Brand Building

Brand is a long term investment. It takes decades to build the brands we know. I like the article in HBR on Long Term Management of Brands by Leonard Lodish and Carl Mela.

Companies routinely overinvest in promotions and underinvest in advertising, product development, and new forms of distribution. As a result, powerhouse brands have been weakened, often beyond recovery.

Two contrasting examples were used to illustrate the key managing brand. A pickle manufacturer sell through Wal-Mart and experience huge increase in sales through low price. The next effect is the overall margin drop as sales in Wal-Mart cannibalized other channels. When the pickle manufacturer asked Wal-Mart for price relief, Wal-Mart refused and the pickle manufacturer has to file for bankruptcy. Whereas when Footloose a shoe retailer cut Nike orders by $200 million to protest the terms Nike had places on prices and selection, Nike cut its allocation of shoes to Foot Locker by $400 million. Sales at a competitor of Foot Locker increase and in the end Foot Locker acceded to Nike's term.

Nike maintain strong relationships with a variety of retailers and invested in brand equity whereas the pickle manufacturer allow the channel to own the brand and end-customers.