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The Value Chain: From Building Brand to Building Integrity

by Tim Kitchin

Value chains are replacing brands are the most powerful weapon in the marketing arsenal.

While still widely perceived as source of risk, value-chain transparency actually offers brand owners an opportunity to create new forms of value for customers at an emotional and ethical level—the level where brands have traditionally operated.

In contrast to brands, the equity currently locked within value chains is real, testable and valuable to end-users. Learning to release this value is the key to sustainable competitive advantage.

A Changing Mood

On 18 February 2005, the Foods Standards Agency (FSA) informed the British public that a batch of chilli powder contaminated with the Sudan 1 carcinogen was now fully dispersed within the food chain. The batch had been imported in 2002, and the agency had apparently been aware of its existence for at least 18 months. (ref 1)

When they finally announced the recall of a list of contaminated products, the list of 429 was incomplete, requiring many updates. 3 weeks later, the number of products on the list had climbed up to 618. The agency is still unable to provide clear assurances that the list is now comprehensive and that the goods have all been recalled. While this incident has been "effectively" smothered in terms of media coverage, the public is now attuned to the risks of opacity.

Around the same time, the Evening Standard (ref 2) decided to compile a weekly shopping basket at a Waitrose supermarket, and calculated that the total mileage traveled by its shopping would stretch as far as the moon. The cheddar cheese on sale was produced in Tasmania, some 10,000 miles from the Cheddar Gorge. The environmental impact of this situation is (currently) immeasurable, but again, public sensibilities are increasing.

These two examples indicate of the growing public and media scrutiny of the negative impact of supply chains. The two show how partial opacity is bringing new dimensions to customer accountability. Purported Corporate Social Responsibility (CSR) is increasingly visible, and will be tested at the product level.

Increasingly, supply chains are not just the way brand owners get product to consumers, they are the product.

Rethinking The Opportunity

The value-chain story is not all about risk, however. On the opportunity side, "brands" like Fair Trade, Organic and Free-Range illustrate the power of value-chain information to change consumer behavior. These brands feed ethical and social expectations—profitably and at a high margin.

They are the forerunners of what we call "Product Social Responsibility" (PSR)—the process of embedding ethical corporate principles, responsible processes and rich production information within the product itself and making this value visible to the end consumer. They make externalities internal, in environmental-speak.

Many companies have dabbled at the water's edge of Product Social Responsibility. The Body Shop, Ben & Jerry's and Patagonia were early trailblazers. BP with its "BP Ultimate" fuel is dabbling in the same territory, and many supermarkets are toying with the business logic.

But this world of PSR already has one poster child, one pioneer, whose clear intent is to be accountable for ALL externalities in its value chain.

In September 2004, UK fashion label ROMP sold its first Soil-Association-certified organic leather accessory—a leather key fob. In doing so, it effectively doubled the value of an organic pig; it supported the rights of European laborers; it struck a blow against terrorist funding sources; and it contributed to the nurture of 32 species of bird in Wiltshire.

You see, the key ring comes with a number attached. That number is unique to each key ring. With it, the buyer can trace the companies, the processes, the chemicals, the corn, the ethical policies, labor practices and even the individuals who conducted the processes that contributed to make that key ring. The entire value chain is laid bare.

For the buyer of that key ring, it enabled the right to know precisely what was being bought and to be humanly accountable for the decision. The ROMP value chain has replaced its brand. That value chain is unique and personal to every single customer.

ROMP's innovation, using "MyString" technology, creates the world's first fully traceable product brand. By offering all products with complete value-chain traceability, the brand enables consumers to take responsibility for their impact on the world.

If brand users want to calculate the product miles, the biodiversity footprint, the employment displacement, the energy cost, the CO2 emissions of their purchases, they can. And once they know you can... believe us, they will—according to their own ethics.

History And Heritage

The link between value chains and brands is not a new trend, of course. What has changed is trust.

Way back in 2001, Nike refused to embroider the personal ID "sweatshop" onto Jonah Peretti's personalized Nike trainers. When Peretti copied the resulting email exchange (excerpted below) to "a few close friends," it caused the world's most prominent youth brand to fundamentally rethink its definition of accountability:

The personal ID on my custom ZOOM XC USA running shoes was the word sweatshop. Sweatshop is not: 1) another party's trademark 2) the name of an athlete, 3) blank or 4) profanity. I chose the ID, because I wanted to remember the toil and labor of the children that made my shoes. Could you please ship them to me immediately. Thanks and Happy New Year. Jonah Peretti.

Pre-Peretti, pre-Internet, pre-OFR, pre-CSR reporting, pre-Sarbanes Oxley, what a brand stood for was what it said about itself. Whether it was the Real Thing, "probably the best lager in the world," or the "crumbliest, flakiest chocolate in the world," you bought into the image and signed onto the brand.

That level of deference and acceptance has gone forever. In an age of ever-increasing transparency, what a brand stands for is increasingly governed by what it actually does in the world: not just at a functional level, but at a relationship level, and at a behavioral level.

Now, when consumers buy a brand, they increasingly want to understand what it really stands for. Not just its promises, but its emotional implications, its relationship intentions and ethical motivations. Increasingly, consumers will audit a brand for its total consistency.

