When I was young, Coca-Cola was the kind of brand you thought would dominate forever. Big. Red. Confident. American. Indestructible. Sponsor of the 2016 Rio Olympics, its new #ThatsGold campaign, which launches in 50 markets and captures athletes and ordinary people experiencing moments of joy, perpetuates this Coca-Cola dream.
It has enjoyed an enviable stint at the top of several well-known brand valuation league tables such as the Interbrand top 100 list and Millward Brown’s top 100 global brands list. On the surface, you’d be forgiven for thinking Coca-Cola is still at the top of its game. However, it lost the top spot in Interbrand’s best global brands list in 2013 and just a few weeks ago it fell out of Millward Brown’s top 10 ranking.
Cola-Cola was born in the era when consumers didn’t have much choice; when adverts came out of Madison Avenue and everyone watched them at the same time. In that environment it thrived, outspending everyone and engaging consumers with the promise of happiness delivered by its mythical secret recipe.
Profitability ensued as Coke was able to charge a premium price for a simple and stable manufactured commodity. It was an easy go-to example of how branding strategies create value.
What goes up...
Coke remained top of Interbrand’s league table for 13 years, peaking at a value of $81.6bn in 2014. In 2015 its value, according to Interbrand, fell to $78bn. Millward Brown valued the brand at $81bn in the same year, yet also recorded a fall from in the rankings from position five to six.
Coke has had to adapt to respond to the modern world. On the one hand increasingly diverse consumer tastes, media evolution and the internet have reduced the potential for a single brand and product offering. On the other, the government’s move to tackle obesity and health concerns by penalising soft drinks companies is a major concern for the likes of Coke. In the March budget, the then Chancellor George Osborne announced that soft drinks companies will pay a levy on drinks with added sugar, with proceeds going towards doubling sports funding for primary schools. With at least 8g of sugar per 100ml, regular Coca-Cola will fall into the highest band of the new sugar tax, effective from April 2018.
While there’s been no firm agreement on the additional amount customers will be charged, campaigners have called for fizzy drinks to be as much as 20% higher. It is only going to get harder to sell sugary drinks, especially to young consumers.
Furthermore, consumers expect a fully immersive experience that entertains multiple senses at once. Although consumers are fond of traditional products, the success of Apple, Google, Facebook, McDonald’s, Disney (to name a few), their resilience has been driven by their ability to augment the core with multiple layers of experience. For example, Nintendo’s Pokémon’s Go concept blends a gaming experience across the online and offline worlds as players move around an augmented reality powered by Google Maps.
Coca-Cola’s merchandise store and branded microsites expose a lack of ideas. There’s only so much value consumers take from the deft placement of the Coca-Cola logo. The brand struggles to deliver the scale of its open happiness promise through the small opening in the top of its cans. Since 2012 Coca-Cola’s market capitalisation (total company value) has fallen from $300bn to just under $200bn.
Do compete on features
There’s no denying Coca-Cola remains one of the world’s best-known names. From Santa’s red lorry at Christmas time to its iconic 1970s “Hilltop” commercial calling to buy the world a Coke, you’d be hard pushed to name a drinks brand with more awareness. For many, a can of Coke is still their first and only choice.
The Coca-Cola brand is a far more important contributor to profit generation than your average technology-driven company’s brand because the brand is the key reason to choose Coca-Cola over its rivals. Using Interbrand’s values, brand value as proportion of market capitalisation is roughly 40% for Coca-Cola versus about 25% for Apple, Google and Microsoft. This explains why, when faced with growth challenges, the go-to solution is to spend more on branding, not create new experience or significantly diversify the business.
But, in a 21st century defined by accelerating fragmentation, simply shouting louder will not work. The mantra of branding used to be don’t compete on features. But increasingly that’s how modern businesses do succeed, because that’s how customers now choose. Proof over promise.
What does this mean for brand valuation?
Coca-Cola’s fall in the rankings highlights a conflict at the heart of league tables. For the new crop of brand leaders there is far less clarity between brand strategy and business strategy. This leads to the question, what does this value actually represent?Is brand value simply a function of business value? Ultimately, we begin to look at the ever more volatile lists and say: “So what?”
Google and Facebook, two big risers on the Brandz table (pdf), offer businesses an alternative to mass branding through hypertargeting – further evidence of the collapse of the very phenomena these tables were originally built to measure.
Put brand on the balance sheet
Brand valuation remains a way for marketers to make the case for the relative status of marketing within the organisation because it generates a large monetary value for the asset they are charged with managing. When set against other audited assets on a typical consumer company balance sheet, the brand appears to become one of the company’s most valuable assets.
Clients and colleagues would often ask me to validate the argument that “brand values ought to go on the formal balance sheet”. This was seen as a milestone in the story of how brands and branding would gain the credibility they deserved in the business world.
Not only would this depress most investor ratios (by disclosing that in fact more assets are required to generate the same earnings), representing the outputs of a single strategy as a separable asset celebrates and reinforces the traditional silos of brand versus business.
But it’s no longer possible to say where branding begins and ends with firms such as Apple or Google. There is no measurable advertising effect or credible way to say which aspects of the business are not branded.
Coke’s fall signals the long-term decline of the league tables and their brand valuation concept. The way we think about the contribution of brands and branding must also keep moving to stay accurate, relevant and useful to modern business. Brand valuation league tables need to change their methodologies to reflect the changing world of marketing, where brands create value in difference ways than the original methodology was designed to capture.
If Coke adapts successfully to the new regime of consumer needs, as Nintendo and Google are doing, they will be rightfully rewarded for their creativity. And just like Coke, brand analysts, advisers, strategy professionals and league table proprietors should look more broadly at an organisation’s total stock of intangible assets to reach a judgment of their economic value; at an organisation’s capacity for insight, at culture, at talent and process management as well as marketing prowess and branding power.
Nothing lasts for ever, regardless of how confident and indestructible it once seemed.
- Julian Dailly