The Brand Bubble

The Looming Crisis in Brand Value and How To Avoid It

by John Gerzema and Ed Lebar

Jossey-Bass © 2008
272 pages

Focus Take-Aways
Leadership & Management • Technology and intense competition have decreased the value of brands.
Strategy
Sales & Marketing • Consumer attitudes toward brands are dropping in awareness, loyalty and trust.
Finance
• A valuation gap of about $4 trillion has opened up between the value Wall Street
Human Resources
gives brands and the value consumers put on them.
IT, Production & Logistics
Career Development • The total value of the world’s largest 250 brands is $2.2 trillion.
Small Business
• Any brand’s most significant attributes are public awareness, trust and regard.
Economics & Politics
Industries • When a brand has energy, it becomes irresistible, distinctive and more profitable.
Intercultural Management
• To energize your brand, focus your organization on a central idea or cause.
Concepts & Trends

• This “energy differentiation” must emerge from within the company as a result of an
ongoing flow of ingenuity.

• Marketers can build energy differentiation in a five-stage process of generating

creativity and adapting to consumer demand.

• The five stages are “exploration,” “distillation,” “ignition,” “fusion” and “renewal.”

Rating (10 is best)

Overall Applicability Innovation Style

8 8 8 7

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 Relevance

What You Will Learn

In this Abstract, you will learn: 1) Why brands are falling in value; 2) How changing
consumer behavior is affecting the ways people perceive and value brands; and 3) How
to energize your brand by following a five-step process.

Recommendation
John Gerzema and Ed Lebar have written an exceptionally clear, pertinent book about
the declining value of brands and why the world’s largest brand names are in flux. Using
proprietary data, the authors vividly explain how brand clutter has created a marketing
bubble. Since brands are such an important part of any corporation’s value, the authors
contend, the total valuation of this brand bubble will dwarf the mortgage bubble. The
authors identify and analyze the branding problem, and then make recommendations
about how to solve it. The book’s one drawback is that it becomes repetitive, especially
in the later sections. Still, the authors’ timely, compelling argument should resonate with
branding professionals. getAbstract recommends this book to marketers who want a
better understanding of how lack of creativity makes brands deteriorate, and of how they
might be able to resurrect the brands that are still salvageable.

Abstract
“We live and die Brand Troubles
on the strategic
decisions that we Big brand names risk being devalued and losing their financial muscle. Experts track
must invent each a brand’s strength with the BrandAsset® Valuator (BAV), a database and research tool
day to ensure that calculates brand reach and marketplace valuation. Based on data going back to 1993,
that our products researchers have found that consumer attitudes toward brands are falling in such pivotal
capture not only
areas as awareness, loyalty, trust and admiration. Brands are not contributing to their
dollars but also
imagination.” companies’ balance sheets and the public’s perception of brands is declining.
These events are happening because of brand clutter and new consumer behaviors. Trust
and awareness are no longer the sole determinants of how customers perceive brand
value. Instead, consumers now focus on fewer brands, primarily exciting ones with new
features. These brands distinguish themselves with a concerted effort called “energized
differentiation.” Brands with this energy capture public attention, causing a demonstrable
improvement in their firms’ financial results.
Consumers no longer value brands as highly as they once did. This has opened a gap
between the value Wall Street gives brands and the value consumers give them. In effect,
this valuation gap is the beginning of a brand bubble of some $4 trillion, twice the size
“We now know
the brands that of the subprime mortgage bubble. Brand value is a critical, though intangible, element
are thriving of any firm’s balance sheet. This value consists of patents, copyrights, customer lists,
already – and will business systems, knowledge, market positions, franchise agreements and corporate
succeed in the reputation. A contraction in these valuations has a major impact on future earnings. To
future – have an
insatiable appetite magnify that impact, intangibles now account for a larger portion of most corporations’
for creativity and a enterprise (or market) value than their book value. For instance, PepsiCo’s market value
questing spirit is $108 billion, in contrast to its book value of $9.8 billion.
for change.”
Research has found that 62%, or $19.5 trillion, of corporations’ total valuation worldwide
is now intangible. In the countries with the fastest-growing markets (as measured by
The Brand Bubble © Copyright 2009 getAbstract 2 of 5
 GDP), an increasing proportion of corporations’ value derives from intangibles. This
change in valuation is evidence of a new emphasis on corporate intellectual capacities
versus tangible assets.

