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Branding strategy.

We have been told that brands are dead, or at least on their last legs. So goes the argument, bringing to light one of the most visible elements of turmoil in marketing in recent years. But are brands really dead? On the contrary, they are alive and well. But their place in today's marketing environment is very different from their position in the past, and they are severely misunderstood. As marketers take a much broader perspective in their activities, they will view the goal of marketing strategy not as building the size and share of market demand, but as increasing the size and their share of the total surplus--or profits--in their industry.

Brands have been, and will continue to be, an important vehicle for capturing that surplus. The new marketing environment--featuring demanding consumers, fragmented channels of distribution, and a complex technological landscape--creates substantial opportunities for new types of brands but also new requirements for branders. It is no longer obvious that the manufacturer should be the brander within categories. Every participant in the industry channel, from suppliers to manufacturers to retailers, can be a brander. But this position may not come easily; they need the competitive "right to brand."

THE ABILITY TO WIN BRANDING RIGHTS

Surprisingly, perhaps, there is considerable disagreement over what a brand actually is. For some, it is a relatively narrow notion of a trademarked name; for others, it is an image that can be used to communicate benefits and points of differentiation. However, from a much broader context branding encompasses both the tangible and the intangible benefits provided by a product or service. It covers the entire consumer experience and includes all the assets critical to delivering and communicating that experience-- the product name, the advertising, the product or service, and, in many cases, the distribution channel.

Over the years, nationally advertised manufacturer's brands have dominated the market. For the past 50 years, these brands took advantage of low consumer confidence and relatively high channel power. They also benefited from economies of scale in mass production technology and the advent of a single major choice in advertising media--television--to develop distinctive value for consumers and build consumer loyalty. In turn, this allowed marketers to capture high price premiums from consumers and achieve strong bargaining positions with retailers.

This branding concept thrived in a much simpler world than that which exists today. Marketers could focus on the consumer--on the benefits to be offered and on the advertising communications--and ignore other elements of the industry chain and other communications media. Now the need to adopt a total system perspective on marketing means these convenient simplifications are no longer valid. But that does not mean brands are no longer important. Quite the opposite.

Branding strategies will continue to be the cornerstone of marketing. And marketers focusing on gaining a share of the market surplus will continue to need brands. They will succeed based on their ability to build brands and, as before, their goal will be to develop a sustainable relationship with a consumer. But whereas the 1950s brander faced homogeneous demand, fewer media, and a minimum number of distribution channels, today's branders face fragmented demand, multiple media, and proliferating distribution channels--all creating new challenges.

* Knowledgeable consumers. The success of many of the original televised brands was based on trust. Whether it was a manufacturer's brand such as Tide or a retailing brand such as Sears, the relationship--and a price premium--was rooted in a perception of trust among a group of consumers who were generally naive about what constituted value. Today, consumers' confidence and their ability to seek value are so high that trust, as it was once known, is not worth much. Instead, branders need to find ways to deliver sharply articulated value to an increasingly cynical set of consumers. At the same time, fragmenting demographics and needs have created a wide variety of attractive market segments within even the most homogeneous of product categories.

* Media. The world full of media interactivity may still be several years away, but multiple channel media and sophisticated direct marketing programs have substantially enhanced marketers' abilities to communicate efficiently to smaller and smaller segments of the population. Coca-Cola, for example, is already using 20 variations of its ad across the U.S., and more and more marketers are likely to follow suit.

* New channels of distribution. Providers of packaged goods, apparel, durables, and financial services are all experiencing the proliferation of available channels. This adds to the complexity of serving the specific needs of unique segments. Several companies are effectively using new channels. Cott, for example, sells Sam's Choice cola through the Wal-Mart chain. Such innovative approaches escalate and widen the competition for branding rights.

This new marketing scene makes it tough for companies seeking to build the size and share of their market surplus. Branding is one of a marketer's most powerful tools for achieving this objective. Brands help build a relationship with a consumer that creates a surplus. Moreover, branding provides the platform for a continuing stream of transactions. But just because marketers want to use a brand name to build a consumer relationship does not mean they will be able to do so, even if they have a better idea.

What they need is the competitive "right to brand"--to be the best placed in the industry with a distinctive brand to approach consumers, gain their trust, and build the relationship. The right to brand will tend to go to the company that, other things being equal, differentiates its value, controls the core assets to deliver the value, and owns the consumer relationship in the most efficient way.

