Management School of Maastricht in conjunction with FHR Lim A Po Institute
HOW SUSTAINABLE IS YOUR BRAND? CREATING AND SUSTAINING LONG-TERM BRAND EQUITY IN SURINAMESE MANUFACTURING COMPANIES
A Research Paper presented by:
MERVEL C. FLEUR SURINAME
“This paper was submitted in partial fulfilment of the requirements for the Degree of Master of Business Administration at the Maastricht School of Management (MSM)”
Paramaribo, July 2005
DEDICATION
To: My God, Lord and Saviour He has granted me the Serenity To accept the things I cannot change Courage to change the things I can And Wisdom to know the difference He has promised me to lead me Step by Step and every step Will be A Marvel
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ACKNOWLEDGEMENTS
Many individuals have contributed to the successful conclusion of this final project with their mental and physical support. I would therefore use this opportunity to express my appreciation to:
My supervisor, Dr. Rene Samson, for guiding me through this painstaking process of writing and presenting an excellent thesis;
Dr. Hans Lim A Po, the inspiration behind the first Suriname MBA, for offering me the opportunity to make a dream come true;
My fellow students for their spontaneous support during the MBA program and for moulding and shaping me to become a better team player;
My colleagues, for holding ‘the fort’ at the work place when I was not around because of the MBA classes;
My family, for their understanding and for just being there for me;
Mrs. Shirley Asjes, for her meticulous review of the grammar in this paper;
All senior managers, who have participated in this research and have enthusiastically, provided relevant information.
All others, not mentioned here, but have contributed in any way to the achievement of this successful endeavour
To All, words are not enough to express my gratitude!
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TABLE OF CONTENTS
DEDICATION...... i ACKNOWLEDGEMENTS ...... ii TABLE OF CONTENTS ...... iii LIST OF FIGURES ...... vi LIST OF TABLES ...... vii LIST OF APPENDICES ...... viii LIST OF ABBREVIATIONS ...... ix EXECUTIVE SUMMARY ...... x CHAPTER 1 INTRODUCTION...... 1 1.1 General View...... 1 1.2 Background ...... 3 1.3 Research Questions ...... 4 1.4 Scope and Research Objectives...... 4 1.5 Research Methodology...... 5 1.6 Limitations of the Research...... 5 1.7 Relevance of the Study...... 6 1.8 Outline of the Study ...... 6 CHAPTER 2: THEORETICAL FRAMEWORK OF THE BRAND EQUITY CONCEPT...... 8 2.1 Introduction: What is Brand Equity?...... 8 2.2 Customer Oriented Brand Equity Models...... 9 2.2.1 Aaker's Brand Equity Model ...... 9 2.2.2 Keller’s Model on Brand equity ...... 9 2.2.3 Kapferer’s Approach on Brand Equity ...... 10 2.3 Financial Brand Equity...... 12 2.3.1 The Relevance of Brand Valuation...... 12 2.3.2 Brand Valuation Methods ...... 12 2.4 How to Create and Sustain Brand Equity in the Long Term...... 14 2.5 Brand Equity Creation: Brand Identity and Positioning ...... 15
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2.6 Building Brand Equity...... 17 2.7 Measuring Brand Equity...... 20 2.8 Grow and Sustain Brand Equity...... 20 2.8.1 Brand Product Matrix, Brand Hierarchy and Brand Architecture Strategies ...... 20 2.8.2 Brand Extensions...... 23 2.8.3 Brand Reinforcement and Revitalization...... 25 2.9 A Legal Perspective on Brand Equity ...... 27 2.10 Chapter Summary...... 29 CHAPTER 3 BRANDING AND BRAND MANAGEMENT IN SURINAME...... 30 3.1 The Macro-Economic Environment: Some Key Aspects Influencing Entrepreneurship...... 30 3.2 Competitiveness of Surinamese Businesses in General ...... 30 3.3 The Role of Branding and Brand Management in Surinamese Companies ...... 31 3.4 Brand Valuation in Suriname ...... 32 3.5 Legal Framework for Brands in Suriname ...... 32 3.6 Characteristics of Surinamese Companies with Strong Local Brands .... 33 3.7 Background of Companies Participating in the Research ...... 34 3.8 Chapter Summary...... 35 CHAPTER 4 RESEARCH MODEL AND METHODOLOGY36 4.1 Research Model for Creating and Sustaining Brand Equity ...... 36 4.2 Research Approach and Strategy...... 37 4.3 Data Collection...... 38 4.4 Data Analysis Procedure ...... 39 4.5 Limitations of the Research Methodology ...... 39 4.6 Chapter Summary...... 40 CHAPTER 5 RESEARCH RESULTS ...... 41 5.1 Awareness of the Status and Role of the Brand ...... 41 5.2 The Brand Creation Process ...... 42 5.3 Management of the Brand ...... 42
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5.4 Measuring Brand Performance...... 43 5.5 Knowledge and Status of Brand equity...... 43 5.5.1 Customer Based Brand Equity ...... 43 5.5.2 Financial Brand Equity...... 45 5.5.3 Legal protection of the brand...... 46 5.6 Building and Sustaining the Brand...... 46 5.6.1 Brand Architecture...... 46 5.6.2 Marketing and Brand strategies...... 47 5.7 Chapter Summary...... 48 CHAPTER 6 GAP ANALYSIS AND IMPLEMENTATION .....49 6.1 Gap analysis ...... 49 6.2 Impact of Identified Gaps on Brand Management and Brand Equity..... 50 CHAPTER 7 CONCLUSIONS AND RECOMMENDATIONS.53 7.1 Introduction ...... 53 7.2 Conclusions ...... 53 7.3 Recommendations ...... 54 7.4 Constraint Envisioned ...... 57 7.5 Implementation Strategies...... 57 7.6 Directions for further Research ...... 58 REFERENCES...... xiii APPENDICES ...... xvii
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LIST OF FIGURES
Figure 1: Brand Value Breakdown...... 3 Figure 2: The Strategic Brand Management Process ...... 15 Figure 3: Strategies for Sustaining Brand Equity Long-Term ...... 24 Figure 4: Brand Reinforcement Strategies ...... 25 Figure 5: Revitalization Strategies ...... 27 Figure 6: Research Model for Creating and Sustaining Brand Equity Long-Term ...... 36 Figure 7: Brand Awareness Main Brands Participating Companies...... 44 Figure 8: Brand Loyalty Main Brands Participating Companies ...... 44 Figure 9: Perceived Quality Main Brands Participating Companies...... 44 Figure 10: Brand Value Breakdown Main Brands Participating Companies...... 45 Figure 11: Phases for improved Long-Term Brand Equity in Surinamese Companies ...... 56
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LIST OF TABLES
Table I: Roles that Brands Play...... 2 Table II: SWOT Local Companies with Strong Brands...... 33 Table III: Key Indicators Participating Companies...... 34 Table IV: Roles that Brands Play in Participating Companies ...... 41 Table V: Gap Analysis ...... 49
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LIST OF APPENDICES
APPENDIX A: Aakers Brand Equity Model ...... xvii APPENDIX B: Keller’s Brand Equity Model...... xviii APPENDIX C: Kapferer: from awareness to financial brand equity (value) ..xviii APPENDIX D: Interbrand’s Brand Strength Factors...... xix APPENDIX E: Marketing Communication Options...... xx APPENDIX F: Top 10 Global Brands, Valuated by Interbrand ...... xxi APPENDIX G: Product-Brand Matrix...... xxi APPENDIX H: Example Brand Hierarchy Colgate...... xxii APPENDIX I: House of Brands vs. Branded House...... xxii APPENDIX J: Advantages and Disadvantages of Brand Architecture Strategies ...... xxiii APPENDIX K: Research Questionnaire ...... xxv APPENDIX L: Frequency Tables Research Questionnaire ...... xxxvi
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LIST OF ABBREVIATIONS
Abbreviation Title AMA The American Marketing Association CARICOM Caribbean Community CSME Caricom Single Market and Economy CBBE Customer- Based Brand Equity IAS International Accounting Standard NPV Net Present Value EVA Economic Added Value DCF Discounted Cash Flow WIPO World Intellectual Property Organization SME Small and Medium Enterprises FDI Foreign Direct Investment MDC More Developed Countries SWOT Strength, Weaknesses, Opportunities and Threat Analysis EU European Union ACP African, Caribbean an Pacific Countries CIC N.V. Consolidated Industries Corporation SAB Suriname Alcoholic Beverages MAVEFA Margarine en Vetten Fabriek (Margarine and Fats Company)
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EXECUTIVE SUMMARY
Until 1996 the Surinamese economy could be characterized as a closed economy. After the removal of trade barriers for the CARICOM countries, Suriname faced the implications of an open economy for the first time. Since Suriname did not submit a separate tariff schedule for sensitive goods, the influence of this competition penetrated into almost all sectors. In this changing environment many new products were introduced, increasing the number of brands, the cost of creating brand associations, distribution and advertising. All of these made it more difficult to build strong brands. During the period of 1996 - 2000, many Surinamese companies used to their monopolistic position or a less competitive environment, could not cope with this new situation and collapsed. Only those companies that were able to adapt to the new market situation survived, although many of them lost a huge market share. One of the main characteristics shared by these companies was that they all had strong local brands which enabled them to survive in this highly competitive environment.
This research aims to asses the awareness of the role and value of the brand in Surinamese manufacturing companies. Furthermore, the brand creation and management process within these companies are examined to see whether these can sustain long-term brand equity. In addition, the researcher sought to contribute to the knowledge of marketing and brand management within these companies by using skills and competencies acquired during the MBA program
The research concentrates on Surinamese manufacturing companies of fast consumer goods with strong brand equity. These companies own strong local brands and the role of branding and current brand management and marketing strategies will be reviewed to gain insight into the brand creation and management process within these companies. The recommendations focus on improvement of this process in order to sustain these brands in the long term. . The research questions put forward in this study are:
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1. What is the role and value of branding for Surinamese manufacturing companies? 2. How have these companies been able to create and develop strong, competitive brands and can they maintain this brand equity on the long term?
An exploratory study was conducted and mainly the inductive approach was used because brand equity is a relatively new phenomenon within the Surinamese market. Empirical evidence was tested by the use of a theoretical framework originating from relevant existing theories. A small sample size of six companies with strong brands was chosen to carry out the research.
Brand management is still in its infancy. As already stated, brand equity is a very new concept within the emerging Surinamese market. Therefore, this has its implications on the brand equity development within the companies which participated in the study. Mainly, the research revealed the following: • Management of these companies is aware of the role of the brand and how the brand contributes to the value of the company (brand equity) • These companies own strong brands, however, the brand creation process did not start off with proper brand positioning or brand identity. These were created and built over time. Currently, in most companies neither are positioning statements available nor is the brand identity clearly described • Brand performance is measured through sales trends and only a few companies measure through customer surveys. A tracking system to continuously measure brand performance is missing. In addition, brand valuation is not considered a means to measure brand performance • The responsibility to manage the brand is in half of the cases not assigned to a brand or marketing manager even though there are brand objectives in place which are often incorporated into a corporate business plan • In most cases these companies have marketing and brand strategies in place to build the brand, however, these are not deployed enough on the brand level. The brand architecture strategies are in general neither structured nor
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have a long-term strategic intent selected, although management is aware of the benefits of this. • Revitalization strategies were in general successful; brand extensions were also carried out in a successful manner. Brand reinforcement strategies, on the other hand, need to be more explicitly defined on a brand level in order to be more successful. • The customer-based brand equity assets, brand awareness, brand loyalty, perceived quality are considered very high in the local market and provide a good basis for sustaining long-term brand equity. In addition, the brand value as part of market capitalization is relatively high and, therefore, it would be a prerequisite to nurture these brands • Legal brand protection needs improvement because of outdated laws. This could cause legal disadvantage.
The researcher recommends the following actions in order to improve long-term brand equity: • Establish or improve brand management systems by assigning responsibilities to manage the brand, training of responsible managers in specific required skills and by introducing a brand equity management policy within the company • Improve customer-based brand equity by: repositioning mature brands to increase the lifetime of the brand and/or establishing brand identity if lacking; reviewing the brand architecture of the brand portfolio; and defining appropriate marketing and specific brand strategies for each brand • Establish a brand equity management system by the use of financial brand valuation methods, appropriate customer-based brand equity measures to improve the levels of these CBBE assets and by putting a brand-tracking system in place to continuously measure the performance of the brand • Revitalize mature brands and continuously reinforce the brand by implementing better designed brand strategies and programs. • Establish proper legal framework by improving laws and becoming a member of an international organization for property rights and brand protection
xii CHAPTER 1 INTRODUCTION
1.1 General View The new global economy is characterized by rapid technological change and increased information exchange, resulting in more sophisticated consumer preferences and intense competition. As the environment has become more complex, the foundations of the old industrialized economies have shifted from natural resources to intellectual, intangible assets. One such intellectual, intangible asset is a brand.
The word 'brand' is derived from the Old Norse word ‘brandr’ and means ‘to burn’. Brands were in the ancient days a means by which stockowners of live stock marked their animals to identify them (Keller, 2004, p.3). The American Marketing Association (AMA) describes a brand as ‘a name, term, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition’. Thus, the function of the brand was twofold: 1. to identify the goods and services 2. to differentiate from the competition
The 1980s can be considered a turning point in the brand conception. The brand equity concept came alive. One of the results of the European Union globalization was the increasing number of mergers and acquisition of companies with strong and established brands. The main question back then was: What is the brand worth (as part of goodwill). The need for proper brand valuation became increasingly apparent and many valuation methodologies were developed. Due to the recession and saturated markets in the 1990s a shift was made from brand to customer equity, which, in fact, is a prelude to financial brand equity. The emergence of the brand equity concept stressed the importance of the brand in the marketing strategy which, until then, was neglected. Aaker (1990) one of the first authors on the concept of brand equity states: ‘Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbol, which add or subtract from the value provided by a product or service to a firm and/or firm’s customers’. According to Aaker, the most important assets of a firm are its intangible assets, such as equity represented by a brand name and are often
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not capitalized in the balance sheets. Brand equity is a basis of competitive advantage and future earning streams.
Moreover, brand equity in this context should be considered an asset and not a liability because in current brand management theories it is only referred to as a means of value creation, both for the customer as well as for the company. The ultimate objective of creating and managing brand equity is to increase and sustain the long-term financial value of the brand. Before the 1980s companies bought a production capacity, hence, the company’s value was measured in tangible assets. As the brand equity concept emerged after the 1980s, companies 'bought' a place in the mind of the consumer1. In fact, when paying a high price for a company with a strong brand, the acquiring company 'buys' a position in the potential consumers’ mind.
In addition, this brand equity concept broadened the perspective on the roles of the brand. The current roles reflect the value of the brand for both the consumers as well as the company. Table I provides an overview of these roles
Table I: Roles that Brands Play CONSUMERS MANUFACTURERS Identification of source of product Means of identification to simplify handling or Assignment of responsibility to product maker tracing Risk reducer Means of legally protecting unique features Search cost reducer Signal of quality level to satisfied customers Promise, bond, or pact with maker of product Means of endowing products with unique Symbolic device associations Signal of quality Source of competitive advantage Source of financial returns Source: Keller, 2004
Consistent managing and nurturing of brands over time has resulted in strong international brands such as Coca Cola, Procter and Gamble and Unilever. The vast majority of their corporate value is made up of intangible assets and goodwill. Studies show that only 10% of corporate value is made up of tangible assets while 70% of the value of the intangible assets is made up of the brand. Figure 1 depicts a graphical overview of the brand value breakdown of five international companies with global brands for 2003.
