choose through product categories to put together a lifestyle. So you might have your suits from Italy, your sports shoes from America, your CD player from Japan. You drive a German car, you drink an English beer.
LIGHT: You're talking about the effect of global branding, of brand extensions. You're talking about brands in sales value that are now bigger than their parent companies were 20 years ago. On bigger brands today, the CEO has a brand management responsibility because brands are the most valuable assets of the company.
BOGLE: The point you made earlier about brand managers and career managers is absolutely fundamental. Because If you have strong brands, you've got to respect the values they have and manage them consistently. If you look at the top 20 grocery brands in the U.K.--I'm sure it's the same here in the U.S.--they are all 40, 60, 70 years old. They still deal with the same agency normally. I think the average agency longevity relationship is over 20 years for a lot of the top 20 brands, and often the campaigns have remained the same.
What happens is successive generations inherit the values, even though the product may become unrecognizable. If you take a soap powder today versus 30 years ago, it's probably liquid, it's micro, it's concentrated. But the core values are the same. The brand is identical to the person who is buying it now. If you can get people of successive generations to inherit the values, then the manufacturer will inherit the volume.
BEERS: Ogilvy & Mather has experience in winning back old brands. It's a matter of those clients just coming home. Pond's came back to Ogilvy and so did Maxwell House. They did it because the actual brand stewards are in that agency house. Conversely, when clients set up their worldwide alignment chart and, for the sake of the chart, pick up three brands and move them to another agency, I can't believe they don't think that's going to diminish the life and nourishment of that brand. In the United States--less so in Latin America, Asia and Europe when a brand is in trouble, the first thing the client does is look at a way of instilling new life through a new agency. It's the most fragile time in the world to transfer the lore and legend of the brand.
PARSONS: I think we're making this more mystical, more mysterious than some of these issues are. I can certainly buy that consumers' attitudes are changing and that they are getting more spiritual values. But the basic facts of what's been going on over the last two years are microeconomic. They're fundamental things like greed versus fear; ignorance versus knowledge; cost versus benefit. For example, over the last 10 years in the U.S. packaged-goods business, the greed factor drove up prices much more rapidly than real value was being created.
BEERS: Who do you think was causing that greed, the stockholders or the corporation?
PARSONS: It's created great value for the stockholders. And as you know, packaged-goods companies sold at premium multiples, which are now being revalued because most of the price increases of the '80s appear to be unsustainable. The problem for most packaged-goods brands in the U.S. is there has been a lack of innovation, a lack of differentiation, for 20 years. No wonder that of the top 100 brands, only 15 are brands that were introduced in the last two decades. To your point, Nigel, the U.S. is just like the U.K. Most of the big brands were created in the 1920s and '30s.
As far as the other battle---ignorance versus knowledge-- knowledge is becoming more prevalent. That's another reason why brand premiums are being reduced. It's also the reason why we're seeing brand consolidation as retailers get better data and as advertisers get a better understanding of causal relationships between advertising, promotion, product attributes and purchase behavior.
HALBERSTAM: There's also consumer skepticism. Anyone watching television nowadays is more skeptical about the politician talking to him, more skeptical about the products being sold than he or she was 15 or 20 years ago. Which means you have to have a more subtle, sophisticated way of selling. You can't whack people over the head.
LIGHT: The smarter consumer is not only more skeptical but more demanding. That's good for marketing.
BEERS: I think companies need to be about relationship marketing in addition to the things Andrew mentioned. I challenge Larry's three-brands theory, even though it's inescapably true in big markets. Every time you look at three brands that are knocking most of the other guys off, there's still a cult or niche brand that's flourishing because the company's figured out how to make money on a different level of volume with intensely loyal people. The implications for the advertising business are:
Do you do direct mail? Do you do a formal, highly integrated promotion? Do you do advertising? And the agency/client relationship is intense, intimate, one-on-one. If you have a Procter & Gamble, Nestle, Kraft General Foods, and they have 3,000 brands, they're not going to be one of three in many categories.
LIGHT: The top three brands will account for over 70% of available profit in the category. That does mean there are other profits available. But it is a false hope many manufacturers have--that we can have seven big brands and they could all be ours..
VICK: Since 1987, 70% of brands have produced line extensions, some 24,000. Were they all needed?
LIGHT: No, they were needed by the marketer to fill the pipeline. They had nothing to do with the consumer.