Differentiate consumer value. As in the past, the value for consumers will have to be distinctive across more than just a single product benefit. The best new approaches deepen consumer understanding of distinctive benefits, use new technology to deliver better or cheaper products, and/or structure the business system to provide increased value. CNN recognized that a "video river"--an uninterrupted torrent of visual information--would appeal to people brought up in the television age. Using on-site reports with little or no studio location, CNN reduced its dependence on both unions and costly anchors. Doing this eliminated some participants in the industry chain, increased the potential surplus for remaining players, and completely reconfigured the broadcast news business.

Control the core assets. Coke and Pepsi own the recipe, brand name, and image that are key to their overall value. Sherwin-Williams tops the paint market in the U.S. through its control of the distribution network, its retail outlets, and its quality image. This does not necessarily mean that a company must own all the assets. Many manufacturers provide one important part of the value package for the consumers, but not the total package at competitive prices. For these companies, explicitly allowing the retailer to provide part, or most, of the value may be an attractive way to create surplus. Private-label suppliers such as Ralston Purina are attempting to follow this approach. By combining technological advances with outstanding customer service, they can retain at least a partial right to brand. In some senses, this model is similar to that used by consumer companies in Japan for many years, where powerful distributors with control of the sales/channel management function dominate a large part of the marketing effort.

Own the consumer relationship in the most efficient way. No approach will sell a product or service if the consumer does not know about it. Because branding is about building sustainable relationships with consumers, the company that is closest to the consumer is often best placed to do that. Thus, in many industries--financial advisers in insurance or retailers in fashion or packaged goods are some examples-the distribution channel has the advantage. Advertising is one way for others in the chain to build a relationship, but it involves only one-way communication and is generally not personal or timely, so it is not as powerful as direct contact. Conversely, many consumers are not seeking personalized, one-on-one relationships. Indeed, they may resist if retailers of low involvement products attempt to build personalized relationships through, say, loyalty cards. In these markets, advertising may have relatively greater value. Overall, the natural brander--the company with the right to brand will tend to have the most efficient means to own the consumer relationship.

A key difference between the brands in the new environment is how the media can be used to build relationships. Rather than merely broadcast to consumers, some marketers will "narrowcast" their brands, talking to a few consumers or only to one; some will listen actively to consumers; and some will even work with the consumer to build overall relationships. Using new media can create this relationship for far less money than the 20 to 35 percent of sales required by some traditional big brands in the past. Indeed, word of mouth is often sufficient because the brand value is unique and clear.

Two high-profile consumer categories, soft drinks and financial services, illustrate the importance of securing the right to brand (Figure 1). In soft drinks, Coke and Pepsi have suffered major share declines in various parts of the world, including the U.S., as Wal-Mart and others have launched their retail brand colas. The problem for these major brands is that although they have differentiated their value to consumers, so have the private label brands. Those colas taste much the same but sell at a much lower price. Both groups control the core asset, the syrup, although the manufacturer owns it and the retailer contracts it. But Coke and Pepsi still use high-profile, high-cost advertising--an expensive way to reach consumers--whereas retailers use minimal advertising, at least as a percentage of sales. The latter count on the cumulative impact of their private brands--Sam's Choice, for example-to communicate the value to consumers.

In a different arena, the U.S. financial services industry--traditionally banks--has spent considerable capital trying to create a brand without much success. Meanwhile, new telephone-based banking companies, such as MBNA, have become quite adept at establishing a "branding relationship" with their consumers. This has happened largely because, although traditional banks owned the core assets, they lacked the other two requirements for establishing the right to brand. They did not develop a clearly differentiated value for consumers; no matter how much bankers would like to believe that "We're your special bank" is a recognizably differentiated value, it simply is not, particularly when all banks say the same thing. Moreover, they tried an expensive, inefficient method of establishing relationships with consumers. By comparison, MBNA probably spends less time on acquiring consumers and building loyalty. Clearly, this new environment is generating more rigorous requirements to be a successful brander. It is also creating a wide range of approaches industry players can use to establish their competitive right to brand.

EMPLOYING MULTIPLE BRANDING MODELS

Companies are already pursuing a wide variety of branding models for building a sustainable relationship with consumers. Each model includes not only what the brand is but also how it is developed and maintained. More specifically, each is differentiated along four dimensions: (1) the scope of communications involved, from mass media approaches to vehicles targeted to individuals; (2) the loyalty of the relationships that could range from being brand loyal to brand switching; (3) the basis for trust, varying from simple faith in a tried-and-true product or service to clear logic as to why the selling proposition works; and (4) the complexity of the value chain in which a product or service could be fully integrated or completely unbundled.

