The Role of Brands
Brands identify the source or maker of a product and allow consumers—either individuals or organizations—to assign responsibility for its performance to a particular manufacturer or distributor.
Consumers may evaluate the identical product differently depending on how it is branded. They learn about brands through past experiences with the product and its marketing program, finding out which brands satisfy their needs and which do not. As consumers’ lives become more complicated, rushed, and time-starved, a brand’s ability to simplify decision making and reduce risk becomes invaluable.
Brands also perform valuable functions for firms. First, they simplify product handling or tracing. Brands help to organize inventory and accounting records. A brand also offers the firm legal protection for unique features or aspects of the product.6 The brand name can be protected through registered trademarks; manufacturing processes can be protected through patents; and packaging can be protected through copyrights and proprietary designs. These intellectual property rights ensure that the firm can safely invest in the brand and reap the benefits of a valuable asset.
A credible brand signals a certain level of quality so that satisfied buyers can easily choose the product again.7 Brand loyalty provides predictability and security of demand for the firm, and it creates barriers to entry that make it difficult for other firms to enter the market. Loyalty also can translate into customer willingness to pay a higher price—often 20 percent to 25 percent more than competing brands. Although competitors may duplicate manufacturing processes and product designs, they cannot easily match lasting impressions left in the minds of individuals and organizations by years of product experience and marketing activity. In this sense, branding can be a powerful means to secure a competitive advantage.9 Sometimes marketers don’t see the real importance of brand loyalty until they change a crucial element of the brand, as the now-classic tale of New Coke illustrates.
Coca-Cola Battered by a nationwide series of taste-test challenges from the sweeter-tasting Pepsi-Cola, Coca-Cola decided in 1985 to replace its old formula with a sweeter variation, dubbed New Coke. Coca-Cola spent $4 million on market research.
Blind taste tests showed that Coke drinkers preferred the new, sweeter formula, but the launch of New Coke provoked a national uproar. Market researchers had measured the
taste but failed to measure the emotional attachment consumers had to Coca-Cola. There were angry
letters, formal protests, and even lawsuit threats to force the retention of “The Real Thing.” Ten weeks later, the company withdrew New Coke and reintroduced its century-old formula as “Classic Coke,” a move that ironically might have given the old formula even stronger status in the marketplace.
For better or worse, branding effects are pervasive. One research study that provoked much debate about the effects of marketing on children showed that preschoolers felt identical McDonald’s food items— even carrots, milk, and apple juice—tasted better when wrapped in McDonald’s familiar packaging than in unmarked wrappers.
To firms, brands represent enormously valuable pieces of legal property that can influence consumer behavior, be bought and sold, and provide their owner the security of sustained future revenues. Companies have paid dearly for brands in mergers or acquisitions, often justifying the price premium on the basis of the extra profits expected and the difficulty and expense of creating similar brands from scratch. Wall Street believes strong brands result in better earnings and profit performance for firms, which, in turn, create greater value for shareholders