The Origin of Brands Blog

Ni hao from China!

  

Ni hao! Hello from China! Above is my name Laura Ries in Chinese. As I sit here in Guangzhou, China after also visiting and giving speeches in Beijing and Shanghai this week, I am left to wonder about the future of Chinese brands in the world.

As a first-time host of the Olympic Games this summer and talk of being the next global superpower, China is on top of the world. It is a place of great excitement, potential and opportunity. But living up to its potential won’t be easy.

Japan, the land of the rising sun, was predicted to take over the world in the 1980s. It didn’t happen. Despite a reputation for high intelligence, hard work and high quality goods, Japan wasn’t able to capitalize on its potential because it forgot to build powerful brands.

There are a few exceptions in Japan like Toyota, Honda, Nissan and Nintendo. But other than a handful of companies, Japan is line-extension society. A country of companies that make everything and put their name on everything. Brands like Mitsubishi, Hitachi and even Sony have become meaningless brands in the mind. And despite huge sales figures they fail to make significant profits due to the weakness of the brands.

When you don’t have a powerful brand, you are forced to sell on price. And when you sell on price, it is hard to make money.

The good news, in my opinion, is that China will experience rapid growth in the next 7 years, like Japan did in the 1980s. The bad news is that the Chinese economy will eventually hit the wall much like Japan’s did in the 1990s. Right now because of its cheap labor costs and reputation for quality, China has an enormous advantage. But as the country prospers, wages will go up, prices will go up and the country’s low-cost export business will move to Vietnam and other cheaper places.

China’s key to maintaining economic growth is to take advantage of this attention and low-cost production right now and use it to build powerful brands. Brands that own something in the mind. Germany is perhaps the most expensive place in the world to manufacture anything, but the country is successful because they build powerful brands like Mercedes-Benz and BMW.

So did I see the rise of powerful brands in China? Nope. Exactly the opposite. It is a branding mess over here. Everybody makes everything. Just like they do in Japan.

Chang Hong was the dominant brand of television sets. So what did they do next? Expanded. Today Chang Hong makes refrigerators, air conditioners, semi-conductors and commercial electronics. Today they make everything but money. Ten years ago they had net profits of 2 billion Yuan. Today they are losing money.

Chunlan was once China’s largest air-conditioner manufacturer. Then they expanded into motorcycles, automobiles and heavy equipment. And after three years of negative revenues and losing 400 million Yuan last year, they were delisted from the stock market. It would be like Harley-Davidson making fork lifts, cars and air-conditioners. It would sound crazy in America, but it is happening every day in China.

There are a few exceptions. Gree focused on air-conditioners and become the country’s leading company. While the competition expanded and lost focus. Gree built a brand and today dominates the market. Unfortunately, examples like Gree are hard to come by. Because if China can get its branding right, the country will become a force to be reckoned with on the world stage for decades to come.

One brand with huge potential is Chery. With oil costs soaring to over $130 dollars a barrel and greater concern for the environment, the future for compact cars is colossal. There is a giant hole in the mind and in the marketplace for a compact, low-cost car brand. And China is the perfect country to fill it. They even have a car brand that is ready to roll, the Chery.

The wildly successful Chery QQ fits the bill on all accounts. Compact, cheap and chic. The problem? Chery isn’t staying focused. We read in the papers that Chery engineers are now at work on developing 40 or 50 new car models at least 10 of which could be ready for production this year. Building bigger and more expensive cars will totally undermine Chery’s compact position in the mind. Not to mention the fact that building new models will take the company’s attention away from improving the QQ.

It is exactly what happened to Saturn. At first, Saturn was a wildly-successful a one-model, one-price, affordable, compact car. Then they expanded into bigger, more expensive Saturns. The brand today is a weak brand losing substantial amounts of money. You can just build a brand and forget it. You need to constantly update and stay on top of it. When you expand the brand, it takes time and resources away from the maintenance task.

In just a few weeks the best athletes in the world will travel to Beijing to compete in the Olympic Games. How do you get to the Olympics? How do you get to be the best athlete in the world? By training for many different events? No.

You get to the Olympics by practicing one sport, one event, one distance, one stroke, your whole life. Winning a gold medal takes discipline, commitment and focus. Winning a gold medal in the Branding Olympics takes a similar commitment.

Shanghai speech.

 

The Lion & Al. Not sure who is scarier.

