Brand Equity twaddle

I occasionally send some friends interesting (both good and bad) articles from marketing academia.  This is an interesting reply.  I won’t name the academic paper.

Dear Byron,

Thank you for sending this paper. I think the correct response, using the scientific vernacular, is ‘utter twaddle’.

The framework below is very neat. It’s very sequential. But it’s also very wrong.

When marketing academics observe what really happens in the real world, they can make powerful discoveries that help further the discourse around how people behave and make choices. But when marketing academics start with a hunch (disguised as a testable hypothesis) and then find data to back it up, they are, at best, worthless, and at worst, damaging.

I wouldn’t waste my time critiquing each component in this model. What I will do is give you an example of a very real ‘real world’ observation about how people behave, despite what one might think they have in their heads regarding Brand Associations and so called Brand Equity.

I am lucky to live in a very nice suburb of southwest London called St.Margarets. It’s what one might call leafy and affluent. Its residents are, on the whole, fortunate to be significantly better off than the average UK population in socio-economic terms. Lots of doctors and lawyers and bankers and media types.

 The overwhelming majority of my St. Margaretian friends and acquaintances are well-educated and, again on the whole, politically liberal. Generally left of centre, having evolved from the armchair socialism of their more zealous, youthful days. I should put an important caveat in place here; I was never an armchair socialist, nor indeed a socialist of any kind really. Anyway, I digress.

There is a nice sense of community in St. Margarets and I have made many good friends here over the years. And in addition to these friends, there are plenty of others with whom I can enjoyably engage in pleasant and cordial passing conversations. As you can imagine, it’s fertile ground for many dinner parties and for gatherings in local hostelries.

Once the wine has started flowing, and the initial greetings and polite exchanges (such as how the kids are getting on) have been completed, conversations inevitably move on to the more ‘serious’ topics du jour. House prices, gossip about who Sally was seen with last week, standards of schooling, what Charles said to his accountant, how moral standards are becoming polarised between the haves and the have nots, what Carol was caught doing with Bob down by the river. You know the sort of thing, I’m sure.

Commerce will often have it’s place in this cauldron of righteousness as well. I distinctly recall more than a few conversations about business ethics. And a number of these have centred around a well-known retailer which has had the temerity to open one of its smaller store formats slap bang in the middle of St. Margarets. Right next door to the railway station. Outrage abounds.

“Tesco Express … they’re crucifying all our little local traders,” opines Gareth. “They bully farmers into bulk deals with derisory margins … Tesco is ruining our agriculture,” shrieks Camilla. “The way they treat their shop workers … it’s slave labour … they should be taken to the International Court of Human Rights,” booms Barry.

I listen with interest. Sometimes, I must admit, the odd fair point can be heard from time to time amongst the remonstrations and general distaste for having such a purportedly disreputable behemoth impose itself on our little suburban ‘village’ (as the Estate Agents like to describe it). But the over-riding theme is one of deep-seated antipathy. A theme with which, I must say for the record, I disagree. I think Tesco is a great business and great for our economy.

The dinner parties end, the hostelries close, and we all go home to our beds. Watered, fed and safe in the knowledge that the world would be a better place … if only ‘they’ just listened to our wisdom.

When I travel home from work during the week, I frequently do so by train. Most of my friends and acquaintances do the same. We come in to St. Margarets station, wearied by the day’s travails, ready to put our feet up and watch the telly. We trudge up the station stairs to the street. As I start to walk down the street  I remember that Cathy called me to remind me to pick up a pint of milk and some chicken breasts for dinner. Ooh, and I can pick up a half decent bottle of wine too … why not!

I turn in to a shop which is already teeming with St. Margaretian commuters.

Before I can even reach down to pick up the chicken breasts I’m tapped on the shoulder. I turn around to see a smiling friend; it’s Camilla. “How lovely to see you”, she says, “(mwah mwah) feels like I saw you just two days ago at Barry’s for dinner.” We both laugh. “Oh, look, speak of the devil, Barry’s over there with Gareth at the check-out.”

“Anyway, see you soon I hope, Camilla,” I say, “We’re going round to the Greensmith’s next Saturday, probably see you there.”

As I leave Tesco, which is slap bang in the middle of St.Margarets, right next to the railway station (to where thousands of well-heeled St. Margaretians return every evening), I give a little wave to Sally, Charles, Carol and Bob. They have arrived back on the next train. They’re just popping in to Tesco to pick up some things before they go home.

As I open my front door, a question comes to mind; can the need to get a pint of milk, as easily as possible, really trump the most heartfelt attitudes expressed around a dinner table in St. Margarets only a day or so earlier! It would appear so.

