Brand Alliances

What is a brand alliance? Keller (2008) defines a brand alliance as when two or more brands produce a joint product or market themselves together in some fashion. Brand alliances can be useful for a brands as one could potentially reinforce, remove or create new associations towards the brand. Further one could borrow needed competence, leverage equity one does not have (secondary associations, we will take a look at this later), reduce the cost of introducing products and enter new product categories. We could also increase the knowledge and image of our brand.

Brand alliances has its pitfalls as well. As the perception of brand alliances are affected by the pre-existing attitudes towards the brands involved as well as perceived fit of the brands and the product, one has the risk of being seen as inconsistent (Simonin and Ruth, 1998). We can thus see that if one of the brands suffers a crisis, this might affect the consumers perception of the partnering brand. One cannot control the associations made towards the brand and there could be problems with cooperating the brand. According to Keller (2008) a brand alliance is a great source of gaining secondary associations, which in turn could increase the brand equity. So what types of brand alliances are there?

Ingredient brand alliances: Many of you have seen that Gore Tex and so on are parts of other brands. This is a typical ingredient brand alliance. The ingredient brand alliances goal is to gain a point of difference or point of parity in the product (Read Øystein's post on pods and pops). The goal of the ingredient brand is thus to gain a quality mark, so that consumers will not buy brands that does not consist of that ingredient. In such we can see that Gore Tex wants to be perceived as a high quality provider in for instance hiking boots, so that consumers only wish to buy hiking boots consisting of their products. This could thus give a competitive advantage or competitive parity to those brands that consist of Gore Tex. We could in so see that an ingredient brand alliance could improve our relation to our supplier while allowing us to have higher margins (charge a price premium).

As seen in these hiking boots from Timberland, the Gore Tex logo appears on the boot in order to signify quality. Ingredient brands could thus transfer associations to the partnering brand and visa versa. Take for instance the Norwegian frozen pizza Grandiosa and the cheese Jarlsberg. Grandiosa wishes to perceived has having higher quality by containing Jarlsberg, whereas Jarlsberg wishes to be associated with a new usage situation - pizza topping. So how could we make ingredient brands work? Basically it has to do four thing:

1. The ingredient brand must be seen as superior.

2. The ingredient brand must enhance the value of the partnering brand

3. There must be a visible logo of the ingredient brand

4. There needs to be a "push and pull" strategy explaining associations that should be made

Promotional brand alliances: Promotional brand alliances occur when brands markets themselves together while keeping their own identity. Here one could reduce the cost of marketing while leverage the other party's associations. A classical example from the Norwegian consumer goods market could be seen in the alliance between Ulvang and Milo. They market themselves together while making a great fit, and they are both primary associations of each other (Milo - detergent for wool, Ulvang - wool clothing). 

New product development alliance: Occurs when two brands goes together and create a new product, and markets the product under one brand name. An example could be seen in Mercedes and Swatch cooperating in making the new city car. A hypothetical example could be if a coffee brands go together with a chocolate manufacturer and make a new chocolate flavored coffee marketed under the coffee brand. 

We can thus conclude that brand alliances could be wise in order to obtain secondary associations and to enter new product categories, while increasing knowledge and image. However, to avoid being inconsistent with regard to concept, a brand should not pursue a brand alliance before the brand has established and made sure that consumers understand their concept (Park et. al 1986). Leif Hem (2012) argues that brand alliances could be appropriate for all concepts as it could enhance the perceived value and exploit strong brand equity.

House of brands or branded house?

House of brands and branded house are two strategies regarding a brands architecture. Aaker and Joachimsthaler (1990) defines brand architecture as the organizing structure of the brand portifolio, defining the brands role and the relationship between them. In short a house of brands is when a brand is independent from the parent brand, whereas a branded house is when a brand is dependent. We can thus see that P&G is a prime example of a house of brands, with separate entities such as Head & Shoulders, Gillette. For branded house Virgin is a good example with Virgin Airlines and Virgin Records.

