“New exciting ideas and perspectives on brand building are offered that have been absent from our literature.”Philip Kotler, S C Johnson & Sons Distinguished Professor of International Marketing, Northwestern University,Kellogg School of Management, USA“Kapferer continues to be on the leading edge.”Earl N Powell, President, Design Management Institute, Boston, USA“Managing a brand without reading this book is like driving a car without your license.”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 onvarious brand-related topics.”Rik Riezebos, CEO Brand Capital and director of the European Institute for Brand ManagementAdopted by leading international business schools, MBA programmes and marketing practitioners alike, The New StrategicBrand Management is simply the reference source for senior strategists, positioning professionals and postgraduatestudents. Over the years it has not only established a reputation as one of the leading works on brand strategy but hasalso 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.Revealing and explaining the latest models used by companies worldwide, author Jean-Noël Kapferer covers all theleading issues faced by brand strategists today, supported by an array of international case studies.With both gravitasand intelligent insight, this book reveals new thinking on crucial topics including:Moving beyond marketing, The New Strategic Brand Management addresses the bigger picture, integrating othercomponents 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, townsand nations.Jean-Noël Kapferer is one of the very few worldwide experts on brands. His book stands out fromothers with its unique insights, its style of exhaustive analysis and its original perspectives, stemming fromhis strategic vision, and his international background and experience. A professor of marketing strategy atHEC Paris, he holds a PhD from Northwestern University (USA) and is an active consultant to manyEuropean, US and Asian corporations. He also gives executive seminars in the US, China, Japan, Korea andIndia. He is the author of six books on branding, advertising and communication, including Reinventing the Brand, alsopublished by Kogan Page.You can contact him at www.kapferer.com.• growth in saturated markets;• decommoditisation;• innovation in emerging markets;• brand rejuvenation and turn around;• managing brand consistency and diversity;• positioning private labels and store brands;• globalisation and market adaptation;• co-branding strategies;• internal branding and corporate branding;• financial evaluation of brands.Kogan Page120 Pentonville RoadLondon N1 9JNUnited Kingdomwww.kogan-page.co.ukKogan Page US525 South 4th Street, #241Philadelphia PA 19147USA£35.00US $70.00Branding / Business and managementTHE NEWSTRATEGICBRANDMANAGEMENTCreating and sustaining brand equity long term“New exciting ideas and perspectives on brand building!”Philip KotlerJ N KAPFERERKAPFERERTHENEWSTRATEGICBRANDMANAGEMENT4TH EDITION4THEDITIONISBN: 978-0-7494-5085-4new_strategic_brand_aw:Layout 1 6/12/07 16:25 Page 1
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
IIIJEAN-NOËL KAPFERERSTRATEGICBRANDMANAGEMENTTHE NEWCreating and Sustaining Brand Equity Long TermLondon and Philadelphia
ContentsList 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 9What 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 31What 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 51Are 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 59V
4. From private labels to store brands 65Evolution 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 95Luxury, 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 137The 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 171Brand 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 203Launching 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 219Growth 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 234vi CONTENTS
10. Sustaining a brand long term 237Is 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 269Bigger or better brands? 270; From reassurance to stimulation 271;Consistency is not mere repetition 272; Brand and products: integration anddifferentiation 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 295What 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 brandextensions 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 347The 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 391Inherited 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 413CONTENTS vii
15. Handling name changes and brand transfers 415Brand 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 437The 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 455The 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 503Accounting 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 545viii CONTENTS
Figures1.1 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 brandnames coincide 2068.2 From brand platform to activation 210IX
8.3 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) 421x FIGURES
15.2 A stepwise approach to brand transfers (relating the type of transfer to theimage 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 524FIGURES xi
Tables1.1 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 newCuban rum brand 208xii
9.1 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 themarketing 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 527TABLES xiii
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 brandmanagement. This is due to its comprehensiveness and its unique balance between theoryand cases. It also promotes strong and unique working models.l Relevance. The cases and illustrations are new, unusual, and not over-exposed. They oftenrepresent business situations readers will relate to and understand more readily than over usedexamples using Coke, Starbucks, Cisco, Fedex, BMW and other great classics of most booksand 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 sizeof this edition. This is a book to consult.l Diversity. Our examples cover the fast-moving consumer goods sector (FMCG) as well ascommodities, business-to-business brands, pharmaceutical brands, luxury brands, servicebrands, 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.
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 andoften hold a dominant market share, they need their own chapter. In addition, in eachchapter 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 ofbrands and innovation is almost totally absent from most books on branding. This seems atodds with the fact that innovation and branding has become the number one topic forcompanies. In fact, as we shall demonstrate, brands grow out of innovation, and innovation isthe lifeblood of the brand. Furthermore, contrary to what is often said or thought, the issue ofinnovation 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. Howcan 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 interestingbrand platforms that are able to stimulate powerful creative advertising that both sells andbuilds a salient brand; how to activate the brand; how to energise it at contact points; and howto 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.PREFACE xv
It 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.1Introduction:Building the brand when theclients are empowered
2 THE NEW STRATEGIC BRAND MANAGEMENTIn 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.
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 wereINTRODUCTION 3
foreign 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 and4 THE NEW STRATEGIC BRAND MANAGEMENT
deliver 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.INTRODUCTION 5
Brands have become a major player inmodern society. In fact they are everywhere.They penetrate all spheres of our life:economic, social, cultural, sporting, evenreligion. Because of this pervasiveness theyhave come under growing criticism (Klein,1999). As a major symbol of our economiesand postmodern societies, they can andshould be analysed through a number ofperspectives: macroeconomics, microeco-nomics, sociology, psychology, anthro-pology, history, semiotics, philosophy and soon. In fact our first book on brands was acollection of essays by eminent scholars fromall these disciplines (Kapferer and Thoenig,1989).This book focuses on the managerialperspective: how best to manage brands forprofit. Since brands are now recognised as partof a company’s capital (hence the concept ofbrand equity), they should be exploited.Brands are intangible assets, assets thatproduce added benefits for the business. Thisis the domain of strategic brand management:how to create value with proper brandmanagement. Before we proceed, we need toclarify the brand concept.What is a brand?Curiously, one of the hottest points ofdisagreement between experts is the definitionof a brand. Each expert comes up with his or herown definition, or nuance to the definition.The problem gets more acute when it comes tomeasurement: how should one measure thestrength of a brand? What limited numbers ofindicators should one use to evaluate what iscommonly called brand equity? In additionthere is a major schism between two paradigms.One is customer-based and focuses exclusivelyon the relationship customers have with thebrand (from total indifference to attachment,loyalty, and willingness to buy and rebuy basedon beliefs of superiority and evoked emotions).The other aims at producing measures indollars, euros or yen. Both approaches havetheir own champions. It is the goal of thisfourth edition of Strategic Brand Management tounify these two approaches.Customer-based definitionsThe financial approach measures brand valueby isolating the net additional cashflows91Brand equity in question
10 WHY IS BRANDING SO STRATEGIC?created by the brand. These additional cashflows are the result of customers’ willingnessto buy one brand more than its competitors’,even when another brand is cheaper. Whythen do customers want to pay more? Becauseof the beliefs and bonds that are created overtime in their minds through the marketing ofthe brand. In brief, customer equity is thepreamble of financial equity. Brands havefinancial value because they have createdassets in the minds and hearts of customers,distributors, prescribers, opinion leaders.These assets are brand awareness, beliefs ofexclusivity and superiority of some valuedbenefit, and emotional bonding. This is whatis expressed in the now classic definition of abrand: ‘a brand is a set of mental associations,held by the consumer, which add to theperceived value of a product or service’ (Keller,1998). These associations should be unique(exclusivity), strong (saliency) and positive(desirable).This definition focuses on the gain inperceived value brought by the brand. How doconsumers’ evaluations of a car change whenthey know it is a Volkswagen, a Peugeot or aToyota? Implicitly, in this definition theproduct itself is left out of the scope of thebrand: ‘brand’ is the set of added perceptions.As a result brand management is seen asmostly a communication task. This isincorrect. Modern brand management startswith the product and service as the primevector of perceived value, while communi-cation is there to structure, to orient tangibleperceptions and to add intangible ones.Later we analyse the relationship betweenbrand and product (see page 39). A secondpoint to consider is that Keller’s now-classicdefinition is focused on cognitions (mentalassociations). This is not enough: strongbrands have an intense emotional component.Brands as conditional assetFinanciers and accountants have realised thevalue of brands (see Chapter 18). How doesthe financial perspective help us in definingbrands and brand equity?l First, brands are intangible assets, postedeventually in the balance sheet as one ofseveral types of intangible asset (a categorythat also includes patents, databases andthe like).l Second, brands are conditional assets. This isa key point so far overlooked. An asset is anelement that is able to produce benefitsover a long period of time. Why are brandsconditional assets? Because in order todeliver their benefits, their financial value,they need to work in conjunction withother material assets such as productionfacilities. There are no brands withoutproducts or services to carry them. This willhave great consequences for the method ofmeasuring financial value. For now, thisreminds us that some humility is required.Although many people claim that brandsare all and everything, brands cannot existwithout a support (product or service). Thisproduct and service becomes effectively anembodiment of the brand, that by whichthe brand becomes real. As such it is a mainsource of brand evaluation. Does it producehigh or low satisfaction? Brandmanagement starts with creating products,services and/or places that embody thebrand. Interestingly, the legal approach totrademarks and brands also insists on theirconditional nature. One should never usethe brand name as a noun, but as anadjective attached to a name, as forinstance with a Volvo car, not a Volvo.The legal perspectiveAn internationally agreed legal definition forbrands does exist: ‘a sign or set of signs certi-fying the origin of a product or service anddifferentiating it from the competition’.Historically, brands were created to defendproducers from theft. A cattle brand, a sign
burned into the animal’s hide, identified theowner and made it apparent if the animal hadbeen stolen. ‘Brands’ or trademarks also iden-tified the source of the olive oil or winecontained in ancient Greek amphoras, andcreated value in the eyes of the buyers bybuilding a reputation for the producer ordistributor of the oil or wine.A key point in this legal definition is thattrademarks have a ‘birthday’ – their regis-tration day. From that day they become aproperty, which needs to be defended againstinfringements and counterfeiting (see page 87for defence strategies). Brand rights disappearwhen they are not well enough defended, or ifregistration is not renewed. One of the sourcesof loss of rights is degenerescence. This occurswhen a company has let a distinctive brandname become a generic term.Although the legal approach is most usefulfor defending the company against copies ofits products, it should not become the basisof brand management. Contrary to what thelegal definition asserts, a brand is not bornbut made. It takes time to create a brand,even though we talk about launchingbrands. In fact this means launching aproduct or service. Eventually it may becomea brand, and it can also cease to be one. Whatmakes a brand recognisable? When do weknow if a name has reached the status of abrand? For us, in essence, a brand is a namethat influences buyers, becoming a purchasecriterion.A brand is a name that influencesbuyersThis definition captures the essence of a brand:a name with power to influence buyers. Ofcourse, it is not a question of the choice of thename itself. Certainly a good name helps: thatis, one that is easily pronounceable around theworld and spontaneously evokes desirableassociations. But what really makes a namebecome a brand are the saliency, differentia-bility, intensity and trust attached to these asso-ciations. Are the benefits the name evokes(a) salient, (b) exclusive and (c) trusted?We live in an attention economy: there is somuch choice and opacity that consumerscannot spend their time comparing beforethey make a choice. They have no time andeven if they did, they cannot be certain ofbeing able to determine the right product orservice for them. Brands must conveycertitude, trust. They are a time and riskreducer. In fact where there is no risk there isno brand. We made this point in an earlierbook (Kapferer and Laurent, 1995). Theperceived risk could be economic (linked toprice), functional (linked to performance),experiential, psychological (linked to our self-concept), or social (linked to our social image).This is why it takes time to build the saliencythat is part of brand awareness, and this trust(trusted beliefs about the brand’s uniquebenefits).Brand power to influence buyers relies onrepresentations and relationships. A represen-tation is a system of mental associations. Westress the word ‘system’, for these associationsare interconnected. They are in a network, sothat acting on one impacts some others. Theseassociations (also called brand image) coverthe following aspects:l What is the brand territory (perceivedcompetence, typical products or services,specific know-how)?l What is its level of quality (low, middle,premium, luxury)?l What are its qualities?l What is its most discriminating quality orbenefit (also called perceived positioning)?l What typical buyer does the brand evoke?What is the brand personality and brandimagery?Beyond mental associations, the power of aname is also due to the specific nature of theemotional relationships it develops. A brand, itBRAND EQUITY IN QUESTION 11
could be said, is an attitude of non-indifferenceknitted into consumers’ hearts. This attitudegoes from emotional resonance to liking,belonging to the evoked set or considerationset, preference, attachment, advocacy, tofanaticism. Finally, designs, patents and rightsare of course a key asset: they provide a compet-itive advantage over a period of time.In short, a brand exists when it has acquiredpower to influence the market. This acquisitiontakes time. The time span tends to be short inthe case of online brands, fashion brands andbrands for teenagers, but longer for, forexample, car brands and corporate brands.This power can be lost, if the brand has beenmismanaged in comparison with the compe-tition. Even though the brand will still havebrand awareness, image and market shares, itmight not influence the market any more.People and distributors may buy because ofprice only, not because they are conscious ofany exclusive benefit from the brand.What makes a name acquire the power of abrand is the product or service, together withthe people at points of contact with themarket, the price, the places, the communi-cation – all the sources of cumulative brandexperience. This is why one should speak ofbrands as living systems made up of three poles:products or services, name and concept. (SeeFigure 1.1.)When talking of brands we are sometimesreferring to a single aspect such as the name orlogo, as do intellectual property lawyers. Inbrand management, however, we speak of thewhole system, relating a concept withinherent value to products and services thatare identified by a name and set of proprietarysigns (that is, the logo and other symbols).This system reminds us of the conditionalnature of the brand asset: it only exists ifproducts and services also exist.Differentiation is summarised by the brandconcept, a unique set of attributes (bothtangible and intangible) that constitute thevalue proposition of the brand.To gain market share and leadership, thebrand must be:l able to conjure up a big idea, and attractive;l experienced by people at contact points;l activated by deeds and behaviours;l communicated;l distributed.One of the best examples of a brand is theMini. This car, worth US$14,000 in functionalvalue, is actually sold for US$20,000. It is oneof the very few car brands that gives norebates and discounts to prospective buyers,12 WHY IS BRANDING SO STRATEGIC?Figure 1.1 The brand systemBrand concept(value proposition)tangible and intangibleBrand name and symbolssemiotic invariantsProduct or serviceexperience
who queue to get ‘their’ Mini. The Mini illus-trates the role of both intangible and tangiblequalities in the success of any brand. Since it ismade by BMW, it promises reliability, powerand road-holding performance. But thefeelings of love towards this brand are createdby the powerful memories the brand invokesin buyers of London in the ‘Swinging Sixties’.The classic and iconic design is replicated inthe new Mini – and each Mini feels like apersonal accessory to its owner (each Mini iscustomised and different).The brand triangle helps us to structuremost of the issues of brand management:l What concept should one choose, withwhat balance of tangible and intangiblebenefits? This is the issue of identity andpositioning. Should the brand conceptevolve through time? Or across borders(the issue of globalisation)?l How should the brand concept beembodied in its products and services, andits places? How should a product or serviceof the brand be different, look different?What products can this brand conceptencompass? This is the issue of brandextension or brand stretch.l How should the product and/or services beidentified? And where? Should they beidentified by the brand name, or by thelogo only, as Nike does now? Should organ-isations create differentiated sets of logosand names as a means of indicatinginternal differences within their product orservice lines? What semiotic variants?l What name or signs should one choose toconvey the concept internationally?l How often should the brand symbols bechanged, updated or modernised?l Should the brand name be changed (seeChapter 15)?l Speaking of internationalisation, shouldone globalise the name (that is, use thesame name around the world), or the logo,or the product (a standardised versuscustomised product), or the concept(aiming at the same global positioning)? Orall three pillars of the brand system, or onlytwo of them?Since a brand is a name with the power toinfluence the market, its power increases asmore people know it, are convinced by it, andtrust it. Brand management is about gainingpower, by making the brand concept moreknown, more bought, more shared.In summary, a brand is a shared desirableand exclusive idea embodied in products,services, places and/or experiences. The morethis idea is shared by a larger number ofpeople, the more power the brand has. It isbecause everyone knows ‘BMW’ and its idea –what it stands for – even those who will neverbuy a BMW car, that the brand BMW has agreat deal of power.The word ‘idea’ is important. Do we sellproducts and services, or values? Of course,the answer is values. For example, ‘Volvo’ isattached to an idea: cars with the highestpossible safety levels. ‘Absolut’ conjuresanother idea: a fashionable vodka. Levi’s usedto be regarded as the rebel’s jeans.Differentiating between brandassets, strength and valueIt is time to structure and organise the manyterms related to brands and their strength,and to the measurement of brand equity.Some restrict the use of the phrase ‘brandequity’ to contexts that measure this by itsimpact on consumer mental associations(Keller, 1992). Others mention behaviour: forexample this is included in Aaker’s earlymeasures (1991), which also consider brandloyalty. In his late writings Aaker includesmarket share, distribution and price premiumin his 10 measures of brand equity (1996). Theofficial Marketing Science definition of brandBRAND EQUITY IN QUESTION 13
equity is ‘the set of associations and behavioron the part of a brand’s customers, channelmembers and parent corporation that permitsthe brand to earn greater volume or greatermargins than it could without the brandname’ (Leuthesser, 1988).This definition is very interesting and hasbeen forgotten all too quickly. It is all-encom-passing, reminding us that channel membersare very important in brand equity. It alsospecifically ties margins to brand associationsand customers’ behaviour. Does it mean thatunless there is a higher volume or a highermargin as a result of the creation of a brand,there is no brand value? This is not clear, forthe word ‘margin’ seems to refer to grossmargin only, whereas brand financial value ismeasured at the level of earnings beforeinterest and tax (EBIT).To dispel the existing confusion around thephrase brand equity (Feldwick, 1996), createdby the abundance of definitions, concepts,measurement tools and comments by experts,it is important to show how the consumer andfinancial approaches are connected, and touse clear terms with limited boundaries (seeTable 1.1):l Brand assets. These are the sources ofinfluence of the brand (awareness/saliency,image, type of relationship with consumers),and patents.l Brand strength at a specific point in time as aresult of these assets within a specificmarket and competitive environment.They are the ‘brand equity outcomes’ if onerestricts the use of the phrase ‘brand equity’to brand assets alone. Brand strength iscaptured by behavioural competitive indi-cators: market share, market leadership,loyalty rates and price premium (if onefollows a price premium strategy).l Brand value is the ability of brands todeliver profits. A brand has no financialvalue unless it can deliver profits. To saythat lack of profit is not a brand problembut a business problem is to separate thebrand from the business, an intellectualtemptation. Certainly brands can beanalysed from the standpoint of sociology,psychology, semiotics, anthropology,philosophy and so on, but historically theywere created for business purposes and aremanaged with a view to producing profit.Only by separating brand assets, strength andvalue will one end the confusion of the brandequity domain (Feldwick, 1996 takes a similarposition). Brand value is the profit potentialof the brand assets, mediated by brand marketstrength.In Table 1.1, the arrows indicate not a directbut a conditional consequence. The same14 WHY IS BRANDING SO STRATEGIC?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 assets may produce different brandstrength over time: this is a result of theamount of competitive or distributivepressure. The same assets can also have novalue at all by this definition, if no businesswill ever succeed in making them deliverprofits, through establishing a sufficientmarket share and price premium. For instanceif the cost of marketing to sustain this marketshare and price premium is too high andleaves no residual profit, the brand has novalue. Thus the Virgin name proved of littlevalue in the cola business: despite the assets ofthis brand, the Virgin organisation did notsucceed in establishing a durable and prof-itable business through selling Virgin Cola inthe many countries where this was tried. TheMini was never profitable until the brand wasbought by BMW.Table 1.1 also shows an underlying timedimension behind these three concepts ofassets, strength and value. Brand assets arelearnt mental associations and affects. Theyare acquired through time, from direct orvicarious, material or symbolic interactionswith the brand. Brand strength is a measure ofthe present status of the brand: it is mostlybehavioural (market share, leadership, loyalty,price premium). Not all of this brand stature isdue to the brand assets. Some brands establisha leading market share without any noticeablebrand awareness: their price is the primarydriver of preference. There are also brandswhose assets are superior to their marketstrength: that is, they have an image that is farstronger than their position in the market(this is the case with Michelin, for example).The obverse can also be true, for example ofmany retailer own brands.Brand value is a projection into the future.Brand financial valuation aims to measure thebrand’s worth, that is to say, the profits it willcreate in the future. To have value, brandsmust produce economic value added (EVA),and part of this EVA must be attributable tothe brand itself, and not to other intangibles(such as patents, know-how or databases).This will depend very much on the ability ofthe business model to face the future. Forinstance, Nokia lost ground at the StockExchange in April 2004. The market hadjudged that the future of the world’s numberone mobile phone brand was dim. Every-where in the developed countries, almosteveryone had a mobile phone. How was thecompany still to make profits in this saturatedmarket? If it tried to sell to emerging countriesit would find that price was the first purchasecriterion and delocalisation (that is, havingthe products manufactured in a country suchas China or Singapore) compulsory. Up to thatpoint, Nokia had based its growth on itsproduction facilities in Finland. Nokia’spresent brand stature might be high, but whatabout its value?It is time now to move to the topic oftracking brand equity for managementpurposes. What should managers regularlymeasure?Tracking brand equityWhat is a brand? A name that influencesbuyers. What is the source of its influence?A set of mental associations and relationshipsbuilt up over time among customers ordistributors. Brand tracking should aim atmeasuring these sources of brand power. Therole of managers is to build the brand andbusiness. This is true of brand managers, butalso of local or regional managers who are incharge of developing this competitive asset inaddition to developing the business moregenerally. This is why advanced companiesnow link the level of variable salary not onlyto increments in sales and profits but also tobrand equity. However, such a system presup-poses that there is a tracking system for brandequity, so that year after year its progress canbe assessed. This system must be valid,reliable, and not too complicated or toocostly. What should one measure as aminimum to evaluate brand equity?BRAND EQUITY IN QUESTION 15
An interesting survey carried out by theagency DDB asked marketing directors whatthey considered to be the characteristics of astrong brand, a significant company asset.The following were the answers in order ofimportance:l brand awareness (65 per cent);l the strength of brand positioning, concept,personality, a precise and distinct image (39per cent);l the strength of signs of recognition by theconsumer (logo, codes, packaging) (36 percent);l brand authority with consumers, brandesteem, perceived status of the brand andconsumer loyalty (24 per cent).Numerous types of survey exist on the meas-urement of brand value (brand equity). Theyusually provide a national or international hitparade based just on one component of brandequity: brand awareness (the method may bethe first brand brought to mind, aided orunaided depending on the research institute),brand preference, quality image, prestige, firstand second buying preferences when thefavoured brand is not available, or liking.Certain institutions may combine two of thecomponents: for example, Landor publishedan indicator of the ‘power of the brand’ whichwas determined by combining brand-aidedawareness and esteem, which is the emotionalcomponent of the brand–consumer rela-tionship. The advertising agency Young &Rubicam carried out a study called ‘BrandAsset Monitor’ which positions the brand ontwo axes: the cognitive axis is a combinationof salience and of the degree of perceiveddifference of the brand among consumers; theemotional axis is the combination of themeasures of familiarity and esteem (seeChapter 10). TNS, in its study MegabrandSystem, uses six parameters to comparebrands: brand awareness, stated use, statedpreference, perceived quality, a mark forglobal opinion, and an item measuring thestrength of the brand’s imagery.Certain institutions, which believe that thecomparison of brands across all markets makeslittle sense, concentrate on a single marketapproach and measure, for example, theacceptable price differential for each brand.They proceed in either a global manner (whatprice difference can exist between a Lenovo PCand a Toshiba PC?) or by using a method oftrade-off which isolates the net added value ofthe brand name. Marketing directors areperplexed because so many different methodsexist.There is little more consensus amongacademic researchers. Sattler (1994) analysed49 American and European studies on brandequity and listed no fewer than 26 differentways of measuring it. These methods varyaccording to several dimensions:l Is the measure monetary or not? A largeproportion of measures are classified innon-monetary terms (brand awareness,attitude, preference, etc).l Does the measurement include the timefactor – that is, the future of the brand onthe market?l Does the brand measure take the compe-tition into account – that is, the perceivedvalue in relation to other products on themarket? Most of them do not.l Does the measurement include the brand’smarketing mix? When you measure brandvalue, do you only include the valueattached to the brand name? Mostmeasures do not include the marketing mix(past advertising expenditure, level ofdistribution, and so on).l When estimating brand value do you includethe profits that a user or a buyer could obtaindue to the synergies that may exist with itsown existing brand portfolio (synergies ofdistribution, production, logistics, etc)? The16 WHY IS BRANDING SO STRATEGIC?
majority of them do not include this, eventhough it is a key factor.l Does the measurement of brand equityinclude the possibility of brand extensionsoutside the brand’s original market? Ingeneral, no.l Finally, does the measure of brand equitytake into account the possibility ofgeographical extension or globalisation?Again, most of the time the answer is no.We recommend four indicators of brand assets(equity):l Aided brand awareness. This measureswhether the brand has a minimal resonance.l Spontaneous brand awareness. This is ameasure of saliency, of share of mind whencued by the product.l Evoked set, also called consideration set. Doesthe brand belong to the shortlist of two orthree brands one would surely considerbuying?l Has the brand been already consumed ornot?Some companies add other items like mostpreferred brand. Empirical research hasshown that this item is very much correlatedto spontaneous brand awareness, the latterbeing much more than a mere cognitivemeasure, but it also captures proximity to theperson. Other companies add the itemconsumed most often. Of course this istypical of fast moving consumer goods; theitem is irrelevant for durables. In addition, inempirical research the item is also correlatedto evoked set. One should never forget thattracking studies dwell on the customer’smemory. This memory is itself very muchinferential. Do people really know whatbrand they bought last? They infer from theirpreferences, that logically it should have beenbrand X or Y.Table 1.2 gives a typical result of a trackingstudy for a brand.There are two ways of looking at the brandequity figures in the table. One can comparethe countries by line: although it has similaraided awareness levels, this brand has verydifferent status in the two countries. Thesecond mode is vertical, and focuses on the‘transformation ratios’. It is noticeable that inJapan, the evoked set is 50 per cent of unaidedbrand awareness, whereas it is 87 per cent inMexico.Although there is a regular pattern ofdecreasing figures, from the top line to thebottom line, this is not always the case. Forinstance in Europe, Pepsi Cola is not a strongbrand: its market share is gained throughpush marketing and trade offers. As a result,Pepsi Cola certainly grows its business butnot its intrinsic desirability. In trackingstudies Pepsi Cola has a trial rate far higherthan the brand’s preference rate (evoked set).At the opposite end of the spectrum there arebrands that have an equity far superior totheir consumption rate. In Europe, Michelinhas a clear edge over rival tyre brands as far asimage is concerned. However, image does nottransform itself into market share if peoplelike the Michelin brand but deem that the usethey make of their cars does not justifybuying tyres of such a quality and at such aprice.Tracking studies are not simply tools forcontrol. They are tools for diagnosis andaction. Transformation ratios tell us where toact.Table 1.2 Result of a brand tracking studyBrand XJapan MexicoAided awareness 99% 97%Unaided awareness 48% 85%Evoked set 24% 74%Consumed 5% 40%BRAND EQUITY IN QUESTION 17
Goodwill: the convergence offinance and marketingThe 1980s witnessed a Copernican revolutionin the understanding of the workings ofbrands. Before this, ratios of seven or eightwere typical in mergers and acquisitions,meaning that the price paid for a companywas seven to eight times its earnings. After1980 these multiples increased considerablyto reach their peak. For example, GroupeDanone paid $2.5 billion for Nabisco Europe,which was equivalent to a price:earnings ratioof 27. Nestlé bought Rowntree Macintosh forthree times its stock market value and 26times its earnings. It was becoming the normto see multiples of 20 to 25. Even today when,because of the recession, financial valuationshave become more prudent, the existence ofstrong brands still gives a real added value tocompanies. What happened between thebeginning and the end of the 1980s? Whatexplanations can be given for this suddenchange in the methods of financial analysts?The prospect of a single European marketcertainly played a significant role, as can beseen by the fact that large companies werelooking for brands that were ready to beEuropean or, even better, global. This explainswhy Nestlé bought Buitoni, Lever boughtBoursin, l’Oréal bought Lanvin, Seagrambought Martell, etc. The increase in themultiples can also be explained in part by theopposing bids of rival companies wishing totake over the few brand leaders that existed intheir markets and which were for sale. Apartfrom the European factor, there was a markedchange in the attitude towards the brands ofthe principal players. Prior to 1980,companies wished to buy a producer ofchocolate or pasta: after 1980, they wanted tobuy KitKat or Buitoni. This distinction is veryimportant; in the first case firms wish to buyproduction capacity and in the second theywant to buy a place in the mind of theconsumer.The vision has changed from one whereonly tangible assets had value to one wherecompanies now believe that their mostimportant asset is their brands, which areintangible (see Tables 1.3 and 18.2). Theseintangible assets account for 61 per cent of thevalue of Kellogg’s, 57 per cent of Sara Lee and52 per cent of General Mills. This explains theparadox that even though a company ismaking a loss it is bought for a very high pricebecause of its well-known brands. Before1980, if the value of the brand had beenincluded in the company’s earnings, it wouldhave been bought for a penny. Nowadaysbrand value is determined independently ofthe firm’s net value and thus can sometimesbe hidden by the poor financial results of thecompany. The net income of a company is thesum of all the financial effects, be theypositive or negative, and thus includes theeffect of the brand. The reason why Apple lostmoney in 1996 was not because its brand wasweak, but because its strategy was bad.Therefore it is not simply because a companyis making a loss that its brand is not addingvalue. Just as the managers of Ebel-Jellinek, anAmerican-Swiss group, said when they boughtthe Look brand: the company is making a lossbut the brand hasn’t lost its potential. Balancesheets reflect bad management decisions inthe past, whereas the brand is a potentialsource of future profits. This potential willbecome actual profit only if it can meet aviable economic equation.It is important to realise that in accountingand finance, goodwill is in fact the differencebetween the price paid and the book value ofthe company. This difference is brought aboutby the psychological goodwill of consumers,distributors and all the actors in the channels:that is to say, favourable attitudes and predis-position. Thus, a close relationship existsbetween financial and marketing analyses ofbrands. Accounting goodwill is the monetaryvalue of the psychological goodwill that thebrand has created over time through commu-nication investment and consistent focus on18 WHY IS BRANDING SO STRATEGIC?
product satsifaction, both of which help buildthe reputation of the name.What exactly are the effects of thiscustomer and distributor goodwill?:l The favourable attitude of distributorsthat list some products of the brandbecause of their rotation system. In fact aretailer may lose customers if it does notstock products of a well-known brand thatby definition is present everywhere. Thatis to say, certain customers will go else-where to look for the brand. This goodwillensures the presence of the brand at thepoint of sale.l The support of wholesalers and resellers inthe market for slow-moving or industrialgoods. This is especially true when they areseen as being an exclusive brand withwhich they are able to associate themselvesin the eyes of their customers.l The desire of consumers or end-users to buythe product. It is their favourable attitudeand in certain cases the attachment or evenloyalty to the brand that is the key to futuresales. Brand loyalty may be reduced to aminimum as the price difference betweenthe brand and its competitors increases butattachment to the brand does not vanish sofast; it resists time.The brand is a focal point for all the positiveand negative impressions created by the buyerover time as he or she comes into contact withthe brand’s products, distribution channel,personnel and communication. On top ofthis, by concentrating all its marketing efforton a single name, the latter acquires an aura ofexclusivity. The brand continues to be, at leastin the short term, a byword for quality evenafter the patent has expired. The life of thepatent is extended thanks to the brand, thusexplaining the importance of brands in thepharmaceutical or the chemical industry (seepage 108).Brands are stored in clients’ memories, sothey exert a lasting influence. Because of this,they are seen as an asset from an accountingpoint of view: their economic effects extendfar beyond the mere consumption of theproduct.In order to understand in what way a strongbrand (having acquired distribution,awareness and image) is a generator of growthand profitability it is first necessary to under-stand the functions that it performs with theconsumers themselves, and which are thesource of their valuable goodwill.How brands create value for thecustomerAlthough this book deals primarily withbrands and their optimisation, it is importantto clarify that brands do not necessarily existin all markets. Even if brands exist in the legalsense they do not always play a role in thebuying decision process of consumers. Otherfactors may be more important. For example,BRAND EQUITY IN QUESTION 19Table 1.3 Brand financial valuation, 2007Rank Brand Value (US$ billion)1 Google 66,4342 GE 61,8803 Microsoft 54,9514 Coca Cola 44,1345 China Mobile 41,2146 Marlboro 39,1667 Wal-Mart 36,8808 Citi 33,7069 IBM 33,57210 Toyota 33,42711 McDonald’s 33,13812 Nokia 31,67013 Bank of America 28,76714 BMW 25,75115 Hewlett-Packard 24,98716 Apple 24,72817 UPS 24,580Sources: Brand Z, Milward Brown
research on ‘brand sensitivity’ (Kapferer andLaurent, 1988) shows that in several productcategories, buyers do not look at the brandwhen they are making their choice. Who isconcerned about the brand when they arebuying a writing pad, a rubber, felt-tip pens,markers or photocopy paper? Neither privateindividuals nor companies. There are nostrong brands in such markets as sugar andsocks. In Germany there is no national brandof flour. Even the beer brands are mostlyregional. Location is key with the choice of abank.Brands reduce perceived risk, and exist assoon as there is perceived risk. Once the riskperceived by the buyer disappears, the brandno longer has any benefit. It is only a name ona product, and it ceases to be a choice cue, aguide or a source of added value. Theperceived risk is greater if the unit price ishigher or the repercussions of a bad choice aremore severe. Thus the purchase of durablegoods is a long-term commitment. On top ofthis, because humans are social animals, wejudge ourselves on certain choices that wemake and this explains why a large part of oursocial identity is built around the logos andthe brands that we wear. As far as food isconcerned, there is a certain amount ofintrinsic risk involved whenever we ingestsomething and allow it to enter our bodies.The brand’s function is to overcome thisanxiety, which explains, for example, theimportance of brands in the market for spiritssuch as vodka and gin.The importance of perceived risk as agenerator of the legitimacy of a brand is high-lighted by the categories within which distrib-utors’ own-brands (and perhaps tomorrow’sdiscount products) dominate: cannedvegetables, milk, orange juice, frozen pizzas,bottled water, kitchen roll, toilet paper andpetrol. At the same time producers’ brandsstill have a dominant position in thefollowing categories: coffee, tea, cereals,toothpaste, deodorant, cold sauces, freshpasta, baby food, beauty products, washingpowder, etc. For these products the consumerhas high involvement and does not want totake any risks, be they physical or psycho-logical.Nothing is ever acquired permanently, andthe degree of perceived risk evolves over time.In certain sectors, as the technology becomescommonplace, all the products comply withstandards of quality. Therefore we are movingfrom a situation where some products ‘failed’whereas others ‘passed’, towards one where allcompetitors are excellent, but some are ‘moreexcellent’ than others. The degree of perceivedrisk will change depending on the situation.For example, there is less risk involved inbuying rum or vodka for a cocktail than for arum or vodka on the rocks. Lastly, allconsumers do not have the same level ofinvolvement. Those who have highinvolvement are those that worry about smalldifferences between products or who wish tooptimise their choice: they will talk for hoursabout the merits of such and such a computeror of a certain brand of coffee. Those who areless involved are satisfied with a basic productwhich isn’t too expensive, such as a gin or awhisky which may be unknown but seems tobe good value for money and is sold in theirlocal shop. The problem for most buyers whofeel a certain risk and fear making a mistake isthat many products are opaque: we can onlydiscover their inner qualities once we buy theproducts and consume them. However, manyconsumers are reluctant to take this step.Therefore it is imperative that the externalsigns highlight the internal qualities of theseopaque products. A reputable brand is themost efficient of these external signals.Examples of other such external indicators are:price, quality marks, the retail outlet where theproduct is sold and which guarantees it, thestyle and design of the packaging.How brand awareness means valueRecent marketing research shows that brandawareness is not a mere cognitive measure. It is20 WHY IS BRANDING SO STRATEGIC?