‘There’s nowt as queer as folk,’ as the old Yorkshire saying goes.

People may claim to hold firm perspectives about brands. The truth is that there is a world of difference between what someone consciously says and what they actually decide (primarily subconsciously) to do.

So, yes, that paper is truly dreadful.

Cheers,

Seamus

 
On 4 May 2013, at 01:25, Byron Sharp wrote:

A poster-child for everything that is wrong with brand equity research.  If you can’t be bothered reading the article just look at the struggle they had to come up with any findings or implications.

Behaviours can be useful predictors of other behaviours

MCDONALD, Heath, CORKINDALE, David & SHARP, Byron 2003. Behavioral versus demographic predictors of early adoption: a critical analysis and comparative test. Journal of Marketing Theory and Practice, 11, 84-95.

click here to download

 

Abstract

Predicting which consumers will be amongst the first to adopt an innovative product is a difficult task but is valuable in allowing effective and efficient use of marketing resources. This paper examines the accuracy of predictions made about likely first adopters based on the most widely accepted theory and compares them to predictions made by examining the relevant past behavior of consumers. A survey of over 1000 consumers examined adoption of an innovative technology: compact fluorescent lightglobes. The results show that variables which were derived from a utility and awareness perspective were a more accurate and managerially useful predictor than the demographic variables derived from the widely accepted theory based on the work of Rogers. It is suggested that these alternative variables could be utilized more readily by marketing managers in many circumstances.

Predicting the decline in Apple’s brand equity

Back in 2011 I mocked the brand equity industry for playing catch-up in valuing Apple.  Everywhere I look the evidence is that these brand equity valuations rise long after the stock price rises, and decline long after it declines.

It’s the same story for predictions of sales success.

In short they predict nothing.  They just tell us things we already knew.

By 2012 Apple was entrenched as the most valuable brand in the world, not surprising given that much earlier it had achieved the highest market capitalisation.  Brandz gushed that Apple’s brand equity had risen a further 19% in their estimation.

Since then I’ve not heard any reports from the brand equity industry predicting a decline in Apple’s value.  Meanwhile its stock price has almost halved since September 2012 (see graph below).

Here’s my prediction – soon (ie late 2013) the brand equity firms will announce a  decline in Apple’s brand equity.  Even though Apple’s sale revenue has continued to climb (see chart 2 below and this link).  Even in traditional markets like the US it has increased its market share in phones and computers.

So if the brand equity firms do downgrade Apple’s brand equity it will have to be based on its stock price.  What value do these equity values give then, when anyone can look up the stock price of any public company and be many months ahead of the brand equity valuation?

Chart 1 – APPL Stock price

Chart 2 – APPL Sales revenues

APPL

Applesales$

Three Conceptualisations of Loyalty

This article hasn’t been available on line for ages.  Well here it is back again.

Click here to download.

ABSTRACT

The objective of this paper is to throw some light on the issues of conceptualisation in brand loyalty research. Distinctions are made between three brand loyalty conceptualisations: attitudinal loyalty, repeat-purchase loyalty, and differentiation loyalty. The latter conceptualisation having received far less attention in the marketing (cf economic) literature on brand loyalty. This paper then details some recommendations for future research concerning the operationalisation of these concepts and exploring the relationships between each concept.

Key words: brand loyalty, customer loyalty, consumer loyalty

Consideration sets for Banking and Insurance purchases

Dawes J., Mundt, K. & Sharp, Byron. 2009. Considerations sets for financial services brands. Journal of Financial Services Marketing, vol. 14, pp. 190-202.

ABSTRACT This study examines the extent of consumer information search and consideration of financial services brands. It uses data from two surveys of purchasing behavior. This study finds a surprisingly low level of consumer consideration, either by personal enquiry or via the internet. The most common consideration set comprised only one brand, and this was the case for both high-value and low-value services. The managerial implication is that services marketers should make brand salience a top priority, with the competitiveness of their offer not being the primary driver of sales. If a financial services brand is salient to a consumer, there is a very high chance they will purchase that brand, without extensive comparison of the merits of alternatives.

Journal of Financial Services Marketing (2009) 14, 190–202. doi:10.1057/fsm.2009.19 Keywords: consideration sets; evaluation; financial services; loyalty; brand switching

Download PDF.

 

Two type of repeat purchase market, with different loyalty patterns

Sharp, Byron. & Wright, Malcolm (1999) ‘There are Two Types of Repeat Purchase Markets’, paper presented to the 28th European Marketing Academy Conference, Berlin, Germany, 11-14 May.

