Five strategies to increase the value of your brand

An increase in brand value can help drive revenue growth through higher consumer demand, improve gross margin by commanding a premium on prices and reduce business costs through improved supplier agreements. One method of valuing a brand is to take the market value of a company (total shares of stock outstanding multiplied by the company stock price) and subtract the value of its assets (found on the balance sheet). Using this methodology, Coca-Cola ranks as one of the world’s most valuable brands. Consumers choose Coca-Cola billions of times per day because of its authenticity, refreshment, originality, consistency and taste. The more The Coca-Cola Company can improve consumer demand for its brands, the more consumers will consume their products. For Coca-Cola, more consumption translates into more revenue and more profit.

So here are my five strategies to improve your brand:

• Improve your understanding of what your brand means. Taking our first example, there are a variety of reasons why people choose to drink Coke. Many people drink Coke because of the way they are perceived by others. It has a certain “coolness” factor. Others drink Coke because they know they will gain social acceptance. Some drink Coke for the increase in energy it gives them. Still others drink Coke for its refreshment and great taste. By keeping abreast of how consumers perceive their brands, Coke continuously meets their consumers’ expectations. This enables the Coca-Cola brand to maintain tremendous brand value.
• Innovate your products to meet your consumers’ unknown needs. When Nintendo launched the Wii, they revolutionized the way people play video games. Nintendo created a product consumers hadn’t even dreamt of. In so doing, Nintendo not only delighted avid video game players they also converted millions who never played video games into Wii players. With games like Wii Sport and Wii Fit that enhance both skills and fitness, Nintendo eliminated the inactive aspect of video games – one of its biggest negative perceptions – and, in turn, permitted consumers hours of guiltless entertainment. Talk about a brand value builder!
• Stay solution focused. Product engineers and marketers are notorious for creating all kinds of new features for existing products. If the features, however, don’t provide a specific benefit that the consumer needs, or are not intuitive, those features may end up hurting the brand. Remember how hard it used to be to program a VCR? Conversely, a feature that meets a need can provide tremendous value to a brand. When the makers of Sharpie finally developed a retractable Sharpie (the feature) that could be operated with one hand and not dry out (the benefits), they delighted millions of brand loyalists enhancing their already high brand scores.
• Pay attention to the details. There is nothing more exciting for consumers than when they buy a product that exceeds their expectations. That is why I love driving my Acura MDX. It is an SUV that drives like a car and offers so much more. The instrument panel is simple to read and easy on the eyes making driving safe and enjoyable. The four-wheel drive keeps me moving in all types of terrain. The blue-tooth audio provides perfect communication clarity. The vehicle seats seven comfortably or the rear two rows of seats can be folded down to haul as much stuff as a pickup truck. I could go on and on about my MDX, but more than anything it is the attention to detail put into each of these features that makes me thrilled to be an Acura owner.
• Be consistent and reliable. In thousands of restaurants all around the world, people consume McDonald’s burgers and fries millions of times a day. The fries they eat in the morning taste just like those they eat at night. The Big Mac they buy in Beijing is delivered to them in the same amount of time as the one they buy in Baton Rouge. The menu board, the restrooms and the seating area look the same in every restaurant. For this consumers reward McDonald’s with their patronage more than any other fast food restaurant. And, while McDonald’s food usually does not rank first in taste, they consistently rank first in market share and revenue. When consumers can trust that their brand experience will be the same every time, they will value that brand more and more over time.
• Stay passionate – Ok, I lied. There are six strategies for building brand value. The last strategy is to let your passion shine through in everything you do. Consumers love brands whose owners are as passionate as they are. That “never rest on your laurels” attitude translates into exciting and superior products that continue to wow and delight consumers. One of the reasons people love the Apple brand so much is because of the passion expressed by Apple employees. Despite being the little guy, Apple enjoys going toe-to-toe with Microsoft. As a consequence Mac users revel in the controversy. As a result, there is no other computer or mobile technology brand as loved as Apple.

Jury Acquits Bear Stearns Hedge Fund Managers

In a stunning blow to the prosecution, jurors took only nine hours to acquit two former Wall Street fund managers in the only major criminal case to emerge from the mortgage meltdown and financial crisis. According to the Los Angeles Times (November 11, 2009) Ralph Cioffi and Matthew Tannin, former mortgage-bond hedge fund managers at Bearn Stearns, were found not guilty of securities fraud. Federal prosecutors who had hoped to pin Cioffi and Tannin as the perpetrators in the downfall of Bear Stearns (now owned by JP Morgan Chase) and set a precedent against other Wall Street bankers were left shaking their heads at both the jurors’ decision and the pace in which it came.

