In today’s competitive market, a brand can only achieve success if it can connect with consumers and effectively communicate its unique qualities in a way in which they create a positive impression in the minds of consumers. The brand builder who attempts to develop a strong brand is like a golfer playing on a course with heavy roughs, deep sand traps, sharp doglegs, and vast water barriers. It is difficult to score well in such conditions. Substantial pressures and barriers, both internal and external, can inhibit the brand builder. To be able to develop effective brand strategies, it is useful to understand these pressures and barriers.
1. Pressure To Compete On Price
There are enormous pressures on nearly all firms to engage in price competition. In all industries from computers to cars to frozen dinners to airlines to soft drinks, price competition is at center stage, driven by the power of strong retailers, value-sensitive customers, reduced category growth, and overcapacity (often caused by new entrants and by old competitors hanging on, sometimes via bankruptcy).
Retailers have become stronger year by year, and they have used that strength to put pressure on prices. Whereas a decade ago, the manufacturer largely controlled information, retailers are now collecting vast amounts of information and developing models to use it. As a result, there is an increasing focus on margins and efficient use of space. Suppliers, particularly those in the third or fourth market-share position with only modest loyalty levels, are exposed to harsh pressure to provide price concessions.
A decade ago, private-label brands were largely limited to low-quality, low-price products unsupported by effective packaging or marketing. Given these characteristics, they enjoyed only temporary sales spurts during recessionary times. No more. While still offering so-called price brands, retailers are also increasingly offering private label brands at the high end of the business. Such brands are competitive with national brands in quality and marketing support but have substantial cost advantages – in part because the cost of the brand management team, sales force, and advertising is lower and can be spread over hundreds of product classes and in part because of logistical advantages. The result is more price pressure.
Sales promotion is both a driver and an indicator of the price focus. In the 1950s, about 10 percent of the communication mix was devoted to price promotions. Those were the days when distribution was simple, retailers were concerned with building new stores rather than squeezing margins, and markets were growing. Today, more than 75 percent of the advertising / promotion spends are going to promotion.
These market realities imply that the key success factor is low cost. Organizations must reduce overhead, trim staff, downsize, and cut all unnecessary expenditures. What, then, happens to the people who support the brand with market research or other brand-building activities? They are vulnerable to the organizations new cost culture.
2. Proliferation Of Competitors
New, vigorous competitors come from a variety of sources. A host of food categories have watched Weight Watchers and Healthy Choice enter their markets through brand extension strategies. In the snack category, Frito-Lay has seen regional brands expand and Budweiser’s Eagle brand break out of its niche to become a major competitor. New product forms that provide real alternatives for the customer have encroached the soft drink market, bottled water, carbonated water, fruit-based drinks, and “new age” drinks, among others.
Additional competitors not only contribute to price pressure and brand complexity, but also make it much harder to gain and hold a position. They leave fewer holes in the market to exploit and fewer implementation vehicles to own. Each brand tends to be positioned more narrowly, the target markets become smaller, and the non-target market becomes larger. Efforts to market to a broad segment thus become more difficult in the face of the complex ‘brandscape’ Further, some new or desperate competitors may be motivated to take risks or attempt unusual approaches. The result can be destabilization of the competitive dynamics. There is also an enhanced motivation to copy anything that is successful, in part because the risks of copying are offset by the difficulty of coming up with brilliant new alternatives.
3. Fragmenting Markets And Media
At one time, being consistent across media and markets was easy. There were a limited number of media options and only a few national media vehicles. Mass markets were the norm, and micro segmentation did not exist. Brand managers now face a very different environment, one in which it is difficult to achieve the consistency that is needed to build and maintain strong brands.
The bewildering array of media options today includes interactive television, advertising on the Internet, direct marketing, and event sponsorship, and more are being invented daily. Coordinating messages across these media without weakening the brand is a real challenge, especially when promotional vehicles are included in the mix. A promotion involving a giveaway or a price reduction that results in a noticeable sales spike, for example, may be inconsistent with a brand identity based upon quality because it signals that the brand needs to lower price to gain sales. Pressure to include promotions (such as the couponing used by packaged-goods brands or the cash rebates used by automobile firms) makes it difficult to keep the brand-building effort on track.
In addition, companies are dividing the population into smaller and more refined target markets, often reaching them with specialized media and distribution channels. It is tempting to develop different brand identities for some or all of these new target segments. Developing and managing multiple identities for the same brand, however, presents problems for both the brand and the customer. Since media audiences invariably overlap, customers are likely to be exposed to more than one identity relating to the same brand.
Consider the problem of female consumers, accustomed to the Lux advertising, who encounter the firm’s advertisements geared for the males. Or think of the potential confusion of a prestige-oriented shopper, accustomed to seeing Shopper’s Stop advertisements in fine fashion magazines, who one day sees a newspaper advertisement for a Shopper’s Stop discount outlet. The more numerous and diverse a brand’s images are, the more difficult it is to coordinate them in support of a strong brand.
4. Complex Brand Strategies And Relationships
There was a time, not too long ago, when a brand was a clear, singular entity. Colgate, for example, was a brand name that simply needed to be defined, established, and nurtured. Today, the situation is far different. There are sub brands, brand extensions, ingredient brands, endorser brands, and corporate brands. The Coke logo can be found on a dozen products, including Diet Cherry Coke, Caffeine Free Diet Coke, and Coke Classic – and it doesn’t stop there. In the grocery store, Coke is a product brand; at sporting events, it’s a sponsoring brand; and in the communities where its bottling plants operate, Coke is a corporate brand.
