The consumer perspective Brand name adds value

In the July/August issue of the Journal of Advertising Research, James Crimmins writes that because brand names enhance the value of products and are hard to copy, they play 'a critical role in marketplace competition.Crimmins, executive vice-president, director of strategic planning...

In the July/August issue of the Journal of Advertising Research, James Crimmins writes that because brand names enhance the value of products and are hard to copy, they play ‘a critical role in marketplace competition.

Crimmins, executive vice-president, director of strategic planning at ad agency DDB Needham Chicago, says in the article that the brand name ‘also adds value for the manufacturer and for the retailer.

‘Logically prior’

‘But the ability of a brand name to add value for the consumer is, of course, logically prior,’ he writes. ‘A brand name adds value for the manufacturer and the retailer only because it adds value for the consumer.’

In his paper, Crimmins looks at recent research on brand value from the consumer’s perspective conducted by DDB Needham Worldwide.

Crimmins addresses four questions:

- What is happening to our belief in brand names?

-What is happening to our commitment to individual brands?

How to measure?

-How can we measure the value added by a brand name?

-How much value is added by the typical leading brand name?

In answering the first question, Crimmins looked at historical trends in the DDB Needham Life Style database, developed through annual interviews with u.s. consumers over an 18-year period.

The database contains several questions that tap into the belief in brand names, for example, ‘I try to stick to well-known brand names.’

Crimmins writes in the report that he found ‘a sharp decline in the proportion of people who say they try to stick to brand names, falling from a high of 74% among women in 1975 to a low of 56% among women in 1980.

Steep decline

‘The decline is particularly steep between 1978 and 1980,’ he writes. ‘For men, the decline was parallel.’

Crimmins attributes the decline to the introduction and growth of generic products, but also points out the commitment to well-known brand names has been stable for the last 10 years.

The answer to the second question – ‘What is happening to our commitment to individual brands?’ – was culled from trend data from the Roper Organization, re-analysis of the Mediamark Research (mri) database, and another point of view on brand loyalty from Tod Johnson at npd.

Which brand

‘Roper asked women if they know, before entering the store, which brand they will buy in a selected category.

‘Roper reported the results of the question for eight categories in 1988 and 1991. In all eight categories, brand loyalty by this definition fell.’

One in three

When brand commitment across 60 product categories within mri database was examined, Crimmins found during the past five years, one in three of the categories studied showed a significant decline in commitment to individual brands, while only one in 15 showed a significant increase in commitment.’

In tackling the third question, the measurement of value added by a brand name, Crimmins gives a simple and useful definition of value added:

Ratio

‘The amount of value added by a brand name is the ratio of its price to its competitor’s price when both products are equally desirable to consumers, minus one,’ he writes.

‘If my brand and a competitor’s are equally desirable, when mine costs $1.10 and my competitor’s costs $1, then the amount of value added by my brand name relative to his is 10%.’

Crimmins writes about the fourth question, ‘How much value is added by the typical leading brand name?:

‘The median amount of value added by a No. 1 brand name over a store brand in our experience has been 40%,’ he writes.

‘It seems that, in the typical category, the No. 1 brand and the store brand will be equally desirable to consumers when the No. 1 brand name is priced 40% above the store brand.

Wide range

‘However, the range is very wide. The value added by a No. 1 brand name over a store brand has varied from a high of 113% to a low of 19%…the median value added by a No. 1 brand over a No. 2 brand is 10%.’

When suggesting how measurement and management of brand value can be improved, Crimmins writes ‘it is helpful to distinguish between belief in brand names in general and commitment to individual brands.

‘Though our belief in brand names in general may not have declined in the last decade, our commitment to a sole brand declined in one out of three of the categories we examined,’ he writes.

Commitment

‘Commitment results from the value added by a brand name. The value added by a brand name allows preference for a brand to survive the lower prices and promotions of competing products.

‘Because the value added by a brand name is fundamental to marketing, a simple technique to measure value added and monitor value added over time is essential.

‘We can estimate the amount of value added by a brand name as the ratio of the brand’s price to its competitor’s price when the two brands are equally desirable to consumers, minus one.

Management

‘Up to now, only measurement of brand value has been discussed. What about management of brand value? Better measurement of brand value is the first step to better management of brand value.

‘Changes in the value added by the brand name should be as routine a part of annual brand reviews and brand plans as changes in brand volume,’ Crimmins writes.

‘Those responsible for the health of the brand name are regularly evaluated on current profit,’ he writes.

Profit potential

‘They should also be evaluated on the potential for future profit. That is, we should look not only for profit growth but also for growth in the value added by the brand name.

‘Though innocent in appearance, this suggestion is, in fact, revolutionary. It asks us to acknowledge that when we trade away our ability to make a profit in the future in order to make a profit today, we have made a bad bargain.’

For more information call CARF, the Canadian Advertising Research Foundation, at (416) 964-3832.