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Thesis Thesis Document Transcript

  • Student ID: 282826 Supervisor: Jan Friis Bachelor Thesis Effective Brand Building A Case Study of McDonald’s Corporation Jaroslaw Sliwka Aarhus School of Business Aarhus University
  • 2010 Abstract The changing world has encouraged big companies to create more personal connection with customers. In addition, the constant sustaining of this relationship is required. The concept which is used by the companies and prove to be successful is brand building. Even though companies establish the brand, not all of them are using it properly and make a good use of it. Maximum utility and using all aspects of the brand is the key to success. In order to do that, the knowledge about the brand is necessary. Thesis will present how to effectively build a strong brand by taking theoretical and practical perspective. At the beginning reader will be provided with various concepts in the field of branding. After that, the case of McDonald’s Corporation will be studied. Analysis of McDonald’s brand building process will help in understanding how this extraordinary brand was created. In the theoretical part there will be five main issues brought up. First various concepts of what a brand is and what are the function of the brand will be described . After gaining knowledge what a brand is, different approaches how to build a brand are presented. After that the idea of brand equity and valuable functions it perform of the brand is explained. The process of creation of brand equity is possible thanks to brand equity drivers. Different kind of drivers and function they carry out for brand equity are described. At the end of this chapter, after knowing the basic element of the brand, all is summarized by showing various models useful in assessing brand and its equity. All theories are useful in assessing and describing effective brand building process. The second part of the thesis focuses on McDonald’s. Analysis starts with brief presentation of some essential to the case facts. After that brand equity drivers of McDonald’s are described one by one, together with the function they perform for brand equity. Then the overview of McDonald’s struggle with the brand is presented in chronological order. Both of this sections show, that McDonald’s is a successful company thanks to proper brand management and constant control over its image. By implementing various elements company can be safe that even if one of them fail, there are others to compensate for it. Last section of practical use of branding knowledge present McDonald’s on Brand Asset Valuator Model and the financial value of the brand. Even though McDonald’s has a minor loss of brand equity values it stand for towards competition, the financial result are 2
  • many times better then the ones of competitors. After this summary the future of McDonald’s is speculated. Thesis shows it is important for companies to have a well thought our branding strategy and knowledge of brand building processes. Knowing role the brand performs and the process of brand building allow the company to control how it is assessed in consumers’ minds. Careful studying McDonald’s brand building process shows that the company knows how to deal with its brand and proper brand management is their competitive advantage. 3
  • Table of Contents 1.Introduction..............................................................................................................................4 Problem Statement......................................................................................................................5 Content........................................................................................................................................5 Method........................................................................................................................................6 Delimitations and Assumptions..................................................................................................6 2.Theoretical background of brand building. .............................................................................8 2.1.The Brand. ............................................................................................................................8 2.1.1.What is the brand...............................................................................................................9 2.1.2.Role of the brand................................................................................................................9 2.1.3.Extend of branding. .........................................................................................................11 2.2.Brand building.....................................................................................................................12 2.2.1.Brand Building Theories..................................................................................................12 2.2.2.What is brand building for?..............................................................................................17 2.3.Brand Equity.......................................................................................................................18 2.3.1.What is brand equity?.......................................................................................................18 2.3.2.Brand equity theory (elements of brand equity and their function).................................19 2.3.3.Brand equity drivers (building brand equity)...................................................................22 2.4. Brand life cycle, expansion and position on the market. ..................................................28 2.4.1.Product/Brand life cycle...................................................................................................29 2.4.2.Brand Growth Direction Matrix.......................................................................................30 2.4.3.Brand Asset Valuator.......................................................................................................33 3.McDonald’s strategy for building a successful brand............................................................35 3.1. Historical background of McDonald’s Corporation. ........................................................36 3.2.McDonald’s Brand Equity drivers......................................................................................38 3.2.1.McDonald’s Brand Elements...........................................................................................38 3.2.2.McDonald’s marketing activities related to brand building. ...........................................40 3.3. Historical developments in McDonald’s brand building. .................................................46 3.4. Perspectives for McDonald’s.............................................................................................49 4.Conclusion.............................................................................................................................53 Bibliography..............................................................................................................................55 Wright, Owen (2007) McCafe: The McDonald's co-branding experience. Journal of Brand Management 14, 442............................................................................................................57 1. Introduction. 4
  • The world has changed thoroughly in last few decades, especially because of the impact of globalization. Frequent migration of individuals, the tremendous acceleration of information exchanges as well as the enhanced geographical expansion and trade of goods and services, have transformed the economic and social environment in many ways. Doing business is not the same as forty, fifty years ago. Companies have to adapt to the changing world in order to survive or keep the position on the market. These changes are especially profound for fast-food sector. Looking at the market leader provides good understanding of this process. And where should we look for this leader if not in the United States, the market where fast-food become part of national culture. There are many outstanding fast-food providers in the USA, but one of them is beyond the competition, McDonald’s Corporation (McDonald’s). It is difficult to find a person who will not know basic information about the Golden Arches. But how it is possible? What happened, that children when hear this magic word, instantly know what stands behind it? The interesting problem of McDonald’s brand will be researched at in this thesis. Problem Statement The main goals of the thesis are to explain what is a brand, and by applying this knowledge to McDonald’s Corporation, the answer to the question why has McDonald’s been a successful brand, will ne given. The goal is also to describe brand building strategy in order to get understanding why having a strong brand is important for the company. The paper is written from marketing perspective. Market of fast-food is changing together with the world, and despite many attacks McDonald’s was able to come out of the various situations unharmed. This was possible because of the strong brand it has. Using the case of McDonald’s the thesis describes what a strong brand is. What is the role of the brand? How does the process of brand building looks like? What is brand equity and what are brand equity elements? The thesis focuses on getting fair view of how to build and keep the strong brand alive, and how to create, maintain and defend its position in consumer minds. Content 5
  • The thesis is divided into two chapters. The first one contains the theoretical background about brand building. At the beginning the general idea is presented, and as text proceeds, more details about brand building are introduced. The first chapter starts by explaining the idea of the brand and its role. Next part in about the process of building the brand. Different theories are presented in order to show there are many ways of describing brand building process. After that some theories about brand equity, which differ in categories are described. Brand equity drivers together with their role and how to manage them properly is the theme of another subsection. The last part of the chapter shows different models which are helpful in assessing stage the brand is currently in, and position it occupies in consumer minds. Second chapter is about brand building done by McDonald’s. First subsection is a brief history and essential fact which help is further analysis of the brand. Analysis of the brand starts with description of McDonald’s brand equity drivers and functions they perform. After that the process of building McDonald’s brand is explained by focusing on problems the Golden Arches faced throughout the years of existence. Applying knowledge gained in previous sections and comparing it with the models used in describing the brand is the theme of next part. Current position of McDonald’s brand and it’s performance is estimated. At the end of the practical part of the thesis future of the brand, McDonald’s has build throughout the years, is briefly assessed. Method Literature about the brand and process of building it is very broad. There are many theories in this field. Theories presented in this paper and way of doing analysis are believed to provide a fair view on the process of building successful brand. The thesis does not use all possible theories, that is why conclusion may be concentrated only around approaches presented. However the aim of the thesis was to provide theoretical background for further studies, which will collectively supplement each other and make up whole entity. Although there are numerous sources on brand building theory, the case studies for specific companies are rather rare. There are not many articles discussing McDonald’s as a brand. Even those articles focus mainly on financial aspect of the brand. This situation encouraged more detailed research related to brand building theory and its application to McDonald’s Corporation. Delimitations and Assumptions 6
  • Theories that are used for the discussion of McDonald’s case are commonly used and mentioned in literature when the concept of the brand is brought up. Even though they have some flaws and they sometimes are criticized, they provide a good understanding of how to build a successful brand. The thesis will not focus on criticizing individual theories, but on combining them in one entity in order to obtain a fair method for description and analysis of the chosen brand, which in case of this paper is McDonald’s. Throughout the thesis some theories are limited by focusing on case relevant approach. Since the marketer approach was chosen in writing the thesis, the financial aspect of the brand is limited to the minimum. The practical part, which is applying the theory to the case, is limited only to the McDonald’s in the United States. If McDonald’s international activities were taken into consideration the conclusion might be slightly different, however since this subject is too broad, it is limited to the national market of the company. Even though the general idea of McDonald’s brand is the same throughout the world, brand operations in specific countries differ according to the consumers. That is why, in order to provide a fair understanding of building a brand, the deep analysis of national market is done. What is more, since building a successful brand is more about developing relationship with customers by using brand building methods by the company, the influence of competition on this process is omitted. 7
  • 2. Theoretical background of brand building. The process of building a strong brand and gaining competitive advantage is not an invention, that at some point of time was made. It was the process that throughout the years was growing in importance and along with the scope of branding. Nowadays brand building is the process that every company has to take into consideration. When looking at market leaders like Google, Nike or Coca-Cola we notice not only the name of the company but also the whole idea behind it. This chapter will focus on a brand as crucial element of connecting a company with its customers. At the beginning the concept of the brand will be explained, together with its role and implications. Then the idea of brand building and functions it performs will be explained together with steps vital to the creation of significant brand equity. After that the great focus will be placed on brand equity. First different theories will be presented, secondly three main sets of drivers that help in creating brand equity will be described and at the end factors that influence those drivers. The next thing that chapter will focus on is the life cycle of the brand. 2.1.The Brand. There are many definitions of what a brand is. There are as well many origins of the word brand. But when did it get the meaning it has now? Originally brand was “a mark burned on the hide of an animal to identify its owner, or on the person of a convicted criminal to warn the public of theirs character”(Black 2003: 38). Mark Ritson writes that “the origin of the term brand comes from brandr, the Norse word for fire. It means to burn the mark of the producer onto the product that they made.” (Ritson 2006: 17) It is not the time to discuss which meaning was the first and wonder which one is more important. The fact is that both interpretations are relevant. Even these days, in the era of globalization, there are different definitions of a brand. Everything depends on the perspective we are looking from. In the past the owners of animals used the word brand which meant for them claiming their property and in case of theft, easy identification. For producers of tools the same word meant marking the products with logo of the producer so if there was a need to complain, repair or suggest buying the product to third party the manufacturer could be easily traced. For the judiciary branch word brand meant to mark a criminal and inform society of his past and what behaviour could be expected. There were many functions which brand had in the past, and so it is nowadays. The first chapter includes a brief discussion of brand building theory. After explanation of the idea of the brand, theories of brand equity and brand equity drivers are 8