This complexity makes building and managing brands difficult. In addition to knowing its identity, each brand needs to understand its role in each context in which it is involved. Further, the relationships between brands (and sub brands) must be clarified both strategically and with respect to customer perceptions.
Why is this brand complexity emerging? The market fragmentation and brand proliferation mentioned above have occurred because a new market or product often leads to a new brand or sub brand. Another driving force is cost: There is a tendency to use established brands in different contexts and roles because establishing a totally new brand is now so expensive. The resulting new levels of complexity often are not anticipated or even acknowledged until there is a substantial problem.
5. Bias Toward Changing Strategies
There are sometimes overwhelming internal pressures to change a brand identity and / or its execution while it is still effective, or even before it achieves its potential. The resulting changes can undercut brand equity or prevent it from being established. Most strong brands, such as Marlboro, Volvo and Surf have one characteristic in common – each developed a clear identity that went virtually unchanged for a very long time. The norm is to change, however, and thus powerful identities supported by clear visual imagery never get developed.
6. Bias Against Innovation
While there may be a bias toward changing a brand identity or its execution, a psychic and capital investment in the status quo often prevents true innovation in products or services. There is an incentive to keep the competitive battleground static; any change not only would be costly and risky but also could cause prior investment to have a much-reduced return (or even make it obsolete). The result is a vulnerability to aggressive competitors that may come from outside the industry with little to lose and none of the inhibitions with which industry participants are burdened.
Companies managing an established brand can be so pleased by past and current success, and so preoccupied with day-to-day problems, that they become blind to changes in the competitive situation. By ignoring or minimizing fundamental changes in the market or potential technological breakthroughs, managers leave their brands vulnerable and risk missing opportunities. A new competitor thus is often the source and the beneficiary of true innovation.
7. Pressure To Invest Elsewhere
A position of great brand strength is also a potential strategic problem, because it attracts both complacency and greed. When a brand is strong, there is a temptation to reduce investment in the core business area in order to improve short-term performance or to fund a new business diversification. There is an often-mistaken belief that the brand will not be damaged by sharp reductions in support, and that the other investment opportunities are more attractive. Ironically, the diversification that attracts these resources is often flawed because an acquired business was overvalued or because the organization’s ability to manage a different business area was overestimated.
Xerox may be the prototypical example of a dominant brand that lost its position because of an inadequate commitment to the core business. In the 1960s, Xerox virtually owned the copier industry; its market share was literally 100 percent. Barriers to entry included a dominant brand name, a strong set of patents, and a huge customer base committed to a leasing program and service organization. Instead of sticking with its strengths and defending either the low end by attacking costs or the high end by developing new technologies. It diverted resources into an “office of the future” concept. As a result, the company was blind sided by Kodak, and Canon, who entered the industry with innovative, superior, and often less expensive products. While there are many reasons why Xerox lost position in the 1970s, one key explanation is the brand’s strong equity, which engendered complacency and a temptation to look for greener pastures.
8. Short-Term Pressures
Pressures for short-term results undermine investments in brands. Sony founder Akio Morita has opined that most corporate managers unduly emphasize quick profits rather than try to make products competitive over the long haul.
There are several reasons why a short-term focus might persist:
- There is wide acceptance that maximization of stockholder value should be the overriding objective of the firm. This acceptance is coupled with a perception that shareholders are inordinately influenced by quarterly earnings-partly because they lack the information and insight to understand the firm’s strategic vision, and partly because they cannot evaluate intangible assets. As a result, managers are motivated to make current performance look good.
- Management style itself is dominated by a short-term orientation. Annual budgeting systems usually emphasize short-term sales, costs, and profits. As a result, brand-building programs are often sacrificed in order to meet these targets. Planning is too often an exercise in spreadsheet manipulation of short-term financial data rather than strategic thinking. In addition, firms tend to rotate managers through the organization, the long term becomes much less important than current results to career paths. Managers feel pressure to perform – to “turn it around” quickly and visibly.
- A short-term focus is created by the performance measures available. Measurements of intangible assets such as brand equity, information technology, or people are elusive at best. The long-term value of activities that will enhance or erode brand equity, for example, is difficult to convincingly demonstrate, in part because the marketplace is “noisy” and in part because experiments covering multiple years are very expensive. In sharp contrast, short-term performance measurements are ever more refined, timely, and detailed. The short-term impact of promotions, for example, can be demonstrated with scanner data. The resulting situation is a bit like the drunk who looks for his or her car keys under a street light because the light is better there than where the keys were lost.
The net outcome is a sometimes-debilitating bias toward short-term results. This bias translates into a need to demonstrate with hard sales, share, or cost numbers that expenditures payoff. In that context, it becomes difficult to justify investments in intangible assets (like brands, people, or information technology), which lack a demonstrable short-term payoff. As a result, these investments are often forgone and the organization becomes weak at the core, lacking such assets when they are needed.
External Links:
- The One Thing You Must Get Right When Building a Brand (Harvard Business Review)