Is Brand Equity at Risk?

Chief Executive (U.S.), December 1995 | Go to article overview

Is Brand Equity at Risk?


Oreo cookies versus President's Choice. Coke versus a no-name cola. Consumers increasingly are opting for the lower prices and good quality of private labels. Have brands simply been mismanaged or have people changed fundamentally how they value brands? CEOs debate the fate of brand equity and what must be done to restore the perception of value.

Some say brands are a tax paid by the final consumer for quality assurance and image. The amount of the levy varies from product to product. Consumers are increasingly reluctant to pay this tax for a host of reasons, only some of which involve brands themselves. Part of this trend is fueled by two fundamental forces. First, there is a revolution in manufacturing. With quality a given in today's product marketplace, why pay extra for a brand name? (Some argue that in some product categories, quality is actually better in private-label or store-brand products.) Second, the distribution revolution has turned everything upside down. Retailers today have the whip hand. Once accustomed to calling the marketing shots, brand manufacturers have become mindful that shelf space is at a premium and that retailers- armed with real-time information feedbac know more about customer tastes than they do. As a result, stores are taking back their margins, or at least trying their best to do so. Today, even Procter & Gamble has to be extra nice to traditional retailers, which, in turn, face competition from nontraditional channels of selling, such as Wal-Mart's Sam's Club, QVC, catalogs, and warehouse outlets.

Wal-Mart, by virtue of its distribution and market power, is thought to have accelerated the trend toward private labeling, given its emphasis on Sam's American Choice and its own house brand, Great Value products. While national brands are the store's main resource, Wal-Mart CEO David Glass thinks "the American consumer has begun to change. In the 1980s, the label and the store in which you bought the item were important. Today the customer says, 'I don't care where I buy it or what the label is. I just want a lot for my money.'"

This phenomenon initially occurred in food, beverages, and tobacco. In the early 1990s, aversion to store brands and private labels began to diminish. In 1993, supermarket label sales in the U.S. increased to 23.5 percent of sales from 22 percent. That sameyear, Philip Morris slashed the price of Marlboro cigarettes, arguably the mostfamous brand in modern advertising, to protect it from cheap generics. Granted, the trend has abated somewhat: For the first time in five years, the growth rate in retailers' own hrand grocery , last year dipped below 5 percent. But brand makers have heeded the wake-up call. Once complacent brand makers such as Coca-Cola and Procter & Gamble have retaliated with special advertisin and value-pricing of their own.

What does all this mean if your product is built on something as intangible as brand equity? Former Weston Foods CEO David Beatty says, "If you're not gold; you're gone. " In effect, this mearzs if a company's brand is not gold-plated in the buyer's mind, it is vulnerable. None of this suggests a complete erosion of brand equity, only that brands no longer carry unquestioned supremacy on store shelves or in people's minds. Thus, more than brand management is in flux. Basic notions of marketin in a new ae of improved manufacturing and distribution nzust be redefined.

This roundtable, held in partnership with The Dial Corp and Landor Associates, explores these new developments and how they fit with customers' increased cynicism about products, quality, image, and other forces that influence their relationship with a product or service. Participants differ over the vulnerability of brands themselves. Some point to poor brand management, while others see a continuing fragmentation of consumer tastes and preferences. As Star Market Co.'s Henry Nasella observes, consumers can be emotionally attached to a brand and still buy a cheaper product if they think they're being overcharged. …

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