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Imagine living in a world where a toothpaste is only a toothpaste, a soap is only a soap, and a cola is just a cola. No, no, it's not a world of monopoly. There would obviously be many suppliers, and many more vendors. But there is no way to identify one supplier from another, and one vendor from another. All shopkeepers stock the same product, with the exact same packaging, with the exact same price.
Sounds horrific, doesn't it? How does a buyer know whether the product he is buying is even worth the price that he is paying for it? If he found a defect with the product, how does he find out whom to punish? Even from a supplier's point of view, it doesn't sound great. If I were a manufacturer of toothpaste, there is no benefit for me to make a better quality toothpaste. I don't even get recognition for making that superior product.
This is the world without brands. A world where there is no brand name, no familiar symbol, no reputed company to place your trust on. In this world, being in the same business for the past 100 years doesn't mean a thing. Being at the cutting edge of technological development doesn't carry any benefits. And being the official supplier to the royal family, too, means nothing. As we said earlier, a world where a product is just a product... a world without brands.
What is a brand, then?
A brand is anything that helps create an identity and maintain a reputation. Even a shopkeeper's name is a brand, if it helps create a reputation. Even a region's stamp creates a reputation. Why have we been going to the same provisional store for the past 20 years, when there is another store next to that outlet itself? Why do we savour teas from Assam and Darjeeling? Have we noticed that we go to the same general physician every time we catch a cold, or notice something inconsistent with our body? This, in spite of the fact that he is just a general physician, like many others in the town.
Why does this happen? Of course, these places make a good-quality product, available at a value-for-money price. But in addition to this, they have a reputation of being consistently good. And they have established an identity unique from most other products. In other words, they are a brand.
In fact, the origin of branding is connecting to the practice of establishing a unique identity. It comes from the Swedish word for “fire”. In those times, farmers would put a mark on their cattle so as to identify them from the big herd when they go to the fields or for grazing. A piece of iron would be burned, and when it is red-hot, the mark would be stamped on the animals, so as to indicate ownership of that animal. Hence, even today brands are as closely associated with symbols as with names.
So what all does a brand include?
As you must have guessed, a brand is anything and everything that helps a manufacturer build a unique identity, intended at building a unique reputation. The ultimate objective is to exploit this reputation for growing the business and earn extraordinary profits.
In addition to a name, companies try to build uniqueness by having a symbol, shape, packaging, colour and maybe even a special sound to its identity. The 'M' of McDonald's restaurants, called the Golden Arches, is unique to the chain. The tick mark on all Nike products, called the 'Swoosh' is again unique to it. The clear, plain white that makes the Apple PCs and laptops stand out from the other PCs and laptops covered in the typical black, the four-dings-music of 'Intel Inside', the purple colour on the packaging of all Cadbury's chocolates, the rectangular box for National Geographic magazine and channel, and the '100% protection' sword for Dettol products are all efforts to build their brands.
Some of these efforts have interesting stories behind them. The first global computer company, IBM (International Business Machines) had a huge sales force and customer support team. All these men would be on the field most of the time, wearing their blue suits, and meeting business managers and IT officers. This army of blue-suit-clad men gave the company its name – Big Blue. Today, even though most IT and tech companies have blue as part of their logo, and undertake lots of activities to make themselves popular, it is still IBM that is associated with this colour.
So then why is branding criticised?
For both consumers and companies, branding comes at a price, and quite a big one at that. Branding exercises at very expensive, and they require long-term commitments of both time and money. For example, after Pepsi and Coca Cola entered the Indian market in the early 1990s, it took them more than a decade to become profitable. This, in spite of the fact that a bottle of cola costs almost nothing to manufacture, and being frequently consumed, brings in large revenues due to high sales volume. The long time taken to become profitable was because the investments that both companies made in distribution and advertising were huge.
