Brand Equity for Strategic

Advantage: Consumer
Decision Making

Professor Chip Besio

Southern Methodist University
Marketing 3349
Why the Interest in Branding?
 Brands are assets
 Pressure from Stockholders for
performance
 Pressure from competitors
– Most products in a mature marketplace
– Price competition abounds
What is Brand Equity?
 The “added value” endowed by the
brand name
 Key elements: Associations, Awareness,
Perceived Quality, Loyalty
 Intangible, but measurable
Benefits of Brand Equity
 Asset management/leveraging
 Consumer franchise (facilitates loyalty)
 Lower communication costs
 Improved prices/margins/market share
 More power with the trade
More benefits of Brand Equity
 Barrier to competitive entry
 Effect of financial valuation of the firm
 Value to your Consumer
– Recognition, consistency, confidence,
image/status, etc.
Managing Brand Equity
 It primarily involves managing the
consumer’s mind (associations)
 Firm must set objectives for the brand
 Brand equity measurement is a
management essential
 Marketing mix elements should be chosen
to build, not erode, brand equity
 Overview

B r a n d E q u it y a n d
D e c is io n M a k in g

H o w C o n s u m e rs S ta g e 1 : S ta g e 2 : Im p lic a t io n s fo r
Cope S c r e e n in g C o m p a r in g B ra n d M a n a g e m e n t
What does awareness and
image buy?
 Influences how consumers make
choices
 By changing how choices are made
we can change what is purchased
 Overview

B r a n d E q u ity a n d
D e c is io n M a k in g

H o w C o n s u m e rs S ta g e 1 : S ta g e 2 : Im p lic a tio n s fo r
Cope S c r e e n in g C o m p a r in g B ra n d M a n a g e m e n t
Consumers are overloaded.

 They have a vast array of

alternatives
 Each product has many attributes
 Everyone is under time pressure
 The average supermarket
consumer:
 Does very little search: Average less than
12 second per item
 42% spent 5 seconds or less
 32% spent between 6 and 15 seconds
 Average number of brands handled:
1.21; 85% touched only one brand

Source: Pete Dickson and Stan Sawyer

Journal of Marketing
How Do Consumers Cope?
 Choice has two phases
– Screening: Eliminate Alternatives
– Comparison: A small set of
alternatives (2-3) get intense scrutiny
 Overview

B r a n d E q u ity a n d
D e c is io n M a k in g

H o w C o n s u m e rs S ta g e 1 : S ta g e 2 : Im p lic a tio n s fo r
Cope S c r e e n in g C o m p a r in g B ra n d M a n a g e m e n t
 Screening is important
 Elimination occurs
because:
– The brand lacks a
feature (attribute)
– The brand does not
meet some cutoff
(price?)
 Once eliminated a
brand is not
reconsidered.
How Does Brand Equity Effect
Screening?
 Awareness: Can I recall this brand?
Imagine that your sewer is
backing up, and you are about
to leave town on a business trip.

Who do you call?

(Services rarely purchased must

have high Top-of-Mind)
How Does Brand Equity Effect
Screening?
 Awareness: Can I recall this brand?

More commonly, a harried

or uncertain consumer will
eliminate brands with
which they are unaware.
 How Does Brand Equity Effect
Screening?
 Image guides inference about the brand.
 Inference substitutes for search because:
– Search is expensive
– Available information is irrelevant or tough to understand
What are your impressions of
this watch?
What are your impressions of
this watch?
How Does Brand Equity Affect
Screening? A Strategic Advantage

 Powerful brands can set the agenda:

– Dictate the attributes used for screening

 Examples:
– Volvo and Safety
– Crest with Tartar Control
– American Express Travelers Checks
 Screening: Summary
 Large product classes are screened.
 Elimination = Death
 Brand Equity influences screening
– Recall for the consideration set
– Inferences about product attributes
– Setting the agenda for screening

What Attributes are used for

screening in your product class?
 Overview

B r a n d E q u ity a n d
D e c is io n M a k in g

H o w C o n s u m e rs S ta g e 1 : S ta g e 2 : Im p lic a tio n s fo r
Cope S c r e e n in g C o m p a r in g B ra n d M a n a g e m e n t
Screening simplifies choice, but
does not do the whole job.
 Even when screening consumers seem to
examine 2-3 alternatives much more
carefully.
 Process involves intense comparisons on a
small set of attributes.
 How does this comparison process work?
How does this comparison
work?
 Consumers compare other brands to one
brand
 Often that brand serves as the reference
brand.
 Key concept: Loss aversion…when
compared to the reference brand, losses
loom large.
Consumers judge value by…
 The observed price relative to reference
price for the product, and
 The observed price relative to the normal
or ‘fair’ price of the product
– Examples:
• Restaurants on Friday nights…
• Super Bowl ticket prices.

This is Reference Dependence.

 Implication
 If you are the reference brand…
– Improvements on price, quality, etc. help
– But decreases hurt more…
 If you are not the reference brand…
– You are judged relative to the reference
brand
– Any way you differ from the reference is
your loss
 Implication
 Reference brands have competitive
advantages,
 Particularly on features which are the
most loss adverse

Q: What are the reference brands in your

product category?
 Pricing Implication
 Price cuts will effect different brands
differently
 High quality brands can easily “steal”
market share from low quality brands by
cutting price.
 But lower quality brands will not steal
share from a high quality brands by
cutting price
Responses to price cuts are asymmetric, high
price brands can steal from the poor.
 How do you become a
reference brand?
 ‘Strong’ brands with great awareness
(T.O.M.)
 First Mover Advantage
 Brand most recently purchased
 Sampling, particularly for higher quality
brands
 Comparison: Summary

 Having high brand awareness can make

you the reference brand which can be a
significant advantage.
 Overview

B r a n d E q u ity a n d
D e c is io n M a k in g

H o w C o n s u m e rs S ta g e 1 : S ta g e 2 : Im p lic a tio n s fo r
Cope S c r e e n in g C o m p a r in g B ra n d M a n a g e m e n t
 To create value…
 Brand must support a higher reference
price…
 Must maintain this over time, even in the
face of stiff competition…
 Applications:
– To raise price…
• New Models
• Price Bundling
• Etc…
What Strategic Element cannot
be duplicated?
 You lower price, they can eventually
lower price
 You can add a feature, they can
eventually ad that feature
 But…

They cannot use your brand name!!