in fact correlated with many valuable imagedimensions. Awareness carries a reassuringmessage: although it is measured at the indi-vidual level, brand awareness is in fact acollective phenomenon. When a brand isknown, each individual knows it is known.This leads to spontaneous inferences. As isshown in Table 1.4, awareness is mostly corre-lated with aspects such as high quality, trust,reliability, closeness to people, a good quality/price ratio, accessibility and traditional styling.However it has a zero correlation with innova-tiveness, superior class, style, seduction: ifaspects such as these are key differentiationfacets of the brand, they must be earned ontheir own merit.Transparent and opaque productsAt this stage it is interesting to remindourselves of the classifications drawn up byNelson (1970) and by Darby and Kami (1973).These authors make the distinction betweenthree types of product characteristics:l the qualities which are noticed by contact,before buying;l the qualities which are noticed uniquely byexperience, thus after buying;l credence qualities which cannot be verifiedeven after consumption and which youhave to take on trust.The first type of quality can be seen in thedecision to buy a pair of men’s socks. Thechoice is made according to the visible charac-teristics: the pattern, the style, the material,the feel, the elasticity and the price. There ishardly a need for brands in this market. In factthose that do exist only have a very smallmarket share and target those people who arelooking for proof of durability (difficult to tellbefore buying) or those who wish to be fash-ionable. This is how Burlington socks work asa hallmark of chic style. Producers’ brands doexist but their differential advantagecompared to distributors’ brands (Marks &Spencer or C&A) is weak, especially if thelatter have a good style department and offer awide variety at a competitive price.A good example of the second type ofquality is the automobile market. Of course,performance, consumption and style can allbe assessed before buying, as can the avail-ability of options and the interior space.However, road-holding, the pleasure ofdriving, reliability and quality cannot beentirely appreciated during a test drive. Theresponse comes from brand image; that is, thecollective representation which is shaped overtime by the accumulated experiences ofoneself, of close relations, by word of mouthand advertising.Finally, in the market for upmarket cars, thefeeling that you have made it, that feeling offulfilment and personal success throughowning a BMW is typically the result of purefaith. It cannot be substantiated by any of theBRAND EQUITY IN QUESTION 21Table 1.4 How brand awareness createsvalue and image dimensions (correlationsbetween awareness and image)Good quality/price ratio 0.52Trust 0.46Reliable 0.44Quality 0.43Traditional 0.43Best 0.40Down to earth 0.37Client oriented 0.37Friendly 0.35Accessible 0.32Distinct 0.31A leader 0.29Popular 0.29Fun 0.29Original 0.27Energetic 0.25Friendly 0.25Performing 0.22Seductive 0.08Innovative 0.02(Base: 9,739 persons, 507 brands)Source: Schuiling and Kapferer, 2004
post-purchase driving experiences: it is acollective belief, which is more or less sharedby the buyers and the non-buyers. The samelogic applies to the feeling of authenticity andinner masculinity which is supposed to resultfrom smoking Marlboro cigarettes.The role of brands is made clearer by thisclassification of sought-after qualities. Thebrand is a sign (therefore external) whosefunction is to disclose the hidden qualities ofthe product which are inaccessible to contact(sight, touch, hearing, smell) and possiblythose which are accessible through experiencebut where the consumer does not want to takethe risk of trying the product. Lastly, a brand,when it is well known, adds an aura of make-believe when it is consumed, for example theauthentic America and rebellious youth ofLevi’s, the rugged masculinity of Marlboro,the English style of Dunhill, the Californianmyth of Apple.The informational role of the brand variesaccording to the product or service, theconsumption situation and the individual.Thus, a brand is not always useful. On the otherhand, a brand becomes necessary once theconsumer loses his or her traditional referencepoints. This is why there is an increase in thedemand for branded wine. Consumers wereput off by too many small chateaux which wererarely the same and had limited production ofvarying quality and which sometimes sprungsome unpleasant surprises. This paved the wayfor brands such as Jacob’s Creek and Gallo.A brand provides not only a source of infor-mation (thus revealing its values) butperforms certain other functions which justifyits attractiveness and its monetary return(higher price) when they are valued by buyers.What are these functions? How does a brandcreate value in the eyes of the consumer? Theeight functions of a brand are presented inTable 1.5. The first two are mechanical andconcern the essence of the brand; that is, tofunction as a recognised symbol in order tofacilitate choice and to gain time. Thefollowing three functions reduce theperceived risk. The last three have a morepleasurable side to them. Ethics show thatbuyers are expecting, more and more, respon-sible behaviour from their brands. ManySwedish consumers still refuse Nestlé’s22 WHY IS BRANDING SO STRATEGIC?Table 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 theshelf 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 theproduct or service.Optimisation To be sure of buying the best product in its category, the best performer for aparticular 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 brandthat you have been consuming for years.Hedonistic Enchantment linked to the attractiveness of the brand, to its logo, to itscommunication and its experiential rewards.Ethical Satisfaction linked to the responsible behaviour of the brand in its relationshipwith society (ecology, employment, citizenship, advertising which doesn’t shock).
products due to the issue of selling Nestlé’sbaby milk to poor mothers in Africa.These functions are neither laws nor dues,nor are they automatic; they must bedefended at all times. Only a few brands aresuccessful in each market thanks to theirsupporting investments in quality, R&D,productivity, communication and research inorder to better understand foreseeablechanges in demand. A priori, nothingconfines these functions to producers’ brands.Moreover, several producers’ brands do notperform these functions. In Great Britain,Marks & Spencer (St Michael) is seen as animportant brand and performs these func-tions, as do Migros in Switzerland, the Gap,Zara, Ikea and others.The usefulness of these functions dependson the product category. There is less need forreference points or risk reducers when theproduct is transparent (ie its inner qualitiesare accessible through contact). The pricepremium is at its lowest and trial costs verylittle when there is low involvement and thepurchase is seen as a chore, eg trying a new,cheaper roll of kitchen paper or aluminiumfoil. Certain kinds of shops aim primarily atfulfilling certain of these functions, forexample hard discounters who have 650 lineswith no brands, a product for every need, atthe lowest prices and offering excellentquality for the price (thanks to the work onreducing all the costs which do not add valuecarried out in conjunction with suppliers).This formula offers another alternative to thefirst five functions: ease of identification onthe shelf, practicality, guarantee, optimisationat the chosen price level and characterisation(refusal to be manipulated by marketing). Theabsence of other functions is compensated forby the very low price.Functional analysis of brand role can facil-itate the understanding of the rise of distrib-utors’ own brands. Whenever brands are justtrademarks and operate merely as a recog-nition signal or as a mere guarantee of quality,distributors’ brands can fulfil these functionsas well and at a cheaper price.Table 1.6 summarises the relationshipsbetween brand role and distributors’ own-brands’ market share.How brands create value for thecompanyWhy do financial analysts prefer companieswith strong brands? Because they are less risky.Therefore, the brand works in the same way forthe financial analyst as for the consumer: thebrand removes the risk. The certainty, the guar-antee and the removal of the risk are includedin the price. By paying a high price for aBRAND EQUITY IN QUESTION 23Table 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, Stronghigh-quality performance paint, servicesPersonalising one’s choice Perfumes, clothing StrongPermanence, bonding, Old brands Strong but challengedfamiliarity relationshipPleasure Polysensual brands, luxury brands StrongEthics and social responsibility Trust brands, corporate brands Strong but challenged
company with brands the financial analyst isacquiring near certain future cashflows.If the brand is strong it benefits from a highdegree of loyalty and thus from stability offuture sales. Ten per cent of the buyers ofVolvic mineral water are regular and loyal andrepresent 50 per cent of the sales. The repu-tation of the brand is a source of demand andlasting attractiveness, the image of superiorquality and added value justifies a premiumprice. A dominant brand is an entry barrier tocompetitors because it acts as a reference in itscategory. If it is prestigious or a trendsetter interms of style it can generate substantialroyalties by granting licences, for example, atits peak, Naf-Naf, a designer brand, earnedover £6 million in net royalties. The brand canenter other markets when it is well known, is asymbol of quality and offers a certain promisewhich is valued by the market. The Palmolivebrand name has become symbolic of mildnessand has been extended to a number ofmarkets besides that of soap, for exampleshampoo, shaving cream and washing-upliquid. This is known as brand extension (seeChapter 12) and saves on the need to createawareness if you had to launch a new producton each of these markets.In determining the financial value of thebrand, the expert must take into account thesources of any additional revenues which aregenerated by the presence of a strong brand.Additional buyers may be attracted to aproduct which appears identical to anotherbut which has a brand name with a strongreputation. If such is the company’s strategythe brand may command a premium price inaddition to providing an added margin due toeconomies of scale and market domination.Brand extensions into new markets can resultin royalties and important leverage effects. Tocalculate this value, it is necessary to subtractthe costs involved in brand management: thecosts involved in quality control and ininvesting in R&D, the costs of a national,indeed international, sales force, advertisingcosts, the cost of a legal registration, the costof capital invested, etc. The financial value ofthe brand is the difference between the extrarevenue generated by the brand and the asso-ciated costs for the next few years, which arediscounted back to today. The number ofyears is determined by the business plan of thevaluer (the potential buyer, the auditors). Thediscount rate used to weigh these future cash-flows is determined by the confidence or thelack of it that the investor has in his or herforecasts. However, a significant fact is thatthe stronger the brand, the smaller the risk.Thus, future net cashflows are consideredmore certain when brand strength is high.Figure 1.2 shows the three generators ofprofit of the brand: the price premium, moreattraction and loyalty, and higher margin.These effects work on the original market forthe brand but they can be offered subse-quently on other markets and in otherproduct categories, either through directbrand extension (for example, Bic movedfrom ballpoint pens to lighters to disposablerazors and recently to sailboards) or throughlicensing, from which the manufacturerbenefits from royalties (for example all theluxury brands, and Caterpillar).Once these levers are measured in euros,yen, dollars or any other currency they mayserve as a base for evaluating the marginalprofit which is attributable to the brand. Theyonly emerge when the company wishes tostrategically differentiate its products. Thiswish can come about through three types ofinvestment:l Investment in production, productivity andR&D. Thanks to these, the company canacquire specific know-how, a knack whichcannot be imitated and which inaccounting terms is also an intangible asset.Sometimes the company temporarily blocksnew entrants by registering a patent. This isthe basis of marketing in the pharmaceu-tical industry (a patent and a brand) but alsoof companies like Ferrero, whose productsare not easily imitated despite their success.24 WHY IS BRANDING SO STRATEGIC?
Patents are on their own an intangible asset:the activity of the company benefits fromthem in a lasting manner.l Investment in research and marketingstudies in order to get new insights, to antic-ipate the changes of consumers’ tastes andlife-styles in order to define any importantinnovations which will match these evolu-tions. Chrysler’s Minivan is an example of aproduct created in anticipation of thedemands of baby boomers with tall children.An understanding of the expectations ofdistributors is also needed, as they are anessential component of the physical prox-imity of brands. Nowadays a key element ofbrand success is understanding and adaptingto the logic of distributors, and developinggood relations with the channels (eventhough it is still necessary when valuing abrand to make a distinction between whatpart of its sales is due to the power of thecompany and what part to the brand itself).l Investment in listing allowances, in thesales force and merchandising, in trademarketing and, naturally, in communi-cating to consumers to promote theuniqueness of the brand and to endow itwith saliency (awareness), perceiveddifference and esteem. The hidden intrinsicqualities or intangible values which areassociated with consumption would beunknown without brand advertising.BRAND EQUITY IN QUESTION 25CORPORATERESOURCESEXTENDING BRAND EQUITYBEYOND ITS CATEGORY AND COUNTRYMKTG INVESTMENTSFORECASTING CHANGESOF CONSUMER VALUESAND LIFE-STYLESBRAND RELEVANCEAND ADAPTATION TOITS PRESENT MARKETPERCEIVED VALUEVIS-À-VIS COMPETITIONINCREMENTALATTRACTIONAND LOYALTYINVESTMENTS:PRODUCTIVITY, R&DKNOW-HOW, PATENTSLEVEL OFOBJECTIVE QUALITYCOST OF QUALITYCOMPETITION– OTHER BRANDS– DOBS– HARD DISCOUNTLEVEL OFSUSTAINABLEPRICE PREMIUMDISTRIBUTIONINVESTMENTS(PROXIMITY,AVAILABILITY)AND COMMUNICATIONSHARE OF VOICESHARE OF MINDSHARE OF SHELFCUSTOMERS– INVOLVEMENT– PRICE SENSITIVITY– BUYING CRITERIACOST ADVANTAGESDUE TO MARKETLEADERSHIPBRAND SALIENCYFigure 1.2 The levers of brand profitability
The value of the brand, and thus the legit-imacy of implementing a brand policy,depends on the difference between themarginal revenues and the necessary marginalcosts associated with brand management.How brand reputation affects theimpact of advertisingBrands are a form of capital that can slowly bebuilt, while in the meantime one is growingbusiness. Of course it is very possible to grow abusiness without creating such brand capital:a push strategy or a price strategy can deliverhigh sales and market share without buildingany brand equity. This is the case for manyprivate labels or own-label brands, forinstance. The volume leader in the market forScotch whisky in France is not Johnnie Walkeror Ballantines or Famous Grouse but WilliamPeel, a local brand that aimed all its efforts atthe trade (hypermarkets) and sells at a lowprice. It has almost no saliency (spontaneousbrand awareness).Now managers are being asked to buildboth business and brand value. Their salary isindexed on these two yardsticks: sales andreputation. One should not see them asseparate, leading to a kind of schizophrenia.Chaudhuri’s very relevant research (2002)reminds us that advertising and marketing arethe key levers of sales. However, their effectson market share and the ability to charge apremium price (two indicators of brandstrength) are not direct but are mediated bybrand reputation (or esteem). In fact, asshown by the path coefficients of Figure 1.3,brand reputation is created by familiarity(I know it well, I use it a lot) and by brandperceived uniqueness (this brand is unique, isdifferent, there is no substitute). Advertisingdoes play a key role in building sales, but ithas no direct impact on gaining both marketshare and premium price. This is most inter-esting: in brief, it is only by building a reputa-tional capital that both a higher market shareand price premium can be obtained.Reputation also adds to the impact of adver-tising on sales. It is well known from evalua-tions of past campaigns that the more a brandis known, the more its advertisements arenoticed and remembered. It is high time tostop treating brands and commerce asopposing forces.Corporate reputation and thecorporate brandIn 2003 Velux, which had become known asthe number one brand for roof windows inthe world, realised it needed to create acorporate brand. It felt that merely to competethrough its product brand was not enough to26 WHY IS BRANDING SO STRATEGIC?Figure 1.3 Branding and salesReprinted from the Journal of Advertising Research, copyright 2002, by the Advertising Research FoundationBrandadvertisingBrandreputationNumber ofcompetitorsBrandfamiliarityBrand salesMarket shareRelative priceBranduniqueness0.41*p<0.10All other paths p<0.50.56–0.170.11*0.420.270.230.19
protect it against the growing number of me-toos all over the world. In addition, its brandequity was stagnating. When any brandreaches a level of 80 per cent of top-of-mindawareness in its category, part of its ‘stag-nation’ is certainly due to a ceiling effect:there is not much room for improvement.However, the company felt that emotionalbonding with its brand was not strongenough. Could the product brand aloneimprove the bond? The diagnosis was that itwas high time to reveal ‘the brand behind thebrand’ (Kapferer, 2000) and start building acorporate brand.In fact many companies that based theirsuccess on product brands have now decidedto create a corporate brand in order to makecompany actions, values and missions moresalient and to diffuse specific added values.Unilever should soon develop some kind ofcorporate visibility, as Procter & Gamble doesin Asia at this time and will probably do every-where soon.There is another reason that corporatebrands are a new hot managerial topic: thedefence of reputation. Companies havebecome very sensitive about their reputation.Formerly they used to be sensitive about theirimage. Why this change? Isn’t image(perception) the basis on which global evalua-tions are formed (and thus reputation)? It islikely that the term ‘image’ has lost itsglamour. It seems to have fallen into disreputeprecisely because there was too muchpublicity about ‘image makers’, as if imagewas an artificial construction. Reputation hasmore depth, is more involving: it is ajudgement from the market which needs to bepreserved. In any case reputation has becomea byword, as witnessed by the annual surveyson the most respected companies that arenow made in almost all countries, modelledon Fortune’s ‘America’s most admiredcompanies’. Reputation signals that althoughthe company has many different stake-holders, each one reacting to a specific facet ofthe company (as employee, as supplier, asfinancial investor, as client), in fact they areall sensitive to the global ability of thecompany to meet the expectations of all itsstakeholders. Reputation takes the companyas a whole. It reunifies all stakeholders and allfunctions of the corporation.Because changes in reputation affect allstakeholders, companies monitor and managetheir reputation closely. Fombrun has diag-nosed that global reputation is based on sixfactors or ‘pillars’ (Fombrun, Gardberg andSever, 2000):l emotional appeal (trust, admiration andrespect);l products and services (quality, innova-tiveness, value for money and so on);l vision and leadership;l workplace quality (well-managed, appealingworkplace; employee talent);l financial performance;l social responsibility.Since companies cannot grow without advo-cates and the support of their many stake-holders, they need to build a reputationalcapital among all of them; plus a global repu-tation, because even specialised stakeholderswish the company to be responsive to allstakeholders. There is a link between repu-tation and share performance.As a consequence of this growth of thereputational concept, companies haverealised they cannot stay mute, invisible,opaque. They must manage their visibilityand that of their actions in order to maximisetheir reputational capital – in fact theirgoodwill, to speak like financiers. Thecorporate brand will be more and morepresent and visible: through art sponsorship,foundations, charities, advertising. As such itaddresses global targets. The corporate brandspeaks on behalf of the company, signals thecompany’s presence. Now companies are alsodeveloping specialised corporate brands suchBRAND EQUITY IN QUESTION 27
as ‘You’ (the recruiting brand of Unilever), orspecialised campaigns (such as semi-annualfinancial roadshows).Corporate brands have therefore taken anew importance since they speak on behalf ofthe company, signal its presence and actions:in fact they draw the company’s profile in theeyes of all those who do not have direct inter-actions with it. In our world people react moreand more to names and reputations, torumours and word of mouth. They do not seethe headquarters or the factories any more.Often delocalised, corporations appearthrough the press, publicity, PR, advertising,financial reports, trade union reports, all sortsof communications, and of course theirproducts and services. Managing the corporatebrand and its communication meansmanaging this profile. The methods to do soare not specific: they rely as do all brands onidentity. They also rely on the markets.What then is the difference betweencorporate brand methods and the product brandmethods developed in this book? Companies dohave an internal identity, core values that bearon the profile they wish to, or can, expressoutwardly. Companies and corporations arebodies with a soul (from the Latin, corpus). (Theyare enacted by people.) Product brands are moreimaginary constructions, relying on intangiblevalues which have been invented to fulfil theneeds of clients. Ralph Lauren’s or Marlboro’sintangible values are pure constructions. Itcannot be the same for companies. Reality leavesfewer degrees of freedom.Second, since brand management is bothidentity and market oriented, corporatebrands must tailor their profile to meet theexpectations of multiple publics. The corevalue must be tailored for this global audience,which symbolically has to ‘buy’ the company,as a supplier, an employee or an investor.Managing the reputation of the name,through (among other methods) the commu-nication of the corporate brand, is aimed atmaking the company their first choice.As to the very hot topic of the financialvalue of reputation, a conceptual distinctionmust be made: at the corporate level, this iscalled goodwill (the excess of stock value overbook value). Now, the larger part of thisgoodwill is attributable to the financial valueof the brand as commercial brand. Thisfinancial value is usually measured by thediscounted cashflow method. This shows thatthe financial value of the brand, be it productbrand or corporate brand, can only be tracedthrough prospective sales (see Chapter 18).How do corporate brands relate to productbrands? The latter are there to create clientgoodwill, build growth and profits. In modernmature markets, consumers do not make acomplete distinction between the productbrand and the corporation: what the corpo-ration does impacts their evaluation of itsbrands, especially if they share the same nameas the corporation or are visibly endorsed bythe former. The issue of branding architec-tures with the four structural types of rela-tionship (independence; umbrella;endorsement; source or branded house) willbe covered in Chapter 13. It has strategicimplications in terms of the spillover effects(Sullivan, 1988) the organisation might ormight not want to capitalise on, and in termsof bolstering confidence in the product(Brown and Dacin, 1997), if this is necessary,which is not always the case. For instanceLVMH, the world’s leading luxury group,remains separate from its 41 brands’ commu-nication and marketing: they look inde-pendent. GM endorses its brands: it revealsthe powerful and respected corporationbehind its car marques. GE follows anumbrella strategy: GE Capital Investment, GEMedical Services. A classic strategy, in ourworld of global communication andsynergies, is to use for the corporation thesame name as its best brand. This is how BSNbecame Danone – just as 50 years earlier,Tokyo Tsuhin Kogyo became Sony. As we shallsee, there are strong benefits in doing this.A conceptual issue arises when one speaks,say, of Canon or Nike or Sony or Citibank. Are28 WHY IS BRANDING SO STRATEGIC?
they corporate brands? Are they commercialbrands? Since the company and the brandshare the same name it is difficult to say. Theanswer is that they are both: it depends on thecontext and objectives and target of commu-nication. Naomi Klein’s book No Logo (1999)criticises Nike as a company, for all it tries tohide behind the attractive images and sportsstars of its commercial brand (for the sweat-shops in Asia, the delocalisation of manufac-turing to developing countries, the lack ofreactiveness to critics). To make it clear whospeaks, the corporation or the brand, somecompanies have chosen to differentiate thelogo of each source of communication:Nestlé’s corporate logo is not that of Nestlé asa commercial brand (which itself is differen-tiated by product category).The case is more acute still for servicecompanies: can one differentiate Barclay’s Bankor Orange as a brand and as a corporate brand?Since both share the same employees this ismore difficult, although looking at the objec-tives and target of the communication shouldhelp. This is why the issue of brand alignment(Ind, 2001) has become so important: thecorporation has to align on its brand values. Itswhole business should be brand driven.BRAND EQUITY IN QUESTION 29
Many companies have forgotten the funda-mental purpose of their brands. A great deal ofattention is devoted to the marketing activityitself, which involves designers, graphicartists, packaging and advertising agencies.This activity thus becomes an end in itself,receiving most of the attention. In so doing,we forget that it is just a means. Branding isseen as the exclusive prerogative of themarketing and communications staff. Thisundervalues the role played by the other partsof the company in ensuring a successfulbranding policy and business growth.Yet the marketing phase, which we nowconsider indispensable, is the terminal phaseof a process that involves the company’sresources and all of its functions, focusingthem on one strategic intent: creating adifference. Only by mobilising all of itsinternal sources of added value can acompany set itself apart from its competitors.What does branding really mean?Branding means much more than just giving abrand name and signalling to the outsideworld that such a product or service has beenstamped with the mark and imprint of anorganisation. It requires a corporate long-terminvolvement, a high level of resources andskills.Branding consists in transforming theproduct categoryBrands are a direct consequence of the strategyof market segmentation and product differenti-ation. As companies seek to better fulfil theexpectations of specific customers, theyconcentrate on providing the latter, consis-tently and repeatedly, with the ideal combi-nation of attributes – both tangible andintangible, functional and hedonistic, visibleand invisible – under viable economic condi-tions for their businesses. Companies want tostamp their mark on different sectors and settheir imprint on their products. It is no wonderthat the word ‘brand’ also refers to the act ofburning a mark into the flesh of an animal as ameans to claim ownership of it. The first task inbrand analysis is to define precisely all that thebrand injects into the product (or service) andhow the brand transforms it:312Strategic implications ofbranding
32 WHY IS BRANDING SO STRATEGIC?l What attributes materialise?l What advantages are created?l What benefits emerge?l What ideals does it represent?This deep meaning of the brand concept isoften forgotten or wilfully omitted. That iswhy certain distributors are often heard saying– as a criticism of many a manufacturer’s brandwhose added value lies only its name – ‘For us,the brand is secondary, there is no need to putsomething on the product.’ Hence, the brandis reduced to package surface and label.Branding, though, is not about being on top ofsomething, but within something. Theproduct or service thus enriched must standout well if it is to be spotted by the potentialbuyer and if the company wants to reap thebenefits of its strategy before being copied byothers.Furthermore, the fact that a delabelled itemis worth more than a generic productconfirms this understanding of branding.According to the ‘brand is just a superficiallabel’ theory, the delabelled productsupposedly becomes worthless when it nolonger carries a brand name, unless itcontinues to bear the brand within. Inpassing, the brand has intrinsically altered it:hence the value of Lacostes without ‘Lacoste’,Adidases without ‘Adidas’. They are worthmore than imitations because the brand,though invisible, still prevails. Conversely, thebrand on counterfeits, though visible, is ineffect absent. This is why counterfeits are soldso cheaply.Some brands have succeeded in provingwith their slogans that they know and under-stand what their fundamental task is: totransform the product category. A brand notonly acts on the market, it organises themarket, driven by a vision, a calling and aclear idea of what the category shouldbecome. Too many brands wish only toidentify fully with the product category,thereby expecting to control it. In fact theyoften end up disappearing within it: Polaroid,Xerox, Caddy, Scotch, Kleenex have thusbecome generic terms.According to the objective the brand setsitself; transforming the category impliesendowing the product with its own separateidentity. In concrete terms, that means thatthe brand is weak when the product is ‘trans-parent’. Talking about ‘Greek olive oil, firstcold pressing’ for example, makes the producttransparent, almost entirely defined and epit-omised by those sole attributes, yet there aredozens of brands capable of marketing thattype of oil. Going from bulk to packaging isalso symptomatic of this phenomenon. Theweakness of fresh vacuum-packed food brandsis partially due to the fact that their pack-aging, though designed to reassure the buyer –such as with sauerkraut in film-wrappedcontainers – only recreates transparency.Significantly, Findus and l’Eggs or Hoses donot just show their products, they show themoff. This is the structural cause of Essilor’sbrand weakness, as perceived by thecustomers. They do not perceive how Essilor,the world leader in optical glass, transformsthe product, nor its input, its added value. Tothem, glass is just glass to which variousoptions can be added (anti-reflecting,unbreakable, etc). The added value seems tobe created solely by the style of the rims(hence the boom in licensing) or the service,both of which are palpable and in the store.What is invisible is not perceived and thusdoes not exist in their eyes. However, theexample of Evian reminds us that it is alwayspossible to make a transparent productbecome opaque. The major mineral waterbrands have been able to exist, grow andprosper only because they have made theinvisible visible. We can no longer choose ourwater haphazardly: good health and purity areassociated with Evian, fitness with Contrex,vitality with Vittel. These various positioningswere justified by the invisible differences inwater contents. Generally speaking, anything
adding to the complexity of ingredients alsocontributes to creating distance vis-à-vis theproduct. In this respect, Coca-Cola is doingthe right thing by keeping its recipe secret.When Orangina was taken over by Pernod-Ricard, its concentrate was remixed intosomething even more complex. AntoineRiboud, the former CEO of Danoneworldwide, expressed a similar concern whendeclaring: ‘It is not yoghurts that I make, butDanones.’A brand is a long-term visionThe brand should have its own specific pointof view on the product category. Major brandshave more than just a specific or dominatingposition in the market: they hold certain posi-tions within the product category. Thisposition and conception both energise thebrand and feed the transformations that areimplemented for matching the brand’sproducts with its ideals. It is this conceptionthat justifies the brand’s existence, its reasonfor being on the market, and provides it with aguideline for its life cycle. How many brandsare capable today of answering the followingcrucial question: ‘What would the market lackif we did not exist?’ The company’s ultimategoal is undoubtedly to generate profit andjobs. But brand purpose is something else.Brand strategy is too often mistaken forcompany strategy. The latter most oftenresults in truisms such as ‘increase customersatisfaction’. Specifying brand purposeconsists in (re)defining its raison d’être, itsabsolute necessity. The notion of brandpurpose is missing in most marketing text-books. It is a recent idea and conveys theemerging conception of the brand, seen asexerting a creative and powerful influence ona given market. If there is power, there isenergy. Naturally, a brand draws its strengthfrom the company’s financial and humanmeans, but it derives its energy from itsspecific niche, vision and ideals. If it does notfeel driven by an intense internal necessity, itwill not carry the potential for leadership. Theanalytical notion of brand image does notclearly capture this dynamic dimension,which is demanded by modern brandmanagement.Thus, many banks put forward thefollowing image of themselves: close to theirclients, modern, offering high-performingproducts and customer service. These featuresare, of course, useful to market researchers incharge of measuring the perceptions sent backby the market and the level of consumer satis-faction. But from which dynamic programmedo they emanate, which vision do theyembody?Certain banks have specified what theirpurpose is: for some it is ‘to change people’srelationship to money’, while for others it isto remind us that money is just a ‘meanstowards personal development’. Several bankshave recently worked at redefining theirsingular reason for existence. All of them willhave to do so in the future. The Amex visionof money is not that of Visa.More than most, multi-segment brandsneed to redetermine their own purpose. Carsare a typical example. A multi-segment brand(also called a generalist brand) wants to coverall market segments. Each model spawnsmultiple versions, thereby theoreticallymaximising the number of potential buyers:diesel, gas, three or five doors, estate, coupé,cabriolet, etc. The problem is that by havingto constantly satisfy the key criteria of eachsegment (bottom range, lower mid-range,upper mid-range and top range), ie to churnout many different versions and to avoid over-typifying a model in order to please everyone,companies tend to create chameleon brands.Apart from the symbol on the car hood or thesimilarities in the car designs, we no longerperceive an overall plan guiding the creativeand productive forces of the company in theconception of these cars. Thus, competitorsfight their battles either over the price or theoptions offered for that price. No longerbrands, they become mere names on a hoodSTRATEGIC IMPLICATIONS OF BRANDING 33
or on a dealer’s office walls. The word has thuslost most of its meaning. What does Opel orFord mean?What unifies the products of a brand is nottheir marque or common external signs, it istheir ‘religion’: what common spirit, visionand ideals are embodied in them.Major brands can be compared to a pyramid(see Figure 2.1). The top states the brand’svision and purpose – its conception of auto-mobiles, for instance, its idea of the types ofcars it wants, and has always wanted, tocreate, as well as its very own values whicheither can or cannot be expressed by a slogan.This level leads to the next one down, whichshows the general brand style of communi-cation. Indeed, brand personality and style areconveyed less by words than by a way of beingand communicating. These codes should notbe exclusively submitted to the fluctuatinginspiration of the creative team: they must bedefined so as to reflect the brand’s uniquecharacter. The next level presents the brand’sstrategic image features: amounting to four orfive, they result from the overall vision andmaterialise in the brand’s products, communi-cation and actions. This refers, for example, tothe positioning of Volvo as a secure, reliableand robust brand, or of BMW as a dynamic,classy prestigious one. Lastly, the productlevel, at the bottom of the pyramid, consistsof each model’s positioning in its respectivesegment.The problem is that consumers look at thepyramid from the bottom up. They start withwhat is real and tangible. The wider the34 WHY IS BRANDING SO STRATEGIC?Brandvisionand purposeCore brand valuesBrand personality codesSemiotic invariantsStrategic benefits and attributes(four or five prioritised)Physical signature: family resemblanceProduct A ... Product B ... Product N ... Typical brand actionsOutside ofbrandterritoryOutside ofbrandterritoryPermanent fluctuations of the marketEvolution of competition, life-styles, technologyFigure 2.1 The brand systemBrandmanagementprocess: top-downBrandperceptionprocess: bottom-up
pyramid base is, the more the customersdoubt that all these cars do indeed emanatefrom the same automobile concept, that theycarry the same brand essence and bear thestamp of the same automobile project. Brandmanagement consists, for its part, in startingfrom the top and defining the way the car isconceived by the brand, in order to determineexactly when a car is deserving of the brandname and when it no longer is – in whichcase, the car should logically no longer bearthe brand name, as it then slips out of itsbrand territory.As automobile history is made of greatsuccesses followed by bitter failures, majormulti-segment brands regularly question theirvision. Thus, after its smash hit models, the205 and 405, Peugeot was somewhatperturbed, both internally and externally, bythe series of setbacks with the 605 and theslow take-off of the 106 and 306. A basicquestion was then asked: ‘Are Peugeots stillPeugeots?’ Answering it implied redefiningthe long-term meaning of the statement ‘It’s aPeugeot’, ie the brand’s long-lasting auto-mobile concept.Internal hesitation about brand identity isoften revealed when searching for slogans.There is no longer a trend toward obvious andmeaningless slogans such as ‘the automobilespirit’, which neither tell us anything aboutthe brand’s automobile ideal, nor help toguide inventors, creators, developers orproducers in making concrete choicesbetween mutually exclusive features: comfortand road adherence, aerodynamism andfeeling of sturdiness, etc.Permanently nurturing thedifferenceOur era is one of temporary advantages. It isoften argued that certain products of differentbrands are identical. Some observers thusinfer that, under these circumstances, a brandis nothing but a ‘bluff’, a gimmick used to tryto stand out in a market flooded with barelydifferentiated products.This view fails to take into account both thetime factor and the rules of dynamic compe-tition. Brands draw attention through thenew products they create and bring onto themarket. Any brand innovation necessarilygenerates plagiarism. Any progress madequickly becomes a standard to which buyersgrow accustomed: competing brands mustthen adopt it themselves if they do not wantto fall short of market expectations. For awhile, the innovative brand will thus be ableto enjoy a fragile monopoly, which is boundto be quickly challenged unless the inno-vation is or can be patented. The role of thebrand name is precisely to protect the inno-vation: it acts as a mental patent, by becomingthe prototype of the new segment it creates –advantage of being a pioneer.If it is true that a snapshot of a given marketoften shows similar products, a dynamic viewof it reveals in turn who innovated first, andwho has simply followed the leader: brandsprotect innovators, granting themmomentary exclusiveness and rewardingthem for their risk-taking attitude. Thus, theaccumulation of these momentary differencesover time serves to reveal the meaning andpurpose of a brand and to justify its economicfunction, hence its price premium.Brands cannot, therefore, be reduced to amere sign on a product, a mere graphiccosmetic touch: they guide a creative process,which yields the new product A today, thenew products B and C tomorrow, and so on.Products come to life, live and disappear, butbrands endure. The permanent factors of thiscreative process are what gives a brand itsmeaning and purpose, its content andattributes. A brand requires time in order forthis accumulation of innovations to yield ameaning and a purpose.As shown in Figure 2.2, brand managementalternates between phases of product differen-tiation and brand image differentiation. TheSTRATEGIC IMPLICATIONS OF BRANDING 35
typical example is Sony, whose advertisingfocuses on innovations when they exist, andon image in between.Brands act as a geneticprogrammeA brand does in fact act as a geneticprogramme. What is done at birth exerts along-lasting influence on market perceptions.Indeed revitalising a brand often starts with re-identifying its forgotten genetic programme(see Chapter 16).Table 2.1 shows how brands are built andexert a long-term influence on customers’memories, which in turn influence their expec-tations, attitudes and degree of satisfaction.In the life of a brand, although they mayhave been forgotten, the early acts have a verystructuring influence. In fact they mould thefirst and long-lasting meaning of this newword that designates Brand X or Brand Y.Once learnt, this meaning gets reinforced andstored in long-term memory. Then a numberof selective processes reinforce the meaning:selective attention, selective perception,selective memory.This is why brand images are hard tochange: they act like fast-setting concrete.This process has many important managerialconsequences. When going international, eachcountry reproduces it. It is of prime importanceto define the products to be launched in rela-tionship with the image one wants to create inthe long term. Too often they are chosen bylocal agents just because they will sell very well.They must do both: build the business andbuild the brand. Brand management intro-duces long-term effects as criteria for evalu-ating the relevance of short-term decisions.36 WHY IS BRANDING SO STRATEGIC?WeakBrandDifferentProductBanalStrongCompetition and me-toos,changes in customers’expectationsFigure 2.2 The cycle of brand managementTable 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
New generations discover the brand atdifferent points in time. Some discovered Fordthrough the Model T, others through theMustang, others through the Mondeo, othersthrough the Focus. No wonder brand imagesdiffer from one generation to another.The memory factor also partly explains whyindividual preferences endure: within a givengeneration, people continue, even 20 yearslater, to prefer the brands they liked betweenthe ages of 7 and 18 (Guest, 1964; Fry et al,1973; Jacoby and Chestnut, 1978).It is precisely because a brand is thememory of the products that it can act as along-lasting and stable reference. Unlikeadvertising, in which the last message seen isoften the only one that truly registers and isbest recalled, the first actions and message of abrand are the ones bound to leave the deepestimpression, thereby structuring long-termperception. In this respect, brands create acognitive filter: dissonant and atypical aspectsare declared unrepresentative, thusdiscounted and forgotten. That is why failuresin brand extensions on atypical products donot harm the brand in the end even thoughthey do unsettle the investors’ trust in thecompany (Loken and Roedder John, 1993).Bic’s failure in perfume is a good example.Making perfumes is not typical of the know-how of Bic as perceived by consumers: sales ofball pens, lighters and razors kept onincreasing.Ridding itself of atypical, dissonantelements, a brand acts as a selective memory,hence endowing people’s perceptions with anillusion of permanence and coherence. That iswhy a brand is less elastic than its products.Once created, like fast-setting concrete it ishard to change. Hence the critical importanceof defining the brand platform. What brandmeaning does one want to create?A brand is both the memory and the futureof its products. The analogy with the geneticprogramme is central to understanding howbrands function and should be managed.Indeed, the brand memory that developscontains the programme for all futureevolution, the characteristics of upcomingmodels and their common traits, as well as thefamily resemblances transcending theirdiverse personalities. By understanding abrand’s programme, we can not only trace itslegitimate territory but also the area in whichit will be able to grow beyond the productsthat initially gave birth to it. The brand’sunderlying programme indicates the purposeand meaning of both former and futureproducts. How then can one identify thisprogramme, the brand DNA?If it exists, this programme can bediscovered by analysing the brand’s foundingacts: products, communication and the mostsignificant actions since its inception. If aguideline or an implicit permanence exists,then it must show through. Research onbrand identity has a double purpose: toanalyse the brand’s most typical productionon the one hand and to analyse the reception,ie the image sent back by the market, on theother. The image is indeed a memory in itself,so stable that it is difficult to modify it in theshort run. This stability results from theselective perception described above. It alsohas a function: to create long-lasting refer-ences guiding consumers among theabundant supply of consumer goods. That isthe reason a company should never turn awayfrom its identity, which alone has managed toattract buyers. Customer loyalty is created byrespecting the brand features that initiallyseduced the buyers. If the products slackenoff, weaken or show a lack of investment andthus no longer meet customer expectations,better try to meet them again than to changeexpectations. In order to build customerloyalty and capitalise on it, brands must staytrue to themselves. This is called a return tothe future.Questioning the past, trying to detect thebrand’s underlying programme, does not meanignoring the future: on the contrary, it is a wayof better preparing for it by giving it roots, legit-imacy and continuity. The mistake is toSTRATEGIC IMPLICATIONS OF BRANDING 37
embalm the brand and to merely repeat in thepresent what it produced in the past, like thenew VW Beetle and other retro-innovations. Infighting competition, a brand’s products mustalways belong intrinsically to their time, but intheir very own way. Rejuvenating Burberrys orHelena Rubenstein means connecting them tomodernity, not mummifying them indeference to a past splendour that we mightwish to revive.Respect the brand ‘contract’Brands become credible only through thepersistence and repetition of their valueproposition. BMW has had the same promisesince 1959. Through time they become a quasicontract, unwritten but most effective. Thiscontract binds both parties. The brand mustkeep its identity, but permanently increase itsrelevance. It must be loyal to itself, to itsmission and to its clients. Each brand is free tochoose its values and positioning, but oncechosen and advertised, they become thebenchmark for customer satisfaction. It is wellknown that the prime determinant ofcustomer satisfaction is the gap betweencustomers’ experiences and their expecta-tions. The brand’s positioning sets up theseexpectations.As a result, customers are loyal to such abrand.This mutual commitment explains whybrands, whose products have temporarilydeclined in popularity, do not necessarilydisappear. A brand is judged over the longterm: a deficiency can always occur. Brandtrust gives products a chance to recover. If not,Jaguar would have disappeared long ago: noother brand could have withstood the detri-mental effect of the decreasing quality of itscars during the 1970s. That is a good illus-tration of one of the benefits a brand brings toa company.The brand contract is economic, not legal.Brands differ in this way from other signs ofquality such as quality seals and certification.Quality seals officially and legally testify thata given product meets a set of specific charac-teristics, previously defined (in conjunctionwith public authorities, producers/manufac-turers and consumers) so as to guarantee ahigher level of quality and distinguishing itfrom similar products. A quality seal is acollective brand controlled by a certificationagency which certifies a given product only ifit complies with certain specifications. Suchcertification is thus never definitive and canbe withdrawn (like ISO).Brands do not legally testify that a productmeets a set of characteristics. However,through consistent and repeated experienceof these characteristics, a brand becomessynonymous with the latter.A contract implies constraints. The brandcontract assumes first of all that the variousfunctions in the organization all converge:R&D, production, methods, logistics,marketing, finance. The same is true of servicebrands: as the R&D and production aspectsare obviously irrelevant in this case, theresponsibility for ensuring the brand’s conti-nuity and cohesion pass to the managementand staff, who play an essential role inclientele relationships.The brand contract requires internal as wellas external marketing. Unlike quality seals,brands set their own ever-increasing stan-dards. Therefore, they must not only meet thelatter but also continuously try to improve alltheir products, even the most basic ones, espe-cially if they represent most of their sales andhence act as the major vehicle of brand image;in so doing, they will be able to satisfy theexpectations of clients who will demand thatthe products keep pace with technologicalchange. They must also communicate andmake themselves known to the outside worldin order to become the prototype of asegment, a value or a benefit. This is a lonelytask for brands, yet they must do it to get theuniqueness and lack of substitutability theyneed. The brand will have to support its38 WHY IS BRANDING SO STRATEGIC?
