Brand Management

Chapter 1
Introduction: Building the brand when the clients are empowered

There are very few strategic assets available to a company that can provide a long-lasting
competitive advantage, and even then the time span of the advantage is getting shorter.
Brands are one of them, along with R&D, a real consumer orientation, an efficiency culture
(cost cutting), employee involvement, and the capacity to change and react rapidly. This is
the mantra of Wal-Mart, Starbucks, Apple and Zara. Managers know that the best kind of
loyalty is brand loyalty, not price loyalty or bargain loyalty, even though as a first step it is
useful to create behavioral barriers to exit. Finally, A Ehrenberg (1972) has shown through 40
years of panel data analysis that product penetration is correlated with purchase frequency. In
other words, big brands have both a high penetration rate and a high purchase frequency per
buyer. Growth will necessarily take these two routes, and not only be triggered by customer
loyalty.

Beyond brand relevance: more meaningful brands

In our materialistic societies, people want to give meaning to their consumption. Only brands
that add value to the product and tell a story about its buyers, or situate their consumption on
a ladder of intangible values, can provide this meaning. Hence the cult of luxury brands, or
other cultural champions such as Nike or Apple. We stress the need for brands to have brand
content, revealing their culture. To resonate with present and future consumers, brands must
realize that, apart from market share competition, there is also a values competition.

Extension of the brand concept

Today, every organization wants to have a brand. Beyond the natural brand world of producers
and distributors of fast-moving consumer goods, whose brands are competing head to head,
branding has become a strategic issue in all sectors: high tech, low tech, commodities, utilities,
components, services, business-to-business (B2B), pharmaceutical laboratories, non-
governmental organizations (NGOs) and non-profit organizations all see a use for branding.
Amazingly, all types of organizations or even persons now want to be managed like brands:
David Beckham, the English soccer star, is an example. Los Angeles Galaxy paid US$250
million to acquire this soccer hero. It expects to recoup this sum through

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the profits from licensed products using the name, face or signature of David Beckham, which
are sold throughout the world. Everything David Beckham does is aimed at reinforcing his image
and identity, and thus making sales and profits for the ‘Beckham brand’. Recently, the mayor of
Paris decided to define the city as a destination brand and to manage this brand for profit. Many
other towns had already done this. Countries also think of themselves in brand terms (Kotler et
al, 2002). They are right to do so. Whether they want it or not, they act de facto as a brand, a
summary of unique values and benefits. Countries, cities, universities and so on compete in a
number of markets, just as a conventional brand competes for profitable clients: in the private
economic and financial investments market, various raw materials and agricultural markets, the
tourism market, the immigration market and so on.

It takes more than branding to build a brand

Although communication is necessary to create a brand, it is far from being sufficient.

Certainly, a brand encapsulates in its name and its visual symbol all the goodwill created by
the positive experiences of clients or prospects with the organization, its products, its
channels, its stores, its communication and its people. However, this means that it is
necessary to manage these points of contact (from product or service to channel management,
to advertising, to Internet site, to word of mouth, the

organization’s ethics, and so on) in an integrated and focused way. This is the core skill
needed. This is why, in this fifth edition of The New Strategic Brand Management, while we
look in depth at branding decisions as such, we also insist on the ‘non branding’ facets of
creating a brand. Paradoxically, it takes more than branding to build a brand.

Empowered clients

Today, with Web 2.0 and social medias, clients are empowered as never before. They have
access to a world of prescription, free advice and secret information on the web. They talk to
other clients. It is the end for average brands. Only those that maximize delight will survive,
whether they offer extremely low prices or a rewarding experience, service or performance. It
is the end of hollow brands, without identity. Retailers are also more powerful than many of
the brands they distribute: all brands that do not master their channel are now in a B to B to C
situation, and must never forget it.

Building both business and brand

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Throughout this fifth edition of The New Strategic Brand Management, we relate the brand to
the business model, for both are intimately intertwined. We regularly demonstrate how
branding decisions are determined by the business model and cannot be understood without
this perspective. In fact, in a growing number of advanced companies, top managers’ salaries
are based on three critical criteria: sales, profitability and brand equity. They are determined
in part by how fast these managers are building the strategic competitive asset called a brand.
The goal of strategy is to build a sustainable advantage over competition, and brands are one
of the very few ways of achieving this. The business model is another. This is why tracking
brands, product or corporate, is so important.

