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Clouds Gather Before A Storm - Utilizing The Power Of Brand

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How brand management can help utility organisations to create a "difference".

Ever thought why are many consumers willing to pay more for a trusted name brand instead of a store brand, which often is the very same product with a different label and higher price tag? Reputation. A company's reputation can be its greatest asset. Recent scandals such as that of AIG, Enron and WorldCom have seriously hampered the trust among stakeholder groups and widespread public scepticism about company ethics. If we look at the case of Andersen, the major reason why the company ceases to exist is because of the negative reputation that built up over a short period of time.

Also many other entities that were related to the Enron scandal have never recovered. Reputation is formed not only over time, but also over time as a function of complex interrelationships and exchanges between and among stakeholders and the organization in different contexts. This suggests that reputation is based on historical actions, and memories/perceptions of the stakeholders involved with the organization in a given situation over time. It suggests that a solid understanding of the criteria that stakeholders use in assessing reputation can aid in the development of a reputation.

Finally, if reputation is developed over time and as a consequence of a series of complex relationships and actions, there is a danger to the firm that is not always recognized. This is what can be termed as ‘reputational expectations.’

The value of a firm’s overall reputation is easily seen in its relationship to a firm’s revenues: as a firm’s reputation increases, so does their sale (Shapiro, 1982). A firm with a good overall reputation owns a valuable asset – “goodwill” (brand names, corporate logos and customer loyalty). A firm’s good reputation can translate into more credible advertisements (Goldberg and Hartwick, 1990). Brand names can often be repositories for a firm’s reputation (high quality performance on one product can often be transferred to another product via the brand name) (Moorthy, 1985; Wernerfelt, 1988).

A firm will lose its perceived reputation if it repeatedly fails to fulfil its stated intentions or market signals. A market signal provides information beyond mere form intended to convey information, to alert another firm to its intentions, commitments, or motives. This consequential loss of its perceived reputation prevents the firm from signalling effectively since its signal will then be given little attention by its competitors. A firm, then, has considerable incentive to work hard to establish a credible reputation. Reputation between firms develops when firms are unsure about one another’s options or motives and where they deal with each other repeatedly in related circumstances or where past dealing with other firms are observable (Milgrom and Roberts, 1982a). Reputation formation typically occurs when other firms must attempt to gather the missing information via the signals given, by interpreting the initiating firm’s actions as indicative of its future behaviour. Companies, therefore, can use reputation and credibility as a means of predicting the actions of competitors. Reputation, though, is an imperfect attribute since there is always a time lag effect; companies must continually adjust reputation after the latest period (Shapiro, 1982). Reputation is always most timely just after the latest transaction; the attitude towards the next transaction is dependent on the prior attitude and its accuracy decays with the time between transactions.

The critical factor in the reputation lag is the time frame concerned with the speed and costs of learning (information flows).The concept of reputation depends on a firm’s initial beliefs and its observation of another firm’s past behaviour (DeJong et al., 1985; Rogerson, 1985; Sobel, 1985). By providing accurate information, a company enhances its reputation but at the cost of foregoing the possible immediate gain that could be made by duping competitors; the company, therefore, take short-term losses to build reputation and secure larger, long-term gains.

The idea “clouds gather before a storm” clearly indicates that organisations can often overcome intricacies. But that requires laying the foundations well in advance for dealing with a problem. The central strategy for such an effort is developing a strong brand. Essentially, businesses must brand themselves or be branded by their competitors. Johnson & Johnson is consistently ranked as one of the world’s most trusted companies. Their handling of the Tylenol product recall when several consumers died of cyanide poisoning cemented an already strong reputation because they put their customers’ safety ahead of short-term profit – even though the company had nothing to do with the product tampering. The impact of how their management and media relations staff behaved eventually resulted in higher sales of Tylenol after the product was reintroduced, in comparison to many other products whose sales never recover after a product recall. So just as healthcare companies whose products have a direct affect on human life, how important is reputation management for utility businesses?

Utility businesses provide the basic essentials to human life. This is one of the biggest reasons why firms in the utility sector have to keep strengthening their image in order to sustain in the market. This may hold true for any organisation in any business; however, the reason why managing reputation is important for the utility businesses is the very fact that their products/services affect human life ‘directly’. In other words, a low quality product such as ‘water’ can cost the life of a human being who consumes it. Evidence of people dying by consuming unhealthy water in Africa and India clearly proves the above point. And as it is said that a reputation once broken may possible be repaired but the world always keeps its eyes on the spot where the crack was, this applies very much in the case of utility businesses because of the products/services they deal in.

