Brand Equity for Strategic Advantage: Consumer Decision Making Professor Chip Besio Southern Methodist University Marketing 6215

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 of 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

Overview

What does awareness and image buy?  Influences how consumers make choices  By changing how choices are made we can change what is purchased

Overview

Consumers are overloaded.  They have a vast array of alternatives  Each product has many attributes  Everyone is under time pressure

The average supermarket consumer:  Does very little search: Average less than 12 second per item  42% spent 5 seconds or less  32% spent between 6 and 15 seconds  Average number of brands handled: 1.21; 85% touched only one brand Source: Pete Dickson and Stan Sawyer Journal of Marketing

How Do Consumers Cope?  Choice has two phases –Screening: Eliminate Alternatives –Comparison: A small set of alternatives (2-3) get intense scrutiny

Overview

Screening is important  Elimination occurs because: –The brand lacks a feature (attribute) –The brand does not meet some cutoff (price?)  Once eliminated a brand is not reconsidered.

How Does Brand Equity Effect Screening?  Awareness: Can I recall this brand? Imagine that your sewer is backing up, and you are about to leave town on a business trip. Who do you call? (Services rarely purchased must have high Top-of-Mind)

How Does Brand Equity Effect Screening?  Awareness: Can I recall this brand? More commonly, a harried or uncertain consumer will eliminate brands with which they are unaware.

How Does Brand Equity Effect Screening?  Image guides inference about the brand.  Inference substitutes for search because: –Search is expensive –Available information is irrelevant or tough to understand

What are your impressions of this watch?

How Does Brand Equity Affect Screening? A Strategic Advantage  Powerful brands can set the agenda: –Dictate the attributes used for screening  Examples: –Volvo and Safety –Crest with Tartar Control –American Express Travelers Checks

Screening: Summary  Large product classes are screened.  Elimination = Death  Brand Equity influences screening –Recall for the consideration set –Inferences about product attributes –Setting the agenda for screening What Attributes are used for screening in your product class?

Overview

Screening simplifies choice, but does not do the whole job.  Even when screening consumers seem to examine 2-3 alternatives much more carefully.  Process involves intense comparisons on a small set of attributes.  How does this comparison process work?

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 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,  Particularly on features which are the most loss adverse 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 with 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.

Overview

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!!

Building Customer Based Brand Equity Kevin Lane Keller

Building Customer Based Brand Equity The Six Brand Building Blocks

Building Customer Based Brand Equity Sub-dimensions of Brand Building Blocks

Building Customer Based Brand Equity

Determining Brand Value: Prices vs. Sales

SNAPPLE: BRAND ACQUISITION HISTORY Quaker Oats Acquired Snapple Beverage Co. Price: $1.7 Billion Snapple Sales: $670 Million 1997 – Quaker Oats Sells Snapple to Triarc Cos. Price: $300 Million Snapple Sales: $500 Million Triarc Cos. Sells Snapple to Cadbury Schweppes PLC Price: $1.03 Billion (includes additional assets + debt) Snapple Sales: $775 Million

SOME BRAND ACQUISITIONS: PRICES AND SALES MULTIPLE Brand(s) AcquiredSellerBuyerPrice Sales Multiple Iams and Eukanuba (dog food) Iams CO.P & G$2.3 Billion2.9x Hawaiian Punch (juice) P & GCadbury Schweppes $203 Million 1.5x Ray-Ban (sunglasses) Bausch & Lomb, Inc. Luxottica Group, SpA $640 Million 1.4x (128x earnings multiple Pringles (snack chips) P & GKellogg$2.7 Billion1.8 x (11.7 x earnings)