Risk-proofing your brand

Risk-proofing your brand

Bain's Orit Gadiesh discusses the importance of corporations localizing their brands to protect against reputational risk.

  • min read


Risk-proofing your brand

CEOs of today's multinationals would do well to reflect on the work of the silent film actor Lon Chaney, 'the man of a thousand faces.' Profound changes in the global marketplace mean that companies—like Mr. Chaney in his day—have to become more things to more people, while still retaining their true identity and values.

Globalisation's shifting patterns have created a mosaic of markets where once there were stable brands spreading across the globe, or at least the illusion of them. As a result, corporations must figure out new ways to balance global scale with local responsiveness and, increasingly, local brand identification. In other words, they must often 'localise' their brands to protect them against reputational risk.

The reasons are borne to us by every evening newscast: changing attitudes to authority, breakdowns in trust, the surfacing of suppressed intercultural antagonisms, and the lingering anti-globalisation movement itself. Add to those the new dangers of terrorism and sabotage, and suddenly, being a household name linked to a country of origin can be a real detriment.

Consider Coca-Cola's situation not so long ago. Coke has always associated itself with the American way of life, with the US itself. As a result, Coke found its brand being negatively recast by that association: in November 2002, a French-Tunisian entrepreneur saw a market in the growing emotional gap between France's estimated six million Muslims and US products. Exploiting those feelings, he launched a new product called Mecca-Cola. The packaging is the familiar cola red and white. The message says: "Ne buvez plus idiot, buvez engagé." ("Don't drink stupidly, drink with commitment.") And he topped that off with a promise to use 10 per cent of their profits to provide needed supplies to Palestinian children.

This was a form of jujitsu branding, a case of what the British Broadcasting Corporation called pushing out 'that icon of the US imperialism, Coca-Cola.' Mecca-Cola caught on, and has since been launched in the Middle East and most recently in India.

But Coke has bounced back. After a slight dip during the early hostilities in Iraq, Coke sales in the Middle East have risen by double digits. Throughout Europe, where it was a hot summer, sales in 2003 rose 10 per cent. In many ways, Coke's brand transcends its origins in most of the world. But the Atlanta firm has also taken a page from Lon Chaney.

Coke produces 400 brands in 200 countries. Its best defence has been to weave itself into the fabric of the places where it is sold—using the equity of local bottlers, and the local culture to drive its marketing campaigns. In Turkey, for example, it produces bottled water under the brand name Turkqaz. The water is sold in a blue-tinted bottle embossed with dolphins —which symbolise friendship. Turkqaz is one of the country's best-selling bottled waters, despite the fact that, according to a 2003 survey, 84 per cent of Turks have an unfavourable opinion of the US.

This 'country of origin' phenomenon hurts non-US brands as well. Look at what happened to French wine consumption in the US. For the five years up to 2002, US wine drinkers steadily increased their consumption of French wine. US sales rose an average 9 per cent per annum, and the market for French wine in the US grew to more than $1.1bn.

Then came the Iraq invasion. When the US and France began exchanging political recriminations, Americans began deserting French wines. This year French wine sales in the US will drop by seven per cent—not something French vintners expected when they were buying crops and selecting vintages for the US.

But other brands immediately took up the slack, including a number of Frenchowned labels that produce for wine-drinkers beyond French borders. One wine called 'Fat Bastard' re-engineered its branding, adopted the look and feel of the New World and more than doubled its US sales. And sales of Jacob's Creek, an Australian brand owned by the French wine and spirits group Pernod Ricard, increased by 20 per cent.

Indeed, global brands and manufacturers everywhere are facing new and growing forms of geopolitical risk. But such risks also present significant new opportunities.

Companies cannot localise their roots. But they can build strong, national and regional companies. They can produce, package, brand and communicate, on a local basis. And they can take advantage of centralised R&D, management training, cultural values, and opportunities for crossfertilisation of product ideas. Put simply, they have to think globally and market locally. To achieve that, they need to focus on three things:

Produce locally, brand locally, and shout about it
One size no longer fits all. In fact, the reverse is true. So, for example, Pepsi customises its most popular snack foods in different markets, to meet local tastes—Feta-flavoured Fritos for Greece and seaweed-flavour for Thailand. Pepsi's international snack sales are up 11 per cent in a year. Procter & Gamble had been making Tide washing powder in Saudi Arabia for decades. They just hadn't told the Saudis. Recently, however, with rising anti-American sentiment, the company has protected its local sales by redesigning the box to advertise 'Made in Saudi Arabia,' which is printed in Arabic along with the rest of the packaging.

