The Brand Bubble The Looming Crisis in Brand Value and How to Avoid It John Gerzema Ed Lebar Foreword by Peter Stringham, CEO Young & Rubicam Group ffirs.indd vffirs.indd v 8/25/08 10:33:26 AM8/25/08 10:33:26 AM ffirs.indd vffirs.indd v 8/25/08 10:33:26 AM8/25/08 10:33:26 AM Praise for The Brand Bubble “The 21st century business will see two types of winners: the low- price/low-cost products and services, and strong brands. Today, margins, profi ts, and equities are driven by powerful brands. The grave danger is that brands are losing their way. The Brand Bubble explains the greatest risk to world business and how to avoid it. If you are in the brand business, only the intuitive geniuses should get dispensation from reading this brilliant, analytical, data-rich guide to sustained profi table growth in what will continue to be an extraordinarily competitive and challenging environment.” — Peter Georgescu, chairman emeritus, Young & Rubicam, and author, The Source of Success “With a subject written about ad nauseam by both practitioners and academics, in The Brand Bubble John Gerzema and Ed Lebar have identifi ed a signifi cant trend that leaves most of the other theories in the dust. Building off the fi fteen-year investment Young & Rubicam has made into the proprietary Brand Asset Valuator, John and Ed have captured the concept of energized differentiation in an easily understood and recognizable fashion. They have reinforced that although brands are ‘owned’ by the consumer, the fi nancial rewards to the manufacturer or service provider are signifi cantly greater when their brands are continu- ally energized through creativity, innovation, and well-paced change. The book provides a well-thought-out approach to keeping brands vibrant and relevant in today’s highly competi- tive environment.” —Jim Murphy, chairman and CEO, Murphy & Co., and retired chief marketing and communications offi cer, Accenture ffirs.indd iffirs.indd i 8/25/08 10:33:25 AM8/25/08 10:33:25 AM “After reading this book, you’ll never think of brands the same way again. It will open your eyes to a new way of thinking and executing.” —Dermot Boden, chief marketing offi cer, LG “This book is a must for anyone interested in the strategy and value of brands—a riveting read with serious implications for investors, corporate strategists, and brand managers. The intersection of brand strategy and shareholder value has been underserved by the literature, but these authors serve up something that is timely, big, and useful, with new thinking based on their research and real- world experience.” —Justin Pettit, partner, Booz & Company “This book is a must-read for anyone who manages brands or invests in companies that manage brands. Through a brilliant analysis that charts shareholder value to brand value, Gerzema and Lebar identify a brand bubble that puts most companies at signifi cant downside risk, and they then chart a path that the more savvy companies could follow to fi nd their way through to the other side when the bubble almost inevitably bursts.” — Mark Penn, worldwide president and CEO, Burson-Marsteller, and president, Penn, Schoen & Berland “This is a business book that happens to be about brands. Any manager in any line of business must learn how to protect and nurture their most cherished asset. Brands are under attack, and boardrooms need to pay attention.” — John Rose, senior vice president and managing director, the Boston Consulting Group “Gerzema and Lebar propose a startling idea—that the value of a brand lies not in the stability and consistency of its promise, but in its constancy of motion. The implications are profound, and will keep even the most seasoned brand managers up late at night.” —Chris Trimble, coauthor, Ten Rules for Strategic Innovators ffirs.indd iiffirs.indd ii 8/25/08 10:33:25 AM8/25/08 10:33:25 AM “This book is an indispensable tool for brand stewards who compete in today’s dynamic, global, and digital marketplace, where the paths that lead to brand performance are ever more complex.” — Chris Shimojima, vice president, global digital commerce, Nike, Inc. “The Brand Bubble will help companies navigate the complexity of driving consumer delight in an ever more complex and crowded world where media and messages can blur into a collage of con- fusion. Their insights provide a stimulating guide to building brand value through sound analysis and execution.” — Michael Tatelman, vice president and general manager, sales and marketing, Dell Consumer “John Gerzema and Ed Lebar offer very creative and innovative insights about how to establish consistency between