“Credible evidence Walking through the Supermarket

suggests that According to Brand Finance, the total value of the largest 250 brands worldwide is $2.2
financial markets trillion. Some brand values are even increasing, but the gap between consumers’ regard
think brands are
worth more than for most brands versus the market’s regard, will inevitably erode brand value. Three main
the consumers who factors drive waning consumer confidence: people don’t trust brands, the market has too
buy them.” many competitors and dull brand-name goods fail to excite buyers. A walk through any
supermarket provides compelling examples. Today, the average big grocery store carries
30,000 separate items, three times as many as in 1991. In 2006, marketers introduced
some 58,000 new products worldwide, more than twice the number launched in 2002.
To accompany this parade of new products, companies increased their 2006 advertising
budgets to $285 billion, yet consumers still could not recall any of the 50 largest selling
“The problem is new products introduced that year.
these stellar brands
are becoming fewer This lack of differentiation means that more consumers make choices based on price, not
in number.” on brand attributes. Studies indicate that brand recognition matters most when selling cars,
liquor and beer. In most other categories, people buy based only on price. Even buyers who
claimed brand loyalty changed their minds within a year. Worse, only 4% of consumers said
they would maintain their brand loyalty if the product’s price increased. This has created
a widening brand-value gap between consumers, marketers and the financial community.
Brand equity’s traditional measures are no longer valid, so marketers have to create new
“Marketers
know that when strategies to re-create and preserve brand equity. They must build core brand attributes,
consumers stop particularly making sure the brand meets its implied emotional and personal promises.
respecting and
trusting brands, The Financial Power of Brand “Energy”
their loyalty
When a firm changes its major brands, the impact shows up quickly in its financial reports
diminishes and
they either stop and its stock price. Companies often make announcements about brand changes before they
buying or expect release financial information, but investors have been able to make predictions about equity
incentives such as prices, sales and earnings as much as two quarters ahead based on those announcements.
price discounts to
recapture Researchers who studied securities prices from 1993 to 2003 in light of 48 dimensions
their loyalty.” of brand attributes found that some brands’ momentum pushed their stock prices higher,
even as the overall stock market declined. This brand energy reflects how consumers
viewed the brand’s innovation level and creative appeal. Such vitality comes from new
ideas that inspire customers to feel hope and conviction. For example, Virgin, JetBlue and
Southwest Airlines have more positive attributes that generate “energized differentiation”
“If a brand than United, Delta and British Airways. A brand with energized differentiation becomes
isn’t heading irresistible and distinctive, which leads to added vitality and customer loyalty. Energized
somewhere
with velocity brands can be new or mature, but they all provoke exceptional emotional commitment.
and purpose, They have pricing power and the ability to become even more popular. Energized brands
demonstrating perform better than the S&P 500 index. From December 31, 2001, to June 30, 2007, 50
creativity at every brands identified as energy gainers outperformed the S&P by 30%.
turn, it loses its
distinction and
place in
Consumers as Investors
the memory.” When consumers buy an energized, top-performing brand, they expect it to deliver value
and grow with them. They think of a brand as an investment that should show positive
future dividends. In many ways, consumers act like investors. Both groups want long-
term benefits, maximum returns, innovation, transparency, accountability and as much
The Brand Bubble © Copyright 2009 getAbstract 3 of 5
 information as possible before taking action. Both are rational, and evaluate risk and
return. They choose their purchases based on a quest for higher future returns and a
desire for innovation, if they see newness as a benefit. Both groups crave certainty in an
uncertain world, so they want purchases to deliver on their promises. Certainty reduces
“As Einstein said, risk; reduced risk enhances value. This helps explain the research link between brand
you can’t get out momentum and future financial gains.
of a problem using
the same kind
of thinking that
Creative Energy
created When brands demonstrate creativity, they generate energy, win renewal in the market
the problem.” and reinvigorate their consumers, who, in turn, feel happy to be on the receiving end
of this innovation and vigor. Marketers whose brands achieve this level of renewed
energy often have tried to understand the future, and have applied their creativity to
building innovative approaches and new business models. A brand that makes positive
steps attracts dedicated customers. However, the proliferation of new technologies and
innovations also erodes brands that do stay up-to-date.
“In a world where
change is the Companies change their offerings when their customers demand a new benefit and
only constant, the a breakthrough is the only way to achieve it. For example, the most popular current
tried-and-true innovations provide the benefit of mass, participatory communication via blogs, podcasts
elements of brand
and other online posts. MySpace, YouTube and Twitter give people instant access to mass
differentiation
along with two audiences and can even help shape public opinion. These innovations shifted the balance
bucks won’t buy of power between brands and consumers. With their personalized approach and fast
you a nonfat latte access, these technologies enable consumers to write product reviews, share opinions
at Starbucks.” and join virtual communities. This consumer-generated media revolution has made
