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Subject Business Economics

Paper No and Title 15, Marketing Management

Module No and Title 12, Product and Issues-2

Module Tag BSE_P15_M12

BUSINESS PAPER No. : 15, MARKETING MANAGEMENT ECONOMICS MODULE No. : 12, PRODUCT AND BRAND ISSUES -2

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TABLE OF CONTENTS

1. Learning Outcomes 2. Introduction 3. Brand Equity 3.1 What is Brand Equity? 3.2 Sources of Brand Equity 3.3 Measuring Brand Equity? 4. Branding Strategies 5. Concept of Trademarks 6. Summary

BUSINESS PAPER No. : 15, MARKETING MANAGEMENT ECONOMICS MODULE No. : 12, PRODUCT AND BRAND ISSUES -2

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1. Learning Outcomes

After studying this module, you shall be able to

 Understand what Brand Equity means  Know about the factors that create brand equity in consumer’s mind  Understand the ways to measure brand equity  Identify various branding strategies

2. Introduction

Every brand manager wants his brand to be regarded favorably by people at large and indispensable by its target consumers. Efforts to build brand equity are taken towards this direction. It is a never-ending process and requires commitment from the brand manager. In this module, we shall understand the concept of brand equity in detail and also see the various factors that affect creation of favourable brand equity. It is also necessary to measure brand equity from time to time and to maintain it. We shall see the ways in which managers can measure brand equity. Also, in this module, we shall discuss the different branding strategies available to a brand manager.

3. Brand Equity

3.1 What is Brand Equity?

In simple terms, brand equity is the value of a brand. The American Marketing Association defines Brand Equity as ‘Brand equity is a phrase used in the marketing industry to try to describe the value of having a well-known brand name, based on the idea that the owner of a well-known brand name can generate more money from products with that brand name than from products with a less well-known name, as consumers believe that a product with a well-known name is better than products with less well-known names.’

Brand equity may be composed of tangible (price premium, increased cash flow) or intangible (awareness, goodwill) value and it may affect the firm positively or negatively, depending on the perceptions people have about the value of the brand.

The most important thing to remember is that it is customers who build brand equity. Many academicians and marketing practitioners refer to it as ‘Customer Based Brand Equity’ to reflect the importance of customers in this concept.

The above definition illustrates the importance of brand equity for a firm – it is crucial for the financial success of the firm. While on one hand, it allows firms to charge a price premium for their products, on the other, it also helps reduce costs, as a well-entrenched brand does not need to make very heavy investments in marketing and advertising by virtue of its already established

BUSINESS PAPER No. : 15, MARKETING MANAGEMENT ECONOMICS MODULE No. : 12, PRODUCT AND BRAND ISSUES -2

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brand value. In case of any issues with the brand, customers are also able to forgive it more easily due to their loyalty for the brand.

Brand equity takes years to build, and once a brand has favourable brand equity, it needs to be maintained. As mentioned above, brand loyalty contributes to favourable brand equity. The following section explains the stages of familiarization customers go through as they reach the stage of loyalty, and thus brand equity, for a brand.

3.1.1 Stages of Familiarity with a Brand

 Awareness: At first, consumers become aware of a particular brand – they may hear its name in advertisements, from acquaintances or from retailers.  Recognition: At this stage, customers start recognizing the brand upon hearing its name or looking at its logo/packaging.  Trial: Once sufficiently interested in the brand versus competitors, customers may try out the brand to see for themselves what it is all about.  Preference: If after trial customers find a brand satisfactorily living up to their expectations, they start preferring it over other in the same category. They purchase it repeatedly and start connecting with the brand.  Loyalty: At this stage, customers view the brand as only one which can fulfill their specific needs. They are willing to undertake efforts to procure the brand and have formed a deep emotional connection with the brand.

Figure 2.1 – Stages of Familiarity with a Brand BUSINESS PAPER No. : 15, MARKETING MANAGEMENT ECONOMICS MODULE No. : 12, PRODUCT AND BRAND ISSUES -2

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3.2 Sources of Brand Equity

Let us now try and understand the sources of brand equity – what creates favourable brand equity in customers’ minds. There are many factors that contribute to brand equity, but the central idea remains that the brand is built around an offering that customers actually want.

