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Brand oversight: what's a board to do?

Here are the seven deadly sins of brand destruction, and some recommendations for boards that want to do the best possible job of brand monitoring.

Despite a multi-billion-dollar business, Sears recently announced the end of its now unprofitable catalog operation -- once the finest merchandising channel in the world. At the same time, hundreds of Sears stores (now in eclipse to Wal-Mart, K mart, and others) will be shuttered.

As Sears reels from merchandising losses, these changes are closing the barn door long after the brand franchise has fled. Sears simply no longer means good value, good variety, and dependable merchandise to many of its former customers.

Everyone knows that it is much easier to lose a brand franchise than to build one. Why do boards allow the destruction of brands worth as much as billions to their shareholders? Here are the seven deadly sins of brand destruction:

1. Not reporting trends in brand perceptions for the company and its competitors to the board (the data are costly and time-consuming to develop).

2. Failing to have knowledgeable consumer products and service marketers on the board (lawyers, investment bankers, and CEOs of commodity manufacturers may not be very helpful).

3. Having a CEO who puts profit management ahead of managing brand health (milking brands for increased profits is a disastrous strategy).

4. Have a board that pressures the CEO to put profit management ahead of brand health creates the same sorry results.

5. Failing to back strong brands to the hilt that need more awareness, trial, and distribution -- but which are fundamentally preferred by customers.

6. Allowing the company to invest behind generic brand names (like MicroSoft's Windows program) that are either available to everyone or can be pre-empted with a proprietary brand position, rather than proprietary brand names (like Sears' Die Hard batteries).

7. Deliberately abandoning a brand (like the withdrawal of what is now called Coca-Cola Classic in 1985) that still has a strong customer appeal. This move is probably the error in the case of the Sears catalog. Reduce costs and improve the service, but do not abandon such a huge brand franchise.

As these deadly sins demonstrate, many things can and do go wrong with maintaining and building brand franchises. If a board wanted to do the best possible job of being effective in safeguarding brands, what can be done? Here are some recommendations:

* Create a brand committee of the board and have at least two brand-knowledgeable external CEO directors on it. This committee should meet quarterly.

* The first priority of the committee should be to audit the information processes of the company to be sure that those who are responsible for marketing and operations know what the position of each brand and its competitors is, and how they are trending in the perceptions of customers. If the information is not available, the methods to secure the data and teach executives how to use it must start. Developing, tracking, and integrating brand-strength data are skills that most companies lack, especially smaller ones.

* Once that information is in place, the committee should focus on determining whether timely actions are being taken to improve brand strength and to test for better ways to strengthen the brand.

Practical Cautions

In pursuing this direction, let me suggest some cautions. Many companies will want to rely on their advertising agency to be the sole source of information and ideas on brand strength. Although the agency is probably a fine one and can be an excellent source of information, you are placing it in a conflict of interest if it is your sole source because you are asking it to report in part on its own effectiveness. Also, its outsider's knowledge of the details of your operations may limit its ability to ask the right questions and make the correct interpretations of data.

Another problem can arise if the board members are not sufficiently knowledgeable about how to measure and improve brands. If you cannot recruit the expertise, you can certainly train the board to have that skill or buy the skill externally.

Counsel to outside directors and accounting firms for audits play both kinds of roles successfully for boards now. The analogy can be extended to brand monitoring.

A good training source can be a seminar by a professor of marketing. Board members could contact other boards locally to share the cost.

For large companies and those for whom brand strength is crucial, external marketing research firms can be the source of the ongoing expertise and can brief the committee. The obvious drawback to this approach is in its costliness. That factor is not as bad, however, as it first seems because most of the information needed is usually developed by external marketing research firms, anyway. Again, one needs to be cautious about conflict of interest, so the research firm providing the expertise should not be the one that routinely provides information services to the company.

Danger Signs

Now that questions of process and structure have been addressed, let us look at how companies can avoid inadvertently fooling themselves into ignoring costly problems. These danger signs should stand your hair on end:

* Real volume growth is not doing as well as the most effective competitors, who are at least one-tenth your size, after adjusting for distribution changes (same store sales in retailing, for example).

* Although real volume is doing fine, it is being maintained by reducing prices significantly versus competitors. This suggests that the product or service has some weaknesses.

* Newspapers and business publications write critical comments about your company or its products and services. By the time you make the press, the problem has been going on for a long time.

* Customers make faces or avoid talking about the company when you ask them about the company or its products and services...or worse, are openly critical.

Why should you be concerned when these danger signs show up? In each case, they are tangible manifestations of a severe drop in brand strength that has already occurred.

A strong company brand, and product and service brands behind it, are probably your company's most valuable assets. You probably guard your tangible assets very carefully with people and insurance. By now, you must feel how important it is to guard the brands that are the foundation of your continued success and provide the cash flow that creates the tangible assets.

Donald W. Mitchell is Chairman and CEO of Mitchell and Co., Waltham, Mass., a financial and management consulting company he founded in 1977 specializing in business strategy and in making fundamental changes to raise share value. He also founded, in 1989, Leading Executive Organizations 100 Inc., a training company for senior executives which operates Outstanding Chief Executive Officers, Share Price Growth 100, and other groups dedicated to benchmarking and developing new management practices.
COPYRIGHT 1993 Directors and Boards
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Building Brand Strength
Author:Mitchell, Donald W.
Publication:Directors & Boards
Date:Jun 22, 1993
Words:1138
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