Abstract

In this paper we report on a pattern in aggregate buying behaviour. We have observed two distinct types of repeat purchase markets with very different patterns of customer loyalty. These differences have profound implications for marketing theory and practice.

The first, and best known, are markets with relatively few solely loyal buyers and with buyers allocating their category requirements across several brands; we call these repertoire markets. Examples of repertoire markets include fast moving consumer goods, store choice, medical prescriptions, and television channel selection.

The second are markets with many solely loyal buyers, and with buyers allocating their category requirements almost entirely to one brand; we call these subscription markets. Examples of subscription markets include insurance policies, long distance phone calls, and banking services.

The distinction between these two types of markets is not a theoretical taxonomy, but is instead a dramatic empirical difference. For example, the proportion of solely loyal buyers enjoyed by a brand over a year seldom exceeds 20% in a repertoire market, but seldom falls below 70% in a subscription market. There is virtually no middle ground between these extremes.

Download full paper as PDF.

 

Click to access 6007.pdf

Brand and Advertising Awareness: A Replication and Extension of a Known Empirical Generalisation

Romaniuk, Jenni, Sharp, Byron, Paech, Sam & Driesener, Carl (2004) “Brand and advertising awareness: A replication and extension of a known empirical generalisation” Australasian Marketing Journal, vol. 12, no. 3, pp. 70-80.

Abstract

From analysis of over 39 categories Laurent, Kapferer and Roussel (1995) found that top of mind, spontaneous and aided brand awareness measures have the same underlying structure. The difference in scores appears due to the difficulty of the measure. We have successfully replicated this work and extended it to similarly structured advertising awareness measures. However, additional analyses then revealed that while there is a good category level fit, modelling a single brand over time is less successful. Indeed, Laurent et al.’s excellent cross-sectional fit appears due to substantially different levels of salience between larger and smaller brands. This suggests that while the different types of awareness tend to vary with a brand’s overall level of salience, this does not mean that the different measures simply reflect a single underlying construct. Further, our finding challenges the previous authors’ claim that knowing the score for one measure allows the estimation of the score for another measure. Instead, the model provides useful norms against which to compare actual scores.

Keywords: Brand awareness, Advertising awareness, Empirical generalisation

Download the whole article as PDF.

Manager’s Knowledge of Marketing Principles: The Case of New Product Development

Citation
Cierpicki, S, Wright, M, and Sharp, B (2000) “Managers’ Knowledge of Marketing Principles: The Case of New Product Development”, Journal of Empirical Generalisations in Marketing Science, Vol 5, No.3

Abstract
Do marketing managers have well-established marketing principles to guide decision making? We addressed this question by examining 15 principles of new product development obtained from an expert panel of Australian senior marketing practitioners. Of these 15, three turned out to be tautologies, six had at least some empirical support, and six were partly or fully contradicted by empirical studies. In examining the literature for evidence, we were also able to identify five well established ‘empirical generalisations’ about new product development. These results indicate that while principles of new product development do exist, there are fewer of them than we might have thought, and Australian practitioners appear unable to distinguish between good and bad principles.

Download the complete article in PDF

Making marketing science easier to read & understand – suggested format for articles

I sometimes read academic articles in very different disciplines, like medicine and biology. They have some different formats than we have in marketing. Often their articles are much shorter, yet just as detailed when it comes to describing the research, how it was done and what were the results.

Why are marketing journal articles so long? And so obscure?

Do they need to be?

Now that publishing has gone online we don’t need to be subject to the same constraints as in the past. I wonder if the best format would be for articles to be about 800 words long, a clear exposition of what was done and what was found and what it might mean. After the article there could be a moderated/refereed Question & Answer section. This would be enormously useful, and take the pressure off authors to write perfectly, fully anticipating the needs of all readers on the first go.

Extensive details, like the whole questionnaire or data coding frame could be made available by links.

Brand Equity Consultants Fail Again

Back in mid 2011 I noted that Starbucks had been performing strongly.

I also noted the lack of consultants predicting this rebound. People who pitch these brand equity metrics claim they can predict future consumer behaviour and brand performance (even sharemarket performance). But evidence shows their predictions are lousy. I chuckled when BrandZ at long last caught up with the stock market and ranked Apple as the most valuable brand.

Back to Starbucks… when would the brand equity firms catch up?

Then mid 2012 BrandZ announced that Starbucks had made its list of top increases in brand value with a staggering 43% increase over their 2011 valuation.

Hardly much of a prediction when Starbucks had just announced their 11th consecutive record breaking quarter!

A few months later and BrandKeys listed Starbucks among their top improvers for 2012 up a massive 55 places in rank (but still far below Dunkin Donuts)!

