For a theory to become a practical application it must be relevant, easy to use, and easy to learn. Brand equity management is reasonable when explained theoretically, but sometimes it is hard to apply it practically. One of the most difficult practical applications is in investment. Question brand equity management must answer is: Can brand equity management minimize risk and increase return of investments?
A faster way to view brand equity is to focus on content only. Companies that manage their brand equity well give substantial attention to content. Content is more tangible from an investor point of view.
Here are three questions which can be asked by an investor:
1) Does a company compete with products or with content?
If a product oriented company exists long enough, its revenue will be distributed over many products. Content company revenue will have less products. First assumption would be that content company is a higher risk investment because it did not distribute its revenue. However, if looking at the content, the impression is reversed: product company has little content, and content company has a large diversified content production. Product companies can be a higher investment risk because their content is less competitive, which makes them more dependent on products. Products are not agile and harder to maintain uniqueness. Content companies need fewer products, while they focus strongly on content. Only in non-competitive categories can products be more competitive than content. For example, we can define Tesla as content company which makes 3 car models, while Ford is a car company which makes almost 30 car models and makes content.
2) Does top management understand content?
If a company competes with content, next question is if it’s top managers understand this. A bad sign is if company has succeeded in a non-competitive category by following trends from other categories (cycling gear in 1980s) or change of management has happened (Apple CEO change from Steve Jobs to Tim Cook). Both are signs of a higher risk because company is not ready for competition. A good sign that management understands content is a normal or higher marketing budget over a period of few years, and manager’s participation in events, interviews, and press. Top managers who can speak often and long about their brands and products are the ones worth investing in.
3) Is content production “owned” by the company?
If a company depends on the content and its top management understands it, it is important that company controls the content processes. It is a risk to produce content so it management is only aware of the results and not the processes. If there is a benefit or damage, company can not understand it and replicate the benefit or avoid the damage. This can be verified by understanding how marketing budget is spent and how marketing contracts are made. When Marc Pritchard criticizes transparency of agency contracts is a strong sign that P&G owns the content production, and will “own” it even more.
Apple, Google, Microsoft example
Zdnet published an article comparing Apple, Google, and Microsoft revenues streams by product. Below are Zdnet revenue stream charts for Apple, Google, and Microsoft linked to their stock information on Google Finance:
If we ask above three questions we can define Microsoft as a product company, and Apple and Google as content companies. Microsoft has traditionally won with aggressive sales tactics, while Apple and Google have gained market share with a lot of content. Apple and Google products are not just electronics and advertising, but complex systems based on content. For Apple iOS apps, music, and press are content, while Google’s free products such as Gmail and Maps play the role of content. Only comparing product revenue streams does not reveal the investment risks. All the things Apple and Google customer’s get for free are content and they enforce their brand and sales. Microsoft has less content and focuses on selling everything as a product. This is their historic legacy making them depend more on product sale and not content sharing.
Microsoft top management, compared to Apple and Google, has a poorer understanding of content. Microsoft also loses on content “ownership” because they tend to make sudden changes in content production, similar to the ones which ruined the Reebok brand.
Neither Microsoft, Apple, or Google are a high investment risk, but between them Microsoft is a highest risk, Apple second, and Google least.
Goal of this example was to illustrate how rules can be applied.
If brand equity management tips are used, they should be used in combination with other investment parameters.
This is not investment advice.
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