MARKETING MATERIAL

9039 – Marketing Practice 4 Branding

Chapter 4

BRANDING

I have mentioned the topic of 'differentiation' a number of times now, and it is usually by far the best way of avoiding direct competition. Quite simply it means that your product or service is different to its competitors - or, perhaps more important (but easier to achieve), it is seen to be different by consumers. Traditionally, this has been one of a number of possible strategies (as Michael Porter suggested). In particular it has been the main alternative to 'economies of scale'. The choice between these strategies is best approached by the use of the Boston Advantage Matrix;

BOSTON ADVANTAGE MATRIX

The Boston Consulting Group is best known for its 'cash-flow' matrix (usually known just as the 'Boston Matrix', of which more later), but it subsequently developed another, much less widely reported, matrix which approached the 'economies of scale' versus differentiation decision rather more directly. This is their 'Advantage Matrix';

This takes as its 'axes' the two contrasting 'alternatives'; 'Economies of Scale' against 'Differentiation'. The result is the four quadrants shown above - examples being;

VOLUME BUSINESS - in this case there are considerable economies of scale but few opportunities for differentiation. This is the classic situation where organisations strive for economies of scale by becoming the volume, and hence cost, leader.

STALEMATED BUSINESSES - here there is neither the opportunity for differentiation or economies of scale. The main means of competition, therefore, has been reducing the 'factor costs' (mainly those of labour) by moving to locations, indeed to different countries in the developing world, where these costs are lower.

SPECIALISED BUSINESSES - these businesses gain benefits from both economies of scale and differentiation (often characterised by experience effects in their own, differentiated, segment). The main strategies are focus, and segment leadership.

FRAGMENTED BUSINESSES - these organisations also gain benefit from differentiation, particularly in the services sector, but little from economies of scale. Competition may be minimised by innovatory differentiation.

The strategies which can be developed on the basis of this matrix are illustrated by Rowe et al[1];

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The key point to emerge from the above analysis is that the most powerful combination is economies of scale and differentiation together. As we will see below, if you are successful in achieving differentiation then economies of scale may well follow.

There are a variety of means of achieving differentiation, not least those of segmentation and positioning which I will introduce in a later chapter, but at this point - to aid clarity - I want only to talk about branding, which has traditionally been the vehicle by which differentiation is conveyed.

BRANDING THEORY

The epitome of differentiation is `branding'. The product or service (including now those of non-profit organisations) is given a `character', an `image', almost like a personality. This is based first of all on a name (the brand), but then almost as much on the other factors affecting image which have built up over time; and which have been influenced by elements such as the packaging and, in particular, advertising. The aim is to make the brand so unique that it effectively has its own separate market. This is most often seen as branding of a product which is sold direct to customers. Recently, however, we have seen the development of what may be described as derived branding, where a supllier of an ingredient used by a number of suppliers to the end-user brands the ingredient itself; thus attempting to set up an brand monoply for that ingredient. This may be seen in terms of the artificial sweetener 'Asperatne'; in its use in soft drinks. Most obviously, though, it is seen in Intel's campaign, 'Intel Inside', to ensure that it is its microprocessor which is used in PCs.

BRAND MONOPOLY

In economic terms the 'brand' is, in effect, a device to create a 'monopoly'; or at least a form of 'imperfect competition' - so that the brand owner can obtain some of the benefits which accrue to a monopoly, particularly those benefits related to decreased price competition. Most 'branding', in this context, is established by promotional means. But the monopoly position may also be extended, or even created, by patents and intellectual property.

In all these contexts, 'own label' brands (the brands of a retailer, for example) can be just as powerful; and indeed some of these are already perceived by consumers as the 'brand leaders' in their markets.

BRANDING POLICIES

There are a number of possible policies;

COMPANY NAME - often, especially in the industrial sector, it is just the company's name which is promoted. 

FAMILY BRANDING - in this case a very strong brand name (or company name) is made the vehicle for a range of products. Recently this process seems to have been taken further, by P&G, by oonnecting separate families through shared branded ingredients; such as Excel.

INDIVIDUAL BRANDING - is where each brand has a separate name, which may even compete against other brands from the same company.

In terms of existing products, brands may be developed in a number of ways;

BRAND EXTENSION - the existing strong brand name can be used as a vehicle for new or modified products. This appears to be the most prevalent form of development, which is understandable since it maximises the use of the investment in the brand name.

MULTIBRANDS - alternatively, in a market that is fragmented amongst a number of brands a supplier can choose to deliberately launch totally new brands in apparent competition with its own existing strong brand(s).

Branding has traditionally been seen as the almost exclusive territory of consumer goods companies, but it has much wider application than that. All organisations, whether they sell to consumers or industrial users, whether they offer products or services, whether they are profit-making or non-profit, have at least one brand; which is usually the name of the organisation.

