Dec 14, 2013

About Brand Value

Lately, I've been involved in a lot of shopping. That's made me think hard about brands and brand value. In this piece, I write down my thoughts and opinions on the subject, based on my own experiences as a marketer as well as a customer. People have written entire books on the subject, so this may be a long post!

Like all good consultants, I've come up with my own framework to analyze brand value. And in keeping with marketing tradition, I use 4 P's

The word 'brand' derives from the Old Norse "brandr" meaning "to burn". Originally, a brand was just a mark used to denote who the product was made by. It translated into an origin, and associations of quality and specific attributes. This remains true even today - a bar of soap branded Dove contains moisturiser, is gentle on the skin and is made by Unilever.

These associations are built over time, and are based on the characteristics of the product and its performance. These, in turn, can usually be attributed to materials used & specifications, and knowledge & skill of the producer. This is always true of both goods and services to various degrees. A good TV uses high quality components to deliver good picture & sound quality, and you need designers with good understanding of user needs and available technology to deliver a product that has popular features, and good manufacturing processes to ensure it works well for many years. I buy certain brands of shirts because I know they use high-quality cotton, don't fade after a few washes and retain the stiffness & shape of the collars, cuffs etc. because they use high grade materials. Restaurants are a service business, but even in this case you need good, fresh meat/produce and skilled chefs, friendly waiters etc. to succeed. 

Any compromise or gap in materials/specs and/or producer knowledge/skills directly affects product performance and eventually brand reputation. Marketers sometimes lose sight of this and focus all their energies on building brand image, running campaigns, communication etc. - and don't pay enough attention to the product itself. This is a recipe for failure in the long run.

As an example, I had considered the Asus 'Transformer' line when I was buying my first tablet, and again recently when I was looking to upgrade. On both occasions, their products had great specs - processor, RAM, screen resolution etc. - and offered a few unique features at a very competitive price, which was enough to get into the consideration set. However, both times, I read several buyers complaints about defective units, dead pixels, light 'bleed' at the edges of the screen. Clearly, their manufacturing process isn't as reliable as Apple's or Samsung's, and their quality control is also weak. No matter what the marketer does now, I'm not buying. They need to fix the product quality first.

Another example I'll quote is Energy Drinks. I love and admire the brand Red Bull. But when I'm in the UK, Relentless is available to me. With its 50% juice composition, it just tastes far, far better than Red Bull - and is healthier too. No matter how many F1 championships Sebastian Vettel and Adrian Newey win, I will drink Relentless because it tastes much better. The superior product wins.

In this day and age, we have greater production capacity than demand for most products. Consumers are spoilt for choice, and they demand - justifiably - a good end-to-end experience all the way from seeking information about a product (websites etc.), to buying it, using it and getting it repaired when something breaks down, and disposing of it when the time comes. Apple's products succeed because the whole experience is a pleasure at every stage.

When you think about resellers like Croma or, the product you're buying is the same (an appliance or an air ticket) but you prefer buying it through these stores/sites because it is an enjoyable experience. Needless to say, brands that aren't present where you prefer to shop risk losing out on a potential sale. I book my movie tickets through a 3rd party website which offers me discounts. The same with travel. Cinemas or hotels or airlines that aren't listed on my preferred website mostly lose my business, regardless of what else they've done right.

Marketers must realize their job doesn't end with creation of demand and shipping volumes out the door. They must engage with the customer at every stage of the brand's life. They must have web-sites or catalogues where customers can get information about their products when they're evaluating purchase decisions. The product must be available on the shelf (or site). Using the product must be a good experience. I want to be wowed by performance, durability, features I didn't previously know about, and by prompt service whenever I have a problem. has almost displaced as my favorite travel booking service by sending discount coupons for airport transfers when I book a flight through them. And Google are masters of the 'pleasant surprise' with things like Google Now. On the other hand, I am unlikely to buy Sennheiser products again because a set of earphones I had broke a few days after the one-year warranty ran out, and I didn't find their customer service very helpful. I will avoid such experiences in future, and those brands have negative associations in my mind now.

