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Several years ago, VF Corporation, the world’s largest apparel manufacturer, embarked on an aggressive growth strategy that rests heavily on branding, including opening new retail outlets. The company, which had been known for producing intimate apparel and everyday Wrangler and Lee jeans, is building on a group of brands that symbolize an entire lifestyle.
The model is based on North Face, a label that encompasses products ranging from jackets and shoes to shorts and tents, all communicating an outdoors-oriented lifestyle. Since it acquired North Face in 2000, VF has gone on to buy Reef — which is aimed at surfers — high-end jeans maker 7 for All Mankind and lucy, a women’s active apparel brand focusing on the loose-fitting yoga look. VF also sold off its long-time intimate apparel divisions, which manufactured the Vanity Fair and Vassarette labels, because research showed that consumers viewed those lines simply as products, not as a symbol of a broader lifestyle, according to VF CEO Mackey McDonald.
“Our capability today is in building brands,” he says. “That is what I believe is driving our growth and success.”
If VF’s strategy is any indication, brands don’t seem to be losing their luster. Despite serious challenges from private label manufacturers and low-price global production, branding remains an important way for consumers to choose among products in a crowded marketplace. At the same time, brands are also taking on a growing role in building consumers’ own identities, according to Wharton faculty and marketing analysts. But, these experts add, with little room to compete on cost, brands will need to be vigilant when it comes to differentiating themselves from increasingly sophisticated competitors.
The Thin, White Cord
Consider the thin, white cord that connects the Apple iPod to its spongy ear buds. It’s more than a piece of equipment; it’s a powerful symbol of the continued importance of branding. “One of the things that were very important to the success of the iPod was the white cord,” says Wharton marketing professor David Reibstein. “You could own an mp3 player with more memory, but if it didn’t have the white cord, you weren’t quite as with it or as cool.” Clearly, part of the iPod’s success, he adds, “was just the image of it being an Apple. There are some lifestyle products where the visibility of the brand is one of the dimensions that are important.”
The traditional role of branding has been to provide consumers with a short-hand way of understanding the key characteristics of a product — such as quality, fit or taste, Reibstein says. For example, customers know that every time they buy Coca-Cola, the beverage’s formula will be the same and the drink will taste like every other Coca-Cola product. With a store-brand cola, there is not that level of certainty. Many people are willing to pay more for certainty and reliability, particularly as they have increasingly less time for shopping.
Wharton marketing professor Americus Reed agrees that while many branded products are made in the same factories by the same manufacturers as private label items, consumers will continue to pay a premium for brands. “When they buy that brand, they are minimizing risk, at least in their mind,” he says.
For example, Bayer aspirin may be essentially the same as a cheaper drugstore brand, but consumers will continue to pay more for a brand name that has been cultivated across generations. “You are paying for something beyond the functional utilitarian benefits that come from the chemicals that are in aspirin,” says Reed. “If brand equity didn’t matter, if it had no traction, everyone would just compete on price. But that’s not what happens. You have this other part of the concept that taps into how people view themselves.”
Reed stresses that the added dimension does not mean brand-name manufacturers do not have a fight on their hands when it comes to private label products.
A record 41% of shoppers surveyed last year identified themselves as frequent purchasers of store brand products, up from 35% five years earlier. Store brands now account for $50 billion in annual sales, and one in five items sold in U.S. supermarkets, drug stores and discount chains is a store brand, according to research by the Private Label Manufacturers Association.
Private label manufacturers are also attempting to add a sense of branding to their products to set them apart from dull “generics.” Target, for example, has developed its own line of gourmet oils, appetizers and frozen foods under the name of Archer Farms. The mass merchandiser has even launched a television advertising campaign to promote its store label, a tactic typically used only by branded manufacturers that charge a premium.
“Branded companies are beginning to understand that if they don’t spend enough time thinking about, ‘How is my brand going to differentiate me?’ they lose out big time,” says Reed.
Brands require careful nurturing over years to develop the kind of equity that will pay off with consumer loyalty and the power to charge higher prices — and generate more profits — than no-name products, he adds. It takes years of consumer experience, advertising and other communication about the brand to build attachment. Surprisingly, companies often put valuable brands in jeopardy when they cut corners on branding to boost quarterly results, according to Reed. “The problem is that marketing managers are compensated in the short term and it takes a long-term perspective for brand equity to show up on the balance sheet. That doesn’t happen in a quarter.”
Revitalize Rather than Replace
One major reason branding has become more important than ever is that over the past two decades, China and other low-cost production centers have squeezed prices so low that there is little room left to compete on that basis, according to Wharton marketing professor Stephen Hoch. “People are looking for some kind of edge that comes from branding.”
“Brands are absolutely mandatory,” he adds, but he, too, cautions that they need to remain focused and find new strategies to fend off increasingly sophisticated competitors. “It’s amazing how many crummy brands are out there. There are a lot of manufacturers who need to realize that if they don’t notch it up, they’re going to go down.”
