new_strategic_brand_aw:Layout 1 6/12/07 16:25 Page 1 “New exciting ideas and perspectives on brand building are offered that have been absent from our literature.” 4TH “New exciting ideas and perspectives on brand building!” Philip Kotler Philip Kotler, S C Johnson & Sons Distinguished Professor of International Marketing, Northwestern University, EDITION Kellogg School of Management, USA “Kapferer continues to be on the leading edge.” Earl N Powell, President, Design Management Institute, Boston, USA BRAND MANAGEMENT THE NEW STRATEGIC “Managing a brand without reading this book is like driving a car without your license.” 4TH EDITION Haesun Lee, Senior Vice President of Marketing, AMOREPACIFIC Co, Korea “The best book on brands!” Design Magazine “One of the definitive resources on branding for marketing professionals worldwide.” The Economic Times, India “One of the best books on brand management. Kapferer is thought-provoking and always able to create new insights on various brand-related topics.” Rik Riezebos, CEO Brand Capital and director of the European Institute for Brand Management THE NEW Adopted by leading international business schools, MBA programmes and marketing practitioners alike, The New Strategic Brand Management is simply the reference source for senior strategists, positioning professionals and postgraduate students. Over the years it has not only established a reputation as one of the leading works on brand strategy but has also become synonymous with the topic itself. This new edition builds on its impressive reputation and keeps the book at the forefront of strategic brand thinking. STRATEGIC BRAND Revealing and explaining the latest models used by companies worldwide, author Jean-Noël Kapferer covers all the leading issues faced by brand strategists today, supported by an array of international case studies. With both gravitas and intelligent insight, this book reveals new thinking on crucial topics including: • growth in saturated markets; • positioning private labels and store brands; • decommoditisation; • globalisation and market adaptation; • innovation in emerging markets; • co-branding strategies; • brand rejuvenation and turn around; • internal branding and corporate branding; • managing brand consistency and diversity; • financial evaluation of brands. Moving beyond marketing, The New Strategic Brand Management addresses the bigger picture, integrating other components such as business models, HR and finance into brand building. It analyses the specifics of brands in B2B, services, distribution, the internet and the luxury sector. It extends the brand concept to celebrities, universities, towns and nations. MANAGEMENT KAPFERER Jean-Noël Kapferer is one of the very few worldwide experts on brands. His book stands out from others with its unique insights, its style of exhaustive analysis and its original perspectives, stemming from his strategic vision, and his international background and experience. A professor of marketing strategy at HEC Paris, he holds a PhD from Northwestern University (USA) and is an active consultant to many European, US and Asian corporations. He also gives executive seminars in the US, China, Japan, Korea and India. He is the author of six books on branding, advertising and communication, including Reinventing the Brand, also Creating and sustaining brand equity long term published by Kogan Page. You can contact him at www.kapferer.com. £35.00 ISBN: 978-0-7494-5085-4 Kogan Page 120 Pentonville Road London N1 9JN Kogan Page US 525 South 4th Street, #241 Philadelphia PA 19147 US $70.00 J N KAPFERER United Kingdom USA www.kogan-page.co.uk Branding / Business and management
ii‘After reading Kapferer’s book, you’ll never again think of a brand as just a name. Several excitingnew ideas and perspectives on brand building are offered that have been absent from our literature.’ Philip Kotler, Northwestern University‘A real thought provoker for marketing and business people. Strategic Brand Management is anessential tool to develop strong marketing strategy.’ P Desaulles, Vice President, Du Pont de Nemours Europe‘A solid contribution written with depth and insight. I recommend it to all those who desire afurther understanding of the various dimensions of brand management.’ David A Aaker, University of California at Berkeley, and author of Managing Brand Equity‘The best book on brands yet. It is an invaluable reference for designers, marketing and brandmanagers.’ Design Magazine‘‘One of the best books on brand management. Kapferer is thought provoking and always able tocreate new insights on various brand related topics.’ Rik Riezebos, CEO Brand Capital and director of EURIB/European Institute for Brand Management‘One of the definitive resources on branding for marketing professionals worldwide.’ The Economic Times, India‘Jean Noel Kapferer’s hierarchy of brands with six levels of brands is an extraordinary insight.’ Sam Hill and Chris Lederer, authors of The Infinite Asset, Harvard Business School Press‘A fresh perspective on branding that is easy to understand and inspirational. I believe it to bethe finest book on the subject in the marketplace today.’ Marsha Lindsay, President and CEO, Lindsay, Stone and Briggs‘The treatment of brand-product strategies, brand extensions and financial evaluations are alsostrengths of the book.’ Journal of Marketing‘A “think book”. It deals with the very essence and culture of branding.’ International Journal of Research in Marketing‘An authoritative analysis about establishing an identity and exploiting it.’ Daily Telegraph‘A full and highly informative text… well written and brought to life through numerous appropriateexamples.’ Journal of the Market Research Society
IIITHE NEWSTRATEGICBRANDMANAGEMENTCreating and Sustaining Brand Equity Long TermJEAN-NOËL KAPFERER London and Philadelphia
VContentsList of figures ixList of tables xiiPreface to the fourth edition xivIntroduction: Building the brand when the clients are empowered 1Part One: Why is branding so strategic? 71. Brand equity in question 9 What is a brand? 9; Differentiating between brand assets, strength and value 13; Tracking brand equity 15; Goodwill: the convergence of finance and marketing 18; How brands create value for the customer 19; How brands create value for the company 23; Corporate reputation and the corporate brand 262. Strategic implications of branding 31 What does branding really mean? 31; Permanently nurturing the difference 35; Brands act as a genetic programme 36; Respect the brand ‘contract’ 38; The product and the brand 39; Each brand needs a flagship product 41; Advertising products through the brand prism 42; Brands and other signs of quality 44; Obstacles to the implications of branding 453. Brand and business building 51 Are brands for all companies? 51; Building a market leader without advertising 52; Brand building: from product to values, and vice versa 55; Are leading brands the best products or the best value? 57; Understanding the value curve of the target 58; Breaking the rule and acting fast 58; Comparing brands and business models: cola drinks 59
vi CONTENTS4. From private labels to store brands 65 Evolution of the distributor’s brand 66; Are they brands like the others? 69; Why have distributors’ brands? 74; The financial equation of the distributor’s brand 75; The three stages of the distributor’s brand 77; The case of Decathlon 79; Factors in the success of distributors’ brands 82; Optimising the DOB marketing mix 84; The real brand issue for distributors 85; Competing against distributors’ brands 87; Facing the low-cost revolution 90; Should manufacturers produce goods for DOBs? 935. Brand diversity: the types of brands 95 Luxury, brand and griffe 95; Service brands 103; Brand and nature: fresh produce 106; Pharmaceutical brands 108; The business-to-business brand 113; The internet brand 119; Country brands 123; Thinking of towns as brands 125; Universities and business schools are brands 128; Thinking of celebrities as brands 131; Thinking of television programmes as brands 132Part Two: The challenges of modern markets 1356. The new rules of brand management 137 The limits of a certain type of marketing 139; About brand equity 141; The new brand realities 144; We have entered the B to B to C phase 152; Brand or business model power? 153; Building the brand in reverse? 154; The power of passions 155; Beginning with the strong 360° experience 156; Beginning with the shop 158; The company must be more human, more open 158; Experimenting for more efficiency 159; The enlarged scope of brand management 160; Licensing: a strategic lever 164; How co-branding grows the business 1667. Brand identity and positioning 171 Brand identity: a necessary concept 171; Identity and positioning 175; Why brands need identity and positioning 178; The six facets of brand identity 182; Sources of identity: brand DNA 188; Brand essence 197Part Three: Creating and sustaining brand equity 2018. Launching the brand 203 Launching a brand and launching a product are not the same 203; Defining the brand’s platform 204; The process of brand positioning 207; Determining the flagship product 209; Brand campaign or product campaign? 210; Brand language and territory of communication 210; Choosing a name for a strong brand 211; Making creative 360° communications work for the brand 214; Building brand foundations through opinion leaders and communities 2159. The challenge of growth in mature markets 219 Growth through existing customers 219; Line extensions: necessity and limits 222; Growth through innovation 227; Disrupting markets through value innovation 230; Managing fragmented markets 232; Growth through cross-selling between brands 234; Growth through internationalisation 234
CONTENTS vii10. Sustaining a brand long term 237 Is there a brand life cycle? 238; Nurturing a perceived difference 240; Investing in communication 243; No one is free from price comparisons 245; Branding is an art at retail 247; Creating entry barriers 248; Defending against brand counterfeiting 250; Brand equity versus customer equity: one needs the other 252; Sustaining proximity with influencers 260; Should all brands follow their customers? 262; Reinventing the brand: Salomon 26311. Adapting to the market: identity and change 269 Bigger or better brands? 270; From reassurance to stimulation 271; Consistency is not mere repetition 272; Brand and products: integration and differentiation 273; Specialist brands and generalist brands 275; Building the brand through coherence 279; The three layers of a brand: kernel, codes and promises 290; Respecting the brand DNA 292; Managing two levels of branding 29312. Growth through brand extensions 295 What is new about brand extensions? 296; Brand or line extensions? 298; The limits of the classical conception of a brand 300; Why are brand extensions necessary? 303; Building the brand through systematic extensions: Nivea 306; Extending the brand to internationalise it 309; Identifying potential extensions 310; The economics of brand extension 312; What research tells us about brand extensions 316; What did the research reveal? 324; How extensions impact the brand: a typology 324; Avoiding the risk of dilution 326; Balancing identity and adaptation to the extension market segments 330; Assessing what should not change: the brand kernel 332; Preparing the brand for remote extensions 333; Keys to successful brand extensions 336; Is the market really attractive? 340; An extension-based business model: Virgin 342; How execution kills a good idea: easyCar 34513. Brand architecture 347 The key questions of brand architecture 347; Type and role of brands 349; The main types of brand architecture 356; Choosing the appropriate branding strategy 372; New trends in branding strategies 376; Internationalising the architecture of the brand 379; Some classic dysfunctions 379; What name for new products? 381; Group and corporate brands 385; Corporate brands and product brands 38814. Multi-brand portfolios 391 Inherited complex portfolios 392; From single to multiple brands: Michelin 393; The benefits of multiple entries 395; Linking the portfolio to segmentation 396; Global portfolio strategy 401; The case of industrial brand portfolios 402; Linking the brand portfolio to the corporate strategy 405; Key rules to manage a multi-brand portfolio 406; The growing role of design in portfolio management 409; Does the corporate organisation match the brand portfolio? 410; Auditing the portfolio strategically 411; A local and global portfolio – Nestlé 413
viii CONTENTS15. Handling name changes and brand transfers 415 Brand transfers are more than a name change 415; Reasons for brand transfers 416; The challenge of brand transfers 418; When one should not switch 419; When brand transfer fails 420; Analysing best practices 421; Transferring a service brand 426; How soon after an acquisition should transfer take place? 428; Managing resistance to change 431; Factors of successful brand transfers 433; Changing the corporate brand 43516. Brand turnaround and rejuvenation 437 The decay of brand equity 438; The factors of decline 439; Distribution factors 442; When the brand becomes generic 443; Preventing the brand from ageing 443; Rejuvenating a brand 445; Growing older but not ageing 45017. Managing global brands 455 The latest on globalisation 456; Patterns of brand globalisation 459; Why globalise? 461; The benefits of a global image 466; Conditions favouring global brands 468; The excess of globalisation 470; Barriers to globalisation 471; Coping with local diversity 473; Building the brand in emerging countries 478; Naming problems 479; Achieving the delicate local–global balance 480; Being perceived as local: the new ideal of global brands? 483; Local brands can strike back 485; The process of brand globalisation 487; Globalising communications: processes and problems 495; Making local brands converge 498Part Four: Brand valuation 50118. Financial valuation and accounting for brands 503 Accounting for brands: the debate 504; What is financial brand equity? 507; Evaluating brand valuation methods 513; The nine steps to brand valuation 525; The evaluation of complex cases 528; What about the brand values published annually in the press? 529Bibliography 531Index 545
IXFigures1.1 The brand system 121.2 The levers of brand profitability 251.3 Branding and sales 262.1 The brand system 342.2 The cycle of brand management 362.3 The product and the brand 412.4 Product line overlap among brands 422.5 Brands give innovations meaning and purpose 433.1 The two models of brand building through time 564.1 Relative positioning of the different distributors’ brands 685.1 The pyramid brand and business model in the luxury market 985.2 The constellation model of luxury brands 1005.3 History-based and story-based approaches to luxury 1015.4 How brands impact on medical prescription 1126.1 Limits of traditional marketing 1406.2 From brand values to brand value 1436.3 Brand equity 1446.4 The extension of brand management 1627.1 Identity and image 1747.2 Positioning a brand 1767.3 The McDonald’s positioning ladder 1807.4 Brand identity prism 1837.5 Sample brand identity prisms 1887.6 Example of brand platform: Jack Daniel’s 1998.1 Transfer of company identity to brand identity when company and brand names coincide 2068.2 From brand platform to activation 210
x FIGURES8.3 Consumer empowerment 2179.1 Increasing volume per capita 2219.2 Segmenting by situation 2229.3 Brands’ dual management process 2299.4 A disruptive value curve: Formule 1 hotels 23110.1 Innovation: the key to competitiveness 24110.2 Paths of brand growth and decline 24210.3 Penetration of distributors’ brands and advertising intensity 24410.4 Sources of price differentiation between brands and hard-discount products 24610.5 Brand capital and customer capital: matching preferences and purchase behaviour 25511.1 The identity versus diversity dilemma 27111.2 The double role of brand integration and differentiation 27411.3 Differentiate what is variable from what is non-negotiable in the brand identity 27611.4 Generalists and specialists 27811.5 The different relationships between brands and products 28511.6 How brands incorporate change: kernel and peripheral traits 28711.7 Product lines must embody the core facets and each adds its own specific facets 28811.8 Organisation of Mars masterbrand and products 28911.9 How the brand is carried by its products 29011.10 Identity and pyramid models 29112.1 The Nivea extensions galaxy 30712.2 Perimeters of brand extension 31112.3 Rate of success of new brands vs brand extensions (OC&C) 31312.4 The impact of brand extension on the consumer adoption process (OC&C) 31312.5 Ayer model: how a family name impacts the sales of a new product 31412.6 Comparative sales performance during the first two years (Nielsen) 31512.7 The brand extension decision 31712.8 The consequences of product and concept fit and misfit 32212.9 Type of brand and ability to extend further 33412.10 The process of extension 33512.11 Framework for evaluating extensions 33612.12 The Virgin extension model 34313.1 Positioning alternative branding strategies 35213.2 The six brand architecture strategies 35413.3 The product-brand strategy 35613.4 Range brand formation 36013.5 Range brand structured in lines 36213.6 Endorsing brand strategy 36313.7 Umbrella brand strategy 36413.8 Source brand or parent brand strategy 36713.9 A case of brand proliferation or dilution of identity 37113.10 3M branding options review 37613.11 Which brand architecture is suitable for brand innovation? 38213.12 Corporate and product branding at ICI 39014.1 Segmenting the brand portfolio by price spectrum 40015.1 When rebranding fails: from Fairy to Dawn (P&G) 421
FIGURES xi15.2 A stepwise approach to brand transfers (relating the type of transfer to the image gap) 43116.1 Analysing the potential of an old brand 44616.2 Sustaining brand equity long term : dual management in practice 45117.1 Managing the globalisation process between headquarters and subsidiaries 49818.1 What is ‘brand equity’? 50418.2 The issue of fair valuation of brands 50518.3 Positioning brand valuation methods 51318.4 A multi-step approach to brand valuation 51818.5 The Interbrand S-curve – relation between brand strength and multiple 52118.6 Stepped graph showing relationship between brand strength and multiple 524
xiiTables1.1 From awareness to financial value 141.2 Result of a brand tracking study 171.3 Brand financial valuation, August 2006 191.4 How brand awareness creates value and image dimensions 211.5 The functions of the brand for the consumer 221.6 Brand functions and the distributor/manufacturer power equilibrium 232.1 The brand as genetic programme 363.1 Consumer price (in euros/litre) of various orange-flavour drinks in Europe 594.1 Brand attachment: the 10 winning brands 724.2 Determinants of attachment to distributors’ and producers’ brands 734.3 How copycat resemblance influences consumers’ perceptions 794.4 In which sectors do big brands resist trade brands and where are they defeated? 844.5 Percentage of consumers who intend to buy the distributor’s product 855.1 Consumers’ four concepts of luxury 975.2 Brand personality is related to prescription levels 1105.3 The brand influence in medical prescription 1115.4 The top ten European business schools 1296.1 Evolution of brand indicators over 10 years 1426.2 Evolution of brand capital for Coca-Cola and Danone 1426.3 Strategic uses of co-branding 1707.1 How to evaluate and choose a brand positioning 1777.2 Sub-brand and master brand positioning 1827.3 The most typical products of two mega-brands 1917.4 Brand laddering process: the Benetton case 1938.1 Underlying the brand is its programme 2058.2 Comparing positioning scenarios: typical positioning scenarios for a new Cuban rum brand 208
TA B L E S xiii9.1 Addressing market fragmentation 23310.1 Advertising weight and trade brands’ penetration 24511.1 From risk to desire: the dilemma of modern branding 27112.1 Relating extensions to strategy 29612.2 Brand extension impact on launching costs 31512.3 Success rate of two alternative branding policies 31812.4 Extension strategic evaluation grid 34113.1 ‘House of brands’ or ‘branded house’ 35313.2 Shared roles of the corporate and product brand 38916.1 How brand equity decays over time 43917.1 From global to local: eight alternative patterns of globalisation 45917.2 Globalisation matrix 46117.3 How Absolut copes with the grey market: corridor pricing 46617.4 How global and local brands differ 46817.5 What differences between countries would compel you to adapt the marketing mix of the brand? 47217.6 Which facets of the brand mix are most often globalised? 47317.7 Barilla’s international and domestic range 48917.8 How to make local brands converge 49918.1 A method of valuing brand strength 52018.2 Another estimate of the financial value of brands (2007) 52418.3 Assessing brand strength: strategic diagnosis 527
xivPreface to the fourth editionIntegrating brand and businessThis is a book on strategic brand management. It capitalises on the success of the former threeeditions. As far as we understand from our readers worldwide (marketers, advertisers, lawyers, MBAstudents and so on), this success was based on six attributes which we have of course maintained:l Originality. Strategic Brand Management is quite different from all the other books on brand management. This is due to its comprehensiveness and its unique balance between theory and cases. It also promotes strong and unique working models.l Relevance. The cases and illustrations are new, unusual, and not over-exposed. They often represent business situations readers will relate to and understand more readily than over used examples using Coke, Starbucks, Cisco, Fedex, BMW and other great classics of most books and conferences on brands.l Breadth of scope. We have tried to address most of the key decisions faced by brands.l Depth of treatment. Each facet of brand management receives a deep analysis, hence the size of this edition. This is a book to consult.l Diversity. Our examples cover the fast-moving consumer goods sector (FMCG) as well as commodities, business-to-business brands, pharmaceutical brands, luxury brands, service brands, e-brands, and distributors’ brands – which are brands almost like the others.l International scope, with examples from the United States, Europe and Asia.This fourth edition is much more than a revision of the previous one. It is a whole new book forunderstanding today’s brands and managing them efficiently in today’s markets. Sixteen yearsafter the first edition, so much change has happened in the world of brands! This is why this newedition has been thoroughly updated, transformed and enriched. Of course, our models andmethodologies have not changed in essence, but they have been adapted to reflect currentcompetition and issues.
P R E FA C E xv This edition concentrates on internationalisation and globalisation (how to implement thesein practice), on portfolio concentration (managing brand transfers or switches), on the creationof megabrands through brand extensions, on the development of competitive advantage anddominant position through an adequate brand portfolio, and on the efficient management ofthe relationships between the brand, the corporation and the product (the issue of brand archi-tectures). There are many other significant new features in this edition, which reflect the new brandingenvironment:l Because distributors’ brands (often wrongly described as private labels) are everywhere and often hold a dominant market share, they need their own chapter. In addition, in each chapter we have addressed in depth how the recommendations do or do not apply to distrib- utors’ brands.l Significantly, this edition develops its new section on innovation. Curiously, the topic of brands and innovation is almost totally absent from most books on branding. This seems at odds with the fact that innovation and branding has become the number one topic for companies. In fact, as we shall demonstrate, brands grow out of innovation, and innovation is the lifeblood of the brand. Furthermore, contrary to what is often said or thought, the issue of innovation is not merely about creativity. It is about reinventing the brand.l This new edition is also sensitive to the fact that many modern markets are saturated. How can brands grow in such competitive environments? A full chapter on growth is included, starting with growth from the brand’s existing customers.l The issue of corporate brands and their increasing importance is also tackled, as is their rela- tionship with classic brand management.l We also stress much more than previously the implementation side: how to build interesting brand platforms that are able to stimulate powerful creative advertising that both sells and builds a salient brand; how to activate the brand; how to energise it at contact points; and how to create more bonding. We provide new models to help managers.This book also reflects the evolution of the author’s thought. Our perspective on brands haschanged. We feel that the whole domain of branding is becoming a separate area, perhaps with arisk of being self-centered and narcissistic. Too often the history of a company’s success or evenfailure is seen through the single perspective of the brand, without taking into account all theconditions of this success or failure. A brand is a tool for growing the business profitably. It hasbeen created for that purpose, but business cannot be reduced to brands. The interrelationshipbetween the business strategy and the brand strategy needs to be highlighted, because this is theway companies operate. As a consequence, we move away from the classic partitioning of brandequity into two separate approaches. One of these is customer-based, the other cashflow-based.It is crucial to remember that a brand that produces no additional cashflow is of little value,whatever its image and the public awareness of it. In fact, it is time to think of the brand as a‘great shared idea supported by a viable economic equation’. In this fourth edition, we try regu-larly to relate brand decisions to the economic equation of the business. Today, every business now wants to have its own brand, not for the sake of possessing it, as onepossesses a painting or statue, but to grow the business profitably. We hope this book will helpreaders significantly, whether they are working in multinationals or in a small dynamic business,developing a global brand or a local one.
1Introduction:Building the brand when theclients are empoweredIt is surprising to see how brands continue to stimulate interest although so many prophets andexperts have recently claimed they have no future. Today, all business managers are supposed tohave attended conferences on CRM, ECR, customer equity, relationship marketing, customerdatabase management, e-relationships and proximity marketing: all these new tools criticise theold brand concept and focus on the most efficient techniques to serve the most profitablecustomers. They claim that conquering new clients is of no value any more: profitability willcome from mastering databases and loyalty programmes. Despite this, managers keep onattending conferences on brand management. Why haven’t they been convinced that brandmanagement is an outdated tool? They have learnt that all these useful techniques soon losetheir potential to create a lasting competitive advantage. The more they are diffused and shared,the more they become a standard, used by all competitors. What is customer equity withoutbrand equity? There are very few strategic assets available to a company that can provide a long-lastingcompetitive advantage, and even then the time span of the advantage is getting shorter. Brandsare one of them, along with R&D, a real consumer orientation, an efficiency culture (costcutting), employee involvement, and the capacity to change and react rapidly. This is the mantraof Wal-Mart, Starbucks, Apple and Zara. Managers have also rediscovered that the best kind of loyalty is brand loyalty, not price loyaltyor bargain loyalty, even though as a first step it is useful to create behavioural barriers to exit.Finally, A Ehrenberg (1972) has shown through 40 years of panel data analysis that productpenetration is correlated with purchase frequency. In other words, big brands have both a highpenetration rate and a high purchase frequency per buyer. Growth will necessarily take these tworoutes, and not only be triggered by customer loyalty.
2 T H E N E W S T R AT E G I C B R A N D M A N A G E M E N T In our materialistic societies, people want to give meaning to their consumption. Only brandsthat add value to the product and tell a story about its buyers, or situate their consumption in aladder of immaterial values, can provide this meaning. Hence the cult of luxury brands.Pro logo?Today, every organisation wants to have a brand. Beyond the natural brand world of producersand distributors of fast-moving consumer goods, whose brands are competing head to head,branding has become a strategic issue in all sectors: high tech, low tech, commodities, utilities,components, services, business-to-business (B2B), pharmaceutical laboratories, non-govern-mental organisations (NGOs) and non-profit organisations all see a use for branding. Amazingly, all types of organisations or even persons now want to be managed like brands:David Beckham, the English soccer star, is an example. Los Angeles Galaxy paid US$250 millionto acquire this soccer hero. It expects to recoup this sum through the profits from licensedproducts using the name, face or signature of David Beckham, which are sold throughout theworld. Everything David Beckham does is aimed at reinforcing his image and identity, and thusmaking sales and profits for the ‘Beckham brand’. Recently, the mayor of Paris decided to define the city as a destination brand and to managethis brand for profit. Many other towns had already done this. Countries also think of them-selves in brand terms (Kotler et al, 2002). They are right to do so. Whether they want it or not,they act de facto as a brand, a summary of unique values and benefits. India had a choicebetween allowing uncontrolled news and information to act (perhaps negatively) on worldpublic opinion, or choosing to try to manage its image by promoting a common set of strategicvalues (its brand meaning), which might be differentiated by market. Countries compete in anumber of markets, just as a conventional brand competes for profitable clients: in the privateeconomic and financial investments market, various raw materials and agricultural markets, thetourism market, the immigration market and so on.It takes more than branding to build a brandCompanies and organisations from all kinds of sectors ask whether or not a brand could consol-idate their business or increase its profitability, and what they should do to create a brand, orbecome a corporate brand. What steps should be followed, with what investments and usingwhat skills? What are realistic objectives and expectations? Having based their success onmastering production or logistics, they may feel they lack the methods and know-how toimplement a brand creation plan. They also feel it is not simply a matter of communication.Although communication is necessary to create a brand, it is far from being sufficient. Certainlya brand encapsulates in its name and its visual symbol all the goodwill created by the positiveexperiences of clients or prospects with the organisation, its products, its channels, its stores, itscommunication and its people. However, this means that it is necessary to manage these pointsof contact (from product or service to channel management, to advertising, to Internet site, toword of mouth, the organisation’s ethics, and so on) in an integrated and focused way. This is thecore skill needed. This is why, in this fourth edition of Strategic Brand Management, while we lookin depth at branding decisions as such, we also insist on the ‘non-branding’ facets of creating abrand. Paradoxically, it takes more than branding to build a brand.
INTRODUCTION 3 Today clients are empowered as never before. It is the end for average brands. Only those thatmaximise satisfaction will survive, whether they offer extremely low prices, or rewarding expe-rience or service or performance. It is the end of hollow brands, without identity. The trader isalso more powerful than many of the brands it distributes: all brands that do not master theirchannel are now in a B to B to C situation, and must never forget it.Building both business and brandHit parades of the financial value of brands (brand equity) are regularly published in business,financial and economics magazines. Whatever doubts one may have on their validity (seeChapter 18), they do at least stress the essentially financial intentions behind building a brand.Companies do not build brands to have authors write books on them, or to make the streetslivelier thanks to billboard advertising. They do it to grow the business still more profitably. Onedoes not make money by selling products, but brands: that is to say a unique set of values, bothtangible and intangible. Even low-cost operators need to compete on trust. Our feeling is that, little by little, branding has been constructed as a separate field. There is arisk however of the branding community falling in love with its own image: looking at theconsiderable number of books published on brands, and at the list of most recent brand equityvalues, one could think that brands are the one and only issue of importance. Indeed brandingprofessionals may become infatuated and forget the sources of brand equity: production, serv-icing, staffing, distributing, innovating, pricing and advertising, all of which help to create valueassociations and effects which become embedded in clients’ long-term memory. Looking at one of the stars of this hit parade, Dell, whose brand is valued so highly, onequestion arises: is Dell’s success due to its brand or to its business model? It could be argued thatit was not the Dell brand but Dell activities in a broader sense that allowed the company toannounce more price cuts in 2006, putting Hewlett-Packard in a difficult position between two‘boa constrictors’, Dell and IBM. The brand is not all: it captures the fame but it is made possible by the business model. It istime to recreate a balance in accounting for success and failures. It is the end of fairy tales; let’sintroduce the time of fair accounts. Throughout this new edition of Strategic Brand Management, we relate the brand to thebusiness, for both are intimately intertwined. We regularly demonstrate how branding decisionsare determined by the business model and cannot be understood without this perspective. In factin a growing number of advanced companies, top managers’ salaries are based on three criticalcriteria: sales, profitability and brand equity. They are determined in part by how fast thesemanagers are building the strategic competitive asset called a brand. The goal of strategy is tobuild a sustainable advantage over competition, and brands are one of the very few ways ofachieving this. The business model is another. This is why tracking brands, product or corporate,is so important.Looking at brands as strategic assetsThe 1980s marked a turning point in the conception of brands. Management came to realise thatthe principal asset of a company was in fact its brand names. Several articles in both theAmerican and European press dealt with the discovery of ‘brand equity’, or the financial value ofthe brand. In fact, the emergence of brands in activities which previously had resisted or were
4 T H E N E W S T R AT E G I C B R A N D M A N A G E M E N Tforeign to such concepts (industry, banking, the service sector, etc) vouched for the new impor-tance of brands. This is confirmed by the importance that so many distributors place on thepromotion of their own brands. For decades the value of a company was measured in terms of its buildings and land, and thenits tangible assets (plant and equipment). It is only recently that we have realised that its realvalue lies outside, in the minds of potential customers. In July 1990, the man who bought theAdidas company summarised his reasons in one sentence: after Coca-Cola and Marlboro, Adidaswas the best-known brand in the world. The truth contained in what many observers took simply to be a clever remark has becomeincreasingly apparent since 1985. In a wave of mergers and acquisitions, triggered by attempts totake up advantageous positions in the future single European market, market transactionspushed prices way above what could have been expected. For example, Nestlé bought Rowntreefor almost three times its stock market value and 26 times its earnings. The Buitoni group wassold for 35 times its earnings. Until then, prices had been on a scale of 8 to 10 times the earningsof the bought-out company. Paradoxically, what justified these prices and these new standards was invisible, appearingnowhere in the companies’ balance sheets. The only assets displayed on corporate balance sheetswere fixed, tangible ones, such as machinery and inventory. There was no mention of the brandsfor which buyers offered sums much greater than the net value of the assets. The acquiringcompanies generally posted this extra value or goodwill in their consolidated accounts. Theactual object of these gigantic and relentless takeovers was invisible, intangible and unwritten:they were aimed at acquiring brands. What changed in the course of the 1980s was awareness. Before, in a takeover bid, merger oracquisition, the buyer acquired a pasta manufacturer, a chocolate manufacturer or a producer ofmicrowave ovens or abrasives. Now companies want to buy Buitoni, Rowntree (that is, KitKat,After Eight), Moulinex or Orange. The strength of a company like Heineken is not solely inknowing how to brew beer; it is that people all over the world want to drink Heineken. The samelogic applies for IBM, Sony, McDonald’s, Barclays Bank or Dior. By paying very high prices for companies with brands, buyers are actually purchasing posi-tions in the minds of potential consumers. Brand awareness, image, trust and reputation, allpainstakingly built up over the years, are the best guarantee of future earnings, thus justifyingthe prices paid. The value of a brand lies in its capacity to generate such cashflows. Hardly had this management revolution been born than conflicting arguments arose regardingthe reality and the durability of brand equity. With the systematic rise in distributors’ own brandsit was argued that the capacity of brands had been exaggerated. The fall in the price of Marlborocigarettes in the USA in April 1993 created panic on Wall Street, with the share prices of allconsumer goods firms falling. This mini-Pearl Harbor proved healthy. At the height of recessionwe realised that it was not the brand – registered trademark – as such that created value, but all themarketing and communication done by the firm. Consumers don’t just buy the brand name, theybuy branded products that promise tangible and intangible benefits created by the efforts of thecompany. Given time, the brand may evoke a number of associations, qualities and differences,but these alone do not comprise the whole offer. A map alone is not the underlying territory. In the 1990s, because of recession and saturated markets, the emphasis shifted from brands tocustomer equity. New techniques, based on one-to-one targeting, replaced the emphasis onclassic media advertising. They could prove their effectiveness and targeted heavy buyers. Just as some have exaggerated the overwhelming power of brands, so the opposition to brandshas been short-lived. The value of brands comes from their ability continuously to add value and
INTRODUCTION 5deliver profits through corporate focus and cohesiveness. Another question is, who is best placedto make use of brands? Is it the producer or the distributor? You must be very wary as regards ideological preferences; for example, there are very fewmanufacturers’ brands on the furniture market other than those of Italian designers, yeteverybody talks about Habitat or Ikea, two distributors. They are seen as agents offering strongvalue-added style in the first case and competitive prices and youth appeal in the second. With manufacturers integrating their distribution, and distributors thinking of themselves asbrands, the world of brands is moving permanently, looking for new brand and business models,sources of sustainable advantage and added value for clients. We shall explore these new modelsthat define the winning brands of today and tomorrow.
