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THE MYSTERY OF BRANDS
Dr. Wolfgang Grassl
Albion College
January 10, 2002
Question
• what does the following symbol mean to you ?
….. little girl in the rain with an umbrella
• which brand does the following tag line stand for ?
….. “when it rains it pours ®”
2
And the answer is …
• salt is a relatively simple commodity -- how come most
of us seem to know any brand of salt at all ?
• there seems to be little to tell about the qualities of salt,
the product having few cues by which to store it in our
semantic memory
• isn’t marketing salt simply selling sodium chloride ?
3
Marketing sodium chloride
• quite on the contrary: for the marketer, that’s where
the challenge starts !
• Morton’s share of about 50 % of the U.S. market
achieved by
– (1) stability of brand (“stable brand personality”)
– (2) introducing a higher degree of product differentiation





Morton Lite Salt®
Morton® Kosher Salt
Morton® Salt Substitute
Morton® Popcorn Salt
Morton® Canning and Pickling Salt brands
– (3) accepting a low price difference in comparison with
private-label salt
4
What can we learn from this ?
• enormous importance of brand-building
• financial importance of brands
• everything can be marketed -- but can everything be
branded ?
– air ?
– sand ?
• branding of
–
–
–
–
products (goods and services)
personalities
ideas
places
• how do you market water and sugar (together) ?
5
Marketing sugar and water
6
This raises questions …
• Why are some companies able to establish a clear-cut
competitive position for their product in the mind of
market participants, while others never do so ?
– “Cola wars”
– McDonald’s vs Burger King
– Oldsmobile brand
• How do you differentiate your product from that of
your competitors in a way that is important to the
target customer segment ?
• How do you turn a brand advantage into profitability ?
• What are the rules of successful branding ?
7
The biggest question of all is …
• What are the rules of successful branding ?
– What makes Coca-Cola, Levi’s, or Cartier strong brands ?
– Why does Pepsi seem unable to catch up with Coke ?
Coca-Cola Co.
Pepsi-Cola Co.
Share in Carbonated Soft
Drinks Market, U.S., 2000
44.1%
31.4%
Coke Classic + Diet Coke
Pepsi-Cola + Diet Pepsi
Advertising
Expenditure U.S., 1999
$403MM
$672MM
30.8%
18.9%
Source: Beverage Digest; Advertising Age
– Why has General Motors struggled with its portfolio of
brands for about forty years ?
 GM market share in U.S.:
1991: 36%, 2001: 28%
8
Nature and function of brands
• nature of brands
– products-plus (“mystery”)
– higher level of complexity
• function of brands
– consumers
 convey information (“BMW: The Ultimate Driving Machine”)
 instill trust (“you know what you can expect”)
– marketers (producer brands vs store brands)
 higher degree of product differentiation  stronger brand loyalty
 higher mark-ups  higher profitability
 unique company profile: differentiation on market
 brand equity = value of brands (surplus value over non-branded
products)
 set of assets (or liabilities) linked to the brand that adds (or subtracts) value
9
Customer-based explanation of brand equity
Brand
Loyalty
Name
Awareness
Perceived
Quality
Brand
Associations
Other Brand
Assets
Brand
Equity
Provides value to customers
by enhancing customers’
Provides value to firms by
enhancing:
* interpretation and processing of information
* confidence in the purchase decision
* use satisfaction
* efficiency of marketing programs
* brand loyalty
* prices/margins
* brand extensions
* competitive advantage
10
Understanding the customer-based view
• brand equity is determined by the customer
– culmination of the customer’s assessment of
 the product
 the company
 other variables that impact on the product
– brand equity exclusively subjective (“in the eye of the
beholder”)
– brand equity can largely be influenced by marketing
management ad libitum (and mainly through advertising)
 assumes infinite plasticity of mind
 brands seen in isolation from one another
– in philosophical terms: idealist view (structures of reality are
at the behest of the observer or actor)
 is this really the whole story ?