VICK: There's a term in brand management that I've loved for years, which is called "leveraging the brand." What does leveraging the brand really mean? It means we've got a brand here that consumers like, maybe even love; they gravitate toward it. Let's find other ways to sell other flavors and forms and shapes of this brand. I think that through the '80s a lot of this has been management out of greed, not need. Brands aren't dead. Bad brands are.
HALBERSTAM: We're now moving into an era, unlike the era I wrote about in The Fifties, when you had an automatic annual 10% increase in disposable income. Every year America was rich, the world was poor. There was low inflation. Everybody was buying more. Now that's over. It's an international economy. We're not particularly dynamic in many areas anymore, and we are in a two-income middle class that is dramatically different from America in the '50s and '60s. You need two incomes just to stay in the middle class now. That is going to roll over into the world, and it is going to be a world with a much smaller amount of disposable income.
LIGHT: We could afford to get away with marketing all those brands and extensions we needed to keep our factories going, rather than brands the consumer wanted, because we were willing to pay trade allowances. And consumers were willing and able to pay the premiums. But now consumers won't. We're paying rent (to the retailers). We can't afford that. It's bad business policy, and it's happening because of bad brand exploitation, which is what brand leveraging really is.
VICK: I was talking to a friend who is the president of one of your client companies and asked him what he thinks about what is happening to brands right now. He said what this really means is 'We can't just manage our brands by taking pricing." Look at Levi's. Suppose Levi's never changed their product year-to-year and just kept taking pricing year-to-year. Do you think they'd be the strong brand they are today? They'd be in the same shape as the cigarette industry.
PARSONS: Very well-established, mature brands will be found to have been over-invested in terms of advertising over the years. Unless there is some real tangible or intangible benefit to communicate to the consumer, we are probably investing more than we need to to sustain brand loyalty. The brand loyalty is still there, provided we offer the adequate value.
HALBERSTAM: One of the problems of this discussion is that there's an implicit belief that the head of an American company--a large international company--actually cares a great deal about quality. I'm not sure the customer believes that anymore. It's a disillusioning era. As companies get bigger and advertising gets big: ger, the trustworthiness of companies like Levi Strauss or Pritzker's Hyatt Hotels, where the family really feels responsible for the product, becomes rarer and rarer in the mind of the consumer.
LIGHT: Advertising's no substitute for product. What we need to do is push trust marketing. At the end of the year, consumers aren't certain they built a brand relationship based on something they got in the mail, something they saw on the package, or the logo, or the ad. What they do know is that total net impression makes them more loyal and more convinced that relationship should be an ongoing one.
BOGLE: The reason it's so fundamental is that store brands like Sainsbury can produce brand extensions across 5,000 lines, in hundreds and hundreds of markets because the brand is "Good Food Costs Less at Sainsbury." Therefore it travels freely through product categories. Famous manufacturer brands don't have the lateral movement the store brands have. You can go into any category with Sainsbury and know you're going to get a particular proposition, if it's in soap powder or in coffee. But you can't do that if you're Nestle. You can't move into soap powder with the Nestle brand.
BEERS: But when a great worldwide company focuses its research and development, its delivery system and an advertising agency that can market in direct response or general advertising anywhere in the world, there is nothing as potent nor as resourceful.
REINHARD: I agree with Charlotte. If you focus the resources of a top marketer, maybe you can hold that differential between the leading national brand and the store brand.
LIGHT: But if you get greedy as some have and say, "Every six months, I'm going to take a 10% price increase whether I deserve it or not," then the premium gets to be 100% versus the store brand. The consumer is intelligent and says "That's no longer good value."
BEERS: This is a great reality check. Working with my clients around the world, there's never been a more highly concentrated focus on brands. There's been genuine effort to relearn how one nourishes a brand--which is going to change the way our clients interface with us. And I have to tell you that I think agencies are absolutely priceless assets today, because the focus on relationships is uniquely our territory.
VICK: I don't think advertising agencies should be talking so much about brand relationships. I think they should get back to more basic things like . . .
BEERS: What's more basic than that?
VICK: Like what's the benefit of this product?
BOGLE: But that benefit may not be measurable. In the U.K. we're guilty of believing that what is most important is that which we can measure most precisely. What if I can't tell you, to the exact percentage point, the emotional value in a pair of Levi's as created in the advertising? If I can't provide the answer, maybe a client will say, "If we don't have an answer, then we have a problem." It's as if it's more preferable, as Sir John Bradford said, to be precisely wrong than roughly right.