9 1Brand equity in questionBrands have become a major player in What is a brand?modern society. In fact they are everywhere.They penetrate all spheres of our life: Curiously, one of the hottest points ofeconomic, social, cultural, sporting, even disagreement between experts is the definitionreligion. Because of this pervasiveness they of a brand. Each expert comes up with his or herhave come under growing criticism (Klein, own definition, or nuance to the definition.1999). As a major symbol of our economies The problem gets more acute when it comes toand postmodern societies, they can and measurement: how should one measure theshould be analysed through a number of strength of a brand? What limited numbers ofperspectives: macroeconomics, microeco- indicators should one use to evaluate what isnomics, sociology, psychology, anthro- commonly called brand equity? In additionpology, history, semiotics, philosophy and so there is a major schism between two paradigms.on. In fact our first book on brands was a One is customer-based and focuses exclusivelycollection of essays by eminent scholars from on the relationship customers have with theall these disciplines (Kapferer and Thoenig, brand (from total indifference to attachment,1989). loyalty, and willingness to buy and rebuy based This book focuses on the managerial on beliefs of superiority and evoked emotions).perspective: how best to manage brands for The other aims at producing measures inprofit. Since brands are now recognised as part dollars, euros or yen. Both approaches haveof a company’s capital (hence the concept of their own champions. It is the goal of thisbrand equity), they should be exploited. fourth edition of Strategic Brand Management toBrands are intangible assets, assets that unify these two approaches.produce added benefits for the business. Thisis the domain of strategic brand management: Customer-based definitionshow to create value with proper brandmanagement. Before we proceed, we need to The financial approach measures brand valueclarify the brand concept. by isolating the net additional cashflows
10 W H Y I S B R A N D I N G S O S T R AT E G I C ?created by the brand. These additional cash the financial perspective help us in definingflows are the result of customers’ willingness brands and brand equity?to buy one brand more than its competitors’,even when another brand is cheaper. Why l First, brands are intangible assets, postedthen do customers want to pay more? Because eventually in the balance sheet as one ofof the beliefs and bonds that are created over several types of intangible asset (a categorytime in their minds through the marketing of that also includes patents, databases andthe brand. In brief, customer equity is the the like).preamble of financial equity. Brands have l Second, brands are conditional assets. This isfinancial value because they have created a key point so far overlooked. An asset is anassets in the minds and hearts of customers, element that is able to produce benefitsdistributors, prescribers, opinion leaders. over a long period of time. Why are brandsThese assets are brand awareness, beliefs of conditional assets? Because in order toexclusivity and superiority of some valued deliver their benefits, their financial value,benefit, and emotional bonding. This is what they need to work in conjunction withis expressed in the now classic definition of a other material assets such as productionbrand: ‘a brand is a set of mental associations, facilities. There are no brands withoutheld by the consumer, which add to the products or services to carry them. This willperceived value of a product or service’ (Keller, have great consequences for the method of1998). These associations should be unique measuring financial value. For now, this(exclusivity), strong (saliency) and positive reminds us that some humility is required.(desirable). Although many people claim that brands This definition focuses on the gain in are all and everything, brands cannot existperceived value brought by the brand. How do without a support (product or service). Thisconsumers’ evaluations of a car change when product and service becomes effectively anthey know it is a Volkswagen, a Peugeot or a embodiment of the brand, that by whichToyota? Implicitly, in this definition the the brand becomes real. As such it is a mainproduct itself is left out of the scope of the source of brand evaluation. Does it producebrand: ‘brand’ is the set of added perceptions. high or low satisfaction? BrandAs a result brand management is seen as management starts with creating products,mostly a communication task. This is services and/or places that embody theincorrect. Modern brand management starts brand. Interestingly, the legal approach towith the product and service as the prime trademarks and brands also insists on theirvector of perceived value, while communi- conditional nature. One should never usecation is there to structure, to orient tangible the brand name as a noun, but as anperceptions and to add intangible ones. adjective attached to a name, as for Later we analyse the relationship between instance with a Volvo car, not a Volvo.brand and product (see page 39). A secondpoint to consider is that Keller’s now-classicdefinition is focused on cognitions (mental The legal perspectiveassociations). This is not enough: strongbrands have an intense emotional component. An internationally agreed legal definition for brands does exist: ‘a sign or set of signs certi-Brands as conditional asset fying the origin of a product or service and differentiating it from the competition’.Financiers and accountants have realised the Historically, brands were created to defendvalue of brands (see Chapter 18). How does producers from theft. A cattle brand, a sign
BRAND EQUITY IN QUESTION 11burned into the animal’s hide, identified the ciations. Are the benefits the name evokesowner and made it apparent if the animal had (a) salient, (b) exclusive and (c) trusted?been stolen. ‘Brands’ or trademarks also iden- We live in an attention economy: there is sotified the source of the olive oil or wine much choice and opacity that consumerscontained in ancient Greek amphoras, and cannot spend their time comparing beforecreated value in the eyes of the buyers by they make a choice. They have no time andbuilding a reputation for the producer or even if they did, they cannot be certain ofdistributor of the oil or wine. being able to determine the right product or A key point in this legal definition is that service for them. Brands must conveytrademarks have a ‘birthday’ – their regis- certitude, trust. They are a time and risktration day. From that day they become a reducer. In fact where there is no risk there isproperty, which needs to be defended against no brand. We made this point in an earlierinfringements and counterfeiting (see page 87 book (Kapferer and Laurent, 1995). Thefor defence strategies). Brand rights disappear perceived risk could be economic (linked towhen they are not well enough defended, or if price), functional (linked to performance),registration is not renewed. One of the sources experiential, psychological (linked to our self-of loss of rights is degenerescence. This occurs concept), or social (linked to our social image).when a company has let a distinctive brand This is why it takes time to build the saliencyname become a generic term. that is part of brand awareness, and this trust Although the legal approach is most useful (trusted beliefs about the brand’s uniquefor defending the company against copies of benefits).its products, it should not become the basis Brand power to influence buyers relies onof brand management. Contrary to what the representations and relationships. A represen-legal definition asserts, a brand is not born tation is a system of mental associations. Webut made. It takes time to create a brand, stress the word ‘system’, for these associationseven though we talk about launching are interconnected. They are in a network, sobrands. In fact this means launching a that acting on one impacts some others. Theseproduct or service. Eventually it may become associations (also called brand image) covera brand, and it can also cease to be one. What the following aspects:makes a brand recognisable? When do weknow if a name has reached the status of a l What is the brand territory (perceivedbrand? For us, in essence, a brand is a name competence, typical products or services,that influences buyers, becoming a purchase specific know-how)?criterion. l What is its level of quality (low, middle, premium, luxury)?A brand is a name that influencesbuyers l What are its qualities? l What is its most discriminating quality orThis definition captures the essence of a brand: benefit (also called perceived positioning)?a name with power to influence buyers. Ofcourse, it is not a question of the choice of the l What typical buyer does the brand evoke?name itself. Certainly a good name helps: that What is the brand personality and brandis, one that is easily pronounceable around the imagery?world and spontaneously evokes desirableassociations. But what really makes a name Beyond mental associations, the power of abecome a brand are the saliency, differentia- name is also due to the specific nature of thebility, intensity and trust attached to these asso- emotional relationships it develops. A brand, it
12 W H Y I S B R A N D I N G S O S T R AT E G I C ?could be said, is an attitude of non-indifference When talking of brands we are sometimesknitted into consumers’ hearts. This attitude referring to a single aspect such as the name orgoes from emotional resonance to liking, logo, as do intellectual property lawyers. Inbelonging to the evoked set or consideration brand management, however, we speak of theset, preference, attachment, advocacy, to whole system, relating a concept withfanaticism. Finally, designs, patents and rights inherent value to products and services thatare of course a key asset: they provide a compet- are identified by a name and set of proprietaryitive advantage over a period of time. signs (that is, the logo and other symbols). In short, a brand exists when it has acquired This system reminds us of the conditionalpower to influence the market. This acquisition nature of the brand asset: it only exists iftakes time. The time span tends to be short in products and services also exist.the case of online brands, fashion brands and Differentiation is summarised by the brandbrands for teenagers, but longer for, for concept, a unique set of attributes (bothexample, car brands and corporate brands. tangible and intangible) that constitute theThis power can be lost, if the brand has been value proposition of the brand.mismanaged in comparison with the compe- To gain market share and leadership, thetition. Even though the brand will still have brand must be:brand awareness, image and market shares, itmight not influence the market any more. l able to conjure up a big idea, and attractive;People and distributors may buy because of l experienced by people at contact points;price only, not because they are conscious ofany exclusive benefit from the brand. l activated by deeds and behaviours; What makes a name acquire the power of a l communicated;brand is the product or service, together withthe people at points of contact with the l distributed.market, the price, the places, the communi-cation – all the sources of cumulative brand One of the best examples of a brand is theexperience. This is why one should speak of Mini. This car, worth US$14,000 in functionalbrands as living systems made up of three poles: value, is actually sold for US$20,000. It is oneproducts or services, name and concept. (See of the very few car brands that gives noFigure 1.1.) rebates and discounts to prospective buyers, Brand concept (value proposition) tangible and intangibleBrand name and symbols Product or servicesemiotic invariants experienceFigure 1.1 The brand system
BRAND EQUITY IN QUESTION 13who queue to get ‘their’ Mini. The Mini illus- same name around the world), or the logo,trates the role of both intangible and tangible or the product (a standardised versusqualities in the success of any brand. Since it is customised product), or the conceptmade by BMW, it promises reliability, power (aiming at the same global positioning)? Orand road-holding performance. But the all three pillars of the brand system, or onlyfeelings of love towards this brand are created two of them?by the powerful memories the brand invokesin buyers of London in the ‘Swinging Sixties’. Since a brand is a name with the power toThe classic and iconic design is replicated in influence the market, its power increases asthe new Mini – and each Mini feels like a more people know it, are convinced by it, andpersonal accessory to its owner (each Mini is trust it. Brand management is about gainingcustomised and different). power, by making the brand concept more The brand triangle helps us to structure known, more bought, more shared.most of the issues of brand management: In summary, a brand is a shared desirable and exclusive idea embodied in products,l What concept should one choose, with services, places and/or experiences. The more what balance of tangible and intangible this idea is shared by a larger number of benefits? This is the issue of identity and people, the more power the brand has. It is positioning. Should the brand concept because everyone knows ‘BMW’ and its idea – evolve through time? Or across borders what it stands for – even those who will never (the issue of globalisation)? buy a BMW car, that the brand BMW has a great deal of power.l How should the brand concept be The word ‘idea’ is important. Do we sell embodied in its products and services, and products and services, or values? Of course, its places? How should a product or service the answer is values. For example, ‘Volvo’ is of the brand be different, look different? attached to an idea: cars with the highest What products can this brand concept possible safety levels. ‘Absolut’ conjures encompass? This is the issue of brand another idea: a fashionable vodka. Levi’s used extension or brand stretch. to be regarded as the rebel’s jeans.l How should the product and/or services be identified? And where? Should they be identified by the brand name, or by the Differentiating between brand logo only, as Nike does now? Should organ- assets, strength and value isations create differentiated sets of logos and names as a means of indicating It is time to structure and organise the many internal differences within their product or terms related to brands and their strength, service lines? What semiotic variants? and to the measurement of brand equity. Some restrict the use of the phrase ‘brandl What name or signs should one choose to equity’ to contexts that measure this by its convey the concept internationally? impact on consumer mental associationsl How often should the brand symbols be (Keller, 1992). Others mention behaviour: for changed, updated or modernised? example this is included in Aaker’s early measures (1991), which also consider brandl Should the brand name be changed (see loyalty. In his late writings Aaker includes Chapter 15)? market share, distribution and price premiuml Speaking of internationalisation, should in his 10 measures of brand equity (1996). The one globalise the name (that is, use the official Marketing Science definition of brand
14 W H Y I S B R A N D I N G S O S T R AT E G I C ?equity is ‘the set of associations and behavior l Brand strength at a specific point in time as aon the part of a brand’s customers, channel result of these assets within a specificmembers and parent corporation that permits market and competitive environment.the brand to earn greater volume or greater They are the ‘brand equity outcomes’ if onemargins than it could without the brand restricts the use of the phrase ‘brand equity’name’ (Leuthesser, 1988). to brand assets alone. Brand strength is This definition is very interesting and has captured by behavioural competitive indi-been forgotten all too quickly. It is all-encom- cators: market share, market leadership,passing, reminding us that channel members loyalty rates and price premium (if oneare very important in brand equity. It also follows a price premium strategy).specifically ties margins to brand associationsand customers’ behaviour. Does it mean that l Brand value is the ability of brands to deliver profits. A brand has no financialunless there is a higher volume or a higher value unless it can deliver profits. To saymargin as a result of the creation of a brand, that lack of profit is not a brand problemthere is no brand value? This is not clear, for but a business problem is to separate thethe word ‘margin’ seems to refer to gross brand from the business, an intellectualmargin only, whereas brand financial value is temptation. Certainly brands can bemeasured at the level of earnings before analysed from the standpoint of sociology,interest and tax (EBIT). psychology, semiotics, anthropology, To dispel the existing confusion around the philosophy and so on, but historically theyphrase brand equity (Feldwick, 1996), created were created for business purposes and areby the abundance of definitions, concepts, managed with a view to producing profit.measurement tools and comments by experts,it is important to show how the consumer and Only by separating brand assets, strength andfinancial approaches are connected, and to value will one end the confusion of the branduse clear terms with limited boundaries (see equity domain (Feldwick, 1996 takes a similarTable 1.1): position). Brand value is the profit potential of the brand assets, mediated by brand marketl Brand assets. These are the sources of strength. influence of the brand (awareness/saliency, In Table 1.1, the arrows indicate not a direct image, type of relationship with consumers), but a conditional consequence. The same and patents.Table 1.1 From awareness to financial valueBrand assets Brand strength Brand valueBrand awareness Market share Net discounted cashflow attributableBrand reputation (attributes, Market leadership to the brand after paying the cost ofbenefits, competence, Market penetration capital invested to produce and runknow-how, etc) Share of requirements the business and the cost of marketingPerceived brand personality Growth ratePerceived brand values Loyalty rateReflected customer imagery Price premiumBrand preference or attachment Percentage of products thePatents and rights trade cannot delist
BRAND EQUITY IN QUESTION 15brand assets may produce different brand This will depend very much on the ability ofstrength over time: this is a result of the the business model to face the future. Foramount of competitive or distributive instance, Nokia lost ground at the Stockpressure. The same assets can also have no Exchange in April 2004. The market hadvalue at all by this definition, if no business judged that the future of the world’s numberwill ever succeed in making them deliver one mobile phone brand was dim. Every-profits, through establishing a sufficient where in the developed countries, almostmarket share and price premium. For instance everyone had a mobile phone. How was theif the cost of marketing to sustain this market company still to make profits in this saturatedshare and price premium is too high and market? If it tried to sell to emerging countriesleaves no residual profit, the brand has no it would find that price was the first purchasevalue. Thus the Virgin name proved of little criterion and delocalisation (that is, havingvalue in the cola business: despite the assets of the products manufactured in a country suchthis brand, the Virgin organisation did not as China or Singapore) compulsory. Up to thatsucceed in establishing a durable and prof- point, Nokia had based its growth on itsitable business through selling Virgin Cola in production facilities in Finland. Nokia’sthe many countries where this was tried. The present brand stature might be high, but whatMini was never profitable until the brand was about its value?bought by BMW. It is time now to move to the topic of Table 1.1 also shows an underlying time tracking brand equity for managementdimension behind these three concepts of purposes. What should managers regularlyassets, strength and value. Brand assets are measure?learnt mental associations and affects. Theyare acquired through time, from direct orvicarious, material or symbolic interactions Tracking brand equitywith the brand. Brand strength is a measure ofthe present status of the brand: it is mostly What is a brand? A name that influencesbehavioural (market share, leadership, loyalty, buyers. What is the source of its influence?price premium). Not all of this brand stature is A set of mental associations and relationshipsdue to the brand assets. Some brands establish built up over time among customers ora leading market share without any noticeable distributors. Brand tracking should aim atbrand awareness: their price is the primary measuring these sources of brand power. Thedriver of preference. There are also brands role of managers is to build the brand andwhose assets are superior to their market business. This is true of brand managers, butstrength: that is, they have an image that is far also of local or regional managers who are instronger than their position in the market charge of developing this competitive asset in(this is the case with Michelin, for example). addition to developing the business moreThe obverse can also be true, for example of generally. This is why advanced companiesmany retailer own brands. now link the level of variable salary not only Brand value is a projection into the future. to increments in sales and profits but also toBrand financial valuation aims to measure the brand equity. However, such a system presup-brand’s worth, that is to say, the profits it will poses that there is a tracking system for brandcreate in the future. To have value, brands equity, so that year after year its progress canmust produce economic value added (EVA), be assessed. This system must be valid,and part of this EVA must be attributable to reliable, and not too complicated or toothe brand itself, and not to other intangibles costly. What should one measure as a(such as patents, know-how or databases). minimum to evaluate brand equity?
16 W H Y I S B R A N D I N G S O S T R AT E G I C ? An interesting survey carried out by the preference, perceived quality, a mark foragency DDB asked marketing directors what global opinion, and an item measuring thethey considered to be the characteristics of a strength of the brand’s imagery.strong brand, a significant company asset. Certain institutions, which believe that theThe following were the answers in order of comparison of brands across all markets makesimportance: little sense, concentrate on a single market approach and measure, for example, thel brand awareness (65 per cent); acceptable price differential for each brand. They proceed in either a global manner (whatl the strength of brand positioning, concept, price difference can exist between a Lenovo PC personality, a precise and distinct image (39 and a Toshiba PC?) or by using a method of per cent); trade-off which isolates the net added value ofl the strength of signs of recognition by the the brand name. Marketing directors are consumer (logo, codes, packaging) (36 per perplexed because so many different methods cent); exist. There is little more consensus amongl brand authority with consumers, brand academic researchers. Sattler (1994) analysed esteem, perceived status of the brand and 49 American and European studies on brand consumer loyalty (24 per cent). equity and listed no fewer than 26 different ways of measuring it. These methods varyNumerous types of survey exist on the meas- according to several dimensions:urement of brand value (brand equity). Theyusually provide a national or international hit l Is the measure monetary or not? A largeparade based just on one component of brand proportion of measures are classified inequity: brand awareness (the method may be non-monetary terms (brand awareness,the first brand brought to mind, aided or attitude, preference, etc).unaided depending on the research institute),brand preference, quality image, prestige, first l Does the measurement include the timeand second buying preferences when the factor – that is, the future of the brand onfavoured brand is not available, or liking. the market?Certain institutions may combine two of the l Does the brand measure take the compe-components: for example, Landor published tition into account – that is, the perceivedan indicator of the ‘power of the brand’ which value in relation to other products on thewas determined by combining brand-aided market? Most of them do not.awareness and esteem, which is the emotionalcomponent of the brand–consumer rela- l Does the measurement include the brand’stionship. The advertising agency Young & marketing mix? When you measure brandRubicam carried out a study called ‘Brand value, do you only include the valueAsset Monitor’ which positions the brand on attached to the brand name? Mosttwo axes: the cognitive axis is a combination measures do not include the marketing mixof salience and of the degree of perceived (past advertising expenditure, level ofdifference of the brand among consumers; the distribution, and so on).emotional axis is the combination of the l When estimating brand value do you includemeasures of familiarity and esteem (see the profits that a user or a buyer could obtainChapter 10). TNS, in its study Megabrand due to the synergies that may exist with itsSystem, uses six parameters to compare own existing brand portfolio (synergies ofbrands: brand awareness, stated use, stated distribution, production, logistics, etc)? The
BRAND EQUITY IN QUESTION 17 majority of them do not include this, even Table 1.2 gives a typical result of a tracking though it is a key factor. study for a brand.l Does the measurement of brand equity include the possibility of brand extensions Table 1.2 Result of a brand tracking study outside the brand’s original market? In Brand X general, no. Japan Mexicol Finally, does the measure of brand equity Aided awareness 99% 97% take into account the possibility of Unaided awareness 48% 85% geographical extension or globalisation? Evoked set 24% 74% Again, most of the time the answer is no. Consumed 5% 40%We recommend four indicators of brand assets There are two ways of looking at the brand(equity): equity figures in the table. One can compare the countries by line: although it has similarl Aided brand awareness. This measures aided awareness levels, this brand has very whether the brand has a minimal resonance. different status in the two countries. The second mode is vertical, and focuses on thel Spontaneous brand awareness. This is a ‘transformation ratios’. It is noticeable that in measure of saliency, of share of mind when Japan, the evoked set is 50 per cent of unaided cued by the product. brand awareness, whereas it is 87 per cent inl Evoked set, also called consideration set. Does Mexico. the brand belong to the shortlist of two or Although there is a regular pattern of three brands one would surely consider decreasing figures, from the top line to the buying? bottom line, this is not always the case. For instance in Europe, Pepsi Cola is not a strongl Has the brand been already consumed or brand: its market share is gained through not? push marketing and trade offers. As a result, Pepsi Cola certainly grows its business butSome companies add other items like most not its intrinsic desirability. In trackingpreferred brand. Empirical research has studies Pepsi Cola has a trial rate far highershown that this item is very much correlated than the brand’s preference rate (evoked set).to spontaneous brand awareness, the latter At the opposite end of the spectrum there arebeing much more than a mere cognitive brands that have an equity far superior tomeasure, but it also captures proximity to the their consumption rate. In Europe, Michelinperson. Other companies add the item has a clear edge over rival tyre brands as far asconsumed most often. Of course this is image is concerned. However, image does nottypical of fast moving consumer goods; the transform itself into market share if peopleitem is irrelevant for durables. In addition, in like the Michelin brand but deem that the useempirical research the item is also correlated they make of their cars does not justifyto evoked set. One should never forget that buying tyres of such a quality and at such atracking studies dwell on the customer’s price.memory. This memory is itself very much Tracking studies are not simply tools forinferential. Do people really know what control. They are tools for diagnosis andbrand they bought last? They infer from their action. Transformation ratios tell us where topreferences, that logically it should have been act.brand X or Y.
18 W H Y I S B R A N D I N G S O S T R AT E G I C ?Goodwill: the convergence of The vision has changed from one where only tangible assets had value to one wherefinance and marketing companies now believe that their most important asset is their brands, which areThe 1980s witnessed a Copernican revolution intangible (see Tables 1.3 and 18.2). Thesein the understanding of the workings of intangible assets account for 61 per cent of thebrands. Before this, ratios of seven or eight value of Kellogg’s, 57 per cent of Sara Lee andwere typical in mergers and acquisitions, 52 per cent of General Mills. This explains themeaning that the price paid for a company paradox that even though a company iswas seven to eight times its earnings. After making a loss it is bought for a very high price1980 these multiples increased considerably because of its well-known brands. Beforeto reach their peak. For example, Groupe 1980, if the value of the brand had beenDanone paid $2.5 billion for Nabisco Europe, included in the company’s earnings, it wouldwhich was equivalent to a price:earnings ratio have been bought for a penny. Nowadaysof 27. Nestlé bought Rowntree Macintosh for brand value is determined independently ofthree times its stock market value and 26 the firm’s net value and thus can sometimestimes its earnings. It was becoming the norm be hidden by the poor financial results of theto see multiples of 20 to 25. Even today when, company. The net income of a company is thebecause of the recession, financial valuations sum of all the financial effects, be theyhave become more prudent, the existence of positive or negative, and thus includes thestrong brands still gives a real added value to effect of the brand. The reason why Apple lostcompanies. What happened between the money in 1996 was not because its brand wasbeginning and the end of the 1980s? What weak, but because its strategy was bad.explanations can be given for this sudden Therefore it is not simply because a companychange in the methods of financial analysts? is making a loss that its brand is not addingThe prospect of a single European market value. Just as the managers of Ebel-Jellinek, ancertainly played a significant role, as can be American-Swiss group, said when they boughtseen by the fact that large companies were the Look brand: the company is making a losslooking for brands that were ready to be but the brand hasn’t lost its potential. BalanceEuropean or, even better, global. This explains sheets reflect bad management decisions inwhy Nestlé bought Buitoni, Lever bought the past, whereas the brand is a potentialBoursin, l’Oréal bought Lanvin, Seagram source of future profits. This potential willbought Martell, etc. The increase in the become actual profit only if it can meet amultiples can also be explained in part by the viable economic equation.opposing bids of rival companies wishing to It is important to realise that in accountingtake over the few brand leaders that existed in and finance, goodwill is in fact the differencetheir markets and which were for sale. Apart between the price paid and the book value offrom the European factor, there was a marked the company. This difference is brought aboutchange in the attitude towards the brands of by the psychological goodwill of consumers,the principal players. Prior to 1980, distributors and all the actors in the channels:companies wished to buy a producer of that is to say, favourable attitudes and predis-chocolate or pasta: after 1980, they wanted to position. Thus, a close relationship existsbuy KitKat or Buitoni. This distinction is very between financial and marketing analyses ofimportant; in the first case firms wish to buy brands. Accounting goodwill is the monetaryproduction capacity and in the second they value of the psychological goodwill that thewant to buy a place in the mind of the brand has created over time through commu-consumer. nication investment and consistent focus on
BRAND EQUITY IN QUESTION 19Table 1.3 Brand financial valuation, 2007 loyalty to the brand that is the key to future sales. Brand loyalty may be reduced to aRank Brand Value (US$ billion) minimum as the price difference between1 Google 66,434 the brand and its competitors increases but2 GE 61,880 attachment to the brand does not vanish so3 Microsoft 54,951 fast; it resists time.4 Coca Cola 44,1345 China Mobile 41,2146 Marlboro 39,166 The brand is a focal point for all the positive7 Wal-Mart 36,880 and negative impressions created by the buyer8 Citi 33,706 over time as he or she comes into contact with9 IBM 33,572 the brand’s products, distribution channel,10 Toyota 33,427 personnel and communication. On top of11 McDonald’s 33,138 this, by concentrating all its marketing effort12 Nokia 31,670 on a single name, the latter acquires an aura of13 Bank of America 28,767 exclusivity. The brand continues to be, at least14 BMW 25,751 in the short term, a byword for quality even15 Hewlett-Packard 24,987 after the patent has expired. The life of the16 Apple 24,728 patent is extended thanks to the brand, thus17 UPS 24,580 explaining the importance of brands in theSources: Brand Z, Milward Brown pharmaceutical or the chemical industry (see page 108). Brands are stored in clients’ memories, soproduct satsifaction, both of which help build they exert a lasting influence. Because of this,the reputation of the name. they are seen as an asset from an accounting What exactly are the effects of this point of view: their economic effects extendcustomer and distributor goodwill?: far beyond the mere consumption of the product.l The favourable attitude of distributors In order to understand in what way a strong that list some products of the brand brand (having acquired distribution, because of their rotation system. In fact a awareness and image) is a generator of growth retailer may lose customers if it does not and profitability it is first necessary to under- stock products of a well-known brand that stand the functions that it performs with the by definition is present everywhere. That consumers themselves, and which are the is to say, certain customers will go else- source of their valuable goodwill. where to look for the brand. This goodwill ensures the presence of the brand at the point of sale. How brands create value for thel The support of wholesalers and resellers in customer the market for slow-moving or industrial goods. This is especially true when they are Although this book deals primarily with seen as being an exclusive brand with brands and their optimisation, it is important which they are able to associate themselves to clarify that brands do not necessarily exist in the eyes of their customers. in all markets. Even if brands exist in the legall The desire of consumers or end-users to buy sense they do not always play a role in the the product. It is their favourable attitude buying decision process of consumers. Other and in certain cases the attachment or even factors may be more important. For example,
20 W H Y I S B R A N D I N G S O S T R AT E G I C ?research on ‘brand sensitivity’ (Kapferer and powder, etc. For these products the consumerLaurent, 1988) shows that in several product has high involvement and does not want tocategories, buyers do not look at the brand take any risks, be they physical or psycho-when they are making their choice. Who is logical.concerned about the brand when they are Nothing is ever acquired permanently, andbuying a writing pad, a rubber, felt-tip pens, the degree of perceived risk evolves over time.markers or photocopy paper? Neither private In certain sectors, as the technology becomesindividuals nor companies. There are no commonplace, all the products comply withstrong brands in such markets as sugar and standards of quality. Therefore we are movingsocks. In Germany there is no national brand from a situation where some products ‘failed’of flour. Even the beer brands are mostly whereas others ‘passed’, towards one where allregional. Location is key with the choice of a competitors are excellent, but some are ‘morebank. excellent’ than others. The degree of perceived Brands reduce perceived risk, and exist as risk will change depending on the situation.soon as there is perceived risk. Once the risk For example, there is less risk involved inperceived by the buyer disappears, the brand buying rum or vodka for a cocktail than for ano longer has any benefit. It is only a name on rum or vodka on the rocks. Lastly, alla product, and it ceases to be a choice cue, a consumers do not have the same level ofguide or a source of added value. The involvement. Those who have highperceived risk is greater if the unit price is involvement are those that worry about smallhigher or the repercussions of a bad choice are differences between products or who wish tomore severe. Thus the purchase of durable optimise their choice: they will talk for hoursgoods is a long-term commitment. On top of about the merits of such and such a computerthis, because humans are social animals, we or of a certain brand of coffee. Those who arejudge ourselves on certain choices that we less involved are satisfied with a basic productmake and this explains why a large part of our which isn’t too expensive, such as a gin or asocial identity is built around the logos and whisky which may be unknown but seems tothe brands that we wear. As far as food is be good value for money and is sold in theirconcerned, there is a certain amount of local shop. The problem for most buyers whointrinsic risk involved whenever we ingest feel a certain risk and fear making a mistake issomething and allow it to enter our bodies. that many products are opaque: we can onlyThe brand’s function is to overcome this discover their inner qualities once we buy theanxiety, which explains, for example, the products and consume them. However, manyimportance of brands in the market for spirits consumers are reluctant to take this step.such as vodka and gin. Therefore it is imperative that the external The importance of perceived risk as a signs highlight the internal qualities of thesegenerator of the legitimacy of a brand is high- opaque products. A reputable brand is thelighted by the categories within which distrib- most efficient of these external signals.utors’ own-brands (and perhaps tomorrow’s Examples of other such external indicators are:discount products) dominate: canned price, quality marks, the retail outlet where thevegetables, milk, orange juice, frozen pizzas, product is sold and which guarantees it, thebottled water, kitchen roll, toilet paper and style and design of the packaging.petrol. At the same time producers’ brandsstill have a dominant position in the How brand awareness means valuefollowing categories: coffee, tea, cereals,toothpaste, deodorant, cold sauces, fresh Recent marketing research shows that brandpasta, baby food, beauty products, washing awareness is not a mere cognitive measure. It is
BRAND EQUITY IN QUESTION 21in fact correlated with many valuable image These authors make the distinction betweendimensions. Awareness carries a reassuring three types of product characteristics:message: although it is measured at the indi-vidual level, brand awareness is in fact a l the qualities which are noticed by contact,collective phenomenon. When a brand is before buying;known, each individual knows it is known. l the qualities which are noticed uniquely byThis leads to spontaneous inferences. As is experience, thus after buying;shown in Table 1.4, awareness is mostly corre-lated with aspects such as high quality, trust, l credence qualities which cannot be verifiedreliability, closeness to people, a good quality/ even after consumption and which youprice ratio, accessibility and traditional styling. have to take on trust.However it has a zero correlation with innova-tiveness, superior class, style, seduction: if The first type of quality can be seen in theaspects such as these are key differentiation decision to buy a pair of men’s socks. Thefacets of the brand, they must be earned on choice is made according to the visible charac-their own merit. teristics: the pattern, the style, the material, the feel, the elasticity and the price. There isTable 1.4 How brand awareness creates hardly a need for brands in this market. In factvalue and image dimensions (correlations those that do exist only have a very smallbetween awareness and image) market share and target those people who are looking for proof of durability (difficult to tellGood quality/price ratio 0.52Trust 0.46 before buying) or those who wish to be fash-Reliable 0.44 ionable. This is how Burlington socks work asQuality 0.43 a hallmark of chic style. Producers’ brands doTraditional 0.43 exist but their differential advantageBest 0.40 compared to distributors’ brands (Marks &Down to earth 0.37 Spencer or C&A) is weak, especially if theClient oriented 0.37 latter have a good style department and offer aFriendly 0.35 wide variety at a competitive price.Accessible 0.32 A good example of the second type ofDistinct 0.31 quality is the automobile market. Of course,A leader 0.29 performance, consumption and style can allPopular 0.29Fun 0.29 be assessed before buying, as can the avail-Original 0.27 ability of options and the interior space.Energetic 0.25 However, road-holding, the pleasure ofFriendly 0.25 driving, reliability and quality cannot bePerforming 0.22 entirely appreciated during a test drive. TheSeductive 0.08 response comes from brand image; that is, theInnovative 0.02 collective representation which is shaped over(Base: 9,739 persons, 507 brands) time by the accumulated experiences ofSource: Schuiling and Kapferer, 2004 oneself, of close relations, by word of mouth and advertising.Transparent and opaque products Finally, in the market for upmarket cars, the feeling that you have made it, that feeling ofAt this stage it is interesting to remind fulfilment and personal success throughourselves of the classifications drawn up by owning a BMW is typically the result of pureNelson (1970) and by Darby and Kami (1973). faith. It cannot be substantiated by any of the
22 W H Y I S B R A N D I N G S O S T R AT E G I C ?post-purchase driving experiences: it is a consumer loses his or her traditional referencecollective belief, which is more or less shared points. This is why there is an increase in theby the buyers and the non-buyers. The same demand for branded wine. Consumers werelogic applies to the feeling of authenticity and put off by too many small chateaux which wereinner masculinity which is supposed to result rarely the same and had limited production offrom smoking Marlboro cigarettes. varying quality and which sometimes sprung The role of brands is made clearer by this some unpleasant surprises. This paved the wayclassification of sought-after qualities. The for brands such as Jacob’s Creek and Gallo.brand is a sign (therefore external) whose A brand provides not only a source of infor-function is to disclose the hidden qualities of mation (thus revealing its values) butthe product which are inaccessible to contact performs certain other functions which justify(sight, touch, hearing, smell) and possibly its attractiveness and its monetary returnthose which are accessible through experience (higher price) when they are valued by buyers.but where the consumer does not want to take What are these functions? How does a brandthe risk of trying the product. Lastly, a brand, create value in the eyes of the consumer? Thewhen it is well known, adds an aura of make- eight functions of a brand are presented inbelieve when it is consumed, for example the Table 1.5. The first two are mechanical andauthentic America and rebellious youth of concern the essence of the brand; that is, toLevi’s, the rugged masculinity of Marlboro, function as a recognised symbol in order tothe English style of Dunhill, the Californian facilitate choice and to gain time. Themyth of Apple. following three functions reduce the The informational role of the brand varies perceived risk. The last three have a moreaccording to the product or service, the pleasurable side to them. Ethics show thatconsumption situation and the individual. buyers are expecting, more and more, respon-Thus, a brand is not always useful. On the other sible behaviour from their brands. Manyhand, a brand becomes necessary once the Swedish consumers still refuse Nestlé’sTable 1.5 The functions of the brand for the consumerFunction Consumer benefitIdentification To be clearly seen, to quickly identify the sought-after products, to structure the shelf perception.Practicality To allow savings of time and energy through identical repurchasing and loyalty.Guarantee To be sure of finding the same quality no matter where or when you buy the product or service.Optimisation To be sure of buying the best product in its category, the best performer for a particular purpose.Badge To have confirmation of your self-image or the image that you present to others.Continuity Satisfaction created by a relationship of familiarity and intimacy with the brand that you have been consuming for years.Hedonistic Enchantment linked to the attractiveness of the brand, to its logo, to its communication and its experiential rewards.Ethical Satisfaction linked to the responsible behaviour of the brand in its relationship with society (ecology, employment, citizenship, advertising which doesn’t shock).
