build­ing in­vin­ci­ble brands

The Smart Manager - - Contents -

The ul­ti­mate moat will be how well a brand un­der­stands the chang­ing con­sumer, in the con­text of their lives and its in­ter­ac­tion with tech­nol­ogy, writes Ambi Parameswaran, Brand-Build­

The av­er­age sell­ing price of an iPhone is $500 more than the pric­ing for its chief com­peti­tor Sam­sung, ac­cord­ing to re­search by Canac­cord Ge­nu­ity, making Ap­ple earn over 90 per cent of the prof­its in the smart­phone cat­e­gory and rack up a cash hoard on its bal­ance sheet.* What makes cus­tomers choose a prod­uct over oth­ers de­spite its high price? It is, in most of the cases, di­rectly in­flu­enced by the brand’s thor­ough un­der­stand­ing of the cus­tomers’ chang­ing pref­er­ences.

War­ren Buf­fett once said, “In busi­ness, I look for eco­nomic cas­tles pro­tected by un­breach­able moats.” With Game of Thrones (GOT) making cas­tles once again a much-sought-af­ter as­set, his words sound a lot more con­tem­po­rary than we would have thought a decade ago. But can busi­nesses be really pro­tected by ‘moats’ like the cas­tles of GOT? Well, the cas­tles of GOT do not get much pro­tec­tion ever since the Dragons took to the air. Com­pet­i­tive ad­van­tage, as de­scribed by Michael Porter in his epony­mous book, has three legs. You can have a com­pet­i­tive ad­van­tage if you are a low-cost pro­ducer (pro­duc­ing in bulk, may be), or you are a truly in­no­va­tive com­pany (churn­ing out new prod­ucts like a rab­bit), or you are fo­cussed on serv­ing your cus­tomers bet­ter than any­one else.

You can have a com­pet­i­tive ad­van­tage if you are a low-cost pro­ducer (pro­duc­ing in bulk, may be), or you are a truly in­no­va­tive com­pany (churn­ing out new prod­ucts like a rab­bit), or you are fo­cussed on serv­ing your cus­tomers bet­ter than any­one else.

So, it fi­nally boils down to price (lower the cost, lower the price you will charge for the prod­uct), new­ness/in­no­va­tion, or ex­em­plary cus­tomer ser­vice. With dis­rup­tive tech­nolo­gies ris­ing even faster, like the dragons in GOT, will those com­pet­i­tive ad­van­tage-based ‘moats’ be able to sur­vive in the long run? Just as rideshare dis­rupted the au­to­mo­tive in­dus­try, or ac­com­mo­da­tion-shar­ing is dis­rupt­ing the tra­di­tional ho­tel in­dus­try, the new com­peti­tor you will face may come from the most un­known of places. Imag­ine you feel­ing safe with the wide moat around your cas­tle and your look-out guy spots the dragons? Think of Elon Musk (who built a pay­ment wal­let PayPal) tak­ing up the charge for elec­tric cars. As my friend ex­plained to me over a rather fancy lunch at New York, over­look­ing the Trump Tow­ers, there is just too much cap­i­tal wait­ing to be in­vested. And a lot of this cap­i­tal would fall into the cat­e­gory of ‘pa­tient cap­i­tal’—cap­i­tal that is ready to wait for ten or twenty years to de­mand a re­turn. In con­trast, I was once told that the real es­tate sec­tor in In­dia es­pe­cially, is funded by highly ‘im­pa­tient cap­i­tal’. You get the con­trast. So, what can pro­tect your busi­ness? What can be a po­ten­tial ‘moat’? Brands have proven to be able to with­stand the trial and tribu­la­tion of time. In the text book Strate­gic Brand Man­age­ment, Pro­fes­sor Kevin Lane Keller has listed a set of in­dus­tries (mostly in pack­aged goods) where the mar­ket leader has not changed in the last ninety years or more. Take tooth­paste, it is Col­gate (Crest did give Col­gate a fear in the US for a decade). In soft drinks, it is Coca-Cola. In chew­ing gum, it is Wrigley’s. In cho­co­late, it is Her­shey’s. In paint, it is Sher­win Wil­liams. In tea, it is Lip­ton. In toi­let soap, it is Dial (it was Pal­mo­live in 1923). In soup, it is Camp­bell. A sim­i­lar anal­y­sis could be at­tempted in In­dia but since the coun­try started see­ing real com­pe­ti­tion in many cat­e­gories only post 1990, we may fall short in our list­ing. But nev­er­the­less, in In­dia too, it has been Lifebuoy in soaps for over half a cen­tury (San­toor seems to have over­taken the long-term num­ber two, Lux, last year); in tooth­paste, it has been Col­gate; in cho­co­late, it is Cad­bury; in tea, it is Tata Tea (as Sangeeta Tal­war tells us in her new book The Two Minute Rev­o­lu­tion, Tata Tea edged past Unilever’s Brooke Bond for the first time in 2007); in paint, it has been Asian Paints (for over 40 years). Even af­ter the ac­qui­si­tion by Coca-Cola, Thums Up rules (from 1977). The same anal­y­sis may not work if you get into other cat­e­gories. A few ex­cep­tions stand out. In cars, it has been Maruti Suzuki for more than a few decades. In mo­tor­cy­cles, it has been Hero (ear­lier Hero Honda). In bank­ing, it has been State Bank of In­dia. In life in­sur­ance, it has been Life In­sur­ance Cor­po­ra­tion of In­dia. We will soon run out of such per­pet­ual lead­ers as we delve into other cat­e­gories like re­frig­er­a­tors, tele­vi­sions, wash­ing ma­chines, air con­di­tion­ers, ceil­ing fans, cook­ers, mo­bile phones, lap­tops, and watches (Ti­tan over­took HMT in the ’80s). In ser­vices, the leader board has changed many times; take air­lines, tele­com, mu­tual funds, etc. So, is there a for­mula by which we can say with a rea­son­able amount of cer­tainty that a strong brand can be a per­pet­ual moat around the busi­ness? How did the pack­aged goods brands man­age to build such strong lead­er­ship po­si­tions and were able to de­fend it for decades? I think the an­swer is not as sim­ple as we may as­sume.

Ambi Parameswaran is an in­de­pen­dent brand strate­gist, au­thor, and founder of Brand-Build­ His lat­est book, SPONGE—Lead­er­ship Lessons I Learnt From My Clients, re­leased in July 2018.

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