Tuesday, November 8, 2011

Lessons from Procter & Gamble – Value of Branding

Procter & Gamble is one of the premier brand companies in the world. Their branding extends from their many billion dollar brands to the company itself and in many cases to its people. Being a Procter & Gamble brand assures consumers of quality, even though the company generally doesn’t market its brands under the corporate umbrella. Being the Procter & Gamble sales representative opens many doors. Investors have confidence in their investments as they buy stock in the company. Many of these investors are company employees. Having Procter & Gamble on your resume is a major positive. As you can see, the value of branding goes well beyond just the products.

How does one calculate the dollar value of a brand? There are a number of formulas and all work on the basis of capturing the extent that the company can sell its goods and services at a premium price and profit. Brand Sales = (Cost + Margin) * Volume. Your brand gets you one of two measurable outcomes: margin or volume. Comparing your margins to the competition is one way to assess the value of your brand, if you take heed of the caveat about other factors which may change margin. Comparing volume is less likely to yield a good estimate of brand value, because you can in many markets drive higher volumes with no brand value at all by charging lower prices.

For example, Coke despite its secret formula is flavored water just like RC Cola. However, Coca-Cola’s margin is 15.6%, while RC Cola - Cott’s is 5.3%. The typical company has an operating margin of 5-7%, so Coca-Cola’s margin is phenomenal. But there is more. Part of Coke’s value comes from its significantly larger gross volume sales because consumers are loyal to the Coca-Cola brand. That too generates significant value. How much? That depends on what measures you want to use but it is safe to say it is in the billions. According to Aswath Damodaran, professor of finance at New York University’s Stern School of Business, if Coca-Cola suddenly lost its brand name tomorrow, its operating margins could drop to around 5.28%, and it would lose $64.2 billion of value.

Branding is clearly a competitive advantage. It is the reason why larger companies with lots of managerial horsepower tend to spend a lot of time and money on branding. The most important value in a brand is the value that it holds for actual customers. This value is very difficult and expensive to build and fragile and easy to destroy. The difficulty of building and maintaining a brand is one reason why managers the world over tend to avoid spending much time or money on branding, especially in smaller companies. This is a shame, because a well-managed brand is so powerful that it can overcome almost any other competitive advantage.

In previous articles we have outlined many of the competitive advantages that branding can bring to a company. We won’t repeat them now but check the other articles if you are interested.

Since you are a consumer in addition to a brilliant business person, think about some of the brands with which you are familiar. Apple has built a group of very loyal customers and while they may not dominate the computer space, they have used their fan base to launch other products like the iPod, iPhone and iPad where they do dominate. They consistently break records for new product launches before the product is actually available. Valuable brand name for the largest company on paper in the world at one time this past year?

At Procter & Gamble, the Tide brand has now been applied to many types of fabric care, building on its strong base of removing dirt from clothes. Crest has a product for everyone, from first tooth to last and even dentures. Swiffer seems to be cleaning up everywhere (pun intended).

What value have you determined for the brands of your product, company and people? Have you made a conscious effort to create the positive brand and secure the benefits that come with it? If you need assistance, contact us. We can help. We have created and managed some very strong brands and can apply our experience to your business as well.



John Maver
Maver Management Group
(925) 648-7561
Maver Management
View John Maver's profile on LinkedIn

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