In China, US-based Starbucks positions its coffee shops as features of the local neighbourhood. The coffee retailer has developed affordable snacks for local celebrations, like the annual mid-Autumn Moon Festival. When anti-American protests broke out in 1999 in response to a mistaken US bombing of a Chinese embassy in Belgrade, Beijing protestors took a short cut through a Starbucks to the US Embassy, and bought coffee en route. David Sun, then chairman of Starbucks' 29-store Beijing franchise, said sales actually rose that day.

CNN has also taken a localised route in Turkey and Spain since 1999, producing news with local journalists and local anchors via a locally branded service. Based in Istanbul, CNN Turk has extensive newsgathering resources across the country. CNN+, based in Madrid, goes a step further: it has bureau staffed by Spanish journalists not only across Spain, but also in the US.

Build local operations and relationships
In other words, don't go native, become native. Honda has been selling vehicles in the US for 45 years—and manufacturing there for 24 years. The company will tell you they build where they sell, so that they can meet local needs better. What it may not immediately say is that it was prompted to begin manufacturing in the US as a way of bolstering its position against the wave of anti-Japanese sentiment that became a feature of the auto market in the US.
As a strategy, this has paid off. Honda employs more than 120,000 Americans, and in 2002 assembled 1.47m vehicles, motorcycles, ATVs and power-equipment products, and bought more than $11bn of parts in 32 different US states. In the world's toughest automotive market, it increased its market share in the US last month to 8.8 per cent from 8.3 per cent in May 2003. And 75 per cent of those sales were USmanufactured.

There are many other examples. Boeing hires local country presidents with strong links to government, to sell its aircraft. WPP recently announced that it was creating country managers in countries such as Holland, Italy and China. First, because its clients are doing the same thing. Also, because it believes it is necessary to have someone leading the business locally in order to get the right level of government and political contacts.

Unilever in Vietnam has built a retail chain of 150,000 small-scale trade outlets that together deliver 97 per cent of sales and cover 95 per cent of the population. MTV is like an organism whose cells seem constantly to multiply and divide. Already it reaches 340m households in 140 countries—via six international TV channels, and 31 localised channels, and 17 websites.

Some of the most effective brands not only create jobs locally, they also get involved locally. For instance, McDonald's focuses on the environment. In India and Australia it works with local groups to improve water quality. In Poland it is helping to put up bike parking stands to encourage a switch from petrol-power to pedal-power. And in Austria it is recycling cooking oil as a cleaner-burning diesel and using the fuel to run the trucks that supply its restaurants.

But keep centralised those functions benefiting from global scale
For example, by creating a strong central resource for shared values, training and R&D. Each year, Nestlé brings more than 1,700 managers from around the world to its International Training Centre. With more than 75 per cent of the teaching done by the company's senior management, the effort creates a network of managers with shared experiences and a strong corporate culture among people from more than 80 countries. Nestlé's Research Centre in Lausanne plays another important role, filling the science and technology pipeline for all Nestlé foods. It acts as a hub for eight other R&D sites, as well as product and technology centres. For example, a Mexican agronomist who was trained at one such site in Tours, France, now works for the Mexican government, running a seedling programme for regional farmers that supports Nestlé's local coffee production.

Centralisation also serves as a good channel to share product ideas gathered from the rest of the world. P&G, for instance, recently launched Mr Clean Magic Eraser after spotting a Japanese product that could remove marks from walls. Together with Germany's BASF, P&G developed ingredients for its own disposable cleaning pad and rolled it out in North America. Conversely, P&G also ships certain key ingredients from the US to world markets: Tide factories in China receive the concentrate, then add common chemicals like sulphates before packaging the detergent. Similarly, Coca-Cola has shipped its syrup to bottlers in dozens of countries for decades. Its Atlanta offices control not only its famous secret formula, but also its worldwide image and branding.

The key, of course, is in striking the right balance. To reduce the risk of backlash, firms must grow ever-stronger local presences. Yet they must also harness the resources of a robust central organisation that continues to enrich the brand.

In short, operating from both a global and local perspective requires much of the CEOs of today's multinationals. Like actors, they must master many roles to serve many markets. To succeed on the world's new stage, they must ensure that their businesses have the experience, improvisational skills, and sense of purpose to build their brand power—and also riskproof it.

Orit Gadiesh is Chairman of Bain & Company.


Ready to talk?

We work with ambitious leaders who want to define the future, not hide from it. Together, we achieve extraordinary outcomes.