A company's brand is one of its most valuable assets, one that few high tech companies -- most recently HP and Compaq -- understand how to leverage, according to Sam Hill. Hill is co-author (with Chris Lederer) of the new book, The Infinite Asset: Managing Brands to Build New Value. He is the former chief marketing officer at Booz Allen & Hamilton and currently a partner at Helios Consulting Group and also co-author of Radical Marketing, now in its fourth printing.
UBIQUITY: How did product branding begin and why does it matter in technology?
SAM HILL: Brands have been around since 2000 BC when some sandal maker stamped his mark on a leather strap. Branding as we know it started approximately 150 years ago when Procter & Gamble sold candles. Stevedores knew the Cincinnati candles were better quality and drew a star in chalk on the side of each crate. Before long, that became the Star brand. P&G not only created modern brands, they established the rules for branding that we've used ever since. For the last 100 years or so we've used the same rules that Neil McElroy wrote down in 1931 when he created the famous P&G brand management system. Over time, we got so comfortable with brands and the standardized set of rules that brands were shoved down in the marketing department and people stopped really thinking about them. In the early '90s, Interbrand and Dave Aaker and some other folks started pointing out that brands had value as assets, and that ignited the current interest in brands.
UBIQUITY: What caused the shift in thinking?
HILL: People discovered that brands are a source of a lengthy competitive advantage. In my business, I spend essentially every minute of every day trying to find a source of competitive advantage for my clients. Is it total quality management? Is it economies of scale? What is it? Well, a brand is a very useful candidate for competitive advantage. One reason is that brands have an odd mathematical characteristic, the McDonald's effect. The more the competition increases, the more a brand's relative value increases. It's a weird thing because a brand is the only asset that does that.
UBIQUITY: Is that true in all industries? Specifically, since our audience focuses on computers and communications, is it true in those arenas?
HILL: We use the McDonald's example because restaurants are easy to understand, but, yes, we think it's true in all industries. If somebody goes to a little shop in town and Sony is the only brand on the shelf it¹s not all that valuable. At Best Buy, where there are a hundred brands on the shelf, the Sony brand is gold. I'm on the board of FTD.com, which is one of only two dot-coms to be profitable for a whole year, the other being eBay. One reason we've been profitable is simple: We have the FTD brand name. We've seen no evidence that on the Web, in electronics, in high-tech or in anything else, that brands aren't just as powerful as in other businesses.
UBIQUITY: What becomes of well-designed brands during a merger?
HILL: Darrell Royal, the former football coach of the University of Texas, used to say when you pass the ball, three things can happen, and two are bad. It's the same when companies merge. The sort of good thing that can happen when companies merge is what happened with BP and Amoco, where BP figured out a clever way to get value out of both brands. But what usually happens when companies merge is one of the two bad things. The first bad possibility is that they go through the plant-the-flag syndrome and just kill the brand who lost, like HP and Compaq are now doing, where it has been announced that the company and products will be known as HP from now on, period.
UBIQUITY: What do you think of that strategy?
HILL: In this case? Almost certainly a bad idea. The notion of selling cheap printers and high-end servers on the same brand -- having one brand that goes across that many products and price points -- is more than likely a bad idea. More generally? Often bad because companies haven¹t thought it through from the customer and strategic perspectives. When NationsBank took over Bank of America and took the B of A name, it was fine because they¹d thought it through.
UBIQUITY: What is the other mistake that's made during mergers?
HILL: The other thing that happens is they try to satisfy everyone by forming Morgan Stanley Dean Witter Blah Blah. Sometimes they use an umbrella brand -- the XYZ Company, a division of ABC. These weird political compromises are clumsy, costly and eventually must be undone as Morgan Stanley is now doing. Very seldom do companies think through the opportunity created by M&A (merger and acquisition) like BP. M&A creates a great opportunity for brands. You've got a spectrum of products and a spectrum of customers, so it's a wonderful opportunity to move the brands around. Most companies don't do it that way. They either kill it, or they slam them together.
UBIQUITY: Go back to your point about BP and Amoco. How did they salvage both of the brands?
