Brand Management: Equity, Strategy and Loyalty

Two 10 kg packs of atta sit side by side in a kirana store. One carries a well-known name and costs more; the other has no name. Many shoppers still pick the named pack, and that extra pull is what brand equity measures.

A brand strategy is the long-term plan to build, position and sustain the brand. Unlike a campaign, it is long-term and emotion-driven. It aims at growth, customer loyalty and a strong market position.

What brands do.

• For consumers: a brand identifies the maker, so buyers can hold it responsible. The same product can be judged differently depending on how it is branded. Brands simplify decisions and reduce risk.
• For firms: brands simplify handling and record-keeping, and give legal protection (trademarks for names, patents for processes, copyright and designs for packaging). They signal quality, so satisfied buyers can choose again. Loyalty makes demand predictable and builds barriers to entry. Kotler and Keller note that loyalty can let a brand charge 20 to 25 per cent more than competitors.

Rivals can copy processes and designs, but not the impressions that years of experience and marketing leave in buyers' minds.

An illustration. Suppose the named atta sells for ₹480 and the unnamed pack of the same flour for ₹430. If the brand sells 1 lakh packs a month, the ₹50 premium is worth ₹50 lakh a month (₹50 × 1,00,000). That premium is one visible sign of brand equity.

Keller's definition. Kevin Lane Keller defines customer-based brand equity as the differential effect that brand knowledge has on consumer response to the marketing of that brand. It has three ingredients:

1. Equity arises from differences in consumer response. If customers respond no differently to a branded product than to an unbranded one, the product is essentially a commodity, and competition will probably be based on price.
2. Those differences come from consumers' brand knowledge: all the thoughts, feelings, images, experiences and beliefs linked to the brand. These must be strong, favourable and unique, as Toyota's link to reliability is.
3. Equity shows in perceptions, preferences and behaviour across all of the brand's marketing.

Equity is positive when consumers react more favourably to the marketing once they know the brand, and negative when they react less favourably. The brand promise is the marketer's vision of what the brand must be and do for consumers.

Don't confuse brand equity with brand value. Equity lives in customers' minds and shows in how they respond. Value is a money figure put on the brand, for example when a firm is bought. Strong equity usually raises value, but the two are measured differently.

Where it breaks. Equity is hard to measure directly. Surveys record what people say, and a price premium can also come from wider distribution or habit. Equity can turn negative too: after a scandal, buyers may respond worse to the brand than to no brand at all.

For exams. Expect the AMA definition of a brand, Keller's definition of customer-based brand equity and its three ingredients, and the difference between equity and value.

Equity lives in customers' minds; value is what the brand is worth in money.

A brand that every household knows can still be losing buyers. Brand equity models split a brand's strength into parts, so a manager can see which part is weak.

Kotler and Keller describe several models of brand equity. They share principles but stress different things.

1. Young and Rubicam's BrandAsset Valuator (BAV) rests on four pillars.

• Brand strength = differentiation + relevance. It is a leading indicator of future growth.
• Brand stature = esteem + knowledge. It is a report card on past performance.

Plotting strength against stature gives a power grid of the brand's stage of development. New brands show more differentiation and energy than relevance, with low esteem and knowledge. Leadership brands are high on all four. Declining brands show high knowledge but lower esteem, and lower still relevance and differentiation.

An illustration. Imagine a hair-oil brand that every family in a town knows, but young buyers find old-fashioned. It scores high on knowledge and low on relevance and differentiation: the pattern of a declining brand. Being famous is not the same as being strong.

2. Millward Brown's BrandZ places consumers on a brand dynamics pyramid.

Bonded consumers build stronger relationships with the brand and spend more on it. Most consumers sit at the lower levels, so the marketer's task is to move them up.

3. Keller's brand resonance model sees brand building as four ascending steps, each answering a consumer's question. The steps rest on six building blocks. Resonance, at the top, is the intensity of the customer's bond with the brand, seen in brands such as Harley-Davidson and Apple.

The left side of the pyramid is the rational route and the right side the emotional route. MasterCard combined both, stressing worldwide acceptance and, in its ‘Priceless’ campaign, the things money can't buy.

4. Aaker's model (1991) groups the assets and liabilities in his definition under five heads: brand loyalty, brand awareness, perceived quality, brand associations, and other proprietary assets such as patents and trademarks.

Don't confuse brand strength with brand stature. Strength (differentiation and relevance) looks forward; stature (esteem and knowledge) looks back. Keep the two pyramids apart too: BrandZ has five levels, from presence to bonding; Keller's has four steps on six blocks, from salience to resonance.

Where it breaks. Each model organises survey measures; none is a law. They name different parts, so a brand's equity looks different depending on the model used. BAV and BrandZ come from commercial research firms and rest on their own survey data.

For exams. Expect a model matched to its parts, the order of the BrandZ and Keller pyramids, and which BAV pillars make up strength and stature.

BAV's four pillars, BrandZ's pyramid, Keller's resonance, Aaker's five assets.

A spice maker in Pune is about to launch a range of masalas. Before the first pack is printed, it must decide what the brand stands for, what to call it, whose name goes on it, and how the brand will grow.

Kotler and Armstrong group the choices into four decisions.

Three levels of positioning, for the masala brand. On an attribute: ‘no added colour’. On a benefit: ‘tastes like spices ground at home’. On beliefs and values: ‘cook for your family the way your mother did’. Positioning on attributes is the least effective level, since attributes are easy to copy. Benefits link the name with something desirable; beliefs and values tap emotions.

Sponsorship decides whose name the product carries. It can be the maker's own, a retailer's (a supermarket's own-label masala), a name licensed from another owner, or two brands together. Licensing leases a brand name for use in a defined way, territory and period.

