by David A. Aaker
hat is going on in branding?
• Gatorade, like many strong brands
throughout the world, is facing the specter of major competitors entering their market and price erosion. They wonder how to respond without
damaging their equity.
• 3M decided that their branding was getting out
of control, so they developed a committee of the top
executive vice presidents in the company to approve
all new brand names. They went from 90 new brand
names in one year to four in the next.
• Hewlett-Packard is concerned that their branding is confusing and ineffective - they are worried about "LaserJet" vs. "DeskJet" vs. "InkJet." As aresult, they formed a company-wide task force to sort out their branding issues.
• Pepsico, in their annual report, reaffirmed that
they are going to invest in and build brands - that
is what their strategy is all about.
Why should companies build strong brands?
There are two major reasons; the first is that in
American businesses, strategists get too preoccupied
with short-term financials. Instead, organizations
need to learn how to build assets. That should be
how firms manage strategically. American executives are burdened by the concept that their primary goal is to maximize shareholder value. There is
nothing wrong with that in theory, but in practice,
shareholders must base their evaluation of
the company on quarterly earnings - there
"Companies that have
is no real other credible piece of informastrong brands have an tion for them. That focus on quarterly earnalternative to competings almost always gets translated into ing on price and
management thinking and process. Stratespecifications."
gists and planners have become experts at
managing short-term financials and designing cost and sales programs, instead of learning how to better build and manage assets that will pay off in
In a study a few years ago, I asked 250 business
managers, "What is the biggest asset that gives your
firm a sustainable competitive advantage?" The
number one answer was perceived quality; number
two was brand awareness and number 10 was customer loyalty - all dimensions of the intangible asset called brand equity. Therefore, when a company starts building assets, it makes sense for management to look at brand equity.
Unfortunately, it is very difficult to illustrate the
value of investments in brands. The financial people
in most firms want to know where and how much
this program impacts the bottom line. However, it is
virtually impossible to generate a justification
through a financial analysis for building brands - to
show how the net present investment in brand-building advertising or other brand-building activities will pay off. There are approaches to measure it, but in
the final analysis there has to be faith that creating
strong assets will pay off.
The second reason strong brands make sense is
price competition. Almost every industry is burdened with it. Companies that have strong brands have an alternative to competing on price and specifications. As Tom Peters puts it, "In an increasingly crowded marketplace, fools will compete on price.
Winners will find a way to create lasting value in the
DEFINING A STRONG BRAND
What exactly is a strong brand? A strong brand
has four dimensions: awareness, associations, perceived quality and brand loyalty. To understand what drives a brand's value, one must understand
each of these four dimensions.
Take awareness for example. A colleague of mine
did the following experiment: he placed three jars of
peanut butter in front of some subjects. One brand
was of much better quality than the other two - in
a blind taste test, it usually won 70 to 80 percent of
the votes. He asked the subjects to taste each of the
three types of peanut butter and select which one
they liked the best.
One of the lower-quality...
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