HILL: BP did something pretty clever. BP bought Amoco, and they were going to take every Amoco station and turn it into a BP station. But they were aware of the fact that Amoco for years has gotten a very slight premium on its gasoline because the Amoco brand is perceived as a slightly better gasoline than other brands. This started way back when Amoco pushed something the old-timers called white gas, which was unleaded. Amoco was one of the first folks to market gasoline. There are many customers who -- whether on purpose or accidentally -- vaguely believe that Amoco is better. So BP renamed the stations, but kept Amoco as a separate brand of super fuels. If you look at a lot of BP stations, you will notice that they are serving Amoco products. The jury's still out on whether or not people are going to buy it, because people are not used to seeing one brand for the gasoline and another brand for the gas station. But I think it's an awful clever experiment to see if they can create some additional value.
UBIQUITY: Does branding have as much importance in big-ticket items as it does in the consumer level?
HILL: That's a huge question. The argument behind brands used to be that they¹re for consumer goods, not big-ticket items. Think about it this way. Brands convey information. Several years ago, J. Walter Thompson, the ad agency, drilled holes in supermarket shelves and looked at how long consumers took to make choices between products. I forget the exact number, but it was something like 7 to 11 seconds. So when you walk up the soap aisle, you're in front of the soap for about 10 seconds. The argument is that brands are very important there because they are an efficient way to convey a lot of information in a very short time. The argument was that they weren't very important in big-ticket items, because big-ticket items are very considered purchases. With a considered purchase, people gather much more info and spend much more time. Increasingly, it seems to be that brands matter in big-ticket items as well. For example, in the BMW relationship to Mercedes, the price difference between the two is much lower in the States than it is in Europe, and that's because BMW has a better brand in the States than it does in Europe.
UBIQUITY: Why is that?
HILL: Because they very carefully positioned it higher up. BMW in Europe is more like Audi. You know, there's Mercedes, there's a step down, and then there's BMW. BMW in the States is very careful to position itself higher and build its brand higher up. As a result, it enjoys the benefits of that. There's a lot of evidence that in big-ticket consumer items, brands still matter. Why do people buy stuff from Tiffany¹s in the little blue box? De Beers now inscribes numbers and a logo on the bottom of diamonds. In industrial products where you have professional buyers, people have been surprised at how much brands matter. When EMC was trying to penetrate the data storage market, they found out just how strong the IBM brand was among data center managers. They finally cracked through but it took them years to do it because they were fighting that IBM brand. I think the conclusion is that although brands are somewhat less important in big-ticket items than they are in small-ticket items. they're certainly not unimportant. They play a very critical role in just about every purchase.
UBIQUITY: How does the notion of branding carry over into organizations like associations or organizations like universities?
HILL: To universities it carries over very easily. If you look at the published MBA rankings every year, Harvard and Stanford probably never have been ranked number one. If you believe that that's an objective measure of a good education -- which of course it probably isn't -- then you would think that whoever is ranked number one would get the students with the highest SATs, get the most applications, and have the longest waiting list. Of course, that's not true at all because Harvard's and Stanford's brands are stronger. On the association front, the AMA used to think it didn't have a brand until it made a co-branding deal with Sunbeam. That got the executive director fired because they misused the AMA brand.
UBIQUITY: How was the AMA brand misused?
HILL: The AMA decided to endorse a set of medical appliances made by Sunbeam. The membership revolted because they felt that this was abusing the AMA brand. The AMA had never paid a bit of attention to branding before that incident. They didn't even realize they had a brand until they tried to use it in a different context. We always think about brands from the company standpoint; they create equity, they create customer loyalty, they create price premiums, they create market share premiums. Think about brands from the consumer's standpoint. People like brands and feel emotionally connected to them. They convey a lot of information very simply, they make a quality promise, and there is an emotional benefit because if you buy a certain brand, you're not going to be criticized. You know the adage, "Nobody ever got fired for buying IBM." Brands are complex value delivery devices. There's no reason that that shouldn't be just as true in associations and not-for-profits and universities. Why do people give money to United Way? One reason of course is the United Way has a brilliant infrastructure for gouging money out of many, many organizations. But the other thing is that it spends millions of dollars on TV advertising to build its brand. When people give money to that charity, in essence they're making a brand purchase. They're deciding to give it to United Way versus Jerry's Kids versus a local charity.
