Sunday, April 19, 2009

Losing, sustaining and building on brand names

In my last two posts, I argued that a brand name can add significant value to a firm and that we can sometimes estimate that value. A news item last week about Domino's started me thinking about the fragility of brand name value and whether, and how long, it can be sustained: Two employees at a Domino's filmed themselves making sandwiches for delivery, adding ingredients (too disgusting to mention) to the meals. Even worse, they put the film up on YouTube.
http://www.youtube.com/watch?v=r4ftKIMLCl0
In the next few days, this video was watched by millions of people, who thought worse of Domino's after watching the clip. A service that measures brand name perceptions in real time (though I cannot attest for the precision of their measures) concluded that the perception of Domino's among the general public went from a strong net positive to net negative as a consequence.

Events like these indicate that even strong brand names can sometimes come under assault, sometimes from events outside of their own control. Johnson and Johnson, for instance, was confronted with incidents of someone poisoning Tylenol capsules in the mid-1980s. The firm responded by pulling all Tylenol off the shelves nationally and going public with the danger, a reaction that some thought was overwrought, but is now considered a case study of what companies should do when faced with such crises. If 60, 70 or 80% of your value comes from brand name, you should do whatever needs to be done to preserve it.

While dangers to brand name can come unexpectedly from the outside, the bigger dangers comes from within the firm. Here are some examples:
a. Misunderstanding where the value comes from: In perhaps the classic marketing blunder, Coca Cola in the late 1980s made the mistake of thinking that their brand name came from taste, and started experimenting with new flavors (New Coke, anyone?). In the process, they put the entire company at risk and had to back track. Apple and Disney have had near death experiences, where they have done something similar.
b. Neglect: Since brand name values come from perception, the value of a brand name will not pass on from one generation to the next. As a company's customers age, it has to actively work to ensure that the brand name value passes on to younger customers. Companies like Quaker Oats, the Gap and Xerox have all seen their brand name values dissipate over time.
c. Spreading the brand name too thin: Finally, there is a danger to trying to extend brand names beyond their product base. I am not sure that I would pay a premium for a T-shirt with a Coca Cola logo on them or eggs with Disney character pictures imprinted on them (I am not kidding.. Check your local grocery store).

A final thought. In spite of all of the dangers that I have listed, it still remains true that brand names represent some of the longest-lasting competitive advantages to businesses. A study in a marketing journal, for instance, found that three of the top five brand names in 1925 were still on the list in 2000. I cannot think of too many other competitive strengths that would have survived this long.

3 comments:

dharma said...

If one looks back to the pre liberalisation era in india, gold spot was such a popular soft drink. It was a mega brand by itself and had mass appeal with its unique flavour. Guess Parle (that owned it then) killed the brand by selling it to Coca Cola post the latter's re entry into the Indian market. Coca Cola replaced it with fanta. Fanta by no means, to this day, tastes like gold spot.

Aswath Damodaran said...

I am actually old enough to remember Gold Spot and Limca... from the days when Coca Cola was banned from India...

Pratiksha Jadhav said...

This is an excellent guide, Thanks very much for sharing these tips.Brand name can add significant value to a firm and that we can sometimes estimate that value.Brand harvest acts like a brand consultant that gives ability to focus on the essentials and getting the brand matrix right.