  • introduced. The chapter includes also an assessment of the position of the brand in consumer minds and life cycle the brand follows. 2.1.1. What is the brand The definition of what a brand is depends on how deep and from what perspective it is described. The Oxford Dictionary of Economics describes brand as “a name used to identify the maker or distributor of a good”. For the economists this simplified explanation is enough to understand what a brand is and it is sufficient for the perspective they look at a company. The American Marketing Association defines brand as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors”(Kotler 2006: 276). From the marketing perspective brand consists of some specific elements and carries out some function. From the perspective of the branding consultancy - Interbrand – brand is “a mixture of tangible and intangible attributes symbolised in a trademark, which, if properly managed, creates influence and generates value” (Interbrand 2007: 4). As it could be expected, consultancy firm is focused more on output, when explaining what a brand is. A brand is thus a dimension that differentiates products or services from products and services of the competition which are designed to satisfy the same needs. This dimension may contain differences that communicate what brand represents or may be related to the product or service performance. This is the definition that will be used in the thesis. 2.1.2. Role of the brand In the past the idea of branding was used mostly in terms of marking property or people. The function was to inform about the ownership, assign workmanship to the producer or signal the reputation of the individual. In today’s world many diversified products or services are branded. But why do companies decide to brand them? Is it because of the pressure the competitors put on branding and because everybody do it? What is the reason of branding and what is the purpose? We simply may say because there are valuable functions which brand performs for a company as well as for customers. This chapter will explain main functions of branding by dividing it into two destination groups. For contractors the three important roles will be presented, and after that the implications for the consumers and benefits of branding will be explained. 9
  • The brand plays significant role in a performance of a company. From the marketer perspective the main advantages of branding are legal protection, identity and loyalty. The first role is legal protection. Having a brand helps in protecting the unique features or quality of the product, process or any other aspect of the company. Kotler and Keller explain how each type of intellectual property rights can be used, by distinguishing into parts, “the brand name can be protected through registered trademarks; manufacturing process can be protected through patents; and packaging can be protected through copyrights and proprietary designs”(Kotler 2006: 277). Legal protection has many implications. It ensures that no one beside the company will have the benefits and it guarantees that money can be safely invested in brand building process. Large amounts of money spend on advertising campaigns prove a success only if the company can reap benefits from them. Identity is the second vital role the individual brand performs for a company. The important feature of having a brand is being identified by consumers. Having identity allows customers to differentiate the company from the competition. It helps them assign past experiences, like the consequences of using the product, to specific manufacturer or distributor. What is more, by using brand building the consumer evaluation process of identical items may be influenced by brand awareness. For a company having identity means having image which can be managed. Even though once it is established it is difficult to change, it is worth an effort since consumers often perceive image as representation of quality and performance. Image together with reputation are important issue in brand building process. Another function that brand performs is loyalty. Brands signal a certain level of quality so that satisfied buyers can easily choose the product again.(Erdem 1998) The certain level of satisfaction that is signalled by a brand like quality has major impact on loyalty. Repeatable choosing of the same product has advantages for both a seller and a buyer. Brand loyalty assures also “the tendency for consumers to prefer familiar names”(Black 2003: 38). Having certain number of customers helps sellers to plan the investment and development of the company. It is a predisposition that every marketer wishes to achieve. In other words having loyal customers results in better earnings, which allow to invest money in brand building and in result having a strong brand and better product behind it. 10
  • On the other hand brand performs valuable functions also for consumers. According to Kapferer there are eight functions that create value in the eyes of consumers. (Table 1) Satisfaction linked to the responsible behaviour of the brand in its relationship with society (ecology, employment, citizenship, advertising which doesn’t shock). Ethical Enchantment linked to the attractiveness of the brand, to its lo go, to its communication and its experiential rewards. Hedonistic Satisfaction created by a relationship of familiarity and intimacy with the brand that you have been consuming for years. Continuity To have confirmation of your self-image or the image that you present to others.Badge To be sure of buying the best product in its category, the best performer for a practical purpose. Optimisation To be sure of finding the same quality no matter where or when you buy the product or service. Guarantee To allow savings of time and energy through identical repurchasing and loyalty.Practicality To be clearly seen, to quickly identify the sought -after products, to structure the shelf perception. Identification Consumer benefitFunction Table 1. The Functions of the Brand for the Consumer. (Source: Adapted from Kapferer 1997) These eight functions could be divided into three groups: recognition, reduction of the perceived risk and the pleasure side of the brand. Identification and practicality are mechanical and concern the essence of the brand. According to Kapferer their role is “to function as a recognised symbol in order to facilitate choice and to gain value”(Kapferer, 1997). Guarantee, optimisation and badge are responsible for reducing perceived risk. Finding the same quality every time when making purchase, being sure of buying the best product in its category and knowledge about the image the product presents play an important role in the decision making process. Continuity, hedonistic and ethical functions have “a more pleasurable side”(Kapferer, 1997). Continuous satisfaction with the brand which may lead even to enchantment is the goal of every marketer. Nowadays more and more emphasis is placed on the ethical function of the brand since customers feel more connected to the brand and expect responsible behaviour in exchange of making the purchase. However, all these functions are not achieved automatically, and not every company performs all this functions. 2.1.3. Extend of branding. 11
  • Every company strives to establish a brand as strong as possible, since it makes doing business easier and smoother. For customers brand offers easiness of product choice. There is no need to test, challenge or classify to a great depth because of familiar brand, which if properly managed, leaves the hints what this brand stands for and what could be expected (Reisenbeck, 2007). The good example is Apple brand. It is possible due to successful branding which is “endowing products and services with the power of a brand” (Kotler, 2006: 278). It is the marketers role to teach consumers about the product, what it does and why consumers should care by creating “mental structures that help consumers organize their knowledge about products and services in a way that clarifies their decision making process” (Kotler, 2006: 278). Crucial role of the brand is to convince customers there are significant differences among brands offering the product. But how to create a brand that will perform such functions? It could be done through brand building. 2.2.Brand building. In order to build a successful brand a lot of effort has to be devoted to brand building process. There are many models and each of them focuses on different aspects of the brand. There will be presented four different theories. BRANDZ and Brand Resonance Model consider brand building as a series of steps, whether Brand Orientation and Brand Leadership are focused on building interconnected models. 2.2.1. Brand Building Theories. Millward Brown, the marketing research consultant, is the one who developed the model of brand strength called BRANDZ. The main idea is the BrandDynamics pyramid presented in Figure 1. which argues that brand building is the process. 12
  • Figure 1. BrandDynamicsTM Pyramid (Source: Adapted from BrandZ 2009) Strong share of wallet Weak share of wallet As Kotler captures it “brand building follows a sequential series of steps, each contingent upon successfully accomplishing the preceding one” (Kotler 2006: 283). The main point is the distribution of the consumers. The most consumers could be found on lower levels and it is the job for marketers to increase the number of programs and activities that will help consumers move to higher levels. There is assigned enquiry to each level of the pyramid. The weakest relationship and low share of category expenditure is at Presence level “Do I know about it?”. At Relevance level consumer is aware of the product and answers question “Does it offer me something?”. The next level is Performace, “Can it deliver?”. After that is the Advantage level which considers reaction to the question “Does it offer something better then others?”. The last level at which is the strongest relationship and the highest share of category expenditure is Bonding. It is the best and the most awaited level of bond with the consumer. They make a choice to buy the preferred brand automatically without considering products of competitors. Another theory which ponder the brand building process as a series of steps is Brand Resonance Model. Kotler had distinguished six “brand building blocks” which together form a four steps pyramid presented in Figure 2. He differentiated two sides of the pyramid: rational and emotional. Kotler argues that in order to create significant brand it requires “reaching the top or pinnacle of the brand pyramid, which occurs only if the right building blocks are put into place”(Kotler, 2006: 285). 13
  • Stages of Brand Development Brand Brand Building Blocks Branding Objective at Each Stage Figure 2. Brand Resonance Model. (Source: Kotler 2006: 285) The first step, Brand Salience, considers how often and how easily do customers think of the brand under various situations like purchase or consumption. The objective of this step is to ensure that brand and its associations are identified in consumers’ minds with a specific product class of customer need. The second step consists of two blocks: Brand Performance which considers if the customers’ functional needs are met by the product or service and Brand Imagery which describes the properties, including the ways in which customers’ psychological and social needs are attempted to met by the brand. The purpose of the second step is to “establish the brand meaning in the minds of customers by strategically linking a host of tangible and intangible brand associations”(Kotler, 2006). The role of advertising is crucial at this step since it shapes the image of the brand. Crafting association with the brand that are strong, unique and favourable are necessary to keep brand competitive. For the third tier of the pyramid Kotler proposes two blocks: Brand Judgements and Brand Feelings. Judgements emerge from Performance and Imagery associations and are focused on personal opinions and evaluations like perceived quality of the brand, credibility, consideration and superiority. Feelings, on the other hand, are the emotional responses and reactions to the brand like social approval, self-respect, excitement, fun. It is important to obtain a proper positive response in the consumer mind in terms of judgement and feelings. The last block of the pyramid is Brand Resonance which refers to nature of the relationship and psychological bond that customers have with the brand and their level of engagement. 14
  • The other way of building a brand is through building an interconnected structure. Brand building model presented by Urde is Brand Orientation. “Brand Orientation is an approach in which the process of the organization revolve around the criterion, development and protection of the brand identity in an ongoing interaction with target customers with the aim of achieving lasting competitive advantages in the form of brands”(Urde, 1999). Basically the model focuses on the brand by considering it as strategic resources. Urde argues that when building the brand one should “first create a clear understanding of the internal brand identity. The brand becomes strategic platform that provides the framework for the satisfaction of customers’ wants and needs”(Urde, 1999). The development of the brand focuses on more deliberate and active manner, starting with the strategic platform which core point is brand identity. Moreover the response of customers is what partially drives and directs the development. “What is demanded by customers at any given moment is not necessarily the same as that which will strengthen the brand as a strategic resource”, “the wants and needs of customers are not ignored, but they are not allowed unilaterally steer the development of the brand and determine its identity”(Urde, 1999). Figure 3 presents the theoretical illustration of the model. Figure 3. Brand Hexagon. (Source: Urde 1999) It can be clearly seen that integration and interconnection of the factors have important role in this model. The core process of creating brand meaning, which consists of positioning the core values lies at the central point of the model. The emotional functions (Corporate name and Brand name) are reflected in the left side of the model. The rational view (Product 15