Looking at brands as strategic assets

For decades the value of a company was measured in terms of its buildings and land, and then
its tangible assets (plant and equipment). It is only recently that we have realized that its real
value lies outside, in the minds of potential customers. In July 1990, the man who bought the
Adidas company summarized his reasons in one sentence: after Coca Cola and Marlboro,
Adidas was the best-known brand in the world. The truth contained in what many observers
took simply to be a clever remark has become increasingly apparent since 1985. In a wave of
mergers and acquisitions, market transactions pushed prices way above what could have been
expected. For example, Nestlé bought Rowntree for almost three times its stock market value
and 26 times its earnings. The Buitoni group was sold for 35 times its earnings. Until then,
prices had been on a scale of 8 to 10 times the earnings of the bought-out company.

Paradoxically, what justified these prices and these new standards was invisible, appearing
nowhere in the companies’ balance sheets. The only assets displayed on corporate balance
sheets were fixed, tangible ones, such as machinery and inventory. There was no mention of
the brands for which buyers offered sums much greater than the net value of the assets. By
paying very high prices for companies with brands, buyers are actually purchasing positions
in the minds of potential consumers. Brand awareness, image, trust and reputation, all
painstakingly built up over the years, are the best guarantee of future earnings, thus justifying
the prices paid. The value of a brand lies in its capacity to generate such cashflows long term.
It is time to question many of the tools and concepts we have been using so far. The intense
competition from international low-cost actors and from private labels requires a more
demanding brand management. This is the new strategic brand management.

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 Brand equity in question

Brands have become a major player in modern society. In fact, they are everywhere. They
penetrate all spheres of our life: economic, social, cultural, sporting, even religion. Because
of this pervasiveness they have come under growing criticism (Klein, 1999). As a major
symbol of our economies and postmodern societies, they can and should be analyzed through
a number of perspectives: macroeconomics, microeconomics, sociology, psychology,
anthropology, history, semiotics, philosophy and so on. Even neurosciences tell us that we do
not drive a car but a brand of car, not drink a cola but a Coke or Pepsi. This book focuses on
the managerial perspective: how best to manage brands for profit. Since brands are now
recognized as part of a company’s capital (hence the concept of brand equity), they should be
exploited. Brands are intangible assets, assets that produce added benefits for the business.
This is the domain of strategic brand management: how to create value with proper brand
management. Before we proceed, we need to clarify the brand concept.

What is a brand?

Curiously, one of the hottest points of disagreement between experts is the definition of a
brand. Each expert comes up with his or her own definition, or nuance to the definition. The
problem gets more acute when it comes to measurement: how should one measure the
strength of a brand? What limited numbers of indicators should one use to evaluate what is
commonly called brand equity? In addition, there is a major schism between two paradigms.

One is customer-based and focuses exclusively on the relationship customers have with the
brand (from total indifference to attachment, loyalty, and willingness to buy and rebuy based
on beliefs of

superiority and evoked emotions). The other aims at producing measures in dollars, euros or
yen. Both approaches have their own champions. It is the goal of this fifth edition of The
New Strategic Brand Management to unify these two approaches.

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Customer-based definitions

The financial approach measures brand value by isolating the net additional cashflows
created by the brand. These additional cashflows are the result of customers’ willingness to
buy one brand more than its competitors’, even when another brand is cheaper. Why then do
customers want to pay more? Because of the beliefs and bonds that are created over time in
their minds through the marketing of the brand. In brief, customer equity is the preamble of
financial equity. Brands have financial value because they have created assets in the minds
and hearts of customers, distributors, prescribers, opinion leaders. These assets are brand
awareness, beliefs of exclusivity and superiority of some valued benefit, and emotional
bonding. This is what is expressed in the traditional definition of a brand: ‘a brand is a set of
mental associations, held by the consumer, which add to the perceived value of a product or
service’ (Keller, 1998). These associations should be unique (exclusivity), strong (saliency)
and positive (desirable). This definition has two problems. First it focuses on the gain in
perceived value brought by the brand

How do consumers’ evaluations of a car change when they know it is a Volkswagen, a

Peugeot or a Toyota? In this definition the product itself is left out of the scope of the brand:
‘brand’ is the set of added perceptions. As a result, brand management

is seen as mostly a communication task. This is incorrect. Brand management starts with the
product and service as the prime vector of perceived value, while communication is there to
structure, to orient tangible perceptions and to add intangible ones. A second point to
consider is that Keller’s definition is focused on cognitions. This is not enough: strong brands
have an intense emotional component. Neurosciences prove this.

Brands as conditional asset

Financiers and accountants have realized the value of brands (see Chapter 18). How does
the financial perspective help us in defining brands and brand equity?

First, brands are intangible assets, posted eventually in the balance sheet as one of several
types of intangible asset (a category that also includes patents, databases and the like).

Second, brands are conditional assets. This is a key point so far overlooked. An asset is an
element that is able to produce benefits over a long period of time. Why are brands

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