How important is the value of brand management to the consumer and to the company?
The brand: A source of value for the consumer
Though we are more
concerned about the brands and its optimization, there is no necessity
for a brand to exist in all markets. Further, the existing brands in a
market also need not effectively alter the consumers decision in
any manner and any effective role of a brand may be absent. There are
many other factors that can influence in decision making in markets today.
For instance, if you look at the effect of the brand sensitivity, a research show that consumers are in fact do not bother to look into any particular brand when they go for purchasing their choice. When the choices are made then the brand will not be looked at all and to quote few examples, there will not be any value for brand in buying any of the writing pads, or inks, or an eraser, or a felt tip pen, or a photo copier paper, or a marker pen.
There are no stronger brands such as the socks or sugar industry and neither the individuals nor companies does get bothered about the brand and even in Germany there are only regional beer brands and when it comes to flour there is no national level brand at all.
The need for a brand will start arising only when there is an inherent risk in the very sale of the product in the market, and once the perceived risk disappears or slows down the brand also cease to be beneficial and may not exist any longer. A brand normally indicates to a product and never fulfills the need for a reference point or mark, or the source, or the added values.
The outcome of a bad choice will always be very severe and any increase in unit price can also increase the level of the perceived risk. Hence, it is perceived that any purchase decision of long lasting goods is in fact a long-term commitment. Humans are considered as social animals and we make a judgement on ourselves based on few choices or decisions we make.
This particular human behaviour is well utilized or rather well exploited by companies in making us to use certain brands and logos and feel proud in the society. When you consider or compare the same scenario with that of food items we eat, it may tend to be different due to certain amount of involved intrinsic risks when any thing enter into our body system. However, in certain brands such as vodka, the brand helps in overcoming such fears or risks involved.
The categories of products within the distributors own brand domain dominate to be important in generating the perceived risks and its legitimate presence, be it any part in Europe or in Germany or be it in products like tinned vegetables, mineral water, toilet roll, milk, orange juice, frozen pizzas, kitchen roll, and even few fuel types.
It will also be interesting to note that few of the producers brands still have a dominant role in product categories such as instant coffee, tea, cereals, fresh pasta, cold sauces, toothpaste, deodorant, baby food, beauty products, washing powder etc. In all these, consumer has a role to play due to the involved preference towards both physical and psychological interests.
There is also no permanency in any matter, as the perceived risks or the degree of the perceived risks keep changing over a period of time. When technology takes over the process of manufacturing, the products are made to comply with the quality standards and the quality, which was considered hitherto as bad by consumers will also become good much to the satisfaction of the old or existing consumers.
This situation will also lead to a scenario where the companies will start giving quality products due to the presence of stiff competition. Here again depending upon the situation the degree of perceived risk will change. For example, there may not be much concern if one goes for buying rum just for a punch, or whisky for a simple whisky-coke, where as the situation may be different in any one is interested in buying a rum or a whisky for on the rocks.
This example can tell you that not all the consumers are same, as the level of involvement differs between each other. Consumers or people who are overly involved or who have an eye for subtle details will always look for things that match their choice and they are even willing to wait or spend more time till they get what they want. On the contrary, those people with lesser involvement will get satisfied with whatever basic product the get and that may be even less expensive.
Many buyers always hold a risk aversion behaviour and they keep carrying a fear towards their wrong decisions and hence consider that majority of the products are not transparent and such consumer believe only when they buy the product and use them, they get satisfied.
However, many such consumers never take that plunge of buying and experiencing a product and what they expect is that the external indicators should highlight the internal qualities of these opaque products. Exactly under this niche area only the reputed brands makes their presence felt and make all their external indicators very informative and attractive.
Few of the external indicators that decide a favourable atmosphere are price, quality labels, design and shape of package, style of the packs, and the dependability of the retail outlet through which the product is sold. Market analysts and other researchers, based on the various factors have identified three major qualities of products that decide the marketability of the product. They are:
· Visible external
qualities that are first noticed before buying
· Unseen internal qualities that are experienced after buying and after the actual consumption
· The hidden ability of the product to instill trust or faith in the minds of the consumer after actual buying and consumption
The Brand: A source of value to the company
Many financial analysts always prefer or vote for companies that have a very strong brand background for the sheer reason of lesser involved risks. Therefore, both the consumers and the financial analysts see the brand in a similar fashion, and the common element that binds both is none other than the risk element. The quoted price in fact should be certain, are able to guarantee and remove the risk factors. Hence any huge investments made on such companies that have a very good brand market can assure a good cash flow in future.
The degree of loyalty is also directly proportional to the strengths of he brand and you can also ensure assured benefits through increased sales. For example, in case of popular Volvic brand mineral water, only a 10% of the buyers who are loyal and regular contribute to a whopping 50% of the total sales. A reputed brand will continue to be a source for continuous demand and the enticing factor will never cease.
Even if the product is highly priced, the prevailing image of superior quality and the added values will not dampen the sales. A new brand can pose a threat to the competitors and in case if the new entering brand is of a dominating one, besides throwing a competition, it can also serve as a reference category and can be a trendsetter in style and can lay a road for securing better royalties through granting licenses.
For example, if you consider the case Naf-Naf, you will surprised to know that it earned over six million pounds in net royalties in 1993 just through license granting alone. Any well performing and popular brand will have many advantages while entering into other markets and there will be immediate acceptance and start earning profits within a short time.
For example, the popular brand of Palmolive is synonymous with mildness and as this quality is well known across borders, if any of the Palmolive brand products enter any new market, there will be immediate patronage irrespective of the category of product such as shampoos, soaps, shaving creams, washing liquids, etc. Such a gained awareness will be of great help while entering a new market or while launching a new product, as there is no necessity for creating a favourable awareness afresh.
As an expert you should take into account the capabilities of a brand in generating additional revenues and additional sources while determining the financial value of a brand. New buyers will get attracted towards a product when there are another similar product that is enjoying a strong brand loyalty and reputation. If such a concept or strategy is adopted, then the companys brand will command a share in the market and may even fetch a premium and provide a better margin.
Extension of brands in newer markets can result in royalties and important gearing effects and to arrive at this value, you have to exclude the various costs involved such as brand management costs, the costs incurred towards sales force both domestic and international, advertising costs, the costs towards registering he product legally, the cost of capital invested, etc. The positive value thus arrived between the revenue generated and the cost involved for the next few years brought to todays value by discounting will constitute the financial value of the brand.
You can decide on the number of years based on the business plan proposed and the rate of discount based on the prevailing market rates and the need for the future cash flows. The involved risks in a stronger brand are relatively less and hence a sufficient future cash flow can be taken for granted provided the brand is a strong one.
Investment in production, productivity and R&D
In any company, despite its continuous success in markets, the investment towards R&D and production related research is a must in order to get the latest concepts and specific know-how, and such criteria is considered as an intangible asset. The company may take the route of monopolizing through patent registration and you can see such patent registration common in drug manufacturing industries.
Further companies like Ferrero opt to this route despite their product range being very difficult for imitation. In a yet another company by name the Kinder egg which is a leading childrens candy manufacturer in Europe, there are no imitations at all due to the patent related production process employed in the company. The same patent rights owned by Polaroid alone made the other giant Kodak to pull out of the market for instant photography.
Today, patent rights are considered as a very valuable intangible asset, and through this the company also stands to benefit for quite a long period of time.