Negative brand equity's a death sentence
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BP’s well is capped but will the company survive in the long term?
See Mark Ritson appear at The Annual, Marketing Week’s new conference on 29 September 2010 www.theannual.co.uk
Buy shares in BP. That was the bizarre advice from Royal Bank of Scotland analysts last week after those bright sparks worked out that even the worst possible costs of the Deepwater Horizon will total less than the actual drop in BP’s market value.
RBS has, of course, got it wrong again. Long after the costs have been paid and the oil cleaned up, BP will continue to live in infamy as one of the world’s most shamed brands. The official terminology for this kind of perilous state is negative brand equity. And it spells disaster and probable death for the company that was once known for being “Beyond Petroleum”.
Negative brand equity occurs when a company’s brand actually has a negative impact on its business - meaning that the company would be better off with no name at all. It happened in the Seventies when Tesco’s brand was so poorly perceived that Imperial Tobacco decided not to acquire the retailer for fear of being associated with such a tarnished and unpopular organisation. It happened again in the Nineties when Skoda discovered to its horror that it could not get British consumers to buy its cars despite spending millions on advertising. Consumer research later confirmed that two-thirds of its target market would literally not consider anything at any price that carried the Skoda badge.
And now we have BP. Like every case of negative brand equity before it, the peculiarities of the situation mean that all the traditional advantages of branding are now inverted. BP would be better off whitewashing its forecourts and removing all evidence of its Helios brand identity. That said, the actual impact of the Deepwater disaster on BP’s petrol pump sales is likely to be localised and temporary. We know from past history that petrol consumers are a fickle bunch. When the Exxon Valdez oil tanker spilled its load into Prince William Sound in 1989 the enduring impact on Exxon’s gas sales, even in the state of Alaska, was virtually zero.
Unfortunately for BP, the more serious implications of negative brand equity transcend consumer sentiment. BP is discovering that negative brand equity can also have a detrimental impact on its relationships with suppliers. Earlier this month, for example, the company returned to its bankers to seek additional finances to help fund the clean-up operation in the Gulf. While BP did apparently raise money, the funds were only obtained after it agreed to pay significantly greater margins and fees. BP needs to get used to this - it will become standard business practice from now on as suppliers that once prided themselves on dealing with BP regard such interactions as a reputational and financial risk. Even Lord Coe, the head of the 2012 London Olympics, recently had to defend BP’s sponsorship of the Games in light of the Deepwater affair. The tarnished oil giant can’t even give money away without a fight.
Even more pernicious damage is being done to BP at the employee level. Internal memos at BP have recently advised staff not to wear the company logo and to take caution in revealing who they work for in public settings. Good advice, but also a measure of the kind of impact that negative brand equity has on human resources strategies. One of the biggest drivers behind the rebranding of BP in 2000 as “Beyond Petroleum” was to avoid losing talent to better positioned, more ethical brands. BP now faces the prospect of navigating the century ahead with a damaged brand and an increasingly second-rate management team.
To put it in layman’s terms, BP is worth more dead than alive
See Mark Ritson appear at The Annual, Marketing Week’s new conference on 29 September 2010 www.theannual.co.uk
And finally there are the financial implications. A well run global brand like Google trades at a massive premium from its net assets because it also owns a brand name that has widespread awareness and positive associations. Millward Brown values Google’s brand equity at $114bn (£75bn), or roughly three-quarters of the company’s total value. In contrast, BP’s current market capitalisation is less than its book value. If you broke up and sold off all its oil wells, offices and other assets, you would recoup a sum bigger than BP is currently worth. To put it in layman’s terms, BP is worth more dead than alive.
And death is exactly what will eventually befall BP. It will probably be gobbled up by a competitor keen to get its hands on BP’s assets for less than they are actually worth. Even if BP avoids that fate, its brand is so tarnished that it will eventually have to break itself up and rebrand the various offshoots with new identities untainted by any association with its current corporate identity.
However it eventually occurs, the death of BP is an entirely appropriate fate for a brand that claimed it was green (and wasn’t) and a company whose core competence was pumping oil safely to land (and couldn’t). Good riddance.
Mark Ritson is an associate professor of marketing, an award-winning columnist and a consultant to some of the world’s biggest brands
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Readers' comments (18)
Anonymous | Wed, 14 Jul 2010 4:48 pm
Can BP reverse the negative brand equity by just changing its name/logo? (ie. Worldcom -> MCI?)
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Anonymous | Wed, 14 Jul 2010 5:52 pm
BP need to continue to exist so that
a) It's spun off entities with new brand names can appear to be distinct from the poisoned core brand
and
b) To pay off the impending billions in liability from the spill over the next 20 years - similar to Union Carbide after their disaster in Bhopal
So I agree 100% with the analysis here, except the bit where BP completely disappears. There has to be a rotten, diseased negative core - to free the surrounding flesh of the apple and make it edible again once it is sliced off.
