Brand Equity In Question - Kapferer (2008) PDF

9 1 Brand equity in question Brands have become a major player in What is a brand? modern society. In fact they are everywhere. They penetrate all spheres of our life: Curiously, one of the hottest points of economic, social, cultural, sporting, even disagree...

9 1 Brand equity in question Brands have become a major player in What is a brand? modern society. In fact they are everywhere. They penetrate all spheres of our life: Curiously, one of the hottest points of economic, social, cultural, sporting, even disagreement between experts is the definition religion. Because of this pervasiveness they of a brand. Each expert comes up with his or her have come under growing criticism (Klein, own definition, or nuance to the definition. 1999). As a major symbol of our economies The problem gets more acute when it comes to and postmodern societies, they can and measurement: how should one measure the should be analysed through a number of strength of a brand? What limited numbers of perspectives: macroeconomics, microeco- indicators should one use to evaluate what is nomics, sociology, psychology, anthro- commonly called brand equity? In addition pology, history, semiotics, philosophy and so there is a major schism between two paradigms. on. In fact our first book on brands was a One is customer-based and focuses exclusively collection of essays by eminent scholars from on the relationship customers have with the all these disciplines (Kapferer and Thoenig, brand (from total indifference to attachment, 1989). loyalty, and willingness to buy and rebuy based This book focuses on the managerial on beliefs of superiority and evoked emotions). perspective: how best to manage brands for The other aims at producing measures in profit. Since brands are now recognised as part dollars, euros or yen. Both approaches have of a company’s capital (hence the concept of their own champions. It is the goal of this brand equity), they should be exploited. fourth edition of Strategic Brand Management to Brands are intangible assets, assets that unify these two approaches. produce added benefits for the business. This is the domain of strategic brand management: Customer-based definitions how to create value with proper brand management. Before we proceed, we need to The financial approach measures brand value clarify the brand concept. by isolating the net additional cashflows 10 W H Y I S B R A N D I N G S O S T R AT E G I C ? created by the brand. These additional cash the financial perspective help us in defining flows are the result of customers’ willingness brands and brand equity? to buy one brand more than its competitors’, even when another brand is cheaper. Why l First, brands are intangible assets, posted then do customers want to pay more? Because eventually in the balance sheet as one of of the beliefs and bonds that are created over several types of intangible asset (a category time in their minds through the marketing of that also includes patents, databases and the brand. In brief, customer equity is the the like). preamble of financial equity. Brands have l Second, brands are conditional assets. This is financial value because they have created a key point so far overlooked. An asset is an assets in the minds and hearts of customers, element that is able to produce benefits distributors, prescribers, opinion leaders. over a long period of time. Why are brands These assets are brand awareness, beliefs of conditional assets? Because in order to exclusivity and superiority of some valued deliver their benefits, their financial value, benefit, and emotional bonding. This is what they need to work in conjunction with is expressed in the now classic definition of a other material assets such as production brand: ‘a brand is a set of mental associations, facilities. There are no brands without held by the consumer, which add to the products or services to carry them. This will perceived value of a product or service’ (Keller, have great consequences for the method of 1998). These associations should be unique measuring financial value. For now, this (exclusivity), strong (saliency) and positive reminds us that some humility is required. (desirable). Although many people claim that brands This definition focuses on the gain in are all and everything, brands cannot exist perceived value brought by the brand. How do without a support (product or service). This consumers’ evaluations of a car change when product and service becomes effectively an they know it is a Volkswagen, a Peugeot or a embodiment of the brand, that by which Toyota? Implicitly, in this definition the the brand becomes real. As such it is a main product itself is left out of the scope of the source of brand evaluation. Does it produce brand: ‘brand’ is the set of added perceptions. high or low satisfaction? Brand As a result brand management is seen as management starts with creating products, mostly a communication task. This is services and/or places that embody the incorrect. Modern brand management starts brand. Interestingly, the legal approach to with the product and service as the prime trademarks and brands also insists on their vector of perceived value, while communi- conditional nature. One should never use cation is there to structure, to orient tangible the brand name as a noun, but as an perceptions and to add intangible ones. adjective attached to a name, as for Later we analyse the relationship between instance with a Volvo car, not a Volvo. brand and product (see page 39). A second point to consider is that Keller’s now-classic definition is focused on cognitions (mental The legal perspective associations). This is not enough: strong brands have an intense emotional component. An internationally agreed legal definition for brands does exist: ‘a sign or set of signs certi- Brands as conditional asset fying the origin of a product or service and differentiating it from the competition’. Financiers and accountants have realised the Historically, brands were created to defend value of brands (see Chapter 18). How does producers from theft. A cattle brand, a sign  BRAND EQUITY IN QUESTION 11 burned into the animal’s hide, identified the ciations. Are the benefits the name evokes owner and made it apparent if the animal had (a) salient, (b) exclusive and (c) trusted? been stolen. ‘Brands’ or trademarks also iden- We live in an attention economy: there is so tified the source of the olive oil or wine much choice and opacity that consumers contained in ancient Greek amphoras, and cannot spend their time comparing before created value in the eyes of the buyers by they make a choice. They have no time and building a reputation for the producer or even if they did, they cannot be certain of distributor of the oil or wine. being able to determine the right product or A key point in this legal definition is that service for them. Brands must convey trademarks have a ‘birthday’ – their regis- certitude, trust. They are a time and risk tration day. From that day they become a reducer. In fact where there is no risk there is property, which needs to be defended against no brand. We made this point in an earlier infringements and counterfeiting (see page 87 book (Kapferer and Laurent, 1995). The for defence strategies). Brand rights disappear perceived risk could be economic (linked to when they are not well