UBIQUITY: Going back to AMA, the bad news was that they got burned, but the good news was that they discovered they owned a valuable brand. What did they do -- and what should they have done -- once they made that interesting discovery?
HILL: Well, what they did do was fire the guy who set up the deal in the first place. And they paid Sunbeam some large amount of money to get out of the contract. What they essentially did was retreat. What they should do, now having discovered this, is be very thoughtful in how they use it. I think it's a perfectly legitimate thing for them to do co-branding with people that they think might do good things, and to use the power of that brand. A co-brand is a positive thing, which you're using to say, "Let me introduce a friend of mine to your consumer." Well, there's no reason they shouldn't use the AMA brand to introduce people to other brands. If they use it wisely and profit from it, they'll make their own brand stronger. They just need to do it thoughtfully and not because some bureaucrat struck a deal to get a few thousand dollars a year by loaning the name out.
UBIQUITY: Can associations combine their non-profit branding successfully with commercial purposes? What's the right way to do it?
HILL: I'm from the Deep South, and my grandmother had an aphorism for everything. One of hers was, "You are known by the company you keep." In branding, that is a really true. If you want to do a deal with Hooters, that's OK. But be aware that people are going to say, "Helios Consulting, a friend of Hooters." If that's the market you want to appeal to, and you're comfortable with it, that's great. But you need ask, do these guys fit? Are they going the way we want to go? If this thing is successful, what's the best that can happen? If it's unsuccessful, what's the worst that can happen? When you start doing brand alliances you need to do the strategic equivalent of a pre-nuptial agreement. You need to figure out what the implications are going to be. The problem with the AMA/Sunbeam deal is they didn't think about it. By the way, these deals became extraordinarily promiscuous under the dot-com era because it was so easy to digitally cut and paste and do associate deals and alliances.
UBIQUITY: Well, having brought up dot-coms, let's talk about the dot-com debacle. What do you make of it in terms of a branding expert?
HILL: First of all, I'm not convinced that the dot-com phenomenon was really a debacle. I think it was certainly over-hyped and poorly understood, but before it's over with it will change the world. Some of the business models it created where you have one person doing the manufacturing, another handling the delivery, and another person doing the marketing, will endure. When all the washout is done, we won't be as harsh on the dot-coms as we are right now. They're easy to pick on, but they actually aren't all that bad. In terms of brands, the dot-coms had it right. The dot-coms said that brands are hugely important, and that they could build big business off of brands. If you get a great brand going, you can overcome almost the lack of anything else. And that's right. What they were foolish about is that they thought you could do it in six months. Most brands are built over the course of decades, not in six months. The idea that you can build a brand of that strength with a couple of Super Bowl commercials is hopelessly naïve. FTD.com is successful because it's a product that makes sense on the Internet, of course, but in addition to that, it's working off a brand that people know.
UBIQUITY: Let's talk about two of the high-tech companies that you discuss in your book. One being Yahoo! and the other being Microsoft.
HILL: Well, both of those are interesting companies. Yahoo! obviously has some difficulties right now because the advertising market has collapsed. That's putting them in a bad light at the moment. But in terms of what they tried to do from the beginning, they were the smartest of the dot-coms, at least in a way. When other folks were worrying about getting the technology and the financing right and that sort of stuff, Yahoo! was thinking about their brand from the beginning. They thought about it when they chose a name that is very catchy, differentiated, clever and memorable. Whenever they made an acquisition they renamed it Yahoo! immediately. They thought about it when they did partnerships. They were very aggressive in forcing people to use the Yahoo! name when they thought it would be a good thing. They thought about it when they went out for the first round of financing. When people asked them if they needed the money for salaries and stuff, they said, "No, we need the money for marketing. We need to communicate with more people about our brand." So they've been brand-conscious the whole time. People know what Yahoo! stands for because they were very conscious about it from the beginning.
