I know that some of you, especially those of you that only read the intro and / or first chapter to books like Your Marketing Sucks, don’t really believe in the value of the brand – instead believing that what really matters is sales, and marketing efforts that directly impact sales. And if you work in a company where marketing does suck, I can understand why you might think this way. But, as hard to measure and intangible as brand is, it does have value – and for some companies, a lot of value. Do you think Coca Cola is the largest beverage company in the world because it has the best cola? Do you think Microsoft is the largest software company because it has the best operating system? Do you think GM is the largest auto company because they produce the best cars? If so, then I’ll have what you’re having!
A lot of people might prefer coca cola, but if you didn’t know what coca cola was and did a blind taste test with half a dozen no name colas, I doubt you’d get a 9 out of 10 cola consumers agree – or anywhere close to that. Microsoft hasn’t been able to solve basic multi-threading problems in its OS that mainframe systems, such as the Compatible Time Sharing System, solved as far back as 1962. And in terms of quality, I’m not alone in thinking Toyota and Honda have surpassed GM in quality. Lots of industry rankings agree.
But these companies are still #1 in their game – and all Fortune 100 (GM = 3, Microsoft = 49, Coca Cola*1 = 94). In each of these cases, it’s because of their brand. In Coca Cola’s case, it’s because it continues to have the best brand in the world, as per BusinessWeek’s Interbrand rankings. In Microsoft’s case, it’s because it continues to have the second best brand in the world. And in GM’s case, it’s because it was the best car brand for an entire generation – a generation that will likely be loyal to that car manufacturer until they die! That’s brand power.
Furthermore, there are ways to calculate the effect of “brand” value. It’s true that they all have disputable elements, but I think that any method that starts by deducting operating costs (including sales and marketing), taxes, and capital charges from projections based on five years of earnings and then uses standard methodologies (such as those employed by VC firms) to assess and subtract intangibles such as patent portfolio (and associated license revenues), such as what Interbrand does, is on the right track. If after all these deductions from revenue you still have a positive amount, it’s an extremely good bet that a large percentage of this is attributed to brand. In Coca Cola’s case – that’s 67B. In Microsoft’s, that’s 57B. And in Toyota’s and Honda’s case, the brands for the new car buying generation, that’s 28B and 17B, respectively. I don’t know about you, but I think that’s an awful lot of value – value which will dissipate, and quickly dissolve your current Fortune 500 status, if the value of your brand goes away.
And that’s precisely what will happen if you don’t properly manage your supply chain, as pointed out by a recent article in Industry Week that tells you to Strengthen Your Supply Chain, Protect Your Brand. Every recall that you’re associated with decreases the value of your brand at least a little in the eyes of a consumer*2. Every time your product is not on the shelf when someone wants to buy it, the value of your brand diminishes a little more. And every time you produce a product that is of poor quality your brand diminishes a little more still. Each of these issues negatively impacts your brand, and not one of them has anything to do with marketing. The sad reality is that even though marketing and advertising may still get most of the credit when it comes to brand building, it’s really supply chain that ultimately determines the value of the brand. Because if supply chain doesn’t deliver, any perceived value created by marketing evaporates like the morning dew on a hot summer day.
So no matter how good you think your supply chain is running, take another long, hard, look. Statistics say you can expect at least one major disruption in the next two years. And if you don’t figure out what that is now, it’s going to happen. And I wouldn’t want to be in your shoes when it does!
Remember, if it’s your brand, I don’t care what contracts you have in place with your suppliers – it’s still ultimately your problem! Passing the buck won’t save your brand – or your ass when the CEO has to take drastic action in an attempt to satisfy shareholders. That’s why I also talk about the larger context of visibility and supply chain management on this blog – so that you know where strategic sourcing fits in the larger picture of supply chain management and have the knowledge you need to do it right. So next time you think you don’t need to read one of my longer essays on the subject, think twice. There might come a day where You might just find that you’re glad you did.
*1 I know Pepsi is 63, but it’s not just a soft-drink company anymore – it’s a snack food company. This move, and associated acquisitions, which started back in 2003-2004 may have moved it up the Fortune 500 list relative to Coca Cola, but Coca Cola is still the largest from a pure soft drink perspective, as well as having the best brand in the world, as per the Business Week Top 100 Brands.
*2If you happen to be a food producer or provider and people became very ill and / or died because of a supply chain failure, your brand value will be impacted very significantly.