This may come as a surprise, or even as a shock, to those organisations whose focus in life is the product or service they produce, and who think brands are only for goods which appear on supermarket shelves. Nothing could be further from the truth.

The brand encapsulates the Product:Service Package. Because this package is usually so complex, and almost always contains a range of intangibles in addition to the physical elements, it has to be denoted by some form of symbolic representation - a tangible peg on which to hang all these other elements. Sometimes that actually may be a symbol, the 'logo', on the design of which some organisations (including government departments) spend a small fortune and which is meant to enshrine the character of the brand. More generally, and often just as effectively, it is simply the name of the product or service, or - most often of all - that of the organisation.

Many would argue that the (brand) name in itself is critical. Certainly, when you are launching a brand name it helps considerably if the name describes the 'product' in some way or other. International Business Machines very clearly described what the company was about, as did Alka Seltzer. But most suitable names have long since been claimed and these days you are likely to be limited to neutral names which are at best inoffensive (often now deliberately selected to be inoffensive around the world - Kodak, Exxon etc) - an important point (the owners of the very successful 'Sweat' soft drink brand in Japan may have difficulty in bringing it to the West!).

On the other hand, it is what you manage to associate - over time - with that brand name which represents the real strength of the brand. IBM, as it is now called, is meaningless as an English word yet it resonates with very powerful associations; and this is just as true of McDonalds (and I don't even have to say what the product here is - the brand is so powerful that there can only be one possibility!). Coca Cola, perhaps the most powerful brand of all, would have quite negative connotations if its buyers took the name seriously and associated it with the drug which was essential to its original medical properties, but which it has long since been dropped from its formulation!

The most powerful brands then encapsulate a bewildering array of elements.

It may often be just as true of the way that the consumers think about the brand; their favourites are their friends, they're the ones they feel comfortable with, the ones they can take home knowing they will fit in with their lifestyle, and so on.

Personalisation of your brand(s) also helps you develop them. If you can think how they could be changed to become better friends to the consumers - much as you would change to fit in with your circle of friends, wearing suitable clothes, talking about the things which interest them, doing the same things together - then you are on your way to developing a successful brand. This is just as true of the serious brands, those in capital goods (like IBM) or medicine. The personality they need to establish may be a professional one (like a doctor or engineer, say) but the rules still apply.

This, most importantly, should force you to recognise - and deal with (from planning through to controlled implementation) - all the intangible elements which go to make up a large part of this personality. These are the elements which are too often neglected in the concentration on the, more obvious, tangible elements.

Perhaps the most important fact, and one which is sadly neglected in most organisations, is that the brand is the most important and valuable investment that, with very few exceptions, any organisation owns. It contains all the value which has been added to the organisation by its investments in service to the customer over the years; image, reputation, loyalty, trust etc. These are assets which are normally worth far more than the stocks and equipment which feature on most balance sheets. On the few occasions when a brand valuation actually has been added to the balance sheet it has dwarfed everything else.

Yet most organisations treat their brand(s) as if they were worthless. They gratuitously damage them by constant changes in strategy, by confusing switches in image, by employees offering poor service etc. If anyone in their organisation vandalised any piece of capital equipment in such a manner they would be instantly disciplined!

Even the largest organisations are not exempt from this criticism. Recent research has shown that they also fail to establish brand strategies and their senior managers do not know what their brands stand for (or sometimes what they are!)[2].

The most important aspect of the brand, therefore, is that it must - in most cases - be recognised as offering the organisation's most important investment potential.

This has two major implications. The first is that, as with any investment, this implies long time-scales. The investment in a brand will typically take a number of years to pay dividends. The second is, also like any other investment, the development and use of that investment should be carefully planned; and, most important, it should be zealously safeguarded from damage. Paradoxically, the worst damage is usually inflicted by its owners; by neglect, by cavalier changes in direction (often brought about by marketing departments which want to do something new!), by focusing on short term solutions etc.

It is worth repeating. The brand(s) is the most important investment - and should be viewed as such; if you appreciate its true value it will serve you well.

This investment may also be seen, from the other side of the fence, in terms of the investment in the relationship with the customer. Conventionally it is seen in terms of purchasing patterns;

USAGE AND LOYALTY

The customer's response to the brand may be most directly observed in terms of purchasing patterns;

USAGE STATUS -  Philip Kotler[3], recognising that this is quite a complex issue, conveniently groups 'users' into; "non-users, ex-users, potential users, first-time users and regular users".

USAGE RATE - most important of all, in this context, is usually the rate of usage. 'Heavy Users' are likely to be disproportionately important to the brand; where the 80:20 Rule applies.

LOYALTY - a third dimension, however, is whether the customer is committed to the brand. Philip Kotler, again, defines four patterns of behaviour;

Hard-Core Loyals: who buy the brand all the time.

