Email-Interview with Dr. Philip Kotler and Dr. Waldemar Pförtsch

Absatzwirtschaft - Special issue on brands, March 12, 2007

Circulation: 33.000 ex

• Mr. Kotler, Mr. Pförtsch, I´d like to know more about your timing. Up to now the marketing science community has mainly focussed on consumer branding. Why do you tackle B2B-Branding right now? And why did you team up for this topic?

Marketing science is a new science. Consumer branding entered the world in 1932 at Procter & Gamble in their internal soap rivalry. In the following years, it perfected itself and spread to Europe in the 70s and reached Asia in the 80s. Industrial marketing first attracted attention in the 60s in the U.S. and came to Europe in the 80s. Industrial branding started to attract attention in the 90s in the U.S. and Europe. Although some industrial companies began to use branding earlier—DuPont?, Siemens, and others--we know that more industrial companies around the world are turning to branding.

We've published this book in English to help branding knowledge spread faster in the world. Currently, we've sold about 10,000 books, 3,500 in the U.S., 2,000 in Europe, and about 2,000 in Asia. The biggest single demand outside of U.S. came from India (more than 1,000). In Germany, only 350 copies were sold.

Phil has influenced the development of marketing science particularly in the U.S. in the consumer market over the last 50 years. Waldemar has worked for 25 years in the B2B area. With this book, we are combining both our knowledge to serve the current need of businesspeople.

• The German economy depends on foreign trade heavily. Why is it better to have a strong brand rather than "just" a good name in international business?

As we know, German industry is a champion in world export. More than 900 billion dollars worth of goods is shipped out of Germany. Most of this is industrial goods produced by B2B companies. The current competitive advantage is based on engineering and reputation (“Made in Germany”). But competition came from Japan in the 80s and hit the German industry hard. In the past 10 years, German companies had to relinquish some areas of dominance such as consumer electronics but they gained ground in capital goods. Now, competition is coming from low-cost producers such as China and India. Sophisticated engineering can no longer maintain the competitive edge. The risk is high that buyers are willing to switch to lower prices despite lower quality, if there isn't an additional benefit to the higher priced item, such as better service quality, and performance. If a company can offer products, services and solutions in combination with a trust mark, then the chances are higher that a company can maintain its competitive edge. It is therefore necessary for German companies to understand the concept of branding and to implement the necessary mechanisms. A good example is the spin-off of Lanxess AG from Bayer where they integrated their low cost commodity business into a separate entity and established from the beginning a clear branding strategy and executed it successfully. We have written a case study on this in our current book.

• While public companies more and more embrace the concept of branding, many small and medium-sized companies act half hearted or even shy away from the topic. Are there any arguments against B2B-Branding?

Yes, there are many arguments against B2B Branding. It is a complex approach which requires leadership, consistency, and investment. It is very important to overcome the notion that marketing communication is a waste of money. It is not a cost factor in our view, but rather an investment into customer relationship building. Informing customers, employees, and investors about the product quality and intentions of a company is important. There is a respected saying in marketing, ”An educated consumer is the best customer.“ Branding has a major influence on pre-buying behaviour.

Despite the myth that medium-sized companies are not using branding, we can show a couple of outstanding examples of German and international medium-sized companies that have used branding successfully. Many people have already recognized and praised Alfred Würth for his way of revolutionizing industrial selling. He has a clear understanding of branding. He managed to sell mass products like screws with the Würth logo in a red package that are part of a systematic supply chain. Even if the customers have to pay a little more, they believe the benefits are worth the money.

One other argument against branding is that branding is a waste of money because the products are already doing the job of selling themselves. But it is actually the trust that the customer has in the seller that is selling the product. A privately owned company is able to establish a personal relationship with its customers via the personification of the founder/owner. There is more trust and a sense of responsibility in the relationship. There are many such entrepreneurial brands in Germany. The problem arises when the owner retires or hands over the business. Quite often, the necessary professionalization of brand management fails to occur at that moment of transition.

• Which are, in your eyes, the main goals of B2B-brands compared to consumer brands?