  • Category and Product) is presented at the right side of the model. The way in which target consumers interpret the brand (Target Audience) is at the upper side, while intensions of the brand (Vision and Mission) are situated at the lower part of the model. The last brand building theory presented is Brand Leadership model. This model differs from traditional branding models by emphasizing not only strategy but also tactics. Aaker and Joachimsthaler understood that building the brand is one of crucial functions of doing business and argued that brand manager should “be higher in the organization with a longer-term job horizon”(Aaker, 2000: 350). They expect the brand manager to be the top marketing professional in the organization. “The brand manager in the brand leadership paradigm is strategic and visionary rather than tactical and reactive. He or she takes control of the brand strategically, setting forth what it should stand for in the eyes of the customer and others relevant parties and communicating that identity consistently, efficiently and effectively”(Aaker, 2000: 350). Brand leadership model’s main concept is that the brand strategy should be influenced by the business strategy and should reflect the same strategic vision and corporate culture. Organizational challenge considers the creation of brand building organization. The second challenge is the development of brand architecture that will be providing company with strategic direction. The third challenge is the development of brand strategy that differentiates the brand including motivating brand identity and recognition among consumers. The last challenge for company is refining brand building programs to be efficient and effective so customer perceptions, attitudes and loyalty could be shaped. In order to achieve brand leadership there are four challenges presented in Figure 4. Figure 4. Brand Leadership Tasks. (Source: Adapted from Aaker 2000: 350) 16
  • The first challenge company encounters is the creation of organizational structure and processes of company that will lead to strong brands. Authors claim that brands should not be “at the mercy of ad hoc decisions made by those with no long-term vested interest in the brand”(Aaaker, 2000). Additionally, there should be a brand leader for every product, market or country. There should be brand-nurturing structure, tools and culture which will allow the communication and management process to share experience, information, insights and initiatives. Another challenge of Brand Leadership approach concerns brand architecture. It is about identification of the brands, sub-brands that will be supported, their relationships and respective roles. If managed properly, the effect will include clarity of customer offerings, synergies in communication programs and ability to leverage brand assets. Another key function of brand architecture are decisions about extending brands: should company use sub- brand, endorse brand or create a new one. “The relative role of each brand in the portfolio should be determined”(Aaker 2000) in order to make proper decision about assigning adequate resources. One more challenge, the company faces, is brand identity and position. Brand position helps in prioritizing and focusing the brand identity by setting communicating objectives. The brand identity – “a vision of how that brand should be perceived by its target audience”(Aaker, 2000) is the key element in brand leadership model. It guides and inspires the brand-building program. However if there is ambiguity and confusion in brand identity, the chances of effective brand building are strongly reduced. The last challenge company faces are brand building programmes and communication activities which are necessary to develop the brand identity. They are useful not only in the implementation of brand identity but also in brand defining process. Accessing multiple media helps being noticed and remembered, helps in changing customer perceptions, reinforcing attitudes and creating loyalty. 2.2.2. What is brand building for? Even though the four models of brand building, presented in previous section, differ in approach, they all have the same goal: lead the brand to a point where omnipotence and recognisability allow becoming the leader of the market and reaping all possible benefits from 17
  • it. Building the brand is not simple and there are many different aspects that has to be taken into consideration. Building successful brand requires putting a lot of effort into this process and constant monitoring of the situation. If the brand building process is without supervision and left on their own there is little chance it will create desired loyalty, associations and attitudes toward company and its products. But what exactly are those differences created in consumers’ minds that brand building tries to achieve? Next section will focus on finding out what are the differentiators of a brand in the same product or service category. 2.3.Brand Equity The main role of branding is to create differences in minds of consumers. But what influences the way the product or service is perceived? What processes can be influenced and endowed with the brand? This section will focus on brand equity theory. First, definition of brand equity and approaches of measuring it will be presented. After that different theories about from which elements of brand equity will be described. Then the discussion will focus on components creating brand equity, called brand equity drivers. The final part of the chapter will focus on choosing and designing brand equity drivers. 2.3.1. What is brand equity? The concept of brand equity is widely accepted. However depending on perspective there are different definitions of brand equity. Knowles in his article Varying Perspectives on Brand Equity distinguished three definitions: financial, accounting and marketing approach. In the financial concept the brand equity means “the incremental cash flow that accrues to the company as a result of owing a brand”(Knowles 2008: 23). Such a definition resulted from the financial attitude towards equity. There is also accounting concept, which as author writes would use the term “trademark and associated goodwill”(Knowles 2008: 23). This definition results from the perspective that accountants perceive assets. The marketing concept, on the other hand does not describe brand equity in terms of money. Knowles’ definition of a brand equity from marketing perspective is similar to Kotler’s which describes it as “the added value endowed on products and services”(Kotler 2006: 280), since that is the job of marketers. But what are those values and where are they added? What aspect of company are influenced by the brand building? 18
  • Studying and measuring the brand equity can also be done by using three perspectives. The firm or managerial level approach assesses the brand as financial asset. The intangible value of the brand is calculated. William Neal and Ron Strauss(2008) wrote A Framework for Measuring and Managing Brand Equity which explains the way of measuring it. The goal of their paper is helping in a better framework development for addressing brand equity. Measurement of brand equity can also be conducted on product level. At this level the equity is calculated by comparing the price of a generic product to the price of the equivalent branded product. The remainder is due to the perception of the brand in the marketplace. The last measurement method is not about calculating the financial value of equity. It is about finding what are the associations in consumer mind connected to the brand. The marketing definition of the brand equity and customer-based brand equity measurement method will be used in the thesis. 2.3.2. Brand equity theory (elements of brand equity and their function) This section will use consumer-based brand equity approach, since it will provide the best insight into the process of brand building. There are many researches and many models, which conclude that various dimensions of brand equity are reliable. They will be briefly explained together with included parameters. The first and most commonly cited author is Kevin Lane Keller. He defines customer- based brand as “differential effect that brand knowledge has on consumer response to the marketing of that brand. A brand is said to have positive customer-based brand equity when consumers react more favourably to a product and the way it is marketed when the brand is identified than when it is not identified”(Keller 2004: 60) Keller identifies three key ingredients that constitute brand equity: - brand knowledge: consists of all the thoughts, feelings, images, attributes, awareness, experiences, beliefs, attitudes and benefits that become associated with the brand(Keller 2004: 60). Brands should create associations with customers which will be strong, favourable and unique; - consumer response to advertising: if there is no difference, the brand name product is a commodity and competition will probably be based on price; 19
  • - differential effect: the perception, preferences and behaviour related to all aspects of the marketing of the brand. The second author, David Aaker, initially grouped brand equity measures into five dimensions. His original idea of brand equity consisted of four dimensions which were based on the customer perceptions of the brand. He decided to add fifth dimension which “includes two sets of market behavior measures that represent information obtained from market-based information rather than directly from customers.” Each dimension defined by Aaker consists of measures and there are ten measures totally which are grouped into categories: loyalty measures, perceived quality, associations, awareness, market behaviour. The Brand Equity Ten (Aaker 1996: 105) include: - loyalty measures: • price premium – “the amount a customer will pay for the brand in comparison with another brand”(Aaker 1996: 106), willingness to pay price that is different from comparable product , • satisfaction/loyalty – a direct indication of customer satisfaction applied to customers who used the product or service within a certain time frame, usage of the product or view customers holds create product experience, - perceived quality: • perceived quality – comparison of perceived quality to alternative brands, • leadership – consists of three dimensions:  no. 1 syndrome(if enough customers are buying into a brand concept it must have merit),  leadership taps innovation(is brand moving ahead technologically),  leadership taps the dynamics of customer acceptance - associations: (how brand can be differentiated from competitors) • perceived value – brand as value proposition, indicates the believes of customers whether value received for the money is good when comparing to competing brands, • brand personality – brands emotional and self-expressive benefits, assessment of the brand as a human being by associating human characteristics, • organizational associations – brand as the corporate entity consisting of people, values and programs that lies behind the brand - awareness: 20
  • • brand awareness – salience of the brand in the consumer mind, levels of awareness: recognition, recall, top of mind, brand dominance, brand knowledge, brand opinion - market behaviour: • market share – performance measured by market share and the position company has on the market (leader, follower, nicher, challenger) • price and distribution indices - relative market price at which the brand is being sold and distribution coverage The third model of brand equity is one of the most recent ones. Atilgan, Akinci, Aksoy and Kaynak studied global brands in culturally dissimilar countries. From the empirical evidence they deducted that “The brand equity for global brands can be measured under four basic dimensions: perceived quality, brand loyalty, brand associations, and brand trust.”(Atilgan, 2009: 115)” The new dimension discovered (trust) seems to suit very well when talking about the brand in the present time, especially when very little about the performance of the brand could be hidden from the media. Perceived quality Product quality dimensions (performance and features), service quality dimensions (reliability, responsiveness and tangibles) Brand loyalty Behavioral loyalty (repeat purchases, how often and how much), attitudinal loyalty (attitude towards the brand compared to other brands offering similar benefits). Brand associations Anything linked in memory to a brand(product attributes, brand name, benefits and attitudes associated with brand). Brand trust Consistency and credibility of the brand. Table 2. Elements of brand equity according to Atilgan model. The authors decided to take this dimension into consideration since as they say, “there are strong references made, implicitly and explicitly, to the existence and importance of trust not only in the brand equity literature but also in global branding and global consumption studies”(Atilgan, 2009: 127). The financial crisis forced strong brands or big companies to make tough decisions considering way of doing business. It encouraged the customers to start thinking about expertise and trustworthiness when delivering what has been promised by the company. 21
  • The theories of brand equity presented in this section differ in parameter mix which they consist of and groups they are assigned to. However, there are similarities between them and issues they cover overlap in many contexts. 2.3.3. Brand equity drivers (building brand equity). In order to create brand equity marketers have to build “the right brand knowledge structures with the right consumers”(Kotler 2006: 258). This process is possible only if there are drivers which would initiate this process. Kotler in his book Marketing Management distinguishes brand equity drivers into three main groups: brand elements, marketing activities and indirect associations. Each group of brand equity drivers consist of various elements which require specialist techniques in order to be successful. The first group are brand elements, “those trademarkable devices that identify and differentiate the brand”(Kotler 2006: 286). It is worth mentioning that multiple brand elements contribute to the development of strong brand much faster then the same elements individually. Kotler describes them as “the initial choices for the brand elements or identities making up the brand (brand names, URLs, logos, symbols, characters, spokespeople, slogans, jingles, packages, and signage)”. Each element can play a number of brand-building roles, however it is important to understand that each single element provides a positive contribution to brand equity. Kotler argues that way to do it is “the test of the brand-building ability of these elements is what consumers would think or feel about the product if the brand element were all they knew”. Basically, brand elements should be easy to recognize and recall, likeable, persuasive and as descriptive as possible. They should also, if it is possible, capture intangible characteristics. This can be done in many ways, for example by adapting symbols or inventing slogans which would help consumers, as Kotler phrase it, “grasp what the brand is and what makes it special, summarizing and translating the intent of a marketing program”. Kotler distinguishes six main criteria for choosing brand elements: • Memorability – How easily is the brand element recalled and recognized? The intrinsic nature of names, symbols, etc. might gain more attention and make it easier to recall or recognize when making purchase decision or consumption. • Meaningfulness - Is the brand element credible and suggestive of the corresponding category? It could suggest the type of person who might use the 22
