Continuing on my first post…
What a brand does:
To understand what a brand does for a company, you need to place yourself in the shoes of an everyday consumer. This means throwing out any existing mentality you might have as a shopper because of the realization that that you are not the majority of consumers; simply a minority due to your increased awareness of marketing activities. You may feel that you are within the majority or act in the same way, but as a potential investor you have to consider that your own feelings may bias any decision on analyzing the company (whether good or bad). It’s important that you also become unbiased towards a parent corporation and focus strictly on the brand of that product or service.
First, a brand helps a consumer to identify a company’s product or service. If you were to place pictures of the trademarked logos of products sold by individual large corporations on a consumer survey and ask respondents to identify the brand simply by sight – any investor would be floored by the accuracy of those answers. Simply by scrolling through a list of the S&P500 consumer index most investors could create a mental image in their head of the brand, trademark or logo associated with each company and its many products.
The average consumer is bombarded with solicitations and advertising from all sources of media in their daily lives; a brand enables a consumer to easily identify a product in all of that chaos and discriminate it from others that are similar or the same. Some research has shown that over 50% of purchasing decisions are made in less than five seconds on items of everyday use; staples such as milk, bread, coffee, etc. If a consumer spends less than ten seconds choosing a product, the importance of branding becomes very evident. When a consumer is in a rush, a brand has the potential to decide exclusively which product is chosen – it can make the difference between product A or B solely on the recognition of the brand they favour, identify or have an emotional response with. If your company is competing against multiple products in the same pricing environment, the importance of your brand in the consumers mind may be the sole difference in the decision of a purchase.
Although it’s my strong belief that a company should never compete on price, a consumer may in fact make a purchase decision based solely on price in certain situations. What’s important to realize is that the vast majority of purchases are not made on the basis of price, but instead the consumers’ focus remains on tangible quality and perceived value. The example of Walmart is a great example: they often offer a single product at a lower price-point, but the remaining models in that category are at the same price or higher than the competition. Not many people ever want a microwave with only a 10 second button – so Walmart takes advantage of this desire and prices accordingly. Consumers are continuously balancing the weights of quality and price in order to gain some evaluation of value from their purchases – remember their must be some benefit for a consumer to make a purchase even in a situation of limited choice.
Branding in many situations takes advantage of the seductive nature of high quality brands that consumers largely take for granted. I remember at one time I challenged my fellow classmates to perform an activity while grocery shopping in order to gain appreciation of the powerful unconscious motivation that many consumers have to buy well identified products. What the majority of consumers never realize is generic products (Masters Choice, President’s Choice, No Name, etc) are frequently manufactured by the same corporations as better-known products they routinely buy. Heinz, General Mills, Kellogg’s, P&G, JNJ and many other private labels sell identical generic products at discounts to their premium brands. Yet, these corporations spend millions on advertising and brand promotions in order to maintain the perceived higher value that their premium brands offer over such generics – Why?
Although a frugal shopper might realize that 85% of the time these generic brands are the exact same product, packaged in the exact same way, simply with different labels – the majority of shoppers don’t. This is often known as the naïve consumer syndrome. This is a classic example of the premium many people are willing to pay for the perceived value they receive from a higher quality brand. Even when you yourself grocery shop next, take the time to observe others shopping and the short span of time it takes them to consider which product between many brands to choose. Most will reach automatically while multitasking other activities (shopping with kids, reading, on the phone, etc) because we are creatures of habit. We mostly follow a routine: driving to work, grocery shopping, how we put our pants on or even tying our shoes. Companies that understand these routines have a much better opportunity to capture the consumer at key purchase points in order to initiate a buying decision.
That is where the art of branding is truly seen; the repeat purchase made easy. That’s the ultimate goal of a company that markets to a target group of consumers and spends capital to create brand awareness and loyalty among that group. When a consumer adjusts their shopping patterns and becomes comfortable with a specific brand – the likelihood of repeat purchases of that brand rises exponentially. Most of us are never even aware of how quickly we make these unconscious decisions of which product to choose – we just pick them. When we see them on sale, we even buy more.
Ask yourself…What brand of coffee do you drink? What brand of gum do you chew? How often do you eat the same cereal or brush your teeth with the same toothpaste each morning? How often do you change between brands or try new ones?
Many people take little or no time in discriminating which product is of higher value; they simply pick the one they’re most comfortable with in reference to brands and move along (our emotional response to tangible objects). Even if the difference can be measured in dollars between two products, the one that creates the most favourable emotional response is often the product or service chosen.
These unconscious actions also help to reduce the risk of purchases. What I mean by this is that two or more brands may compete for the same consumer at the same point of purchase with the same product. Dare Chocolate Chip Cookies may compete with the same two brands of Mr. Christie & President’s choice, yet only one may be favoured by the specific consumer based solely on their preference for brand and not price. The brand name helps to eliminate any confusion by the consumer as to which product is the one they hold a preference for. All they have to look for is the name, colour of box or style of packaging that they’re accustomed to purchasing and off they go to grab the next item on their list. Literally, within a second or less, the consumer has already made a decision based solely on brand with little discretion for price. Remember that when you’re a company with a very strong brand name what you don’t ever want are consumers to mistake your product with that of your competition. This is where brand insistence becomes so important to a company and true value associated with brands is created. Brand insistence is when a consumer is unwilling to accept nothing but the brand for any and all benefits. They will maintain brand loyalty for long periods of time regardless of pricing pressures and most often there are associations among a product group that the consumer will follow also.