How brands create value for the customer

It is important to clarify that brands do not necessarily existing all markets. Even if brands exist in the legal sense they do not always play a role in the buying decision process of consumers. Other factors may be more important. For example, research on ‘brand sensitivity’ (Kapferer and Laurent, 1988) shows that in several product categories, buyers do not look at the brand when they are making their choice. Who is concerned about the brand when they are buying a writing pad, a rubber, felt-tip pens, markers or photocopy paper? Neither private individuals nor companies. There are no strong brands in such markets as sugar and socks. In Germany there is no national brand of flour. Even the beer brands are mostly regional. Location is key with the choice of abank.

Brands reduce perceived risk, and exist as soon as there is perceived risk. Once the risk perceived by the buyer disappears, the brand no longer has any benefit. It is only a name ona product, and it ceases to be a choice cue, aguide or a source of added value. The perceived risk is greater if the unit price is higher or the repercussions of a bad choice are more severe.

Thus the purchase of durable goods is a long-term commitment. On top of this, because humans are social animals, we judge ourselves on certain choices that we make and this explains why a large part of our social identity is built around the logos and the brands that we wear. As far as food is concerned, there is a certain amount of intrinsic risk involved whenever we ingest something and allow it to enter our bodies. The brand’s function is to overcome this anxiety, which explains, for example, the importance of brands in the market for spirits such as vodka and gin.

The importance of perceived risk as agenerator of the legitimacy of a brand is highlighted by the categories within which distributors’own-brands (and perhaps tomorrow’sdiscount products) dominate: canned vegetables, milk, orange juice, frozen pizzas, bottled water, kitchen roll, toilet paper and petrol. At the same time producer’s brands still have a dominant position in the following categories: coffee, tea, cereals, toothpaste, deodorant, cold sauces, freshpasta, baby food, beauty products, washing powder, etc. For these products the consumer has high involvement and does not want to take any risks, be they physical or psychological.

Nothing is ever acquired permanently, and the degree of perceived risk evolves over time. In certain sectors, as the technology becomes commonplace, all the products comply with standards of quality. Therefore we are moving from a situation where some products ‘failed’whereas others ‘passed’, towards one where all competitors are excellent, but some are ‘more excellent’ than others. The degree of perceived risk will change depending on the situation. For example, there is less risk involved in buying rum or vodka for a cocktail than for arum or vodka on the rocks. Lastly, all consumers do not have the same level of involvement.

Those who have high involvement are those that worry about small differences between products or who wish tropisms their choice: they will talk for hours about the merits of such and such a computer or of a certain brand of coffee. Those who careless involved are satisfied with a basic product which isn’t too expensive, such as a gin or awhisky which may be unknown but seems to be good value for money and is sold in their local shop. The problem for most buyers who feel a certain risk and fear making a mistake is that many products are opaque:

we can only discover their inner qualities once we buy the products and consume them. However, many consumers are reluctant to take this step . Therefore it is imperative that the external signs highlight the internal qualities of these opaque products. A reputable brand is the most efficient of these external signals. Examples of other such external indicators are:price, quality marks, the retail outlet where the product is sold and which guarantees it, the style and design of the packaging.

How brand awareness means value
Recent marketing research shows that brand awareness is not a mere cognitive measure. It is in fact correlated with many valuable image dimensions. Awareness carries a reassuring message: although it is measured at the individual level, brand awareness is in fact collective phenomenon. When a brand is known, each individual knows it is known. This leads to spontaneous inferences. As is shown in table below, awareness is mostly correlated with aspects such as high quality, trust, reliability, closeness to people, a good quality/price ratio, accessibility and traditional styling . However it has a zero correlation with innovativeness, superior class, style, seduction: if aspects such as these are key differentiation facets of the brand, they must be earned on their own merit.

How brand awareness creates value and image dimensions (correlations between awareness and image)

Good quality/price ratio 0. 52
Trust 0. 46
Reliable 0. 44
Quality 0. 43
Traditional 0. 43
Best 0. 40
Down to earth 0. 37
Client oriented 0. 37
Friendly 0. 35
Accessible 0. 32
Distinct 0. 31
A leader 0. 29
Popular 0. 29
Fun 0. 29
Original 0. 27
Energetic 0. 25
Friendly 0. 25
Performing 0. 22
Seductive 0. 08
Innovative 0. 02
(Base: 9, 739 persons, 507 brands)

Transparent and opaque products
At this stage it is interesting to remind ourselves of the classifications drawn up by Nelson (1970) and by Darby and Kami (1973). These authors make the distinction between three types of product characteristics:

  • the qualities which are noticed by contact, before buying;
  • the qualities which are noticed uniquely by experience, thus after buying;
  • credence qualities which cannot be verified even after consumption and which you have to take on trust.