enough defended, or if price), functional (linked to performance), registration is not renewed. One of the sources experiential, psychological (linked to our self- of loss of rights is degenerescence. This occurs concept), or social (linked to our social image). when a company has let a distinctive brand This is why it takes time to build the saliency name become a generic term. that is part of brand awareness, and this trust Although the legal approach is most useful (trusted beliefs about the brand’s unique for defending the company against copies of benefits). its products, it should not become the basis Brand power to influence buyers relies on of brand management. Contrary to what the representations and relationships. A represen- legal definition asserts, a brand is not born tation is a system of mental associations. We but made. It takes time to create a brand, stress the word ‘system’, for these associations even though we talk about launching are interconnected. They are in a network, so brands. In fact this means launching a that acting on one impacts some others. These product or service. Eventually it may become associations (also called brand image) cover a brand, and it can also cease to be one. What the following aspects: makes a brand recognisable? When do we know if a name has reached the status of a l What is the brand territory (perceived brand? For us, in essence, a brand is a name competence, typical products or services, that influences buyers, becoming a purchase specific know-how)? criterion. l What is its level of quality (low, middle, premium, luxury)? A brand is a name that influences buyers l What are its qualities? l What is its most discriminating quality or This definition captures the essence of a brand: benefit (also called perceived positioning)? a name with power to influence buyers. Of course, it is not a question of the choice of the l What typical buyer does the brand evoke? name itself. Certainly a good name helps: that What is the brand personality and brand is, one that is easily pronounceable around the imagery? world and spontaneously evokes desirable associations. But what really makes a name Beyond mental associations, the power of a become a brand are the saliency, differentia- name is also due to the specific nature of the bility, intensity and trust attached to these asso- emotional relationships it develops. A brand, it 12 W H Y I S B R A N D I N G S O S T R AT E G I C ? could be said, is an attitude of non-indifference When talking of brands we are sometimes knitted into consumers’ hearts. This attitude referring to a single aspect such as the name or goes from emotional resonance to liking, logo, as do intellectual property lawyers. In belonging to the evoked set or consideration brand management, however, we speak of the set, preference, attachment, advocacy, to whole system, relating a concept with fanaticism. Finally, designs, patents and rights inherent value to products and services that are of course a key asset: they provide a compet- are identified by a name and set of proprietary itive advantage over a period of time. signs (that is, the logo and other symbols). In short, a brand exists when it has acquired This system reminds us of the conditional power to influence the market. This acquisition nature of the brand asset: it only exists if takes time. The time span tends to be short in products and services also exist. the case of online brands, fashion brands and Differentiation is summarised by the brand brands for teenagers, but longer for, for concept, a unique set of attributes (both example, car brands and corporate brands. tangible and intangible) that constitute the This power can be lost, if the brand has been value proposition of the brand. mismanaged in comparison with the compe- To gain market share and leadership, the tition. Even though the brand will still have brand must be: brand awareness, image and market shares, it might not influence the market any more. l able to conjure up a big idea, and attractive; People and distributors may buy because of l experienced by people at contact points; price only, not because they are conscious of any exclusive benefit from the brand. l activated by deeds and behaviours; What makes a name acquire the power of a l communicated; brand is the product or service, together with the people at points of contact with the l distributed. market, the price, the places, the communi- cation – all the sources of cumulative brand One of the best examples of a brand is the experience. This is why one should speak of Mini. This car, worth US$14,000 in functional brands as living systems made up of three poles: value, is actually sold for US$20,000. It is one products or services, name and concept. (See of the very few car brands that gives no Figure 1.1.) rebates and discounts to prospective buyers, Brand concept (value proposition) tangible and intangible Brand name and symbols Product or service semiotic invariants experience Figure 1.1 The brand system  BRAND EQUITY IN QUESTION 13 who queue to get ‘their’ Mini. The Mini illus- same name around the world), or the logo, trates the role of both intangible and tangible or the product (a standardised versus qualities in the success of any brand. Since it is customised product), or the concept made by BMW, it promises reliability, power (aiming at the same global positioning)? Or and road-holding performance. But the all three pillars of the brand system, or only feelings of love towards this brand are created two of them? by the powerful memories the brand invokes in buyers of London in the ‘Swinging Sixties’. Since a brand is a name with the power to The classic and iconic design is replicated in influence the market, its power increases as the new Mini – and each Mini feels like a more people know it, are convinced by it, and personal accessory to its owner (each Mini is trust it. Brand management is about gaining customised and different). power, by making the brand concept more The brand triangle helps us to structure known, more bought, more shared. most of the issues of brand management: In summary, a brand is a shared desirable and exclusive idea embodied in products, l What concept should one choose, with services, places and/or experiences. The more what balance of tangible and intangible this idea is shared by a larger number of benefits? This is the issue of identity and people, the more power the brand has. It is positioning. Should the brand concept because everyone knows ‘BMW’ and its idea – evolve through time? Or across borders what it stands for – even those who will never (the issue of globalisation)? buy a BMW car, that the brand BMW has a great deal of power. l How should the brand concept be The word ‘idea’ is important. Do we sell embodied in its products and services, and products and services, or values? Of course, its places? How should a product or service the answer is values. For example, ‘Volvo’ is of the brand be different, look different? attached to an idea: cars with the highest What products can this brand concept possible safety levels. ‘Absolut’ conjures encompass? This is the issue of brand another idea: a fashionable vodka. Levi’s used extension or brand stretch. to be regarded as the rebel’s jeans. l How should the product and/or services be identified? And where? Should they be identified by the brand name, or by the Differentiating