42 Degrees - Business from a different angle

It's brand values, rather than rock-bottom prices, that are shaping today's most successful companies.

For close on four decades, the mighty Samsung Group was not so mighty. The Korean firm was a bargain basement manufacturer of the very cheapest electronic goods around. Its products could be found masquerading as cheap own-label or selling for next to nothing in discount shops.

During the 1990s, however, Samsung's position at the bottom of the market came under threat from even cheaper sources – Chinese and Indian manufacturers.

Samsung's bosses had to decide whether to take the 'low road': drive down costs even further and attempt to slug it out with the competition in a price war. Or should it take the high road? Could the company make its products more valuable to consumers through emphasis on innovation, better design and manufacture and the creation of a strong brand?

It was a difficult choice that wracked the firm with indecision for years. But, after confronting the implications of a price war, in 2001 Samsung chief executive officer Jong-Yong Yun finally opted for the latter course. Really, there was no choice.

But he didn't want to just create any old electronics brand. He wanted Samsung to become the brand leader, overtaking even Sony in terms of revenue, profit and prestige. And he gave his people just five years to do it.

Oscar Wilde once defined a cynic as someone who knows the cost of everything and the value of nothing. Jong-Yong Yun realised that the same might be applied to businesses that bow to conventional business wisdom, which says that lower prices are the key to success.

He understood that unless you are a market stall trader, building an offer solely, or even largely, on price is a risky strategy: it leaves you at the mercy of more efficient operators – there will always be someone snapping at your heels – and it cheapens your business in the eyes of its beholders. As marketing guru Seth Godin argues in his well-respected blog: "Maybe the reason it seems that price is all your customers care about is . . . that you haven't given them anything else to care about."

Woolworths provides a timely case in point. The retailer is in dire straits having positioned itself purely on price. After Christmas trading its share price fell to just 14p. Promotions designed to create excitement and drive footfall, such as shipping in champagne at £5 a bottle, merely reinforced perceptions that everything is cheap at Woolies, which is fine as long as everything is cheap, but does nothing to engender customer loyalty.

In the travel industry, Airtours consistently sold itself on price. Last year it merged with Thomas Cook and trade sources speculate that the Airtours name may soon be phased out, which is a direct reflection of its lack of value as a brand.

So putting price at the heart of your offer is a dangerous ploy for businesses and that's true whether you are a global mega-brand or a local micro-enterprise.

Turnaround professional Peter Charles says that in his ten years as a specialist helping small and medium-sized enterprises (SMEs) he has not met with a single example of price as a winning strategy. "Trying to be the lowest cost operator leaves you vulnerable," he remarks. "It is enormously difficult to grind out overhead at every level."

Graham Harding, founder director of brand strategists The Value Engineers, agrees: "There is a lot of evidence that if you are an SME you won't manage to become the lowest cost operator unless you are in a very, very specific niche – in which case you won't need price as a driver."

Many SMEs see brands and branding as the preserve of bigger businesses with deeper pockets and more time to spend on such fripperies, but brands are just as relevant and just as powerful in smaller enterprises and B2B as they are in consumer markets.

"In essence, brand is the difference that distances your product from a commodity," says Graham Harding. "It comes in many forms – emotional, functional, driven by business strategy or the personality of the founder. It enables [businesses] to command a price premium over their underlying costs to create greater margin, which then enables them to fund more of those differences to create more margin."

Clearly a comfortable margin and a robust business are highly desirable, which should make brand building – or rather brand burnishing – a priority. You don't have to spend a fortune on highfalutin' marketing activities to develop a brand: you almost certainly already have one by default, as your customers attach brand values to the relationship they have with you.

That's because a brand, say the experts, is not a logo or a sign or an advertising campaign. It is the sum total of all the attributes – real and imagined, held in the minds of customers and other stakeholders about your business or product. It doesn't matter whether you are Coca-Cola or the local cobbler, you have a brand – although admittedly the former is likely to be bigger and stronger than the latter.

The difficulty for smaller businesses lies in knowing what it is that is distinct about their offer. The trick is to know thyself. Ask everyone – colleagues, suppliers, customers, friends, business associates – what they think are the main features or characteristics of your business. Identify those that are relevant to the market and unique to you and express them in an impactful way. Voila – you have the makings of your very own brand. After that, in theory at least, you should focus everything you do – your products, services, livery, stationery, service delivery, behaviour of employees – so that they are consistent with those brand values.

As has been pointed out: "People negotiate on price after they've bought into a particular set of brand values. No one talks about price until they've bought into the [brand] offer."

If you don't believe him, ask Samsung's Jong-Yong Yun. Today, his company is widely regarded as one of the very best in the world and its products are no longer to be found on market stalls and in bankruptcy sales. They are highly desired pieces of technology. Business Week two years ago declared Samsung the number one consumer electronics brand in the world. If it had continued competing on price, the chances are it would not even be in business today.