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Building on the brand: a strong brand presence does more than just resonate with consumers. It also creates an imperative inside the company that connects employees, managers, and shareholders. (Marketing).

From Starbucks to Southwest Airlines, successful companies owe a lot to the development of a powerful brand. But a brand is more than just a name -- it's the essence of your company, and it grows and changes the same way your organization does. In this issue, Nancy F. Koehn, a professor of business administration at Harvard Business School and the author of Brand New: How Entrepreneurs Earned Consumers' Trust from Wedgwood to Dell (Harvard Business School Press, 2001), talks with Bill Leigh about how the perception of brands is changing, and how companies can build on their brand to move to the next level.

Q. Why has the meaning of the term "brand" changed over the past year or so?

KOEHN. The Information Revolution has had a number of important effects on the term "brand" and on business leaders' understanding of it. Perhaps the most important of these is that we realize that a brand is much more complicated, much more robust, much more strategically significant than we thought even two years ago, when a lot of economic activity was implicitly governed by the idea that "If we build it, they will come." When we think about marketing at the height of the Internet explosion, say, in 2000 or even early 2001, we thought about a brand as a Web site, something we could build and attract people to by virtue of technology, by virtue of eyeballs, by virtue of credit cards on file in a particular site.

If the lessons of the past year or year and half teach us anything, they teach us that a brand is much richer than that. A brand is a relationship between customers and a company, between customers and a product, and, like all relationship, it has great complexities and great rewards. It requires great investment, and it delivers significant return. A brand has to be understood as a vital strategic asset that requires the understanding and input of virtually all aspects of a business or all departments in a company. All those functions are required to deliver on the promise of the brand, on the expectations that a particular customer or set of customers has regarding a company, its reputation, and what they expect when they pay their money.

Another change involving our understanding of brand has to do with how much involvement within a company is needed to create and sustain a strong, powerful brand. And finally, we're recognizing that brands involve not just customers outside the organization, but also employees, managers, and stakeholders within a company. This is not new but rather is something we are coming back to with new clarity. A brand doesn't just work outside an organization in terms of eliciting loyalty and attracting new customers and inciting positive word of mouth. A brand also works to do those things -- if it is productive and powerful -- within an organization.

Q. Can you give us an example?

KOEHN. I would argue that Southwest Airlines is one of the most powerful and positive brands in an industry that many customers love to hate: the airline industry. Southwest has enjoyed extraordinary brand enhancement even in the wake of September 11, an event that really battered U.S. airlines. Southwest did not suffer nearly as much as other airlines did. In fact, it is the only airline that expanded its route structure and made significant capital investments in the third and fourth quarters of 2001. By virtue of its brand and its relationships inside the company, Southwest has enjoyed enormous flexibility and stability at a very turbulent time in the industry.

Q. Your choice of Southwest is interesting, because it is not a traditional consumer product. How far do you think branding can go beyond the consumer product area?

KOEHN. Brands have tremendous reach and widespread potential. We have seen in the past 10 years an explosion in the branding of services -- of an airline experience, of investment banking services, and now, increasingly, of legal services. I think that in the wake of the financial scandals right now we will see a new wave of branding among brokerage services. We will see increased branding of accounting services as the accounting profession regroups and specific companies and firms try to increase consumer confidence and enhance their own long-standing reputations.

So branding is not confined, as we have often thought of it historically, to toothpaste or coffee or soda or other consumer products. Branding has to be seen in an economy in which the line between service, product, and experience is increasingly blurred. Consumers are buying more experiences and entities that combine aspects of two or all three of those categories. I think we are going to see branding as a strategic initiative, as a strategic tool, spread to all kinds of services, all kinds of experiences. Again, if you look at the travel industry, we are seeing not just the branding of airlines or the branding of hotels or of cruise lines, but the branding of an entire experience. One can go away for a weekend or a longer period of time and have an experience, not just at Disney World but at Club Med or at other kinds of resorts, where one is purchasing products -- meals, a room -- and also purchasing services and the combination of those things that constitute some kind of unique experience. Branding is no t just becoming more robust and richer in terms of its potential and importance; it is also becoming much more widespread in our economy.

Q. You started to talk about relationships and promises being at the core of what a brand is. In some ways that sounds very touchy-feely, but you are trying to make it the center of a business. How would you see these things coming together?

KOEHN. Brands are in many ways, if we can see them as relationships, an amorphous concept. We certainly don't think of relationships as tangible, as empirically demonstrable entities. Yet if brands are to be viable and powerful as strategic assets, they must also be completely defensible and completely justifiable as investments. No good brand is created or sustained without significant investment -- in the training of employees, in productive development, in quality management, in marketing, and particularly in leadership. At the end of the day, great brands are about talent and the marshalling and enhancement of that talent by leadership. All of those investments have to come together time after time to deliver on the promises of a great brand. So, if we are to use brands and exploit their potential, we have to be able to understand what the rewards and returns on those investments are in order to justify them in profitable enterprises.

Q. How does an organization do that?

KOEHN. One way is to think about understanding returns on customer loyalty. One of the most important things that a great brand does is foster loyalty. It is much cheaper -- as much as 10 times cheaper -- to maintain an existing customer than it is to acquire a new one. Great brands are extraordinarily powerful tools to keep customers coming back. They do more in terms of customer loyalty than incite customers who are already buyers to become repeat buyers. They also foster endorsements and positive word of mouth. Starbucks, which was created in the past 15 years with virtually no national advertising, is a brand that was built largely on positive word of mouth and positive customer endorsement.