  • brand or something about product ingredient. Basically it takes on different meanings which vary in persuasive and descriptive content. • Likable – How aesthetically appealing is the brand element? Richness in visuals, verbal imagery or maybe some other way in which element is inherently likeable. • Transferability – Can the brand element be used to introduce new products in the same or different categories? Does it add to brand equity across geographic boundaries and market segments? It is the usefulness of brand element not only in product or line extensions but also in market expansion. • Adaptability – How adaptable and updateable is the brand element? Since there are changes in consumers opinions and values sometimes there is a need for brand elements to be flexible and easy updateable, so consumers will still see it relevant. • Protectability – How legally protectable is the brand element? It is important to remember about the future of the brand, so the element should be able to be legally registered and protected internationally. The criteria presented by Kotler could be distinguished into two functions they provide. The first three criteria: memorability, meaningfulness and likeability characterize and describe choice of well thought out elements when building the brand equity. However, the nature of the latter three is more defensive and concern brand element together with brand equity it creates and which could be preserved and leveraged when facing different constraints and opportunities. The second group of brand equity drivers are “product and service and all accompanying marketing activities and supporting marketing programs”(Kotler 2006: 285). Kotler’s view on these drivers is rather holistic. He explains the general ideas behind them, rather than explaining specific marketing activities. This approach suits the purpose of this paper since marketing is a broad concept, and customers discover the brand though the range of brand contacts, “any information bearing experience, whether positive or negative, a customer or prospect has with the brand, the product category, or the market that relates to the marketer’s product or service”(Schultz 2003). The contacts and touch points like: payment transaction, telephone or online experience, word of mouth, interaction with personnel or simply personal use and observations show that strategy and tactics behind marketing are no longer as simple as they were in the past. The study of interconnection and interdependence of various factors emphasize there are three important themes when designing marketing 23
  • programs of brand building. The three ideas are: personalization, integration and internalization. “Personalizing marketing is about making sure the brand and its marketing are as relevant to as many customers as possible”(Kotler 2006: 288). In the world where every customer is treated individually customers desire more attention. In order to adapt to this requirement marketers have embraced different methods: experiential marketing, one-to-one marketing and permission marketing. Experiential marketing was the concept developed by Schmitt in 1999. The main idea was that “if you want to win and keep customers, you must offer them an experience that is tied to the purchase of your goods and services”(Kinni 1999: 132). Schmitt in his model used five strategic experiential models: sense, feel, think, act and relate as a strategic basis of marketing. He argues that it is necessary to engage as many senses as possible. In his book Experiential Marketing How to Get Customers to Sense, Feel, Think, Act and Relate to Your Company and Brands Schmitt writes “Traditional marketing was developed in response to the industrial age, not the information, branding and communications revolution we are facing today"(Schmitt 1999: 12). The engagement and interaction with the brand, products and services create experiences which drive sales, create image and awareness of the brand. The aim of personalized marketing is to establish the connection with the consumer which will be not only rational but also emotional. The second idea is, one-to-one marketing which is explained as “being willing and able to change your behavior toward an individual customer based on what the customer tells you and what else you know about that customer”(Peppers 1999: 151). Peppers and Rogers outlined a four-step framework that can be used in one-to-one marketing: 1) Identify you prospects and customers 2) Differentiate customers in terms of (1) their needs and (2) their value to your company 3) Interact with individual customers to improve your knowledge about their individual needs and to build stronger relationships 4) Customize products, services, and messages to each customer This concept, however, requires a lot of investments in information collection process, and proves to be successful only for companies that collect plenty of information about individual customers. The third method marketers use is permission marketing. This concept is about marketing to consumers only after getting permission to do it. In this type of marketing it is the 24
  • customer, who decides whether he or she wants to receive or not marketing information and under which form. As Godin wrote in his book “marketers can develop stronger consumer relationships by respecting consumers’ wishes and sending messages only when they express willingness to become more involved in a brand”(Godin 1999). Leaving decision to the potential customer makes the decision more personal and makes him or her feel more relevant thus creating deeper and stronger relationship with the brand. The second main theme in designing marketing programs is integration marketing. Kotler explains it saying it is “about mixing and matching marketing activities to maximize their individual and collective effects”. In order to achieve it, variety of diverse marketing activities is needed that will reinforce the brand promise. This kind of approach comes from the holistic view on marketing which assumes that, “Marketing programs should be put together so that the whole is grater than sum of the parts”(Kotler 2006: 289). Sum of the individual marketing activities in not equal to the total outcome of marketing program. All integrated marketing actions can be evaluated by looking at their effectiveness, efficiency, and effect they have on brand awareness or creating and maintaining brand image. The two important marketing concepts in integrated marketing are brand identity and brand image. They are closely related to each other. According to Kotler(2006) “Identity is the way a company aims to identify or position itself or its product”. The aim of brand identity strategy is creation of a “set of processes that include the coordinated efforts of the brand strategists in (1) developing, evaluating, and maintaining the brand identity/identities, and (2) communicating the brand identity/identities to all individuals and groups responsible for the firm's marketing communications” (Madhavaram 2005). It is important to remember that identification should be done properly, so it is clear what brand stands for and what it is about. “Image is the way the public actually perceives them” writes Kotler. The main issue about brand image is to convey properly with customers, so they will not confuse what brand stands for. The right establishment in consumer minds requires from marketers to communicate through all available channels. The message sent must be expressed in symbols, colors, slogans, events, atmosphere, employee behavior, packaging and advertisements. Marketing activities may vary in strength and can accomplish different objectives. The complementarity and enhancement of the effects of possible marketing activities should be carefully studied. In order to build and maintain exceptional brand equity, the engagement in a mixture of integrated marketing activities is needed. The last important concept applied to the second group of brand equity drivers is internalization, also called internal branding defined as “activities and processes that help to 25
  • inform and inspire emplyees”(Kotler, 2006). This issue is especially crucial for service companies and retailers. Employees need an up-to-date information about brand promise and deep understanding of it. The job of marketers is to “adopt internal perspective to be sure employees and marketing partners appreciate and understand basic branding notions and how they can help – or hurt – brand equity”(Dunn, 2003). Motivation to work harder, faster and better comes from believing in a brand success, promise and attitude. That is how loyalty among personnel is created. Colin Mitchell (2002) in his article Selling the Brand Inside distinguishes three principles of internal marketing: 1. Choose Your Moment – When company is implementing changes, such a turning points are ideal opportunities for an internal branding campaigns, “employees are seeking direction and are relatively receptive to these changes”(Mitchell 2002), that’s why it is the unique occasion to capture their attention and imagination. 2. Link internal and external marketing – The messages sent internally and externally must match. “Employees need to hear the same message that you send out to the marketplace”(Mitchell 2002). The observation that different message is being sent to the public and different instructions are received from the management is confusing and makes employees feel insecure. 3. Bring the Brand Alive for Employees – It is about improving morale. The goal is “to create an emotional connection to your company that transcends any one particular experience”(Mitchell 2002). The energizing and informative communication should fill employees’ minds with brand vision and make them feel that every decision they made is supporting the brand. Company should give employees the reason to care. All three concepts applied to the second group of drivers and supporting marketing activities accompanying them are crucial for building brand equity. Managing brand equity is more effective and efficient if necessary marketing operations are implemented. In addition to that, by making drivers and supporting marketing activities interdependent and interconnected the outcome in many cases is astonishing. The last group of brand equity drivers are indirect associations, also called “secondary” associations. This idea is about creating “brand equity by linking the brand to other information in memory that conveys meaning to consumers”(Kotler 2006: 290). Making consumers associate the brand with the entity in direct or indirect way affects brand knowledge. If the similarities between the entity and the brand are substantial, consumers 26
  • would transfer the knowledge of entity back to the brand more frequently. The job of the secondary association is, as Keller explains, “to affect consumers’ evaluations of a product when they lack the motivation or ability to judge it on a deeper level. When consumers don’t care about choosing a particular brand or they feel that they don’t possess the knowledge to choose the appropriate brand, they make decisions based on secondary considerations” (Keller, 2005). Such an approach seems to be a very topical issue. Consumers are bombarded with information and very little of it is remembered. Keller identified three factors which affect secondary associations: • Consumers’ knowledge of the entity – familiarity with the entity. Strong, favourable, and unique judgements and feelings about the entity are desired. • Meaningfulness of consumers’ knowledge of the entity – relevancy of the knowledge of the identity to the brand. Some associations have little connection while on the other hand, other seem valuable for the brand. • Transferability of consumers’ knowledge of the entity – extent to which consumers link the knowledge to the brand. Creating easy transferable brand associations is desired. Brand associations could be linked to the brand by four different entities presented in Figure 5. Alliances Ingredients Company Extensions Other Brands BRAND Things People Employees Endorsers Places Country of origin Channels Events Causes Third-party endorsements Figure 5. Secondary Sources of Brand Knowledge. (Source: Adapted from Kotler 2006: 290) 27
  • Even though there are many possibilities of leveraging secondary associations of the brand, this technique has also downsides. Giving up control of the brand image to some other entity is risky. The transfer process may be difficult to manage since irrelevant secondary associations to the brand could be made, and relevant associations may not be taken into consideration. Beside that, the knowledge which customers obtained and linked in their memory may change over time. The combination of connections between entity and the brand may alter if the new knowledge gained about entity is unfavourable, thus being disadvantageous to the brand. Because of that choosing secondary associations has to be well thought out decision. All three kinds of brand equity drivers play important role in enhancing brand equity. Creation of advantageous brand knowledge structures is not an easy task. “As marketers try to squeeze more value out of fewer dollars in their budgets, they must closely examine their activities and programs for effectiveness and efficiency”(Keller 2005). Marketers have to choose carefully brand elements, marketing strategies and brand associations in order to get the highest benefit possible. It is their task to find a proper mix of attributes and techniques that will maximize the brand equity of the brand, and make brand building process more smooth. The optimization of results and getting as much profits as possible from appropriate selection of brand equity drivers make brand stronger, helps achieve favourable market position and leads to the growth and expansion of the brand. But how can this be measured? At which state is the brand currently, what position on the market it has? Next section will focus on answering these questions. 2.4. Brand life cycle, expansion and position on the market. With the time every brand is facing some changes. Techniques presented in previous sections help company in achieving goals and following specific strategies they have. Every one of them prove to be useful at some point of time. But how exactly looks the development of the brand? Does it follow some cycle? What are the strategies brands are following? How can the equity of the brand be measured and how it is perceived by the potential customers? The answer to these questions will be given in this section. First life cycle of the brand will be presented. Next section will focus on brand expansion strategies and implications to brand life cycle. After that Brand Asset Valuator model will be presented 28