The way branding affects consumers is that we end up paying quite a premium on the price because it is a brand that we buy, not a product. Even if you have no clue about marketing and branding, chances are that you would have come across this story, if you have been following this discipline for some time now:
A professor starts talking to a class full of students of marketing. He says, “Imagine meeting a craftsman. He takes a sheet of canvas and a piece of rubber, and cuts out two identical shapes from the canvas and similarly two identical shapes from the rubber. Then, he stitches the canvas and rubber pieces together. In this way, he creates a pair of shoes. If he comes and sells this pair to you, how much would you pay him?”
“Nothing, those shoes won't last at all.”
“Maybe only Rs. 200. Those shoes aren't worth more than that.”
“Rs. 300, provided the rubber and canvas are of very good quality.”
The professor continues, “Suppose I buy the shoes from him, cut four more pieces from the canvas and create the shapes of N, I, K and E from those pieces and stitch them to the shoes. If I come and sell them to you now, how much would you pay for these shoes?”
The class fell silent. No one answered for a long time. “This is the power of brands,” the professor declared. “The same shoes are suddenly worth much more, with a name like Nike, adidas or Reebok stitched on them. Suddenly, we don't mind paying as much as Rs. 2500 for the same pair of shoes.”
Of course, the example given here is very simple and presents a very defeatist view of branding. Just a little more thought into the example here, and we strike back asking, 'Hey, Nike's shoes are not just a piece of canvas and rubber stitched together.' Quite true. In fact, some time ago, Nike launched a shoe called Air Dri-Goat or ADG, claiming that this shoe's design is inspired by the foot of a wild mountain goat. This goat goes through rough terrain all the time and still 'we don't see it banging into a tree'. Similarly, Mercedes recently displayed a concept car that was inspired by a fish, and it is claimed that the car's aerodynamic design reduces resistance to air and increases performance phenomenally. The price that we pay is not for just a shoe or a car, but also for these seemingly trivial, but very beneficial features too.
So is a price premium the only way to earn back the investments?
Not really. Price premium is not the only benefit of building brands. Like any other asset, brands carry a resale value too. One of the most famous cases of a brand being sold is when the Pillsbury Co. was acquired by Grand Metropolitan PLC in 1989. GrandMet paid about $1125 million for acquiring the company, of which 88% ($990 million) was for acquiring the ‘goodwill’ of the Pillsbury name and other branded properties of the Pillsbury Company. The valuation of the Pillsbury brand was done by a London-based brand consultancy firm ‘InterBrand’, which has now become the global authority on valuation of brands.
In addition to price premium and resale value, there are many more benefits that make business sense for investing in brand building.
Since the name is already trustworthy, more products can be launched under the same name, and can become instant hits in the market. This practice is called brand extension. It is the power of brand Apple that made the iPod and the iPhone sell at the pace at which they did. Google, which built its brand on the back of super-efficient search algorithms, also changed the scenario of email, by bringing in its GMail services. It plans to repeat the success in the markets on Internet browsing (with Google Chrome) and mobile operating system (with Android). It was the power of brand Reliance that gives massive free publicity to all new ventures of the Ambanis.
Another way how brands build business is distribution. Across the world, the war of colas is fought not only on television but also at the outlets. Both Pepsi and Coca Cola strive to get exclusive distribution rights to their basket of brands, in super markets, cafeterias, restaurants, etc. At one point, 40% of Procter and Gamble’s sales would come via distribution behemoth, Wal-Mart. Not a small feat, considering P&G is one of the world’s biggest marketers of fast-moving consumer goods.
If all this is true, how come we still have unbranded stuff?
Sounds too logical, doesn’t it? If there are so many benefits of branding, how come some people still want to sell unbranded stuff? There are two answers to this. One is that as more and more products gets branded, branding of newer products becomes increasingly expensive. For example, when there are umpteen different brands of body soap available, it becomes very tough for a new brand to create any impact on our minds. The second answer is that, not all products benefit from the power of brands. Do we remember or care what brand of toothpicks, nail clippers, or handkerchiefs do we buy and use?
Never thought about it, did we?
