Wednesday, 1 May 2013

Brand value

I'm fond - my wife would say over-fond, and she's right - of red wine. If I was to face the execution squad in the morning, it would be Cabernet Sauvignon tonight.

The other day, I got a bottle out of what I'm pleased to call my 'cellar', or (in everyday language) the wine racks in the garage. It was Fox Creek's McLaren Vale Cabernet Sauvignon 2004, not a hugely expensive wine to begin with - I got it through the NZ Wine Society, which I recommend - and the label said it would keep for up to five years. I'm not paid in any way for this, and wouldn't like to be, but as recompense for a great wine, here's a link: http://www.foxcreekwines.com.

Nine years from vintage, it was terrific. Even my wife, who's no Cab Sav fan - she'd rather a Shiraz, or a Merlot, or a Pinot Noir, or, let's face it, pretty much anything other than a Cab Sav - loved it. So I e-mailed the makers, and told them what a good wine they had made. And I got a lovely message back, saying they were pleased it had done so well, and that they would fossick around and see if they had any bottles left over of the 2004 vintage, so they could form their own view, too.

Right: the economics of what's going on here.

One: produce a really good product, and there's a chance you get disproportionately rewarded for it. I'll recommend Fox Creek to anyone, and I'll do it wholly on the merits. The real world is often a world of monopolistic competition - the overall wine market is by anyone's definition workably competitive, though no wine is a perfect substitute for any other wine, but each has its individuality - and a small investment in (say) extra quality can pay off big time. Except in France, which supposedly fossilised what is a good wine back in the 19th century. This is a somewhat unsubtle way of signalling that the next few posts are going to be about structural reform in France. Never mind, moving on...

Two: here's a company that listens to its customers. I could go on about being redirected, by many other companies, to a call centre in God knows where, but here, self-evidently, is a company that sees feedback as a value-generating activity rather than as a cost-sucking activity to be minimised.

One of the things I've learned, especially at the BNZ but also at Public Trust, is that consumer feedback - good or bad - is extraordinarily helpful. Occasionally, when a complainant would come through to me personally, I'd tell them, "Look, thanks for letting me know", and they'd be nonplussed. How could I be happy getting my ears ripped off?

But, honestly, I meant it, most of the time. Not always: you get the genuine public, but you also get the deluded,  the rip-off artists, and the professionally vexatious (not mutually exclusive categories). But if you're not listening to your customers, how else will you know how your product is travelling in the marketplace? Going back to Microeconomics 101: if 'revealed preference' means anything, and it likely does, then you ought to be sensitive to it. When I lived in Japan, I was struck by the attention Japanese executives paid to market share. To an economist, this was somewhat strange: why wouldn't you give greater attention to things like return on equity? And the answer is, market share tells you, all up, that your combination of price and quality is gaining traction in the marketplace. That's an important thing to achieve, and to monitor. It's not everything, but it's an important something.

Three: this may be more of an MBA thing than an economics thing, but there's clearly also something in the idea of 'under promise, over deliver'. Keep for five years, Fox Creek said on the label, and yet it's terrific at nine - that's really powerful, especially as (I would imagine) it would have a spillover effect on all the other varieties and vintages. It's certainly coloured my view, for the better.

Four: what is brand value, anyway? The accountants have their own ideas about what, and how much, can be put on balance sheets, and they have their own logic for that.. Brand value (wearing economists' goggles, and I don't want any cheap shots about goggles blinding your vision)  has to be in some sense the present value of the degree to which you have successfully differentiated yourself (in a monopolistic competition sense) from the pack. I wouldn't want to have to be the guy who had to quantify it, but I can imagine that above-the-pack SPQR (service, price, quality, range) can be measured, and if even it can't, it ought to be what you are aiming for.

And now, two complete digressions.

I don't know who came up with the 'SPQR' tag, but good on them. As you might be aware from previous posts, I like Latin, and SPQR originally stood for 'Senatus Populusque Romanus' (the Senate and the people of Rome). Here's a crossword clue for you: "Sexy classicist" (5,5).

And no matter what my wife might think, the best wine to go with lamb is a Cab Sav. Leave a comment if there are Cab Savs you especially like (or if you misguidedly but sincerely have a different view).

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