Our articles appear monthly in China Marketing magazine.

Lenovo's Chance

The big Chinese brand hope is on Lenovo, the largest personal-computer maker in China. Formerly known as Legend Group Limited, the company bought IBM’s PC operations for $1.75 billion in 2005.

In addition to desktop and notebook PCs, Lenovo makes displays and storage drives. The company also has an IT services business.

Currently Lenovo is tied with Acer, the Taiwan company, as the third largest PC manufacturer with a market share of 6.7 percent. (Hewlett-Packard leads with 19.1 percent. Dell is second with 15.2 percent.)

How can Lenovo move up the PC ladder? We made three suggestions to the Chinese marketing community.

1. Focus the product line.

Leaders can sometimes get away with marketing a broad line of products and services, especially if they have a powerful brand name like General Electric. But is Lenovo a powerful brand name? I think not.

What should Lenovo focus on? Again, that’s a decision that should be easy to make. Recently laptop and notebook computers have been outselling desktop computers. Furthermore, there’s reason to believe desktop computers might someday become obsolete.

Lenovo should drop its desktop machines and focus on notebook computers.

2. Focus the company name.

Legend was a bad name; Lenovo is an even worse name. It sounds like an Italian dessert.

Fortunately, Lenovo was given a priceless present in its IBM purchase. That present was the “ThinkPad” name which IBM used on its notebook computers.

Change the name of the company to ThinkPad Corporation.

ThinkPad is a unique and different name. Furthermore it communicates the “notebook” idea, the new focus of the company.

3. Focus the attribute of the ThinkPad brand.

To build a powerful brand, you need to stand for something in the prospect’s mind. BMW means “driving.” Volvo means “safety.” Mercedes-Benz means “prestige.” What should ThinkPad mean?

What’s the weakness of a notebook computer as compared with a desktop machine? It’s battery life.

We would redesign the entire ThinkPad line in order to double the battery life, even if it meant selling a heavier machine. (Every benefit comes with baggage.) Furthermore, as batteries get better, that disadvantage would disappear.

Hopefully, the new ThinkPad Corporation could produce notebook computers that would run all day on one charge. That would mean a company employee could use his or her notebook computer all day long without plugging the machine into an outline. At the end of the day, the employee would re-charge the notebook so it would be ready to go again the next morning.

Slogan: ThinkPad: The all-day notebook.

Sure, Lenovo is currently successful because it can build computers in China very cheap. But as I said last week, as the Chinese economy improves, as the wages go up, that advantage is going to go away. While it lasts, Lenovo has an opportunity to build a powerful worldwide brand that stands for something in the mind.

China chance will depend on the strength of its brands. And ThinkPad, if focused and branded correctly, has a great chance at being the world's best computer brand.

China's Chance

I just got back from a six day trip to Beijing, where Al and I did an all-day seminar, media interviews and met with local business leaders. It was our very first trip to China, a country we have been anxious to visit for some time.

China has a lot of potential, but it also has several obstacles that could prevent it from becoming the next branding superpower.

A battle of business philosophies is taking place in the world today. You might call it Theory A versus Theory J.

Right now, China has a major decision to make. Will it follow Theory A or will it follow Theory J?

Theory A is the American style of business philosophy which is basically narrow and deep.

Individual American companies tend to focus on a single product line which they attempt to dominate on a worldwide basis. Dell in personal computers. Intel in microprocessors. Microsoft in computer software.

Theory J is the Japanese style of business philosophy which is basically broad and shallow.

Fujitsu, a typical Japanese company, makes microprocessors, personal computers and computer software as well as many other products including mainframe computers, air conditioners and television sets.

What’s the difference between Theory A and Theory J? American companies are focused, Japanese companies are unfocused, or line extended.

There is nothing inherently wrong about line extension. Managers often make the point that line extension allows a company to take advantage of the equity it already owns in manufacturing skills, existing distribution channels and brand awareness.

Nor is there anything inherently right about being focused. What about opportunities that might be missed or efficiencies that could be gained?

Today is China’s golden opportunity, today everyone is talking about China, today is the day China needs to decide if it will follow Theory A or Theory J.

So which theory will help China realize its enormous economic potential? Well, the numbers are in and Theory A wins by a wide margin.

Actually by six to one. Over the years, the net profit margins of the 100 largest American companies have averaged in the neighborhood of 6 percent while a comparable group of Japanese companies has averaged around 1 percent.

