Future Perspectives

The Future of Global Brands in an Uncertain World:

The Power of Co-Creation

April 4, 2011

The Future of Global Brands in an Uncertain World:

The Future Perspectives are thought-pieces with concise, focused insights into important issues of interest to marketing and business strategists. For more information please visit www. thefuturescompany. com.

The Power of Co-Creation

Introduction
We live in a time of uncertainty. Since the shock of the 2008 economic collapse, many people feel their foundations have been eroded. The 2010 Global MONITOR report highlighted the fact that living with uncertainty has become a key context shaping consumer decisionmaking. Correspondingly, there has been profound questioning of things that were previously accepted as gospel, such as globalization. Now, some of the key features of globalization are being called into question, particularly those that affect the future of global brands. Although many beliefs about global brands feel more fragile than ever, there are many beliefs about branding and marketing that are increasingly sure. In 2010, the Credit Suisse Research Institute published a report documenting the returns enjoyed by companies that focus on branding. Companies consistently spending at least 2% of sales revenue on brand marketing substantially outperformed the S&P 500 since 1997, according to Credit Suisses analysis, while the top one-fifth of these businesses outperformed the market by a huge 17% 1 per year1. While questions about globalization are rife, global brand-building continues to deliver unquestionable value. However, the open question for marketers remains how to manage branding as part of globalization. Should global brand-building push or be pulled along? Should global brand-building be driven by a central strategy or by local markets? Developments in the global receptivity to brands demarcate a key pathway to the future. So, in this report, we will Look at the development of the idea of the global brand

1 Credit Suisse Research Institute, Great Brands of Tomorrow, February 25, 2010, http://wpc.186f.edgecastcdn. net/00186F/mps/Equity_Research_ Test_Account/16/129/Great_Brands_of_ Tomorrow.pdf

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Explore the continuing tensions between the notion of the global and the local Identify brands which represent new trends in the development of global branding Suggest strategies which help marketers to manage global brands in a world of increasing cultural complexity

a brand is most deeply embedded in a local situation. No brand has an exclusive monopoly on global-ness, at least not in the traditional way in which global brands have been understood. To understand where global brands are headed, it is useful to revisit the history of global branding. There have been four successive models of global branding. 1st Generation: Export Model This could be considered the prehistory of global branding. This was the way of thinking by which branded consumer goods first found their way around the world. Developed market brands were basically unchanged from the manufacturing country as they moved to national colonies and beyond. The key business objective was to keep unit costs cheap enough to cover transportation. 2nd Generation: In-Country Model In contrast to a branch office simply receiving goods, this approach involved the creation of a full-

blown parallel company structure in expansion markets, including production facilities and, crucially, marketing departments to handle in-country marketing. 3rd Generation: Standardization Model In reaction to the perceived costs of prior approaches, this model drew on convergence theories of development that saw global consumers becoming alike. Hence, consumers could be targeted with the same products and the same branding. 4th Generation: Glocalization Model This model was developed to balance the benefits of standardization with the need for local customization. This model works with an idea of brand elements that need to be held firm, like name, logo or visual identity, versus those that can be modified as needed, like positioning, target audience or communications strategy. This is the prevailing model today.

In doing this, our approach will be to combine macro perspectives with micro insights, mixing some theory with some examples.

Deconstructing Global-ness
What does it mean to be a global brand? At root, of course, every brand is local. Yet, so, too, is every brand potentially global. For example, if a consumer discovers a Palestinian beer and brings six cases back to New York where it becomes a minor rage in Tribeca, that brand has started to globalize. As this simple example illustrates, for the consumer a brands global presence is, paradoxically, most tangible when

Figure 1: The history of global brands

1st generation: Export model Brands exported from parent country unchanged 2nd generation: In-country model Parallel company set up in new markets 3rd generation: Standardization model Similar products and similar branding in multiple markets 4th generation: Glocalization model Core elements are standard, with variations to suit local models

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The Coming Era of Co-Creation