11
Brand equity rankings
12
World’s most valuable brands, 2001
RANK BRAND
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Coca-Cola
Microsoft
IBM
GE
Nokia
Intel
Disney
Ford
McDonald's
AT&T
Marlboro
Mercedes
Citibank
Toyota
Hewlett-Packard
Average
BRAND MARKET CAP OF
BRAND VALUE
BRAND
VALUE PARENT COMP., AS % OF MARKET LEVERAGE
($MM) JULY 2001 ($MM)
CAP, JULY 2001
2001
68,945
113,000
61.0%
4.18
65,068
380,000
17.1%
3.16
52,752
198,700
26.5%
0.67
42,396
498,000
8.5%
0.38
35,035
104,200
33.6%
1.37
34,665
202,200
17.1%
1.15
32,591
60,000
54.3%
1.91
30,092
45,900
65.6%
0.27
25,289
35,400
71.4%
0.75
22,828
148,950
15.3%
0.39
22,053
107,300
20.6%
2.28
21,728
45,350
47.9%
0.59
19,005
268,900
7.1%
0.86
18,578
133,400
13.9%
0.23
17,983
55,800
32.2%
0.41
33,934
159,807
32.8%
1.24
Source: Interbrand
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This means …
• brand leverage = brand value in relation to the
previous year’s brand sales
– the higher the leverage the more value is being generated
from each dollar of sales
• results
– among the most valuable brands, the share of brand value
in market capitalization is as high as 71.4% (McDonald’s)
or as low as 7.1% (Citibank)
– brand leverage is low for manufacturers of investment and
capital goods (Toyota, Ford, GE, HP, Mercedes, IBM) but
very high for manufacturers of consumer goods and
service businesses (Coca-Cola, Microsoft, Marlboro,
Disney)
 why ? -- management issue or systemic explanation ?
14
World’s most valuable brand portfolios, 2001
RANK
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
BRAND OR
PORTFOLIO
BRAND
BRAND VALUE
WORLDWIDE ADVERTISING
VALUE AS % OF MARKET MEDIA SPENDING, EFFICIENCY
($MM)
CAP, JULY 2001
2000 ($MM)
INDEX*
Coca-Cola
68,945
61.0%
1,579
43.66
Johnson & Johnson
68,208
48.4%
1,075
63.45
Microsoft
65,068
17.1%
559
116.40
IBM
52,752
26.5%
724
72.86
Procter & Gamble
45,435
54.3%
4,152
10.94
GE
42,396
8.5%
1,754
24.17
Nestlé
41,688
50.4%
1,886
22.10
Unilever
37,847
66.9%
3,665
10.33
Nokia
35,035
33.6%
259
135.27
Intel
34,665
17.1%
123
281.83
Disney
32,591
54.3%
1,104
29.52
Ford
30,092
65.6%
2,323
12.95
McDonald's
25,289
71.4%
1,404
18.01
AT&T
22,828
15.3%
n/a
n/a
Marlboro
22,053
20.6%
n/a
n/a
Average
41,659
40.7%
1,585
64.73
* = (Brand Value / Media Spending)
Sources: Global Advertising Age; Interbrand
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The picture seems to solidify …
• at the level of brand portfolios, too, there is no clear
relationship between the level of advertising expenditure and brand value
– r = -0.1279 (inverse relationship !), r2 = 0.0163
– strong corporate brands like Intel, Nokia, Microsoft and
IBM enjoy a high advertising efficiency, umbrella brands
like P&G and Unilever (expectedly) a low one
– but why do McDonald’s and Ford (which have the highest
and second-highest brand leverage among the 15 brands)
lag so far behind ?
