Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

The management of brands to maximize value. By Hugh Osburn

by
24th Jun 2006
Save content
Have you found this content useful? Use the button above to save it to your profile.

Hugh Osburn

This article is the third in a series, though it departs from the theme of addressing valuation and the new accounting standards to examine the implications for managing the value of brands ' as based on the concepts embodied within the valuation model which we examined last month.

Hopefully this article will help these concepts to "come alive" for those of you for whom valuation models have little relevance to the day-to-day problems of trying to run a business. Importantly, these concepts of value should be of benefit to small and medium sized companies.

The relative strength of trademarks, trade names and/or brands

In last month's article, we introduced trademarks and the importance of other finite-lived "brand assets" such as technical innovation and marketing support, and then identified a number of factors felt to be important in determining the strength of a brand. These were:

Market

  • size
  • growth
  • market share and fragmentation

Growth

  • in prospective sales and/or profits
  • in historical sales and/or profits

Profitability and/or financial strength

Terms

  • geographical coverage
  • degree of exclusivity

Competition

  • dynamics, activities, structural factors
  • barriers to market entry; degree of market saturation
    threat of economic obsolescence or changes in fashion, etc.

Nature of relationship with customers

In this article we are going to examine how a company may seek to improve the value of its brands by effectively improving its performance as measured using the above factors.

Market domination

The key question here is how a small company can compete effectively against large, dominant players in its market sector? The solution is to take a leaf out of the book of British military strategists, as the Japanese did after World War II when trying to penetrate overseas markets1 - which was to concentrate their resources (or "firepower") by winning dominant market shares in carefully selected, restricted market sectors rather than trying to beat the established market leaders in head-on confrontation.

Once having established a dominant presence in an appropriate region or particular market sub-sector, this provides the solid base from which to roll-out the strategy to successively wider and wider sectors of the overall market ' so dramatically improving the chances of eventually overtaking today's market leaders.

Translating the above strategy into its impact in terms of the valuation model, one is sacrificing market size for market sectors with greater growth potential and, more importantly, for the chance to establish dominance in market niches where one has the resources to compete on equal terms with the market leaders. One is improving one's chances of achieving higher Growth, but with less chance of being wiped out by the competition during the early stages of implementing the strategy owing to one's limited financial strength ' though with the prospects of being able to greatly improve the latter once the strategy starts to pay off.

Market competition

Your strategy in regard to other competitors depends very much upon your own market share and position. Clearly established players will seek to defend themselves by making things as difficult as possible for new entrants - by raising quality standards for their products and services, lowering prices, tying-in their established customers by working closely with them in their development of new products and in the specifications for components and/or sub-systems for those products, and by adopting aggressive strategies in both patenting technological innovations and in defending those patents.

As a new entrant or weaker player, your strategy will not be unlike that already addressed in the previous section, i.e. trying to avoid head-on competition and trying to find market niches where you can firmly establish yourself without obviously threatening the dominant players until such time as you are strong enough to defend yourself - and without the need for massive investment at too early a stage i.e. by conserving your financial strength.

Anticipating technical and/or market obsolescence

A sensible way to approach the above problem of avoiding direct confrontation with powerful competitors at too early a stage of your own development is to identify products and/or market sectors where there is perceived to be a significant threat of technological obsolescence and/or likely changes in fashion or in the economic well-being of customers within those target markets. Such changes are happening all the time, across many sectors. Taking early action to position your own products to take advantage of anticipated future developments, without having to commit too many resources too early on, allows you a much better chance of surviving and prospering once any such changes start taking hold in the market - and the other competitors also start reacting to the changed situation.

A market strategy for "the small guy"

In fast-moving consumer markets, continual technical innovations are likely to be perceived to be a key factor for success. This implies the need for massive financial resources ' both to fund the on-going research and development effort and then to pay for the ensuing large-scale marketing campaigns. In such product-markets, how can "the small guy" ever hope to compete with large, well-funded, and possibly international, organisations? Well, one way is to play to the latter's weaknesses ' as the large companies are likely to concentrate their resources on a limited number of major brands and on marketing these through the largest channels to market, such as the major retail chains, where they can earn the best return on their investments in said technical innovations and associated large-scale marketing campaigns.