At the heart of the case were the defendants' e-mails, including one in which Tannin said the subprime market "looks pretty damn ugly." Tannin went further to say, "There is simply no way for us to make money -- ever." The prosecution, which hung their case on incriminating emails like these, also showed the jurors emails written days after where both men informed their management that the hedge fund, in fact, could survive. Nevertheless, jurors said the evidence wasn't strong enough and that Cioffi and Tannin were doing everything they could to keep the hedge fund above water. Juror Aram Hong noted, "Just because you're the captain of a ship and it gets hit doesn't mean you should be blamed."

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With the acquittal of Cioffi and Tannin, federal prosecutors must now determine what if anything they can do to salvage the remainder of their Wall Street cases. Without corroborating data or witnesses to support e-mail evidence, similar cases if tried would likely be found without merit. The fact is America’s investment banking firms were built on strict discipline, sound judgment and prudent risk management. It is these principles that enabled institutions like Bear Stearns and Lehman Brothers to grow and be profitable for more than eighty years. There is no evidence to suggest that fund managers en mass began ignoring their firms’ established trading guidelines or purposefully strayed beyond the boundaries of proper funds management. The truth is that no one could predict the 2008 implosion in the financial markets, nor is any one person responsible for its occurrence. Often times events that occur cannot be foreseen or remedied with our current set of tools or knowledge. When I flew for the US Navy, we used to say that our flight procedures were written in blood. This was because people often died from aircraft malfunctions before proper emergency procedures could be written. I learned one harrowing night after I nearly lost my airplane and crew from an engine fire that I could not extinguish – after properly implementing the existing emergency procedures – exactly what "written in blood" meant. It turns out one of my aircraft’s four engines suffered a catastrophic oil loss which ignited a fire in its turbine section. Fortunately, my crew and I survived the emergency and a new procedure was written for this particular malfunction.

As we consider the financial crisis of 2008, the bigger story emerging might be just how damaging this acquittal could be to the Obama administration. With attempts to pin the blame for the financial crisis on failed Bush policies and scores of "rogue" Wall Street traders, the jurors’ decision that selective e-mail evidence not only was inconclusive, but arguably supportive to the defense, makes the Obama case against Bush’s policies hollow and without merit. With Democratic Party loses for governor in Virginia and New Jersey, the Obama administration can hardly absorb another political setback as it enters the 2010 mid-term elections.

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With this acquittal of Cioffi and Tannin, perhaps we should stop placing blame for the financial meltdown and subsequent recession on the prior administration or on Wall Street and begin to focus our limited resources on finding ways to emerge from this crisis smarter and stronger. Having proper safety procedures in place to preclude banks and insurance companies from taking on too much risky debt is a great place to start.

Maurice Greenberg, the former CEO of American Insurance Group...

Former AIG head begins anew with C.V. Starr:

According to the NY Times (October 27, 2009), Maurice Greenberg, the former CEO of American Insurance Group (AIG) has been quietly hiring employees from AIG to fill posts at his new insurance company, C.V. Starr. Greenberg, who built AIG over the past four decades into the world's largest insurance company with $1 trillion in assets, was ousted in 2005 over an accounting scandal brought about by a complaint issued by Eliot Spitzer, former NY Attorney General. Greenberg maintained his innocence throughout the investigation and all criminal charges were subsequently dropped. Since then Greenberg has been battling AIG over stock in which they both laid claim. AIG in the meantime suffered staggering losses from the trading of complex derivatives by its financial products unit and was on the verge of insolvency last year when the federal government decided to step in and save it. With the demise of AIG Greenberg lost nearly all of his life's savings.

This past summer Greenberg finally won his suit against AIG and reclaimed the rights to $4.3 billion in retirement funds. Instead of using his money to live out his golden years, Greenberg who is 84 has been redirecting the funds to recreate another AIG. With the Treasury recently setting employee compensation limits on companies which have received bailout money, Greenberg is now in an even stronger position to lure away AIG's best talent to help run C.V. Starr. As the largest investor in AIG, the government (and taxpayers) stand to lose billions if AIG fails to recover. Greenberg, who is AIG's second largest shareholder, is similarly exposed. For this reason, it doesn't make sense for Greenberg to want to hurt his former employer.

