Monday 26 October 2009

So What Will Branding Look Like in a Small Car World?

One of the most interesting aspects of trade mark practice is to deal with the relationship between trade marks and brands. When I had the pleasure to speak last July in India on branding, I dutifully attempted to set out the differences between trade marks and branding. Characterizations of this distinction abound and we did our best to distill them down for the audience. It was all most entertaining, until--during the Q&A afterward-- a person from the trade mark department of a major multinational was asked to what extent she was involved in brand activities at the company. The answer was simple and direct: "Not at all".

Her comment reminded me how both close, yet how removed, trade mark practice is from branding. Trade mark lawyers deal with issues such as likelihood of confusion, source identification, and inherent distinctiveness of trade marks. At the end of the day, however, the trade mark profession is apparently there to serve the further interests of the brand. What the brand manager wants is the assurance that all is quiet on the trade mark front, so that the she can get on with the task of developing and sustaining value in the brand.

I was reminded of this when reading an article that appeared in September 19th issue of The Economist, entitled "Small Isn't Beautiful: The Car Industry." The article described the continuing challenges confronting the automobile industry. From my IP perspective, one particular portion of the discussion caught my attention. There, the article, citing analyst Max Warburton, explained one major set of reasons why small vehicles are less profitable for car companies than are large vehicles, by comparing the small-car Fiat 500 with the sports utility Audi Q7 as follows:
"...[T]he fixed costs are nearly identical, whereas the variable costs of making the Q7 (labour, raw materials, and so on) are only about 10,000 Euros higher for the Audi. Yet the Fiat sells for as little as little as 10,000 Euros, compared with a sticker price of at least 40,000 Euros for the Audi."
The article went on to list three factors that augur in favour of a permanent trend in favour of small vehicles:

(1) The sale of more pricey cars has been encouraged in part by the availability of cheap leasing credit. In addition, there was an anticipation of a high post-lease sales price, which is depressed if too many such high-price vehicles are leased and later put into the secondary resale market.

(2) Baby boomers will more more likely to purchase smaller cars in their later years, because they will require less seating capacity.

(3) Stronger emissions standards will favour small vehicles.

Find the Killer Brand

I have several thoughts on all of this.

1. The article emphasized in bas-relief the relationship between branding and profitability, and the branding potential to leverage variable costs several times over the ratio of variable costs to fixed costs. It is no wonder that branding at the high end of a product line is so coveted. That said, the article also revealed the difficulty of leveraging brands in an environment with a clear (at least to The Economist) trend away from a consumer preference for high-end car products.

2. If it is true that smaller cars will be increasingly preferred, and that the margin on the sale of each such car will be materially less than that earned on the sale of a branded high-end vehicle, then the challenge is how to restructure a successful branding stratgegy in such an environment. In such a situation, there will be in increasing emphasis on unit sales to make up for the loss of profits from decreased high-end brand sales.

3. From the branding point of view, the trick would seem to be to find the right branding for a lower-priced product offered by a company that had previously emphasized a higher-end product in its high end/low end product mix, and had calibrated its brand accordingly. This rebranding effort will need to compete with current brands that are perceived as identifying smaller cars of high value. How this competition of rebranding cars to emphasize smaller vehicles at the lower price range, both at the house mark and model name level, will play out may go a long way to determining the long-term viability of at least some of the companies in the auto industry.

No comments:

Post a Comment