Prius Disaster Refutes Toyota's 'Brand Equity' Claims

Last Updated Mar 16, 2010 1:54 PM EDT

A recent post on HBR.org concludes that the onslaught of negative media coverage of Toyota is not hurting the company, at least with current customers. In the poll, a high number of owners say they would buy Toyota again.
"Our results show Toyota has brand insulation," state the three authors of the post, Does Media Coverage of Toyota Recalls Reflect Reality? "Customers refute the overly pessimistic views being taken by many reporters and business experts. So, it was a great story, the Fall of Toyota. But so far, it's just a story."
Proof positive that brand equity works, right? Not so fast.

This brings me back to a great debate that BNET blogger Geoffrey James, who writes the highly informative and provocative Sales Machine blog, recently had with his readers. James contends that investments in brand marketing campaigns just waste money that could better be spent on sales generation. It's the success or failure of the products themselves, and what customers say about those products, that creates brand equity, he argues -- not what a company gins up in the marketing department.

I thought James had it all wrong, but now I'm starting to wonder. Toyota customers clearly are remaining loyal because of the great experiences they've had with their cars and service dealers in the past. This fits with the James hypothesis: Good product = good brand.

His argument takes on much more weight when you look at U.S. vehicle sales in February. While GM and Ford both posted double-digit gains, Toyota's numbers fell 9%. Toyota spent decades building a reputation for quality, both by building great cars and by developing a brand reputation built around quality and reliability. Clearly that brand equity is eroding in the minds of recent car buyers. Bad product = bad brand.

Sure, Toyota can rise to the top again. But it will only do so by building great cars and pleasing customers, not by shoveling money into brand marketing.

So what's your take on the value of branding? Are you, like me, starting to rethink the boundaries of this idea? Or do you believe that it is exactly the power of Toyota's brand that has saved it from further disaster?

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.