1 Aaker, A. (1991), Managing Brand Equity: Capitalizing On The Value of a Brand Name 2
Figure 1: Brand Value Breakdown
120
100
80
60
40
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- Coca Cola Johnson & Procter & Gamble Unilever Amazon.com Johnson net tangible assets Intangibles and goodwill
Source: Keller, 2004
The graph reveals the importance of the intangible assets as well as the brand value as part of the corporate value. In fact, building a strong brand enhances long-term and sustainable brand equity and ultimately increases market capitalization of the company
1.2 Background Suriname joined CARICOM on 4 July 1995 and became a full member of the group’s common market in January 1996. The Revised Treaty of Chaguaramas2 which established the Caribbean Community was ratified and enacted by Suriname into domestic law in 2003. The Treaty establishes the legal basis for the CARICOM Single Market and Economy (CSME), which includes the free movements of goods, services, capital and skilled persons within the sub-region, as well as growing harmonization of laws and regulations governing economic activities within the Community.
However, while CARICOM negotiates trade agreements as a bloc, each state submits a separate tariff schedule for sensitive goods; a mechanism through which a country like Suriname may address any special need for concessions in particular sectors. No special
2 Suriname Report, WT/TPR/S/135, Trade Policy Review 3
provisions have been made for Suriname in trade agreements negotiated between CARICOM and other countries.
As a result, Surinamese manufacturing companies faced for the first time severe competition from other Caricom countries. In this changing environment many new products were introduced, increasing the number of brands, the cost of creating brand associations, distribution and advertising. All of these made it more difficult to build strong brands.
During the period of 1996 - 2000, many Surinamese companies used to their monopolistic position or a less competitive environment, could not cope with this new situation and collapsed. Only those companies that were able to adapt to the new market situation survived, although many of them lost a huge market share. One of the main characteristics of these companies was that they had strong local brands which enabled them to survive in this highly competitive environment.
Even though these Surinamese companies use branding as a strategy to compete, the question is: Does the management know the value of the brand?
1.3 Research Questions This research will try to answer the following questions: 1. What is the role and value of branding for Surinamese manufacturing companies? 2. How have these companies been able to create and develop strong, competitive brands and can they maintain this brand equity on the long term?
1.4 Scope and Research Objectives In this research the focus will be on typical Surinamese manufacturing companies that have been able to develop strong and established brands within the Surinamese market. Most of these companies have existed for decades and were able, intentionally or not, to create strong brands through their specific marketing and brand strategies. These strategies will be reviewed and analyzed to see how this brand equity was created and whether they can still provide long-term brand equity.
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The objectives of this study are: • To asses the awareness of the role and value of the brand • To examine the brand creation and management process within Surinamese manufacturing companies • To contribute knowledge to brand management within these companies by using skills and competencies acquired during the MBA program
1.5 Research Methodology This research will be a qualitative study and will be conducted within a small sample. The theoretical framework of this study is the result of a critical literature review of key academic theories on this topic. Secondary, as well as tertiary literature sources such as books, white and research papers, articles and internet sources will be explored within this review. Primary data will be collected through interviews with key managers within companies with strong, established brands. This data will be analyzed and key findings from this analysis will form the basis for the recommendations. The research methodology will be further discussed in chapter 4.
1.6 Limitations of the Research This research can be considered an exploratory study. Due to time and financial constraints a more in-depth analysis consisting of accurate measurement of relevant brand equity assets is not possible. Although many companies use branding as part of their marketing strategy to protect their products and to gain profits, the brand equity concept is relatively new in Suriname. Information is not available nor filed in a coherent manner, resulting in (primary) data collection being based on experience and skills of senior and commercial managers and fragmented business and marketing plans (instead of specific brand plans). It is expected that not a lot of research has been done on this topic as yet. Financial valuation of the brand and customer brand equity will be based on estimates and/or realistic assumptions from these senior and commercial managers.
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1.7 Relevance of the Study In general, when a strong brand is created and sustained it means guaranteed future earning streams for the company. In the long run the market capitalization of the company is enhanced and, moreover, the shareholder value is increased. The researcher's personal interest originates from the fact that in daily practice there is little or no difference experienced in managing the various brands within the companies’ brand portfolio. This phenomenon has been noticed by the researcher in various Surinamese companies and the interest arose to find out how the value of the brands are managed and whether there is a solid base for sustainable brand equity.
In addition, this study will be relevant to companies in several aspects: • It may give awareness to managers about the value and power of a brand • Recommendations of this study can be used as a guideline to increase competitiveness • The information can be used as a starting point to streamline the current brand strategies or to choose appropriate brand strategies for the different market segments to create and sustain brand equity in the long term
1.8 Outline of the Study The outline of this study is as follow:
Chapter 2 provides a theoretical framework based on the literature review;
Chapter 3 gives an overview of the Surinamese business environment wherein these companies operate;
In Chapter 4 a research model and the methodology of the research will be presented and discussed;
The main research results, which will be a base for a gap analysis is the theme of chapter 5;
The gap analysis is the result of a comparison between the theoretical framework and the current brand management and strategies of Surinamese companies in other words what have
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these companies done and are currently doing to create and build long-term brand equity. This will be presented in Chapter 6.
Finally, Chapter 7 offers some recommendations and alternative approaches to build and sustain brand equity in Surinamese companies.
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CHAPTER 2: THEORETICAL FRAMEWORK OF THE BRAND EQUITY CONCEPT
2.1 Introduction: What is Brand Equity? Since the emergence of the brand equity concept, several authors have tried to describe this phenomenon. Although many schools of thought exist about this concept they can be integrated in basically two main approaches, namely: • Customer-oriented brand equity: This approaches the question of brand value by taking the consumers’ point of view. This approach does not put a financial value on brands; instead it measures consumer behaviour and attitudes that have an impact on the economic performance of brands. • Financial brand equity: This refers to the value of the brand which, in fact, is an intangible, intellectual asset built over time as a positive result of business investment.
The overall description of brand equity integrates the ability of the brand to provide added value to the company’s products and services. One unifying definition put forward by Kapferer (2004) is: “A strong brand (strong brand equity) is a name that influences buyers through the value it offers and is backed by a profitable economic formula.”
Primarily, three common customer-based brand equity models of well-known and experienced authors on brands and brand management, namely Aaker, Keller and Kapferer, will be highlighted in chapter 2.2 to give a more in-depth explanation of the brand equity concept. In addition, some financial brand valuation methods will be described to give a better understanding of the financial part of the brand equity concept.
A theoretical model for creating and sustaining brand equity, which is in fact the topic of this paper, will be presented in the chapter 2.4. This will be as a guideline through the paper and is the basis for this research.
Finally, the underlying theoretical concepts within this model will be explained in chapter 2.5 until 2.8. Chapter 2.9 discusses thereafter the legal perspective as this is a condition for sustaining a brand in the long term.
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2.2 Customer Oriented Brand Equity Models
2.2.1 Aaker’s Brand Equity Model Aaker (1991) one of the pioneers who wrote one of the best-known brand equity concepts states: ‘Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbol, which add or subtract from the value provided by a product or service to a firm and/or firm’s customers’. According to him there are five determinants of brand equity: 1. Brand loyalty: a measure of the attachment that a customer has to a brand. 2. Brand awareness: the ability of a potential buyer to recognize or recall that a brand is a member of a certain product category. 3. Perceived quality: a customer’s perception of the overall quality or superiority of a product or service with respect to its intended purpose, relative to alternatives 4. Brand association (in addition to perceived quality): anything ‘linked’ in memory to a brand e.g. McDonald and Ronald Mc Donald 5. Other proprietary assets such as patents, trademarks, channel relationship are legal and institutional benefits which a brand can offer and protect its value. According to Aaker these five brand assets create value for the customers as well as for the company. All of these different assets contribute to the value creation in their own way, for example, brand loyalty reduces marketing costs because there is less cost involved to retain loyal buyers then to gain new consumers. Furthermore, perceived quality gives the opportunity to charge a premium price to customers. Appendix A gives an overview of Aaker's model and how each brand asset contributes in the value creation process.
2.2.2 Keller’s Model on Brand equity Keller (2004) perceives the brand as a collection of memory associations. Brands have financial value because they have created assets in the mind of the customers. The basic premise of his model, the customer-based brand equity (CBBE) model, is that the power of a brand lies in what customers have learned, felt, seen, and heard about the brand as a result of their experiences over time. Customer-based brand equity is formally defined as the differential effect that brand knowledge has on consumer response to the marketing of that brand (Keller 2004). Three key aspects of this definition are: • Differential effect: refers to the fact that brand equity evolves and exists through differences in consumer response. If there are no differences, the brand can be considered a generic product or commodity 9
• Brand knowledge: the difference in consumer reactions is a result of knowledge of the brand. Ultimately brand equity is thus the experience (feelings, learning) of the brand that exist in consumers’ minds • Consumer response to marketing: brand equity is made up by the differential response by consumers which is reflected in perceptions, preferences and behaviour related to marketing aspects of that particular brand.
According to Keller (2004) there are two key components that build customer-based brand equity: 1. Brand awareness: consists of brand recognition and brand recall performance. Brand recognition consists of the consumers’ ability to confirm prior exposure to the brand when given the brand as a cue. Brand recall, on the other hand, refers to the ability of consumers to retrieve the brand from memory when given the relevant cue within a product category 2. Brand Image: a positive brand image is created by marketing programs that link strong, favourable unique associations Thus, when the consumer has a high level of awareness and familiarity with the brand and holds strong, favourable and unique associations in memory, customer-based brand equity occurs. Appendix B gives a brief overview of the brand elements of Keller’s brand equity model
2.2.3 Kapferer’s Approach on Brand Equity According to Kapferer a brand that does not make it possible to create a profitable business has no value. To clarify the brand equity concept he distinguishes three levels of analysis: brand assets, brand strength and brand value. • Brand assets are the sources of influence of the brand • Brand strength is the result of the brand assets and these results are in fact the ‘brand equity outcomes’. The brand strength is expressed in competitor’s behavioural indicators such as market leadership, market share, price premium etc. • Brand value is the ability of a brand to deliver profit. If the brand is not profitable, it has no value. Appendix C depicts a graphical overview and shows an underlying time dimension behind these three concepts. Brand assets are associations learnt through time, while the brand
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strength is a measure of the present status of the brand. Brand value is a projection into the future.
How does the brand add value to the customer as well as to the company according to Kapferer? • Value for the customer One basic assumption in Kapferer’s brand equity approach is that the value of a brand lies in the implicit contract between the brand and its customers, trading a seal of quality for automatic repeat purchasing3. According to Kapferer the brand name generates value by reducing transaction risk for the company as well as for the consumer. Brands exist because there is perceived risk. As soon as this risk disappears the brand name no longer has benefits, in other words, brands draw their value from their ability to reduce risk and uncertainty. For example, a ‘brand sensitivity’ study in 1998 reveals (by Laurent and Kapferer) that in certain product categories such as photocopy paper, rubber pads and sugar, brands are often not relevant to consumers. Frequently in these markets strong brands do not exist because there is less risk in the purchase of the product brand involved. • Value for the company Brands add value for the company because when paying a high price for a company with strong brands, there is more certainty in acquiring future cash flow. Consequently, the brand reduces the perceived risk of the financial analyst. In addition, if the brand is strong, it benefits from a high degree of loyalty resulting in stability in expected future sales. Moreover, when the brand is well-known and therefore a symbol of quality, new markets can be entered into more easily in this manner lowering the launch cost for the brand
In summary, brand equity in these three models is viewed from different perspectives, namely: • Aaker focuses on brand assets. The value of the brand is created and maintained through these assets i.e.: brand awareness, perceived quality, brand loyalty, brand associations and other proprietary brand assets • Keller refers to brand equity as a collection of mental associations that generate different reactions to the brand. • Kapferer argues that the value of the brand exists because of the perceived risk.
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2.3 Financial Brand Equity
2.3.1 The Relevance of Brand Valuation Tangible assets were considered as the main source of business value until the 1980s. Even though management was aware that intangible assets such as technology, patents, employees’ knowledge and skills, and brands, were at the core of corporate success, accounting practices for goodwill did not deal with the rising importance of these intangible assets. As a result of the increasing numbers of takeovers, mergers and acquisitions of companies with strong brands, the brand valuation process was encouraged. In general, brand valuation is a financial measure or indicator of the strength of the brand and, besides balance sheet reporting, is now a mainstream business tool which can be applied for the following purposes4: Financially Focussed Strategically Oriented • Licensing and Franchising • Brand portfolio Reviews • Tax planning • Marketing Budget Determination • Merger and Acquisition Planning • Resource Allocation • Securitized Borrowing • Strategic Marketing Planning • Investor Relation • Internal Communication • Balance Sheet Reporting
2.3.2 Brand Valuation Methods According to International Accounting Standards (IAS), brand valuation or the financial valuation of the brand, comprises of the determination of the fair value of the brand. In general, according to these standards, an asset can enter the accounts if it is: • Identifiable from other assets of a business • Able to generate on-going future benefits and cash flow for the business • Protected and not free in the public domain • Transferable from a seller to a buyer The brand name is considered an identifiable asset, which means that it can be separated from the entity and sold, transferred, licensed, rented or exchanged, individually or together with a
3 BBDO (November 2001), Brand Equity Excellence, Volume 1: Brand Equity Review 4 Brand Finance plc (June 2000), Current Practice in Brand Valuation; Brand Finance (July/August 2003), Into the great unknown; www.Interbrand.com, Seven applications of Brand valuation. 12
related contract, asset or liability5. Several methods have been developed over time to determine the brand value posted on the company's balance sheet. Five common models are6: • Valuation by historical cost: This method of brand valuation is a cost-oriented approach. The underlying assumption is that a brand is an asset whose value comes from investments over a period of time. This approach suggests adding together all the costs such as developmental costs, marketing cost, advertising and communication costs, which are associated with a particular period. One example of this method is the calculation of the residual value of the brand valuated at historical cost. The residual value formula is: [ ∑ Brand Cost – ∑Brand Revenues ] @ historical cost. • Valuation by replacement cost: A key question when using this approach is: how much would it cost to replace or recreate the brand? This ‘new brand’ must reflect all the brand elements of the original brand such as awareness, percentage of trial purchases and repurchases, market share, distribution network, image and leadership. • Valuation by market price: This method suggests determining the brand value by comparing it with the ‘fair market value’ of similar brands in the market. This approach is often used in the real estate market. • Valuation by Royalties (or licence-based brand valuation): This approach valuates the brand on the basis of license rates that are similar in the industry and earned by comparable brands7.The brand value is calculated based upon how much a company is willing to pay to license the brand. • Valuation by future earnings: This methodology comprises the valuation of the brand based on expected returns and profits of brand ownership. One of the most common methods is the Interbrand approach8, which was the first consulting firm that recognized the economic value of brands by pioneering and establishing brand valuation. Their model calculates the brand value as the Net Present Value (NPV) of the earnings that are expected in the future. Four basic elements underlie this model: 1. Financial Forecasting. Consists of the following basic steps: • Forecast a five years projection of the brand’s future earnings • Deduct the operating costs, corporation tax and charge for the employed capital necessary to operate the brand
5 Bonham, M. et Al (2005), Ernst & Young, International GAAP 2005: Generally Accepted Accounting Practice under International Financial Reporting Standards 6 BBDO (November 2001), Brand Equity Excellence, Volume 1: Brand Equity Review 7 BBDO, (November 2001), Brand Equity Excellence, Volume 1: Brand Equity Review 8 Interbrand (2001), Interbrand World’s Most Valuable Brand’s 2001 Methodology, www.Interbrand.com 13
• Derive the intangible earnings (EVA= Economic Added Value),which will be the result 2. Role of Branding. The role of the brand analysis has the objective to determine the brand earnings as the percentage of the intangible earnings. These brand earnings are solely attributable to the brand. 3. Brand Risk. The brand risk analysis must provide the risk rate at which the forecasted brand earnings should be discounted to their NPV. The discount rate consists of the risk-free rate (yield on a government bond) and a brand premium which is derived from the brand strength analysis. Appendix D depicts an overview of factors determining the brand strength 4. Brand Value calculation. The brand value calculation is calculated as the NPV of the projected brand earnings.