Brands are also important in fostering customer loyalty across products. If we think about the challenge of introducing a new product under an existing brand, a powerful reputation and an appealing identity will make the introduction of that product much easier and much less expensive than it would be in the absence of a good brand. We can measure all those things -- trial, repeat purchase behavior, and positive word of mouth. Most companies with powerful brands do exactly this and get a handle on these very tangible, very empirical measurements to get a sense of the return of a great brand.

Q. Does that apply within a company, as well?

KOEHN. This kind of work is just beginning to be done now, but if indeed it is the case that brands work inside as well as outside companies, then we would expect to see lower turnover and perhaps higher rates of interest among potential employees in companies with powerful, appealing brands than in companies with weaker or less recognized or less attractive brands. For example, Starbucks' rates of turnover are between 40 percent and 50 percent. That is about a fourth of the industry average in fast food generally. Why does that matter? Turnover, like acquiring new customers, is very expensive. It takes a long time and a fair amount of other resources, including money, to train an employee at almost any level of the organization rather than to retain a successful, productive employee. So most businesses would prefer to keep a steady, productive work force in place rather than have employees leave, particularly frontline employees, and lose their investments in those people. We are beginning to see good eviden ce that brands help keep not just outside customers happy, but inside employees, inside customers, motivated and happy, too.

Brands also create a theme to help attract potential employees. In the past five years, Southwest Airlines has had in any given year more than 120,000 applicants for something like 3,000 or 3,500 flight attendant positions. Just think of that for a second: 120,000 applicants, and possible employees, for 3,500 positions. That means that a company with a powerful brand can attract more employees and increase the talent pool from which they choose their employees, maximizing the chances that they get a good fit for a particular position and incidentally maximizing the chances that the set of factors that go into delivering on the promise of a brand is perpetuated and enhanced.

Q. You stress the need for a brand to be thought of as something more than a product or marketing relationship, that it has to become very much the heart and soul of the business. How can companies achieve that unity and, in the process, strengthen their brands?

KOEHN. Whether it is a company just starring our or a multi-billion-dollar company, I tell them that understanding and enhancing your brand depend on understanding the identity and the values and the animating energy of the organization. I tell almost every entrepreneur with whom I talk not to forget the brand even though you are trying to build a better mousetrap. In a similar vein, I tell existing companies that if you are nor sure you are getting as much our of your brand as you can, you have to start with who and what you are as an organization.

One of the simplest exercises that companies can undertake in this regard, be they large or small, is to spend time brain-storming with top talent, because brands are both democratic and imperial in their governance and ownership. They're democratic in that they are owned by everyone in the organization. In companies with a great brand, like Estee Lauder or Dell or Starbucks, everyone is a citizen participating in the perpetuation of the brand. On the other hand, the critical decisions of stewardship around the brand are made in tightly focused, highly centralized ways. That is the imperial piece of it. So, if we are to continue to keep our brands powerful and relevant, we first have to understand who we are as an organization. What do we value? What do we do? What is our overriding objective? Second, we have to understand how our brand relates to the lifeblood, the sustaining circulation system of the organization. Third, how are we communicating what our identity is, what our promise is, what our value prop osition is to employees, customer and other stakeholders? Companies often find when they go through that exercise that there is a disconnect or discordance between those three aspects. Understanding that discordance, remedying it, and bringing those things into alignment can be extremely powerful in enhancing a brand's effectiveness.

There is one other aspect that I think is really important, and it relates to the brand power or weakness outside the organization. Great brands need to understand not only what the consumer wants now, because they have to respond to consumer priorities and preferences, but also to anticipate what the consumer will want in the future. Great brands don't just respond to existing wants on the part of the customers; they also anticipate future wants, subtle changes in where consumers are going, what they think about themselves, their lives, and the place of a particular product or service or experience in that context. If you truly are to anticipate where consumers are moving and what they will want, you can't always rely purely on market research. You need very commercially imaginative ways to understand where the consumer is going.

Q. How do you foresee brands evolving?

KOEHN. Brands are going to change in several critical ways. The first is that more companies will embrace the concept of branding as a relationship. That means that there will be more attention paid to understanding the nuances, the value of the relationship, the power of the relationship. Also, brands increasingly will involve not just the product or the service or the particular experience that the customer is purchasing or the employee is providing, they will involve values and the business practices of the firm that owns the brand. As customers become more interested in using their dollars to cast a vote on the business practices, or on what they perceive as the morality of a company, brands will come to involve something much wider than they've involved before: the integrity and practices and values of a particular company. That is very good news for companies that have done business with a great sense of integrity. It is a clarion call to leaders, because it is coming as an increasingly important part o f consumer priorities and buying decision-making.

I think the standard by which people measure and evaluate brands is going to become higher. Consumers expect more from good brands, and they are less forgiving of companies that don't deliver on that promise. Increasingly, we will see companies that aspire to have, and that do have, powerful brands thinking more creatively about how to deliver on those growing expectations and that shortening string of forgiveness. That again is very difficult to do, the same way it is difficult to anticipate where consumers are going. So companies that really turn their eye to owning and maintaining or creating a great brand have one of the most powerful repositories of competitive advantage that business history teaches us is available.

Nancy F. Koehn can be reached at
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Author:Leigh, Bill
Publication:Chief Executive (U.S.)
Article Type:Book Review
Date:Aug 1, 2002
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