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Brand equity and Competitive strategies in marketing
1. What Is Brand Equity?
Two bottles of water can be almost identical, yet one sells for three times the price. The extra value people are willing to pay for the name on the label is called brand equity. It is one of the most valuable assets a company owns, even though you cannot touch it.
Brand and brand equity: the basics
| A brand is more than a name. It is a name, term, sign, symbol, design, or a mix of these that identifies one seller’s goods or services and sets them apart from competitors. The individual pieces (name, logo, jingle, packaging) are called brand elements. Brand equity is the extra value a brand adds to a product. The same product sold under a strong brand gets a different response from customers than the identical product sold without it. |
1.1 Why brands matter
| To customers | To the firm |
| Identify the maker and who is responsible Simplify decisions and lower search costs Reduce risk Signal quality Carry social and emotional meaning | A means of identification that simplifies handling and tracking Legal protection for unique features (trademarks, patents) Signal of quality that satisfies buyers and builds loyalty A way to endow products with unique associations A source of competitive advantage and financial returns |
The key to branding is that customers perceive differences between brands in a category. Branding can be applied almost anywhere: physical goods, services, stores, online businesses, people and organisations, sports, arts and entertainment, places and even ideas or causes.
1.2 Customer-based brand equity (CBBE)
Keller’s definition is the one examiners love: customer-based brand equity is the differential effect that brand knowledge has on a customer’s response to the marketing of that brand. Three parts to remember:
- Differential effect: compare the response to the branded product with the response to an unbranded version.
- Brand knowledge: all the thoughts, feelings, images and experiences linked to the brand in memory.
- Customer response: perceptions, preferences and behaviour towards price, communication and distribution.
Equity can be positive (customers react more favourably than to an unbranded product) or negative (they react less favourably). Brand knowledge itself has two main components: brand awareness (can people recall or recognise it?) and brand image (the associations they hold, which should be strong, favourable and unique).
Think of a brand as a promise. Strong brands act almost like a contract between company and customer: the customer trusts the brand to deliver, and in return is willing to pay more and stay loyal.
1.3 Models of brand equity
a) Brand Asset Valuator (Young & Rubicam)
This model measures brands on four “pillars”:
| Pillar | Meaning | Group |
| Differentiation | How different the brand is seen to be | Brand strength (vigor) |
| Relevance | How much it matters to the customer’s needs | Brand strength (vigor) |
| Esteem | How well it is regarded and respected | Brand stature |
| Knowledge | How deeply customers understand it | Brand stature |
Differentiation and relevance together show the brand’s future potential; esteem and knowledge together are like a report card of past performance. A new brand has high differentiation but low knowledge; a declining brand has high knowledge and falling esteem.
b) Aaker’s model
David Aaker sees brand equity as five groups of assets: brand loyalty, brand awareness, perceived quality, brand associations and other proprietary brand assets (patents, trademarks, channel relationships).
c) BrandZ (Millward Brown)
A “brand dynamics pyramid” with five levels in which customers move up in strength of relationship: presence, relevance, performance, advantage, bonding. The further up the pyramid, the more valuable the customer.
d) Brand Resonance Model (Keller): the one to learn well
This is a brand-building ladder. You climb four steps, and each step depends on the one below. Every step answers a question customers silently ask:
| Step | Customer question | Building block | What it means |
| 1 | Who are you? | Salience | Deep, broad brand awareness: customers recall and recognise the brand in many situations. |
| 2 | What are you? | Performance and Imagery | Performance: how well the product meets functional needs. Imagery: the extrinsic properties, such as user profiles, personality and history. |
| 3 | What about you? (what do I think or feel?) | Judgments and Feelings | Judgments: quality, credibility, consideration, superiority. Feelings: warmth, fun, excitement, security, social approval, self-respect. |
| 4 | What about you and me? | Resonance | The deepest bond: behavioural loyalty, attitudinal attachment, sense of community and active engagement. |
The left side of the pyramid (performance, judgments) is the rational route to brand building; the right side (imagery, feelings) is the emotional route. Strong brands usually work both.