BRAND EQUITY IN QUESTION 23products due to the issue of selling Nestlé’s reducing all the costs which do not add valuebaby milk to poor mothers in Africa. carried out in conjunction with suppliers). These functions are neither laws nor dues, This formula offers another alternative to thenor are they automatic; they must be first five functions: ease of identification ondefended at all times. Only a few brands are the shelf, practicality, guarantee, optimisationsuccessful in each market thanks to their at the chosen price level and characterisationsupporting investments in quality, R&D, (refusal to be manipulated by marketing). Theproductivity, communication and research in absence of other functions is compensated fororder to better understand foreseeable by the very low price.changes in demand. A priori, nothing Functional analysis of brand role can facil-confines these functions to producers’ brands. itate the understanding of the rise of distrib-Moreover, several producers’ brands do not utors’ own brands. Whenever brands are justperform these functions. In Great Britain, trademarks and operate merely as a recog-Marks & Spencer (St Michael) is seen as an nition signal or as a mere guarantee of quality,important brand and performs these func- distributors’ brands can fulfil these functionstions, as do Migros in Switzerland, the Gap, as well and at a cheaper price.Zara, Ikea and others. Table 1.6 summarises the relationships The usefulness of these functions depends between brand role and distributors’ own-on the product category. There is less need for brands’ market share.reference points or risk reducers when theproduct is transparent (ie its inner qualitiesare accessible through contact). The price How brands create value for thepremium is at its lowest and trial costs verylittle when there is low involvement and the companypurchase is seen as a chore, eg trying a new,cheaper roll of kitchen paper or aluminium Why do financial analysts prefer companiesfoil. Certain kinds of shops aim primarily at with strong brands? Because they are less risky.fulfilling certain of these functions, for Therefore, the brand works in the same way forexample hard discounters who have 650 lines the financial analyst as for the consumer: thewith no brands, a product for every need, at brand removes the risk. The certainty, the guar-the lowest prices and offering excellent antee and the removal of the risk are includedquality for the price (thanks to the work on in the price. By paying a high price for aTable 1.6 Brand functions and the distributor/manufacturer power equilibriumMain function of brand Typical product category of brand Power of manufacturers’ brandRecognition signal Milk, salt, flour Very weakPracticality of choice Socks WeakGuarantee of quality Food, staples WeakOptimisation of choice, sign of Cars, cosmetics, appliances, Strong high-quality performance paint, servicesPersonalising one’s choice Perfumes, clothing StrongPermanence, bonding, Old brands Strong but challenged familiarity relationshipPleasure Polysensual brands, luxury brands StrongEthics and social responsibility Trust brands, corporate brands Strong but challenged
24 W H Y I S B R A N D I N G S O S T R AT E G I C ?company with brands the financial analyst is of capital invested, etc. The financial value ofacquiring near certain future cashflows. the brand is the difference between the extra If the brand is strong it benefits from a high revenue generated by the brand and the asso-degree of loyalty and thus from stability of ciated costs for the next few years, which arefuture sales. Ten per cent of the buyers of discounted back to today. The number ofVolvic mineral water are regular and loyal and years is determined by the business plan of therepresent 50 per cent of the sales. The repu- valuer (the potential buyer, the auditors). Thetation of the brand is a source of demand and discount rate used to weigh these future cash-lasting attractiveness, the image of superior flows is determined by the confidence or thequality and added value justifies a premium lack of it that the investor has in his or herprice. A dominant brand is an entry barrier to forecasts. However, a significant fact is thatcompetitors because it acts as a reference in its the stronger the brand, the smaller the risk.category. If it is prestigious or a trendsetter in Thus, future net cashflows are consideredterms of style it can generate substantial more certain when brand strength is high.royalties by granting licences, for example, at Figure 1.2 shows the three generators ofits peak, Naf-Naf, a designer brand, earned profit of the brand: the price premium, moreover £6 million in net royalties. The brand can attraction and loyalty, and higher margin.enter other markets when it is well known, is a These effects work on the original market forsymbol of quality and offers a certain promise the brand but they can be offered subse-which is valued by the market. The Palmolive quently on other markets and in otherbrand name has become symbolic of mildness product categories, either through directand has been extended to a number of brand extension (for example, Bic movedmarkets besides that of soap, for example from ballpoint pens to lighters to disposableshampoo, shaving cream and washing-up razors and recently to sailboards) or throughliquid. This is known as brand extension (see licensing, from which the manufacturerChapter 12) and saves on the need to create benefits from royalties (for example all theawareness if you had to launch a new product luxury brands, and Caterpillar).on each of these markets. Once these levers are measured in euros, In determining the financial value of the yen, dollars or any other currency they maybrand, the expert must take into account the serve as a base for evaluating the marginalsources of any additional revenues which are profit which is attributable to the brand. Theygenerated by the presence of a strong brand. only emerge when the company wishes toAdditional buyers may be attracted to a strategically differentiate its products. Thisproduct which appears identical to another wish can come about through three types ofbut which has a brand name with a strong investment:reputation. If such is the company’s strategythe brand may command a premium price in l Investment in production, productivity andaddition to providing an added margin due to R&D. Thanks to these, the company caneconomies of scale and market domination. acquire specific know-how, a knack whichBrand extensions into new markets can result cannot be imitated and which inin royalties and important leverage effects. To accounting terms is also an intangible asset.calculate this value, it is necessary to subtract Sometimes the company temporarily blocksthe costs involved in brand management: the new entrants by registering a patent. This iscosts involved in quality control and in the basis of marketing in the pharmaceu-investing in R&D, the costs of a national, tical industry (a patent and a brand) but alsoindeed international, sales force, advertising of companies like Ferrero, whose productscosts, the cost of a legal registration, the cost are not easily imitated despite their success.
BRAND EQUITY IN QUESTION 25 CORPORATE RESOURCES DISTRIBUTION INVESTMENTS: MKTG INVESTMENTS INVESTMENTS PRODUCTIVITY, R&D FORECASTING CHANGES (PROXIMITY, KNOW-HOW, PATENTS OF CONSUMER VALUES AVAILABILITY) AND LIFE-STYLES AND COMMUNICATION LEVEL OF BRAND RELEVANCE SHARE OF VOICE OBJECTIVE QUALITY AND ADAPTATION TO SHARE OF MIND COST OF QUALITY ITS PRESENT MARKET SHARE OF SHELF BRAND SALIENCY COMPETITION CUSTOMERS – OTHER BRANDS PERCEIVED VALUE – INVOLVEMENT – DOBS VIS-À-VIS COMPETITION – PRICE SENSITIVITY – HARD DISCOUNT – BUYING CRITERIA LEVEL OF INCREMENTAL COST ADVANTAGES SUSTAINABLE ATTRACTION DUE TO MARKET PRICE PREMIUM AND LOYALTY LEADERSHIP EXTENDING BRAND EQUITY BEYOND ITS CATEGORY AND COUNTRYFigure 1.2 The levers of brand profitability Patents are on their own an intangible asset: to the logic of distributors, and developing the activity of the company benefits from good relations with the channels (even them in a lasting manner. though it is still necessary when valuing a brand to make a distinction between whatl Investment in research and marketing part of its sales is due to the power of the studies in order to get new insights, to antic- company and what part to the brand itself). ipate the changes of consumers’ tastes and life-styles in order to define any important l Investment in listing allowances, in the innovations which will match these evolu- sales force and merchandising, in trade tions. Chrysler’s Minivan is an example of a marketing and, naturally, in communi- product created in anticipation of the cating to consumers to promote the demands of baby boomers with tall children. uniqueness of the brand and to endow it An understanding of the expectations of with saliency (awareness), perceived distributors is also needed, as they are an difference and esteem. The hidden intrinsic essential component of the physical prox- qualities or intangible values which are imity of brands. Nowadays a key element of associated with consumption would be brand success is understanding and adapting unknown without brand advertising.
26 W H Y I S B R A N D I N G S O S T R AT E G I C ?The value of the brand, and thus the legit- on market share and the ability to charge aimacy of implementing a brand policy, premium price (two indicators of branddepends on the difference between the strength) are not direct but are mediated bymarginal revenues and the necessary marginal brand reputation (or esteem). In fact, ascosts associated with brand management. shown by the path coefficients of Figure 1.3, brand reputation is created by familiarityHow brand reputation affects the (I know it well, I use it a lot) and by brand perceived uniqueness (this brand is unique, isimpact of advertising different, there is no substitute). AdvertisingBrands are a form of capital that can slowly be does play a key role in building sales, but itbuilt, while in the meantime one is growing has no direct impact on gaining both marketbusiness. Of course it is very possible to grow a share and premium price. This is most inter-business without creating such brand capital: esting: in brief, it is only by building a reputa-a push strategy or a price strategy can deliver tional capital that both a higher market sharehigh sales and market share without building and price premium can be obtained.any brand equity. This is the case for many Reputation also adds to the impact of adver-private labels or own-label brands, for tising on sales. It is well known from evalua-instance. The volume leader in the market for tions of past campaigns that the more a brandScotch whisky in France is not Johnnie Walker is known, the more its advertisements areor Ballantines or Famous Grouse but William noticed and remembered. It is high time toPeel, a local brand that aimed all its efforts at stop treating brands and commerce asthe trade (hypermarkets) and sells at a low opposing forces.price. It has almost no saliency (spontaneousbrand awareness). Now managers are being asked to build Corporate reputation and theboth business and brand value. Their salary is corporate brandindexed on these two yardsticks: sales andreputation. One should not see them as In 2003 Velux, which had become known asseparate, leading to a kind of schizophrenia. the number one brand for roof windows inChaudhuri’s very relevant research (2002) the world, realised it needed to create areminds us that advertising and marketing are corporate brand. It felt that merely to competethe key levers of sales. However, their effects through its product brand was not enough to Brand 0.42 Brand sales advertising 0.11* 0.27 Number of 0.23 Market share competitors –0.17 Brand reputation Brand familiarity 0.56 0.19 Relative price 0.41 Brand *p<0.10 uniqueness All other paths p<0.5Figure 1.3 Branding and salesReprinted from the Journal of Advertising Research, copyright 2002, by the Advertising Research Foundation
BRAND EQUITY IN QUESTION 27protect it against the growing number of me- financial investor, as client), in fact they aretoos all over the world. In addition, its brand all sensitive to the global ability of theequity was stagnating. When any brand company to meet the expectations of all itsreaches a level of 80 per cent of top-of-mind stakeholders. Reputation takes the companyawareness in its category, part of its ‘stag- as a whole. It reunifies all stakeholders and allnation’ is certainly due to a ceiling effect: functions of the corporation.there is not much room for improvement. Because changes in reputation affect allHowever, the company felt that emotional stakeholders, companies monitor and managebonding with its brand was not strong their reputation closely. Fombrun has diag-enough. Could the product brand alone nosed that global reputation is based on siximprove the bond? The diagnosis was that it factors or ‘pillars’ (Fombrun, Gardberg andwas high time to reveal ‘the brand behind the Sever, 2000):brand’ (Kapferer, 2000) and start building acorporate brand. l emotional appeal (trust, admiration and In fact many companies that based their respect);success on product brands have now decided l products and services (quality, innova-to create a corporate brand in order to make tiveness, value for money and so on);company actions, values and missions moresalient and to diffuse specific added values. l vision and leadership;Unilever should soon develop some kind of l workplace quality (well-managed, appealingcorporate visibility, as Procter & Gamble does workplace; employee talent);in Asia at this time and will probably do every-where soon. l financial performance; There is another reason that corporate l social responsibility.brands are a new hot managerial topic: thedefence of reputation. Companies have Since companies cannot grow without advo-become very sensitive about their reputation. cates and the support of their many stake-Formerly they used to be sensitive about their holders, they need to build a reputationalimage. Why this change? Isn’t image capital among all of them; plus a global repu-(perception) the basis on which global evalua- tation, because even specialised stakeholderstions are formed (and thus reputation)? It is wish the company to be responsive to alllikely that the term ‘image’ has lost its stakeholders. There is a link between repu-glamour. It seems to have fallen into disrepute tation and share performance.precisely because there was too much As a consequence of this growth of thepublicity about ‘image makers’, as if image reputational concept, companies havewas an artificial construction. Reputation has realised they cannot stay mute, invisible,more depth, is more involving: it is a opaque. They must manage their visibilityjudgement from the market which needs to be and that of their actions in order to maximisepreserved. In any case reputation has become their reputational capital – in fact theira byword, as witnessed by the annual surveys goodwill, to speak like financiers. Theon the most respected companies that are corporate brand will be more and morenow made in almost all countries, modelled present and visible: through art sponsorship,on Fortune’s ‘America’s most admired foundations, charities, advertising. As such itcompanies’. Reputation signals that although addresses global targets. The corporate brandthe company has many different stake- speaks on behalf of the company, signals theholders, each one reacting to a specific facet of company’s presence. Now companies are alsothe company (as employee, as supplier, as developing specialised corporate brands such
28 W H Y I S B R A N D I N G S O S T R AT E G I C ?as ‘You’ (the recruiting brand of Unilever), or value of reputation, a conceptual distinctionspecialised campaigns (such as semi-annual must be made: at the corporate level, this isfinancial roadshows). called goodwill (the excess of stock value over Corporate brands have therefore taken a book value). Now, the larger part of thisnew importance since they speak on behalf of goodwill is attributable to the financial valuethe company, signal its presence and actions: of the brand as commercial brand. Thisin fact they draw the company’s profile in the financial value is usually measured by theeyes of all those who do not have direct inter- discounted cashflow method. This shows thatactions with it. In our world people react more the financial value of the brand, be it productand more to names and reputations, to brand or corporate brand, can only be tracedrumours and word of mouth. They do not see through prospective sales (see Chapter 18).the headquarters or the factories any more. How do corporate brands relate to productOften delocalised, corporations appear brands? The latter are there to create clientthrough the press, publicity, PR, advertising, goodwill, build growth and profits. In modernfinancial reports, trade union reports, all sorts mature markets, consumers do not make aof communications, and of course their complete distinction between the productproducts and services. Managing the corporate brand and the corporation: what the corpo-brand and its communication means ration does impacts their evaluation of itsmanaging this profile. The methods to do so brands, especially if they share the same nameare not specific: they rely as do all brands on as the corporation or are visibly endorsed byidentity. They also rely on the markets. the former. The issue of branding architec- What then is the difference between tures with the four structural types of rela-corporate brand methods and the product brand tionship (independence; umbrella;methods developed in this book? Companies do endorsement; source or branded house) willhave an internal identity, core values that bear be covered in Chapter 13. It has strategicon the profile they wish to, or can, express implications in terms of the spillover effectsoutwardly. Companies and corporations are (Sullivan, 1988) the organisation might orbodies with a soul (from the Latin, corpus). (They might not want to capitalise on, and in termsare enacted by people.) Product brands are more of bolstering confidence in the productimaginary constructions, relying on intangible (Brown and Dacin, 1997), if this is necessary,values which have been invented to fulfil the which is not always the case. For instanceneeds of clients. Ralph Lauren’s or Marlboro’s LVMH, the world’s leading luxury group,intangible values are pure constructions. It remains separate from its 41 brands’ commu-cannot be the same for companies. Reality leaves nication and marketing: they look inde-fewer degrees of freedom. pendent. GM endorses its brands: it reveals Second, since brand management is both the powerful and respected corporationidentity and market oriented, corporate behind its car marques. GE follows anbrands must tailor their profile to meet the umbrella strategy: GE Capital Investment, GEexpectations of multiple publics. The core Medical Services. A classic strategy, in ourvalue must be tailored for this global audience, world of global communication andwhich symbolically has to ‘buy’ the company, synergies, is to use for the corporation theas a supplier, an employee or an investor. same name as its best brand. This is how BSNManaging the reputation of the name, became Danone – just as 50 years earlier,through (among other methods) the commu- Tokyo Tsuhin Kogyo became Sony. As we shallnication of the corporate brand, is aimed at see, there are strong benefits in doing this.making the company their first choice. A conceptual issue arises when one speaks, As to the very hot topic of the financial say, of Canon or Nike or Sony or Citibank. Are
BRAND EQUITY IN QUESTION 29they corporate brands? Are they commercial logo of each source of communication:brands? Since the company and the brand Nestlé’s corporate logo is not that of Nestlé asshare the same name it is difficult to say. The a commercial brand (which itself is differen-answer is that they are both: it depends on the tiated by product category).context and objectives and target of commu- The case is more acute still for servicenication. Naomi Klein’s book No Logo (1999) companies: can one differentiate Barclay’s Bankcriticises Nike as a company, for all it tries to or Orange as a brand and as a corporate brand?hide behind the attractive images and sports Since both share the same employees this isstars of its commercial brand (for the sweat- more difficult, although looking at the objec-shops in Asia, the delocalisation of manufac- tives and target of the communication shouldturing to developing countries, the lack of help. This is why the issue of brand alignmentreactiveness to critics). To make it clear who (Ind, 2001) has become so important: thespeaks, the corporation or the brand, some corporation has to align on its brand values. Itscompanies have chosen to differentiate the whole business should be brand driven.
31 2Strategic implications ofbrandingMany companies have forgotten the funda- world that such a product or service has beenmental purpose of their brands. A great deal of stamped with the mark and imprint of anattention is devoted to the marketing activity organisation. It requires a corporate long-termitself, which involves designers, graphic involvement, a high level of resources andartists, packaging and advertising agencies. skills.This activity thus becomes an end in itself,receiving most of the attention. In so doing, Branding consists in transforming thewe forget that it is just a means. Branding is product categoryseen as the exclusive prerogative of themarketing and communications staff. This Brands are a direct consequence of the strategyundervalues the role played by the other parts of market segmentation and product differenti-of the company in ensuring a successful ation. As companies seek to better fulfil thebranding policy and business growth. expectations of specific customers, they Yet the marketing phase, which we now concentrate on providing the latter, consis-consider indispensable, is the terminal phase tently and repeatedly, with the ideal combi-of a process that involves the company’s nation of attributes – both tangible andresources and all of its functions, focusing intangible, functional and hedonistic, visiblethem on one strategic intent: creating a and invisible – under viable economic condi-difference. Only by mobilising all of its tions for their businesses. Companies want tointernal sources of added value can a stamp their mark on different sectors and setcompany set itself apart from its competitors. their imprint on their products. It is no wonder that the word ‘brand’ also refers to the act of burning a mark into the flesh of an animal as aWhat does branding really mean? means to claim ownership of it. The first task in brand analysis is to define precisely all that theBranding means much more than just giving a brand injects into the product (or service) andbrand name and signalling to the outside how the brand transforms it:
32 W H Y I S B R A N D I N G S O S T R AT E G I C ?l What attributes materialise? thereby expecting to control it. In fact they often end up disappearing within it: Polaroid,l What advantages are created? Xerox, Caddy, Scotch, Kleenex have thusl What benefits emerge? become generic terms. According to the objective the brand setsl What ideals does it represent? itself; transforming the category implies endowing the product with its own separateThis deep meaning of the brand concept is identity. In concrete terms, that means thatoften forgotten or wilfully omitted. That is the brand is weak when the product is ‘trans-why certain distributors are often heard saying parent’. Talking about ‘Greek olive oil, first– as a criticism of many a manufacturer’s brand cold pressing’ for example, makes the productwhose added value lies only its name – ‘For us, transparent, almost entirely defined and epit-the brand is secondary, there is no need to put omised by those sole attributes, yet there aresomething on the product.’ Hence, the brand dozens of brands capable of marketing thatis reduced to package surface and label. type of oil. Going from bulk to packaging isBranding, though, is not about being on top of also symptomatic of this phenomenon. Thesomething, but within something. The weakness of fresh vacuum-packed food brandsproduct or service thus enriched must stand is partially due to the fact that their pack-out well if it is to be spotted by the potential aging, though designed to reassure the buyer –buyer and if the company wants to reap the such as with sauerkraut in film-wrappedbenefits of its strategy before being copied by containers – only recreates transparency.others. Significantly, Findus and l’Eggs or Hoses do Furthermore, the fact that a delabelled item not just show their products, they show themis worth more than a generic product off. This is the structural cause of Essilor’sconfirms this understanding of branding. brand weakness, as perceived by theAccording to the ‘brand is just a superficial customers. They do not perceive how Essilor,label’ theory, the delabelled product the world leader in optical glass, transformssupposedly becomes worthless when it no the product, nor its input, its added value. Tolonger carries a brand name, unless it them, glass is just glass to which variouscontinues to bear the brand within. In options can be added (anti-reflecting,passing, the brand has intrinsically altered it: unbreakable, etc). The added value seems tohence the value of Lacostes without ‘Lacoste’, be created solely by the style of the rimsAdidases without ‘Adidas’. They are worth (hence the boom in licensing) or the service,more than imitations because the brand, both of which are palpable and in the store.though invisible, still prevails. Conversely, the What is invisible is not perceived and thusbrand on counterfeits, though visible, is in does not exist in their eyes. However, theeffect absent. This is why counterfeits are sold example of Evian reminds us that it is alwaysso cheaply. possible to make a transparent product Some brands have succeeded in proving become opaque. The major mineral waterwith their slogans that they know and under- brands have been able to exist, grow andstand what their fundamental task is: to prosper only because they have made thetransform the product category. A brand not invisible visible. We can no longer choose ouronly acts on the market, it organises the water haphazardly: good health and purity aremarket, driven by a vision, a calling and a associated with Evian, fitness with Contrex,clear idea of what the category should vitality with Vittel. These various positioningsbecome. Too many brands wish only to were justified by the invisible differences inidentify fully with the product category, water contents. Generally speaking, anything
S T R AT E G I C I M P L I C AT I O N S O F B R A N D I N G 33adding to the complexity of ingredients also will not carry the potential for leadership. Thecontributes to creating distance vis-à-vis the analytical notion of brand image does notproduct. In this respect, Coca-Cola is doing clearly capture this dynamic dimension,the right thing by keeping its recipe secret. which is demanded by modern brandWhen Orangina was taken over by Pernod- management.Ricard, its concentrate was remixed into Thus, many banks put forward thesomething even more complex. Antoine following image of themselves: close to theirRiboud, the former CEO of Danone clients, modern, offering high-performingworldwide, expressed a similar concern when products and customer service. These featuresdeclaring: ‘It is not yoghurts that I make, but are, of course, useful to market researchers inDanones.’ charge of measuring the perceptions sent back by the market and the level of consumer satis-A brand is a long-term vision faction. But from which dynamic programme do they emanate, which vision do theyThe brand should have its own specific point embody?of view on the product category. Major brands Certain banks have specified what theirhave more than just a specific or dominating purpose is: for some it is ‘to change people’sposition in the market: they hold certain posi- relationship to money’, while for others it istions within the product category. This to remind us that money is just a ‘meansposition and conception both energise the towards personal development’. Several banksbrand and feed the transformations that are have recently worked at redefining theirimplemented for matching the brand’s singular reason for existence. All of them willproducts with its ideals. It is this conception have to do so in the future. The Amex visionthat justifies the brand’s existence, its reason of money is not that of Visa.for being on the market, and provides it with a More than most, multi-segment brandsguideline for its life cycle. How many brands need to redetermine their own purpose. Carsare capable today of answering the following are a typical example. A multi-segment brandcrucial question: ‘What would the market lack (also called a generalist brand) wants to coverif we did not exist?’ The company’s ultimate all market segments. Each model spawnsgoal is undoubtedly to generate profit and multiple versions, thereby theoreticallyjobs. But brand purpose is something else. maximising the number of potential buyers:Brand strategy is too often mistaken for diesel, gas, three or five doors, estate, coupé,company strategy. The latter most often cabriolet, etc. The problem is that by havingresults in truisms such as ‘increase customer to constantly satisfy the key criteria of eachsatisfaction’. Specifying brand purpose segment (bottom range, lower mid-range,consists in (re)defining its raison d’être, its upper mid-range and top range), ie to churnabsolute necessity. The notion of brand out many different versions and to avoid over-purpose is missing in most marketing text- typifying a model in order to please everyone,books. It is a recent idea and conveys the companies tend to create chameleon brands.emerging conception of the brand, seen as Apart from the symbol on the car hood or theexerting a creative and powerful influence on similarities in the car designs, we no longera given market. If there is power, there is perceive an overall plan guiding the creativeenergy. Naturally, a brand draws its strength and productive forces of the company in thefrom the company’s financial and human conception of these cars. Thus, competitorsmeans, but it derives its energy from its fight their battles either over the price or thespecific niche, vision and ideals. If it does not options offered for that price. No longerfeel driven by an intense internal necessity, it brands, they become mere names on a hood
34 W H Y I S B R A N D I N G S O S T R AT E G I C ?or on a dealer’s office walls. The word has thus and communicating. These codes should notlost most of its meaning. What does Opel or be exclusively submitted to the fluctuatingFord mean? inspiration of the creative team: they must be What unifies the products of a brand is not defined so as to reflect the brand’s uniquetheir marque or common external signs, it is character. The next level presents the brand’stheir ‘religion’: what common spirit, vision strategic image features: amounting to four orand ideals are embodied in them. five, they result from the overall vision and Major brands can be compared to a pyramid materialise in the brand’s products, communi-(see Figure 2.1). The top states the brand’s cation and actions. This refers, for example, tovision and purpose – its conception of auto- the positioning of Volvo as a secure, reliablemobiles, for instance, its idea of the types of and robust brand, or of BMW as a dynamic,cars it wants, and has always wanted, to classy prestigious one. Lastly, the productcreate, as well as its very own values which level, at the bottom of the pyramid, consistseither can or cannot be expressed by a slogan. of each model’s positioning in its respectiveThis level leads to the next one down, which segment.shows the general brand style of communi- The problem is that consumers look at thecation. Indeed, brand personality and style are pyramid from the bottom up. They start withconveyed less by words than by a way of being what is real and tangible. The wider the Brand vision Brand and purpose Brand management perception process: top-down process: bottom-up Core brand values Brand personality codes Semiotic invariants Strategic benefits and attributes (four or five prioritised) Physical signature: family resemblance Outside of Outside of brand Product A ... Product B ... Product N ... Typical brand actions brand territory territory Permanent fluctuations of the market Evolution of competition, life-styles, technologyFigure 2.1 The brand system
S T R AT E G I C I M P L I C AT I O N S O F B R A N D I N G 35pyramid base is, the more the customers is nothing but a ‘bluff’, a gimmick used to trydoubt that all these cars do indeed emanate to stand out in a market flooded with barelyfrom the same automobile concept, that they differentiated products.carry the same brand essence and bear the This view fails to take into account both thestamp of the same automobile project. Brand time factor and the rules of dynamic compe-management consists, for its part, in starting tition. Brands draw attention through thefrom the top and defining the way the car is new products they create and bring onto theconceived by the brand, in order to determine market. Any brand innovation necessarilyexactly when a car is deserving of the brand generates plagiarism. Any progress madename and when it no longer is – in which quickly becomes a standard to which buyerscase, the car should logically no longer bear grow accustomed: competing brands mustthe brand name, as it then slips out of its then adopt it themselves if they do not wantbrand territory. to fall short of market expectations. For a As automobile history is made of great while, the innovative brand will thus be ablesuccesses followed by bitter failures, major to enjoy a fragile monopoly, which is boundmulti-segment brands regularly question their to be quickly challenged unless the inno-vision. Thus, after its smash hit models, the vation is or can be patented. The role of the205 and 405, Peugeot was somewhat brand name is precisely to protect the inno-perturbed, both internally and externally, by vation: it acts as a mental patent, by becomingthe series of setbacks with the 605 and the the prototype of the new segment it creates –slow take-off of the 106 and 306. A basic advantage of being a pioneer.question was then asked: ‘Are Peugeots still If it is true that a snapshot of a given marketPeugeots?’ Answering it implied redefining often shows similar products, a dynamic viewthe long-term meaning of the statement ‘It’s a of it reveals in turn who innovated first, andPeugeot’, ie the brand’s long-lasting auto- who has simply followed the leader: brandsmobile concept. protect innovators, granting them Internal hesitation about brand identity is momentary exclusiveness and rewardingoften revealed when searching for slogans. them for their risk-taking attitude. Thus, theThere is no longer a trend toward obvious and accumulation of these momentary differencesmeaningless slogans such as ‘the automobile over time serves to reveal the meaning andspirit’, which neither tell us anything about purpose of a brand and to justify its economicthe brand’s automobile ideal, nor help to function, hence its price premium.guide inventors, creators, developers or Brands cannot, therefore, be reduced to aproducers in making concrete choices mere sign on a product, a mere graphicbetween mutually exclusive features: comfort cosmetic touch: they guide a creative process,and road adherence, aerodynamism and which yields the new product A today, thefeeling of sturdiness, etc. new products B and C tomorrow, and so on. Products come to life, live and disappear, but brands endure. The permanent factors of this creative process are what gives a brand itsPermanently nurturing the meaning and purpose, its content anddifference attributes. A brand requires time in order for this accumulation of innovations to yield aOur era is one of temporary advantages. It is meaning and a purpose.often argued that certain products of different As shown in Figure 2.2, brand managementbrands are identical. Some observers thus alternates between phases of product differen-infer that, under these circumstances, a brand tiation and brand image differentiation. The
36 W H Y I S B R A N D I N G S O S T R AT E G I C ? Brand Weak Strong Different Product Competition and me-toos, changes in customers’ Banal expectationsFigure 2.2 The cycle of brand managementtypical example is Sony, whose advertising structuring influence. In fact they mould thefocuses on innovations when they exist, and first and long-lasting meaning of this newon image in between. word that designates Brand X or Brand Y. Once learnt, this meaning gets reinforced and stored in long-term memory. Then a number of selective processes reinforce the meaning:Brands act as a genetic selective attention, selective perception,programme selective memory. This is why brand images are hard toA brand does in fact act as a genetic change: they act like fast-setting concrete.programme. What is done at birth exerts a This process has many important manageriallong-lasting influence on market perceptions. consequences. When going international, eachIndeed revitalising a brand often starts with re- country reproduces it. It is of prime importanceidentifying its forgotten genetic programme to define the products to be launched in rela-(see Chapter 16). tionship with the image one wants to create in Table 2.1 shows how brands are built and the long term. Too often they are chosen byexert a long-term influence on customers’ local agents just because they will sell very well.memories, which in turn influence their expec- They must do both: build the business andtations, attitudes and degree of satisfaction. build the brand. Brand management intro- In the life of a brand, although they may duces long-term effects as criteria for evalu-have been forgotten, the early acts have a very ating the relevance of short-term decisions.Table 2.1 The brand as genetic programmeEarly founding acts (past) Memory (present) Expectations (future)First best-selling product Brand prototype Legitimate extensions for the futureFirst channel of distribution Associated benefits (what other areas of new products)First positioning Brand imageFirst campaign Brand competence and know-howFirst eventsFirst CEOCorporate visions and values