Soft-Core Loyals: loyal to two or three brands.

Shifting Loyals: moving from one brand to another.

Switchers: with no loyalty.

VOLUME OF BUSINESS

In industrial markets organisations will categorise the 'heavy users' as 'major accounts', and put senior sales personnel and even managers in charge of these; where the 'light users' may be handed to a general sales force or to a dealer.

One of the most positive ways of consolidating the consumer as the most important focus of the organisation is to look on this relationship as a prime asset of the business; one that has been built up by a series of marketing investments over the years As with any other asset, this investment can be expected to bring returns over subsequent years. On the other hand, also like any other asset, it has to be protected and husbanded.

This 'asset' is often referred to as the 'customer franchise'.

At one extreme it may come from the individual relationship developed face to face by the sales professional. At the other it is the cumulative image, held by the consumer, resulting from long exposure to all aspects of the product or service, and especially to a number of advertising and promotional campaigns.

In some markets the customer franchise may be so strong as to be exclusive; in effect giving the supplier a monopoly with those customers.

As we saw from the earlier reference to Andrew Ehrenberg's work on brand portfolios, consumers may regularly switch brands - for variety - but they may still retain an image of the brand; which will swing the balance when their next purchase decision is taken. It may thus still have a value (upon which the advertiser can build) even if the current purchasing decision goes against it. A later decision may, once again, swing in its favour.

The customer franchise is, therefore, a very tangible asset, in terms of its potential effect on sales; even if it is intangible in every other respect.

It is based, though, on an accumulation of impacts over time. Unfortunately, too many marketers - particularly those in creative departments within advertising agencies - signally fail recognise the importance, and long-term nature, of this investment. They treat each new campaign as if it could, and should, be taken in isolation - no matter how it meshes with previous messages which have been delivered to the consumer. The evidence is that the consumer, on the other hand, does not view the advertising and promotion in such lofty isolation; instead he or she incorporates it into their existing image - to good or bad effect, depending upon how well the new campaign complements the old.

All of this may sound very familiar, and you may be asking what happened to the brand which just a few paragraphs ago was also said to be the major investment. You will be reassured to learn that there is no contradiction in this. The Consumer Franchise is, to all practical intents, the external alter ego of the brand. The brand is how the producer typically sees the (internal) investment. The Customer Franchise is the outcome of that internal investment; the counterbalancing entry with the customers.

This curve - which is indicative of what might happen rather than an exact measure - shows how the value - which is notional (since it is very difficult to put an exact figure to this) - grows slowly at first and then rapidly before it finally saturates (albeit probably after a number of years). The most important aspect, however, is that the curve shows 'hysteresis' (to use a scientific term) - similar processes are at work when the value drops off after investment is stopped (note that the bottom axis is the cumulative investment over time). This means that in the first instance the fall in value is slow (and sales, for example, may not show any significant impact), but then the value drops very rapidly indeed, faster than it rose over the same intervals. When reinvestment occurs, however, it has to be raised to the higher curve again. The result is that there is a significant gap between the curves. That gap represents the cost of failing to sustain the investment. In the short term there is very little penalty (at the level of the Competitive Saw, for example, it can be assumed that investing in bursts of activity is no more expensive than continuous activity). In the longer term, however, extended periods of little or no investment can prove to be very costly indeed.

In view of my earlier strictures about theory, I will emphasise that you should not be fooled by the graphical 'accuracy' into thinking that this curve has been measured. It has not as yet, for it would be very difficult indeed to put anything other than notional figures to the customer franchise values at each stage. It is simply intended as a model to help you understand the sort of forces at work; since it does nicely illustrate the main features of the long investment process and then the very real costs of failing to maintain that investment - which all too many organisations have experienced in practice.

The power of the brand is especially seen in the case of the brand leaders; those in the top three slots - and especially the brand leader itself. In FMCG markets, for instance, the brand leader often holds 40% of the overall market or more. This level is usually highly profitable; since in addition to the high value of sales generated, its strong position in the market normally allows the setting of a higher price (and hence significantly higher profit) - and economies of scale are possible (not least in terms of promotional and distribution costs).

The profitability that a brand leader commands usually offers, therefore, ample justification - especially over the longer term ( where such brands can easily maintain leadership for decades) - for the high levels of investment which are needed to achieve this position. The Japanese corporations, who are willing to make such long term investments in markets, have been especially well rewarded for their efforts.

The exact ratios vary from market to market, and even the average may vary somewhat - depending upon what parcel of products is examined. The Boston Consulting Group[4], for example, also suggest that the brand leader should hold twice the share of the second brand, but they differ in detail when they suggest that it should hold four times that of the third brand (giving a rule of 1:2:4!). But the general principle of the Rule of 1:2:3 seems to hold.

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