between brand logo only, as Nike does now? Should organ- assets, strength and value isations create differentiated sets of logos and names as a means of indicating It is time to structure and organise the many internal differences within their product or terms related to brands and their strength, service lines? What semiotic variants? and to the measurement of brand equity. Some restrict the use of the phrase ‘brand l What name or signs should one choose to equity’ to contexts that measure this by its convey the concept internationally? impact on consumer mental associations l How often should the brand symbols be (Keller, 1992). Others mention behaviour: for changed, updated or modernised? example this is included in Aaker’s early measures (1991), which also consider brand l Should the brand name be changed (see loyalty. In his late writings Aaker includes Chapter 15)? market share, distribution and price premium l Speaking of internationalisation, should in his 10 measures of brand equity (1996). The one globalise the name (that is, use the official Marketing Science definition of brand 14 W H Y I S B R A N D I N G S O S T R AT E G I C ? equity is ‘the set of associations and behavior l Brand strength at a specific point in time as a on the part of a brand’s customers, channel result of these assets within a specific members and parent corporation that permits market and competitive environment. the brand to earn greater volume or greater They are the ‘brand equity outcomes’ if one margins than it could without the brand restricts the use of the phrase ‘brand equity’ name’ (Leuthesser, 1988). to brand assets alone. Brand strength is This definition is very interesting and has captured by behavioural competitive indi- been forgotten all too quickly. It is all-encom- cators: market share, market leadership, passing, reminding us that channel members loyalty rates and price premium (if one are very important in brand equity. It also follows a price premium strategy). specifically ties margins to brand associations and customers’ behaviour. Does it mean that l Brand value is the ability of brands to deliver profits. A brand has no financial unless there is a higher volume or a higher value unless it can deliver profits. To say margin as a result of the creation of a brand, that lack of profit is not a brand problem there is no brand value? This is not clear, for but a business problem is to separate the the word ‘margin’ seems to refer to gross brand from the business, an intellectual margin only, whereas brand financial value is temptation. Certainly brands can be measured at the level of earnings before analysed from the standpoint of sociology, interest and tax (EBIT). psychology, semiotics, anthropology, To dispel the existing confusion around the philosophy and so on, but historically they phrase brand equity (Feldwick, 1996), created were created for business purposes and are by the abundance of definitions, concepts, managed with a view to producing profit. measurement tools and comments by experts, it is important to show how the consumer and Only by separating brand assets, strength and financial approaches are connected, and to value will one end the confusion of the brand use clear terms with limited boundaries (see equity domain (Feldwick, 1996 takes a similar Table 1.1): position). Brand value is the profit potential of the brand assets, mediated by brand market l Brand assets. These are the sources of strength. influence of the brand (awareness/saliency, In Table 1.1, the arrows indicate not a direct image, type of relationship with consumers), but a conditional consequence. The same and patents. Table 1.1 From awareness to financial value Brand assets Brand strength Brand value Brand awareness Market share Net discounted cashflow attributable Brand reputation (attributes, Market leadership to the brand after paying the cost of benefits, competence, Market penetration capital invested to produce and run know-how, etc) Share of requirements the business and the cost of marketing Perceived brand personality Growth rate Perceived brand values Loyalty rate Reflected customer imagery Price premium Brand preference or attachment Percentage of products the Patents and rights trade cannot delist  BRAND EQUITY IN QUESTION 15 brand assets may produce different brand This will depend very much on the ability of strength over time: this is a result of the the business model to face the future. For amount of competitive or distributive instance, Nokia lost ground at the Stock pressure. The same assets can also have no Exchange in April 2004. The market had value at all by this definition, if no business judged that the future of the world’s number will ever succeed in making them deliver one mobile phone brand was dim. Every- profits, through establishing a sufficient where in the developed countries, almost market share and price premium. For instance everyone had a mobile phone. How was the if the cost of marketing to sustain this market company still to make profits in this saturated share and price premium is too high and market? If it tried to sell to emerging countries leaves no residual profit, the brand has no it would find that price was the first purchase value. Thus the Virgin name proved of little criterion and delocalisation (that is, having value in the cola business: despite the assets of the products manufactured in a country such this brand, the Virgin organisation did not as China or Singapore) compulsory. Up to that succeed in establishing a durable and prof- point, Nokia had based its growth on its itable business through selling Virgin Cola in production facilities in Finland. Nokia’s the many countries where this was tried. The present brand stature might be high, but what Mini was never profitable until the brand was about its value? bought by BMW. It is time now to move to the topic of Table 1.1 also shows an underlying time tracking brand equity for management dimension behind these three concepts of purposes. What should managers regularly assets, strength and value. Brand assets are measure? learnt mental associations and affects. They are acquired through time, from direct or vicarious, material or symbolic interactions Tracking brand equity with the brand. Brand strength is a measure of the present status of the brand: it is mostly What is a brand? A name that influences behavioural (market share, leadership, loyalty, buyers. What is the source of its influence? price premium). Not all of this brand stature is A set of mental associations and relationships due to the brand assets. Some brands establish built up over time among customers or a leading market share without any noticeable distributors. Brand tracking should aim at brand awareness: their price is the primary measuring these sources of brand power. The driver of preference. There are also brands role of managers is to build the brand and whose assets are superior to their market business. This is true of brand managers, but strength: that is, they have an image that is far also of local or regional managers who are in stronger than their position in the market charge of developing this competitive asset in (this is the case with Michelin, for example). addition to developing the business more The obverse can also be true, for example of generally. This is why advanced companies many retailer own brands. now link the level of variable salary not only Brand value is a projection into the future. to increments in sales and profits but also to Brand financial valuation aims to measure the brand equity. However, such a system presup- brand’s worth, that is to say, the profits it will poses that there is a tracking system for brand create in the future. To have value, brands equity, so that year after year its progress can must produce economic value added (EVA), be assessed. This system must be valid, and part of this EVA must be attributable to reliable, and not too complicated or too the brand itself, and not to other intangibles costly. What should one measure as a (such as patents, know-how or databases). minimum to evaluate brand equity? 