internal and external costs all on its own.These are generated by the brand require-ments, which are to:l Closely forecast the needs and expectationsof potential buyers. This is the purpose ofmarket research: both to optimise existingproducts and to discover needs and expec-tations that have yet to be fulfilled.l React to technical and technologicalprogress as soon as it can to create acompetitive edge both in terms of cost andperformance.l Provide both product (or service) volumeand quality at the same time, since thoseare the only means of ensuring repeatpurchases.l Control supply quantity and quality.l Deliver products or services to intermedi-aries (distributors), both consistently overtime and in accordance with their require-ments in terms of delivery, packaging andoverall conditions.l Give meaning to the brand and commu-nicate its meaning to the target market,thereby using the brand as both a signaland reference for the product’s (or service’s)identity and exclusivity. That is whatadvertising budgets are for.l Increase the experiential rewards ofconsumption or interaction.l Remain ethical and ecology-conscious.Strong brands thus bring about both internalmobilisation and external federalisation.They create their company’s panache andimpetus. That is why some companies switchtheir own name for that of one of their starbrands: BSN thus became Danone, CGEbecame Alcatel. In this respect, the impact ofstrong brands extends far beyond mostcorporate strategies. These only last whilethey are in the making, after which theyeither vanish or wind up as pompous phrases(‘a passion for excellence’) posted inhallways. In any case, the corporate brand isthe organisation’s external voice and, assuch, it remains both demanding and deter-mined to constantly outdo itself, to aim everhigher.Becoming aware that the brand is a contractalso means taking up many other responsibil-ities that are all too often ignored. In thefashion market, even if creators wish to changeafter a while, they cannot entirely forget abouttheir brand contract, which helped them to getknown initially, then recognised and even-tually praised.In theory, both the brand’s slogan andsignature are meant to embody the brandcontract. A good slogan is therefore oftenrejected by managing directors because itmeans too much commitment for thecompany and may backfire if the products/services do not match the expectations thebrand has created so far. In too many casesbrands are seen as mere names: this is veryevident in some innovations committeemeetings, where new products are reallocatedto different brands of the portfolio manytimes in the same meeting. One brand nameor another is perceived as making nodifference. Taking the brand seriously, as it is(that is, as a contract) is much moredemanding. It also provides higher returns.The product and the brandSince the early theorisation on the brand, therehas been much discussion on the relationshipof brands to products. How do the conceptsdiffer? How are they mutually interrelated? Onthe one hand, many a CEO repeats to his or herstaff that there is no brand without a greatproduct (or service), in order to stimulate theirinnovativeness and make them think of theproduct as a prime lever of brand competi-tiveness. On the other hand, there is ampleevidence that market leaders are not the bestSTRATEGIC IMPLICATIONS OF BRANDING 39
product in their market. To be the ‘best product’in a category means to compete in the premiumtier, which is rarely a large segment. Certainlywithin the laundry detergent category, marketleaders such as Tide, Ariel and Skip are thosedelivering the best performance for heavy-dutylaundry, but in other cases it is the brand withthe best quality/price ratio that is market leader.Dell is a case in point. Are Dell’s computers thebest? Surely not. But who really needs a ‘bestcomputer’? What would be the criterion forevaluation? ‘Best’ is a relative concept,depending on the value criteria used toestablish comparisons and identify the ‘best’. Infact the market is segmented: the largestproportion of the public, and even most of theB2B segment, wants a modern, reliable, cheapcomputer. Thanks to its build-to-order businessmodel, Dell was able to innovate and becomethe leader of that segment. Co-branded ‘Intelinside’, it reassures buyers and surprises them byits astonishing price and one-to-one customi-sation: each person makes his or her owncomputer. Is Swatch the best watch? Surely noteither. But in any case this is not what is askedby Swatch buyers: they buy convenience andstyle, not long-lasting superior ‘performance’,whatever this may mean.It is time to look deeper into thebrand–product relationship. Looking athistory, most brands are born out of a productor service innovation which outperformed itscompetitors. A superior product/service wasthe determining factor of the launchcampaign. Later, as the product name evolvesinto a brand, customers’ reasons for purchasemay still be the brand’s ‘superior performanceimage’, although in reality that performancehas been matched by new competitors. Thishas been the basis of Volkswagen’s leadershipand price premium: a majority of consumerskeeps on believing that Volkswagen cars arethe most reliable ones. The new Golf Five,launched in September 2003, 30 years after thefirst Golf, is 10 per cent more expensive thanits two European rivals, the Peugeot 307 andthe Renault Megane. This quality reputation iscrucial for Golf and for Volkswagen itself: thismodel used to represent 28 per cent of its salesand almost half its operating profit. WhenGolf 4 sales fell by 17.9 per cent over 12months, Volkswagen’s operating profit felltoo, by 56 per cent.As all tests and garage repair records demon-strate, Volkswagen quality has now beenmatched and even bypassed by Toyota, but forbuyers, perception is reality. Brand assets aremade of what people believe. As for rumours(Kapferer, 2004), the more people believe arumour, the more strongly their belief is held.Why would so many people be completelywrong? It took 20 years for Toyota to shakethe belief among US consumers thatVolkswagen cars are the most reliable: it takestime to prove one’s reliability. Often, to gofaster it is best to target a new generation ofdrivers with an open mind.Looking at competitive behaviour, it seemsthat brands alternate in their focus. They capi-talise on their image, then innovate torecreate or nurture the belief of product supe-riority (on some consumer benefit), thenrecapitalise on their image, and so on (Figure2.2). Sony’s advertising is very typical of thispendulum behaviour: it alternates ads thatintroduce new products and pure image adswith no specific material content or superi-ority content. These latter ads maintain brandsaliency (Ehrenberg et al, 2002).Figure 2.3 summarises the product–brandrelationship.Suppose a consumer wants to buy a new carbecause of the birth of his or her fourth child.This major event creates a new set of expecta-tions, some tangible, some intangible. Theconsumer wishes to buy a minivan, with twosliding doors, high flexibility within thecabin, and of course a reliable, secure brand,with credentials and some status. By lookingat Internet sites, at magazines and visitingdealers, it is possible to identify those modelswith the requested visible attributes (size, flex-ibility, sliding doors). Now what about theinvisible attributes, like the experiential ones40 WHY IS BRANDING SO STRATEGIC?
(driving pleasure) or those one has to believeon faith, such as reliability? Obviously, theseattributes do or do not belong to the brand’sreputational capital. They cannot beobserved. This is one of the key roles ofbrands: to guarantee, to reassure customersabout desired benefits which constitute theexclusive strength of the brand, also called itspositioning.Psychologists have also identified the haloeffect as a major source of value created by thebrand: the fact that knowing the name of thebrand does influence consumer’s perceptionof the product advantages beyond what thevisible cues had themselves indicated, not tospeak of the invisible advantages.Finally, attached to the brand there arepure intangible associations, which stemfrom the brand’s values, vision, philosophy,its typical buyer, its brand personality and soon. These associations are the source ofemotional ties, beyond product satisfaction.In fact, in the car industry, they are the locusof consumers’ desire to possess a brand. Somebrands sell very good products at fair pricebut lack thrill or desire: they cannotcommand a price premium in their segment.Their dealers will have to give more rebates(which undermine brand value and businessprofitability).Figure 2.3 reminds us of the double natureof brands. People buy branded products orservices, but branding is a not a substitute formarketing. Both are needed. Marketing aimsat forecasting the needs of specific consumersegments, and drives the organisation to tailorproducts and services to these needs. This is askill: some car marques offer minivans withsliding doors, some do not. However, part ofthe willingness to pay is based on a personaltie with the brand. Uninvolved consumerswill bargain a lot. Brand-involved consumerswill bargain less. Brand image is directlylinked to profitability. In fact, in theEuromonitor car brand tracking study, meas-uring the image of all automobile brandsoperating in Europe, it has been said that apositive shift of one unit on the globalopinion scale means there is 1 per cent lessbargaining by customers.Each brand needs a flagshipproductA given brand will not be jeopardised bycompetitors offering similar products, unlessthere are large quantities of the latter. It isindeed inevitable for certain models to beduplicated in the product lines of differentbrands. Suppose that brand A pursues dura-bility, brand B practicality and brand C inno-vation: the spirit of each brand will beespecially noticeable in certain specificproducts, those most representative or typicalof the brand meaning. They are the brand’sSTRATEGIC IMPLICATIONS OF BRANDING 41Figure 2.3 The product and the brandBranded productBrand aspiration Product satisfactionExpectationsBrand’s intangiblevalues and imageryProduct’s visible anddifferentiating characteristicsHaloeffect
‘prototype’ products. Each product range thusmust contain products demonstrating thebrand’s guiding value and obsession, flagshipsfor the brand’s meaning and purpose.Renault, for instance, is best epitomised by itstop minivans, Nina Ricci by its entrancingevening gowns, Lacoste by its shirts, Sony byits Walkmans and digital pocket cameras.However, there are some products within agiven line that do not manage to clearly expressthe brand’s intent and attributes. In the tele-vision industry, the cost constraints at the lowend of the range are such that trying to manu-facture a model radically different from thenext-door neighbour’s is quite difficult. But, foreconomic reasons, brands are sometimes forcedto take a stake in this very large and overallhighly competitive market. Likewise, each bankhas had to offer its own savings plan, identicalto that of all other banks. All these similarproducts, though, should only represent alimited aspect of each brand’s offer (see Figure2.4). All in all, each brand stays in focus andprogresses in its own direction to make originalproducts. That is why communicating aboutsuch products is so important, as they reveal thebrand’s meaning and purpose.The problem arises when brands within thesame group overlap too much, with onepreventing the other from asserting itsidentity. Using the same motors in Peugeotsand Citroëns would harm Peugeot, built onthe ‘dynamic car’ image. It is when severalbrands sell the same product that a brand canbecome a caricature of itself. In order tocompete against Renault’s Espace andChrysler’s Voyager, neither Peugeot or Citroën,Fiat or Lancia could take the economic risk ofbuilding a manufacturing plant on their own;neither could Ford or Volkswagen. A singleminivan was made for the first four brands.Similarly, a Ford–Volkswagen plant in Portugalwas set to produce a common car. Theoutcome, however, is that in producing acommon vehicle, the brand becomes reducedto a mere external gadget. The identitymessage was simply relegated to the shell. Soeach brand has had to exaggerate its outwardappearance in order to be easily recognised.Advertising products throughthe brand prismProducts are mute: the brand gives themmeaning and purpose, telling us how a42 WHY IS BRANDING SO STRATEGIC?Meaning and direction of brand A Meaning and direction of brand BMeaning and direction of brand CProducts commonto all three brandsFigure 2.4 Product line overlap among brands
product should be read. A brand is both aprism and a magnifying glass through whichproducts can be decoded. BMW invites us toperceive its models as ‘cars for man’s pleasure’.On the one hand, brands guide our perceptionof products. On the other hand, products sendback a signal that brands use to underwriteand build their identity. The automobileindustry is a case in point, as most technicalinnovations quickly spread among all brands.Thus the ABS system is offered by Volvo aswell as by BMW, yet it cannot be said that theyshare the same identity. Is this a case of brandinconsistency? Not at all: ABS has simplybecome a must for all.However, brands can only develop throughlong-term consistency, which is both thesource and reflection of its identity. Hence thesame ABS will not bear the same meaning fortwo different car-makers. For Volvo, whichepitomises total safety, ABS is an utternecessity serving the brand’s values and obses-sions: it encapsulates the brand’s essence.BMW, which symbolises high-performance,cannot speak of ABS in these terms: it wouldamount to denying the BMW ideology andvalue system which has inspired the wholeorganisation and helped generate the famousmodels of the Munich brand. BMW intro-duced ABS as a way to go faster. Likewise, howdid the safety-conscious brand, Volvo, justifyits participation in the European leisure carchampionships? By saying ‘We really test ourproducts so that they last longer.’The minivans that Peugeot, Citroën, Fiatand Lancia have in common has left only onerole for the respective brands to play: toenhance its association with the intrinsicvalues of the respective’s brand – imaginationand escape for Citroën, quality driving andreliability for Peugeot, high class and flair forLancia, practicality for Fiat. (See Figure 2.5.)Thus brand identity never results from adetail, yet a detail can, once interpreted, serveto express a broader strategy. Details can onlyhave an impact on a brand’s identity if theyare in synergy with it, echoing and amplifyingthe brand’s values. That is why weak brandsdo not succeed in capitalising on their inno-vations: they do not manage either toenhance the brand’s meaning or create thatall-important resonance.A brand is thus a prism helping us todecipher products. It defines what and howmuch to expect from the products bearing itsname. An innovation which would beconsidered very original for a Fiat, forinstance, will be considered commonplacefor a Ford. However, though insufficientengine power may scarcely have been anissue for many car-makers, for Peugeot it is amajor problem. It disavows Peugeot’s deeply-STRATEGIC IMPLICATIONS OF BRANDING 43Figure 2.5 Brands give innovations meaning and purposePEUGEOT CITROËN FIAT LANCIAZETA (Lancia):StandingUpmarketULYSSE (Fiat):PriceFunctionalEVASION (Citroën):PracticalityImaginationPrice806 (Peugeot):PerformanceReliabilityMINIVAN
rooted identity and frustrates the expecta-tions that have been raised. It would be atodds with what should be called Peugeot’s‘brand obligations’.In fact, consumers rarely evaluate innova-tions in an isolated way, but in relation to aspecific brand. Once a brand has chosen aspecific positioning or meaning, it has toassume all of its implications and fulfil itspromises. Brands should respect the contractthat made them successful by attractingcustomers. They owe it to them.Brands and other signs of qualityIn many sectors, brands coexist with otherquality signs. The food industry, for instance,is also filled with quality seals, certificates ofnorm compliance and controlled origin andguarantees. The proliferation of these othersigns results from a double objective: topromote and to protect.Certifications of origin (eg real Scotchwhisky) are intended to protect a branch ofagriculture and products whose quality isdeeply rooted in a specific location andknow-how. The controlled origin guaranteecapitalises on a subjective and culturalconception of quality, coupled with a touchof mystery and of the area’s unique character.It segments the market by refusing the certifi-cation of origin to any goods that have notbeen produced within a certain area or raisedin the traditional way. Thus in Europe since2003, Feta cheese has been a name tied to acontrolled Greek origin. Even if Danish orFrench cheese-makers were to produce a ‘feta’cheese elsewhere that buyers were unable totell apart from the feta cheese made in Greecein the traditional way, their products can nolonger lay claim to the name ‘feta’.Quality seals are promotional tools. Theyconvey a different concept of quality, which isboth more industrial and scientific. In thisrespect, a given type of cheese, for example,involves objective know-how, using a certainkind of milk mixed with selected bacteria, etc.Quality seals create a vertical segmentation,consisting of different levels of objectivequality. The issue here is not so much topresent typical characteristics as to satisfy astringent set of objective criteria.The legal guarantee of typicality brought bya ‘certified origin’ seal means more than asimple designation of origin, a mere labelindicating where a product comes from, inthat the latter implies no natural or socialspecificity – although it may mislead thebuyer into thinking that there is one.Moreover, several modern cheese-makersdeliberately mix up what is genuine and whatis not, inventing foreign names for their newproducts that are reminiscent of places orvillages in an effort to build their own rustic,parochial imagery.It is interesting to see how European coun-tries tried to reassure consumers during the‘mad cow crisis’ in order to redress the 40 percent drop in beef consumption:l Although it is not legal under EU regula-tions, they reinstated designations of originreferring to a country (ie French beef). Thisdid not prove fully reassuring since it wassoon heard that French cattle could haveeaten not only local grass but also contami-nated organic extracts imported from theUK.l Certifications of origin (ie Charolais beef)add typicality but cannot guarantee a 100per cent safe meat.l Seals of quality did not exist and had to becreated but it would take years to promotethem: however, unless full control of theentire cattle raising process is guaranteed,the output itself cannot be guaranteed.l The crisis highlighted the need for meatbrands. Since 1989, alerted by earlywarnings, McDonald’s had indeed soughtnew suppliers in Europe, scrutinising theway in which each and every one raisedand fed their cattle.44 WHY IS BRANDING SO STRATEGIC?
l Retailers like Carrefour have promotedtheir own signed contract with farmers.Whether or not official indications of qualityin Europe should still exist in 2010 is a bitterissue that is still being discussed amongnorthern countries (United Kingdom,Denmark, etc) who believe that only brandsshould prevail, and southern countries(France, Spain, Italy) who support the idea ofhaving official collective signs of quality co-existing with brands (Feral, 1989).The northern European countries claimthat brands alone should be allowed tosegment the market and thus build a repu-tation for excellence around their names,thanks to their products and to their distri-bution and marketing efforts. These coun-tries tend to favour an objective concept ofquality: it does not matter that the fetacheese that the Greeks prefer is made inHolland or that Smirnoff vodka is neitherRussian nor Polish. The southern Europeancountries believe for their part that collectivesigns enable small companies to use theirranking and/or their typical characteristics aspromotional tools, since they do not havetheir own brands. As their products do notspeak for themselves, their market posi-tioning is ensured by quality or certifiedorigin seals. Clearly, behind the Europeandebate on whether or not brands that havebuilt their reputation on their own shouldcoexist with official collective signs ofquality lies another more fundamentaldebate between the proponents of a liberaleconomy on the one hand, and the partisansof government intervention to regulate it onthe other.From the corporate point of view, choosingbetween brand policy and collective signs is amatter of strategy and of available resourceallocation.Often, quality certificates reduce perceiveddifference. Distributors’ brands can alsoreceive them. Brands define their own stan-dards: legally, they guarantee nothing, butempirically they convey clusters of attributesand values. In doing so, they seek to becomea reference in themselves, if not the one andonly reference (as is the case with Bacardi,the epitome of rum). Thus, in essence,brands differentiate and share very little.Brands distinguish their products. Strongbrands are those that diffuse values andmanage to segment the market with theirown means.In handling the ‘mad cow’ crisis,McDonald’s wondered whether they shouldrely on their own brand only or also on thecollective signs and certificates of origin.On an operational level, let us once againunderline the fact that brands do not boildown to a mere act of advertising. Theycontain recommendations regarding thelong-term specificities of the products bearingtheir name, such as attractive prices, efficientdistribution and merchandising, as well asidentity building through advertising. It iseasier for a small company to earn a qualityseal for one of its products through strictefforts on quality, than it is to undertake thegruelling task of creating a brand, whichrequires so many financial, human, technicaland commercial resources. Even without anidentity, the small company’s product canthus step out of the ordinary, thanks in part tothe legal indicators of quality.Obstacles to the implications ofbrandingWithin the same company, brand policy oftenconflicts with other policies. As these areunwritten and implicit, they may seeminnocuous, when in fact they are a hindranceto a true brand policy.Current corporate accounting, as such, isunfavourable towards brands. Accounting isruled by the prudence principle: conse-quently, any outlay for which payback isuncertain is counted as an expense ratherSTRATEGIC IMPLICATIONS OF BRANDING 45
than valued as an asset. This is the case ofinvestments made in communications inorder to inform the general public about thebrand’s identity. Because it is impossible tomeasure exactly what share of the annualcommunications budget generates returnsimmediately, or within a specified number ofyears, the whole sum is taken as an operatingexpense which is subtracted from thefinancial year’s profits. Yet advertising, likeinvestments in machinery, talented staff andR&D, also helps build brand capital.Accounting thus creates a bias that handicapsbrand companies because it projects an under-valued image of them. Take the case ofcompany A, which invests heavily to developthe awareness and renown of its brand name.Having to write off this investment as anexpense results in low annual profits and asmall asset value on the balance sheet. Thisusually occurs during a critical period in thecompany’s growth, when it could actually usesome help from outside investors andbankers. Now compare A to company B,which invests the same amounts in machinesand production and nothing whatsoever ineither name, image or renown. As it is allowedto value these tangible investments as fixedassets and to depreciate them gradually overseveral years, B can announce higher profitsand its balance sheet, displaying bigger assets,will project a more flattering image. B willthus look better in terms of accounting, when,in fact, A is in a better position to differentiateits products.The principle of annual accounting alsohinders brand policy. Every product manageris judged on his yearly results and on the netcontribution generated by his product. Thisleads to ‘short-termism’ in decision making:those decisions which produce fast, meas-urable results are favoured over those thatbuild up brand capital, slowly no doubt, butmore reliably in the long term. Moreover,product-based accounting discouragesproduct managers from putting out any addi-tional advertising effort that would serveessentially to bolster the brand as a whole,when the latter serves as an umbrella and signfor other products. Managers thus only focuson one thing: any new expenditure in thegeneral interest will be charged to their ownaccount statement. For example, Palmolive isa brand covering several products: liquiddetergent, shampoo, shaving cream, etc. Thebrand could decide to communicate only oneof these products singled out as a prominentimage leader, capitalising on image spilloverreciprocal effects (Balachander, 2003). But theinvestment made would certainly be higherthan could be justified solely by the salesforecast of that product. This new expenditurewill in fact always be on the given product,even though its ultimate purpose is to collec-tively benefit all products under the umbrellabrand.In order to react against the short-term biascaused by accounting practices and the under-estimation of (corporate) value as shown inthe balance sheets, some British companieshave begun to list their own brands as assetson their balance sheets. This has triggered adiscussion on the fundamental validity ofaccounting practices that emerged in the ‘ageof commodities’, when the essential part ofcapital consisted of real estate and equipment.Today, on the contrary, intangible assets(know-how, patents, reputation) are whatmake the difference in the long run. Beyondthe need for an open debate in Europe and theUnited States on how to capitalise brands, ithas become just as important to find a way forcompanies to account for the long-term prosand cons of short-term brand decisions intheir books. It is all the more compelling asbrand decision-makers themselves rotateoften, perhaps too often.Even the way in which the various types ofcommunication agencies are organised fails tocomply with the requirements of sound brandpolicy. Even if an advertising agency has itsown network of partner companies – incharge of proximity marketing, CRM,e-business and so on – and can thus promote46 WHY IS BRANDING SO STRATEGIC?
itself as an integrated communications group,it remains the crux of the network.Furthermore, advertising agencies think onlyin terms of campaigns, operating in a short,one-year time frame. Brand policy is different:it develops over a long period and requiresthat all means be considered at once, in a fullyintegrated way.It is clear that a company rarely findscontacts inside so-called communicationsgroups who are actually in charge of strategicthinking and of providing overall recommen-dations rather than merely focusing on adver-tising or on the necessity to sell campaigns.Moreover, advertising agencies are not in aposition to address strategic issues, such aswhat should be the optimal number of brandsin a portfolio. As these affect the survival ofthe brands that are under their advertisingresponsibility, the agencies find themselves inthe awkward position of being judge and jury.That is why a new profession has beencreated: strategic brand managementconsulting. The time had indeed come forcompanies to meet professionals with a mid-term vision who are capable of providingconsistent, integrated guidelines for the devel-opment of brand portfolios without focusingon one single technique.A high personnel turnover disrupts the conti-nuity a brand needs. Yet companies todayactually plan for their personnel to rotate ondifferent brands! Thus, brands are oftenentrusted to young graduates with impressivedegrees but little experience and the promotionthey expect often consists of being assigned toyet another brand! Thus, product managersmust achieve visible results in the short term.This helps to explain why there are so manychanges in advertising strategy and implemen-tation as well as in decisions on brandextension, promotion or discounts. These are infact caused by changes in personnel.It is significant that brands that have main-tained a continuous and homogeneous imagebelong to companies with stable branddecision makers. This is the case for luxurybrands: the long-lasting presence of thecreator or founder allows for sound, long-termmanagement. The same is true of majorretailers where senior managers often handlethe communication themselves or at leastmake the final decisions. As a means to alle-viate the effects of excessive brand managerrotation, companies aim not only at incorpo-rating brand value into their accounts, butalso at creating a long-term brand imagecharter. The latter represents both a vital safe-guard and an instrument of continuity.Business organisation is sometimes anobstacle to building the brand. In 2001, thevery high-profile Toshiba Corporation createda new and hitherto non-existent vice-pres-ident post: VP Brand. Significantly, theappointee was the existing VP of Research andDevelopment. The fact that the world numberone in laptops and a major player in the tele-vision, hi-fi and lo-fi sectors should createsuch a post demonstrates a strong awarenessof an unfilled gap. Toshiba’s products areundeniably excellent, and until now this hasbeen the key to the success of Japanesecompanies in general, and Toshiba inparticular. This is a company that enjoys adominant position in a sector as cut-throat asthe laptop industry. So what was it missing?Worldwide studies had revealed that therewas no ‘magic’ to the Toshiba brand. It couldbe compared to a colleague at the office whomyou would regularly consult for advice, butwould never invite home for dinner. It was abrand based on a single pillar: there was astrong rational component, but little by wayof emotional appeal, intangible values and‘magic’. In short, it was no Sony, and couldnot command Sony’s higher margins. Acompany can become a leader in the Toshibamould through excellent products and prices,or a leader like Dell by dint of a distributionsystem with levels of efficiency that remainhead and shoulders above any (known)competitor. But since the effect of compe-tition is to erode perceived difference, otherinstruments are needed to attract customersSTRATEGIC IMPLICATIONS OF BRANDING 47
and keep them loyal; to ensure that theyremain customers of the brand. This desire isbased on the need for security, and on intan-gible factors.Up until 2001, there was no management ofthe Toshiba brand. The company’s organi-sation was based on a branched structure, andthus no one was responsible for the cross-company resource that is the brand. Themedical branch had one view of Toshiba,while the computer branch had another, andso on. There was no coordination or globalbrand platform, to say nothing of jointpromotions between branches, of course.Horizontal initiatives (such as sponsorship)were rare, and commercial necessity dictatedthat the power lay with the distributionsubsidiaries: the name of the game was to sellimported products, not to build a brand repu-tation. Local managers’ remunerationpackages were calculated on sales, not brandequity.Another syndrome pertains to the rela-tionship between production and sales. In theElectrolux group, for instance, productionunits are specialised according to product.Both mono-product and multi-market, theysell their product to the sales units who are,on the contrary, mono-market and multi-product (grouped under an umbrella brand).The problem is that these autonomous salesdivisions, who each have their own brand, allwant to benefit from the latest product inno-vation so as to maximise their division’sturnover. What is missing is a structure formanaging and allocating innovations inaccordance with a consistent and globalvision of the brand portfolio. As we will seelater, there is no point in entrusting a stronginnovation to a weak brand. Moreover, thisundermines the very basis of the brandconcept: differentiation.Lastly, if words mean anything at all,communications managers should have thepower to prevent actions that go against thebrand’s interest. Thus, Philips never succeededin fully taking advantage of its former brandbaseline: ‘Philips, tomorrow is already here’.In order to do so, they would have needed toban all advertising on batteries or electric lightbulbs that either trivialised the assertion,contradicted it, or reduced it to mere adver-tising hype. It would also have been possibleto communicate only about future bulb typesrather than about the best current sales.Unfortunately, nobody in the organisationhad the power (or the desire) to impose thesekinds of constraints. When the Whirlpoolbrand appeared, however, the managers fromPhilips actually created the organisation theyneeded for implementing a real brand policy:as it was directly linked to generalmanagement, the communicationsdepartment was able to ensure the optimalcircumstances for launching the Whirlpoolbrand, by banning over a three-year periodany communication about a commonplaceproduct or even a best-selling product.Failing to manage innovations has a verynegative impact on brand equity. Eventhough salespeople go up in arms when theyare not given the responsibility of a stronginnovation, it is a mistake to assign the latterto a weak brand, especially in multi-brandgroups. When dealing with a weak brand,attractive pricing must indeed be offered todistributors as an incentive to include thelatter in their reference listing. But since thebrand’s consumers do not expect this inno-vation (each brand defines its type and levelof consumer expectations), the productturnover is insufficient. As for the non-buyers,such a brand is not reassuring. If the inno-vation is launched a few weeks later under aleading brand name, distributors will refuse topay for the price premium due to a leaderbecause they purchased it at a lower price justa while back from the same company. Thus,even with the strong brand, the sales priceeventually has to be cut.Breeding many strong brands, l’Oréal allo-cates its inventions to its various businessesaccording to brand potency. Innovation isthus first entrusted to prestigious brands sold48 WHY IS BRANDING SO STRATEGIC?
