Brand is the value of a promise consistently kept
That’s how Brand Finance and Level5 boil down the concept of brand into a sentence. There are three key elements in that definition.
Value Brand Finance and Level5 can calculate the dollar value of a company’s brand quite precisely, even using just public financial data if the company does not provide internal data. Describing the process as simply as we can, the firms extrapolate a company’s annual cash-flow years into the future and determine the portion of that stream that stems from the brand. The brand portion is then converted into a current lump-sum value. Think of that as the fee you’d pay for exclusive rights to license the brand from the company for many years.
The concept of brand value is gaining currency among accountants. It is now getting its own line as an intangible asset on many companies’ balance sheets. New International Financial Reporting Standards in force in Europe and Canada require a brand value when accounting for mergers and acquisitions. Investors are also paying attention. Brand value can be the basis for a huge proportion of a company’s enterprise value—the total market value of its debt plus equity. In the case of Loblaws, No. 17 in our ranking (page 29), its brand value represents 41% of its recent enterprise value of $5 billion.
Promise A brand also represents commitments that a company makes to everyone it deals with—employees, customers, investors, governments and other stakeholders. When you go to a show by Cirque du Soleil or buy an i-anything from Apple, you have expectations (very high ones, in those two cases) of what the experience will be like, based on what the company has said and done in the past.
Consistently kept A brand is a business system, too—or it should be. It’s not something that only the marketing and communications departments need to cultivate. It’s a management tool that executives can use to set priorities and make decisions throughout the organization, and every employee needs to understand how he or she fits in.
Developing TD Bank’s comfortable approach took years of hard work
When TD Bank announced that it was acquiring Canada Trust for $8 billion in August, 1999, TD’s then-CEO Charles Baillie said the deal was “all about customers.” Baillie was talking about the importance of growing TD’s profitable retail business. At the time, however, the future looked virtual, and Canada’s big banks seemed to be determined to reduce their face-to-face dealings with actual people in branches and to steer them toward doing more business on the telephone and online.
As things turned out, Baillie was right that a renewed customer focus would prove to be decisive for the bank’s future, but perhaps not in the way he or any of TD’s other senior executives imagined.
“Right now it’s easy to say it was an opportunity, but at the time it didn’t necessarily feel that way. It felt like more of a challenge,” says Dominic Mercuri, TD Bank Group executive vice-president and chief marketing officer, and one of the architects of what turned out to be a long and sweeping rebranding process. “All decisions were big decisions.”
That process started with consumer research—a lot of it. Instead of hastily trying to market the merged institution based on brand characteristics that TD and Canada Trust shared, senior bankers decided to build a new brand based on how Canadians really wanted to bank.
Over the next two years, TD conducted hundreds of thousands of one-on-one interviews with its own customers and those of other banks. They discovered that a lot of people felt disconnected from their banks, and wanted a more comfortable way of doing business.
TD and Canada Trust executives then developed and implemented a brand identity based on personal service. Basically, they decided to invite clients back into branches and expand the range of services they could access there.
To communicate the new approach to customers and staff, marketers wanted a clear image. That, says Mercuri, is why they chose “the ultimate symbol of comfort and convenience”: a big easy chair.
In 2001, TD Canada Trust sent out four million individualized packages to clients and spent $15 million on newspaper ads announcing the coming changes. It also launched TV spots that declared that “banking can be this comfortable.”
Cementing the new approach into the minds of 44,000 employees was also crucial. “We looked at the [banking] experience from front end to back, and part of that was helping to educate everyone in terms of how delivering a comfortable experience is not just an advertising slogan, but it is a way of doing business,” says Mercuri. “Everyone in the organization is tied to how we deliver and speed the experience.”
All that effort paid off almost immediately, and continues to. Since 2001, TD has grown from 17th position to become North America’s sixth-largest bank. Market capitalization has climbed to $74 billion from $23 billion.
“Brand is much broader than just communication and the typical marketing activities,” says Mercuri. Comfortable banking, he says, encompasses everything TD does. “It is part of how we build products, how we build systems, how we design our branches and stores, [and] how we design our website.”
It is also the foundation for an enduring long-term strategy. “It’s easy for organizations to get bored with the old and get distracted and look for something else,” says Mercuri. “We continually drive forward with listening to customers, doing continuous research, re-engaging the organization. [This] isn’t an old story; it’s a current story.”
The key strength of Brookfield Office Properties’ projects: the tenants
Every weekday, thousands of Canadians enter office towers bearing Brookfield Office Properties’ discreet-looking corporate emblem, but most of them probably take far more notice of the Starbucks logo in the building’s food court. Yet among investors and senior corporate executives across the country, and in the United States, Australia and the United Kingdom, Brookfield is one of Canada’s most valuable and respected brands.
Brookfield grew out of the sprawling old Edper/Brascan conglomerate, and it now has more than $27 billion in assets and 80 million square feet of office space in 15 cities around the world. Landmark buildings that it owns include Toronto’s Brookfield Place (formerly BCE Place), the Suncor Energy Centre in Calgary, the World Financial Center in New York and 99 Bishopsgate in the City of London.
Brookfield’s overall strategy isn’t revolutionary. You can boil it down to two traditional commercial real estate maxims: You are who you associate with, and location, location, location.
The company is absolutely clear about who its target market is: the top 1%—the most prestigious corporate tenants, that is. By signing them to long-term leases in prime business districts, Brookfield figures it can maintain high occupancy rates and steady rental income through all stages of the business cycle. Its tenants include all of Canada’s Big Five banks, Bank of America/Merrill Lynch, Barrick Gold and BHP Billiton.
