Travel the world today, from Hong Kong to Houston to Helsinki, and you can hardly miss the Nike swoosh, the red Coca-Cola disc or McDonald’s golden arches.
Emblazoned on billboards, plugged on prime time, boldly affixed to products, these logos represent some of the world’s best-known brand names. They belong to consumer goods that command premium prices and intense, lifetime loyalty from faithful consumers.
Of course, it’s no accident that these icons are so widely and instantly recognized. Billions of dollars are spent each year hyping these products, tattooing the notion from an early age that these are the brands you’ve just got to have.
And it’s not only consumers who are dazzled by the brand-name juggernauts: Envious of the high prices these companies can charge–and the lofty price of their shares–more and more firms seem eager to turn up their marketing machines and turn their products into household names.
The latest to go headlong into marketing is Sara Lee Corp. In an unusually broad restructuring outlined last month, the Chicago-based company is preparing to exit the business of actually making things so it can plow more money into promoting its brand-name foods and clothing.
But even as Sara Lee tries to secure its place in the pantheon of global marketers, changes in the marketplace are rocking traditional thinking about brands and the place they occupy in consumers’ hearts and minds.
Already, the marketplace is littered with an exploding number of new brands chasing the same consumer. Deep price discounting, the spread of private-label products and, perhaps most dangerous to the long-term survival of brands, consumer skepticism are raising fundamental questions about the value of brands.
It takes a huge amount of cash and lots of savvy to achieve the No. 1 brand name. Is it worth it?
In today’s cluttered market, marketing executives say, it probably makes little sense for also-ran companies to try to buy dominance. But for the top few companies in each market segment, they say, a brand identity is more important than ever.
“Brands are one of the strongest providers of long-term cash-flow security,” says John Grace, executive director at New York-based Interbrand, which, based on a formula, pegs the value of brands for many Fortune 500 companies.
“If you calculate the capitalized value of Sara Lee, you’d probably find that something like 70 percent of Sara Lee’s value is in its brands,” Grace says. “What they are doing is consistent with what other smart businesses have done.”
Or as John Bryan, Sara Lee’s chairman, said in explaining the company’s new tack: “It is passe for a company whose mission is (to maintain) leadership positions in branded products to provide all these commodity functions.”
To analysts, Sara Lee’s moves are a no-brainer. At Coca-Cola and other companies such as McDonald’s, very little value is tied up in a company’s tangible assets anymore. Instead, it is the intangible value of a company’s brand that is treasured.
But while the biggest brands keep getting bigger, markets are fragmenting at a furious pace. Brands are faced with not only competition from other brand-name products in their categories, but with an ever-increasing list of private-label goods and store brands that have grown more successful in this age of “value pricing.”
That has meant radical changes in the way big companies are pitching their products and has made the outlook for so-called second- and third-tier brands–older brands that don’t have the mass to sustain viable positioning–bleak.
Consumers like Donna Paul don’t make it easy on Corporate America’s brand managers. Like many shoppers these days, she can’t be counted on to buy big national brands consistently.
While she’ll almost always pick up Pillsbury white bread for her three kids, she’ll take store-brand grape jelly to put on the slices.
“If the quality is good, I’ll buy the store brands,” she said during a shopping trip with her husband at a south suburban Omni Superstore.
After hearing ad come-ons all her life, she is skeptical of commercial claims. Though brand-name cereal companies announced big price cuts last year, for instance, she says they haven’t reached the shelves where she shops. She’s also apt to use coupons whenever possible, meaning she’ll switch brands for a better price.
That consumer fickleness has fed an increasing appetite for marked-down goods, private-label and store brands, even during today’s good economic times, when consumers typically return to big-name, higher-priced brands.
In Chicago, Jewel Food Stores has added more than 100 private-label items to its aisles over the last three years. The chain now carries more than 2,000 private-label items, including the upscale President’s Choice line. These products account for 19 percent of Jewel’s sales, up from 18 percent a year earlier.
And the growth of private labels is not limited to supermarkets. Sears, Roebuck and Co., which has built billion-dollar businesses with its Craftsman and Kenmore brands, is extending its store brands to its soft goods. Its Canyon River Blues jeans brand, which goes up against Levi’s and Lee’s brands, has grown to an estimated $200 million business since it was launched in the fall of 1995.
Meanwhile, at the other end of the apparel business, high-end retailers such as Henri Bendel and Barneys are reportedly pushing their new private-label designs to prominent displays in the front of their New York stores instead of tucking them away in the back.
According to Sears executives, adding a successful private-label line is essential in what has been a difficult battle of differentiating one retailer from another.
“Consumers are more fragmented than ever, and the media is more fragmented, making it difficult to reach your customers in the traditional ways,” says John Costello, senior executive vice president-marketing for Sears.
“Over the last 10 or 15 years, a lot of brands have taken their eyes off the ball,” says Paul Crnkovitch, a partner with Evanston-based consulting firm Cannondale Associates. “A good majority have realized that and are doing something to differentiate. In the meantime, private label has done a good deal to close that gap.”
What has happened, and what will continue to happen, marketing executives say, is that there will be a continued erosion of second- and third-tier brands, and what will be left standing are strong, so-called mega-brands like AT&T or Procter & Gamble’s Tide, and profitable store brands.
That, according to Interbrand’s Grace, has made it paramount for the biggest brands to spend even more to keep from getting swept aside. “The concentration on brands is more important than it has ever been,” he says.
The pressure to build and maintain brands is already fueling one of the biggest investments behind big names ever seen.
Ad spending behind the nation’s top brands is at all-time highs. Even in an era of tight-fisted consumerism in which discounting has become accepted, many of the major brands suddenly are turning to image rebuilding ad campaigns.
Coca-Cola Co. has brought back its trademark contour bottle; AT&T Corp. tugs the heartstrings again in its latest ad campaign; and McDonald’s Corp. is once again using emotion, and coupons, to get people into its restaurants.
Ahead of the curve, Procter & Gamble Co. started down this road three years ago, cutting back the number of products in each of its categories so that it could concentrate on building its main brands that it wants to take global.
“The consumer is more discerning,” says Frank Bifulco, vice president of marketing for Atlanta-based Coca-Cola USA. “They are faced with a world of choices and they have a well-developed sense of value. That actually enables you to create value for the consumer.”
“Investment behind the brand today is paramount,” says Brad Ball, senior vice president of U.S. marketing for Oak Brook-based McDonald’s, which launched a new image-building ad campaign last week. “It’s more important than ever because there is so much more out there to distract you.”