The aforementioned measures can be used in a variety of ways; however, each method has its advantages and disadvantages. The choice for a brand valuation method is dependent on the purpose for valuating a brand. For example, if a brand name is licensed, it will be appropriate to use the valuation by royalties method. Interbrand’s approach has become a widely accepted method to valuate especially international brands. Appendix F provides an overview of the top ten global brands, valuated by Interbrand.
2.4 How to Create and Sustain Brand Equity in the Long Term After discussing the various brand equity concepts, customer oriented as well as financially based, many companies may question how to create this brand equity and to maintain it in the long run in order to maximize shareholder's value. As already stated, customer-oriented brand equity is a prelude to financial brand equity, therefore, the growth process has to be viewed at first from a customer-based brand equity perspective. Keller (2004) best describes this process in a four-step model that he calls the Strategic Brand Management Process. The purpose of this process is to create, build and sustain brand equity by implementing various, but still organized, marketing and brand activities, programs and strategies. This process involves four key steps which are illustrated in figure 2. This model will be used as a basis to describe the process of creating and sustaining brand equity in this paper and is preferred by the researcher as the author is one of the few who have been able to capture this process in a simple model, although the brand equity concept is a very complex phenomenon and many
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theories have evolved over time. Furthermore, this four-step model allows continuous improvement because of the measurement aspect within the model and is able to adapt changes as the environment changes.
There are a number of underlying key concepts within each step that will be discussed in the next paragraphs. A few key concepts are modified within the model; these will be viewed from different authors’ perspectives.
Figure 2: The Strategic Brand Management Process
STEPS KEY CONCEPTS
Brand Positioning Identify and Establish Positioning and Values
Brand Identity
Building Brand Equity Plan and Implement Marketing Programs and Strategies
Brand Value Chain Brand Audit Measure and Interpret Brand Performance Brand Tracking Brand Management System
Brand Product Matrix Brand Portfolio, Brand Hierarchy, Brand Grow and Sustain Architecture strategies Brand Equity Brand Extensions
Brand Reinforcement and Revitalization
Source: Keller, 2004 (model slightly modified by the researcher)
2.5 Brand Equity Creation: Brand Identity and Positioning Sustainable brand equity means building and managing strong brands over a period of time. All strong brands started somehow, somewhere and intentionally or not these strong brands were created. Most famous brands started as ordinary names of innovative products. Brand 15
names are often randomly chosen, without prior study or analysis. One example is Coca Cola that just reflects the content of the product. Mercedes for instance was the name of Mr. Daimler’s daughter. Brand names are a means to give distinctiveness and add value to the product. The tangible product in itself does not have a sustainable competitive advantage since it is only a matter of time before it is copied by the competitor. Many companies respond to competition by innovation; developing a whole new product or adding more features and benefits to the product. Even though products change, the brand name stays. Ultimately, the main driver of the consumers’ choice is not the product features nor other tangible benefits, but brand preferences.
One basic key in creating a strong brand is a well-defined brand platform consisting of: the brand identity; in the narrowest sense referred to as brand essence or brand mantra; and brand positioning, as the unique and distinctive characteristic of a brand. A Brand identity is a unique set of brand associations that the brand strategist aspires to create and maintain (Aaker et al, 2000). These associations represent what the brand stands for and imply a promise to customers from the organization members. Keller (2004) refers to a deeper sense of brand identity, the brand mantra which relates to the core brand essence or core brand promise. The brand mantra is an articulation of the heart and soul of the brand and captures the indisputable essence or spirit of the brand positioning and brand values. In this context Keller also adds the brand core values, a set of abstract associations (attributes and benefits) characterizing the 5-10 most important aspects of the brand, as part of the brand identity
Positioning a brand means emphasizing the distinctive characteristics that make it different from its competitors and make it more appealing to the public. Positioning is a result based on an analysis of the following four questions (Kapferer, 2004): 1. A brand for what? Refers to the brand promise and consumer benefit 2. A brand for whom? Reflects the target market 3. A brand for when? Refers to the occasion when the product will be used 4. A brand against whom? Who are the main competitors this brand will compete with?
A standard positioning formula brought forward by Kapferer (2004) is: ‘For…………….(definition of target market) Brand X is …………….(definition of frame of reference and subjective category) Which gives the most ……………..(promise or consumer benefit) Because of ……………………..(reason to believe)’ 16
The target specifies the nature and psychological or sociological profile of the individual to be influenced, that is, buyers or potential consumers. The frame of reference is the subjective definition of the category, which will specify the nature of the competition. The third point specifies the aspect of differences which create the preference and the choice of a decisive competitive advantage: it may be expressed in terms of a promise or a benefit. The fourth point reinforces the promise or benefit, and is known as the ‘reason to believe’9.
Once the brand platform, the foundation for brand design, is defined the brand manager can integrate the marketing-mix elements into strategies and marketing programs to build the brand.
2.6 Building Brand Equity When building the brand, the main question should be: How can the brand be integrated within marketing programs to increase brand equity? Marketing strategies must be executed in such a way that brand equity is maximized. In this paragraph, the focus will be on building brand equity from the viewpoint of the traditional marketing-mix elements, product, price, channel strategy and marketing communication (Keller 2004). This paragraph does not provide an exhaustive description nor a list of all the strategies and marketing activities to be applied; however, key indicators within these strategies will be pointed out to build the brand. i. Product strategy Three aspects of the product strategy are of eminent importance when building the brand: The product itself is a key source of brand equity and is the basis of what consumers experience with the brand. As already stated the product itself does not have a sustainable competitive advantage, however, the quality features of the product must meet or surpass customer expectations in order to create brand loyalty and will be, consequently, a basis for sustainable brand equity. The Perceived Quality of a product is the quality that is perceived by the customers relative to alternative competitor’s products and must be met in order to be considered a distinctive product brand. In this perspective a product that is backed by a Total Quality Management system can be perceived by the consumer as a quality product and be associated with high quality standards. Moreover, brand intangibles, such as
9 Kapferer J. (2004), The New Strategic Brand Management: Creating and Sustaining Brand Equity Long Term 17
product delivery, accuracy etc. increase the quality image of the brand and are, therefore, also an essential source of brand equity. Relationship marketing: the meaning of the brand (brand resonance) is enhanced when a stronger bond with the customer is created. The focus therefore should not be solely on the product but includes a broader set of activities to personalize the brand experience and ultimately to create loyal customers. The basic idea behind the relationship marketing concept is that current customers are the key to long-term brand success. Relationship marketing involves various programs such as loyalty programs, mass customization (personally customized products on a large scale), etc. ii. Price Strategy The Price strategy is that element of the traditional marketing mix that primarily generates revenue. The company's price strategy influences consumer perceptions and determines how consumers categorize the brand (high, medium, low priced). In many market segments, consumers infer the quality of the product brand on the basis of price. Price segmentation becomes increasingly relevant, because different consumers have different value perceptions. Customers must perceive that they receive value for money in every price segment to create a positive attitude towards the brand. Price premiums can be charged when consumers feel the brand represents unique personal values and, therefore, can be considered as an indicator of high customer-based brand equity because of the positive attitude and loyalty the consumers have towards the brand. There are various price strategies, however, the choice of the best fitting strategy depends heavily on the perceptions of the brand and the personal values attached to it. iii. Channel strategy Marketing channels are mutually dependent organizations involved in the process of making the product available for the consumer (Keller 2004). The success or failure of a brand is not the sole responsibility of the acceptance of the consumer; distributors also contribute to this success. There are a number of different channels which can be classified into direct an indirect channels. Direct channels are those channels that offer the product directly to the customer through personal contact (mail, phone, sales person), whereas indirect channels involve selling the product through intermediaries such as retailers, wholesaler etc. How do these two contribute towards brand equity?
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1. Indirect channels (in this case retailers) contribute in general by the actions and support given to brands through these channels, for example: • Strong, favourable and unique associations of the retailer. The retailer may have a good reputation because of wide product range, variety of product assortment, credit policy and the brands it carries • Transfer of retail image to brand image. Consumers assume that if this retailer sells only high quality products, the products bought must also be of high quality • Brand-related services of the retailer • Increasing brand awareness through display and merchandising. Retailers actively enhance the brand equity by stocking and displaying the product. • Cooperative advertising
2. Direct Channels enhance brand equity by improving the understanding of the customer with regard to unique characteristics and the depth, breadth and variety of the product brands. One example being company-owned stores which have control over the sales process and as a result can build a stronger customer relationship. These stores have the opportunity to expose the brand variety and its own unique brand image.
Both direct and indirect channels must also be chosen based on the maximization of brand equity. Furthermore, the choice will be based upon the advantages and disadvantages each channel or a combination of channels provide. iv. Marketing Communication Marketing communications are the means by which firms attempt to inform, persuade, and remind consumers directly or indirectly about the brands they sell (Keller, 2004). Marketing communication represents the voice of the brand and is of eminent importance in creating brand awareness and a positive brand image in the consumer's mind. This enhances brand equity for consumers who will respond more favourably to a particular brand. Communication can establish a dialogue and build customer relationship. Appendix gives E an overview of the marketing communication options. A proper communication mix relevant for the brand must be established to build brand equity.
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2.7 Measuring Brand Equity There are a number of ways to measure brand equity from a customer's perspective as well as from a financial perspective. Financial brand equity methods measure the financial value of a brand at a certain point in time. These methods were discussed in chapter 2.3 where Appendix F gives an overview of the financial valuation the top ten global brands in 2004, valuated by Interbrand. During the value creation process it is also essential to measure brand equity to understand the effectiveness of marketing activities and programs on the performance of the brand. A number of common tools to measure brand performance can be distinguished (Keller, 2004): 1) Brand Audit is a broad examination of a brand in terms of sources of brand equity from the perspective of both the firm as well as the consumer. A brand audit consists of a brand inventory and a brand exploratory. The brand exploratory is to provide a comprehensive profile on how all the products and services are marketed and branded by a company. The brand exploratory is research activity directed to understanding what consumers think and feel about the brand and its corresponding product category in order to identify sources of brand equity. The brand audit is meant to provide relevant information for setting long-term strategic directions for the brand 2) Brand Value Chain is a means to trace the value creation process for brands to better understand the financial impact of brand marketing expenditures and investment. This value chain has a number of value stages starting with the marketing program investment which affects the customers’ mindset and, therefore, market performance. Ultimately, all these elements in the value chain influence the shareholder's value. 3) Brand Tracking are ongoing tracking studies to provide marketers with current information on how their brands and marketing programs are performing 4) Brand Equity Management System involves establishing a set of organizational processes designed to improve the understanding and use of the brand equity concept within a firm. It requires designing brand equity charters and reports and assigning brand equity responsibilities.
2.8 Grow and Sustain Brand Equity
2.8.1 Brand Product Matrix, Brand Hierarchy and Brand Architecture Strategies Branding strategies, just like the tangible product and the brand name itself, are a means of value creation. Thus, a branding strategy is not a design problem but more a decision on how 20
the different parts and products of the company could add value to the total brand value chain. For example, one reason for Unilever’s product brand strategy is that each individual product gains shelf space in the distributor's channel, therefore, increasing the number of facings. This is a way of stimulating and increasing the chance of impulse buying. Canon conversely uses the umbrella brand strategy as it provides, on the one hand, economies of scale and, on the other hand, increased brand awareness. As a result, everyone and everything in the company, including the branding strategy, contributes to this value creation. A brand strategy can be described as ‘the number and nature of common and distinctive brand elements applied to the different products sold by the firm’ (Keller 2004).
Two basic tools to identify the branding strategy and to determine whether these strategies really add to or maximize the value of the various brands within the total brand portfolio are the product-brand matrix and the brand hierarchy. The product-brand matrix is a graphical representation of all brands and products sold by the company (see appendix G). The row represents the product-brand relationship and gives an indication of the brand extensions; the number of products under a single brand name. While the columns represent the brand- product relationships and give an overview of the brand portfolio of the company. The brand portfolio is a set of brands and brand lines carried by the company in a particular category. Often different brands are designed and marketed in different market segments. The brand portfolio must be judged on its ability to collectively maximize brand equity. So the optimal brand portfolio is one in which each brand maximizes equity in conjunction with the other brands.
The branding strategy of a company can also be summarized in a brand hierarchy, especially those firms that carry multiple brands in their brand portfolio. The brand hierarchy, which is similar to an organizational structure, provides the relationship that brands have with each other within the brand portfolio. The brand hierarchy evaluates the companies’ brand architecture and can help to give perspective on which new strategies to implement for leverage or for building a brand (appendix H provides an example of a brand hierarchy). How do the different levels of the brand hierarchy contribute to brand equity? According to Keller brand elements at each level can contribute to brand equity through their ability to create awareness as well as to foster strong, favourable and unique brand associations and positive responses.
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Brand architecture organizes and structures the brand portfolio by specifying brand roles and the nature of relationship between brands and between different product-market contexts (Aaker et al, 2000). Thus, the brand architecture provides the basic branding structure that a company implements to market their products. Kapferer (2004) distinguishes six models in the management of brand-product relationship or brand architecture: i. Product brand strategy: The product brand strategy involves the assignment of a particular name to one and only one product (or product line) as well as one exclusive positioning. Each product has a well-defined positioning and is offered to a particular market segment. When the product can be defined as a whole product category, we speak of a ‘branduct’. In this case the product is so specific and has no equivalent; two examples are Post-It and Bailey’s Irish Cream. ii. Line brand strategy: The line brand strategy provides coherent response under a single name by proposing many complementary products. One successful concept is used by extending the brand, while at the same time staying very close to the original product. iii. Range brand strategy: Range brands present a single brand name and promote a range of products belonging to the same area of competence through a single promise. iv. Umbrella brand strategy: Umbrella brands offer the same brand support for several products in different markets. Each of them has its own advertising and develops its own communications, yet, each product is called by its own generic name. One very important note is that the brand is at its best when companies with superior products use the umbrella brand strategy. v. Source brand strategy: This strategy is identical to the umbrella brand except for one key point – the product has its own brand name and is no longer called by one generic name but each has an own name. This is a two-tier brand structure known as double- branding. Within the source brand the family spirit dominates, although each product has its own individual name, for example, Christian Dior is the family name and, for instance, ‘I love Dior’ is the individual name. vi. Endorsing brand strategy: The endorser brand gives its approval to a wide diversity of products grouped under product brands, line brands and range brands e.g. Marriot is an endorser for Courtyard by Marriot and Fairfield Inn. The endorser is the guarantor of their credibility, quality and security. The endorsing brand is placed lower down because it acts as a base guarantor. Usually an endorser represents an organization
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rather than the products. Organizational associations such as innovation, leadership and trust provide more relevance in the endorser context vii. A Branded House or a House of Brands? New trends in branding strategies have resulted in two extreme strategic alternatives in brand architecture: the Branded House and the House of Brands. A Branded House uses a single master brand to market its products while in the House of Brands strategy each independent stand-alone brand maximizes its impact on the market. These two alternatives are a mixture of the six aforementioned strategies and are chosen based on the strategic intent of the company. Appendix I provide a graphical model of these two approaches.