S T R AT E G I C I M P L I C AT I O N S O F B R A N D I N G 37 New generations discover the brand at contains the programme for all futuredifferent points in time. Some discovered Ford evolution, the characteristics of upcomingthrough the Model T, others through the models and their common traits, as well as theMustang, others through the Mondeo, others family resemblances transcending theirthrough the Focus. No wonder brand images diverse personalities. By understanding adiffer from one generation to another. brand’s programme, we can not only trace its The memory factor also partly explains why legitimate territory but also the area in whichindividual preferences endure: within a given it will be able to grow beyond the productsgeneration, people continue, even 20 years that initially gave birth to it. The brand’slater, to prefer the brands they liked between underlying programme indicates the purposethe ages of 7 and 18 (Guest, 1964; Fry et al, and meaning of both former and future1973; Jacoby and Chestnut, 1978). products. How then can one identify this It is precisely because a brand is the programme, the brand DNA?memory of the products that it can act as a If it exists, this programme can belong-lasting and stable reference. Unlike discovered by analysing the brand’s foundingadvertising, in which the last message seen is acts: products, communication and the mostoften the only one that truly registers and is significant actions since its inception. If abest recalled, the first actions and message of a guideline or an implicit permanence exists,brand are the ones bound to leave the deepest then it must show through. Research onimpression, thereby structuring long-term brand identity has a double purpose: toperception. In this respect, brands create a analyse the brand’s most typical productioncognitive filter: dissonant and atypical aspects on the one hand and to analyse the reception,are declared unrepresentative, thus ie the image sent back by the market, on thediscounted and forgotten. That is why failures other. The image is indeed a memory in itself,in brand extensions on atypical products do so stable that it is difficult to modify it in thenot harm the brand in the end even though short run. This stability results from thethey do unsettle the investors’ trust in the selective perception described above. It alsocompany (Loken and Roedder John, 1993). has a function: to create long-lasting refer-Bic’s failure in perfume is a good example. ences guiding consumers among theMaking perfumes is not typical of the know- abundant supply of consumer goods. That ishow of Bic as perceived by consumers: sales of the reason a company should never turn awayball pens, lighters and razors kept on from its identity, which alone has managed toincreasing. attract buyers. Customer loyalty is created by Ridding itself of atypical, dissonant respecting the brand features that initiallyelements, a brand acts as a selective memory, seduced the buyers. If the products slackenhence endowing people’s perceptions with an off, weaken or show a lack of investment andillusion of permanence and coherence. That is thus no longer meet customer expectations,why a brand is less elastic than its products. better try to meet them again than to changeOnce created, like fast-setting concrete it is expectations. In order to build customerhard to change. Hence the critical importance loyalty and capitalise on it, brands must stayof defining the brand platform. What brand true to themselves. This is called a return tomeaning does one want to create? the future. A brand is both the memory and the future Questioning the past, trying to detect theof its products. The analogy with the genetic brand’s underlying programme, does not meanprogramme is central to understanding how ignoring the future: on the contrary, it is a waybrands function and should be managed. of better preparing for it by giving it roots, legit-Indeed, the brand memory that develops imacy and continuity. The mistake is to
38 W H Y I S B R A N D I N G S O S T R AT E G I C ?embalm the brand and to merely repeat in the quality such as quality seals and certification.present what it produced in the past, like the Quality seals officially and legally testify thatnew VW Beetle and other retro-innovations. In a given product meets a set of specific charac-fighting competition, a brand’s products must teristics, previously defined (in conjunctionalways belong intrinsically to their time, but in with public authorities, producers/manufac-their very own way. Rejuvenating Burberrys or turers and consumers) so as to guarantee aHelena Rubenstein means connecting them to higher level of quality and distinguishing itmodernity, not mummifying them in from similar products. A quality seal is adeference to a past splendour that we might collective brand controlled by a certificationwish to revive. agency which certifies a given product only if it complies with certain specifications. Such certification is thus never definitive and canRespect the brand ‘contract’ be withdrawn (like ISO). Brands do not legally testify that a productBrands become credible only through the meets a set of characteristics. However,persistence and repetition of their value through consistent and repeated experienceproposition. BMW has had the same promise of these characteristics, a brand becomessince 1959. Through time they become a quasi synonymous with the latter.contract, unwritten but most effective. This A contract implies constraints. The brandcontract binds both parties. The brand must contract assumes first of all that the variouskeep its identity, but permanently increase its functions in the organization all converge:relevance. It must be loyal to itself, to its R&D, production, methods, logistics,mission and to its clients. Each brand is free to marketing, finance. The same is true of servicechoose its values and positioning, but once brands: as the R&D and production aspectschosen and advertised, they become the are obviously irrelevant in this case, thebenchmark for customer satisfaction. It is well responsibility for ensuring the brand’s conti-known that the prime determinant of nuity and cohesion pass to the managementcustomer satisfaction is the gap between and staff, who play an essential role incustomers’ experiences and their expecta- clientele relationships.tions. The brand’s positioning sets up these The brand contract requires internal as wellexpectations. as external marketing. Unlike quality seals, As a result, customers are loyal to such a brands set their own ever-increasing stan-brand. dards. Therefore, they must not only meet the This mutual commitment explains why latter but also continuously try to improve allbrands, whose products have temporarily their products, even the most basic ones, espe-declined in popularity, do not necessarily cially if they represent most of their sales anddisappear. A brand is judged over the long hence act as the major vehicle of brand image;term: a deficiency can always occur. Brand in so doing, they will be able to satisfy thetrust gives products a chance to recover. If not, expectations of clients who will demand thatJaguar would have disappeared long ago: no the products keep pace with technologicalother brand could have withstood the detri- change. They must also communicate andmental effect of the decreasing quality of its make themselves known to the outside worldcars during the 1970s. That is a good illus- in order to become the prototype of atration of one of the benefits a brand brings to segment, a value or a benefit. This is a lonelya company. task for brands, yet they must do it to get the The brand contract is economic, not legal. uniqueness and lack of substitutability theyBrands differ in this way from other signs of need. The brand will have to support its
S T R AT E G I C I M P L I C AT I O N S O F B R A N D I N G 39internal and external costs all on its own. either vanish or wind up as pompous phrasesThese are generated by the brand require- (‘a passion for excellence’) posted inments, which are to: hallways. In any case, the corporate brand is the organisation’s external voice and, asl Closely forecast the needs and expectations such, it remains both demanding and deter- of potential buyers. This is the purpose of mined to constantly outdo itself, to aim ever market research: both to optimise existing higher. products and to discover needs and expec- Becoming aware that the brand is a contract tations that have yet to be fulfilled. also means taking up many other responsibil- ities that are all too often ignored. In thel React to technical and technological fashion market, even if creators wish to change progress as soon as it can to create a after a while, they cannot entirely forget about competitive edge both in terms of cost and their brand contract, which helped them to get performance. known initially, then recognised and even-l Provide both product (or service) volume tually praised. and quality at the same time, since those In theory, both the brand’s slogan and are the only means of ensuring repeat signature are meant to embody the brand purchases. contract. A good slogan is therefore often rejected by managing directors because itl Control supply quantity and quality. means too much commitment for thel Deliver products or services to intermedi- company and may backfire if the products/ aries (distributors), both consistently over services do not match the expectations the time and in accordance with their require- brand has created so far. In too many cases ments in terms of delivery, packaging and brands are seen as mere names: this is very overall conditions. evident in some innovations committee meetings, where new products are reallocatedl Give meaning to the brand and commu- to different brands of the portfolio many nicate its meaning to the target market, times in the same meeting. One brand name thereby using the brand as both a signal or another is perceived as making no and reference for the product’s (or service’s) difference. Taking the brand seriously, as it is identity and exclusivity. That is what (that is, as a contract) is much more advertising budgets are for. demanding. It also provides higher returns.l Increase the experiential rewards of consumption or interaction. The product and the brandl Remain ethical and ecology-conscious. Since the early theorisation on the brand, thereStrong brands thus bring about both internal has been much discussion on the relationshipmobilisation and external federalisation. of brands to products. How do the conceptsThey create their company’s panache and differ? How are they mutually interrelated? Onimpetus. That is why some companies switch the one hand, many a CEO repeats to his or hertheir own name for that of one of their star staff that there is no brand without a greatbrands: BSN thus became Danone, CGE product (or service), in order to stimulate theirbecame Alcatel. In this respect, the impact of innovativeness and make them think of thestrong brands extends far beyond most product as a prime lever of brand competi-corporate strategies. These only last while tiveness. On the other hand, there is amplethey are in the making, after which they evidence that market leaders are not the best
40 W H Y I S B R A N D I N G S O S T R AT E G I C ?product in their market. To be the ‘best product’ crucial for Golf and for Volkswagen itself: thisin a category means to compete in the premium model used to represent 28 per cent of its salestier, which is rarely a large segment. Certainly and almost half its operating profit. Whenwithin the laundry detergent category, market Golf 4 sales fell by 17.9 per cent over 12leaders such as Tide, Ariel and Skip are those months, Volkswagen’s operating profit felldelivering the best performance for heavy-duty too, by 56 per cent.laundry, but in other cases it is the brand with As all tests and garage repair records demon-the best quality/price ratio that is market leader. strate, Volkswagen quality has now beenDell is a case in point. Are Dell’s computers the matched and even bypassed by Toyota, but forbest? Surely not. But who really needs a ‘best buyers, perception is reality. Brand assets arecomputer’? What would be the criterion for made of what people believe. As for rumoursevaluation? ‘Best’ is a relative concept, (Kapferer, 2004), the more people believe adepending on the value criteria used to rumour, the more strongly their belief is held.establish comparisons and identify the ‘best’. In Why would so many people be completelyfact the market is segmented: the largest wrong? It took 20 years for Toyota to shakeproportion of the public, and even most of the the belief among US consumers thatB2B segment, wants a modern, reliable, cheap Volkswagen cars are the most reliable: it takescomputer. Thanks to its build-to-order business time to prove one’s reliability. Often, to gomodel, Dell was able to innovate and become faster it is best to target a new generation ofthe leader of that segment. Co-branded ‘Intel drivers with an open mind.inside’, it reassures buyers and surprises them by Looking at competitive behaviour, it seemsits astonishing price and one-to-one customi- that brands alternate in their focus. They capi-sation: each person makes his or her own talise on their image, then innovate tocomputer. Is Swatch the best watch? Surely not recreate or nurture the belief of product supe-either. But in any case this is not what is asked riority (on some consumer benefit), thenby Swatch buyers: they buy convenience and recapitalise on their image, and so on (Figurestyle, not long-lasting superior ‘performance’, 2.2). Sony’s advertising is very typical of thiswhatever this may mean. pendulum behaviour: it alternates ads that It is time to look deeper into the introduce new products and pure image adsbrand–product relationship. Looking at with no specific material content or superi-history, most brands are born out of a product ority content. These latter ads maintain brandor service innovation which outperformed its saliency (Ehrenberg et al, 2002).competitors. A superior product/service was Figure 2.3 summarises the product–brandthe determining factor of the launch relationship.campaign. Later, as the product name evolves Suppose a consumer wants to buy a new carinto a brand, customers’ reasons for purchase because of the birth of his or her fourth child.may still be the brand’s ‘superior performance This major event creates a new set of expecta-image’, although in reality that performance tions, some tangible, some intangible. Thehas been matched by new competitors. This consumer wishes to buy a minivan, with twohas been the basis of Volkswagen’s leadership sliding doors, high flexibility within theand price premium: a majority of consumers cabin, and of course a reliable, secure brand,keeps on believing that Volkswagen cars are with credentials and some status. By lookingthe most reliable ones. The new Golf Five, at Internet sites, at magazines and visitinglaunched in September 2003, 30 years after the dealers, it is possible to identify those modelsfirst Golf, is 10 per cent more expensive than with the requested visible attributes (size, flex-its two European rivals, the Peugeot 307 and ibility, sliding doors). Now what about thethe Renault Megane. This quality reputation is invisible attributes, like the experiential ones
S T R AT E G I C I M P L I C AT I O N S O F B R A N D I N G 41(driving pleasure) or those one has to believe marketing. Both are needed. Marketing aimson faith, such as reliability? Obviously, these at forecasting the needs of specific consumerattributes do or do not belong to the brand’s segments, and drives the organisation to tailorreputational capital. They cannot be products and services to these needs. This is aobserved. This is one of the key roles of skill: some car marques offer minivans withbrands: to guarantee, to reassure customers sliding doors, some do not. However, part ofabout desired benefits which constitute the the willingness to pay is based on a personalexclusive strength of the brand, also called its tie with the brand. Uninvolved consumerspositioning. will bargain a lot. Brand-involved consumers Psychologists have also identified the halo will bargain less. Brand image is directlyeffect as a major source of value created by the linked to profitability. In fact, in thebrand: the fact that knowing the name of the Euromonitor car brand tracking study, meas-brand does influence consumer’s perception uring the image of all automobile brandsof the product advantages beyond what the operating in Europe, it has been said that avisible cues had themselves indicated, not to positive shift of one unit on the globalspeak of the invisible advantages. opinion scale means there is 1 per cent less Finally, attached to the brand there are bargaining by customers.pure intangible associations, which stemfrom the brand’s values, vision, philosophy,its typical buyer, its brand personality and so Each brand needs a flagshipon. These associations are the source of productemotional ties, beyond product satisfaction.In fact, in the car industry, they are the locus A given brand will not be jeopardised byof consumers’ desire to possess a brand. Some competitors offering similar products, unlessbrands sell very good products at fair price there are large quantities of the latter. It isbut lack thrill or desire: they cannot indeed inevitable for certain models to becommand a price premium in their segment. duplicated in the product lines of differentTheir dealers will have to give more rebates brands. Suppose that brand A pursues dura-(which undermine brand value and business bility, brand B practicality and brand C inno-profitability). vation: the spirit of each brand will be Figure 2.3 reminds us of the double nature especially noticeable in certain specificof brands. People buy branded products or products, those most representative or typicalservices, but branding is a not a substitute for of the brand meaning. They are the brand’s Branded product Brand’s intangible Halo Product’s visible and values and imagery effect differentiating characteristics Brand aspiration Product satisfaction ExpectationsFigure 2.3 The product and the brand
42 W H Y I S B R A N D I N G S O S T R AT E G I C ?‘prototype’ products. Each product range thus same group overlap too much, with onemust contain products demonstrating the preventing the other from asserting itsbrand’s guiding value and obsession, flagships identity. Using the same motors in Peugeotsfor the brand’s meaning and purpose. and Citroëns would harm Peugeot, built onRenault, for instance, is best epitomised by its the ‘dynamic car’ image. It is when severaltop minivans, Nina Ricci by its entrancing brands sell the same product that a brand canevening gowns, Lacoste by its shirts, Sony by become a caricature of itself. In order toits Walkmans and digital pocket cameras. compete against Renault’s Espace and However, there are some products within a Chrysler’s Voyager, neither Peugeot or Citroën,given line that do not manage to clearly express Fiat or Lancia could take the economic risk ofthe brand’s intent and attributes. In the tele- building a manufacturing plant on their own;vision industry, the cost constraints at the low neither could Ford or Volkswagen. A singleend of the range are such that trying to manu- minivan was made for the first four brands.facture a model radically different from the Similarly, a Ford–Volkswagen plant in Portugalnext-door neighbour’s is quite difficult. But, for was set to produce a common car. Theeconomic reasons, brands are sometimes forced outcome, however, is that in producing ato take a stake in this very large and overall common vehicle, the brand becomes reducedhighly competitive market. Likewise, each bank to a mere external gadget. The identityhas had to offer its own savings plan, identical message was simply relegated to the shell. Soto that of all other banks. All these similar each brand has had to exaggerate its outwardproducts, though, should only represent a appearance in order to be easily recognised.limited aspect of each brand’s offer (see Figure2.4). All in all, each brand stays in focus andprogresses in its own direction to make original Advertising products throughproducts. That is why communicating about the brand prismsuch products is so important, as they reveal thebrand’s meaning and purpose. Products are mute: the brand gives them The problem arises when brands within the meaning and purpose, telling us how a Meaning and direction of brand A Meaning and direction of brand B Products common to all three brands Meaning and direction of brand CFigure 2.4 Product line overlap among brands
S T R AT E G I C I M P L I C AT I O N S O F B R A N D I N G 43product should be read. A brand is both a its participation in the European leisure carprism and a magnifying glass through which championships? By saying ‘We really test ourproducts can be decoded. BMW invites us to products so that they last longer.’perceive its models as ‘cars for man’s pleasure’. The minivans that Peugeot, Citroën, FiatOn the one hand, brands guide our perception and Lancia have in common has left only oneof products. On the other hand, products send role for the respective brands to play: toback a signal that brands use to underwrite enhance its association with the intrinsicand build their identity. The automobile values of the respective’s brand – imaginationindustry is a case in point, as most technical and escape for Citroën, quality driving andinnovations quickly spread among all brands. reliability for Peugeot, high class and flair forThus the ABS system is offered by Volvo as Lancia, practicality for Fiat. (See Figure 2.5.)well as by BMW, yet it cannot be said that they Thus brand identity never results from ashare the same identity. Is this a case of brand detail, yet a detail can, once interpreted, serveinconsistency? Not at all: ABS has simply to express a broader strategy. Details can onlybecome a must for all. have an impact on a brand’s identity if they However, brands can only develop through are in synergy with it, echoing and amplifyinglong-term consistency, which is both the the brand’s values. That is why weak brandssource and reflection of its identity. Hence the do not succeed in capitalising on their inno-same ABS will not bear the same meaning for vations: they do not manage either totwo different car-makers. For Volvo, which enhance the brand’s meaning or create thatepitomises total safety, ABS is an utter all-important resonance.necessity serving the brand’s values and obses- A brand is thus a prism helping us tosions: it encapsulates the brand’s essence. decipher products. It defines what and howBMW, which symbolises high-performance, much to expect from the products bearing itscannot speak of ABS in these terms: it would name. An innovation which would beamount to denying the BMW ideology and considered very original for a Fiat, forvalue system which has inspired the whole instance, will be considered commonplaceorganisation and helped generate the famous for a Ford. However, though insufficientmodels of the Munich brand. BMW intro- engine power may scarcely have been anduced ABS as a way to go faster. Likewise, how issue for many car-makers, for Peugeot it is adid the safety-conscious brand, Volvo, justify major problem. It disavows Peugeot’s deeply- PEUGEOT CITROËN FIAT LANCIA MINIVAN ZETA (Lancia): ULYSSE (Fiat): EVASION (Citroën): 806 (Peugeot): Standing Price Practicality Performance Upmarket Functional Imagination Reliability PriceFigure 2.5 Brands give innovations meaning and purpose
44 W H Y I S B R A N D I N G S O S T R AT E G I C ?rooted identity and frustrates the expecta- kind of milk mixed with selected bacteria, etc.tions that have been raised. It would be at Quality seals create a vertical segmentation,odds with what should be called Peugeot’s consisting of different levels of objective‘brand obligations’. quality. The issue here is not so much to In fact, consumers rarely evaluate innova- present typical characteristics as to satisfy ations in an isolated way, but in relation to a stringent set of objective criteria.specific brand. Once a brand has chosen a The legal guarantee of typicality brought byspecific positioning or meaning, it has to a ‘certified origin’ seal means more than aassume all of its implications and fulfil its simple designation of origin, a mere labelpromises. Brands should respect the contract indicating where a product comes from, inthat made them successful by attracting that the latter implies no natural or socialcustomers. They owe it to them. specificity – although it may mislead the buyer into thinking that there is one. Moreover, several modern cheese-makersBrands and other signs of quality deliberately mix up what is genuine and what is not, inventing foreign names for their newIn many sectors, brands coexist with other products that are reminiscent of places orquality signs. The food industry, for instance, villages in an effort to build their own rustic,is also filled with quality seals, certificates of parochial imagery.norm compliance and controlled origin and It is interesting to see how European coun-guarantees. The proliferation of these other tries tried to reassure consumers during thesigns results from a double objective: to ‘mad cow crisis’ in order to redress the 40 perpromote and to protect. cent drop in beef consumption: Certifications of origin (eg real Scotchwhisky) are intended to protect a branch of l Although it is not legal under EU regula-agriculture and products whose quality is tions, they reinstated designations of origindeeply rooted in a specific location and referring to a country (ie French beef). Thisknow-how. The controlled origin guarantee did not prove fully reassuring since it wascapitalises on a subjective and cultural soon heard that French cattle could haveconception of quality, coupled with a touch eaten not only local grass but also contami-of mystery and of the area’s unique character. nated organic extracts imported from theIt segments the market by refusing the certifi- UK.cation of origin to any goods that have not l Certifications of origin (ie Charolais beef)been produced within a certain area or raised add typicality but cannot guarantee a 100in the traditional way. Thus in Europe since per cent safe meat.2003, Feta cheese has been a name tied to a l Seals of quality did not exist and had to becontrolled Greek origin. Even if Danish or created but it would take years to promoteFrench cheese-makers were to produce a ‘feta’ them: however, unless full control of thecheese elsewhere that buyers were unable to entire cattle raising process is guaranteed,tell apart from the feta cheese made in Greece the output itself cannot be guaranteed.in the traditional way, their products can nolonger lay claim to the name ‘feta’. l The crisis highlighted the need for meat Quality seals are promotional tools. They brands. Since 1989, alerted by earlyconvey a different concept of quality, which is warnings, McDonald’s had indeed soughtboth more industrial and scientific. In this new suppliers in Europe, scrutinising therespect, a given type of cheese, for example, way in which each and every one raisedinvolves objective know-how, using a certain and fed their cattle.
S T R AT E G I C I M P L I C AT I O N S O F B R A N D I N G 45l Retailers like Carrefour have promoted empirically they convey clusters of attributes their own signed contract with farmers. and values. In doing so, they seek to become a reference in themselves, if not the one andWhether or not official indications of quality only reference (as is the case with Bacardi,in Europe should still exist in 2010 is a bitter the epitome of rum). Thus, in essence,issue that is still being discussed among brands differentiate and share very little.northern countries (United Kingdom, Brands distinguish their products. StrongDenmark, etc) who believe that only brands brands are those that diffuse values andshould prevail, and southern countries manage to segment the market with their(France, Spain, Italy) who support the idea of own means.having official collective signs of quality co- In handling the ‘mad cow’ crisis,existing with brands (Feral, 1989). McDonald’s wondered whether they should The northern European countries claim rely on their own brand only or also on thethat brands alone should be allowed to collective signs and certificates of origin.segment the market and thus build a repu- On an operational level, let us once againtation for excellence around their names, underline the fact that brands do not boilthanks to their products and to their distri- down to a mere act of advertising. Theybution and marketing efforts. These coun- contain recommendations regarding thetries tend to favour an objective concept of long-term specificities of the products bearingquality: it does not matter that the feta their name, such as attractive prices, efficientcheese that the Greeks prefer is made in distribution and merchandising, as well asHolland or that Smirnoff vodka is neither identity building through advertising. It isRussian nor Polish. The southern European easier for a small company to earn a qualitycountries believe for their part that collective seal for one of its products through strictsigns enable small companies to use their efforts on quality, than it is to undertake theranking and/or their typical characteristics as gruelling task of creating a brand, whichpromotional tools, since they do not have requires so many financial, human, technicaltheir own brands. As their products do not and commercial resources. Even without anspeak for themselves, their market posi- identity, the small company’s product cantioning is ensured by quality or certified thus step out of the ordinary, thanks in part toorigin seals. Clearly, behind the European the legal indicators of quality.debate on whether or not brands that havebuilt their reputation on their own shouldcoexist with official collective signs of Obstacles to the implications ofquality lies another more fundamental brandingdebate between the proponents of a liberaleconomy on the one hand, and the partisans Within the same company, brand policy oftenof government intervention to regulate it on conflicts with other policies. As these arethe other. unwritten and implicit, they may seem From the corporate point of view, choosing innocuous, when in fact they are a hindrancebetween brand policy and collective signs is a to a true brand policy.matter of strategy and of available resource Current corporate accounting, as such, isallocation. unfavourable towards brands. Accounting is Often, quality certificates reduce perceived ruled by the prudence principle: conse-difference. Distributors’ brands can also quently, any outlay for which payback isreceive them. Brands define their own stan- uncertain is counted as an expense ratherdards: legally, they guarantee nothing, but
46 W H Y I S B R A N D I N G S O S T R AT E G I C ?than valued as an asset. This is the case of essentially to bolster the brand as a whole,investments made in communications in when the latter serves as an umbrella and signorder to inform the general public about the for other products. Managers thus only focusbrand’s identity. Because it is impossible to on one thing: any new expenditure in themeasure exactly what share of the annual general interest will be charged to their owncommunications budget generates returns account statement. For example, Palmolive isimmediately, or within a specified number of a brand covering several products: liquidyears, the whole sum is taken as an operating detergent, shampoo, shaving cream, etc. Theexpense which is subtracted from the brand could decide to communicate only onefinancial year’s profits. Yet advertising, like of these products singled out as a prominentinvestments in machinery, talented staff and image leader, capitalising on image spilloverR&D, also helps build brand capital. reciprocal effects (Balachander, 2003). But theAccounting thus creates a bias that handicaps investment made would certainly be higherbrand companies because it projects an under- than could be justified solely by the salesvalued image of them. Take the case of forecast of that product. This new expenditurecompany A, which invests heavily to develop will in fact always be on the given product,the awareness and renown of its brand name. even though its ultimate purpose is to collec-Having to write off this investment as an tively benefit all products under the umbrellaexpense results in low annual profits and a brand.small asset value on the balance sheet. This In order to react against the short-term biasusually occurs during a critical period in the caused by accounting practices and the under-company’s growth, when it could actually use estimation of (corporate) value as shown insome help from outside investors and the balance sheets, some British companiesbankers. Now compare A to company B, have begun to list their own brands as assetswhich invests the same amounts in machines on their balance sheets. This has triggered aand production and nothing whatsoever in discussion on the fundamental validity ofeither name, image or renown. As it is allowed accounting practices that emerged in the ‘ageto value these tangible investments as fixed of commodities’, when the essential part ofassets and to depreciate them gradually over capital consisted of real estate and equipment.several years, B can announce higher profits Today, on the contrary, intangible assetsand its balance sheet, displaying bigger assets, (know-how, patents, reputation) are whatwill project a more flattering image. B will make the difference in the long run. Beyondthus look better in terms of accounting, when, the need for an open debate in Europe and thein fact, A is in a better position to differentiate United States on how to capitalise brands, itits products. has become just as important to find a way for The principle of annual accounting also companies to account for the long-term proshinders brand policy. Every product manager and cons of short-term brand decisions inis judged on his yearly results and on the net their books. It is all the more compelling ascontribution generated by his product. This brand decision-makers themselves rotateleads to ‘short-termism’ in decision making: often, perhaps too often.those decisions which produce fast, meas- Even the way in which the various types ofurable results are favoured over those that communication agencies are organised fails tobuild up brand capital, slowly no doubt, but comply with the requirements of sound brandmore reliably in the long term. Moreover, policy. Even if an advertising agency has itsproduct-based accounting discourages own network of partner companies – inproduct managers from putting out any addi- charge of proximity marketing, CRM,tional advertising effort that would serve e-business and so on – and can thus promote
S T R AT E G I C I M P L I C AT I O N S O F B R A N D I N G 47itself as an integrated communications group, brands: the long-lasting presence of theit remains the crux of the network. creator or founder allows for sound, long-termFurthermore, advertising agencies think only management. The same is true of majorin terms of campaigns, operating in a short, retailers where senior managers often handleone-year time frame. Brand policy is different: the communication themselves or at leastit develops over a long period and requires make the final decisions. As a means to alle-that all means be considered at once, in a fully viate the effects of excessive brand managerintegrated way. rotation, companies aim not only at incorpo- It is clear that a company rarely finds rating brand value into their accounts, butcontacts inside so-called communications also at creating a long-term brand imagegroups who are actually in charge of strategic charter. The latter represents both a vital safe-thinking and of providing overall recommen- guard and an instrument of continuity.dations rather than merely focusing on adver- Business organisation is sometimes antising or on the necessity to sell campaigns. obstacle to building the brand. In 2001, theMoreover, advertising agencies are not in a very high-profile Toshiba Corporation createdposition to address strategic issues, such as a new and hitherto non-existent vice-pres-what should be the optimal number of brands ident post: VP Brand. Significantly, thein a portfolio. As these affect the survival of appointee was the existing VP of Research andthe brands that are under their advertising Development. The fact that the world numberresponsibility, the agencies find themselves in one in laptops and a major player in the tele-the awkward position of being judge and jury. vision, hi-fi and lo-fi sectors should createThat is why a new profession has been such a post demonstrates a strong awarenesscreated: strategic brand management of an unfilled gap. Toshiba’s products areconsulting. The time had indeed come for undeniably excellent, and until now this hascompanies to meet professionals with a mid- been the key to the success of Japaneseterm vision who are capable of providing companies in general, and Toshiba inconsistent, integrated guidelines for the devel- particular. This is a company that enjoys aopment of brand portfolios without focusing dominant position in a sector as cut-throat ason one single technique. the laptop industry. So what was it missing? A high personnel turnover disrupts the conti- Worldwide studies had revealed that therenuity a brand needs. Yet companies today was no ‘magic’ to the Toshiba brand. It couldactually plan for their personnel to rotate on be compared to a colleague at the office whomdifferent brands! Thus, brands are often you would regularly consult for advice, butentrusted to young graduates with impressive would never invite home for dinner. It was adegrees but little experience and the promotion brand based on a single pillar: there was athey expect often consists of being assigned to strong rational component, but little by wayyet another brand! Thus, product managers of emotional appeal, intangible values andmust achieve visible results in the short term. ‘magic’. In short, it was no Sony, and couldThis helps to explain why there are so many not command Sony’s higher margins. Achanges in advertising strategy and implemen- company can become a leader in the Toshibatation as well as in decisions on brand mould through excellent products and prices,extension, promotion or discounts. These are in or a leader like Dell by dint of a distributionfact caused by changes in personnel. system with levels of efficiency that remain It is significant that brands that have main- head and shoulders above any (known)tained a continuous and homogeneous image competitor. But since the effect of compe-belong to companies with stable brand tition is to erode perceived difference, otherdecision makers. This is the case for luxury instruments are needed to attract customers
