Manufacturing in America – Competitive Advantages: Brand

19/10/2011

If you look at the shareholder returns equation you will see that the revenue is one of the main variable in this equation. Revenue in its simplified form can be looked at as

Revenue = Price of a product  X  Number of products sold

Perceived brand image of a product is one of the key factor in the price of a product. Hence, a key contributor to the revenue. One can also draw a link between higher quality and increased product sales. These links, however, are more on a case-by-case basis.

This should not be a news to anyone reading this article. They know that the companies spend millions in building the brand image through advertisements and various other means. Some of the industries are for more conscious of the role brand image plays than other but just about all the companies are keenly aware of this fact.

Consider the case of commodity products like salt, iron bars, wheat flour etc. There is very little differentiation between any two products. (That’s why thy are called as commodity products.) It’s the branding through packaging, advertisements and various other means that makes one company charge a higher price than the other. Next time you are at your neighborhood grocery store look at the “private label” vs. “branded” products. They may have been produced in the same factory and may contain exact ingredients but one product sells for far more than the other. Power of a brand!

Fashion industry is far more conscious of brand image than any other industry I can think of. After all they want to sell you a handbag for $5000 which was manufactured for just few hundred dollars. It’s the brand image that enables them to do it.

So, how does the brand image play a role in “Manufacturing in America?” A lot. “Made in USA” carries a higher brand image than “Made in XYZ.” Feel free to replace XYZ with the country of your choice for a large number of products. Even the US companies who manufacture their products outside of US want to maintain the image of made in US. This is true for products made for both domestic as well as foreign consumption.

The million dollar question? Can this “Made in USA” brand image be leveraged to bring manufacturing back in America. The simple and obvious answer seems to be YES. However, it is not happening. What can be done?

A modest proposal

Create a rating agency that rates products based on the percentage of the product that is made in America and give it a rating like “gold”, “silver” or “bronze”.

For example, a product getting a “gold” rating would be 95% made in US with so many stages of manufacturing done in US. Pick another number if you don’t like 95%. And pick another color if you don’t like gold. The exact number or color are unimportant. It just have to be high enough to be meaningful.

A similar rating can be assigned to a company based on what percentage of their products (think mix) get what color labels.

This does not have to be a government agency. A private or private-public entity will do just fine. Companies would pay for getting their products rated and get a certification. These companies can in turn recoup their investment with enhanced brand image.

In conclusion

We have developed a brand image, over last century or so, that conveys high quality. Very few countries have this general image of high quality. Some countries have high brand image for specific products – e.g., mechanical watches form Switzerland – but not across the board. A country level brand image is limited to just few. We can and should leverage this advantage in promoting the manufacturing in America. And the best part is that it does not require much investment.

Furthermore, if you combine brand image advantage with other advantages like raw material, skills and innovation we have a strong case of brining the manufacturing back to America.

I do want to recognize many efforts that are focused in this direction and with good intentions. What we need is a comprehensive and inclusive partnership between various organizations, companies and government. Drop me a note or leave a comment below if you want to discuss this further.

There are 3 comments in this article:

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  3. 1/11/2011Export or Shift Manufacturing: Impact on Inventories to Meet External Demand « Mani Agrawal says:

    […] this scenario manufacturers can easily leverage our competitive advantages like “made in USA” brand that could be easily diluted by shifting the manufacturing outside. Similar arguments can be made […]

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