Dec 2, 2007

Brand Buyer, Beware

The much heralded new class of cash-rich, global multinationals emerging from China, India, and other fast developing countries will do well to avoid the biggest mistake of the very companies they are eagerly snapping up to gain stronger positions in lucrative Western markets. Of late, former market leaders in Europe and the U.S. have fixated on driving down to lowest-cost position, moving plants overseas, slashing (and burning) years of brand investment. Ironically, that obsession leads straight to the quagmire old-line brands fear most – commoditization. Surrounded by lower priced alternatives, they’ve shot their horses and hunkered down. At best, this is not a winning strategy.

What might yet save the Boeing’s, the GM’s and the Maytag’s is exactly what earned them brand preeminence in the first place: Give customers greater tangible value. And relentlessly find new ways to do so. Above all, don’t equate value with lowest price. Profitable growth will follow clearly differentiated solutions, as they always have and will.

Ultimately, value has to be tangible, and expand the benefits that your customers receive. Traumatized by new entrants, sagging capitalizations, and thinner margins, more than a few companies have utterly lost sight of this behind their walls of cost accounting, functional specialization, and consulting research. They have mistaken honing the same old business model for getting back to basics. At this stage of the game, the real basic they should be focusing on is rediscovering the verb in market leadership.

The path forward is simplicity itself. Get your own senior executives into the same room with your customers’ executive team to do the hard work of addressing real strategic needs together. In brief, act like your customers’ partner and build true relationships. Nothing mysterious, but it does run counter to executives’ natural impulse to delegate, even though effective relationships between global companies demands regular dialogue at all levels, from chairman and CEO on down.

This is something other than quarterly update meetings, golf outings, or key account tours by new CEOs. It certainly isn’t the typical wrangling over the size of this month’s promotion discounts or who’s responsible for a quality problem. It is face-to-face, structured, periodic, facilitated meetings between your senior management and your customers’, aimed at surfacing and solving their ongoing and very strategic business issues. Most companies just don’t do that.

Sure, manufacturers boast of strong distribution networks and big corporate customers may point to sophisticated supply chains. But at the top, there is almost always a startling disconnect. The leaders don’t hear each other, don’t roll up their sleeves with each other, don’t know how to improve their end-to-end system together.

Several years ago, I met with a large industrial company that was experiencing sustained deterioration in its market share and brand reputation. An outside consultant had done extensive analysis and enthusiastically reported back. Their recommendations were warmly received. Nothing happened. No one knew how to bring the insights to life. Strategically, the company never meshed with its customers in any unique way relative to other alternatives. No one could figure out how to move from the day-to-day reality of tactical supply chain issues and me-too product features to presenting customers with tangible value they would instantly appreciate. Not long after, its stock plunged and its reputation tanked.

Today, a global overseas competitor would probably bid for this fallen star. I would caution it to look first for ominous warning signs like these: a strategy overly reliant on cost reduction, a management that crows about abstract CRM technology, few if any references to solving intractable end-user challenges, a bankrupt brand management organization, an executive team that views its channel partners and major customer accounts with undisguised mistrust. Buyer beware.

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