Fall of Traditional Brand Management: Making Way ... - Brandchannel

Fall of Traditional Brand Management:
Making Way for CRM and Business Equity
Dr. M J Xavier
Dean, Academy for management Excellence, Chennai – 600 034, India

Fall of Traditional Brand Management:
Making Way for CRM and Business Equity
ABSTRACT
In the first part of the article the rise and fall of branding and brand management is
discussed in detail. Though branding is an age old concept, it assumed greater importance
during the mass marketing era when the brand owners had no direct contact with the
ultimate consumers and vice versa. Brands became the embodiment of product value,
customer relationship and company image. However the downfall started with the
emergence of the internet era.
The second part discusses the emergence of CRM and provides a new model of Business
equity that looks at issues in an integrated manner. Basically the age of interactivity has
made it possible for companies to address customers on a one-to-one basis and custom
design products according to individual specifications. Hence the traditional brand
management concept is giving way to a new integrated model of Business Equity that
combines brand, customer and value equities.
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Fall of Traditional Brand Management:
Making Way for CRM and Business Equity
INTRODUCTION:
Branding has dominated the marketing literature for several decades. Though branding is
an age old concept, brand management is believed to have emerged in 1931 when the
president of Procter & Gamble decided that each P&G brand should have its own brand
assistants and managers dedicated to the advertising and other marketing activities for the
brand. A separate sales department was responsible for getting products on to retailers’
shelves. The branding strategy required companies to spend heavily on mass media
campaigns and build a brand and the world would beat a path to its doors. Long standing
brands such as Marlboro, Coca-Cola, Xerox, IBM, and Intel are considered to be among
the world’s most valuable assets. This has motivated many companies to base their
strategies almost entirely on building brands.
Basically brands were created by marketers to address different needs of different
segments of customers and for easy identification. The marketing department of the
yesteryears thrived on the brand management principles. They were involved in
researching the consumer attitudes and desires and identifying unmet needs. They were
able to come up with modifications (often trivial one) to existing products that appealed
to different segments or market niches. Then they went through the process of new
product development, packaging design, positioning and promoting the product. This
helped marketers to play the role of a liaison men between the company and its
customers.
However, the time-tested method of brand management is coming under tremendous
pressure as more and more companies have started restructuring their marketing
departments. There are several reasons for the decline of branding in general and brand
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management in particular. The following 10 reasons for the decline and downfall of
branding are discussed here.
REASONS FOR THE FALL OF TRADITIONAL BRAND MANAGEMENT:
(1) Value seeking behavior
The first trend is that people increasingly buy goods on `value for money’, not because
they carry a famous name. Even the world famous Marlboro cigarettes had to slash prices
to defend the much-advertised brand from cheap, generic rivals (Economist, 9 April
1994). More and more price-conscious consumers are demanding the best value in the
products they buy. Additionally, social status may be less a function of a person’s
possession in the twenty-first century than it may has been in the last part of twentieth
century. In response to these developments, the firms too offer more services and higher
product quality – that is more value for the same amount of money. Consumers
increasingly expect and even demand these added benefits. Consequently companies are
forced to cut down most of the non-value-adding activities, including advertising, in most
cases.
(2) Brand proliferation
The second trend that is eroding the credibility of branding is brand proliferation.
Basically, there are too many brands floating around in every product category, which
differ only in their names. This only adds to the confusion of customers who are already
bombarded by thousands of marketing messages daily. All these lead to an overall
degeneration of the brand as a marketing tool.
(3) Rising power of retailers
The third trend is the shift of power from manufacturers to retailers and the weakening of
power brands. In the past the brand managers used market research information to assess
consumer needs to gain an informational advantage over the retailers. Today, most
retailers use sophisticated computer systems to track buyer behavior and this ownership
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of vital consumer information is becoming the key to power. Retailers have started
marketing private label brands that offer better value for the consumers’ money. As the
retailers can assure quality, consumers do not care much for the mega-brands. In many
product categories, the retail brands are dominating over the individual company brands.
In fact the retailers dictates whether a new brand will be given shelf space or not.