Seven branding models are presented here that illustrate the extent of the change from one dominant model. The list is by no means exhaustive and the models overlap somewhat, but they suggest an array of potential approaches to branding (Figure 2).

The Massive Advertiser

Massively advertised brands will continue to exist in the right environment. However, they are constantly being challenged in their efforts to succeed. Most important, they require superior product benefits that can be communicated to consumers. Whereas consumers once bought brands because they trusted them, some now buy them because 'they fully understand the basis for the benefits, and others buy simply because they cannot be bothered to switch. Even among such loyal customers, these brands will now only sell at what buyers consider a reasonably higher price. In most categories this translates to a 10 to 25 percent premium, rather than the much higher prices many brands have commanded over time. Moreover, the brand must be completely reliable in delivering the promised benefits, or consumers will try new products.

Massive advertisers will need to "get back to the basics" with this approach, using their volume to develop a super-efficient product supply system to keep costs down while innovating to ensure they truly differentiate consumer value. They will also need to invest sufficiently in advertising to sustain consumer demand and to think increasingly about how to use point-of-purchase communication to supplement their message. The right brand will rest on their ability to continue to differentiate their products from copycats and remain large enough to afford the advertising.

Every day we see examples that this branding model is being used. Branded manufacturers such as Procter & Gamble, Kraft, and Unilever are investing heavily to cut costs worldwide while reinvesting in brand advertising.

The Inducer

By continuously creating "newness" to attract attention and generate a sense of urgency, the inducer creates incentives for consumers to purchase. Newness can come from price changes, promotional events, or new product features. This is the model used by many retailers in many industries: grocers provide traffic-building discounts; fashion retailers continue to be successful with high/low pricing on fashion items; in consumer electronics, manufacturers like Sony have perfected the art of constantly refining their products to create replacement demand.

When it comes to communication, usually "the medium is the message." Advertising can announce the news, but the shop or product itself has to provide the excitement. The right to brand rests on this newness. Like the massive advertiser, this relatively old model is still alive and well. Perhaps it is due for a resurgence, despite some rumors of its demise. Information Resources, Inc. recently completed a study of the everyday low pricing (EDLP) versus high/low pricing across 63 categories in American grocery stores. Stores with high/low pricing were yielding 2 to 3 percent higher sales than with EDLP.

The Differentiator

Differentiators build relationships one at a time. They leverage market research and technological advances to segment their consumer base into individuals and small clusters of users and tailor their message, marketing mix, and products to the consumer's needs. Because of precise targeting, communication is essentially a dialogue, which generally can be better at building a relationship than a broadcast. The right to brand is earned in part through ownership of the database of individual transactions and the ability to interpret it.

This approach was pioneered by direct mailers like Fingerhut, which sends little Hannah's mother a catalogue featuring merchandise for little girls a few weeks before Hannah's birthday. The airlines followed this by tailoring a program for their frequent flyers based on customer flying patterns. Packaged goods companies are getting in on the action as well. Direct Marketing reported in March 1996 that more than 400 U.S. packaged goods firms are now experimenting with direct mail--almost triple the number of three years ago. Despite such growth, however, many firms still report less than enthusiastic responses. These failures are often the result of misunderstanding the economies of this branding model. With response rates running as low as 2 to 3 percent, this may be a more expensive communication approach than brand advertising.

The Candid Marketer

Many consumers have grown tired of the marketing hype. In fact, Yankelovich & Partners recently reported that fewer than 8 percent of surveyed consumers trusted what major advertisers said. So candid marketers have begun to be completely open about how their marketing works, including (any) payoff from loyalty. American Airlines uses this model in dealing with frequent flyers. Its literature directly explains loyalty requirements and benefits from its program, which lavishes its gold and platinum members with special attention. Consumers may not like all the rules, but American's success with this program shows that consumers appreciate knowing where they stand at all times.

Candid marketers aim to increase loyalty and lower marketing costs. In some ways, this is the 1990s version of word-of-mouth advertising--no fancy ads, no big budgets, just a very clear message that even today's skeptical consumer can understand and trust. This appears to be a very attractive model, largely because openness is a basis for many good relationships. A prerequisite for success is understanding consumers. The brand must also earn the consumer's trust to capture the surplus.