Rao et. al (2004) argues that a branded house is more efficient than a house of brands. How come? When one has a branded house, such as Virgin, one could leverage awareness and associations between entities. However, if the firm suffers a crisis it could potentially affect all brands. Let's say that Branson is charged with corruption, this could potentially affect consumers perception of all the Virgin brands. Whereas in a house of brands this would most likely never happen. In a house of brands the brands are separate entities where one could have specific positioning for each brand, avoid channel conflicts and have incongruent product categories. In such a house of brands could have brands with different concepts competing in the same environment, for instance a watch brand with a functional concept (cheap watches, bought primarily just to show time), and symbolic concept (expensive watches, implying status).

In recent times Unilever has decreased its number of brands from 1600 to 400 (!), and P&G has sold Pringles. Are we going towards times where we wish to be more efficient and leverage communication? It is most definitely less costly, and perhaps Branson is the one with the right strategy? What do you think?

How could private labels prevail?

Yesterday I posted a framework on how to counter private labels that I find interesting. Today I want to take another perspective, how is it possible to increase the market share of private labels?

In general we can see that there are three sets of players whose expectations and actions affect the success of private labels; consumers, retailers and manufacturers. Consumers need to demand our product, retailers need to allocate the necessary resources and competitiveness among manufacturers will determine the environment in which private labels compete.

With this in mind I will yet again look at an interesting framework presented by Leif Hem (2012).

First of all, one should notice the + which is positive contributions to the market share, whereas the - is negative of course.

+ Product quality / Quality consistency: The quality aspect can prove vital for private labels. 85 % of consumers rate quality as an important determinant for choice. If one is able to have a higher quality and a consistency on that quality, the private label could easily obtain a higher market share.

- Consumer involvement: The more involved consumers are with the product, the less likely they are to choose a private label. This means that consumers has brand preferences and has a more complex decision process which in turn will not favor the private labels.

+ Category retail sales: As retailers must invest in inventory, production, and packaging of the private labels, categories that has higher sales will be more interesting. In such categories the private labels only need a small market share in order to cover the fixed cost. In such the category retail sales effect whether we will see private labels or not. Where there is significant risk of operating in the market we will not see private labels, as the risk is greater than potential profits.

+ Category gross margin: If there are high margins in a category, it is a greater potential to see private labels. How come? It is easier for private labels to exploit having less costly production when they can undercut the national brands severely and still make profits.

- Number of national manufacturers: The higher number of manufacturers and national brands the higher the competitiveness would be. In such cases the margins are already pressed to a minimum, and a private label would have a hard time establishing in the market.

- Advertising intensity: The private labels does not have the same amount of funds as the national brands, and could thus not advertise to the same extent. In a market with high advertising intensity the private labels will not be able to promote their products as they need to.

+ Price orientation of market: In markets where price sensitivity is high among consumers, the more likely they are to choose lower priced alternatives. In so, consumers will choose private labels instead of national brands.

- Manufacturers innovativeness: This could potentially reduce the market shares of private labels. If there is a high level of innovativeness it could prove hard for private labels to keep up with the product development. Private labels will then automatically grab a smaller share as they don't have the funds to innovate.

So, what does this model tell us? To increase market shares the private labels should focus on increasing and keep their quality consistent, enter markets with high gross margins and high levels of sale. They should move into markets where consumers are price sensitive. Through doing this private labels could use their limited funds in markets where they have a higher potential to obtain a greater market share.

We have then seen that private labels also has strategies for gaining higher market shares, and I keep questioning how brands such as GreenGiant can survive and remain profitable with products such as canned corn. They manage to have a higher perceived quality through advertising, packaging and their famous green character. Sometimes this could be enough to remain profitable in product categories with seemingly no quality difference.