BEERS: The logical, linear sequential way of doing marketing, because it was easier to prove, is obsolete. The reason I like relationship marketing is that it forces you to deal with the less rational, the intangible aspects. It forces you to sit in a room and talk about it, to accept the fact that it's interpretive and has to do with imagination.
PARSONS: We're going into an age when companies will think a lot more about process management and less about product management. They will think about the whole cycle of product innovation, from R&D through manufacturing and marketing to the trade as opposed to just product management and a functionally-oriented organization. And I think most of these packaged-goods companies are going to be refocusing their efforts away from the United States and toward the developing world, where brands are being created as we speak.
VICK: There's no one answer. The emotional content of one brand, like a Levi's or a beer, is very strong. The emotional content of other brands is not.
BEERS: You know, that's not true. Because Dove Bar soap, which is not exactly high on your emotional ladder, is extremely involving to a woman at a certain time in her day.
LIGHT: The fastest growing area of interest in this kind of branding is outside the packaged-goods area, in services, in corporate and in businessto-business. The relationship people have with the brand IBM or Xerox or AT&T affects in a dramatic way their view of the products that come under that label. IBM is going through that discussion right now.
REINHARD: That brings up a key point we haven't discussed. We've agreed brand management is at fault for some of this problem. But until agencies get paid for being the custodian of the brand instead of for the number of ads we place, we're going to have problems with this, too.
PARSONS: We talk about the problems of the brand management system, leading to the devaluing and debasing of brands. But the advertising commission system is damaging the integrity of brand advertising. Going forward, I could see much smaller advertising business volume, certainly in the packaged-goods area. But it would be a much higher margin business because advertising agencies will be regarded as professionals and rewarded for the quality of their professional counsel, as opposed to the volume of their efforts.
REINHARD: Want to hear a wild idea? How about brand publishing, where the agency develops the new brand, finds a customer and licenses the brand to the maker in a parity commodity category?
LIGHT: Ad agencies should become brand management counselors. In some cases, where clients don't have a marketing department, you should become that. I don't blame the brand managers. I blame the companies for giving brand management certain responsibilities they should never have been given in the first place.
VICK: The brand manager is going to move on to another job, so his job is to make the bottom line.
LIGHT: It's not the brand manager's fault that he's given short-term objectives and a system that rewards him for meeting them. Why blame brand managers for doing their jobs?
REINHARD: I blame the brand management system.
VICK: Andrew was saying that perhaps we'll see less advertising volume. I think you're going to see greater advertising dollars behind the brands that have something to say, and less behind the brands that have nothing to say. You're not going to find companies spending a lot of money to support brands that have no fundamental reason for being.
LIGHT: At the Coalition we've collected 70 definitions of a brand. We've tried to find a consensus and have come up with five words. Everybody seems to have a version of "an ownable, trustworthy, relevant, distinctive promise." That distinctive promise doesn't merely come from the product or the service. It also comes from how you make the promise. A distinctive promise means a distinctive product or service communicated in a distinctive manner. The brands that get into trouble are the brands that have no distinctive promise.
REINHARD: Is advertising an ingredient?
LIGHT: It's a key ingredient. The nature of the execution of the promise is part of the promise. People don't consume products, they consume brands.
HALBERSTAM: The problem in the auto industry is that the American consumer lost faith in the American automakers. It's hard to create advertising on the basis of quality when essentially the American consumer is quite suspicious of those American brands. And one of the only ways we can strike back in recent times, because of the relationship between the yen and the dollar, is on price. That's become a little bit more than a niche. There's a general feeling among the public that brands like Honda, Toyota and Nissan offer more quality per dollar.
LIGHT: I think we will see a new era of promotion and a new era of advertising. Two years ago, 90% of all automotive advertising in the U.S. featured price in the headline. That's nuts.
What is the result? You don't make a relevant, distinctive promise. Eighty-five per cent of the people who bought cars that year said they were satisfied with the car they currently owned. Yet only 40% of those people bought the car they liked. People go into a store today and believe that if they pay full price, they got a bad deal. Brand loyalty is under attack because of self-inflicted wounds.
Copyright Adweek L.P. (1993)