Implementing that strategy, however, is a very complex job. “We have very high-profile tenants and very high-profile buildings and we consider part of our philosophy and culture that our tenants are our partners,” says Brookfield Office Properties president and COO Tom Farley. “You have to understand all of the key factors because that is our brand.”
Those partnerships not only helped Brookfield ride out the 2008-2009 recession, but prosper through it. Occupancy rates in Brookfield’s 110 buildings around the world averaged 92.1% in the second quarter of 2012, only slightly below the pre-recession peak of 96.3% in 2007. Brookfield’s buildings exceed average market occupancy rates in eight of its nine core markets, including New York, Los Angeles and Melbourne, Australia.
The emphasis on quality of both tenants and buildings also helps boosts margins. On average, rents in Brookfield properties are 21% higher than rents in competing buildings in its markets.
Brookfield has targeted financial services, resources, government and “creative-and-media” as sectors that produce strong demand for office space. But it also seeks out the best companies within sectors, especially multinationals that can help it leverage its brand. “We are able to talk about their needs not only in North America, but in Australia and the U.K.,” says Farley.
A case in point: a new 950,000-square- foot building in Perth, Australia, which officially opened in September. It’s 100% leased and all the tenants, including Barrick, BHP and PwC, rent space in other Brookfield buildings.
Upgrades and maintenance matter, too. Tenants expect that even older buildings will incorporate up-to-the-minute advancements in design, technology and environmental standards. In October, Brookfield completed a massive $100-million renovation of First Canadian Place in Toronto, and one benefit was a 24% reduction in energy use.
“Our tenants recognize exactly the value we are trying to create for them,” says Farley. “And for ourselves.”
Lululemon’s yoga pants include a lifestyle. Betcha can’t duplicate that
Ever since Vancouver-based hipster entrepreneur Dennis (Chip) Wilson founded Lululemon Athletica in 1998, the yoga-wear retailer has done things differently from other chains. The hook? Never mind “Just do it”—you could distill this into something more Zen, like “Just let it happen.” Create a fashionable, high-quality product in a niche market, skip the advertising, rely on word-of-mouth from avid followers and stick to core values that emphasize health over wealth.
Today, Lululemon boasts more than 150 stores worldwide and over $1 billion in annual revenue. Between 2001 and 2007, its annualized growth rate was 48%—four times greater than the retail sector average. With numbers like that, you’d expect serious competition, and that has now arrived. Gap Inc., the San Francisco-based behemoth, bought Athleta, a small online womenswear retailer, in 2008, and it plans to have 50 stores open across North America by the end of 2013—many of them located within a short walk of Lululemon outlets.
What Lululemon’s financial results don’t reveal, however, is how it has built up its brand value by focusing on intangibles. Sure, the product is good, but the chain has also sold customers on the idea that Lululemon is a community that is intrinsically connected to a healthy, happy and virtuous lifestyle. “There is a huge emotional component,” says Laura Klauberg, senior vice-president of global brand and community. “[Lululemon] really inspires people to make a change physically in their life. ...It’s way bigger than black stretch pants.”
Athleta’s strategy so far seems to be more down to earth: Go for the same look and locations, but sell for less. Find a pair of women’s yoga pants at Lululemon that sell for $90 to $100, then buy a similar pair for about $15 less at Athleta. The chain is also attempting to tap in to Lululemon’s grassroots connections by offering discounts to instructors at yoga and fitness studios. And the stores near Lululemon’s? The official line is that it’s just a coincidence.
Outwardly, at least, Lululemon seems untroubled by Athleta and smaller competitors such as prAna and Beyond Yoga. “Anyone can copy our products and if you want to try to copy some of the other tactics, you can do that as well,” says Klauberg. “One of the things that differentiates us and is very difficult to copy is our culture. What distinguishes us is that from the beginning, we’ve had very strong and authentic relationships with our community.”
Jim Cramer, the over-the-top host of CNBC’s Mad Money, is blunter about Lululemon’s philosophy. “It’s a mass cult,” he said in 2007. Indeed, if you want a glimpse into the heart of Lululemon, look at the language it uses. It calls its head office the “store support centre” (SSC for short), sales staff are “educators,” customers are “guests” and yoga instructors associated with the brand are “ambassadors.” They’re there not to push product, but to answer questions.
Credit much of the chain’s focus and discipline to CEO Christine Day, who assumed the top job in 2008, and who’s a devotee of über-individualist novelist Ayn Rand. Day spends several hours each week in stores.
The karmic approach pays off. In November, consumer consultants Retail Sails reported that Lululemon stores had the third highest sales per square foot of any U.S. retailer ($1,936), behind only Tiffany’s and Apple. “Culture is not a sprint,” says Klauberg. “It’s a marathon.”
BRANDS THAT HAVE INCREASED IN BRAND VALUE OVER THE PAST YEAR
The discounter has found a market sweet spot by operating stores that are smaller than Walmart’s. And it still has room to grow.
Continues to increase same-store and online sales, which pleases investors. But will its brand value plateau with more competition and flat growth in the sector?
Swallowing ING will help Scotiabank grow, but its real strength lies in leveraging its safe and reliable Canadian brand abroad—it does that better than other big banks.
BRANDS THAT HAVE DECREASED IN BRAND VALUE OVER THE PAST YEAR
Where are the apps? Large corporate and government clients are also bailing because of concerns over two former strengths: security and reliability.
Beset by tentative leadership after environmental snafus. Would other big energy companies have the same problems negotiating with the Canadian and U.S. governments? Just asking.
Canada’s biggest bank is still a profit behemoth, but it drops to second place because TD’s brand value increased more.
OTHER BRAND VALUES
New York Yankees
Toronto Maple Leafs
Top 50 Canadian Brands
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Source: Level5 Strategy Group