The incalculable value of building brands: CEOs say it's not just about advertising, but about everyday operations, too.

United Technologies and FedEx have profoundly different approaches to developing and maintaining their brands. As a multi-industry conglomerate, UTC has a portfolio that includes Otis elevators, Carrier air conditioners, Sikorsky helicopters and Pratt & Whitney jet engines. In most cases, the brands are the names of people who created their companies decades or even a century ago. Those names have more power in the marketplace than "United Technologies" does. So Chief Executive George David says United Technologies' advertises the parent brand just to small-but-influential audiences in New York and Washington.

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"A lot of our corporate advertising has been the association of subsidiaries with the parent because the parent's trademark, which is only 1972 in origin, is worthless outside the financial community and the opinion leader population," David explained. "It's not a go-to-market strategy." And although UTC's employees like the idea of being part of a large company, many are more loyal to the operating units, David acknowledges. "They tend to think of themselves as part of Otis, Pratt or Carrier," he said. "So it's a delicate balance" between maintaining the UTC brand versus those of its operating units. "I think my philosophy has always been to use the power of the trademarks of the subsidiaries to improve the recognition and brand acceptance, awareness and respect for the parent company itself," said David.

To Rebrand or Not

It's precisely the opposite in many ways for FedEx. The Memphis-based company also has multiple lines of business such as its well-known FedEx express delivery service, but also a ground transportation division, a freight operation and, most recently, FedEx Kinko's. But there's no ambiguity--they all carry the FedEx name. "Our situation is different than UTC's because we didn't buy a company that had an inventor, with the exception of Kinko's," FedEx founder and Chief Executive Fred Smith said. "We knew that our brand had a lot of attributes and that if we could extend that brand, it would be helpful and, in fact, it was. It was like a turbocharger for the ground and freight businesses."

The branding decision was trickier when FedEx acquired Kinko's, so named because founder Paul Orfalea had a headful of curly red hair and was nicknamed Kinko. "We decided there was enough brand equity in Kinko's that we didn't want to throw it away," Smith explained. "We did a lot of focus groups and so forth. We decided to co-brand the product." Hence, the name FedEx Kinko's.

David and Smith made their remarks at a roundtable discussion in New York in February titled "The Power of Brands: Best Practices for CEOs," sponsored by Lippincott Mercer, the brand consultancy.

The discussion revealed that a company's brand image is the result of far more than just advertising and marketing. It is the result of nearly everything the company does that touches the customer. A company's brand has to have a "brand promise" that customers readily grasp. That means branding is central to the company's overall strategy, and has to be communicated and established throughout the organization. "A lot of people think about brand as advertising," said Kenneth Roberts, CEO of Lippincott. "But we look at it much more as changing behavior." A strong brand name helps persuade customers to buy a company's goods or services at a premium, but it's also important in shaping the opinions of investors and in attracting and retaining the right kind of employees.

The term "brand equity" is far more than just another marketing buzzword, said Lippincott's chief operating officer, Suzanne Hogan. "In a sense, there has to be brand equity--otherwise everything would be a commodity," Hogan said. "That's why certain brands are able to command a premium in their P/E ratios. There are certain products that can command a premium on the market. Those are the ways you benefit by having a strong brand."

Two other CEOs at the roundtable, Steve Loranger of ITT Industries and Richard Vie of Unitrin, faced similar "brand architecture" challenges as George David does. ITT, a famous conglomerate dating back to the days of Harold Geneen, still exists as an $8 billion company, with operations mostly in water and defense-related businesses. Unitrin is a Chicago-based insurance company put together from insurance and finance companies from the old Teledyne. For both Loranger and Vie, their individual lines of business have more brand recognition than their parent companies.

But other CEOs faced challenges more similar to those of FedEx, where their parent company brands must have instant credibility. For Steinway & Sons, for example, branding occurs every time a concert pianist sits down at a Steinway piano. If the sounds don't create wonderful music, the brand is immediately at risk, said Steinway CEO Bruce Stevens. The pianists "are not going to be fooled for more than two minutes after they start to play," Stevens said.

The fact that Steinway, now 153 years old, has been able to maintain concert-like quality in all its pianos has helped it survive the competitive onslaught from Chinese manufacturers. "It's deflation with a big D that's been happening for the past six or seven years," Stevens said. "The average grand piano that's sold in America today is about 22 percent less costly than it was six years ago," he explained. "Every company has given in to that price deterioration with the exception of one, and it's Steinway & Sons. Our prices have gone up on the average of 3 or 4 percent a year. A big part of that is our brand equity."

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Protecting brand equity isn't merely the function of advertising or marketing. It requires a company-wide commitment. "Most of the people at Steinway & Sons really have a passion for this," Stevens said. "It's an icon around the world and people take it seriously. People like myself, people in the factory who are crafting these instruments, their passion becomes a very great part" of the company's overall brand promise.