16 W H Y I S B R A N D I N G S O S T R AT E G I C ? An interesting survey carried out by the preference, perceived quality, a mark for agency DDB asked marketing directors what global opinion, and an item measuring the they considered to be the characteristics of a strength of the brand’s imagery. strong brand, a significant company asset. Certain institutions, which believe that the The following were the answers in order of comparison of brands across all markets makes importance: little sense, concentrate on a single market approach and measure, for example, the l brand awareness (65 per cent); acceptable price differential for each brand. They proceed in either a global manner (what l the strength of brand positioning, concept, price difference can exist between a Lenovo PC personality, a precise and distinct image (39 and a Toshiba PC?) or by using a method of per cent); trade-off which isolates the net added value of l the strength of signs of recognition by the the brand name. Marketing directors are consumer (logo, codes, packaging) (36 per perplexed because so many different methods cent); exist. There is little more consensus among l brand authority with consumers, brand academic researchers. Sattler (1994) analysed esteem, perceived status of the brand and 49 American and European studies on brand consumer loyalty (24 per cent). equity and listed no fewer than 26 different ways of measuring it. These methods vary Numerous types of survey exist on the meas- according to several dimensions: urement of brand value (brand equity). They usually provide a national or international hit l Is the measure monetary or not? A large parade based just on one component of brand proportion of measures are classified in equity: brand awareness (the method may be non-monetary terms (brand awareness, the first brand brought to mind, aided or attitude, preference, etc). unaided depending on the research institute), brand preference, quality image, prestige, first l Does the measurement include the time and second buying preferences when the factor – that is, the future of the brand on favoured brand is not available, or liking. the market? Certain institutions may combine two of the l Does the brand measure take the compe- components: for example, Landor published tition into account – that is, the perceived an indicator of the ‘power of the brand’ which value in relation to other products on the was determined by combining brand-aided market? Most of them do not. awareness and esteem, which is the emotional component of the brand–consumer rela- l Does the measurement include the brand’s tionship. The advertising agency Young & marketing mix? When you measure brand Rubicam carried out a study called ‘Brand value, do you only include the value Asset Monitor’ which positions the brand on attached to the brand name? Most two axes: the cognitive axis is a combination measures do not include the marketing mix of salience and of the degree of perceived (past advertising expenditure, level of difference of the brand among consumers; the distribution, and so on). emotional axis is the combination of the l When estimating brand value do you include measures of familiarity and esteem (see the profits that a user or a buyer could obtain Chapter 10). TNS, in its study Megabrand due to the synergies that may exist with its System, uses six parameters to compare own existing brand portfolio (synergies of brands: brand awareness, stated use, stated distribution, production, logistics, etc)? The  BRAND EQUITY IN QUESTION 17 majority of them do not include this, even Table 1.2 gives a typical result of a tracking though it is a key factor. study for a brand. l Does the measurement of brand equity include the possibility of brand extensions Table 1.2 Result of a brand tracking study outside the brand’s original market? In Brand X general, no. Japan Mexico l Finally, does the measure of brand equity Aided awareness 99% 97% take into account the possibility of Unaided awareness 48% 85% geographical extension or globalisation? Evoked set 24% 74% Again, most of the time the answer is no. Consumed 5% 40% We recommend four indicators of brand assets There are two ways of looking at the brand (equity): equity figures in the table. One can compare the countries by line: although it has similar l Aided brand awareness. This measures aided awareness levels, this brand has very whether the brand has a minimal resonance. different status in the two countries. The second mode is vertical, and focuses on the l Spontaneous brand awareness. This is a ‘transformation ratios’. It is noticeable that in measure of saliency, of share of mind when Japan, the evoked set is 50 per cent of unaided cued by the product. brand awareness, whereas it is 87 per cent in l Evoked set, also called consideration set. Does Mexico. the brand belong to the shortlist of two or Although there is a regular pattern of three brands one would surely consider decreasing figures, from the top line to the buying? bottom line, this is not always the case. For instance in Europe, Pepsi Cola is not a strong l Has the brand been already consumed or brand: its market share is gained through not? push marketing and trade offers. As a result, Pepsi Cola certainly grows its business but Some companies add other items like most not its intrinsic desirability. In tracking preferred brand. Empirical research has studies Pepsi Cola has a trial rate far higher shown that this item is very much correlated than the brand’s preference rate (evoked set). to spontaneous brand awareness, the latter At the opposite end of the spectrum there are being much more than a mere cognitive brands that have an equity far superior to measure, but it also captures proximity to the their consumption rate. In Europe, Michelin person. Other companies add the item has a clear edge over rival tyre brands as far as consumed most often. Of course this is image is concerned. However, image does not typical of fast moving consumer goods; the transform itself into market share if people item is irrelevant for durables. In addition, in like the Michelin brand but deem that the use empirical research the item is also correlated they make of their cars does not justify to evoked set. One should never forget that buying tyres of such a quality and at such a tracking studies dwell on the customer’s price. memory. This memory is itself very much Tracking studies are not simply tools for inferential. Do people really know what control. They are tools for diagnosis and brand they bought last? They infer from their action. Transformation ratios tell us where to preferences, that logically it should have been