As a company, brand value and how the consumer and public perceive your company and products is everything. Last year, according to a survey conducted by Gartner of some 253 companies with annual revenue in excess of $500 million, an average of 10.4% of 2012 revenue was spent on marketing (a figure that, according to Gartner, includes salaries as well as traditional and digital marketing). This demonstrates the power and perception of brand value and is all the more reason why companies need to constantly innovate and refresh their brands if they hope to maintain a positive image with the public and increase their sales.
Coca-Cola is one I've alluded to often as the company that's written the book on branding. With more than 90% of global consumers recognizing its logo and Coca-Cola operating in all but two countries worldwide, it has a lock on being the world's most valuable brand according to Interbrand.
But not every company has been successful in differentiating its brand from the competition. The following five companies could be heading down a slippery slope and appear to be losing their identifying characteristics altogether.
1. Abercrombie & Fitch (NYSE: ANF )
There are plenty of reasons that Abercrombie & Fitch makes the list. For one, its CEO, Mike Jeffries, has repeatedly stuck his foot in his mouth during his tenure as head of Abercrombie. By publicly alienating specific crowds from his stores, Jeffries has put a ceiling on Abercrombie's sales potential. The wrong products have also doomed Abercrombie many times before. In 2011, the company came under fire from parents for selling padded bikinis to children as young as eight years old. Despite numerous scandals, perhaps the real drawback is its lack of differentiation from American Eagle Outfitters, which is cheaper than Abercrombie in many aspects (pleasing parents), yet offers teens very similar branding and style. If Abercrombie isn't careful, its brand could fall way behind its teen-retailing peers.
2. US Airways (NYSE: LCC )
US Airways was expected to put its mediocre performance, which includes two bankruptcies since 2002, in the rearview mirror when it merged with American Airlines. However, that all came to a crashing halt when the U.S. Justice Department decided it was going to block the merger. Despite appearing cheap by many a Fool's standards, US Airways has been losing air-cred (yes, I'm making up words now) to regional and deep-discount carriers that have more flexibility than national carriers, which are highly indebted and required to stick to hub-based routes. Not surprisingly, in the annual Airline Quality Ratings report, low-cost and regional airlines regularly ranked higher than most national airlines, including US Airways. Without American Airlines, US Airways will lack many of the factors that would have differentiated it from its national airline peers and made it competitive on a cost basis to lower-priced regional carriers.
3. J.C. Penney (NYSE: JCP )
I know what you're thinking: "Does J.C. Penney have enough brand value to even make it on this list?" The answer is a lenient "yes" based on its less-bad second-quarter results, which showed some level of improvement over the previous quarter. However, it's really hard to see how Penney's, which has relied on cost-conscious consumers and coupons to drive sales for decades, is going to get this customer back into its stores after removing sales and reintroducing new higher-price-point store-within-a-store brands for about a year. Penney's sales were already shrinking because of low-cost brand-name merchandisers like TJX's T.J.Maxx long before J.C. Penney cannibalized itself, so it's not like going back to what was "less bad" before is going to be the solution now. There are plenty of places to get a clothing discount these days, and Penney's simply lacks the brands and the bargains that drive consumers into a retail store.
4. Honda Motor (NYSE: HMC )
That's not a misprint! Dominant in the U.S. for decades and a fixture in Chinese and Japanese markets, Honda's product line is beginning to show signs of weakness around the globe as fresh redesigns from competitors, which offer equal to better gas mileage, are pushing Honda to the limit. In the U.S., Honda's year-to-date sales growth hasn't kept pace with Ford or General Motors, while in China ongoing tensions between China and Japan have caused sales growth to stagnate. In its home of Japan, Honda saw sales fall 24% in the first quarter due to the end of subsidies for green cars. Ultimately, Honda is being kicked around by more fuel-efficient engine designs that don't compromise power (e.g., the Ford EcoBoost) while also losing on the design front. It did recently introduce a redesigned Civic, but I have to wonder if it's too late to reverse what looks like a downtrend in sales right as Honda is kicking off a major production expansion initiative. Only time will tell if I'm right, but this doesn't appear to be as strong a brand as it was even three years ago.
5. McDonald's (NYSE: MCD )
These arches are looking less than golden nowadays with its innovative advantages now lost. Although McDonald's pioneered a healthier fast-food menu including snack wraps, and introduced the value menu, it's now taking a backseat to differentiable fast-food restaurants like Jack in the Box, which serves breakfast all day, and Chipotle Mexican Grill, whose "Food With Integrity" campaign promises antibiotic- and hormone-free meat and local fruit and vegetable usage for around the same price as what it would cost for food at McDonald's. What's really sad is that McDonald's branded coffee appears to me to be the only factor really softening its recent same-store sales decline, when I'd much rather it be increased foot traffic or new products driving sales. Unless McDonald's can find a new way to shake up the sector, shareholders may have to kiss their superior returns over the past decade goodbye.
Sometimes the easiest way to find breakthrough stocks with growing brand appeal is to think outside the box. Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has done just this by developing a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.