the brand bubble

8/14/2019 The Brand Bubble

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Io 1/16

The BrandBubbleHow Busiess Specuatio

i the Cosumer Marketpace

Threates Our Ecoomy

Joh Gerzema

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Io 2/16

Today’s housig bubbe ad the tech stock bubbe rom the ast decade revea a

wideig gap betwee market specuatio ad how typica Americas vaue thigs.

I you thought those bubbes were bad, get ready or aother, eve bigger oe

o the horizo that represets over $4 triio doars i S&P market capitaizatio.

That aoe makes it twice the size o the sub-prime mortgage market. But, uike

other bubbes, the assets that are at risk caot be traded away or hedged agaist

ucertaity. Rather, they are the udameta drivers o competitive advatage

or most compaies—their brads.

Through extesive research usig brad ad acia data o thousads o brads, I ad mycoeagues at Youg & Rubicam have oud that the mutipes that markets pace o brad

vauatios ar overstate actua cosumer setimet. This meas that the vaue creatio most brads

are brigig to their compaies, ad utimatey to their sharehoders, is greaty exaggerated.

Put simpy, most busiesses ad the acia markets thik brads are worth more tha the

cosumers who buy them.

For the past tee years Youg ad Rubicam’s BradAsset® Vauator (BAV) has bee trackig how

cosumers perceive brads. We’ve ivested amost $115 miio doars i buidig the argest brad

database i the word. Workig with proessors rom Coumbia Busiess Schoo ad other oted

istitutios, we have produced oe o the most stabe ad predictabe acia modes or vauig

brads ad braded busiesses. We have over 35,000 brads measured agaist over 75 brad

metrics. We coduct surveys i more tha orty aguages. From Arabic to Zuu, we ask cosumers

how they ee about oca, regioa ad mutiatioa brads, media, ad eve ceebrities.

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A WORRYInG SIGn In THE DATA

Our research reveas that whie brad vaues have rise steadiy over the past decade, w cl 20%, m 12%, cv ql

24%, w ggg 50%. (See Chart 1.)

Chart 1

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Io 4/16

Ad it’s ot just our data: The act that cosumers are osig iterest i may brads is vaidated

by severa sources, rom the Heey Cetre i the U.K. to The Carso Marketig Group, who oud

the percetage o peope who said they were oya to oe brad decied rom 40% to 9% sice2000. Most otaby, positioig guru Jack Trout ad Kevi Cacy’s research oud that brad dier-

etiatio decied i 40 o 46 categories as studied by Copericus/Market Facts.

Why woud brads be aiig, ad i so, why at this poit i time? Curiousy, this dimiutio o brad

vaue is occurrig precisey at the same time that media ragmetatio ad techoogy is creatig

tectoic shits i how cosumers iteract with brads. Far rom a mere coicidece, it’s a caary i a

coamie, because this patter exteds ito 2,500 brads we studied over three years time, where

amost 70% were stagat or deciig i dieretiatio. Ad, the 30% that had some kid o chage

were twice as ikey to be deciig. (See Chart 2.)

Curiously, this diminution of brand valueis occurring precisely at the same time

that media fragmentation and technology iscreating tectonic shifts in how consumersinteract with brands.

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Io 5/16

The reaso cosumer reticece is such a issue is because a brad’s positio i a quadrat strogy

reates to overa eterprise vauatio. Based o over 1000 data poits over a te-year period,

each quadrat has a average itagibe vaue per doar o sae. The stroger a brad is o brad

stregth ad stature, the greater it’s vaue. This meas brads are’t growig the way busiess

thiks they are, ad as a resut, their itagibe vaue is, o average, overy stated.

