“The Brand” might not be officially dead, but it probably shouldn’t buy green bananas, either. If you don’t believe me, look no further than the aisles of any grocery store, and note the proliferation of private-label products.
Last week, several consumer-packaged-goods companies...Kellogg’s, Kraft and Sara Lee reported weaker-than-(they supposedly)-expected earnings, a weaker short-term forecast, and a negative outlook for growth. Every day, CPG companies are losing share to lower-cost products as consumers realize that the store brand is identical to the branded product in almost every way...except for the price.
If Wall Street mavens are looking for the next big bubble, it might just be coming from a big box of branded soap. Whatever companies think their brand is worth, they’re wrong. Whatever equity they think they have invested in their brand can be lost in an instant (see Budweiser). During a merger or acquisition, Wall Street places a valuation on a brand’s worth, and they call it ‘goodwill’, and list it as an asset. This is now commonly perceived to be the value of the brand.
Here’s the problem. Whatever equation they use to evaluate the ‘worth’ of a brand, it is a made up equation (“um...what if we multiply it by three?”) Second, they’re entirely wrong. Each and every brand is teetering on worthlessness.
In the ‘good ol’ days’, brands served a purpose (“That’s my cow!”), and later, they helped consumers make purchases from trusted sources in a crowded marketplace (“I like Quaker oatmeal.”).
When information was scarce, brands were necessary in order for decisions to be made efficiently. The brand was a nice mental shortcut for consumers. In a marketplace crowded with a number of similar products, a brand can be a shopper’s friend...like a nod from an old buddy...tried, true and trusted. Put it in the shopping cart.
BUT. That was when information was scarce, and most consumers got their information from paid advertising. Technology continues to make information free and increasingly targeted, in addition, social networking has spawned a new breed of experts (mommy-bloggers, really?), making it easier than ever to avoid paid sponsorship (note the re-explosion of in-show product placement (Texaco Star Theater, anyone?).
The truth is, when given enough information and incentive, consumers will switch brands so fast it would make a sailor blush. It could be argued that I’m brand-loyal to Apple Computers. I have never purchased anything but Macs. I love the product (and make fun of my wife’s PC fairly often). However...if a company came out with an identical product for less money...say...The Banana Computer - I’d buy it in a heartbeat.
Consumers are brand loyal to their wallet, the value you offer them, and the bottom line.
(investor disclosure: I don’t own any of the above-mentioned stocks, but I once dated a girl named Sara Lee)