  • which focuses on measuring brand equity and assessing brand position on the market in eyes of consumers. All models presented will help the reader in understanding how brands evolve. 2.4.1. Product/Brand life cycle Model that will be presented as the first one is Product Life Cycle. All products that are an object of exchange stay on a market for some time which is difficult to estimate. This time is divided into few phases, which together make up product life cycle. According to Kotler life cycle model can be also used “to analyze a product category, a product form, a product, or a brand”(Kotler 2006: 318). This paper will present only a bell-shaped pattern of the brand. Brands, in a comparable manner to people are born, capture the market, live and die. However brand life cycle acts different from human life, since brand’s life seems to shorten together with technological progress, economic and civilization development. Economic ageing of brand results from development of science and technology, international exchange, society’s wealth and increased information flow. Brand life cycle for majority of the products consist of four stages: • Introduction • Growth • Maturity • Decline The introduction phase of brand life cycle is very important. This phase very often takes a lot of time and is very expensive. It covers the period from the moment of having an idea of the brand to the moment of its realization. The most important thing for introduction of new brand is the positive assessment of utility by the consumers. The phase of growth characterises quick increase in turnover. The number of buyers increase, the profits are rising and at the same time the number of additional benefits from brand promotion are rising while spending less on it. The company should aim at prolonging this life cycle phase, since it is the period of gaining high benefits. It is important to improve brand by implementing new, additional features or new versions of the product to mobilize successively next market segments influencing further growth of sales. In the phase of brand maturity, the scale of sales reaches culmination point after which there is negative growth, what causes decrease in profit. High brand awareness encourages the 29
  • company to extend this still beneficial phase. The strategies useful in making modifications may include both modification of the market and product. In modification of the market the company should aspire to increase quantity of items sold. In order to increase this quantity, the number of marketing activities must be increased. In modification of the product the aim is to increase the number of buyers. There are different strategies involved. With the increasing expenditure on promotion, the changes of quality which were introduced are signalled to the customers. At stage of decline rapid decline in sales and profits takes place. The brand ends its life cycle on the market along with profits for the company. In this phase many companies withdraw from the market. Those ones that remain on the market could limit their offer, reduce distribution channels, lower marketing budget and withdraw from some segments of the market. There are many factors that cause decline and ultimately “death” of the product. They may include the consequences of technological progress and switches in technology, intensification of international competition and changes in consumer tastes. All stages of brand life cycle generate problems, which may occur during introduction followed by growth of sales and maturity, ending with decline. The problems encountered at each stage require various methods and tools that will help in finding solution. The phase, in which actually brand is can be determined by following through sales and profit dynamics and structure of the competitors. 2.4.2. Brand Growth Direction Matrix. Another model presented focuses on expansion of the brand, which should rather be used to describe situation of the brand. Doyle in his article criticises product life cycle approach and applying it to the brand life cycle. He argues that “There is no reason why a brand cannot adapt to new technologies and move from mature into new growth markets”(Doyle, 1990). Instead he proposes matrix which presents the main growth opportunities available (Figure 6). 30
  • Figure 6. Brand Growth Direction Matrix. (Source: Adapted from Doyle 1990) According to Doyle brand share is the initial strategic focus. Plenty of companies that were successful in this area changed their strategy by incorporating new technologies. However there were also companies that decided to move into new market segments. There is no distinction what should be done first. The last growth direction is shifting to global brands. According to Doyle, this is rather the way of presenting brand’s life. Another expansion related model is presented by Pandya. He differentiates four branding strategies that companies can choose when thinking about expansion of the brand (Figure 7). Figure 7. Four Branding Strategies. (Source: Pandya 2009: 3) 31
  • This model, focuses rather on market and technology for developing strategy of the brand, concentrates on product and brand categories. The first strategy proposed is Line Extension. The main idea of it is enhancing existing product categories with new formulas, repackaging them, and using already established brand reputation for promotion. Brand Extension involves extension of the existing brand with the new product categories. The strategy of Multi- branding attracts new customers by relaunching existing products under new names. The last strategy is applied when the existing brand is no longer suitable for the introduction of the new product category. It is however important to mention, that expansion of the brand could be done simultaneously in different directions. Whatever the perspective of describing brand life cycle or expansion of the brand used, there will be disagreements between experts, since every theory considers different relevant factors. The model that best summarizes the similarities between these three models is improved brand life cycle model presented on Graph 1. Graph 1. Brand Life Cycle. (Source: Adapted from Sapna 2010: 9) Model presented here shows the approach, which incorporates product life cycle and brand expansion strategy. The value of the brand rises with the time but at some point it will start declining. Because products have theoretically quicker timeframe then the brand, and their lifetime is more obvious since it is easier to observe, brand lifecycle is presented as the sum of different product lifecycles. By using expansion techniques, the products do not disappear from the market, but they are rather expanded to new markets, improved, or extended. 32
  • This kind of continuation makes sense, since at some point there would be nothing that could be done to keep product alive and value of the brand will start falling if none of the techniques are incorporated to save it. 2.4.3. Brand Asset Valuator. The last model presented focuses on how the company is perceived by the customers, and then assign market position to these data. Brand Asset Valuator model was developed by Young and Rubicam (Y&R) by investing, since 1993, “over $130 million in collecting and interpreting data on consumers’ perceptions of some 44,000 product and service brands in over 50 countries”(Gerzema, 2009). The comparative measures of the brand equity identified four pillars assessing four distinctive components: • Energized Differentiation, • Relevance, • Esteem, • Knowledge. Energized Differentiation composes of five brand attributes: uniqueness, offering, pricing power, innovation and dynamism. It measures the level of differentiation from others. (Sometimes this dimension is divided into Energy and Differentiation, however strong correlation between them induced the creators of the model to combine it into one. Relevance used in Brand Asset Valuator is strongly related to market penetration, since it captures the appropriateness of a brand to consumers and breadth of the appeal. Esteem is an evaluation using reliability, perceived quality and measures of respect. It measures the prerequisite for building loyalty.Knowledge plays important role in BAV model as it reflects depth of experience consumers have with the brand. Measures level of familiarity and intimacy with it. First two components cover the aspects combined into one category, called Brand Strength. It is the assessment of brand’s future value. The latter two pillars determine second category, Brand Stature. This category is about the recent performance of the brand. Two categories combined together form Power Grid. Different arrangements of the pillars depict different stages of brand development shown in Graph 2. 33
  • Graph 2. Brand Asset Valuator Power Grid. (Source: Adapter from Gerzema 2010) High level of only Energized Differentiation characterizes strong new brands with the development potential. Leaders score high on all pillars. Declining brands score very high on Knowledge and Esteem, while substantially lower on the other two. Company’s brand equity follow the cycle by going through respective stages one after another. All models presented in this section are useful in understanding the position of the brand, and possibilities for the future. Brand life cycle shows, that in order to keep the position on the market and in consumers minds, company has to employ branding strategies, which are adequate to the current stage of brand life cycle. The growth of the brand can be focused either on new markets, new technology or both. The direction of expansion of the brand can be towards not only existing and new product categories, but also existing and new brand categories. When company is having hard time doing business, the brand representing it will mostly have the same problem, since there is a strong connection between them. However these difficulties have smaller impact on the brand, since it consists of many elements. The temporary problems with one of them not necessarily mean serious problems with how the brand is perceived. Brand Asset Valuator model is useful in assessing market position of the brand since it focuses on how customers perceive it. This kind of knowledge helps in understanding how the brand is different from competitors and what could be improved. All models are useful in choosing specific brand strategies and determine goals. 34
  • As could be seen in the chapter, building a brand is a complex activity. Even though the process is laborious, it gives many benefits. Role the brand plays for both company and customers is undeniable. Easier identification, increased practicality and loyalty are few from many functions which help in creating significant differences between brands. In order to achieve that company has to focus on brand building process. Even though there are many models to follow, the benefits at the end are the same. Leading the brand to omnipresence and high recognisability is what will create differences in consumer minds. These differences are forming brand equity. There is also divergence in the theories, however the end results are similar. In order to create brand equity it is necessary to have drivers which will take part in identifying, giving the meaning, creating positive response and establishing relationship with the brand. They may be divided into few groups, depending on their nature. Each of them have group specific strategies which help in creating brand knowledge structures. Using all elements is not necessary, however to be successful many of them have to be taken into consideration. Last part of the chapter sums up the results of brand building by presenting models concerning stage the brand is currently in and position the brand has compared to other companies. 3. McDonald’s strategy for building a successful brand. The fast food market has been with the United States for good and for worse and was growing in power together with the US. It is a dream of every fast food provider in the Unites States to become a part of national culture like big corporations. But having dreams and making them come true are two different things. In order to make them real we have to look at the company, which operations are outstanding. In the US Fast Food market, when you think about the leader, you always think of McDonald’s. The company that started in 1940 with just one restaurant in San Bernardino, California hase now over 13980 restaurants serving the same burgers, fries and offering the same experience in the whole United States. Even though the menu in McDonald’s have been changing, there are items like Filet-O-Fish introduced in 1963, Big Mac(1968), Happy Meal(1979), McChicken(1980), Chicken McNuggets(1980) that are still sold, and are the core of the menu. Despite the fact that recipes have been changing with time, the names still remained. How it is possible to sell the same products for 40-50 years and still keep customers excited about eating and coming to McDonald’s outlet? It is 35
  • done by successful brand building. McDonald’s from the very beginning had a clear idea how they want to expand their business to other locations: uniform restaurants, with unified menu. But having similar restaurants was not enough to become a leader. Ray Kroc, the owner of McDonald’s, had to think of something that will differentiate his restaurants from the restaurants of competitors. He had to put the name of his company in the hearts and minds of millions. The only way to achieve that was through successful brand building. Nineteen years after the opening of the first restaurant, McDonald’s started first billboard advertising campaign. The period from 1960 to 1963 was the intensified brand building period. Starting national campaign and introducing logo that remains to this day are only few from many other brand building techniques used by McDonald’s. By analyzing the brand building process of McDonald’s Corporation, an important lesson about doing business can be learnt. When you go to any of its outlet you buy not only food but also an unforgettable experience. But how to create this experience, that customer would want over and over again? How to keep customers satisfied and eager every time they enter the door? Looking at the brand equity drivers, analyzing its brand equity and positioning on the market will help to understand the phenomenon of the Golden Arches. Is successful brand building a key to success in today’s world? First few facts and history of McDonald’s will be presented. After that McDonald’s brand equity together with brand equity drivers will be described to great depth. The next thing done will be presenting current situation of McDonald’s brand by applying different models. At the end of the chapter future issues concerning the brand will be discussed. 3.1. Historical background of McDonald’s Corporation. To fully understand the complexity of McDonald’s corporation historysome basic facts need to be presented. McDonald’s Corporation was founded in 1955 by Ray Kroc, who throughout the years made company flourish. However, the original idea dates back to 1940. That is when two brothers Richard and Maurice McDonald opened McDonald’s Bar-B-Que restaurant offering 25 items. Even though majority of the items were barbecue, most of the profits came from selling hamburgers. In 1948 McDonald brothers decide to rearrange their business. What they then offered was a self-service drive-in restaurant. By introducing “Speedee Service System” and reduced menu to only 9 items they soon started to franchise 36
