BRANDING AND DESIGN AS AN INVESTMENT STRATEGY

13 November 2006
Brian Richards
Brian Richards

No matter where you are in the world, design is increasingly the X-factor that takes a business from "also ran" to "market star". Better by Design is a movement to build New Zealand's awareness of and expertise in design-led business.

Better by Design grew out of the Design Taskforce Strategy. It is a programme that takes the best of the design strategy and translates it into practical assistance to business, a web-based community and a major international design-led business conference.

The conference, which was held on 29-31 March 2005, was intended to help New Zealand companies transform themselves into world-class design-led exporting businesses.

Better by Design is being overseen by an independent group of design-led business experts, the Better by Design Advisory Board, and the programme is administered by New Zealand Trade and Enterprise.

Less for More
Successful branding is indisputably about selling less for more. For proof of this, you need to look no further than one of the world 's most abundant elements water. Branding water is the ultimate marketing magic. In New Zealand, it sells for 1000 times more than tap water.

At two of Auckland's premium restaurants - Otto's and Hammerheads, for instance, a bottle of San Pellegrino will set you back $8.00. At the Hyatt Regency, New Zealand's own Antipodes brand sells for $9.00 - that's $3.00 more than Perrier. So what's wrong with our tap water ? The simple answer is - nothing. New Zealand tap water is perfectly fine. But we have a new generation of health-conscious people who are nevertheless prepared to fork out $23 million every year on non-carbonated bottled water. And it's growing by around 14 percent per annum.

Through clever design and excellent storytelling which captures a strong nationality content, the Antipodes product is able to reach a premium that outdoes its imported competitors. Given a supportive distribution culture, this superb new product has every chance of success offshore.

Design Magic
In the field of wine, we already have the global benchmark for Sauvignon Blanc. Yet Sancerre, its French equivalent, still fetches an average premium of around $12.00 over its New Zealand counterpart. When you look at positioning wine such as Marlborough's Sauvignon Blanc there are four dimensions to the brand - the nationality content, the regional story, the name, bottle and label design, and the tasting description. In order to fetch a premium in your product category you need to be original and true. To have some of that design magic that we're going to hear a lot about at this conference.

Original and True
The wines of Cloudy Bay established an early benchmark and many wineries followed
Cloudy Bay's success by going down the same name route. But this was the definitive
brand in the category in Sauvignon Blanc. It had the prime mover status in that category and perhaps the highest recall. It sells for around $93.00 NZ a bottle in London.

A Unique Story
Branding is not a mathematical science, it is a social one. For brands to be successful, good design needs to be complemented by a unique story which fits the audience for the product. The brand story is something vicariously lived by the target market.

Apirational
In essence, branding is the art of standing out in your category in a bewildering world of choice. Achieving cut-through amidst the clutter often entails simplifying the complex and making it easier for the customer to prefer your product or service. In the competitive world of watches for sports-minded people, for instance, the Tag Heuer brand would have to be the most distinctive and consistent.

Sweet Dreams
When you apply this thinking to selling beds, why are most of the manufacturers in New Zealand in a constant price war? Surely the bedroom is rich in potential stories which would allow them to differentiate themselves. Yet they persist in discounting. When you consider how valuable a good bed is to everyone, why should it be so price sensitive ? There must be a potential premium in selling sweet dreams rather than simply wooden bed ends, a mattress and frame.

An Elusive Point of Difference
Developing a unique position in your category is not just about advertising. There are many business basics which also need to be in place to ensure success such as the design of the product or service and your distribution culture. However, for me, the first vital step is establishing your point of difference - a unique position in your category which you can set out to own. This is the essence of a good brand.

Self-Discovery
Initially at least, this is an intellectual process and not a visual one. So don't expect your graphic designers or advertising agency to find it. You have to find it yourself because nobody understands your business better than you do. The most common reason for failure of a brand is quite simply that the brand had no point of difference.

Market research certainly has its uses and it may provide some clues but it won't give you the answer. It is an intuitive thing. When you think you've worked out your point of difference, only then can you use research effectively using realistic stimuli to prove your find.

A Supportive Culture
The most overlooked aspect of branding is the need for a supportive culture within the company and beyond along the value chain. In an age of flatter structures, remote employees, distant agents, shop assistants and perhaps franchisees, a supportive brand culture is critical to the success of the customer experience. We see so many dislocated cultures lacking passion for the brand, with the result that what is promised is unlikely to be delivered by those involved.

The Unsolicited Extras
A good definition of a brand is the unsolicited extras that you never knew you were going to get when you went out to buy the product. This could be the knowledgeable shop assistant, the pleasant courteous receptionist, the well handled enquiry or complaint.