48 W H Y I S B R A N D I N G S O S T R AT E G I C ?and keep them loyal; to ensure that they baseline: ‘Philips, tomorrow is already here’.remain customers of the brand. This desire is In order to do so, they would have needed tobased on the need for security, and on intan- ban all advertising on batteries or electric lightgible factors. bulbs that either trivialised the assertion, Up until 2001, there was no management of contradicted it, or reduced it to mere adver-the Toshiba brand. The company’s organi- tising hype. It would also have been possiblesation was based on a branched structure, and to communicate only about future bulb typesthus no one was responsible for the cross- rather than about the best current sales.company resource that is the brand. The Unfortunately, nobody in the organisationmedical branch had one view of Toshiba, had the power (or the desire) to impose thesewhile the computer branch had another, and kinds of constraints. When the Whirlpoolso on. There was no coordination or global brand appeared, however, the managers frombrand platform, to say nothing of joint Philips actually created the organisation theypromotions between branches, of course. needed for implementing a real brand policy:Horizontal initiatives (such as sponsorship) as it was directly linked to generalwere rare, and commercial necessity dictated management, the communicationsthat the power lay with the distribution department was able to ensure the optimalsubsidiaries: the name of the game was to sell circumstances for launching the Whirlpoolimported products, not to build a brand repu- brand, by banning over a three-year periodtation. Local managers’ remuneration any communication about a commonplacepackages were calculated on sales, not brand product or even a best-selling product.equity. Failing to manage innovations has a very Another syndrome pertains to the rela- negative impact on brand equity. Eventionship between production and sales. In the though salespeople go up in arms when theyElectrolux group, for instance, production are not given the responsibility of a strongunits are specialised according to product. innovation, it is a mistake to assign the latterBoth mono-product and multi-market, they to a weak brand, especially in multi-brandsell their product to the sales units who are, groups. When dealing with a weak brand,on the contrary, mono-market and multi- attractive pricing must indeed be offered toproduct (grouped under an umbrella brand). distributors as an incentive to include theThe problem is that these autonomous sales latter in their reference listing. But since thedivisions, who each have their own brand, all brand’s consumers do not expect this inno-want to benefit from the latest product inno- vation (each brand defines its type and levelvation so as to maximise their division’s of consumer expectations), the productturnover. What is missing is a structure for turnover is insufficient. As for the non-buyers,managing and allocating innovations in such a brand is not reassuring. If the inno-accordance with a consistent and global vation is launched a few weeks later under avision of the brand portfolio. As we will see leading brand name, distributors will refuse tolater, there is no point in entrusting a strong pay for the price premium due to a leaderinnovation to a weak brand. Moreover, this because they purchased it at a lower price justundermines the very basis of the brand a while back from the same company. Thus,concept: differentiation. even with the strong brand, the sales price Lastly, if words mean anything at all, eventually has to be cut.communications managers should have the Breeding many strong brands, l’Oréal allo-power to prevent actions that go against the cates its inventions to its various businessesbrand’s interest. Thus, Philips never succeeded according to brand potency. Innovation isin fully taking advantage of its former brand thus first entrusted to prestigious brands sold
S T R AT E G I C I M P L I C AT I O N S O F B R A N D I N G 49in selective channels as the products’ high what customers pay more for in a brand is theprices will help cancel out the high research name and nothing else. When the brand iscost incurred. Thus, liposomes were first dissociated from the product it enhances andcommercialised by Lancôme, the new sun represents, it becomes merely superficial andfilter Mexoryl SX by Vichy. Innovation is then artificial, devoid of any rational legitimacy.diffused to the other channels and eventually Ultimately, companies pay a price for this asto the large retailers. By then, the selective sales decrease and distributors seize the oppor-channel brands are already likely to have tunity to declare in their advertising thatlaunched another differentiating novelty. national brands alienate consumers, but that However, this process is affected by the fact consumers can resist by purchasing distrib-that innovation is not exclusively owned by utors’ own-brands. This also justifies the slug-any one company; it quickly spreads to gishness of public authorities regarding thecompetitors, which calls for immediate increasing amount of counterfeit productsreaction. among distributors’ own-brands. Finally, such Along the same lines, when a producer practices foster a false collective under-supplies a distributor’s brand with the same standing of what brands are, even amongproduct it sells under its own brand, it will opinion leaders, which contributes to theeventually erode its brand equity and, more rumour that nowadays all products are justgenerally, the very respectability of the the same!concept of a brand. This simply means that
51 3Brand and business buildingHow do companies grow both the brand and Liquide sells to industry, Somfy sells itsbusiness? What does it take to build a brand? tubular motors to window-blind installers andWhat are the necessary steps and phases? In fitters, Saint Gobain Gypsum and Lafarge sellthis chapter we address these questions with a to companies and craftspeople in theparticular emphasis on integration of efforts. construction and public works sectors, andBrand building is not done apart, it is the the William Pitters company is famous amongresult of a clear strategy and of excellence in retailers for the quality of its trade relation-implementation at the product, price, place, ships.people and communication levels. There are Nevertheless, these companies are affectedprerequisites before a brand can be built, and by brands in a variety of ways:they need to be understood. l Stock-exchange-listed groups have to manage the widened recognition for theirAre brands for all companies? products. Their corporate brand is the vehicle for this recognition. StockThe brand is not an end in itself. It needs to be exchanges operate on anticipation. By defi-managed for what it is – an instrument for nition an anticipation is not rational, butcompany growth and profitability, a business can be influenced by emotive factors.tool. Does branding affect all companies? Yes. l Worldwide groups should be asking them-Are all companies aware of this? No. For many selves whether it might not be time toindustrial companies or commodity sellers, complete their transformation intothe concept of the brand applies only to mass worldwide buyers and distributors in ordermarkets, high-consumption products and the to consolidate their local operators under afast-moving consumer goods (FMCG) sector. single name.This is a misconception. A brand is a namethat influences buyers and prescribers alike. l Chinese or Indian groups should be askingIndustrial brands have their own markets: Air themselves how to get rid of the status of
52 W H Y I S B R A N D I N G S O S T R AT E G I C ? low cost supplies and take a larger part of you say to a window-blind dealer for whom the high margin segments in developed the Somfy motor makes up 35 per cent of countries: to do so they need a global the product cost and who is threatening to brand. source the part from China at half the price? Somfy fears being relegated to thel Producers should be asking themselves role of a mere OEM player: hence its whether the brand is a differentiating increasingly high-profile public ‘Somfy factor in any sector threatened by powered’ strategy. commoditisation. For this reason, it is noteworthy that BPB chose to retain the Placoplatre product brand – a local brand which had become synonymous with the product itself, and indeed a leader in its Building a market leader without own markets. Similarly, it is significant that advertising the industrial Air Liquide company asked Mr Lindsay Owen-Jones, the CEO of What does it take to build a brand? Brand defini- l’Oréal, to sit on its board of directors. tions are innumerable (see the discussion on Having worked its way through hundreds page 9), and almost every author in the field has of product names and legal trademarks for his or her own. Although they can be useful, these names, Air Liquide realised that it definitions tell us very little about how to build a had still failed to create any real value. brand. Definitions are static: they take the brand What it needed was to restructure its range for granted. Building the brand is dynamic. of high-tech products under several mega- In general, in our executive seminars, when brands, as l’Oréal had done. we ask attendees how to build a market-l Producers of intermediary goods should be leading brand, typical answers include asking themselves whether it might not be advertise, create an image, and develop time to sell to their clients’ customers, not awareness. They are mostly answers that focus through direct sales, but by instilling a on communication. brand awareness in these customers. In this Instead of answering that question way, Lafarge – a world leader in frontally, we shall look at an interesting case: construction materials – invested several how did an unknown Australian company, million euros on informing the general Orlando Wyndham, build the UK’s leading public about the advances made possible bottled wine brand, Jacob’s Creek? This brand by its innovations, in order to create a is now the leader in volume and the leader in demand for its products among people who spontaneous brand awareness, with a very would live in the flats or work in the offices strong image. All that was achieved without built by its clients. In relationships with mass-market advertising before 2000. It is intermediaries and distributors, the brand most interesting also to note that between is an instrument of power. Another typical 1984 and 2000, the UK wine market doubled example is Somfy, a world leader in motors in size. What then was needed to create a for window blinds and openings for home successful wine brand in the UK mass use: this leadership has been earned market?: through changing its OEM business model and refocusing the brand on the end user, l The first condition is to have enough volume. Addressing the mass market just as Intel, Lycra, Woolmark and others means being able to fulfil trade expecta- have successfully done. After all, what do tions. Multiple retailers hate to deal with
BRAND AND BUSINESS BUILDING 53 companies that cannot provide sufficient out, store by store, to make sure everything supply if a product is a success. For a wine is in place. Only a national sales force can maker this means being able to rely on a achieve this. In addition, an intensive wet very large supply source. trial phase is needed, to encourage customers to pause in wandering up andl The second condition is to secure a stable down the store aisles and taste the product. quality. The first role of any brand is to This too requires a national sales force. reduce perceived risk: the consumer expe- rience must be the same whenever and These five steps to build a brand in the market wherever the product is bought. (This is may seem straightforward and easy to follow. why branding services is tougher than Actually they are not. French wines could not branding tangible products: human vari- meet the conditions, while New World wines, ability works against this stability.) For a and Australian wines in particular, could. Let wine maker, it means mastering the art of us examine why, for each condition. blending, to make sure consumer expecta- Old World wines are based on one principle. tions are not betrayed. Once consumers The quality of the wine is totally dependent on discover they like a specific wine taste, their natural factors: the specific type of soil, the sun, repurchase indicates a willingness to reduce the climate, the air. As a consequence, hundreds risk and re-find the same taste, the same of wines have been created, differentiated by pleasure. the wine-growing area, or even specificl For a mass-market brand, price is key: it vineyard, from which they come, and its must be mainstream. Everything must be unique characteristics. Each vineyard claims its done, at the back office level, to ensure soil is better than that of competitors, for higher productivity, and hence a lower example. As a consequence, the product is frag- production cost, while not altering the mented. For example, behind each of the 5,000 quality and taste. marques of Bordeaux wine there is a different grower, usually rather small. This preventsl It is essential to be end-user driven, and suppliers from responding to the first condition find the right taste for the particular for building a brand: enough volume. market. Many UK consumers are not long- Old World wines have tried to secure their practised wine drinkers. Their tastes have market leadership by transforming their wine- been shaped by cold soft drinks and beer. producing practices into laws. Producing a This means that they prefer wines with a Burgundy or a Bordeaux wine means obeying specific taste and in-mouth profile. In these laws. What was intended as a quality addition, if an organisation hits the right control system has become a major block local expectations it can expect to obtain against innovating to address the competition good publicity, medals and press coverage, from emerging growing areas. thus reinforcing the trade support. If a wine is to be called a Pauillac, a Gravesl Another requirement is a national sales or whatever (these are subregions within force. Wine is mostly chosen at the point of Bordeaux), its producers are not permitted to purchase. On-shelf visibility and point-of- mix the grapes from this region with grapes purchase advertising are success factors. It is grown anywhere else, or only at a very small important to draw up national agreements level. If one season is dry they cannot irrigate; with the major multiple retailers (in this case nor can they add chemicals to moderate the Sainsbury, Asda, Tesco and a few others) to differences in quality caused by differences in achieve this, but even when these are in climate from year to year. Because they respect place a day-to-day check needs to be carried these laws, Old World wines have an inherent
54 W H Y I S B R A N D I N G S O S T R AT E G I C ?variability: they are the true produce of many of them are not well versed in Europeannature, more than the produce of man. There languages and the cultural traditions ofis much more variety of soils and variance in Continental Europe. Unlike the maze of thou-climate from year to year in Europe than in sands of hard-to-pronounce wine names fromAustralia, California or Argentina, and this Europe, Jacob’s Creek is an English name, andtoo leads to differences between one Old the wording on the wine labels is written inWorld wine and another. English. Until recently French wines rarely Branding means suppressing this vari- provided any labelling information inability: to secure the same taste from year to English. Furthermore, Australia is part of theyear, one must master the art of blending Commonwealth, and some English peoplegrapes coming from very different soils – and identify more closely with it than with France.regions, if one of them is underproducing. In addition, each New World country hasAustralia, as a relatively newly settled country become associated with a small number ofwithout a long wine-growing tradition, had grape varieties. This means that consumersfew laws governing wine producing; it could find it easier to forecast the taste of ando it. It was not so for wine makers from Australian wine than of a French wine. TheBordeaux or Burgundy. country of origin adds its own risk-reducing The same holds true for getting the right role to the brand.quality at low production costs. French wine Last but not least, the industry’s organi-makers are not allowed to use mechanised sation in the Old World is too fragmented.harvesting: they are required to harvest by Individual growers cannot afford a dedicatedhand. They cannot irrigate, and so radically sales force even in their homeland. Evenincrease the productivity of their soils; they when the wine is produced by cooperatives ofcannot make use of chemical additives. In growers, the coops tend to want to remainFrance too, wine is stored in barrels as a rule. independent and refuse to join larger organi-In Australia wine is kept in huge aluminium sations, the only viable path to reaching thetanks, and wood cuttings are put in the wine: critical size to create a brand.there is more wood surface in contact with the As a result, in the 16 years to 2001, Australianwine, which accelerates the process of giving wines, led by Jacob’s Creek, went from zero to athe wine the right ‘woody’ taste. Time being 16.9 per cent share by volume and a 20.1 permoney, this reduces production costs. cent share by value of the British market. Point four concerns getting the right taste Meanwhile the market doubled in size.to appeal to the target market. New World Interestingly, as is shown by the value sharewines have no tradition to respect: they being higher than the volume share, price is notstarted from the customer. They adapted their the main reason consumers choose Australianproduct to the taste of customers in emerging wines. The New World growers have succeededmarkets, used to drinking soft drinks and in persuading customers to trade up, by offeringbeer. Their wine had to be fruit-driven, very higher quality brand extensions designed tosoft, very smooth, easy to drink for all occa- appeal to former novice wine drinkers who aresions. Some varietals (types of grape) such as now willing to explore more complex wines.Chardonnay and Semillon Chardonnay Can Old World wines come back and stopcould deliver such a taste. These were not the their sharp decline? As long as they do notvarieties that made the reputation of suppress their internally based regulations,Bordeaux or Burgundy wines. their production laws, and do not encourage One other dimension of being client-driven supplier concentration, they will not be ableis language. Marketing research showed that to fulfill the five conditions for buildingthe English were still broadly an ‘island race’: brands. Bordeaux and Burgundy cannot do it.
BRAND AND BUSINESS BUILDING 55However, the Languedoc wine-growing region Wyndham, the company that owns theis the biggest in the world. As such it fulfils the brand, is far smaller than some of itsfirst condition. In this region, which histori- Australian competitors such as Hardy’s, but allcally produced lower-status wine than its energy and efforts were focused on this oneBordeaux and Burgundy, there are very few single brand.production rules to obey. The future is in the Many brands have developed by contacthands of Languedoc’s growers if they can and retail without advertising: Google, Zara,concentrate and meet customers’ require- Amazon. This is not the only brand-buildingments, not only in the UK but also in Japan, model. Yellow Tail became the number oneKorea and other countries with a growing wine brand in the United States thanks to amarket for wine. They might also export their huge advertising campaign, a fun personalityknow-how and build brands where the future and a price which strongly motivated its mainmarket is: China. This is why so many players distributor. In addition it was aimed at theare signing joint ventures with Chinese wide field of non-experts in wine.companies and authorities, to grow grapes inChina and develop brands that have none ofthe Old World wine industry’s self-imposed Brand building: from product tolimitations. values, and vice versa What lessons can be drawn and gener-alised? New World wine brands have It takes time to build a really strong brand.succeeded because they innovated, breaking There are two routes, two models for doing so:with the competition’s conventions for from product advantage to intangible values,consumer profit. They have not stopped inno- or from values to product. However, withvating and disrupting conventions. In time, this two-way movement becomes theAustralia, Jacob’s Creek recently introduced essence of brand management: brands havescrew cap closures on its Riesling varieties, two legs.abandoning a sacred cow: cork closure. Most brands did not start as such: theirRiesling is more likely than wines from some founders just wanted to create a business,other grape varieties to be affected by based on a very specific product or service: anproblems of cork quality, and half-bottles are innovation, a good idea to start their businessespecially vulnerable. Both consumers and and open the distributors’ closed doors.the trade reacted favourably to this small but Through time, their name or the name of therevolutionary innovation. product became a brand: well known and A second lesson is that a part of Jacob’s endowed with market power (the ability toCreek appeal was based on one enduring influence buyers). It did not simply designateweakness of competition: it was not an elitist a product or a person, but little by little camebrand, and it had no snob value. It was to be associated with imagery, with intangibleapproachable for everybody. benefits, with brand personality and so on. The product’s quality–price ratio was Perception had moved upwards from objectsexcellent, attracting praise from experts and to benefits, from tangible to intangibletaste makers. This is an endless race: each year values.the brand continues to improve the quality, As is shown by the upward-pointing arrowthus winning continuous publicity. Since it in Figure 3.1, most brands start not as brandswas the first of the major Australian wine but as a name on an innovative product orexporters, Jacob’s Creek benefited from the service. Nike started out as a meaningless‘pioneer advantage’, and became the symbol name on a pair of innovative running shoes: ifof Australian wine. Interestingly, Orlando they had not been innovative no distributor
56 W H Y I S B R A N D I N G S O S T R AT E G I C ?would have paid attention to Phil Knight in but also by PR operations that accentuate thethe first place. With time, that name acquired unique status of the brand.awareness, status and trust, if not respect or This first model concerns brands thatliking. This is the result of all the communi- started as a product. There exists a secondcation and stars which accompanied the model of brand building: many brands start asbusiness building. Little by little an inversion concepts or ideas. This is true of all licensedtakes place in the process: instead of the brands (Paloma Picasso perfume, Harry Potterproduct building the brand awareness and products and so on) and of many fashionreputation (the bottom-up arrow of brands, spirits or cigarette brands. The Axeinfluence), it is the brand that differentiates men’s hygiene line started from an insight asand endows the product/service with its well: teenagers feel insecure about their sexunique values (the top-down dotted arrow). In appeal.fact at this time the brand determines which This model also provides a reminder thatnew products match its desired image. Nike is even when launching a product brand (thatnow in the phase of brand extensions: the is, a brand based on a product advantage) itbrand has stretched from running shoes to is important to incorporate from the startsports apparel and now golf clubs. the higher levels of meaning that are Through time, brand associations typically intended to attach to the brand in the longermove up a ladder (the vertical axis of Figure term. The brand should not simply acquire3.1), from ingredient (Dove with hydrating them, by accumulation or sedimentation;cream) to attribute (softening), to benefit they should be planned from the start and(protection), to brand personality, brand incorporated at birth. Incorporating thisvalues and even mission (Apple or Virgin have perspective from the start accelerates thea mission), at the very top intangible end. process by which products become brands. Now this does not mean that, with time, This is why product launch and brandbrand management should not be concerned launch are not the same.with material issues and differentiation any This is also why brand names should nevermore. Brands are two-legged. Even luxury be descriptive of the product. The first reasonbrands, bought for the sake of show, must give is that what is descriptive soon becomestheir buyers the feeling that they have bought generic, when competitors come into thea great product and that the price difference is market with the same product. Second, clientslegitimate. But material differentiation is a will soon learn what the business is about.never-ending race: competitors copy your best Names should better aim at telling an intan-ideas. Attaching the brand to an intangible gible story. Amazon speaks of newness, forcevalue adds value and prevents substitutability. and abundance (like the River Amazon), andThe Mercedes price premium is permanently Orange says ‘definitely non-technical’, just asexplained by product-based advertising copy, Apple Computers did 25 years earlier.Intangible added values Values, mission Personality Benefits Attributes IngredientsTangible added values TimeFigure 3.1 The two models of brand building through time
BRAND AND BUSINESS BUILDING 57 Finally, as is illustrated by the two dotted market’, although Michelin is still the marketarrows of the graph, brand management leader, its share falls to 29 per cent. It looks as ifconsists of a permanent coming and going Michelin is not as well oriented to the values ofbetween tangible and intangible values. the buyers in this aftermarket, fleet ownersBrands are two-legged value producing and those who maintain their trucks.systems. This means that having an excellent In the spirits market, Bacardi is worldproduct is not enough in modern compe- number one; is it the best spirit? One couldtition. (See for instance the Toshiba case, page certainly argue that it is nothing of the kind: it47). However, neither luxury nor image has no taste, and in all blind testings it faresbrands can afford to forget the functional real- very poorly. So why does it sell in suchities of products. volume? The source of its business is not experts deliberating over its taste, but casual drinkers and partygoers. They generally wantAre leading brands the best a spirit that will blend well in a cocktail, andproducts or the best value? an ideal mixer should have a very neutral taste. This is exactly what Carta BlancaTo create a brand is much more than simply delivers; it provides 90 per cent of Bacardi’smarking a product or service, the necessary sales.first step of brand differentiation. It is about Branding starts from the customer, andowning a value. asks, what does he or she value? Bacardi is It is often held to be a paradox that the certainly not the ‘better’, but it could be callednumber one brands are not the best products. the ‘batter’. One of its key intangible addedWas the original IBM PC the best PC available values is its personality, epitomised by itsat the time? No. Is Pentium the best chip? symbol: a bat. The first Bacardi factory inWho knows? Are Dell computers the best Cuba was full of bats. This became the brand’scomputers? symbol, adding an enduring halo of mystery The paradox stems from the word ‘best’: best to it.for whom, and at what? Let’s take the analogy Another example can be found in theof a school class. Academic gradings are deter- educational market. The Master’s degree inmined according to well-understood criteria: Business Administration (MBA) is a passportstudents who do well display qualities such as to success. It was first introduced in USexcellent memory, the ability to solve universities. To get their MBA, students at USproblems fast, to work accurately and to universities need two years of intense work:present their work well. These are the values of one year to learn the fundamentals, and onethe schoolroom; and similarly, each market year to specialise in a major field.has values. To become number one in any Insead is now a respected brand in the MBAmarket it is necessary to understand what the market, and Europe’s best-known MBA.market values are. Of course, one cannot However its MBA course lasts less than a year.succeed without a good product or service. This is the power of branding: a strong brandThose who try the product must like it enough awareness acts as a quality cue. Because itto make repeat purchases, to refer others to it; created the MBA category in Europe, Inseadthe product must build brand loyalty. In the soon benefited from the pioneer advantage:truck tyre market, Michelin is certainly the its name effectively became the localnumber one: it holds 66 per cent of the standard, because of the lack of competition.original tyre market (that is, the tyres the The French management school HEC createdmanufacturer supplies with the truck). But in its MBA in 1969, while Insead had started inthe replacement market, the so-called ‘after- 1957. HEC and some other late entrants made
58 W H Y I S B R A N D I N G S O S T R AT E G I C ?another mistake: they delivered a genuine Breaking the rule and acting fastAmerican-type MBA. The HEC MBA, whichlasted two years, was arguably of too high The MBA example also illustrates anotherquality for European corporate recruiters, and issue: to build a brand one must quickly reachtoo long for European students. the critical size to create barriers to entry (such as top-of-mind awareness). By breaking the two-year rule, Insead was able to produceUnderstanding the value curve twice as many graduates as a US school of theof the target same size, and so to reach the critical size of alumni who act as its referees withinInsead became Europe’s best-known MBA by companies in half the time. Recently it made aunderstanding the value curve of European strategic move by doubling the number ofhuman resources directors who hire young graduates produced per year, thus accentu-executives. In delivering an MBA based on the ating its market share and increasing itsUS model, premium schools such as HEC productivity (the number of students pershowed that they did not understand the professor). It also decided to capitalise on itslocal value curve. In Europe, recruiters do not now well-known brand to open a branch inreally care how much time students have Asia.spent on campus: the extra salary one gets Many lessons should be drawn from theafter having spent two years at Harvard, above examples:Stanford or Northwestern instead of less thana year at Insead is very small. One thing l The first is that all brands start by beingrecruiters do value, however, is an intensive non-brands, with zero awareness andimmersion in a truly international image. However, they were based on anprogramme, in which students learn to work innovation that succeeded. Starting awith 10 different nationalities. This mirrors brand means finding a disrupting inno-the working context for which they are being vation.hired. European companies tend to considerthat they will really teach their recruits how to l Second, creating a market is the best way todo business in-house, and that a fast lead it. This is the well-known pioneeracademic introduction lasting less than one advantage. However, to be able to create ayear will suffice. Finally, companies prefer to market, one must break free from therely on continuing education, providing a conventions and codes that create herdismregular stream of specialised company in the marketplace.seminars, throughout their managers’ l Third, time is an essential ingredient ofworking lives. success. The winners start first and move Since not all clients are alike, different fast so as to rapidly create a gap from thebrands can coexist in the same sector, because incoming competition.they address the value curve of differentsegments. This is why groups build brand l Fourth, it is important to reach the criticalportfolios. GM has a portfolio of car marques, size rapidly, to reinforce that gap from theas does the Volkswagen Group. competition. This creates more resources for advertising, communication and word of mouth.
BRAND AND BUSINESS BUILDING 59l Fifth, a brand is not a producer’s brand or a Table 3.1 Consumer price (in euros/litre) of retailer’s, as is often heard in marketing various orange-flavour drinks in Europe circles: it is the customer’s brand. A brand Brand Price epitomises values, but as we know, value lies in the eyes of the beholder, the Hard discount 0.25 customer. It is essential to be market Carrefour Standard Orange juice 0.70 focused and ask, what is the value curve of National brand 0.84 the target? Then comes the question how Sunny Delight 1.08 to address this value curve better than the Tropicana 2.45 existing competition. The best way is to Tesco Finest 2.50 create a disruption (Dru, 2002), to break the conventions of the market. budget affordable, when selling prices are under pressure from retailer own-labels andComparing brand and business unbranded generic products.models: cola drinks In the fruit juice market, there are not many ways of finding a favorable economicIt is interesting to compare a number of brand equation. Tropicana follows a premium priceand business models within the same strategy, based on permanent product innova-category. This illustrates how one cannot tions (freshly collected oranges for instance)understand market leadership simply in terms and a premium image. These are value inno-of brand image. Structural factors such as vations, increasing the price paid byproduction costs, the type of competition, consumers per litre. It is the premium marketand the trading structure of the sector need to leader, and a global brand, but in eachbe incorporated into the analysis. Why not country it is a small player in volume.take as a field for analysis the very symbolic As always, Procter & Gamble followed aone of colas? Colas as a commodity have high-tech approach to differentiate itssucceeded remarkably in ‘decommoditi- product. It introduced Sunny Delight as asation’, unlike other soft drinks. They are also competitor in the fruit juice market althoughthe market in which the largest brand in the it has almost totally artificial ingredientsworld, Coca-Cola, operates. (there is only 5 per cent orange in it, for legal What is a soft drink? In a material sense it reasons). These created a taste and texture thatconsists of water, flavourings, a sweetening beat all the competitors using natural fruitagent and carbonate. In the fruit juice market, juice. It also added vitamins to appeal tobrands are having a hard time: in Germany, mothers. Thanks to its name, its colourhard-discount labels hold more than 50 per (orange, and variants for the differentcent of the market. The same process is taking flavours) and logo (a round sun), Procter &place in the UK and all over Europe, where Gamble created an innovative product, whichunlike in the United States, distribution is was reminiscent of orange juice and wasvery concentrated and discount labels do not certainly thought by some consumers to bemean poor-quality products. The problem orange-based. Its artificial chemical formula isfaced by brands is how to differentiate a patentable, which creates a barrier to entryproduct like orange juice that seems generic. and prevents it from being directly copied.In addition, the raw cost of orange juice is Most important, it is priced high, whereas itshigh: this creates pressure on the margins, and raw material cost is far lower than that ofas a consequence on the level of advertising natural orange juice.