(4) Declining TV audience
The fourth trend is the decline in television audience for different channels and
effectiveness of television as a medium for promoting brands. Though the media costs are
on the rise, the impact is getting less and less, particularly in the FMCG sector. This is
mainly due to the fact that rival products differ so little that brands have become hard to
promote. The clutter and the noise have also contributed to the compounding of the
problem. As such the proliferation of TV channels has greatly reduced the audience
reached through individual programs.
(5) Emergence of e-commerce
The fifth trend is the emergence of e-commerce and the shift towards buying through the
Internet. The Portals themselves become the brands and they consequently manage to sell
an assortment of products sourced from different places. Amazon currently sells books,
music, electronic gadgets, toys, games, women's apparel, sporting goods and software - all
under the Amazon banner.
(6) Mass customization
The sixth trend is customization. With the emergence of one-on-one marketing, brand
proliferation within a company has lost its relevance. Why would anyone want to have
sub brands, when the company can offer products customized to the individual level? All
that matters will be the company name for identification. With the media getting highly
fragmented, and advertising itself shifting to the interactive mode, brands are losing their
relevance in today’s context. In the future, there won’t be any brand but for the
`company brand’. When, for example, a company can deliver customized liquid soap out
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of a vending machine to suit every individual, why then have sub brands? Branding, as
we know of it today may not exist in the future.
(7) Shift to category management
The seventh trend points to the move away from the traditional `Brand Management’ to
`Category Management’. The multinationals have realized that the individual brands are
not essential, but the company will need to maximize the sale of a category as a whole.
The category manager responsible for toilet soaps will look after the sale of all toilet soap
brands of a company and liaison with the retailers to ensure the product availability and
report the customers’ (retailers’) voice back to the manufacturing department.
(8) Hyper-active media
The eighth trend is the emergence of hyperactive media. All that has been built over a
period of time through concerted brand efforts may get demolished overnight by the
news-hungry media. On June 14 th 1999, Coca-Cola's soft drinks were banned in
Belgium as more than 100 people suffered nausea, headache and diarrhea. Luxembourg
and France followed suit with the company voluntarily withdrawing from Netherlands. In
the same way, the negative word of mouth spreads much faster through Internet which
could break even established brands. The point that is being put forward is that brands are
not as durable as they were made out to be. If they are not going to give that kind of a
sustainable advantage, the question being raised is, whether the marketers are justified in
making large investments in building of brands. We are not against having a brand name;
but our contention is that marketers will have great difficulty in justifying the ad budgets
to promote their brands in the future.
(9) Brand building without advertising
The ninth trend is brand building without mass media advertising. There is another school
of thought (Joachimsthaler and Aaker – 1997) that believes that brand building is
strategic in nature and the top management should be involved in the same. But again the
advertising route to brand building is not seen as the favoured route. There is a new breed
of companies like Body Shop who got their brands built without spending a pie on
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advertising. Brand image gets registered in the minds of the consumers based on the
relationship the company has with its customers. Relationship building is a two way
process with care and concern for mutual interests. Contrary to this, brand image thrives
on the knowledge-gap of the consumers and helps marketers to charge a premium that is
directly proportional to the ignorance of the customers. Whereas relationships are built on
fair dealings and educating the customers where knowledge gap exists rather than
exploiting it. Firm relationships are more durable than the fancy brand image built in the
air.
(10) Commoditization of products
The tenth trend is the commoditization of products (Xavier – 1999). The loss of brand
power can be seen in many product categories when the patents expire or the technology
becomes easily available to a large number of manufacturers. Consider the case of any
new drug, say Viagra. Currently Pfizer is able to charge a premium price, as it is the sole
proprietary owner of the formula for the drug. Sooner or later the substitute products or
even superior formulations will emerge. Once a number of formulations become
available, automatically the prices will start falling. Generic brands will also start
appearing in the market. It is at this time, that the product will become a commodity and
the so called `brand magic’ will cease to work and the brand can no longer charge a
premium price. The different phases leading to commoditisation are shown in Figure 1.
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Average Industry price
and cost per unit
I II III IV
Time --------------
Figure 1
The Commoditisation Process
The Phase I in the figure refers to the introduction phase, when the price tends to be
lower than the cost as the entire product development cost cannot be passed on to the first
few customers. After a while the company breaks-even and enters the Phase II where it
starts earning supranormal profits. This is when it starts attracting competition.