act. brand X or Y. 18 W H Y I S B R A N D I N G S O S T R AT E G I C ? Goodwill: the convergence of The vision has changed from one where only tangible assets had value to one where finance and marketing companies now believe that their most important asset is their brands, which are The 1980s witnessed a Copernican revolution intangible (see Tables 1.3 and 18.2). These in the understanding of the workings of intangible assets account for 61 per cent of the brands. Before this, ratios of seven or eight value of Kellogg’s, 57 per cent of Sara Lee and were typical in mergers and acquisitions, 52 per cent of General Mills. This explains the meaning that the price paid for a company paradox that even though a company is was seven to eight times its earnings. After making a loss it is bought for a very high price 1980 these multiples increased considerably because of its well-known brands. Before to reach their peak. For example, Groupe 1980, if the value of the brand had been Danone paid $2.5 billion for Nabisco Europe, included in the company’s earnings, it would which was equivalent to a price:earnings ratio have been bought for a penny. Nowadays of 27. Nestlé bought Rowntree Macintosh for brand value is determined independently of three times its stock market value and 26 the firm’s net value and thus can sometimes times its earnings. It was becoming the norm be hidden by the poor financial results of the to see multiples of 20 to 25. Even today when, company. The net income of a company is the because of the recession, financial valuations sum of all the financial effects, be they have become more prudent, the existence of positive or negative, and thus includes the strong brands still gives a real added value to effect of the brand. The reason why Apple lost companies. What happened between the money in 1996 was not because its brand was beginning and the end of the 1980s? What weak, but because its strategy was bad. explanations can be given for this sudden Therefore it is not simply because a company change in the methods of financial analysts? is making a loss that its brand is not adding The prospect of a single European market value. Just as the managers of Ebel-Jellinek, an certainly played a significant role, as can be American-Swiss group, said when they bought seen by the fact that large companies were the Look brand: the company is making a loss looking for brands that were ready to be but the brand hasn’t lost its potential. Balance European or, even better, global. This explains sheets reflect bad management decisions in why Nestlé bought Buitoni, Lever bought the past, whereas the brand is a potential Boursin, l’Oréal bought Lanvin, Seagram source of future profits. This potential will bought Martell, etc. The increase in the become actual profit only if it can meet a multiples can also be explained in part by the viable economic equation. opposing bids of rival companies wishing to It is important to realise that in accounting take over the few brand leaders that existed in and finance, goodwill is in fact the difference their markets and which were for sale. Apart between the price paid and the book value of from the European factor, there was a marked the company. This difference is brought about change in the attitude towards the brands of by the psychological goodwill of consumers, the principal players. Prior to 1980, distributors and all the actors in the channels: companies wished to buy a producer of that is to say, favourable attitudes and predis- chocolate or pasta: after 1980, they wanted to position. Thus, a close relationship exists buy KitKat or Buitoni. This distinction is very between financial and marketing analyses of important; in the first case firms wish to buy brands. Accounting goodwill is the monetary production capacity and in the second they value of the psychological goodwill that the want to buy a place in the mind of the brand has created over time through commu- consumer. nication investment and consistent focus on  BRAND EQUITY IN QUESTION 19 Table 1.3 Brand financial valuation, 2007 loyalty to the brand that is the key to future sales. Brand loyalty may be reduced to a Rank Brand Value (US$ billion) minimum as the price difference between 1 Google 66,434 the brand and its competitors increases but 2 GE 61,880 attachment to the brand does not vanish so 3 Microsoft 54,951 fast; it resists time. 4 Coca Cola 44,134 5 China Mobile 41,214 6 Marlboro 39,166 The brand is a focal point for all the positive 7 Wal-Mart 36,880 and negative impressions created by the buyer 8 Citi 33,706 over time as he or she comes into contact with 9 IBM 33,572 the brand’s products, distribution channel, 10 Toyota 33,427 personnel and communication. On top of 11 McDonald’s 33,138 this, by concentrating all its marketing effort 12 Nokia 31,670 on a single name, the latter acquires an aura of 13 Bank of America 28,767 exclusivity. The brand continues to be, at least 14 BMW 25,751 in the short term, a byword for quality even 15 Hewlett-Packard 24,987 after the patent has expired. The life of the 16 Apple 24,728 patent is extended thanks to the brand, thus 17 UPS 24,580 explaining the importance of brands in the Sources: Brand Z, Milward Brown pharmaceutical or the chemical industry (see page 108). Brands are stored in clients’ memories, so product satsifaction, both of which help build they exert a lasting influence. Because of this, the reputation of the name. they are seen as an asset from an accounting What exactly are the effects of this point of view: their economic effects extend customer and distributor goodwill?: far beyond the mere consumption of the product. l The favourable attitude of distributors In order to understand in what way a strong that list some products of the brand brand (having acquired distribution, because of their rotation system. In fact a awareness and image) is a generator of growth retailer may lose customers if it does not and profitability it is first necessary to under- stock products of a well-known brand that stand the functions that it performs with the by definition is present everywhere. That consumers themselves, and which are the is to say, certain customers will go else- source of their valuable goodwill. where to look for the brand. This goodwill ensures the presence of the brand at the point of sale. How brands create value for the l The support of wholesalers and resellers in customer the market for slow-moving or industrial goods. This is especially true when they are Although this book deals primarily with seen as being an exclusive brand with brands and their optimisation, it is important which they are able to associate themselves to clarify that brands do not necessarily exist in the eyes of their customers. in all markets. Even if brands exist in the legal l The desire of consumers or end-users to buy sense they do not always play a role in the the product. It is their favourable attitude buying decision process of consumers. Other and in certain cases the attachment or even factors may be more important. For example, 20 W H Y I S B R A N D I N G S O S T R AT E G I C ? research on ‘brand sensitivity’ (Kapferer and powder, etc. For these products the consumer Laurent, 1988) shows that in several product has high involvement and does not want to categories, buyers do not look at the brand take any risks, be they physical or psycho- when they