In general, the choice of which strategy is the most suitable one depends on several aspects such as the business model, the competition and customer trends and needs. In practice, most firms use a mixture of the different strategies. One key point in the decision-making process for choosing the most appropriate strategy (strategies) is to make the assessment which strategies deliver optimal brand equity and a sustainable competitive advantage. Appendix J provides an overview of the advantages and disadvantages of each brand strategy.
The above-mentioned tools and brand architecture strategies are a necessary framework which needs to be clearly identified before strategic decisions are made for growing and sustaining the brand. There are three common growth brand strategies: brand extensions, brand reinforcement and brand revitalization. These will be discussed in the following paragraphs.
2.8.2 Brand Extensions Since the presence is its source of income, managing the brand involves maintaining it as it is now and simultaneously building towards the future through development and innovation. Kapferer mentions three initiatives that should be taken at the same time to build and sustain brand equity, which are illustrated in figure 3 below. In this paragraph the focus will only be on the brand and line extensions.
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Figure 3: Strategies for Sustaining Brand Equity Long-Term
Brand Brand communication for image and proximity (Code, Signs) (sponsoring, relationship marketing…)
Prototype Line Brand Repositioning Extensions Extensions
To match the ever To capture evolving needs to new sources And attract new consumers: of growth to upgrading - New users (formats) obtain the - New desires (variety) brand - New needs franchise and (ingredients reinforce brand authority Source: Kapferer, 2004
Brand extensions are a means of capitalizing on an existing brand’s equity to market new products and services. In this perspective we distinguish between line extensions and brand extensions. ‘Brand (or category) extensions involve the use of an established brand name to enter a different product category’ (Aaker and Keller, 1990). To the contrary, ‘line extensions involve the use of an established brand name for a new offering in the same product category’ (Reddy et al., 1994). Brand extensions are useful because of growth and profitability. Brand extensions relies on the ability to create a competitive advantage by leveraging the reputation attached to the brand name in a growth category, different from the brand’s present categories (Kapferer, 2004). A brand extension is considered successful if it contributes to both its own brand equity in the new category and the parent brand equity, that is to say it must add value by strengthening or add unique and favourable associations to the extended brand in the new category as well as the parent brand (Keller, 2004). The parent brand is the existing brand that gives birth to a brand extension. The sub-brand is a brand connected to a parent brand that augments or modifies the associations of the master brand (Aaker et al, 2000).
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2.8.3 Brand Reinforcement and Revitalization i. Brand Reinforcement Brand equity must be managed in such a way that the brand meaning is reinforced. It is crucial that marketing actions should be reviewed regularly and when necessary adjusted to identify new sources of brand equity. Brand equity is reinforced when marketing actions consistently communicate the meaning of the brand to consumers in terms of brand awareness and brand image (Keller, 2004). There are a number of ways to reinforce the brand. These are captured in figure 4.
Figure 4: Brand Reinforcement Strategies
Brand Awareness Consistency in amount -What does the brand and nature of represent? marketing support - What benefits does it supply? Innovation in - What needs does it product design, satisfy? manufacturing and merchandising Continuity in brand meaning; changes in Brand marketing tactics Reinforcemen t Strategies Protecting sources of brand equity
Relevance in user Brand Image and usage imagery - How does the brand Trading off marketing make products superior? activity to fortify vs. - What strong, favourable leverage brand equity and unique associations exist in the customers mind?
Source: Keller, 2004
Basically, brand reinforcement requires the following actions: - Maintain consistency over time: it is of eminent importance to give marketing support to the brand in a consistent way in terms of the amount and nature of support. This is necessary to maintain the strength and favourability of brand associations - Protect sources of brand equity: sources of brand equity such as product features and brand associations must be protected. Sometimes, even if the changes are small, it can affect the equity negatively. The affects to consumer responses must be actively monitored in order to sustain brand equity. - Fortify versus Leverage: thorough considerations must be given to those marketing activities that further strengthen the equity of the brand or those that just provide leverage to the equity of an existing brand for short-term financial benefits. For 25
example, cutting the advertising budget of a brand with high awareness to invest in another brand or brand extensions to provide leverage on an existing brand’s equity. In the long run the equity of that particular brand may diminish. - Supporting marketing programs: must be also actively managed and if necessary changed if these programs do not contribute to the brand’s equity. ii. Brand Revitalization There are a number of reasons why brand equity declines varying from: changing consumer preferences; emergence of new competitors and new technologies; or change in the (marketing) environment. However, even if brands end their commercial activity, they do not immediately lose their assets. The image of the brand often remains long-term in consumers’ memories; after years brands may still bring to mind a number of positive and negative associations. The key brand asset that is lost is the brand salience, the capacity of the brand to be evoked spontaneously in consumers’ mind as soon as the need to buy the product type appears (Kapferer, 2004). Research has shown that many mature brands have untapped potential. Companies should take time and effort to understand why these brands are fading in order to implement the right strategy to revitalize these brands. Once a mature brand is chosen for revitalization the key task is to get it back into the consumer’s mind. There are number of revitalization strategies, which are illustrated in figure 5.
The figure illustrates two mainstream brand revitalization strategies. One is that brands have to return to the basics to recapture the lost sources of equity. To the contrary, other brands have to change fundamentally (new sources) to regain lost ground.
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Figure 5: Revitalization Strategies
Increase quantity of consumption Expand depth and breadth of Identify additional awareness and opportunities to use usage of brand brand in same basic way Increase frequency of Identify completely consumptio Refresh old new and different sources of ways to use brand brand equity Brand Revitalization Strategies Retain vulnerable customers Create new Bolster fading sources of associations brand equity Recapture lost Improve strength, customers favorability and Neutralize uniqueness of negative brand associations associations Identify neglected segments Create new associations Attract new customers
Source: Keller, 2004
2.9 A Legal Perspective on Brand Equity One condition for sustaining a strong brand is brand protection. Although not mentioned in Keller’s model it is necessary to present some general information about brand protection. The legal perspective on brand equity will thus be discussed in this paragraph.
According to World Intellectual Property Organization (WIPO) ‘a trademark is a distinctive sign which identifies certain goods or services as those produced or provided by a specific person or enterprise’. It originates from ancient times when craftsmen reproduced their signatures or ‘marks’ on their artistic or utilitarian products. This concept evolved over time and has become the basis of today’s system of trademark registration and protection. A trademark provides protection to the owner of the mark by ensuring the ‘exclusive right’ to use it to identify goods or services, or to authorize another to use it in return for payment10.
10 WIPO, What is a Trademark?, www.wipo.org 27
The question may arise why trademark protection of brand elements such as logos, names and symbols is such a brand management priority? Counterfeiting has evolved massively over the last two decades. In China alone, 94 percent of all software units are believed to be counterfeited and 20 percent of western brand name products sold in China are counterfeit. For this reason legal protection is an essential part of sustaining the brand in the long-term.
Trade mark protection hinders the efforts of unfair competitors such as counterfeiters, who use similar distinctive signs to market inferior or different products or services. Registration of a trademark must be done by the national or regional trademark office in a Register of Trademarks. The effects of such a registration are limited to the country (or in the case of regional registration to the countries) concerned. World Intellectual Property Organization (WIPO) administers a system of international registration of marks which is governed by two treaties, The Madrid Agreement concerning the international registration of marks and the Madrid Protocol. There are sixty countries which are party to one or both agreements and therefore, trademarks are protected in these countries (Madrid Union).
Legally, the courts have created a hierarchy for determining eligibility for registration, presented in descending order11: • Fanciful (e.g. Kodak) • Arbitrary (e.g. Camel) • Suggestive (e.g. Everyday) • Descriptive (e.g. Ivory) • Generic (e.g. Aspirin) Fanciful brand names are the most easily protected since they are not easily copied because of their uniqueness. One main reason for the decay of the brand is when the brands become generic. In this case the brand name is considered a descriptive word, part of every day vocabulary with no distinctive properties and thus easily copied or counterfeited. Generic names are, therefore, not able to be protected. Brand names that are difficult to protect include those that are surnames, descriptive terms, or geographic names or those that relate to a functional product feature.
11 Keller, K. (2004), Strategic Brand Management, Third Edition 28
2.10 Chapter Summary Chapter 2 provides two main definitions of the brand equity concept i.e. customer-based brand equity and financial brand equity. Three approaches on the brand equity concept of well-known authors are described, each one from the author’s own perspective. In addition, some brand valuation measures are explored. Keller’s model, the Strategic Brand Management Process, is presented and used as a basis to explain the steps in creating and sustaining brand equity which, in fact, is the theme of this study. The various underlying key concepts, such as marketing strategies to build the brand and brand strategies to sustain the brand, are discussed to give more detailed information on how this process exactly should take place. Finally, some attention is given to the legal perspective of brand equity since brand protection is a condition for sustaining brand equity.
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CHAPTER 3 BRANDING AND BRAND MANAGEMENT IN SURINAME
3.1 The Macro-Economic Environment: Some Key Aspects Influencing Entrepreneurship Until 1996 the Surinamese economy could be characterized as a closed economy. After the removal of trade barriers for the CARICOM countries, Suriname faced the implications of an open economy for the first time. Since Suriname did not submit a separate tariff schedule for sensitive goods, the influence of this competition penetrated into almost all sectors. In addition, poor macroeconomic management resulted in hyperinflation and exchange rate fluctuations. The current government has been able to stabilize the exchange rate in the past four years because of a tighter monetary and fiscal policy and, therefore, were able to successfully launch the Surinamese Dollar in 2004. Consequently, the economy became increasingly dollarized as a result of the lingering effects on confidence hyperinflation, the liberalization of foreign exchange controls, bank lending regulations and reserve requirements that strongly favour foreign currency intermediation12. Presently, the economy still depends heavily on bauxite and gold; oil contributes substantially to the economy as well. Private remittances from abroad are another important source of cash inflows into the economy; however, these do not contribute to the macroeconomic development.
3.2 Competitiveness of Surinamese Businesses in General Although the nominal exchange rate has stabilized, the real effective rate appreciated by a cumulative 19% between August 2002 and December 2004, reflecting Suriname’s relatively high inflation rate13. This appreciation undermined the competitiveness of especially the non- mineral exports and local industries. Moreover, there is a large and inefficient public sector consisting of nearly 120 enterprises, accounting for 60% of the employment. The private sector consists mainly of small and medium enterprises (SMEs) of which the vast majority is relatively weak and underdeveloped due to; a lack of long-term funds against low interest rates; weak government support and incentives; a bad investment climate; and lack of specialized knowledge. Large enterprises are the result of foreign direct investment (FDI) or
12 International Monetary Fund (March 8, 2005) , Suriname Staff Report for 2004 Article IV Consultation; The Economist Intelligence Unit, Suriname Country Report (February 2005) 13International Monetary Fund Suriname (March 8, 2005), Staff Report for 2004 Article IV Consultation 30
are parastatals (government-owned companies or public enterprises). There are a number of large private enterprises (family businesses), which have grown over the years to larger businesses. Export is discouraged due to lack of good export facilities, bad infrastructure and tax policies. In addition, , given the fact that these regulations create unnecessary red tape, entrepreneurs in general consider government regulations as export barriers. To develop the private sector and especially the SMEs, Surinamese business development institutions developed closer working relationships with institutions within the EU and ACP countries to enhance the investment climate and to support and facilitate SMEs through low-interest rate funds and specialized knowledge through education. Additionally, the ‘Surinamese Business Forum’ was established in 2002 to provide business support to these SMEs and to create and implement strategies to make Surinamese businesses more competitive. Notwithstanding these developments, Surinamese companies, in general, are still very weak and do not focus enough on the opportunities within the CARICOM, focussing more on the local market.
3.3 The Role of Branding and Brand Management in Surinamese Companies After removal of the trade barriers for the CARICOM countries, the introduction of many new competitive products in the Surinamese market increased the awareness of Surinamese manufacturers to market their product in a different way in order to stay competitive. From 1996-2000, many SMEs collapsed because competition made retailers and consumers aware of another choice; therefore, shifting customer and consumer preferences. It was in this period when companies started to restructure and became leaner and meaner organizations. The role of marketing management became increasingly apparent, but, due to lack of specialized knowledge, marketing management became just the responsibility of the sales manager, especially within SMEs. In many companies these management disciplines are increasingly being separated because of the development of these specialized skills. This has improved the effectiveness of marketing practices within the Surinamese market on the one hand, but the emerging Surinamese market, on the other hand, does not allow for sophisticated marketing practices to be implemented in the same manner as in the more developed countries (MDCs). Investments in marketing programs and activities have augmented in the last five years; however, brand management as part of marketing management is still in its infancy.
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3.4 Brand Valuation in Suriname The financial market in Suriname is relatively underdeveloped. Approximately ten companies are listed on the stock exchange market; the value of stocks is as a general rule based on the market price. Due to the underdeveloped financial market the market price often does not reflect the fair value of the company; therefore, most companies valuate their assets based on the Discounted Cash Flow method (DCF method). Valuation of intangible assets such as goodwill as part of the market capitalization is still in an emerging stage. Intangible assets are valuated according to IAS standards. Goodwill is in general activated in the case of acquisition and licensing or franchising and the valuation of goodwill is also done according to DCF method. Financial brand equity is a very new concept in Suriname. Brand valuation, a tool for measuring financial brand equity, is still not a distinctive financial discipline but is incorporated in the valuation of goodwill. Goodwill (including the value of the brand) is only posted on the balance sheet for the relevant period until the value is completely depreciated.
3.5 Legal Framework for Brands in Suriname The law for trademark protection in Suriname originates from 1912. As many articles are outdated, a design law has been proposed and is still awaiting approval by the government. The law for first trademark registration is used worldwide as a starting point; however, in Suriname the law for first trademark usage is still applicable. The law for first trademark registration indicates that the producer or distributor who first registers its trademark at the bureau for intellectual property in that specific country has the legal right to carry the trademark for is products. To the contrary, the law for first trademark usage states that the producer or distributor who first produces or distributes the product has the legal right. Lack of awareness of this fact will result in a legal disadvantage over international companies. In addition, Suriname is not a member of WIPO which provides international guidelines for trademark registration and protection and assists in international trademark litigation cases. However, it is required that the manufacturer or distributor registers its products in every country wherein the product is marketed as a solid base for trademark protection. In summary, Suriname still faces many challenges if the legal trademark competitiveness and protection of Surinamese firms is to be increased.
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3.6 Characteristics of Surinamese Companies with Strong Local Brands Notwithstanding the disadvantages within the Surinamese market and even though brand management is still in an early stage of development, some local companies have been able to create and maintain strong brands. These companies distinguish themselves from other companies by the following main characteristics: • The majority of these companies have been established for decades and have been able to create brand heritage • These companies are often local market leaders in their specific target market • In general, these companies distinguish themselves from the competition by a good product and perceived quality. • There is a good customer-channel relationship • Management is more aware of the role and has a better understanding of the impact of marketing activities.
