Don't Let Branding Burn You

In the frenzied world of beverage marketing, a contamination scare can quickly turn today's top drink into tomorrow's sour aftertaste. So even as South Beach Beverage Co. works overtime to solidify its SoBe brand as a big-time name in health drinks, it faces a second challenge that is almost as important. It is investing heavily to make sure the new name isn't ever besmirched by a tainted-product case.

"We're a virtual company with one asset: our brand," explains Norm Snyder, CFO of South Beach, based in Norwalk, Connecticut. "We don't own bricks and mortar or machinery or hard assets. My mission, in effect, is to protect our brand promise of quality." So his department spends heavily on quality control, for example, working with a flavor house and co-packers to analyze each batch of SoBe. "It's expensive, but given the risk to our brand, well worth it," he says.

SoBe, with $170 million in 1999 revenues and its sights set on topping $250 million this year, competes among healthful refreshment beverages, a product category that has seen more than its share of broken brand promises. In 1996, Odwalla Inc. was at the center of a case of E. coli contamination. More than 60 people became sick and 1 person died from drinking the Half Moon Bay, California, company's unpasteurized apple juice. And who can forget the shock a decade ago to Perrier, after reports of trace amounts of benzene in bottles of its water turned that drink into a pariah almost overnight?

Certainly, there is much good derived when a company cultivates name-brand status for a product: that intangible quality whose value is realized when consumers loyally order a "Coke" or "Kleenex" or a "Dell." But with that brand recognition comes an additional risk that is not experienced by the companies trafficking in nonbranded items. With the wrong kind of publicity, your brand becomes a target. And it is in finding ways to reduce this risk that many CFOs — already increasingly active in the brand arena — are leading the charge.

The downside of branding is often ignored in a hot new product's rush to capture market share. Typically, says brand guru Duane E. Knapp, president of BrandStrategy Inc., in Seattle, and author of The Brand Mindset, brand equity managers are frequently sales and marketing executives who focus on short-term growth, and can miss long-term risks from misdirecting the brand asset. "Focused on quarterly revenues," he says, "they may unknowingly sacrifice the integrity of the brand for quick financial gain."

In Good Hands with Deerbrook
Who better, then, to oversee brand risks than the CFO, or a corporate risk manager reporting to the finance chief? "As a company's financial adviser, the CFO should be focused on growth that delivers against the brand promise, and not growth for unit sake," Knapp explains. Raymond Perrier, global director of brand value management at New York­based consulting firm Interbrand Inc., agrees, arguing that "the CFO must live the brand in every decision" — especially about how to reduce brand volatility.

Many brand-related problems that explode to hurt companies reflect plain old marketing mistakes, operational problems, or sheer bad luck. A plane crash tars the reputation of an airline, or a serial killer chooses bottles of branded pain reliever to poison and replace on store shelves. But there are steps that can be taken to insulate a company from some exposures associated with having a recognizable brand.

One such form of brand insulation involves multibranding or cobranding. Even with one of the most powerful names in the financial services industry, for example, Allstate Insurance Co. holds down risk by maintaining multiple brands. For example, the company sells nonstandard automobile insurance in the United States under the Deerbrook name, and in Canada uses the Pembridge name. Through Morgan Stanley Dean Witter, Allstate sells annuities under the Northbrook name, and through banks and broker-dealers it sells under the Glenbrook name.

Why not simply call it all Allstate? Mainly, "because a multibranding strategy enables the company to offer different value propositions in the marketplace," explains Tom Wilson, former CFO of the Northbrook, Illinois-based insurer, and currently president of Allstate Life & Savings. "When people think of 'Allstate,' we want them to have a very specific impression of our agents, who are located in their communities to provide personal service," Wilson says.

Still, there would be an added benefit if one brand encountered problems. Were Deerbrook, for example, to suffer a public-relations disaster or highly publicized losses, the core brand would be far less affected. In short, Allstate's branding strategy has at least some risk-management elements.

Brand risks can be acute when a company extends branded products to other markets or to recently acquired companies. Colgate-Palmolive Co., for example, frequently follows cobranding strategies when buying companies overseas. Although the company insists its branding philosophy is driven by marketing and not corporate risk issues, its cobranding strategy provides both benefits.

The Chief Financial Lizard
Early on, CFOs looking to reduce brand volatility must understand the product as the consumer does — so they know what brand promises are being made and, hence, what the vulnerabilities are. In one case, Interbrand "worked with the CFO of a bank whose marketing department wanted to spend more money on advertising to build the brand. Our research, however, revealed that the bank's customer service was shabby," recalls Ray Perrier. "Instead of pouring money into advertising, we advised spending it on employee training. Had not this CFO understood and lived the brand, the wrong decision would have been made." Knapp touts the benefit of consumer surveys for helping create an understanding of brand image.

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