INTRODUCTION:Brand Value and Power, Generate Profits and Build Brand Equity

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Brand Management (MKT624)

Lesson 2

INTRODUCTION

The more successful a brand, the higher value it carries and more equity it enjoys. To learn

what is brand equity and how to create it through a brand management process is the objective

of this lecture?

Brand Value and Power

Brands, whether grown organically or through acquisitions, have to generate revenues, profits,

and net earnings to make businesses viable. The ability to generate financial results rests at the

core of brand value and power. It is because of this value and power that brands must be

sustained.

Level of value and power differ for different brands. All brands are intended to become great in

terms of value and power. Some succeed and some do not.

To achieve a high level of value and power, marketing and brand managers have been working

to create home in the minds of their consumers. With the rise in importance of brand

management, they have become more and more convinced that the real value of brand is driven

by how dear consumers keep a particular brand to themselves. The endearment drives value

and value in turn translates into brand power and brand equity.

Before understanding what brand equity is, let's see how varying levels of brand value and

power relate varying levels of market leadership and, hence, brand equity. This implies that

different levels of power offer different levels of brand equity. The more the power, the higher

is the equity and vice versa.

The following pieces of evidence of strong brands were put together by Peter Doyle (1989)

from the largest database of business results in the world Profit Impact of Market Strategy

(PIMS).1

o Brands with a market share of 40% generate 3 times as much ROI as those with

a share of only 10%. A higher share means higher volumes that offer scale

economies and, hence, lower costs. Cost optimization on all fronts lead to better

margins and returns.

o For UK grocery brands, the number 1 brand generates over 6 times the return on

sales of the number 2 brand, while number 3 and 4 are unprofitable. Higher

returns on part of the number 1 brand again owe to lower costs, optimum

outreach, availability and better sales.

o For US consumer goods, the number 1 brand earned a 20% return; the number 2

earned around 5% and the rest lost money for the same reasons as cited above.

o Small brands can be profitable. A strong brand in a niche market earns a higher

return than a strong brand in a big market. An interesting finding, it leads us to

believe that concentration on a niche market keeps all variables of marketing

mix focused, efforts economical, and returns high no matter the volume may

remain small. Managing a strong brand in a huge market, however, demands

spread out efforts, more resources employed, but lower returns no matter the

volume may remain big. Bear in mind that not all markets offer the opportunity

to operate in a niche. Therefore, this finding is not to be misunderstood with not

trying to build your brand in a huge market.

These findings explain why companies want to lead by having strong brands with very high

share of the market. The stronger the brands, the lower the costs, the larger the returns, and

more the power the brands enjoy. Strong brands are assets and enjoy value that far exceeds the

value of those fixed assets that produce them. Brands, therefore, have to be managed like vital

assets.

Brand Management (MKT624)

Brand Equity

An understanding of the concept of brand equity helps us define the process of brand

management. It, therefore, must be understood before we can put definition in place.

In a business, the owner's equity is the value of owner's holding in the company. And, that is

defined as the difference between what a company owns in assets and what it owes in

liabilities. The larger the ratio of assets to liabilities, the larger is the owner's equity.

Likewise, brand equity is the difference between a brand's assets and brand's liabilities. Brand

assets are a function of reputation, quality, relevance, and loyalty. The concept is well-

illustrated with the help of the attached figure.

Brand liabilities are incurred by brands because of failures and questionable business practices

that may increase costs and liabilities. The larger the ratio of brand assets to brand liabilities,

the greater is the brand equity.2

In other words, if brand management is at the heart of marketing, then brand equity is at the

heart of brand management. With the understanding that we have generated so far, we can now

attempt to put together what brand management process looks like.

Figure 4

Brand management is "the process of naming products, turning products into brands, and

managing brands to fully attain maximum brand equity and a brand's full profit potential." The

following figure explains the process as a step-by-step approach toward managing brands.