The substitute products and new products start appearing in the market which lower the
price of the product in the market place in Phase –III, which in turn leads to a shake-out
in the industry and the commoditistation process gets initiated. During Phase – IV,
commoditisation gets completed. Here the companies in the marketplace, bring out
products of more or less similar quality and the price gets lowered to a stage where there
is a one to one correspondence between the cost and price as shown in Figure 1.
Mindshare Vs Marketshare:
PRICE
COST
Basically, people patronize a brand as a risk reduction strategy. When a customer is not
competent enough to evaluate the quality of a product and the differences in the brands
that are available in the market are many, customers will tend to stick to known and
popular brands. When all the products offer more or less the same quality then the choice
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should automatically depend on price and availability in convenient outlets. We see this
happening in a number of product categories, such as toiletries, biscuits, hot beverages
and so on.
In the case of high-priced items, proliferation of models by competitors is a clear
indication that the category is moving towards commoditization. It clearly shows that the
consumers for that product category have evolved to such a stage where they do not want
to settle down for the leading brand; but they would choose that model which comes
closest to their requirement. Here again the choice does not depend on the brand image
but on the value offered by the product. Ultimately it should lead to customization of
products to suit individual requirements.
It is not suggested that the marketers do away with branding. What is being questioned is
the notion that a good brand can compensate for other shortcomings in the product and
competitive pressures. Once the customers get educated, then the market dynamics
changes. People do associate products with leading brands, like Sony for Television,
Casio for Calculators, Tiger Balm for Pain relievers, IBM for computers and so on.
However this mind-share does not translate into market-share; otherwise these brands
should command close to 80 percent market share in their respective product categories.
Brands are needed for identification, but the fundamentals have to be good to get
customers to buy the products. As the product gets closer to the commodity stage,
customization and value for money are the two factors that can help.
BRAND EQUITY TO BUSINESS EQUITY:
Brand Equity occupied the centre stage of marketing during the 90’s. The basic idea is
that most of the assets of any business are intangible: its company name, brands,
symbols, and slogans, and their underlying associations, perceived quality, name
awareness, customer base, and proprietary resources such as patents, trademarks, and
channel relationships. According to David Aaker (1991) these assets, which comprise
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and equity, are a primary source of competitive advantage and future earnings. Several
research studies were done in the area of brand equity measurement and management.
Customer Equity:
However, with the advent of the Internet era, things have started taking a different shape.
The days of mass marketing is coming to an end The retailers are now moving away from
the traditional segmented approach to marketing to customizing relationship with
individual customers. Instead of maximizing value per transaction they are now able to
exploit the life-time value of a customer by taking a holistic approach to customer
satisfaction and building relationship with individual customers. All these are possible
mainly due to the use of IT in retailing. With the introduction of tele-shopping, on-line
shopping and virtual shopping malls the retailing wars of the future are not likely to be
fought in the marketplace but rather in the virtual marketspace.
The current marketing thinking revolves around the fact that it costs less to retain
customers than to compete for new ones. The marketers have realized that it makes
immense sense to retain customers for life, rather than merely making one-time sales. It is
now established that building closer relationship with customers results in better returns
to companies through the following means:
• Increased use of company services by loyal customers
• Charging of price premiums for customized services and
• Referrals by satisfied customers that bring new customers.
Customer Relationship Management (CRM) revolves around the management of
customer life cycle as indicated in Figure –2.
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Customer Retention
and referrals for new
customers
Customer Need
Assessment and
Acquisition
Customer Equity
Leverage through
Cross Selling and Up
Selling
Figure - 2
Customer Development
through personalization and
customization
© Dr. M J Xavier
Companies start with customer acquisition either through the traditional advertising or
through referrals. Then they move on to customer development through personalization
of communication and customization of products and services through a mutual learning
process. Then they go on to leverage the customer equity through cross selling and up
selling. They also work for the retention of existing customers and also benefit by the
new customers that they get through their personal referrals. As a result of these
developments, companies now have started placing greater emphasis on customer equity
as customers are seen as the greatest assets of a company.
Value Equity:
Having customers or owning a brand alone will not ensure success in any business.