Presented below is a SWOT analysis, reflecting the common strengths, weaknesses, opportunities and threats of these businesses.
Table II: SWOT Local Companies with Strong Brands Strengths Weaknesses Strong brand name locally , brand heritage Weak brands in the global market, because of Good product quality, comparable to lack of international brand awareness, brand international high quality imported products recognition Transfer of knowledge, technology for Management awareness of the value of the manufacturing companies operating under a brand (brand equity) license Still some monopolistic vision because of late Ethnic related (real Surinamese, exotic) products entrance to the CARICOM, resulting in inertia allows for product differentiation. Basis for a No modern infrastructure within and outside the competitive advantage in the global market company, lack of capacity Too much focus on the small local market, resulting in no economies of scale Still inefficiency within the operations, High cost structure Shortage of skilled employees
Opportunities Threats Caricom market, larger market available (export Free Trade Area of the Americas (FTAA) or establish own subsidiary) Legal (Brand) Protection Niche market (European). Products are Export Facilities considered exotic Government regulations Source: Researcher’s Assessment
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3.7 Background of Companies participating in the Research Six companies with strong established brands participated in this study. The table (III) below provides relevant background information of these firms.
Table III: Key Indicators Participating Companies Company No. of Yearly Market Estimated Main Name Employees Revenue Segment Total Brands in (2004) in Market Brand US$ x 1000 share Portfolio Surinaamse 84 20,000 Beer 87% Heineken Brouwerij (international brand) Parbo Beer, Parbo Power Stout, Parbo Chiller CIC 125 9,000 Detergents 60% Witboi, (NV and Ozon, Sun, Consolidated Plastics Klinol Industries Corporation) MAVEFA 35 2,500 Butter, 90% Marigold, (Margarine en Margarines Golden Vetten Brand, Fabriek) Gelebek, Bake ‘n Fry SAB 70 15,000 Alcohol, 70% Marienburg (Surinam Rum Rum, Alcohol and Borgoe, Beverages) Black Cat, Ponche Campos Fernandes 250 24,000 Carbonated 75% Coca Cola, Bottling Soft Fanta, Sprite Company Drinks (international N.V. brands) Fernandes Soft drinks, Fiesta Fernandes 320 11,000 Bread, 50% Fernandes Bakery Pastry and Bread and Snacks Pastry, Tesa Fesa, Krie Kra.
Source: Yearly Reports 2003, 2004 of Participating Companies; Research Results
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Except for MAVEFA, these private enterprises are considered large companies within the Surinamese market. They collectively provide employment to approximately 1000 employees and earn 90 million US$ on revenues, which is a considerable contribution to the Surinamese private sector. These enterprises are market leaders in their respective market segments. The oldest local brands in the product portfolio of these businesses are: Parbo (50 years), Witboi (40 years), Gelebek (40 years), Fernandes soft drinks (60 years), Fernandes bread (35 years) and Marienburg Rum (50 years). Both Fernandes Bottling Company as well as the Surinaamse Brouwerij, a local brewery, carry internationally strong brands that is to say Coca Cola and Heineken. These two companies are also involved in a strategic partnership for sales and distribution. This gives them both the opportunity to share marketing knowledge with the licensee as well as local market knowledge with each other. Some brands in the brand portfolio are exported to the CARICOM, Europe and other countries within the Caribbean or South America. On a global scale Surinamese brands are still very small and relatively unknown; nevertheless, some brands were able to successfully penetrate niche markets. Two examples are the franchising of the Fernandes brand to the Coca Cola Company in the Netherlands and the export of the Ozon line from CIC to Trinidad (CARICOM).
3.8 Chapter Summary In Chapter 3, influences of the Surinamese macro environment on businesses and its effect on competitiveness of these businesses are described. Furthermore, branding and brand management in the Surinamese context are discussed along with some other key aspects of brand equity i.e. brand valuation and brand protection. Characteristics of companies that own strong brands, in general, and relevant background information of those that are participating in this study are also presented in this chapter.
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CHAPTER 4 RESEARCH MODEL AND METHODOLOGY
4.1 Research Model for Creating and Sustaining Brand Equity As discussed in the aforementioned sections, branding and brand management in Suriname are still in an emerging stage. Nevertheless, a number of Surinamese manufacturing companies have been able to build strong brands over time and thus have created strong brand equity. The question is what steps and strategies where taken and implemented to create and maintain these strong brands (brand equity). Keller’s model, as discussed in chapter 2.4, illustrates four key steps i.e.: • Creating brand equity • Building brand equity • Measuring brand performance, equity • Sustaining brand equity These steps are of great importance in the process of sustaining the brand in the long-term in a successful manner. Within every step key underlying concepts as described in chapter 2.5 to 2.8 form the ‘building blocks’ of this model. However, is this model and all of these concepts fully applicable for creating and sustaining brand equity within these Surinamese manufacturing companies? First, the following research model in figure 6 is proposed to systematically indicate which relationships and whether correlation exists between the variables in the research unit.
Figure 6: Research Model for Creating and Sustaining Brand Equity Long-Term
Brand Building Sustaining Brand Long Term Brand Creation Brand Equity equity
Measuring Brand performance, Brand equity
Source: Researcher’s Appraisal
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Based on the above-mentioned figure the following relationship is assumed between the variables: The independent variable in this model is brand equity creation and the dependent variable is long-term brand equity. Unless a brand is created, the brand cannot be built nor sustained. The two variables building and sustaining brand equity are sequential steps and are mediating variables. Brand equity will be sustained in the long term if relevant marketing and brand strategies, which are the underlying concepts of these variables, are implemented effectively. Between all the steps it is necessary to continuously measure the brand performance to be able to identify whether the brand-building process is on the ‘right track’. This variable is the moderating variable and this proposed model will be the basis for conducting the research.
4.2 Research Approach and Strategy The main approach for this study is the inductive approach; however, there are some elements of the deductive approach included. The inductive approach states that data should be collected and theory should be developed as a result of your data analysis. To the contrary, the deductive approach involves the development of a theory from an existing theory which is subjected to a rigorous test. One element frequently used in the deductive approach and is also used in this study is the survey method; however, prior to the actual survey, in-depth interviews were conducted to get a feel for key issues. Another element is the use of a theoretical framework; the reason for the use of this as a foundation for this study is because there are certain advantages attached to this strategy. First, it links the research with the existing body of knowledge and provides an initial analytical framework (Saunders et al., 2003). Furthermore, since brand equity is a relatively new concept internationally and very new (or generally unknown) in Suriname it would become too complex to establish a self- developed theoretical framework. Therefore, a research model was created and based on this model, this research was conducted. The variables within this model and their key underlying elements were used for the formulation of the questionnaire.
As already stated, the focal point in this survey is on manufacturers that manufacture products with strong brands, which are fast-consumer goods. Brands of services or durable goods were not included in this research.
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4.3 Data Collection This research can be considered an exploratory study since brand equity is a very new concept within the Surinamese market. In general, exploratory studies are valuable means of finding out ‘what is happening; to seek new insights; to ask questions and to assess phenomena in a new light’ (Robson, 2002:59). Therefore, in this study no hypothesis is formulated; only research questions are used. The aim is to present a theory (or hypothesis) based on the findings of this phenomena in this new perspective. A small sample was chosen based on the purposive or judgmental sampling method. This sampling method enables you to use your own judgment to select cases that will best enable you to answer your research question (s) to meet your objectives. A variant of this sampling method is homogeneous sampling which focuses on a particular subgroup in which all the sample members are similar (Saunders et al, 2003). In this research the sample consists of six companies with strong local brands. These companies have various characteristics in common which are described in chapter 3.
Various activities were completed during the data collection process, which comprises of the following steps: 1. A desk research was done to identify the theoretical framework of this topic. Data for the literature study was retrieved mainly from primary and secondary sources i.e. white and research papers and books. Articles from the internet were another source of information. 2. A survey among senior managers was conducted since brand equity is considered a strategic issue and, therefore, the responsibility of top management. The following approach was used: • In-depth interviews and brainstorming sessions with three senior managers (or brand/marketing managers) were completed as a pre-test to determine key questions and identify errors within the questionnaire. • The questionnaire used is a structured (and for the additional viewpoints a semi- structured) questionnaire; however, respondents were given the opportunity to add relevant viewpoints on the various topics. It was considered necessary to structure the questionnaire to guide the process of information collection and to stay within the relevant empirical framework related to the theory. The questions were mainly open- ended questions to get as much information as possible since the brand equity concept is relatively new in Suriname. Furthermore, closed questions were included especially
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for the more specific brand equity and strategy questions because more specific information was also required. In general, it is assumed, however, that closed questions could influence the outcome of the survey so the open-ended approach was chosen primarily. • The interviews were done face-to-face several days after the respondents received the questionnaire by mail or e-mail. The questionnaire was sent in advance to give senior management the opportunity to assess the brand management and brand equity policy of the company. The information was primarily gathered based on management experience or fragments of business plans. A glossary of terms was included to ensure clarity on the various concepts of brand equity.
4.4 Data Analysis Procedure The data was processed in an access data base. First, a content analysis was conducted; qualitative data was categorized and then summarized in frequency tables (see appendix L). Data that could not be categorized but was still useful are integrated as comments in the analysis. The categorized data was used to find similarities and trends and was a base for stating key findings of the research. A gap analysis will be done (in chapter 5) to determine the gap between relevant theories and the outcome of the survey. Based on the gap analysis, strategies and recommendations will be developed. In the next paragraphs the key research results will be discussed.
4.5 Limitations of the Research Methodology The following limitations were encountered because of the chosen research methodology: 1. Even though a glossary of terms was included there was still some ambiguity because of the general lack of knowledge of the brand-equity concept. This was minimized during the face-to-face interview. However, due to lack of information within the company some questions could not always be completed in a satisfactory way 2. The process of categorizing and summarizing qualitative data is very complex; therefore, only key information relevant to this study was processed and presented. 3. The outcome of this research does not allow generalization for the complete manufacturing industry in Suriname, principally because of the small sample size.
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4.6 Chapter Summary A self-developed conceptual research model for creating and sustaining brand equity was presented in this chapter. This model is the foundation for conducting the research. Furthermore, the research approach, strategy and data collection process, and the limitations of the research methodology were discussed.
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CHAPTER 5 RESEARCH RESULTS
The data was analysed based on the findings of the research questionnaire. Frequency tables with the results relating to the questions are illustrated in appendix L. The frequencies within these tables are not used to provide a general statement for the complete Surinamese manufacturing industry. The results are used to give an overview of the status of the brand equity concept, the management and brand strategy development within these companies.
An overview of the key findings of this research is presented below.
5.1 Awareness of the Status and Role of the Brand In general, management is aware of what the brand stands for and the role of the brand. Table IV presents the main roles these brands fulfil within these companies.
Table IV: Roles that Brands Play in Participating Companies Surinamese Manufacturers Income Generator Identification Brand meets customer needs (product & personality) Provides Quality to customers & consumers Source of Pride Risk Reducer Increases recognition and awareness Association with the company Distinction from competitor Source: Research Results
The relevance of the brand to the mission and vision is clear for management and thus integrated in the company strategies. According to these companies the brand enhances the company image, contributes substantially to profitability, growth and continuity, provides strategic direction and is a symbol of quality and trust. The main competitive advantages for these companies are brand heritage, the price-quality combination and the brand as a symbol of national pride because it is considered real Surinamese and exotic. All companies are aware of owning strong and strategic brands. The arguments put forward mainly focus on high brand awareness and recognition, contribution to sales, profit and growth and market share and leadership.
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5.2 The Brand Creation Process The study shows that: • Brand names are chosen without prior study about the limitations of that particular brand name. Most companies had their first brand name chosen through a public poll and it is said that this was a trend in the early days. These brands can be considered unique because they cannot be easily copied; most have existed for 40 years or more and have a strong brand heritage. On the other hand, in some instances new brands that were introduced after the first brands, appeared to be too generic. • There is no evidence that in the brand creation process companies start off with a proper brand positioning and identity. The current positioning statements of most companies only refer to the position in terms of market share within the target market. The consumer benefit and reason to believe which, in fact, respectively reflects the aspect of ‘difference’ creates the preference and the choice of a decisive competitive advantage, according to Kapferer, are not integrated in the positioning statement. The core promise of the brand is lacking in most positioning statements. • In the brand creation and building process it is of great importance to know what the consumer expects. Most of the companies say they are aware of the relevance and do measure these expectations. It is noteworthy that the research shows that, according to management, these expectations focus more on the tangible aspects of the brand, for example the quality, the price-quality combination and the taste. Only two companies attach an emotional value to the brand (e.g. association with lifestyle). This is actually part of the intangible aspect of the brand (equity) and should be integrated into the core promise to the consumer.
5.3 Management of the Brand A few tools are used to manage the brand. One relevant observation is that half of the companies do not have a marketing or brand manager who is responsible for the branding policy and management of the brand portfolio. Another finding is that brand valuation is a very new concept and is thus not used as a means to manage the brand. Most companies state that they have a brand plan and brand objectives. The main brand objectives according to the companies are: • To remain relevant for the target group (current & new generations); • Growth in sales volume and brand image and increase market share;
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• To maintain market leadership; • Profit generation; • To increase brand preference.
5.4 Measuring Brand Performance Most companies measure their brand performance mainly through sales trends which, in fact, is just a basic measuring instrument. Research is conducted essentially to receive more information on consumers and their expectations. Specific measurement tools to track particular customer-based brand equity elements are lacking. There is also no continuous cycle of tracking brand performance. Only two of the six companies conduct an exhaustive yearly consumer research.
5.5 Knowledge and Status of Brand equity
5.5.1 Customer Based Brand Equity All customer-based brand equity elements received a reasonably high score. The estimated brand equity assets are (based on Aakers’ approach on brand equity): brand awareness, brand loyalty, perceived quality and brand associations. The average percentage ranges for brand awareness are between 80 – 100%, for brand loyalty between 30 – 90% and for perceived quality between 50 - 90%. This means that the vast majority of the target market is aware of the brand however fewer consumers are loyal to the brand. The brand is by and large perceived as a high quality product, which is a core strength and source of competitive advantage. Brand associations are not commonly in use, but in cases where they are implemented, the companies have a relatively high score. Figure 7, 8 and 9 depict three graphs showing the estimated brand equity assets (excluding brand association) per company.
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Figure 7: Brand Awareness Main Brands Participating Companies
Brand Awareness Main Brands
120 100 95 100 90 90 90 80 80 % 60 40 20 0 Sur. Brouwerij CIC MAVEFA SAB Fern. Bottl. Fern. Bakery company
Source: Research Results
Figure 8: Brand Loyalty Main Brands Participating Companies
Brand Loyalty Estimates Main Brands
100 90 90 90 80 80 70 60 60 60 % 50 40 30 30 20 10 0 Sur. Brouwerij CIC MAVEFA SAB Fernandes Fernandes Bottling N.V. Bakery Company
Source: Research Results
Figure 9: Perceived Quality of the Main Brands of Participating Companies
Perceived Quality Main Brands
90 100 85 85 80 80 70
60 50 % 40
20
0 Parbo CIC M A V EFA SA B Fernandes Fernandes Bottling Bakery N.V. company
Source: Research Results 44
5.5.2 Financial Brand Equity None of the companies put the value of the brand as a separate intangible asset on their balance sheet. As already mentioned, brand valuation is not a method to manage the brand. All companies believe it is a useful concept since the brand is internationally considered a valuable intangible asset and can be used in strategic decision making. According to one company it is an interesting concept, however, of little value in daily practice. The methods mainly preferred if the brand is valuated, are the DCF and market price method, since the companies feel it will better reflect the future value potential of the brand. The brand value as part of market capitalization varies from 40 – 70%. Figure 10 depicts an overview of the brand value as part of the market capitalization for these companies. The graph reveals the contribution of the main brand to the companies’ assets. The main brands considered in this graph are: Parbo (Surinaamse Brouwerij), Ozon (CIC), Golden Brand (MAVEFA), Marienburg Rum (SAB), Fernandes soft drinks (Fernandes Bottling Company), Fernandes Bread (Fernandes Bakery). Other brands within the brand portfolio are not considered because of the complexity of valuating the brand and because this is not common practice within these companies.