One can't help but admire the resiliency of Greenberg to start over at such a late age. What motivates an eighty-four-year-old billionaire to do such a thing? Clearly it is not the money. There are arguably other driving factors. Perhaps Greenberg feels like he has something to prove to those who claimed he was responsible for the demise of AIG. No longer at the helm, Greenberg cannot direct AIG back to profitability. Moreover with the government calling the shots on how AIG should be run, Greenberg would likely feel suffocated by the oversight if given the opportunity. With C.V. Starr, Greenberg can demonstrate to those who doubted and accused him that he still has what it takes and had he been at the helm last year, AIG would have weathered the storm. And why shouldn't we expect Greenberg to hire his former employees? Who in the business world doesn't invoke this strategy whenever they are able? Going with loyal proven performers just makes good business sense, especially when they can be picked up at bargain prices.

Greenberg may be building C.V. Starr to silence his critics, but I don't think so. I believe Greenberg is building C.V. Starr because that is what he was born to do. Greenberg knows insurance undoubtedly better than anyone else on the planet. Nothing energizes him more than to discover new ways to unlock value by mitigating the risk of others. Had he not been ousted from AIG, he arguably would be there today fulfilling his life's calling. Recreating AIG through C.V. Starr is not an option for Greenberg. Rather, it is simply part of his life's work. Incidentally, C.V. Starr is named after AIG's founder, Cornelius Vander Starr who hand-picked Greenberg in 1968 as his successor.

Pete Canalichio

DJIA passes 10000 but falls after earnings fail to meet expectations

The DJIA rose above 10000 on October 14, stayed there for a day, and promptly dipped below the psychological threshold after IBM, Bank of America and GE's third quarter earnings disappointed investors. Still, the DJIA has risen 53% since hitting it's low of 6547 on March 9 and is up 14% this year. The run up, driven by better than expected earnings over the last two quarters, is hardly a resounding statement about the health of these business or the economy overall. The truth is that the earnings bar was set so low that it was virtually impossible for companies not to beat it. And while corporate profits are up, the improvement is primarily due to short term cost cutting programs and not from top line growth. For companies to continue to beat market estimates, they must find a way to increase sales, which is heavily dependent on consumer sentiment.

Many consumers are feeling more optimistic as the increase in the stock market has taken some of the sting out of the huge losses in their IRA's, 401k's and other personal investments. However, a continued acceleration in the stock market and a rebound in the economy is unlikely without an improvement in retail sales. Consumers still feeling the pinch in their wallets due to reductions in salaries and layoffs are continuing to look for ways to make due with less. With oil hitting $78 per barrel, a surge of 9% for the week, many consumers are having to cut back even further to offset the increased costs to operate their vehicles and heat their homes as we head into the winter months.

To make matters worse, many homeowners who could have saved hundreds of dollars per month by refinancing their mortgages or buying new homes - to take advantage of historically low interest rates – have been unable to do so because of low appraisal values. Recent changes in the real estate appraisal laws under the Home Value Code of Conduct instituted May 1, 2009, now require brokers to use an independent third party to select an appraiser. These appraisers who no longer have a connection to the mortgage brokers are making conservative appraisals to protect their jobs. Homeowners who believed they had plenty of equity are finding that their homes have been appraised at insufficient values to qualify for the loan. Instead of freeing up their cash, which could help to stimulate the fragile
economy, homeowners are forced to live with the status quo. Those who hold adjustable rate
mortgages face an increase in costs as impending inflation means a certain rise in interest rates further exacerbating the problem.

All this adds up to a rocky road for the economy as we head into the holiday season.

Pete Canalichio
October 17, 2009

World Bank Head Sees Dollar’s Role Diminishing

Robert Zoellick, President of the World Bank, believes America's days as an unchallenged superpower are numbered and the US dollar will lose favor to the euro and the Chinese renminbi (NY Times, September 28, 2009). Whatever Mr. Zoellick's motivation in making such a statement, the implications if he is correct could be staggering for the United States.

