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

What is Brand Equity?

¨ 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

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.

Managing Brand Equity

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

¨ Firm must set objectives for the brand¨ Brand equity measurement is a

management essential¨ Marketing mix elements should be chosen

to build, not erode, brand equity

Overview

How Consum ersCope

Stage 1:Screening

Stage 2:Com paring

Im plications forBrand M anagem ent

Brand Equity andDecision M aking

What does awareness and image buy?¨ Influences how consumers make

choices¨ By changing how choices are made

we can change what is purchased

Overview

How Consum ersCope

Stage 1:Screening

Stage 2:Com paring

Im plications forBrand M anagem ent

Brand Equity andDecision M aking

Consumers are overloaded.

¨ They 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

How Do Consumers Cope?

¨ Choice has two phases–Screening: Eliminate Alternatives–Comparison: A small set of alternatives

(2-3) get intense scrutiny

Overview

How Consum ersCope

Stage 1:Screening

Stage 2:Com paring

Im plications forBrand M anagem ent

Brand Equity andDecision M aking

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.

How Does Brand Equity Effect Screening?

¨ Awareness: Can I recall this brand?

Imagine that your sewer is backing up, and you are aboutto leave town on a business trip.

Who do you call?

(Services rarely purchased must have high Top-of-Mind)

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.

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

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– WalMart for Saving Money

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?

Overview

How Consum ersCope

Stage 1:Screening

Stage 2:Com paring

Im plications forBrand M anagem ent

Brand Equity andDecision M aking

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?

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 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.

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

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?

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.

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

Comparison: Summary

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

Overview

How Consum ersCope

Stage 1:Screening

Stage 2:Com paring

Im plications forBrand M anagem ent

Brand Equity andDecision M aking

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…

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!!