Why would anyone pay for these brand equity metrics when they can read the news months (even years) earlier by just buying a newspaper?

Loyalty/Engagement scores don’t predict the future

I took the full list of Brand Keys 2011 Engagement Award ranks and correlated them again sales gains. What a surprise! A correlation of 0.4 but it’s round the other way…..

i.e. the better the Band Keys rank the less the sales gain !

Brand Keys, who sell these surveys, claim that these award scores will predict a brand’s future. Seems like you’ve absolutely got to know which numbers to use and which to ignore, which can only be done after the event. That’s not prediction, it’s weaving a story afterwards (to sell a product).

Pearson’s correlation 0.39 (or 0.11 for just the 5 top ranked brands)

Data sources:
Brand Keys Loyalty Awards 2011 – http://brandkeys.com/wp-content/uploads/2012/01/Brand-Keys-Customer-Loyalty-Engagement-Index-2011.pdf
Business Week Car Sales – http://online.wsj.com/mdc/public/page/2_3022-autosales.html

Professor Byron Sharp

PS it isn’t quite technically correct to use Pearson’s correlation for a continuous variable against a rank order variable, but in this case converting both to ranks and using a Spearman’s correlation produces essentially the same result.

Brand Revitalisation

Many marketers will look forward to this new year with some trepidation. They face a situation where:

– The brand plan is going to call for substantial growth (in sales and profit contribution), even if last year this wasn’t achieved.
– Yet the advertising budget won’t be larger. The amount of time ‘on air’ has shrunk over the years as more money has gone to in-store activity (largely price promotions), and the media budget has been spread more thinly across more media options as various digital ‘new media’ were added to the mix.
– More than half of sales occur on-deal, hardly anyone pays the normal price anymore for this brand.
– There is the suspicion that the normal price is too high and so sometimes encourages consumers to pause and break habits to look at other brands.
– The brand has more variants (flavours, sizes) than ever before. This was justified on the basis of appealing to new different consumers, and winning shelf space (but the brand has no more shelf space than it had some years ago, probably less – not that this is carefully measured/tracked). Handling and production costs are consequently higher, and it’s suspected there are more stock-outs of the main formulation.

Even for large, successful, profitable brands this situation looks a little bleak. It seems very hard to see where substantial growth is going to come from. This makes marketers susceptible to consultants selling “miracle cures”. In marketing these cures usually speak about restoring brand equity and differentiation, getting consumers to fall in love with the brand again. All sorts of things are put forward as candidates to do this…from loyalty schemes to new advertising pre-testing approaches. Many grasp at these straws, hoping for at least a temporary win that they can put on their CV.

So how can a marketing manager get their brand out of this situation? How can they realistically put a plan in place that has a reasonable chance of delivering growth?

An important place to start is to get a few crucial metrics in place that reveal:
– what mental structures make is easier (more likely) for a consumer to buy our brands? FInd out then make sure your advertising reinforces these.
– how many people did we reach today with ‘advertising’? everyday.
– how many people physically came within close distance of our brand today?
– what things made it a little harder (less likely) for someone to buy our brand?

The Invention of the MBA

I read recently in a history book about the invention of the MBA at Harvard. Business had been taught previously but after the stock market panic of 1907 it was felt there was a need for “better trained businessmen” so Harvard established a Graduate School and the MBA admitting 59 candidates in 1908.

Harvard developed their own definition of business: ‘making things to sell, at a profit, decently’.

“Two basic activities were identified by this definition: manufacturing, the act of production; and merchandising or marketing, the act of distribution”
– (The Modern Mind by Peter Watson, page 79).

How sensible.

And what a great success the MBA was. So successful that all sorts of institutions now offer MBAs. And in many cases they bear little resemblance to the original. There are shoddy institutions with low academic standards offering MBAs but also old prestigious Universities have jumped on the bandwagon sometimes without the appropriate staff – old economics courses get rebranded as “MBA” and much teaching is done by part-time consultants.

The MBA has been such a marketplace success that product quality, and academic standards have not held up strongly.

It’s a pity because that original idea was clearly a winner.

I wonder if the emphasis on case studies was part of the problem. Case studies are fine for teaching analysis and consensus building, but they can distract from real knowledge. They tend to reinforce old myths and group-think. The teaching of engineers and doctors placing more emphasis on fundamental principles. Also the case study approach requires good moderators, rather than researchers at the top of their game. So MBA schools are staffed by many non researchers, or the research and the classroom become separated from one another.

As I said, it’s a pity because the original idea of the MBA was clearly a winner. “Making things to sell, at a profit, decently”.