In the January 5, 2009 issue of Ad Age, Al Ries published an insightful article entitled “The Difference Between Building a Business and Building a Brand.” We agree with virtually all of Al’s points in his article (as we usually do). The key messages in his article as we read it are:
1. Brand popularity/recognition and brand value (or insistence as we put it) are not the same thing. He cites examples of U.S. automakers who have tremendous brand recognition and virtually no brand value any more. (If you’d like to read more about brand insistence from us, you can download our free white paper, “Brand Loyalty vs. Brand Insistence.”)
2. Companies go wrong by trying to grow their business while damaging their brand. He cites Dell as an example of a company that grew from $32B in 2000 to $61B in 2007 while their profit margin fell from 6.8% to 4.8% (which if we were journalists would be reported as a 30% drop in profit margin), and of course they surrendered their #1 personal computer position. He counters “common wisdom” that Dell messed up their diversification by suggesting that Dell messed up their brand while trying to grow their revenue.
He shows how focused companies do better than companies that mess up their brand through diversification. Here is where we may not totally agree with him. He cites Intel vs AMD, we agree. He cites Coca Cola vs Pepsi, again probably we agree, but both companies have moved beyond their core beverage, but then Pepsi has moved beyond just beverages. He cites Nokia vs. Motorola, but then Motorola is moving rapidly to focus only on its telephone business, so that may depend on execution. Lastly, he cites Nike vs. Adidas, but Nike is probably more focused outside of shoes than Adidas is, so, maybe not.
He ends by noting that you can only dominate a category by keeping your brand focused. We agree. That does not preclude you from building a business based on multiple brands (i.e. Proctor and Gamble, and we know Al would agree) and it sometimes doesn’t preclude you from expanding the category your brand represents (i.e. Nike moving from shoes to sports). Again, we assume Al would not disagree, but he has been pretty much a stickler for staying focused for over 30 years.
For us the key is defining your business. If your business includes brands then we say, build your brands and build your business. They do not have to be mutually exclusive unless you get it backwards, and dilute your brands … but then you would be General Motors.