So much is talked about in this area yet it s so often overlooked and inconsistently delivered. One organisation that defies this trend is Singapore Airlines who continue to delight me as a frequent flyer with little surprises. Their in-flight service culture is as important to them as their entertainment technology and seating. Their crewing system of teaming for one year with the same personnel seems eminently more sensible than meeting a new workmate on each shift.

Constant Invigoration
Building brand supportive cultures along your value chain is the process of inside-out branding. Cultures unite behind the understanding of the point of difference, the essence of your brand and the values you stand for. Clarifying these to yourselves first then sharing them with your stakeholders is vital to the success of your brand. A constant invigoration of these should be the responsibility of HR departments, a section too frequently left out of the branding process.

Better By Design
To be Better by Design - the whole notion of this conference - is to truly understand a tool not yet used nearly enough in New Zealand business. The good Lord gave us one of the more beautiful countries on earth. As the ultimate designer, he did a great job. But green grass alone won't foot it for us anymore; the potential to enhance the nation's goods and services still lies ahead of us all. We have to re-position our pastures and their natural sustainable values to a highly urbanised world far to the north. Up to this point, we have a meat and dairy industry that can't see this. Their obsession with process improvement, as opposed to product improvement, means design doesn t feature for them.

You Are What You Buy
People signal their differences and similarities in every conceivable way; in the cars they drive, the furnishings they choose, and the clothes they wear. Neither taste nor design exists in a vacuum. However hard you try in selecting one thing over another, you label yourself. As choice expands, the nuances of a product become ever more important. Design is one of the most critical ways in which these nuances are expressed. Just like the old adage you are what you eat , we are defining our social position frequently through our purchases so, essentially, you are what you buy. Design can help people signal those differences in so many ways.

Design Ethos
There are many instances where design has played a key role in a company's profitability. So few companies yet have a strong design ethos. Those that do, can clearly show benefits in terms of consistent returns. Often their product distinctiveness means they do not need to spend so much above-the-line in advertising. From a glass of wine to a can of paint, design can contribute to the bottom line by way of better margins.

THE BRAND TRIO
A brand is made up of three things - a clear point of difference (your vision), a supportive internal and external culture and a story you have never heard before. Design clearly spans all three dimensions of your brand. It influences the way the product or service looks and feels, the design of the organisation and culture which supports it and how the unique story is told, through architecture, moving image, product design, graphics and the written word. These are the elements you are investing in and you need time, patience and confidence to yield the premium position you seek.

Brand Loyalty
In the last decade there has been a shift in business strategy. Customer preference and loyalty have become keys to success. Because branding can deliver these, it has moved from being a marketing concern to a general management issue. Most of us here know how valuable loyalty is to a business but how often do we reward or nurture it ? How often is the subject put under the microscope in your business?

Sale
Many New Zealand brands live in states of neglect and disrepair. These same companies are the ones that slug it out with their competitors in pricing battles. Price/value perceptions by customers are then the only focal point on which a company does its business. Probably the most important message I can deliver in this forum today is the less clearly defined the image of the brand is, the more that lower prices will be used as a success strategy.

Reversing the behaviour of selling more for less is an enormous challenge. To turn a business around and focus on product or service difference is a significant undertaking. However, it begins with the realisation of what exactly is involved. One of those prerequisites is being able to find the investment dollars to get out of the ditch.

Bankable Evolution
The perception of the value of branding has changed over time. In the last 20 years or so there has been a dramatic shift in the understanding of what exactly creates shareholder value. For most of the last century, manufacturing assets, land and buildings or financial assets such as receivables and investments were it. Bricks and mortar ruled. The market was relatively unaware of intangibles.

This doesn't mean companies didntt appreciate the importance of intangibles - patents, technology and employees have always been a strong part of corporate success. However, they were rarely explicitly valued. On the stock market, investors focused their value assessment on the exploitation of tangible assets.

The increasing recognition of the value of intangibles came with the continuous increase in the gap between companies book values and their stock market valuations, as well as sharp increases in premiums above the stock market that were paid in mergers and acquisitions in the late 1980ts. This wave resulted in large amounts of goodwill that most accounting standards couldn t deal with in an economically sensible way.

In 1989 the London stock exchange endorsed the concept of brand valuation by allowing the inclusion of intangible assets in the class tests for shareholder approvals during takeovers. This proved to be the impetus for a wave of major branded goods companies to recognise the value of brands as intangible assets on their balance sheets. In the UK these included Cadbury Schweppes, Guinness and others.

By the late 1980s the recognition of the value of acquired brands on the balance sheet prompted a similar recognition of internally generated brands as valuable assets within a company.