The brand should first of all be seen as valuable – customers should perceive it as adding value to their day to day lives. It should solve some of their problems and be available readily at a justified price. If this is not the case, they would not want to invest time and money in procuring the brand.

Second, the brand should offer something distinct from competitors, while being relevant to customers. This is where a brand’s positioning plays an important role. A brand that has been able to identify and plug a price-value positioning that has been so far overlooked by competitors will succeed in standing out amongst others. With judicious use of marketing communications tools, the firm can convey how different its offering is from the rest.

Third, the brand needs to ensure that it performs at level promised by it to customers through its communications. If the brand fails to deliver on customer expectations, its image is bound to suffer. It should be a brand manager’s endeavour to provide satisfactory performance at every point of contact of the brand with its customers.

Fourth, brands need to engage with consumers. They need to create contexts beyond the utility of the product that gives an opportunity to consumers to bond over their usage of the brand. Harley Davidson’s ‘Harley Owners Group’ or Apple’s User Forums are examples of engagement with consumers that take brand loyalty to the next level.

BUSINESS PAPER No. : 15, MARKETING MANAGEMENT ECONOMICS MODULE No. : 12, PRODUCT AND BRAND ISSUES -2

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Figure 2.2 – Creating Brand Equity

As consumers become familiar with a brand and experience its special place in their lives, they form a relationship with the brand. This emotional connection ensures that they consider no other offering as a substitute to their preferred brand. Such deep loyalty greatly contributes to brand equity.

3.3 Measuring Brand Equity

From the above discussion, it is clear that firms need to track their brand equity. There are two main approaches that can be followed to measure brand equity, and these depend on the point of view one takes of the brand equity construct itself. When viewed as a tangible financial asset of a firm, brand equity is measured using financial models. But often, it is seen more conceptually as a customer based construct, and in this case, it is the impact and emotional connection it has with consumers that is measured. To this end, marketing research is of great use.

Marketing research is widely used to measure brand equity, both qualitative and quantitative research come handy. Research tries to measure the level of consumer knowledge about the brand. By understanding the utility of a product and comparing it with overall utility of the brand, researchers are able to uncover the value of the brand.

Qualitative research techniques such as free association (where respondents are asked to say whatever comes to their mind upon hearing a brand name), projective technique (where indirect questioning helps uncover true opinions of customers about a product) and observation of customers using and interacting with a brand are used to understand consumer knowledge and sources of brand equity.

Quantitative techniques on the other hand focus on measuring brand knowledge amongst a larger group of people with statistical confidence. Measures of brand awareness, recognition, recall, and image are used. These are accumulated over a period of time to understand how consumer brand knowledge changes.

4. Branding Strategies

A branding strategy is a decision taken by a firm on how to structure its brands within consumer markets. Branding strategy decisions are important and need careful thought as the firm needs to stick to them for a long time. Some common branding strategies are outlined below.

4.1 Individual Branding

In this strategy, firms give individual brand names to all offerings they have. Each has its own identity. Separate branding and marketing efforts are required to establish each brand. While this means greater investment by a firm, it also allows for greater flexibility to establish unique brand BUSINESS PAPER No. : 15, MARKETING MANAGEMENT ECONOMICS MODULE No. : 12, PRODUCT AND BRAND ISSUES -2

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image and take individual branding decisions. For example Proctor and Gamble’s brands Vicks, Whisper, , Olay, and are all individually handled.

Figure 2.3 – Branding Strategies

4.2 Using Corporate or Family Brand Name

In this case, a firm decides to use the company name for all its offerings, instead of a separate brand name. This serves to establish each offering’s connection to the parent company and is best used when the company name carries a lot of trust and equity in the market. The big advantage of this strategy is that the firm does not need to work on creating an identity for each offering as qualities of the parent brand are automatically transferred to each offering. But the flip side is that any issue with the parent brand reflects badly on all its offerings. An example of following such a strategy is by Tata – with Tata Motors, Tata Consultancy Services, Tata Power, Tata Steel, Tata Telecom etc. Another example is that of Virgin Group – with Virgin Atlantic, Virgin Radio, Virgin Mobile and so on. As one can see, the generic name is suffixed to the parent company’s name to differentiate various offerings.