Take the focused companies (Dell, Intel and Microsoft) versus an unfocused company like Fujitsu which makes a comparable range of products (and then some).

In the last 10 years, Dell had revenues of $308.6 billion and a net profit margin after taxes of 6.3 percent. Intel had $306.3 billion in revenues and a net profit margin of 20.3 percent. Microsoft had $275.3 billion in revenues and an astounding 30.0 percent net profit margin.

Fujitsu is a larger company that either Dell, Intel or Microsoft. In the last 10 years, however, Fujitsu had revenues of $417.5 billion, yet managed to lose $1.8 billion.

Why is it so difficult for large, unfocused Japanese companies to make money? It can’t be product quality. Most Japanese companies have a well-deserved worldwide reputation for high quality.

Conclusion: Line extension inhibits the branding process.

You can’t build a brand if you put your name on everything. When a company makes and markets a broad range of products under one name, it is extremely difficult to build that name into a powerful brand.

If you don’t build brands, then you have to sell your products on price. And if you do, it’s very difficult to make money in the long run, especially if you produce products in a country with a rising standard of living.

Today, Korea, India and China are booming, much like Japan was in the 1980s and early 1990s. But this initial success foreshadows troubles to come.

Early in a country’s economic development, low production costs make a country’s products very attractive on the world market. Sales and profits zoom.

But this success comes at a price, as a country’s standard of living rises, production costs go up, too. At some point, the only way to be competitive is to sell products and services at break-even prices. Otherwise the business will go to lower production cost countries.

Solution: Build brands.

Brands are the only way for a high-cost country to sell products on the world market and still make money. Germany, for example, has perhaps the highest production costs of any country in the world. Yet German products like Mercedes-Benz, BMW and Porsche automobiles are profitable and in demand worldwide because they are powerful brands.

Today is China’s chance, today is the day for China to not just make products but to also build powerful brands.

Next up: How to position Beijing and what Lenovo is doing wrong with its brand.

Ukraine and the Cheaper Trap

On Friday, October 13th, Al and I had the pleasure of giving an all-day seminar in Kiev, Ukraine. It was the first trip for both of us.

Ukraine is a country of almost 50 million people, about the size of Italy, and it has enormous potential. The growth in the main city of Kiev is unbelievable. Everywhere you look there are construction cranes working on new building projects. With at least 50 at work in Kiev, we nicknamed it the U-Crane of Cities.

Ukraine is a big, sophisticated, highly-educated country just like Italy, France or Germany. But the GDP of the Ukraine pales in comparison to these other countries. What Ukraine lacks is not size, education or determination. What Ukraine lacks are strong global brands.

Look what Italy has done with fashion brands: Prada, Gucci, Versace. Look what France has done with wine and water brands: Dom Pérignon, Mouton Rothschild, Evian. Look what Germany has done with automobile and engineering brands: Mercedes-Benz, BMW, Braun. A country’s economic strength comes from its ability to build global brands.

That’s why globalism has been a boon for the smaller counties of the world. The global marketplace allows companies from these countries to build strong, narrowly-focused brands and sell them worldwide, thereby becoming big, powerful and profitable countries. Look what some smaller countries have accomplished with global brands. The Netherlands and Heineken. Finland and Nokia. Austria and Red Bull. Switzerland and Rolex. Sweden and Ikea.

Can you name one Ukrainian global brand? I can’t. Furthermore, Ukraine as a country has not yet established a position in the mind of the global consumer. What is Ukraine? The recent Orange Revolution did put the country on the world stage, but the subsequent poisoning of Viktor Yushchenko, the firing of former prime minister Yulia Tymoshenko and amnesty granted to Viktor Yankovych has given the revolution some setbacks. But as the political situation becomes more stable and less corrupt, the business community needs to work on building brands for the future.

Unfortunately in developing countries the business community focuses on becoming a cheaper source of labor for the brands of other countries, not building their own brands. While in the short term this approach can lead to an economic windfall, in the long term it can lead to stagnation. Sure, the country’s economy grows, but then wages rise and much of the work moves to countries with cheaper labor forces.

That’s the cheaper trap. In the short term, a country can be economically successful by building better products or services cheaper. But in the long term, companies eventually find other countries to do the work cheaper, leaving the country with little growth prospects and no brands on which to build a future.

