Trademarks don’t have a life cycle. Factories can be closed. Machines may need to be replaced. Technology becomes obsolete. The founders die. Brands do not die a natural death. Brands can live forever. A brand can increase in value over time. But, they can be murdered by misguided management maneuvers.
Brands are damaged (Sears, SHLD) and killed (Toys R’ Us, TEAR TOY) by the treacherous practices of financial engineering. Financial engineering threatens brands. Excessive debt, buying back shares, increasing dividends at the expense of brand building and minimal investment in brand building accompanied by excessive cost cutting, debt accumulation and massive layoffs of employees. employees, satisfies shareholders while depriving brands of their future.
When management borrows money to buy back stock, to increase dividends at the expense of continuously improving a great brand experience, the business suffers. You can’t manage the costs to achieve high-quality revenue growth. Eliminating waste and increasing productivity are important. But focusing solely on cutting costs to increase profits is a risky strategy. Financial engineering that extracts brand value is brand value extortion. Innovation and renovation of products and services are ignored. Talent in demand will seek employment opportunities elsewhere.
Financial engineering at the expense of customer orientation is a formula doomed to failure. The goal of effective brand management is high-quality revenue growth. Quality revenue growth in top line is the path to sustainable and profitable bottom line growth. Businesses need to focus on both customer value and shareholder value. Focusing on shareholder value at the expense of customer value is death wish management.
Toys R’ Us was beaten and then buried under the weight of excessive debt. A beloved brand succumbed to debt payments of $400 million a year while paying off more than $5 billion in debt accumulated through its private equity leveraged buyout. With so much debt, there were few resources to invest in the brand experience.
Sears has been hampered by financial machinations such as turning real estate into REITs and exploiting its intellectual property. Eddie Lampert presided over declining customer traffic, deteriorating retail facilities, fewer sales staff, empty store shelves and mounting debt.
Kraft Heinz (KHC) and
Financial extraction is brand destruction. The enrichment of shareholders through financial extraction combined with short-term marketing tactics does not solve the decline in customer satisfaction and brand loyalty. These short-term strategies harm the health of the brand.