 systematic relationship sales  brand value but not advertising
 brand value
• hypothesis: advertising is not a strong but a weak
force in determining brand equity
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Implications
• customer-based view (“brand idealism”) called in
question
– degree to which products can be branded does not depend
on marketing management alone (or not even primarily on it)
brand equity
• alternative: “brand realism”
– rooted in ecological psychology and evolutionary theory
 “adaptive marketing”
– philosophically: brands have a reality in addition to the
products they inhere in -- they are not just “products-plus”
17
Realistic explanation of Nike brand
consumer
values
marketing
management
brand equity
cognitive
constraints
product
features
• ecological model - two levels:
– subjective
– objective
18
Two alternative explanations of brand equity
CONSUMER
EVALUATION
BRAND
AWARENESS
BRAND
LOYALTY
BRAND
EQUITY
PROMOTION
(ADVERTISING)
(a) Conceptual Model of Idealism
BRAND
AWARENESS
CONSUMER
EVALUATION
COGNITIVE
CONSTRAINTS
BRAND
LOYALTY
BRAND
EQUITY
PROMOTION
(ADVERTISING)
PRODUCT
FEAUTURES
(b) Conceptual Model of Realism
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Further evidence
• brand extension research
– “stretching” of a brand into a different product category
 more than 80% of NPD either brand extensions
 vast majority of brand extensions are failures
 successful
 Calvin Klein: clothing > perfume > underwear
 Jell-O:
dry mix box > ready-to-eat dessert > yogurt > ice pops
 Virgin:
record label > retail entertainment chain > airline >
tour operator > multimedia production
 unsuccessful
 Levi’s:
 J & J:
 Pierre Cardin:
 Virgin:
 Bic:
jeans wear > dress suits (but: Dockers, Slates)
baby oil > perfume
fashion wear > dishware
record label > cola
pens, disposable razors > pantyhose > perfumes
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And this means ?
• consumer perception cannot be arbitrarily manipulated
and brands cannot be arbitrarily stretched without
diluting the master brand
– consumers are “hardwired” (tastes for sugar and fat, etc.)
 ca. 3,000 marketing messages bombard the human mind every day:
why do only few directly affect our consumer behavior ?
– consumers have cognitive constraints (complexity of products, differentiation, distance old-new category, etc.)
 example: flop of Crystal Pepsi
– “laws” of brand extension: extendibility enhanced if
 contiguity in perceptual space
 perceptual fit of core associations with product category
 low degree of category domination (“prototypes”)
21
… and further it means that …
• there are regularities governing the degree to which
products lend themselves to becoming strong brands
– “niches” in product space (space not continuous but discrete)
 niche = specific combinations between product features and cognitive
constraints in consumers that enable a “fit” in some but not in other
cases
 niches constrain or accommodate brands
– nature of “boundaries” surrounding a brand (co-) determine
extendibility and lastly brand equity
 Federal Express “owns” the association “overnight”, Volvo “safety”
– “brandscape” (= landscape of interrelated brands) rather than
brands in isolation
 associations affect other brands
22
… and lastly that …
• even the best marketing management and the largest
advertising budget cannot brand what the structures
of product space do not make “brandable” in the
first place
– complexity of brands (= number of features by which we
differentiate products) determines number of potential
niches in any product category
• consequence: new understanding of brands necessary
– positioning maps  brand molecules
 brands not discrete but continuous
 surrounding product space not continuous but discrete
23
Old view: positioning maps
•
24
New view of brands: brand molecules
• brands as molecules
“single” brand
“spill-over”
associations
core associations
brand portfolio
master
brand
parent
company
brand
extensions
“spill-overs” from other (“contiguous”) brands
25
Niches
• brand equity is a function of the degree to which
brands can be “moored” in niches
– accommodation, boundaries and “defendability”
• ecological niches
– environment (= product
space) determines degree of
branding potential
– every product category allows
for a finite number of niches
– niches can be empty
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The “underworld” of brands
• brand associations often below
threshold of consciousness
– cognitive constraints
• “above ground”: consumer decisions
• analogy: mycelium of a fungus
Mycelium of Matsutake
mushroom (hyphae)
27
Is this new view of brands more promising ?
• opens up an interdisciplinary research program
–
–
–
–
ecological contexts (biology, psychology)
complexity theory (mathematics, computer science)
ontology (philosophy, artificial intelligence)
product differentiation (economics)
• better fit with empirical data about branding and
advertising
• better explanation of brand management strategies
– co-branding
 Subaru markets L.L. Bean Outback station wagon
 Dell stamps Microsoft and Intel logos on its computers
 credit card co-branded by Visa, Citibank and American Airlines
– brand extension
28
New view of marketing
• old view: marketing is a battle over perceptions, not
products
– but: why did “New Coke” fail in 1985 ?
 Coca-Cola Co. conducted 200,000 taste tests that showed that “New
Coke” tasted better than Pepsi-Cola and than “Coke Classic”
 consumers did not accept a cola that tasted too much like Pepsi
• new view: marketing is more than about perception
– it requires a study of the total environment in which we live
and act
– “naturalistic turn”
29