Chart 2

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nOT A BR AnD PROBlEM—A BUSInESS PROBlEM

Why is the brad bubbe dagerous? What harm coud Charie the Tua do to our ecoomy? Bradshave aways bee importat assets, but busiess ad ivestors have’t uy come to comprehed

their ewoud sigicace. Miward Brow Optimor demostrates that brad vaue ow accouts

or 30% o market capitaizatio o the S&P 500. This growig portio o brad vaue as a percet

o market capitaizatio has rise rom 5% i thirty years, meaig brads ow make up the io’s

share o tota busiess vaue i a compay. (See chart 3.)

Chart 3

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now, cosiderig that a third o sharehoder vaue is brad vaue, this growig discoect shoud be

o urget cocer to CEOs, marketers, aaysts ad ivestors. Are those earigs goig to be there

i the uture? Have most compaies propery discouted the risk o their risig brad vaues? Bradsare the sige most importat itagibe asset ueig the growth o compaies ad our ecoomy.

Ad because o massive cotributios that brads brig to busiess vauatios, the brad bubbe

coud erase arge portios o itagibe vaue across idustries ad sed aother shockwave through

the goba ecoomy.

Beyod the write dow i vaue that coud resut rom the weakeig brad adscape, we aso

beieve that brad specuatio coud have a major egative impact o the uture earigs o may

compaies across may idustries. To put this i perspective, the 250 most vauabe goba brads

are worth $2.197 triio doars, which coectivey exceeds the GDP o Frace. i Accordig to Booz

& Co., eve the vaue o the word’s top 10 most vauabe brads exceeds the market capitaizatio

o 70% o the U.S. Pubic compaies.

We’re takig about a massive sector i o our goba ecoomy that’s i distress. Ad yet, uike

other idustries, it is etirey itagibe ad depedet argey o the whims o cosumer setimet.

…the brand bubble could erase large portions

of intangible value across industries and sendanother shockwave through the global economy.

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COnSUMERS DOn’T SEE THE HYPE.

let’s the compare what cosumers thik agaist what bradig experts thik. We examied ao the brads that have remaied i Iterbrad’s top 100 sice 2004. We overaid our BAV mode

agaist Iterbrad’s rakigs to measure the percetage chage i brad vaue rom 2004-2007.

The right ad et quadrats o the chart represet brads that, accordig to Iterbrad, have

either gaied or decied i vaue sice 2004 ad the top ad bottom quadrats o the chart repre-

set brads that, accordig to our BAV mode, have either gaied or decied i vaue over the

same period. Based o Iterbrad’s rakigs, over 80% o these brads have gaied i ”acia

vaue” sice 2004 (upper ad ower

right quadrats).

By cotrast, accordig to BAV, U.S.

cosumers beieve that ess tha

40% o these brads have gaied i

“perceived vaue” (et ad right

upper quadrats). More dramatic,

cosumers beieve that over 45% o

these brads have actuay decied

i vaue (ower right quadrat). This

meas that cosumers beieve that

amost ha o Iterbrad’s most highy

vaued ad growig brads—brads

that accout or eary a triio doars

i brad vaue—have ot oy ot

gaied, but actuay decied i vaue

rom 2004-2007. (See Chart 4.)

Chart 4

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How is it possibe that brads ca be a growig portio o market capita ad, at the same time,

most brads are ot growig? The aswer: A icreasigy smaer umber o brads accout

or a sigicaty greater share o market capitaizatio. This meas that ewer brads are carryigthe water or everyoe ese. Sure, you ca ook at Appe, nike or Googe ad thik brads are

poweru. But, the reaity is that a smaer proportio o brads are accoutig or the buk o the

vaue beig created. We kow this rom our ow data, as the percetage o brads i our study

that beat the S&P 500 idex decied by 36% rom 2002 to 2007.

Yet, Iterbrad ad others geeuy procaim the robust power o brads. How ca this be reaistic?

This woud seemigy make Captai Cruch the oy recessio-proo ivestmet i the marketpace?

