Sunday, January 13, 2013

What is a Brand's Worth? More Thoughts on Herbalife

Herbalife product brochure Cover SE Sweden Sverige
Herbalife product brochure Cover
SE Sweden Sverige
(Photo credit:
One of Dan Loeb's rebuttal against Bill Ackman's slam of Herbalife was that a disagreement on the product's "worth".

Ackman made a case that Herbalife's products are overpriced compared to similar products in the market, and is not backed up by enough advertising and R&D. Loeb's counterargument is that the product markup is due to "brand recognition", and basically used Starbucks as an example... that nobody complains about the $3 lattes at Starbucks even though you can make it at home for less than $1. You're paying for the brand.

The more I thought about it, the more Loeb's counterargument missed the mark.

You go to Starbucks not because they serve great coffee. You go to Starbucks for

1) Good selection
2) Good customization (want Splenda instead of sugar? Soy instead of milk?)
3) Speedy service
4) Consistent quality
5) Lots of alternatives, like snacks, salads, and such

All of which are associated with the Starbucks brand. Starbucks have become almost synonymous with coffee.

Is it a valid comparison to Herbalife though? I think not.

When you say Starbucks, people know you're talking coffee. What is Herbalife known for?

Uh... good question. They have a whole range of products, from nutrition shakes to vitamins and such, even lotions and creams. Recent push of these "nutrition clubs" would suggest they want to sell these nutritional shake mixes. Okay, but when you say Herbalife, people think MLM, not products.

Thus, comparison to Starbucks is already bogus.

Secondly, Starbucks stores can be seen in most cities. In San Francisco downtown you can find one every few blocks. Where can you see Herbalife? Practically only in Europe, where they endorse soccer stars, Formula One racing teams, and such. And it's NEVER the products, always Herbalife itself. We STILL don't know what Herbalife sells.

What good is brand recognition when the product is NOT sold via retail channels, but through MLM / direct sales / network marketing?

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