The incalculable value of building brands: CEOs say it's not just about advertising, but about everyday operations, too

Chief Executive, The, April-May, 2006 by William J. Holstein

United Technologies and FedEx have profoundly different approaches to developing and maintaining their brands. As a multi-industry conglomerate, UTC has a portfolio that includes Otis elevators, Carrier air conditioners, Sikorsky helicopters and Pratt & Whitney jet engines. In most cases, the brands are the names of people who created their companies decades or even a century ago. Those names have more power in the marketplace than "United Technologies" does. So Chief Executive George David says United Technologies' advertises the parent brand just to small-but-influential audiences in New York and Washington.

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"A lot of our corporate advertising has been the association of subsidiaries with the parent because the parent's trademark, which is only 1972 in origin, is worthless outside the financial community and the opinion leader population," David explained. "It's not a go-to-market strategy." And although UTC's employees like the idea of being part of a large company, many are more loyal to the operating units, David acknowledges. "They tend to think of themselves as part of Otis, Pratt or Carrier," he said. "So it's a delicate balance" between maintaining the UTC brand versus those of its operating units. "I think my philosophy has always been to use the power of the trademarks of the subsidiaries to improve the recognition and brand acceptance, awareness and respect for the parent company itself," said David.

To Rebrand or Not

It's precisely the opposite in many ways for FedEx. The Memphis-based company also has multiple lines of business such as its well-known FedEx express delivery service, but also a ground transportation division, a freight operation and, most recently, FedEx Kinko's. But there's no ambiguity--they all carry the FedEx name. "Our situation is different than UTC's because we didn't buy a company that had an inventor, with the exception of Kinko's," FedEx founder and Chief Executive Fred Smith said. "We knew that our brand had a lot of attributes and that if we could extend that brand, it would be helpful and, in fact, it was. It was like a turbocharger for the ground and freight businesses."

The branding decision was trickier when FedEx acquired Kinko's, so named because founder Paul Orfalea had a headful of curly red hair and was nicknamed Kinko. "We decided there was enough brand equity in Kinko's that we didn't want to throw it away," Smith explained. "We did a lot of focus groups and so forth. We decided to co-brand the product." Hence, the name FedEx Kinko's.

David and Smith made their remarks at a roundtable discussion in New York in February titled "The Power of Brands: Best Practices for CEOs," sponsored by Lippincott Mercer, the brand consultancy.

The discussion revealed that a company's brand image is the result of far more than just advertising and marketing. It is the result of nearly everything the company does that touches the customer. A company's brand has to have a "brand promise" that customers readily grasp. That means branding is central to the company's overall strategy, and has to be communicated and established throughout the organization. "A lot of people think about brand as advertising," said Kenneth Roberts, CEO of Lippincott. "But we look at it much more as changing behavior." A strong brand name helps persuade customers to buy a company's goods or services at a premium, but it's also important in shaping the opinions of investors and in attracting and retaining the right kind of employees.

The term "brand equity" is far more than just another marketing buzzword, said Lippincott's chief operating officer, Suzanne Hogan. "In a sense, there has to be brand equity--otherwise everything would be a commodity," Hogan said. "That's why certain brands are able to command a premium in their P/E ratios. There are certain products that can command a premium on the market. Those are the ways you benefit by having a strong brand."

Two other CEOs at the roundtable, Steve Loranger of ITT Industries and Richard Vie of Unitrin, faced similar "brand architecture" challenges as George David does. ITT, a famous conglomerate dating back to the days of Harold Geneen, still exists as an $8 billion company, with operations mostly in water and defense-related businesses. Unitrin is a Chicago-based insurance company put together from insurance and finance companies from the old Teledyne. For both Loranger and Vie, their individual lines of business have more brand recognition than their parent companies.

But other CEOs faced challenges more similar to those of FedEx, where their parent company brands must have instant credibility. For Steinway & Sons, for example, branding occurs every time a concert pianist sits down at a Steinway piano. If the sounds don't create wonderful music, the brand is immediately at risk, said Steinway CEO Bruce Stevens. The pianists "are not going to be fooled for more than two minutes after they start to play," Stevens said.

The fact that Steinway, now 153 years old, has been able to maintain concert-like quality in all its pianos has helped it survive the competitive onslaught from Chinese manufacturers. "It's deflation with a big D that's been happening for the past six or seven years," Stevens said. "The average grand piano that's sold in America today is about 22 percent less costly than it was six years ago," he explained. "Every company has given in to that price deterioration with the exception of one, and it's Steinway & Sons. Our prices have gone up on the average of 3 or 4 percent a year. A big part of that is our brand equity."