Fundamentally companies need to offer value to customers. Earl Naumann (1994) says
that the key success factor for every business -- manufacturing, service, or retail -- is the
ability to maximize customer value. Product quality alone is not enough. Customers must
be integrated throughout a firm's decision-making process. And from that re-engineered
corporate culture must flow three imperatives: product quality, service quality, and value-
based pricing.
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The components of value equity are quality, cost and service. The unique ways in which a
company is able to deploy its vale creating assets such as Raw Materials, production
facilities, distribution network and its core competencies will determine the success of a
company.
Value has been the prime focus of researchers in the area of strategic management. The
most notable among them is the value chain approach developed by Porter (1985) to gain
competitive advantage. Later, researchers like Hammel and Prahalad (1990) added the
intangible assets like core competencies to create better value and thereby gain competitive
advantage.
Business Equity:
Based on the above discussions, it is clear that a company will need to build and nurture
all three equities, namely, brand equity, customer equity and value equity. A new term,
business equity is introduced here to explain the combined effect of these three equities
as shown in Figure – 3.
Brand equity is not defined in the traditional sense of the name being used to charge a
price premium or to gain customer loyalty. In the mass marketing era, goods were mass
produced, mass distributed and advertised using mass media and the companies had no
means to interact with customers on a one-to-one basis. Hence brand equity substituted
for customer equity. Now that we can have a separate measure of customer equity, we
need to define brand equity in a new way.
In this age of interactivity, some authors believe that brand equity should look at the total
brand experience. However, in this paper, whatever can be attributed to the customer,
such as brand experience, emotional attachment with the brand, trust and long-term
relationship with the company are clubbed under the customer equity.
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In any case, we cannot do away with brands. Most brands will be company brands or
umbrella brands for a category of products. They will now project a consistent message
to the public including customers, users of competing products/services, suppliers,
intermediaries and the general public. Brand recognition (by user as well as others),
brand image, and brand personality form part of brand equity. Sponsoring of some
socially relevant and useful activities will also help the brand project itself as a good
corporate citizen.
VALUE EQUITY
-Access to Raw
Material(s)
-Distribution
Network
-Production facilities
-Core competence
CUSTOMER EQUITY
-LTV of the Customer Base
-Brand Experience
-Emotional attachment with the
brand/company
-Trust and long-term
relationship
BRAND EQUITY
-Brand Recognition
-Brand Image
-Brand Personality
Figure – 3
A Model of Business Equity
Business equity draws from the combined synergistic effect of all three equities. If any
one is out of sync with any other component, the overall business equity would tend to
suffer. In the ultimate analysis, business should succeed. There is no point in simply
having phenomenally high brand equity while the other two components are weak.
Merely having a known brand name, like Marlboro, may not suffice. Nor can we build
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customer equity without possessing value equity. Managers should learn to take an
integrated perspective and this model may be of great help in providing the same.
CONCLUSION:
In sum, branding as it was used during the mass marketing era will not be relevant in the
internet era. At the same time we cannot totally ignore branding, which will amount to
throwing off the baby with the bath water. What we need is an integrated business equity
model that combines brand, customer and value equities. It has become possible to
measure and nurture customer equity due to the emergence of new technologies that have
made it possible to personalize communication and customize products to the needs of
the individual customers. Value has been the prime focus of many researchers in the area
of strategic management, including Porter(1985), who propounded the value chain
approach to developing competitive advantage. While value forms the foundation,
customer relationships form the core and brand image forms the topping of the business
equity model.
REFERENCES
Aaker, David A., Managing Brand Equity : Capitalizing on the Value of a Brand Name,
(June 1991), Free Press.
Hamel, G., and Prahalad, C.K., The core competence of the corporation, Harvard Business
Review, Vol. 68, No. 3, May-June 1990, 79-91.
Joachimsthaler, Erich; Aaker, David A., Building Brands Without Mass Media, Harvard
Business Review, 1/1/97
Earl Naumann, Creating Customer Value : The Path to Sustainable Competitive
Advantage, (May 1994), Van Nostrand Reinhold (Trade).
Porter, Michael E., Competitive Advantage, Free Press, 1985.
Xavier, M.J., Marketing in the New Millennium – 36 Trends That Will Change Business
and Marketing, Vikas Publishing, New Delhi, India, 1999.
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