The Loyalist

Although marketers strive for some type of continuous, interactive, and responsive relationship with their highest potential users, some will go one step further and try to reach a loyal relationship with core customers as the basis for creating surplus. Loyalty creates surplus largely because it reduces the expense of continuously ferreting out customers; it costs an average of seven times as much to acquire a new customer as it does to market to existing ones.

We have seen tremendous growth in loyalty marketing in the past few years: frequent flyer programs for airlines, cash dividend incentives for premium credit cards, and other programs for retailers, such as Neiman-Marcus's Inner Circle. But marketers of these programs need to be careful not to transfer all the surplus to consumers by setting prices lower than they would otherwise pay. In fact, many retailers have found themselves in a vicious circle wherein the volume going through their loyalty schemes is far too great to forgo, yet the effective margin reduction seriously damages profits. Unfortunately, merely removing such a scheme, which has now become the basis for owning the consumer, could be seen by many as constituting grounds for divorce from this loyal relationship.

The Benefit Separator

With their increasing sophistication, consumers can readily understand a complex approach. The benefit separator appeals to them because it over-delivers on one or two points that matter most to the consumer and then under-delivers--or has the consumer do more--on the less important attributes. IKEA, the highly successful Swedish retailer, sells furniture that is practical in a variety of household settings and reasonable in price-- key buying factors for the company's young family target market. But consumers have to do more. They must line up at checkouts, wait six weeks for special orders, and assemble the furniture themselves. Nevertheless, the compromise works. It is an appealing partnership between the consumer and IKEA.

Southwest Airlines pursues a similar strategy. It is not just another cheap, no-frills airline like PEOPLExpress and others that found a market after the U.S. deregulation of airlines in the late 1980s. Its on-time performance is superb, and ticketing and check-in are probably the easiest in the industry--all for a much lower price. But, again, consumers do have more to do. They have to give up seat allocations, and they need to line up quickly to meet Southwest's need for rapid landing and takeoff turnarounds, which cut costs for the airlines and, consequently, lower prices for customers.

Here, as with many of the newer models, advertising's role is simply to let consumers know about the latest offers and any current twists. Most of the communication is through the experience itself.

The Beneficent Brand

In the wake of its recent research on broad consumer trends, Yankelovich stated that consumers now trade off four factors when they consider value: price, quality, time/convenience, and the stress involved in making their purchase. When a marketer can exceed customer requirements for all four factors, the potential exists to maximize a surplus through a "beneficent" brand that does it all.

Lexus, Saturn, and several European luxury, car manufacturers are currently pursuing this strategy in the United States. Instead of unbundling the car purchase from service and after-sales service, they offer the complete package, including emergency roadside service should the car break down. Consumers no longer buy a car, they buy an integrated personal transportation package for which they provide only the gas. This appeals to today's sophisticated consumer, who has indicated in market research that less than 30 percent of the value of the car is the actual purchase price. And it is paying off. Customer satisfaction ratings for Lexus and Saturn are up to 20 percent higher than those for traditional auto manufacturers.

In the cases of both the benefit separator and the beneficent brand, the consumer relationship is intimately linked to the design of the overall business system. The success of Lexus and Saturn has only been achieved through a new and different manufacturer/dealer relationship. Similarly, the success of fashion retailers such as Benetton, The Gap, and The Limited is due partly to their ability to help consumers choose outfits that are color coordinated and displayed together. Consumers no longer have to search for outfits by looking at single items in multiple locations, then trust their own judgment and taste to coordinate colors.

CHOOSING A MODEL

There is no simple way to match a company or an industry with a particular branding model. Indeed, some of the most successful branders of the future will be those who create brands that might have been considered "unnatural" for their industry. The Nestle baby food group in France uses roadside mother-help stations on major highways to develop a database for direct marketing programs in a segment that might have been considered a natural for massive advertising. American Express/IDS, the personal financial planning division of American Express, built up its business by being the beneficent brand that aided consumers in planning their long-term financial future while other personal financial services were trying to follow either massive advertiser or loyalist models. Companies may also take this broader view of branding to find new opportunities in supposedly mature markets and to reduce their risk of being blindsided by competitors who emerge from surprising places.

When trying to decide whether there is an opportunity, the marketer's challenge is to understand the potential scale of demand that can be created through the range of branding models and the approaches to capture that demand. This helps assess the market surplus that will be generated and the likely winners in capturing that surplus over time.

