Nov 15

Two weeks ago, we were discussing in our global marketing class a Brandchannel article from Sept 2008 on BusinesWeek’s Best Global Brands. Now the question was

whether or not these lessons still hold true

in 2009. Surely, the ongoing global financial crisis has brought about paradigm shifts in virtually all businesses and industries. Inevitably, market dislocation caused a lot of business models as well as brands to collapse. Major companies (e.g. GM), small countries (Iceland) and whole industries (e.g. investment banking) were challenged. Other enterprises that were not merely successful, but also had sustainable strategies prior to the crisis found themselves in a better position but arguably all of them had to rethink and redefine their business mix and align their marketing mix to the new reality. Essentially, all of the lessons mentioned in the article are general principles that still hold true. However, the crisis has in my opinion put emphasis on some of their aspects which I have listed below.

Lesson #1: Brand Engagement is Crucial

Strong branding has proven to be very useful in the crisis, bringing further value added. Large companies, especially banks that have established themselves as system-relevant have enjoyed survival by the means of state aid. As an example this shows that having strong branding and a well-communicated strategy has helped very much shape the image of importance needed to qualify for state aid (in addition to objective criteria such as balance sheet size).

Arguably, what Jim Thompson refers to as “the proper training of employees so they embrace and live corporate brand attributes” was less relevant in my view. It was the original business strategy that had failed, not the employees that carried it out. Moreover, the employees have nothing but succeeded in following these wrong policies (e.g. extending credit to unqualified borrowers), regardless of obvious incompatibility with brand culture etc.

Lesson #2: Luxury Brands Adjust to the Tides of the Global Economy

Luxury brands are in a segment more resilient to recessions and market disruptions because their average consumer is affluent and thus likely to remain largely unaffected, hence still continue to consume. Yet, the global crisis has highlighted that paramount to being crisis-proof is proper management. Some luxury brands such as Versace and Zenith (watches) have found themselves in financial trouble, despite their premium status. BMW, on the other hand has seen much less volatility in their sales in a much more troublesome sector. This illustrates that luxury brands are adjusting differently so that this lesson is not always true.

Lesson #3: Know Thyself and Build Trust in Others

Communication policies and openness have proven especially true in times of economic uncertainty. Naturally the “going green” mania has been tuned down recently (although it has not completely gone out of fashion yet) due to more serious issues that need communicating in times of crises. Such as the core businesses values that the customer needs to be reminded of.

Lesson #4: Brands are Defining Borders in the Global Economy

Much as in lesson #1, some strong brands have managed to become system-relevant on a country level (or relevant for whole regions, e.g CEE/SEE/CIS). Thus they have seen additional benefits from their relatively well communicated internationalism. This lesson is still very much valid.

Lesson #5: Technology Continues to Empower the Consumer

Social networking on the Internet and the democratizing of consumer response to brand/company wrongdoings is certainly to the benefit of the consumers. Yet it could also be to the benefit of the company (as in the case of Apple), thereby having a multiplication effect on either sides. Still, this lesson is very true and the trend towards more recognition of that phenomenon from the company’s perspective is likely to continue.

Is there a lesson #6 and is a lesson no longer necessary?

A “back to basics” lesson has to be added. Companies currently reorganize, rethink and redefine their corporate strategies stressing on what they do best. The non-profitable or non-strategic business has to be

divested, deleveraged and deconsolidated

and that is likely to affect the brand as a whole. Therefore my lesson #6 is “focus on what you do best and brand it accordingly”. Pending consolidation and forthcoming M&A activity in many markets it is a good advice for any business to concentrate on core fields of expertise, to take care of its core customers and to reinforce its core cash flow drivers. All of that should be mirrored in an updated brand strategy.

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Nov 14

Consolidation of the european airline business seems to be ongoing with full pace with British Airways and Iberia finally agreeing on a merger deal. A new holding company will own both airlines with BA having 55% and IB 45% of the equity.

This is however not a full fledged merger, but actually resembles closely what AirFrance and KLM did some years ago. They kept their original identities while managing to achieve significant cost savings due to streamlining their operations as a team (some doubling routes were rationalized away).

The economies of scale required to be in the airline business nowadays appear no longer to support the existence of “national flag carriers” for smaller European countries. Historically this used to be part of a country’s national pride. Moreover, each and every self-respecting legacy airline just had to fly JFK directly. Yet the formation of airline alliances that started about a decade ago such as Star Alliance, Oneworld and Skyteam has clearly laid out the way to the utilization of common hubs and ultimately to global airline consolidation. It is now fully realistic that in less than 10 years from now, only one carrier from each alliance will be represented in Europe. Namely Lufthansa, AirFrance-KLM and British Airways-Iberia. The rest of the national legacy carriers will operate niche routes or be forced to disappear altogether.

I will be following closely the development of Austrian under Lufthansa. In my opinion their strategy should follow through, i.e. they ought to abandon any westward long haul they have left (e.g. even a presumably profitable route such as JFK) and concentrate purely on strengthening their strategic Eastern Europe and Middle East position with VIE as a main hub.

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Nov 12

Welcome to Strategies and Cheese.

The appearance of my first post is fortunately aligned with some good news that just came out an hour ago.

According to the shortly released data the recession is Western Europe is already over in Q3 2009. A breath of fresh air. Seasonally adjusted GDP stats as well as industrial production show significant hikes compared to the previous quarter. Growth figures are: 0,4% p.q. for the euro area, 0,7% p.q. for Germany and what is even more surprising 0,9% p.q. for Austria.

Austria managed also to keep an otherwise insignificant growth of private expenditure of 0,1% p.q. which on the other hand currently outperforms most, if not all euro area countries. A tax reform is primarily “to blame” here. Seems that lowering taxes is always a good thing, even in a recession. Even though the reform was initiated in the aftermath of the summer 2008 oil-driven inflation, long before most people thought that a crisis would be forthcoming. Oh well.

Although the euro area rebound was largely expected and even anticipated to be stronger for some countries, it is still reassuring that the worst part of the recession is over. Q4 will most probably bring similar positive growth figures due to restocking and stronger exports. Yet in 2010, lower private consumption due to higher unemployment along with less public expenditure due to tighter public finances in most countries will put pressure on EU-wide GDP growth. Some analysts expect positive, albeit lower pace growth in 2010 but I am more than convinced that we will see a negative quarter here or there in some euro area countries. It is however unlikely in my opinion that we’d slip in yet another recession in 2010 (i.e. negative growth in 2 subsequent quarters).

I will try to find some time to blog about my expectations for 2010 for CEE/SEE…

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