Buffett says brand is the business

Warren Buffett, the world’s most successful investor, now says that brand is the most important factor in deciding where to invest. The Financial Times on 11 October reports on a recent talk to investors in Germany, where Buffett asked what might be the criteria for deciding whether to buy a company. 'Traditionally, the first criterion Is a strong balance sheet. But Buffett only put that in third place. His second criterion was a good management team. In first place, he put brand’. Even in hard times, brand is the key to long-term growth. That, presumably, is why Buffett is backing Goldman Sachs. And that’s why businesses in trouble – while of course fixing their balance sheets and clearing out their management teams – must also urgently invest in their brands.

13 October 2008, posted by Brian Boylan

A time for new things

Last week, British retailer Tesco launched a new low-cost range of fruit and vegetables called Market Value.  This is not just about low-cost, Tesco is very cleverly adopting brand-led innovation to create the value people are looking for.

Good brands are really judged, not on what they promise, but on the value they tangibly deliver. This becomes doubly important in tough times when the search for value becomes even more deliberate, and only outstanding offers sell. Brand-led innovation is how clever businesses create useful products and services that people are happy to pay for. 

Ideas like Market Value are inspired by Tesco’s brand, ‘better, simpler, cheaper’ and ‘every little helps’.  These ideas in turn strengthen the brand and have larger impact on the business - Tesco plans to extend Market Value to other categories such as frozen food, dairy and health and beauty. They also acknowledge the customers' need for more value, without compromising on quality or usefulness, because in hard times, people want a lower price but not bog-standard and dirt-cheap. Sophisticated tastes see ‘economy’ as a compromise too far, so suggesting the values of a market in this (the realness, the colour, the proximity to source, the haggling even) is dead smart. 

Brand-led innovation is a clever approach to making the most in a downturn and contrasts sharply with some flawed and all-too-common alternative approaches:

1. Deviating from the brand idea. Rather than change what the brand is about, Tesco uses new ranges like Market Value to re-enforce its relevance

2. Ripping value out of the business through massive discounts. With Market Value, Tesco keep margins healthy on other ranges such as Finest without alienating value-conscious customers.

3. Sticking heads in the sand and doing nothing. Tesco understand that in tough times, it pays to take a fresh look at your products and services and use the brand to drive new ideas. Similarly, Apple, during the dotcom downturn, increased R&D budgets, invented iTunes and continues to dominate the category.

In all sorts of sectors where businesses and consumers are questioning their spend – energy, finance, advice, travel, retail – the winners will be those that stimulate demand by using their brands to create new things that people are happy to pay for.

7 October 2008, posted by Ije Nwokorie

The crisis and claim-based branding

When a global company whose tagline is “The Strength To Be There” nearly disappears in a puff of smoke, there’s clearly something very wrong with the tagline, however badly the company may have been managed and regulated. So as debate on the causes of the financial crisis deepens, I’d like to push a new scapegoat into the rodeo of blame: the claim-based branding approaches of the financial industry.

The tagline in question belongs to AIG, whose ability to “be there,” we now know, depends entirely on a vast US Government bailout. But AIG is only one of various brands whose messages have been made darkly ironic by the crisis. Another example: Merrill Lynch still sports an unrepentant bull as its emblem, and until just before the Bank of America saved Merrill from collapse, its tagline was “A Tradition of Trust”.

In each case, these companies used brand to create the image that they were trustworthy, rather than using brand to actually become more worthy of trust. And the images of trustworthiness make macabre viewing when seen after the catastrophic declines of their makers.

Until days before its near-death experience, AIG was running advertisements aimed at raising anxiety in its audience, and then presenting AIG as a secure solution to that anxiety. In one, a child mournfully enters his parents’ bedroom at night and announces that he’s worried about his family’s financial future. “Buddy – we’re with AIG” his father comfortingly replies, much to the kid’s relief. Then we cut to the logo and the “Strength To Be There” tagline.

The same approach was taken in AIG’s direct mail. Last week the company was still sending Manhattan residents mailings that proclaimed “We help you avoid disaster altogether.”

As the crisis mounted Merrill Lynch ran spots showing a farm threatened by a night-time storm, complete with skittish sheep and panicked chickens. The anxiety is lifted at dawn by a view of the Merrill bull on the barn weathervane, outlined against a clearing sky. A voiceover intones “We’ll be there, with the strength and resources you can count on,” and as the “Tradition of Trust” tagline fades in.

Three thing are wrong with this kind of branding. First and most obvious, the claims of trustworthiness are at best empty, and at worst deceptive, since the ads were running even after it was clear that a major crisis was unfolding. There’s also little to be admired about advertising that seeks first to increase its audience’s anxiety in order to then peddle unfounded security. But there’s something still more profound at work here. The ironic messages are the result of brand being treated only as the act of making surface promises (whatever the underlying reality might be) – as opposed to brand being rooted in what’s really true about a company, and then used to help create a better reality – a reality that, in this case, could have been less prone to failure and more deserving of trust.

So how would a brand that increased trustworthiness actually work? It would have to be based on actions rather than messaging, and to do that it would act inside the company as much as outside the company.

Inside, a trust-increasing brand would act as a clear guide to behavior, supporting a culture of prudence, and providing benchmarks for decision-making. It might give the sales force guidelines for avoiding damaging opportunism or overselling. It might set a high bar for risk management in investment decision-making. Or it might guide HR in hiring people with demonstrated integrity.

Outside, a trust-increasing brand would impact investor relations and customer service as much as marketing. It would promote transparency in communicating financial information. It would shape constructive, not anxiety-inducing, customer communications, building trust by being honest and helpful. And encouragingly, this approach is being adopted by some banks. A recent email from ING urges customers to “be disciplined... avoid splurging; identify and cut out unnecessary expenses and save for what's essential... confront - and cut up - credit cards; use your home as a savings vehicle - not as an ATM.”

This kind of strategy is a profound shift away from the past orthodoxy that brand is a plausibly trustable skin under which risky behavior may operate. It brings trustworthiness to the heart of operations, helping an organization earn trust by looking carefully at decision-making and culture. As financial companies look to rebuild faith in their battered brands after the crisis, I suspect managers will find that this approach is not optional. Action-based brands, not claim-based brands, will be the ones that succeed.

25 September 2008, posted by Neil Parker