Private Labels

Private labels can be defined as products that are marketed and produced by retailers and their distribution chain. Famous examples is seen in the Norwegian grocery store sector with for instance First Price and Rema's own brand. The private label products are usually cheaper and has inferior quality than those of national brands such as Nestlé and P&G. However, in recent years private labels has increased their quality and widen their product range to include more upscale products such as clothing and sporting gear. We find private labels in product categories where consumers are price sensitivity is high and sales volumes are high as well. This is famously called fast-moving consumer goods (FMCG). In so, national brands are facing a situation which could lead them to lose market shares to these private labels. So, how could this be avoided? An interesting model presented by Leif Hem (2012) in lectures at Norwegian School of Economics covers the subject.

Let me explain what we see here. The national brand is usually located at a point where we pay more, but get more quality for the money. As 85% of us rate quality as important, whereas 70% rate price as important, we can see that quality is a main aspect to increase sales, hence getting a higher market share. However, if private labels move up in quality and only slightly in price, we can get a situation that causes disturbance in terms of market shares. A national brand then have six different strategies they can implement to make sure they do not lose market shares.

Firstly, we can see that the national brand can innovate with a new and improved product. In this product they offer increased quality the same or discounted price. By doing this they increase the perceived quality distance to the private label, hence in the consumers mind the private label would seem increasingly inferior. Another strategy to increase the perceived quality distance is to basically provide more for the money. The Norwegian students out there have probably noticed that for instance Stabburet's Grandiosa consistently markets "now with better crust" or "higher quality ham". This is basically to make sure that when you look at a private label pizza, for instance Euroshopper, in comparison they want you to think "Jesus, that's crap".  

I find it more interesting to look at the other strategies. Reducing the price gap could prove fatal in terms of the brand concept, and could cause confusion among customers. Why is this product suddenly cheaper? I find this a dangerous strategy that could have severe long term effects for the brand. A solution however could be to convince the retailer to charge more for their private label.

Introducing a value flanker is an interesting option that one could see with for instance Gillette and their shaving foam. One could buy rather cheap shaving foam from Gillette as they have several types, implying that they have implemented the value flanker strategy. The value flanker strategy implies that one introduces a new product, that is seemingly of lower quality and cheaper. However, one must make sure that this does not hurt the brand associations and should thus market the more expensive version. This could apply to those consumers who don't wish to be associated with private label users, but is still price sensitive enough to not buy the most expensive shaving foam. I therefore find this to be an interesting strategy, although it has it pitfalls. 

Interestingly enough we can see that a strategy could be to make private labels. This is not to introduce a private label themselves, but profit from private labels by manufacturing them. This could give profits as well as filling up free capacity. However, if this gets known consumers might react "What's the difference then?" and this could prove very fatal for the national brand. This is a well-known strategy, and Synnøve Finden in Norway actually produces the First Price cheese. An important implication is that they make the private label cheese with other ingredients and it thus has inferior quality.

I find that the wait and do nothing strategy provides little value. Although it might be expensive to react towards the private labels, one risks that they increase the market share. Reaction might take time to implement and one should therefore react as quickly as possible. 

Do you buy private labels? And what is your take on this framework to counter them? 

Most valuable brand!

BrandZ annual report about the most valuable brands in the world was published earlier this week.  Apple is still placed first, after taking over the throne in 2011. In the last year the brand has increased their value with remarkably 19%! What is the reason why Apple continues to be such a valuable brand? Apple did release a number of new products in 2011, including two Ipad's and a new Iphone. This obviously had effect on the brand's market value, but there was something else that changed the brand and the company as a whole. Steve Jobs death in October 2011 shook the world and the interest around Apple's future became stronger than ever before. Would they continue to grow without their innovative and inspiring leader? BrandZ's report shows that they have. There was one question that struck me as soon as I read the report; Could it be that Steve Jobs death had positive impact on Apple's market value, and did it inspire consumers to purchase even more Apple products?

