Brand Buffetting

Can we apply the same principles used by Warren Buffett to build the world's greatest investment fund to create a world's best brand?

Welcome to a new year. A year that, given the economic and cultural circumstances we find ourselves in, promises to be at least as surprising as the last.

What the end of 2009 and and the beginning of 2010 has brought is some stabilisation in the volatility experienced during the previous year. This stability paves the path for 2010 to be a year of investing in the long hard climb to growth.

The year presents much opportunity for smart, creative marketing strategies. What must be remembered is, opportunity can only be realised through investment.

So this year is undoubtedly a year of brand investment!

Just for fun - and with a tad of seriousness - is it possible to apply the principles of the world's greatest investor, Warren Buffett, to a brand investment strategy in order to reap the success of a wonderful brand?

To put it another way, what does it look like to do some Brand Buffetting?!?

Well, what are Warren Buffett's rules for investing?

Thankfully, Buffett has consistently answered this question in the same way for decades now (This version courtesy of Rotman Magazine Fall 2009):

Step 1 - Focus on a circle of competence i.e., focus on the stuff you really get.
Step 2 - Identify good companies in your circle of competence. For example, good structures, people and history.

Step 3 - Value the company by discounting the income stream from the business using an appropriate rate.

Step 4 - Compare the value with the market price. If the value is higher than the price by a margin of safety, invest.

Step 5 - Repeat step 1.

Sounds simple, doesn't it? If only it were so.

We're not a finance firm, we're a brand strategy firm. But, we believe brands are assets and they should be treated as such. A failure to invest in a brand is like letting squatters trash a beachside mansion.

So, how do we apply these 'basic rules of investment' to brands?

Let me rewrite them in marketing-speak for you.

Step 1 - Focus on what your brand does best.

If there is one thing a decade of easy capital & cash can do, it is to let brand owners feel that more and more brand extensions will be the right path. Brand extensions devalue the original brand*. Brands hold currency. Splash the currency about; it devalues. How long does an overexposed TV celebrity really last? Don't let your brand end up being the compere on the 3am 1800 ad.

Step 2 - Identify good markets within your circle of competence. For example, depth, availability, need and sustainability. In good times we rush for the quick sale. Typically what we see is a major focus on retailing or shifting product, i.e. just let 'em know what, how much and where. The price or incentive driven market comes to the surface. After a while, the easy cash dries up or everyone is simply as cheap as each other and no one can figure why a product is different.

Thanks to our esteemed PM and our stimulus pocket money, the flat screen market has been running hot recently. Listen to this quote from Gerry Harvey (Harvey Norman) in The Australian over the summer (Dec 26 - 27 2009), "The problem we've got is that our unit sales are going up enormously - you're selling 30 percent more TVs than you were last year - but you can't get the same dollars, and the margins are under pressure all the time because everyone is trying to sell it cheaper than the next bloke."

That's right Gerry, easy cash equals lazy marketing with little brand building and creation of sustainable points of difference. Anyone else looked at a wall of black flat screens in their local store and wondered if they really are any different?

Step 3 - Value the potential market by its return (sales revenue) on the investment made (marketing dollars expended). Simply put, how do you get your message to the most people (in your market) in the most effective manner?

Step 4 - Assess all the options and invest where the best return exists. If you take your message to the most people in the most effective manner you will invariably not be taking cheap options. Furthermore, if your message is one that is market driven (i.e., what customers want) you will not be responding to the competition's offer but to the consumer's heat & mind.

What is the end result? More people receiving a message from your brand that answers their present need. Add some creativity to make it engaging and relevant and you might just have a situation of increased sustainable demand. There happens to be a reason why Apple Stores consistently deliver one of the highest rates of sales revenue per square meter for any retail store.

Step 5 - With your increased levels of cash, market share and momentum, go back to step 1.

Whatever you do, don't create Step 6.

So, how to buffet the 'tos and fros' of the roller coaster that is the current market? Be a Buffett with your brand.

*22 Immutable Laws of Branding (A & L Ries) - The Law of Extensions. The easiest way to destroy a brand is to put it's name on everything.