word-of-mouth communication more credible and powerful. This poses a problem for
brands, since consumers can share bad experiences rapidly and broadly. New technology
has altered the way consumers react to brands in many ways, including:
• Brand managers no longer control brands – Power has shifted to consumers, who
“Management now create powerful brand messages based on their experiences.
gurus constantly • Brands no longer communicate directly with consumers – People are more
assert that
innovation resides
diffused and get information from many more sources, so brands have to lure
at the heart consumers to come to them to get their messages.
of successful • Marketing has become a dialogue – Marketers must listen to attract customers.
companies
(although their
• Customers value personal experience and community ties – People want to know
starting point is and share a brand’s features, so marketers must embrace transparency.
often operational • Market segmentation is dead – Marketing messages should avoid class and
innovation, not background distinctions. Companies must deliver what consumers want, exactly
consumer-side
innovation).”
when they want it, or the opportunity will vanish.
The Five-Stage Revitalization Plan
Companies can revitalize their brands and cultivate new value if they work with
consumers to garner data, generate high energy, improve operations, increase creativity
and offer innovative products. This revitalization process goes through five stages:
“Marketing
communications 1. “Exploration” – Conduct an “energy audit” to determine your brand’s strengths
need to be and weaknesses. Energized brands provoke consumer awareness and convey a
marketing special meaning. Building that brand energy requires vision, creativity, a history of
conversations.”
innovation, a dynamic relationship with customers and a constant flow of innovation.
In creative organizations, ideas move easily across business units, and managers
are willing to risk experimentation. Many managers are, in fact, unwilling to take
The Brand Bubble © Copyright 2009 getAbstract 4 of 5
 such risks, although customers reward innovative, risk-taking companies that launch
new products or take on visible causes. As a brand marketer, use differentiation to
highlight your brand’s special characteristics, position and reputation.
2. “Distillation” – Focus creatively on a central idea that ties into your core business
purpose. This idea should be compelling enough to enliven your employees and
“Brands have
customers. The process of unification starts inside your company, and should reflect
blurred into a sea
of sameness.” the culture, major executive personalities, human resources practices and what it
actually does – as opposed to just repeating its advertising slogans. Make your
messages inspirational and customer-centric. Done correctly, this process enables
the brand to reinvent itself. In many cases, companies whose brands have very
high energy ratings are value-driven businesses that serve a social purpose. These
companies focus first on their customers and then on their shareholders. They want
customers to see them as reliable partners.
3. “Ignition” – Convert the energy identified in the previous step into actual use. When
a company makes creativity a constant process, its customers will respond and its
business can grow. Employees, executives and customers will all benefit from the
same creative forces. Increasing this energy chain requires executive participation,
and input from all major business units and other stakeholders. Senior management
cannot remain focused on quarterly earnings, which only emphasize short-term gain.
“An irresistible
brand is worth Instead, executives, consumers and shareholders should look to the long-term for
more today significant results. In practice, companywide creative input helped Wal-Mart sell
because it has low-energy fluorescent lights with the goal of reducing its customers’ expenses. Wal-
greater potential Mart worked with GE to lower costs, and passed the savings on to consumers.
to do more
tomorrow.” 4. “Fusion” – Engage your employees in providing constant creative ideas and in
exceeding customers’ expectations. People no longer see their jobs as just a means of
earning money; work has taken on a larger significance. This attracts new, talented
employees, and compels more consumers to notice the brand. This happens most often
in proprietor-driven companies (Virgin, Starbucks), but mature companies also can
generate this kind of energy. Whole Foods has an “energized culture” with a high social
consciousness and stringent food-quality standards. It caps executives’ salaries, pays
wages above the industry average and donates 5% of daily net sales to local nonprofits.
5. “Renewal” – Refresh your brand and learn how to adapt to new conditions by
soliciting customer feedback. Embrace change, even at the expense of modifying your
brand strategy or making it secondary to tactics. Strategy does not always have to
“Creativity is come first; you can change it in response to shifting market conditions and customer
embedded in the demands. Take action; do not lose momentum by stopping to study a problem.
spirit of irresistible
brands.” This five-stage plan aims to create a distinctive, irresistible brand, which will energize
your business and its customers. Marketers must think about brand management and
brand value in a new way, and build fresh brand experiences from a customer-centric
perspective. This is the source of the energy that drives exceptional brands and ultimately
produces greater shareholder value.

About the Authors

John Gerzema is Chief Insights Officer for Young and Rubicam Group, and an account-
planning pioneer. Ed Lebar is CEO of BrandAsset® Consulting, and oversees Y&R’s
brand strategy and research. Under his leadership, BrandAsset® Valuator has grown to
include more than 500,000 consumers, 38,000 brands in 48 countries, and 250 studies.
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