But remember, this is oy what busiess thiks o brads, ot cosumers. Busiesses atte baace

sheets with itagibe assets ike brads. Advertisig agecies prot rom the creatio o brads,

whie ivestmet bakers ad maagemet cosutats prot rom the sae o brads ad braded

busiesses. Somethig smes rotte i Bradvie…

How is it possible that brands can be a growing portion of market capital and, at the same time,most brands are not growing?

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EARlY SPECUlATIOn: TUlIPMAnIA

Oe o the rst bubbes o record occurred some 400 years ago i Hoad, ad the asset that

perpetrated this bubbe was a tuip bub. The Dutch aristocracy had acquired a particuar odess

or a type o tuip rom Turkey that grew very we i the ertie owads o Hoad. Citizes rom

a waks o ie, rom busiessme to average workers ad paupers, quicky jumped at the opportu-

ity to ivest i tuips. Some eve took out a crude orm o utures cotracts o upated tuips.

The market or tuips created such rezy that o oe stopped to questio i the cash fows woud

cotiue i perpetuity. no oe paused to discout the risks iheret i the trade, ad istead

cotiued to reivest i more bubs. Ad the at some poit betwee 1636 ad 1637, the appetite or

tuips pummeted. So too did the ortues o the thousads who had participated i “Tuipmaia.”

At some point between 1636 and 1637,the appetite for tulips plummeted.So too did the fortunes of the thousands who had participated in “Tulipmania.”

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WHERE’S THE BEEF?

The rampat specuatio i somethig as beig as a fower exempies oe o the most basic

udametas i busiess: the concept of value. Ideed, the core purpose o ay busiess is

to aciitate the traser o vaue rom oe etity to aother i a way that provides adequate vaue

or customers ad adequate returs or sharehoders.

The cocept o busiess as a vehice or vaue traser is othig ew, ad it is uttery simpe.

But i today’s highy competitive ad compicated busiess eviromet, it is crucia to uderstad

the repercussios o the way busiesses are supposed to operate i a steady state. The traser

o vaue betwee a busiess ad customer aims to exist i a state o perect harmoy. The busiess

etity keeps the vaue created by the dierece betwee cost ad price, whie the customer keepsthe vaue created by the dierece i price ad perceived utiity.

But iterestig thigs happe i the rea word, especiay whe mutipe parties perceive the utiity

o a good, service or asset to be dieret. I these situatios, vaue correctios, sometimes drastic,

must take pace. We have see it mutipe times i the past, rom the dotcoms to, most recety,

the credit cruch. Whe mutipe parties perceive the vaue o a good, service or asset to be dieret,

we eter ito usustaiabe coditios ecapsuated by the dreaded “B” word: a bubbe.

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COnSUMERlAnD AnD THE DECAY OF BRAnDS

That’s exacty what’s happeig right ow. Embodeed by the toos o the ew word, cosumer-

ism is prooudy chagig, which is ow rapidy acceeratig the decay o brads. A o this

creates the resutig diemma: Whie brads have ever bee more importat, there are simpy too

ew ‘importat’ brads.

Today a sea o sameess egus the marketpace. Cosumers have more choice tha they kow

what to do with. Yet, they’re emotioay ivested i ewer brads tha ever beore. Accordig to

a Datamoitor report, 58,375 ew products were itroduced wordwide i 2006, more tha doube

tha 2002. There report poits out that “despite the act that advertisig spedig was up rom

$271 biio i 2005 to $285 biio i 2006, 81% o cosumers coud ot ame oe o the top 50ew products auched i 2006—a a-time high or ack o recogitio ad a huge eap up

rom 57% i the previous year.”ii

Brads were origiay buit ad sustaied o the backs o mass media, repetitio ad cosumer

mooogue, but media ragmetatio, couped with the Iteret o steroids (i.e. broadbad),

eabed ow-cost competitors to attack rom ay geography without the eed or access to massive

capita. Suddey, a these chages became the catayst or cosumers to morph ito dieret

creatures. I act, et’s ca it ‘Cosumerlad’—a Diseyad-ike broadbad-ueed word o imitess

cosumer potetia ad edess cotro. The resut is that with so much access to cotet ad

Consumers now trust each other morethan they trust brands.