In my opinion, utilities should practice the art of branding whether they are a competitive enterprise or a monopoly operating in their domain. Customers are used to purchasing branded products, even if they are buying an intangible such as electricity. In other words, consumers still need to know they are purchasing this resource from a company that respects their community and quality of life and that they are buying it at a fair price. If such practices are not implemented and measured, then utilities run the risk of being overrun by competitors and other market participants. As a result, utility organisations have to think strategically in terms of developing their brand. By development, I don’t mean a logo or a brand name, but more so developing a relationship with your stakeholders. We often find companies benchmarking the output rates, but with the importance of branding growing as a mark of distinction, organisations need to start benchmarking their brand management.

Utilities should learn from the experience of Coca-Cola, which is universally known and admired. Coke, however, does not take its market position lightly. It continues to provide consumers with positive images to inspire loyalty. Utilities have the same kind of name recognition within their service territories. But, they could expound on that goodwill by continually selling themselves to the public and underscore that they provide an essential service that enables the world's economy to function. How is that accomplished? Before the days of restructuring, the traditional means for doing so involved displaying dedication to their communities. It meant giving back and playing a role by sponsoring meaningful public events—a standard utility branding template. Being a monopoly does require being a good corporate citizen.

Utilities in recent years have been more encumbered with digging out from underneath financial issues. But, with a marketplace that demands newer and better services, the practice of branding must now extend beyond the old model. The public is gradually awakening to the notion that brands can be differentiated, even when it comes to buying electricity. People know, for example, that green energy is an option.

It is important for companies to realise the branding cannot be done in one day. It is a continuous process that can help companies endure even the most severe storms. For example, a utility may get hit with a lawsuit centering on its level of emissions, or the media can challenge the operational management in case of floods. The public may be quick to buy into the notion that utilities generally are more concerned with boosting their bottom lines than with providing communities a safe environment. But, communications strategies and outreach programs that are out front and continuous can greatly assist in overcoming the matter from a public relations angle. If consumers properly receive a branding message, then they might accept a negative situation or a minor scandal involving their local utility, the case of J&J as mentioned above. It's equivalent to the electorate generally believing that the Labour government in power are inept. While the media oftentimes portrays the efforts of “lawmakers” as buffoonery, despite that sceptical view, most voters still “love” their own local MP. Hometowns stand by their own citizens!

In other words, developing a utility brand is not just about selling. The process needs to be holistic, involving all the departments within the organisation and also being incorporated into the corporate mission and vision statement. This doesn't just mean that communities and consumers buy into the message. It also means that every employee must embrace the company's message as they always act as “brand ambassadors”. Effective branding is about honouring commitments to all stakeholders.

Branding, of course, is easier when the product or service being offered is the first of its kind or when firms have to compete head-on for business. A crowded marketplace necessitates that all companies pursue perfection, a strategy that continually raises expectations. Without such commitment, most companies are doomed to mediocrity—a losing formula over time, given that the dynamics of the economic landscape are constantly shifting. Regulated utilities, meanwhile, must “provide a warm blanket” and be prepared to adapt to a competitive environment, say experts.

Utility businesses who develop a reputation for high quality command premium prices for selling high quality products, example British Gas, United Utilities, Powergen etc. This premium is the incentive necessary to induce the provider to sacrifice the potential short-term gains possible through lower quality. This premium is the rent on its reputation so as to repay the cost of building and maintaining a reputation. In the early years of a new product – especially a capital good, whose reliability and durability may take years to demonstrate – users and competitors often have little other information on which to base their actions. Having a good reputation also ensures high quality firms will be larger and have more customers, since fewer customers will depart from high quality firms in the long run and more will arrive because of word-of-mouth activity from other customers.

In sum, reputations are intangible and complex – for the main drivers of reputation creation are embedded deep inside the firm. Reputations act as a gauge defining and giving a firm a sense of identity. In a world where products, markets and industry boundaries are in constant flux, branding can set companies apart by giving them strong identities and improving shareholder value. By branding, an enterprise is making both an implicit and explicit promise—a contract with the marketplace to cement a relationship. When it comes to branding, utilities generally get a stamp of approval. And that goodwill could translate into increased revenues or a better standing with regulators.

Gaurav Bahirvani MBUS(2004,UK),MSc(2003,UK),BMS(2002,INDIA)

About the Author

Gaurav Bahirvani is a Corporate Brand Development Analyst living in Manchester, England. For any further queries or discussions on issues related to branding and marketing, please feel free to get in touch with him on gaurav.bahirvani@gmail.com.

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Article Published/Sorted/Amended on Scopulus 2006-10-06 17:47:37 in Business Articles

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