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01 Mar 2004

Protecting against the Erosion of Brand Value

HBS professor Clayton M. Christensen
Re: Scott Anthony (MBA 2001)
Topics: Information-BooksInnovation-Innovation StrategyCompetition-Competitive Strategy
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When Barnes & Noble rolled out a line of “store-brand” classic books last summer, the publishing industry gasped.The company aimed to provide consumers with high-quality books at prices significantly below what they would pay from publishers such as Penguin Books and Bertelsmann. Should Barnes & Noble’s foray into publishing cause brand-name publishers heartburn?

“Through the lenses of our theories of strategy and innovation, the answer is — emphatically — yes,” write HBS professor Clayton M. Christensen and Innosight partner Scott D. Anthony (MBA ’01) in the premier issue of Strategy & Innovation, a newsletter from HBS Publishing. “Barnes & Noble’s action indicates that within the publishing area, circumstances have changed, meaning that the power to capture value from a brand will increasingly shift from book publishers such as HarperCollins and Houghton-Mifflin to channels that stock and sell books.”

What’s at work here is commoditization, a process that results in companies being unable to profitably differentiate their products and services. “The specter of commoditization sends chills down every executive’s spine — as well it should,” note the authors, because it robs their brands of premium cachet and the premium prices that come with it. “The same forces that cause the commoditization of products and services precipitate the commoditization of brands,” they continue.

Fortunately, managers aren’t helpless in the face of market forces that erode brand value. Christensen and Anthony present a model to assist managers in identifying opportunities from creating new brands to revitalizing existing ones. It’s a model most managers will need to apply sooner or later. “As long as brands serve to close the gap between what customers need and what they can get, they will create value,” the authors conclude. “But because that gap usually exists only temporarily, firms must watch for shifts in the location of opportunities to create new brands.”

For information on Strategy & Innovation, visit HBSP Newsletters.

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