Friday, December 14, 2007

Brand Building, Brand Equity, and Brand Market Building

In the Economic Times 14 December 2007, page 17, I came across the article “Brand Building’s Key to Long-Term Success” authored by Jacob Cherian.

The article begins with the statement that Mocha coffee shop started brand building from day one. But focused on developing a critical mass of users through word-of-mouth. It started brand building only in 2007, even though it had started in 2001.

The article focuses on the dilemma of start-up companies whether to build a brand or not? Because while a strong brand equity can bring enormous value to the company, it also requires a large commitment of capital and management energy early on. To add to the confusion some experts recommend brand building even at the pre-product stage, where as others recommend waiting till the company establishes the core attributes of their product or service offerings.

Harshal Shah of Reliance Technology Ventures supports the idea that a company should start building its brand, as soon as it has validated its core. The core according to him comprises the venture team’s values, experiences and capabilities.

Some of the points made in the article are as follows. A strong brand is a profitable asset. Brand identity is essence of the attributes of the offering, which will be consistently performed every time a customer experiences it. It is not mere advertising, nor even just marketing, but a clear recall in the consumer’s mind of all that a product or a service stands for. Living the values that the newborn brand claims to represent and communicating to the audience that the same results can be expected in all the transactions with the brand has to be done repeatedly for sufficient period of time to build the brand. Longevity and profits in the long term are a good reason for early brand building.

This article increased my curiosity in the concept of branding. What is branding? Is it a part of marketing? Is there a war of words going on between marketing and branding? Such war is being fought between management and leadership. While in the earlier texts on management, leadership was a chapter. We have now a set of people who claim that managers are not leaders or managers were not trained to be leaders.

I quickly glanced through the Kotler’s Marketing Management (Ninth edition) for refreshing myself on the issue. Kotler gave a view of the marketing process originally proposed by in McKinsey staff paper.

In the process, there are strategic marketing steps and tactical marketing steps.

Strategic marketing steps:
---- Customer segmentation
---- Market selection/focus
---- Value positioning

Tactical marketing steps:
** Providing the value
---- Product development
---- Service development
---- Pricing
---- Sourcing or making
---- Distributing and servicing

** Communicating the value
---- Sales force
---- Sales promotion
---- Advertising

Where is branding in this marketing process? Branding needs to be brought into the marketing process to clarify its role in marketing.

Kotler covers brand decisions in the chapter on “Managing Product Lines, Brands, and Packaging.” The definition for brand used by Kotler is the one given by the American Marketing Association.

“A brand is name, term, sign, symbol or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.”

Kotler is not happy with the definition as he elaborates immediately that a brand is essentially a seller’s promise to consistently deliver a specific set of features, benefits, and services to the buyers. And he further states that a brand is even a more complex symbol. It can convey up to six levels of meaning: attributes, benefits, values, culture, personality, and user. In this context is it not better to define brand as a specific set of characteristics of an offer uniquely identified by a name, term, sign, symbol, or design or a combination of them? By defining it that way we may be able to identify the major groups of items that go with a brand:

Brand name
Brand design
Brand technology
Brand organization of production and marketing.

Each and every item above can be sold by business organization and bought by another organization. We can even think of brand market information as an additional item. It can be thought of as part of brand organization also.

What is brand building? Kotler does not describe and discuss the concept of brand building (Ninth edition). I feel brand building is concerned with potential users in the market. Recall that one of the points made in the Economic Times article is that brand is a clear recall in the consumer’s mind of all that a product or a service stands for. This is really the issue in brand building. For indicating this meaning a more appropriate terminology could be to say that brand building consists of ‘brand offer building’ and ‘brand market building.’ Having developed a brand or an offer identified by a brand name, the organization has to develop a market for it. This meaning is implied by discussions of brand equity in Kotler.

In the discussion on brand equity, Kotler says brands vary in the amount of power and value they have in the market place. At one extreme are brands that are not known by most buyers in the market place. They are brands for which buyers have a fairly high degree of brand awareness (measured either by recall or recognition). Beyond this are brands with a high degree of acceptability-in other words, brand that most customers would not resist buying. The next two categories are brands having customer preference and brands having customer loyalty. This discussion brings out the relation between brand and potential users. Brand building is costly because the brand is to be placed before the potential users for them to become aware of it, become users and accepters, and then develop brand preference and brand loyalty. All this brand building may need to be done even before the first sale is made. This is an upfront investment in developing a market for a particular brand.

What are the benefits of brand market building? The upfront investment in brand market building is to be equated to investment in high technology equipment. High technology equipments require large capital investment compared to low technology equipment, but they offer savings in terms of operating cost. The cost benefit analysis of using high tech equipment is a trade off between initial cost and running cost. Similarly, brand building which includes brand offer building and brand market building will reduce selling expenditure. A company that has not built a brand has to incur higher selling cost to transact with the customer. The salesman has to communicate much more with the customer and spend more time with him to show that the product works before a sale is made. The salesman has to use his personal relationship with the potential buyer to convince him to buy the product. Brands with large markets make selling easy and therefore dealers and distributors stock them more willingly for lower commissions.

Explained in this way, the dilemma of a start up is clearer. The decision is similar to the scale of production capacity and level of technology. Initially the start up may have small production capacity with general purpose equipment. This may result in high production costs. But investing in large plants can be risky. Similarly when it comes to brand market building it may not do in a significant manner but rely on experienced salesmen to make the sales. This will mean that selling costs are high but incurring upfront brand market building expenditure is risky.

This also explains the recommendation of some experts that brand building should start once the core of the offering is finalized. At this stage, the venture team is confident of the success in production side as well as market side through its initial forays through avenues that have high current or operating costs. The venture capitalist is happy to release money for both building a large plant with more automation and brand market building.


swati said...

branding is a very small but very essential ( now it has become essential) part of marketing. Few steps of the branding like design, brand name etc are part of product development and rest of the parts are steps in product sales and marketing....its not seperate from marketing or merchandising of product....

Rana said...

Kotler is tying to cover all the components of Marketing in the book. Brand (management) is a component of it. In my view is a general Marketing specialist (the same way Peter Drucker was to Management). Brand Management is a specialised part of Brand Management. People like Akers etc would give you a better insight on Brand Management. I also like Trout (of Ries & Trout fame)
I would say that you did raise some very valid points though and i disagree with Swati where she says Branding is very small...
All these concepts Strategy, Positioning, Segmentation, targeting, Brand & communication are interlinked and integrated.

If marketing and brand people fight for their turfs, the brand and the company would suffer.
The importance of branding depends on categories/ industries. In general, the importance is high when there are many buyers and many sellers its importance would be less when there are limited buyers and limited sellers.
Brand building is an investment as one is ready to pay extra premium for a brand.
Yes it does come at acost but it helps in better ROI.
I would like to add one more critical point in marketing or brand building - the customer experience at all touch points. You can fool people to come for experience by advertising & other communication modes, but repeat/ retention is a function of experience of product/ service.

I could go on. If you find my views relevant, we could discuss those views/ points at length.