The value of brand

It’s not what’s in the box – it’s what’s on the box

The Government in the UK is giving serious consideration to plans forcing tobacco companies to sell unbranded cigarettes. So instead of getting 20 Benson & Hedges in a nice gold box with the distinctive black and red text, smokers will just get a white box that looks like every other white box. Silk Cut, Marlboro, Camel – you name it. One white box after another. The tobacco industry knows that this could slash their sales and seriously eat into their profits. Why? Simple. The power of brand. Why spend nearly £6 (that’s an eye-watering $11) on some of the best-known brands, when you could have some cut-price ciggies at £3.50 to £4? After all, it’s just one white box or the other, isn’t it?

The same – but different

Walk down any supermarket aisle and you’ll see own-brand products nestling beside big brand names. Have the supermarkets suddenly started up their own production lines? Of course not. Most own-brand products are made by the same people who make the branded products. They probably both come off the very same production line. The only difference is the packaging. Oh yes, and the price. Branded products always carry a premium. And that premium depends on the power of the brand – which in turn depends on how much money has been pumped into developing that brand. Kellogg’s decided in 2000 to invest in brand-building and positioning itself as a premium brand. In 2007, it spent $1bn on marketing for the first time. And this year, it was able to pass on increased ingredient costs to consumers, when other companies couldn’t. Its Q2 2008 sales increased by 11% and profits by 9%, leading it to revise its full-year forecast upwards. So we have rising costs and an economic downturn. But increased sales. That’s the power of brand. In fact Stern Business School at New York University has calculated that 67.7% of the value of Kellogg’s the brand-name value.

And the winner is…

Interbrand and Business Week recently released their Best Global Brands 2008 report. Coke is on top for the eighth year in a row. The ubiquitous Google has soared from 20th to 10th place. Interestingly, IBM has jumped ahead of Microsoft. Even more interesting is the reaction of companies to the looming recession. Some are cutting their marketing budget (Coke, Visa and US car manufacturers) some are keeping steady at a fixed percentage of revenue (Amex and Diageo) and others are actually increasing their marketing spend (Louis Vuitton, Accenture, Kleenex). My vote goes for the last group. You spend more, the competition spends less. The recession ends. You win. Game over. Find out more:

The Interbrand/Business Week Best Global Brands 2008 report: click here.

Kevin Branding.