60 W H Y I S B R A N D I N G S O S T R AT E G I C ? Coca-Cola is an opaque product: almost availability, accessibility, attractiveness, inblack, mysterious, with a secret formula, it that order. Most people focus on communi-created from the start the conditions, both cation, but the key of Coke’s domination is inreal and psychological, of a product that is not these three levers:fully substitutable. Also, since it is an inventedrather than natural product, the brand l Availability, the distributive lever, comesbecame associated with the product, which first. ‘Put Coke at arms’ reach’. The aim iscan be described by no other name. It has for people to find Coke everywhere: bars,since become the reference product for an fast-food restaurants, canteens, retailers,entire genre of cola drinks. Benefiting from vending machines in streets and publicthe pioneer advantage, throughout more than places, refrigerators in offices, classroomsa century the Coca-Cola brand has pursued soon.… An essential point to appreciate isone single objective, now on a worldwide that building both the business and thescale: to continue to grow the cola category. It brand image is tied to the active presencewas in competition first with sodas in on premises. On-premise presence givesAmerica, then with other soft drinks, and now status to a drink, and creates consumptionwith virtually all other types of drink, habits. In addition, unlike multipleincluding water in Europe or tea in Asia. retailers (Wal-Mart, Asda, Ika, Carrefour, Coke’s brand essence is ‘the refreshing bond Aldi and the like), which do not sell onebetween people everywhere’. In making its brand exclusively, but their clients have thebrand the number one drink in the world, it choice, on-premise customers do givebenefited from being made from a syrup that exclusive rights, thereby granting a localis easy to transport at low cost, with high effi- monopoly to the brand. This is why Cokeciency (that is, it can be highly concentrated, makes global alliances with McDonald’sso many litres of Coca-Cola are produced from and other synergistic organisations. Onea single litre of concentrate) and remarkably condition of this type of exclusive deal ishigh resistance to temperature and time (it that the supplier provides, and the outletcan be stored for a long time, anywhere, agrees to stock, its full portfolio of softunlike most fruit-based soft drinks). It is defin- drink brands. The goal is to create a barrieritively a great physical product. In addition, to entry to any soft drink competitor.the tuning of its acidity/sweetness ratio is As part of competing on availability, oneoptimal so customers can drink many glasses should not forget access to the bottlers: inor cans in a row without being satiated. The many countries there are few good bottlers,cola syrup itself is very cheap to produce, thus and eventually one only. Controlling thisallowing high margins and as a consequence bottler is a sure way to prevent competitionhigh marketing budgets to reinforce its top-of- entering the country. Conversely, it is amind position (a key competitive advantage way to push competition out, as when thein this low-involvement category, where the Venezuelan bottler that had formerlybuying decision is based on impulse). It is handled Pepsi decided to work for Coke.resold to bottlers at five times its production Within a day, Pepsi operations inprice, so profit can be located at the company Venezuela were closed.level and pressure can be exerted on bottlers/ l Accessibility is the price factor: ‘In China,distributors to pursue a high-volume strategy in India, sell Coke at the price of tea’. Thisif they want to be profitable. is made possible by the low cost of syrup To grow the business through the production, its easy transportability, andexpansion of the category, the strategy rests also the volume-based strategy. Economieson three facets, which are always the same:
BRAND AND BUSINESS BUILDING 61 of scale create another pressure on the leader on three facets: price, product and competition, if not a total barrier to entry. image: Having located the profit at the company level (exactly as Disney Corporation does l Price: it is a dime cheaper than Coke, at through licensing royalties, while some of consumer level, but this creates a higher its foreign entertainment parks are not pressure profitability. profitable), the Coca-Cola Corporation can afford to have its local companies lose l Product: since it is not the referent, Pepsi is money for the sake of rapidly growing a more daring and permanently works on the high per capita consumption rate. In product to beat Coke on palatability and addition, to push competition out of the taste (the ‘Pepsi challenge’). Its formula is market (whether it is defined as cola drinks actually preferred to Coke in most blind or more widely), the company exerts a tests. It pushed Coca-Cola Corporation to high-price pressure on the whole market. make the ‘marketing blunder of the For instance, it seems that specific prices on century’ launching New Coke in 1985 to Coke are granted to trade distributors if replace the classic Coke, the water of the they give preference to the company’s United States. More innovating by other brands, such as Fanta, Minute Maid necessity, it practised line extensions such and Aquarius. This is why the Coca-Cola as Diet Pepsi well before Coke. Company is now being sued by the l Image: Pepsi is younger than Coke. European authorities on charges of anti- Capitalising on the only durable weakness competitive manoeuvres. of Coke, its advertising positioning makesl Attractiveness is the third factor: it is the Pepsi the choice of the new generation. communication issue. Although Coke’s Pepsi’s essence is ‘the soft drink for today’s advertising is conspicuous, non-media taste and experiences’. communication (relationship, proximity, music and sports sponsorship, and on- To secure a presence for Pepsi-Cola on premise communications) represents the premises and circumvent the barriers to entry main part of the budget. Share-of-mind created by Coke, the Pepsico Company had to domination is made possible, let us remind, diversify into restaurants and fast-food by the low production cost. Last but not chains. least, Coke’s image is not that of a product Other rivals to Coke have had an even but of a bond: it delivers both tangible harder time. In February 2000, Richard promises (refreshment) and intangible Branson of Virgin admitted defeat in its war ones (modernity, dynamism, energy, against Coca-Cola and Pepsi in the United American-ness, feeling part of the world) States, less than two years after he rode into which make it so special, much more now New York’s Times Square in a tank to launch than its secret formula. his challenge. On reviewing the brand and business model that is common to both CokeCoca-Cola’s main challenger worldwide, and Pepsi, it is easy to understand why VirginPepsi-Cola, is following exactly the same Cola failed everywhere but in the UK, itsbrand and business model. Its differentiation domestic base. Even there it won less than 5is based on the fact that it was introduced per cent of the market. Brand is not enough.more recently than Coke, and did not create Virgin Cola bought the Canadian companythe category. As a challenger, its brand image Cott’s, which was able to make a very goodand market grip are lower. It challenges the syrup: it makes the cola sold under Loblaw’s
62 W H Y I S B R A N D I N G S O S T R AT E G I C ?President’s Choice private label. It proposed a whether that creates the basis for a long-termcheaper price than Coke or Pepsi. But Virgin preference. Also, Virgin wanted to beCola never got the distribution, it never perceived as the anti-Coke cola. Howeveraccessed the consumer. Branson’s whole idea throughout the worldwide market this rolewas to save on advertising and thus make a already belonged to Pepsi. Finally, is thecheaper price possible by taking advantage of Virgin brand image that strong among thethe Virgin umbrella brand. Unlike the two young generation outside the UK?world-leading carbonated soft drink What other brand and business modelcompanies, which both follow a product could exist in this sector? At this time, twobrand policy (one brand per type of flavour), alternative models are surviving: ethnic colasVirgin’s only brand asset is its core brand, and colas dedicated to trade. In its edition ofwhich has been extended to all types of Sunday 12 January 2003, the New York Timescategory (see Chapter 12), and in the process published an article, ‘Ire at America helpsgained extensive worldwide awareness. As create the Anti-Coke’. This announced thewell as a low volume of advertising and selling creation of Mecca Cola by a young Tunisian-a large volume on promotion, Virgin had a born entrepreneur. He targeted it at thesmall sales force, a sure handicap for trade Muslims of France and soon of other coun-marketing and store-by-store direct relation- tries. This brand had two strengths. The firstships. Finally, Virgin Cola was not able to was immediate goodwill in the Muslimwork in the market without a full portfolio of community: its identity is based on a realsoft drinks to support it. This is necessary to feeling of community and resentment againstaccess the on-premise consumption sector, what is felt as an imperialist drink and brand.and is also the only way to make a true The second was an immediate presence in thenational sales force economically possible. specific channel of distribution held by this As a rule, extension failures are immediately community, innumerable small convenienceattributed to some image-based reason that it stores that open long hours.is impossible for the brand to extend to the It is too early to judge its success, since thisnew category. The brand and business will only be evidenced by long-term durability.perspective shows us that this explanation is However, sales are skyrocketing. Interestingly,superficial. It was not the Virgin brand that other colas have burgeoned, based on thewas the source of the failure, but the fact that same approach: they capitalise on religious,Virgin could not compete on the same brand ethnic or geographical feelings of communityand business model as its two Goliath and identity. For instance there are Corsicacompetitors. Fairy tales are one thing, but Cola and Breiz’h Cola (sold in Brittany), aimedmost of the time David gets killed. at two regions with strong identity and even Virgin Cola failed to get enough distri- independentist movements. This model canbution: in Europe, for instance, it never be reproduced elsewhere: Irish cola? Scottishentered the main multiple retailers. It was not cola? In the era of globalisation, regional iden-sold sufficiently in the fashionable bars and tities are revived to resist what is perceived as arestaurants. To do better in distribution terms loss of essence, soul, and quality of life. Suchit would have needed a real sales force and a attempts access local distribution or the localreal portfolio of brands and products. stores of national multiple retailers. No storeArguably it should have looked for alliances owner or manager wants to take the risk ofwith soft drink manufacturers looking for a hurting the local feelings of the communitybranded cola. living around its store. Without advertising, the cola was mostly Monarch Beverage Company has created ansold on a promotional basis. It is questionable interesting alternative brand and business
BRAND AND BUSINESS BUILDING 63model. It is totally trade oriented, thereby own label with profit. Even if they were givensecuring access to modern distribution, away free, own-label colas would not beworldwide. However it is not simply consumed: they lack authenticity, a reas-providing cola for retailers own labels. This is surance on quality and taste, and fail toa true branding approach. deliver the right intangible values. Monarch The problem for multiple retailers is to get has created a portfolio of brands, all lookingfree from the grip of Coke and Pepsi. American (like ‘American Cola’), and comingUnfortunately, with some exceptions from a true American company based in the(Sainsbury’s Cola in the UK, President’s Mecca of colas, Atlanta, close to Coca-Cola’sChoice Cola in Canada), market shares of own own headquarters. These brands, owned bylabels remain very small. This is probably Monarch, are granted under licence tobecause compared with the real thing, private multiple retailers. Each mass multiple retailerlabels look like faked cola. Parents who buy therefore has its own brand, different from itsown-label colas to save money risk being criti- competitors’, for its operations worldwide.cised by their children. Private labels have no Carrefour for instance has American Cola. Theimage in a category that has been decom- syrup is made by Monarch to match eachmoditised by brand image. Coke’s identity retailer’s specifications. The companyencapsulates the American dream, authen- provides the brand and the product; it leavesticity and pleasure. Pepsi has the same associa- its customers totally free to manage their owntions, although to a lesser extent, and also bottlers, prices and promotion. No nationalmeans youth. Own-labels create no such value sales force is needed: negotiations are carriedin the eyes of the young heavy consumers. out at the corporate level, with the categoryThey create bad will. global manager. The Monarch Beverage Company was This in-depth comparison of alternativecreated in Atlanta, USA, by two former Coca- brand and business models has illustrated theCola marketing VPs. With the help of a former benefits of enlarging the perspective onCoca-Cola chemist, it knew how to produce a competitive strategies, beyond communi-good cola syrup. Most important, instead of cation and brand image. Brand leadership isfocusing on the end-consumer (the mistake of gained through the synergy of multiple leversVirgin) and running the risk of having no within a viable economic equation. Thus isaccess to mass distribution, it focused on the the true condition of brand equity.customer problem: to increase the share of its
65 4From private labels to storebrandsEach day brings fresh news of the expansion mass consumption sector, distributors’ brandsof distributors’ brands. On 28 November are now part of the competitive environment2006, Carrefour launched its mobile phone in all sectors: even the mass prestige productsrange under its own brand, while praising the store Sephora has undertaken a voluntarycapabilities of its Orange network, aiming to policy of own-name products over the pastturn it into a tool for creating customer three years. Distributors’ brands are alsoloyalty that would itself be profitable and a found in automobile equipment (the Norautochannel for growth. The offer was carried by tyre is the biggest seller in France), agriculturalthe 218 hypermarkets under the Carrefour cooperatives, pharmacy groups and so on. Forname, visited by one million clients every day. so long merely the cheapest products, they This is not an isolated phenomenon. have now become innovators which are quickDistributors’ brands are on the rise every- to offer consumers products that keep pacewhere, and now dominate the market in with the latest trends in society (organicmany so-called mass consumption categories. farming, fair trade, exoticism, gourmet dishesFor example, in France the market for self- and so on), following in the footsteps of theservice packaged ham is 400,000 tonnes a Monoprix and Sainsbury’s brands. In manyyear. The hard-discount circuit alone, without cases, these have become inseparable from thenational brands, sells 100,000 tonnes. In large store: thus Picard stores sell only theand medium-sized stores 300,000 tonnes are distributor’s brand. Clients go to Picard andsold, of which two-thirds, or 200,000 tonnes, buy Picard. The Body Shop, now part of theare ‘low-cost products’ under the store brand. l’Oréal family, sells only its own distributor’sThere are only 100,000 tonnes remaining for brand. Gap began life as an exclusive retailerthe major brands: Fleury Michon, Herta of Levi Strauss, stocking jeans in all sizes, but(Nestlé), Madrange, Sara Lee, etc. In Germany, changed its strategy when discount arrived in45 per cent of organic products are sold under the United States. Now Gap only sells… Gap,distributors’ brands (Jonas and Roosen, 2006). an action that seems to have inspired Having been restricted for so long to the Decathlon. Other examples include Ikea,
66 W H Y I S B R A N D I N G S O S T R AT E G I C ?Habitat, Roche and Bobois, Crate & Barrel and brands have long been perceived in theWilliam Sonoma. Marks & Spencer’s has done United States as low-cost, low-quality alterna-the same since its inception. tives, an assessment that failed to take the full In the B2B sector, distributors’ brands and measure of the phenomenon.low-cost products are also present: it is true It is revealing that the latest book publishedthat Asian companies are competing to supply in the United States about distributors’ brandsthem. Thus a Facom key for a mechanic costs (Kumar and Steenkamp, 2007) chose ‘privates10, but only s3 if made in Taiwan. label’ and not ‘trade brands’ as its title: theBubbendorf, the famous blind maker, now has notion of ‘private label’ categorises thethe tubular motors for the electric automation distributor’s brand as a thing apart, and notof its blinds manufactured in Asia. Until using the word ‘brand’ therefore fails torecently, it installed automations by Somfy, account for the true reach of distributor’sthe market leader: now it is its main brands. They are indeed brands in the eyes ofcompetitor. In the office furnishings market, consumers, who are now loyal to them, evenOffice Depot and Guilbert have based their if, as will appear, they are not brands like thesuccess on distributors’ brands: apart from the others. However, this situation has recentlyso-called obligatory products (certain Pentel changed, as can be seen from a recentproducts, Stabilo Boss, Post-It, Staedtler, interview with Russ Klein, the executiveDymo, Bic) they sell only the products of their director of 7-eleven, the store that inventedown brand. And is there not something para- the convenience store concept some 79 yearsdoxical about the way that the same big ago, He attests, ‘Private label has changed tocompanies that complain about the rise of the point where retailers are using it as thedistributors’ brands, then buy the Niceday premium brand in some cases’ (quoted inbrand from their Guilbert supplier instead of Marketing Management, July–August 2006).buying major branded products? In short, Tesco is an example of this.they are criticising consumers for doing what At Tesco, the number one distributor inthey are themselves doing: managing their Britain, a survey of the fruit juice aisle isspending. revealing: far from being a product, the distributor’s brand is in reality a segmented range, from the lowest possible price (TescoEvolution of the distributor’s Value), priced at s0.33 per litre, to s1.84 forbrand the top of the range, under the label ‘Tesco Finest’. Tropicana’s product, by the way, isAcademic studies have until recently failed to sold at s1.62 per litre.pay sufficient attention to distributors’ In fact, distributors are well schooled inbrands. With the producer’s brand being distributors’ brands. They:considered as the only point of reference,distributors’ brands were thought of as ‘non- I allocate the majority of their shelf space tobrands’, attracting price-sensitive customers. them, eliminating all weaker brands;Moreover, the distributor’s brand has been I have segmented their portfolio of distrib-even less extensive in the United States than utors’ brands in order to meet the differentin Europe. In fact, in the United States, with expectations of their clients (a far cry fromthe exception of Wal-Mart, no distributor the ‘Soviet’ own brand, signalling thedominates: distribution is regional, and the absence of choice) without forcing them tonational brands still have power in the distri- identify with the shop name (Wal-Martbution channel. This is why distributors’ named its men’s clothing range George);
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 67I segment their range in order to cover not distributor: every village has its own Migros only different price levels, from the store. Migros – without exception – sells only cheapest to the highest price on the entire Migros products. The citizens of Germany, shelf, but also the emerging needs known Europe’s most powerful country, enjoy their as ‘trends’ (such as Tesco Fair Trade, Tesco luxury cars, but they buy most of their food Organic and Tesco Healthy Eating). from the Aldi and Lidl hard discounters, which also – almost without exception – sellThe distributor’s brand, managed with only exclusive private-label products. It isstrength and ambition, in this way contributes hard to imagine that the Germans would buyto the store’s reputation. However, as we shall poor-quality goods. Loblaw’s, a Canadiandiscover below, the brand issue for the distrib- chain, has built its reputation on itsutors has shifted: the question now is to turn President’s Choice brand. The story is thethe store itself into the brand. same at Carrefour, Albert Heijn in Holland Throughout the world, the distributor’s and Ika in Scandinavia.brand is often becoming the only true Distributors now manage their brand port-competitor to the producer’s brand, when it is folios as part of an overall vision for thenot the shelf leader in volume. Too many category and for the store. They have tobrand managers have not yet accepted this choose their ‘brand mix’ for each categoryreality: their brands are in a minority. Their segment, and make a decision with regard toenemy is not the other ‘big’ brand, but the the type of brand to offer: producer’s ordistributor’s much cheaper products, with an distributor’s brand? The latter may offer eitherincreasingly comparable quality level. To ranges of economical products, a value-for-make things worse, on hypermarket and money line (often in the distributor’s ownsupermarket shelves we find the producer’s name) or own brands (private labels) offeringbrand, the distributor’s brand and now the more flexibility in terms of positioning –lowest-price products, 60 per cent cheaper. perhaps even genuinely premium posi-This further heightens the urgency to act tioning.(Quelch and Harding, 1996) and position the It is true that within the meaning of themajor producer’s brand firmly and squarely catch-all term ‘distributor’s brand’ there areon its pillars of differentiation: innovation distinctions to be made between veryand quality on the one side, and emotional different realities. Two axes give structure toadded value on the other. all the distributor’s products or brands: the Distributors’ brands occur in all countries, level of value added, and the relation to thefrom the richest and most developed to devel- store (see Figure 4.1).oping countries. In Eastern countries, low- In terms of added value, at the bottom ofcost products and hard discount are growing the scale are the low-cost products, hastilyrapidly. However, the hard discounters were designed by mass-distribution multiplealso a bolt from the blue for mass distribution retailers to counter the breakthrough of thein the highly developed countries of Western so-called ‘hard-discount’ German stores (AldiEurope: their growth in France stabilised only and Lidl) and their French counterpart (Ed).this year. And yet these are rich countries. These products are the result of a minimalist The distributor’s brand is thus not a conception of quality: low-cost sardines havephenomenon linked to low income. In the legal right to be called sardines, but makeSwitzerland – which has one of the highest per no pretence at anything more. Their low pricecapita incomes in the world – the leading food is obtained through the purchase of thebrand is Migros, well ahead of Nestlé. This is cheapest sardine lots in fish auctions thehardly surprising, as Migros is a dominant world over. Low-cost gingerbread contains
68 W H Y I S B R A N D I N G S O S T R AT E G I C ? Strong Tesco Value Tesco Fauchon Relationship to the store Leader Price Tesco Finest Sephora Tesco Healthy Choice George (Wal-Mart) St Michael (Marks and Spencer) Eco Products Aldi President’s Choice No.1 Lidl None 0% Added valueFigure 4.1 Relative positioning of the different distributors’ brandsnot one gram of honey. This should not be directly:confused with the business model of the harddiscounters such as Aldi and Lidl, which I when its insufficient reputation is aestablished precise quality specifications with handicap for product sales;industrialists, aiming to obtain decent quality I when the badge function of thedespite the rock-bottom prices, via economies consumption does not fit the presence of aof scale pushed to the extreme: the manufac- generalist distributor (for example wine orturer recruited will produce only one textiles);reference, in astronomical quantities. At theother extreme of added value, we find I when the level of added value of theproducts such as Tesco Finest, for example products is too low and could reflect nega-fresh fruit juices made less than three days tively on the store: for example, atearlier and with a limited shelf life (without Carrefour low-cost products are labelledpreservatives) and Monoprix Gourmet, No. 1 or Eco, without any mention ofwhich, as its name suggests, offers products Carrefour.with high experiential value. In the UnitedStates and Canada, the President’s Choice line Why do Leclerc hypermarkets have no storefrom Loblaw’s aims high in terms of quality, as brand with their name? I organised a seminarits name suggests. on this theme with the managers of this group, In terms of nominal relationship to the and it appears that this has to do with thestore, a distributor’s brand may either carry the company’s culture and its historical legacy.name of the store or its own name: one or the Leclerc was conceived and grew up as aother. Thus, at Carrefour, there are ‘Carrefour discounter of major brands. Signing itsproducts’, Tex (for textiles) and BlueSky. Of products Leclerc would not fit with this visioncourse, intermediate situations do exist, where of the company’s raison d’être. Nevertheless,the store endorses its own products: all customers have clearly realised that MarqueAuchan products aimed at children are signed Repère (Marker Brand) is Leclerc’s distributor’sRik et Rok, but the Auchan logo is clearly visible brand. In this regard it is interesting to noteon the front of the packaging. that this brand is itself named ‘brand’, and uses We thus arrive at the matrix shown in at its second name the ontological function ofFigure 4.1. The store does not impose its name any brand: to serve as a reference marker.
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 69 Other terms are used to denote the forms of Are they brands like the others?distributors’ brands: The big brands have long regarded distrib-I The own brand or private label is a utors’ brands with condescension, and would distributor’s brand that has its own name deny their new type of products the sacred and does not generally refer to the title of ‘brands’. That would call their historic company’s name (for example Miss Helen hegemony into question, a kind of lèse- for cosmetics at Monoprix, or Jodhpur for majesté: until now, the big brands have led the textiles at Galeries Lafayette). field and dominated it. For them, stores wereI The counter brand: this word designates distributors, a revealing term, since it refers a distributor’s brand, generally a private more to logistics and transport than to a label, created to divert clientele from a talent for composing an overall offer, for particular big brand, by slavishly imitating stage-managing the shelves, for business all its distinctive traits in order to play on through optimisation of the upstream and client confusion and the psychological downstream. This is why, moreover, stores principle according to which everything insist on being called retailers. The rise of the that looks very much alike is in fact very distributor’s own brand (DOB) is all the harder similar. Thus each company creates its to accept since it signifies the end of a counter brand to Ricoré – Calicoré, Incoré, particular type of marketing (see page 139): it etc – with packaging similar in all respects, therefore leads to questions that go far beyond placed just next to the national brand on the problems of gaining market share, of the shelf. which companies have not yet taken the full measure.I The positioning brand: these are ranges In order to answer the question of the exact that, far from being content with offering nature of the distributor’s brand, we can the best quality/price ratio, position them- examine either their management, or their selves on trends or in the premium status among buyers. segment. Take for example the Monoprix brands, such as Monoprix Bio (organic), Is the distributor’s brand managed Monoprix Equitable (fair trade), Monoprix like a manufacturer’s brand? Gourmet. From a managerial point of view, distributors’Certain stores use their name in all segments: brands are, broadly speaking, brands like anyFigure 4.1 shows how the highly respected other. They have all the features of a brandBritish company uses its name Tesco both for (thinking of a particular target, selecting alow-cost products (Tesco Value) and for the principal competitor whose clients they willtop of the range (Finest) and niches and attempt to steal, defining an offer and a price,trends (Tesco Healthy Eating). Capitalising on setting themselves up with packaging anda single name makes the customer’s job easier, communication) but in addition they have toand profits the store, but of course means that respond to two different constraints simulta-high standards must be achieved in all neously. They have to find their place in thesegments, even at low prices. French stores distributor’s marketing mix, in which theyprefer not to run the risk to their reputation, now represent a key component of identity,and do not use their name on the cheapest differentiation and loyalty generationproducts. (although the effect on customers’ loyalty to the store has not yet been proven: see
70 W H Y I S B R A N D I N G S O S T R AT E G I C ?Corstjens and Lal, 2000). And they generally that this should be carried out based on ause price as the driving force behind their own category that creates reputation (themarketing mix, even when, exceptionally, prototype) first and foremost for thosethey are positioned in a premium segment. products that are considered to be close to For this reason, management of these each other, because they are either comple-brands does not have the same autonomy as a mentary or substitutable. Bringing everythingproducer’s brand. Their image positioning is together under the umbrella of a name is notbased on that of the company. As for their an end in itself: the brand is there not to saveprice positioning, it is generally relative, set money, but to create value for customers.between the two client benchmarks of the big From this point of view, it is revealing that thebrand prices and hard-discount product big supermarkets develop a portfolio ofprices. umbrella brands, in order to cover the whole In formal terms, the distributor’s brand scope of their offer while also seeking the leveloften takes on the form of the umbrella brand: and type of client involvement (Kapferer andCarrefour products, or Auchan or Tesco Laurent, 1988). At Monoprix Miss Helen is theproducts. Admittedly, there are also private feminine beauty and hygiene brand, just as atlabels that make no reference to the store but Wal-Mart George is the male clothing brand.present themselves as isolated, thematic In contrast, Monoprix aims to associate itsbrands. The hypermarket chain Intermarché name with emerging consumer trends:has its own boats and factories: it sells seafood organic, sustainable development, gourmet,under the Captain Cook brand, and its openness to the world, healthy eating, etc inprocessed meats under the name Monique the form of ‘line brands’, as does TescoRanoux. Carrefour sells a range of over 100 (healthy choice, organic, sustainable devel-regional products under the brand Reflets de opment etc).France (Reflections of France). This cross-cutting status of the distributor’s To concentrate on the store brand, also brand explains the difficulty of managing theknown as the banner, since it capitalises on store brand entirely like a brand. In fact, therethe reputation of the store’s name to define a is no brand without positioning: thus attangible offer at the product level, it typically Carrefour First Line was the brand of the mostcovers a large number of products, or even recent progress in television, hi-fi, whiteshelves: through its extension, it brings a goods and computing, at the cheapest price.service of practicality to the customer, who Among the big distributors, it is still often thecan find it by passing from shelf to shelf. It purchasers and not the marketers who havefunctions like a common factor, a decisional the power. The former, and this is their keymarker across the store. strength, react by seizing opportunities (an The manufacturer’s brand, on the other exceptional lot of goods here, filling a gap inhand, signifies competence: its extension is the range there), and by optimising thetherefore necessarily more limited (see difference between the purchase and the salesChapter 13). Fleury Michon, the French price.specialist in processed meat and fresh deli- The marketing viewpoint is to install thecatessen products, would not dream of selling necessary brand coherence, which goes farjam. The maker’s mark has a trade, an beyond the logo, in all the aisles. The brandexpertise, and a savoir-faire that underpin its must not depart from its positioning, itsprogress, materialised through innovations. platform (same price range, same level of tech- This does not mean that a distributor’s nology, etc). These two points of view are on abrand may serve as an umbrella for anything collision course. Often the store brand is askedand everything. We shall see (in Chapter 13) to put its name to products that are not
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 71entirely in line with its positioning in order to brand product are up to 80 per cent definedavoid having to create an individual marque by the characteristics of the successfulfor them. Moreover, the distributor’s brand is product to be imitated. If Henkel inventssubject to the vagaries of sourcing. To return tablets to replace washing powder, the DOBto First Line, this brand never took off, since must then manufacture identical tablets.easy as it is to imitate the top-of-the-range According to the stores, the remaining 20 perBonne Maman jam, it is difficult to offer high- cent of the specifications will be a way ofdefinition plasma screens at low prices. There providing differentiation linked to the store’sare simply no suppliers in the high-tech own values. However, in order to be able tomarket to deliver such products. This is why at appear quickly on the shelves with an iden-the end of 2005 Carrefour decided to put an tical offer at a 30 per cent lower price, it isend to First Line, and retained only its lowest- necessary to economise on marketing andprice brand, BlueSky. R&D: the distributor’s brand business model It is impossible to talk about brands without is that of copying, of imitation taken to thetouching on the question of innovation. In maximum.fact, the function of the national brand, the A common riposte is that distributors’big brand, is to supply progress through inno- brands were the first to introduce such andvation, change, fashion, design and so on. such an innovation in terms of packaging: forThis requires marketing expertise – long-term example, turning shampoo bottles upsidethinking on the expressed, or latent and down, in accordance with their actualunconscious, expectations of future clients. position in the bathroom. However, the distri-They also have the expertise of the major bution brand, by the very construction of itsindustrialists. Thus in 2006, Fleury Michon, in economic model, does not seek to innovate:accordance with its brand charter, launched its price is obtained through turning thehams without preservatives, since these are efforts and investments of the manufacturer’sthe future, even if today’s customer is not brand to its advantage, profiting from itsaware of it. To be a brand is to be a leader, to strong position in the relationship, whichlook far into the client’s future. Eliminating means that the manufacturer needs the storethe chemical preservatives implies replacing far more than the store needs the manufac-them with natural preservatives: it took three turer. Upon the launch of new food, hygieneyears of R&D to find bouillons to carry out the and maintenance products, the mass distri-same preservative function. Some years previ- bution stores today request immediate accessously, during the mad cow crisis, Fleury to the same innovation for their own brand.Michon was able to innovate in offering ham The examples most often given to provesteaks. It is also the brand of turkey ham, and that distributor’s brands can innovate areother unusual products. Reflets de France and Escapades Gourmandes Does the distributor’s brand also innovate? (Gourmet Escapades). We know that this revo-No, since it does not have the means to do lutionary concept consists of revitalising theso. Its business model assumes light production of 100 regional recipes, havingmarketing – in order to reduce the costs them produced by SMEs in these regions, andlinked to the dozens of product heads –and bringing them together under the samethe fact that it follows quickly in the wake of brand, sold in all the Carrefour Group’s stores.what is already working, that is the innova- From this point of view, Reflets de France is ations of the successful manufacturers, by true brand: an innovative concept, a target, acopying them to within a few details. In fact, price positioning maintained for all products,the product specifications of subcontractors a strong graphic identity, a high level of tastetasked with manufacturing a distributor’s quality and an imaginary quality (nostalgia).
72 W H Y I S B R A N D I N G S O S T R AT E G I C ? This example shows that, when the the brand moves from a feeling of presencedistributor behaves like a true brand, it opts (awareness, recognition) to a feeling of rele-for own brands, or becomes the store of the vance (it’s for me) to the perception ofbrand and not the brand of the store. For performance and a clear advantage, and ulti-example, Gap, which was the exclusive seller mately to a genuine affective attachment. It isof Levi’s, began to introduce its DOB, and interesting to note that two distributors’progressively ceased to sell anything but its brands have made it into the top 10 of Englishown store brand products. However, it was brands studied by Brandz: Marks & Spencerthen necessary to clearly define a brand and Boots.concept, the store becoming the place where We might say, of course, that there is anthe brand was expressed and experienced. affective transfer from the store to itsGap defined the concept as anti-fashion. products, a halo effect. Boots and Marks &Decathlon does the same. It is symptomatic Spencer are highly respected and historicthat in order to accentuate its status as a stores in the United Kingdom, having createddesigner/manufacturer with its own stores, a relationship of reciprocal trust and esteemDecathlon gave up its store brand (there are with their clientele over time. However, thisno longer any Decathlon products) in order to halo effect is precisely the lever on which theorganise everything under what it called distributor’s brand is counting.‘passion’ brands: that is, a portfolio of private Table 4.1 Brand attachment: the 10 winninglabels. We present below this interesting case brandsof a distributor becoming a designer. 1. Gillette 57 7. Nescafé 39 2. BT 56 8. Heinz 39Consumer relationships with 3. Pampers 53 9. Kellogg’s 39distributors’ brands 4. Marks & Spencer 42 10. Boots 37 5. McDonald’s 42 11. Colgate 32Let us now look at the question (are 6. BBC 40 12. Royal Mail 32distributor’s brands truly brands?) from the Source: Brandz (UK).angle of the consumers themselves. Forconsumers in mature countries, distributors’brands are perceived as genuine brands, with Research carried out by one of our HECtheir attributes of awareness and image always doctoral students on the sources ofcombined with an attractive price. engagement with the brand, depending on When asked the classic awareness question whether it is a producer’s or a distributor’s(‘What are the yoghurt or bicycle brands that brand, throws brand-new and unprecedentedyou know, even if only by name?’), consumers light on the matter. C Terrasse (Terrasse andname Asda or Decathlon. When asked if they Kapferer, 2006) worked on four product cate-intend to buy them (general client opinion) or gories, in order to compare engagement withbuy them again (behavioural loyalty), the the Carrefour brand with that for the bigscores are just as high. It is no accident that on brand in the same category. Engagement withthe majority of mass-consumption shelves, the brand means more than repeat purchase.lowest-price products and distributors’ brands Panel data has long shown that distributorhold the dominant market share. Over time, products obtain repeat purchase rates (behav-some distributors’ brands are able to achieve ioural loyalty) as high as those of the bigthe typical brand effect, as shown by Table brands, or even higher. The same is true for4.1, which looks at the United Kingdom, for engagement: the declared levels ofmany years a leader in this field. According to engagement are high in both cases, for boththe Brandz study, the consumer’s proximity to DOBs and national brands.
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 73 Engagement – personal involvement with distributor’s brand, although high, is essen-the brand – measures a strong relationship tially false loyalty (Kapferer and Laurent, 1996):with the brand, meaning that if the brand the customer is always sensitive to the price,were not there, the client would prefer to wait and keeps an eye on price differences on thethan buy an alternative. For the consumer, shelf. It is not an absolute brand.there is no substitutability. The reverse is indif- Nevertheless there is an interesting differenceference, or sensitivity to the slightest rise in in the way a distributor’s brand works,price. This engagement comes from two compared with the manufacturer’s brand. As Csources. The first is attachment, measured here Levy’s research (in Levy and Kapferer, 1996) onas a strong perception of proximity (the the impact of distributors’ brand trials on atti-customer feels a closeness with the brand), and tudes showed, the satisfaction created by athe second, satisfaction linked to a perception distributor’s brand increases the credibility of allof difference in product performance. the distributors’ brands, at least in terms of As Table 4.2 demonstrates, what attitude. If a customer tastes Carrefourengagement with the store brand does is chocolate biscuits, which compete with theessentially to create closeness with the store. segment leader Pepito, and finds them to beThe reverse is true for the manufacturer’s excellent, it increases the possibility that theybrand: their ‘fans’ are fans because of a strong will also buy Tesco chocolate biscuits.experience of the product’s superiority. This is why distributors’ brands have diffi- C Terrasse’s doctoral thesis also examines culty creating loyalty to the store, as is oftenthe consequences of engagement with the observed in studies: admittedly they createbrand. In theory, the more people are engaged repeat purchasers within the store, but theywith the producer’s or distributor’s brand, the do not appear to offer discriminating reasons,less they will seek variety when shopping in or even overriding reasons for visiting onethis aisle, and the less sensitive they will be to store over another. Nor does an examinationthe price. This is exactly what happens with the of the reasons for purchase in people on thebig brand: repeat purchase of the identical border of the two ‘regular customer’ zonesproduct results directly from the client’s find them appearing as the number oneengagement with the brand and its reductive criterion. The distributor’s brand thereforeeffect on two key factors of disloyalty (enjoying plays less of a role in differentiating itself fromvariety and being sensitive to price). For the the competition than the manufacturer’sstore brand, engagement with Carrefour brand, which works only for itself. Thesecertainly influences the repeat purchase, and results have been shown again in very recentcertainly diminishes the appeal of variety, but analyses (Szymanowski, 2007).does not make the client insensitive to the This does not mean that all distributors’price. This means that the repeat purchase of brands are perceived to be equal: the image ofthe distributor’s brand is always contingent on the store (quality, cleanliness, popular orthe price: it is highly conditional. These shelves elitist character, and so on) reflects on every-are now seeing the advent of lowest-price thing that bears its name, therefore firstly onproducts. The repeat purchase rate of the the distributor’s brand.Table 4.2 Determinants of attachment to distributors’ and producers’ brands Carrefour brand Big brandSatisfaction linked to perceived product superiority 0.161 0.539Attachment, perceived proximity with the brand or store 0.601 0.236Source: C Terrasse/J-N Kapferer, 2006 (correlation coefficients)
74 W H Y I S B R A N D I N G S O S T R AT E G I C ?Why have distributors’ brands? have a low degree of involvement (Kapferer and Laurent, 1995). Remember that brandsIn 2006, at the world’s number one distributor exist wherever customers perceive a high riskWal-Mart, out of a turnover of US$285 billion, in purchasing. Conversely, where they see no40 per cent was made from distributor’s risk, they are tempted by the distributor’sbrands. This percentage is 60 per cent at Tesco, brand, particularly if they consider thatthe fourth-largest distributor in the world, 35 distributor to have a good reputation and anper cent at Metro, but 90 per cent at Aldi, the image of quality. For example, the butterking of the hard discounters. In the field of category is now dominated by distributors’sports products, it is 51 per cent at Decathlon. brands. Three-quarters of all the processedWhy do distributors come to set up their own meat sold in self-service stores in France isbrands, to the point that – like Gap or Picard – low-cost or distributors’ brand products, butthey eventually sell nothing else? the same is not true of new food products, For an answer to this question, we should such as low-fat butters and unsalted hams,not look to the consumer, who is only too which suggests product development is ahappy to have finally found a cheaper source of concern, and consumers need theproduct. In reality, the true economic motor reassurance of a well-known brand name. Inof the unstoppable growth of distributors’ all cases where the consumer expects superiorbrands lies with the industry: the distributors performance (cosmetics, for example), theand producers themselves. producer’s brand carries the day. The same is In the mass consumption sector, the early true wherever the product has assumed thedistributors’ brands are almost always born of status of a symbol or ‘badge’: again, thea conflict between the distributor and the distributor’s brand fails to make anproducer. Dissatisfied with the poor impression, except where it has become itselftreatment it receives, the distributor has its a declaration of self (the Gap is the anti-goods produced elsewhere, in order to plug a fashion).gap, and sells them either under its own Now, emboldened by satisfactory past expe-name or under a private label. The atmos- riences, consumers are taking the plunge:phere of conflict persists, particularly since – there are distributors’ brands for PCs, s120in Europe for example – brands now typically bicycles, hi-fis and domestic appliances.depend on a very small number of distributor Consumers may want a Sony or Samsung tele-clients (four) for 60 per cent of their sales. vision for their living room, but in the kitchenProcter & Gamble makes 16 per cent of its or in a child’s bedroom they are less involved:worldwide turnover (US$51 billion) from a they may be tempted by a BlueSkysingle client: Wal-Mart. In some sections the (Carrefour’s low-cost hi-fi brand). The same isconcentration is even higher: Decathlon true for home computing. Dell is a productaccounts for more than 10 per cent of Nike’s assembler, and sells under its distributor’ssales in Europe. Furthermore, these distrib- brand. However, its products are guaranteedutors’ brands parallel the worldwide devel- ‘Intel inside’.opment of distributors, leading them to In reality, the distributor’s brand is based onmatch the expectations of quality products at supply, not demand. Whenever distribution islower prices that are prevalent in emerging concentrated, and the size of the domesticcountries (Brazil, Eastern Europe, Russia, market makes it economically possible, thereIndia and so on). is no other way of increasing return on Consumers are selective. They decide in investment (ROI), as we shall analyse below.which categories they are the most tempted to On the one hand, in the previously inde-buy distributors’ brands: those in which they pendent retail sector, as trade concentration
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 75progresses, the first step is to buy in bulk to only too happy to save money in the shortreduce purchasing costs. Next, a collective term – has led to the downfall of companies,commercial store name is applied (for entire sectors and towns, leaving thousands ofexample Bureau +, Qualipage). But if there is workers unemployed. This social cost hasto be a collective name, there must also be a passed largely unnoticed. The salaries in masscollective range: this forms the heart of the distribution are among the lowest in thestore’s product range. The last step is a logical country: the store owners are rich, but theone; the distributor’s brand – which only prospects for salary increases for a cashier overrepresents a small part of the offer to begin 10 years are minimal, a situation dictated bywith – can only grow. It is an integrating the price war.factor. What has society gained from this frenetic Bear in mind that growth in distribution is competition between the major distributors?achieved over time, through the elimination Conscious of the collateral damage for society,of competing channels or forms of commerce, mass distributors make use of two levers tofollowed by the competitors themselves. In give themselves a clear conscience. Either, likethis way, in Europe, small traders have Carrefour, they flatter national pride, sincevanished altogether in many categories, the company has exported itself worldwidehaving been swamped by the supermarkets (although this does not create more jobs inand the hard discounters; this was how the France), or like Leclerc, they present them-distributors first started to grow. Having selves as the defender of SMEs, the majorityreached the end of this path, distributors have suppliers of distributors’ brand products.turned to the international market and cost Having been crushed by the multinationals,reductions: hence the fashion for cost-cutting SMEs will be saved by mass distribution. Wetechniques such as efficient consumer know that this is provisional, since this pref-response (ECR) mode and trade marketing. erence for SMEs derives from the refusal of theThe final stage is the distributor’s brand as a major industrial groups to produce DOBs.means of improving ROI. Where they do so, there are no SMEs. Now the Finally, we should not forget what the question for all boards of directors of themajor distributors sometimes call upstream major industrial groups is: why leave thismarketing. The distributor’s brand makes it market to the SMEs?possible for large stores to present themselvesas objective allies of local and regional SMEsagainst the multinationals, since it is the SMEs The financial equation of thethat manufacture the distributors’ brands. distributor’s brand Everyone knows that mass distribution doesnot always have a good image. The crushing In a competitive market, the distributor’sof small businesses has contributed in large brand is a logical stage in the growth of ameasure to the desertion of town centres, and distributor. It satisfies the need to maintainof complete suburban zones: society as a ROI once all other approaches have beenwhole is paying a steep price for this. In their exhausted. Alternatively, it may have been theeagerness to position themselves as the key differentiating component from thecheapest, the major players in distribution outset (as in the case of Ikea, Starbucks, Bodyand their massive bulk buying have launched Shop and so on).themselves on the world like hunting dogs, Let us look again at the principle of ROI, indriven by a single idea: to always find it order to understand why the distributor’scheaper and import it as quickly as possible. brand is an advisable step at a certain stage inThis quest – with the approval of consumers a distributor’s growth.
