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November 18, 2008
Of Froth and Five Dollar Lattes
Like a five year old who learns the hard way not to touch a hot oven, we usually learn from our mistakes. The exception to that rule would be the repeating series of financial follies: Savings & Loans to dot coms to the Enrons to today’s global credit crisis. From AOL to AIG, history keeps right on repeating, reminding us of the dangers of rampant speculation. In each instance, unfettered zeal bids prices up to levels that far exceed the real value of the assets they represent.
Which is why we should pay attention now to another bubble that’s twice the size of the residential sub-prime mortgage market. Yet the assets at risk cannot be traded away or hedged against uncertainty. Rather, they are the fundamental drivers of competitive advantage for most organizations: their brands.
My new book The Brand Bubble suggests the value creation they bring to their companies is exaggerated. The financial markets think brands are worth more than the consumers who buy them.
We studied consumer perceptions of brands over 14 years of data from BrandAsset Valuatorâ, the world’s largest database measuring over 40,000 brands. And while brand valuations rose by 80% in three decades, brand awareness is down 20%, brand esteem 12%, perceptions of brand quality declined 24%, and trust in brands is down by 50%.
We also saw signs of The Brand Bubble in many of our colleague’s research. Jack Trout and Kevin Clancy found that 90% of 42 product categories had lost differentiation, while Leonard Lodish and Carl Mela, reported that consumers are 50% more price sensitive than 25 years ago. And among Interbrand’s top 100 most valuable brands, 45% were actually declining in consumer perceptions, as estimated by BAV.
Why is the Brand Bubble happening? The changing nature of media and technology has created a perfect storm. There’s the Fragmentation of everything -- of channels, choice, modes and mediums. The highest rated show in America -- All in the Family had a 34.0 HH rating in 1972 compared with 14.6 for American Idol in 2008. And because of social media, consumers now trust each other more than brands. A Mediaedge: CIA study found that 76% of people rely on what other people say versus 15% on advertising. Portable content creates a redefinition of place, while unlimited storage means content is now instantly accessible and easily shared.
These colliding forces have also enhanced the consumption of creativity and elevated the market’s creative expectations of brands. Consumers are quicker to punish uninteresting brands. Without creativity, brands are commoditized in compressed periods of time.
The problem is intensified because companies have become reliant on brand value, which now accounts for nearly 30% of the market capitalization of the S & P 500. Today, the 250 most valuable global brands are worth $2.197 trillion dollars, which is larger than the GDP of France. Even the world’s top 10 most valuable brands exceed the market capitalization of 70% of U.S. public companies. This means CEO’s are making promises of future earnings to shareholders through their brands. Are those earnings going to be there in the future?
In order to protect our brands and redefine marketing, the 21st Century CEO must become the ‘brand manager in chief’. Marketing is often viewed as a cost in many companies. But the presence of The Brand Bubble reminds us otherwise. In fact, marketing is actually a fiduciary responsibility to shareholders. And creativity, once thought of as risk taking, is in fact risk management. Art directors, in fact may be more trustworthy in today’s times that your financial advisor. Take that to the bank.                                                                                                                                                     

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John Gerzema is chief insights officer of Young & Rubicam and author of "The Brand Bubble: The Looming Crisis in Brand Value and How to Avoid it." The book was named as No. 3 in Amazon’s Best Business Books of 2008. Visit facebook/brand bubble.

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