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Milwaukee's Daily Magazine for Thursday, July 31, 2014

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In Marketplace Commentary

Walmart may be the world's biggest retailer, but Costco is better at corporate branding - by treating its employees well.

Corporate brands are precarious creatures


In the digital era, corporate brands can rise or fall in a heartbeat. However, one branding maxim seems to be holding true: Corporate brands start internally, and the ways employees are treated often have consequences in shaping that brand externally.

Case in point: The discount retail industry. Seattle-based Costco Wholesale Corp. pays its employees an average wage of $20.89 per hour and provides health care insurance benefits to 85 percent of its staff, according to a recent analysis by Bloomberg Businessweek. Costco employees pay premiums that amount to less than 10 percent of the costs for their health plans.

By contrast, Costco's key competitor, Little Rock, Ark.-based Walmart Stores Inc.'s Sam's Club, pays its U.S. employees an average of $12.67 per hour, and its employees have been picketing their stores, complaining about the "Walmart loophole," in which the company reportedly plans to cut many of its employees' hours to less than 30 per week to avoid having to pay a penalty under terms of Obamacare.

So, which model is winning? Well, Walmart remains the world's largest retailer, in terms of sales, to be sure. But Costco is gaining market share and is easily building a better corporate brand from the inside out. Costco's most recent quarterly sales grew 8 percent from the same period a year ago, while Walmart's sales increased only 1.2 percent. Costco's annual sales grew from $64.4 billion in 2007 to $99.1 billion in 2012, and the company plans to open 30 new stores in fiscal 2013.

Costco chief executive officer Craig Jelinek recently endeared himself to his employees by sending a letter to Congress, asking for the national minimum wage to be increased for the first time since 2009.

"I just think people need to make a living wage with health benefits. It also puts more money back into the economy and creates a healthier country. It's really that simple," Jelinek told Businessweek.

"We know it's a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty," Jelinek wrote in the letter to Congress.

Jelinek is strategically investing in Costco's brand by investing in its employees, betting that customers also will value that good will. Only time will tell if its model is sustainable against the Walmart model of cutting costs at every turn.

In the next retail aisle, Minneapolis-based General Mills Inc.'s brand earned a gusher of customer loyalty and glowing public relations earlier this month with a television commercial for Cheerios featuring a bi-racial family.

In the same week, Taco Bell's brand was severely tarnished when a video of an employee licking a stack of taco sells went viral on the Internet.

That is how precarious corporate brands are in the digital era: One knucklehead employee can inflict harm on the brand of an entire corporation.

Scott Seroka, a certified brand consultant and principal of Seroka, a brand development and strategic communications firm in Waukesha, says brands live or die from the inside out.

"Fact: Your employees need to be your biggest and most influential brand ambassadors. If they don't understand, believe in, live and deliver on your brand expectations, your brand will never reach its full potential," Seroka said. "The process by which employees are informed and trained on how to deliver brand expectations at all touch points is called internal brand adoption. It is a process by which expectations are set and performance is measured along the way. If this step is overlooked, not well thought out or not executed properly, your brand will be not much more than words without substance."

In other words…Garbage in, garbage out.

Steve Jagler is executive editor of BizTimes. Editor's note: This column is a sequel to a previous column headlined, "Great brands grow from the inside out."


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