But a thought provoking article that takes a perspective no-one else has thought of or tried to explore.
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Jenni Romaniuk | Wed, 14 Jul 2010 11:03 pm
I am not so sure about the negative long term future. I do know that:
(a) consumers have very short memories, and don't tend to use negative information when making choices - so even though I have read about the poor factory conditions of Apple's iPad workers in China - I didn't think of this when ordering one; and
(b) BP is in a vulnerable position and most bankers are smart enough to leverage this to make a buck - so them having to pay higher for financing is also not a shock.
Fuel purchases are primarily driven by convenience and price, so my prediction is that the time frame for consumers going the extra effort to avoid buying at BP will be very short - and things will return to normal quite soon after they get this issue contained and it is no longer a newsworthy story.
It is consumer's post-event retention of negative perceptions and the degree to which these negative perceptions are salient in buying situations that should dictate BP's future branding strategy, not a knee jerk reaction in the eye of the storm.
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Dawes | Thu, 15 Jul 2010 0:59 am
I disagree ! Yes BP has a huge image problem at the moment. But six months after the oil stops spilling, and the cleanup is well underway, consumers will have moved on.
Mark's argument is refuted by his own example - Tesco apparently had a poor reputation in the 1970's - ahem, that 'negative brand equity' didn't stop it from becoming wildly successful ? BP still has lots going for it as a brand worldwide. If it were my company I would not be changing the name.
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Mario McMillan | Thu, 15 Jul 2010 1:21 am
Mark, I usually agree with every word you say. But I think you may have rather overstated the case here. Indeed, to take the two examples of negative equity you quote, both Tesco and Skoda have risen to great heights.
The key determinant is time. Had I taken a ten-year position on either Tesco or Skoda I would have been in clover. By the 80s Tesco was doing well, following exactly the trail blazed by Sainsbury's in the 70s. Skoda has just won an unprecedented two categories in Top Gear's awards (including luxury car of the year). And here in New Zealand, at least. it is one of the fastest growing car brands.
Interestingly, Skoda has actually benefited from an underdog status. It's cause was taken up by motor noters such as myself, because the cars were so good - a cognoscente's choice that flew in the face of 'prestige brands' universally driven by cocks.
If you and I are still in this game in 10 years time, I bet you a bottle of Roederer that BP has recovered from the current Gulf troubles (it may have others - who knows fate?) and buying into the brand at this point will have made money.
Deal?
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Anonymous | Thu, 15 Jul 2010 2:11 am
Perhaps *it is* time break up BP and sell the spare parts. Maybe a BRIC oil (like Gazprom or CNOOC) company can turn the brand around like VW did with Skoda.
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Dev Anand | Thu, 15 Jul 2010 5:10 am
Hi Mark. Somehow RBS's advice still sounds good to me. Any aquisition activity will push BP's stock up again no? Also the higher margins charged by bank's could just reflect a perceived increase in default risk by BP, and not really the result of negative brand equity.
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Jef Van Acoleyen | Thu, 15 Jul 2010 5:15 am
Last week I heard Exxon was looking into acquiring BP. In that respect, I think RBS' buy-recommendation makes sense: as soon as Exxon or any other company acquires BP they won't be stupid enough to keep the brand name or the top management, thereby eliminating most of the negative brand equity and keeping valuable assets. At the time of an acquisition shareholders can usually expect a rather sizeable premium, so I don't think it's such a crazy recommendation.
That being said: I'm not buying, and this for 2 reasons: 1) returns depend too much on a potential acquisition and 2) the share price can drop much further by the time a potential acquisition eventually materialises.
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Bowside | Thu, 15 Jul 2010 5:30 am
I heard some time ago that BP transferred its brand to some offshore tax haven since UK (I assume) tax authorities wanted a slice of the brand's value. The local BP businesses then paid a licensing fee to this offshore entity for the use of the brand in their everyday operations. If the brand has moved into negative equity, does this impact BP's balance sheet at all ?....and do the operating companies now pay less ?
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mark ritson | Thu, 15 Jul 2010 11:35 am
Terrific push back from MW's always discerning readers!
But I stand by my article - BP will not see Christmas 2011, at least in anything like its present state.
I agree with Jenni - the consumer part is NOT going to be an issue.
But the employer brand, supplier relationships, government interactions - are all going to kill BP in the long term. Just look today at what Obama is doing with their 7 year ban on BP off-shore exploration in the US.
Mario - your on! BP to be gone by Xmas 2011. But none of this Roederer crap. Lets do it properly, a bottle of Dom Perignon 2000 vintage. I have to be loyal to my clients.
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