We also must recognize the importance of shared experiences these days. People have always talked about products they've owned with a few others, but now social media have taken this to another level. In my earlier example of Asus Transformer, I made a decision based on reviews posted on by people I have no direct link with. For almost every significant purchase decision these days, I check the web for customer reviews first. I see how many people have bought the product, what is the average score, the proportion of unhappy buyers and read the 'most helpful' (based on other readers' votes) reviews - both positive and negative. Buyers can be very well-informed these days, and if you don't keep them happy, they will hurt your brand and your business. Conversely, happy customers will sway others towards you. Brand loyalty (experience) is no longer the holy grail, you want to achieve brand advocacy (pleasure).

I believe pricing must be rational and fair to everyone involved - the buyer, the business owner/investor, and all their employees.

You must have heard the adage - quality comes at a price. As I mentioned earlier, a good product requires good ingredients and skills to produce. Good distribution and service networks, committed staff etc. that provide the pleasure also cost the provider money.

A product's price must be such that it covers the costs incurred to produce, distribute and service it, and the employees committed to producing good quality, innovation, customer satisfaction etc. must be able to pay their bills and lead happy lives. In the West, a lot of people don't buy cheap items produced in sweatshops by exploiting poor workers in less developed countries - and I agree with this. Finally, business isn't charity - the investors/shareholders are in it for profit, and they deserve good returns on their investment if they're helping you meet a need. If I'm happy with a product, I should be willing to pay the fair price.

This is one of the reasons why I don't generally support duplicates/knock-offs. If P&G spent money on research to come up with the optimal formula for detergents, and a retail chain copies the formula and sells a similar 'private label' product at a 20% discount, I wouldn't buy it. It's not fair, and if P&G stops investing in R&D, we will not get better products in future. The same logic holds for premiums charged by talented designers for clothes etc.

However, the producer must try and achieve efficiency for their costs, and not waste any of the money they get from their buyers. I don't generally buy products from Indian PSUs because I know most of their employees don't work as hard as their counterparts in the private sector, and tax-payers money is wasted to subsidize both the employees and the customers. It is not fair to expect the buyer or the government to pay the price for your inefficiency. You must get a grip on your cost structure.

Also, some brands command premiums that are just plain ridiculous, and they do this to maximize earnings for a few wealthy investors. Sometimes, these decisions are driven by greed, and sometimes by conceit and an over-developed sense of their worth. E.g., I recently saw a leather belt in a Gucci store that carried a price tag of Rs. 29,000 ($450). I'm not exaggerating when I tell you that I carefully counted the zeros again because I wasn't sure I had read it right the first time. Now, I can get a similar belt in the adjacent Louis Phillipe store for about 1/10th the price. Whatever Gucci is doing - maybe they're using higher-quality leather, investing more in design (although this was just a strip of leather with a plain buckle, so I don't really see the value-add, but maybe there was something there a more discerning eye would see), maybe they're providing a better store experience, some prestige (more on this below) - it can be worth some premium, but this is crazy. The fact that some people have the disposable income to pay such an amount for the product, and the amount adds a bit more to the obnoxious wealth of a talented designer - for me just drives home the realization that we live in a world that is far from fair and where a lot of things just don't make any sense.

Thankfully, in most cases, pricing needs to make sense. In a south-east Asian country, we've seen a brand of cola drop from near-monopolistic leadership to a distant 3rd position in terms of market share in less than a decade. People still love the brand, but in times when the economy is tight, they drink others that they feel offer much better value for their money.

Pricing can also lose you a lot of business. When I bought my last TV, I had planned to buy Samsung. I expected the price to be a bit lower than a comparable Sony, but was surprised to find it ~25% higher. Sure, Samsung had introduced voice and gesture based controls and a few other gimmicky features - but in my mind, the Sony was better value for money and I bought that. I will keep this in mind when I'm considering a Samsung product in future and not just assume they're reasonably priced.

In short, the marketer should consider the alternatives available to the buyer and their prices. So should the buyers!

One of the trickiest cases is Pharma. While I agree that they must be compensated for their R&D expenses for inventing break-though drugs and avoid buying generics, the duration for which they try to hold on to patents, the tricks they use to block competition, and the way they try and squeeze dying patients for every penny they're worth and sometimes more - appears to cross the line and smack of greed. I feel this subject needs needs more critical discussion to arrive at a solution that's fair to everyone.

There is no getting away from the fact that the brands you are seen with reflect on you, and people make judgments based on that. As a Punjabi, I understand this all too well!

