Why it pays to build a brand

As they enter the season of contract negotiations, many Asian and Malaysian firms are finding their margins squeezed by the Western brands for which they manufacture products.

As they go through this painful process, the question of whether they should explore the possibility of developing their own brands will come to the fore once again.

It is well known of course that the cost of building a brand can be substantial but failure rates are high too – as high as 90% according to Ernst & Young.

But the rewards of developing a brand successfully are difficult to ignore and Apple is considered by many to be the poster boy of successful branding.

Almost bankrupt 15 years ago Apple’s stock reached US$369.89 in August 2011 when its market capitalisation hit US$342.8 billion. This put the tech superpower ahead of the previous richest company Exxon, whose stock fell to US$68.78 with a market cap of US$334.41 billion.

Although Apple only held the position of richest company in the world for a short time, it was some achievement.

The demand for Apple products continues and the company sold four million of the iPhone 4S in the first four days after the launch in November 2011.

Such demand allows the company to charge a premium for its products. But how much profit does Apple make on iPhones and is it really beneficial to build a brand?

A recent report from technology research firm iSuppli would suggest the answer is a definate yes.

iSuppli has carried out extensive research and recently announced that a 16GB iPhone 4S costs US$196 (RM616) to make whilst the 64GB costs US$245 RM770).

In the UK the iPhone 4S costs UK pounds 499 or RM2,520 out of contract. The iPhone 4S is not on sale in Malaysia yet but in Singapore an out of contract 16GB iPhone 4S will cost S$948 (RM2,526) and the 64GB will cost S$1,088 (RM2,669).

Nice margins indeed!

Individual component costs of an iPhone

Are we seeing the commoditisation of the iPhone in Asia?

Here in Malaysia it took time for the mobile service providers to agree terms with Apple to offer the iPhone to subscribers. But finally, Maxis signed up and has invested heavily over past year or so in traditional aquisition focussed marketing.

Recently, another provider, the aggressive and innovative provider, Digi signed an agreement with Apple and has started to promote the iPhone.

Last night, I was watching TV and was astonished to see first a Maxis ad for the iPhone, featuring the numerous applications (there’s one for just about everything) and then, I think separated by another commercial but possibly even back to back, the same commercial for the iPhone, featuring all the applications, this time with a Digi logo!

I have a number of reactions to this. Firstly, don’t advertising agencies know how to do a deal with a TV station anymore? If you can’t get an exclusive deal at least ensure no competitor products advertise on the same program.

Secondly, what are these telcos doing slugging it out in public on TV? Do’t they have any understanding of the iPhone and what it stands for and means?

Thirdly, these telcos are commoditising a valuable brand that deserves better. A more sophisticated approach for a sophisticated product that offers value for many people in many ways targetted at existing subscribers and personalised would be far more effective than a mass economy spray and pray approach!

Creating awareness via TVCs is a complete waste of money for a product such as the iPhone. If anyone out there is unaware of the iPhone, the applications and how they can add value to a person’s life, then that person is not the type of customer Apple, or the telcos want!