Figure 10: Brand Value Breakdown Main Brands Participating Companies
Brand Value Main Brand as part of Market Capitalization
100 90 40 40 40 40 80 60 70 70 60 % 50 40 30 20 10 0 Sur. CIC MAVEFA SAB Fernandes Fernandes Brouwerij Bottling N.V. Bakery Company
Net Assets Brand Value %
Source: Research Results
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5.5.3 Legal protection of the brand All companies are registered locally and only those companies that export are registered at the country of destination. Almost all companies (four) with export brands face the problem of legal acceptance or trademark registration since some brand names appear to be too generic. In some instances they were confronted with litigation cases because the name was already registered by a third party. For example, Parbo lost its trademark in the Netherlands to a third party who was at first a distributor and then continued the registration even though the distributorship ended. This gave him the advantage of using the brand name and the Surinaamse Brouwerij lost the case.
5.6 Building and Sustaining the Brand
5.6.1 Brand Architecture Many companies use a mix approach of brand architecture strategies. The strategies were, in general, not intentionally chosen or chosen with a strategic direction in mind. Brands which were introduced later, however, received a different approach as the companies were aware of the value potential of the brand name. Especially, brand awareness and the ability to create more leverage on the current brand names were the main drivers to use current established brand names for brand extensions within for example a range brand strategy (OZON, Borgoe are two examples). Two-tier brand architecture strategies are a relatively new concept for most of these companies. Two companies indicated that one of these strategies, namely, the endorsing brand strategy is used. Based on the researcher's observation it could be stated that these strategies are not well developed and well promoted. According to these companies the benefits of using a particular brand architecture strategy are: • The ability to create (or get more) leverage on an existing brand name (Line, range, umbrella brands) • Reduction of marketing cost (Line, range, umbrella brands) • A high level of brand awareness and brand recognition in the market (Line, range, umbrella brands) • Less risk that another brand name could be damaged (product brands).
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5.6.2 Marketing and Brand strategies i. Strategies implemented at the launch Strategies at the launch indicated that simple marketing programs were used. The main strategies implemented were: intensive channel distribution, dealer incentives, in-store promotions and house-to-house campaigns. In fact, the main focus was a simple method of relationship marketing and the use of indirect channels. ii. Strategies in times of change and over time During the CARICOM free trade introduction period not all companies changed their strategies since they were convinced it did not directly affect their businesses. Other companies had to change their strategies because of the intensive competition. The main strategies were: 1. Brand revitalization and brand reinforcement to renew the look in compliance with international standards and then followed by promotion of the brand 2. Brand extensions. Examples of these local brand extensions are: Golden Brand Slim, Fernandes Light, Borgoe Extra or Black Cat Limon. 3. Improved quality level All companies consistently implemented at least one strategy over time; the most relevant strategies were: • Investment in the brand in both good and bad times • Focus on distinctive (exotic) core values (real Surinamese product, brand) and communicate them • Consistency in communication, advertising and promotion • Leverage on a international brand to build the local brand (two companies with international brands in the brand portfolio) • Emphasis on quality iii. Current & Future Strategies Current and future brand strategies focus especially on brand extensions and finding new sources of brand equity (new markets and users). All companies currently use a mix of various brand and marketing strategies such as advertising, promotions, and loyalty programs. The researcher observed, however, that these marketing programs are not deployed sufficiently at the brand level. The focus is more on building knowledge of the brand, but the development of the specific brand equity assets are still insufficient. 47
5.7 Chapter Summary The key findings of the research are presented in chapter 5. The results first focus on the awareness of management about the role of the brand. Further, the results of the process of brand creation and managing the brand are discussed. Brand equity estimates are presented to give an indication of how strong the brands are perceived by management. Finally, the strategies used to build and sustain the brand were presented.
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CHAPTER 6 GAP ANALYSIS AND IMPLEMENTATION
6.1 Gap analysis The table (V) presented below will focus on the gaps identified between the four steps within the research model presented in chapter 4.1 and the research results discussed in chapter 5.
Table V: Gap Analysis Steps Key Concepts Current Status Action points to be within Surinamese implemented companies Brand Equity Brand Identity The brand identity is Develop brand Creation not specified. The identity. Create focus is more on emotional values to tangible aspects of establish attachment brand, product. to the brand
Brand Positioning Brand positioning Position or reposition statement is lacking or the brand. Define focus only on position positioning statement. within the target market
Building Brand Implementing Marketing programs Deploy strategies at Equity Marketing, brand are being brand level based on programs and implemented. Specific specific consumer strategies brand programs are needs there. In researcher's opinion insufficient Measuring Brand Brand measuring Use of simple brand Conduct exhaustive Equity tools: measurement tools: market research to get Brand audit through sales specific knowledge on Brand value chain information and status brand equity Brand tracking limited consumer assets to be able to Brand management research. improve brand equity system Insufficient use of brand management Implement a brand tools, responsibilities equity management policy
Financial Measure: No financial brand Introduce appropriate Brand Valuation valuation financial brand valuation method
Sustaining Brand Brand architecture Brand architecture is Get insight into brand Equity strategies not intentionally architecture and chosen. More structure of brand knowledge on portfolio to be able to management level is make better strategic needed to define what brand decisions the appropriate brand 49
architecture strategy is or to build on existing architecture strategy to be able to sustain the brands and determine good brand strategies
Brand Revitalization In general, brand Adjust if necessary and revitalization of most revitalization Brand reinforcement brands were strategies to maximize successful brand life time
Brand reinforcement Implement proper mix in a developing stage of brand reinforcement strategies Other Relevant Legal Brand Brand protection Government action aspects needed to protection: through local needed to become build and sustain Trademark protection registration and in member of brand equity country of destination international trademark organization and to upgrade current trademark protection law. Companies should not only protect names but logos and other proprietary assets of the brand
Brand Management Part of sales, Upgrade or hire marketing manager's specialized skills and responsibilities assign responsibilities or no brand manager assigned
Source: Researcher’s Assessment
6.2 Impact of Identified Gaps on Brand Management and Brand Equity The table illustrates that there is a gap between what is considered necessary to create and build brand equity in the long-term and the actual situation. According to the analysis, the steps taken by these companies do not fully comply with the activities, programs and strategies suggested in the four-step model. In summary, the table reveals the following: • In general the brands are strong, but the brand is not clearly positioned and the brand identity is not clearly formulated. As already mentioned in chapter 2.5 the brand identity consists of associations which represent what the brand stands for and imply a promise to
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customers from the organization members. Moreover, the positioning statement gives an indication of the distinctive characteristics against the competitors. Without a clear brand identity and positioning, strategy formulation can become very ambiguous, therefore, having a negative impact on the further implementation of brand strategies • The brand was built by implementing particular marketing strategies, but there is insufficient focus on building the brand by implementing specific brand strategies, in other words, the strategies focus more on selling ‘the product’ rather than ‘the brand’. The implications will be that even though there is currently a high level of brand loyalty there will be no emotional (or personal) attachment to the brand, therefore, weakening the basis to elevate the brand and to fulfil personal customer needs • There are merely simple tools used to measure the brand and little or no responsibilities assigned to manage the brand. Development of the brand and therefore brand equity could stagnate since there is neither management nor tracking tool plus necessary changes in strategies could not be revealed nor could changes be adapted. • The customer-based brand equity assets are considered high, however, there is no financial measure attached to the brand, hence, strategic decisions to build these assets could be made based on ‘feelings’ instead of proven financial measures. In addition, the brand value as part of the market capitalization indicates that the brand contributes substantially to the company’s assets. The challenge should be to improve these levels of brand value, therefore enhancing the shareholders value. • Decision making on current brand architecture is not structured, however, through experience management is aware of the benefits of these brand architecture strategies. Further decision making on whether to optimize brand leverage through for instance brand extensions because of the already existing brand equity or to introduce new brands could be injudicious • Current and future strategies focus on brand extensions and finding new sources of brand equity. Without knowledge about which brand equity assets should be built or sustained, decision making on the most suitable strategy could be again misguided. New opportunities might be overlooked since information is not available. • As already stated in chapter 3, Surinamese companies, in general, will have a legal disadvantage over international companies if the local trademark law does not comply with international trademark standards. The result of this disadvantage is that many companies will lose this long-term brand equity that has been built over time. The
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probability of losing their trademark is very high if there is no uniformity with international standards.
The aforementioned gaps and their implications are generally applicable for all six companies. Certain aspects within the brand management and brand strategies of a few companies are better developed than others, so some gaps are not in all cases applicable.
The action points within the table are preliminary guidelines for the recommendations.
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CHAPTER 7 CONCLUSIONS AND RECOMMENDATIONS
7.1 Introduction The aim of this study was to find out the role and value of branding within Surinamese manufacturing companies. Furthermore, the researcher sought to assess the brand creation, management and building process within these companies. The question raised in this perspective was how strong local brands were created and long-term brand equity was built over time. The research results and the gap analysis were presented in chapter 5 and 6. In this chapter the conclusions and recommendations based on these findings will be presented. Also implementation strategies and suggestions for further research will be discussed.
7.2 Conclusions Suriname is an emerging market where brand management is still in its infancy. Before Suriname’s entrance to the CSME, the business market was characterized by monopolies. Because of the competition of CARICOM products, the need for differentiating and the need to improve the levels of marketing and brand activities became increasingly apparent. Notwithstanding the intensive competition, local companies were able to build strong brand equity over time. The research results have proven that management is conscious of the high levels of customer-based brand equity assets (brand awareness, brand loyalty, perceived quality and brand associations) of the brand in the market. In addition, the brand value as part of market capitalization shows that the main brand contributes substantially (between 40 and 70%) to the market value of the company.
In general, management is aware of what a brand is and the role of the brand but there is insufficient awareness that the brand is an intangible asset that can provide long-term value and a sustainable competitive advantage. For this reason the brand is not fostered and managed in order to generate maximum brand equity. Often the focus is on short-term profitability and even though continuity is also considered an objective, this has more to do with ‘the product’ than with the ‘brand’.
The research further shows that the brand creation process started without studies of the implications of a brand name and without a good brand positioning statement or brand
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identity. This may be the main reason why strategies are not well-developed at the brand level. In addition, lack of knowledge and management experience with brand management and brand equity policies play an important role. The brand portfolio is managed with simple tools and brand equity assets are, in general, not measured. Moreover, in certain instances there are no managers appointed to manage the brand.
Nevertheless, the strong brand equity established by these companies provides a solid base for further elevation of the brand. Current and future strategies focus especially on brand extensions and finding new sources of brand equity i.e. new users and new markets. Therefore, the conditions to sustain this brand equity must be set in order to maximize brand leverage. A further discussion on the relevant aspects to be successful in this assignment can be found in the recommendations.
7.3 Recommendations Before presenting the recommendations, it might be useful to take into consideration the key aspects that could have led to the establishment of this long-term brand equity within Surinamese enterprises. Based on the results and background information the researcher suggests the following reasons: • First, the closed economy allowed local brands to obtain an established position over time. There were little or no import products, so consumers were merely aware of other than local brands and therefore loyal to local brands • When the CARICOM products came in, there was already a certain level of brand loyalty gained; hence, giving local brands an advantage over imported brands. Additionally, these companies generally adapted to the market change through brand reinforcement and brand revitalization and by improving the product and brand features according to international standards. Consumers reacted positively to this change and the majority stayed loyal to the brand. • Furthermore, the power of old brand names played an important role. Before opening up to the CARICOM, therefore increasing the availability of international competitive brands, the local companies were able to establish brand heritage. According to Aaker (2000), the establishment of a strong name anchored by high recognition creates an enormous asset. The asset gets stronger over the years as exposure and experience grow.
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As a result, a challenging brand – even with enormous advertising budget and superior product or service – finds it difficult to fight its way into the memory of the customer. • The high quality of these local brands and the high level of perceived quality contributed to brand preference over time. • Within the emerging Surinamese market the use of simple marketing activities such personal and good channel relationship, in-store promotions, dealer incentives and house- to-house campaigns were adequate to build the brand and ultimately stronger brand equity. The need for sophisticated marketing tools was not relevant back then, furthermore, consistent implementation of these strategies enhanced brand equity.
This study disclosed various areas of improvement in the brand-equity building process. Based on the study findings, the researcher suggests the following recommendations, which can be implemented in phases as presented in figure 11 on the next page.
One critical condition in sustaining brand equity is to establish a proper legal framework. The current Surinamese trademark law must be improved and updated. Moreover, Suriname needs to become a member of an international organization for intellectual property rights for assistance in trademark protection. This is a responsibility of the Government; however, local businesses must support or continuously require that this process should be put in place.
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Figure 11: Phases for improved Long-Term Brand Equity in Surinamese Companies
Phase 1 Establish or improve brand management system within the company by: • Assigning responsibilities for brand management
• Training of responsible managers in specialized skills
• Introduction and improvement of the brand equity policy within the company
Phase 2 Improve customer- based brand equity
• Reposition or define the position strong mature brands and strategic brands; create brand identity if lacking
• Screen the current brand portfolio and decide on the company’s brand architecture strategy. A useful tool might be the brand product matrix and the brand hierarchy for this assessment.
• Define marketing and brand strategies at each brand level after positioning and defining the brand identity. Make strategic decision on what the long-term brand strategy should be for the complete brand portfolio
Phase 3 Establish brand equity measurement system
• Implement relevant financial brand valuation methods to measure the level of financial brand equity
• Introduce specific brand equity measures (for example establish an incentive for responsible management) to improve the levels of the customer- based brand equity assets in the market
• Implement a continuous brand measurement system to track the brand performance (brand audit etc)
Phase 4 Continue Brand Reinforcement and Brand revitalization
• Continuous reinforce the brand by implementing special designed brand strategies and programs
• Revitalize mature brands if necessary
Source: Researcher’s Assessment
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7.4 Constraint Envisioned The emerging Surinamese market is characterized by underdevelopment in many areas. In this context this involves less-developed marketing research companies, an underdeveloped stock market and lack of adequate training programs for specialized skills. In addition, sophisticated international consumer marketing programs and brand strategies are not yet applicable in the local market. The legal foundation for intellectual property protection can also be considered a hurdle if proactive actions are not taken by the government. The above- mentioned reasons can be impediments in the process of elevating brand equity resulting in a more disadvantages compared to international companies with strong brands.