To brand a new product, a firm can develop new brand elements, apply some of its existing ones, or combine new and existing elements.

Don't confuse brand sponsorship with sponsoring an event. Here sponsorship means whose brand name the product carries. Keep brand line and brand mix apart too: a line is all products under one brand; the mix is all the lines a seller offers.

Where it breaks. Positioning on beliefs and values is strongest only when the product delivers and the values fit the buyers; otherwise it reads as an empty claim. A blanket family name cuts launch costs but shares risk: one product's failure can harm every product under the name.

For exams. Expect the four decisions in order, the naming strategies matched to their effect, and the three levels of positioning.

Position, name, sponsor, develop.

A detergent maker sells one premium brand. A rival launches a cheap powder and starts taking buyers. Cutting the premium brand's price would hurt its image and its margin, so the firm needs another answer.

A brand can be stretched only so far, and not every segment the firm wants will view one brand equally well. So firms often need several brands.

Why have several brands in one category?

• to gain more shelf space and make retailers depend more on the firm;
• to keep variety-seeking consumers who would otherwise switch to a rival;
• to create internal competition;
• to gain economies of scale in advertising, selling, merchandising and distribution.

Back to the detergent. As an illustration, the premium brand sells at ₹200 a kilo and the rival at ₹110. The firm launches a flanker at ₹120 a kilo under a new name. The flanker fights on price, and the premium brand keeps its position and its margin.

Sizing the portfolio. If dropping a brand would raise total profit, the portfolio is too big. If adding one would raise it, the portfolio is too small.

Don't confuse a flanker with an entry-level brand. Both may be cheap. A flanker exists to fight a rival and protect the flagship; an entry brand exists to bring new buyers in and trade them up later. A cash-cow brand is also not the BCG matrix's cash cow, which is a business with a high share of a slow-growing market.

Where it breaks. Every extra brand needs its own marketing money. Brands placed too close together take sales from each other rather than from rivals. A flanker that is too good can pull buyers down from the flagship.

For exams. Expect a description matched to one of the four roles, and the reasons for keeping several brands in one category.

Flankers, cash cows, entry brands, prestige brands.

A noodle brand that every household knows wants to sell ketchup. Using its famous name could save years of advertising. It could also blur what the name stands for.

The established brand is the parent brand. A parent brand that supports several extensions is a family or master brand. A sub-brand combines a new name with an existing one, as in Cadbury Dairy Milk Silk.

Kotler and Armstrong's four brand development choices form a grid.

Multibrands are new brands in an existing category, used to capture different segments. A flanker or fighter brand, a lower-priced brand launched to protect the flagship, is one use of them.

An illustration of the cost argument. Suppose building awareness for a new ketchup brand would need ₹40 crore of advertising. Under the noodle name, the campaign need only introduce the product, so ₹15 crore might do. The ₹25 crore difference is the saving from extending.

Co-branding puts two established brands on one product, so each brand's strength supports the other.

Don't confuse the two uses of ‘brand extension’. In Kotler and Keller, brand extension is the umbrella term, covering both line and category extensions. In Kotler and Armstrong's grid, a brand extension means a new category only, and a line extension is a separate choice. Check which usage a question follows.

Where it breaks. The brand may become less strongly tied to any one product. A brand known for Ayurvedic products that moves into jeans, for example, risks its specific meaning. Inappropriate extensions can confuse buyers and make them question the brand's integrity.

In practice. Before extending, ask two questions. Do the parent's associations fit the new category? And will the new product add to what the brand means, or blur it?

Go deeper for practitioners

Why extensions succeed more often. Consumers form expectations from what they know of the parent. Retailers are readier to stock the product. The launch campaign need only introduce the product, not the brand too. The firm saves the cost of a new name and gains packaging and labelling efficiencies. Extensions can also feed back positively: they can clarify the brand's meaning, renew interest in it, widen its coverage and open the way to further extensions.

How much damage a failure does. The worst case, an extension that fails and harms the parent, is rare. ‘Marketing failures’, where too few people try the product, do much less damage than ‘product failures’, where it fails to live up to its promise. Even product failures dilute equity mainly when the extension closely resembles the parent.

A decision. As an illustration, the noodle brand's ketchup sells 10 lakh bottles a month. Research shows 4 lakh of those buyers used to buy the firm's own older sauce. That looks like cannibalisation: 40% of the new sales came from the firm itself. But if those buyers were about to switch to a rival's ketchup, the loss is pre-emptive cannibalisation, and the firm is better off taking its own sales than losing them.

Extend the line, extend the brand, add brands, or start anew.

Two regulars buy tea at the same stall near a bus stand. One walks past a cheaper stall every day to get there; the other moves whenever a rival offers ₹2 off. Both buy often, but only one is loyal.

Loyalty shows in repeat purchases and in positive behaviour such as word-of-mouth advocacy. David Aaker (1991) arranged its levels in a pyramid, from no loyalty at the base to full commitment at the top.

Back to the tea stall. The customer who moves for ₹2 off is a switcher. A customer who comes only because the stall is on the way is a habitual buyer. One who would lose the free tenth cup on a loyalty card by going elsewhere has a switching cost. The one who walks past the cheaper stall, and brings friends, is a brand liker or a committed buyer.

Don't confuse repeat buying with loyalty. A habitual buyer repeats out of convenience and leaves when a rival makes switching easy; a committed buyer stays and recommends. Study notes often give the levels in a muddled order; the version here follows Aaker.

Where it breaks. The pyramid sorts buyers; it does not measure them. One person can be committed to a brand of tea and a switcher on detergent. Loyalty programmes can raise switching costs (level 3) without making anyone like the brand.

For exams. Expect the five levels in order from base to top, and a description matched to its level.

Switchers, habitual, switching costs, likers, committed.