1.4 How to build brand equity
Kotler says brand equity is built on three sources:
- The initial choice of brand elements (name, logo, slogan and so on).
- How the brand is woven into the marketing programme (product, price, place, promotion).
- Associations transferred to the brand from other entities (company, country, channel, other brands, people, events).
Choosing brand elements: six criteria
| Criterion | Type | Question to ask |
| Memorable | Brand building | Is it easy to recall and recognise? |
| Meaningful | Brand building | Does it say something about the category or the benefits? |
| Likable | Brand building | Is it fun, interesting, visually and verbally appealing? |
| Transferable | Defensive | Can it be used for new products or in new markets? |
| Adaptable | Defensive | Can it be updated over time? |
| Protectable | Defensive | Can it be legally protected and defended against copying? |
Brand elements include names, URLs, logos and symbols, characters, slogans, jingles and packaging.
Leveraging secondary associations
A brand can “borrow” meaning by linking itself to other things people already know and trust: the company itself, the country of origin, distribution channels, other brands (co-branding), licensed characters, celebrity endorsers, events and sponsorships, or third-party sources like awards and reviews.
Two more modern ideas: internal branding (employees must live the brand promise, since they deliver it) and brand communities (groups of fans who connect with each other because of the brand).
1.5 Measuring brand equity
- Brand audit: a thorough, periodic look at where the brand stands, including a brand inventory (what you sell and how) and a brand exploratory (what customers think). Audits measure “where the brand has been”.
- Brand tracking studies: regular surveys that tell you “where the brand is now” and whether marketing programmes are working.
- Qualitative tools: free association, projective techniques, brand personality and values.
- Quantitative tools: measuring awareness, image, brand responses and relationships.
- Comparative approaches: compare customer response to the brand versus an unbranded version, or conjoint analysis.
- Brand valuation: putting a money figure on the brand. Interbrand’s method looks at market segmentation, financial analysis, the role of branding in demand, and brand strength.
1.6 Managing brand equity
| Task | What it involves |
| Brand reinforcement | Keep the brand consistent and relevant: convey the same meaning over time while innovating on products and marketing. |
| Brand revitalization | When a brand fades, either go back to basics (rediscover what made it great) or refresh the image to fit today’s market. |
| Brand crises | Respond quickly, openly and with real concern for customers. Companies that do this well often recover with their equity intact. |
1.7 Devising a branding strategy
A branding strategy decides which brand elements are used across all the products a firm sells.
- Brand-product matrix: the rows are the brands, the columns are the products. It shows how broad (many products under one brand) or deep (many brands for one product) the strategy is.
- Brand hierarchy: from top to bottom: corporate (company) brand, family brand, individual brand, modifier (model or version).
- Branding choices: individual names, blanket family names, separate family names for product groups, or the corporate name combined with an individual product name.
- Brand portfolio: a firm’s set of brands, each with a role (for example flankers or fighter brands that protect the main brand, cash cows that fund growth, low-end entry-level brands, and high-end prestige brands).
Brand extensions
In a brand extension, a firm uses an established brand name to launch a new product. A line extension is a new variant in the same category (a new flavour). A category extension takes the name into a different category.
| Advantages | Disadvantages |
| Better odds of success for the new product (people already trust the name) Saves some launch cost Feedback benefits the parent brand: clarifies meaning, improves image, brings new customers Makes later extensions easier | Can dilute the brand meaning Can confuse customers or retailers May cannibalise the parent brand A failed extension can hurt the parent You lose the chance to create a new brand with its own image |
Whether an extension works depends on the parent brand’s quality and, above all, on the fit between the parent and the new product. Extensions must leverage the parent brand’s equity while also adding to it.