in selective channels as the products’ highprices will help cancel out the high researchcost incurred. Thus, liposomes were firstcommercialised by Lancôme, the new sunfilter Mexoryl SX by Vichy. Innovation is thendiffused to the other channels and eventuallyto the large retailers. By then, the selectivechannel brands are already likely to havelaunched another differentiating novelty.However, this process is affected by the factthat innovation is not exclusively owned byany one company; it quickly spreads tocompetitors, which calls for immediatereaction.Along the same lines, when a producersupplies a distributor’s brand with the sameproduct it sells under its own brand, it willeventually erode its brand equity and, moregenerally, the very respectability of theconcept of a brand. This simply means thatwhat customers pay more for in a brand is thename and nothing else. When the brand isdissociated from the product it enhances andrepresents, it becomes merely superficial andartificial, devoid of any rational legitimacy.Ultimately, companies pay a price for this assales decrease and distributors seize the oppor-tunity to declare in their advertising thatnational brands alienate consumers, but thatconsumers can resist by purchasing distrib-utors’ own-brands. This also justifies the slug-gishness of public authorities regarding theincreasing amount of counterfeit productsamong distributors’ own-brands. Finally, suchpractices foster a false collective under-standing of what brands are, even amongopinion leaders, which contributes to therumour that nowadays all products are justthe same!STRATEGIC IMPLICATIONS OF BRANDING 49
How do companies grow both the brand andbusiness? What does it take to build a brand?What are the necessary steps and phases? Inthis chapter we address these questions with aparticular emphasis on integration of efforts.Brand building is not done apart, it is theresult of a clear strategy and of excellence inimplementation at the product, price, place,people and communication levels. There areprerequisites before a brand can be built, andthey need to be understood.Are brands for all companies?The brand is not an end in itself. It needs to bemanaged for what it is – an instrument forcompany growth and profitability, a businesstool. Does branding affect all companies? Yes.Are all companies aware of this? No. For manyindustrial companies or commodity sellers,the concept of the brand applies only to massmarkets, high-consumption products and thefast-moving consumer goods (FMCG) sector.This is a misconception. A brand is a namethat influences buyers and prescribers alike.Industrial brands have their own markets: AirLiquide sells to industry, Somfy sells itstubular motors to window-blind installers andfitters, Saint Gobain Gypsum and Lafarge sellto companies and craftspeople in theconstruction and public works sectors, andthe William Pitters company is famous amongretailers for the quality of its trade relation-ships.Nevertheless, these companies are affectedby brands in a variety of ways:l Stock-exchange-listed groups have tomanage the widened recognition for theirproducts. Their corporate brand is thevehicle for this recognition. Stockexchanges operate on anticipation. By defi-nition an anticipation is not rational, butcan be influenced by emotive factors.l Worldwide groups should be asking them-selves whether it might not be time tocomplete their transformation intoworldwide buyers and distributors in orderto consolidate their local operators under asingle name.l Chinese or Indian groups should be askingthemselves how to get rid of the status of513Brand and business building
52 WHY IS BRANDING SO STRATEGIC?low cost supplies and take a larger part ofthe high margin segments in developedcountries: to do so they need a globalbrand.l Producers should be asking themselveswhether the brand is a differentiatingfactor in any sector threatened bycommoditisation. For this reason, it isnoteworthy that BPB chose to retain thePlacoplatre product brand – a local brandwhich had become synonymous with theproduct itself, and indeed a leader in itsown markets. Similarly, it is significant thatthe industrial Air Liquide company askedMr Lindsay Owen-Jones, the CEO ofl’Oréal, to sit on its board of directors.Having worked its way through hundredsof product names and legal trademarks forthese names, Air Liquide realised that ithad still failed to create any real value.What it needed was to restructure its rangeof high-tech products under several mega-brands, as l’Oréal had done.l Producers of intermediary goods should beasking themselves whether it might not betime to sell to their clients’ customers, notthrough direct sales, but by instilling abrand awareness in these customers. In thisway, Lafarge – a world leader inconstruction materials – invested severalmillion euros on informing the generalpublic about the advances made possibleby its innovations, in order to create ademand for its products among people whowould live in the flats or work in the officesbuilt by its clients. In relationships withintermediaries and distributors, the brandis an instrument of power. Another typicalexample is Somfy, a world leader in motorsfor window blinds and openings for homeuse: this leadership has been earnedthrough changing its OEM business modeland refocusing the brand on the end user,just as Intel, Lycra, Woolmark and othershave successfully done. After all, what doyou say to a window-blind dealer for whomthe Somfy motor makes up 35 per cent ofthe product cost and who is threatening tosource the part from China at half theprice? Somfy fears being relegated to therole of a mere OEM player: hence itsincreasingly high-profile public ‘Somfypowered’ strategy.Building a market leader withoutadvertisingWhat does it take to build a brand? Brand defini-tions are innumerable (see the discussion onpage 9), and almost every author in the field hashis or her own. Although they can be useful,definitions tell us very little about how to build abrand. Definitions are static: they take the brandfor granted. Building the brand is dynamic.In general, in our executive seminars, whenwe ask attendees how to build a market-leading brand, typical answers includeadvertise, create an image, and developawareness. They are mostly answers that focuson communication.Instead of answering that questionfrontally, we shall look at an interesting case:how did an unknown Australian company,Orlando Wyndham, build the UK’s leadingbottled wine brand, Jacob’s Creek? This brandis now the leader in volume and the leader inspontaneous brand awareness, with a verystrong image. All that was achieved withoutmass-market advertising before 2000. It ismost interesting also to note that between1984 and 2000, the UK wine market doubledin size. What then was needed to create asuccessful wine brand in the UK massmarket?:l The first condition is to have enoughvolume. Addressing the mass marketmeans being able to fulfil trade expecta-tions. Multiple retailers hate to deal with
companies that cannot provide sufficientsupply if a product is a success. For a winemaker this means being able to rely on avery large supply source.l The second condition is to secure a stablequality. The first role of any brand is toreduce perceived risk: the consumer expe-rience must be the same whenever andwherever the product is bought. (This iswhy branding services is tougher thanbranding tangible products: human vari-ability works against this stability.) For awine maker, it means mastering the art ofblending, to make sure consumer expecta-tions are not betrayed. Once consumersdiscover they like a specific wine taste, theirrepurchase indicates a willingness to reducerisk and re-find the same taste, the samepleasure.l For a mass-market brand, price is key: itmust be mainstream. Everything must bedone, at the back office level, to ensurehigher productivity, and hence a lowerproduction cost, while not altering thequality and taste.l It is essential to be end-user driven, andfind the right taste for the particularmarket. Many UK consumers are not long-practised wine drinkers. Their tastes havebeen shaped by cold soft drinks and beer.This means that they prefer wines with aspecific taste and in-mouth profile. Inaddition, if an organisation hits the rightlocal expectations it can expect to obtaingood publicity, medals and press coverage,thus reinforcing the trade support.l Another requirement is a national salesforce. Wine is mostly chosen at the point ofpurchase. On-shelf visibility and point-of-purchase advertising are success factors. It isimportant to draw up national agreementswith the major multiple retailers (in this caseSainsbury, Asda, Tesco and a few others) toachieve this, but even when these are inplace a day-to-day check needs to be carriedout, store by store, to make sure everythingis in place. Only a national sales force canachieve this. In addition, an intensive wettrial phase is needed, to encouragecustomers to pause in wandering up anddown the store aisles and taste the product.This too requires a national sales force.These five steps to build a brand in the marketmay seem straightforward and easy to follow.Actually they are not. French wines could notmeet the conditions, while New World wines,and Australian wines in particular, could. Letus examine why, for each condition.Old World wines are based on one principle.The quality of the wine is totally dependent onnatural factors: the specific type of soil, the sun,the climate, the air. As a consequence, hundredsof wines have been created, differentiated bythe wine-growing area, or even specificvineyard, from which they come, and itsunique characteristics. Each vineyard claims itssoil is better than that of competitors, forexample. As a consequence, the product is frag-mented. For example, behind each of the 5,000marques of Bordeaux wine there is a differentgrower, usually rather small. This preventssuppliers from responding to the first conditionfor building a brand: enough volume.Old World wines have tried to secure theirmarket leadership by transforming their wine-producing practices into laws. Producing aBurgundy or a Bordeaux wine means obeyingthese laws. What was intended as a qualitycontrol system has become a major blockagainst innovating to address the competitionfrom emerging growing areas.If a wine is to be called a Pauillac, a Gravesor whatever (these are subregions withinBordeaux), its producers are not permitted tomix the grapes from this region with grapesgrown anywhere else, or only at a very smalllevel. If one season is dry they cannot irrigate;nor can they add chemicals to moderate thedifferences in quality caused by differences inclimate from year to year. Because they respectthese laws, Old World wines have an inherentBRAND AND BUSINESS BUILDING 53
variability: they are the true produce ofnature, more than the produce of man. Thereis much more variety of soils and variance inclimate from year to year in Europe than inAustralia, California or Argentina, and thistoo leads to differences between one OldWorld wine and another.Branding means suppressing this vari-ability: to secure the same taste from year toyear, one must master the art of blendinggrapes coming from very different soils – andregions, if one of them is underproducing.Australia, as a relatively newly settled countrywithout a long wine-growing tradition, hadfew laws governing wine producing; it coulddo it. It was not so for wine makers fromBordeaux or Burgundy.The same holds true for getting the rightquality at low production costs. French winemakers are not allowed to use mechanisedharvesting: they are required to harvest byhand. They cannot irrigate, and so radicallyincrease the productivity of their soils; theycannot make use of chemical additives. InFrance too, wine is stored in barrels as a rule.In Australia wine is kept in huge aluminiumtanks, and wood cuttings are put in the wine:there is more wood surface in contact with thewine, which accelerates the process of givingthe wine the right ‘woody’ taste. Time beingmoney, this reduces production costs.Point four concerns getting the right tasteto appeal to the target market. New Worldwines have no tradition to respect: theystarted from the customer. They adapted theirproduct to the taste of customers in emergingmarkets, used to drinking soft drinks andbeer. Their wine had to be fruit-driven, verysoft, very smooth, easy to drink for all occa-sions. Some varietals (types of grape) such asChardonnay and Semillon Chardonnaycould deliver such a taste. These were not thevarieties that made the reputation ofBordeaux or Burgundy wines.One other dimension of being client-drivenis language. Marketing research showed thatthe English were still broadly an ‘island race’:many of them are not well versed in Europeanlanguages and the cultural traditions ofContinental Europe. Unlike the maze of thou-sands of hard-to-pronounce wine names fromEurope, Jacob’s Creek is an English name, andthe wording on the wine labels is written inEnglish. Until recently French wines rarelyprovided any labelling information inEnglish. Furthermore, Australia is part of theCommonwealth, and some English peopleidentify more closely with it than with France.In addition, each New World country hasbecome associated with a small number ofgrape varieties. This means that consumersfind it easier to forecast the taste of anAustralian wine than of a French wine. Thecountry of origin adds its own risk-reducingrole to the brand.Last but not least, the industry’s organi-sation in the Old World is too fragmented.Individual growers cannot afford a dedicatedsales force even in their homeland. Evenwhen the wine is produced by cooperatives ofgrowers, the coops tend to want to remainindependent and refuse to join larger organi-sations, the only viable path to reaching thecritical size to create a brand.As a result, in the 16 years to 2001, Australianwines, led by Jacob’s Creek, went from zero to a16.9 per cent share by volume and a 20.1 percent share by value of the British market.Meanwhile the market doubled in size.Interestingly, as is shown by the value sharebeing higher than the volume share, price is notthe main reason consumers choose Australianwines. The New World growers have succeededin persuading customers to trade up, by offeringhigher quality brand extensions designed toappeal to former novice wine drinkers who arenow willing to explore more complex wines.Can Old World wines come back and stoptheir sharp decline? As long as they do notsuppress their internally based regulations,their production laws, and do not encouragesupplier concentration, they will not be ableto fulfill the five conditions for buildingbrands. Bordeaux and Burgundy cannot do it.54 WHY IS BRANDING SO STRATEGIC?
However, the Languedoc wine-growing regionis the biggest in the world. As such it fulfils thefirst condition. In this region, which histori-cally produced lower-status wine thanBordeaux and Burgundy, there are very fewproduction rules to obey. The future is in thehands of Languedoc’s growers if they canconcentrate and meet customers’ require-ments, not only in the UK but also in Japan,Korea and other countries with a growingmarket for wine. They might also export theirknow-how and build brands where the futuremarket is: China. This is why so many playersare signing joint ventures with Chinesecompanies and authorities, to grow grapes inChina and develop brands that have none ofthe Old World wine industry’s self-imposedlimitations.What lessons can be drawn and gener-alised? New World wine brands havesucceeded because they innovated, breakingwith the competition’s conventions forconsumer profit. They have not stopped inno-vating and disrupting conventions. InAustralia, Jacob’s Creek recently introducedscrew cap closures on its Riesling varieties,abandoning a sacred cow: cork closure.Riesling is more likely than wines from someother grape varieties to be affected byproblems of cork quality, and half-bottles areespecially vulnerable. Both consumers andthe trade reacted favourably to this small butrevolutionary innovation.A second lesson is that a part of Jacob’sCreek appeal was based on one enduringweakness of competition: it was not an elitistbrand, and it had no snob value. It wasapproachable for everybody.The product’s quality–price ratio wasexcellent, attracting praise from experts andtaste makers. This is an endless race: each yearthe brand continues to improve the quality,thus winning continuous publicity. Since itwas the first of the major Australian wineexporters, Jacob’s Creek benefited from the‘pioneer advantage’, and became the symbolof Australian wine. Interestingly, OrlandoWyndham, the company that owns thebrand, is far smaller than some of itsAustralian competitors such as Hardy’s, but allits energy and efforts were focused on this onesingle brand.Many brands have developed by contactand retail without advertising: Google, Zara,Amazon. This is not the only brand-buildingmodel. Yellow Tail became the number onewine brand in the United States thanks to ahuge advertising campaign, a fun personalityand a price which strongly motivated its maindistributor. In addition it was aimed at thewide field of non-experts in wine.Brand building: from product tovalues, and vice versaIt takes time to build a really strong brand.There are two routes, two models for doing so:from product advantage to intangible values,or from values to product. However, withtime, this two-way movement becomes theessence of brand management: brands havetwo legs.Most brands did not start as such: theirfounders just wanted to create a business,based on a very specific product or service: aninnovation, a good idea to start their businessand open the distributors’ closed doors.Through time, their name or the name of theproduct became a brand: well known andendowed with market power (the ability toinfluence buyers). It did not simply designatea product or a person, but little by little cameto be associated with imagery, with intangiblebenefits, with brand personality and so on.Perception had moved upwards from objectsto benefits, from tangible to intangiblevalues.As is shown by the upward-pointing arrowin Figure 3.1, most brands start not as brandsbut as a name on an innovative product orservice. Nike started out as a meaninglessname on a pair of innovative running shoes: ifthey had not been innovative no distributorBRAND AND BUSINESS BUILDING 55
would have paid attention to Phil Knight inthe first place. With time, that name acquiredawareness, status and trust, if not respect orliking. This is the result of all the communi-cation and stars which accompanied thebusiness building. Little by little an inversiontakes place in the process: instead of theproduct building the brand awareness andreputation (the bottom-up arrow ofinfluence), it is the brand that differentiatesand endows the product/service with itsunique values (the top-down dotted arrow). Infact at this time the brand determines whichnew products match its desired image. Nike isnow in the phase of brand extensions: thebrand has stretched from running shoes tosports apparel and now golf clubs.Through time, brand associations typicallymove up a ladder (the vertical axis of Figure3.1), from ingredient (Dove with hydratingcream) to attribute (softening), to benefit(protection), to brand personality, brandvalues and even mission (Apple or Virgin havea mission), at the very top intangible end.Now this does not mean that, with time,brand management should not be concernedwith material issues and differentiation anymore. Brands are two-legged. Even luxurybrands, bought for the sake of show, must givetheir buyers the feeling that they have boughta great product and that the price difference islegitimate. But material differentiation is anever-ending race: competitors copy your bestideas. Attaching the brand to an intangiblevalue adds value and prevents substitutability.The Mercedes price premium is permanentlyexplained by product-based advertising copy,but also by PR operations that accentuate theunique status of the brand.This first model concerns brands thatstarted as a product. There exists a secondmodel of brand building: many brands start asconcepts or ideas. This is true of all licensedbrands (Paloma Picasso perfume, Harry Potterproducts and so on) and of many fashionbrands, spirits or cigarette brands. The Axemen’s hygiene line started from an insight aswell: teenagers feel insecure about their sexappeal.This model also provides a reminder thateven when launching a product brand (thatis, a brand based on a product advantage) itis important to incorporate from the startthe higher levels of meaning that areintended to attach to the brand in the longerterm. The brand should not simply acquirethem, by accumulation or sedimentation;they should be planned from the start andincorporated at birth. Incorporating thisperspective from the start accelerates theprocess by which products become brands.This is why product launch and brandlaunch are not the same.This is also why brand names should neverbe descriptive of the product. The first reasonis that what is descriptive soon becomesgeneric, when competitors come into themarket with the same product. Second, clientswill soon learn what the business is about.Names should better aim at telling an intan-gible story. Amazon speaks of newness, forceand abundance (like the River Amazon), andOrange says ‘definitely non-technical’, just asApple Computers did 25 years earlier.56 WHY IS BRANDING SO STRATEGIC?Figure 3.1 The two models of brand building through timeIntangible added valuesValues, missionPersonalityBenefitsAttributesIngredientsTangible added valuesTime
Finally, as is illustrated by the two dottedarrows of the graph, brand managementconsists of a permanent coming and goingbetween tangible and intangible values.Brands are two-legged value producingsystems. This means that having an excellentproduct is not enough in modern compe-tition. (See for instance the Toshiba case, page47). However, neither luxury nor imagebrands can afford to forget the functional real-ities of products.Are leading brands the bestproducts or the best value?To create a brand is much more than simplymarking a product or service, the necessaryfirst step of brand differentiation. It is aboutowning a value.It is often held to be a paradox that thenumber one brands are not the best products.Was the original IBM PC the best PC availableat the time? No. Is Pentium the best chip?Who knows? Are Dell computers the bestcomputers?The paradox stems from the word ‘best’: bestfor whom, and at what? Let’s take the analogyof a school class. Academic gradings are deter-mined according to well-understood criteria:students who do well display qualities such asexcellent memory, the ability to solveproblems fast, to work accurately and topresent their work well. These are the values ofthe schoolroom; and similarly, each markethas values. To become number one in anymarket it is necessary to understand what themarket values are. Of course, one cannotsucceed without a good product or service.Those who try the product must like it enoughto make repeat purchases, to refer others to it;the product must build brand loyalty. In thetruck tyre market, Michelin is certainly thenumber one: it holds 66 per cent of theoriginal tyre market (that is, the tyres themanufacturer supplies with the truck). But inthe replacement market, the so-called ‘after-market’, although Michelin is still the marketleader, its share falls to 29 per cent. It looks as ifMichelin is not as well oriented to the values ofthe buyers in this aftermarket, fleet ownersand those who maintain their trucks.In the spirits market, Bacardi is worldnumber one; is it the best spirit? One couldcertainly argue that it is nothing of the kind: ithas no taste, and in all blind testings it faresvery poorly. So why does it sell in suchvolume? The source of its business is notexperts deliberating over its taste, but casualdrinkers and partygoers. They generally wanta spirit that will blend well in a cocktail, andan ideal mixer should have a very neutraltaste. This is exactly what Carta Blancadelivers; it provides 90 per cent of Bacardi’ssales.Branding starts from the customer, andasks, what does he or she value? Bacardi iscertainly not the ‘better’, but it could be calledthe ‘batter’. One of its key intangible addedvalues is its personality, epitomised by itssymbol: a bat. The first Bacardi factory inCuba was full of bats. This became the brand’ssymbol, adding an enduring halo of mysteryto it.Another example can be found in theeducational market. The Master’s degree inBusiness Administration (MBA) is a passportto success. It was first introduced in USuniversities. To get their MBA, students at USuniversities need two years of intense work:one year to learn the fundamentals, and oneyear to specialise in a major field.Insead is now a respected brand in the MBAmarket, and Europe’s best-known MBA.However its MBA course lasts less than a year.This is the power of branding: a strong brandawareness acts as a quality cue. Because itcreated the MBA category in Europe, Inseadsoon benefited from the pioneer advantage:its name effectively became the localstandard, because of the lack of competition.The French management school HEC createdits MBA in 1969, while Insead had started in1957. HEC and some other late entrants madeBRAND AND BUSINESS BUILDING 57
another mistake: they delivered a genuineAmerican-type MBA. The HEC MBA, whichlasted two years, was arguably of too highquality for European corporate recruiters, andtoo long for European students.Understanding the value curveof the targetInsead became Europe’s best-known MBA byunderstanding the value curve of Europeanhuman resources directors who hire youngexecutives. In delivering an MBA based on theUS model, premium schools such as HECshowed that they did not understand thelocal value curve. In Europe, recruiters do notreally care how much time students havespent on campus: the extra salary one getsafter having spent two years at Harvard,Stanford or Northwestern instead of less thana year at Insead is very small. One thingrecruiters do value, however, is an intensiveimmersion in a truly internationalprogramme, in which students learn to workwith 10 different nationalities. This mirrorsthe working context for which they are beinghired. European companies tend to considerthat they will really teach their recruits how todo business in-house, and that a fastacademic introduction lasting less than oneyear will suffice. Finally, companies prefer torely on continuing education, providing aregular stream of specialised companyseminars, throughout their managers’working lives.Since not all clients are alike, differentbrands can coexist in the same sector, becausethey address the value curve of differentsegments. This is why groups build brandportfolios. GM has a portfolio of car marques,as does the Volkswagen Group.Breaking the rule and acting fastThe MBA example also illustrates anotherissue: to build a brand one must quickly reachthe critical size to create barriers to entry (suchas top-of-mind awareness). By breaking thetwo-year rule, Insead was able to producetwice as many graduates as a US school of thesame size, and so to reach the critical size ofalumni who act as its referees withincompanies in half the time. Recently it made astrategic move by doubling the number ofgraduates produced per year, thus accentu-ating its market share and increasing itsproductivity (the number of students perprofessor). It also decided to capitalise on itsnow well-known brand to open a branch inAsia.Many lessons should be drawn from theabove examples:l The first is that all brands start by beingnon-brands, with zero awareness andimage. However, they were based on aninnovation that succeeded. Starting abrand means finding a disrupting inno-vation.l Second, creating a market is the best way tolead it. This is the well-known pioneeradvantage. However, to be able to create amarket, one must break free from theconventions and codes that create herdismin the marketplace.l Third, time is an essential ingredient ofsuccess. The winners start first and movefast so as to rapidly create a gap from theincoming competition.l Fourth, it is important to reach the criticalsize rapidly, to reinforce that gap from thecompetition. This creates more resourcesfor advertising, communication and wordof mouth.58 WHY IS BRANDING SO STRATEGIC?
l Fifth, a brand is not a producer’s brand or aretailer’s, as is often heard in marketingcircles: it is the customer’s brand. A brandepitomises values, but as we know, valuelies in the eyes of the beholder, thecustomer. It is essential to be marketfocused and ask, what is the value curve ofthe target? Then comes the question howto address this value curve better than theexisting competition. The best way is tocreate a disruption (Dru, 2002), to break theconventions of the market.Comparing brand and businessmodels: cola drinksIt is interesting to compare a number of brandand business models within the samecategory. This illustrates how one cannotunderstand market leadership simply in termsof brand image. Structural factors such asproduction costs, the type of competition,and the trading structure of the sector need tobe incorporated into the analysis. Why nottake as a field for analysis the very symbolicone of colas? Colas as a commodity havesucceeded remarkably in ‘decommoditi-sation’, unlike other soft drinks. They are alsothe market in which the largest brand in theworld, Coca-Cola, operates.What is a soft drink? In a material sense itconsists of water, flavourings, a sweeteningagent and carbonate. In the fruit juice market,brands are having a hard time: in Germany,hard-discount labels hold more than 50 percent of the market. The same process is takingplace in the UK and all over Europe, whereunlike in the United States, distribution isvery concentrated and discount labels do notmean poor-quality products. The problemfaced by brands is how to differentiate aproduct like orange juice that seems generic.In addition, the raw cost of orange juice ishigh: this creates pressure on the margins, andas a consequence on the level of advertisingbudget affordable, when selling prices areunder pressure from retailer own-labels andunbranded generic products.In the fruit juice market, there are not manyways of finding a favorable economicequation. Tropicana follows a premium pricestrategy, based on permanent product innova-tions (freshly collected oranges for instance)and a premium image. These are value inno-vations, increasing the price paid byconsumers per litre. It is the premium marketleader, and a global brand, but in eachcountry it is a small player in volume.As always, Procter & Gamble followed ahigh-tech approach to differentiate itsproduct. It introduced Sunny Delight as acompetitor in the fruit juice market althoughit has almost totally artificial ingredients(there is only 5 per cent orange in it, for legalreasons). These created a taste and texture thatbeat all the competitors using natural fruitjuice. It also added vitamins to appeal tomothers. Thanks to its name, its colour(orange, and variants for the differentflavours) and logo (a round sun), Procter &Gamble created an innovative product, whichwas reminiscent of orange juice and wascertainly thought by some consumers to beorange-based. Its artificial chemical formula ispatentable, which creates a barrier to entryand prevents it from being directly copied.Most important, it is priced high, whereas itsraw material cost is far lower than that ofnatural orange juice.BRAND AND BUSINESS BUILDING 59Table 3.1 Consumer price (in euros/litre) ofvarious orange-flavour drinks in EuropeBrand PriceHard discount 0.25Carrefour StandardOrange juice 0.70National brand 0.84Sunny Delight 1.08Tropicana 2.45Tesco Finest 2.50
Coca-Cola is an opaque product: almostblack, mysterious, with a secret formula, itcreated from the start the conditions, bothreal and psychological, of a product that is notfully substitutable. Also, since it is an inventedrather than natural product, the brandbecame associated with the product, whichcan be described by no other name. It hassince become the reference product for anentire genre of cola drinks. Benefiting fromthe pioneer advantage, throughout more thana century the Coca-Cola brand has pursuedone single objective, now on a worldwidescale: to continue to grow the cola category. Itwas in competition first with sodas inAmerica, then with other soft drinks, and nowwith virtually all other types of drink,including water in Europe or tea in Asia.Coke’s brand essence is ‘the refreshing bondbetween people everywhere’. In making itsbrand the number one drink in the world, itbenefited from being made from a syrup thatis easy to transport at low cost, with high effi-ciency (that is, it can be highly concentrated,so many litres of Coca-Cola are produced froma single litre of concentrate) and remarkablyhigh resistance to temperature and time (itcan be stored for a long time, anywhere,unlike most fruit-based soft drinks). It is defin-itively a great physical product. In addition,the tuning of its acidity/sweetness ratio isoptimal so customers can drink many glassesor cans in a row without being satiated. Thecola syrup itself is very cheap to produce, thusallowing high margins and as a consequencehigh marketing budgets to reinforce its top-of-mind position (a key competitive advantagein this low-involvement category, where thebuying decision is based on impulse). It isresold to bottlers at five times its productionprice, so profit can be located at the companylevel and pressure can be exerted on bottlers/distributors to pursue a high-volume strategyif they want to be profitable.To grow the business through theexpansion of the category, the strategy restson three facets, which are always the same:availability, accessibility, attractiveness, inthat order. Most people focus on communi-cation, but the key of Coke’s domination is inthese three levers:l Availability, the distributive lever, comesfirst. ‘Put Coke at arms’ reach’. The aim isfor people to find Coke everywhere: bars,fast-food restaurants, canteens, retailers,vending machines in streets and publicplaces, refrigerators in offices, classroomssoon.… An essential point to appreciate isthat building both the business and thebrand image is tied to the active presenceon premises. On-premise presence givesstatus to a drink, and creates consumptionhabits. In addition, unlike multipleretailers (Wal-Mart, Asda, Ika, Carrefour,Aldi and the like), which do not sell onebrand exclusively, but their clients have thechoice, on-premise customers do giveexclusive rights, thereby granting a localmonopoly to the brand. This is why Cokemakes global alliances with McDonald’sand other synergistic organisations. Onecondition of this type of exclusive deal isthat the supplier provides, and the outletagrees to stock, its full portfolio of softdrink brands. The goal is to create a barrierto entry to any soft drink competitor.As part of competing on availability, oneshould not forget access to the bottlers: inmany countries there are few good bottlers,and eventually one only. Controlling thisbottler is a sure way to prevent competitionentering the country. Conversely, it is away to push competition out, as when theVenezuelan bottler that had formerlyhandled Pepsi decided to work for Coke.Within a day, Pepsi operations inVenezuela were closed.l Accessibility is the price factor: ‘In China,in India, sell Coke at the price of tea’. Thisis made possible by the low cost of syrupproduction, its easy transportability, andalso the volume-based strategy. Economies60 WHY IS BRANDING SO STRATEGIC?
of scale create another pressure on thecompetition, if not a total barrier to entry.Having located the profit at the companylevel (exactly as Disney Corporation doesthrough licensing royalties, while some ofits foreign entertainment parks are notprofitable), the Coca-Cola Corporation canafford to have its local companies losemoney for the sake of rapidly growing ahigh per capita consumption rate. Inaddition, to push competition out of themarket (whether it is defined as cola drinksor more widely), the company exerts ahigh-price pressure on the whole market.For instance, it seems that specific prices onCoke are granted to trade distributors ifthey give preference to the company’sother brands, such as Fanta, Minute Maidand Aquarius. This is why the Coca-ColaCompany is now being sued by theEuropean authorities on charges of anti-competitive manoeuvres.l Attractiveness is the third factor: it is thecommunication issue. Although Coke’sadvertising is conspicuous, non-mediacommunication (relationship, proximity,music and sports sponsorship, and on-premise communications) represents themain part of the budget. Share-of-minddomination is made possible, let us remind,by the low production cost. Last but notleast, Coke’s image is not that of a productbut of a bond: it delivers both tangiblepromises (refreshment) and intangibleones (modernity, dynamism, energy,American-ness, feeling part of the world)which make it so special, much more nowthan its secret formula.Coca-Cola’s main challenger worldwide,Pepsi-Cola, is following exactly the samebrand and business model. Its differentiationis based on the fact that it was introducedmore recently than Coke, and did not createthe category. As a challenger, its brand imageand market grip are lower. It challenges theleader on three facets: price, product andimage:l Price: it is a dime cheaper than Coke, atconsumer level, but this creates a higherpressure profitability.l Product: since it is not the referent, Pepsi ismore daring and permanently works on theproduct to beat Coke on palatability andtaste (the ‘Pepsi challenge’). Its formula isactually preferred to Coke in most blindtests. It pushed Coca-Cola Corporation tomake the ‘marketing blunder of thecentury’ launching New Coke in 1985 toreplace the classic Coke, the water of theUnited States. More innovating bynecessity, it practised line extensions suchas Diet Pepsi well before Coke.l Image: Pepsi is younger than Coke.Capitalising on the only durable weaknessof Coke, its advertising positioning makesPepsi the choice of the new generation.Pepsi’s essence is ‘the soft drink for today’staste and experiences’.To secure a presence for Pepsi-Cola onpremises and circumvent the barriers to entrycreated by Coke, the Pepsico Company had todiversify into restaurants and fast-foodchains.Other rivals to Coke have had an evenharder time. In February 2000, RichardBranson of Virgin admitted defeat in its waragainst Coca-Cola and Pepsi in the UnitedStates, less than two years after he rode intoNew York’s Times Square in a tank to launchhis challenge. On reviewing the brand andbusiness model that is common to both Cokeand Pepsi, it is easy to understand why VirginCola failed everywhere but in the UK, itsdomestic base. Even there it won less than 5per cent of the market. Brand is not enough.Virgin Cola bought the Canadian companyCott’s, which was able to make a very goodsyrup: it makes the cola sold under Loblaw’sBRAND AND BUSINESS BUILDING 61
President’s Choice private label. It proposed acheaper price than Coke or Pepsi. But VirginCola never got the distribution, it neveraccessed the consumer. Branson’s whole ideawas to save on advertising and thus make acheaper price possible by taking advantage ofthe Virgin umbrella brand. Unlike the twoworld-leading carbonated soft drinkcompanies, which both follow a productbrand policy (one brand per type of flavour),Virgin’s only brand asset is its core brand,which has been extended to all types ofcategory (see Chapter 12), and in the processgained extensive worldwide awareness. Aswell as a low volume of advertising and sellinga large volume on promotion, Virgin had asmall sales force, a sure handicap for trademarketing and store-by-store direct relation-ships. Finally, Virgin Cola was not able towork in the market without a full portfolio ofsoft drinks to support it. This is necessary toaccess the on-premise consumption sector,and is also the only way to make a truenational sales force economically possible.As a rule, extension failures are immediatelyattributed to some image-based reason that itis impossible for the brand to extend to thenew category. The brand and businessperspective shows us that this explanation issuperficial. It was not the Virgin brand thatwas the source of the failure, but the fact thatVirgin could not compete on the same brandand business model as its two Goliathcompetitors. Fairy tales are one thing, butmost of the time David gets killed.Virgin Cola failed to get enough distri-bution: in Europe, for instance, it neverentered the main multiple retailers. It was notsold sufficiently in the fashionable bars andrestaurants. To do better in distribution termsit would have needed a real sales force and areal portfolio of brands and products.Arguably it should have looked for allianceswith soft drink manufacturers looking for abranded cola.Without advertising, the cola was mostlysold on a promotional basis. It is questionablewhether that creates the basis for a long-termpreference. Also, Virgin wanted to beperceived as the anti-Coke cola. Howeverthroughout the worldwide market this rolealready belonged to Pepsi. Finally, is theVirgin brand image that strong among theyoung generation outside the UK?What other brand and business modelcould exist in this sector? At this time, twoalternative models are surviving: ethnic colasand colas dedicated to trade. In its edition ofSunday 12 January 2003, the New York Timespublished an article, ‘Ire at America helpscreate the Anti-Coke’. This announced thecreation of Mecca Cola by a young Tunisian-born entrepreneur. He targeted it at theMuslims of France and soon of other coun-tries. This brand had two strengths. The firstwas immediate goodwill in the Muslimcommunity: its identity is based on a realfeeling of community and resentment againstwhat is felt as an imperialist drink and brand.The second was an immediate presence in thespecific channel of distribution held by thiscommunity, innumerable small conveniencestores that open long hours.It is too early to judge its success, since thiswill only be evidenced by long-term durability.However, sales are skyrocketing. Interestingly,other colas have burgeoned, based on thesame approach: they capitalise on religious,ethnic or geographical feelings of communityand identity. For instance there are CorsicaCola and Breiz’h Cola (sold in Brittany), aimedat two regions with strong identity and evenindependentist movements. This model canbe reproduced elsewhere: Irish cola? Scottishcola? In the era of globalisation, regional iden-tities are revived to resist what is perceived as aloss of essence, soul, and quality of life. Suchattempts access local distribution or the localstores of national multiple retailers. No storeowner or manager wants to take the risk ofhurting the local feelings of the communityliving around its store.Monarch Beverage Company has created aninteresting alternative brand and business62 WHY IS BRANDING SO STRATEGIC?