As always, in determining the potential size for a brand strategy, marketers need to consider all the potential aspects of demand, but with an added dimension. Successful branders have to ensure that their model for the relationship is uniquely valued by a subset of consumers who purchase the goods or services. Some people will be comfortable with a direct marketing relationship; others will like to provide part of the value on their own; some will like one company to do it all; still others will value the core benefit available from the massively advertised brand. The key questions are: How many consumers value the type of relationship being proposed? And what are they willing to pay for that product or service? The answers require more than basic market segmentation because consumers' needs, channels of distribution, and the costs of micromedia are changing so quickly that companies have to have estimates of both current and future demand for each branding proposition.

The new question for marketers is how to develop loyal customers over the long haul to sustain the right to brand. In answering this question, a key aspect of estimating demand is to gauge the level of consumers' knowledge and involvement--their willingness to take the time to understand the product/service value and interact with the markets. The candid marketer requires high involvement because consumers must understand the communication. Similarly, the more complex branding models, such as the benefit separator or the beneficent brand, require a fair amount of involvement for the customer to understand the offering. In the case of the benefit separator, customers must participate in the way the product is delivered. Some of the other branding models do not require this level of involvement. The massively advertised brand, for instance, requires little thinking and may even be more effective when consumer knowledge is low.

The heart of the marketing manager's job is to find ways to raise consumer involvement, because this will open up an increased number of marketing levers over time. Building the relationship will decide who gains the right to brand and who is most likely to capture the surplus. The marketing manager must consider the various prototypes discussed here to select the most appropriate branding strategy.

In the new, more complex marketing environment, the range of branding approaches that can succeed is wide open, and the right to brand is up for grabs. For the next several years, marketers will have to grapple with ways to earn, sustain, and regain brand control. Rather than slipping into oblivion, branding will stay at the top of the market's agendas for the foreseeable future as companies strive to gain the right to brand. This right does not automatically reside with some companies and not with others. Rather, this is a key strategic contest of the 1990s, the strongest weapon in the battle for surplus. The companies that successfully choose a winning model will earn the right to brand, and a handsome share of the market surplus to boot. I

Figure 2

New Concepts For Branding

MODELS FOR BUILDING A SUSTAINABLE RELATIONSHIP WITH CONSUMERS

THE MASSIVE ADVERTISER

* Driven by mass advertising and mass distribution of mega brands

* "own the middle" value

* An old model with new twists

* More efficient business system

* Lower price gap

* Renewed focus on advertising vs trade marketing

* Examples: Coke, Marlboro, Pampers

THE INDUCER

* Driven by frequent changes to entice purchase

* Pricing change (high/low)

* Product change

* Promotions/events

* Examples: Sony, high/low marketers and retailers

THE DIFFERENTIATOR

* Driven by segmenting consumers into very small groups of high-value users

* Detailed consumer intelligence

* One-to-one communication and interaction

* Tightly tailored product offerings

* A model pioneered by direct mail statistical gums and now spreading across industries

* Examples: Fingerhut, American Airlines, Nestle

THE CANDID MARKETER

* Driven by a trust based, rational relationship with consumers

* Transparently fair value

* Telling, not selling

* Dialogue, not manipulation

* A new model for marketing

* Examples American Airlines, Fidelity Investments U K

THE LOYALIST

* Driven by a focus on building lifetime relationships with high-=value consumers

* Marketing expenditures assessed based on a lifetime value

* Continuous communication and interchange with consumers, based on building genuine relationships

* Examples: Neiman-Marcus, "Inner Circle"

THE BENEFIT SEPARATOR

* Driven by a relentless focus on delivering core benefits in a superior way and stripping out less valued benefits

* Consumer becomes parmer in the product delivery

* Examples: Southwest Airlines IKEA

THE BENEFICENT MARKETER

* Driven by taking control of the key levers across the entire supra-business system

* Taking control of the consumer and the total value-delivery system

* Eliminating non-value-added activities

* Examples: Charles Schwab Lexus, Saturn

Richard D. Leventhal is a professor of marketing at Metropolitan State College in Denver, Colorado, and currently editor of the Journal of Consumer Marketing.
COPYRIGHT 1996 JAI Press, Inc.
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Title Annotation:strategy for using brand names to sell product in a media-saturated, consumer cynical age
Author:Leventhal, Richard C.
Publication:Business Horizons
Date:Sep 1, 1996
Words:4523
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