are making their choice. Who is logical. concerned about the brand when they are Nothing is ever acquired permanently, and buying a writing pad, a rubber, felt-tip pens, the degree of perceived risk evolves over time. markers or photocopy paper? Neither private In certain sectors, as the technology becomes individuals nor companies. There are no commonplace, all the products comply with strong brands in such markets as sugar and standards of quality. Therefore we are moving socks. In Germany there is no national brand from a situation where some products ‘failed’ of flour. Even the beer brands are mostly whereas others ‘passed’, towards one where all regional. Location is key with the choice of a competitors are excellent, but some are ‘more bank. excellent’ than others. The degree of perceived Brands reduce perceived risk, and exist as risk will change depending on the situation. soon as there is perceived risk. Once the risk For example, there is less risk involved in perceived by the buyer disappears, the brand buying rum or vodka for a cocktail than for a no longer has any benefit. It is only a name on rum or vodka on the rocks. Lastly, all a product, and it ceases to be a choice cue, a consumers do not have the same level of guide or a source of added value. The involvement. Those who have high perceived risk is greater if the unit price is involvement are those that worry about small higher or the repercussions of a bad choice are differences between products or who wish to more severe. Thus the purchase of durable optimise their choice: they will talk for hours goods is a long-term commitment. On top of about the merits of such and such a computer this, because humans are social animals, we or of a certain brand of coffee. Those who are judge ourselves on certain choices that we less involved are satisfied with a basic product make and this explains why a large part of our which isn’t too expensive, such as a gin or a social identity is built around the logos and whisky which may be unknown but seems to the brands that we wear. As far as food is be good value for money and is sold in their concerned, there is a certain amount of local shop. The problem for most buyers who intrinsic risk involved whenever we ingest feel a certain risk and fear making a mistake is something and allow it to enter our bodies. that many products are opaque: we can only The brand’s function is to overcome this discover their inner qualities once we buy the anxiety, which explains, for example, the products and consume them. However, many importance of brands in the market for spirits consumers are reluctant to take this step. such as vodka and gin. Therefore it is imperative that the external The importance of perceived risk as a signs highlight the internal qualities of these generator of the legitimacy of a brand is high- opaque products. A reputable brand is the lighted by the categories within which distrib- most efficient of these external signals. utors’ own-brands (and perhaps tomorrow’s Examples of other such external indicators are: discount products) dominate: canned price, quality marks, the retail outlet where the vegetables, milk, orange juice, frozen pizzas, product is sold and which guarantees it, the bottled water, kitchen roll, toilet paper and style and design of the packaging. petrol. At the same time producers’ brands still have a dominant position in the How brand awareness means value following categories: coffee, tea, cereals, toothpaste, deodorant, cold sauces, fresh Recent marketing research shows that brand pasta, baby food, beauty products, washing awareness is not a mere cognitive measure. It is  BRAND EQUITY IN QUESTION 21 in fact correlated with many valuable image These authors make the distinction between dimensions. Awareness carries a reassuring three types of product characteristics: message: although it is measured at the indi- vidual level, brand awareness is in fact a l the qualities which are noticed by contact, collective phenomenon. When a brand is before buying; known, each individual knows it is known. l the qualities which are noticed uniquely by This leads to spontaneous inferences. As is experience, thus after buying; shown in Table 1.4, awareness is mostly corre- lated with aspects such as high quality, trust, l credence qualities which cannot be verified reliability, closeness to people, a good quality/ even after consumption and which you price ratio, accessibility and traditional styling. have to take on trust. However it has a zero correlation with innova- tiveness, superior class, style, seduction: if The first type of quality can be seen in the aspects such as these are key differentiation decision to buy a pair of men’s socks. The facets of the brand, they must be earned on choice is made according to the visible charac- their own merit. teristics: the pattern, the style, the material, the feel, the elasticity and the price. There is Table 1.4 How brand awareness creates hardly a need for brands in this market. In fact value and image dimensions (correlations those that do exist only have a very small between awareness and image) market share and target those people who are looking for proof of durability (difficult to tell Good quality/price ratio 0.52 Trust 0.46 before buying) or those who wish to be fash- Reliable 0.44 ionable. This is how Burlington socks work as Quality 0.43 a hallmark of chic style. Producers’ brands do Traditional 0.43 exist but their differential advantage Best 0.40 compared to distributors’ brands (Marks & Down to earth 0.37 Spencer or C&A) is weak, especially if the Client oriented 0.37 latter have a good style department and offer a Friendly 0.35 wide variety at a competitive price. Accessible 0.32 A good example of the second type of Distinct 0.31 quality is the automobile market. Of course, A leader 0.29 performance, consumption and style can all Popular 0.29 Fun 0.29 be assessed before buying, as can the avail- Original 0.27 ability of options and the interior space. Energetic 0.25 However, road-holding, the pleasure of Friendly 0.25 driving, reliability and quality cannot be Performing 0.22 entirely appreciated during a test drive. The Seductive 0.08 response comes from brand image; that is, the Innovative 0.02 collective representation which is shaped over (Base: 9,739 persons, 507 brands) time by the accumulated experiences of Source: Schuiling and Kapferer, 2004 oneself, of close relations, by word of mouth and advertising. Transparent and opaque products Finally, in the market for upmarket cars, the feeling that you have made it, that feeling of At this stage it is interesting to remind fulfilment and personal success through ourselves of the classifications drawn up by owning a BMW is typically the result of pure Nelson (1970) and by Darby and Kami (1973). faith. It cannot be substantiated by any of the 22 W H Y I S B R A N D I N G S O S T R AT E G I C ? post-purchase driving experiences: it is a consumer loses his or her traditional reference collective belief, which is more or less shared points. This is why there is an increase in the by the buyers and the non-buyers. The same demand for branded wine. Consumers were logic applies to the feeling of authenticity and put off by too many small chateaux which were inner masculinity which is supposed to result rarely the same and had limited production of from smoking Marlboro cigarettes. varying