The Big Question: What is the value of a brand?

Credit: Josh Stunkel

Mar 19, 2015

Sections Marketing

Every month, The Big Question video series brings together a panel of experts for an in-depth discussion. In this edited excerpt from February’s episode, Ann L. McGill, Sears Roebuck Professor of General Management, Marketing, and Behavioral Science at Chicago Booth, and Pradeep K. Chintagunta, Joseph T. and Bernice S. Lewis Distinguished Service Professor of Marketing at Chicago Booth, are joined by Ann Mukherjee, president of global snacks and global insights at PepsiCo, in a conversation about the importance of brands. The discussion was hosted by Hal Weitzman, Booth’s executive director for intellectual capital. 

What function do brands serve?

McGill: Brands fill in information you can’t observe at the time of purchase. How is this going to taste? Will the car be reliable? The brand tells me about that. Sometimes I like brands even aside from that information because they signal prestige or I have an emotional attachment to the brand. Research shows that brands are filters through which we interpret everything else that the marketer presents to us.

Mukherjee: A brand connects your product or service to a consumer. Consumers have loyalty today but not necessarily tomorrow. Brands create a relationship. It’s not just about buying brands, but buying into brands.  

Chintagunta: Sometimes the brand is just a mental shortcut for the consumer. If I see a boxy car on the driveway, it’s just a boxy car on the driveway. But if there’s a Volvo brand on it, then I’m thinking of something else, like safety.

Is branding a strategy or just a tactic?

Mukherjee: It has to tie to your corporate strategy. Brands don’t live in a vacuum. Clearly there are things you do with brands that are tactical, but you have to think about brands in a very strategic way. There are fast-moving, consumable products out there where it’s the brand that really sets you apart.
    
McGill: A brand sits inside the company. It owns it, and over the long term the company can use it to generate growth and profitability—as opposed to a tactic, which is a periodic expense to get something else done.

What is brand value, and how do you measure it?

Chintagunta: At the very basic level, it’s coming up with some quantification of what the brand is worth, and there are many ways of approaching that. Suppose I remove the brand name; what would a consumer be willing to pay for the product? Others have looked at it based on proxies for brands—the brand’s strengths, its stature, etc. And there are many statistical techniques for measuring brand value.

Mukherjee: Just looking at one measure is a mistake. Brand equity alone is not predictive of any kind of action. I have yet to see someone make a decision on a brand-equity measure. It has to be used in conjunction with other data and analysis. First, look at brand equity over a trended basis. Second, understand how the brand translates in communication. Finally, ask if your brand is strong enough to realize price.

McGill: You also need to measure the content of the brand. A brand needs to be something other than, “I’ve heard of it,” or, “It seems good or bad to me.” It needs to have specific meaning. Volvo means safety. If you ask a customer, “What do you associate with the brand?” that’s a hard question. But if you say, “If you met BMW at a party, what would it be like?” people will say something, like, “Oh, BMW is wearing a tie even though it’s a casual party. He’s good-looking, but he brags, although he’s got a lot to say for himself.” In those answers, you learn a great deal about what BMW means, aside from “luxury-car manufacturer.”

Chintagunta: The brand reflects the culture of the company and the people in the organization. You can think of the kind of people the company is attracting as a measure of the worth of the brand. Unless you have a strong brand, you’re not going to have strong people willing to come work for you.

How do you increase the value of a brand?    

Mukherjee: Brand distinction is important. Without it, you’re probably going to cannibalize yourself. What are the attributes that matter? Can you predict choice? The danger that a lot of people run into is the curse of brand-manager rotation. A new brand manager comes in and wants to do something new. Consumers aren’t interested in the latest trend; they want consistency.

Why do big corporations make mistakes with their brands?

Mukherjee: When brands get into trouble, corporations immediately want to say, “The brand is sick.” They find a way to overcome why people aren’t buying the brand. When you market your brand against the “why nots” and the barriers, your brand goes off track. McDonald’s is an example of that. You should reinforce the “why.” That’s what draws people in.  

McGill: We’re currently seeing a brand put itself at risk intentionally in a way that will probably work. That’s Porsche, which to most people means sports cars. But the brand can’t sell enough sports cars, so the company has moved into SUVs and four-door sedans. That led the Wall Street Journal to ask a few years ago, “Is Porsche really a sports car maker?” There are tens of thousands more units of these other Porsches on the road than Porsche sports cars, but the reason those other vehicles command a great demand and a high price is because of the sports cars.

Chintagunta: Another example is LEGO. Several years ago, LEGO was in trouble because they’d forgotten that it was about innovation and the connection between them, the parents, and the kids. They started making movies and such. But now, the brand is doing extraordinarily well, largely because the company rediscovered their core, which is innovation: How do we make great toys that parents are convinced communicate some skill to kids?

The brand has to transcend simply functional attributes and make that emotional connection. I’m reminded of a Cadbury ad, which could have talked about how creamy the chocolate was, but actually showed a gorilla, on the drums, playing to Phil Collins’s “In the Air Tonight.” It communicated the enjoyment you feel when you eat chocolate.

Does a brand have to be consistent across all messages?   

Mukherjee: Different brands have different starting points in different parts of the world. You could have an underlying insight, but a different culture might consume content in a different way.

McGill: The essence of what you’re trying to say is consistent, but you might personify it in a different way depending upon the culture. Different media might be suited to different components of your message. Nike wants to communicate authentic athletic performance, and maybe performance is better delivered on television, whereas authenticity is delivered more in a conversation over social media. The brand will have rich meaning, not always just a single word. So you may play up different parts of it through the media that’s best suited to it.

Do you set out to build a brand or do you measure and reinforce the messages that you find?

Mukherjee: A great brand has to be built every day. People who think, “Well, I built the brand, now I’m just going to milk it” are not going to have a brand much longer. You’ve got to keep nurturing that thing. You’ve also got to trust your consumers. We gave many of our brands over to our consumers long ago. At the same time, you put mechanisms in place to make sure that there isn’t damage being done to your brand. Social listening is critical.

McGill: Brand managers think carefully about which aspects of the brand they want to play up. Customers can be very passionate. They have their own opinions. They might say things about the brand that you’d rather not have played up. How do you manage that with respect for what the customer wants to say?  

Chintagunta: The bigger challenge is for start-ups, because a lot of the focus is on building demand. But you have to start thinking about the brand and the company’s core mission right from the start. Being able to do that and sustaining that focus over the growth of the company is quite critical.

What are the psychological processes behind branding?

McGill: The world that we perceive is more complex than we can bring in, so we sample a subset of the environment and interpret it in different ways. The brand is changing what we sample and our interpretation. Apple is associated with creativity. If I put an Apple logo on a computer, you’ll behave in a more creative way in association with it. That’s going to help the brand, because you’re going to attribute that creativity to the machine. The brand changes what you sample, how you interpret what you sample, and how you act. That’s pretty powerful stuff for a set of meanings in the minds of the customer.