4.3 Using Corporate or Family Brand Name to endorse a Sub Brand

Another common approach is to use a corporate or family brand name to endorse a sub brand. Such a sub-brand is used for offerings in one or more related categories. For instance, Nestle has a sub-brand name Maggi within which are offerings of Maggi Noodles, Maggi Ketchup, Maggi Soups etc. It also has Nescafe with Nescafe Gold, Nescafe Classic, Nescafe Ice Café and so on. In this case, the sub brand name represents similar products and brand decisions affect all products

BUSINESS PAPER No. : 15, MARKETING MANAGEMENT ECONOMICS MODULE No. : 12, PRODUCT AND BRAND ISSUES -2

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within the same family. Endorsement by the corporate brand adds credibility in the eyes of customers.

4.4 Ingredient Branding

This strategy is a special one used by marketers of offerings that are ingredients for products meant for end consumers. By branding and marketing the special ingredient to end consumers, they are able to pressurize firms to use that particular ingredient as customers demand it. For instance Intel with its microchips, Dupont with Lycra and Teflon.

5. Concept of Trademarks

Since brands are such valuable assets, and require painstaking efforts to build over many years, it is necessary to protect them. Most brand managers monitor how much and what is being said about the brand in public and keep brand-related strategies closely guarded.

To ward off threat of competitors to a successful brand, such as imitation of the brand, its name, packaging, and other identifiable characteristics, companies use the legal route. Tools such as trademarks help brands create exclusivity of their product or service. A trademark is a sign which establishes the identity of a brand as separate from others. Any company infringing upon another’s trademark can be held liable and legal action can be initiated against it. For instance, Burberry’s signature check pattern is protected by a registered trademark, which means that anyone reproducing the same pattern in their clothing can be held liable for piracy.

A trademark may be designated by the following symbols:

 ™ (the trademark symbol, which is the letters ‘TM’, for an unregistered trademark, a mark used to promote or brand goods)  ℠ (which is the letters ‘SM’ in superscript, for an unregistered service mark, a mark used to promote or brand services)  ® (the letter ‘R’ surrounded by a circle, for a registered trademark)

Trademarks can be licensed to other companies for use as agreed upon. For example, The Lego Group purchased a license from Lucasfilm in order to be allowed to launch Lego Star Wars.

BUSINESS PAPER No. : 15, MARKETING MANAGEMENT ECONOMICS MODULE No. : 12, PRODUCT AND BRAND ISSUES -2

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6. Summary

 Brand equity can be understood as the value of a brand  It may be composed of tangible or intangible value  Brand equity takes years to build and it is customers who build brand equity

 Customers go through five stages of familiarization starting with awareness, recognition, trial, preference and finally the stage of loyalty leading to brand equity  Firms can use a number of sources to build brand equity o It should ensure that the brand adds value to customers’ lives

o The brand should offer something distinct from competitors, while being relevant to customers o The brand needs to ensure that it performs at level promised by it to customers o Brands need to engage with consumers by creating contexts beyond the utility of the product. In this way consumers should be emotionally connected to the brand  Brand equity can be tracked and measured using quantitative and qualitative approaches o Marketing research is widely used - to measure the level of consumer knowledge about the brand o Qualitative research techniques such as free association, projective techniques, and observation are used o Quantitative techniques focus on measuring brand knowledge amongst a larger group of people with statistical confidence  Branding strategy is a decision taken by a firm on how to structure its brands within consumer markets  Managers have the following branding options: o Individual Branding o Using Corporate or Family Brand Name o Using Corporate or Family Brand Name to endorse a Sub Brand o Ingredient Branding  Brands can use trademarks to protect themselves from unwanted infringement of its identity

BUSINESS PAPER No. : 15, MARKETING MANAGEMENT ECONOMICS MODULE No. : 12, PRODUCT AND BRAND ISSUES -2