THE MYSTERY OF BRANDS

Dr. Wolfgang Grassl Albion College January 10, 2002

Question what does the following symbol mean to you ? .. little girl in the rain with an umbrella which brand does the following tag line stand for ? .. when it rains it pours

And the answer is

salt is a relatively simple commodity -- how come most of us seem to know any brand of salt at all ? there seems to be little to tell about the qualities of salt, the product having few cues by which to store it in our semantic memory isnt marketing salt simply selling sodium chloride ?
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Marketing sodium chloride quite on the contrary: for the marketer, thats where the challenge starts ! Mortons share of about 50 % of the U.S. market achieved by
(1) stability of brand (stable brand personality) (2) introducing a higher degree of product differentiation
Morton Lite Salt Morton Kosher Salt Morton Salt Substitute Morton Popcorn Salt Morton Canning and Pickling Salt brands

(3) accepting a low price difference in comparison with private-label salt

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What can we learn from this ? enormous importance of brand-building financial importance of brands everything can be marketed -- but can everything be branded ?
air ? sand ?

branding of
products (goods and services) personalities ideas places
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how do you market water and sugar (together) ?

Marketing sugar and water

This raises questions Why are some companies able to establish a clear-cut competitive position for their product in the mind of market participants, while others never do so ?
Cola wars McDonalds vs Burger King Oldsmobile brand

How do you differentiate your product from that of your competitors in a way that is important to the target customer segment ? How do you turn a brand advantage into profitability ? What are the rules of successful branding ?
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The biggest question of all is What are the rules of successful branding ?
What makes Coca-Cola, Levis, or Cartier strong brands ? Why does Pepsi seem unable to catch up with Coke ?
Coca-Cola Co. Pepsi-Cola Co. Coke Classic + Diet Coke Pepsi-Cola + Diet Pepsi
Source: Beverage Digest; Advertising Age

Share in Carbonated Soft Drinks Market, U.S., 2000 44.1% 31.4% 30.8% 18.9%

Advertising Expenditure U.S., 1999 $403MM $672MM

Why has General Motors struggled with its portfolio of brands for about forty years ?
GM market share in U.S.: 1991: 36%, 2001: 28%
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Nature and function of brands nature of brands

products-plus (mystery) higher level of complexity

function of brands
consumers
convey information (BMW: The Ultimate Driving Machine) instill trust (you know what you can expect)

marketers (producer brands vs store brands)

higher degree of product differentiation stronger brand loyalty higher mark-ups higher profitability unique company profile: differentiation on market brand equity = value of brands (surplus value over non-branded products)
set of assets (or liabilities) linked to the brand that adds (or subtracts) value
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Customer-based explanation of brand equity

Brand Loyalty Name Awareness Perceived Quality Brand Associations Other Brand Assets

Brand Equity

Provides value to customers by enhancing customers

* interpretation and processing of information * confidence in the purchase decision * use satisfaction

Provides value to firms by enhancing: * efficiency of marketing programs * brand loyalty * prices/margins * brand extensions * competitive advantage
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Understanding the customer-based view brand equity is determined by the customer

culmination of the customers assessment of
the product the company other variables that impact on the product

brand equity exclusively subjective (in the eye of the beholder) brand equity can largely be influenced by marketing management ad libitum (and mainly through advertising)
assumes infinite plasticity of mind brands seen in isolation from one another

in philosophical terms: idealist view (structures of reality are at the behest of the observer or actor)
is this really the whole story ?
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Brand equity rankings

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Worlds most valuable brands, 2001

RANK BRAND BRAND MARKET CAP OF BRAND VALUE BRAND VALUE PARENT COMP., AS % OF MARKET LEVERAGE ($MM) JULY 2001 ($MM) CAP, JULY 2001 2001 68,945 113,000 61.0% 4.18 65,068 380,000 17.1% 3.16 52,752 198,700 26.5% 0.67 42,396 498,000 8.5% 0.38 35,035 104,200 33.6% 1.37 34,665 202,200 17.1% 1.15 32,591 60,000 54.3% 1.91 30,092 45,900 65.6% 0.27 25,289 35,400 71.4% 0.75 22,828 148,950 15.3% 0.39 22,053 107,300 20.6% 2.28 21,728 45,350 47.9% 0.59 19,005 268,900 7.1% 0.86 18,578 133,400 13.9% 0.23 17,983 55,800 32.2% 0.41 33,934 159,807 32.8% 1.24
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Coca-Cola Microsoft IBM GE Nokia Intel Disney Ford McDonald's AT&T Marlboro Mercedes Citibank Toyota Hewlett-Packard Average

Source: Interbrand

This means brand leverage = brand value in relation to the previous years brand sales
the higher the leverage the more value is being generated from each dollar of sales

results
among the most valuable brands, the share of brand value in market capitalization is as high as 71.4% (McDonalds) or as low as 7.1% (Citibank) brand leverage is low for manufacturers of investment and capital goods (Toyota, Ford, GE, HP, Mercedes, IBM) but very high for manufacturers of consumer goods and service businesses (Coca-Cola, Microsoft, Marlboro, Disney)
why ? -- management issue or systemic explanation ?
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Worlds most valuable brand portfolios, 2001

