Magazine article Risk Management

Respecting Brand Risk

Magazine article Risk Management

Respecting Brand Risk

Article excerpt

Brand is the promise of quality and consistency which provides the foundation for the relationship between an individual and a specific product, service or company The fulfillment of this promise creates value, drives customers to buy more products, influences the financial community to recommend further investment and helps companies attract and retain the most talented employees.

As the number of consumer choices increase, brand is gaining greater importance in the decision-making process. People use brand to distinguish between two hundred varieties of salsa or to choose from fifty different management consultants. An international survey of senior executives (conducted jointly by Marsh and Templeton College, Oxford in 2000) found that 85 percent of companies consider brands to be their most important asset. From these results, you would: think that t effective brand risk management would move up the list of senior management 'concerns. But very few companies have active programs in place to protect their brands.

Strengths Are Weaknesses

Many companies do not actively protect brand because they fail to properly understand the connections between the different elements that define brand equity (the power of a brand-through successful creation of a positive image-to shift demand and change customer behavior). For instance, some companies looking to promote faster growth will consolidate weak brands into fewer, stronger brands. This creates a strong brand value that can protect brand from intensifying price competition and can allow it to serve as a bulwark against the substitution and commoditization risks presented by other companies that offer consumers lower prices. But rapid growth increases the need for brand risk management, because many of the elements that allow a brand to grow also make a company vulnerable. The elements that best illustrate this aspect of brand equity include the following:

Brand stretching. This occurs when one company brand is stretched to encompass many different businesses (i.e., one brand operating in music production, retailing, airline and soft drinks). This diversification strategy leverages the strength of the brand, lowering the cost of building customer awareness, increasing the speed of market penetration and reducing the uncertainty of short-term revenue targets. Where brands are stretched across a number of products or services, however, brand failure in one area can taint perceptions of the brand in other areas. Brand stretching can also be dangerous when it takes the brand beyond its natural boundaries.

Brand alliances. By teaming up with other well-respected organizations, a company can sometimes enhance its brand equity. But brand alliances also expose companies to the risk that their partners' performance may fail to meet customer expectations, thus damaging the brands of the other alliance members.

Channel switching. Brand equity built through one sales channel can sometimes be transferred to another. That is why some companies, like book sellers and toy stores, can use their strong brick-and-mortar retail presence to make a significant impact on the Web even after a late start. The acceptance of these companies as trusted retailers on the Internet is due to the strength of their brands. The problem is that a failing Web business can undermine what is otherwise a strong brick-andmortar reputation.

Outsourcing. Information technology allows companies to outsource many activities and refocus their efforts and assets on core competencies. In many cases, this will concentrate the value of a firm into intangible assets, such as intellectual capital or brand. The stampede to outsource, however, poses considerable brand risk, especially where the outsourcing relates to customer service and other functions that may contribute to a company's brand equity.

Relationship building. New technologies, particularly the Internet, enable companies to build brands faster by providing the consumer with customized and responsive services. …

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