model. It is totally trade oriented, therebysecuring access to modern distribution,worldwide. However it is not simplyproviding cola for retailers own labels. This isa true branding approach.The problem for multiple retailers is to getfree from the grip of Coke and Pepsi.Unfortunately, with some exceptions(Sainsbury’s Cola in the UK, President’sChoice Cola in Canada), market shares of ownlabels remain very small. This is probablybecause compared with the real thing, privatelabels look like faked cola. Parents who buyown-label colas to save money risk being criti-cised by their children. Private labels have noimage in a category that has been decom-moditised by brand image. Coke’s identityencapsulates the American dream, authen-ticity and pleasure. Pepsi has the same associa-tions, although to a lesser extent, and alsomeans youth. Own-labels create no such valuein the eyes of the young heavy consumers.They create bad will.The Monarch Beverage Company wascreated in Atlanta, USA, by two former Coca-Cola marketing VPs. With the help of a formerCoca-Cola chemist, it knew how to produce agood cola syrup. Most important, instead offocusing on the end-consumer (the mistake ofVirgin) and running the risk of having noaccess to mass distribution, it focused on thecustomer problem: to increase the share of itsown label with profit. Even if they were givenaway free, own-label colas would not beconsumed: they lack authenticity, a reas-surance on quality and taste, and fail todeliver the right intangible values. Monarchhas created a portfolio of brands, all lookingAmerican (like ‘American Cola’), and comingfrom a true American company based in theMecca of colas, Atlanta, close to Coca-Cola’sown headquarters. These brands, owned byMonarch, are granted under licence tomultiple retailers. Each mass multiple retailertherefore has its own brand, different from itscompetitors’, for its operations worldwide.Carrefour for instance has American Cola. Thesyrup is made by Monarch to match eachretailer’s specifications. The companyprovides the brand and the product; it leavesits customers totally free to manage their ownbottlers, prices and promotion. No nationalsales force is needed: negotiations are carriedout at the corporate level, with the categoryglobal manager.This in-depth comparison of alternativebrand and business models has illustrated thebenefits of enlarging the perspective oncompetitive strategies, beyond communi-cation and brand image. Brand leadership isgained through the synergy of multiple leverswithin a viable economic equation. Thus isthe true condition of brand equity.BRAND AND BUSINESS BUILDING 63
Each day brings fresh news of the expansionof distributors’ brands. On 28 November2006, Carrefour launched its mobile phonerange under its own brand, while praising thecapabilities of its Orange network, aiming toturn it into a tool for creating customerloyalty that would itself be profitable and achannel for growth. The offer was carried bythe 218 hypermarkets under the Carrefourname, visited by one million clients every day.This is not an isolated phenomenon.Distributors’ brands are on the rise every-where, and now dominate the market inmany so-called mass consumption categories.For example, in France the market for self-service packaged ham is 400,000 tonnes ayear. The hard-discount circuit alone, withoutnational brands, sells 100,000 tonnes. In largeand medium-sized stores 300,000 tonnes aresold, of which two-thirds, or 200,000 tonnes,are ‘low-cost products’ under the store brand.There are only 100,000 tonnes remaining forthe major brands: Fleury Michon, Herta(Nestlé), Madrange, Sara Lee, etc. In Germany,45 per cent of organic products are sold underdistributors’ brands (Jonas and Roosen, 2006).Having been restricted for so long to themass consumption sector, distributors’ brandsare now part of the competitive environmentin all sectors: even the mass prestige productsstore Sephora has undertaken a voluntarypolicy of own-name products over the pastthree years. Distributors’ brands are alsofound in automobile equipment (the Norautotyre is the biggest seller in France), agriculturalcooperatives, pharmacy groups and so on. Forso long merely the cheapest products, theyhave now become innovators which are quickto offer consumers products that keep pacewith the latest trends in society (organicfarming, fair trade, exoticism, gourmet dishesand so on), following in the footsteps of theMonoprix and Sainsbury’s brands. In manycases, these have become inseparable from thestore: thus Picard stores sell only thedistributor’s brand. Clients go to Picard andbuy Picard. The Body Shop, now part of thel’Oréal family, sells only its own distributor’sbrand. Gap began life as an exclusive retailerof Levi Strauss, stocking jeans in all sizes, butchanged its strategy when discount arrived inthe United States. Now Gap only sells… Gap,an action that seems to have inspiredDecathlon. Other examples include Ikea,654From private labels to storebrands
66 WHY IS BRANDING SO STRATEGIC?Habitat, Roche and Bobois, Crate & Barrel andWilliam Sonoma. Marks & Spencer’s has donethe same since its inception.In the B2B sector, distributors’ brands andlow-cost products are also present: it is truethat Asian companies are competing to supplythem. Thus a Facom key for a mechanic costss10, but only s3 if made in Taiwan.Bubbendorf, the famous blind maker, now hasthe tubular motors for the electric automationof its blinds manufactured in Asia. Untilrecently, it installed automations by Somfy,the market leader: now it is its maincompetitor. In the office furnishings market,Office Depot and Guilbert have based theirsuccess on distributors’ brands: apart from theso-called obligatory products (certain Pentelproducts, Stabilo Boss, Post-It, Staedtler,Dymo, Bic) they sell only the products of theirown brand. And is there not something para-doxical about the way that the same bigcompanies that complain about the rise ofdistributors’ brands, then buy the Nicedaybrand from their Guilbert supplier instead ofbuying major branded products? In short,they are criticising consumers for doing whatthey are themselves doing: managing theirspending.Evolution of the distributor’sbrandAcademic studies have until recently failed topay sufficient attention to distributors’brands. With the producer’s brand beingconsidered as the only point of reference,distributors’ brands were thought of as ‘non-brands’, attracting price-sensitive customers.Moreover, the distributor’s brand has beeneven less extensive in the United States thanin Europe. In fact, in the United States, withthe exception of Wal-Mart, no distributordominates: distribution is regional, and thenational brands still have power in the distri-bution channel. This is why distributors’brands have long been perceived in theUnited States as low-cost, low-quality alterna-tives, an assessment that failed to take the fullmeasure of the phenomenon.It is revealing that the latest book publishedin the United States about distributors’ brands(Kumar and Steenkamp, 2007) chose ‘privatelabel’ and not ‘trade brands’ as its title: thenotion of ‘private label’ categorises thedistributor’s brand as a thing apart, and notusing the word ‘brand’ therefore fails toaccount for the true reach of distributor’sbrands. They are indeed brands in the eyes ofconsumers, who are now loyal to them, evenif, as will appear, they are not brands like theothers. However, this situation has recentlychanged, as can be seen from a recentinterview with Russ Klein, the executivedirector of 7-eleven, the store that inventedthe convenience store concept some 79 yearsago, He attests, ‘Private label has changed tothe point where retailers are using it as thepremium brand in some cases’ (quoted inMarketing Management, July–August 2006).Tesco is an example of this.At Tesco, the number one distributor inBritain, a survey of the fruit juice aisle isrevealing: far from being a product, thedistributor’s brand is in reality a segmentedrange, from the lowest possible price (TescoValue), priced at s0.33 per litre, to s1.84 forthe top of the range, under the label ‘TescoFinest’. Tropicana’s product, by the way, issold at s1.62 per litre.In fact, distributors are well schooled indistributors’ brands. They:I allocate the majority of their shelf space tothem, eliminating all weaker brands;I have segmented their portfolio of distrib-utors’ brands in order to meet the differentexpectations of their clients (a far cry fromthe ‘Soviet’ own brand, signalling theabsence of choice) without forcing them toidentify with the shop name (Wal-Martnamed its men’s clothing range George);
I segment their range in order to cover notonly different price levels, from thecheapest to the highest price on the entireshelf, but also the emerging needs knownas ‘trends’ (such as Tesco Fair Trade, TescoOrganic and Tesco Healthy Eating).The distributor’s brand, managed withstrength and ambition, in this way contributesto the store’s reputation. However, as we shalldiscover below, the brand issue for the distrib-utors has shifted: the question now is to turnthe store itself into the brand.Throughout the world, the distributor’sbrand is often becoming the only truecompetitor to the producer’s brand, when it isnot the shelf leader in volume. Too manybrand managers have not yet accepted thisreality: their brands are in a minority. Theirenemy is not the other ‘big’ brand, but thedistributor’s much cheaper products, with anincreasingly comparable quality level. Tomake things worse, on hypermarket andsupermarket shelves we find the producer’sbrand, the distributor’s brand and now thelowest-price products, 60 per cent cheaper.This further heightens the urgency to act(Quelch and Harding, 1996) and position themajor producer’s brand firmly and squarelyon its pillars of differentiation: innovationand quality on the one side, and emotionaladded value on the other.Distributors’ brands occur in all countries,from the richest and most developed to devel-oping countries. In Eastern countries, low-cost products and hard discount are growingrapidly. However, the hard discounters werealso a bolt from the blue for mass distributionin the highly developed countries of WesternEurope: their growth in France stabilised onlythis year. And yet these are rich countries.The distributor’s brand is thus not aphenomenon linked to low income. InSwitzerland – which has one of the highest percapita incomes in the world – the leading foodbrand is Migros, well ahead of Nestlé. This ishardly surprising, as Migros is a dominantdistributor: every village has its own Migrosstore. Migros – without exception – sells onlyMigros products. The citizens of Germany,Europe’s most powerful country, enjoy theirluxury cars, but they buy most of their foodfrom the Aldi and Lidl hard discounters,which also – almost without exception – sellonly exclusive private-label products. It ishard to imagine that the Germans would buypoor-quality goods. Loblaw’s, a Canadianchain, has built its reputation on itsPresident’s Choice brand. The story is thesame at Carrefour, Albert Heijn in Hollandand Ika in Scandinavia.Distributors now manage their brand port-folios as part of an overall vision for thecategory and for the store. They have tochoose their ‘brand mix’ for each categorysegment, and make a decision with regard tothe type of brand to offer: producer’s ordistributor’s brand? The latter may offer eitherranges of economical products, a value-for-money line (often in the distributor’s ownname) or own brands (private labels) offeringmore flexibility in terms of positioning –perhaps even genuinely premium posi-tioning.It is true that within the meaning of thecatch-all term ‘distributor’s brand’ there aredistinctions to be made between verydifferent realities. Two axes give structure toall the distributor’s products or brands: thelevel of value added, and the relation to thestore (see Figure 4.1).In terms of added value, at the bottom ofthe scale are the low-cost products, hastilydesigned by mass-distribution multipleretailers to counter the breakthrough of theso-called ‘hard-discount’ German stores (Aldiand Lidl) and their French counterpart (Ed).These products are the result of a minimalistconception of quality: low-cost sardines havethe legal right to be called sardines, but makeno pretence at anything more. Their low priceis obtained through the purchase of thecheapest sardine lots in fish auctions theworld over. Low-cost gingerbread containsFROM PRIVATE LABELS TO STORE BRANDS 67
not one gram of honey. This should not beconfused with the business model of the harddiscounters such as Aldi and Lidl, whichestablished precise quality specifications withindustrialists, aiming to obtain decent qualitydespite the rock-bottom prices, via economiesof scale pushed to the extreme: the manufac-turer recruited will produce only onereference, in astronomical quantities. At theother extreme of added value, we findproducts such as Tesco Finest, for examplefresh fruit juices made less than three daysearlier and with a limited shelf life (withoutpreservatives) and Monoprix Gourmet,which, as its name suggests, offers productswith high experiential value. In the UnitedStates and Canada, the President’s Choice linefrom Loblaw’s aims high in terms of quality, asits name suggests.In terms of nominal relationship to thestore, a distributor’s brand may either carry thename of the store or its own name: one or theother. Thus, at Carrefour, there are ‘Carrefourproducts’, Tex (for textiles) and BlueSky. Ofcourse, intermediate situations do exist, wherethe store endorses its own products: allAuchan products aimed at children are signedRik et Rok, but the Auchan logo is clearly visibleon the front of the packaging.We thus arrive at the matrix shown inFigure 4.1. The store does not impose its namedirectly:I when its insufficient reputation is ahandicap for product sales;I when the badge function of theconsumption does not fit the presence of ageneralist distributor (for example wine ortextiles);I when the level of added value of theproducts is too low and could reflect nega-tively on the store: for example, atCarrefour low-cost products are labelledNo. 1 or Eco, without any mention ofCarrefour.Why do Leclerc hypermarkets have no storebrand with their name? I organised a seminaron this theme with the managers of this group,and it appears that this has to do with thecompany’s culture and its historical legacy.Leclerc was conceived and grew up as adiscounter of major brands. Signing itsproducts Leclerc would not fit with this visionof the company’s raison d’être. Nevertheless,customers have clearly realised that MarqueRepère (Marker Brand) is Leclerc’s distributor’sbrand. In this regard it is interesting to notethat this brand is itself named ‘brand’, and usesat its second name the ontological function ofany brand: to serve as a reference marker.68 WHY IS BRANDING SO STRATEGIC?Tesco ValueEco ProductsNo.1TescoLeader PriceSephoraGeorge (Wal-Mart)St Michael(Marks and Spencer)AldiLidlPresident’s ChoiceAdded value0%RelationshiptothestoreFauchonTesco FinestTesco Healthy ChoiceNoneStrongFigure 4.1 Relative positioning of the different distributors’ brands
Other terms are used to denote the forms ofdistributors’ brands:I The own brand or private label is adistributor’s brand that has its own nameand does not generally refer to thecompany’s name (for example Miss Helenfor cosmetics at Monoprix, or Jodhpur fortextiles at Galeries Lafayette).I The counter brand: this word designatesa distributor’s brand, generally a privatelabel, created to divert clientele from aparticular big brand, by slavishly imitatingall its distinctive traits in order to play onclient confusion and the psychologicalprinciple according to which everythingthat looks very much alike is in fact verysimilar. Thus each company creates itscounter brand to Ricoré – Calicoré, Incoré,etc – with packaging similar in all respects,placed just next to the national brand onthe shelf.I The positioning brand: these are rangesthat, far from being content with offeringthe best quality/price ratio, position them-selves on trends or in the premiumsegment. Take for example the Monoprixbrands, such as Monoprix Bio (organic),Monoprix Equitable (fair trade), MonoprixGourmet.Certain stores use their name in all segments:Figure 4.1 shows how the highly respectedBritish company uses its name Tesco both forlow-cost products (Tesco Value) and for thetop of the range (Finest) and niches andtrends (Tesco Healthy Eating). Capitalising ona single name makes the customer’s job easier,and profits the store, but of course means thathigh standards must be achieved in allsegments, even at low prices. French storesprefer not to run the risk to their reputation,and do not use their name on the cheapestproducts.Are they brands like the others?The big brands have long regarded distrib-utors’ brands with condescension, and woulddeny their new type of products the sacredtitle of ‘brands’. That would call their historichegemony into question, a kind of lèse-majesté: until now, the big brands have led thefield and dominated it. For them, stores weredistributors, a revealing term, since it refersmore to logistics and transport than to atalent for composing an overall offer, forstage-managing the shelves, for businessthrough optimisation of the upstream anddownstream. This is why, moreover, storesinsist on being called retailers. The rise of thedistributor’s own brand (DOB) is all the harderto accept since it signifies the end of aparticular type of marketing (see page 139): ittherefore leads to questions that go far beyondthe problems of gaining market share, ofwhich companies have not yet taken the fullmeasure.In order to answer the question of the exactnature of the distributor’s brand, we canexamine either their management, or theirstatus among buyers.Is the distributor’s brand managedlike a manufacturer’s brand?From a managerial point of view, distributors’brands are, broadly speaking, brands like anyother. They have all the features of a brand(thinking of a particular target, selecting aprincipal competitor whose clients they willattempt to steal, defining an offer and a price,setting themselves up with packaging andcommunication) but in addition they have torespond to two different constraints simulta-neously. They have to find their place in thedistributor’s marketing mix, in which theynow represent a key component of identity,differentiation and loyalty generation(although the effect on customers’ loyalty tothe store has not yet been proven: seeFROM PRIVATE LABELS TO STORE BRANDS 69
Corstjens and Lal, 2000). And they generallyuse price as the driving force behind their ownmarketing mix, even when, exceptionally,they are positioned in a premium segment.For this reason, management of thesebrands does not have the same autonomy as aproducer’s brand. Their image positioning isbased on that of the company. As for theirprice positioning, it is generally relative, setbetween the two client benchmarks of the bigbrand prices and hard-discount productprices.In formal terms, the distributor’s brandoften takes on the form of the umbrella brand:Carrefour products, or Auchan or Tescoproducts. Admittedly, there are also privatelabels that make no reference to the store butpresent themselves as isolated, thematicbrands. The hypermarket chain Intermarchéhas its own boats and factories: it sells seafoodunder the Captain Cook brand, and itsprocessed meats under the name MoniqueRanoux. Carrefour sells a range of over 100regional products under the brand Reflets deFrance (Reflections of France).To concentrate on the store brand, alsoknown as the banner, since it capitalises onthe reputation of the store’s name to define atangible offer at the product level, it typicallycovers a large number of products, or evenshelves: through its extension, it brings aservice of practicality to the customer, whocan find it by passing from shelf to shelf. Itfunctions like a common factor, a decisionalmarker across the store.The manufacturer’s brand, on the otherhand, signifies competence: its extension istherefore necessarily more limited (seeChapter 13). Fleury Michon, the Frenchspecialist in processed meat and fresh deli-catessen products, would not dream of sellingjam. The maker’s mark has a trade, anexpertise, and a savoir-faire that underpin itsprogress, materialised through innovations.This does not mean that a distributor’sbrand may serve as an umbrella for anythingand everything. We shall see (in Chapter 13)that this should be carried out based on acategory that creates reputation (theprototype) first and foremost for thoseproducts that are considered to be close toeach other, because they are either comple-mentary or substitutable. Bringing everythingtogether under the umbrella of a name is notan end in itself: the brand is there not to savemoney, but to create value for customers.From this point of view, it is revealing that thebig supermarkets develop a portfolio ofumbrella brands, in order to cover the wholescope of their offer while also seeking the leveland type of client involvement (Kapferer andLaurent, 1988). At Monoprix Miss Helen is thefeminine beauty and hygiene brand, just as atWal-Mart George is the male clothing brand.In contrast, Monoprix aims to associate itsname with emerging consumer trends:organic, sustainable development, gourmet,openness to the world, healthy eating, etc inthe form of ‘line brands’, as does Tesco(healthy choice, organic, sustainable devel-opment etc).This cross-cutting status of the distributor’sbrand explains the difficulty of managing thestore brand entirely like a brand. In fact, thereis no brand without positioning: thus atCarrefour First Line was the brand of the mostrecent progress in television, hi-fi, whitegoods and computing, at the cheapest price.Among the big distributors, it is still often thepurchasers and not the marketers who havethe power. The former, and this is their keystrength, react by seizing opportunities (anexceptional lot of goods here, filling a gap inthe range there), and by optimising thedifference between the purchase and the salesprice.The marketing viewpoint is to install thenecessary brand coherence, which goes farbeyond the logo, in all the aisles. The brandmust not depart from its positioning, itsplatform (same price range, same level of tech-nology, etc). These two points of view are on acollision course. Often the store brand is askedto put its name to products that are not70 WHY IS BRANDING SO STRATEGIC?
entirely in line with its positioning in order toavoid having to create an individual marquefor them. Moreover, the distributor’s brand issubject to the vagaries of sourcing. To returnto First Line, this brand never took off, sinceeasy as it is to imitate the top-of-the-rangeBonne Maman jam, it is difficult to offer high-definition plasma screens at low prices. Thereare simply no suppliers in the high-techmarket to deliver such products. This is why atthe end of 2005 Carrefour decided to put anend to First Line, and retained only its lowest-price brand, BlueSky.It is impossible to talk about brands withouttouching on the question of innovation. Infact, the function of the national brand, thebig brand, is to supply progress through inno-vation, change, fashion, design and so on.This requires marketing expertise – long-termthinking on the expressed, or latent andunconscious, expectations of future clients.They also have the expertise of the majorindustrialists. Thus in 2006, Fleury Michon, inaccordance with its brand charter, launchedhams without preservatives, since these arethe future, even if today’s customer is notaware of it. To be a brand is to be a leader, tolook far into the client’s future. Eliminatingthe chemical preservatives implies replacingthem with natural preservatives: it took threeyears of R&D to find bouillons to carry out thesame preservative function. Some years previ-ously, during the mad cow crisis, FleuryMichon was able to innovate in offering hamsteaks. It is also the brand of turkey ham, andother unusual products.Does the distributor’s brand also innovate?No, since it does not have the means to doso. Its business model assumes lightmarketing – in order to reduce the costslinked to the dozens of product heads –andthe fact that it follows quickly in the wake ofwhat is already working, that is the innova-tions of the successful manufacturers, bycopying them to within a few details. In fact,the product specifications of subcontractorstasked with manufacturing a distributor’sbrand product are up to 80 per cent definedby the characteristics of the successfulproduct to be imitated. If Henkel inventstablets to replace washing powder, the DOBmust then manufacture identical tablets.According to the stores, the remaining 20 percent of the specifications will be a way ofproviding differentiation linked to the store’sown values. However, in order to be able toappear quickly on the shelves with an iden-tical offer at a 30 per cent lower price, it isnecessary to economise on marketing andR&D: the distributor’s brand business modelis that of copying, of imitation taken to themaximum.A common riposte is that distributors’brands were the first to introduce such andsuch an innovation in terms of packaging: forexample, turning shampoo bottles upsidedown, in accordance with their actualposition in the bathroom. However, the distri-bution brand, by the very construction of itseconomic model, does not seek to innovate:its price is obtained through turning theefforts and investments of the manufacturer’sbrand to its advantage, profiting from itsstrong position in the relationship, whichmeans that the manufacturer needs the storefar more than the store needs the manufac-turer. Upon the launch of new food, hygieneand maintenance products, the mass distri-bution stores today request immediate accessto the same innovation for their own brand.The examples most often given to provethat distributor’s brands can innovate areReflets de France and Escapades Gourmandes(Gourmet Escapades). We know that this revo-lutionary concept consists of revitalising theproduction of 100 regional recipes, havingthem produced by SMEs in these regions, andbringing them together under the samebrand, sold in all the Carrefour Group’s stores.From this point of view, Reflets de France is atrue brand: an innovative concept, a target, aprice positioning maintained for all products,a strong graphic identity, a high level of tastequality and an imaginary quality (nostalgia).FROM PRIVATE LABELS TO STORE BRANDS 71
This example shows that, when thedistributor behaves like a true brand, it optsfor own brands, or becomes the store of thebrand and not the brand of the store. Forexample, Gap, which was the exclusive sellerof Levi’s, began to introduce its DOB, andprogressively ceased to sell anything but itsown store brand products. However, it wasthen necessary to clearly define a brandconcept, the store becoming the place wherethe brand was expressed and experienced.Gap defined the concept as anti-fashion.Decathlon does the same. It is symptomaticthat in order to accentuate its status as adesigner/manufacturer with its own stores,Decathlon gave up its store brand (there areno longer any Decathlon products) in order toorganise everything under what it called‘passion’ brands: that is, a portfolio of privatelabels. We present below this interesting caseof a distributor becoming a designer.Consumer relationships withdistributors’ brandsLet us now look at the question (aredistributor’s brands truly brands?) from theangle of the consumers themselves. Forconsumers in mature countries, distributors’brands are perceived as genuine brands, withtheir attributes of awareness and image alwayscombined with an attractive price.When asked the classic awareness question(‘What are the yoghurt or bicycle brands thatyou know, even if only by name?’), consumersname Asda or Decathlon. When asked if theyintend to buy them (general client opinion) orbuy them again (behavioural loyalty), thescores are just as high. It is no accident that onthe majority of mass-consumption shelves,lowest-price products and distributors’ brandshold the dominant market share. Over time,some distributors’ brands are able to achievethe typical brand effect, as shown by Table4.1, which looks at the United Kingdom, formany years a leader in this field. According tothe Brandz study, the consumer’s proximity tothe brand moves from a feeling of presence(awareness, recognition) to a feeling of rele-vance (it’s for me) to the perception ofperformance and a clear advantage, and ulti-mately to a genuine affective attachment. It isinteresting to note that two distributors’brands have made it into the top 10 of Englishbrands studied by Brandz: Marks & Spencerand Boots.We might say, of course, that there is anaffective transfer from the store to itsproducts, a halo effect. Boots and Marks &Spencer are highly respected and historicstores in the United Kingdom, having createda relationship of reciprocal trust and esteemwith their clientele over time. However, thishalo effect is precisely the lever on which thedistributor’s brand is counting.Research carried out by one of our HECdoctoral students on the sources ofengagement with the brand, depending onwhether it is a producer’s or a distributor’sbrand, throws brand-new and unprecedentedlight on the matter. C Terrasse (Terrasse andKapferer, 2006) worked on four product cate-gories, in order to compare engagement withthe Carrefour brand with that for the bigbrand in the same category. Engagement withthe brand means more than repeat purchase.Panel data has long shown that distributorproducts obtain repeat purchase rates (behav-ioural loyalty) as high as those of the bigbrands, or even higher. The same is true forengagement: the declared levels ofengagement are high in both cases, for bothDOBs and national brands.Table 4.1 Brand attachment: the 10 winningbrands1. Gillette 57 7. Nescafé 392. BT 56 8. Heinz 393. Pampers 53 9. Kellogg’s 394. Marks & Spencer 42 10. Boots 375. McDonald’s 42 11. Colgate 326. BBC 40 12. Royal Mail 32Source: Brandz (UK).72 WHY IS BRANDING SO STRATEGIC?
Engagement – personal involvement withthe brand – measures a strong relationshipwith the brand, meaning that if the brandwere not there, the client would prefer to waitthan buy an alternative. For the consumer,there is no substitutability. The reverse is indif-ference, or sensitivity to the slightest rise inprice. This engagement comes from twosources. The first is attachment, measured hereas a strong perception of proximity (thecustomer feels a closeness with the brand), andthe second, satisfaction linked to a perceptionof difference in product performance.As Table 4.2 demonstrates, whatengagement with the store brand does isessentially to create closeness with the store.The reverse is true for the manufacturer’sbrand: their ‘fans’ are fans because of a strongexperience of the product’s superiority.C Terrasse’s doctoral thesis also examinesthe consequences of engagement with thebrand. In theory, the more people are engagedwith the producer’s or distributor’s brand, theless they will seek variety when shopping inthis aisle, and the less sensitive they will be tothe price. This is exactly what happens with thebig brand: repeat purchase of the identicalproduct results directly from the client’sengagement with the brand and its reductiveeffect on two key factors of disloyalty (enjoyingvariety and being sensitive to price). For thestore brand, engagement with Carrefourcertainly influences the repeat purchase, andcertainly diminishes the appeal of variety, butdoes not make the client insensitive to theprice. This means that the repeat purchase ofthe distributor’s brand is always contingent onthe price: it is highly conditional. These shelvesare now seeing the advent of lowest-priceproducts. The repeat purchase rate of thedistributor’s brand, although high, is essen-tially false loyalty (Kapferer and Laurent, 1996):the customer is always sensitive to the price,and keeps an eye on price differences on theshelf. It is not an absolute brand.Nevertheless there is an interesting differencein the way a distributor’s brand works,compared with the manufacturer’s brand. As CLevy’s research (in Levy and Kapferer, 1996) onthe impact of distributors’ brand trials on atti-tudes showed, the satisfaction created by adistributor’s brand increases the credibility of allthe distributors’ brands, at least in terms ofattitude. If a customer tastes Carrefourchocolate biscuits, which compete with thesegment leader Pepito, and finds them to beexcellent, it increases the possibility that theywill also buy Tesco chocolate biscuits.This is why distributors’ brands have diffi-culty creating loyalty to the store, as is oftenobserved in studies: admittedly they createrepeat purchasers within the store, but theydo not appear to offer discriminating reasons,or even overriding reasons for visiting onestore over another. Nor does an examinationof the reasons for purchase in people on theborder of the two ‘regular customer’ zonesfind them appearing as the number onecriterion. The distributor’s brand thereforeplays less of a role in differentiating itself fromthe competition than the manufacturer’sbrand, which works only for itself. Theseresults have been shown again in very recentanalyses (Szymanowski, 2007).This does not mean that all distributors’brands are perceived to be equal: the image ofthe store (quality, cleanliness, popular orelitist character, and so on) reflects on every-thing that bears its name, therefore firstly onthe distributor’s brand.FROM PRIVATE LABELS TO STORE BRANDS 73Table 4.2 Determinants of attachment to distributors’ and producers’ brandsCarrefour 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)
Why have distributors’ brands?In 2006, at the world’s number one distributorWal-Mart, out of a turnover of US$285 billion,40 per cent was made from distributor’sbrands. This percentage is 60 per cent at Tesco,the fourth-largest distributor in the world, 35per cent at Metro, but 90 per cent at Aldi, theking of the hard discounters. In the field ofsports products, it is 51 per cent at Decathlon.Why do distributors come to set up their ownbrands, to the point that – like Gap or Picard –they eventually sell nothing else?For an answer to this question, we shouldnot look to the consumer, who is only toohappy to have finally found a cheaperproduct. In reality, the true economic motorof the unstoppable growth of distributors’brands lies with the industry: the distributorsand producers themselves.In the mass consumption sector, the earlydistributors’ brands are almost always born ofa conflict between the distributor and theproducer. Dissatisfied with the poortreatment it receives, the distributor has itsgoods produced elsewhere, in order to plug agap, and sells them either under its ownname or under a private label. The atmos-phere of conflict persists, particularly since –in Europe for example – brands now typicallydepend on a very small number of distributorclients (four) for 60 per cent of their sales.Procter & Gamble makes 16 per cent of itsworldwide turnover (US$51 billion) from asingle client: Wal-Mart. In some sections theconcentration is even higher: Decathlonaccounts for more than 10 per cent of Nike’ssales in Europe. Furthermore, these distrib-utors’ brands parallel the worldwide devel-opment of distributors, leading them tomatch the expectations of quality products atlower prices that are prevalent in emergingcountries (Brazil, Eastern Europe, Russia,India and so on).Consumers are selective. They decide inwhich categories they are the most tempted tobuy distributors’ brands: those in which theyhave a low degree of involvement (Kapfererand Laurent, 1995). Remember that brandsexist wherever customers perceive a high riskin purchasing. Conversely, where they see norisk, they are tempted by the distributor’sbrand, particularly if they consider thatdistributor to have a good reputation and animage of quality. For example, the buttercategory is now dominated by distributors’brands. Three-quarters of all the processedmeat sold in self-service stores in France islow-cost or distributors’ brand products, butthe same is not true of new food products,such as low-fat butters and unsalted hams,which suggests product development is asource of concern, and consumers need thereassurance of a well-known brand name. Inall cases where the consumer expects superiorperformance (cosmetics, for example), theproducer’s brand carries the day. The same istrue wherever the product has assumed thestatus of a symbol or ‘badge’: again, thedistributor’s brand fails to make animpression, except where it has become itselfa declaration of self (the Gap is the anti-fashion).Now, emboldened by satisfactory past expe-riences, consumers are taking the plunge:there are distributors’ brands for PCs, s120bicycles, hi-fis and domestic appliances.Consumers may want a Sony or Samsung tele-vision for their living room, but in the kitchenor in a child’s bedroom they are less involved:they may be tempted by a BlueSky(Carrefour’s low-cost hi-fi brand). The same istrue for home computing. Dell is a productassembler, and sells under its distributor’sbrand. However, its products are guaranteed‘Intel inside’.In reality, the distributor’s brand is based onsupply, not demand. Whenever distribution isconcentrated, and the size of the domesticmarket makes it economically possible, thereis no other way of increasing return oninvestment (ROI), as we shall analyse below.On the one hand, in the previously inde-pendent retail sector, as trade concentration74 WHY IS BRANDING SO STRATEGIC?
progresses, the first step is to buy in bulk toreduce purchasing costs. Next, a collectivecommercial store name is applied (forexample Bureau +, Qualipage). But if there isto be a collective name, there must also be acollective range: this forms the heart of thestore’s product range. The last step is a logicalone; the distributor’s brand – which onlyrepresents a small part of the offer to beginwith – can only grow. It is an integratingfactor.Bear in mind that growth in distribution isachieved over time, through the eliminationof competing channels or forms of commerce,followed by the competitors themselves. Inthis way, in Europe, small traders havevanished altogether in many categories,having been swamped by the supermarketsand the hard discounters; this was how thedistributors first started to grow. Havingreached the end of this path, distributors haveturned to the international market and costreductions: hence the fashion for cost-cuttingtechniques such as efficient consumerresponse (ECR) mode and trade marketing.The final stage is the distributor’s brand as ameans of improving ROI.Finally, we should not forget what themajor distributors sometimes call upstreammarketing. The distributor’s brand makes itpossible for large stores to present themselvesas objective allies of local and regional SMEsagainst the multinationals, since it is the SMEsthat manufacture the distributors’ brands.Everyone knows that mass distribution doesnot always have a good image. The crushingof small businesses has contributed in largemeasure to the desertion of town centres, andof complete suburban zones: society as awhole is paying a steep price for this. In theireagerness to position themselves as thecheapest, the major players in distributionand their massive bulk buying have launchedthemselves on the world like hunting dogs,driven by a single idea: to always find itcheaper and import it as quickly as possible.This quest – with the approval of consumersonly too happy to save money in the shortterm – has led to the downfall of companies,entire sectors and towns, leaving thousands ofworkers unemployed. This social cost haspassed largely unnoticed. The salaries in massdistribution are among the lowest in thecountry: the store owners are rich, but theprospects for salary increases for a cashier over10 years are minimal, a situation dictated bythe price war.What has society gained from this freneticcompetition between the major distributors?Conscious of the collateral damage for society,mass distributors make use of two levers togive themselves a clear conscience. Either, likeCarrefour, they flatter national pride, sincethe company has exported itself worldwide(although this does not create more jobs inFrance), or like Leclerc, they present them-selves as the defender of SMEs, the majoritysuppliers of distributors’ brand products.Having been crushed by the multinationals,SMEs will be saved by mass distribution. Weknow that this is provisional, since this pref-erence for SMEs derives from the refusal of themajor industrial groups to produce DOBs.Where they do so, there are no SMEs. Now thequestion for all boards of directors of themajor industrial groups is: why leave thismarket to the SMEs?The financial equation of thedistributor’s brandIn a competitive market, the distributor’sbrand is a logical stage in the growth of adistributor. It satisfies the need to maintainROI once all other approaches have beenexhausted. Alternatively, it may have been thekey differentiating component from theoutset (as in the case of Ikea, Starbucks, BodyShop and so on).Let us look again at the principle of ROI, inorder to understand why the distributor’sbrand is an advisable step at a certain stage ina distributor’s growth.FROM PRIVATE LABELS TO STORE BRANDS 75
Net margin = Gross margin – CostsStock rotation = Sales per square metre/Investment per squaremetreROI = Net margin × Stock rotationWhat does a distributor do when it wants toincrease ROI from 20 per cent to 22 per cent(an increase of 10 per cent of the current ROI)?Suppose that this is a major distributor with anet margin of 2 per cent and a stock rotationof 10 per cent. Two possible options areavailable: either to increase sales by 10 percent per square metre (giving a rotation of 11),or to increase net margin from 2 per cent to2.2 per cent through selling private labels anddemanding even more price concessions frombrand producers, or a share of the profits fromtheir advertising/promotional campaigns(which ultimately amounts to the samething).This second option – increasing the netmargin – is a much easier way of increasingROI: everyone knows how hard it is in amature market to increase turnover per squaremetre. This is why all distributors arechoosing, or will choose, the distributor’sbrand if they wish to make optimal profits. Infact, the first lever for improving ROI arisesfrom the fact that the margin on DOBs isbetter than that on national brands (Ailawadiand Harlam, 2004).The second reason for introducing adistributor’s brand relates to the increase innegotiating power with the manufacturer. Notonly does the distributor improve its marginson the DOB, it also receives better marginsfrom makers of national brands, who wish topersuade it not to go further.A third effect on distributor profitabilityinduced by the introduction of DOBs relatesto the increase in the number of innovationslaunched by the maker. Distributors receivelisting fees on these products. Moreover, theyare rarely low-price innovations (Pauwels andSrinivasan, 2004).Finally, distributors hope that their distrib-utors’ brands will contribute to increasingloyalty to the store itself. In theory, these areproducts that can only be found there.Research carried out at HEC (by the author in1998) demonstrates that this effect has not yetbeen proven. Among the reasons for loyalty toa store, the distributor’s brand is almost nevercited, except for stores that have developeddistributors’ brands with strong added value(Monoprix, Tesco) and have acquired a repu-tation of their own.Why will distributor’s brands increasestill further in future?Other parameters also explain why thosedistributors with distributors’ brands willpromote them still further: the hard-discountcircuit. This form of commerce, based on alow-cost type of business model, sawremarkable growth between 1995 and 2006,offering prices 30 per cent lower than those ofdistributors’ brands, close to home, with anew store opening every day in the town orshopping centre. It appears that the turnoverper square metre of this form of distribution isnow falling, or has at least stabilised since2006: this is due to the lowest-price productsthat the bigger stores have had to learn tointroduce onto their aisles en masse, in orderto keep clients in the store. Now their unitarymargin is lower.In France, this has been compensated for bythe goldmine of the Galland law: thebackroom (deferred) margin of major brandproducts could not be passed on to the client –only the volume markdowns. This suppressedprice wars among the brands, and even madeit easier for prices to go up. This backroommargin, repaying the services of distribution,could amount to 40 per cent of the pricecharged.Since 2006, a new circular has suppressedthese negative effects of the Galland law: thedistributor may reinject what it gained inbackroom margin (above a 20 per cent76 WHY IS BRANDING SO STRATEGIC?
threshold) in order to bring down retail prices.Since stores can no longer protect thesemargins, it is up to the DOB to protect them.That haven of non-comparability, thedistributor’s brand, is the only remaining pathto recovering financial health. This is why thenumber of DOB references can only increaseon all shelves.How far can the distributor’s brandgo?What is the optimum distributor’s brand for astore? What fraction of sales, of the aisle, andof the shelf should it represent? The answerdepends largely on the store’s strategy – itself afunction of the competitive situation and themargin provided by the producers of brandedarticles, in comparison with that offered bythe distributor’s brand.Take Decathlon, for example. This storebegan, like many others, as a simpledistributor of brands. Over time, the store’smission (to allow access to the pleasure ofsport for the maximum number of people)proved easier to carry out through a greatercontrol over product design and productionplanning, even purchasing the raw materials,although production is still subcontracted.Little by little, the Decathlon brand tookcontrol of aisles where brands were weak.However, it is forced to cohabit with well-known brands in sections such as running,tennis, skiing, and golf. Having become awarethat a single, uniform brand harmed the desir-ability of the store itself and therefore thenumber of visitors, Decathlon abandoned itssingle brand in 1998 and exchanged it for aportfolio of passion brands. Today thesebrands represent more than 50 per cent ofturnover. The store’s deep desire is to becomea major producer of sports brands, andtherefore to always push its specialised brandsthrough sport. Decathlon still needs majorbrands in certain sections, but less so inothers. If its brands become genuine brands, itwill have reached its objectives, following theexample of Gap, which passed from the statusof a simple store to that of a store brand andfinally to that of a pure brand with its ownstores. This change was itself the consequenceof an evaluation of the future profitability ofthe textile market for a brand distributor, atthe moment of the opening of discount textilestores in the United States.The part devolved to DOBs is therefore notthe result of an optimisation, but the fruit of avoluntary strategy. Research has neverthelessanalysed the impact of the increase in theDOBs’ share of the offer on the frequency(measured as the average number of purchasesper week in relation to the number of refer-ences offered) (Ilec, April 2006). For a smallsupermarket, the frequentation index iscontinually decreasing: it is 140 when theDOB offer is situated between 8 and 18 percent of the overall offer, and 79 per cent whenit reaches the segment between 47 per centand 57 per cent of the offer. For a large super-market, the same is true. For a small hyper-market (under 6,000 square metres), thefrequentation index also falls as the share ofDOBs increases, but over 20 per cent of DOBs,the frequentation index rises once more: itincreases from 87 per cent to 99 per cent for aDOB offer rate of 22 to 29 per cent. For largehypermarkets, the frequentation index riseswith the DOB range! The best frequentation(index 125) is found with an average DOB rateof 19 per cent, then the frequentation indexfalls again for any increment in the presenceof DOBs.The three stages of thedistributor’s brandOnce the decision has been taken, there arethree stages in the business growth of distrib-utors’ brands: oblative, imitative and identity.The first stage is known as reactive oroblative: historically, it results from the refusalof sale by the major industrialists. This is howmany own-brand products are born. However,FROM PRIVATE LABELS TO STORE BRANDS 77
it is also strengthened through identifyinggaps in the ranges of the major producers. Acategory management approach quickly iden-tifies those segments where something shouldbe offered to the client, but where the majorbrands have nothing to offer, since it is nottheir strategy. These gaps need to be filled.The second stage is imitative: here, thedistributor examines its competitors’distributor’s brand ranges, and sets aboutimitating them, producing the same productstypically supplied by its other competition. Bymeans of this emulative method, thedistributor’s brand core offer is constructed,created from all the references common to allthe distributors’ brands. We should add thatthis is also typically a phase during which thedistributor, for lack of investment in its owndistributor’s brand identity, chooses toimitate, trait for trait, the packaging of thebrand products that it is targeting (generallythe category leader). The objective of thiscopycat approach is clear: a deliberate intentto take market share from the big brands byallocating more space to one’s owndistributor’s brand, a similar copy, and toincrease the average price of the big brands inorder to attract clients to the distributor’sbrand (Pauwels and Srinivasan, 2002).This imitative or ‘copycat’ approach borderson trademark infringement, and sometimesgives rise to court cases by the outraged andwronged producers, complaining of either aninfringement of their brand rights, or unfaircompetition (see page 270), or economic para-sitism. A visit to the aisles of mass distributionis enough to note the striking similaritybetween the copy and the brand packaging. Inmost cases, however, disputes – arising fromthe overzealousness of the designers – areresolved amicably. Furthermore, thedistributor takes refuge in the fact that theissue is not brand codes, but rather categorycodes. The real aim of this approach (theimitation of the essential attributes ofbranded product packaging), which domi-nates mass distribution, is to cause confusion,profiting from the average attention span ofthe shopper in the aisle. Through lack ofattention, the consumer may take thedistributor’s brand instead of the major brandproduct.The InVivo company has actually calcu-lated that, for mass consumption products, inhypermarkets, consumers spend 7 seconds oneach purchase: speed matters to them. Whenthere is intentionally strong resemblancebetween the packaging, a hurried buyer withan average attention span can be confused.Our research into the imitation of brandpackaging (trade dress) by distributor’s brands(Kapferer, 1997; Kapferer and Thoenig, 1992)has shown that the unconscious recognitionfactors in the aisle were, in decreasing order ofimportance:1. Colour.2. Packaging shape.3. Key designs.4. Name, typography and so on.This is exactly what distributors’ brandproducts copy: Ricoré’s packaging is yellow,and so Calicoré’s. There is an image of a smallMexican on Pepito, the leader in biscuits forchildren. There is a very similar character onRik and Rok, Auchan’s children’s brand, and soon.As our results (shown in Table 4.3) demon-strate, where the private label copy/originalproduct pairs are placed in decreasing order ofresemblance, the stronger the perceivedresemblance in trade dress, the more theconsumer infers that the producer of the twoproducts is one and the same – and the moreconfidence the copy inspires.Another study has shown that the discoveryof a quality distributor’s brand created a lesspositive attitude towards to the leading brand.J Zaichowsky and R Simpson (1996)conducted consumer trials with Lora Cola, adistributor’s brand imitating the appearanceof Coca-Cola cans. The taste of the product78 WHY IS BRANDING SO STRATEGIC?