If you are thinking what I am thinking, you are right. The cheaper trap is currently facing both India and China. Both countries are thriving by making high-quality products and services cheaper. But what both countries lack are strong brands to build for the future.

Sure, there are a few well-known companies like Tata and Infosys in India or Lenovo and Haier in China. But these are companies not brands. There is a difference. A strong brand must be narrow in focus and own something in the mind. The range of products that companies make in India and China is mind boggling.

A global brand also has to have a name that works in English, the second language of the world. While a global brand name does not need to be an English word, it does have to sound right and to be easy to spell for an English speaker.

Pschitt! lemonade from France is not going to make it as a global brand. Neither will Bimbo bread from Mexico or Daiwoo from Korea. Tokyo Tsushin Kogyo would never make it as a global brand either, but luckily the company changed its name to Sony. And today Sony has become the most powerful electronics brand in the world by pioneering such products as the transistor radio, the Walkman, Trinitron televisions and PlayStation game consoles.

But Sony has failed to keep its brand narrowly focused. As a result Sony has racked up a lot of sales, but not a lot of profits.

When your brand is unknown or has been weaken by years of line extensions, you are forced to sell on price. And when you sell on price, you don’t make much money. In the last 10 years, Sony has had revenues of $578 billion, but profits of only $9.6 billion or just 1.7 percent of sales. By comparison, the average net profit margin of the 500 largest U.S. companies last year was 6.7 percent.

So what can Ukraine do? Political stability is job number 1. And that is happening and improving everyday. The rise of strong, charismatic, determined free-market and anti-corruption leaders such as Yulia Tymoshenko are a great help.

Ukraine needs to establish its country brand in the mind and launch global brands to ensure its future success. While we were in town, the city was filled with Scottish men in kilts. Apparently there was a big futbol game. The Scots and the Ukrainians have a lot in common. Both have a history of struggle against dominating neighbors. The Scots with the English. The Ukrainians with the Russians.

To get everybody in the mood, maybe the men of Ukraine could wear orange skirts.

Happy Father's Day!

Happy Father's Day to all the Dads of the world. Al and I are celebrating this special day in Jakarta, Indonesia where we will do an all-day seminar on Monday. Having the chance to work with one of the greatest marketing thinkers of our time is fantastic. It is just an added bonus that the father of Positioning also happens to by my Dad. Al has always gone against conventional thinking, set trends and has made a difference in the world of marketing. I am so proud to be his daughter and partner. So here's to you Dad, thanks for teaching me all about marketing, life and love.

Branding is the key to success

I write to you from 30,000 feet on my way home from an 8-day trip across India. Al and I did a series of all-day seminars in Bangalore, Delhi and Mumbai. (More next week on why cities like Mumbai should never have changed its name from Bombay.)

The events were organized by the Times of India, India’s largest and most prestigious newspaper company, the same organization sponsored my first trip. This was our fourth trip to India.

It is always amazing to me how well-received our marketing ideas are outside the United States. In all three locations, Al and I spoke to packed ballrooms of business executives, entrepreneurs and students.

I doubt we could round up 50 people at home in Atlanta to listen to us all day. Why?

Because outside the United States, marketing is a big deal. Outside the U.S. countries look at America as the marketing capital of the world.

Today success or failure is determined by the power of a company’s brands. The U.S. has a reputation as the best builder of brands. Far better than any other country in the world.

The U.S. has more top global brands than any other country. 12 of the top 15 brands are from America. Brands like Coca-Cola, Microsoft, IBM, Intel, Disney, Marlboro and General Electric.

As marketing consultants and authors from the U.S. we command respect and admiration. But here in the U.S. we are practically ignored by top management. Why?

Because in America marketing is not considered important. Management, human relations, customer service are all considered of higher importance that marketing.

Jack Welch, perhaps the most influential manager of our times, wrote a bestselling book called “Winning” that doesn’t mention marketing at all.

Building strong brands is the key to success, in our opinion, not better products or better people.

Of course, Jack Welch didn’t need to build a strong brand when he was running General Electric. GE already was a strong brand, the fourth most valuable brand in the world, according to Interbrand, the leading brand valuation company.

How many of the 100 most valuable brands are from India? None.

That’s why we were invited to present our branding ideas to executives in Bangalore, Delhi and Mumbai.

Building brands is the key to success. In America, in India and in your company.

Next week, I’ll write more about my ideas for positioning brand India.