The OnStar division of General Motors faced a unique challenge in launching its combination of emergency services, remote diagnostics and navigation assistance 10 years ago, one that is also revealing about how parent companies engage with the brand names of subsidiaries. When OnStar started out, President Chet Huber said it didn't mention GM in any of its advertising. "People didn't expect a car company--any car company, frankly--to be in the kind of services business that we were in," Huber explained. "People thought of car companies as building cars, not as being emergency service providers. It just didn't resonate. It was a tough thing to sell against." The key brand promise of OnStar was "peace of mind" for drivers.

Over the years, however, OnStar has established itself so well that GM CEO Rick Wagoner decided about a year and a half ago that GM could benefit by being associated with OnStar. So Wagoner redesigned the OnStar logo and placed a small "by GM" line on it. "It's become a powerful vehicle differentiator," Huber argued. "OnStar stands for a lot in the world of marketing clutter. Do people know where to go to get OnStar? Are they clear that they can get it on a Buick but not on a Toyota? And so every opportunity we get to link now to the vehicle will hopefully help differentiate the parent products as well as draw people to the OnStar brand."

Branding is particularly crucial in fields where consumers may not recognize a difference in the quality of the goods or services being sold to them, such as in the airline or banking sectors. So Peyton Patterson has concentrated on trying to develop the brand of her NewAlliance Bancshares, based in New Haven, Conn. "Our challenge in branding is somewhat different because we were not taking different companies that had different brands," she explained. "We were putting five banks together. All had different names. In fact, we had the luxury of starting from the beginning. We were a new name, a new tag line."

In launching the merged entity, she and her colleagues conducted research with institutional investors, as well as with customers, to understand what the bank's point of differentiation should be. As a result of that research, the bank developed the tag line "Capital ideas, human values" to communicate how it would be different from other banks. "We're clearly trying to talk about performance on the one hand and then how we approach customers on the other," Patterson said.

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The strategy seems to have worked. "We all have sort of living, tangible examples of how a brand works for us," she told her fellow discussants. "It is always reminding the customer why you're different. We all have very specific examples of Steinway and FedEx, and what resonates. If we were all to ask each other what our brands signify, the important thing is that it resonates and it's different."

Incalculable Value

If developed and managed correctly, brands have almost incalculable value. "There are huge assets that each of our companies have that don't appear on the balance sheet and don't run through profit and loss statements," said FedEx's Smith. "Sikorsky, for all intents and purposes, is a synonym for helicopter. It has a connotation to people in the aerospace business that means something. I don't know how they value Sikorsky on their books at UTC, but I guarantee the name is worth a lot."

As the CEO with arguably the strongest brand in the room, Smith was pressed for more detail on how FedEx manages its brand. "First of all, you've got to protect the brand," he explained. "You've got to guard it, the way it's presented. We have extensive rules inside the company as to how you can use it, what it's got to look like, the metrics of the signs, and on down the line. But I think, more important than that, it's tying together what you do for the customers with what the brand symbolizes. That's where brands that go bad really have their problems. I mean, the worst thing in the world you can do for a bad product is to advertise it.

"So our brand stands for something and we work every day to get just a little bit better on delivering against that promise," Smith continued. "It is making sure that we protect and promote the brand appropriately but most of all making sure that the products and services that we deliver are consistent with the brand. That's the twin fulcrum on which our enterprise rests."

In the final analysis, a CEO manages the brand by managing the company's business. The two tasks can't really be separated. "Once you have a positioning strategy, how do you drive it through the organization?" Lippincott's Hogan asked. "We've decided what we're going to stand for. Now how do we drive it through all elements of the organization? Through our employees' behavior, through what we deliver to the client, through to the financial community, to our investments, our development investments and our contributions to society. And how do all of those things link?"

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She said it's essential to persuade the different arms of a company to commit to a branding vision. "That's a tremendous challenge for our clients because sometimes the various teams aren't working at single purposes--they're working at cross purposes. Or a client may have a great positioning strategy, but there's something about the operations side of the business that's hurting the behavior of the employees," Hogan said. "There's a misalignment and the operations folks don't want to work with the marketing folks." All of which explains why the branding challenge is so important--and so difficult.

RELATED ARTICLE: WHO'S WHO 

* George David is chairman and CEO of United Technologies, in Hartford, Conn.

* Suzanne Hogan is chief operating officer of Lippincott Mercer, the brand consultancy, based in New York.

* William J. Holstein is editor in chief, Chief Executive magazine, based in Montvale, N.J.

* Chet Huber is president of OnStar Corp., a unit of General Motors, in Detroit.

* Edward M. Kopko is chief executive, Butler International and Chief Executive Group, based in Montvale, N.J.

* Steven R. Loranger is chairman and CEO of ITT Industries, a manufacturer of water and defense-related equipment in White Plains, N.Y.

* Peyton Patterson is chairman and CEO of NewAlliance Bancshares, a new bank created from the merger of five banks, in New Haven, Conn.

* Kenneth J. Roberts is chairman and CEO of Lippincott Mercer.

* Frederick W. Smith is chairman and CEO of FedEx, based in Memphis.

* Bruce Stevens is president of Steinway & Sons pianos, in Long Island City, N.Y.

* Richard C. Vie is chairman and CEO of Unitrin insurance company, based in Chicago.

* Sanford Weill is chairman of Citigroup, based in New York.