24 September 2008

Is $130m the only cost to Fonterra's brand?

New Zealand dairy cooperative Fonterra has been forced to write down $130 million this week as it's global brand reputation increasingly comes under attack.

The write down comes in the wake of the everwidening Chinese milk tampering scandal, which could result in one of the largest food recalls in the Asia-Pacific region.

One of the largest dairy companies in the world, Fonterra was widely regarded as a "clean and green" brand. Not only does the company own a 43 per cent stake in San Lu, the Chinese firm that sold the poisonous milk formula, but it seems on the face of it, the company's directors had prior to knowledge of the tampering but seemed unable to act on it.

A carefully stage managed press conference in Auckland New Zealand this week saw executives once again running for cover as they fended off press accusations that the company could have done more to avoid the scandal, which so far has claimed lives and hospitalised thousands of children in China.

Despite a presence on the San Lu board, who may have known about the introduction of the contaminant as far back February this year, Fonterra CEO Andrew Ferrier insisted their lack of knowledge of Mandarin hadn't have hampered their efforts to understand the extent of the tampering and in interviews said he "was appalled that this could go on."

Fonterra claims they first knew of the contamination in early August and took what it regarded as the best course of action, which was to work with the Chinese government on a product recall.

However, the depth of problem is demonstrated by the extent of the write down, as the company paid $100m for a 42% stake in San Lu, which is now valued at $62m and with some reports suggesting that San Lu's brand is now virtually worthless. It also seems likely to anticipate a much more substantial write down on Fonterra's brand value.

Fonterra appears to have stumbled at the farmgate - first denying knowledge of the scandal, failing to achieve a product recall and now having to admit it had knowledge of the tampering prior to it going public.

Fonterra would do well to have learnt a lesson from Perrier, once the leading brand of sparkling water in the US and the world.

In 1990 benzene contamination was found in bottles of its popular sparking water leading to a complete global recall of more than 160 million bottles which, like Fonterra, was also similarly poorly handled by its executives. The result was an overnight collapse in market share and a takeover by Nestlé in 1992. Perrier is yet to regain its pre-1990 marketshare.

As the scandal widens to Australia, HongKong and other Asian countries it seems that in this escalating attack on its brand reputation is likely to result in a significant drop in its share price, market share decline and community disquiet in its respective markets.

All of this could and should have been avoided if the company had some proper risk assessment and crisis planning in place. In short, this would involve training for its key executives so they can plan responses and ensure various constituencies are actively tracked. For a company of this size I would have expected this was mandatory. However, Fonterra appears to have already broken one of the cardinal rules for protecting brand reputation and ensuring trust - when in a crisis provide as much certainty as possible around how you are dealing with the problem. They haven't and now it's too late.

I wonder if this is going to be a long, slow debilitating drip.

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22 September 2008

The battle of the brands 2: new global brand survey just more deck shuffling.

There's nothing very surprising in BusinessWeek's annual survey of the 100 Best Global Brands, just that Google isn't already closer to the top of the pack and that it pre-empts the rapid decline of some world's major financial brands.

In its latest and eigth iteration, the brand rankings compiled from data from JPMorgan Chase, Citigroup and Morgan Stanley, see little shift in the dominance of global brands with the exception of Disney's failure to grow, Mercedes-Benz departure (down to 11) replaced by Google's (10) much anticipated entry into the top ten.

What's most interesting in this list is the fact that $157 billion Google hasn't already surpassed Microsoft (ranked 3) and that Swedish megaclothing retailer H&M is rocketing up the charts(22) while Thomson Reuters (44), Blackberry (73), Ferrari (93), Armani (94), FedEx (99) and Visa (100) are all marked as new entrants to the pantheon.

Behind Google, Apple (24, up from 33), Sap (31, from 34), Nintendo (40, from 44) and Amazon (50, up 62) all signalled significant growth off the back of strong sales and increasingly focussed efforts of true and marked differentiation via technology.

