MBA Help - Marketing

Brand Equity

The concept of brand equity is rooted in the importance of a brand to a product. Whilst a brand is generally simply a name or symbol which is used to identify a product, it can have a much greater level of importance if properly managed. A strong brand can add significant value to a product in the mind of the consumer, provided they make positive associations with the brand. For example, the McDonald’s brand is associated with a consistent standard of fast food, prepared safely and served quickly at a reasonable price. This appeals to time pressed customers with a low level of income who want to eat something they recognise. In contrast, the Dom Perignon brand is associated with a superior and expensive brand of champagne. As such, many customers associate it with a superior and exclusive style of living, and see its values as something to aspire to.

Both of these brands allow the companies that own them: McDonald’s and Moet respectively, the ability to generate more value than a burger restaurant or type of champagne without such strong brands. This ability of a brand to generate more value due to the associations made by its customers is referred to as brand equity. This occurs because the brand itself has an inherent value which leads its consumers to perceive products associated with the brand as being superior or preferable to comparable products. Brand equity allows companies to generate value in three specific ways.

Firstly, a brand enables a company to generate value because it can often command a price premium over comparable generic products. For example, consumers are willing to pay significantly more for a bottle of Dom Perignon that for a generic champagne made with similar grapes. This is in spite of the fact that many consumers may be unable to taste a significant difference between the two, and even if they can the taste difference alone is not sufficient to justify the premium paid.

Secondly, a strong brand can often be extended to related, or even unrelated, products, providing these products with a sales boost. Not only does this allow the substantial cost of advertising and promoting a brand to be spread over more products, but the additional exposure can strengthen the core brand. Indeed, in the most extreme cases, some brands can increase the value and sales of an unrelated product simply by being attached to it. This can be seen in the cases of peripheral items branded with the logos of major car companies or football clubs. A Ferrari branded ashtray could sell for five times the amount of an ashtray of exactly the same size and materials, but with no branding.

Finally, a brand with significant brand equity can lead consumers to generate a more positive association with product itself. As such, many companies looking to strengthen a product’s performance will often focus on the underlying brand. For example, Skoda has recently improved its sales performance by looking to reposition its brand from being a symbol of inferiority to being a symbol of high quality manufacturing and engineering. This has enabled the company to expand the sales of its cars without needing to change the cars themselves.

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However, it is important to note that brand equity does not always have positive impacts on the value generated by a company. Some brands will generate a bad reputation due to association with poor products and bad marketing, and this can cause negative brand equity, where consumers actively prefer generic products to the branded alternative. This can occur due to the actions of a company, with McDonald’s now suffering negative brand equity from some consumer segments due to its association with obesity risks. Alternatively, it can occur due to external factors, such as the Stella Artois and Burberry brands being damaged by their association with hooliganism and violence.

Given the marketing resources required to build and sustain brand equity, many companies are increasingly looking for alternative means to achieve the benefits of brand equity without the cost and risks. This is increasingly being achieved by the licensing of brand extensions, with companies looking to extend the successful brands of some companies onto their own products. For example, a company in Thailand opened a Manchester United branded restaurant to take advantage of the football club’s brand, and the clothing company LaPassione focuses exclusively on manufacturing and selling Ferrari branded clothing. However, it is important to manage these, and other, extensions carefully; as if they are unsuccessful they can harm the original brand and its equity.

Managing and protecting brands and brand equity

The largest and most successful companies generally control a significant number of products and brands. As such, they will need to determine how they will manage their different brands to maximise their brand equity. The main four options are to have different brands for each product, to have a single brand for all products, to offer different brands in different categories, and to have a variety of similar brands across the entire range.

Having a single brand identity for each product is often done by consumer goods companies which have developed or acquired new products separately. For example, Procter & Gamble and Unilever have various different brands of detergents, cleaning products, toothpastes etc. Alternatively, companies such as Sony and Toyota have a single brand for all the product categories they offer. This is generally used by firms with strong links between all their product categories; such as Sony who purely focus on electrical goods. Offering a brand for each category is generally done by food manufacturers, such as Mars, which offers a variety of dog foods under the Pedigree brand, cat food under Whiskas, chewing gum under Wrigleys etc. Finally, some brands have opted to use similar names for all their offerings, such as Nestle which uses Nestle, Nescafe, Nesquik, Nestea, Nespresso and Neslac and Nespray.

As well as managing brand equity, marketing managers also need to protect it. This not only involves ensuring that the product, marketing and company behaviour are consistent with what customers expect, but also responding to any external factors such as adoption of the product by an undesirable group. For example, in response to the association of Stella Artois with binge drinking, the marketing managers focused more on the Artois aspect of the brand, and repositioned the brand as a traditional and refined drink. In addition, as brands obtain more market share, so other brands may try to imitate them and draw on their success. Marketing managers need to be aware of this, and defend against it if necessary. Finally, marketing managers need to carefully consider any brand extensions, and ensure that they will be consistent with existing consumer perceptions of the brand.

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