RANK BRAND OR PORTFOLIO BRAND BRAND VALUE WORLDWIDE ADVERTISING VALUE AS % OF MARKET MEDIA SPENDING, EFFICIENCY ($MM) CAP, JULY 2001 2000 ($MM) INDEX* Coca-Cola 68,945 61.0% 1,579 43.66 Johnson & Johnson 68,208 48.4% 1,075 63.45 Microsoft 65,068 17.1% 559 116.40 IBM 52,752 26.5% 724 72.86 Procter & Gamble 45,435 54.3% 4,152 10.94 GE 42,396 8.5% 1,754 24.17 Nestl 41,688 50.4% 1,886 22.10 Unilever 37,847 66.9% 3,665 10.33 Nokia 35,035 33.6% 259 135.27 Intel 34,665 17.1% 123 281.83 Disney 32,591 54.3% 1,104 29.52 Ford 30,092 65.6% 2,323 12.95 McDonald's 25,289 71.4% 1,404 18.01 AT&T 22,828 15.3% n/a n/a Marlboro 22,053 20.6% n/a n/a Average 41,659 40.7% 1,585 64.73

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

* = (Brand Value / Media Spending) Sources: Global Advertising Age; Interbrand

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The picture seems to solidify at the level of brand portfolios, too, there is no clear relationship between the level of advertising expenditure and brand value
r = -0.1279 (inverse relationship !), r2 = 0.0163 strong corporate brands like Intel, Nokia, Microsoft and IBM enjoy a high advertising efficiency, umbrella brands like P&G and Unilever (expectedly) a low one but why do McDonalds and Ford (which have the highest and second-highest brand leverage among the 15 brands) lag so far behind ?
systematic relationship sales brand value but not advertising brand value

hypothesis: advertising is not a strong but a weak force in determining brand equity
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Implications customer-based view (brand idealism) called in question

degree to which products can be branded does not depend on marketing management alone (or not even primarily on it)
brand equity

alternative: brand realism

rooted in ecological psychology and evolutionary theory
adaptive marketing

philosophically: brands have a reality in addition to the products they inhere in -- they are not just products-plus
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Realistic explanation of Nike brand

consumer values
brand equity

marketing management

cognitive constraints

product features

ecological model - two levels:

subjective objective
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Two alternative explanations of brand equity

CONSUMER EVALUATION BRAND AWARENESS PROMOTION (ADVERTISING) (a) Conceptual Model of Idealism CONSUMER EVALUATION BRAND AWARENESS PROMOTION (ADVERTISING) (b) Conceptual Model of Realism BRAND LOYALTY COGNITIVE CONSTRAINTS BRAND EQUITY PRODUCT FEAUTURES BRAND LOYALTY BRAND EQUITY

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Further evidence brand extension research

stretching of a brand into a different product category
more than 80% of NPD either brand extensions vast majority of brand extensions are failures successful
Calvin Klein: clothing > perfume > underwear Jell-O: dry mix box > ready-to-eat dessert > yogurt > ice pops Virgin: record label > retail entertainment chain > airline > tour operator > multimedia production

unsuccessful
Levis: J & J: Pierre Cardin: Virgin: Bic: jeans wear > dress suits (but: Dockers, Slates) baby oil > perfume fashion wear > dishware record label > cola pens, disposable razors > pantyhose > perfumes
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And this means ? consumer perception cannot be arbitrarily manipulated and brands cannot be arbitrarily stretched without diluting the master brand
consumers are hardwired (tastes for sugar and fat, etc.)
ca. 3,000 marketing messages bombard the human mind every day: why do only few directly affect our consumer behavior ?

consumers have cognitive constraints (complexity of products, differentiation, distance old-new category, etc.)
example: flop of Crystal Pepsi

laws of brand extension: extendibility enhanced if

contiguity in perceptual space perceptual fit of core associations with product category low degree of category domination (prototypes)
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 and further it means that there are regularities governing the degree to which products lend themselves to becoming strong brands
niches in product space (space not continuous but discrete)
niche = specific combinations between product features and cognitive constraints in consumers that enable a fit in some but not in other cases
niches constrain or accommodate brands

nature of boundaries surrounding a brand (co-) determine extendibility and lastly brand equity
Federal Express owns the association overnight, Volvo safety

brandscape (= landscape of interrelated brands) rather than brands in isolation

associations affect other brands
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 and lastly that even the best marketing management and the largest advertising budget cannot brand what the structures of product space do not make brandable in the first place
complexity of brands (= number of features by which we differentiate products) determines number of potential niches in any product category

consequence: new understanding of brands necessary

positioning maps brand molecules
brands not discrete but continuous surrounding product space not continuous but discrete

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Old view: positioning maps

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New view of brands: brand molecules brands as molecules

single brand brand portfolio

spill-over associations

core associations

master brand

parent company

brand extensions

spill-overs from other (contiguous) brands

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Niches brand equity is a function of the degree to which brands can be moored in niches
accommodation, boundaries and defendability

ecological niches
environment (= product space) determines degree of branding potential every product category allows for a finite number of niches niches can be empty

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The underworld of brands

brand associations often below threshold of consciousness
cognitive constraints

above ground: consumer decisions analogy: mycelium of a fungus

Mycelium of Matsutake mushroom (hyphae)

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Is this new view of brands more promising ? opens up an interdisciplinary research program
ecological contexts (biology, psychology) complexity theory (mathematics, computer science) ontology (philosophy, artificial intelligence) product differentiation (economics)

better fit with empirical data about branding and advertising better explanation of brand management strategies
co-branding
Subaru markets L.L. Bean Outback station wagon Dell stamps Microsoft and Intel logos on its computers credit card co-branded by Visa, Citibank and American Airlines

brand extension
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New view of marketing old view: marketing is a battle over perceptions, not products
but: why did New Coke fail in 1985 ?
Coca-Cola Co. conducted 200,000 taste tests that showed that New Coke tasted better than Pepsi-Cola and than Coke Classic consumers did not accept a cola that tasted too much like Pepsi

new view: marketing is more than about perception

it requires a study of the total environment in which we live and act naturalistic turn

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