Coke Branding Lessons. What is the REAL value of a brand?

How Coca-Cola lost its fizz—and other branding lessons. The power of a brand is hard to pinpoint, but it might just be…

How Coke Lost its Fizz — and other Coke branding lessons

By Tom Dougherty

From BEVERAGE INDUSTRY INSIDER

Coke branding lessons from Beverage Industry Insider
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When evaluating stocks for investment, should an investor or financial advisor consider the strength of a brand? Or is smart investing simply a matter of value or growth?

Analysts spend countless hours sorting good investments from bad. They compare the stock price to book value. They look for a strong price-to·earnings ratio. When evaluating the automotive industry, they bring complex numerical formulas to bear to better ascertain how many automobiles consumers will need in the next quarter. But what about “brand?”

Analysts might discount it because, like most of us, they don’t fully understand it. It isn’t quantifiable and its relationship to stock prices is difficult to pinpoint. Yet, to underestimate the power of a brand is foolhardy. It may well be a product’s only real value. Most of us have heard researchers preach that Coca-Cola was one of the world’s most powerful brands. Its stock was on many recommended stock lists and continues to be on some. (Read about the barriers to brand success here)

Coke’s Real Value

But the value of Coke, the brand, was lost even on the “experts” at The Coca-Cola Co. They had not learned the coke branding lessons. During the famed cola wars that gave birth to marketing giants like John Sculley, Coke found itself lagging behind Pepsi in volume sales. Sculley pointed out in his book “Odyssey” that Pepsi-Cola Co. had learned that Coke measured sales by the bottle (process) in those days, and not by the fluid ounce (product). In an ingenious marketing move, Pepsi changed the playing field and increased the bottle size to 64 ounces.

Coke was still selling more bottles, but Pepsi was selling more product. This move leveraged the market research that told Pepsi that the battle for volume was at the point-of-purchase because no matter how much soda was brought home from the supermarket each week, it was all consumed by the next shopping visit. Coke became worried. Was the “lighter” Pepsi taste preferred over the “heavier” taste of Coca-Cola? They would find out through the tried and true “blind taste tests.”

Coke branding lessons
Coca-Cola

Not “Coke vs. Pepsi,” but Coca-Cola vs. a new Coke formulation designed to have a lighter taste, one similar to Pepsi. The research was emphatic. The test subjects preferred the taste of “new Coke.” Everyone knows the outcome of this debacle. Coke may even have encouraged rumors that the move was a slick marketing ploy to create fervor for Coke Classic.

But the truth is The Coca-Cola Co. did not recognize the value in its own brand. When random taste research was conducted between Coca-Cola Classic and New Coke with the participants aware of the brands, the taste preferences were completely reversed. Americans preferred “cola'” from the familiar, revered and “branded” red can that said Coca-Cola. The brand was more powerful than the product it carried. So, as investors, what difference does a brand make?

What a Brand Really Is

Well, if a brand is not a product or service, but is in fact a value that the consumer ascribes to a product, it makes all the difference in the world. Brand always answers the question of “who am I?” It is how the consumer selects his/her own image. It, in fact belongs to the consumer and not the product at all. But it is the only value a consumer will pay for that enhances a company’s profitability because it defeats the greater leveler of commodity and price.

Want a company to protect its markets and grow its price-to-earnings ratio? Then make sure the company differentiates itself from its competition in a compelling way and constantly defines its brand. If all this seems nebulous and inexact, it is. But Wall Street finds a way to recognize it every time a buy-out occurs. Right there, near the bottom line is a numeric entry – real and accounted for – called “good will.”

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