Brand value: What's holding back British brands?

brands is growing at a slower pace than those in France and Germany -
with implications for both Britain's marketers and the whole
economy.

Napoleon might have dismissed Britain as a nation of shopkeepers, but it
is our retailers, alongside our banks, that remain the country's leading
lights. Of the eight British brands in the ranking of the world's 100
most powerful, three were banks (HSBC, Royal Bank of Scotland and
Barclays) and three retailers (Tesco, Marks & Spencer and Asda), with
Vodafone and BP making up the group. Asda's inclusion as an independent
listing, despite the seemingly tautologous presence of its US parent
Wal-Mart, is justified because of its 'strong heritage'.

For a relatively small country, this appears to be a good performance -
only seven home brands appeared last year. In addition, two British
brands ranked among the 10 fastest-rising global brands in terms of
value - M&S came top, with growth of 192% over the year, while Shell
came 10th with 38%.

Yet closer analysis reveals that overall, Britain's biggest brands are
growing far more slowly than those of our main competitors. The six
brands that ranked in both the 2006 and 2007 lists grew 6.7% in value.
The French brands in both lists grew by 18.8%, and the comparable figure
for German brands was 10.6%. Asian brands grew by 26.8% (admittedly from
a lower base), US brands by 8.7% and Japanese by 8.5%. The global
average is 10.7% - so why is Britain lagging behind?

One of the main reasons for the strong performance of France and Germany
is their high number of luxury brands, from German upmarket car marques
such as BMW, Porsche and Mercedes to French luxury goods and cosmetics
brands such as Louis Vuitton, L'Oreal and Chanel. Luxury goods is one of
the world's fastest-growing sectors, since high-value products are in
great demand in emerging markets and margins are higher than for other
types of products and services.

Overheads and infrastructure are also major factors. 'Retail and
financial services are "average-growing" sectors, partly because of the
need to establish infrastructure - shops and branches - in the
territories into which they expand,' explains Peter Walshe, global
brands director at Millward Brown. By contrast, luxury goods have lower
overheads: in many cases, success boils down to a joint venture with a
good distributor.

As a result, foreign brands may be in a better position to exploit
emerging markets than British brands. 'If they are to make greater
inroads into new territories, (British firms) need to innovate and
better exploit the potential of their brands,' Walshe argues. 'As our
manufacturing economy declines and business becomes more global,
leveraging British brands overseas will be an important source of
competitive advantage.'

If British companies are missing a trick, it is not because they can't
create successful brands. One reason for the dearth of our brands in the
top 100 is that we tend to sell successful companies to foreign
competitors. For example, we are very good at creating mobile phone
brands, for which there is huge demand in emerging markets. The survey
ranked Vodafone as the most valuable UK brand, but Orange and O2 have
dropped out of the UK list because they have been taken over by France
Telecom and Spain's Telefonica respectively.

The two network operators joined a long list of British companies to
have passed into foreign hands, including Rowntree, Jaguar, Mini, P&O,
Pilkington, The Body Shop and Abbey. Aside from murmurings in the press
and concern about job losses at a local level, such takeovers have
passed largely unremarked. The consensus appears to be that acquisition
by foreign owners is all part of a healthy and dynamic free market. 'If
a brand in one country is undervalued and under-developed, it is right
that the free enterprise system allows others to do more with it,' says
David Haigh, chief executive of Brand Finance. 'It is healthy to allow
foreign managers to keep Britain on its toes.'

For consumers, ownership is not an issue. Rita Clifton, chair of
Interbrand, points out that consumers neither care - nor, in many cases,
even realise - that a brand is under foreign ownership, provided their
experience of the product or service does not suffer. 'The question is
one of brand management,' she says, pointing to BMW's stewardship of the
Mini brand. 'It has pursued disciplined brand management and taken time
to really understand and use all the quirks that make Mini unique.'

The issue of management is important. Walshe argues that foreign
interest is a testament to the strength of the brands the nation is
producing. However, Tim Ambler, senior fellow in marketing at London
Business School, believes British management generally does not
understand brands, and it often needs foreign companies to manage them
better.

'The typical board spends just 10% of its time working out where its
money is going to come from - that is, marketing,' he says. 'With very
honourable exceptions, the quality of British top management is poor.
Where we are top class, we really are top class - companies such as
Tesco and Diageo spring to mind. But we have a longer tail of
second-rate performers than our competitors. Businesses in this second
tier dismiss marketing as peripheral - they are smug and not interested
in improving.'

Ambler believes one reason British brands are suffering is the same
preoccupation with finance that has built our world-leading financial
companies. Young people are encouraged to go into a profession rather
than the 'tawdry' world of business, so it isn't surprising that Britain
reputedly has more accountants per capita than any other country and
that they, not marketers, run most of its businesses. Britain is as good
as any other country at making things - hence the interest from foreign
predators - but is less impressive at managing and exploiting them on a
global scale because, says Ambler, 'we suffer from financial myopia and
are not prepared to back our judgment'.

Other observers believe that ownership is critically important from an
economic perspective. Hugh Davidson, visiting professor at Cranfield
School of Management, warns: 'Brands create most wealth for their
owners, because the closer to the marketplace you operate, the higher
the margins you make. Most of the profits in any industry come from
research and development, branding and distribution.' So, although
Britain is proud of its car manufacturing industry, for example, most of
its profits go to Honda and Toyota in Japan. 'We no longer have a car
manufacturing industry of our own,' says Davidson. 'If we continue to
allow foreign predators to lay siege to our brands, within 50 years we
will end up as a producer of white-label goods for other countries to
brand.'