76 W H Y I S B R A N D I N G S O S T R AT E G I C ? Net margin = Gross margin – Costs Finally, distributors hope that their distrib- utors’ brands will contribute to increasing Stock rotation = Sales per square metre/ loyalty to the store itself. In theory, these are Investment per square products that can only be found there. metre Research carried out at HEC (by the author in ROI = Net margin × Stock rotation 1998) demonstrates that this effect has not yet been proven. Among the reasons for loyalty toWhat does a distributor do when it wants to a store, the distributor’s brand is almost neverincrease ROI from 20 per cent to 22 per cent cited, except for stores that have developed(an increase of 10 per cent of the current ROI)? distributors’ brands with strong added valueSuppose that this is a major distributor with a (Monoprix, Tesco) and have acquired a repu-net margin of 2 per cent and a stock rotation tation of their own.of 10 per cent. Two possible options areavailable: either to increase sales by 10 per Why will distributor’s brands increasecent per square metre (giving a rotation of 11), still further in future?or to increase net margin from 2 per cent to2.2 per cent through selling private labels and Other parameters also explain why thosedemanding even more price concessions from distributors with distributors’ brands willbrand producers, or a share of the profits from promote them still further: the hard-discounttheir advertising/promotional campaigns circuit. This form of commerce, based on a(which ultimately amounts to the same low-cost type of business model, sawthing). remarkable growth between 1995 and 2006, This second option – increasing the net offering prices 30 per cent lower than those ofmargin – is a much easier way of increasing distributors’ brands, close to home, with aROI: everyone knows how hard it is in a new store opening every day in the town ormature market to increase turnover per square shopping centre. It appears that the turnovermetre. This is why all distributors are per square metre of this form of distribution ischoosing, or will choose, the distributor’s now falling, or has at least stabilised sincebrand if they wish to make optimal profits. In 2006: this is due to the lowest-price productsfact, the first lever for improving ROI arises that the bigger stores have had to learn tofrom the fact that the margin on DOBs is introduce onto their aisles en masse, in orderbetter than that on national brands (Ailawadi to keep clients in the store. Now their unitaryand Harlam, 2004). margin is lower. The second reason for introducing a In France, this has been compensated for bydistributor’s brand relates to the increase in the goldmine of the Galland law: thenegotiating power with the manufacturer. Not backroom (deferred) margin of major brandonly does the distributor improve its margins products could not be passed on to the client –on the DOB, it also receives better margins only the volume markdowns. This suppressedfrom makers of national brands, who wish to price wars among the brands, and even madepersuade it not to go further. it easier for prices to go up. This backroom A third effect on distributor profitability margin, repaying the services of distribution,induced by the introduction of DOBs relates could amount to 40 per cent of the priceto the increase in the number of innovations charged.launched by the maker. Distributors receive Since 2006, a new circular has suppressedlisting fees on these products. Moreover, they these negative effects of the Galland law: theare rarely low-price innovations (Pauwels and distributor may reinject what it gained inSrinivasan, 2004). backroom margin (above a 20 per cent
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 77threshold) in order to bring down retail prices. example of Gap, which passed from the statusSince stores can no longer protect these of a simple store to that of a store brand andmargins, it is up to the DOB to protect them. finally to that of a pure brand with its ownThat haven of non-comparability, the stores. This change was itself the consequencedistributor’s brand, is the only remaining path of an evaluation of the future profitability ofto recovering financial health. This is why the the textile market for a brand distributor, atnumber of DOB references can only increase the moment of the opening of discount textileon all shelves. stores in the United States. The part devolved to DOBs is therefore notHow far can the distributor’s brand the result of an optimisation, but the fruit of ago? voluntary strategy. Research has nevertheless analysed the impact of the increase in theWhat is the optimum distributor’s brand for a DOBs’ share of the offer on the frequencystore? What fraction of sales, of the aisle, and (measured as the average number of purchasesof the shelf should it represent? The answer per week in relation to the number of refer-depends largely on the store’s strategy – itself a ences offered) (Ilec, April 2006). For a smallfunction of the competitive situation and the supermarket, the frequentation index ismargin provided by the producers of branded continually decreasing: it is 140 when thearticles, in comparison with that offered by DOB offer is situated between 8 and 18 perthe distributor’s brand. cent of the overall offer, and 79 per cent when Take Decathlon, for example. This store it reaches the segment between 47 per centbegan, like many others, as a simple and 57 per cent of the offer. For a large super-distributor of brands. Over time, the store’s market, the same is true. For a small hyper-mission (to allow access to the pleasure of market (under 6,000 square metres), thesport for the maximum number of people) frequentation index also falls as the share ofproved easier to carry out through a greater DOBs increases, but over 20 per cent of DOBs,control over product design and production the frequentation index rises once more: itplanning, even purchasing the raw materials, increases from 87 per cent to 99 per cent for aalthough production is still subcontracted. DOB offer rate of 22 to 29 per cent. For largeLittle by little, the Decathlon brand took hypermarkets, the frequentation index risescontrol of aisles where brands were weak. with the DOB range! The best frequentationHowever, it is forced to cohabit with well- (index 125) is found with an average DOB rateknown brands in sections such as running, of 19 per cent, then the frequentation indextennis, skiing, and golf. Having become aware falls again for any increment in the presencethat a single, uniform brand harmed the desir- of DOBs.ability of the store itself and therefore thenumber of visitors, Decathlon abandoned itssingle brand in 1998 and exchanged it for a The three stages of theportfolio of passion brands. Today these distributor’s brandbrands represent more than 50 per cent ofturnover. The store’s deep desire is to become Once the decision has been taken, there area major producer of sports brands, and three stages in the business growth of distrib-therefore to always push its specialised brands utors’ brands: oblative, imitative and identity.through sport. Decathlon still needs major The first stage is known as reactive orbrands in certain sections, but less so in oblative: historically, it results from the refusalothers. If its brands become genuine brands, it of sale by the major industrialists. This is howwill have reached its objectives, following the many own-brand products are born. However,
78 W H Y I S B R A N D I N G S O S T R AT E G I C ?it is also strengthened through identifying profiting from the average attention span ofgaps in the ranges of the major producers. A the shopper in the aisle. Through lack ofcategory management approach quickly iden- attention, the consumer may take thetifies those segments where something should distributor’s brand instead of the major brandbe offered to the client, but where the major product.brands have nothing to offer, since it is not The InVivo company has actually calcu-their strategy. These gaps need to be filled. lated that, for mass consumption products, in The second stage is imitative: here, the hypermarkets, consumers spend 7 seconds ondistributor examines its competitors’ each purchase: speed matters to them. Whendistributor’s brand ranges, and sets about there is intentionally strong resemblanceimitating them, producing the same products between the packaging, a hurried buyer withtypically supplied by its other competition. By an average attention span can be confused.means of this emulative method, the Our research into the imitation of branddistributor’s brand core offer is constructed, packaging (trade dress) by distributor’s brandscreated from all the references common to all (Kapferer, 1997; Kapferer and Thoenig, 1992)the distributors’ brands. We should add that has shown that the unconscious recognitionthis is also typically a phase during which the factors in the aisle were, in decreasing order ofdistributor, for lack of investment in its own importance:distributor’s brand identity, chooses toimitate, trait for trait, the packaging of the 1. Colour.brand products that it is targeting (generally 2. Packaging shape.the category leader). The objective of thiscopycat approach is clear: a deliberate intent 3. Key designs.to take market share from the big brands by 4. Name, typography and so on.allocating more space to one’s owndistributor’s brand, a similar copy, and to This is exactly what distributors’ brandincrease the average price of the big brands in products copy: Ricoré’s packaging is yellow,order to attract clients to the distributor’s and so Calicoré’s. There is an image of a smallbrand (Pauwels and Srinivasan, 2002). Mexican on Pepito, the leader in biscuits for This imitative or ‘copycat’ approach borders children. There is a very similar character onon trademark infringement, and sometimes Rik and Rok, Auchan’s children’s brand, and sogives rise to court cases by the outraged and on.wronged producers, complaining of either an As our results (shown in Table 4.3) demon-infringement of their brand rights, or unfair strate, where the private label copy/originalcompetition (see page 270), or economic para- product pairs are placed in decreasing order ofsitism. A visit to the aisles of mass distribution resemblance, the stronger the perceivedis enough to note the striking similarity resemblance in trade dress, the more thebetween the copy and the brand packaging. In consumer infers that the producer of the twomost cases, however, disputes – arising from products is one and the same – and the morethe overzealousness of the designers – are confidence the copy inspires.resolved amicably. Furthermore, the Another study has shown that the discoverydistributor takes refuge in the fact that the of a quality distributor’s brand created a lessissue is not brand codes, but rather category positive attitude towards to the leading brand.codes. The real aim of this approach (the J Zaichowsky and R Simpson (1996)imitation of the essential attributes of conducted consumer trials with Lora Cola, abranded product packaging), which domi- distributor’s brand imitating the appearancenates mass distribution, is to cause confusion, of Coca-Cola cans. The taste of the product
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 79Table 4.3 How copycat resemblance influences consumers’ perceptions They are made by the same manufacturer (%) I trust the private label (%)Rank of packaging resemblance Definitely Probably Total Yes1 Panzani/Padori (pastas) 39 41 80 782 Martini/Fortini (spirits) 30 31 61 563 Amora/Mama (ketchup) 21 46 67 624 Ricore/Incore (coffee) 16 17 33 38Source: Kapferer (1995a)was manipulated in such a way that one (distributor’s) store. To this end, it offers onesection of consumers would find it very good, or more components of added value, based onwhile others would find it bad. Among the the ingredients, packaging, traceability,latter group, the Coca-Cola evaluation, concept and so on.measured twice (before and after trying Lora This is generally the point at which brandsCola) did not change (5.41 versus 5.71). appear for which the main sales argument isHowever, it did fall significantly in the case no longer price, but the concept itself. It iswhere the consumers liked the taste of the true that often they have no equivalentcopy (falling from 5.67 to 5.22, or a drop of among the branded producers, for a simple–0.45). reason: these are specialised by category, The third stage is the identity stage: the product or trade. For example, what producerdistributor’s brand is used to capture market could construct an umbrella brand around theshare from competitors. It becomes a genuine concept of ‘Pleasures of yesterday’, bringinginstrument of strategic differentiation, together more than a hundred of the bestexpressing the identity, values and posi- products from every region of the country,tioning of the store itself. It should generate along with rediscovered recipes and methodloyalty not just to itself (through its effect on of manufacture? Nestlé would be incapable ofthe share of requirements), but also – more doing this, as it does not produce oils, jams,challengingly – to the store. biscuits and the like. The same is true of During this stage, the brand’s power and Unilever, Philip Morris and Danone.management is no longer in the hands of the Carrefour, however, can: all it needs to do ispurchaser alone. The purchaser strives for an promote the concept among small regionaloptimal mix of purchase and resale condi- companies in each country where it operates.tions. Making the brand into an instrumentfor shaping identity and positioning presup-poses genuine marketing strategy, and also The case of Decathlonthe construction of a range that reflects thebrand’s ability to communicate the Few stores reveal as much about moderndistributor’s own values and identity. Here, distribution as Decathlon and the key rolethe trick is to effect the shift from purchase that its own brands play in its growth. In adriven by confusion to one driven by pref- recent article, Anglo-Saxon academic researcherence. notes that the share of shelf space given In this situation, the distributor’s brand over to distributor’s brands among US distrib-holds key positioning importance, since its utors is less than among European distributorscontent and products express the values of the (Corstjens et al, 2006). The US distributors
80 W H Y I S B R A N D I N G S O S T R AT E G I C ?allocate shelf space according to a simple in the camping department: all the rucksacks,short-term profit equation. It is true that in sleeping bags, and tents are private labelthe United States distributors’ brands have a products. In order to succeed, Decathlonpoor reputation, and are all considered ‘sub- needs to do much more than buy and sell: itbrands’. They do not allow for positioning of needs to innovate, design, establish its ownthe store or the loyalty generation through production plans, and choose its ownattachment to the store. The situation is partners. This is why Decathlon is now thedifferent in Europe and Canada, where, very world’s fifth largest producer of sports goods.early in their brand history, distributor’s Its business model is the integration ofbrands had a combative vocation: fighting design/production/distribution.not to launch a price war, but to offer the Decathlon began life 30 years ago as aconsumer genuine value. Just think of Migros, simple discount store. It sold all brandedthe dominant chain in Switzerland, which products, and only branded products, in alldoes not sell products by Nestlé, the world’s sports. Today, more than 55 per cent of itsleading food company with its headquarters turnover is made on store brands, although,in Switzerland, but rather Migros products. In in accordance with its company culture,this case, the long-term strategic dimension Decathlon never speaks of store brands, onlytakes precedence in decisions on shelf space of passion brands. The word ‘passion’ here isallocation: this is the best way to get not a slogan, but a true understanding of theconsumers to try the product, and therefore to brand in sport. The sports brand is built firstbegin a cycle of loyalty generation. internally; it is a true culture. Then it is In our view, the main difference between carried outward by those who are passionatethe approaches of the distributors themselves about it.in the United States and in Europe is that, in Moreover, few stores take their own brandsthe United States, it is a question of selling the as seriously as Decathlon does. Decathlonstore’s brand alongside the big brands, shows how the organisation must be able towhereas in Europe it is a question of making it adapt to the brand, rather than the reverse.the store of the brand, with a few other brands Finally, Decathlon enacts its brand policyalongside it. Decathlon has now become a worldwide, which is all the more challengingdesigner of brands that controls its own distri- since Decathlon dominates its originalbution. This is what differentiates it from the market, France, by some distance, but is onlysports section of Wal-Mart or Sports just making its debut in China, where itsUnlimited. Even its lowest-price products are products are produced, and has pulled out oflabelled as ‘best-price technical’ products, to the United States. It has 340 stores.remind us that the ethics of sport forbid sacri- Decathlon’s vocation is to give as manyficing everything for money: there is a people as possible access to the pleasure ofthreshold below which a football is no longer sport. The key values are vitality, truth,a genuine football in terms of quality and fraternity and responsibility. It is a low-costsecurity. Others might sell it anyway, in order operator, but one that has always favouredto maintain the image of always having the product quality over selling at the lowestlowest price, but not Decathlon. possible price. Loyalty is not generated This process, which transformed the store through prices, but through client satis-into a brand, may also be illustrated by Gap. faction. At the same time, it is the best way ofThe Decathlon ideal is the same as Gap’s – to defending the chain against the entry ofreduce its main manufacturer brand (in this discounters from the food sector, such as Wal-case, Nike) to 10 per cent of sales in the Mart Sport. This policy is a success: in therunning department. This is already the case bicycle sector, for example, not only is
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 81Decathlon the brand that first comes to mind the beach, on the ski lift, while hiking in thefor French consumers, but in addition it is also forest, everyone wore Decathlon-brandedthe one that is necessarily taken into account products. Customers increasingly got thewhen making the next purchase, with a impression of a lack of choice.consideration score double that of the first The strength of distributors, often family-producer’s brand (Raleigh or Peugeot Cycles). type businesses, is their ability to take deci- The store was founded in 1976 by Michel sions quickly, and to enact radical changes.Leclerq. It quickly took the distributor’s brand These are enacted in order to produceoption, capitalising on the strong name tangible, measurable results, allowing them toawareness of the Decathlon company, and its take the necessary corrective measures. This isdominant distribution. Decathlon seeks the what Decathlon did:development of the largest possible number ofits clients through sport. The store is posi- I It abandoned nearly 25 years of store brandtioned on the hedonistic side of sport, and policy, in France and abroad, to movedesigns very comfortable products, aimed at towards a portfolio of brands segmented bywellbeing, with emphasis on safety. It is a sport. In order to create these brands, itdiffuser of pleasure. began with the observation that there were The components of its success in France 60 sports under Decathlon’s roof. For eachwere like those of any store: the quality of its brand to reach critical mass and justify itsstore sites, the range (that is, the choice of overheads, a shortlist of 17 was drawn up,goods for 60 sports under the same roof), combined into seven finally. Then it wasunprecedented low prices, remarkable decided to increase this number, sincecomputerised logistics that avoid stock break- modern sports are ‘tribes’ that cannotdowns by supplying stores once or twice daily, easily be brought under the same tent inyoung, helpful and competent salespeople, the name of ‘critical mass’. Thus Domyosand finally the freedom to choose, with aisles was separated into roller sports andso well constructed that customers could running. Tennis and golf were also sepa-easily dispense with the salesperson. The rated, having previously been united underdefeat suffered in the United States also the common brand Inesis.hinged on the fact that the majority of these I These brands are autonomous, decen-success factors could not be implemented in tralised business units, with dedicatedthe discount chain acquired, first among teams. Their goal is for each to becomethem being the site quality. Secondly, the US recognised leaders in its sport. Now three-discount store was renamed Decathlon before quarters of the operational budgets arethe stores could be ‘Decathlonised’. It is not spent on the brands, with one quartereasy in the United States, a country with low remaining for transverse tasks. Decathlonunemployment, to find passionate and moti- abandoned its historical organisation atvated young people, genuinely attached to Villeneuve d’Ascq in order to turn thesetheir store. brands not into labels on products, but In 1999 in France, after 23 years of uninter- forces for creative proposals at the bestrupted growth, for the first time in its history prices, based on passionate men andits turnover per square metre fell. The diag- women. At Decathlon, semantics arenosis was simple: the policy of a single brand, crucial: these brands are named passionDecathlon, strongly emphasised in all its brands, not as a slogan or an advertisingstores, together with its dominance of the gimmick but as a profound reality, firstnational market, created a monopolistic situ- internally, and then externally.ation and a ‘Soviet-like’ brand. Whether on
82 W H Y I S B R A N D I N G S O S T R AT E G I C ?I These brands need to be located close to Decathlon’s challenge is international. where the sports are practised, so that the Decathlon is currently the 10th largest sports internal teams can live them out, and local distributor in the world: the margin of opinion leaders can play a role in their progression is still strong. The brand policy creation: Tribord by the sea, Quechua in described above is global. Decathlon’s the mountains. They communicate inde- strength was built in France, progressively pendently of one another. For example, (over 30 years) using a different model – that Chulanka is Quechua’s magazine, of the single brand (Decathlon) which was distributed in stores: it circulates 2 million also the name of the store. This contributed to copies. This is the highest circulation of creating enormous communication synergies. any of the mountain magazines. The country manager’s situation, for example in China, Hungary or the UnitedI The 15 brands are named passion brands States, will be very different. The start-up will because they are each entrusted to a be implemented with the passion brands: in passionate manager, who creates and China they represent 70 per cent of the range. carries them, with a dedicated team, on However, the store is not known there, and autonomous sites, with a genuine business will not have 20 years to build recognition. plan and a high degree of autonomy. In the Therefore the pricing policy must be more stores, the salespeople are also passionate. discount-based. The name Decathlon, In time, the goods may be distributed however, should no longer in theory be visible beyond the flagship Decathlon store. In on the products, since they all now stem from December 2006, Decathlon announced a one of the passion brands. The principle of the historic agreement with independent ski passion brand, as with any brand, is in fact equipment hire stores in the mountains. autonomy. Only the back office cuts across all This very lucrative market had previously brands. This consideration, a pragmatic one at been locked up by the manufacturer the international level, explains the mainte- brands. This will make it possible for skiers nance of a ‘Decathlon creation’ brand inside and snowboarders to try Quechua products the product, in order to establish the link in the stations themselves. The internet between the store and its brands. will be the medium for hiring: clients can reserve in advance and at low prices.I In order to build these passion brands, with Factors in the success of imaginary qualities that are weaker than distributors’ brands those of the major brands, the only thing that matters is product innovation and As always, the rise of a new brand is also the quality levels. This is why the Decathlon result of the actions (or lack of action) taken Group also invests in ingredient brands by the competition. For example, distributors’ that lend credibility to the offer, becoming brands have strong market share in the technological labels themselves. It is a cosmetics sector in Germany. The reverse is question of prying open the vicelike grip true in France, and yet both are among the on costs exerted by the technological more highly developed countries. Setting brands such as Lycra, Goretex and aside any possible differences between the Coolmax. For this reason, the ingredient two countries’ relative conceptions of beauty, brands of the Decathlon group are also one explanation lies in an analysis of the autonomous business units, seeking to competition. In France, l’Oréal has dragged all increase their opportunities outside the other brands into a war fought on scientifi- Group. cally proven performance, supported by
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 83colossal advertising budgets. In Germany the chain of stores selling spare parts and servicesleading national brand is Nivea, which relies to motorists) are manufactured by themuch more on empathy, softness and a close Michelin Group; it is inconceivable that theyrelationship than on the rational approach of should be low-quality products.proven results. We believe this explains why In this way, the success of distributors’distributors’ brands have found it easier to brands is linked to a supply effect (by strongmake inroads there: consumers have not promotion on distributors’ shelves and theperceived them to be all that different from creation of ‘me-toos’ that ape big-brandNivea. products) but also by a lack of competitiveness Hoch and Banerji (1993) have analysed the from high-profile brands, which are too usedfactors behind distributor’s brands’ market to high margins, and do not innovate.share. Lastly, this penetration depends on the These are: specific range and category. It is strong in basic products, but no longer unique to them.I the size of the potential market: the Kapferer and Laurent (1995) linked the attrac- distributor opts for long production runs; tiveness of distributors’ brands to consumers’ degree of involvement, either in an enduringI the high margin in the sector; sense (interest in the product) or as aI the low advertising expenditure; temporary feeling at the moment of purchase (Is the purchase a risky one? Does it haveI the ability to achieve quality (few or no badge value? Will it give me pleasure?). It is patents); therefore hardly surprising to find that theI consumers’ price sensitivity. categories listed in Table 4.4 are those in which DOBs have the highest penetration.However, these authors also maintain that Note that studies on distributors’ brandmarket fragmentation does not appear to customers have shown that their penetrationconstitute a barrier to the growth of distrib- has now reached all segments of the popu-utors’ brands. lation. Nevertheless, there is a core target of Conversely, it is known that a factor that people in reduced financial circumstancesdoes affect the penetration of distributors’ who have a low sensitivity to quality. In Cbrands is the rate of innovation in a sector Lewi’s thesis at HEC (Lewi and Kapferer,(measured by the share of new products in 1996), even though they were given a biscuitcompanies’ turnover): it forces product ranges that was objectively poor (in the light ofto be continually renewed, and is associated results in blind tests), 18 per cent of thesewith a large amount of advertising. In fact, it people decided to buy it anyway because itis also the most natural reaction by producers was cheap. Furthermore, these are the peopleconfronted with distributors’ brands: to who least noticed the difference in flavour.increase their rate of innovation. Garretson’s (2002) and Ajawadi’s (2001) As has been observed, most of the factors works provide an interesting new path formentioned above are linked to management study: according to these authors, customersdeficits among the producers: insufficient rate who resist distributors’ brands are those whoof innovation, high margins, low advertising. link price with quality. For these people, theWhen the brand is treated as a ‘cash cow’, the price is the measure of the quality. It should bedoor is opened to distributors’ brands. added here that hard discount itself finds itsMoreover, many brand companies are willing most frequent shoppers, and those whoseto manufacture distributors’ branded average basket is fullest, among families withproducts. For example, the tyres at Norauto (a several teenagers still living at home.