The rapid spread of this level of scrutiny holds a key lesson for all brand owners.

What We Want

Now, when customers buy brands, they buy value chains, not products. And increasingly they want to scrutinize those value chains at multiple levels: at a product level, at a process level, at a people level and at a purpose level—think of it as the 4Ps of value-chain management. Finally, once they have made their assessment, they will be ruthless and evangelical about campaigning their verdict. The only solution is a wholesale commitment to brand integrity—across the whole value chain.

Why does integrity matter? Dictionary.com defines "integrity" 3 ways:

1. Steadfast adherence to a strict moral or ethical code.

2. The state of being unimpaired; soundness.

3. The quality or condition of being whole or undivided; completeness.

These are precisely the dimensions of scrutiny that brand users apply to value chains:

  • Adherence: To what extent does the chain reflect the brand's purported values?
  • Soundness: How reliably and consistently does the chain connect brand value to the end customer?
  • Completeness: How accountable and transparent is the chain to the end customer?

Nike's local market behavior, as expressed by its suppliers, was entirely detached from the brand code—a breakdown in adherence. Standards were variable and uncontrolled—a breakdown in soundness. And the value chain itself was fragmented—a breakdown in completeness.

Back in Portland at Nike headquarters, no one, apparently, could actually see to the end of the chain. Like the frayed ends of an electric wire, the value chain simply petered out, bare copper lying exposed—just waiting to spark a brand meltdown. Building supply-chain integrity from this start-point demanded a full-scale transformation—and remains a work in progress.

Brand owners come to the issue of value-chain integrity from many different departure points. Among the most common motivations are these:

  • A need to assess and quantify reputation risk
  • A need to enforce effective governance
  • A need to account for environmental impact
  • A need to comply to new legal standards
  • A need to pre-empt consumer complaints

Dominating all these needs is the threat of dissatisfaction and exposure, from customers or external stakeholders who may see inconsistencies, inaccuracies or omissions between a brand's projected identity and its underlying value chain.

However, this risk-management mindset threatens to miss the true character of the integrity issue. If customers demand an increase in integrity, and if brands exist to serve customers, then integrity should be a key competitive battleground.

More than that, integrity is a source of value that is based on broad competencies, products, people, process and purpose—not just a dissociated image. Value-chain integrity, in other words, is a lasting source of brand differentiation.

Many brand owners, Nike included, stand to see a real upside from building (and continually rebuilding) their value-chain integrity.

We predict a mind shift among value-chain stewards, from pure risk management toward increasingly opportunistic, brand-centric perspectives, addressing real customer needs through an investment in integrity. Value chain integrity addresses the following:

  • A desire for reassurance: "Prove to me my shampoo is GMO free"
  • A desire for personalization: "Make me one without the gluten, please"
  • A desire for insight: "Cloth diapers or disposables? Help me decide"
  • A desire for personal accountability: "Help me track my biodiversity impact"
  • A desire for engagement: "Show me a picture of the farmer who ground my beans"

Any brand that aspires to sustain long-term value should audit its performance across 12 critical elements of brand integrity:

  Product Process People Purpose
Adherence Are the components/ingredients all that brand buyers would expect them to be? Are all processes in accordance with corporate guidelines? Are all participants aligned to the brand values? Are the brand's vision and values expressed?
Soundness Do we know the true origin and identity of all our components and ingredients? Are the processes that connect participants secure and reliable? Are our participants known to us, accurately identified and reachable if need be? Is our purpose robust and defensible?
Completeness Are we able to account for all our product? Its origins and destinations? Are we actively monitoring and managing the processes that create customer value? Are we maintaining active relationships with all those who impact brand perceptions? Do the brand values impact all relevant aspects of the value creation?

Future Developments

Far from being a monolithic threat, the outline above shows that the development of supply-chain integrity is a complex strategic opportunity for brand managers. Building and protecting integrity is arguably the most pressing stewardship challenge they now face.

Embracing this reality will require new forms of collaboration, new skills and new process, reaching far beyond traditional brand management boundaries, into and beyond the corporate organization. The prize unlocked by value-chain integrity is very real. Where ROMP has led, others will sluggishly follow, and eventually reap the rewards of three shifts in awareness:

  • Move from mere policy adherence to values-commitment and rebuild your brand foundations.
  • Move from mere soundness of process to real mutual accountability, and the prize will be a step-change in customer-responsiveness.
  • Move from mere completeness of information gathering to real richness of knowledge, and completely new forms of customer value are revealed.

As brand management becomes an increasingly substantive process, so the value that brands deliver will need to be increasingly accountable. Marketers must take responsibility for managing brand reality, not just brand reputation.

Manage the value chain, and the brand will take care of itself.

References:

1. "This shopping trolley of food took 245,900 miles to get here." Evening Standard, 8 March 2005.

2. "Sudan 1: the bungles that put poison on our plates." Times Online, 27 February 2005

Tim Kitchin is a founding partner of Glasshouse Partnership, a branding and stakeholder relationship management consultancy; he has published articles on branding, supply chain management, corporate social responsibility and customer relationship management.

 

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