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Managing Nation Brand Halos and Shadows

By Thomas Cromwell
June 17, 2013

The halo effect was first studied, and named, by Edward Thorndike in a 1920 article titled “The Constant Error in Psychological Ratings”. He found that perception of a person’s physical qualities typically had an erroneous influence on judgment of personality. Thus someone dressed neatly and with good bearing would likely be ascribed personal qualities, such as intelligence, leadership, dependability and loyalty, in a correlation for which there was no basis in fact.

This is a very useful phenomenon for branding. A company that produces a product that is widely admired in the marketplace will itself benefit from the light cast by that product’s ‘halo’. And, if the halo is strong enough, it can raise the brand value of other products produced by the same company.

Corporate Brand Halos And Shadows
A good example of a corporate brand halo effect has been noted with Apple. Close to death in the 1990s, the computer maker nevertheless managed to survive into the new century, largely thanks to the return of Steve Jobs as CEO. When, under his leadership, Apple launched the iPod, in 2001, Apple started up a path that would transform it a decade later into the most valuable company in the world.

Steve Jobs had a brand halo of his own. He was widely revered as a visionary entrepreneur who could look over the time horizon and see what devices people would want to improve their lives. The iPod took a few years to gain traction, but, combined with iTunes, by 2004 it was leading the transformation in perceptions of Apple from an innovative computer maker to a revolutionary leader in digital consumer products. The iPod opened the way for the phenomenal success of the iPhone and iPad.

In fiscal 2005, Apple sales increased 68 percent over 2004, profits rose 384 percent, and the stock went up 177 percent. The net profit margin increased from 3.3 to 9.6 percent. Apple was clearly on a roll.

But these fantastic results were not due in main to the iPod alone. In 2005, iPod and iTunes accounted for 39 percent of Apple sales, while the remaining 61 percent was generated by sales of computers, software and services. Sales of these traditional Apple products and services rose 27 percent in 2005, lifted by the warm glow of the iPod halo.

The virtues ascribed to a brand create a halo effect that can benefit a related brand which may or may not deserve the same respect or desirability. This is particularly true in corporations that limit the diversity of their products so that consumers naturally associate all the various products with the same producer (Apple’s series of ‘i’ products, for example). It is less true for widely diversified corporations where brand associations are naturally weaker.

(GE, for example, can’t easily create a brand halo effect across its highly diversified product lines, at least not beyond “Imagination at work”. GE makes everything from locomotives and airplane engines to MRI scanners and refrigerators.)

It also stands to reason that the brand halo effect can work in reverse. If brands are closely associated with one another in the minds of consumers, and one product gains a reputation for poor quality, there can be a harmful ripple effect flowing from the culprit brand to other brands made by the same corporation. This can be considered the Brand Shadow Effect.

For example, Sears, a national retail chain, was once highly regarded for its tools and garden equipment, mainly sold under the Craftsman brand. After the 2005 purchase of Sears by Kmart (which has a reputation for very low prices in household goods and clothing, and no track record at all in tools) the Sears reputation for selling quality tools and equipment fell victim to the Kmart shadow.

In the case of the Sears-Kmart merger there was little hope either brand could help the other. Rather, the executives who made the decision saw a good fit in product lines. What they seem to have overlooked, however, is the damage that a ‘cheap’ brand association can do to a product line that depends on quality for its sales.

Nowadays, with consumer feedback dominating online references to products and services, changes in performance get around rather quickly. A review of comments about Craftsman tools after the Kmart acquisition show that the consuming public finds the products are of questionable quality at best, and attribute this to the association with Kmart.

For a man who spends a considerable amount of money on his tools and garden equipment, quality is critical. And a reputation for shoddy quality travels fast and can be fatal. Thus the idea that Craftsman tools were now ‘being made by Kmart’ was pure poison in this market.

The impact of this brand shadow on Sears‘ revenues (Sears and Kmart are now operated by Sears Holdings) has been striking. According to a December 24, 2010 article by Stephanie Clifford in the New York Times, over the four year period 2005 to 2009 Sears’ sales dropped by 10 percent. In the same period, chief rivals Walmart and Target saw their sales rise 31 percent and 24 percent, respectively.

There are no doubt that various reasons for this decline at Sears, including an escalation in product quality issues, but negative brand perception is now inextricably part of the sales problem that Sears has to deal with.

Companies and Countries
There are obvious differences between companies and countries, but also some significant similarities, especially when you compare countries to diverse behemoths such as GE and Samsung. These companies have to sell a range of unrelated products and services to various markets around the world, all the while looking to the development and protection of their overall corporate brand integrity and value.

Some countries are beginning to think of themselves as a brand, and are investing in the management of that brand to achieve their core national objectives, including international reputation, attracting inbound investment and tourism, and boosting exports.

Companies enjoy the benefit of having an unequivocal goal (making money for their owners) and a clear organizational hierarchy that is designed to push the organization along the path to success. Leaders are hired and fired based on their accomplishments in achieving the stated objectives.

Countries, by contrast, rarely have such clear objectives, at least not in the minds of leaders who are elected for limited terms in office. Changes in leadership can spell changes in national direction and national priorities.

The Purpose of Nation Branding
This is precisely why nation branding is useful. Done properly, it is a process through which a country can distill, articulate and pursue over time a set of national objectives that are of measurable benefit to the country as a whole, its people and economy.

Few if any countries are doing nation branding well by this standard. The industry is confused, to say the least, and almost totally absent in most of the developing world where, arguably, it is most needed. Projects done by corporate branding experts tend to rely too heavily on strategies and tactics that work for companies but are not particularly relevant to countries. Other ‘nation branding experts’ tend to focus on one area of the field, such as reputation management.