was manipulated in such a way that onesection of consumers would find it very good,while others would find it bad. Among thelatter group, the Coca-Cola evaluation,measured twice (before and after trying LoraCola) did not change (5.41 versus 5.71).However, it did fall significantly in the casewhere the consumers liked the taste of thecopy (falling from 5.67 to 5.22, or a drop of–0.45).The third stage is the identity stage: thedistributor’s brand is used to capture marketshare from competitors. It becomes a genuineinstrument of strategic differentiation,expressing the identity, values and posi-tioning of the store itself. It should generateloyalty not just to itself (through its effect onthe share of requirements), but also – morechallengingly – to the store.During this stage, the brand’s power andmanagement is no longer in the hands of thepurchaser alone. The purchaser strives for anoptimal mix of purchase and resale condi-tions. Making the brand into an instrumentfor shaping identity and positioning presup-poses genuine marketing strategy, and alsothe construction of a range that reflects thebrand’s ability to communicate thedistributor’s own values and identity. Here,the trick is to effect the shift from purchasedriven by confusion to one driven by pref-erence.In this situation, the distributor’s brandholds key positioning importance, since itscontent and products express the values of the(distributor’s) store. To this end, it offers oneor more components of added value, based onthe ingredients, packaging, traceability,concept and so on.This is generally the point at which brandsappear for which the main sales argument isno longer price, but the concept itself. It istrue that often they have no equivalentamong the branded producers, for a simplereason: these are specialised by category,product or trade. For example, what producercould construct an umbrella brand around theconcept of ‘Pleasures of yesterday’, bringingtogether more than a hundred of the bestproducts from every region of the country,along with rediscovered recipes and methodof manufacture? Nestlé would be incapable ofdoing this, as it does not produce oils, jams,biscuits and the like. The same is true ofUnilever, Philip Morris and Danone.Carrefour, however, can: all it needs to do ispromote the concept among small regionalcompanies in each country where it operates.The case of DecathlonFew stores reveal as much about moderndistribution as Decathlon and the key rolethat its own brands play in its growth. In arecent article, Anglo-Saxon academic researchnotes that the share of shelf space givenover to distributor’s brands among US distrib-utors is less than among European distributors(Corstjens et al, 2006). The US distributorsFROM PRIVATE LABELS TO STORE BRANDS 79Table 4.3 How copycat resemblance influences consumers’ perceptionsThey are made by the samemanufacturer (%) 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)
allocate shelf space according to a simpleshort-term profit equation. It is true that inthe United States distributors’ brands have apoor reputation, and are all considered ‘sub-brands’. They do not allow for positioning ofthe store or the loyalty generation throughattachment to the store. The situation isdifferent in Europe and Canada, where, veryearly in their brand history, distributor’sbrands had a combative vocation: fightingnot to launch a price war, but to offer theconsumer genuine value. Just think of Migros,the dominant chain in Switzerland, whichdoes not sell products by Nestlé, the world’sleading food company with its headquartersin Switzerland, but rather Migros products. Inthis case, the long-term strategic dimensiontakes precedence in decisions on shelf spaceallocation: this is the best way to getconsumers to try the product, and therefore tobegin a cycle of loyalty generation.In our view, the main difference betweenthe approaches of the distributors themselvesin the United States and in Europe is that, inthe United States, it is a question of selling thestore’s brand alongside the big brands,whereas in Europe it is a question of making itthe store of the brand, with a few other brandsalongside it. Decathlon has now become adesigner of brands that controls its own distri-bution. This is what differentiates it from thesports section of Wal-Mart or SportsUnlimited. Even its lowest-price products arelabelled as ‘best-price technical’ products, toremind us that the ethics of sport forbid sacri-ficing everything for money: there is athreshold below which a football is no longera genuine football in terms of quality andsecurity. Others might sell it anyway, in orderto maintain the image of always having thelowest price, but not Decathlon.This process, which transformed the storeinto a brand, may also be illustrated by Gap.The Decathlon ideal is the same as Gap’s – toreduce its main manufacturer brand (in thiscase, Nike) to 10 per cent of sales in therunning department. This is already the casein the camping department: all the rucksacks,sleeping bags, and tents are private labelproducts. In order to succeed, Decathlonneeds to do much more than buy and sell: itneeds to innovate, design, establish its ownproduction plans, and choose its ownpartners. This is why Decathlon is now theworld’s fifth largest producer of sports goods.Its business model is the integration ofdesign/production/distribution.Decathlon began life 30 years ago as asimple discount store. It sold all brandedproducts, and only branded products, in allsports. Today, more than 55 per cent of itsturnover is made on store brands, although,in accordance with its company culture,Decathlon never speaks of store brands, onlyof passion brands. The word ‘passion’ here isnot a slogan, but a true understanding of thebrand in sport. The sports brand is built firstinternally; it is a true culture. Then it iscarried outward by those who are passionateabout it.Moreover, few stores take their own brandsas seriously as Decathlon does. Decathlonshows how the organisation must be able toadapt to the brand, rather than the reverse.Finally, Decathlon enacts its brand policyworldwide, which is all the more challengingsince Decathlon dominates its originalmarket, France, by some distance, but is onlyjust making its debut in China, where itsproducts are produced, and has pulled out ofthe United States. It has 340 stores.Decathlon’s vocation is to give as manypeople as possible access to the pleasure ofsport. The key values are vitality, truth,fraternity and responsibility. It is a low-costoperator, but one that has always favouredproduct quality over selling at the lowestpossible price. Loyalty is not generatedthrough prices, but through client satis-faction. At the same time, it is the best way ofdefending the chain against the entry ofdiscounters from the food sector, such as Wal-Mart Sport. This policy is a success: in thebicycle sector, for example, not only is80 WHY IS BRANDING SO STRATEGIC?
Decathlon the brand that first comes to mindfor French consumers, but in addition it is alsothe one that is necessarily taken into accountwhen making the next purchase, with aconsideration score double that of the firstproducer’s brand (Raleigh or Peugeot Cycles).The store was founded in 1976 by MichelLeclerq. It quickly took the distributor’s brandoption, capitalising on the strong nameawareness of the Decathlon company, and itsdominant distribution. Decathlon seeks thedevelopment of the largest possible number ofits clients through sport. The store is posi-tioned on the hedonistic side of sport, anddesigns very comfortable products, aimed atwellbeing, with emphasis on safety. It is adiffuser of pleasure.The components of its success in Francewere like those of any store: the quality of itsstore sites, the range (that is, the choice ofgoods for 60 sports under the same roof),unprecedented low prices, remarkablecomputerised logistics that avoid stock break-downs by supplying stores once or twice daily,young, helpful and competent salespeople,and finally the freedom to choose, with aislesso well constructed that customers couldeasily dispense with the salesperson. Thedefeat suffered in the United States alsohinged on the fact that the majority of thesesuccess factors could not be implemented inthe discount chain acquired, first amongthem being the site quality. Secondly, the USdiscount store was renamed Decathlon beforethe stores could be ‘Decathlonised’. It is noteasy in the United States, a country with lowunemployment, to find passionate and moti-vated young people, genuinely attached totheir store.In 1999 in France, after 23 years of uninter-rupted growth, for the first time in its historyits turnover per square metre fell. The diag-nosis was simple: the policy of a single brand,Decathlon, strongly emphasised in all itsstores, together with its dominance of thenational market, created a monopolistic situ-ation and a ‘Soviet-like’ brand. Whether onthe beach, on the ski lift, while hiking in theforest, everyone wore Decathlon-brandedproducts. Customers increasingly got theimpression of a lack of choice.The strength of distributors, often family-type businesses, is their ability to take deci-sions quickly, and to enact radical changes.These are enacted in order to producetangible, measurable results, allowing them totake the necessary corrective measures. This iswhat Decathlon did:I It abandoned nearly 25 years of store brandpolicy, in France and abroad, to movetowards a portfolio of brands segmented bysport. In order to create these brands, itbegan with the observation that there were60 sports under Decathlon’s roof. For eachbrand to reach critical mass and justify itsoverheads, a shortlist of 17 was drawn up,combined into seven finally. Then it wasdecided to increase this number, sincemodern sports are ‘tribes’ that cannoteasily be brought under the same tent inthe name of ‘critical mass’. Thus Domyoswas separated into roller sports andrunning. Tennis and golf were also sepa-rated, having previously been united underthe common brand Inesis.I These brands are autonomous, decen-tralised business units, with dedicatedteams. Their goal is for each to becomerecognised leaders in its sport. Now three-quarters of the operational budgets arespent on the brands, with one quarterremaining for transverse tasks. Decathlonabandoned its historical organisation atVilleneuve d’Ascq in order to turn thesebrands not into labels on products, butforces for creative proposals at the bestprices, based on passionate men andwomen. At Decathlon, semantics arecrucial: these brands are named passionbrands, not as a slogan or an advertisinggimmick but as a profound reality, firstinternally, and then externally.FROM PRIVATE LABELS TO STORE BRANDS 81
I These brands need to be located close towhere the sports are practised, so that theinternal teams can live them out, and localopinion leaders can play a role in theircreation: Tribord by the sea, Quechua inthe mountains. They communicate inde-pendently of one another. For example,Chulanka is Quechua’s magazine,distributed in stores: it circulates 2 millioncopies. This is the highest circulation ofany of the mountain magazines.I The 15 brands are named passion brandsbecause they are each entrusted to apassionate manager, who creates andcarries them, with a dedicated team, onautonomous sites, with a genuine businessplan and a high degree of autonomy. In thestores, the salespeople are also passionate.In time, the goods may be distributedbeyond the flagship Decathlon store. InDecember 2006, Decathlon announced ahistoric agreement with independent skiequipment hire stores in the mountains.This very lucrative market had previouslybeen locked up by the manufacturerbrands. This will make it possible for skiersand snowboarders to try Quechua productsin the stations themselves. The internetwill be the medium for hiring: clients canreserve in advance and at low prices.I In order to build these passion brands, withimaginary qualities that are weaker thanthose of the major brands, the only thingthat matters is product innovation andquality levels. This is why the DecathlonGroup also invests in ingredient brandsthat lend credibility to the offer, becomingtechnological labels themselves. It is aquestion of prying open the vicelike gripon costs exerted by the technologicalbrands such as Lycra, Goretex andCoolmax. For this reason, the ingredientbrands of the Decathlon group are alsoautonomous business units, seeking toincrease their opportunities outside theGroup.Decathlon’s challenge is international.Decathlon is currently the 10th largest sportsdistributor in the world: the margin ofprogression is still strong. The brand policydescribed above is global. Decathlon’sstrength was built in France, progressively(over 30 years) using a different model – thatof the single brand (Decathlon) which wasalso the name of the store. This contributed tocreating enormous communication synergies.The country manager’s situation, forexample in China, Hungary or the UnitedStates, will be very different. The start-up willbe implemented with the passion brands: inChina they represent 70 per cent of the range.However, the store is not known there, andwill not have 20 years to build recognition.Therefore the pricing policy must be morediscount-based. The name Decathlon,however, should no longer in theory be visibleon the products, since they all now stem fromone of the passion brands. The principle of thepassion brand, as with any brand, is in factautonomy. Only the back office cuts across allbrands. This consideration, a pragmatic one atthe international level, explains the mainte-nance of a ‘Decathlon creation’ brand insidethe product, in order to establish the linkbetween the store and its brands.Factors in the success ofdistributors’ brandsAs always, the rise of a new brand is also theresult of the actions (or lack of action) takenby the competition. For example, distributors’brands have strong market share in thecosmetics sector in Germany. The reverse istrue in France, and yet both are among themore highly developed countries. Settingaside any possible differences between thetwo countries’ relative conceptions of beauty,one explanation lies in an analysis of thecompetition. In France, l’Oréal has dragged allother brands into a war fought on scientifi-cally proven performance, supported by82 WHY IS BRANDING SO STRATEGIC?
colossal advertising budgets. In Germany theleading national brand is Nivea, which reliesmuch more on empathy, softness and a closerelationship than on the rational approach ofproven results. We believe this explains whydistributors’ brands have found it easier tomake inroads there: consumers have notperceived them to be all that different fromNivea.Hoch and Banerji (1993) have analysed thefactors behind distributor’s brands’ marketshare.These are:I the size of the potential market: thedistributor opts for long production runs;I the high margin in the sector;I the low advertising expenditure;I the ability to achieve quality (few or nopatents);I consumers’ price sensitivity.However, these authors also maintain thatmarket fragmentation does not appear toconstitute a barrier to the growth of distrib-utors’ brands.Conversely, it is known that a factor thatdoes affect the penetration of distributors’brands is the rate of innovation in a sector(measured by the share of new products incompanies’ turnover): it forces product rangesto be continually renewed, and is associatedwith a large amount of advertising. In fact, itis also the most natural reaction by producersconfronted with distributors’ brands: toincrease their rate of innovation.As has been observed, most of the factorsmentioned above are linked to managementdeficits among the producers: insufficient rateof innovation, high margins, low advertising.When the brand is treated as a ‘cash cow’, thedoor is opened to distributors’ brands.Moreover, many brand companies are willingto manufacture distributors’ brandedproducts. For example, the tyres at Norauto (achain of stores selling spare parts and servicesto motorists) are manufactured by theMichelin Group; it is inconceivable that theyshould be low-quality products.In this way, the success of distributors’brands is linked to a supply effect (by strongpromotion on distributors’ shelves and thecreation of ‘me-toos’ that ape big-brandproducts) but also by a lack of competitivenessfrom high-profile brands, which are too usedto high margins, and do not innovate.Lastly, this penetration depends on thespecific range and category. It is strong inbasic products, but no longer unique to them.Kapferer and Laurent (1995) linked the attrac-tiveness of distributors’ brands to consumers’degree of involvement, either in an enduringsense (interest in the product) or as atemporary feeling at the moment of purchase(Is the purchase a risky one? Does it havebadge value? Will it give me pleasure?). It istherefore hardly surprising to find that thecategories listed in Table 4.4 are those inwhich DOBs have the highest penetration.Note that studies on distributors’ brandcustomers have shown that their penetrationhas now reached all segments of the popu-lation. Nevertheless, there is a core target ofpeople in reduced financial circumstanceswho have a low sensitivity to quality. In CLewi’s thesis at HEC (Lewi and Kapferer,1996), even though they were given a biscuitthat was objectively poor (in the light ofresults in blind tests), 18 per cent of thesepeople decided to buy it anyway because itwas cheap. Furthermore, these are the peoplewho least noticed the difference in flavour.Garretson’s (2002) and Ajawadi’s (2001)works provide an interesting new path forstudy: according to these authors, customerswho resist distributors’ brands are those wholink price with quality. For these people, theprice is the measure of the quality. It should beadded here that hard discount itself finds itsmost frequent shoppers, and those whoseaverage basket is fullest, among families withseveral teenagers still living at home.FROM PRIVATE LABELS TO STORE BRANDS 83
Optimising the DOB marketingmixThe notion of a distributor’s brand is thereforeheterogeneous, offering the store a range ofpossibilities for getting its overall offer across.Research has analysed how each type ofdistributor’s brand was able to increase itsmarket share to the detriment of the leadingbrands of the segment, and also to reduce theprice differential between the two, therebyboosting profitability (Levy and Kapferer,1998). More than 500 mothers, in a simulatedstore, were presented with a choice betweenthe leader in chocolate biscuits (Pepito byLu/Danone group) and a distributor’s brand.This choice varied from one customer to thenext according to four criteria:I presence or absence of the store name itselfin the brand name (DOB or private label);I whether there was a ‘copycat’ of the Pepitopackaging, or clearly differentiated pack-aging;I objective quality of the distributor biscuit(established through blind tests): identicalor markedly inferior to Pepito;I level of price difference with Pepito: index50, 65 and 80.The combination of these variables makes itpossible to reproduce any form of distributor’sbrand currently active on this market. The keyfindings of this research were:I The quality of the distributor product has astrong and positive impact on theintention to purchase the distributorproduct. It increases from 16 per cent whenthe product tasted is inferior to Pepito, to34 per cent when it is equal.I The store’s reputation also has a bearing onthe intention to purchase. When the storename is masked (private label strategy), theaverage intention to purchase is only 20 percent. It increases to 30 per cent once thename is known.It is the interactions, however, that provemost interesting in practice, as Table 4.5demonstrates. Each line refers to a differentform of distributor’s brand:I The first line concerns a DOB that carriesthe store name, therefore bringing its repu-tation into play, and packaging that is not a84 WHY IS BRANDING SO STRATEGIC?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, 2007
copy of Pepito’s. It is acting like a truebrand (reputation and differentiation andquality). What do we observe? This iswhere the demand for the distributorproduct is strongest (38 per cent).Furthermore, it is the strongest eventhough the price difference is less (20 percent cheaper): therefore the profitability ismaximal. Interestingly, the demand doesnot increase when the price is lowered (35per cent cheaper); on the contrary, itdecreases to 28 per cent when the price islowered still further (50 per cent cheaper),probably as a result of the anxiety that thisprice arouses in mothers (this is a productfor children, after all). The moral is that theDOB is most dangerous to national brands,and also most profitable, when it behavesmost like a true brand.I The second line shows a store brand copy:this is the most common form of adistributor’s brand in the food departmentsof superstores. Here the demand onlyincreases if the price decreases. Although italso reaches 38 per cent of pure demand,this time it is only at a rock-bottom price(50 per cent cheaper): profitability istherefore not as good as with the previousline.I The third line is what is known as a ‘coun-terbrand’: the store name is absent, and theproduct is marked by an unknown brand(that is, a private label). Furthermore, itsonly option is to slavishly copy the pack-aging of the leader, in order to createconfusion and allow clients to think thatthere is a similarity between the products,since the packaging is so alike. Demandfollows an inverted U-shaped curve, withthe best intention to purchase scores forthe distributor product (31 per cent ofintentions) at the intermediate price level(35 per cent cheaper).I In the fourth line the store is unknown butthe packaging is different from the leader’s.Here the distributor’s brand resembles asmall, unknown brand, and the client hasno point of reference for evaluating it. It istherefore not surprising that price is theonly motivator: demand grows as the pricefalls. This is typically the case for lowest-price products, created to counter theproducts on the hard-discount circuit.What can we draw from this analysis? Whenthe distributor’s brand behaves like a true bigbrand, it reaps the benefits (market share andprofitability): however, it must have the willand the means to do so. Not everyone can beDecathlon or Tesco.The real brand issue fordistributorsAs has been shown above, the distributor’sbrand is not a brand like the others. It issubject to three conditions: it must expressthe values of the store, position itself inrelation to the big brands, and finally deliver a‘plus’ compared with low-cost products. It istherefore more like a quality label attached toa price. To increase its financial results, it iscertainly possible to increase its share of theshelf and have the goods appear in greatFROM PRIVATE LABELS TO STORE BRANDS 85Table 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
numbers, which can give the impression of aSoviet store. It is better, however, to increasethe client’s preference for it. How?Table 4.5 indicates how a better purchasingand promotion policy can contribute to this.Above all, however, it is necessary to sell itthrough greater brand strength. Since thedistributor’s brand carries the store name,value must therefore be created through thestore itself, its positioning and its identity. Toomany stores are devoid of meaning: they arebusinesses and nothing more. The hyper-market, like a cathedral, must decide whichgod it serves: the generic god of the consumersociety, or an intimate desire on the part ofthe distributor to modify its relationship withits clients? For example, Carrefour veneratesrationalism: its entire crusade is aimed at theenlightenment of the audience.Remember that a big brand is built throughthe intangible: it is embodied in the tangible,and forms the basis of a durable relationship,a community of values among its clients. Thefirst task that the store should set itself duringthis work is to identify its project, its vision:what in its customers’ lives does it want tochange? Although it will be necessary tocompete on price, on choice and on service, itwill also require an internal energy: this isfound through the vision and the battle thatthe store takes as its own. What is the battlefor most stores? When an organisation doesnot have critical mass, it is necessary tocompensate through goodwill, and thereforethrough the power of the brand.Once this has been defined, it must beimplemented through 360 degrees, and notonly through the distributor’s brand products.For example, what service innovations willembody it in stores, and also beyond? It isthese that will spark off word of mouth, turncustomers into ambassadors and carry thebrand’s point of view.In comparison to the weight and inertia ofthe multinationals, which can only innovateonce they have confirmed that the inno-vation will be profitable because it can beimplemented worldwide, distributors mustinnovate more reactively. Of course techno-logical innovation is beyond them. Butcustomers do not expect it of them: on thecontrary, it is their job to render customers’lives more pleasant, even more liveable. Thisis achieved through recognising that thecustomer segments are fragmented and that itis therefore necessary to adapt the distributionbrand to this variety. Second, the distributorsmust be ahead of the curve on trends: it is upto them to lead in terms of ecology, organicproduce, fair trade and so on. These are allprofound movements that destabilise thestatus quo. The risk is much less for distrib-utors: the distributor’s brand should besegmented to fill these niches. This is how aclose affective relationship is forged: client byclient.The brand-store must go further, intopersonal service. Remember the remarkablephrase of Howard Schultze, the founder ofStarbucks. Asked about the success ofStarbucks, which will soon have more outletsworldwide than McDonald’s, he replied: ‘Weare not in the business of coffee servingpeople, but of people serving coffee.’Starbucks does not sell coffee to people – it isat their service, and serves them coffee, ofgood quality, in recyclable cups, using fair-trade coffee beans, in a peaceful, calm envi-ronment and with genuinely happy staff. It iseasy to understand why Starbucks had noneed to advertise: its customers took care ofthat. It is time to stop talking about ‘distrib-utors’; the ambition now should be to place‘life centres’ at the customers’ disposal, facili-tating and stimulating places where they canalso do their shopping.‘The tail does not wag the dog’, as theproverb goes (it is the other way around). Thereal issue is to turn the store itself into abrand. Among distributors, the brandmanager is no longer there to manage DOBs,but to ensure the coherence of all the brandproject’s activities. This presupposes thatthere is a brand project, with a vision, a86 WHY IS BRANDING SO STRATEGIC?
mission, strong values that are felt internally,and implementation well beyond the storeitself and the private label products.Competing against distributors’brandsWe are frequently asked, how is it best tocompete with distributors’ brands, which are– as their market share attests – the numberone competitor of the big brands? Procter &Gamble Europe has long believed that it wascompeting against Unilever, Henkel orColgate, old friends which share the samebusiness model, the same cultural references,and even the same HEC MBA’s. The consumersees things differently. Moreover, it has beenshown that an excess of price-based promo-tions created sensitivity to price and ledconsumers to try distributors’ brand products,itself a preliminary step to trying low-costproducts. There are different levels of responseto the question above, some tactical, othersinvolving a revision, not of the brand, but ofthe business model.A precondition: do not tolerate brandimitationsIn developed countries, brands fall victim tounfair competition on the part of distributors’brand products, in the form of imitations oftheir distinctive symbols. This imitation isanything but accidental, as the design and pack-aging agencies recruited for the purpose wellknow. The national brand product is used as abrief, not for what to avoid – according to goodbrand principles – but what the rival shouldmost resemble. This is where competitorsincrease their ‘me-too’ product’s chances ofsuccess, by closely imitating – albeit with a fewdifferences – the characteristics of the targetedbrand product, as well as its distinctive marks.To be considered as an unfair threat, theimitation must be likely to cause confusion in aconsumer of average attentiveness.Imitations can come either from competingproducers, or from the product’s own distrib-utors – and the response must vary dependingon the individual case. Most big companieswould in fact be reluctant to take actionagainst their distributor if they believed thatone of its distributor’s brand products, placedalongside one of their own branded products,was imitating it too closely and constitutingan act of unfair competition. It is true (seepage 78) that the second phase in the imple-mentation of a distributor’s brand policy isgenerally to imitate the targeted market leaderon a shelf by shelf, reference by referencebasis. It can even be the case that distributors’brands within a given group copy oneanother. Bicycles sold by Auchan superstoreshave borne an extremely close resemblance toa best-seller at Decathlon (the ‘be-twin’): thetwo stores form part of the same group.Actual legal proceedings against thedistributor are rarer still. Big companies, manyof whose products are stocked by thedistributor, fear a Pyrrhic victory and prefer tobuild up a dossier with the aim of avoidinglegal action and resolving disputes amicably.The dossier consists of a form of proof thatcould be produced as legal evidence ifrequired, for it is in fact possible to devise ascientific approach to prove illegal imitation.Two methods exist.The first works on the legal definition: theimitation is illegal if it is likely to createconfusion in a consumer of average atten-tiveness. There are two techniques capable ofdemonstrating such a risk of confusion,without actually asking customers directlywhether they would be confused by thecopycat (an invalid method). The first is theuse of a tachistoscope, which ‘flashes’ apicture of the copy at consumers, first at highspeed, then at slower speeds. They are thensimply asked to describe or name what theyhave seen (Kapferer, 1995b), and the numberof times the copy is mistaken for the originalis measured. The second method is to startwith a computer-degraded image of the copy,FROM PRIVATE LABELS TO STORE BRANDS 87
and to build it up, step by step, usingcomputer software. Consumers indicate whatthey think they can see on the computerscreen (Kapferer, 1995a). These two tech-niques produce a working imitation ofconsumers of average attentiveness, either bylimiting the length of their exposure to theproduct, and then increasing it (the tachisto-scope) or by presenting low-resolutionpictures (computer method) and steadilyincreasing the resolution. Using the firstmethod, we have found confusion scores of40 per cent.The second approach ignores the legalconcept of confusion. Indeed, although theypay lip service to it in their rulings, judges donot truly use the concept of confusion.Rather, they concentrate on excessivemanifest resemblance. They pay moreattention to resemblances and less to differ-ences (as advanced by the imitator’s lawyer).Objective proof of an excessive resemblancecan be obtained by asking one group ofconsumers to describe the original, and thenasking an identical group of consumers todescribe the copy. An analysis is made ofwhich aspects were mentioned first, second,third and so on, for each of the two products,and the level of agreement between theaspects stated first by each group.Once these results on the reality of the pre-judice have been obtained, contact with thedistributor must be made at a high manageriallevel in order to emphasise the seriousness ofthe matter. Furthermore, this is the level atwhich long-term interests are best appre-ciated. The distributor needs big brands, adynamic aspect to its store shelves, the valueinnovations the brands bring to the categoryand the margins they give the distributor. Themanufacturer needs the distributor to gainaccess to the customer. At lower manageriallevels, the producer–distributor relationship ismore antagonistic. The outcome of suchcontact is the modification of the trade dressor packaging of the distributor’s disputedproducts.In general terms, brand management mustplan for these phenomena and put the brandin a position to be able to defend itselfstrongly. Thus, in order for a brand colour tobe defensible, the brand itself must alsodefend it internally. For example, the brand’sproduct lines are very often segmented: thisleads to the use of different colours to identifyeach segment. In this way, the ability to claimthat the brand is characterised by a particularcolour is reduced. Thus, if a Coke label is red,and a Diet Coke label is silver, red is no longerthe colour of the Coca-Cola brand: after all,when producing their own colas, distributorsalways start by producing red packaging.In general terms, the brand must become amoving target through innovation andregular modifications to its packaging and itscharacteristic components. However, it mustalways be remembered that the aim of thesemodifications is to bring more value to theconsumer. The difficulty that this permanentmovement creates for copies is a secondaryeffect.On the design front, the brand must accen-tuate and radicalise the signs of its own indi-viduality, in order to be able to defend thembetter, and at the same time make them recog-nisable to consumers of average attentiveness.It is significant that the often-imitated Bailey’sgoes as far as to print the word ‘Original’ twiceon its front label: ‘Original Irish Cream’ and‘Bailey’s the original’.Re-communicating the risksAsian imports, DOBs and discount productsenter first into the categories with lowperceived risk. A first reaction is to remindpeople of the risks, to regenerate involvementin the category. For example, in 2005 onebook became the talk of France, despite its sizeand its forbidding cover, which showed twonutritionists (Cohen and Serog, 2006). Thewhole press talked about it, and televisiondevoted time to it. In fact, this book revealed atruth that big distribution would much prefer88 WHY IS BRANDING SO STRATEGIC?
to keep hidden: the lowest-price products arenot good for your health. The drasticreduction in price is made by forcing throughawkward compromises, where client healthand pleasure hardly enter into the equation.All that matters is the price. This is where welearnt that low-cost gingerbread contains nohoney, and so on.Bic did something similar in 2006 amongtobacconists. The brand is known as theleader in disposable cigarette lighters,disposable razors, ballpoint pens and so on. Itpractises a single umbrella brand policy:everything is sold under the same name, Bic.It is essentially a company based on its salesforce. In Europe, the disposable lightersdivision, strengthened by its market share,lived on its reputation and spent nothing onadvertising. This prudent budgeting, however,had a drawback: for years, there had beennothing to communicate to customers whythey should prefer a Bic lighter. In fact, untilthen, in service stations and tobacconists,there had been nothing but Bic. In 2004Chinese products arrived, under the PROFbrand, which retailers bought 50 per centcheaper than Bic and sold for the same priceas a Bic lighter. The increased margin for theretailers was such that they now sold nothingbut PROF. Moreover, Chinese products weremore fun and their decorations changed threetimes a year. The end consumers made nocomplaint – they were happy to find some-thing new on the shelves, with more enter-taining products.The decision was made to recreate theperceived risk. Chinese lighters are in factdangerous: for example, they can explode ifleft on the rear shelf of a car. This does nothappen with Bic lighters, which are productsof remarkable quality. The problem is that inmarketing, perception is reality. By notcommunicating the advantages of theproduct, Bic had admittedly made savings,but it had weakened the brand and paved theway for Chinese imports, chosen by the trade,which was unconscious of the considerablyhigher safety of a Bic and the danger ofChinese lighters. Bic created a magazine for itsdistributors in order to put the word out, andremind them of their legal responsibility if aChinese lighter sold by one of them were tocause physical harm to a client. At the sametime, it took action to raise the level of thecriteria for approval for sale on Europeanterritory.Price reductionsFaced with a decrease in their market share,producers are conscious that their brand nolonger justifies the price differential that itoffers on the shelf. It is tempting to reduce theprice in order to restore the lost balance ofperceived value and price.This approach is logical, but carries severaldrawbacks. There is nothing easier thanlowering prices. What will they do when aneven cheaper Asian competitor appears?Lower them again – taking the money fromwhich budget? Should it not be a question ofrecreating value by increasing quality andprice? Also in many stores, the consumers donot even walk past the big brands: for them,the brand is too expensive by definition! Theywould not even notice the reduced price. Theanticipated effect on sales would misfire. Theprice, and therefore the margins, would bedecreased without benefiting from superiorvolumes.An interesting study (Pauwels andSrinivasan, 2004) showed that the premiumbrands should not fear DOBs, since the marketis segmented. On the contrary: statisticalanalysis showed that, after the introduction ofDOBs, their sales became less price-dependent,and their turnover increased. The intermediatebrands, on the other hand, saw their pricesensitivity increase and their sales fall.Several conclusions emerge at this stage.First, the era of systematic price increasesupon the launch of new products is over. It isnecessary to place price at the heart of theinnovation, and move on to a value analysis.FROM PRIVATE LABELS TO STORE BRANDS 89
The non-premium big brands should takecare to create a ladder enabling them toincrease penetration through a product at anaccessible price, and then practise tradingup, once the client is aware of the quality ofthe brand’s products. The difficulty, it mustbe admitted, is the reaction of distributors,since these mini or economy-pricedproducts compete directly with their DOBs,whose strategic role in their margins hasalready been discussed.Thus, having bought all ColgatePalmolive’s washing powders, Procter &Gamble decided to use Gama as a ‘fightingbrand’. In the second quarter of 2006, theprice of Gama was reduced by 25 per cent,from s6.65 to s4.95 per 27-measure tub (Arielis priced at s10). Gama became an ‘everydaylow price’ brand, at a price lower than someDOBs. The goal was to bring hard-discountpurchasers back into the superstores, sincestudies showed that they were particularlyattracted by the cheapest washing powders.Sales increased by 54 per cent in four months,increasing market share from 3 per cent to 5.4per cent.The effect of price reductions on leaderbrands cannot be guaranteed: thus, in orderto combat the products of the hard-discounter Aldi, Always (Procter & Gamble’sfeminine hygiene brand) lowered its pricesin Germany, moving from an index of 240to 197, with Aldi’s index at 100. Aldi’smarket share remained stable at around 45per cent. Always’ market share moved from21.7 per cent to only 24.7 per cent. It was afailure. The same tactic was successful,however, for Pampers: by moving fromindex 131 to 116, the market share jumpedfrom 31.1 per cent to 42.2 per cent, andAldi’s product fell from 53.9 per cent to 45.9per cent. A significant difference betweenthese two cases is the far smaller differencein price for Pampers than for Always. Is itreally worthwhile for premium brands tolower their prices?Facing the low-cost revolutionIt would be hard to underestimate the rise ofhard-discount and lowest-price ranges as afundamental phenomenon in mature soci-eties. Offering a reduced range or a pared-backservice at an unbeatable price, hard discountis more than just a price – it is a businessmodel. It also represents a new attitudetowards consumption, and heralds a crisis foradded value. It throws marketing itself intoquestion, and thus brands too. This is why noorganisations should consider themselves safefrom this phenomenon.Even in the country that invented thehypermarket, and where this form ofcommerce is now dominant, hard discounthas succeeded in capturing nearly 12 per centof market share (in value) over 15 years. Giventhat in food products, the price gap betweendiscounters and the leading brands variesbetween 30 per cent and 50 per cent, it can beseen that this represents between 18 per centand 24 per cent by volume. And of course –depending on the category – these figures maybe even higher. For example, in the pre-packed cold meats (ham) market, the harddiscounters’ market share by value is of theorder of 16.5 per cent.Hard discount is more than just a price. It isa new way of doing business, with its ownspecific retailers: German (Lidl and Aldi) orFrench (Ed, Leader Price). At present, the mostrecent European panel figures suggest that 62per cent of households shop at a hard-discountfood store. The phenomenon will reach alimit, however, reflecting the segmentation ofthe market: in food products, a threshold of 20per cent in value market share should beexpected. In the DIY sector, the major retailershave created separate hard-discount-styleretail brands. The phenomenon now alsoextends to textiles: the classic discount storeswere well known, but now new hard-discountretailers are emerging.All these figures show that hard discountcannot simply be turned into a phenomenon90 WHY IS BRANDING SO STRATEGIC?