7.5 Implementation Strategies In order to implement the recommendations, bearing the impediments in mind, the following strategies to improve the brand equity management within local companies can be considered: • Companies operating under a franchise could share knowledge with other local companies. For instance, Fernandes Bottling Company operating under the Coca Cola franchise is already sharing knowledge with the Surinaamse Brouwerij, which also operates under the Heineken franchise. These companies have an advantage in that international companies with strong brands are actively involved in the determination of marketing and brand strategies, therefore enhancing the brand equity building process. The knowledge gained can be very useful for managing the self-developed brands within the brand portfolio. • Strategic alliances with larger companies on a global level or within the CARICOM to share knowledge. Companies that are relatively small can start strategic alliances with international companies. One area of collaboration could be sharing marketing and brand strategy knowledge while the local company provides local market knowledge. • Franchising of local brands to other larger companies and sharing experience in the international market. For example, Coca Cola Netherlands and the Fernandes franchise: Marketing knowledge and the brand equity building results in the international market can be shared
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• International consultancy in collaboration with local brand management. This option has the advantage that local management is directly involved in the process of defining brand equity policies and to work on self-developed brand strategies • Hire specialized skills to set up the framework for brand equity management and policies and train local management on the job.
A mixed approach of above-mentioned strategies may be useful but this depends primarily on the branch of the business and available opportunities.
7.6 Directions for further Research This study can be considered a start off since the concept of brand equity is fairly unknown. This was experienced when conducting this research as explanation was required in most cases for this concept. This study could be extended on a total market scale to be able to know the exact brand equity status for local companies. Brands of services and producers of non- fast consumer goods could be included. In order to define brand equity policies, strategies and a brand equity measurement system within the company, the exact levels of the brand equity assets should be assessed by a consumer survey.
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REFERENCES
Aaker, D.A. (1991), Managing Brand Equity: Capitalizing on the Value of a Brand name, The Free Press, New York
Aaker, D. A. (1996), Building Strong Brands, The Free Press, New York
Aaker, D. A and E. Joachimsthaler (2000), Brand Leadership, The Free Press, New York
Benson J. and Bret Kinsella, Is Your Brand Going to Graduate or Be Stuck in Adolescence? ,
Benson J. (2004), Brand Heritage: a Master Brand Builder,
BBDO Consulting GmbH (November 2001), Brand Equity Excellence, Volume 1: Brand Equity Review,
BBDO Consulting GmbH (August, 2004), Brand Equity Drivers Model Volume 3,
Blacklett T., Interbrand (April 2004), What is a brand?, A Chapter from Brands and Branding, An Economist Book,
Bonham, M. et Al (2005), Ernst & Young, International GAAP 2005: Generally Accepted Accounting Practice under International Financial Reporting Standards, Lexis Nexis, London
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Brand Finance (July/August 2003), Into the Great Unknown, Valuing your brand in times of Accounting Standard Change,
Brand Finance (June 2000), Current Practice in Brand Valuation,
Brymer Ch., Interbrand (April, 2004), What Makes Brands Great,
Building Brands Limited, Did You Know?, Seven Applications of Brand Valuation,
Building Brands Limited, Did You Know? Brand Valuation: The Seven Components of Brand Strength,
Business Week (August 9-16, 2004), the Best Global Brands: Our Annual Ranking of The Top 100,
Clifton, R., Interbrand (April 2004), The Future of Brands: A Chapter from Brands and Branding, An Economist Book,
Doyle, P. (January 2001), Shareholders-Value-Based Brand Strategies, Henry Stewart Publications 1350-231X Brand management vol.9, no.1, 20-30 September 2001,
Evans D., (2004), Brand management and protection,
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Haigh, D. (2004), Connecting ‘Brand Equity’, Brand Economics and Brand Value, Special World Marketing Association Edition, Singapore Nanyang Business Review, Vol. 2, No. 1 January – June 2003, http://www.brandfinance.com/docs/articles_brand_val.htm, Accessed: April, 2005
Interbrand (2001), Interbrand World’s Most Valuable Brand’s 2001 Methodology,
International Monetary Fund Suriname (March 8, 2005), Staff Report for 2004 Article IV Consultation; Prepared by the Staff Representatives for the 2004 Consultation with Suriname, Approved by Christopher Towe and Michael Hadjimichael
Kapferer, J. (1997), Strategic Brand Management: Creating and Sustaining Brand Equity Long Term, 2nd edition, Kogan Page Limited, Great Britain
Kapferer, J. (October 1, 2004), The New Strategic Brand Management: Creating and Sustaining Brand Equity Long Term, 3rd edition, Kogan Page, London
Keller, K.L. (2003), Strategic Brand Management: Building, Measuring and Managing Brand Equity, 2nd Edition, Prentice Hall, Upper Saddle River, New Jersey 07-458
Lindeman, J., Interbrand (April 2004), Brand Valuation: A Chapter from Brands and Branding, An Economist Book,
Milligan A. and Shaun Smith, Forget Best Practice, Think Uncommon Practice,
Saunders M., Philip Lewis and Adrian Thornhill (2003), Research Methods for Business Students, 3rd edition, Pittman Publishing Imprint, United Kingdom
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The Economist Intelligence Unit, (February 2005), Country Report Suriname, United Kingdom
Turner J. (November 2000), Valuation of Intellectual Property Assets, Valuation Techniques: Parameters, Methodologies and Limitations, FAIM, WIPO/INN/DDK/00/5(a), http://wipo.int , Accessed: March, 2005
Oakner, L., Interbrand (November, 2004), Don’t Let your employees be the last to know: Managing your brand through employees,
Velde van der, M., Paul Jansen and Niel Anderson (2004), Guide to management Research Methods, 1st edition, Blackwell Publishing Limited, United Kingdom
WIPO (2005), What is a trademark?, www.wipo.int/about-ip/en trademarks.html, Accessed: March, 2005
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APPENDICES
APPENDIX A: AAKER’S BRAND EQUITY MODEL
Reduced Marketing Cost
Trade Leverage
Brand Loyalty Attracting New Customers - Create Awareness - Reassurance
Time to Respond to Provides Value to Customer by Enhancing Competitive threats Customer’s:
- Interpretation/ Processing of Anchor to which other Associations Can Be Information Attached - Confidence in Brand Familiarity Linking Purchase Decision Awareness Signal Of Substance/ Commitment - Use Satisfaction
Brand to Be Considered BRAND EQUITY
Reason-to-Buy Provides Value to Firm by Enhancing: Differentiate/Position
Perceived Price - Efficiency and Quality Effectiveness of Channel Member Interest Marketing
Extensions Programs
- Brand Loyalty
- Prices/ Margins Help Process/ Retrieve Information - Brand Extensions
Brand Differentiate/ Position Associations - Trade Leverage Reason-to-Buy - Competitive Create Positive Attitude/ Feelings Advantage
Extensions
Other Proprietary Competitive Advantage Brand Assets
Source: Aaker, 1991
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APPENDIX B: KELLER’S BRAND EQUITY MODEL
Brand Knowledge
Brand Image Brand Awareness
Uniqueness Strength Advantage Types Brand Brand of of of of Recall Recognition Associations Associations Associations Associations
Source: BBDO, Brand Equity Excellence, Volume 1: Brand Equity Review, 2001
APPENDIX C: KAPFERER: FROM AWARENESS TO FINANCIAL BRAND EQUITY (VALUE)
Brand assets Brand strength Brand value Brand awareness Market share Net discounted cashflow attributable to the brand after paying the cost of capital invested to produce and run the business and the cost of marketing Brand reputation (attributes, benefits, Market leadership competence, know-how, etc.) Brand personality Market penetration Brand deep values Share of requirements Brand imagery Growth rate Brand preference or attachment Loyalty rate Patents and rights Price Premium Source: Kapferer, 2004
The table illustrates the value creation process of the brand through time: • The brand assets are the sources of influence of the brand. The brand assets are the mental associations and affects (starts from customers’ point of view). • The brand strength reflects the ‘brand equity outcomes’ as a result of these assets at a specific point in time in a specific market The brand value is the ability of the brand to generate profit and is a projection in the future
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APPENDIX D: INTERBRAND’S BRAND STRENGTH FACTORS
Factor of valuation Maximum Description score (%) Market 10 Brands in markets where consumer preferences are more enduring score higher Stability 15 Long-established brands in any market would score higher because the depth of loyalty they command Leadership 25 A market leader is more valuable Profit Trend 10 The long-term profit of the brand is an important measure of it’s ability to remain contemporary and relevant to consumers Support 10 Brands that receive consistent investment and focused support usually have a much stronger franchise. The quality of this support is equally important Geographical spread 25 Brands that have proven international acceptance and appeal are inherently stronger than regional or national brands. They are less susceptible to competitive attack and are therefore more stable assets Protection 5 Suring full protection for the brand under international trademark and copyright law Brand Strength 100 Source: www.buildingbrands.com
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APPENDIX E: MARKETING COMMUNICATION OPTIONS
Media Advertising Trade Promotions TV Trade deals and buying allowances Radio Point-of-purchase display allowances Newspaper Push money Magazine Contests and dealer incentives Training Programs Trade Shows Cooperative advertising Direct Response Advertising Consumer Promotions Mail Samples Telephone Coupons Broadcast Media Premiums Print Media Refunds and rebates Computer-related Contests and sweepstakes Media-related Bonus packs Price-offs Online advertising Event Marketing and Sponsorship Web sites Sports Interactive ads Arts Entertainment Fairs and festivals Cause-related Place Advertising Publicity and Public relations Billboards and Posters Movies, airlines and lounges Product placement Point of purchase Point-of-purchase Advertising Personal Selling Shelf talkers Aisle Markers Shopping cart ads In-store radio or TV Source: Keller, 2004
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APPENDIX F: TOP 10 GLOBAL BRANDS, VALUATED BY INTERBRAND
# Rank 2003/2004 2004 2003 Percent Brand Brand value Brand Value Change $ Millions $ Millions 1 Coca Cola 67,394 70,453 -4% 2 Microsoft 61,372 65,174 -6% 3 IBM 53,791 51,767 4% 4 GE 44,111 42,340 4% 5 Intel 33,499 31,112 8% 6 Disney 27,113 28,036 -3% 7 McDonald’s 25,001 24,699 1% 8 Nokia 24,041 29,440 -18% 9 Toyota 22,673 20,784 9% 10 Marlboro 22,128 22,183 0% Source: Business Week, August 9-16 2004
APPENDIX G: PRODUCT-BRAND MATRIX
Products 12 ...... N
A
B
Brands
M
Source: Keller, 2004
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APPENDIX H: EXAMPLE BRAND HIERARCHY COLGATE
Colgate
Colgate Colgate Colgate Colgate Colgate Toothpaste Toothbrush Dental Mouth Fluoride Floss Rinse Tablets
Plus Precision Classic Youth Color
Diamond ‘The Wild Ones’
Source: Aaker, 2000
APPENDIX I: HOUSE OF BRANDS VS. BRANDED HOUSE
‘House of Brands’ ‘Branded House
Architecture Architecture Architecture Architecture Product Brand Endorsing Brand Umbrella Brand Source Brand
Autonomous Autonomous Product Names: Branded Products: Brands: no link Brands: weak link Graphic Link Value Link
Source: Kapferer, 2004
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APPENDIX J: ADVANTAGES AND DISADVANTAGES OF BRAND ARCHITECTURE STRATEGIES
Brand Architecture Advantages Disadvantages Strategy Product Brand Strategy • Serve the same market • Increased launch cost. with multiple brands, Each product launch is a greater consolidated market new brand launch share • Return on investment on • different names helps a product brand can be customers to better difficult when the market is perceive the difference saturated between various brands • The product brands • product brands allows often don’t benefit from the firms to take risks in new positive spillover effect markets , without damaging created by other products other brands, company under the same name name • shelf space accorded by retailer to a company depends on number of strong brands • drawbacks from product brands are economic Line Brand Strategy • Reinforces the selling • A line has limits, so only power of the brand and include product innovations creates a stronger brand closely related to the image existing one • Facilitate distribution for • Inclusion of powerful each line extension innovation could slow its • It reduces launch cost development Range Brand Strategy • Avoids random spread • Problem of brand of external communications opacity as the brand by focusing on single brand expands name thereby creating brand capital which can be shared by other products • Development of a unique brand concept • Easy distribution of new products that are consistent with its mission and fall within the same category • Low launch cost Umbrella Strategy • Capitalization on a • The Core of the brand is single brand name because always stronger than its of brand awareness readily extensions so don’t available after first product overstretch the brand by • Economies of scale (eg adding too many different lower marketing, advertising product categories cost) • Negative spill over of • Useful when reintroduce one product can affect the a old product (revitalization) other product within the • Core brand is nurtured umbrella brand range by association with • Freedom allowed by the
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products with which it was umbrella strategy not previously associated sometimes leads to patchwork of the brand. Different divisions responsible for communicating the same brand can lead to too much variation in positioning Source Brand Strategy • Ability to provide a two- • Limit of the source tiered sense of difference brand lie in its necessity to and depth. Parent brand respect the core, the spirit offers its significance and and identity of the brand. identity, modified and Boundaries in case of enriched by the daughter brand extensions and brand in order to attract product communication. specific market segments Endorsing Strategy • Greater freedom of movement than the source brand. Each product name evokes a powerful image and has a power of recall for the consumer • Least expensive way of giving substance to a company name and allowing it to achieve minimal brand status
Source: Kapferer, 2004
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APPENDIX K: RESEARCH QUESTIONNAIRE
RESEARCH QUESTIONNAIRE BRAND EQUITY IN SURINAMESE MANUFACTURING COMPANIES
Date : Interviewer : Company : Respondent : Job title :
Brief description of the company Established in (date):
Products on market (top 5): # Product type
Brief description of the business environment:
Mission and vision:
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QUESTIONS
1. What is a brand in your perspective?
2. How do you perceive the role (s) of your brand? List 3 in order of importance: o
o
o
3. a) Give an overview of your brand portfolio
No. Brand Name Brand Target group, Target group, age market (Local) market (export)
b) Briefly describe the positioning of your main brand
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c) Do you know what your target group expects from the brand? Describe one expectation.
d) Has any research been done to find out what these expectations are? o Yes o No
4. a) Do you have a long-term (3-5 years) brand plan in place? o Yes o No (go to Q.4c)
b) If yes, what is (are) the long term objective (s) of your brand (s)? List 3 objectives: o
o
o
c) If no, how would you define the long term objective (s) of your brand? List 3 objectives: o
o
o
5. a) How does the brand name add value to the mission or vision of the company? (E.g. corporate image)
b) How does the brand add value to a competitive advantage?
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6. a) Is the brand name supported by an approved quality system? o Yes o No (go to Q.7)
b) If yes, which one?
7. a) What is (are) the most strategic brand(s) in your brand portfolio?
b) Why do you consider it a strategic brand?
8. a) Do you consider your brand (s) a strong brand (s)? o Yes o No (go to Q.9)
b) If yes, why? (Give 2 characteristics)
9. Which of the following would describe how your brand portfolio is managed: o Responsibility assigned to brand manager, marketing manager o Long term (3-5 year) brand plan, strategy (or incorporated in marketing plan) o Regular brand audits (review of market segments, brand portfolio, profitability of the brand) o Brand valuation o Other actions, specify: o
10. Give a brief overview of the history of one of your main brands
o The choice of the brand name (what does it reflect: a product characteristic, family name, other)
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o First launch of the brand ( describe the main strategies, actions)
o Which marketing and/or brand strategies were consistently implemented or what actions were taken to build and elevate the brand? List 3.
o With Suriname joining Caricom in 1996, were there any significant changes in your brand strategy to be more competitive in this new environment? List 2 major changes:
o What are the key characteristics of your brand-building policies and strategies over time? List 2.
