Brand Equity for Strategic Advantage: Consumer Decision Making Professor Chip Besio Southern Methodist University Marketing 3349

Why the Interest in Branding? Brands are assets Pressure from Stockholders for performance Pressure from competitors Most products in a mature marketplace Price competition abounds

Brands are assets

Pressure from Stockholders for performance

Pressure from competitors

Most products in a mature marketplace

Price competition abounds

What is Brand Equity? The “added value” endowed by the brand name Key elements: Associations, Awareness, Perceived Quality, Loyalty Intangible, but measurable

The “added value” endowed by the brand name

Key elements: Associations, Awareness, Perceived Quality, Loyalty

Intangible, but measurable

Benefits of Brand Equity Asset management/leveraging Consumer franchise (facilitates loyalty) Lower communication costs Improved prices/margins/market share More power with the trade

Asset management/leveraging

Consumer franchise (facilitates loyalty)

Lower communication costs

Improved prices/margins/market share

More power with the trade

More benefits of Brand Equity Barrier to competitive entry Effect of financial valuation of the firm Value to your Consumer Recognition, consistency, confidence, image/status, etc.

Barrier to competitive entry

Effect of financial valuation of the firm

Value to your Consumer

Recognition, consistency, confidence, image/status, etc.

Managing Brand Equity It primarily involves managing the consumer’s mind (associations) Firm must set objective s for the brand Brand equity measurement is a management essential Marketing mix elements should be chosen to build, not erode, brand equity

It primarily involves managing the consumer’s mind (associations)

Firm must set objective s for the brand

Brand equity measurement is a management essential

Marketing mix elements should be chosen to build, not erode, brand equity

Overview

What does awareness and image buy? Influences how consumers make choices By changing how choices are made we can change what is purchased

Influences how consumers make choices

By changing how choices are made we can change what is purchased

Overview

Consumers are overloaded . The have a vast array of alternatives Each product has many attributes Everyone is under time pressure

The have a vast array of alternatives

Each product has many attributes

Everyone is under time pressure

The average supermarket consumer: Does very little search: Average less than 12 second per item 42% spent 5 seconds or less 32% spent between 6 and 15 seconds Average number of brands handled: 1.21; 85% touched only one brand Source: Pete Dickson and Stan Sawyer Journal of Marketing

Does very little search: Average less than 12 second per item

42% spent 5 seconds or less

32% spent between 6 and 15 seconds

Average number of brands handled: 1.21; 85% touched only one brand

How Do Consumers Cope? Choice has two phases Screening: Eliminate Alternatives Comparison: A small set of alternatives (2-3) get intense scrutiny

Choice has two phases

Screening: Eliminate Alternatives

Comparison: A small set of alternatives (2-3) get intense scrutiny

Overview

Screening is important Elimination occurs because: The brand lacks a feature (attribute) The brand does not meet some cutoff (price?) Once eliminated a brand is not reconsidered .

Elimination occurs because:

The brand lacks a feature (attribute)

The brand does not meet some cutoff (price?)

Once eliminated a brand is not reconsidered .

How Does Brand Equity Effect Screening? Awareness: Can I recall this brand? Imagine that your sewer is backing up, and you are about to leave town on a business trip. Who do you call? (Services rarely purchased must have high Top-of-Mind)

Awareness: Can I recall this brand?

How Does Brand Equity Effect Screening? Awareness: Can I recall this brand? More commonly, a harried or uncertain consumer will eliminate brands with which they are unaware.

Awareness: Can I recall this brand?

How Does Brand Equity Effect Screening? Image guides inference about the brand. Inference substitutes for search because: Search is expensive Available information is irrelevant or tough to understand

Image guides inference about the brand.

Inference substitutes for search because:

Search is expensive

Available information is irrelevant or tough to understand

What are your impressions of this watch?

What are your impressions of this watch?

How Does Brand Equity Affect Screening? A Strategic Advantage Powerful brands can set the agenda: Dictate the attributes used for screening Examples: Volvo and Safety Crest with Tartar Control American Express Travelers Checks

Powerful brands can set the agenda:

Dictate the attributes used for screening

Examples:

Volvo and Safety

Crest with Tartar Control

American Express Travelers Checks

Screening: Summary Large product classes are screened. Elimination = Death Brand Equity influences screening Recall for the consideration set Inferences about product attributes Setting the agenda for screening What Attributes are used for screening in your product class?

Large product classes are screened.

Elimination = Death

Brand Equity influences screening

Recall for the consideration set

Inferences about product attributes

Setting the agenda for screening

Overview

Screening simplifies choice, but does not do the whole job. Even when screening consumers seem to examine 2-3 alternatives much more carefully. Process involves intense comparisons on a small set of attributes. How does this comparison process work?

Even when screening consumers seem to examine 2-3 alternatives much more carefully.

Process involves intense comparisons on a small set of attributes.

How does this comparison process work?

How does this comparison work? Consumers compare other brands to one brand Often that brand serves as the reference brand. Key concept: Loss aversion…when compared to the reference brand, losses loom large.

Consumers compare other brands to one brand

Often that brand serves as the reference brand.

Key concept: Loss aversion…when compared to the reference brand, losses loom large.

Consumers judge value by… The observed price relative to reference price for the product, and The observed price relative to the normal or ‘fair’ price of the product Examples: Restaurants on Friday nights… Super Bowl ticket prices. This is Reference Dependence.

The observed price relative to reference price for the product, and

The observed price relative to the normal or ‘fair’ price of the product

Examples:

Restaurants on Friday nights…

Super Bowl ticket prices.

This is Reference Dependence.

Implication If you are the reference brand… Improvements on price, quality, etc. help But decreases hurt more… If you are not the reference brand… You are judged relative to the reference brand Any way you differ from the reference is your loss

If you are the reference brand…

Improvements on price, quality, etc. help

But decreases hurt more…

If you are not the reference brand…

You are judged relative to the reference brand

Any way you differ from the reference is your loss

Implication Reference brands have competitive advantages, Particularly on features which are the most loss adverse Q: What are the reference brands in your product category?

Reference brands have competitive advantages,

Particularly on features which are the most loss adverse

Q: What are the reference brands in your product category?

Pricing Implication Price cuts will effect different brands differently High quality brands can easily “steal” market share from low quality brands by cutting price. But lower quality brands will not steal share from a high quality brands by cutting price Responses to price cuts are asymmetric, high price brands can steal from the poor.

Price cuts will effect different brands differently

High quality brands can easily “steal” market share from low quality brands by cutting price.

But lower quality brands will not steal share from a high quality brands by cutting price

How do you become a reference brand? ‘ Strong’ brands with great awareness (T.O.M.) First Mover Advantage Brand most recently purchased Sampling, particularly for higher quality brands

‘ Strong’ brands with great awareness (T.O.M.)

First Mover Advantage

Brand most recently purchased

Sampling, particularly for higher quality brands

Comparison: Summary Having high brand awareness can make you the reference brand which can be a significant advantage.

Having high brand awareness can make you the reference brand which can be a significant advantage.

Overview

To create value… Brand must support a higher reference price… Must maintain this over time, even in the face of stiff competition… Applications: To raise price… New Models Price Bundling Etc…

Brand must support a higher reference price…

Must maintain this over time, even in the face of stiff competition…

Applications:

To raise price…

New Models

Price Bundling

Etc…

What Strategic Element cannot be duplicated? You lower price, they can eventually lower price You can add a feature, they can eventually ad that feature But… They cannot use your brand name!!

You lower price, they can eventually lower price

You can add a feature, they can eventually ad that feature

But…

They cannot use your brand name!!