Hoch expects brands to consolidate as weaker names die away. And while there are always opportunities for new brands to rise, he says it is always better for companies to maintain or revitalize existing names. As a result, many manufacturers are focusing on brand extensions in which they move into new product lines using an already established name to conquer new categories.
Another trend, he notes, is that manufacturers are opening their own retail shops, not to compete with their wholesale customers, but to enhance their own understanding of customers in order to better develop their own brands. “It’s hard to tell where brands end and retailers begin. Target is a brand, but Target also sells brands. You can’t just be a manufacturer any more. You have to have some identity. Otherwise, you just become a commodity.”
In addition, traditional distribution channels are blurring, making it easier for manufacturers to open stores without offending retailers who sell the bulk of their goods. Hoch points out that the success of Apple’s own retail stores has helped drive up sales of its products at all consumer electronics stores. “I don’t think Dick’s Sporting Goods would be that upset if Niketown located near them,” Hoch says, because it would help build up the Nike brand which would, in turn, benefit Dick’s in the long term.
According to Wharton marketing professor Jonah Berger, branding initially was a way to signal uniformity and quality to customers who were buying goods out of a barrel in small general stores. Information about quality is still important, he says, but consumers now use brands to reflect their own lifestyles. For example, most plain black tee shirts look more or less the same. “But if it’s abetter brand, the sheer fact that it’s a better brand, like Gucci, makes people feel better about themselves,” says Berger. “Even if others can’t even see that difference, it makes [the purchaser] feel special.”
Branding, he notes, provides a way for people living in far-flung communities to quickly signal who they are. “Social networks and interactions in general used to be more localized. We knew all the people in our town. Now we interact with people and we have no idea where they are from or what they are like. We have to make short-cut judgments about the people we meet. Products and brands more generally allow this sort of thing to take place.”
VF’s McDonald, who is also an advisory board member of Wharton’s Jay H. Baker Retailing Initiative, says consumers may be enjoying low priced apparel made in China, but at the same time they are also willing to pay for brands that mean something to them. “People buying apparel today are not looking for commodity replacement products. They are looking for products that make a strong statement about their lifestyle.”
“Brand Communities” and Bonding
In addition to private label production, other external forces will continue to shape the future of branding.
Reed notes that new forms of media, such as YouTube, have fundamentally altered the nature of mass communications by allowing messages to travel to fragmented groups of people across the world in minutes. That can be good or bad for a brand, he says. Positive word-of-mouth can flow exponentially faster, but so can bad news about a brand. The Internet has also added a new ripple to marketing with the creation of so-called “brand communities.” “If I’m in love with Volkswagen, I can connect to other people who are in love with Volkswagen,” he says. “That gives companies an advantage in being able to communicate through these technological advances.”
Television remains an important part of most branding strategies, but it is expensive for companies that are under pressurefrom low-priced store brands. As a result, some consumer products companies have turned to a third-party marketing platform — called Brand Power — developed by the Buchanan Group, an Australian marketing and promotions firm. The company produces advertisements that resemble a news report emphasizing the strong points of buying brands in general. It also produces interchangeable segments on specific products. The program has been available in other parts of the world for more than 10 years, but has only come to Europe and the United States in the past two years. Campbell Soup, Sunny Delight and Kimberly Clark are using the format in the United States.
Chris Phyland, business development manager for the Buchanan Group, says Brand Power is an inexpensive tool for marketers of branded products to stay ahead of store labels that do not advertise at all. “They can’t stop private label so they have to live with it,” says Phyland.
He notes that traditional advertisements tell a story and strive to make consumers laugh or cry. With luck, consumers remember the name of the product and toss it in their shopping carts. However, it is difficult and expensive to create that kind of ad. The simple, straight-forward Brand Power approach avoids any area that would carry cultural nuances — such as language or humor — to generate commercials that will work anywhere in the world. “What we have created are templates that are global and that we know work across all markets and languages,” says Phyland.
Reed says that perhaps the most important new trend is the use of people as brands. He points to home improvement guru Ty Pennington and soccer star David Beckham as examples. He says the power of celebrity branding also carries additional risk. “Just ask Michael Vick’s collaborators” — a reference to the Atlanta Falcons quarterback who was recently suspended from the National Football League after admitting his role in an illegal dog fighting operation. Vick faces jail time as a result of the charges.
Another problem for branded product marketers, says Berger, is imitation knock-offs that can diminish the perception of a manufacturer’s quality or dilute a brand’s message. He also notes that recent quality problems associated with Chinese food products and toys may actually benefit branded products which, in consumers’ minds, represent a higher level of safety and quality than private label brands.
Indeed, he says, the future may look like the past, when brands were used to promise that items sold from a barrel would work. “Quality is a dimension of brands people have taken for granted and that may come into sharper focus,” says Berger. “We had come to assume that if something is bad, no store will sell it. Now some people are taking a second look at brands.”