A new model is now driving the future of global brands. It is practiced already by many brands, though not yet recognized or spoken of as a true branding model. But it is coming on strong in a world hungry for new entry points into the global marketplace. 5th Generation: Co-Creation Model This model extends the openended style of glocalization into explicit collaboration on equal terms between brand owners and host markets. Its not the top-down collaboration of customizing a global concept to a local situation but a deep, iterative collaboration in which the very concept of a brand arises bottom-up across several local situations at once. This sort of brand model, operating through the progression of local market flows, can be seen today with several innovative global brands. dENiZEN by Levis dENiZEN was launched last year in Shanghai, the first time Levis has launched a brand from outside the US and the first Levis brand to have its headquarters outside the US. The five-pocket jeans are aimed at 18 to 29 year-olds in China, Singapore, South Korea, and, in the future, India. It is a target group Levis refers to as Asia Rising. In style and price, these jeans are all about this new global consumer and the local situations that give meaning and power to its global strategy. More importantly, these jeans represent a ground-up approach to building an international presence. Shang Xia Shang Xia is a new Herms luxury brand launched last year targeting the Chinese market. Shang Xia pitches itself squarely into the tension over the ultimate source of a brands identity. Historically, Herms expanded by buying existing brands. But Shang Xia is being launched from the ground up, using local know-how and materials to build a global presence at a lower price point for this fast-growing market. This brand is a stylistic hybrid of modern European design and Chinese craft, yet a Herms representative has insisted that it is a Chinese brand, developed in China with the Chinese team, based on Chinese craftsmanship and broadly made in China. We dont want any confusion. This is the heart and soul of co-creation. The challenge for Herms, as one scholar of the Chinese luxury market has noted, is that products specifically targeting the Chinese market are often less welcomed than products that are totally foreign in the first place.2 Herms co-creation model offers a resolution to this challenge.
2 Justine Lau, Herms Creates Bespoke Brand for China, July 19, 2010, Financial Times, http://www.ft.com/ cms/s/0/31274bdc-9351-11df-bb9a00144feab49a.html

Figure 2: The fifth generation of global branding

1st generation: Export model Brands exported from parent country unchanged 2nd generation: In-country model Parallel company set up in new markets 3rd generation: Standardization model Similar products and similar branding in multiple markets 4th generation: Glocalization model Core elements are standard, with variations to suit local models 5th generation: Co-creation model Collaboration between brand owner and local market to develop brand and proportion

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BonVi! Launched in Ghana in 2009 by Amway, BonVi! was developed through a live prototyping project run in rural Ghana involving in-home interviewing and village charrettes with feedback on everything from product samples to the proposed color of the brand identity. BonVi! aims at a mass market using not only glocalization strategies to convert existing Amway products to fit local needs, but also cocreation strategies to identify additional needs, learned from local collaborators, that can be met by new products within the global capabilities of Amway (e.g., water purification tablets).

Future global brands will need to be mindful that one of the advantages of global brands in years past has been a tacit guarantee that products carrying their name would not kill or injure their consumers. In this sense, global brands of the future will need to be just as mindful of the functional bottom end of Maslows hierarchy of needs as of its more aspirational top end. Global supply chains make this harder to achieve. Consumers in affluent markets feel secure and distanced from risk when they read of vigilante consumers in China turning on a brewer alleged to have watered down beer or when two people are tried and executed for their part in a powdered milk scandal. But these risks hit close to home when lead paint renders toys produced in China unsafe for the American market.

From Processes to Meaning

As brands face forward, they will find that meaning more than processes will be a critical element of success. Co-creation puts meaning in the forefront of engagement. In the century ahead, global brands will find themselves having to straddle 150 years of past history and the legacies that has left for the future. Though the corporate focus on emerging markets is largely economic (following the shifts in global money), these very markets are more exposed over the near term to resource shortages, pollution, and other threats to their viability. For example, Asia is highly vulnerable to water scarcity.

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Brand risks are amplified by the co-creation model which, inevitably, creates brand divergence at the level of national or local markets. With consumers in different markets increasingly connected through digital networks and social media, inconsistencies will be identified quickly, then shared and publicized. Global brands will need to speak coherently across markets even as they speak distinctively within them.

Global brands will be forced to shift much of the emphasis in their brand communications from rules to values and from processes to meaning, putting more pressure on the ways in which corporate culture is created, communicated and internalized. This is a lesson Mattel learned from its toy recalls. Its first attempts focused on procedure, but this was not enough. Its subsequent

efforts approached the problem by looking at the values of integrity and safety around its productions processes.3

3 Jonathan Dee, A Toy Makers Conscience . New York Times, December 23, 2007, http://www.nytimes. com/2007/12/23/magazine/23Mattel-t. html

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The Future of Global Brands

Looking across the trends which are shaping the global landscape in which transnational businesses operate, it is possible to pick out some clear implications for executives.