In what must have anticipated the seismic shocks in financial markets, big value declines were posted by Merril Lynch (-12%) Citi (-14%) and Morgan Stanley (-16%), while old school brands such as Ford (-12%), Gap (-20%) and Motorola (-10%) all struggled to hold onto their market and customer relevance.

Outside of the financial giants, Ford, Gap and Motorola have all been characterised as so bogged down in moribund cultures that their ability to innovate has had significant effects on their share price and caused subsequent declines in brand value.

Indeed for Ford, Gap and Motorola it must signal that lessons can be learnt, not from big ticket investing in advertising but in building cultures that are imbued by technological and design innovation, which big risers Google, H&M, Amazon and Zara already know.

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15 September 2008

The battle of the brands: the contest for the best brand surveys in the world.

Dr Hunter S Thompson must be smiling. The Hells Angels are Australia's number one brand, if yet another brand popularity survey is to be believed.

Brand rankings, brand affinity, brand preference, brand valuation studies - dress them up as global and national rankings and name them the World's Best Brands, the World's Most Valuable Brands, the World's Most Recognised Brands, the World's Most Powerful Brands, the World's Most Loved Brands and you get some sense of the beauty contest that is going on for companies claiming authority in battle of brands.

Advertising agency the Belong Group's Australian study of national brand awareness, appears just another example of yet another advertising agency trying to climb onto the brand popularity surveys bandwagon, with what can best be described as a very "independent" study.

According to Belong, the top five brands in Australia are the Hells Angels, Apple, Star Wars and the diary and stationery manufacturer, Moleskine!

While there is little detail on the study methodology, it seems that a 1000 consumers were polled on the basis of what a brand stood for, if there was a clearly articulated belief and whether the brand elucidated a particular type of behaviour in people. A panel of, what Belong describes as, "industry experts" then ranked and shortlisted 20 brands.

It's not too dissimilar to advertising agency Saatchi and Saatchi's Lovemarks project.

A love mark is a product, service, person or place a consumer can’t imagine living without, has a specific name that is identifiable by others and is based on a personal experience.

is about consumer's identifying a small, everyday product or brand that embraces and infuses people's live to make them a little better via the Lovemarks' website listing.

Interestingly there is some affinity with Belong top 20, Lovemarks contributors rank Apple at 4 and Moleskine at 6 among their top 200 and also Nike at 87 and Star Wars at 148.

Belong's top five of the top 20 brands (Alannah Hill, Free Hugs, Peter Alexander, T2 and the Bra Boys) are Sydney based, would suggest that either Belong are looking for new clients (Saatchi and Saatchi reportedly won US$430 million JC Penney contract because of Lovemarks) or that the brand menu was very selective and the research net wasn't cast too widely outside of Sydney.

Compare this to the top five in last years The World's Best Brands, an annual global study published Business Week for the last seven years, which lists CocaCola, Microsoft, IBM, General Electric and Nokia and you'll see why things must have gone a little awry over at Belong.

In the Business Week study, Nike which ranked 12th on Belong's list slips in at 29th, Harley Davidson motors in at 45th and Apple manages to get 33rd. No mention of Smiggle, The Body Shop and shoe brand, Ecko.

Unlike the Belong study, this ranking uses a combination of analysts’ projections, company financial documents, and own qualitative and quantitative analysis to arrive at a net present value of company earnings to establish the brand value.

To even qualify for this list, brands must make at least a third of their earnings outside the home country, be recognisable outside of its customer base and have publicly available marketing and financial information.

Global brand valuation agency Brand Finance's Top 100 Australian Brands, published in June this year, lists National Australia Bank, Woolworths, Commonwealth Bank, Telstra and the Foster's Group in the top five. Coca Cola is listed at number seven.

Happily for Belong - Seven Network, which screens Sunrise (ranked 18th) is ranked 28th by Brand Finance and one of the licensees of the Virgin brand (ranked eight by Belong) Virgin Blue scrapes in at 45.

