Brand Equity As A Strategic Advantage Professor Chip Besio Southern Methodist University Marketing 5341

Why the Interest in Branding?  Brands are assets  Pressure from Stockholders for performance  Pressure from competitors –Most products in a mature marketplace –Price competition abounds

What is Brand Equity?  The “added value” endowed by the brand name  Key elements: Associations, Awareness, Perceived Quality, Loyalty  Intangible, but measurable

Benefits of Brand Equity  Asset management/leveraging  Consumer franchise (facilitates loyalty)  Lower communication costs  Improved prices/margins/market share  More power with the trade

More benefits of Brand Equity  Barrier to competitive entry  Effect on financial valuation of the firm  Value to your Consumer –Recognition, consistency, confidence, image/status, etc.

Managing Brand Equity  It primarily involves managing the consumer’s mind (associations)  Firm must set objectives for the brand  Brand equity measurement is a management essential  Marketing mix elements should be chosen to build, not erode, brand equity

How do you build Brand Equity?  Making consumers aware of your brand  Focusing on the Image your brand portrays  Benefiting from comparison by consumers

What does awareness and image buy?  Influences how consumers make choices  By changing how choices are made we can change what is purchased  Consumers must first be aware before they can compare.

Brand Equity  The value your customers perceive to be uniquely associated with your brand AwarenessAssociations = Awareness + Associations  Awareness –Recall –Recognition  Associations –Perceived Quality –Image

Brand Awareness  A brand that is not considered cannot be chosen  A customer cannot consider a brand unless they are aware of it I don’t know who you are. I don’t know your company. I don’t know your company’s product. I don’t know what your company stands for. I don’t know your company’s customers. I don’t know your company’s record. I don’t know your company’s reputation. Now--what was it you wanted to sell me? MORAL: Sales start before your salesman calls--with business publication advertising.

Brand Awareness RECOGNITION

 Increases likelihood of consideration at the point of purchase  Enhances the salesperson’s initial contact (industrial)  Enhances in-store promotional efforts  Increases attention and comprehension of advertising

Brand Awareness RECOGNITION

Free publicity in the Wall Street Journal

How does this comparison work?  Consumers compare other brands to one brand  Often that brand serves as the reference brand.  Key concept: Loss aversion…when compared to the reference brand, losses may loom large.

Consumers judge value by…  The observed price relative to reference price for the product, and  The observed price relative to the normal or ‘fair’ price of the product –Examples: Restaurants on Friday nights… Super Bowl ticket prices. This is Reference Dependence.

Implication  If you are the reference brand… –Improvements on price, quality, etc. help –But decreases hurt more…  If you are not the reference brand… –You are judged relative to the reference brand –Any way you differ from the reference is your loss

Implication  Reference brands have competitive advantages, Q: What are the reference brands in your product category?

Pricing Implication  Price cuts will effect different brands differently  High quality brands can easily “steal” market share from low quality brands by cutting price.  But lower quality brands will not steal share from a high quality brands by cutting price Responses to price cuts are asymmetric, high price brands can steal from the poor.

How do you become a reference brand?  ‘Strong’ brands that have great awareness (T.O.M.)  First Mover Advantage  Brand most recently purchased  Sampling, particularly for higher quality brands

Comparison: Summary  Having high brand awareness can make you the reference brand which can be a significant advantage.

To create value…  Brand must support a higher reference price…  Must maintain this over time, even in the face of stiff competition…  Applications: –To raise price… New Models Price Bundling Etc…

What Strategic Element cannot be duplicated?  You lower price, they can eventually lower price  You can add a feature, they can eventually ad that feature  But… They cannot use your brand name!!