84 W H Y I S B R A N D I N G S O S T R AT E G I C ?Table 4.4 In which sectors do big brands resist trade brands and where are they defeated?Sector Big-brand share (%) Sector Big-brand share (%)Make-up 99 Cookies 4Hair colourants 98 Frozen vegetables 6Baby food 96 Garbage bags 15Chewing gums 92 Cotton wool 21Shaving products 90 Fruit juice 23Insecticides 89 Kitchen paper 25Deodorants 89 Ham 26Floor washing products 88 Pasta 35Cola 82 Soft-drink concentrates 36Tea 81Soups 81Beer, cider 80Laundry detergent 79Source : TNS sofres, 2007Optimising the DOB marketing I level of price difference with Pepito: indexmix 50, 65 and 80. The combination of these variables makes itThe notion of a distributor’s brand is therefore possible to reproduce any form of distributor’sheterogeneous, offering the store a range of brand currently active on this market. The keypossibilities for getting its overall offer across. findings of this research were:Research has analysed how each type ofdistributor’s brand was able to increase its I The quality of the distributor product has amarket share to the detriment of the leading strong and positive impact on thebrands of the segment, and also to reduce the intention to purchase the distributorprice differential between the two, thereby product. It increases from 16 per cent whenboosting profitability (Levy and Kapferer, the product tasted is inferior to Pepito, to1998). More than 500 mothers, in a simulated 34 per cent when it is equal.store, were presented with a choice betweenthe leader in chocolate biscuits (Pepito by I The store’s reputation also has a bearing onLu/Danone group) and a distributor’s brand. the intention to purchase. When the storeThis choice varied from one customer to the name is masked (private label strategy), thenext according to four criteria: average intention to purchase is only 20 per cent. It increases to 30 per cent once theI presence or absence of the store name itself name is known. in the brand name (DOB or private label); It is the interactions, however, that proveI whether there was a ‘copycat’ of the Pepito most interesting in practice, as Table 4.5 packaging, or clearly differentiated pack- demonstrates. Each line refers to a different aging; form of distributor’s brand:I objective quality of the distributor biscuit I The first line concerns a DOB that carries (established through blind tests): identical the store name, therefore bringing its repu- or markedly inferior to Pepito; tation into play, and packaging that is not a
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 85 copy of Pepito’s. It is acting like a true since the packaging is so alike. Demand brand (reputation and differentiation and follows an inverted U-shaped curve, with quality). What do we observe? This is the best intention to purchase scores for where the demand for the distributor the distributor product (31 per cent of product is strongest (38 per cent). intentions) at the intermediate price level Furthermore, it is the strongest even (35 per cent cheaper). though the price difference is less (20 per I In the fourth line the store is unknown but cent cheaper): therefore the profitability is the packaging is different from the leader’s. maximal. Interestingly, the demand does Here the distributor’s brand resembles a not increase when the price is lowered (35 small, unknown brand, and the client has per cent cheaper); on the contrary, it no point of reference for evaluating it. It is decreases to 28 per cent when the price is therefore not surprising that price is the lowered still further (50 per cent cheaper), only motivator: demand grows as the price probably as a result of the anxiety that this falls. This is typically the case for lowest- price arouses in mothers (this is a product price products, created to counter the for children, after all). The moral is that the products on the hard-discount circuit. DOB is most dangerous to national brands, and also most profitable, when it behaves What can we draw from this analysis? When most like a true brand. the distributor’s brand behaves like a true big brand, it reaps the benefits (market share andI The second line shows a store brand copy: profitability): however, it must have the will this is the most common form of a and the means to do so. Not everyone can be distributor’s brand in the food departments Decathlon or Tesco. of superstores. Here the demand only increases if the price decreases. Although it also reaches 38 per cent of pure demand, this time it is only at a rock-bottom price The real brand issue for (50 per cent cheaper): profitability is distributors therefore not as good as with the previous As has been shown above, the distributor’s line. brand is not a brand like the others. It isI The third line is what is known as a ‘coun- subject to three conditions: it must express terbrand’: the store name is absent, and the the values of the store, position itself in product is marked by an unknown brand relation to the big brands, and finally deliver a (that is, a private label). Furthermore, its ‘plus’ compared with low-cost products. It is only option is to slavishly copy the pack- therefore more like a quality label attached to aging of the leader, in order to create a price. To increase its financial results, it is confusion and allow clients to think that certainly possible to increase its share of the there is a similarity between the products, shelf and have the goods appear in greatTable 4.5 Percentage of consumers who intend to buy the distributor’s productBrand and packaging type Price gap from segment leader –20% –35% –50%Store brand (not copycat) 38 38 28Store brand (copycat) 17 28 38Private label (copycat) 26 31 27Private label (not copycat) 21 24 31
86 W H Y I S B R A N D I N G S O S T R AT E G I C ?numbers, which can give the impression of a implemented worldwide, distributors mustSoviet store. It is better, however, to increase innovate more reactively. Of course techno-the client’s preference for it. How? logical innovation is beyond them. But Table 4.5 indicates how a better purchasing customers do not expect it of them: on theand promotion policy can contribute to this. contrary, it is their job to render customers’Above all, however, it is necessary to sell it lives more pleasant, even more liveable. Thisthrough greater brand strength. Since the is achieved through recognising that thedistributor’s brand carries the store name, customer segments are fragmented and that itvalue must therefore be created through the is therefore necessary to adapt the distributionstore itself, its positioning and its identity. Too brand to this variety. Second, the distributorsmany stores are devoid of meaning: they are must be ahead of the curve on trends: it is upbusinesses and nothing more. The hyper- to them to lead in terms of ecology, organicmarket, like a cathedral, must decide which produce, fair trade and so on. These are allgod it serves: the generic god of the consumer profound movements that destabilise thesociety, or an intimate desire on the part of status quo. The risk is much less for distrib-the distributor to modify its relationship with utors: the distributor’s brand should beits clients? For example, Carrefour venerates segmented to fill these niches. This is how arationalism: its entire crusade is aimed at the close affective relationship is forged: client byenlightenment of the audience. client. Remember that a big brand is built through The brand-store must go further, intothe intangible: it is embodied in the tangible, personal service. Remember the remarkableand forms the basis of a durable relationship, phrase of Howard Schultze, the founder ofa community of values among its clients. The Starbucks. Asked about the success offirst task that the store should set itself during Starbucks, which will soon have more outletsthis work is to identify its project, its vision: worldwide than McDonald’s, he replied: ‘Wewhat in its customers’ lives does it want to are not in the business of coffee servingchange? Although it will be necessary to people, but of people serving coffee.’compete on price, on choice and on service, it Starbucks does not sell coffee to people – it iswill also require an internal energy: this is at their service, and serves them coffee, offound through the vision and the battle that good quality, in recyclable cups, using fair-the store takes as its own. What is the battle trade coffee beans, in a peaceful, calm envi-for most stores? When an organisation does ronment and with genuinely happy staff. It isnot have critical mass, it is necessary to easy to understand why Starbucks had nocompensate through goodwill, and therefore need to advertise: its customers took care ofthrough the power of the brand. that. It is time to stop talking about ‘distrib- Once this has been defined, it must be utors’; the ambition now should be to placeimplemented through 360 degrees, and not ‘life centres’ at the customers’ disposal, facili-only through the distributor’s brand products. tating and stimulating places where they canFor example, what service innovations will also do their shopping.embody it in stores, and also beyond? It is ‘The tail does not wag the dog’, as thethese that will spark off word of mouth, turn proverb goes (it is the other way around). Thecustomers into ambassadors and carry the real issue is to turn the store itself into abrand’s point of view. brand. Among distributors, the brand In comparison to the weight and inertia of manager is no longer there to manage DOBs,the multinationals, which can only innovate but to ensure the coherence of all the brandonce they have confirmed that the inno- project’s activities. This presupposes thatvation will be profitable because it can be there is a brand project, with a vision, a
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 87mission, strong values that are felt internally, Imitations can come either from competingand implementation well beyond the store producers, or from the product’s own distrib-itself and the private label products. utors – and the response must vary depending on the individual case. Most big companies would in fact be reluctant to take actionCompeting against distributors’ against their distributor if they believed thatbrands one of its distributor’s brand products, placed alongside one of their own branded products,We are frequently asked, how is it best to was imitating it too closely and constitutingcompete with distributors’ brands, which are an act of unfair competition. It is true (see– as their market share attests – the number page 78) that the second phase in the imple-one competitor of the big brands? Procter & mentation of a distributor’s brand policy isGamble Europe has long believed that it was generally to imitate the targeted market leadercompeting against Unilever, Henkel or on a shelf by shelf, reference by referenceColgate, old friends which share the same basis. It can even be the case that distributors’business model, the same cultural references, brands within a given group copy oneand even the same HEC MBA’s. The consumer another. Bicycles sold by Auchan superstoressees things differently. Moreover, it has been have borne an extremely close resemblance toshown that an excess of price-based promo- a best-seller at Decathlon (the ‘be-twin’): thetions created sensitivity to price and led two stores form part of the same group.consumers to try distributors’ brand products, Actual legal proceedings against theitself a preliminary step to trying low-cost distributor are rarer still. Big companies, manyproducts. There are different levels of response of whose products are stocked by theto the question above, some tactical, others distributor, fear a Pyrrhic victory and prefer toinvolving a revision, not of the brand, but of build up a dossier with the aim of avoidingthe business model. legal action and resolving disputes amicably. The dossier consists of a form of proof thatA precondition: do not tolerate brand could be produced as legal evidence ifimitations required, for it is in fact possible to devise a scientific approach to prove illegal imitation.In developed countries, brands fall victim to Two methods exist.unfair competition on the part of distributors’ The first works on the legal definition: thebrand products, in the form of imitations of imitation is illegal if it is likely to createtheir distinctive symbols. This imitation is confusion in a consumer of average atten-anything but accidental, as the design and pack- tiveness. There are two techniques capable ofaging agencies recruited for the purpose well demonstrating such a risk of confusion,know. The national brand product is used as a without actually asking customers directlybrief, not for what to avoid – according to good whether they would be confused by thebrand principles – but what the rival should copycat (an invalid method). The first is themost resemble. This is where competitors use of a tachistoscope, which ‘flashes’ aincrease their ‘me-too’ product’s chances of picture of the copy at consumers, first at highsuccess, by closely imitating – albeit with a few speed, then at slower speeds. They are thendifferences – the characteristics of the targeted simply asked to describe or name what theybrand product, as well as its distinctive marks. have seen (Kapferer, 1995b), and the numberTo be considered as an unfair threat, the of times the copy is mistaken for the originalimitation must be likely to cause confusion in a is measured. The second method is to startconsumer of average attentiveness. with a computer-degraded image of the copy,
88 W H Y I S B R A N D I N G S O S T R AT E G I C ?and to build it up, step by step, using In general terms, brand management mustcomputer software. Consumers indicate what plan for these phenomena and put the brandthey think they can see on the computer in a position to be able to defend itselfscreen (Kapferer, 1995a). These two tech- strongly. Thus, in order for a brand colour toniques produce a working imitation of be defensible, the brand itself must alsoconsumers of average attentiveness, either by defend it internally. For example, the brand’slimiting the length of their exposure to the product lines are very often segmented: thisproduct, and then increasing it (the tachisto- leads to the use of different colours to identifyscope) or by presenting low-resolution each segment. In this way, the ability to claimpictures (computer method) and steadily that the brand is characterised by a particularincreasing the resolution. Using the first colour is reduced. Thus, if a Coke label is red,method, we have found confusion scores of and a Diet Coke label is silver, red is no longer40 per cent. the colour of the Coca-Cola brand: after all, The second approach ignores the legal when producing their own colas, distributorsconcept of confusion. Indeed, although they always start by producing red packaging.pay lip service to it in their rulings, judges do In general terms, the brand must become anot truly use the concept of confusion. moving target through innovation andRather, they concentrate on excessive regular modifications to its packaging and itsmanifest resemblance. They pay more characteristic components. However, it mustattention to resemblances and less to differ- always be remembered that the aim of theseences (as advanced by the imitator’s lawyer). modifications is to bring more value to theObjective proof of an excessive resemblance consumer. The difficulty that this permanentcan be obtained by asking one group of movement creates for copies is a secondaryconsumers to describe the original, and then effect.asking an identical group of consumers to On the design front, the brand must accen-describe the copy. An analysis is made of tuate and radicalise the signs of its own indi-which aspects were mentioned first, second, viduality, in order to be able to defend themthird and so on, for each of the two products, better, and at the same time make them recog-and the level of agreement between the nisable to consumers of average attentiveness.aspects stated first by each group. It is significant that the often-imitated Bailey’s Once these results on the reality of the pre- goes as far as to print the word ‘Original’ twicejudice have been obtained, contact with the on its front label: ‘Original Irish Cream’ anddistributor must be made at a high managerial ‘Bailey’s the original’.level in order to emphasise the seriousness ofthe matter. Furthermore, this is the level at Re-communicating the riskswhich long-term interests are best appre-ciated. The distributor needs big brands, a Asian imports, DOBs and discount productsdynamic aspect to its store shelves, the value enter first into the categories with lowinnovations the brands bring to the category perceived risk. A first reaction is to remindand the margins they give the distributor. The people of the risks, to regenerate involvementmanufacturer needs the distributor to gain in the category. For example, in 2005 oneaccess to the customer. At lower managerial book became the talk of France, despite its sizelevels, the producer–distributor relationship is and its forbidding cover, which showed twomore antagonistic. The outcome of such nutritionists (Cohen and Serog, 2006). Thecontact is the modification of the trade dress whole press talked about it, and televisionor packaging of the distributor’s disputed devoted time to it. In fact, this book revealed aproducts. truth that big distribution would much prefer
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 89to keep hidden: the lowest-price products are higher safety of a Bic and the danger ofnot good for your health. The drastic Chinese lighters. Bic created a magazine for itsreduction in price is made by forcing through distributors in order to put the word out, andawkward compromises, where client health remind them of their legal responsibility if aand pleasure hardly enter into the equation. Chinese lighter sold by one of them were toAll that matters is the price. This is where we cause physical harm to a client. At the samelearnt that low-cost gingerbread contains no time, it took action to raise the level of thehoney, and so on. criteria for approval for sale on European Bic did something similar in 2006 among territory.tobacconists. The brand is known as theleader in disposable cigarette lighters, Price reductionsdisposable razors, ballpoint pens and so on. Itpractises a single umbrella brand policy: Faced with a decrease in their market share,everything is sold under the same name, Bic. producers are conscious that their brand noIt is essentially a company based on its sales longer justifies the price differential that itforce. In Europe, the disposable lighters offers on the shelf. It is tempting to reduce thedivision, strengthened by its market share, price in order to restore the lost balance oflived on its reputation and spent nothing on perceived value and price.advertising. This prudent budgeting, however, This approach is logical, but carries severalhad a drawback: for years, there had been drawbacks. There is nothing easier thannothing to communicate to customers why lowering prices. What will they do when anthey should prefer a Bic lighter. In fact, until even cheaper Asian competitor appears?then, in service stations and tobacconists, Lower them again – taking the money fromthere had been nothing but Bic. In 2004 which budget? Should it not be a question ofChinese products arrived, under the PROF recreating value by increasing quality andbrand, which retailers bought 50 per cent price? Also in many stores, the consumers docheaper than Bic and sold for the same price not even walk past the big brands: for them,as a Bic lighter. The increased margin for the the brand is too expensive by definition! Theyretailers was such that they now sold nothing would not even notice the reduced price. Thebut PROF. Moreover, Chinese products were anticipated effect on sales would misfire. Themore fun and their decorations changed three price, and therefore the margins, would betimes a year. The end consumers made no decreased without benefiting from superiorcomplaint – they were happy to find some- volumes.thing new on the shelves, with more enter- An interesting study (Pauwels andtaining products. Srinivasan, 2004) showed that the premium The decision was made to recreate the brands should not fear DOBs, since the marketperceived risk. Chinese lighters are in fact is segmented. On the contrary: statisticaldangerous: for example, they can explode if analysis showed that, after the introduction ofleft on the rear shelf of a car. This does not DOBs, their sales became less price-dependent,happen with Bic lighters, which are products and their turnover increased. The intermediateof remarkable quality. The problem is that in brands, on the other hand, saw their pricemarketing, perception is reality. By not sensitivity increase and their sales fall.communicating the advantages of the Several conclusions emerge at this stage.product, Bic had admittedly made savings, First, the era of systematic price increasesbut it had weakened the brand and paved the upon the launch of new products is over. It isway for Chinese imports, chosen by the trade, necessary to place price at the heart of thewhich was unconscious of the considerably innovation, and move on to a value analysis.
90 W H Y I S B R A N D I N G S O S T R AT E G I C ? The non-premium big brands should take Facing the low-cost revolutioncare to create a ladder enabling them toincrease penetration through a product at an It would be hard to underestimate the rise ofaccessible price, and then practise trading hard-discount and lowest-price ranges as aup, once the client is aware of the quality of fundamental phenomenon in mature soci-the brand’s products. The difficulty, it must eties. Offering a reduced range or a pared-backbe admitted, is the reaction of distributors, service at an unbeatable price, hard discountsince these mini or economy-priced is more than just a price – it is a businessproducts compete directly with their DOBs, model. It also represents a new attitudewhose strategic role in their margins has towards consumption, and heralds a crisis foralready been discussed. added value. It throws marketing itself into Thus, having bought all Colgate question, and thus brands too. This is why noPalmolive’s washing powders, Procter & organisations should consider themselves safeGamble decided to use Gama as a ‘fighting from this phenomenon.brand’. In the second quarter of 2006, the Even in the country that invented theprice of Gama was reduced by 25 per cent, hypermarket, and where this form offrom s6.65 to s4.95 per 27-measure tub (Ariel commerce is now dominant, hard discountis priced at s10). Gama became an ‘everyday has succeeded in capturing nearly 12 per centlow price’ brand, at a price lower than some of market share (in value) over 15 years. GivenDOBs. The goal was to bring hard-discount that in food products, the price gap betweenpurchasers back into the superstores, since discounters and the leading brands variesstudies showed that they were particularly between 30 per cent and 50 per cent, it can beattracted by the cheapest washing powders. seen that this represents between 18 per centSales increased by 54 per cent in four months, and 24 per cent by volume. And of course –increasing market share from 3 per cent to 5.4 depending on the category – these figures mayper cent. be even higher. For example, in the pre- The effect of price reductions on leader packed cold meats (ham) market, the hardbrands cannot be guaranteed: thus, in order discounters’ market share by value is of theto combat the products of the hard- order of 16.5 per cent.discounter Aldi, Always (Procter & Gamble’s Hard discount is more than just a price. It isfeminine hygiene brand) lowered its prices a new way of doing business, with its ownin Germany, moving from an index of 240 specific retailers: German (Lidl and Aldi) orto 197, with Aldi’s index at 100. Aldi’s French (Ed, Leader Price). At present, the mostmarket share remained stable at around 45 recent European panel figures suggest that 62per cent. Always’ market share moved from per cent of households shop at a hard-discount21.7 per cent to only 24.7 per cent. It was a food store. The phenomenon will reach afailure. The same tactic was successful, limit, however, reflecting the segmentation ofhowever, for Pampers: by moving from the market: in food products, a threshold of 20index 131 to 116, the market share jumped per cent in value market share should befrom 31.1 per cent to 42.2 per cent, and expected. In the DIY sector, the major retailersAldi’s product fell from 53.9 per cent to 45.9 have created separate hard-discount-styleper cent. A significant difference between retail brands. The phenomenon now alsothese two cases is the far smaller difference extends to textiles: the classic discount storesin price for Pampers than for Always. Is it were well known, but now new hard-discountreally worthwhile for premium brands to retailers are emerging.lower their prices? All these figures show that hard discount cannot simply be turned into a phenomenon
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 91that targets only lower-income groups. Hard petrol, clothing and other areas. No companydiscount is a necessity for the poorest in is immune to this phenomenon, because thesociety, but also an opportunity for the better- competition has changed: consumers haveoff. It offers an alternative way of living: become highly versatile, situation-driven andconsumers can do the daily shop close to their pragmatic. They are quite capable of shoppinghome, in 10 minutes, thanks to the simplifi- both at a hard-discount store and at Harrodscation offered by a reduced range of goods, on the same day.freeing buyers from the torments of too much Modern competition is thus expandedchoice. Hard discount does not represent a competition: it is no longer restricted to peers,return to asceticism, but to realism. Among identical brands or similar channels. Like theconsumers who could afford to buy elsewhere, modern consumer, it is open and all-it attests to a desire to simplify, to un- embracing. In the process of experimentingcomplicate, and to retake control. It will exert with new channels, consumers are bound tostrong pressure on brands with low added find themselves re-evaluating brands andvalue, the average brands, which do not their added value.possess a strong enough dream value. Hard What should our answer to this be? Wediscount advocates a form of intangible value: would argue that it involves heeding thethe return to a kind of simplicity for people implicit message in this new form of range,who are not limited to it through a lack of while remaining true to oneself, by copyingresources. Hard discount is a search for purifi- what may be copied from this competitor,cation of one’s life, de-pollution, and liber- while increasing one’s own strength. Theation from imposed constraints. brand must retaliate with a different intan- This is a genuine challenge for the major gible factor and value system: productbrands, as this growing form of distribution performance on the one hand, or the emotiveexcludes them in favour of the discounters’ experience of the store on the other.own products. For the major brands, this Hypermarkets have no choice, either. Theirfurther erosion of their accessibility on store own brands exist only in relation to theshelves compounds the problem created by producer brands that innovate, create andthe amount of space already set aside for nurture markets, reveal tendencies, and alsodistributors’ brands in the hypermarkets and participate in the consumer society.supermarkets. Indeed, even retailers’ brands Remember that a brand can justify its exis-are coming under threat from this increas- tence only through the innovations it offers.ingly cut-price competition, which attracts The majority of brands are born of inno-clients to another store. This is why they have vation, and innovation continues to be thebeen strengthened, which will make them brand’s oxygen: it has a stimulating, euphoriceven more of a danger to the major brands as effect in promoting a sense of wellbeing,well. In fact, in 2007, the distributor’s brand is pleasure, joie de vivre and hedonism. However,now typically 35 per cent cheaper than the this intangible factor will have to start earningnational brand. As it increases in quality, its keep. This begins with respecting thehowever, its competitiveness also increases. customer: an intangible benefit that is not The hard-discount phenomenon is set to rooted in a tangible superior quality will bespread. Everyone will look for a way to weakened, and will contribute to the brand’sincrease their purchasing power in an ulti- excess. There are plenty of cheap polo shirts,mately painless way, by making shrewder but only one Lacoste. A Lacoste shirt lasts 10purchasing decisions in respect of a portion of years and, furthermore, adds distinction. Thistheir consumption. This will affect telephone point has to be reinforced repeatedly. Thiscommunications, the internet, transport, raises the question of the visibility of brand
92 W H Y I S B R A N D I N G S O S T R AT E G I C ?communication, governed by the advertising sible products that make it possible to exper-dogma of the USP: how, and through which iment with and to discover the brand.media, to promote the product. Thankfully, Furthermore, this contradicts the discounters’the internet offers many opportunities. arguments, since they wish to stereotype all This new brand responsibility comprises manufacturer brands as ‘expensive’.service, citizenship, and sustainable devel- In air travel, for example, Air France hasopment, which is transmitted through client shown that the famous bait-and-switch pricesservice via a call centre or over the internet, but of the low-cost companies (s20 flights fromalso through the services such as taking in Paris to London) applied only to a few seats andworn-out electrical appliances, which indicate time slots. Conversely, Air France’s promotionthe brand’s high degree of social responsibility. of its lowest prices, and of reduced prices in theThe brand must adopt ethical principles and case of reservation long in advance, has alsodemonstrate that consumption is not a demonstrated that its price range is muchsynonym for inefficient waste, pollution and wider than the low-cost companies hadexploitation – themes to which society is claimed. The SNCF (French national rail)becoming increasingly sensitive. Even Nike has created e-TGV to reduce prices. Thanks to yieldhad to make changes in the wake of the revela- management and process optimisation, Airtions in Naomi Klein’s book No Logo (1999). France and British Airways can also offer aThe mega-brand, with its iconic status among quota of seats at very low prices. These may bethe young, may well have invented concept obtained by booking far in advance, reservingupon concept, but its social conscience left over the internet, and so on. In this way, themuch to be desired, a fact that is particularly SNCF’s e-TGV puts Marseilles only a s20unacceptable in a flourishing company. journey away from Paris. It would be a mistake to believe that hard The superstores have offered products evendiscount will become the norm. In France, cheaper than the hard discounters, but underCristalline spring water, sold at a price three specific brands (the No. 1 brand at Carrefour,times cheaper than Evian, does not control 100 for example). This reduces the temptation toper cent of the market, and Evian is still the look elsewhere by capitalising on the hyper-leader by value. However, it will grow, until it market’s traditional strength, ‘one-stopreaches its threshold – and in so doing it may shopping’. The difference in terminology islead to a re-evaluation of attitudes and revealing: ‘low-cost’ is a business model; ‘evenbehaviour. As is always the case in our modern cheaper product’ was the result of an emer-societies, contradictory tendencies appear, gency action.coexist and learn to live together – but what For 50 years Aldi and Lidl have beenthey cannot do any longer is ignore each other. designing an efficient business model in order An examination of the specific strategies of to provide a quality product at the lowestcompanies and brands to combat hard price, based on the elimination of all unnec-discount reveals the following themes, all of essary costs, and on a new vision: long-termwhich capitalise on the enduring weakness of agreements with suppliers, dedicated factorieshard-discount. with a common design, not to mention a store What link is there between Ryanair, Virgin concept without flourishes, with a greatlyExpress, and Asda or Aldi? They are all so- reduced range of goods. If Aldi’s fruit juice iscalled low-cost companies. How have the still the market leader in Germany, it istraditional competitors responded? Through because it is good: its quality/price ratio isthe introduction of a new, lowest-price unbeatable.product offer to its existing range. The brand Conversely, the lowest price products atmust create a stepped price range, with acces- Carrefour, sold under a brand that (signifi-
F R O M P R I VAT E L A B E L S T O S T O R E B R A N D S 93cantly) makes no reference to Carrefour, were of all necessary to innovate on pillar products,created in haste to block the client drain, and those products that achieve the volume andobtained through increased pressure on the margin, and are essential to the distributor.suppliers, and therefore on the quality of In short, faced with supermarket shelves whereconstituents. Thus the fruit juice at this price space is at a premium due to the introductionwill only have perhaps the legal minimum of low-cost products, and in order to retainrequired amount of fruit juice. This is why clients who might be tempted by the vista ofhard discount, unlike the hypermarket’s hard-discount stores, it is important tolowest price range, satisfies its clients. remember that an essential reference remains At the communications level, it is necessary essential only when supported through inno-to constantly recreate the perceived risk, by vation and communication.revealing the invisible and the unspoken It is also vital to track the costs that do notaspects of ‘low cost’. Perceived risk is a key lever carry added value, even imitating the bestof brand sensitivity (Kapferer and Laurent, practices of the low-cost competitors. Thus Air1995). The book written by two nutritionists France is constantly reducing the time clientswas therefore a timely arrival in 2005. It showed must wait before they can board, via machinesthat drastic price-cutting on food products was that deliver boarding cards: this also helps tobound to negatively affect the intrinsic quality economise on personnel. The same is true forof the products. Thus, low-cost gingerbread the growing use of the internet to book and tocontained not a single gram of honey. Low-cost pay. For low-cost companies, as is well known,ham contained high levels of chemicals. Low- everything is done at a distance.cost chicken is raised in the worst conditions Finally, the brand must react through aand barely has time to grow up (40 days), and so specific business model. Air France adopted theon. In the air travel sector, a degree of doubt will hub-style business model: it allows any trav-inevitably remain regarding the maintenance, eller from the French regions to travel to Paristhe quality of the equipment, and the heavy on an Air France flight and to make use of veryusage of the airplanes. convenient international connections (with The brand must react to attacks on price by short waiting times), not to mention the imme-playing its trump cards: innovation and diate transfer of baggage, and moving within acreating desire. In order to see off the chal- single terminal. All these added valueslenge of the cheapest possible industrial discourage the internal traveller from flying tochicken, the brand must offer halal chicken, Paris with a low-cost company, then beingorganic chicken, regional chicken, and so on. forced to change airports or terminals, withoutTo oppose the cheapest possible yoghurt, it guaranteed immediate connections to interna-must offer one that does you good: Actimel, tional flights – not to mention the air miles.Danacol, Bio-Activia. To oppose a s5 cafetièrein Carrefour, imported from China, it mustoffer Nespresso, or Senseo by Philips, or Krups. Should manufacturers produceTo oppose the cheapest MP3 player, it must goods for DOBs?offer the iPod and its continual innovation(images, nano, mini, access to iTunes, iPhone, One of the questions all company managersand the like). ask concerns the opportunity to work for Value innovations are low volume, at least distributors’ brands. This question is eveninitially. Without volume there can be no more urgent today, since with the shrinking ofstrong brand, since it is volume that creates the shelf space allocated to branded industri-the financial resources for R&D, marketing, alists, their economic model is under threat.communication and so on. It is therefore first How can they maintain the volumes that
94 W H Y I S B R A N D I N G S O S T R AT E G I C ?create profitability? order to defend already strong brands (7.90 Those industrialists in favour of producing per cent). If the brands are weak and theDOB goods advance the following arguments: DOB manufacturing approach is an attempt to save them, the profitability inI It relieves the burden of fixed costs. the sample is less (3.50 per cent).I It allows them to benefit from economies I The profitability is maximal if this is the of scale. dominant or even exclusive activity of the industrialist (7.51 per cent).I It may be intrinsically profitable, since there is no need for marketing, communi- I The profitability is maximal if the market is cation, or sales force. not a commodity market (7.64 per cent).I If they do not do it, their competitors will. I The profitability is weakened by the fact that the industrialist does not make aIn contrast, those who oppose it are right to distinction between its brand and theargue that it will undermine the long-term distributor’s brand it is producing: this is anlegitimacy of the company’s own brands, important point, since many industrialistssince the industrialist will not be capable of distinguish between the two only throughproducing a bad product. For a while the the packaging, in order to make the most ofproduct Olympia manufactured for Carrefour the economies of scale and longwas superior to the comparable product of the production runs.brand itself. An examination of the figures in I The profitability is better when the manu-the cheese sector also shows that the most facturer works with distributors thatprofitable cheese maker is Bel, which sells promote quality.only branded products (Laughing Cow, MiniBabybel, Leerdammer, etc). What can we draw from this HEC research Rather than drawing up a pointless balance data? Whether or not to manufacturesheet for and against, it is worth turning to distributor’s brand products is a strategicresearch in this case. HEC has carried out choice, and should be analysed as such.several specific studies on this important Should they do it? Refusal to do so is clearlytheme for companies in all sectors, under the the result of a long-term vision: Procter &direction of M Santi (Santi, 1996). The Gamble, Gillette and l’Oréal all invest too muchselected criterion is operational profitability in research to wish to share the benefits theycompared with turnover, and the sample reap from it. They reserve the first fruits for theircomprised 167 cases drawn from numerous own brands, within a structured portfolio.mass-consumption sectors. What does this Which companies should do it? There is noresearch have to teach us? correlation between any classic company description and profitability in DOBI The profitability level is maximal when the production: rather, profitability is linked to policy is the result of a voluntary strategy (9 the manner in which it is implemented. per cent) and not an opportunistic reaction In which segments should they operate? to a short-term demand (5.19 per cent) or a The least commoditised possible, those where survival strategy (6.53 per cent). there is still innovation.I The profitability level also depends on the Which distributors should they work with? underlying motivations: it is at its highest Here, too, selectivity in the choice of distrib- when the company is seeking to create a utors proves to be rewarding in terms of prof- genuine partnership with distributors, in itability over turnover.
95 5Brand diversity: the types ofbrandsWhat becomes of these brand principles in Luxury, brand and griffespecific markets? It is worth asking thequestion, given the disparities between Recently there has been a surge of interest inmarkets as varied as industry, business-to- luxury brands. It is true that they are the polarbusiness (B2B) and medical prescription on opposite of low cost: here, the company hasone side, and the world of service and luxury complete freedom to fix its prices – as high ason the other. Are internet brands controlled possible. How much does a bottle of Royalusing the same levers? What should we think Salute cost in a Shanghai disco? The answer isof the emergence of the brand in sectors such s1,000. This is why financial groups haveas fresh produce, previously the domain of been set up to relaunch luxury brands – thegeneric products or a variety resulting from world number one, LVMH, was born from thenature and regional tendencies? Finally, we talent of its founder, B Arnault, who acquiredshould examine these new extensions of the a fading star, Dior, at a low price. Then he gotbrand domain: countries, towns, educational his hands on Vuitton, now the world’s leadingestablishments, and also television pro- luxury brand in terms of financial value.grammes and sporting heroes. But what is luxury? How is it different from These questions on the adaptation of premium brands, such as Victoria’s Secretbrand principles to specific sectors are raised lingerie, Callaway golf clubs, Belvedere vodkaby sector managers themselves, since they or Nespresso coffee? These brands are typicalall recognise the trans-sectoral validity of of trading up, as consumers move up thebrand logic, its points of application, and range. Admittedly there is a little of luxury’sthe brand activation modes, which are ingredients in these brands (better quality,bound to differ according to the different selective distribution, emotive value), butmarkets. This chapter is dedicated to these luxury is elsewhere. Let us return to itsdifferences. etymology. The word ‘luxury’ derives from the Latin luxatio, meaning distance: luxury is
96 W H Y I S B R A N D I N G S O S T R AT E G I C ?an enormous distance. There is a disconti- Our research has delved more deeply intonuity between premium and luxury. the notion of luxury among consumers. There To return to the essence of luxury, it is are profound differences between peoplecustomers’ desire to mark their difference. The questioned on their concept of luxury.first luxury manager was King Louis XIV of Analysis of the traits that – in their minds –France. Aristocracy is now dead, but it has define luxury reveals four concepts of luxury,been replaced by the power of money. each with its most representative brand(s)Everywhere in China, in Russia, in the United (that is, those that are judged the bestStates and in Dubai, recent fortunes grant example of the type of luxury by interviewees)more than unlimited purchasing power: they (Kapferer, 1998).grant power, pure and simple. This is the heart The first type of luxury, according to thisof luxury: giving men and women of power international sample of affluent young execu-the privileges that accompany it. For power tives with high purchasing power, is themust be shown off in our democratic societies. closest to the general hierarchy, the averageOnce upon a time, the mere name of the emerging from our studies. It gives promi-noble marked the unbridgeable distance nence to the beauty of the object and thebetween him or her and an ordinary person. excellence and uniqueness of the product,Nowadays, the frontier still exists and it must more so than all the other types. The brandbe marked. most representative of this type of luxury is Russian oligarchs, Chinese billionaires and Rolls-Royce, but Cartier and Hermès also showWall Street’s golden boys do not buy Victoria’s these characteristics. The second concept ofSecret or Belvedere vodka for their partners. luxury in the world exalts creativity, theThey want Dior, la Perla, Elit by Stolichnaya or sensuality of the products. Its luxury ‘proto-Krug’s le Clos du Mesnil, which has deposed types’ are Gucci, Boss and J-P Gaultier. TheDom Perignon. Luxury, like power, is a quest third vision of luxury values timelessness andfor the absolute. international reputation more than any other The luxury business model aims to outgrow facets. Its symbols are Porsche, with itsthis niche in order to exploit the fundamental immutable design, Vuitton and Dunhill.mechanism described by R Girard: desire born Finally, the fourth type values the feeling ofof imitating a model. Luxury brands know rarity attached to the possession andhow to create more accessible product lines consumption of the brand. In their eyes, thefor those who wish to introduce a little luxury prototype of the brand purchased by theinto their lives, to enliven their daily grind select few is Chivas.from time to time. These are luxury’s ‘day We also find Mercedes in this category:trippers’. This created the luxury business. this might seem curious, given the recent diffusion of Mercedes – now more thanWhat does luxury mean to consumers? 1,300,000 vehicles sold worldwide each year. However, our study dates from 1998, whenLuxury can vary as widely as East from West. Mercedes produced only 700,000 cars perEveryone can see where it is, but it is year, and its dynamism and product attrac-constantly on the move. Luxury is relative. tiveness were called into question. This isFor a modest individual, luxury is eating in a what led to the revolution we all know aboutgood restaurant once a year. For one of the (multiplication of models, introduction ofCity’s golden boys, it is buying a Ferrari with aesthetics, the A class, the M class and soyour annual bonus. For Bill Gates, it is playing on). Its presence as a symbol of this fourthtennis with the world number one or buying a type of luxury testifies to the brand’sPicasso. problems. Only a few years ago, its only
B R A N D D I V E R S I T Y: T H E T Y P E S O F B R A N D S 97Table 5.1 Consumers’ four concepts of luxuryConsumer group Type 1 Type 2 Type 3 Type 4What defines luxury (percentage giving each answer):Beauty of an object 97 63 86 44Excellence of the products 88 3 9 38Magic 76 50 88 75Uniqueness 59 10 3 6Tradition and savoir faire 26 40 40 38Creativity 35 100 38 6Sensuality of the products 26 83 21 6Feeling of exceptionality 23 23 31 31Never out of fashion 21 27 78 19International reputation 15 27 78 19Produced by a craftsperson 12 30 9 3Long history 6 7 16 13Likeable creator 6 7 10 13Belonging to a minority 6 3 2 63Very few purchasers 0 3 2 69At the cutting edge of fashion 0 17 36 31Typical luxury brands of this typeaccording to interviewees: Rolls-Royce Gucci Vuitton Chivas Cartier Boss Porsche Mercedes Hermès Gaultier DunhillSource: Kapferer (1998b)potential market was among those looking is evidence of their attractiveness to customersfor the luxury, not of a sensory pleasure, but the world over. We need to distinguish betweenof status, the badge of belonging in a class two different business models for brands. Thewith money and a desire to flaunt it. We first includes brands with a ‘history’ behindshould add, however, that in China, India, them, while the second covers brands that,Brazil and Russia, it is the very expensive lacking such a history of their own, haveand status-loaded Mercedes S Class that invented a ‘story’ for themselves. It comes assells. These are de facto inaccessible cars. no surprise that these companies are US-based: this young, modern country is a past master inTwo different approaches to luxury the art of weaving dreams from stories. Afterbrand building all, both Hollywood and Disneyland are American inventions.The only real success is commercial, yet there Furthermore, the European luxury brands –are many roads to this destination. An exami- rooted as they are in a craftsperson-basednation of ‘new luxury’ brands such as Ralph tradition predicated upon rare, unique pieces ofLauren, Calvin Klein and DKNY proves that it is work – place considerable emphasis on thepossible to become an overnight success in the actual product as a factor in their success, whileluxury market without the long pedigree of a the US brands concentrate much more onChristian Dior, Chanel or Givenchy. True, these merchandising, and the atmosphere and imagenewer brands have not yet demonstrated their created by the outlets dedicated to their brand,ability to endure and survive beyond the death in the realm of customer contact and distri-of their founders, but their commercial success bution. What we see is the creation of a
98 W H Y I S B R A N D I N G S O S T R AT E G I C ?dichotomy between ‘history’ and the product level, and on their licensing to industrialon the one hand, and ‘stories’ and distribution groups able to create, launch and distributeon the other. Let us examine and compare these worldwide products at the third level (such astwo brand and business models in more detail. P&G, Unilever and l’Oréal ). Profit accrues at The first brand and business model may be this level, and is the only means to make therepresented by the luxury pyramid (see Figure huge investments on the griffe pay off. These5.1). At the top of the pyramid, there is the investments are necessary to recreate thegriffe – the creator’s signature engraved on a dream around the brand. Reality consumesunique work. This explains what it fears most: dreams: the more we buy a luxury brand, thecopies. Brands, on the other hand, particu- less we dream of it. Hence, somewhat para-larly fear fakes or counterfeits. The second doxically, the more a luxury brand getslevel is that of luxury brands produced in purchased, the more its aura needs to besmall series within a workshop: a ‘manu- permanently recreated.facture’ in its etymological sense, which is This is exactly how the LVMH groupseen as the sole warrant of a ‘good-facture’. operates. The model is best explained in theExamples include Hermès, Rolls-Royce and actual words of Bernard Arnault, the CEO ofCartier. The third level is that of streamlined LVMH, the world’s leading luxury group,mass production: here we find Dior and Yves which owns 41 luxury brands. What are theSaint Laurent cosmetics, and YSL Diffusion key factors in the success of its brands?clothes. At this level of industrialisation, the Arnault (2000: p 65) lists them in thebrand’s fame generates an aura of intangible following order:added values for expensive and prime qualityproducts, which nonetheless gradually tend l product quality;to look more and more like the rest of the l creativity;market. Hence its name equals mass prestige. l image; In this model, luxury managem