Brand Finance's rankings are based on the brand portfolios of Australian Stock Exchange listed companies, in terms of their absolute dollar value, and also the percentage contribution that the brands make to enterprise value.

Brand Finance defines a brand portfolio as the value of trade marks and trade mark licenses, together with associated goodwill.

Global marketing research agency Millward Brown's World's Most Powerful Brands or BrandZ Study published in April this year lists Google, General Electric, Microsoft, Coca Cola and China Mobile in their top five.

In their list Apple comes in at seven, Nike at 53 and Harley Davidson at 72. No listing for Dove or Star Wars here though surprisingly Unilever, which does own the Dove brand, (perhaps no one knows who they are in Australia) is unranked but McDonalds ranking eigth and Subway (73) are.

Millward Brown's annual BrandZ Study measures the brand equity of 50,000 global “consumer facing” brands and interviews over 1 million consumers globally (though this is probably across numerous studies of unspecified nature). The Top 100 ranking assesses brand value using market and consumer research, in combination with financial data from Bloomberg and Datamonitor, to calculate and break-down intangible earnings), brand contribution (the brand’s effectiveness in driving business earnings and what they call Brand Momentum (an index of expected short-term brand growth).

The Millward Brown ranking takes into account regional variations since even for truly global brands measures of brand contribution might differ substantially across countries.

The Belong study is based on consumer sentiment with an "expert" filter and provides a simplistic but popularist ranking of the "top" brands in Australia. Alongside Lovemarks, it proves there's a long way to go before we get a more accurate measure of the relevance and influence these brands have on consumers. While the global brand ranking studies do provide a substantial degree of homogeneity in their brand rankings because of common financial inputs, the degree to which they measure power and recognition is something recognisable consumer input could make a significant contribution to.

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07 September 2008

Is Woolworths rebrand a failure to launch?

Two weeks after Australian supermarket giant Woolworths launched a fresh new look, the old logo is still being prominently featured in both advertising and the launch of its new credit card.

One of the best ways to kill the momentum of a rebrand is to execute poorly and hesitantly - and Woolworths seems to be on a similar track.

At launch Woolworths promised that the rebrand would take place slowly and steadily and that only a small number of stores would be rebranded with the new look and the rest would come on stream as they joined a refurbishment program or new stores were opened.

However, since the launch Woolworths seems to be exhibiting all the hallmarks of poor brand management.

On August 22, Woolworths announced the launch of a general all purpose, all singing and dancing credit card that can be used for purchases both within and outside Woolworths outlets and at group stores such as Dick Smith, Dan Murphys and Big W.

While a joint venture with global banking group HSBC and Mastercard, the Everyday Moneycard proudly carries the Mastercard mark but also the OLD Woolworths logo as does the Woolworths website, where you sign up for the card and the in-store and other advertising for the card.

And no one seems to have told Woolworths' advertising and media agencies. A similar story was repeated in newspaper and television advertising - the old logo continues to blaze in full colour.

None of this seems to make sense when in the same week Woolworths shrugged off the ACCC report into supermarket competition and announced the fresh new look would, as its head of marketing Luke Dunkerley is quoted as saying, "be instantly recognisable as Woolworths and be associated with the word fresh within a short time".

Here at DIFFUSION we wonder what Woolworths thinks is a "short time" and whether perhaps the flurry of announcements were designed to draw interest away from some of the more adverse findings in ACCC's supermarket competition report released on August 5.

More importantly, it demonstrates that large scale rebranding projects such as this are critical to Woolworths' long term strategy and require far more than a marketing department's control. A concentrated and well executed timetable, that is both realistic and cost effective, would forestall the impression that this is a hamfisted exercise. We wondering whether Woolworths' CEO Michael Luscombe isn't about to repeat some of the disasters from competitor Coles' rebranding efforts, which resulted in successive profit write downs from the botched Bi-Lo merger and John Fletcher's downfall.

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