Good nation branding takes into account the often subtle subtexts of nationhood (including culture, history, national assets, character, location and existing brand identity) and integrates these into a clear positioning statement that then forms the basis for mobilizing corporate branding tools in the service of national goals.

Nation Brand Halos and Shadows
Simply put, a good nation brand is built on that nation’s assets, human, natural and manufactured. A nation brand halo is often created over centuries through a natural process of evolution. Thus Greece and Italy are associated with attractive histories of art and architecture, of great philosophers and creative geniuses.

But no country is simply the product of its past. Its current foreign and domestic policies, its systems of government, the quality of citizens’ lives, its manufacturing prowess, and so many other national attributes all contribute to its brand.

And this is where developing and managing a good nation brand comes in. If one thinks of an attractive nation brand as an inherited halo then the work of nation branding is to increase the brightness and reach of that halo’s light, both domestically and abroad.

Domestic Branding
Nation branding involves national governments, because they have the most to do with shaping perceptions of the country, for good or bad. Governments have to look out at the world, but typically most of their interest lies at home. At home there are the voters and other constituencies that give power to leaders.

The ‘Domestic Brand’ is how citizens perceive their own country. Governments can improve that brand by pursuing sound policies and programs that benefit the nation, by enforcing the rule of law, and by strengthening the national assets that contribute to the brand halo.

Governments also have to lead in addressing nation brand shadows, that is the negatives and liabilities that are associated with the brand. These negative associations could derive from practices of oppression or corruption, or simply unwise and harmful policies or mismanagement of assets.

International Branding
At the same time, governments should lead in a process of burnishing the national brand halo and addressing its dark areas. International perceptions of a country can be measured, to some extent at least, and used to benchmark and enhance brand performance.

These efforts must be truthful. Pretending that your brand is great when in fact it is terrible, will simply not work. In fact it is likely to backfire and underline the negatives associated with your brand. (For an extreme example, think of North Korea trumpeting the virtues of the Great Leader and the Dear Leader in international ad campaigns, when most people around the world know that these are two of the most cruel and corrupt leaders of the 20th Century.)

Burnishing your international halo can be a useful exercise. South Korea is the 13th largest economy in the world, but has had a weak-to-negative international image. The emergence of major conglomerates like Samsung, Hyundai and LG as widely admired international brands has definitely helped form an international South Korean halo. To supplement this natural nation branding process, a few years ago the Presidency set up a nation branding office to see if the government could increase the lumens by committing Korea to foreign aid projects and other image-building efforts.

Halos Do Cast Light
Doing good for others is generally a good branding strategy. Hence most of the developed economies around the world put some of their tax revenues towards foreign aid. (Corporations contribute to local communities or drape themselves in ‘green’ initiatives, with the same objective in mind.)

And this should be something that any nation branding body studies seriously. The problem here, though, is that so many countries are doing similar things that foreign aid often does not deliver much to the differentiation that you want from a brand halo. And, very importantly, foreign aid rarely casts a significant light on the other elements of the brand halo.

Spain’s attractive tourism brand, “Everything Under the Sun”, is credited with helping propel that European nation out of the gloomy days of Franco’s dictatorship and into the European Union ‘club’ of cool members. And although it was created as a tourism brand it served to change overall perceptions about Spain in a positive way. The colorful Joan Miro sun warmed everything Spanish and made Spain a desirable destination for both tourism and investment.

This result was more good luck than good strategy, but it does show the possibility of the halo effect working to a nation brand’s benefit.

And Shadows Do Darken
The brightest brand can be tarnished by scandal, corruption, disaster or conflict. For large countries with a very prominent global presence, this is particularly problematic, because foreign news coverage is likely to focus on the negatives, not the positives of the country, shaping a negative or confused brand identity.

The United States, for example, is admired around the world for its achievements over a relatively short history of just a few centuries. But while many people everywhere like Hollywood movies, Microsoft Office and Apple products, many also oppose American military interventions or other international projections of its economic and military power. The US Government spends billions of dollars a year to address these shadows, through projects like VOA and Al Hurra TV as well as a wide range of foreign aid programs such as USAID, the Peace Corps and the Millennium Challenge Corporation.

For smaller countries with low profiles, the opportunity exists to shape international perceptions through a combination of initiatives to create a halo from scratch while addressing potential or real shadows that might harm it.

Kazakhstan, for example, has invested considerably in its brand. It has promoted its responsible leadership on nuclear arms and fissile materials, and its commitment to ethnic harmony and religious moderation. It has also chosen this path to dispel the shadows cast by the cutting movie Borat and Nursultan Nazarbayev’s extended presidency.

Conclusion
Looking at the global state of nation branding today, there is clearly room for a great deal more creativity and innovation. For example, do the traditional government-to-government aid programs really deliver a halo effect to the aid-givers? Are there not more creative ways to help entrepreneurs and SMEs that are so critical to economic development in the poorer countries, and that might positively differentiate aid givers?

Are countries taking all the perception drivers into consideration when they embark on nation branding? Or are they thinking in too narrow terms?

Surely better programs and more creative spending on nation branding could help a great deal in burnishing nation brands in a way that clearly differentiates the good from the mediocre and the bad.

The nation branding field is still in its infancy. There is much room for growth and new ideas and approaches.

Thomas Cromwell is an expert on nation branding and the president of Washington-based East West Communications. Contact him at tcromwell@eastwestcoms.com.

 

 


 
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