The new strategy has forced a big change in thinking, says Yu. “The way we made money in the past was by saving money, by cutting costs. Now we have to make money by spending money, by investing in our brand.”
From Yu’s perspective, that means micro-managing the company’s allocation of resources by working closely with BenQ’s managers and marketing teams to calculate which segments of the market and which countries are likely to generate the greatest returns. “To build brand awareness takes a lot of cash,” he sighs.
Needless to say, the job doesn’t stop there. Yu pays close attention to the performance of BenQ’s brand-building efforts too. Currently he relies on two key metrics: market share and brand position, which he defines as the average selling price of the company’s own-brand products compared to the average selling price of rival brands in each market. Yu reviews both metrics every quarter to see what progress the brand is making.
At this stage, Yu admits, he isn’t interested in gross margins. “The brand is very young, so our first priority is to create market share and awareness.” Once the brand is three years old, however, Yu plans to switch the focus to profitability, although he declines to reveal his targets. Still, if the venture goes according to plan, the benefits promise to be great.
Lo at Primasia Securities gives an indication of just how great. With mobile phones, he says, contract manufacturers are doing well if their gross margins reach 15 percent, while brand owners enjoy margins of as much as double that.
Build or Buy?
The whole foray into brands at BenQ is an enormous undertaking, and not without its risks. But for other companies looking to follow a similar path, it needn’t be so hard, says Rupert Purser, managing director in Hong Kong for Brand Finance, a consultancy. As he sees it, companies in Asia don’t necessarily need to build their own brands but instead could look at buying ready-made ones.
“Building a brand can be very hit and miss,” he notes. “It takes a lot of time and money and there’s no guarantee of success.” It’s for that reason, observes Purser, that a growing number of Asian firms are choosing to buy already established household names.
Take Zindart, a Hong Kong-based contract manufacturer of die-cast toys. In 1999, it bought Corgi Classics, a line of scale model cars cherished by collectors. Another Hong Kong company, Shriro, which distributes and markets other companies’ brands, bought Sweden’s Hasselblad brand of camera equipment in 2003. Many other companies have made similar moves, all aiming to cash in on the benefits of owning well-known names.
From Purser’s perspective, CFOs have an obvious role to play in such deals in terms of calculating how much to pay for potential brand acquisitions. But, he adds, working out how much a brand is worth is never easy. “It’s more of an art than a science,” he cautions.