Do Global Brands Create Value?

My co-author and friend of many years, Professor Jan-Benedict Steenkamp, mailed me a complimentary copy of his latest book, Global Brand Strategy. A month later, I finally got around to reading it this week.

Brands, and especially global brands, is such a fascinating subject. It is the most creative domain in marketing. While there is perhaps too much written on brands, there is relatively little on global brands. This made reading the book a learning journey.

I am not going to use this blog to review the book as I would be so obviously biased. Instead, let me reflect on what intrigued me about global brands as I went through the book.

Consumers on Global Brands

The book reported rather interesting responses of why consumers value global brands. First, was that consumers see global brands as offering higher quality than local brands. While one would expect that a consumer in Thailand may observe that “global brands are expensive but the price is reasonable when you think of the quality.” But even consumers in Spain reported that they like global brands “because they offer more quality and better guarantees.”

Secondly, global brands offer a passport to the consumer to be a global citizen. As a consumer in Costa Rica reflected “local brands show what we are, global brands show what we want to be.” Or, as a consumer in New Zealand noted “global brands make you feel part of something bigger.”

Of course, there are consumers who favour local brands, especially in certain categories. And, there is clearly a backlash to globalization. For example, American music and movies increasingly rule the world of popular culture. The French government seeing these industries are core to defining the “French” culture has spent decades worrying about, and protecting, the decimation of its local industry.

Yet, India is immune it seems. Well over 90 percent of both music and movies consumption favours local brands. Similarly, Italy may have succumbed on movies and music to globalization, but it is still relatively difficult to find non-Italian restaurants. Starbucks has decided to challenge this and it will be interesting to see the outcome.

We need to understand why global brands succeed with consumers in some categories more than in others, and in some countries more than others. Or, in other words, is there a future for local brands?

Financial Perspective on Global Brands

Unlike most of the branding literature that ignores the financial impact of brands, the book had an entire section dedicated to global brand performance. The impact of brands on consumer, revenue, profit, and shareholder metrics was well documented.

While his own research demonstrated that computing the brand value in financial terms is a “subjective” enterprise, it does not mean that one should not attempt it. Marketers are clearly under pressure to document that their activities create shareholder wealth. Interestingly, the book summarizes research conducted by several academics on this subject.

Published research has documented a positive impact of brand equity (measured variously) on market capitalization of the firm and shareholder returns. Furthermore, the stocks of firms with global brands are less volatile, particularly in protecting the returns when the overall stock market declines.

My own view is to take the above research on face value and accept that yes, global brands create shareholder value. But, this does not imply that all marketing expenses supporting a global brand must demonstrate positive financial impact. It is too restrictive as building a brand is a long term game. To focus on short term positive financial impact is detrimental to building the brand for posterity. Coca Cola would not be Coca Cola without the massive investments in building its brand equity via high profile event participation. Having said that, I realize that not all CEOs, and perhaps most CFOs, will not be convinced with my argument. C’est la vie.

How do Global Brands Create Value

It is one thing to say global brands create value or to document the positive financial effects, but the more important managerial problem is how? The author’s COMET framework I found useful in understanding the levers that managers can use to extract the maximum benefits from global brands. Briefly,

  • Consumer preference through enhancing perceived quality, global culture and positive country of origin effects.
  • Organizational benefits from rapid roll out of new products, leveraging resources from one market to build in others, as well as building a corporate identity that helps attract, retain and motivate employees.
  • Marketing advantages because of positive media spillover, pooling resources, and best practice sharing.
  • Economies of scale via more efficient procurement, logistics, and manufacturing.
  • Transnational innovation that flows from leveraging innovation and R&D facilities from different markets into the global innovation pipeline.
The Dilemma of Global Brands

After reading this informative book full of wonderful anecdotes about global brands and the research that has been conducted in the area, there is a fundamental question that a brand must answer when going global.

No brand is born global. It starts from one country. Therein, lies the challenge. To succeed it has been optimized to the needs of the target consumers in that country. When one decides to take this successful brand to another country, depending on the category and how different the new country is from the origin, one needs to ask: “who are we?”  What is core to the brand and what are we willing to adapt? For Starbucks, the desire to dominate the Chinese market meant removing Starbucks and dropping the word coffee from the logo.

Warmly

Nirmalya


Magic Dust:

I invite you to follow me on Twitter @ProfKumar and LinkedIn.

Leave a reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s