Brand Equity for Strategic Advantage: Consumer Decision Making

Professor Chip Besio Southern Methodist University Marketing 3349

Why the Interest in Branding?

Brands are assets Pressure from Stockholders for

performance Pressure from competitors

Most products in a mature marketplace Price competition abounds

What is Brand Equity?

The added value endowed by the

brand name Key elements: Associations, Awareness, Perceived Quality, Loyalty Intangible, but measurable

Benefits of Brand Equity

Asset management/leveraging Consumer franchise (facilitates loyalty) Lower communication costs Improved prices/margins/market share More power with the trade

More benefits of Brand Equity

Barrier to competitive entry Effect of financial valuation of the firm Value to your Consumer
Recognition, consistency, confidence, image/status, etc.

Managing Brand Equity

It primarily involves managing the

consumers mind (associations) Firm must set objectives for the brand Brand equity measurement is a management essential Marketing mix elements should be chosen to build, not erode, brand equity

Overview
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What does awareness and image buy?

Influences how consumers make

choices By changing how choices are made we can change what is purchased

Overview
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Consumers are overloaded.

They have a vast array of

alternatives Each product has many attributes Everyone is under time pressure

 Does very little search: Average less than

The average supermarket consumer:

12 second per item 42% spent 5 seconds or less 32% spent between 6 and 15 seconds Average number of brands handled: 1.21; 85% touched only one brand
Source: Pete Dickson and Stan Sawyer Journal of Marketing

How Do Consumers Cope?

Choice has two phases

Screening: Eliminate Alternatives Comparison: A small set of alternatives (2-3) get intense scrutiny

Overview
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Screening is important
Elimination occurs

because:
The brand lacks a feature (attribute) The brand does not meet some cutoff (price?)

Once eliminated a

brand is not reconsidered.

How Does Brand Equity Effect Screening?

Awareness: Can I recall this brand?
Imagine that your sewer is backing up, and you are about to leave town on a business trip. Who do you call?

(Services rarely purchased must have high Top-of-Mind)

How Does Brand Equity Effect Screening?

Awareness: Can I recall this brand?
More commonly, a harried or uncertain consumer will eliminate brands with which they are unaware.

How Does Brand Equity Effect Screening?

Inference substitutes for search because: Search is expensive Available information is irrelevant or tough to understand

Image guides inference about the brand.

What are your impressions of this watch?

What are your impressions of this watch?

How Does Brand Equity Affect Screening? A Strategic Advantage

Powerful brands can set the agenda: Dictate the attributes used for screening Examples: Volvo and Safety Crest with Tartar Control American Express Travelers Checks

Screening: Summary
Large product classes are screened. Elimination = Death Brand Equity influences screening
Recall for the consideration set Inferences about product attributes Setting the agenda for screening

What Attributes are used for screening in your product class?

Overview
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Screening simplifies choice, but does not do the whole job.

Even when screening consumers seem to

examine 2-3 alternatives much more carefully. Process involves intense comparisons on a small set of attributes. How does this comparison process work?

How does this comparison work?

Consumers compare other brands to one

brand Often that brand serves as the reference brand. Key concept: Loss aversionwhen compared to the reference brand, losses loom large.

Consumers judge value by

The observed price relative to reference

price for the product, and The observed price relative to the normal or fair price of the product
Examples:
Restaurants on Friday nights Super Bowl ticket prices.

This is Reference Dependence.

Implication
If you are the reference brand
Improvements on price, quality, etc. help But decreases hurt more

If you are not the reference brand

You are judged relative to the reference brand Any way you differ from the reference is your loss

Implication
Reference brands have competitive

advantages, Particularly on features which are the most loss adverse Q: What are the reference brands in your product category?

Pricing Implication
Price cuts will effect different brands

differently High quality brands can easily steal market share from low quality brands by cutting price. But lower quality brands will not steal share from a high quality brands by cutting price
Responses to price cuts are asymmetric, high price brands can steal from the poor.

How do you become a reference brand?

Strong brands with great awareness

(T.O.M.) First Mover Advantage Brand most recently purchased Sampling, particularly for higher quality brands

Comparison: Summary
Having high brand awareness can make

you the reference brand which can be a significant advantage.

Overview
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To create value
Brand must support a higher reference

price Must maintain this over time, even in the face of stiff competition Applications:
To raise price
New Models Price Bundling Etc

What Strategic Element cannot be duplicated?

You lower price, they can eventually

lower price You can add a feature, they can eventually ad that feature But

They cannot use your brand name!!