or “How to Throw Away Billions in Brand Equity Away Picking Up Pennies” *

Something has changed. Or maybe it has changed back. The customer is king.  Super brands are developing in markets big and small – brands with fanatical followings, unheard of loyalty, dedicated employees.  And brands that were only a few years ago considered “great” have the lost a great part of their luster.  Customers are becoming so much better informed about their options, and know how to reward companies that treat them right, and punish those that screw them over (see note about Netflix below).

There are objective measurements that try to assign value to brands by comparing the market valuation that a company should have based on the free cash flow it is generating (and other valuation models like P/E etc.) to the market capitalization it actually has.  The difference in the two values are attributed to the value of the pure brand.  There are other survey-based qualitative methods.  And hybrids of the two.

It’s not important to  bother with trying to actually quantify a brand value in dollars and cents unless you are working on an M&A transaction (or trying to sell marketing consulting contracts!).  What’s more important as an executive or manager is to understand the velocity of your brand’s value.  Are your current business practices creating or destroying brand value?

What not to do – Dell Inc.

While surfing the internet recently I found this article from ‘04 in which Dell is actually cited as an example of a world-class brand.  Certainly from ‘95 through ‘02 Dell was a juggernaut from a brand perspective, consistently ranking at the top of quantitative and qualitative brand value surveys.  By 2004 though, the Dell brand velocity was clearly negative.  They abandoned any brand levers except low price, which cut into margins and forced their hand in operations.  They moved to outsource their customer support to India, which was a disaster.  They started relying on making money with gimmicky financing packages.  They didn’t respond when the competition began redefining the form factor.  For the 2 years their competition has been personifying them as oafish buffoons all over the place, and they haven’t been able to respond.  This year the NY State attorney general got a judge to say this about them.

“Dell has engaged in repeated misleading, deceptive and unlawful business conduct, including false and deceptive advertising of financing promotions and the terms of warranties, fraudulent, misleading and deceptive practices in credit financing and failure to provide warranty service and rebates.” OUCH.

Simply put, if you are earning margins by tricking your customers, you are destroying your brand value.  Misrepresenting your level of customer service and whacking people with unseen service and financing charges have been OK in the past, but it won’t work anymore.  Your customers are way too well informed, and they have means of retribution for a bad customer experience that didn’t exist 10 years ago.

Building a brand right – Zappos

By any rational evaluation, building a company selling shoes (they also sell clothing any other accessories) online should be impossible.  Amazon sells shoes.  Shoes have to be tried on, you’ll get killed on the return rates.  There are a million other reasons why selling shoes online is a terrible business.  Zappos is making it happen by being slavishly devoted to building their brand by closely managing every aspect of customer interaction, which is really, really hard.  Do yourself a favor and buy your next pair of shoes from Zappos, and take note of the experience at every touch point.  Its amazing.

The only way to pull it off is to develop an entire corporate culture devoted to improving your consumer facing brand.  State your core values and let them inform everything you do as a company.  Offer trainees a bonus to quit.  Zappos are so confident in their employees they even encourage them to tweet, and aggregate their employees posts. (I follow their CEO and am finding out that they are featured on Nightline tonight).

The good news for my dear readers is that so many companies have negative brand velocity, and even the best brands are miles away from being able to capitalize on the latest technologies to constantly test and improve their brands.  Get out there and help them turn it around!

Brand Death Watch (companies with valuable brands that routinely screw their customers and provide shoddy customer service)

• DirecTV and cable TV companies (can’t wait to cancel my subscription forever)
• Wal*Mart (just say no to cheap crap)
• Starbucks (at least they know it)
• Netflix (mainly because they are killing multiple user queues per account Update:  Todd informs me that Netflix listened to their customers and reversed this decision.  Strong! This is why you leave comments turned on for your corporate blog.  I’m leaving them on the list because of their reliance on pop-unders for customer acquisition.  Everyone knows they are effective, but we stopped using them cause they are so damn annoying.  This is a bigger problem for Huffington Post and Boston Globe who are monetizing with pop-unders via Specific Media.)

Brands making it happen

• Apple (taking brick-and-mortar retail high-end for everyone)
• Amazon (I buy everything here, except shoes)
• Netflix (they do some things right see above)

Who am I missing?