the fi nancial market performance measure of a brand and the measure of the customers’ esteem toward a brand, thus avoiding the fallout of a brand bubble. Empirical evidence provided for their concerns about current brand management and for their prescribed rem- edies is indeed impressive and well founded. It is an excellent book for brand managers to read and refer to for a successful brand management career.” — C.W. Park, professor of marketing, USC Marshall School of Business “This book has been meticulously researched to provide a com- prehensive yet accessible understanding into how great brands are built today to sustain competitive advantage and generate asset value.” — Cammie Dunaway, executive vice president, sales and marketing, Nintendo ffirs.indd iiiffirs.indd iii 8/25/08 10:33:26 AM8/25/08 10:33:26 AM “John Gerzema and Ed Lebar lay out a very dynamic way to think about brands and shareholder value. We are convinced that the Brand Asset Valuator is a valuable tool to assess the fi nancial impact of your brand and the power of its marketing.” — Joseph Plummer, chief research offi cer, Advertising Research Foundation “The Brand Bubble raises thought-provoking challenges and paradoxes. Can a company meet its demise through misguided efforts at brand building? Providing a compelling argument that long-term fi nancial success is closely linked to what consumers truly perceive about your brand, the authors offer valuable insights on how to refocus brand building on fulfi lling your brand promise to consumers.” — Anne-Flore Goldsberry, vice president of worldwide marketing, Logitech ffirs.indd ivffirs.indd iv 8/25/08 10:33:26 AM8/25/08 10:33:26 AM The Brand Bubble The Looming Crisis in Brand Value and How to Avoid It John Gerzema Ed Lebar Foreword by Peter Stringham, CEO Young & Rubicam Group ffirs.indd vffirs.indd v 8/25/08 10:33:26 AM8/25/08 10:33:26 AM Copyright © 2008 by Young & Rubicam Brands Published by Jossey-Bass A Wiley Imprint 989 Market Street, San Francisco, CA 94103-1741—www.josseybass.com No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the Web at www.copyright.com. Requests to the publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at www.wiley.com/go/permissions. IKEA material is used with the permission of Inter IKEA Systems B.V. Amazon, Amazon.com, and the Amazon.com logo are registered trademarks of Amazon.com, Inc., or its affi liates. VODAFONE and the Vodafone logo are trademarks of the Vodafone Group. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profi t or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. Jossey-Bass books and products are available through most bookstores. To contact Jossey-Bass directly call our Customer Care Department within the U.S. at 800-956-7739, outside the U.S. at 317-572-3986, or fax 317-572-4002. Jossey-Bass also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Cataloging-in-Publication Data Gerzema, John. The brand bubble : the looming crisis in brand value and how to avoid it / John Gerzema, Ed Lebar ; foreword by Peter Stringham. p. cm. Includes bibliographical references and index. ISBN 978-0-470-18387-8 (cloth) 1. Brand name products—Valuation. 2. Branding (Marketing) 3. Brand name products—Case studies. I. Lebar, Ed. II. Title. HD69.B7G43 2008 658.8'27—dc22 2008027384 Printed in the United States of America first edition HB Printing 10 9 8 7 6 5 4 3 2 1 ffirs.indd viffirs.indd vi 8/25/08 10:33:26 AM8/25/08 10:33:26 AM Contents Foreword ix By Peter Stringham, CEO, Young & Rubicam Group PART ONE: INTRODUCTION 1 1 Tulipmania and Infl ated Brands 5 2 Can You Say “Irresistible”? 32 3 Wall Street, Meet Main Street 57 4 The Postmodern Craving for Creativity 77 5 Welcome to ConsumerLand 87 PART TWO: APPLICATION 113 6 Stage One—Exploration: Performing an Energy Audit 119 Case study: LEGO—Play Well 7 Stage Two—Distillation: Identifying the Energy Core 153 Case study: Virgin Atlantic—Brilliant Basics, Magic Touches 8 Stage Three—Ignition: Creating an Energized Value Chain 179 Case study: Xerox—The Energy Inside 9 Stage Four—Fusion: Becoming an Energy-Driven Enterprise 199 Case study: Mumbai Tiffi n Box Suppliers—Human Energy vii ftoc.indd viiftoc.indd vii 8/25/08 10:33:43 AM8/25/08 10:33:43 AM viii Contents 10 Stage Five—Renewal: Active Listening and Constant Refreshing of Brand Meaning 218 Case study: UNIQLO—Seeing Farther Epilogue: A Brand May Be Famous, But Is It Creating Return for Shareholders? 233 Notes 235 Acknowledgments 241 The Authors 243 Index 245 ftoc.indd viiiftoc.indd viii 8/25/08 10:33:43 AM8/25/08 10:33:43 AM [...]