that targets only lower-income groups. Harddiscount is a necessity for the poorest insociety, but also an opportunity for the better-off. It offers an alternative way of living:consumers can do the daily shop close to theirhome, in 10 minutes, thanks to the simplifi-cation offered by a reduced range of goods,freeing buyers from the torments of too muchchoice. Hard discount does not represent areturn to asceticism, but to realism. Amongconsumers who could afford to buy elsewhere,it attests to a desire to simplify, to un-complicate, and to retake control. It will exertstrong pressure on brands with low addedvalue, the average brands, which do notpossess a strong enough dream value. Harddiscount advocates a form of intangible value:the return to a kind of simplicity for peoplewho are not limited to it through a lack ofresources. Hard discount is a search for purifi-cation of one’s life, de-pollution, and liber-ation from imposed constraints.This is a genuine challenge for the majorbrands, as this growing form of distributionexcludes them in favour of the discounters’own products. For the major brands, thisfurther erosion of their accessibility on storeshelves compounds the problem created bythe amount of space already set aside fordistributors’ brands in the hypermarkets andsupermarkets. Indeed, even retailers’ brandsare coming under threat from this increas-ingly cut-price competition, which attractsclients to another store. This is why they havebeen strengthened, which will make themeven more of a danger to the major brands aswell. In fact, in 2007, the distributor’s brand isnow typically 35 per cent cheaper than thenational brand. As it increases in quality,however, its competitiveness also increases.The hard-discount phenomenon is set tospread. Everyone will look for a way toincrease their purchasing power in an ulti-mately painless way, by making shrewderpurchasing decisions in respect of a portion oftheir consumption. This will affect telephonecommunications, the internet, transport,petrol, clothing and other areas. No companyis immune to this phenomenon, because thecompetition has changed: consumers havebecome highly versatile, situation-driven andpragmatic. They are quite capable of shoppingboth at a hard-discount store and at Harrodson the same day.Modern competition is thus expandedcompetition: it is no longer restricted to peers,identical brands or similar channels. Like themodern consumer, it is open and all-embracing. In the process of experimentingwith new channels, consumers are bound tofind themselves re-evaluating brands andtheir added value.What should our answer to this be? Wewould argue that it involves heeding theimplicit message in this new form of range,while remaining true to oneself, by copyingwhat may be copied from this competitor,while increasing one’s own strength. Thebrand must retaliate with a different intan-gible factor and value system: productperformance on the one hand, or the emotiveexperience of the store on the other.Hypermarkets have no choice, either. Theirown brands exist only in relation to theproducer brands that innovate, create andnurture markets, reveal tendencies, and alsoparticipate in the consumer society.Remember that a brand can justify its exis-tence only through the innovations it offers.The majority of brands are born of inno-vation, and innovation continues to be thebrand’s oxygen: it has a stimulating, euphoriceffect in promoting a sense of wellbeing,pleasure, joie de vivre and hedonism. However,this intangible factor will have to start earningits keep. This begins with respecting thecustomer: an intangible benefit that is notrooted in a tangible superior quality will beweakened, and will contribute to the brand’sexcess. There are plenty of cheap polo shirts,but only one Lacoste. A Lacoste shirt lasts 10years and, furthermore, adds distinction. Thispoint has to be reinforced repeatedly. Thisraises the question of the visibility of brandFROM PRIVATE LABELS TO STORE BRANDS 91
communication, governed by the advertisingdogma of the USP: how, and through whichmedia, to promote the product. Thankfully,the internet offers many opportunities.This new brand responsibility comprisesservice, citizenship, and sustainable devel-opment, which is transmitted through clientservice via a call centre or over the internet, butalso through the services such as taking inworn-out electrical appliances, which indicatethe brand’s high degree of social responsibility.The brand must adopt ethical principles anddemonstrate that consumption is not asynonym for inefficient waste, pollution andexploitation – themes to which society isbecoming increasingly sensitive. Even Nike hashad to make changes in the wake of the revela-tions in Naomi Klein’s book No Logo (1999).The mega-brand, with its iconic status amongthe young, may well have invented conceptupon concept, but its social conscience leftmuch to be desired, a fact that is particularlyunacceptable in a flourishing company.It would be a mistake to believe that harddiscount will become the norm. In France,Cristalline spring water, sold at a price threetimes cheaper than Evian, does not control 100per cent of the market, and Evian is still theleader by value. However, it will grow, until itreaches its threshold – and in so doing it maylead to a re-evaluation of attitudes andbehaviour. As is always the case in our modernsocieties, contradictory tendencies appear,coexist and learn to live together – but whatthey cannot do any longer is ignore each other.An examination of the specific strategies ofcompanies and brands to combat harddiscount reveals the following themes, all ofwhich capitalise on the enduring weakness ofhard-discount.What link is there between Ryanair, VirginExpress, and Asda or Aldi? They are all so-called low-cost companies. How have thetraditional competitors responded? Throughthe introduction of a new, lowest-priceproduct offer to its existing range. The brandmust create a stepped price range, with acces-sible products that make it possible to exper-iment with and to discover the brand.Furthermore, this contradicts the discounters’arguments, since they wish to stereotype allmanufacturer brands as ‘expensive’.In air travel, for example, Air France hasshown that the famous bait-and-switch pricesof the low-cost companies (s20 flights fromParis to London) applied only to a few seats andtime slots. Conversely, Air France’s promotionof its lowest prices, and of reduced prices in thecase of reservation long in advance, has alsodemonstrated that its price range is muchwider than the low-cost companies hadclaimed. The SNCF (French national rail)created e-TGV to reduce prices. Thanks to yieldmanagement and process optimisation, AirFrance and British Airways can also offer aquota of seats at very low prices. These may beobtained by booking far in advance, reservingover the internet, and so on. In this way, theSNCF’s e-TGV puts Marseilles only a s20journey away from Paris.The superstores have offered products evencheaper than the hard discounters, but underspecific brands (the No. 1 brand at Carrefour,for example). This reduces the temptation tolook elsewhere by capitalising on the hyper-market’s traditional strength, ‘one-stopshopping’. The difference in terminology isrevealing: ‘low-cost’ is a business model; ‘evencheaper product’ was the result of an emer-gency action.For 50 years Aldi and Lidl have beendesigning an efficient business model in orderto provide a quality product at the lowestprice, based on the elimination of all unnec-essary costs, and on a new vision: long-termagreements with suppliers, dedicated factorieswith a common design, not to mention a storeconcept without flourishes, with a greatlyreduced range of goods. If Aldi’s fruit juice isstill the market leader in Germany, it isbecause it is good: its quality/price ratio isunbeatable.Conversely, the lowest price products atCarrefour, sold under a brand that (signifi-92 WHY IS BRANDING SO STRATEGIC?
cantly) makes no reference to Carrefour, werecreated in haste to block the client drain, andobtained through increased pressure onsuppliers, and therefore on the quality ofconstituents. Thus the fruit juice at this pricewill only have perhaps the legal minimumrequired amount of fruit juice. This is whyhard discount, unlike the hypermarket’slowest price range, satisfies its clients.At the communications level, it is necessaryto constantly recreate the perceived risk, byrevealing the invisible and the unspokenaspects of ‘low cost’. Perceived risk is a key leverof brand sensitivity (Kapferer and Laurent,1995). The book written by two nutritionistswas therefore a timely arrival in 2005. It showedthat drastic price-cutting on food products wasbound to negatively affect the intrinsic qualityof the products. Thus, low-cost gingerbreadcontained not a single gram of honey. Low-costham contained high levels of chemicals. Low-cost chicken is raised in the worst conditionsand barely has time to grow up (40 days), and soon. In the air travel sector, a degree of doubt willinevitably remain regarding the maintenance,the quality of the equipment, and the heavyusage of the airplanes.The brand must react to attacks on price byplaying its trump cards: innovation andcreating desire. In order to see off the chal-lenge of the cheapest possible industrialchicken, the brand must offer halal chicken,organic chicken, regional chicken, and so on.To oppose the cheapest possible yoghurt, itmust offer one that does you good: Actimel,Danacol, Bio-Activia. To oppose a s5 cafetièrein Carrefour, imported from China, it mustoffer Nespresso, or Senseo by Philips, or Krups.To oppose the cheapest MP3 player, it mustoffer the iPod and its continual innovation(images, nano, mini, access to iTunes, iPhone,and the like).Value innovations are low volume, at leastinitially. Without volume there can be nostrong brand, since it is volume that createsthe financial resources for R&D, marketing,communication and so on. It is therefore firstof all necessary to innovate on pillar products,those products that achieve the volume andthe margin, and are essential to the distributor.In short, faced with supermarket shelves wherespace is at a premium due to the introductionof low-cost products, and in order to retainclients who might be tempted by the vista ofhard-discount stores, it is important toremember that an essential reference remainsessential only when supported through inno-vation and communication.It is also vital to track the costs that do notcarry added value, even imitating the bestpractices of the low-cost competitors. Thus AirFrance is constantly reducing the time clientsmust wait before they can board, via machinesthat deliver boarding cards: this also helps toeconomise on personnel. The same is true forthe growing use of the internet to book and topay. For low-cost companies, as is well known,everything is done at a distance.Finally, the brand must react through aspecific business model. Air France adopted thehub-style business model: it allows any trav-eller from the French regions to travel to Parison an Air France flight and to make use of veryconvenient international connections (withshort waiting times), not to mention the imme-diate transfer of baggage, and moving within asingle terminal. All these added valuesdiscourage the internal traveller from flying toParis with a low-cost company, then beingforced to change airports or terminals, withoutguaranteed immediate connections to interna-tional flights – not to mention the air miles.Should manufacturers producegoods for DOBs?One of the questions all company managersask concerns the opportunity to work fordistributors’ brands. This question is evenmore urgent today, since with the shrinking ofthe shelf space allocated to branded industri-alists, their economic model is under threat.How can they maintain the volumes thatFROM PRIVATE LABELS TO STORE BRANDS 93
create profitability?Those industrialists in favour of producingDOB goods advance the following arguments:I It relieves the burden of fixed costs.I It allows them to benefit from economiesof scale.I It may be intrinsically profitable, sincethere is no need for marketing, communi-cation, or sales force.I If they do not do it, their competitors will.In contrast, those who oppose it are right toargue that it will undermine the long-termlegitimacy of the company’s own brands,since the industrialist will not be capable ofproducing a bad product. For a while theproduct Olympia manufactured for Carrefourwas superior to the comparable product of thebrand itself. An examination of the figures inthe cheese sector also shows that the mostprofitable cheese maker is Bel, which sellsonly branded products (Laughing Cow, MiniBabybel, Leerdammer, etc).Rather than drawing up a pointless balancesheet for and against, it is worth turning toresearch in this case. HEC has carried outseveral specific studies on this importanttheme for companies in all sectors, under thedirection of M Santi (Santi, 1996). Theselected criterion is operational profitabilitycompared with turnover, and the samplecomprised 167 cases drawn from numerousmass-consumption sectors. What does thisresearch have to teach us?I The profitability level is maximal when thepolicy is the result of a voluntary strategy (9per cent) and not an opportunistic reactionto a short-term demand (5.19 per cent) or asurvival strategy (6.53 per cent).I The profitability level also depends on theunderlying motivations: it is at its highestwhen the company is seeking to create agenuine partnership with distributors, inorder to defend already strong brands (7.90per cent). If the brands are weak and theDOB manufacturing approach is anattempt to save them, the profitability inthe sample is less (3.50 per cent).I The profitability is maximal if this is thedominant or even exclusive activity of theindustrialist (7.51 per cent).I The profitability is maximal if the market isnot a commodity market (7.64 per cent).I The profitability is weakened by the factthat the industrialist does not make adistinction between its brand and thedistributor’s brand it is producing: this is animportant point, since many industrialistsdistinguish between the two only throughthe packaging, in order to make the most ofthe economies of scale and longproduction runs.I The profitability is better when the manu-facturer works with distributors thatpromote quality.What can we draw from this HEC researchdata? Whether or not to manufacturedistributor’s brand products is a strategicchoice, and should be analysed as such.Should they do it? Refusal to do so is clearlythe result of a long-term vision: Procter &Gamble, Gillette and l’Oréal all invest too muchin research to wish to share the benefits theyreap from it. They reserve the first fruits for theirown brands, within a structured portfolio.Which companies should do it? There is nocorrelation between any classic companydescription and profitability in DOBproduction: rather, profitability is linked tothe manner in which it is implemented.In which segments should they operate?The least commoditised possible, those wherethere is still innovation.Which distributors should they work with?Here, too, selectivity in the choice of distrib-utors proves to be rewarding in terms of prof-itability over turnover.94 WHY IS BRANDING SO STRATEGIC?
What becomes of these brand principles inspecific markets? It is worth asking thequestion, given the disparities betweenmarkets as varied as industry, business-to-business (B2B) and medical prescription onone side, and the world of service and luxuryon the other. Are internet brands controlledusing the same levers? What should we thinkof the emergence of the brand in sectors suchas fresh produce, previously the domain ofgeneric products or a variety resulting fromnature and regional tendencies? Finally, weshould examine these new extensions of thebrand domain: countries, towns, educationalestablishments, and also television pro-grammes and sporting heroes.These questions on the adaptation ofbrand principles to specific sectors are raisedby sector managers themselves, since theyall recognise the trans-sectoral validity ofbrand logic, its points of application, andthe brand activation modes, which arebound to differ according to the differentmarkets. This chapter is dedicated to thesedifferences.Luxury, brand and griffeRecently there has been a surge of interest inluxury brands. It is true that they are the polaropposite of low cost: here, the company hascomplete freedom to fix its prices – as high aspossible. How much does a bottle of RoyalSalute cost in a Shanghai disco? The answer iss1,000. This is why financial groups havebeen set up to relaunch luxury brands – theworld number one, LVMH, was born from thetalent of its founder, B Arnault, who acquireda fading star, Dior, at a low price. Then he gothis hands on Vuitton, now the world’s leadingluxury brand in terms of financial value.But what is luxury? How is it different frompremium brands, such as Victoria’s Secretlingerie, Callaway golf clubs, Belvedere vodkaor Nespresso coffee? These brands are typicalof trading up, as consumers move up therange. Admittedly there is a little of luxury’singredients in these brands (better quality,selective distribution, emotive value), butluxury is elsewhere. Let us return to itsetymology. The word ‘luxury’ derives fromthe Latin luxatio, meaning distance: luxury is955Brand diversity: the types ofbrands
96 WHY IS BRANDING SO STRATEGIC?an enormous distance. There is a disconti-nuity between premium and luxury.To return to the essence of luxury, it iscustomers’ desire to mark their difference. Thefirst luxury manager was King Louis XIV ofFrance. Aristocracy is now dead, but it hasbeen replaced by the power of money.Everywhere in China, in Russia, in the UnitedStates and in Dubai, recent fortunes grantmore than unlimited purchasing power: theygrant power, pure and simple. This is the heartof luxury: giving men and women of powerthe privileges that accompany it. For powermust be shown off in our democratic societies.Once upon a time, the mere name of thenoble marked the unbridgeable distancebetween him or her and an ordinary person.Nowadays, the frontier still exists and it mustbe marked.Russian oligarchs, Chinese billionaires andWall Street’s golden boys do not buy Victoria’sSecret or Belvedere vodka for their partners.They want Dior, la Perla, Elit by Stolichnaya orKrug’s le Clos du Mesnil, which has deposedDom Perignon. Luxury, like power, is a questfor the absolute.The luxury business model aims to outgrowthis niche in order to exploit the fundamentalmechanism described by R Girard: desire bornof imitating a model. Luxury brands knowhow to create more accessible product linesfor those who wish to introduce a little luxuryinto their lives, to enliven their daily grindfrom time to time. These are luxury’s ‘daytrippers’. This created the luxury business.What does luxury mean to consumers?Luxury can vary as widely as East from West.Everyone can see where it is, but it isconstantly on the move. Luxury is relative.For a modest individual, luxury is eating in agood restaurant once a year. For one of theCity’s golden boys, it is buying a Ferrari withyour annual bonus. For Bill Gates, it is playingtennis with the world number one or buying aPicasso.Our research has delved more deeply intothe notion of luxury among consumers. Thereare profound differences between peoplequestioned on their concept of luxury.Analysis of the traits that – in their minds –define luxury reveals four concepts of luxury,each with its most representative brand(s)(that is, those that are judged the bestexample of the type of luxury by interviewees)(Kapferer, 1998).The first type of luxury, according to thisinternational sample of affluent young execu-tives with high purchasing power, is theclosest to the general hierarchy, the averageemerging from our studies. It gives promi-nence to the beauty of the object and theexcellence and uniqueness of the product,more so than all the other types. The brandmost representative of this type of luxury isRolls-Royce, but Cartier and Hermès also showthese characteristics. The second concept ofluxury in the world exalts creativity, thesensuality of the products. Its luxury ‘proto-types’ are Gucci, Boss and J-P Gaultier. Thethird vision of luxury values timelessness andinternational reputation more than any otherfacets. Its symbols are Porsche, with itsimmutable design, Vuitton and Dunhill.Finally, the fourth type values the feeling ofrarity attached to the possession andconsumption of the brand. In their eyes, theprototype of the brand purchased by theselect few is Chivas.We also find Mercedes in this category:this might seem curious, given the recentdiffusion of Mercedes – now more than1,300,000 vehicles sold worldwide each year.However, our study dates from 1998, whenMercedes produced only 700,000 cars peryear, and its dynamism and product attrac-tiveness were called into question. This iswhat led to the revolution we all know about(multiplication of models, introduction ofaesthetics, the A class, the M class and soon). Its presence as a symbol of this fourthtype of luxury testifies to the brand’sproblems. Only a few years ago, its only
potential market was among those lookingfor the luxury, not of a sensory pleasure, butof status, the badge of belonging in a classwith money and a desire to flaunt it. Weshould add, however, that in China, India,Brazil and Russia, it is the very expensiveand status-loaded Mercedes S Class thatsells. These are de facto inaccessible cars.Two different approaches to luxurybrand buildingThe only real success is commercial, yet thereare many roads to this destination. An exami-nation of ‘new luxury’ brands such as RalphLauren, Calvin Klein and DKNY proves that it ispossible to become an overnight success in theluxury market without the long pedigree of aChristian Dior, Chanel or Givenchy. True, thesenewer brands have not yet demonstrated theirability to endure and survive beyond the deathof their founders, but their commercial successis evidence of their attractiveness to customersthe world over. We need to distinguish betweentwo different business models for brands. Thefirst includes brands with a ‘history’ behindthem, while the second covers brands that,lacking such a history of their own, haveinvented a ‘story’ for themselves. It comes asno surprise that these companies are US-based:this young, modern country is a past master inthe art of weaving dreams from stories. Afterall, both Hollywood and Disneyland areAmerican inventions.Furthermore, the European luxury brands –rooted as they are in a craftsperson-basedtradition predicated upon rare, unique pieces ofwork – place considerable emphasis on theactual product as a factor in their success, whilethe US brands concentrate much more onmerchandising, and the atmosphere and imagecreated by the outlets dedicated to their brand,in the realm of customer contact and distri-bution. What we see is the creation of aBRAND DIVERSITY: THE TYPES OF BRANDS 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 ChivasCartier Boss Porsche MercedesHermès Gaultier DunhillSource: Kapferer (1998b)
dichotomy between ‘history’ and the producton the one hand, and ‘stories’ and distributionon the other. Let us examine and compare thesetwo brand and business models in more detail.The first brand and business model may berepresented by the luxury pyramid (see Figure5.1). At the top of the pyramid, there is thegriffe – the creator’s signature engraved on aunique work. This explains what it fears most:copies. Brands, on the other hand, particu-larly fear fakes or counterfeits. The secondlevel is that of luxury brands produced insmall series within a workshop: a ‘manu-facture’ in its etymological sense, which isseen as the sole warrant of a ‘good-facture’.Examples include Hermès, Rolls-Royce andCartier. The third level is that of streamlinedmass production: here we find Dior and YvesSaint Laurent cosmetics, and YSL Diffusionclothes. At this level of industrialisation, thebrand’s fame generates an aura of intangibleadded values for expensive and prime qualityproducts, which nonetheless gradually tendto look more and more like the rest of themarket. Hence its name equals mass prestige.In this model, luxury management is basedon the interactions between the three levels.The perpetuation of griffes depends on theirintegration in financial groups that are able toprovide the necessary resources for the firstlevel, and on their licensing to industrialgroups able to create, launch and distributeworldwide products at the third level (such asP&G, Unilever and l’Oréal ). Profit accrues atthis level, and is the only means to make thehuge investments on the griffe pay off. Theseinvestments are necessary to recreate thedream around the brand. Reality consumesdreams: the more we buy a luxury brand, theless we dream of it. Hence, somewhat para-doxically, the more a luxury brand getspurchased, the more its aura needs to bepermanently recreated.This is exactly how the LVMH groupoperates. The model is best explained in theactual words of Bernard Arnault, the CEO ofLVMH, the world’s leading luxury group,which owns 41 luxury brands. What are thekey factors in the success of its brands?Arnault (2000: p 65) lists them in thefollowing order:l product quality;l creativity;l image;l company spirit;l a drive to reinvent oneself and to be thebest.98 WHY IS BRANDING SO STRATEGIC?RelationsAuraThegriffeTheluxury brandThe upper-range brandThe brand Mass series, cost pressure, the spiral of qualitySeries, factory, highest quality in the categorySmall series, workshop, handmade work,very fine craftsmanshipPure creation, unique work, materialised perfectionMoneyAttributesFigure 5.1 The pyramid brand and business model in the luxury market
Writing earlier in his book with reference toDior, the ultimate luxury brand, he notes,‘Behind Dior, there is a legitimacy … roots …an exceptional evocative power … a genuinemagic, to say nothing of its potential foreconomic growth’ (p 26).As we can see, in this pyramid model, withits base which expands to feed the brand’soverall cashflow (through licensing, exten-sions and a less elective distribution system),there must be a constant regeneration of valueat the tip. This is where creativity, signatureand creator come in, supplying the brandwith its artistic inventiveness. Here we are inthe realm of art, not mere styling. Each showis a pure artistic event. Unlike the secondbrand and business model (as we shall see), itis not a question of presenting clothing whichwill be worn in a year’s time. As Arnault putsit, ‘One does not invite a thousand guests towatch a procession of dresses which could beseen on a coat hanger or in a show room’(p 70); ‘most competitors prefer to show offmass-produced clothing on their catwalks, orindulge in American-style marketing. We arenot interested in working this way’ (p 73); and‘Marc Jacobs, John Galliano and AlexanderMcQueen are innovators; fashion inventors;artists who create’ (p 75).The creativity of the signature label, at thetip of the pyramid, is at the heart ofthe business model: within a few years of thearrival of John Galliano at Dior, sales hadincreased four fold. Never before had Diorbeen talked about so much worldwide. Diorwas back at the centre of world artisticcreation for women.The disadvantage of this model – and afterall, every model has a disadvantage – is thatthe more accessible secondary lines areentrusted to other designers, and the furtheraway you move from the tip of the pyramid,the less creativity there is. In this model, thereis a strong danger that brand extensions willshow little of the creativity of the brand itself:they will merely exploit its name.The second brand and business model mayhave originated in the United States, but weshould also include the likes of Armani andBoss in this category, which is characterisedby its flat, circular, constellation-like model.At the centre is the brand ideal, while allmanifestations of the brand (its extensions,licences, and so on) are around the edge, at amore or less equal distance from the centre.Consequently, these extensions are all treatedwith equal care, since each of them brings itsown individual expression of this ideal to itstarget market. Each portrays the brand in anequally important way, and plays its own partin shaping it. For example, Ralph Lauren’shome textile extension (bed sheets, blankets,tablecloths, bath towels and so on) is acomplete expression of the patrician EastCoast ideal and its values: indeed, the tactic ofmerchandising the range in the corners ofdepartment stores aims to create an idealisedreconstruction of a room in a house.This second model can include brand‘places’ such as The House of Ralph Lauren –superstores which not only stock the entirebrand range and its various collections andextensions, but are also specifically designedto give flesh, structure and meaning to thebrand ideal. Ralph Lifshitz, Ralph Lauren’sfounder, built his brand on an ideal: that ofAmerican aristocracy, symbolised by Bostonhigh society. Ralph Lauren’s flagship stores arethree-dimensional recreations of this fancifulillusion (Figure 5.2).The same model is also used by brands suchas Lacoste, created in 1933 in the days oftennis champion René Lacoste, a Davis Cupwinner along with his friends ‘LesMousquetaires’, and nicknamed ‘TheCrocodile’ for his tenacity. Ever since then,the brand’s values, which are encapsulated inhis famous chemise (meaning ‘shirt’: the worditself is important), have been upheld by theLacoste family and a collection of partners,their licensed producers and distributors.Lacoste thus has a certain authenticity and agenuine history, yet at the same time followsthis second business model.BRAND DIVERSITY: THE TYPES OF BRANDS 99
Indeed, the creation of this model hasnothing to do with chance: it is an economicnecessity for any brand which continues to besold at an accessible price point. There is noway of sustaining an exclusive distributionnetwork with an average purchase of arounds65 or US$75 – that is, the price of a Lacosteshirt – or US$60, the price of a Ralph Laurenpolo shirt. The economics only becomefeasible with multiple extensions. Followingour model, this can be done in two ways. Thefirst is horizontal product extension toincrease brand recognition, providing thatelusive access to large-scale advertisingbudgets, and breaking into different distri-bution channels or different locations insidethe same department store. This increases theperceived presence and status of the brand.The second is vertical product extension toincrease average till prices. Today, forexample, Lacoste has segmented its productrange into three groups – sport, sportswearand Club – yet has steered clear of formalwear, which is outside the brand’s sphere oflegitimacy. This segmentation makes itpossible for customers to wear Lacoste in avariety of situations: sport, leisure and ‘dress-down Friday wear’. At the same time, theaverage product price is increasing accordingto the particular segment: the high-qualitymaterials used in a Club jacket explain why.Of course, the product ranges of all Lacoste’sextensions are arranged around this samesegmentation.Ralph Lauren uses a similar model: itsrecent Purple Collection features Italian-madeoutfits produced from quality materials, and aprice tag to match: s3,000 per outfit.This brand extension policy makes matterseasier for distributors, who have come tounderstand that the rate of return increases asthe physical sales area expands. Each store cannow offer a rich assortment of products whichare no longer mere accessories, but extensionsin their own right – and in so doing, canincrease the value of the average shoppingtrip.It should be noted that ‘pyramid-based’brands face a rather perverse problem. If theycreate too many accessible extensions, theyreduce the profitability of the sales outlets. Ina Chanel boutique, it makes more sense tospend 10 minutes selling a customer a Chanelbag – given the margin it offers – rather than aperfume or a product from the ChanelPrecision range. Clearly, the extension policyis inseparable from the distribution policy.100 WHY IS BRANDING SO STRATEGIC?Paint, home furnishingChapsPerfumesPurple labelRalphLinenRLX PoloRalph LaurenFigure 5.2 The constellation model of luxury brands
History-based and story-based luxuryAn examination of luxury brand strategiesshows two brand construction models. Thefirst is based on product quality taken to theextreme, the cult of product and heritage,History with a capital H, of which the brand isthe modern embodiment. The second isAmerican in origin, and lacking such a historyof its own, does not hesitate to invent one.Ralph Lifshitz became Ralph Lauren, takingon the traits and character of the GreatGatsby, a direct descendant of the ultra-chicBostonian high society. (See Figure 5.3.) Thesenewcomer brands also grasped the impor-tance of the store in creating an atmosphereand a genuine impression, and of making thebrand’s values palpable there. Americainvented Disney and Hollywood – bothproducers of the imaginary.The psychology of counterfeitingCounterfeiting is on the increase. It is now aglobal business, involving organised groups,and forming part of Mafia activity as a resultof the profits that it offers at the margin ofintellectual property and trademarkprotection laws. It has also found a new distri-bution channel through the internet and itsmarketplace sites such as e-Bay. However, ifthere is a market, there must be customers.In Asia, the phenomenon relates to localculture. Everyone knows the extent of coun-terfeiting in China. There is no trademarkprotection. Traditionally, Chinese culturepraises those who share and vilifies peoplewho keep things only for themselves.Faithfully reproducing the master’s work ispraised in traditional Chinese education andpedagogy. Furthermore, in the monopolisticBRAND DIVERSITY: THE TYPES OF BRANDS 101Cult of the productFrench approachto luxuryAmerican approachto luxuryMerchandising instores, at points ofsale, and in cornersHistory StoriesFigure 5.3 History-based and story-based approaches to luxury
economy that dominated the Chinesementality for 50 years, even the notion ofproperty did not exist, and it was common tosee all Chinese factories carrying the samename. Let us add that only the counterfeits areaccessible to local consumers. In these coun-tries, everyone wants to show their neigh-bours that they have finally arrived. Everyonehas heard about the Western brands, but veryfew actually know them: they do not realisethey are buying a fake. Research hasconfirmed this point (Lai and Zaichkowsky,1999): local consumers choosing a counterfeitor an imitation do so because they are notfamiliar with the original.Western consumers know perfectly wellwhich is the original: they play with imita-tions and counterfeits (McCartney, 2005). Ourqualitative research of this phenomenonreveals five motivations:I The feeling of getting a bargain, sinceeveryone knows that luxury and Nikeproducts are manufactured in factories inthe developing world. These consumersdeny the difference in quality between theoriginal and the copy, when they are bothproduced in China, as is the case for someVuitton products. These are highly discrim-inating shoppers. They only buy Vuittonbags ‘identical’ to the original, admiringthe quality of the copy: it is this quality,together with the price, that makes it ‘a realbargain’ and enables them to carry thecopy every day, under the gaze of friendswho will not know the difference. Thepurchaser of a very good imitation Bulgariwatch, a close semblance to the genuineone she already owns, will not hesitate togive it to one of her children for their 15thbirthday.Revealingly, purchasers sometimes owna true original themselves: this is whatqualifies them as experts, and gives statusto the copy chosen for its close resem-blance. They know what they are talkingabout.I The idea of brightening up functionalitems: fake Ralph Lauren polo shirts, even ifthey are approximate copies, are goodenough for doing household chores,gardening or washing the car, for example.I Certain consumers willingly buy the coun-terfeit, since they cannot or will not paythe higher price for the original. They findit superfluous or exaggerated to buy aRalph Lauren polo shirt at s60, since theyare not strongly involved with the brand.I There is also a ‘moral’ motivation amongsome purchasers of counterfeits: they arescandalised by the price of the original,arguing that since it was manufactured in asouth-east Asian factory the cost price mustbe tiny. For these purchasers, it is only rightand proper: since this brand is practisingdaylight robbery, judging by a comparisonof its sales price with its cost price, stealingfrom it in return is morally justified.I An original gift: rather than bringing homea cheap Thai souvenir that will go straightinto a drawer, they bring their friends atypical product of the country, a beautifulimitation, a counterfeit that can barely bedistinguished from the original. Thispresent always surprises the recipient, andsparks conversations on the good or badquality of the counterfeit. Finally, it iscertain to be used. However, this type of giftis becoming risky, since European customsconsider the traveller who brings homesuch gifts to be a receiver of stolen goods.The fight against counterfeitingCounterfeiting is the identical, trait-for-traitimitation of the brand and its identifyingcomponents: it is clearly illegal, with no needto prove that the consumer is confused.Perpetrators should be reported and prose-cuted. However, longer-term action isnecessary in certain countries where it is morethan tolerated, even acceptable:102 WHY IS BRANDING SO STRATEGIC?
I Collective action at the level of the ForeignMinistry or Ministry of Justice. Thisinvolves inter-state relationships.I Collective sensitisation efforts, for exampleat the World Trade Organization (WTO)level, to develop local legal systems.I Advertising of the original brand in thecountry in question. It is necessary tofamiliarise people with the ‘true brand’ sothat they can distinguish it from the fakes.I Advertising on counterfeiting in tourists’countries of origin. Action among Westernconsumers in their country of origin iseducational: they must be reminded thatcounterfeiting is linked to Mafia groupsand laundering drug money. It is alsojuridical: bringing home a counterfeitmakes someone an accomplice and istherefore a crime, punishable by law.This fight is shifting continually, and requirestact and a highly developed strategic sense. Atypical case is Lacoste v Crocodile Garments. InNovember 2003, Crocodile Garmentsannounced at a press conference in HongKong that it had signed an agreement withthe Lacoste shirt brand. In fact, the CrocodileGarments company had registered a crocodilesymbol – a strict imitation of the Lacoste croc-odile, but facing to the left instead of the right– in Hong Kong back in the 1970s, and hadbeen exploiting this brand and the ‘Crocodile’store chain, not only in Hong Kong but also inSingapore and now in China. With the law onits side, Lacoste took the matter before therelevant courts in Singapore and China.However, although the judgements werealways favourable, they remained unheededon the ground.In the meantime, hundreds of other coun-terfeits sprang up in China, including CarteloInternational with over 600 boutiques.Lacoste and Crocodile Garments came to apragmatic and wise agreement. The lattercompany could see that China was comingunder strong pressure from all quarters torespect the WTO’s rules: eventually it wouldtake punitive action against the counter-feiters. This is why the agreement signed stip-ulated the cessation of legal action against it,with Crocodile Garments moreover becomingLacoste’s licensee in Hong Kong. In exchange,Lacoste insisted that the counterfeit crocodilemust take a more rounded shape, becontained in a circle and cease to be colouredgreen, like the famous original crocodile of1933. By signing this agreement, the twocompanies formed a common front against ahundred other local counterfeiters.Service brandsThere is no legal difference between product,trade or service brands. These are economicdistinctions, not legal ones. By focusing onlyon branding per se, ie on signs only, the lawdoes not help us much to understand eitherhow brands and the branding process work orwhat the specific characteristics among thevarious players are.Service brands do exist: Europcar, Hertz, Ecco,Manpower, Visa, Club Med, Marriott’s,Méridien, HEC, Harvard, BT, etc. Each onerepresents a specific cluster of attributesembodied in a quite concrete, though intan-gible, type of service: car rental, temporarywork, computer services, leisure activities, hotelbusiness or higher education. However, someservice sectors seem to be just entering thebrand age. They either do not consider them-selves as being a part of it yet or have just startedbecoming aware that they are. This evolution isfascinating to watch, as it highlights all that thebrand approach involves and reveals the speci-ficities of branding an intangible service.The banking industry is a fine example. Ifbank customers were asked what bank brandsthey knew, they probably would not know orunderstand what to answer. They know thenames of banks, but not bank brands. This issignificant: for the public, these names are notBRAND DIVERSITY: THE TYPES OF BRANDS 103
brands, identifying a specific service, butcorporate names or business signs linked to aspecific place.Until recently, bank names designated eitherthe owner of the corporation entrusted withthe customers’ funds (Morgan, Rothschild) or aspecific place (Citibank) or a particularcustomer group. Name contraction oftensignals that a brand concept is in formation.Thus, for example, Banque Nationale de Parishas become BNP. Some observers consider thisas just a desire to simplify the name, as per theadvertising principle ‘what’s easy to say is easyto remember’, as short signatures make it easierto identify the signer. Such abbreviations havedefinitely had an impact; however, they seemto reduce the whole branding concept to amere part of the writing and printing processsolely within the realm of communication.As they are contracted, these bank namescome to represent some kind of contract insteadof a mere person or place. In order to becomevisible, this contract may take the form ofspecific ‘bank products’ (or standard policies inthe insurance industry). But these visible andeasy-to-imitate products are not the expla-nation and justification for why they havedecided to build a true brand. They are merelythe brand’s external manifestation. Banks andinsurance companies have understood the keyto what makes them different: the relationshipsthat develop between a customer and a bankerunder the auspices of the brand.Finally, one aspect of service brands thatcontrasts with product brands is that service isinvisible (Levitt, 1981; Eiglier and Langeard,1990). What does a bank have to show, exceptcustomers or consultants? Structurally, servicebrands are handicapped in that they cannotbe easily illustrated. That is why servicebrands use slogans. No wonder: slogans areindeed vocal, they are the brand’s vocatio, iethe brand’s vocation or calling. Slogans are acommandment for both internal and externalrelations. Through a slogan, the brand definesits behavioural guidelines, and these guide-lines give the customer the right to be dissat-isfied if they are transgressed. Claiming to bethe bank with a smile or the bank who cares isnot enough. These attributes must be fullyinternalised by the people who offer anddeliver the service. The fact that humans areintrinsically and unavoidably variable is defi-nitely a challenge for the brand approach inservice industries.This is why brand alignment has become soimportant if the whole organisation is to ‘livethe brand’ (Ind, 2001). Brand alignment is theprocess by which organisations think of them-selves as brands. The brand experience in theservice sector is totally driven by whathappens at points of contact, wherecustomers meet the company’s staff, sales-people and so on. This is true of Starbucks aswell as of Citibank or HSBC. It is also crucial atDell. This company is actually not a computermanufacturer but a service company, identi-fying each client’s need and assembling theproduct to fit it. There is hardly any R&Dinvestment at Dell. All the efforts are concen-trated on the customers and organising thecompany by customer segment to better listenand react. People are essential in this process,not machines.Branding in the service sector entails a doublerecognition. Within the company, people mustrecognise the brand values as their own. Theinternalisation process is crucial. It meansexplaining and justifying these values to eachcell within the company. It also means stimu-lating the self-discovery of how these valuesmight modify everyday behaviour. At the clientlevel it also means that clients recognise thesevalues as those to which they are attracted.One point must not be overlooked. Brandmanagement in the service sector means notonly delivering a differentiated experience butensuring that the resulting satisfaction will beattributed to the right brand. This is why thedesign and branding of all contact points areso important. Places of business, call centres,websites and the like must all convey thebrand. Just posting one’s logo on the frontdoor is not enough.104 WHY IS BRANDING SO STRATEGIC?
