Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 26

Strategy; Brand Value Each year, Business Week reports the 100 top brands in the world. The leading brands are determined from a calculation by Interbrand Corp, an independent rater. The calculation is based on an analysis to determine what portion of the firm’s sales and earnings can be credited to the firm’s brand. For 2007 (reported in the September 29, 2008, issue), the top 10 brands were, in order:

?Coca-Cola

?IBM

?Microsoft

?GE

?Nokia

?Toyota

?Intel

?McDonald’s

?Disney

?Google

In 2009, Business Week (April 20, 2009) also reported a survey by the Boston Consulting Group of 2,700 senior executives to determine the world’s most innovative companies. The top 10 in order are:

?Apple

?Google

?Toyota

?Microsoft

?Nintendo

?IBM

?Hewlett-Packard

?Research in Motion

?Nokia

?Wal-Mart

Required Which of the above firms would you classify as a cost leader and which would you classify as a differentiator, and why?

Step 1 of 10

This question is intended for class discussion. Some students will be surprised by some of the firms on the two lists, and also by firms that are missing from the lists. The major point of the exercise is to discuss the nature of the differentiation strategy and how firms that have developed valuable brands have succeeded in making this differentiation. Ask the class if they themselves, or they expect others, would pay  more for products of the firms on the top brands list. Those that say yes will be acknowledging the “earnings premium” that Interbrand Corp. refers to in the September 2008 Business Week article. 

As an aside,  the list of top 10 brands has 9 of the same 10 firms as the 2007 list. Also, Google replaced Mercedes-Benz in the 2007 list, while Mercedes-Benz replaced Marlboro on the 2006 list;  prior to that time, the list had the same 10 companies as for the prior three years. Thus, the same nine firms have been at the top of the list for six years.

Note however, that as the recession in the fall of 2008 changes consumer buying behaviors, some suggest that the strength of brands is weakening, and that cost conscious consumer will look for savings and avoid the higher priced branded products. See Ellen Byron, “At the Supermarket Checkout, Frugality Trumps Brand Loyalty,”  The Wall Street Journal, November 6, 2008, p D1.

Is there also an “earnings premium”  for the firms on the Business Week 2009  most-innovative list?  Note that Toyota, IBM, Microsoft, and Nokia are on both lists.       Note also that none of the ten on this list are clear cost leaders, except Wal-mart. These firms succeed by providing new and attractive products, such as Apple’s iPod. So they are arguably all differentiators (except for Wal-Mart) as well.

A recent issue of Business Week (March 23&30, 2009), p 12, shows the top ten firms to receive patents in 2008:

Company	Patents in 2008
IBM	4,186
Samsung Electronics	3,515
Canon	2,114
Microsoft	2,030
Intel	1,776
Panasonic	1,745
Toshiba	1,609
Fujitsu	1,494
Sony	1,485
Hewlett-Packard	1,424

Notice that there is a significant difference between the list of innovative companies as measured by the number of patents and the list as measured by the survey of senior executives. In both cases, for both lists, an examination of the company’s products suggests that the firms on both lists are primarily differentiators. However,  the survey by executives is probably a more reliable measure of innovation in a strategic sense because it reflects not just the number of patents, but also the company’s effectiveness at marketing and promoting its new products.

For an additional class exercise, you can ask the class if they can name the 10 top brands of cars (based on 2008 resale value):

1.?VW