While "dot-coms" have produced some impressive commercials, these ads often have little impact beyond, "cool, what was that for?" Companies that understand their core brand values usually produce advertising that reflects these values, and reap the results. Investors need to find these companies and not get caught up by "gee-whiz" marketing.

By Bob Fredeen (TMF Bobdog)
August 29, 2000

Brands are, in my opinion, the most valuable assets companies can own. First and foremost, people are willing to pay more for products from a company with a strong brand. Second, many consumers go out of their way to purchase from a brand they respect. Third, strength with consumers can often be parlayed into strength with suppliers, earning the company better financing terms. Establishing a brand is one of the most important jobs for every company, whether they are selling to 6 billion consumers or the top 1000 companies.

Unfortunately for many companies, it takes years to build a brand, and very little time to destroy it. Today, we'll focus on how companies have been failing to build their brands, while wasting their marketing budgets. The key point here is that for new companies, cool TV commercials are not necessarily a great idea.

Cool commercial for whom?
One cool commercial recently started in a hospital. You see a bed, nurses, a teddy bear holding a "Get well soon" heart. In the background, you hear "Paging Dr. Garetti" repeated over and over. Then you see the paging nurse, Aretha Franklin, who is obviously annoyed with the doctor. Finally, she grabs the microphone and unleashes a bluesy riff on Dr. Garetti, complete with a bit of "do-da" scat singing at the end. Underneath the picture is a comment on everyone having potential. Finally, we have a tagline about prodigies and a final screen with the company's name, Prodigy Internet, and some contact information.

In a recent Business 2.0 article, advertising executives and commentators pointed out that the ads were clever but that they had no connection with the company's product. In my opinion, the ad was fantastic and memorable. It also had nothing to do with Prodigy's (Nasdaq: PRGY) brand. In fact, while I remembered the commercial from the first time I saw it, I didn't recall who it was for until the author reminded me.

The failure of the commercial isn't related to a lack of "coolness" for the ad. In fact, the ad itself was pretty good. The failure is in the disconnect between the brand and the commercial's message. When no one knows your brand, it's awfully hard to convey meaning with an esoteric commercial.

For most online companies, their brands are still essentially in their infancy. This means that consumers don't know what their brand is all about, and throwing out a company name in the last two seconds of the spot doesn't cause a Pavlovian response like seeing a red Coca-Cola (NYSE: KO) can or Nike (NYSE: NKE) Swoosh. These companies need to concentrate on educating consumers about the brand and the company before coming up with the next Clio award winner.

Established brands aren't immune
New online companies aren't the only ones with branding problems. Starbucks (Nasdaq: SBUX) investors suffered when their company shifted its focus to the now-notorious Internet plan. The company invested millions of dollars in Internet websites including the now-defunct Living.com. Their goal of becoming a "lifestyle portal" was badly received by investors partially because Starbuck's core values revolve around high quality coffee and a comfortable, convenient location, not around providing a new shopping tool on the Internet. Since then, as we've noted in our Motley Fool Research coverage, Starbucks has proven to be more successful by focusing on the coffee.

For a more recent negative example, we can look at another Motley Fool Research company, Gap (NYSE: GPS), and see how losing track of its core values in its Old Navy brand have hurt sales. The segment that had driven revenue and profit growth over the past several years faltered because the company forgot that the brand was for the entire family, not just teenagers. Where are they going from here? They are re-emphasizing their focus on both family and value, while keeping their eyes on both fashion and fun.

Even the mighty Coke's marketing has been less than impressive to some investors. Rob Landley aired his frustrations in a recent Rule Maker article. His point was that Coke's marketing worked best when the company told consumers that Coke was the Real Thing. However, telling people that, "It could be your next Coke" wasn't really what the brand was about. Coke isn't about buying a bunch of red cans in the hopes of winning something; it's about a product that makes life better. Losing track of that message was a factor in Coke's slow sales growth.

What can investors do?
What does all this have to do with investors? Every company has a brand. While individuals may have little cause to do business with companies like EMC (NYSE: EMC) or Siebel Systems (Nasdaq: SEBL), even these companies make efforts to build their brand with their target customers. People used to say that no one lost his job for buying IBM (NYSE: IBM), and both of these companies strive to replace Big Blue in this respect.

Every company needs to know what its brand stands for. If your brand's strength is delivering high-quality, high-price products, don't try to become the lowest cost producer. Investors should look for companies that demonstrate they understand what their brand is about and where it stands. Seeing some little known company spending $20 million dollars on a quirky marketing campaign is most likely not a worthwhile use of cash. Seeing the world's most valuable brand resort to gimmicks to sell product is not a good sign. Instead, focus on companies that have marketing campaigns that focus squarely on their brands and their core values.