UBIQUITY: What would happen -- or what do you think should happen -- if AOL Time Warner, which is a big name, acquired Yahoo!? What would happen to the Yahoo! brand?
HILL: I think they would call it AOL Time Warner Yahoo!, because as a branding philosophy if you look at AOL Time Warner, more times than not they have layered umbrella brands on top of their divisions. This is that thing I talked about with mergers and acquisitions. Executives often have a conqueror mentality. They plant the flag and tear down the last guy's place of worship and build a place of worship of their own on top of it, which was what the old conquerors did. Well, companies do that too. They layer their brand on top. My guess is that may be what AOL and Time Warner would do. Now what I suspect they should do is leave it distinctly separate. I've never seen the market research, but my guess is that AOL serves a base of folks who aren't overwhelmingly sophisticated, who are probably the younger and the older, at least in the main, and folks who just want very simple access. My guess is that Yahoo! serves a younger, hipper crowd, who enjoys that sort of quirky Macintosh-like personality. When they actually look at the target markets and the target segments that both of those brands serve, my guess is they'll find that they're completely different. If that is true, they would be nuts to risk losing those markets and segments by trying to migrate them to something else.
UBIQUITY: Let's jump forward to your thoughts on Microsoft.
HILL: There are two groups of humans on the world. One group believes that Microsoft is a brilliant company of geniuses who have a grand design for everything. The other group believes that it is a reasonably good company that stumbled across some smart things, and once they came across those things, was clever enough to stay with them. I fall in the latter camp. I don't believe that Microsoft is going to take over the UN, but I think that they are one of the most intelligent companies around, and they get the idea of leveraging brands. Microsoft has proved to be one of the best companies at entering new markets and using their brand to get into them. Now it gets them into trouble because it makes them so big and ubiquitous that they are a target for regulators.
UBIQUITY: In your book you talk about brand portfolio management. Tell us about that.
HILL: In traditional brand management, every brand is for itself. Procter & Gamble has Tide and Cheer, and P&G doesn't care if they fight -- in fact it encourages them to fight. So the classic way of thinking about it was to say, let's have every brand go up against every other brand and do the best it can. But with brand portfolio management, the idea is that you put people in charge to make sure that you're using all your brands to further a bigger purpose. It's not always wise to have your brands compete with each other. If you leave brands alone, they'll end up overlapping, and you'll end up with two brands that essentially do the same thing when you ought to hold them apart. The reason that Chrysler announced it was getting rid of the Plymouth brand was because the Chrysler, Plymouth and Dodge brands all become too similar. They all had the same sorts of cars. What we're saying is if there had been somebody from the beginning who made sure that Plymouth was different from Dodge, was different from Chrysler, and kept those cars in their boxes, they would not have had the problem they ended up with. We think increasingly you're going to see companies who think about that. As they start getting into it, a whole set of tools will be developed to manage brand portfolios like financial portfolios. For example, P&G, which generally is not a good example, just sold Crisco and Jif brands to somebody else. Both of those are fine, successful brands, but they didn't fit in their brand portfolio and so they got rid of them. That's one example of how people are going to start managing these things. We think if you look at organizations 10 years from now, most of them will have a brand portfolio manager.
UBIQUITY: Including high-tech companies?
HILL: Including high-tech companies. High-tech is legendary for being a bad brander. Let me use Compaq as an example. Think about it. Why would you use the name Compaq for servers? You have the best brand name ever created for small computers, so instead you put it on a bunch of stuff where the brand has no relevance. High-tech people frequently copy each other. The iMac is a success, so a year later, Compaq comes out with iPAQ. High-tech folks don't think through the ramifications of their actions. For example, they put "Intel Inside" on the front of all those PCs. The result is that you now have a lot of PC makers whose brands aren't very strong because people are looking for an Intel 733 chip. High-tech folks probably have to learn how to manage brands first before they get to brand portfolios. The Microsofts and the Yahoos! are rarities in the high-tech world. EMC and IBM are good branders in high-tech. But there are an awful lot of high-tech companies that have been very careless in how they branded, and they're probably going to have to undo a lot of those things before they get into brand portfolios.