WEEKEND TODAY Singapore. English., © 2008 MediaCorp Press Limited
You won’t hear another brand consultant saying this because it is like a magician revealing his secrets but the truth is, branding is sometimes a waste of time. Although a brand is one of the biggest assets you can have, spending time and money on branding is not always the right approach for a company. It depends where you fall on The Commodities Continuum.
If you fall on the Branded side, you are in a business where brands have a big influence on purchasing decisions. Branded products are not necessarily belong consumer (B2C) products. Commercial (B2B) products can also be branded. B2B products need stronger brands because a B2B purchase usually involves more money and more risk. As such, companies tend to buy from strong brands. When I was working in the United States, I was advised to buy IBM because “Nobody gets fired for buying IBM”. Is IBM the best? I don’t know but it certainly is a very strong B2B brand.
If you fall on the Commoditised end, branding may not be the right thing for you. Highly commoditised products have one thing in common: perceived product parity. When customers perceive the products to be the same (undifferentiated), then they will buy whichever is cheaper. Commoditised products do not necessarily refer to commodities like coffee beans, tea leaves, rice, iron, etc. Some of most high-tech products like computers or hard disks are commodities.
If you are in a commoditised business, you need to run efficiency programmes to trim every ounce of fat from your company. You need to be very competitive on price. If you fall somewhere in the middle, you have to decide if you want to be a commodity player or a branded player. If you do nothing, the process of hypercompetition will push you to the commoditised end because without a strong brand, all companies end up competing on price.
What many multi-product companies fail to recognise is that within their portfolio, there might be some branded products and commodities. For commodities, focus on making them very price competitive. For branded products, run branding programmes to keep them ahead of their competitors in the only place that matters – the minds of the customers. In the book, Winning, former CEO of General Electric, Jack Welch, said that some of GE’s products are commodities (such as locomotive engines) and some are branded (such as jet engines) and GE needed the right strategy and the right people to each business because the kind of people that will thrive in a commodities business are not the same as those who excel in a branded business.
If you are in the commoditised end of the continuum with undifferentiated products and intense price competition, you need to take a long, hard look at your business and answer one simple question: Do you have a structural cost advantage? A structural cost advantage is something that is built into the way you do things. Dell’s direct sales model, Ikea’s flat-packed furniture and Toyota’s just-in-time system are examples of structural cost advantage.
If you don’t have a structural cost advantage, you can do one of two things. One, run a branding programme to differentiate your commodity and become a branded player. Can commodities be branded? Yes, but with great difficulty. Evian is successful in branding one of the most widely available commodities in the world – water. Acme, a company owned by Warren Buffett, managed to brand bricks. It can be done, but it is not easy.
Two, get out of the business and find something else to do. In 1985, Intel decided to get out of the heavily commoditised memory chips business and let the Koreans and the Taiwanese have that market. They focused instead on a new market, microprocessors, but this time, it built a strong brand around this business so that it became difficult to commoditise.
What are you going to do?
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