In terms of accounting standards, the UK, Australia and New Zealand have been leading the way by allowing acquired brands to appear on the balance sheet and providing detailed guidelines on how to deal with acquired goodwill. The principal stipulations of accounting standards to have evolved in the last ten years or so set out that acquired goodwill needs to be capitalised on the balance sheet and amortized according to its useful life. However, intangible assets such as brands, that can claim infinite life, do not have to be subjected to amortization.

There are various means of undertaking brand valuations, many of which are questionable. The point is they exist however the debate about bringing financial reporting more in line with the reality of long-term corporate value is likely to continue.

One Third Of Shareholder Value
Several studies have tried to estimate the contribution that brands make to shareholder value. Across a range of leading global companies, J.P Morgan concluded that on average brands accounted for more than one-third of shareholder value. This applied to both consumer and corporate brands. Yet, even today, the evaluation of profitability and performance of businesses focuses on indicators such as return on investment in tangible assets only. Companies in New Zealand particularly need to give more recognition to their investment in intangible assets. They need to centralise the elements of cost that go into a brand and demand a return from them.

Decapitalised Brand Owning Companies
The concept of running a business with less tangible assets by way of plant and equipment, locations and stores etc is a relatively new phenomena. In some cases, we have encouraged our clients to do just this to realise enough funds to build their brand.

De-capitalised brand-owning companies can often earn higher returns on their capital and grow faster, unencumbered by factories and masses of manual workers. These are often the company profiles that the stock market rewards with high price/earnings ratios.


Brand Equity vs Investment
There is still a problem with the quality of brand valuation for balance sheet recognition. Since there is no active market in brands that would provide comparable values, arriving at an authoritative and valid approach is still a significant debate. Valuation techniques are however becoming more robust. The best approach, in our view, is to combine measurements of brand equity and financial factors such as sunk and operating costs to maintain the brand and the premium it commands in its category.

In even the tiniest of startup clients we are prescribing an accounting model from the outset which allows us to build the brand investment costs in order to measure the returns. Since brand re-invigoration is a constant process, it is so important to be able to measure the 'bang' in terms of price premium in the category and the 'buck' in terms of the return on brand investment.

The Return On Brand Investment
Measuring brand equity alone is insufficient in the valuing of brands because a brand can perform strongly according to these indicators but still fail to create financial and shareholder value. External customer preference and internal financial costs and commitment need to be measured in a single equation. Using NPV Nett Present Value calculation methods, it is possible, reflecting on the forecast period and the period beyond, to estimate the ability of the brand to continue generating future earnings.

Seven Compelling Reasons
The business of branding and design are inextricably linked. Here are seven compelling reasons why you should invest:
- Achieve a price premium.
- Create valuable assets.
- Empower consumers.
- Unite cultures.
- Increase shareholder value.
- Sustain a competitive advantage.
- Secure an exit strategy for the brand owner.

Less for More
For the first time in our commercial history we have to learn how to sell less for more. What better tool to do it with than design.

Cross Cultural Energy
In New Zealand, we are a fusion of traditions from an old world doing something new.
But we still want to hang on to the things we love. Our access to nature and our commitment to sustaining it. These should be non-negotiable. Being leaders in sustainable design could well be a unique position we could claim globally.

Aotearoa
There have been many descriptions of Aotearoa. Somewhere along the way the term 'God's Own' was bestowed on us, however, in my view Rudyard Kipling's description would have to be the finest. He called us 'the last, loveliest, loneliest, land apart'.

Design Reputation
The northernmost sacred point to Maori, Cape Reinga, for centuries has been a place through which departing souls journey home to the mythical Hawaiki. For me, it represents the end of the Colonial Catwalk - the jumping-off point, the starting point of a new and exciting journey to the North as a vibrant society.

This is truly a beautifully designed place and we must continue the journey. Perhaps we can create a new chic - sustainable luxury. Actually, if you think about it, it's always been here. For all us here at this conference our love of the land and the endeavours we speak about today will be the mother of our new invention.

As William Shakespeare said about brands, long before Coca Cola: Reputation, reputation, reputation! Oh, I have lost my reputation! I have lost the immortal part of myself and what remains is bestial.

It is time to wake-up and take New Zealand's design reputation into a Golden Age.




About Brian Richards
Brian Richards is New Zealand's foremost practitioner in the field of international branding. His experience grew from the development of the New Zealand-born company Quik Stik International, now a worldwide name in self-adhesive products.

Brian was the principal architect behind the New Zealand venison brand "Cervena", "The New Zealand Way" national identity brand, and the international marketing strategy for the New Zealand Wine Industry. www.brrltd.com