Customer equity is the partner idea: the total of the lifetime values of all of a brand’s customers. Brand equity looks at how customers think; customer equity looks at how much money they are worth.
| Remember this Brand equity = the differential effect of brand knowledge on customer response.Brand knowledge = awareness + image.Resonance model: salience, performance and imagery, judgments and feelings, resonance.Six brand-element criteria: memorable, meaningful, likable, transferable, adaptable, protectable.Audits look backwards; tracking studies look at the present. |
2. Addressing Competition and Driving Growth
| Competition and growth go hand in hand. These asks two questions: how should a firm behave depending on whether it is the leader, a challenger, a follower or a small specialist? And how do products and markets age over time? |
2.1 Growing the core
The safest route to growth is usually organic growth: focusing on opportunities with existing products and markets before wandering into new territory. This ties to the Ansoff growth ideas: market penetration, market development, product development and diversification, with the first being the least risky.
2.2 Competitive strategies by market position
| Role | Share | Main aim |
| Market leader | Largest share in the product market | Expand total market, defend share, and perhaps increase it |
| Market challenger | Runner-up that wants more share | Attack the leader and others |
| Market follower | Runner-up that is happy to hold position | Keep share without provoking a fight |
| Market nicher | Small, serves ignored segments | Specialise and earn premium margins |
A) Market-leader strategies
A leader has three tasks:
- Expand the total market. Find new customers, find new uses, and persuade people to use more.
- Defend current market share. The best defence is a good offence (continuous innovation), but there are six defence strategies:
| Defence | Idea |
| Position defence | Occupy the most desirable position in the minds of customers so the brand is seen as “the” choice. |
| Flank defence | Build outposts to protect a weak front or to support a counterattack. |
| Preemptive defence | Attack first, before the competitor can strike. |
| Counteroffensive defence | When attacked, hit back frontally or hit the attacker’s weak spot. |
| Mobile defence | Stretch into new territories through market broadening and diversification. |
| Contraction defence | Give up weaker areas and concentrate on core strengths (planned retreat). |
- Increase market share. Only worthwhile if the extra share is profitable. Higher share does not automatically mean higher profits, especially if the firm lowers its prices or overspends to get it.
B) Market-challenger strategies
A challenger first decides who to attack (the leader, firms its own size that are underperforming, or small local firms) and what its objective is. Then it picks a general attack strategy:
| Attack | How it works |
| Frontal attack | Match the opponent’s product, advertising, price and distribution. The side with more resources usually wins. |
| Flank attack | Hit the opponent where it is weak: either a geographic gap or an unserved segment. |
| Encirclement attack | Launch a big offensive on many fronts so the opponent has to defend everywhere. |
| Bypass attack | Avoid the enemy and go after easier markets: new products, new markets, or new technologies. |
| Guerrilla attack | Small, occasional attacks (price cuts, promotional bursts, legal action) to wear down the opponent over time. |
Specific strategies to support the attack include price discounts, cheaper goods, value-priced goods, prestige goods, product proliferation, product innovation, better service, distribution innovation, lower manufacturing cost, and intensive advertising.
C) Market-follower strategies
Following is not the same as being passive. Followers need to keep customers loyal and win a fair share of new ones. There are four types:
- Counterfeiter: copies the leader’s product and package and sells illegally.
- Cloner: emulates the leader’s products, name and packaging with slight variations.
- Imitator: copies some things but differentiates on packaging, advertising, price and so on.
- Adapter: takes the leader’s products and adapts or improves them, sometimes becoming a future challenger.
D) Market-nicher strategies
A good niche is big enough to be profitable, has growth potential, is of little interest to large rivals, and suits the firm’s skills. The key idea is specialisation. Nichers can specialise by end-user, vertical level, customer size, a specific customer, geography, product or product line, product feature, job-shop (custom work), quality-price level, service, or channel. Because risk is high when you have only one niche, multiple niching is safer. The nicher’s three jobs: create, expand and protect the niche.
E) Balancing customer and competitor focus
A competitor-centred company obsesses over rivals and ends up reacting. A customer-centred company obsesses over customers and may miss competitive threats. The winner is market-centred: it watches both.
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