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Io 13/16

iormatio, creativity became the currecy. Ad brads that do’t have it become boorish ad

mere commodities i their eyes.

Cosumerad embraces ad demads creativity. From buyig “cheap chic” i Target to postig ms

o YouTube, cosumers have heighteed their creative expectatios o brads. Yet, most brads

exist i state o ratioa, repetitious ad persuasive seig propositios. Without creativity, there is

o true dieretiatio. Today it takes emotio to dieretiate yourse ad be desirabe.

Cosumers are aso osig trust i brads because o the parade o Eros, product recas,

dogghts, steroids ad poitica scadas, ad the cosumer has said “eough aready.”

I act, consumers now trust each other more than they trust brands . Media Edge/CIA oud that

76% o peope rey o what others say versus 15% o advertisig. 92% o cosumers ow cite

word o mouth as the best source or product ad brad iormatio, up rom 67% i 1977. iii

no woder review sites, such as Digg ad Reddit, have become the third-most-commo use o

the Iteret, ater e-mai ad search.

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TOWARD A nEW MODEl OF BR AnD MAnAGEMEnT

The ew reaity is that brads wi have to thik i ew ways ad work much harder to be dieret

ad specia i this ew word. The traditioa busiess modes ad strategies marketers have used

or geeratios o oger work. The birth o a udametay dieret cosumer, whose behavior

has chaged so rapidy ad so prooudy, requires a etirey ew visio o brad maagemet.

The word is chagig aroud brads, yet busiess does’t get what’s happeig. Most compaies

are’t aigig brad strategy with busiess strategy, cosumer isights with capita aocatio ad

marketig with c-suite decisio-makig. Marketig is ote removed rom the c-suite, eavig busiess

decisio makig poderousy out o touch with the marketpace. Maagers are too sow to aticipate

treds, to ivest/reivest or brig iovatio to their brads. Brads simpy are’t creative eough

to hod attetio. Brad experieces (the uctio o itegrated marketig commuicatios) ai to

ive up to the promise o its advertisig.

Most eterprises are cotiuig to maage brads accordig to pricipes that have ot chaged

or decades. Brad maagemet is more ike ‘brad maiteace’: It tries to cotro brads, creatig

cosistecy ad predictabiity i a word that ow demads busiesses surprise, iovate, adapt

With commoditization a reality of every day life, only the brands that are continuously creative will attract and hold our attention,and our affection.

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Io 15/16

ad respod. Brad equity is see i terms o saes, rather tha veocity. But the groud beeath

brads has irrevocaby shited. Today, brad mometum is brad maagemet: Mometum that

creates expectatio ad aticipatio.

May brads wi become commoditized, repaced by ew brads or ”lazarus” brads ike Adidas,

Puma, laCoste or Marks & Specer. Most criticay, the ecoomic vaue o creativity wi become

rot ad ceter. Istead o a “ice to have,” creativity wi be a “must have” competitive advatage

or busiess. With commoditizatio a reaity o every day ie, oy the brads that are cotiuousy

creative wi attract ad hod our attetio, ad our aectio.

End Notes / Sources

i Cacuatio is rom the 2007 IMF ist based o GDP uder purchasig power parity.

ii Datamoitor: Scheider/Stagito Commuicatios/IRI Most Memorabe new Product lauch Survey

iii Uiversa McCa study, 2007

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about the author

Joh Gerzema is Chie Isights Ocer at Youg & Rubicam Group. Joh ad Ed lebar have writte

The Brand Bubble: The Looming Brand Crisis and How to Avoid It , which was pubished i October 2008by Jossey-Bass. More detais at thebradbubbe.com icudig ree access to BAV data o over 500

brads i our study.

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