Industry Update
Opinion Article 1 February 2012

The Power of a Brand or Successful Differentiation | By Dietmar Kielnhofer Ph.D

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Dietmar Kielnhofer (column)

In a market where products and services are all too similar, successful branding can have a significant impact on sales growth and future buying behaviour; hotel companies are a classic case.

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They are not selling bodies in beds and anonymous service – they are priding themselves on selling high levels of customized or even “bespoke” service. Successful marketing is tangibilising the intangible. Consumers in the 21st century want a hotel with a soul and character; they want personality and not a confined box.

Brand management is a time consuming and expensive effort. It costs money to communicate the values the brand conveys to a larger audience; it is a rather evolutionary dynamic process. Brand management is not a static undertaking that once successfully launched is better left alone. The value proposition of a brand changes over time and skilful marketers know when the time comes to inject a new lease of life into an ageing story.

The old saying goes, a good product sells itself - a not so good one needs a lot of effort. Successful product branding is more than just the sum of its logo and name it is the intrinsic values the brand conveys, the benefits the consumer remembers not only for its intended purpose. Companies realize the importance of selling memories and experiences that, partially, elicit childhood memories of a time long gone – the baby boomer generation in particular is susceptible to this form of marketing.

Spa's and Wellness Centres all over the world capitalize on this growing trend that, statistically proven offers the highest disposable income of any demographic segment. Failure to innovate a brand strategy will lead to obliteration that is tantamount to corporate suicide.

A company’s true identity lies undoubtedly in its cultural DNA. That DNA is part of an inextricable culture that cannot and should not be changed. It creates “uniqueness” in a world of brand obsessed consumer behaviour where product and service commodisation is rampant. Once uniqueness is created it has to be leveraged to optimize the earning potential of the brand.

A case in point is the hotel brand Le Méridien. The group continued to grow and, by 1991, the total number of Le Méridien properties had risen to 58. In late 1994, Le Méridien was bought by UK based Forte Hotels, which in turn was acquired by Granada Group plc in 1996. Through a merger in the summer of 2000 between Forte's parent company, Granada, the media conglomerate and global contract catering giant, Compass Group — and the subsequent de-merger of the two companies in February 2001 — the ownership of the Forte Hotel Group and its three brands passed solely to Compass Group.

In May 2001, Nomura International announced the acquisition of Le Méridien Hotels from Compass Group plc for £1.9 billion and Le Méridien was merged with Principal Hotels, which was acquired in February 2001. It was the inherent brand value and brand equity that made Le Meridien a prime company ripe for four takeovers in seven years! With double digit growth, year after year, customers stayed with the brand for delivering exceptional value for money and investors acquired the company for its earning potential.

The hospitality industry is largely dominated by American brands. They have the marketing muscle, the brand power, unequivocal distribution supremacy and the money to leverage their sheer size to achieve better economies of scale. Small hotel operators, unless they are niche players, will not attain sufficient brand awareness and critical mass to compete with these giants. We live in a world that is obsessed with brands - they literally permeate every level of society.

Brand conscious thinking determines the purchasing behaviour of our customers and having access to a powerful brand and the consequent distribution channels determine one’s commercial survival. It is a combination of all these elements that create the right brand equity, recognition and image that are the envy of many other companies – it is about creating a clear discernable identity. It is about being trend setters and not followers; it is about leading the market and determines where the future benchmarks will be.

The value proposition of a company will not be immediately known - it will rather be defined in the years to come. Product commoditization, irrespective of what the customer wants, is the salient feature of our industry unfortunately. Successful differentiation starts with providing service with style and “substance”.

The battle for mind share is not won in the architect's office, it is won in the heart and mind of customers. Branding however is not all about differentiation. It is a combination of strategic fit within its environment, what are the core values of the brand, what is the positioning statement and how does it all get aligned. It is as much about service delivery and style as it is as much about understated luxury.

The high-end watch industry is a prime example of selling understated luxury. The key features of Blancpain, Breguet, Piaget and Patek Philippe are not only outstanding craftsmanship, contemporary design and mechanical excellence; it is more about the privilege to be part of an elitarien society that covets status and social standing more than anything else. Thus it becomes a sine qua non. The history of some of these watchmakers goes back centuries - in case of Breguet; to the time of Napoleon Bonaparte. Bvlgari and Tiffany have cultivated their coveted image as luxury jewellers for the rich and famous for a very long time. These high-end brands sell first and foremost exclusivity, and only then enviable time pieces that are unique with their Tourbillions, complex multiple features and moon phases.

Another example would be luxury cars such as Lamborghini, Bugatti, or Aston Martin who pride themselves on superior craftsmanship, exclusive interior and world-class motor engineering. Like watchmakers, they serve a small niche of the high-end luxury market who value status and elitism. In the end it is about savvy marketing, clever product positioning and branding.

Companies have to move away from a system driven "cookie cutter" approach, to be more innovative, bold and differentiated. In the past the key question successful marketers asked is what is our USP? Successful marketers used this acronym all the time to determine their competitive position. It was the classic language of the 70’s and 80’s. The new buzzword to compete in an internet and web driven world is differentiation.

Companies are redefining their positioning and moving away from the service and product driven environment to start positioning as lifestyle brand companies. These intangible features along with high levels of privacy and comfort will be at the forefront of what customers of the future seek out.

Brand loyalty will only lose its appeal as consumers with a low disposable income gravitate towards a product or service solution that meets their financial expectations and benefits them most irrespective of price and status. Thus a new niche will emerge that will serve this new market segment. I refer to this as the natural evolution of the market place.

The customer of today and tomorrow will be able to choose and compare between a wide selections of offers and services a click away on the internet, or, in a rather old-fashioned manner, in shopping malls. Customers will expect the best quality available, both in service and product standards, at the most competitive price. To meet these demands successfully, marketing executives must have a flexible, open-minded and positive approach and be highly service oriented.

Engendering enduring loyalty is the holy grail of marketing; plenty tried, only a handful succeeded. Few people realise that this is a complex undertaking and achieving successful returns takes years.

Marketers call it "Loyalty beyond Reason". Of vital importance is communicating brand equity, a combination of familiarity and conviction that engenders trust and confidence. At that stage the product or service engenders a positive association with the buyer that subconsciously leads to a purchasing decision. Good marketing professionals feel the pulse of the consumer market, nothing special so far, yet, how many companies fail because they do not see the tide of change. The race is not always to the swiftest but to those who adapt to the winds of change most nimbly.

Understanding major strategic trends and analysing the impact of their implication is vital for companies to succeed. Design fads come and go but what endures is consistent levels of customer service and an unrivalled passion for quality; this is the success of a marketing driven company. Joseph Schumpeter, the Harvard economists got it right in the 1940’s when he spoke about the forces of (deliberate) “creative destruction”.

Companies that survive and prosper adhere to his principles by destroying old processes and creating new ones. If they fail to adhere and adapt it will be just a question of time before a competitor does. Consequently the successful corporation of the next millennium has to reinvent itself constantly like a chameleon changing its skin colour depending on the environment and ever changing circumstances; creative destruction thus becomes a reinforcing cycle that feeds on itself.

The author of this article lives in Tokyo and works as a General Manager for a multi national company headquartered in New York that is listed on the New York Stock Exchange. The thoughts expressed in this article are those of the author only. The author can be contacted under [email protected]

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Dietmar Kielnhofer
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