| February 24, 2011
There is a lot of confusion about brand equity (not least in my own mind). You may remember that a previous post on the topic was met with the suggestion that I avoid it “until the dust clears.” Well I have never been very good at taking even well-meaning advice, so let’s revisit this topic and see where we end up.
My thoughts on brand equity were sparked by This American Life’s radio program about Coca-Cola’s secret recipe. The popular show found what appeared to be a copy of the famously guarded trade secret in a newspaper column published in the Atlanta Journal and Constitution on February 18, 1979. Ira Glass, the show’s host, read the full recipe on air and it is now published here.
This American Life even went so far as to ask Seattle-based Jones Soda to make up a batch of soda based on the recipe. They did so in collaboration with Sovereign Flavors of California. The resulting beverage was good enough to be preferred 6 to 4 in an informal taste test (although to be fair, heavy users of soft drinks all preferred the real thing).
So much for the secret you might think. But Coca-Cola’s company archivist, Phil Mooney, does not believe the recipe is the brand’s original formula, suggesting that this is just one of several such recipes in circulation. And maybe it does not really matter whether this recipe is the real one or not. The mystique around the secret formula remains.
And that is what matters when it comes to the brand. As the show reveals, the basic ingredients for making a cola are pretty well-known by those in the industry. It may not be possible to exactly duplicate Coca-Cola at home, (you would need to get hold of de-cocainized extract of coca for a start) but you can get pretty close. Even if you did make up a batch, however, it would still not be the same as real Coca-Cola. It could taste the same but it would not be the same.
The secret recipe may once have been the meaningful difference between Coca-Cola and other colas, but today it is just one aspect of a complete package of brand assets, that combine to evoke the all important memories and associations that make up the Coca-Cola brand.
Tangible assets like the recipe, logo and bottle are a means to an end. They can be valuable in their own right, but their true value comes into play when the subtle interplay between marketing and personal experience enhances their importance to the individual beyond simple taste, look or feel.
One of the most important roles that marketing plays is to create the “mental cement” that helps combine the basic building blocks of a brand into a compelling whole, a set of memories and associations that drives behavior. As Phil Mooney suggests in The American Life program, even if you duplicated the entire Coca-Cola production process, you could not duplicate the memories people have of the brand.
Last year, the Coca-Cola brand ranked fifth in Millward Brown’s BrandZ Top 100 Most Valuable Global Brands ranking. As best we can estimate, the brand is worth $66 billion in current and future earnings to The Coca-Cola Company, about half the total value of the brand.
The brand value, its equity, is derived from people’s willingness to pay a premium for the brand and an unwillingness to accept substitutes. The secret recipe may not be so secret. It may not even be unique. But the memories associated with the brand are, and that is what makes the brand so much more valuable than other colas. Tangible and intangible assets combine to create financial brand equity.
So what are your thoughts on Coca-Cola’s secret recipe and brand equity? Am I getting closer to defining what brand equity might be?