Emerging brands from emerging nations

Developing markets that weathered the global downturn better than other markets are showing their resilience through a flurry of M&A activity. As the BRIC countries continue to expand, with more affluent nations trapped in the debt overhang of the economic crisis, we will see BRICbased businesses add brand assets to their existing portfolios of natural assets, production capacity and manpower. March 2011 data show that 44% of privately held businesses in Brazil, Russia, India, and China are planning to grow by acquisition in 2011, up from 27% last year.4

brand skills of existing global brands will not vanish, even in this business environment. However, global brands will need to be more responsive to their local circumstances, understanding more deeply why consumers in each particular market seek out their brands or disregard them. In the competitive context of these various marketplaces, the imperative of adaptation and indigenization will play out as a race against time and capital between established brand owners and new, acquisitive brand owners to co-create brands that will win the loyalty of emerging market consumers. This is the race that will decide control of the brand wealth of nations in the years to come.

The decline of the iconic brand

There will be too many brands chasing too few possibilities for iconic brands to dominate consumer relationships as they have in years past. No matter how good a strategy may be, it dunks a brand into the red ocean of undifferentiation if every brand adopts it. The ultimate challenge for brands has always been to overcome consumer indifference, and this challenge will grow in the global marketplace to come. In response, brands will have to deliver ever greater value to consumers who favor them, even as brands fragment their identities through greater locally driven co-creation.

Authentic local brands from affluent nations

Many of the brand stories mentioned in this report have been about how brands from the affluent world responded to the challenges of new markets. The historically strong
4 Grant Thornton, BRICs lead the way in M&A. International and Emerging Markets Blog, March 3, 2011, http:// www.grant-thornton.co.uk/thinking/ emergingmarkets/index.php/article/ brics_lead_the_way_in_ma/

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The end of grand strategy in global branding

An era of mixed strategies in global branding is emerging in which what happens at the center will be equally matchedif not overpoweredby what happens in local situations. The glocalization models of the fourth generation will be challenged increasingly by global brands that are co-created from the bottom up. Local customization will give way to local co-creation as the underpinning of global success. A movement is underway to shift toward toolkits to support a mix-and-match approach in which different elements can be woven together to respond to locally unique branding challenges.

Brands will have to build new narratives

With many trades in ownership and the invention or reinvention of co-created brand propositions, national or local origin will no longer be a sufficient basis for brand authenticity. In an age of ever-smarter consumers, the battle of the brands will become a battle of narratives. Competing brands will attempt to tell more compelling stories about their values and purpose, from product to provenance to social and corporate commitment.

the marketplace. Uncertainty is bringing together a confluence of perspectives that is redefining global brands from the bottom up. The hierarchy of established global brands will be challenged by new, cocreated global brands. Established brand owners have the skill and experience to navigate these tricky marketing waters, and should feel confident about their ability to create authentic new brands of their own, thereby appropriating some of the cultural authority that new brands might otherwise enjoy. Such adaptation can be a rich source of innovation, and thus, even as a new marketplace unfolds, the dominion of Western brands is not likely to be wholly overturned by the future market forces of co-creation.

Conclusion
Notwithstanding the push of market forces to co-creation, there are counter-forces at work as well. Todays global brands got there first, giving them a huge order-of-entry advantage which new co-created brands will have to spend heavily to overcome. This challenge is intensified by the status enjoyed by many foreign brands among emerging market consumers. Indeed, as developing nations grow more prosperous, consumers there may spend even more on established brands. The future of global brands of every sort will require a new approach to global brand-building. The intersection of interests that defines global market opportunities now demands a fresh look at

The rise of the contextual brand manager

In the marketplace ahead, successful global brand managers will be culturally and contextually adept, listening to markets in order to master and understand multiple cultures. Increasing numbers of global brand managers will move from emerging nations to work in all of a brands markets, not just the home market. A key skill will be assessing local factors accurately and judging the correct elements to deploy. In todays global marketplace, whats required is an expedient, experimental mindset that is open to all possibilities. Brand judo, not brand brawn, will determine which brands win.
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