quality and which sometimes sprung The role of brands is made clearer by this some unpleasant surprises. This paved the way classification of sought-after qualities. The for brands such as Jacob’s Creek and Gallo. brand is a sign (therefore external) whose A brand provides not only a source of infor- function is to disclose the hidden qualities of mation (thus revealing its values) but the product which are inaccessible to contact performs certain other functions which justify (sight, touch, hearing, smell) and possibly its attractiveness and its monetary return those which are accessible through experience (higher price) when they are valued by buyers. but where the consumer does not want to take What are these functions? How does a brand the risk of trying the product. Lastly, a brand, create value in the eyes of the consumer? The when it is well known, adds an aura of make- eight functions of a brand are presented in believe when it is consumed, for example the Table 1.5. The first two are mechanical and authentic America and rebellious youth of concern the essence of the brand; that is, to Levi’s, the rugged masculinity of Marlboro, function as a recognised symbol in order to the English style of Dunhill, the Californian facilitate choice and to gain time. The myth of Apple. following three functions reduce the The informational role of the brand varies perceived risk. The last three have a more according to the product or service, the pleasurable side to them. Ethics show that consumption situation and the individual. buyers are expecting, more and more, respon- Thus, a brand is not always useful. On the other sible behaviour from their brands. Many hand, a brand becomes necessary once the Swedish consumers still refuse Nestlé’s Table 1.5 The functions of the brand for the consumer Function Consumer benefit Identification To be clearly seen, to quickly identify the sought-after products, to structure the shelf perception. Practicality To allow savings of time and energy through identical repurchasing and loyalty. Guarantee To be sure of finding the same quality no matter where or when you buy the product or service. Optimisation To be sure of buying the best product in its category, the best performer for a particular purpose. Badge To have confirmation of your self-image or the image that you present to others. Continuity Satisfaction created by a relationship of familiarity and intimacy with the brand that you have been consuming for years. Hedonistic Enchantment linked to the attractiveness of the brand, to its logo, to its communication and its experiential rewards. Ethical Satisfaction linked to the responsible behaviour of the brand in its relationship with society (ecology, employment, citizenship, advertising which doesn’t shock).  BRAND EQUITY IN QUESTION 23 products due to the issue of selling Nestlé’s reducing all the costs which do not add value baby milk to poor mothers in Africa. carried out in conjunction with suppliers). These functions are neither laws nor dues, This formula offers another alternative to the nor are they automatic; they must be first five functions: ease of identification on defended at all times. Only a few brands are the shelf, practicality, guarantee, optimisation successful in each market thanks to their at the chosen price level and characterisation supporting investments in quality, R&D, (refusal to be manipulated by marketing). The productivity, communication and research in absence of other functions is compensated for order to better understand foreseeable by the very low price. changes in demand. A priori, nothing Functional analysis of brand role can facil- confines these functions to producers’ brands. itate the understanding of the rise of distrib- Moreover, several producers’ brands do not utors’ own brands. Whenever brands are just perform these functions. In Great Britain, trademarks and operate merely as a recog- Marks & Spencer (St Michael) is seen as an nition signal or as a mere guarantee of quality, important brand and performs these func- distributors’ brands can fulfil these functions tions, as do Migros in Switzerland, the Gap, as well and at a cheaper price. Zara, Ikea and others. Table 1.6 summarises the relationships The usefulness of these functions depends between brand role and distributors’ own- on the product category. There is less need for brands’ market share. reference points or risk reducers when the product is transparent (ie its inner qualities are accessible through contact). The price How brands create value for the premium is at its lowest and trial costs very little when there is low involvement and the company purchase is seen as a chore, eg trying a new, cheaper roll of kitchen paper or aluminium Why do financial analysts prefer companies foil. Certain kinds of shops aim primarily at with strong brands? Because they are less risky. fulfilling certain of these functions, for Therefore, the brand works in the same way for example hard discounters who have 650 lines the financial analyst as for the consumer: the with no brands, a product for every need, at brand removes the risk. The certainty, the guar- the lowest prices and offering excellent antee and the removal of the risk are included quality for the price (thanks to the work on in the price. By paying a high price for a Table 1.6 Brand functions and the distributor/manufacturer power equilibrium Main function of brand Typical product category of brand Power of manufacturers’ brand Recognition signal Milk, salt, flour Very weak Practicality of choice Socks Weak Guarantee of quality Food, staples Weak Optimisation of choice, sign of Cars, cosmetics, appliances, Strong high-quality performance paint, services Personalising one’s choice Perfumes, clothing Strong Permanence, bonding, Old brands Strong but challenged familiarity relationship Pleasure Polysensual brands, luxury brands Strong Ethics and social responsibility Trust brands, corporate brands Strong but challenged 24 W H Y I S B R A N D I N G S O S T R AT E G I C ? company with brands the financial analyst is of capital invested, etc. The financial value of acquiring near certain future cashflows. the brand is the difference between the extra If the brand is strong it benefits from a high revenue generated by the brand and the asso- degree of loyalty and thus from stability of ciated costs for the next few years, which are future sales. Ten per cent of the buyers of discounted back to today. The number of Volvic mineral water are regular and loyal and years is determined by the business plan of the represent 50 per cent of the sales. The repu- valuer (the potential buyer, the auditors). The tation of the brand is a source of demand and discount rate used to weigh these future cash- lasting attractiveness, the image of superior flows is determined by the confidence or the quality and added value justifies a premium lack of it that the investor has in his or her price. A dominant brand is an entry barrier to forecasts. However, a significant fact is that competitors because it acts as a reference in its the stronger the brand, the smaller the risk. category. If it is prestigious or a trendsetter in Thus, future net cashflows are considered terms of style it can generate substantial more certain when brand strength is high. royalties by granting licences, for example, at Figure 1.2 shows the three generators of its