In principle, brand management has the same positive effects in the B2B and B2C? realms: branding works. We recently conducted a survey of the global 1000 companies, and the research shows that there is no big difference in the success factors of these two different types of companies. The difference lies in whether branding is done right or wrong.

The real difference between business and consumer brands is due to the difference of their structure. Since many business relationships are based on personal contacts the increase of loyalty through branding in B2B is not as great as in B2C?.

The same is true for the improved perceptions of product performance. In B2B, product knowledge is very high, and therefore the promotion of the product is not such a crucial issue.

This is particularly true when economic crisis hit the companies. Branded products or companies are much less vulnerable to downturns and they recover much faster after the crisis. Our research shows that between the years 2001 to 2006, well branded companies such as GE, Caterpillar and HP enlarged their market position in this critical time period considerably. This is not a surprising outcome given that they continued to have superior brand management during the period of crisis.

There is one area in business branding that is very important for small and medium sized companies. Branding helps to create greater trade cooperation and opens up the chances for licensing opportunities. This is a very important issue under the current demands of globalization and the need to be present in crucial national markets. Many SME do not have the manpower or resources to globalize on their own, and therefore, cooperation and license agreements are important instruments to have. Good brand management supports this endeavour.

The most important conclusion of our branding findings is that brand management creates larger margins for companies. Branding is not a cost factor, branding is an investment in the customer relationship.

• Which lessons can B2B-Branders learn form their colleagues in the consumer business? And which practices of the consumer business should they avoid?

Everything that B2B Marketers are currently doing was initially invented for the consumer market and these techniques and methods have been refined over the years. The big question to address here is which of these techniques from the consumer world apply to the industrial business world. There are many restrictions; for example, the different target audience. Focusing on a few selected, educated decision makers in B2B is very different from addressing a big group of uneducated consumers in B2C?.

In recent years, B2B Marketers have been testing out more of the consumer oriented approaches. Case in point: James Bond films. In the most recent film, Casino Royal, product placement income was greater than the production cost due to heavy investment by B2B marketers to take advantage of the superb product placement opportunity that the film offers. Holland heavy construction equipment placed its new W190 wheel loaders and another 11 New Holland machines, including crawler excavators, backhoe loaders and skid steer loaders in the movie, seamlessly creating a realistic construction site when the action sequence takes place. This equipment is only sold in a B2B relationship although the movie is obviously fort he normal consumer. We will be seeing more of this approach. A good example for this trend is the move Grounded - The last days of Swiss Airlines. More than 20 companies took the opportunity to place their products, from street lighting, to office furniture and marketing services, during the telling of this interesting business story.

Product placement does not come cheap so it is very important to determine from the beginning what kind of benefits you want to get out of it. Lessons learned from the consumer marketing experience in this area is very obvious: Don't overspend. This actually does not only refer to product placement, but also to other marketing communication expenses. The marketing controlling mechanism from the consumer area could be easily transferred to the business markets.

• B2B companies often are sales driven and sales people often question the investment in brands. With which arguments can marketers spark the enthusiasm of their colleagues on the sales front?

In our research and experience we find that most sales oriented people have already understood the power of branding, particularly when companies start selling globally. Experiencing the brand effect in China or Indonesia and seeing what an American or German industrial brand icon can achieve is impressive. However, in many companies, there are still engineers and others in place who hold on to the old way of doing business. We have passed the stage of wanting to convince the inconvincible. There is no need to do this because there are enough B2B companies out there that are interested in learning about the more difficult aspects of branding, like service branding or ingredient branding. Furthermore, those resisting will increasingly face brand-savvy companies and either wake up or start declining.

We have a few tasks ahead of us that challenge the academics and practitioners. One task would be to establish a stronger system for brand valuation. More research and cooperation between academics and practitioners is needed to get more sophistication into this B2B branding area. New issues come up all the time. Currently we are looking for answers for companies who undertook major acquisitions and have the task of developing and managing a consistent brand architecture.

B2B is a new exciting area that we hope to successfully promote in the future. Our next book will be published in the Fall of 2007 to bring additional insights into ingredient branding: Making the Invisible Visible.