If, as "the small guy", you are ever to achieve a high market share, however, then you have to remember that you have to make it easy for the ultimate customer to buy your products ' which means that your products have to be readily available, i.e. appear on shelves where the customer will see them and they are "within easy reach", so to speak. This means establishing a firm presence across a number of the other various channels to market, and not just concentrating on trying to win over the largest retailers.

There are other key requirements, however: for example, you need a broad product range and to set up agreements with carefully selected distributors, with one in each of the different channels-to-market, in each geographical region. Importantly, the terms of these agreements must be perceived by the distributors to be open, fair, and non-discriminatory ' so that how much each distributor earns is wholly determined by his or her own efforts.

Then, rather than trying to launch major marketing campaigns, you need to launch a series of much smaller campaigns, with each one focussing on trying to address the bottlenecks preventing just one particular product being bought by the customers ' which will involve not only point-of-sale issues but also the identification of problems throughout the whole supply chain, including those within your own organisation. By keeping each promotion small, they should prove both affordable to the selected distributors (which the large-scale campaigns are probably not), and manageable by your own organisation. By selecting a series of products, each to be promoted on a rotating basis, moreover, you can not only keep stimulating the interest of the customers but also maintain the commitment of your distributors - while continually finding and making incremental improvements to your overall marketing and distribution system.

In terms of the valuation model, you are seeking to adopt strategies where you can improve the chances of competing effectively with the other more powerful market participants without bankrupting yourself in the process. In so doing, you also stand a better chance of improving the relative strength of your own brands.

Brand image and the nature of relationships with customers

In this last section, there are potentially as many different strategies as there are different types of organisation. However, a useful guide is to start with the nature of the most significant "other brand assets". In other words, do these represent a distribution network, an installed equipment base, a maintenance support network, quality control and enforcement procedures, or something else?

If you are dependent upon a third party distributors to deliver your products to the ultimate customer, it will be advantageous for the long term security of your sales channel if you are perceived to be a valuable partner in helping your distributors sell to their own customers ' perhaps by way of your organisation offering sales training and/or other marketing support and technical advice directly to their own in-house sales teams.

If your company supplies components, sub-assemblies and/or systems to larger manufacturing groups, on the other hand, it is always more advantageous to be working closely with the customer's own engineers in developing products to enhance the marketability of your customers' own products. Preferably, your customers should be able to incorporate your products into theirs as complete sub-assemblies or sub-systems, i.e. without the need for further work to be done in integrating the two together.

In a similar vein, where you are selling in to markets where your equipment is already installed, not only is your name known to your customers ' useful when they are looking for suppliers to quote on new products or projects ' but there is likely to be a significant and on-going demand for spares and, possibly, for maintenance support. In such situations it is likely to be far more important to ensure that your organisation delivers a high quality, responsive and flexible service - with well-stocked inventories of spares and adequate numbers of field engineers on hand to deliver the service - than that you deliver very good value (i.e. cheap) products but in an unreliable fashion. The costs to your customers of having to stop production or stop delivering their own products is likely to exceed, by a wide margin, any savings which you feel you can deliver to your customers by providing them with cheaper and 'more efficiently produced' products or services.

Summary

The above article addresses, in a little more detail than last month's article, some of the considerations taken into account to determine the relative strength of a brand for valuation purposes, and then linked these insights in to how you might try to enhance the strength (and value) of your own trademarks, trade names and brands. Trying to value a brand without an in-depth awareness of the market strategies being adopted by the brand-owner, and without analysing the underlying market situation, moreover, is likely to result in a very unsatisfactory indication of value.

© retained by ADOPT Training

Hugh J Osburn
ADOPT Training
e-mail: [email protected]

ADOPT Training has a page on Angela Hennessey's web-site at: www.angelahennessey.co.uk

1 Campbell, N. 'A British Military Theory Finds Favour Among Japan's Businesses', 'Financial Times' 1986. It is no longer available online but I can supply.

Tags:

Replies (4)

Please login or register to join the discussion.

avatar
By carnmores
06th Oct 2006 15:15

Thanks
i think these articles are excellent

Thanks (0)
avatar
By carnmores
05th Oct 2006 18:42

can someone give me the link to
article 1 cant find it!

Thanks (0)
avatar
By dan06
06th Oct 2006 12:24

Article 1
Nicholas, Hugh's first article is available here.

Dan Martin
Business Editor
AccountingWEB

Thanks (0)
avatar
By carnmores
20th Oct 2006 19:42

i will have a more detailed look
it does seem you are riding on someone else coat tails

Thanks (0)