... their own brands These are the brands consumers swoon over, tell their friends about, and buy time and time again These are the brands that drive a company’s stock beyond the estimates of financial experts These are the brands that create surprise earnings quarter after quarter The problem is these stellar brands are becoming fewer in number In today ’s changing consumer climate, exceptional brands are... value Brands as Drivers of Intangible Value Brands have become an independent force in the modern economy David Haigh, CEO of Brand Finance, told us in a phone interview, The total worth of the 250 most valuable global brands is $2.197 trillion.” To put this in perspective, these brands collectively exceed the GDP of France.1 Even the value of the world’s top ten most valuable brands exceeds the market... caution that this is not the total value of all brands in the world or even in the United States, only the brands owned by the five hundred companies included in the index And while these companies are also U.S based, they’re often global as well But regardless, the number is big—and growing: Brand values rose in their contribution to shareholder value from 5 to 30 percent over the past thirty years,... enough, we found other market researchers around the world noting some early signs of the same brand meltdown The Henley Centre highlighted an erosion of big brands beginning in 1999 in the United Kingdom In their annual study of the seventeen largest, most iconic British brands, sixteen showed a decline in consumer trust Their research attributed this to the brands’ inability to evolve their offerings... Tulipmania and Inflated Brands 7 FIGURE 1.1 THE NATURE OF THE BRAND BUBBLE Wall Street’s Estimation of Perceived Consumer Utility The Brand Bubble Consumers’ Actual Perceived Utility Value to Consumer Price Value to Company Cost value creation that brands bring is greatly exaggerated That is, Wall Street is long on brands; consumers are short on brands Fissures are forming in the pillars of brand equity This... for you Cheers The Brand Bubble provides both analysis and prescription The first half explains the research we performed at Y&R that caused us to recognize the existence of the brand bubble and to identify the attributes of energy infusing irresistibility into today’s leading brands We analyze the new consumer behaviors, expectations, and mind-set we call ConsumerLand, which demands that brands cintro.indd... landscape has been held at the marketing and brand level By examining these phenomena through the lens of brand value, we can see how new consumer behaviors are causing widespread perceptual damage to the values of all but a handful of brands Let’s begin by examining the origins of the brand bubble c01.indd 8 8/25/08 10:34:40 AM Tulipmania and Inflated Brands 9 Measuring the Worth of an Enterprise... of exemplary brands to prop up their respective values Yet cadres of business, finance, marketing, media, and advertising consultants seem to believe in a brand folly: that their brands are forever bankable and will continue c01.indd 17 8/25/08 10:34:42 AM 18 The Brand Bubble rising Their rosy forecasts sound like the makings of another Tulipmania These overstated assumptions of future brand earnings... than the consumers who buy them The constantly rising valuation of major brands is creating a brand bubble, one that could erase large portions of intangible value in firms and send a shockwave through the global economy Figure 1.1 illustrates the typical value exchange between brands and consumers In essence, the multiples that markets place on brand value overstate actual consumer sentiment, so the. .. vision of brand management While most managers still see metrics like trust and awareness as the backbone of how brands are built, our analysis shows they’re dead wrong— these metrics do not add to increased asset value In fact, the effort to follow them leads marketers astray, actually hastening the declining value of their brands The good news, however, is that our research also helped us identify the . powerful brands. The grave danger is that brands are losing their way. The Brand Bubble explains the greatest risk to world business and how to avoid it. If you are in the brand business, only the. between the fi nancial market performance measure of a brand and the measure of the customers’ esteem toward a brand, thus avoiding the fallout of a brand bubble. Empirical evidence provided for their. irrationally high the price is relative to the bare facts of the product ’ s underlying value. The Impending Brand Bubble Now, another bubble is hiding in our economy. This bubble rep- resents