  • their restaurant. In 1954 Ray Kroc visited McDonald’s and be became fascinated with the idea of streamlined assembly line for burgers. Since brothers were looking for nationwide franchising agent, a year later the three men made an agreement. From that moment the company started its expansion on a grand scale and by 1965 there were over 700 McDonald’s restaurants in United States. In the meantime Ray Kroc bought the rights from McDonald brother for $2,7 million and became the only owner of McDonald’s Corporation. He had a great vision of the company and he knew that advertising would play a key role in company’s development. McDonald’s began advertising and started building a brand. Kroc’s decision was to advertise McDonald’s products to families and children. Advertising started from billboards in 1959, national magazines(1962), introduction of Golden Arches logo(1962), mascot Ronald McDonald(1963), national television(1966) and since that time the company has been known from the catchy advertisements and slogans. But McDonald’s was not successful only because it advertised a lot. The motto, introduced by Ray Kroc, QSC&V (Quality, Service, Cleanliness and Value) has accompanied the company almost from the very beginning. Long before training centres started to be regular parts of big corporations, McDonald’s already had it. The aim of Hamburger University, created in 1961, was “to train McDonald’s franchisees” but with the time it became, just like company “a global phenomenon, now training restaurants managers, middle managers and executives”. Everything what McDonald’s did led to success and position of the leader in national fast food market. At the early stage of expansion McDonald’s was franchising and building own restaurants all over the United States. The aim of expansion was to cover as many locations as possible. Every year new restaurants were being opened, but nowadays, every location is being carefully studied paying special attention to projected sales, compatibility with other McDonald’s restaurants and competition. Every few years McDonald’s had to accommodate tactics to the market. For example in 1980s the competition between Burger King, Wendy’s and McDonald’s started intensifying. The early 1980s became known as “Burger Wars” because of fierce battle for market share which included price slashing and aggressive advertising campaigns. However McDonald’s sales were still growing mostly due to advertising campaigns that were implemented earlier. But market of fast food is changing all the time, and competition is not sleeping. In order to keep up with the rising expectations from the customers McDonald’s had to evolve. With the time, the menu grew from 9 items to over 90 positions divided in specific sections like sandwiches, breakfast or salads. But changing menu is not enough for a fast changing world. Even though McDonald’s has many customers, they constantly need to adjust. In 2009 McDonald’s introduced the concept of 37
  • McCafe, the extension of coffees offered and in 2010 free Wi-Fi was made available in selected restaurants. In order to stay competitive and cover new niches McDonald’s has always looked into the future. How market can change and what needs will have customers discovered just in time, so customers felt that company understood their needs. With such a good bond with customers and proper understanding of their need McDonald’s revenue in 2009 was around $7,95 ($4,3 billion franchised revenues and $3,65 billion company activity). As the years are passing by, McDonald’s strategy is changing and adjusting to the customers. It is not an easy way to become a national leader from the local grill bar. In order to do so, brand equity drivers that will allow doing it are needed. Next section will present these drivers and their employment by McDonald’s. 3.2.McDonald’s Brand Equity drivers. Establishing a brand is not an easy task that can be done overnight. A lot of thought into designing the attributes is necessary to make sure that the future growth and expansion are painless. At this section the drivers, that help McDonald’s achieve the position it has now, will be presented. They will be presented in three groups: brand elements, marketing activities and indirect associations. 3.2.1. McDonald’s Brand Elements. The first group presented are brand elements. There are many elements McDonald’s uses and each of them very often performs more then one function. What is more, McDonald’s uses multiple elements for the same function so the influence they have on potential buyers is much more faster. Every one of brand elements provides positive contribution to the brand equity. Brand name is the most important element when designing a brand. The name McDonald’s is famous, recognizable and cannot be mistaken with any other company. From the very first moment it is spotted we know what it stands for. The big yellow name is always easily noticeable and its bright colors attracts our attention instantly. Such a well thought out name allows introduction of new items to the menu very easily, by simply adding “Mc” as a prefix to the product offered. Such an easy operation allows McDonald’s to feel safe, since its products cannot be mistaken by any other product on a market. 38
  • The logo McDonald’s use is strongly connected to the brand name. The capital “M”, sometimes called Golden Arches, with the distinctive smooth shape looks the same as the one in the name. This kind of smart connotation increases memorability and recognition of the brand. The direct connection between those two leaves no room for a mistake. Easiness on putting it on any product offered or in any form of advertisement invented, is an important brand building element. Having such a simple, and on the other hand, so distinctive in shape and color logo allow legal protection that does not need ant other special effort. Another brand building element which McDonald’s has invented is character Ronald McDonald. A slim clown, with typically big red clown shoes, yellow clothes, red hair and big smile is a character no child, after seeing it once, can forget. Characteristic friendly appearance makes it very easily to like him. Nevertheless it might seem that it is geared towards children, McDonald’s present him as a friend of children and adults. The neutral appearance allows to place him in every restaurant. The smile on his face suggests that after eating at McDonald’s you will feel relaxed and happy. The element of the brand that is difficult to describe is a jingle, which in case of McDonald’s was always used with a slogan. McDonald’s has used many jingles in process of brand building, however it was always one at a time. Since 1975 to 2003 the company has changed it 9 times, what gives average of around 3 years per jingle. The current characteristic for McDonald’s slogan, “I’m lovin it” is unchanged since its introduction in 2003. It is easy to memorize, nice to hear and likable. Using “I” as a subject suggest that it applies to everybody. The word “lovin” concerns the feeling connected to the last part of the slogan “it”. It is not explained what “it” means, is it the food, is it the restaurant, is it the experience, or is it the brand. By using such an universal word, the slogan allows for every consumer to put in his mind a word that suits best for him or her. Slogan which in advertisements is accompanied with five characteristic tones etch in memory so deep that one can recall it instantly. The adaptability of this element is rather low, however changes do not require as high costs as changes in previous brand elements. Another brand element of McDonald’s is packaging. Always with the logo and slogan, specific for different items. When having product in hands it cannot be mistaken with any the product of the competitor. By having packages with colors, logo and brand specific appearance we feel that after making the purchase we are still connected with the restaurant. However the packaging is changing together with brand sponsoring or associations. The elements of the cups are different, so does the cardboards, nonetheless the changes are always minor and product bought at McDonald’s cannot be mistaken with any other. 39
  • One more brand element that increases remembrance of McDonald’s is signage. Easily noticeable, attracting yellow neon McDonald’s is always easy to notice. The attention is instantly directed on this sign. Situating it on the roof of every McDonald’s restaurant, regardless the geographic location it is always unchanged, and so does the sign itself. Also the logo of McDonald’s, Golden Arches, when placed on substantial height is noticeable from long distances easily, thus function it perform form the brand is exceptional. Together with specific colors and shape of the building there is no chance for a mistake. Even if some element is not memorized entirely, there are other which will make customer aware of the brand. The last brand building element presented are web pages. In the era of internet contact with every company and finding information about it, if it cannot be performed personally, is most likely to happen by using internet. McDonald’s offers very extended website, where all information needed can be found, and if not, there is a place to ask them. McDonald’s website promotes the brand very well. The appearance suggests, that McDonald’s know how to make everything smooth and well connected. The domain mcdonalds.com is easily recalled since it is no different from brand name. Even though making a typo can result in going to different website, McDonald’s is monitoring carefully the web for unauthorized use of their brand. All brand elements presented are useful in brand building and help in creating McDonald’s brand equity. Each of them plays specific role in establishing and supporting the brand. Because McDonald’s uses all possible elements, the brand recognition and awareness level are so high. The elements used by McDonald’s are not different from other contemporary brand building strategies. This diversity of brand elements and synergies between them are typical for companies which have established a strong brand. The cohesion of strategy and form of communication, together with lengthy duration is McDonald’s key to success. 3.2.2. McDonald’s marketing activities related to brand building. Marketing activities of McDonald’s are those that probably influence the most how the brand is perceived. In this section different activities and strategies will be presented. The analysis will focus on personalization method (only experiential marketing), integration and internalization. 40
  • One of the methods that McDonald’s uses is experiential marketing which is part of personalization of the brand. McDonald’s is famous of offering not only food, but also experience and feelings attached to the whole purchase process. Due to the changing market McDonald’s had to adapt these experiences in order to maintain its position. The first experience is Sense. McDonald’s definitely knows how to affect these sensual and tangible aspects. When entering the restaurant one notices nice looking interior with smiling employees standing behind the counter. The scent of the food is in the air encouraging customers to make a purchase. While eating delicious food one can seat in a nice looking restaurant. Another experience McDonald’s is good at is creation of moods and emotions, called Feel. By inducing affect Golden Arches create brand associations and brand awareness. Nice colors, friendly atmosphere and multitude of advertisements sending positive emotions make the customer feel that McDonald’s is a reliable food provider. It is the place they should go to if they want to have unique experience. The introduction of the recent slogan “I’m lovin’ it” is an example of Think marketing strategy. This simple statement have an extraordinary effect on how the brand is perceived. It encourages customers to engage in elaborating and thinking about the brand. The positive evaluation of the brand helps in maintaining the perceived quality and keeps customer satisfied with the brand. McDonald’s uses also Act marketing. There were many marketing programs which offered unique experience after “using” McDonald’s. Customers were encouraged to choose McDonald’s by slogans like “Do you believe in magic?”, “We love to see your smile” or “It’s what I eat and what I do”. The company suggests, that after picking this brand, customer will not be the same as before. His life will change and it will be better after this incredible experience. Besides that McDonald’s also shows it cares about the happiness of customers. Another option McDonald’s use is relate marketing, however there weren’t any intense marketing actions on big scale. It is rather connected to marketing associations and promotion of the brand. This may be caused by the problems with brand image, which from time to time is attacked by opponents of unhealthy food. McDonald’s clearly knows how to use experiential marketing when building a brand. It uses sense marketing to attract attention and motivate to further action. Creation of affective bonds and making the experience personally relevant is done by feel marketing. Think marketing is responsible for adding permanent interest and passion to learn about the brand. The loyalty and commitment for the future is induced by act marketing. Relate marketing is making brand meaningful in a broader social and cultural context. McDonald’s could use relate marketing to more extent. On the other 41
  • hand there are constant attacks on fast-food restaurant serving unhealthy food, what could strengthen the opposition to McDonald’s. Integration of the brand plays crucial role for McDonald’s. The brand identity marketers try to create and build brand image throughout the years. First brand identity of McDonald’s will be described together with strategies which help developing and maintaining it. After that the discussion how the company is perceived by public will be presented. McDonald’s brand identity is more then just one offer. It is the set of offerings which make the brand desired by the customers. McDonald’s brand mission is "be our customers' favorite place and way to eat". The enhancement of customer experience is a crucial element used by the company in building brand equity. In the mission statement quality or the taste of the food is not mentioned. McDonald’s aims to be the favorite place, no matter where exactly and at what time. It is the place of not only eating but also meeting. The “way to eat” presents the ideas that eating is more then just biting and chewing food. It is the unforgettable experience involving more than one sense. McDonald’s also positions itself as a company providing tasteful food and convenient place to eat. High quality food at different time of a day for everybody makes brand identified as a restaurant where everyone will find something attractive. McDonald’s also identifies itself as a company that is aware of their youngest customers. The friendly atmosphere of restaurant, and constantly keeping the track of “fashions” in children interest allow McDonald’s to be a restaurant every child wants to go to. All strategies used by the company are aimed at influencing as many customers as possible to as great depth as possible. Marketing activities are not only informing the mass market about the existence of McDonald’s. They make consumers eager to discover what new is happening at the restaurant, what kind of new items are offered, what are the latest promotions. The curiosity McDonald’s created around its brand is extraordinary. This was all possible thanks to good strategy of developing, maintaining and communicating brand identity. Since McDonald’s is on the market for such a long time it had time to influence generations. The omnipresence in media, and advertisements being carefully aimed at attracting, making the selection of this particular fast-food restaurant spontaneous and almost subconscious. The expectations about what kind and quality of food served are always met, so positive associations in consumer minds are made, what encourages future decisions. McDonald’s attracts not only consumers that have purchasing power, mostly adults, but also ones that do not have it yet or have little to say when making the decision where to eat. The choice of specific brand elements attracts especially the youngest group, children. Bright 42