Brand Management (MKT624)

BRAND MANAGEMENT PROCESS

Figure 5

Step 1

Step 2

Step 3

Step 4

Step 5

Name a

Turn Product

Manage

Generate

Build Brand

Product

into Brand

Brand

Profits

Equity

Name a Product

To make your product distinctive, you have to name it as the first step toward the process.

There are no hard and fast rules for the name.

A new brand should preferably reflect its positioning. Positioning exists in the mind of the

consumer. It is an exercise by the company to offer its product in a way that it occupies a

distinct position in the mind of the consumer.

Al Ries and Jack Trout gave the very concept of positioning. According to them, consumers

have in their mind a ladder of images in relation to different brands.

The best brand occupies the top rung of the ladder, the position. The follower brands occupy

positions at the lower rungs. It should be the priority of any brand manager to have his/her

brand positioned at the top rung. You will find more on positioning in lectures number 16

through 20.

Naming a brand could be the company name, a stand-alone name, or an existing brand name

with well established reputation.

Another view is to name a brand with its future and destiny in sight at the time of its birth.

Future and destiny point toward vision for the brand. You must consider:

· Is it going to be a regional, national, or international brand?

· Is it going to represent one category or will have the potential and power to represent

more than one category.

Answers to the above questions will comfortably lead you to go for a name most appropriate

for the brand. There could be different strategies employed for the purpose. You will get

insights into this area in lecture number 28.

Turn Product into Brand

You need to do consistent hard work to give meaning to the product to turn it into a brand. The

underlying aspect of this exercise is differentiation. A brand presents itself in its differentiated

form and features for consumers to acknowledge. Without differentiation a product does not

qualify to be acknowledged as a brand.

If features allow the brand to occupy its intended position in consumer's mind, the product is

deemed turned into a brand.

Manage Brand

The process does not cease upon turning the product into a brand. A perpetual effort is needed

to sustain it. Brands go through the rough and tumble of market dynamics. Competition creates

challenges for your brands all the time. Management must face the challenges and live up to

those by responding professionally, with the help of brand management tools at its disposal.

Management commitment to sustain brands, therefore, is of paramount importance. Brands

must be managed keeping in view their value for the consumer and for the company.

Brand Management (MKT624)

There could be a lot of conflicting and opposing views across functional areas while you

manage a brand. All such views must be resolved for convergence onto one point full support

to the brand and brand strategies for achievement of goals. You gain support from all

concerned by creating a brand-based culture within the organization. The objective here is to

involve people from across functional areas in a way that they end up owning the brand-based

decisions. Details of a brand-based culture are discussed in lecture number 41.

Generate Profits and Build Brand Equity

Generating profits and building equity are two steps, but interlocked in terms of their

occurrence. A well managed brand is an assurance of profits. Only profits will lead the

company into a better competitive position and allow for further moves to reach destination as

envisioned by the company. Profits make a brand powerful. Power gives the brand value,

which is translated into financial value, and hence equity.

Glossary of terms

Market share: the percentage of current market demand obtained by a business from the

category.

Reputation: the perception of the target market about the standing of your brand in terms of its

appearance, usefulness, reliability, and durability etc.

Quality: quality as assessed by the market of your brand in terms of how it stands up against

competition.

Relevance: a brand must have meaning for its target market. If it does not belong to the target

market, it will not sell despite being differentiated. A professional camera has no meaning for

an amateur user!

Loyalty: customers are very satisfied, retained and would recommend your brand to others.

Differentiation: distinct features of a product that offer the target market a sustainable

advantage that translates into an important benefit.

Brand management tools: all the elements of brand management that you will study during the

course to leverage your brand.

Brand-based culture: a work culture that is adopted by all concerned within an organization

and the one that is most suitable and conducive for a cohesive team effort. Such a culture

preempts many unnecessary conflicts.

Bibliography:

1. Geoffrey Randall: "Branding A Practical Guide to Planning your Strategy"; Kogan Page

(15-17).

2. Roger J. Best: "Market-Based Management Strategies for Growing Customer Value and

Profitability"; PHI (220-223)

Other suggested readings

Jean-Noel Kapferer: "Strategic Brand Management"; Kogan Page (21-34)

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