The human component of the servicebrandIn services, there is no difference between theinternal and the external. In other words, it iswhat is behind the brand that makes thebrand. Thus, on a return flight from Tokyo toParis, customers of the airline are in contactwith its staff for 14 hours at a time. It is theattentive personnel who carry the brand, nota few seconds of stealth advertising. This iswhat makes passengers forget the frustrationof the delays that build up from thebeginning, disrupting executives’ best-laidplans. What has built Starbucks’ worldwidereputation, if not the politeness of itsemployees? For products it is quite theopposite: Evian is visible in bottles, in shopsand in advertising. We never see the factory orthe workers.The first consequence of this is that theservice brand is constructed internally.Orange is built up through hours and hours oftraining all staff how to behave in an Orangeway, according to Orange’s codes and values.This concerns all points of contact with thecustomer, in the store, from the call centre orover the internet. The second consequence isthat employees cannot be expected to treatcustomers well if they are not happy them-selves. In order to create the relaxed, warmatmosphere that characterises Starbucks, itsfounder Howard Schultz innovated byresponding to the worries of many part-timestaff: with good health insurance cover, forexample.Another essential distinction betweenservices and products is that the ‘factory’ is inthe store. The location for the serviceproduction (or serviduction, as the latelamented E Langeard called it) is also the placeof its consumption: post office, hospital orrestaurant. This is why it is so important totake care of the little details, since they lead toexpectations and feelings. The rise of architec-tural and interior design expresses the desirefor greater control over the impressionsproduced by the immediate environment onwhat is known as the customer experience,and therefore customer satisfaction.Since service is carried out by people, theirvariability is a risk for the brand. The brandpromises regular and dependable quality –hence the importance of defining strongbehavioural norms, supported by plenty oftraining (McDonald’s and Disney are modelsof this type). The alternative is to keep thepersonalised connection between customersand the agents themselves, who found alasting relationship, based on mutual recog-nition. However, this second approachconflicts with the need to move staff around.Service, process and recruitmentbrandsIn the services sector, in order to carry out theprimary function of any major brand (guaran-teeing the same quality of service), the brandis necessarily linked to the setting up ofinternal and customer-facing processes. Totake the example of accounting and auditconsultancies, to be ‘Mazars’ is to differentiateoneself from the big international agencies,the famous ‘big four’ who are all Anglo-Saxon,and therefore offer a different culture.However, it is still necessary to homogenisethe internal processes, to provide more regu-larity and the client experience. The brand isnot only a common seal linking profoundlyindependent agencies in order to give animpression of size, but the sharing of the sameconcept of the profession. In services, it isimportant to make the intangible tangible –hence the importance of common processes.Naturally, this has an impact on what iscommonly known as the employer brand,since the raw material of service is the person-ality and competence of the people. For theemployer brand, the task is to develop itsreputation among executives or students ofthe top universities, based not on bettersalaries, but on shared values.BRAND DIVERSITY: THE TYPES OF BRANDS 105
Brand and nature: fresh produceMany mass-consumption food productbrands were born through the disappearanceof fresh produce in bulk. Sweetcorn, peas andgherkins were all canned, giving birth toGreen Giant, Saupiquet, d’Aucy, Amora,Bonduelle and so on. Findus was the firstbrand to freeze vegetables. Fleury Michonproduced plastic-wrapped ham. The bigbrands were therefore born through providingprogress and practicality, precisely connectedto the removal of the vagaries of fresh produceand the drawback of its perishable nature.Innovation in fresh produceWe are present at a major event among smallretailers in the traditional markets themselves:the emergence of fresh produce brands. Astroll past market stalls, or very early in themorning at Rungis, the world’s biggestwholesale market, is enough to show this.Although they are a minority in number andmarket share, their innovative approach isclear: they have inserted themselves into themounting campaign against poor eatinghabits, which advises people to eat fresh fruitand vegetables daily. Fresh produce, however,has an intrinsic variability derived from thevagaries of nature: some customers prefermore regularity and certainty. Here we findthe essence of the brand, the suppression ofperceived risk – here the qualitative risk ofpleasure and taste.This is what the Saveol tomato brand, thePhilibon melon brand from Guadeloupe andthe Gillardeau oyster brand, to mention but afew of the best known, have done: it is thesign of a true brand policy. It would be wrongto assume that these brands are products ofcommunication: as always, everything beganthrough product-related innovation. Theyare based on flavour, and the shape thatmakes a food item either more practical ormore interesting.The Saveol brand is the banner under whichdozens of tomato producers have joinedtogether, united by a single desire to create asuperior and different product, to respect thesame innovative production processes whileeliminating insecticides (replaced by lady-birds), and to invent a true range of flavourfulproducts, in previously unseen forms suitablefor different types of consumption (cherrytomatoes, olive tomatoes, etc). This policy ofinnovation is accompanied by mass-mediacommunication: Saveol’s objective is for itsname to be the tomato brand spontaneouslycited by half the population by 2010.Philibon, the melon from Guadeloupe,guarantees exceptional flavour all year round.Mr Gillardeau is the creator of aneponymous brand that has becomeomnipresent in restaurants in just a few years.The brand guarantee relates to the qualitativeaspect of Gillardeau oysters, with guaranteedtaste and flesh all year round, everywhere inthe world. Gillardeau has built its brandthrough the restaurant trade, which has thenrebounded into a reputation among thegeneral oyster-eating public. The marketinsight on which the brand is based comesfrom an understanding of the problems facedby restaurateurs, who wish to ensure a strong,risk-free experience for their customers. Top-of-the-range restaurants made Gillardeau asuccess, since these restaurants want to avoidany possible problem or disappointment withtheir oysters: they are committed to thepursuit of perfection. However, its market alsocontains the small quality brasserie, which byonly offering Gillardeau oysters can reassurecustomers, who habitually mistrust the prove-nance of the oyster basket.Furthermore, Gillardeau was able toimplement a selective and controlled distri-bution policy, ensuring exclusivities at thewholesaler level, so that it knows exactlywhere it is sold and where it is not. Controlover its own distribution is the first conditionof the premium brand.106 WHY IS BRANDING SO STRATEGIC?
Wine brandsWine may also be considered as the appli-cation of a brand to a living product. Themajority of new wine consumers in France,and more particularly in other countries, justi-fiably expect no surprises from wine: theyexpect to find the same pleasurable taste eachtime, as with Coca-Cola. The major Americansuccesses of Yellow Tail, and also Two BucksChuck (wine priced at US$2, as its namesuggests) and the Australian Jacob’s Creek, area specific response to this expectation.These wines have brushed aside the old-world wines, since they were designed entirelyon the basis of the expectations of the modern(generally Anglo-Saxon) customer and of thedistributor. They are the answer to the B to Bto C world in which we are now living (seepage 152). The key components of theirsuccess are these:I the ability to supply mass distribution inquantity (therefore reaching critical massin production terms: an end to thepatchwork of small independent coopera-tives, and the emergence of big capitalistgroups);I a fruity, easy to drink flavour, designed toplease consumers who generally drink beeror soft drinks, with priority given to whitewine served chilled;I maintaining the taste of the wine from yearto year, thanks to the blending of differentsources;I the lowest production costs, thanks tolegitimate innovations in productivity,which make it possible to reap highermargins, capable of largely financing theirdistributors;I investment in the brand, rather than theregion, so as not to be limited in quantity,and above all to generate loyalty to a singlename: the brand’s own;I logical grape variety: remember thatmodern customers are not brought up onwine;I the capacity to create a national sales forceto visit all points of purchase and carry outpromotions at point of purchase (brand visi-bility means the product will be picked up);I investment in communication to cause thebrand to emerge in spontaneous awareness,and therefore set itself apart from the thou-sands of small wine brands;I the capacity for regular innovation, inorder to make waves in the press andachieve good scores from juries, or in winemagazine categories;I labels written in English, since the wineshail from California, or Australia or NewZealand, or even from South Africa.There is nothing to say that we will never seeinternational brands for French wine, otherthan the classic grands crus. B Magrez hasprovided an example, creating the genericBordeaux brand Malesan 15 years ago,followed since then by Baron de Lestaque. It istrue that there are more than 3,000 Bordeauxwines named ‘château’, and the unevenness ofthe taste quality and the low prices haveundermined the confidence once placed in the‘château’ label. Malesan owes its success to itsability to supply in quantity a product thatcustomers like, for every day, and therefore atan accessible price. The first condition for atable wine brand is the existence of productioncapacity able to meet the expectations of massdistribution: from this point of viewLanguedoc-Roussillon, the world’s largestvineyard, offers genuine opportunities and thenecessary flexibility for adapting supply todemand, rather than the other way around.BRAND DIVERSITY: THE TYPES OF BRANDS 107
Pharmaceutical brandsSome might be surprised to hear talk of phar-maceutical brands, since the role of a drug’sconstituents, and therefore of the intimate linkof the active ingredients with the success of thedrug, seems to defy any other element.Nevertheless, doctors do not prescribeproducts, but brands, where the genericproduct is not available. Science comes to usnot in the form of the international scientificdenomination of the chemical compound, butin the form of its brand name: Zantac, Tagamet,Clamoxyl, Prozac, Viagra and so on, not tomention medicines sold without prescription,which fall under classic marketing (Malox,Aspro, Doliprane and so on).The medical environment is characterisedby several factors that outline how and why‘brand building’ is specific to it:I All prescribers are known, put on file andstored on a database, some even visiteddirectly several times a year (if theyrepresent large volumes). In each country,there are a limited number of doctors,specialists and so on. It is therefore a closedenvironment. Each laboratory has one ormore sales forces, known as medical dele-gates, who personally meet with all thedoctors in order to inform them of theprogress of the medicines they are taskedwith promoting.I The available information is almostcomplete. Through doctors’ panels andpharmacists it is possible to know whichdoctor is prescribing what, and in whatquantities, for what conditions, togetherwith which other drugs, and so on.I In this market, it is possible to modeldemand in an econometric fashion, due tothe completeness of the information. Eachlaboratory is aware of the pressure it exertson each doctor (measured by the number ofvisits, the time of the visit, the number ofcalls, time spent on the internet, etc). Sincethey also know the effect on sales throughmedical prescription, it is possible toestablish a mathematical function linkinginputs with outputs, causes with effects.I The subject is highly scientific. Even if‘business to consumer’ communication isnow sometimes permitted under certainstringent conditions, the end client haslittle say in the final prescription decision,although this does not mean no say at all.In fact, a general public medical culture hasgrown up in our ageing, over-informedsocieties: all mass-media magazines regu-larly talk about advances in the treatmentof this or that ailment. Without citing thedrug prescribed by name, they talk of activeingredients. The internet has also consid-erably increased the general public’s levelof awareness – nowadays, although peoplerespect their doctor, they also have theirown opinion. Furthermore, general practi-tioners wish to generate loyalty in theirclientele: they listen to their clients.I Prescription is increasingly influenced bythe final payer: this is particularly true ofgeneric drugs. Aware of the enormous andgrowing black hole of health spending,public authorities have exerted pressure fora compulsory switch to generic drugs,where possible. The pharmacist has evenbeen given the right of substitution: if ageneric exists, the pharmacist has authorityto substitute it for the brand-name drugindicated by the doctor. If the patientrefuses, he or she will receive a smallerreimbursement from their mutual fund.I It is a market where, given the shortlifespan of patents – 20 years – the day andyear of the generic drug’s launch can bepredicted. Brand-name drugs attempt todelay this date, the signal for theirprogrammed decline, which may be sloweror faster depending on the country:– for example, through patenting oforiginal medicinal forms;108 WHY IS BRANDING SO STRATEGIC?
– or through continual modifications tothe product, in order to extend thepatent’s duration of protection;– or through hyper-segmentation of therange and the dosages, in order to makethe generic drug less profitable;– or through a lowering of prices at the endof the product’s lifecycle to make theswitch less attractive.Public authorities, however, tend to opposethese manoeuvres, because the pressure onpublic health finances demands drasticsavings.We should also note that certain countries,such as Thailand in February 2007, havedecided to bypass intellectual property rightsby authorising the manufacturing and storingof generic forms of two famous anti-AIDSdrugs, while they are still under patentprotection. The Thai government invokes theargument of protecting its population: thesetwo drugs are too expensive and therefore notaccessible. AIDS is causing devastation inThailand. Note that France did the same whenit was a question of building stocks to protectthe French population against the risk ofanthrax, in the case of a chemical terroristattack.I It is an increasingly regulated market.Given its low margins, if too many genericproducers offer the same product, they willstruggle to turn a profit. Thus, in somecountries, the state gives one leadinggeneric producer leave to market evenbefore the expiry of the patent, or to enjoya temporary monopoly.I It is a market where counterfeits nowflourish. In fact, the active ingredients ofdrugs can be bought at very low prices inIndia or China. It is therefore easy to manu-facture counterfeits. To date they have beensold via the internet, at the internet user’sown risk. However, they are now findingtheir way into pharmaceutical channels.Case study: How branding affectsmedical prescriptionBrands create value both for the company andto those that decide to use them. This is doneby a dual quest of differentiation on tangibledimensions but also on intangible dimen-sions. This quest is often not simultaneous:most brands start as the mere name of aproduct innovation. Once they achievesuccess, they are copied and the intangibledimension created by the communication ofbrand identity creates a form of protection:products may be similar but consumerschoose one brand instead of another. This isthe effect of habit, of proximity, of leadershipand pioneering aura, and essentially of theneed for reassurance. However, protections donot last: there is a need to recreate a materialdifferentiation by innovation that deliverstangible benefits through improved productsor services.Very few sectors demonstrate the value ofbranding as much as the pharmaceuticalsector. This sector is dominated by theideology of progress through science. Thoseprescribing drugs are rational and make whatthey perceive as the best choice for thepatient. Normally this should imply aproduct-driven market, in which brands are aforbidden word.Recent research has shown however thatmedicines have a personality, as do all brands.By ‘personality’ we mean that both generalistdoctors and specialists find it possible toattribute human personality traits to medi-cines. Not only did they not refuse to answerquestions about brand personality, but statis-tical data analysis showed that some of thepersonality traits they ascribed to drugs werecorrelated with prescription levels (Kapferer,1998).When looking at Table 5.2, you will see thatthe anti-ulcer medicines that are mostprescribed are described as more ‘dynamic’and ‘close’ than other forms of medication. ABRAND DIVERSITY: THE TYPES OF BRANDS 109
product, an active ingredient cannot bedynamic or close; a brand can. Thus brands ofdrugs do have a mental existence andinfluence in the minds of the prescribers.Interestingly too, Table 5.3 shows thatalthough they recognised the products them-selves as being totally identical and saw twobrands as fully similar in the functionalbenefits they delivered, respondentsprescribed one three times more frequentlythan the other. However the chosen one wasendowed with significantly more ‘status’ thanthe less chosen one. Status is an intangibledimension created by impressions of lead-ership) of presence, of proximity to thedoctors, of intensity of communication. It iscreated by marketing once the drug has beendeveloped. Once created, this serves ascompetitive edge against ‘me-too’ products, atleast before a new drug replaces the existingone as market leader.This example illustrates the fact that evenin the high-tech sector, brands are a psycho-logical reality, which operate even in thecontext of rational decision makers who aredisposed to make optimal rational decisions.Choice is always a risk: products increase therange of choice, and thus of perceived risk.Brands make choice easier by reducing thelikelihood of choosing alternatives to themarket leader.The choice of the English word ‘likelihood’here is interesting because it implies both astatistical concept (probability) and the medi-ating process by which alternatives are beingmore chosen (they are more ‘likeable’).Branding is thus a consumer-orientedresponse to the problem of decision making inopaque and dense choice environments.Brand spontaneous awareness and posi-tioning (linking to a need) are short cuts thatare very helpful for decision making. Brandsdo create a decisional bias: as such they facil-itate choice and reduce perceived risk(Kapferer and Laurent, 1988).These examples illustrate the relationshipbetween the product and the brand: there is anatural interaction between them. Brandmission determines what products or servicesshould be created. These innovative products110 WHY IS BRANDING SO STRATEGIC?Table 5.2 Brand personality is related to prescription levelsPersonality score (1 to 3) of highly prescribed vs less prescribed medical brandsAnti-hypertension Antibiotics Anti-ulcerLow P High P Low P High P Low P High PDynamic 2.01 2.20+++ 2.17 2.37+++ 2.10 2.46+++Creative 1.87 1.92 1.81 1.93+ 2.03 2.22+++Optimistic 2.02 2.21+++ 2.00 2.23+++ 2.22 2.31Prudent 2.13 2.11 2.08 1.98 2.08+++ 1.90Hard 1.58+++ 1.39 1.70+++ 1.45 1.56+++ 1.31Cold 1.67+++ 1.45 1.72+++ 1.40 1.60+++ 1.33Caring 2.04 2.11 2.01 2.09 2.03 2.09Rational 2.28 2.23 2.38 2.27 2.23 2.15Generous 1.85 1.95 1.87 2.02+++ 1.93 2.02Empathetic 1.88 2.09+++ 1.90 2.02++ 1.99 2.01Close 2.06 2.09 2.16 2.25 2.08 2.13Elegant 1.97 1.97 1.99 2.04 1.92 2.03Class 2.01 2.04 1.87 1.94 1.93 2.20+++Serene 2.10 2.12 2.12 2.25+ 2.20 2.11Calm 2.15 2.07 2.16+ 2.04 2.12+++ 1.90Source: Kapferer (1998)(+++ level of statistical significance)
endowed with a value-adding identity createattractiveness, and encourage trials, repeatsales and loyalty despite incoming copies andlow-cost alternatives. However, newdisruptive innovations may shift clients’ valuecurves, hence change their preferences. Thismeans that the brand cannot be defendedonly through intangible values: even themuch admired Jaguar brand went broke andhad to be bought by Ford to enable it to regainthe capacity to make high-quality and high-tech cars for today’s exacting new affluentconsumers.Prescription therefore typically follows a‘two-steps flow of influence’ model.Communication with leaders creates statusand reputation, which then makes itnecessary for people to be informed about thisbrand that everyone is talking about: famil-iarity with the product follows this desirecreated by its reputation. (Figure 5.4)Tomorrow, for certain chronic illnesses, itwill be even easier to carry out direct toconsumer (DTC) information advertising,mentioning the laboratory and the activeingredients of the drug, but not the brand.Today, the role of the internet in thedissemination of information to patients,who know more on the subject than theirgeneral practitioners do, and interrogatethem about the new brands and compounds,is being measured. When updating thisresearch, the patient’s own point of viewshould be included as a new lever in medicalprescription. Thanks to the internet, patientsarrive at their doctor’s office already wellinformed: they have heard about thistreatment or that drug on a blog, a forum, awebsite, in a women’s magazine and so on.Doctors need to generate loyalty among theirclientele and are reluctant to act against thepatient’s wishes, even if they can. For chronicillnesses, the patient’s feelings on theunpleasantness of the treatment also play apart. Price should also be integrated as a newlever: in fact, the preoccupation withreducing health expenditure is now shared bydoctors themselves.In another of our studies, we showed howcertain facets of the laboratory’s image candirectly influence medical prescription. This iswhy, in today’s global drug marketing, it isBRAND DIVERSITY: THE TYPES OF BRANDS 111Table 5.3 The brand influence in medical prescriptionCategory: anti-ulcerBrand A Me-tooProduct imageEfficient 2.9 2.9Rapid 2.7 2.7Prevents recurrence 2.7 2.7No side-effects 2.7 2.6No anti-acid 2.6 2.6Low cost 1.4 1.4Brand statusIt is a reference product 3.7+++++ 3.1-----High reputation 3.8+++++ 3.3-----Superior quality 3.3 3.1Major product 3.7+ 3.6-Prescription 6.7+++++ 3.3-----Source: Kapferer (1998)
first necessary to establish the laboratory’scredibility, one country at a time. In this wayit can then enjoy the source effect.Becoming aware of the intangibleThe research outlined above shows that theintangible factor is also present in medicalbrands, and in this they are brands in thefullest sense. Big brands inspire confidence,and have an attractive personality. However,big brands sometimes possess an intangibledimension that escapes the laboratory, inboth senses of the word: due to its rationalistculture, it is not aware of it, and also it doesnot control it.Prozac is a major brand. Its reputation hasin many ways transcended the context of amedical environment. In fact, more thansimply a drug, it is a cultural revolution. Bylaunching Prozac, Lilly did more than launcha new anti-depressant: without knowing it, itoverturned Judeo-Christian ideology. Could itbe that man was no longer born to suffer?Prozac owes its diffusion to the fact that it isnow possible, even apart from genuinedepression, to smooth over emotionaltraumas (divorce, relationship breakdown andso on). It now seems that forces in the serviceof this ideology have chosen it as a target.Those sects that exploit the fragility of indi-viduals in distress to recruit members haveeven attacked this drug by any meanspossible. Clearly, it is the intangible factorthat drives the emotion.The laboratory brandIn a second piece of research, we investigatedthe importance of the laboratory’s own imagein medical prescription. Of course the charac-teristics of the brand-name drug outweigheverything else, as they should, but the imagetraits of the laboratory appear in fifth place, inparticular the laboratory’s perceived compe-tence in the field, and its ability to hear and112 WHY IS BRANDING SO STRATEGIC?Antibiotics + Anti-ulcer + Anti-hypertension (sample of generalists)PERSONALITYDynamicElegantHardIMAGE OFPRODUCTEfficientINFORMATIONInfo meetingsReps visitArticlesSOURCE EFFECTLeaders prescribe itMy colleaguesprescribe itHigh reputationlaboratoryBRAND STATUSADVERTISINGATTRIBUTIONADVERTISINGIMPACTBase: %R2JN KAPFERERPRESCRIPTIONReference ofits category554022(-) 1160424521192031 08 473724138755Figure 5.4 How brands impact on medical prescription
respond to information from doctors (highlyreactive services and call centres, consul-tation, the type of medical delegates, and soon) is also significant. They wish to know ‘thebrand behind the brand’. This means that inthe worldwide launch of a new drug, it is firstnecessary to establish confidence in the labo-ratory itself among opinion leaders andprescribers, country by country.The business-to-business brandManagers working in the B2B domain regu-larly complain of the lack of theorisation onB2B brands. They are rarely found in academicworks on brands, where most examples aredrawn from mass-consumption brands,generally food products with lowinvolvement (yoghurts, soft drinks and thelike). This is why, in this book, we havepurposely used different examples and intro-duced a genuine variety of sectors, in order toestablish the relevance of the modelsproposed as a tool for decision making.Is B2B different?Is B2B really different? For us, the B2Bargument is used as a standard, reflecting aboveall the need for recognition of the sector for aworld that receives very little attention. Theseminars we run for B2B companies clearlyshow what their principal request is: modelsare attractive, but need to be demonstrated andillustrated in a B2B context. Moreover, thenotion of B2B itself is illusory: it does notreflect a homogeneous reality. For example, theso-called ‘Soho’ market (small office, homeoffice) functions at a purchasing level veryclose to the mass or general public markets. Wecan observe a concentration of distributionunder international names such as OfficeDepot or Staples, which subsequently createtheir own brand products and substitute themfor the producer’s brands wherever possible. Incontrast, the high-voltage electrical equipmentmarket, based on invitations to tender, isentirely different in nature. Another differenceis linked to the question of whether thecompany buys personalised, made-to-measureproducts or solutions, or service, or just a cost?Finally, can we really place the purchase ofsilicons from Dow, bleach from Arkema,oxygen from Liquid Air, and customer rela-tionship systems such as those from SAP orSage on the same level?One thing is certain: there are indeed B2Bbrands. If we define the brand as a name withpower, a name considered by industrialplayers as an indispensable reference inconjunction with a particular need, there areplenty of examples.First, the B2B world has its product brands:for example, the building trade buys Giproc orPregipan plasterboards, Sikkens or Levi’spaint, Agilia cement, Daikin air-conditioning,Legrand or Hager electrical equipment,Technal or Wicona aluminium and so on. Theautomobile sector, although under constantpressure on prices, is conscious of equipmentbrands such as Sekurit for windscreens andGefco for logistics requirements: the transportupstream and downstream of supply chains ofindustrial production. Note that theseproduct brands are often names of formercompanies that, once acquired by a group,cease to be companies and become brandranges in a catalogue. This is the case forGiproc – now owned by Saint Gobain – andMerlin Gerin at Schneider Electric. Of coursethese names alone do not ensure sales andloyalty generation, but they contributestrongly to it.Next, studies also show the influence ofcorporate reputation. This is composed ofawareness and the image of power,commercial dynamism, innovation andethics. It influences the selection of acompany in weighty decisions – weightybecause of both their financial total and thelength of the commitment. There is a highdegree of correlation between the recognitionand image of a company and the readiness toBRAND DIVERSITY: THE TYPES OF BRANDS 113
‘strongly consider this company for any futuretenders’, or even to refuse to do so. Of coursethis does not mean that it is the only factoraffecting the choice: in fact, in an industrialenvironment, consideration does not equalselection, and the tangible components of thetender and the price will of course weighheavily. It does prove, however, that the nameof these companies has acquired the power ofa brand as a result of the specific reputationthey have built through their expertise andtheir skill in communicating it. To beconsidered on the mental, or even the official,‘shortlist’ is one of the major benefits of abrand – that is, the reputation that is attachedto it. When the brand no longer possesses thispower, entire sectors fall to the principle of thelowest bidder, where only the price per kilo orper tonne counts. The function of a brandpolicy is precisely to avoid this.Is there no difference, then, between B2Bbrands and B to B to C brands? In our viewthere is one essential difference: pressure oncosts. B2B purchasing generally forms part ofthe cost price of another product. A truck or aset of tyres for an articulated lorry is part ofthe price of transport, which will conse-quently affect the sale price of products trans-ported by road. In fact, freighters aredemanding ever lower prices from trans-porters, who increasingly view their truck ortyre purchases from an accounting, even afinancial, perspective. This leads to aconstant B2B pressure towards commoditi-sation. This difference has a major effect onthree facets of the brand: the brand function,the brand weight, and the brand’s point ofapplication.Functions of the industrial brandIn our research on sensitivity to brands, withProfessor G Laurent (Kapferer and Laurent,1995), the brand’s role as a reducer of riskquickly became apparent. This is not enoughin many mass consumption markets:consumers no longer see any risk there. InB2B, very often the products and services playa part in the composition of the products sold,making them components of customer satis-faction and therefore reputation. The Lafargesignature is important for concrete, just as theword Siemens is important for turbines. Ofcourse, concrete could be considered acommodity, where suppliers have shifted thecompetitive playing field towards services. Inthe choice of concrete, however, engineeringconsultancies issuing invitations to tender aresensitive to the risks linked to failures inbuilding infrastructure. This may not be aquestion of an individual suburban dwellingin Calcutta in India, but of a new councilhousing office, or a planned new skyscraper inBerlin.In B2B, every ingredient forms an integralpart of the offer that the purchasing companymakes to its own clients. Its reputationdepends on them. This is why car manufac-turers, with their mechanical background,buy Bosch, the specialist in electricalequipment. They know that the weak link intoday’s cars is not the mechanics, but the elec-tronics. The company ‘covers itself’ by buyingfrom the top name in the sector for its clientsdownstream. Furthermore, nowadays it is theequipment makers that provide the innova-tions. Automobile brands are designers andbuilders. This is why in B2B it is so importantfor a brand to worry about the clients of itsclients. This is where the big brand’s functionas a guarantor of quality comes in.This is its first, even its predominantfunction in B2B, as the level of perceived riskrises. However, this is not its only function:the B2B brand is also an instrument of pride.It can add an intangible dimension that alsoincreases the brand’s potential to attract andearn loyalty. For example, the Americancompany ITW (International Tool Works) hasalways spurned umbrella, multi-sector brands.It sells equipment and tools to carpenters,electricians and plumbers, taking care to offerthem a brand for each trade. Thus Stihl isdedicated to carpenters alone. This differenti-114 WHY IS BRANDING SO STRATEGIC?
ation makes it possible to capitalise on eachprofession’s conviction that it is different, andits desire to mark that difference: tool brandseither help or hinder this.One of the problems causing the fall in salesof Black & Decker – a multi-market umbrellabrand – is that it sells both to the generalpublic, through major stores, and also toprofessionals, forgetting the brand’s intan-gible function as an instrument of self-expression for professionals. In the same waythat wearing Nike is a source of comfort, butalso of a symbolic association with the worldof Olympic or baseball heroes, buying Stihl isa way of saying, ‘I am with the carpenters, theprofessionals.’ Black & Decker has destroyedpart of its intangible value by extending theumbrella so far, lumping the professionalstogether with the general public. It is reacting,but too late, by launching a new brand dedi-cated to professionals alone, De Walt.When the IBM PC was the best-selling PC,everyone was in agreement that the productwas average, or in any case far from being thebest. However, in 1981 it was reassuring tocompany IT directors who were uncom-fortable with this new market (of personalcomputing), since it came from their supplierof larger systems: the giant IBM. For users, theIBM seal offered them the satisfaction ofsaying to themselves (mentalisation) orcommunicating to others (self-reflection) thatthey must be serious executives, since theyhad an IBM. The recent transfer of IBM to LeNovo (a Chinese company) reflects how muchthe PC market has been commoditised. Theperceived risk in the purchase has shifted fromthe assembler of the PC to the componentsthemselves (Intel, AMD), which now becomeparameters of choice, and the operatingsystem (Windows Vista). Hence the strugglefor component manufacturers to build them-selves up as brands: that is, as major choicecriteria. They do this through co-brandingand major financial involvement in thecommunications budgets of their partnerassembly brands.The weight of the industrial brandAn enduring suspicion regarding the realweight of the brand in industry decisionsrelates to the questioning methods used inthe sector – surveys with direct questions areused. Thus, during a study on the factorsinvolved in the choice of a maritime trans-porter for major shippers (such as the indus-trialists Saint Gobain for glass, and Michelinfor tyres), the five main criteria given bylogistics directors were price, dates and times,reliability, capacity for last-minute delivery,and the availability of informationthroughout the journey. The brand is the lastcriterion named. In contrast, when anindirect questioning method is used, of iden-tifying choice factors – by varying the param-eters of maritime companies’ offers andexamining the impact on the shippers’choices – we see that reputation (or in otherwords, the brand) becomes a key factor, if notthe principal factor.There is nothing irrational in this, as toomany people in the industrial sector expe-rience it or say it. How, in fact, can one knowin advance whether everything will go wellbefore and during maritime transport? Noneof us are soothsayers. We must therefore makehypotheses: a well-known brand is not wellknown by accident. It carries in itself thequasi-certainty – subjective but based onexperience – that everything will go well, orbetter than it otherwise would.It would be wrong to suggest that repu-tation (and therefore the power of the brand)is the number one criterion in all B2B selling.Guilbert, the office furnishings distributor,delivering direct to companies, owes its prof-itability to its product policy. Guilbert sellsfirst and foremost its remarkable service tocompanies. Products come second, withGuilbert attempting as far as possible tosubstitute its own products for brandedproducts: in fact, the latter are now in aminority. It retains only a few Scotchproducts, for example, and not all of them: itBRAND DIVERSITY: THE TYPES OF BRANDS 115
offers adhesive tape under its own NiceDaybrand. Of course, it is sometimes still obligedto offer Stabilo Boss, Bic Crystal and Post-Its,and the Dymo label printer, but that is all.And yet all the brands deleted from its cata-logue are well known. Today, however, this isnot enough. The end users – secretaries,managers or employees – do not even noticethat the product they find on their desks isnot the true Post-It, but a cheaper distributor’sbrand copy. A strong brand is a brand withindispensable products or with strong intan-gible added value (reassurance or pride).What makes a product indispensable? Thepatents that protect it, the communicationthat makes its name the key reference in thecategory among users themselves (down-stream, therefore the professional buyers) andprescribers (upstream), and of course theinnovation that maintains this status as thekey reference and gives it an advantage overdistributors’ copies and low-cost Asianproducts imported by the distributors. Thisinnovation may relate to the products, butalso to the services provided to intermediaries,installers and distributors. A brand is morethan a timely product. It is a mutual, long-term dedication of one business to another.This shows us that among industrialdistributors, and now in B2B, there is anobsession with substituting brands, asCarrefour has done since 1967 in the massmarket. A study among wholesalers of electricheating indicated that they had in stock threeelectric water heaters: the first because‘everyone asks for it’, the second because‘people ask for it’, and the third for its price.Saying that ‘people ask for it’ clearly revealsthat in the industrial sector, the brand is aprescription. All of the brand’s B2B marketingshould focus on the distributor’s clients, orthe professional buyer’s clients within thecompany. If this prescription is not created,for example through a dedicated sales force,then the brand enters into a downward spiralthrough the distributor and the buyer, whoonly thinks about the price. Legrand’s greatstrength is that it has understood this:Legrand has made its brand such a ‘must’ forelectricians that to Legrand, wholesalers aremerely stockists. It needs them only for thisstock function.The corporate and the brandOne of the characteristic traits of the B2Bbrand is that it has a double nature. It may bethe company itself, or the products andranges, or a combination of the two. However,the level of risk is such that the reputation ofthe source and of the company is most oftencalled into play.At Air Liquide, the brand is the corporatename for the sale of commodities with littledifferentiation: the prestige attached to thisleading company cannot overcome a pricehandicap, but where prices are the same, itwill add its guarantee of seriousness and regu-larity of provision. It may even be enough tojustify a small price difference. In order tomove away from the ‘commoditised’ market,Air Liquide has developed and co-createdspecialised lines, together with its clients,such as for example the gas brand Aligal,intended for the preservation of fresh producein plastic packaging. These innovations carrya name that refers back to the corporate namethrough its prefix (Al) and specifies the desti-nation market. At Gaz de France, the range ofprices and associated services has beenpromoted under the Provalis name, in orderto de-commoditise it.Industrial B2B companies often believe thatthey can manage without the corporate brandreputation, and that only the product repu-tation matters. This is an error that passesunnoticed until the day that financial analystssignal undervaluing on the stock exchangearising specifically from the absence of abrand. This is the case with Sage. Sage is ratherlike Europe: an economic giant, but a politicaldwarf. Sage is one of the giants ofmanagement software for companies, but it isnot recognised as such. It is true that the116 WHY IS BRANDING SO STRATEGIC?
company has grown through external growth,buying companies that became productnames within its product portfolio (ofmanagement software). With a turnover ofs1.4 billion, Sage is an expert in marketingproducts and remarkably successful at sellingthem. Its competitors in this market are SAP,which turns over s8 billion, Oracle, whichturns over s4 billion, and Microsoft, whichturns over only s0.7 billion but has thehighest growth rate in the software market forSMEs. These figures suggest to the stockmarket that a consolidation is on the cards: itawaits a takeover bid for Sage, which appearsto show a lack of dynamism, due to its lowrecognition as the key actor in the sector. Thestock market wants Sage to demonstrate thatit has the capacity for organic growth.Divided by market, Sage allows its divisionsto run their own autonomous communica-tions: the largest divisions therefore commu-nicate the most. These are the ones that areactive on the historically best-known majormarkets (accounting, pay and humanresources). They therefore drag Sage’s imagedown, to the detriment of the new markets,which show promise for future organicgrowth, but where sales are still small. Thefailure to take into account the reputationneeds of the parent brand itself, Sage, makes ita weak brand. It is a portfolio of products andclients, but not a brand. For any developmentof legislation or regulations relating to theSME, governments consult Microsoft or SAP,not Sage: Sage is not perceived as a genuineactor in its sector.Its reputation is less than that of itsproducts. Significantly, there are only 200links leading to its website, whereas it hasmore than 300 licensed distributors – a signthat to them, Sage is not a necessary reference.It appears that, having neglected toorganise themselves and to invest in order tocreate a reputed and recognised crossoverbrand, companies suffer the consequences at agiven point in their growth. Organisation byprodu