Why Your Brand Is More Fragile Than Ever
Branding, if you ask business experts, is nearly everything in business. A few years ago, New York University's Stern School of Business finance professor Aswath Damodaran suggested that brand is valuable if it lets you sell products or services at premium prices.
Consider, for example, what brand does for a commodity item--soda. As Mashable reported a few years ago:
Damodaran valued Coca-Cola's business at $79.6 billion, while the value of Cott was limited to $15.4 billion. To figure out the pricing premium, he simply subtracted Cott's value from Coca-Cola's value, arriving at a $64.2 billion total worth for Coke's brand alone. That's about 80% of the company's value. Damodaran noted that the key number driving the valuation is the companies' operating margins--Coca-Cola's margin is 15.57%, while Cott's is 5.28%. The typical company has an operating margin of 5-7%, so Coca-Cola's margin is phenomenal. The bottom line: If Coca-Cola suddenly lost its brand name tomorrow, its operating margins would drop to around 5.28%, and it would lose $64.2 billion of value.
Building that kind of brand is tough and takes time, though if you look at a company like Google, Apple, or Facebook, time to achieve brand value is a fraction of what it once was. However, brands have become amazingly fragile, as James Surowiecki at the New Yorker recently observed. He couched it in terms of consumers being "supremely well informed and far more likely to investigate the real value of products than to rely on logos."
And it's true that there is more information readily available about brands, associated products and services, technical information, expert opinions, and consumer experiences than ever before. But the issue is more than the amount of information. It's that old-fashioned word-of-mouth has gone natively viral.
People use Twitter, Facebook, and other social media to remark on their experiences, chime in when someone is taking a drubbing, or react to news they hear. One example Surowiecki offers is that of Lululemon, a brand of yoga wear that road high until quality seemed to suffer, consumers complained, and the company's founder made unwise remarks about women whom he thought were too heavy to wear his company's products. (Makes you wonder whether the person had ever read anything about Abercrombie and Fitch CEO Mike Jeffries.)
Consumers heard the news at a pace that had never before been possible, largely because of social media. Now consider how much utter rubbish is passed around from one person to the next--wild-eyed claims about politics, science, medicine, and current affairs that are demonstrably false. It doesn't seem to matter, as people see something an online acquaintance posted and all too often believe it without further consideration.
This isn't an issue of being better informed. It's more about the speed of information and when "news" can outrun fact. Any brand is vulnerable, whether it did something or not. It's yet another reason to keep a constant eye on social media and what is being said about your brand. Because once your company and its offerings become a minor meme, they will keep resurfacing year after year--a gift that keeps on taking.
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.