While he is in favour of free markets, Davidson believes the
acquisitions playing-field is not level. 'Anyone can acquire in this
country, but it is very difficult for (British companies) to acquire
almost anywhere else in Europe,' he says. Other countries take a
longer-term approach than the UK to nurturing and investing in their
critical industries, and protect them from foreign predators - witness
the furore in Germany over Vodafone's acquisition of Mannesmann in 2000,
and French anger over the mooted purchase of Danone by PepsiCo in
2005.

Ambler and Davidson are sceptical about the value of the brand league
tables that firms such as Millward Brown, Interbrand and Brand Finance
produce. 'They are all, in different ways, subjective,' says Ambler;
worse, Davidson believes they can be dangerously misleading. He cites
Cadbury, Diageo and GlaxoSmithKline as examples of firms that do not
feature in Millward Brown's table but disprove the myth that the British
can't create great global brands. Such surveys are also limited in that
they tend to focus on corporate brands, he says. 'For example, the
Pampers brand is bigger than many major companies, and Unilever has done
a masterly job of extending the product and geographical range of a
local brand in Dove.'

The surveys also tend to focus on 'superbrands' rather than
'super-sectors', and Britain is arguably much better at the latter than
the former. US brands dominate the rankings because it is a relatively
easy matter to roll out brands globally that already cater for a huge
domestic market. 'In that sense every European market is economically
disadvantaged,' says Jonathan Hall, global client managing director at
Added Value. 'But the UK is very good at particular sectors, including
niche luxury brands. Scotch whisky is a great example of a luxury sector
that plays very well around the world, including emerging markets.'

Indeed, Guy Salter, deputy chairman of The Walpole Group of luxury
brands, believes that over the past 11 years British luxury brands and
fashion items 'have started to give the French and Italians a run for
their money'. And because we were 'late to the race,' as he puts it, 'we
have found more interesting, creative ways of doing it'. He cites brands
such as bag maker Anya Hindmarch and shoes and accessories business
Jimmy Choo, which have gained a global following from a British base, as
exemplars of a new market-driven approach to luxury goods.

As well as an abundance of fresh ideas, entrepreneurs, designers and new
ways of looking at business, there is also a lot of new money,
particularly private equity, 'begging for the opportunity to do some of
this stuff', claims Salter. What's more, because luxury brands are not
intrinsically bound up with the UK culture, we are able to take a less
serious and ultimately, he hopes, more successful approach - in much the
same way that Australia stole a march on the French wine-making
industry.

Perhaps the greatest benefit of these kind of brand rankings is that,
despite their various degrees of subjectivity, they draw attention to
the value of brands and their contribution to business success. The
irony is that Britain seems unable to apply its financial prowess to the
measurement and exploitation of its brands, which are often businesses'
most valuable assets.

The alternative to recognising and exploiting Britain's creative
capabilities, including the strength of brands built here, is stark. Sir
George Cox, chairman of the Design Council and author of the
government's 2005 Cox Review of creativity and design in British
business, which was intended to identify ways of exploiting more fully
the nation's world-class creative capabilities, warned recently of the
threat posed by countries such as China and India. These have been seen
as destinations for high-volume, low-skilled jobs, but both are now
building up indigenous creative skills.

According to Cox, Britain and its brands must be in a position to engage
with these markets, which will enjoy huge economic growth over the next
50 years - or risk being marginalised. 'We need to ensure we get our
share of that,' argues Cox. 'If we don't, we will end up becoming a
theme park.

FACT FILE - MILLWARD BROWN RANKINGS



TOP 10 UK BRANDS BY VALUE



Brand dollars m Global

position

1 Vodafone 21,107 22

2 HSBC 17,457 31

3 Tesco 16,649 32

4 Marks & Spencer 9509 68

5 Royal Bank of Scotland 7200 82

6 Barclays 6612 87

7 BP 5931 93

8 Asda 5540 97

9 Standard Chartered Bank 3955 n/a

10 Lloyds TSB 3882 n/a



Source: BrandZ Top 100 Most Powerful Brands, Millward Brown Optimor,

April 2007





FACT FILE - INTERBRAND RANKINGS



TOP FIVE UK BRANDS BY VALUE



Brand dollars m Global

position

1 HSBC 11,622 28

2 BP 4010 76

3 Reuters 3961 78

4 Smirnoff 3032 93

5 Burberry 2783 98



Source: Interbrand/Business Week Best Global Brands, July 2006





FACT FILE - BRAND FINANCE RANKINGS



TOP 10 UK BRANDS BY VALUE



Brand dollars m Global

position

1 HSBC 33,495 6

2 Vodafone 26,752 11

3 Tesco 16,136 34

4 Shell 15,621 36

5 BP 12,376 48

6 Barclays 12,182 50

7 Prudential 7970 94

8 GlaxoSmithKline 6734 108

9 Lloyds TSB 6169 124

10 NatWest 5705 132



Source: Brand Finance Global Brands 250 report, January 2007





FRANCE

9/100 - Brands in BrandZ top 100

18.8% - Like-for-like brand value growth

Share of value across top 100 - 5.6%

Key brands: Louis Vuitton, L'Oreal, Chanel

Key sectors: Luxury goods, cosmetics





GERMANY

8/100 - Brands in BrandZ top 100

10.6% - Like-for-like brand value growth

Share of value across top 100 - 7.0%

Key brands: BMW, Mercedes-Benz, Deutsche Bank

Key sectors: Cars, technology





UK

8/100 - Brands in BrandZ top 100

6.7% - Like-for-like brand value growth

Share of value across top 100 - 5.6%

Key brands: Vodafone, Tesco, HSBC

Key sectors: Retail, finance