Brand strategy that shifts demand: Less buzz, more economics/A report from INSIGHTS


Brand strategy

In many industries, it has become routine for companies to spend vast sums on advertising and marketing their brands. But with copious product information now available to consumers through digital channels, it’s worth challenging the routine. Should you spend your next dollar on making your brand promise through advertising or other marketing tactics, or on keeping your brand promise by ensuring that your products and company deliver what customers want? It doesn’t pay to invest in the brand if the business model is flawed or the product lacks customer appeal.

That’s because the ultimate point of a brand is not to create emotional appeal or to generate buzz. The point is to shift customer demand.

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Well-managed brands shift demand in several ways: by commanding a higher price, generating more volume or some of both. Too high a price will dampen demand and reduce revenues, but the stronger a company’s brand, the further out it can push this intersection of volume and price in order to maximize revenues and profits.

Bain & Company’s analysis of 21 product categories quantifies the power of brands. In the MP3 player category, for instance, the leading player captured 2.9 times the market share of the second-ranked competitor as a function of its brand alone—holding price and other product features equal. Put another way, the leading brand was so strong that the company could double its price and still have a market share equivalent to the second brand. We found a similar dynamic in most other categories, even in business-to-business industries (see sidebar, “The science of calculating how much a brand can shift demand”).

The power of a brand to shift demand applies whether a company pursues a low-price or a premium-price strategy. At the low end, for instance, discount retailer and grocer Wal-Mart excels by constantly wringing out costs and passing on the savings to consumers, earning operating margins of 5.3% in its express stores and 3.1% in neighborhood stores in the process. At the other end of the strategy spectrum, US grocer Whole Foods earns most of its profits in prepared foods, where it commands a substantial price premium. Whole Foods recently generated operating margins of some 6.9%, five times the US grocery average. For both companies, the brand plays an essential role in moving the business toward the point of maximum revenues. Wal-Mart’s brand reinforces the company’s “great value” strategy to increase volume while Whole Foods’ brand—rooted in its sophisticated in-store presentation, knowledgeable staff and an emphasis on organic food—convinces customers to pay a higher price on prepared food (see Figure 1).

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About Framework Marketing Group

Framework Marketing Group has access to and is able to provide a range of co-ordinated creative thinkers…as and when you need them. It’s a marketing communications company with a toolbox of resources able to be used on an “on-demand” basis. The focus is on communication tools that evaluate brand strategies and interpret consumer behaviour to ensure a consistent and practical brand communications programme. Specifically: 1. Build strategic marketing plans: Understanding market data so strategic marketing plans have practical outcomes and communications to target markets are effective. 2. Communication audits From analysis of all messages – understand how customers really think and then recommend improvements to messages and media channel selection 3. Brand evaluations Establish how robust the brand equity is with each target market so communications to them is relevant 4. Integrate all communication channels Recommend an effective mix of communication channels to achieve economies of scale timing and content compatibility 5. Interpret market research Understand and fix gaps in market knowledge for consumers, customers and staff 6. Sales strategies Develop sales strategies from a foundation of core marketing platforms so all communications to market are complementary to each other
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