As the world's main reserve currency, the US dollar trades or figures in transactions many billions of times per day. Governments, successful businesses and wealthy individuals keep excess cash in dollars because these can easily be converted into euros, renminbi, rupees and rubles. The dollar's preferred status enables the US Treasury to issue dollar denominated treasury bonds, which are gobbled up by the Chinese, Germans and Japanese – countries that run a significant trade surplus. This is very desirable for the US as it finds itself needing to borrow more and more money to offset its ever-growing debt. With the Obama administration’s response to the current economic downturn, US debt levels are likely to grow even larger. If the world's creditor nations ever choose to reduce their holdings of US dollars or bonds, Mr. Zoellick's prediction could come to fruition.

While the euro has virtually eliminated the challenges of currency conversion, and has simplified internation commerce among the EU's member nations, it still does not offer a riskless alternative to the dollar as a reserve currency. Anti-dollar proponents may argue that the euro clearly has helped to strengthen European economies and to raise the standard of living throughout the continent. However, the euro only gained legal tender status in 2002, and is yet to be tested over significant periods, or in a variety of economic crisis situations. For these reasons, the euro is not a strong candidate to supplant the US dollar.

The argument against the Renminbi becoming the world’s reserve currency is even stronger. Before the renminbi can assume a greater role among the world's currencies, the Chinese government would have to allow it to fluctuate freely on the world market. But we know that if the Chinese government were ever willing to allow the renminbi to trade freely, it would immediately strengthen vis-à-vis other world currencies, thus severely impacting the strong emphasis on exports that dominates Chinese economic policy. With a stronger renminbi, Chinese goods and services would become more expensive in world markets thus reducing exports and slowing an already fragile Chinese economy. Therefore, before China can seriously consider untethering its currency, it must find a way to increase domestic consumption. This is not something that is likely to happen in the short or even mid-term.

In The Tipping Point, Malcolm Gladwell tells us about a magic moment when an idea, trend or social behavior crosses a threshold, tips, and spreads like wildfire. In the hands of Connectors, Mavens and Salesmen, social epidemics can suddenly tip. According to Gladwell, Connectors are people with a special gift for bringing the world together. Mavens have the knowledge and the social skills to start word-of-mouth epidemics, and Salesmen have an uncanny ability to persuade others with subtle and seemingly effortless connectivity. So, the bigger question is not whether creditor nations will choose to reduce their holdings in US dollars in favor of the euro or renminbi, but rather is Robert Zoellick a Connector, Maven or Salesman? While Mr. Zoellick may possess capability in all three areas, his experience and expertise make him an excellent candidate to be a Maven.

If Mr. Zoellick's prognostication begins to take hold, other Connectors, Mavens and Salesmen may begin to agree and spread the message. Suddenly nations, businesses and individuals might choose to convert their local currency into euros or renminbis instead of US dollars. If this happens, America's days as an unchallenged economic superpower and the US dollar's role as the world's reserve currency could well be numbered.

Three ways to expand the licensing value of your brand

To best help you understand how to expand the licensing value of your brand, let's take a step back and reflect on why companies choose to brand their products in the first place.

Companies brand their products to differentiate them from their competitors'. For example, most consumers have no problem differentiating a Coke from a Pepsi. By giving their products a brand, companies can begin a dialogue with their consumers about their products attributes. Over time, a consumer learns he/she can rely on the brand to deliver a consistent and expected value. One of the best examples of this is the Tiffany brand. Whether or not you have every bought from Tiffany, you know the brand is synonymous with the highest level of quality, service and reliability in jewelry. In fact, Tiffany has consistently delivered on this promise for almost two hundred years. For this reason, a Tiffany consumer will not buy from any other jeweler. Moreover, if ever asked where her jewelry was purchased, most women enthusiastically proclaim the Tiffany name.

When consumers are delighted by a particular brand experience, they begin to bond emotionally with the brand. They become brand loyalists and advocates – buying the brand more often and recommending it to others. This behavior serves to build the brand's reputation. In fact, consumers will often purchase a brand for the first time because of its reputation. The brand, therefore, adds value and certainty to an otherwise unknown product. The stronger a brand's reputation, the higher the value of the brand and the greater revenue it will drive for its owner. Prospective licensees want to license brands with the strongest reputation as these are the brands consumers demand and retailers prefer most. The stronger the brand, the higher likelihood that the licensed products will sell in and sell through.

