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Tuesday, January 23, 2024

The Tricky Business of Branding

How a brand is perceived by consumers can influence not only market structures, but also culture and even government policy.

Image Credit: Vik Approved - Flickr | CC BY-NC 2.0 Deed

Brand development has become a major focus for firms hoping to find or maintain success in advanced markets. According to Steve Forbes, “Your brand is the single most important investment you can make in your business.” And he certainly is right.

A brand not only serves to identify firms and what they offer, it also conveys a company’s positioning strategy and value proposition. Promotional elements such as logos, names, symbols, and colors, are commonly leveraged for branding purposes but a brand can also be reinforced through pricing and distribution systems. For instance, if a company wants their product to be viewed as the best of the best, then they wouldn’t want it to be found on the shelves at a discount store. This is why Burberry has been known to burn excess inventory and perhaps it is also why premium brands will leverage opportunities to recycle their products.

Patagonia’s ‘Take-Back Program’ is truly a strategic marketing move since, by means of consumer participation, Patagonia can improve its environmental ratings. Patagonia gets the purchase first and the accolades after when buyers bring back their used apparel.

In addition to the ‘Take-Back Program,’ Patagonia offers store credit on certain items that have trade-in value. As such, Patagonia incentivizes further purchases and prevents products from ending up in donation bins.

Patagonia is known for its reputation of being environmentally focused, and reputation matters. Consumers will often choose products because of the brand. Take over-the-counter drugs. Unlike pharmacists who will opt for generic versions, consumers will buy Advil or Tylenol even when the properties of a generic drug may be identical to the name brand version.

Consumers are also more likely to try a new product if it is from a brand they trust or want to support; and this is why Taylor Swift can successfully sell the same songs over again.

The overall value generated from a brand is known as brand equity, and strong brand equity tends to ensure strong bottom lines. Therefore, the more valuable the brand, the more protection needed. Taylor Swift knows this all too well and has filed trademark applications for not only her name and initials, but also for the names of her albums and songs.

Companies (or celebrities) who may be less well known or can’t seem to compete with established notable brands may benefit from third-party certifications or strategic alliances to boost sales opportunities. Swift’s beau, Travis Kelce of the Kansas City Chiefs, has undoubtedly benefited from her spotlight. After their relationship began in the summer of 2023, sales took off for NFL merchandise and by the fall, Walmart was featuring Travis Kelce’s line of ‘kitchen prepared meals.’

There may be times, however, when companies want to distance themselves from certain connections or even from themselves.

For example, in 2017, The Hershey Co. sought out to acquire Amplify Snack brands, featuring natural and low-calorie food products such as Skinny Pop. Given that appealing to health-conscious consumers with a name synonymous with chocolate would likely be a hard sell for Hershey, expanding its product portfolio by acquiring established brands made good business sense.

Other big brands selling more wholesome products include PepsiCo Inc.’s ownership of KeVita (organic probiotic beverages) and Colgate-Palmolive’s ownership of Tom’s of Main (all-natural personal care products).

The downplaying of a brand name can occur not only for promotional reasons but also due to political pressures. And currently this is playing out in the pharmaceutical sector in a disconcerting way. Beginning at the start of 2024, in accordance with a Medicaid rebate program, drugmakers must pay significant penalty fees for price increases that may have transpired over time. To seemingly bypass the penalties, Glaxo removed one of its products, Flovent, from its portfolio and replaced it with a lower-cost generic version. By doing so, Glaxo can sell its product devoid of a price history for the government to flag.

For those who need Flovent (predominantly children with asthma), there is a major drawback to this change. The generic version is not carried yet by all pharmacies and insurers don’t typically cover generic drugs. Lucrative incentives for insuring branded medicines have been a concern for quite some time, and drug pricing is indeed a tricky matter. Overpriced drugs are a problem, but unavailable drugs are an even bigger problem. Similar to the baby formula shortage in 2022, it seems government intervention can carry a high cost for consumer wellbeing.

Clearly strategies for branding can be quite contentious, and clearly brands matter in more ways than one.

How a brand is perceived and positioned in the marketplace can influence not only a company’s marketing mix but also society’s interests and government interference. Likewise, the way in which consumers respond and react to a brand and its value proposition can determine what may be offered and marketed—both for good and bad. In Capitalism: The Unknown Ideal, Ayn Rand notes that “the market value of a product is not an intrinsic value” but rather a representation of a “socially objective value.”

A product may be of the best quality and the best price, but if it is not of interest to consumers, it holds little value. Conversely, a product may seem to be void of any functional value and be of little use, like a diamond, but if consumers want it and have the means, they will buy it.