  • colors, famous characters, special offers and toys added to bundles whenever they came in direct contact with the restaurant make them feel, they want to come back as soon as possible to experience it one more time. Such an atmosphere will be unchanged, waiting for them, repeatedly creating the same image and working on the same senses. Special activities for children, who come to McDonald’s not only to eat extremely tasteful food, but also to play are making visits to McDonald’s an unique chance to experience something what can not be found elsewhere. The feelings they create in children, by taking them seriously, and treating like adults shapes how they perceive the brand from the very first contact. Having mini-playgrounds next to the restaurants, special room for children with smaller tables and seats, all in bright colors makes children feel McDonald’s is the company that knows what are their needs. There is even the possibility to host a birthday party or celebrate any occasion in a special room for children. The Happy Meal, a bundle that is reduced in size with special toy inside, with special packaging is an item every child desires to have. Adding toys of famous characters and making sets of few items to every theme that is on the top influences how children, the future customers of the brand, perceive the brand. Always actual, always knows what are their interest and always offering the same great experience. McDonald’s is also good at branding its food. ”McDonald’s has employed branding of the Big Mac to deliver competitive advantage that is sustainable”(Lynch, 2009). The experience attached to eating each single item makes positive brand evaluation. There are items like Filet-O-Fish, Big Mac, Happy Meal, McChicken or Chicken McNuggets that were able to stay on a market for decades. This could be done only by successful branding and proper strategy. Products recipes are refined all the time, in order to match consumers’ taste. Adjusting it to changing market, and adapting the whole offer to the changing world by adding items like healthy food (salads and apples), offering the breakfast menu, or simply adding new items are strategies that help in keeping customers active and interested in a brand. The knowledge that McDonald’s is a modern company which does not hesitate to make changes stays in our consciousness. The expansions made in the past like McDrive offering take-away without getting out of the car, or more recent, like expanding coffee offer by introducing McCafe or introduction of wireless internet in every restaurant is what keeps satisfaction and loyalty on high levels. Such a state of brand awareness is what is necessary to build strong brand. The unique experience offered in McDonald’s is created also by packaging. Every item with brand elements on it reminds us constantly what is the company that satisfies our needs. The attitude is created not only by eating but also through the process of unwrapping and 43
  • cleaning after oneself what gives a semblance of home atmosphere. What brand offers, does not include the home atmosphere, however the possibility to clean after oneself influences customers minds, by making them feel that they have some influence on the company. McDonald’s is building it’s brand by constant evaluation on current trends in tastes, health and food trends, customer interests and technologies. What is more, the motto introduced by Ray Kroc in the early years of McDonald’s business activity can be seen as an important part of the company nowadays. The vision of McDonald’s is “to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile." Such constancy regarding way of doing business and serving customers is working well on how the brand is perceived. Having in mind that all four factors are constant, whenever and wherever we go to one of McDonald’s restaurants, keeps satisfaction on high level. If customer is not aware that quality, service, cleanliness and values are the core concept of the company he does not notice them or even if he notices it does not make him feel positive about it. However if customer expects them, and the expectations are met, he believes that the value received for the money is making him feel he made a good choice. Brand image is one of the most crucial elements for McDonald’s. Throughout the years image of the brand have changed many times. It is not something unexpected, since the world is changing, influencing and causing changes on many fields. The important for McDonald’s was to identify these changes on time, adjust performance of the company, and communicate what was done. All new products, special offers, extensions or changes in doing business are communicated in various media in order to keep customers well informed. The proper understanding of what brand stands for is a key to successful brand building. However McDonald’s had also problems with its brand image. The company was criticized for high- calorie, high-saturated-fat menu. Items like milk shake or Big Mac, the icons, were disapproved by some customers. There weren’t many of them, but they influenced the overall brand image. McDonald’s started looking for solution. When people started being more interested in healthy food, McDonald’s in order to get ahead of competition, used this information. “In the years 2002-04 McDonald’s responded by launching new salad main meals and fruit ranges to all it stores”(Lynch, 2009). Heavy promotion aimed at health- conscious target group worked and company in no longer perceived as serving unhealthy food. 44
  • The last activity that influences brand equity of Golden Arches is internal branding. McDonald’s from the very beginning understood how important internal brand management was, and recognized the competitive advantages it offered. In 1961 Hamburger University was created which aimed at training franchisees. However as McDonald’s started seeing the rising opportunities it started training of restaurant managers, middle managers and executives. People who attended to Hamburger University were thought about many aspects that concern McDonald’s, and one of them was brand and the importance of communication it to employees. McDonald’s is not only performing consumer researches, positioning, identification of the brand and making marketing campaigns, but also it also makes sure they catch employees attention and imagination. Golden Arches finds it extremely important for employees to know what is the brand McDonald’s, what are the core values it presents. This is connected to the fact that “By 2000, one out of eight Americans had, at some time in their life, worked for this company”(Botterill, 2007). One aspect of such a great number of people been employed in McDonald’s is, that they have to convince them, that all the changes in brand image are beneficial not only for the organization, but also for them. McDonald’s helps them in understanding what is their role in the company and the unique function they perform. Thanks to this clients are treated well, customers trust in what they say. The sayings “Would you like fries with that?” and “Would you like to Supersize that?” are seen by customers as an act of caring about them. McDonald’s want employees to understand how good it is to work for McDonald’s and how important are they for building brand image. The aim of this is to keep them in a company for a long time. This approach resulted from way McDonald’s used to have in the past. The term McJob, which is used instead of a low-paying, low-prestige, non-challenging with minimal benefits and opportunities for promotion job, is really harmful for the brand image. However McDonald’s found a solution to that problem. It started campaign It’s Not A McJob, It’s A McCalling. The aim of it was to show the prospects of working for Golden Arches. Together with term McProspects company encouraged the positive evaluation of working for McDonald’s. The company clearly understands the benefits rising from internal branding and knows how to use it. To show even greater concern about its employees and their needs, McDonald’s have started a blog called Station M. It is used “exclusively for the restaurants to communicate with each other”(Smith 2009). It can be seen that company wants the employees to feel special. It is understandable why they started using such a techniques to build morale and thus create positive brand associations. Since one out of eight Americans had worked for McDonald’s, it is necessary to keep them satisfied. The possibility to keep them loyal and feel connected 45
  • to the brand is the crucial issue for internal marketing. Making brand promise to not only customers but also employees is one of many techniques which allowed McDonald’s to be such a successful company. The strategies McDonald’s uses are well thought and adapted to the situation. The activities which concern the brand suit and perfectly complete the mission it is supposed to do. Focusing on making positive brand associations and increasing customer loyalty is a way in which McDonald’s earned the position of market leader. 3.3. Historical developments in McDonald’s brand building. When business is going well the company is expanding to new locations, profits are growing and customers are satisfied and there is little need to change branding strategy. However if there are problems with one on these factors, the changes are needed. We will look at McDonald’s by identifying methods that were used to prevent the loss of value of the brand. Throughout the years Golden Arches had different problems concerning how the brand is perceived. When company was founded, the idea of doing business was to deliver swiftly and cheaply. The marketing strategy was to communicate this values, and the most important role of the brand was identification. When company started franchising and the expansion was going slowly, these objectives did not change. Advertisements were supposed to make customers aware of the brand. Deep brand awareness was the goal of branding. However with the time, as company started more rapid geographical expansion to the whole United States ,the first problem occurred. In 1970s one of two big problems McDonald’s was facing were the local owners of fast-food restaurants. By 1965 there were 700 McDonald’s restaurants which main strategy was the cleanliness, good value for money, friendly service. It was the Ray Kroc motto of QSC&V which was introduced when he bought the rights to McDonald’s. In order to make serving burgers even more efficient the Styrofoam was introduced to packaging. With the advantages it offered the company was gaining market share, expanding to new locations and making profit. The brand was built successively and awareness was so deep that McDonald’s became market leader in fast-food sector. The first attacks on the brand were at the end of the 1980s, the beginning of the 1990s. Firstly there Styrofoam packaging was attacked, what made McDonald’s to return to the original (paper 46
  • and cardboard) packaging which was more ecological. After one crisis of brand image was prevented, another emerged. There were many studies done, which concerned healthy lifestyles, and fast-food was attacked because of manufacturing strategies and how unhealthy the food is, and proven it causes fatal illness like heart disease or cancer. One of this companies was McDonald’s. The company smoothly agreed on introducing 100% vegetable oil, low fat milk, fibre rich breakfasts options and new salads. In addition to that the company had to start labelling the ingredients and nutrition content. By the time these changes were necessary McDonald’s had made favourable and unique brand associations in consumer minds which were strong enough to overcome this major public criticism of fast-food industry. The fast-food culture was growing, making more and more Americans eat at these kind of restaurants. Since McDonald’s was able to establish strong brand association before the crisis, after it was taken care off it could start affecting feelings and judgement of the customers. The positive reactions on the brand were the main issue of marketers. The company conducted new campaigns to gain more customers and to increase profits. However in 2000s another crisis concerning how the brand is perceived emerged. Sales were declining, market share was shrinking, customer satisfaction and employee morale was low and franchisees were frustrated. In 2000 there were many protest against globalization and since McDonald’s was one of the companies which successfully expanded to other countries there were acts of vandalism concerning McDonald’s restaurants. Few years later World Health Organization criticised fast-food culture. In order to recapture image McDonald’s had to introduce even more healthy menu. One more time more healthy salad meals and fruit ranges had to be added to the menu. The CEO of McDonald’s, James Cantalupo, used phrase “We took our eyes off the fries”(Lynch, 2009) to emphasize it was the important moment for the company. The changing tastes and lifestyles began impacting the Golden Arches and causing the rebranding. Another issue that also had played important role when making decision to rebrand was the market situation. “The traditional burger and fries market was mature in North America in terms of growth and there was strong competition”(Lynch, 2009). The covering of the United States with the McDonald’s restaurant was pretty much done, and it was time for other strategies which would produce more growth and strengthen the brand. The biggest change was the change of association with unhealthy kids. McDonald’s started targeting teens rather then children. The popularity of McDonald’s was so great, that even a documentary was made about it, but in a bad context. Morgan Spurlock in his documentary “Super Size Me” ate for one month only at McDonald’s. After the month he was examined and tested and the conclusion was his health went worse because of eating at McDonald’s. 47
