When Is Branding Not Necessary?
By Jacky Tai
Principal Consultant, StrategiCom
1 Feb 2007

For years, I have been expounding on the importance of branding for Singapore companies in my seminars and articles. I even wrote a book on the 10 rules of branding that all successful brands are built on – regardless of whether they are global, regional or local brands. But this time around, I would like to talk about an interesting subject that branding experts usually don’t touch on. Conflict of interest, you see?

Although I still think that brands are extremely important assets in today’s hyper-competitive environment, there are situations where branding is not required. There are situations where branding is not the solution.

So, when is branding not necessary? The answer depends on where you fall on what I call The Commodities Continuum. Take a look at the diagram below.

Highly Branded
The right hand side of The Commodities Continuum represents products and services that are highly branded. This means that brand preference actually plays an important role in influencing purchase decisions.

Contrary to popular belief, highly branded products and services are not limited to the consumer (B2C) sector. Some of the most valuable brands in the world are actually commercial (B2B) companies. In fact, according to the annual BusinessWeek ‘Top 100 Global Brands’ study, among the 5 most valuable brands in the world – Coca-Cola, Microsoft, Intel, IBM and General Electric – only Coca-Cola is a purely B2C brand. The rest are B2B.

If you fall on the highly branded end of the continuum, then branding is of course important to you. That is a no-brainer. But what about those companies on the other half of the scale?

Highly Commoditized
The left hand side of the scale represents products or services that are highly commoditized. They don’t have to be actual commodities like grains, crude oil or coffee beans. A lot of these products or services are sold under well-known brand names but for all intent and purpose, are commodities. They don’t have to be low-tech products either. In fact, some of the very high tech products that you can buy in the market are commodities.

Memory chips, hard disk drives, thumb drives and CD-ROM drives – just to name a few – are high tech products sold under various brand names but are they highly branded? No. These are highly commoditized products that are bought on price. There is no brand loyalty among the buyers of these products.

Highly commoditized categories are characterized by 2 things:

1. Perceived Product Parity

When there is perceived product parity among the different players in a particular category, that category is in danger of becoming commoditized. Branding is all about perception. And perception is reality.

Intel used to be the biggest manufacturer of memory chips. But Intel allowed competitors from Taiwan and South Korea to commoditize this category. Intel was eventually forced to abandon this market in 1985 to concentrate on microprocessors.

And this time, Intel focused on building a strong corporate brand around its microprocessors combined with powerful sub-brands such as Pentium, Celeron, Centrino, Xeon, Viiv and Core Duo. That prevented the microprocessor category from becoming commoditized because now, there is no perceived product parity. There may be actual product parity or even product superiority on the part of Intel’s main competitor, AMD, but all that matters is buyers perceive Intel to be superior.

2. Intense Price Competition

Price is a factor only when there is perceived product parity. When customers have a choice and they perceive no difference between one brand and another, they will usually buy the cheaper alternative. Highly commoditized categories are therefore characterized by intense price competition. There is little or no brand loyalty and customers can switch between suppliers easily.

What Do You Do If You Are Highly Commoditized?
If you fall into the highly commoditized end of The Commodities Continuum, then branding is not necessary. If you are already in the highly commoditized end of the continuum, what you need to do is implement productivity improvement programs, cost reduction programs and efficiency improvement programs.

You need to be ruthless in trimming every gram of fat from your organization in order to survive in this environment. You may even need to keep moving your centre of operations to low cost locations to keep costs down.

Can a highly commoditized product or service be pushed into the branded half of the spectrum. Yes it can but with a great deal of difficulty. It may not be worth the time and money to do so. If you are in a commodities business, you can either work hard at maintaining or even improving your cost advantage or you can give up the business. The decision is yours to make.

Recognize That You Could Have A Mixed Portfolio Of Commodities And Brands
One of the things that most Singapore companies probably don’t recognize is that within their portfolio of products or services, some could be branded and some could be commoditized. Before you can make an intelligent strategic decision, you need to first understand where each of your product or service fall along The Commodities Continuum.

This will allow you to make correct decisions on how to allocate your people and resources accordingly. To run a commodities business requires a different type of people and different types of innovation and marketing programs compared to running a branded business.

Let me give you a couple of examples.

Samsung Electronics is a giant conglomerate with a wide range of products. Their memory chip and storage devices business will fall on the commoditized end of the scale and their mobile phones and plasma TV business will fall on the branded end.

General Electric is also the same. Some of their products such as electric motors and light bulbs fall on the commodities end of the scale and some of their products such as jet engines and medical scanners fall the branded end of the spectrum.

What If You Fall Somewhere In The Middle?
If you are stuck in the middle, you can swing either way. Therefore, you have an important strategic decision to make. Which side of the fence you want to be on?

If you want to compete on price, then commoditize your products or services. Design your business model to be the cheapest and most efficient. Run those productivity/efficiency/cost reduction programs that I talked about earlier. Dell did that with the PC. It created and perfected a supply chain model that allowed it to be cheaper than its major competitors. That made Dell very successful.

If you want to push your company into the branded end of the scale, you need to run a properly strategized and well executed branding program. That was what Intel did with the microprocessor which at the beginning was somewhere in the middle of The Commodities Continuum. If Intel hadn’t taken proactive steps to brand their microprocessors, then you can be sure they will become commodities.

Regardless of which side of the fence you want to be, be proactive. Take charge of the destiny of your brand. Don’t let your competitors decide your fate. As Donald Trump once said, “If you don’t manage your brand, somebody else will do it for you and that somebody will likely be your competitor.”

If you have any questions or comments about this article, please e-mail me at jacky.tai@strategicom.com. I would be most happy to discuss them with you.