Branding Part Three

So far we have rejected branding here and here as an element in the start-up or small business effort, except as a natural consequence of building a business by serving customers.  Following Seth Godin and his idea that a brand is the sum total of all experience of your company by customers, then branding follows building a customer base.

Also, the original intent of the brand was simply to distinguish one commodity from another among illiterate people.  Folger’s Coffee.  SPQR Security.  Rolling Rock - Same As It Always Was.   The error in thinking is first there was a brand, then came the customer.  We sell to customers who form a customer base.  The we can sell new products (under our name) to those same customers, and our old products to new customers (expand the base.)  One thing we never try to do is to sell new product to new customers (except in the start -up mode, which we never want to repeat.)  When in start up mode and selling new product to new customers, what point would there be to having had invested in brand?  None, of course.  After starting up, you old customers need only know it is you offering something new, they need no extra push by means of some brand.  New customer need only know your old products are established and proven at leading retailers, a fact they glean by their exposure to you at that very retailer.  So what is left?  New products to new customers, for which we’ve established a brand is desultory.

But the expectation remains, the brand is a magical element that allows one to take new products to new customers and succeed.  This idea is essentially voodoo marketing.

Since we cannot know what that eventual customer base is as we start, and since the business is ourselves, we simple name the business after ourselves and let what “brand” we inure accrue to our name.

The customers we sell to, those established firms, are necessary and sufficient for marketing our name.  If they sell our product, their blessing on our product provides all the brand benefit for which we could possibly hope.  End-users do not purchase our product from the retailer because our brand is unknown, but because the established retailer is known.  Everything we can possibly want in a brand is allocated to us by being on the shelves of a first rate retailer.

We may leverage their inevitable advertising to our advantage by offering that particular retailer an advertising allowance, and in this way while our customer is enticing the end user into our customer’s store with the promise of new and better offered in our otherwise unknown product.  At the same time that very ad is signaling our customer’s competitors our product is first rate, and available.  By never advertising we leverage our business reach exponentially.

With this in mind, let’s take questions that I commonly get, these merely most recent from a pair of correspondents:

Your anti-IPR stance was a very new approach to me, but your reasons in the book made it LOGICAL and EASY to understand why. What I am still struggling with is how to implement the pro-contract, licensing/private label, branding after your own name, everything happens, everything that makes money approach. If I could walk you through a scenario below I think your critique would help me better understand.

SCENARIO:

1) I recognize a product and gain positive feedback from retailers, buyers, etc for widget X  (Ed. Note, this would be Plan B).

2) Get confirmed orders to meet minimum, order from supplier

3) place new and innovative product in showrooms, samples to sales agents etc.. feedback is positive and item beings to gain more and more orders.

My Struggles:

You suggest that I market my design as simply the hard sample, pictures, material specifications, functional name of design, and under the Mine Name Company? Can you elaborate why you are against trying to build a brand around this item or at least give it a brand name?  

I am against wasting time and money.

Are you saying that every product that people ever bought from you was always under the John Spiers Co.? 

More or less.

What if you had multiple product lines at same time that were unrelated? 

I do.  Everything Calvin Klein is named Calvin Klein...everything Boeing is Boeing... your name is the brand name... now I do have something not me that I have branded without my name because I intend to give it away eventually...

Everything Toyota is not named Toyota i.e. Lexus, Everything under Mars Candy company is not names Mars Candy Bar i.e. skittles, snickers etc.  

But you and everyone else knows Lexus is Toyota.  The 747 is Boeing.  Brand equity is a textbook notion.  It has accounting implications under "goodwill" but that is so ephemeral I wonder why anyone would ever consider it.  Think Exxon, Nixon, SPQR, Washington Mutual.. once priceless, next day worthless.

As you said, if it is successful why would you give it away eventually?

The reason is that I know my limitations, and if it is more than I can manage, it is open to homesteading anyway, as an ethical matter.  Torvald has given away Linix, as he should, and I am giving away Seattle Teachers’ College.  No one owns wikipedia, but Jamie Whathisname runs it and get a free anything he wants anytime from his admirers.  Some things are naturally cooperatives, and should not be “owned” by anyone.  To “own” it I’d be obliged to rely on intellectual property rights, and that would be evil.

By giving X product a brand name you can then create brand equity???

??? suggests you are not so sure. Surely you do not believe a brand name instantly creates equity.  If so, I should pick things up off the street, brand name them, and arbitrage the instant equity.

 It seems that you prefer a rinse, wash, and repeat method rather than building brand equity?

I say rinse, wash and repeat IS how you do build any brand equity.  The sum total of sales transactions, plus word of mouth, is the basis for brand equity.    But you now introduce the term “equity.”  That is a balance sheet item, some value above and beyond the value you get from buying and selling as a business.  This suggests an interest in someday selling the business for premium above and beyond the value it provides in its operations.  I’d suggest that the small business ought to ignore this dimension and put all of its resources on serving the customers.

In regards to branding, I guess what im trying to say is in some form or another related to your overall theory...

By developing a brand name for an already established product and/or commodity, you are taking a product and redesigning it (packaging, branding, whatever) and changing it for better or worse essentially alleviating the pressure of competing on price!

There is a new twist, branding alleviates pressure of competing on price.  What if we are not competing on price?  How does a redesign of a package or slapping a logo on a product benefit the customer?

These two watches are the exact same made from the same factory in China.  The one on the left is sold at Walgreens for 10 dollars.  The other is sold online for $40. According to your theory in you book, using the economies of scale provided by the large corporation, flex watches would eventually lose their business over time.  Again, the watches are the exact same but through their marketing/advertising they have created a brand name  that people want to buy and are not only able to compete with the big box retailers, they are able to sell at a much higher price and continue to do well.  

I doubt that the website is making a profit or the brand is contributing in any way to any success.  You’ll have to get audited statements to back up your claim.

Doesn't this example contradict your theories and the point you are making?

I love being proven wrong.  But I need to be PROVEN wrong.

  I mean, 7-11 (or any other coffee shop) coffee is similar to starbucks coffee but why do people buy the starbucks coffee?  

Starbucks serves a better product than 7-11.  Starbucks has about twice the coffee in the cup (more coffee particulate, as well as more caffeine) and the barista makes it fresh whereas at 7-11 the coffee is of dubious vintage.  One can taste the difference.  I once asked the clerk at a gas station how come the coffee tasted like dirt and she said “of course, it was ground this morning.”

because its trendy and chic.  People want to be seen drinking starbucks coffee.

Prove it.

 Why do people prefer Nike basketball SHoes over Converse basketball Shoes?  People want to be seen playing in Nike shoes just like Kobe and Lebron do.  Not in the converse shoes that no popular stars wear.  Shultz has created a brand name and that's why he outperforms his competitors.  

Nike is a better shoe than converse, Nike puts more into design.  Converse is being milked as fashion statement shoe. Both nike and starbucks built their brands organically, and only now do both drive business through co-branding (LeBron = Nike).  Phil Knight started selling Nikes out of the trunk of his car, Starbucks started by buying tea in Vancouver at retail and marking it up to sell in seattle in the Public market.  Later came the customer satisfaction associated with a brand.

 I think branding can alleviate the pressure from competing on price and create longevity in a product instead of getting squeezed out by the conservator.  By creating a brand name, you protect the product (that can be copied i.e. watch example) through your brand and consumer loyalty to that brand.

How does a conservator squeeze you out? They sell a cheaper version of your product, made at a different factory, financed not by you, managment and logistics for which you played no part, to customers you could never serve.  Where in that did you get squeezed out?

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