Recently I was looking to buy a new car, and had narrowed it down to a BMW or a Skoda. Chalk and cheese, you might think. The ‘ultimate driving machine’ versus a vehicle whose brand history was – how shall I put it? – chequered. Old joke:
‘How do you double the value of a Skoda?’
‘Fill up the tank.’
Since Skoda Auto was acquired by Volkswagen, however, things have drastically improved, so much so that these days Skodas are less likely to pick up a wise remark than a motoring award. Reader, I bought the Skoda.
But during the buying process it was that brand issue that vexed me most. On paper, the Skoda was as good as the BMW in almost every department, and better in some. Because what counts as an extra on the German vehicle comes as standard on the Czech, it was also about 30 per cent cheaper. Yet I was worried what the brand would say about me. More precisely, what my friends would say, what the other parents in the school car park would say, what my clients would say. And now I’m worried what my readers will say.
It’s just such anxiety that is picked up in an article in the McKinsey Quarterly. This emotional space of the brand is where competitive leverage can be found, and therefore it’s what should be vexing the car manufacturers too:
In recent years, the number of car makes and models has grown in every product segment. At the same time, the once vast gaps in quality, performance, safety, fuel efficiency, and amenities have all closed significantly. Although variations in quality and performance persist, the remaining possibilities for differentiating products, and thus achieving competitive advantage, revolve around styling and other intangibles and the emotional benefits they confer on the customer. But instead of attempting to convey these benefits, carmakers spend 55 percent of their marketing budgets – $24 billion a year – on rebates and incentives.
What I felt about the BMW was that it had actually achieved what the article was recommending. Apart from contributing to the cost of the glitzy showroom on Park Lane where I went for my test drive, that 30 per cent differential was the price of my emotions. The implicit calculation BMW were making was that I would spend about that much extra, not to have a better car, but to feel better about myself. So why didn’t I buy it? I saw through the marketing. And having seen through it, I felt not better, but worse. The BMW brand, I felt, existed to mask the fact that the car didn’t justify the premium. Beneath the thrill at the prospect of owning a new BMW ran the disquieting sensation that I was being ripped off.
The Skoda showroom, near the ring road in Oxford, is so chock-a-block with cars on its meagre forecourt that even finding the front door requires some initiative. The space itself is dated and the customer toilets far from de luxe. But the car I drove was superb, literally – a Skoda Superb. A tough billing to live up to, but between the brand name and the reality there really wasn’t much difference, as if the brand were a window. Yes, the BMW had been superb too, superb and arrogant. This Skoda was superb and modest. Little manipulation of my feelings was involved, just excellent value for money.
Which is perhaps the alternative conclusion to the premise of the McKinsey Quarterly article. It argues that because cars are all becoming the same, the only way to differentiate is through the brand; I’ve heard the same argument applied to supermarkets. But you could argue just as convincingly that all other things being equal, what will win the day is price. Why not save on branding and offer the same quality cars for less money? We might think in a very modern way that brand value is the only way forward, all other sources of value having been maxed out, but it ain’t necessarily so. Equally, you could say that if all cars are achieving similar levels of competence, true competitive advantage lies in a step-change in quality. The diesel engine in the BMW that I drove, for example, might have been smooth, powerful and responsive, but it also rattled like a tractor. Take its brand away, and to compete BMW would have to offer a car that is demonstrably 30 per cent better than the Skoda, across every measure – ‘quality, performance, safety, fuel efficiency, and amenities’.
This argument about brands goes well beyond cars, of course. Price and quality will usually be more decisive for a customer than brand. After all, brand is principally a means of disguising or at least artificially enhancing the reality behind it, and if the brand gets too far ahead of that reality, consumer confidence in it will start to break down, and vice versa. Of course, a brand will never offer a comprehensive picture of the product or service it represents, but it should at least be a focused presentation of reality, not a strategic distortion of it. To use an obvious example, Apple became the world’s largest company not only because its brand was hugely desirable, but because of the quality and price of its products. Expensive, yes, but you get what you pay for. Which is how someone like me can own both an iPhone and a Skoda Superb, but not a BMW.
So why is this an important question for business leaders? Because in any given organisation it’s only the boss who has as rounded a view of the company product or proposition as the customer. Beneath the boss, people will push their own agenda, the brand guys pushing the brand, the designers pushing the design, the engineers pushing the technology, and so on. It’s only the boss who can take a non-partisan view of the whole. It’s this whole that the customer sees, making boss and customer kind of equivalents on opposite sides of the counter. One of the leader’s key roles, in other words, is ensuring that the brand is less of a mask and more of a window.