  • Even though, it can be argued how reliable was the test, there are still evidence eating fast- food is unhealthy. The film was aired in 2004, what causes the perceives of brand to be even more negative. McDonald’s was still making profits, however there was the change in growth. In order to take care of this problem the Golden Arches decided to introduce new design. There was a need to upgrade the brand and distinguish it from the competitors to the greater depth, since the audience has grown older. The image was threatened by strategies which were no longer successful and could create the opposite of what was desired. In 2006 McDonald’s decided on evolution, which allowed moving forward by building a brand upon old design features which proved to be doing well. The design was changed by using less plastic, more brick and wood, the green tone was introduced to the décor. These change were necessary, since childish bright flashy colors previously used did not fit the new brand strategy. The natural colors communicated a more adult friendly approach. This change proved to be successful, since the company kept brand recognition and customers did not get confused. By offering fast-food in less hectic and more relaxed environment McDonald’s was able to maintain loyalty for which it worked so hard. This change made company more sophisticated and look like it was more aware of the issues concerning environment. Another big step which McDonald’s took in changing its brand was introduction of McCafe. This concept, which was started in 1993 and originally was used only in peak hours was developed and adopted to the whole company in 2008. “McDonald’s executives recognised McCafe had developed its own brand equity discretely from the McDonald’s master brand”(Wright 2007:442). The establishment of separate identities, which had some similar attributes, but were focused on discrete customer segments was the original idea, that McDonald’s needed. This form of co-branding resulted in advantages in many fields like attracting customers and creating competitive advantage. The frequency of different types of customers being interested in a brand resulted in more intense and active brand loyalty. McCafe provided different attributes to the customers, like moving from processed to fresh food while maintaining the original attributes like price and convenience. The reinvigoration of brand equity. The changes from 2006 made the brand look more sophisticated, while changes from 2008 made in more extended, thus making more associations and increasing already high awareness. The most recent idea concerns offering free Wi-Fi internet in restaurants. The technological expansion of the brand was necessary not only due to the popularity and omnipresence of the internet, but also to keep up with the competition. McDonald’s in order to be more connected with teenage customers took care of its brand image by implementing new strategy. 48
  • It is not the first time, and not the last one, when McDonald’s is revitalizing and improving its brand. As it is shown the company is able to take care of the brand when there is a need. The unnecessary changes are not made when they are not needed, but once they are done they are carefully thought out. The brand image is safe since McDonald’s proves to be company that knows how to take care of its future. 3.4. Perspectives for McDonald’s. Current situation of McDonald’s brand seems relatively strong. In order to better understand in what stage of development McDonald’s is, and how its brand equity has built, few studies have to be compared. The best model which will depict present situation is Brand Asset Valuator. Studies of Young and Rubicam, John Gerzema, and Philip Kotler will be used to find out at what level are individual pillars for McDonald’s. By looking at the relationship among the four pillars it will be possible to do the assessment of health and stage McDonald’s is nowadays. In studying McDonald’s, first the relationship between pillars constituting Brand Strength and Brand Stature will be examined and then the overall association of four levels. During studies of advertising agency Young and Rubicam, relationship between first two pillars, Differentiation and Relevance was described. In their paper from 2003 they classified McDonald’s in the group whose Relevance is significantly greater than Differentiation. This group is characterised by price, which is the primary reason to buy what makes the brand commoditized. The level of last two pillars, brand stature, is described in a book The Brand Bubble. In 2008 author of the book characterised McDonald’s in a group of companies, which score high on both Esteem and Knowledge. This means that “the brand has successfully established itself in the hearts and minds of consumers”(Gerzema, 2008). Such a level can only be achieved through successful brand management. Gerzema in his book uses also Energy Index (assesses level of Brand Strength) on a scale from 0 to 100. McDonald’s level of energy is in a group of Kinetic brands, which score between 60 and 74. Kinetic brands “have already come a long way. Perhaps now is the time to think beyond the confines of the market, and the functionality of the product, and consider how to give the brand a wider social relevance”(Gerzema, 2008). Potential of creating a brand value is still high for McDonald’s, however it has to start thinking about new methods of building brand equity. 49
  • The four pillars of BAV combined suggest that McDonald’s is situated in the Mass Market position, sometimes also called Established Leadership or Declining Leaders. McDonald’s is still the leader in its category, however it is slowly loosing pricing power and future growth potential. The results of studying literature seem to confirm this result. Kotler and Keller in their current book Marketing Management made similar conclusions. McDonald’s is clearly a market leader and it will not give that position that easily. The generalized idea of McDonald’s position is not enough to assess how exactly is the company performing. To understand it better precise and up to date data of McDonald’s and it’s competitors are needed. John Gerzema on his website offers the current data and comparison of different brands which are presented on a BAV model. The incorporation of McDonald’s and it’s two main competitors, Subway and KFC gave the result shown in figure 10. Figure 10. BAV Mapping of the stages of Consumer Attraction for McDonald’s versus Subway and KFC. (Source: www.johngerzema.com/index.php/brand-asset-valuator) From the graph we can see, that McDonald’s in not the only company in fast food service, which has the strong brand. It is worth mentioning that the evaluation of brand equity of competitors shows that they score higher in the Uniqueness dimension while being very close to McDonald’s in the other three Pillars. However, how the company is perceived and what is the financial value of the brand shows the discrepancy between McDonald’s and its competitors. The data of how much each brand is worth can be taken from BrandZ study published by Millward Brown Optimor. Interviewing consumers and professional, and asking them to evaluate brand in a competitive context, provide valuable information which helps in 50
  • assessing the intangible value gained by McDonald’s company. The results are plotted in a graph 3. 0 10 20 30 40 50 60 70 2006 2007 2008 2009 2010 $M McDonald's Subway KFC Graph 3. Financial comparison of the brands. There are strong evidence showing McDonald’s brand is a strong leader. Even though competitors brand equity is perceived better by the consumers, the value of McDonald’s brand is estimated to be a lot higher. Continuous innovation, incorporation of new marketing strategies allow McDonald’s to be the most valued fast-food restaurant. It will take long time for existing competitors to earn as much as McDonald’s. They are maybe able to make their brands be perceived better, but McDonald’s is unique with its history. Becoming powerful brand at the same time USA growth in power make customers feel connected with the brand. It is a dream of every fast-food provider to be as successful as the Golden Arches. Even though there are problems with brand image from time to time, McDonald’s brand holds its strong position. McDonald’s faced many problems in its history concerning the brand, however it was always able to get itself out of trouble thorough wise brand management. It survived the test 51
  • of time by careful selection of branding strategies. Nowadays McDonald’s is restoring its brand image by making changes in décor, menu and applying new technologies. It seems that McDonald’s is back on track, and value of the brand will reach higher increase soon. The Golden Arches can expect, that there still will be attacks on image and protest against the ethics, but as time showed, McDonald’s is able to adapt its branding strategy to the changing national market. Even though, from time to time there are minor slips in how the brand is perceived the overall evaluation of the brand in the United States is positive. The rising number of environmentalist and opponents of fast-food suggests that McDonald’s will have to face issues concerning brand image in the future. However it will be difficult to affect brand associations that consumers have in their minds right now. The Americans’ force of habit and specific culture will allow company to prosper in the United States for many long years. Therefore the future will not be about survival on the market. It will rather be about development and growth. The limited geographical spread and stiff competition will force McDonald’s to improve the brand. McDonald’s had definitely build a strong brand, but it will be the challenge to keep it like that in the future. McDonald’s is a company that started operating in the middle of 20th century. Throughout the years new products were introduced and new marketing campaigns were used to get customers’ attention. The identity of the brand was built through adding different brand elements. The expansion to new locations and heavy advertisements in US media created deep and broad brand awareness. McDonald’s understood that successful brand building would help company in the future. By implementing different branding strategies the Golden Arches were able to create unique brand associations. The company communicated the meaning of the brand in order to create strong and favourable image of the brand in consumers’ minds. McDonald’s knew that having a strong brand could be taken step further and affect judgement and feelings in order to create positive reaction to the brand every time. To get the positive response McDonald’s promoted McDonald’s lifestyle. Brand equity drivers like marketing activities and internal branding helped in this process. McDonald’s has known from the very beginning, that the goal of a strong brand is to make customers loyal. The creation of intense and active relationship was the key to McDonald’s success. Profits were growing, market share rising and the brand became part of the national culture. From this moment McDonald’s became the strongest brand in the US fast-food market. It reaped the benefits from this position, however it was not easy. Since McDonald’s was the strongest brand, it was attacked for what it represented, as people believed, all fast- 52
  • food restaurants. The attacks on packaging, unhealthy food and excessive advertising to children focused critics on McDonald’s since the first thing that came to people mind’s, when thinking about company that is connected with children, was McDonald’s. The Golden Arches accompanied few generations, so the knowledge about it’s branding strategy was more then enough to attack it. However McDonald’s was able to withstand all these attacks, and by implementing and evolving the brand became even stronger. More green and healthy profile of the company allowed the brand to survive the attacks. In order to change image even further McDonald’s was looking for new extensions. Changing the strategy towards teenagers is an operation which allowed the further growth of significance of the brand on the market. First the idea of McCafe and then free Wi-Fi helped in making the brand looks up-to-date and aware of consumer needs. All changes McDonald’s made in its operations were connected with an idea of increasing value of the brand, and therefore gaining loyal customers. Even though McDonald’s comparing to its competitors is not perceived as the best one on the market, the profits show that positive brand evaluation is only one on many aspect in making customers loyal. The future is bright for the Golden Arches, since McDonald’s clearly know how to manage its brand successfully. 4. Conclusion Managing the brand is not an easy task. However there are certain models which are helpful and provide good background for assessment of the brand. The aim of the first chapter was to provide theories and models of brand building which may be applied to any company. Benefits from having a brand are overwhelming, and as the case of McDonald’s showed, they help in hard times. It cannot be denied, that brand is minor part of doing business. It influences identification, practicality, loyalty and many other operations which create differences between brands. Building a strong brand requires not only strategy, but also tactics of how to implement it. Focusing on thorough evaluation and creation of brand building process leads to success. And success is achieved, when customers knowledge of the brand is inconvertible. The concepts presented are about getting consumers or employees more involved with the brand. Proper development and integration of brand elements is necessary to achieve this goal. Brand elements are integral part of brand equity. Only the best companies, like McDonald’s can use them to create the magic moment which will stay with consumers for a long time. The creation of brand equity is a main target of branding. The 53
  • models which apply theoretical knowledge with consumer surveys are the best valuator of brand equity. Choosing brand building strategy should be done by carefully studying the current position of the brand. Looking at the history of the leader in fast food business, analyzing it’s brand equity and positioning on the market, helps understand the phenomenon of the Golden Arches. A successful brand building proved to be a key to McDonald’s success in today’s world. When competition is stiff, information flow unstoppable and consumer have more possibilities then ever, getting attention is the crucial part of doing business. The role of McDonald’s brand is to keep customers engaged in the brand. Once they experience and understand the complexity of brand values, their memories will lead them back to the company. Tying product to the brand experience is as important as tying a feeling to the brand. It allows consumers to discover the brand. McDonald’s was successful in bringing brand personality to life. McDonald’s was also able to shape the entire generations what created a devoted audience of potential customers. By selling not only features and benefits but also experience, the specific lifestyle was promoted. Using relevant ways to reach customer is a key to success of McDonald’s. Keeping customer excited every time when making purchase made consumers engaged with the brand. Every function is useful if it is managed properly and applied to current needs. World is changing, and so is McDonald’s. Even though there were attacks on McDonald’s brand image, wise usage of branding strategies allowed to get away in one piece. Future of the Golden Arches may not be easy, but it definitely is promising among other because of careful brand building. 54
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