peak, Naf-Naf, a designer brand, earned profit of the brand: the price premium, more over £6 million in net royalties. The brand can attraction and loyalty, and higher margin. enter other markets when it is well known, is a These effects work on the original market for symbol of quality and offers a certain promise the brand but they can be offered subse- which is valued by the market. The Palmolive quently on other markets and in other brand name has become symbolic of mildness product categories, either through direct and has been extended to a number of brand extension (for example, Bic moved markets besides that of soap, for example from ballpoint pens to lighters to disposable shampoo, shaving cream and washing-up razors and recently to sailboards) or through liquid. This is known as brand extension (see licensing, from which the manufacturer Chapter 12) and saves on the need to create benefits from royalties (for example all the awareness if you had to launch a new product luxury brands, and Caterpillar). on each of these markets. Once these levers are measured in euros, In determining the financial value of the yen, dollars or any other currency they may brand, the expert must take into account the serve as a base for evaluating the marginal sources of any additional revenues which are profit which is attributable to the brand. They generated by the presence of a strong brand. only emerge when the company wishes to Additional buyers may be attracted to a strategically differentiate its products. This product which appears identical to another wish can come about through three types of but which has a brand name with a strong investment: reputation. If such is the company’s strategy the brand may command a premium price in l Investment in production, productivity and addition to providing an added margin due to R&D. Thanks to these, the company can economies of scale and market domination. acquire specific know-how, a knack which Brand extensions into new markets can result cannot be imitated and which in in royalties and important leverage effects. To accounting terms is also an intangible asset. calculate this value, it is necessary to subtract Sometimes the company temporarily blocks the costs involved in brand management: the new entrants by registering a patent. This is costs involved in quality control and in the basis of marketing in the pharmaceu- investing in R&D, the costs of a national, tical industry (a patent and a brand) but also indeed international, sales force, advertising of companies like Ferrero, whose products costs, the cost of a legal registration, the cost are not easily imitated despite their success.  BRAND EQUITY IN QUESTION 25 CORPORATE RESOURCES DISTRIBUTION INVESTMENTS: MKTG INVESTMENTS INVESTMENTS PRODUCTIVITY, R&D FORECASTING CHANGES (PROXIMITY, KNOW-HOW, PATENTS OF CONSUMER VALUES AVAILABILITY) AND LIFE-STYLES AND COMMUNICATION LEVEL OF BRAND RELEVANCE SHARE OF VOICE OBJECTIVE QUALITY AND ADAPTATION TO SHARE OF MIND COST OF QUALITY ITS PRESENT MARKET SHARE OF SHELF BRAND SALIENCY COMPETITION CUSTOMERS' – OTHER BRANDS PERCEIVED VALUE – INVOLVEMENT – DOB'S VIS-À-VIS COMPETITION – PRICE SENSITIVITY – HARD DISCOUNT – BUYING CRITERIA LEVEL OF INCREMENTAL COST ADVANTAGES SUSTAINABLE ATTRACTION DUE TO MARKET PRICE PREMIUM AND LOYALTY LEADERSHIP EXTENDING BRAND EQUITY BEYOND ITS CATEGORY AND COUNTRY Figure 1.2 The levers of brand profitability Patents are on their own an intangible asset: to the logic of distributors, and developing the activity of the company benefits from good relations with the channels (even them in a lasting manner. though it is still necessary when valuing a brand to make a distinction between what l Investment in research and marketing part of its sales is due to the power of the studies in order to get new insights, to antic- company and what part to the brand itself). ipate the changes of consumers’ tastes and life-styles in order to define any important l Investment in listing allowances, in the innovations which will match these evolu- sales force and merchandising, in trade tions. Chrysler’s Minivan is an example of a marketing and, naturally, in communi- product created in anticipation of the cating to consumers to promote the demands of baby boomers with tall children. uniqueness of the brand and to endow it An understanding of the expectations of with saliency (awareness), perceived distributors is also needed, as they are an difference and esteem. The hidden intrinsic essential component of the physical prox- qualities or intangible values which are imity of brands. Nowadays a key element of associated with consumption would be brand success is understanding and adapting unknown without brand advertising. 26 W H Y I S B R A N D I N G S O S T R AT E G I C ? The value of the brand, and thus the legit- on market share and the ability to charge a imacy of implementing a brand policy, premium price (two indicators of brand depends on the difference between the strength) are not direct but are mediated by marginal revenues and the necessary marginal brand reputation (or esteem). In fact, as costs associated with brand management. shown by the path coefficients of Figure 1.3, brand reputation is created by familiarity How brand reputation affects the (I know it well, I use it a lot) and by brand perceived uniqueness (this brand is unique, is impact of advertising different, there is no substitute). Advertising Brands are a form of capital that can slowly be does play a key role in building sales, but it built, while in the meantime one is growing has no direct impact on gaining both market business. Of course it is very possible to grow a share and premium price. This is most inter- business without creating such brand capital: esting: in brief, it is only by building a reputa- a push strategy or a price strategy can deliver tional capital that both a higher market share high sales and market share without building and price premium can be obtained. any brand equity. This is the case for many Reputation also adds to the impact of adver- private labels or own-label brands, for tising on sales. It is well known from evalua- instance. The volume leader in the market for tions of past campaigns that the more a brand Scotch whisky in France is not Johnnie Walker is known, the more its advertisements are or Ballantines or Famous Grouse but William noticed and remembered. It is high time to Peel, a local brand that aimed all its efforts at stop treating brands and commerce as the trade (hypermarkets) and sells at a low opposing forces. price. It has almost no saliency (spontaneous brand awareness). Now managers are being asked to build Corporate reputation and the both business and brand value. Their salary is corporate brand indexed on these two yardsticks: sales and reputation. One should not see them as In 2003 Velux, which had become known as separate, leading to a kind of schizophrenia. the number one brand for roof windows in Chaudhuri’s very relevant research (2002) the world, realised it needed to create a reminds us that advertising and marketing are corporate brand. It felt that merely to compete the key levers of sales. However, their effects through its product brand was not enough to Brand 0.42 Brand sales advertising 0.11* 0.27 Number of 0.23 Market share competitors –0.17 Brand reputation Brand familiarity 0.56 0.19 Relative price 0.41 Brand *p