A lot of the time such associations can be positive. I have my wedding coming up soon, and I'd like to buy Tanishq products after seeing their two recent ads - one where they show a dusky bride re-marrying, and one where they support LGBT rights. In these cases, it's not just about the products - the brand is helping me express something I believe in, and I'm willing to pay a premium for that.

There is some prestige associated with most premium products that usually stems from a tradition of high quality, good service, innovation or uniqueness - among other things. People are proud to own Apple products these days, because they represent innovation and the very top of the pyramid in terms of elegant design and user-friendly interfaces. Others can't necessarily achieve this by matching their products or pricing, and this enhances Apple's brand value. Creators/managers of brands must keep this in mind.

While low price is a good strategy when you're dealing in a commodity or aiming for volume leadership, keep in mind that it limits your profitability and also your future profit growth potential. Even if Micromax launched a smartphone tomorrow that matched a Samsung Galaxy in every way at a lower price, a lot of people still may not buy it because the brand is considered cheap, associated with lower-grade components, imitation of other's innovative features and its prestige value is negative in this category.

On the other hand, I'm sure the buyer of the Gucci belt feels some pride about owning a Gucci product, and I'm sure Gucci is reaping the benefits of the prestige associated with their brand. However, I feel the price premium in this case crosses the line from prestige into obnoxious vanity, which can hurt a brand in the eyes of many potential customers.

A case in point would be imported goods with high customs duties, such as cars and perfumes in India. If you want to spend good money of Davidoff perfumes because you just love their unique scent, I think that's fine. However, keep in mind that a bottle typically costs ~Rs 2,000 if purchased overseas or Duty-free at the airport. The appropriate prestige value is already factored in. Now, if you buy it in a mall for Rs 4,000 - the extra money doesn't go to Davidoff, but to the government which will waste most of it on hare-brained and inefficient schemes and line the pockets of some corrupt leaders. Sure, such a purchase allows you to show off your high disposable income - which may be your objective - but I would not include that in my definition of prestige. The world would be a better place without this phenomenon.

In an ideal world, there would be free trade and I'd have the choice to buy a good German car at the same price the Germans can. While the price would be somewhat premium compared to domestic brands, it would be justified by product superiority, pleasure of use and prestige derived from the brand's history. But paying high customs duties today is only a means of displaying wealth in an obnoxious manner.

Prestige is an important component of brand value, and it must be a priority for the brand manager, but it is co-created by the users/customers. So, in this case, I feel the responsibility for keeping things rational and keeping the producers in line lies with us. We need to be sensible about how much of our disposable income is spent on brand prestige versus perhaps more important things.

An example
When anyone I know asks me for suggestions for electronics/appliances, the budget is finite and no one has the time to do much research, I recommend they buy the best Samsung product available within their budget.
Product: Will be close to best-in-class, or just a notch below. Good enough for most people.
Pricing: They're not too expensive, and you're unlikely to easily get something much better at the same/lower price.
Pleasure: I've NEVER had a problem with a Samsung product, and I've used a few. LG matches them on product/price usually, but I've had problems once or twice with the units I got.
Prestige: While it won't be a source of great pride, it's certainly not an embarrassment. And I feel they have a better reputation than LG or others in the same price bracket.
I would consider this a success for brand Samsung.

One can look at brand value in two ways, and I think they're inter-linked. To the buyer, it is what they'd be willing to pay to meet a need and derive certain benefits. To the producer, it is a measure of what they can charge customers for their products/services and grow a profitable business. For things to work well for both sides in the long run, the two must be in balance. The above framework should help both brand managers and users to think about brand value in a structured manner and achieve such a balance.

I haven't tried too hard to isolate these dimensions or define everything formally because these 4Ps are inextricably linked with each other. Product quality & performance affect reputation, which in turn affects price, provides prestige and pleasure. Conversely, pleasure, pricing and brand prestige must be kept in mind while designing products. Also, not all brands have the same goals - some aim at economy for the masses, while others try to be premium and differentiated to please the discerning - so there is no 'ideal' position on any P, and every brand could have its own sweet spot within its category. One must think of brand value in a holistic manner. Hopefully, the above discussion and examples help.

Do feel free to chime in with your thoughts. I'd love to discuss various brands and adapt the framework as necessary.

Request: Do not quote/copy any of the above ideas or content without reference to this post.