Here is the full list for those of you that is interested:

http://www.millwardbrown.com/BrandZ/Top_100_Global_Brands.aspx

You can also see the BBC documentary about Steve Jobs here:

Brand Positioning

MarketingWeek just recently published an article about how brands are able to stay competitive in the market, while other brands fail maintaining their brand positioning. The article mostly focuses on the choice of taking the brand to the mass market instead of sticking to its core market.  Going to the mass market makes it even more difficult for brands to stand out from the rest.   Keller (2008) has an important view towards brand positioning. He points out the importance of Points of parity (POP’s) and points of difference (POD’s). POP’s are the associations common for all brands in a category, while POD’s are associations that are specific to one brand. The POD’s is considered to be the key to achieve a unique position in the market. This will give the brand competitive advantages. Hence, when a brand defines the Brand Positioning  it is important to look at how the brand should be able to stand out from the rest.

In relation to this article there is a Norwegian brand that has, at least in my opinion, made the choice of going from their core niche market to become a brand for the mass market. Moods of Norway has the last years become one of the most fast-growing and succesful brands in Norway. They started off in the niche market, and all of their different products had history and specific details that made them stand out from the rest. Moods of Norway clearly had a unique position in the market.  Now, almost 10 years after they started off, the brand has a broad product line and they are present in both national and international markets. This has obviously led to greater profits, but at what cost? I believe that the brand has taken advantage and abused their unique position. Their newly developed  products no longer has the uniqueness  attached to it, and it seems like the brand is more about making short-term profits than “keeping their cool”.  Moods of Norway has to go back to their roots before its too late, and rediscover their unque brand positiong.  What is your view on this, and do you have any similar examples?

To read more about this topic I highly recommend this article:

http://www.marketingweek.co.uk/trends/keeping-your-cool/4001703.article

Salience

An important aspect of marketing is salience. For those of you that do not know what salience is, it's defined as basically standing out from others. For instance Coca-Cola could stand out from other soft drinks, making this a more natural part of consumers consideration set. Keller (1993;2003) with his renowned customer based brand equity model use salience as the first step to accomplish a resonance/loyal relationship toward a brand. So why does salience matter? Well, what consumers notice is what we consider, in so we wish to be salient in consumers mind. Alexander Kanvik (alexanderkanvik.com) sent me an interesting link to www.hookedonads.com/. Here one could see different ads that are most definitely salient, but how effective are they? I am amazed by how creative advertisers are, but yet fail to expose brand elements to a greater extent. What does it matter if I remember an ad if I don't remember who the ad is for? However, a great site for those of you that are interested in creativity and design. Below is an ad that I believe expose brand elements in a salient and interesting way.

Celebrity Endorser

I wanted to post something contrary to the M&M commercial. This is the Norwegian Bank DNB and their commercial featuring George Clooney. Real creative, but where is the brand elements? Could this potentially hurt the company's position and attract consumers to the category leader within savings? What is your take on it? Regardless, the advertisement is creative and impressive use of a celebrity endorser. The fact that George Clooney is incongruent with the brand associations for the bank could potentially increase the ad liking according to Lee and Thorson (2008). I am not sure, the use implies that they can't relate the endorser to the brand and create associations through image transfer. Why do they not mention the brand? I find that there is room for improvement in this one, although it's quite original.

Brand Exposure

A clever commercial from M&M. Interesting to see how well they expose the brand with amazing use of execution elements such as humour and music. The advertisement seems to be successful through theories such as the well-known ELM-model by Tellis (1983) and the more recent Five Route Model of Ad processing by Supphellen (2012). Exposing brand elements is of great importance, and one would never forget who this advertisement is for. Repetition is a much argued issue, and Bornstein (2003) says that 3 repetitions is enough before tedium when consumers centrally process. I do believe its context specific, could you ever grow tired of this commercial? Enjoy!

First post!

First of all, welcome to this blog. Here we will present and discuss recent topics about branding and the different concepts of marketing. So why create a blog about this topic? Firstly, branding has become an important element in every successful business strategy. The concept is also constantly developing, due to trends, creation of new communication tools, and the growing number of brands worldwide. Companies that do not pay attention to these changes will lose track, and will no longer be competitive. The intention of this blog is to keep you upated about what is happening in the world of branding, and we want to share our views on this subject. To all you newbies out there, here is a short video that explains branding in a simple and understandable way: