The branding evolution: how the Internet is affecting established brand principles

Source: Exec Digital UK

Date :02/01/2008 10:48:01

Is ‘the power of brands’ transferable to the Internet or are ‘virtual brands’ anything more than hi-profile fads? ExecUK investigates.

By Ruari McCallion

What is it about the power of brands that will make sensible business people open their chequebooks and shell out zillions? Just about 20 years ago, The Economist magazine dubbed 1988 ‘the year of the brand’. In that year, four brands were sold for a staggering US$50 billion.

During twelve days in November that year, an astonishing takeover battle for RJR Nabisco saw the price rise from an eyebrow-raising $17 billion ($75 a share) leveraged offer to a mind-boggling $24.88 billion, over $109 per share – more than $18 higher than the stock price high on November 29, the day before the final bid was accepted.

The attraction was the brands – the R J Reynolds tobacco lines; the Nabisco food products with their ‘red triangle of quality’, and a portfolio of well-known names, from Shredded Wheat breakfast cereal to Camel and Winston cigarettes. The long-held belief is that brand names inspire loyalty, that people come back to buy repeatedly because of the name.

“Brands give comfort in an alien environment,” said Tony Roestenberg, now chief executive officer of SimplySmart Group. Say you want a lunchtime snack in Moscow, while you’re on a flying business trip and you have the choice between a café down a shadowy backstreet run by someone who looks like they may be nursing Cold War grudges, or a Big Mac at the shiny McDonald’s on the well-lit main street. Most people would elect for McDonald’s because it’s a comforting, known quantity.

But the value of brands is being increasingly questioned, as consumer tastes seem to become more fickle and long-established names, like MG Rover in the UK, bite the dust.

Reputation and reference

“The classical route for brands is to get established and gain a reputation. They also act as a ‘ball park’ for consumers – you could spend months and months going round and trying out different products. Going to a brand you can trust is a short-cut to the market,” said Sue Burden, of TNS, the global specialists in market information and business insight. There was a time when US car buyers were wedded for life to Ford, GM or Chrysler but that doesn’t happen now. Poor designs in the 1960s and 70s, shoddily built, made things much easier for the Japanese, offering value and vastly better quality.

James Surowiecki wrote in Wired magazine, November 2004, that ‘we’ve always overestimated the power of branding while underestimating consumers’ ability to recognise quality’. He also argued that brand power can have a negative impact, their very success making businesses less innovative and rigorous. If innovation has led the company to success, it’s innovation that will keep it there – as long as the company meets customer expectations. Nokia, in 2002, was rated as the sixth most-valuable brand in the world. The value that consultancy Interbrand…

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