Market View

Market View: The Maintenance, Valuation and Loyalty of Brands

Brand loyalty is about you being loyal to consumers, not the other way around.

By John Stanton, Contributing Editor

It seems we take for granted that everyone knows what a brand is. After all, we see them around us all the time, we manage them, we buy them, etc. I am surprised by this lack of consistent thinking given that brands are the most valuable assets for many companies.

While there are hundreds of books written about brands, I would like to share my thoughts on brands and build a case that this is what will keep us in business (profitable) in the future. A brand is no more than a representation of a trust relationship between the company and the consumer. In other words, it is the consumer who “gives” you a brand, not the government trademark office or a printing press.

It is the fact that a consumer is willing to recognize that trust and pay more for that trust and “recognize” or associate trust with a trademark or label that changes a “mark” to a brand. To a consumer, a brand means that they get what they expect over and over again.

It amazes me how poorly many food companies care for and maintain their brands. While there may be a variety of causes, I think it is because accountants say brands are not assets and their value does not appear on the books.

Imagine if a company had to pay millions of dollars for a machine that was likely to generate product and profit for years in the future. There would be maintenance programs, insurance taken out and it would always be under scrutiny. But how do we take care of brands?

Most recently food processors have let them go unattended. An article from January 2018 listed 22 Iconic Brands That Could Disappear in 2018. If you click through to the article, you'll see that many of these brands are already gone! Companies essentially have killed brands that have generated profits for many years. Even children understand the moral of the “goose that laid the golden egg.”

How valuable is a brand? We don’t have any acceptable way to estimate brand value in the U.S. because the accountants have said we can’t be accurate enough to reflect this on a balance sheet or income statement, except when a brand or company is sold. When a company is sold, they calculate the difference between the selling price and the “real assets” associated with the sale. Accountants sometimes call this “good will.” They should call it “the amount that we failed to recognize all these past years but have to recognize now.”

Why can’t we treat brands as assets? Why we can’t record brand value on the financial reports? Why we are not permitted to depreciate brand-building spending such as advertising or R&D? I agree that we may not be 100 percent accurate, but accountants have no problem being less than accurate with other balance sheet items. For example, accountants say a machine will depreciate over some fixed period of time, when everyone knows the true depreciation has nothing to do with this number. Brands are assets and should be treated as such.

There are some interesting concepts related to brands. One is that there is no such thing as “brand loyalty,” and there never was. No matter what your marketing people say, the concept does not exist. If you want loyalty buy a dog! What we call loyalty is just the fact that we as a company have lived up to our brand promise to the consumer, and as long as we meet consumers’ expectations they will buy continuously.

The reason for making the distinction is that using the word loyalty implies that we can count on the consumer. It is the consumer who must count on us, and not the other way around. When we fail to live up to our promise to the consumer, they stop buying. Or when our consumers change and we fail to change with them, they stop buying.

We must be loyal to our consumers and not the other way around. Don’t confuse the “consistency of consumer purchase behavior.” If 90 percent of a consumer’s purchases are your brand, it doesn’t mean they are loyal, it means they haven’t yet found a better choice.

One last point on branding. Anyone can be the source of the trust; it is not just the purview of the food processor. Today, retailer’s brands, which for years have been called “private label,” are becoming major brands in the market. In my opinion it is the lack of attention that many food processors have given to preserving the trust with their consumers that created an opening for the retailers to step up to the plate and say give us a chance. To their credit, many retailers have stopped making private label cheap stuff and are making great products. In many cases the private label brand is outselling the national brand.

Brand loyalty is about us being loyal to the consumer and not the other way around.