(1.2) Brand functions Flashcards
What are the consumer benefits of brands?
- Reduction of consumption risk > brand as proxy of product quality
- Recution of search costs > brands provide guidance within alternatives
- Serving as sympolic device > represent intrinsic/extrensic values that stimulate peoples self-concept and differentiation
What are company benefits of brands?
- Acceleration of cash flows
- Increasing the level of cash flows
- Reduction in risks
Which formula represents the company benefits of brands?
Net present value = CF0/(1+i)^0 + CF1/(1+i)^1 + … + CFt/(1+i)^t
Explain the accelaration of CF through brands
Brands increase the responsiveness in the market - faster response to marketing efforts. The sooner CF are generated, the higher their net present value.
» Formula: CF shifts from periode 1 to 0 for instance.
Explain increasing the level of CF through brands
- Price premium –> identical products can be selled for higher prices (mostly psychological)
- Sales premium –> identical product gets selled more to consumers
- Lowering costs –> strong brands have a responsive customer base to advertising and promotion
- Brand extensions and co-branding –> the brand creates easier access to cooperative ventures
» Formula: CF increases in all periods
Explain the reduction in risk through brands
Strong brands seem to reduce vulnerability of future CF and votality of future CF
How?
- Facilitating repeat purchase, cross selling and brand loyalty
- Higher quality perception creates lower price sensitivity
- Corporate reputation effect, investors have higher awareness and more positive quality associations
- Brands serve as elementary security for debt holders in case of financial stress and bankruptcy
»> Formula: lower discount factor i
Is the reduction in risk through brands empirically proven?
Yes: Rego et al (2009)
Consumer based brand equity had +0.290 on credit rating and -0.106 on unsystematic risk
When to expect price premium and sales premium?
- Price: if the high price is part of the brand’s identity and the high price is linked to strong psychological and socal benefits (think of luxury brands)
- Sales: if low price is part of the brand’s identity core (functional) brand benefit – discount brands
- Balance between both if brand positioned as being of higher quality, but price is not a core brand attribute
What is BRIC
Brand Relevance in Category
= overall role brands play in customers decision making in a specific category – the general decision weight of brand benefits over other product benefits
» does not vary across brands but across categories
How does BRIC have a prelaunch diagnostic?
- Tells managers how sensitive the customers will react to the differences in brands
- Helps to see the changes and risks of brand investment opportunities
What empirical research is existing on BRIC?
Fisher et al (2010)
Data collection: online consumer survey in 5 countries, 20 product categories, >1200 respondents per country
Scores very good on validity
Results:
> Higher BRIC: vehicles, cigarettes, beer
> Lower BRIC: leisure wear, drugs, paper tissues
> Varies over countries but surprisingly the same
What are the most important findings of the research on the drivers of BRIC?
Fisher et al (2010)
- Brand has a certain relevance due to the chance of a brand to reduce risks, rather than to demonstrate that you are rich
- Risk reduction is more important for women
- When the purchase is a group decision, BRIC becomes higher
What is interesting when looking at the development of BRIC over time?
Perrey at al (2015)
- Overall BRIC is stable over the entire period
- Product markets are consistently the highest
- Retail has the lowest BRIC – brands matter the least there + biggest dip in the financial crisis
