Measuring Brand Equity across Products and Markets - Case Study Example

Introduction From the beginning of mass production of goods, brands have gone out of their way to differentiate themselves from one another. The problem was that brands were not necessarily appreciably different, so it was important to build brand equity. Brand equity is basically where a certain brand manages to differentiate itself from the pack of competitors and build a loyal following. In that way, the brand had a name which connoted to the loyal customer that he or she was purchasing an item which was worth a premium because of the equity that the brand had built. Brand equity may be undercut by discounting, however. This is when rival brands institute a way of undercutting the other brands by discounting their own products. It is a prevalent way to do business, as it is a way for the brands to get new customers who hopefully will be loyal to them in the future. However, this may backfire, as it may actually undermine brand equity if not done correctly. Thus, if a brand has a discount price going on in a store which is not upscale, then the customer may perceive that the brand already raised the prices before putting it on sale, which means that the the customer will feel deceived. Moreover, if a brand puts its products on sale too many times, this also destroys brand equity, because the customer will perceive a lower set point for the price of the item. Therefore, the brand must be careful when discounting its merchandise, for brand equity is a commodity that must be protected. Brand Equity Modern consumption is also driven by the choices that were being offered in modern society, choices that were not offered in earlier societies, before mass production of goods became the norm (Gabriel & Yang, 1995). This mass production had a side effect as well, one that would influence the post-modern individual’s obsession with labels and designers – branding became essential, as there were so many goods flooding the market, that companies needed to distinguish their goods from the multitude of other goods that were coming into existence. According to Naomi Klein (2000), this led to competitive branding and, ultimately, to the rise of designer labels, such as Calvin Klein and Ralph Lauren (Klein, 2000). Because brands are essentially the same – Coke is not really that much different from Pepsi, Reebok is not much different than Nike, Apples are not appreciably different from PCs – companies must find a way to differentiate themselves from their competitors. Goldman & Papson (1996) argue that this has led to a rather cluttered landscape for the world of advertising, as each brand tries to get a leg up on their competitors by branding themselves as somehow different from the rest. Because brands have a hard time saying that their product is better than the other guys, they instead seek to raise their symbolic image value – LL Beans flannel shirts may be the same in quality as Wal-Marts, but the image of wearing an LL Beans shirt makes the value more than Wal-Mart. A Kate Spade purse may be made with exactly the same materials as a purse from Target, but since the name “Kate Spade” is attached to the purse, the value is suddenly ten times higher. It is all about the image that has been carefully cultivated in the advertisements for these brands, where the product and the image coming together is known as a “commodity sign”. This is what is meant when somebody says that one is “paying for the name” (Goldman & Pappas, 1996). An excellent example of building a brand image and value that differentiated a company from a competitor was the advertisements featuring the “Mac Guy” and the “PC Guy” - the Mac guy was portrayed as a young, hip guy while the PC guy was an overweight, balding, dweeb. Hence the image is that Mac is fresh, hip and young, while a PC is outdated, slow and uncool. Identity became a construct of consumption, in that people, both men and women, started using consumption not as a way to express ones identity, but to construct it - “brands are how we figure out who we are.”(Kacen, 2000). This reflects the fluidity of an individuals identity, and reflects that gender identity is also a fluid concept, as opposed to a fixed attribute (Kacen, 2000). Part of this was made possible by the Nikes and Tommy Hilfigers of the world who are not just selling products, but the image that their brand connotes. Therefore, mere manufacturing has been replaced by marketing (Klein, 2000). Price Discounting – Why It Occurs This brand value – Gucci, Coach, Louis Vitton, Ralph Lauren, Nike, Hermes, Apple, etc. - is an intangible worth billions, and has to be carefully maintained and cultivated for it to survive. Moreover, a price war can disrupt the brand differentiation if the differences in two products are minor (Goldman & Pappas, 1996). An example of this would be if Burger King suddenly dropped their prices substantially for their products, thereby cutting into McDonald’s market share. This would disrupt McDonald’s careful brand differentiation, as, in the end, consumers care more about price than the name when it comes to fast food. It probably would not work as well in the case of, say, a Gucci bag verses a Target bag – the Target bag can drop the price all it wants, but the person who wants the Gucci will still get the Gucci, because it is the label that they are after, price be damned. Therefore, because of the similarity of brands and the desire for marketers to get a leg up on the competition, price-discounting occurs. However, this can create problems in determining market share, because price promotions and reduced prices can make for a deceptive brand equity measure, if it the brand equity measure increases in response to the price discounting (Aaker, 1996). Moreover, there is some indication that customers who shop on-line are more sensitive to price discounts (Degeratu et al., 2000). Does Price Discounting Work Well In Attaining Its Objectives? Price discounting, as indicated above, is used to differentiate one’s brand from other brands because of the problem of brand similarity. There is some indication that price discounting may actually hurt a store’s image and the brand image, and that it might not build sales (Grewal et al., 1998). Therefore, whether or not it actually works depends on other factors. One factor is known as the perceived discount. According to Gupta & Cooper (1992), retailers will commonly inflate the price of the item before “discounting” it, which distorts the perception of the savings that are offered. This may lead to problems with price discounting, as the public becomes aware that they are being deceived, which would ultimately backfire on the retailer. Gupta & Cooper states that a customer will perceive deception in this regard more if the retailer is less reputable than another retailer. So, a high-end store will be more successful in discounting items, as individuals will be less suspicious that they are being deceived, then would a low-end store (Gupta & Cooper, 1992, p. 402). So, a discount at Saks Fifth Avenue would carry more weight then a discount offered at JC Penney. Price discounting is also more effective when used on a name brand then a store brand. Gupta & Cooper (1992) states that if a brand name has a high amount of equity, this brand is generally not harmed by discounting. In other words, a consumer will not think that a Kate Spade purse is of inferior quality just because it happens to be on sale. On the other hand, a discounted store brand is more likely to be perceived to be less credible then the discounted name brand. Therefore, consumers are more likely to be suspicious of a discounted store brand, and believe that they are not getting a good deal, then when they are dealing with a discounted name brand (Gupta & Cooper, 1992, p. 403). There are other factors which affect how a consumer perceives the value of the discount. According to Blattberg et al. (1995), there are a number of empirical generalizations which can be applied to the act of price discounting. Among these is that, if a certain brand discounts its products frequently, then this backfires, as it lowers the consumer’s reference price for the brand. Correspondingly, if the brand discounts frequently, then the height of the deal spike is lowered (Blattberg et al., 1995). How Can a Product Manager Effectively Incorporate Discounting Without Harming Brand Equity or Value? According to the research, brands have to look at credibility as a major issue when discounting their brands. If a customer suspects that the original price was inflated, then the customer will put less credibility on the discount. This is more pronounced with lesser known brands and brands with lesser equity then with better known brands with higher brand equity. Moreover, it is clear from the research that a brand cannot do multiple discounts, because that destroys brand equity. It destroys brand equity by lowering the value of brand, as the customer gets used to the brand being discounted, so the discount value of the brand essentially becomes the price point that the customer expects. With this in mind, the example of effective price discounting will focus upon a well-known brand, Nike Shoes. Because the brand is well-known, and has an established brand equity, there is less of a chance that the customers will perceive deception on the part of Nike if they decide to discount their products. Nike also has to make sure that it does not discount its brand multiple times. Since the case scenario will focus on just one brand of shoe, the Air Jordan. In this case, the Air Jordan will be discounted, just one time, by $20. The promotion will not run in stores which do not have good brand equity for finer products, such as Target, if they carry the brand, or a discount shoe source. The only stores that will have this promotion will be the Nike stores in the malls and stores which are perceived to be upscale, such as Nordstroms, Nieman Marcus and Bloomingdales. This will lend credibility to the discount, as the customers will be less likely to believe that there was a price markup on the items before the sale. The promotion will run for one month, only. The customers will receive special promotional coupons through their e-mail, but only if they have already purchased Nike products previously and have indicated that they are open to receiving special offers. This will give the customer the perception that the shoes are not discounted for just anybody, but, rather, to select customers. This should also help in retaining the brand equity, in that the perception will be that these customers are privileged to get this discount. Therefore, Nike will not necessarily be seen as desperate to move these shoes, but, rather, will be seen as giving a gift to loyal customers. The objective in this kind of price discounting is for the customer to buy the shoes, and like them so much that they become a loyal customer. They will remember that Nike gave them a nice gift in the form of the discount, so this will help build the brand equity as well. In this way, the discount will actually further build brand equity, as opposed to tearing it down. Conclusion Brand equity is difficult to build, so a brand has an interest in maintaining it. It is tricky to not undermine brand equity when discounting items, but it can be done. In the process, the hope is that the customer will remain loyal, thus enhancing the brand equity in the customer’s eyes. References Aaker, D. (1996) Measuring brand equity across products and markets. California Management, 38.3: 102-120. Blattberg, R., Briesch, R. & Fox, R. (1995) How promotions work. Marketing Science, 14.3: G122-G132. Jacqueline J. Kacen (2000), ‘Girrrl power and boyyy nature: the past, present and paradisal future of consumer gender identity,’ Marketing Intelligence and Planning, 18/ 6-7, 345-355 Degeratu, A., Rangaswamy, A. & Wu, J. (2000) Consumer choice behavior in online and traditional supermarkets. International Journal of Research Marketing, 17: 55-78. Gabriel,Y. and Lang,T. (1995) The unmanageable consumer, Sage: London Goldman, Robert & Stephen Papson (1996). Sign Wars: The Cluttered Landscape of Advertising. New York, NY: Guilford Press. Grewel, D., Krishnan, R., Baker, J., Borin, N. (1998) The effect of store name, brand name and price discounts on consumers’ evaluations and purchase intentions. Available at: http://digitalcommons.calpoly.edu/cgi/viewcontent.cgi?article=1010&context=mkt_fac&sei-redir=1&referer=http%3A%2F%2Fwww.google.com%2Furl%3Fsa%3Dt%26source%3Dweb%26cd%3D1%26sqi%3D2%26ved%3D0CDAQFjAA%26url%3Dhttp%253A%252F%252Fdigitalcommons.calpoly.edu%252Fcgi%252Fviewcontent.cgi%253Farticle%253D1010%2526context%253Dmkt_fac%26rct%3Dj%26q%3Dthe%2520effect%2520of%2520store%2520name%2520brand%2520name%2520and%2520price%2520discounts%26ei%3D0r-STuPxDMW5tgfZp9ihDA%26usg%3DAFQjCNHzseY4mjeMhl1BVXExeC3CkzW5qA#search=%22effect%20store%20name%20brand%20name%20price%20discounts%22 Gupta, S. & Cooper, L. (1992) The discounting of discounts and promotion thresholds. Journal of Consumer Research, 19: 401-411. Klein, Naomi. No Logo: No Space, No Choice, No Jobs. New York, NY: Picador USA, 2000. Read More