Brand loyalists and advocates look to their preferred brands to deliver more and better products year after year. When this occurs, the brand gains “permission” to extend into categories that compliment its original offering. For example, the Mr. Clean brand, owned by P&G, was launched in 1963 as the first household liquid cleaner. Over time, the brand gained a strong reputation for its ability to clean effectively on a variety of surfaces. By delighting its consumers, Mr. Clean built significant brand loyalty and allegiance. When asked, consumers told the Mr. Clean brand team that they expected the Mr. Clean brand to offer additional products that simplified and enhanced the household cleaning experience. To satisfy these consumers, Mr. Clean developed a line of branded mops, brooms, and brushes. These products were met with enthusiasm and over time, consumers demanded even simpler and more effective ways to clean their homes. Today, the Mr. Clean brand can be found on an expansive list of products including scrubbing tub and shower pads, Magic Eraser cleaning pads, autodry car wash systems, multi-surface disinfecting wipes, rubber gloves and many other products. In fact, many of these Mr. Clean products are licensed. By owning a brand that can be extended into numerous categories, companies are able to attract and retain multiple prospective licensees. Using licensing to compliment internal resources actually accelerates a company's overall time to market.

The licensing industry exists today because brands cannot be created over night. In fact, it takes years and millions of dollars to create brands that are trusted and valued. Companies which own these brands are therefore naturally protective of them, and rightfully so. A brand's reputation can be easily tarnished when it fails to deliver on its brand promise. When this happens, consumer loyalty can erode quickly resulting in lost sales. As such, many brand owners would rather choose not to enter a category through licensing than risk damaging their brand. However, successful companies know that a well run licensing program can strengthen their brands and provide a substantial increase in profitability. Companies with successful licensing programs select best in class companies to license their brands.

Consider the Walt Disney Company. They furnish their licensees with clear guidelines on how the brand's standards are to implemented and provide a straight forward approvals process that enables the licensee to get their licensed products into market quickly and at a fair profit. These licensees, in turn, deliver world class innovative products that over deliver on the Disney brand promise thereby strengthening its brands. With a well run licensing program not only is the brand well protected, but licensees can quickly commercialize best in class branded products.

This not only strengthens the brand's overall reputation, but increases the licensing program's overall value.

In summary, three ways to expand the licensing value of your brand include:

• Strengthening your brand's reputation

• Increasing your brand's extendability

• Delivering a best-in-class licensing program

Pete Canalichio

Consumers Cut Back Further on Credit

Despite a rise in the Consumer Confidence index over the last several months, consumer borrowing in the United States fell a record $21.6 billion in July from the previous month (NY Times, September 8, 2009). This was the largest decrease in borrowing since 1943 despite the oversold and highly popular Cash-for-Clunkers program which began in July. The cutbacks which affected all areas of consumer borrowing – revolving and non-revolving (not including mortgages) – significantly exceeded analysts predictions of $4 billion. With this drop, the annual pace of change has gone from -4.2% in May to -7.4% in June to -10.4% in July.

Like businesses, families across America are continuing to get their personal balance sheets in order. Less and smarter debt means more security and personal freedom. Families want to feel confident that they can continue to stay in their homes and put food on the table. For the majority, this requires they spend within their means, reduce debt and finally begin to save. Wherever and whenever possible, families are making do with what they have. Credit cards and bank lines of credit which in the past were rationalized to take that family vacation or buy a new car because “we deserve it” are now seen as emergency funds for when things get worse.

For businesses which thrive on consumer spending this suggests a much slower albeit more sustainable recovery. As a result unemployment in the US will likely continue to drift higher over the next six months before it peaks suggesting a slow and perhaps erratic rate of decline over the next several years. In this environment, consumers will only buy when they feel they have to or when they see tremendous value. Businesses which desire to succeed in this market must determine:

• Where globally there exists demand which they can satisfy
• Which businesses and brands are thriving in this economy and more importantly why
• How they can deliver more value to consumers at a better price

Conventional methods and sacred cows must give way to new thinking. Companies must begin asking themselves provoking questions such as:

• Are there competitors who should also be our partners?
• Can we source or license our products instead of manufacturing them?
• Should we reinvent ourselves?

It is clear that consumers' buying habits have changed and their appetite for debt has decreased
dramatically, permanently changing the economic landscape. With it, businesses which desire to thrive must also make dramatic and permanent changes in the way they operate.

Pete Canalichio