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8.9.2010 New “value-creation” models key for brands

Brand owners must transform their "value-creation strategies" when responding to a new breed of "global challengers" and slowing growth in established markets, according to a study. The Boston Consulting Group estimated that developed nations will deliver an average annual economic expansion of 2.4% between 2010 and 2015, falling to 1% or below in the US, UK, Germany and Japan. "A low-growth economy poses major challenges when it comes to value creation," BCG said. "For many companies, maintaining historical levels of revenue growth will only come by winning market share. Competitive intensity will increase and real winners (and lowers) will emerge."

Having assessed 102 multinational operators, BCG identified the premier "sustainable value creators" from 2000 to 2009, a list highlighting the arrival of "global challengers" headquartered in developing countries. Brazilian mining giant Vale and Indian chemicals specialist Reliance held the top two spots respectively, followed by brewer AmBev, also based in Brazil. Gilead Sciences, the US pharma group, claimed fourth, ahead of British American Tobacco in fifth, with these organisations leading the charge from more mature economies.
 

Research in Motion, maker of the BlackBerry, technology pioneer Apple, household goods manufacturer Reckitt Benckiser, retailer Wal-Mart de Mexico and Korean mining firm Posco made up the top ten. "When a company delivers consistent and sustainable improvements in shareholder value, it lays the foundation ... for its own long-term survival but also for long-term returns to all stakeholders," said BCG. "To customers ... [this takes] the form of new innovations and ever-greater customer value, to employees in the form of rising wages and salaries, to governments in the form of taxes, and to communities in the form of stable jobs."
 

Procter & Gamble's importance to consumers was shown by its $79bn sales in 2009, while $38.9bn costs supported suppliers, $24bn in selling, general and administrative expenses boosted media owners and marketers, and $4bn in taxes aided the government. However, as just $11bn of Procter's net income was ultimately attributable to shareholders, BCG suggested a modified approach may be required. "Unless P&G can find some way to grow its revenues at a profit in the future, not only the company's investors but also all its other stakeholders are likely to suffer," the consultancy asserted.

Innovation is one tool Procter hopes will achieve this aim, an area BCG argued has previously helped it secure "unassailable brand leadership" in many different categories. DuPont, IBM and Chrysler were named as exemplars among corporations introducing products and services during the Great Depression, enabling them to acquire a pre-eminent status for decades thereafter. Tapping in to certain "megatrends", such as the explosion of digital media or the ageing populations of China, Japan and the US, could yield equally impressive returns.
 

More broadly, firms pursuing "breakout growth" by tightly managing portfolios, developing their core business, limiting costs and expanding "aggressively" overseas typically enjoy the best results. Business model innovation – like Apple positioning the "product as an experience", Whole Foods building a "trust premium" and Virgin's wide assortment of brand extensions – is another key activity. A sound pricing policy, which seeks to fully involve sales and marketing teams and avoids promotions in favour of detailed insights, data and long-term models, is also preferable.

B.L. 8.9.2010