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– 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?

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!!