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Of brand value and ballyhoo.

Are brands losing their appeal? On both Wall Street and Main Street investors and consumers are concluding that a household name is worth less now than it once was. In the 1980s, huge prices were paid for companies with strong brand names. Brand value underpinned the acquisition premiums of these megadeals. Today, consumers are spurning many name-brand products, with the result that both market shares and market valuations have fallen.

Brands originally guaranteed quality and frequently delivered a differentiated product, value, and image. Through advertising and promotion a brand developed a dominant share position, and through premium pricing the brand extracted hefty profits. But many brands have stumbled, having been milked for short-term profits. As brand equity eroded, long-term profitability plummeted.

Consumers have become increasingly skeptical about the value of a brand name. In particular, they have been searching for quality products at affordable prices regardless of the much ballyhooed brand imagery. Today's consumers are more value-conscious and less image-sensitive. They have many more choices in terms of brands and channels and are now exercising this choice as evidenced by their frequent brand switching.

Many consumer product companies, such as Gillette and Sara Lee, continue to trumpet their fierce commitment to name-brand products. In recognition of markets without national boundaries and of consumers without national preference, global companies are promoting their world-class brands. These firms believe that their proprietary product features and their universal product appeal can protect them from the private-label, low-priced competitors.

Yet some of the best-known and most powerful brands are being undermined by the successful invasion of lower-priced imitators. Marketing Goliaths such as Procter & Gamble and Philip Morris have slashed prices on some of their well-known products, as private-label Davids cut into their market share. Moreover, the battleground is not limited to the United States. In Europe and Japan, shoppers are snapping up private-label bargains. Although private brands are not a new phenomenon in Europe or Japan, their new rock-bottom prices have shocked old-line manufacturers and retailers. Throughout the world a plethora of low-priced, private-label products have been threatening lucrative niches carved out by the big consumer brand companies.

After spending billions of dollars building brand loyalty, some consumer product firms are discovering that they are losing market share to labels that barely advertise at all. By resorting to price cuts to counter private labels, companies are tacitly admitting that the intangible brand equity built up over many years at great expense no longer commands premium prices. And those that have avoided outright price cuts have been effectively lowering their prices through promotions and discounts.

To combat sales losses, price is generally the weapon of last resort. Rather than succumb to price warfare, brand makers try to distance themselves, particularly in terms of quality, from their private-label knock-offs. To widen this quality gap, they roll out new product improvements and extensions, supported by heavy merchandising, promotion, and advertising. Moreover, they use their clout to muscle the ever-changing distribution and retail channels into supporting their products.

Nevertheless, companies are finding it much harder to differentiate their products, especially when the private labels can quickly imitate a national brand.

In this issue of DIRECTORS & BOARDS our authors explore some ways to enhance brand leadership. Their perspectives represent the fields of advertising, manufacturing, consulting, investment banking, and law. Their articles point out how to build, protect, and realize the value inherent in brand names. I think you will find their insights helpful in developing your own brand management strategy.
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No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Building Brand Strength
Author:Rock, Robert H.
Publication:Directors & Boards
Date:Jun 22, 1993
Words:580
Previous Article:Getting the best from your board.
Next Article:The challenge for brands.
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