11. a) Is your brand legally protected? o Yes o No (go to Q.12)
b) If yes, how?
12. What does brand equity mean to you?
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13. According to Aaker Customer-based brand equity consists of the following assets: o Brand awareness o Brand loyalty o Perceived quality o Brand associations a) Have you ever measured the levels of these brand equity elements? o Yes o No (go to Q.13c) b) If yes, how did you measure them?
c) In your opinion, give an estimate of the different levels of brand equity elements in the Surinamese market (or companies target group) for your brand
Brand Equity High/Medium/Low Measure in % Elements Brand Awareness Brand Loyalty Perceived Quality Brand Associations Not Applicable Note: high 70% – 100%, medium 40% – 69%, low 0% – 39%
14. a) Are the intangible assets (such as goodwill) capitalized in your balance sheet? o Yes o No (go to Q.15a)
b) If yes, is there a distinction made between the brand as an intangible asset and other intangible assets in the balance sheet? o Yes o No
15. a) Do you valuate your brand periodically? o Yes o No
b) If yes, which approach do you take to measure the value of your brand?
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If no, which approach would you use?
Method Valuation by historical cost Valuation by replacement cost Valuation by market price Valuation by future earnings (DCF) Valuation by Royalties No measure
c) Explain why you do or why you would choose this method?
16. If not valuated, assume your company would use the market price or future earning stream approach to measure the financial equity of the brand. What would be the value range of your major brand based on these methods? If valuated, just state the value range:
Brand value range in US$ Brand $ 0 - $ 1,000,000 $ 1,000,000 - $ 5,000,000 $ 5,000,000 - $ 10,000,000 $ 10,000,000 - $ 25,000,000 > $ 25,0000,000 Cannot estimate/ Don’t know
17. What is the total value of your company? Give an estimate if you do not know the exact value : Market Capitalization in US$ $ 0 - $ 10,000,000 $ 10,000,000 - $ 25,000,000 $ 25,000,000 - $ 50,000,000 $ 50,000,000 - $ 100,000,000 > $ 100,0000,000 Cannot Estimate/Don’t know
18. Define the brand value as a percentage of the market capitalization
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19. Why do you think it is necessary to valuate the brand? State 2 purposes for brand valuation:
20. a) What are the current brand strategies, in terms of brand architecture?
Product – market roles, strategy Brand Product brand strategy Line brand strategy Range brand strategy Umbrella brand strategy Source brand strategy Endorsing brand strategy Mixed approach (define which one) Don’t know
b) Did you intentionally choose this strategy? o Yes o No
c) According to you, what are the benefits of this strategy? List 3 benefits.
21. a) What are the current marketing and brand strategies you use or used by your company to build the brand and brand equity? Describe briefly how they are implemented on each level. o Advertising
o Promotions and sales promotions
o Sponsorship
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o Loyalty programs
o www./
o Innovation, Brand extensions
o Others, specify: o o o b) Do you measure and/or evaluate the impact of these promotions, programs and strategies? o Yes o No (Go to Q.22) c) How do you measure or evaluate this impact?
22. Are there any future plans or intentions to enhance brand equity? Please describe.
Thank you, for your cooperation
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Glossary of Terms
Brand portfolio: the brand portfolio includes all the brands and sub brands attached to the product-market offerings including the co-brands with other firms
Product brand: brand name assigned to one product or one product line
Sub-brand: brand connected to a master (parent, umbrella or range) brand that augment or modify the associations of the master brand
Strategic brand: a brand that represents a meaningful future level of sales and profits. It may be currently a dominant brand that is projected to maintain or grow its position or a small brand that is projected to become a major one
Brand positioning: emphasizing the distinctive characteristics that make it different from its competitors and appealing to the public (ask these questions when positioning a brand: a brand for what, a brand for whom, a brand for when, a brand against whom?)
Brand equity: the brand assets or liabilities linked to a brands’ name or symbol that add or subtract from the value provided by a product or service. Brand equity consist of: • Consumer-based brand equity: brand equity assets that adds or subtracts value for customers • Financial brand equity: as part of its role in adding value for the customer, brand equity has the potential to add value to the firm by generating marginal cash flows.
Brand awareness: the ability of a potential buyer to recognize or recall that a brand is a member of a certain product category
Brand loyalty: a measure of the attachment that a customer has to a brand. Results in re-purchase of the brand, product
Perceived Quality: a customer’s perception of the overall quality or superiority of a product or service with respect to its intended purpose, relative to alternatives
Brand association: anything ‘linked’ in memory to a brand e.g. McDonald and Ronald Mc Donald
Intangible assets: company assets which are not tangible such as goodwill, patents, brand name, customer relations etc.
Brand valuation: financial valuation of the brand. Determining the ‘fair value’ of the brand according to international accepted accounting standards
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Valuation methods • Valuation by historical cost: the brand is an asset whose value comes from investments over a period of time. This approach suggest adding together all the cost associated with a particular period: development cost, marketing cost, advertising and communication cost, etc. This method isolate the direct costs associated with the brand and attributes to it the indirect cost such as sales force and general expenses • Valuation by replacement cost: Main question in this approach is how much would the brand cost to recreate it? By taking all its characteristics into account (awareness, percentage of trial purchases and repurchases, absolute and relative market share, distribution network, image, leadership, quality of legal disposition and presence in how many countries), how much would we have spend, and over what period, in order to create an equivalent brand • Valuation by market price: value the brand by comparing with similar brands on the market • Valuation by future earnings (Discounted cash flow method): valuation of the brand based on expected returns, profits of brand ownership
Market capitalization: Market value of the company
Brand architecture: is an organizing structure of the brand portfolio that specifies the brand roles and relationship among brands and different product-market brand contexts
Product brand strategy: involves the assignment of a particular name to one and only one product (or product line) as well as one exclusive positioning
Line brand strategy: the line responds to the concern of offering one coherent response under a single name by proposing many complementary products
Range brand strategy: range brands bestow a single brand name and promote through a single promise a range of products belonging to the same area of competence.
Umbrella brand strategy: the same brand supports several products in different markets. Each of them has its own advertising and develops its own communications. Yet, each product is called by its own generic name (e.g. Cannon cameras, Cannon fax machines, Cannon printers)
Source brand strategy: this strategy is identical to the umbrella brand except for one key point – the product has its own brand name. They are no longer called by one generic name but each has an own name. This is a two-tier brand structure known as double-branding e.g. Christian Dior (source) and ‘I love Dior’ (own brand)
Endorsing brand strategy: the endorser brand gives its approval to a wide diversity of products grouped under product brands, line brands and range brands. E.g. Johnson is a guarantor of their high quality and security
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APPENDIX L: FREQUENCY TABLES RESEARCH QUESTIONNAIRE
Table 1: Q1 - A brand is? Description Frequency A name of a product 2 name, symbol, icon of a product (group) 2 that differentiates from its competitors name, symbol, icon, visual image that 2 provides value, image and promises to customers and consumers
Table 2: Q2 - Role of a brand (in order of importance) Description Frequency Income Generator 1 Identification 2 Brand meets customer needs (product + 1 personality) Provides Quality to customers & 1 consumers Missing Value 1
Other roles determined: source of pride, increases recognition and awareness, associates with the company, create trust (risk reducer), ensure repeat sales and sustainable growth, and provides sustainability, continuity, and distinction from the competitor
Table 3: Q3c - Consumer expectations: Description Frequency Good Quality 1 Good Price-Quality Combination 3 Emotional value 2 Unique, Distinguished taste 2
Table 4: Q3d - Measure consumer expectations: Description Frequency Yes 5 No 1
Comment: most companies measure the expectations and are aware which needs the brand have to fulfil in order to be considered eligible among other brands
Table 5: Q4a - Do you have a brand plan Description Frequency Yes 4 No 2
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Table 6: Q4b - Brand objectives, only no. 1 Description Frequency Remain relevant for the target group 1 (current & new generations) Growth: in sales volume and brand image, 2 increase Market share Market leadership 1 Profit generation 1 Increase brand preference 1
Other objectives: increase brand awareness, build and establish the brand (in export markets), enhance company image, strengthen the brand through brand extensions, line extensions
Table 7: Q5a - Added value brand to mission and vision Description Frequency Desired association with the company 1 (company image) Contributes to profitability, growth and 2 continuity Gives strategic direction 1 Market Leadership 1 Symbol of Quality, brand image 1 complements corporate image, brand loyalty
Table 8: Q5b - Added value brand to competitive advantage Description Frequency Strong established brand, brand heritage (gives 2 strong position towards, consumers, customers, other partners) Price- Quality combination, better perceived 1 value Symbol of National Pride, Real Surinamese, 2 exotic Good (positive) Brand image, association 1
Table 9: Q6a - Brand supported by Quality System Description Frequency Yes; 5 No 1
Table 10: Q6b - Which Quality System Description Frequency ISO 9001-2000 3 HACCP 2 TCCQS 1 None 1
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Table 11: Q7a - Strategic brands in product portfolio Description Frequency Yes 6 No 0
Table 12: Q7b - Why consider a strategic brand Description Frequency Contributes substantial to sales 1 Most important asset to generate future 1 revenues Long term goals 1 Strong roots, image and values 1 Market leader 2
Note: also because of its growth potential brands are considered strategic brands.
Table 13: Q8a - Is your brand a strong brand? Description Frequency Yes 6 No 0
Table 14: Q8b - Why is it a strong brand? Description Frequency High brand awareness 1 Large market share despite competition of 2 international strong brands High brand recognition 2 Missing value 1
Others: positive brand associations, market leadership, growth potential, unique, high brand preference
Table 15: Q9 - Management of brand portfolio Description Frequency By marketing, brand manager 3 Long term brand plan, short term(1 year) brand 4 plan Brand audit 3 Brand valuation 0 Brand evaluation (management discussions) 1
Table 16: Q10a - Choice of brand name (Brand creation) Description Frequency Public Draw 3 Family name 2 Name of Place 1
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Table 17: Q10b - Strategies @ Brand launch 1. International competition 2. Promotions: In-store, consumer 3. Advertising 4. Intensive Channel distribution 5. House to House campaign 6. Incentive (dealers, sales force)
Table 18: Q10c - Consistency of brand strategies over time (No. 1 answers): Description Frequency Quality of the product 1 In-store promotions 1 Consistent media & sponsorships 1 Consumer sampling 1 Product differentiation 1 Don’t know 1 Others: communication of brand core value, personal selling, product innovation
Table 19: Q10d - Change in brand strategy because of change in comp. environment Description Frequency Restore quality level 1 Renew the look, according to standards, brand 2 revitalization Product development and Brand extensions 1 No changes at first 2
Other steps: Cost Reduction and modernize the plant
Table 20: Q10e - Characteristics of brand building policies (no. 1 answers) Description Frequency Investment in the brand in good and bad times 1 Focus on distinctive (exotic) core values (real 2 Surinamese product, brand) and communicate them Consistency in communication, advertising and 1 promotion Leverage on a international brand to build the 1 local brand Emphasis on quality 1
Other relevant characteristics: Effective distribution, measure brand performance, product differentiation
Table 21: Q11a - Legal Brand protection Description Frequency Yes 6 No 0
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Table 22: Q11b - Protected by Description Frequency Local Trademark Registration 1 Trademark Registration in country of export, 0 destination Registration locally and in country of export 5 No registration 0
Table 23: Q12 - What is Brand Equity? Description Frequency New Concept, Don’t Know 1 Value of the brand 5
Note: Most companies know that brand equity has to do with value of the brand.
Table 24: Q13a - Have you ever measured consumer-based B.E. elements? Description Frequency Yes 4 No 2
Table 25: Q13b - How did you measure? Description Frequency By Sales 3 By Research 2 No Measure 1
Table 26: Q13c - Status Consumer-based B.E. elements? Brand awareness Description Frequency High 3 Medium 2 Low 1
Table 27: Q13c- Status Customer-based B.E. elements? Brand Loyalty Description Frequency High 4 Medium 1 Low 1
Table 28: Q13c- Status Customer-based B.E. elements? Perceived Quality Description Frequency High 5 Medium 1 Low 0
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Table 29: Q13c – Status Customer-based B.E. elements? Brand Associations Description Frequency High 3 Medium 1 Low 1 Missing value 1
Table 30: Q13c - Range percentage per Customer-based B.E element? Brand Awareness % RANGE # 0 – 39 % 0 40 – 69 % 0 70 – 100% 6
Table 31: Q13c - Range percentage per Customer-based B.E element? Brand Loyalty % RANGE # 0 – 39 % 1 40 – 69 % 1 70 – 100% 4
Table 32: Q13c - Range percentage per Customer-based B.E element? Perceived Quality % RANGE # 0 – 39 % 0 40 – 69 % 1 70 – 100% 5
Table 33: Q14a - Intangible asset valuated on balance sheet Description Frequency Yes 0 No 6
Table 34: Q14b - Is brand valuated on balance sheet Description Frequency Yes 0 No 6
Table 35: Q15a - Periodic brand valuation? Description Frequency Yes 1 No 5
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Table 36: Q15b - If brand is valuated, what Brand valuation method is used? Description Frequency Historical Cost 0 Replacement Cost 1 Market Price 3 DCF 4 Royalties 0 No Measure 0
Note: 3 companies choose a mixed approach i.e. the DCF and market price method
Table 37: Q15c - Why choose for this method? Description Frequency Reflects potential, future earnings of the brand 3 (based on current investment) Comparison with competition 1 Financial quantifiable and easily calculated 1 Missing value 1
Comment: according to one company brand equity is an interesting concept, but of little value in daily practice
Table 38: Q18 - Brand Value as % of Market Capitalization (main brand) % Range Frequency 60-70% 2 40% 3 Don’t know 1
Table 39: Q19 - Purpose of Brand Valuation Description Frequency In case of merging and acquisition 1 strategic decision making to invest in the brand 2 brand is valuable asset, part of market 2 capitalization Not necessary but interesting concept because 1 limited value in daily practice
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Table 40: Q20a - Brand Architecture Strategies Description Frequency Product Brand 2 Line Brand 3 Range Brand 1 Umbrella Brand 2 Source Brand 0 Endorsing Brand 2
Note table Q20a.: in general, more sophisticated, two-tier brand architecture strategies are not used. Even though mentioned by two companies, in researcher’s perspective the endorsing brand strategy is not really prominent and not promoted.
Table 41: Q20b - Intentionally choose for brand architecture strategy Description Frequency Yes 4 No 3
Note: one company indicated that in the first years brand architecture strategies were not chosen with future brand equity perspective. In a later stadium brands were chosen with better perspective since there was already knowledge of brand awareness.
Table 42: Q20c - Benefits of Strategy Description Frequency Leveraging on existing brand equity (own 2 brand and brand equity of international brand) Reduction of marketing cost 1 High level of brand awareness and brand 2 recognition Stands alone in specific market, less risk to 1 damage to other brands (product brand)
Table 43: Q21b - Do you measure the impact of strategies? Description Frequency Yes 6 No 0
Table 44: Q21c - How do you measure impact of the strategies? Description Frequency By Sales 2 By Research 0 Management report 1 Sales & Research 2 Management report & Research 1
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Table 45: Q21a - Current Marketing and Brand strategies: 1. Advertising 2. Promotions 3. Promotions 4. Sponsorships 5. Loyalty Programs 6. Brand extension
Table 46: Q22 - Future brand building plans, strategies: 1. Brand extensions 2. Innovation 3. New markets 4. Promotions 5. Loyalty schemes 6. Continue to invest in the brand
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