The first type of quality can be seen in the decision to buy a pair of men’s socks. The choice is made according to the visible characteristics:the pattern, the style, the material, the feel, the elasticity and the price. There is hardly a need for brands in this market. In fact those that do exist only have a very small market share and target those people who are looking for proof of durability (difficult to tell before buying) or those who wish to be fashionable.

This is how Burlington socks work asa hallmark of chic style. Producer’s brands do exist but their differential advantage compared to distributor’s brands (Marks &Spencer or C&A) is weak, especially if the latter have a good style department and offer awide variety at a competitive price.

A good example of the second type of quality is the automobile market. Of course, performance, consumption and style can all be assessed before buying, as can the availability of options and the interior space . However, road-holding, the pleasure of driving, reliability and quality cannot be entirely appreciated during a test drive. The response comes from brand image; that is, the collective representation which is shaped overtime by the accumulated experiences of oneself, of close relations, by word of mouth and advertising.

Finally, in the market for upmarket cars, the feeling that you have made it, that feeling offulfilment and personal success through owning a BMW is typically the result of pure faith. It cannot be substantiated by any of the post-purchase driving experiences: it is collective belief, which is more or less shared by the buyers and the non-buyers. The same logic applies to the feeling of authenticity an dinner masculinity which is supposed to result from smoking Marlboro cigarettes.

The role of brands is made clearer by this classification of sought-after qualities. The brand is a sign (therefore external) whose function is to disclose the hidden qualities of the product which are inaccessible to contact(sight, touch, hearing, smell) and possibly those which are accessible through experience but where the consumer does not want to take the risk of trying the product. Lastly, a brand, when it is well known, adds an aura of mackerel it is consumed, for example the authentic America and rebellious youth of Levi’s, the rugged masculinity of Marlboro, the English style of Dunhill, the Californian myth of Apple.

The informational role of the brand varies according to the product or service, the consumption situation and the individual. Thus, a brand is not always useful. On the other hand, a brand becomes necessary once the consumer loses his or her traditional reference points. This is why there is an increase in the demand for branded wine. Consumers were put off by too many small chateaux which were rarely the same and had limited production of varying quality and which sometimes sprung some unpleasant surprises. This paved the way for brands such as Jacob’s Creek and Gallo.

A brand provides not only a source of information(thus revealing its values) but performs certain other functions which justify its attractiveness and its monetary return(higher price) when they are valued by buyers. What are these functions? How does a brand create value in the eyes of the consumer? The eight functions of a brand are presented instable below. The first two are mechanical and concern the essence of the brand; that is, to function as a recognized symbol in order to facilitate choice and to gain time. The following three functions reduce the perceived risk. The last three have a more pleasurable side to them. Ethics show that buyers are expecting, more and more, responsible from their brands. Many Swedish consumers still refuse Nestle’s

The functions of the brand for the consumer

These functions are neither laws nor dues, nor are they automatic; they must bedefended at all times. Only a few brands aresuccessful in each market thanks to their supporting investments in quality, R&D, productivity, communication and research inorder to better understand foreseeable changes in demand. A prior nothing confines these functions to producer’s brands. Moreover, several producer’s brands do notperform these functions. In Great Britain, Marks & Spencer (St Michael) is seen as animportant brand and performs these functions, as do Migros in Switzerland, the Gap, Zara, Ikea and others.

The usefulness of these functions depend son the product category. There is less need for reference points or risk reducers when the product is transparent (ie its inner qualities are accessible through contact). The price premium is at its lowest and trial costs very little when there is low involvement and the purchase is seen as a chore, eg trying a new, cheaper roll of kitchen paper or aluminiumfoil. Certain kinds of shops aim primarily atfulfilling certain of these functions, forexample hard discounters who have 650 lineswith no brands, a product for every need, atthe lowest prices and offering excellentquality for the price (thanks to the work onreducing all the costs which do not add valuecarried out in conjunction with suppliers).

This formula offers another alternative to thefirst five functions: ease of identification onthe shelf, practicality, guarantee, optimization at the chosen price level and characterization (refusal to be manipulated by marketing). Theabsence of other functions is compensated forby the very low price.

Functional analysis of brand role can facilitate the understanding of the rise of distributors’own brands. Whenever brands are just trademarks and operate merely as recognition signal or as a mere guarantee of quality, distributor’s brands can fulfil these functions as well and at a cheaper price.

Table belows the relationships between brand role and distributor’s own brands’market share.

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Strategic Brand Management Related Practice Tests

Strategic Management Practice Tests
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