The Press, November 2006
Are brands only for beer? And running shoes, soft drink or fast food? Do local exporters of technology or manufactured goods need to worry about brands, even if they are just a component supplier? They don't unless they want to protect themselves from future competition.
Business people see brands like rugby fans see Doug Howlett in an All Black jersey, flashy and exciting but a bit superficial and of dubious value. But another way of understanding brands is they are like your company's reputation, the sum of all those experiences a customer has with it. Like a person's reputation, you have a brand whether you like or not. The decision is whether you want to manage it or not to your advantage.
Managing your brand is important because they play a key role in helping customers choose in increasingly competitive markets. A strong brand is why New Zealand company Icebreaker can command premium prices against the many competitors now offering merino garments. To prosper in the future Canterbury's technology companies must shift from competing on price to competing on value protected by a strong and clear brand.
That's the only way to avoid what a Fortune Magazine article called 'commodity hell.' "In commodity hell, everyone looks the same. Your products look the same, your margins look the same, and -wait a minute, where did those margins go? We hear they were spotted in Shanghai."
Our agricultural industries have long acknowledged and are confronting the challenge of being in a commodity sector. But as the sophistication of lower cost economies like China or India grows, Canterbury's technology and manufacturing businesses face the same challenge. To succeed their differentiation strategies cannot be simply built around their products, they must invest in and grow their brands.
Is this realistic for companies involved in component manufacturing? We have plenty of great companies in Christchurch that provide components which are built into other finished products. Is anything but price important in these relationships?
There was another company in a similar situation. They were running a distant second or third in their sector, which involved supplying components to manufacturers of a finished product. By building a brand for the end-consumer they managed to leap their competitors and are now the market leader.
The company was Intel, a manufacturer of processors for personal computers (PC). In the PC market of the 1990s they realised there was room to add value to the end-consumer by developing a strong brand around their processors. The "Intel Inside" brand became a way of consumers perceiving that the brand of computer that used them was one to be trusted. In this market previously processor manufacturers had been much more focussed on the next company in the chain, those manufacturing the PCs.
Intel's strategy didn't mean that weren't worried about technical leadership and product quality, they were absolutely essential. But it built a competitive advantage by creating a brand that resonated with consumers. That meant Intel's direct customers, the PC manufacturers, were more likely to choose their chips over their competitors.
A critical question for New Zealand companies is should you build brands aimed at the end user (e.g. Intel's approach of saying "you can trust the components in this PC"), and then get the consumer to 'drag' your product through the value chain. Or do you build a brand aimed at the next business in the chain, the manufacturer to which you supply component parts (in Intel's case - the PC companies). That manufacturer selects your product and "pushes" it through to the end user.
Building a brand focussed on the end-consumer is the ideal because you have more control i.e. other members of value chain will want to choose your component because it is desired by end consumer.
This "ideal" is not that practical for a lot of Kiwi companies where we supply parts to a manufacturer, far removed from the end consumer. We also don't have the capability and capital required to communicate and connect with the end user as a giant like Intel can. Developing a reputation around building good quality reliable product to our business customer is what we typically focus on.
That is a viable approach, as long as you remember that you still need to focus on building and maintaining your brand. And that brand can't be positioned solely around price. You need to build a brand that helps choose you over your competitors for reasons other than the cost - technical advantage, service, reliability, responsiveness etc.
The bottom line is still that the more your brand is visible and appeals to your end-consumer, the stronger position you are in.
So how do you build a brand that saves you from commodity hell?
- Identify - all of your customers from your direct ones through to the end user.
- Understand - their world and the problems and they really want solved.
- Define - your brand (what you stand for) based on these needs matched against your strengths.
- Invest - in building your brand internally and externally, do everything to ensure every customer experience is consistent with it.
- Monitor - talk to your customers as much as possible.
Brands might seem superficial and soft, but the cold hard reality is that they provide great protection from the chill winds of low cost competition.