Introduction to experiment at creating brand extensions. This

Introduction

There
is a high pressure from corporate stakeholders and government for all types of
companies to be more attentive and responsive to their interests and needs. Meanwhile,
to maximize shareholder value by achieving highest profits is the primary goal
of any publicly-traded company. These opposing forces cause disagreement about
value of reputation. Most people would definitely agree that managing brand
equity and building a good reputation is vital to every company. On the other
hand, supporters of Milton Friedman, the winner of Nobel Prize
in Economics in 1976, claim that the sole purpose of a firm is to make money 1.

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The
purpose of this article is to review academic literature on the strategies of
managing brand equity, in particular on reputation. It refers to the public
relations professionals and marketers who take responsibility for reputation.
Focusing on reputation management helps professional marketing managers to
create real value for their companies across trust, good relations with
stakeholders and successful business model. From this perspective, a few
recommendations for communication practitioners and marketers will be provided.

Based
on academic literature, arguments will be supported by two examples: the
successful brand extension of Bentley’s spirit into the world of perfume and
the sweet smell of failure of Harley Davidson perfume. Nowadays there is a
growing trend among car manufacturers to experiment at creating brand
extensions. This involves many big auto company, for example, Porsche designs
Kitchens, Mercedes-Benz creates Apartments and Volkswagen produces GTi Watch. Trust
from customers and instant brand-awareness makes luxury brand the ideal models of
line and product expansion – as long as producers manage to maintain the same
level of quality.

Bentley
Motors Limited is a British manufacturer of luxury cars and a subsidiary of
Volkswagen AG since 1998 2. People perceive Bentley as luxury auto brand and a
true British classic. Bentley Fragrances ideally match the Bentley Motors
values: a mix of rum, musk and patchouli makes the fragrance refined and masculine inspired by the woods and
leather synonymous with the handcrafted interior of a Bentley.

Harley-Davidson,
Inc. was founded in 1903 and become one of the world’s largest motorcycle
manufacturers 3. Harley has its own iconic brand, moreover, company is known
for its brand community. Harley is famous around the world for its events and
motor clubs. Moreover, thousands of people visit a brand-focused Harley museum
that is sponsored by company. However, not all brand campaigns were successful.
CEO of the Interbrand Group claimed that “Harley Davidson values are strong,
masculine, very rugged values” 4. Brand extension to baby clothes and
perfumes destroyed brand image and led to loss of certain share of customers.

 

The strategic
management of a brand and its brand equity

In general, key concepts of corporate
identity, image and reputation related to the company’s target audience build a
corporate brand 5. It is a summary image that represent umbrella over
company’s marketing activities, as well as its communications with different
stakeholders, including government, business partners, suppliers, current
employees, potential employees, the media and customers. The fusion of
corporate identity, image and reputation provides the foundation for corporate
brand equity.

Current perception of company

Attributes of company

Corporate identity

Perception of company over time

Corporate image

Corporate reputation

Corporate brand

Source: Larry
Percy (2008). Strategic Integrated Marketing Communications.

 

 

 

 

 

 

 

 

According
to Gary Armstrong and Philip Kotler, Brand equity is the differential effect
that knowing the brand name has on customer response to the product and its
marketing 6. Measuring brand equity can be viewed in two ways. Some experts
determine the financial value for accounting, merger, or acquisition aims.
Others concentrate on behavior aspect and the brand’s ability to capture
consumer preference, satisfaction and loyalty. As reported by Dowling (2001), Brand
positioning is fundamental element to build a successful and well-known brand.
The positioning of the brand includes Brand reputation, Brand identity, Brand
image and Brand attitude. Grahame Dowling describes corporate identity as
symbols (name, logo, slogan, advertising and others) that help to identify the
firm. Corporate image is personal evaluation that can be both positive and negative,
whereas Brand Attitude is more general term that involves feelings, knowledge
and experience 6.

The
focus of this review of the academic literature is on corporate reputation. According
to Dowling (2001), corporate reputation is based on the values the person
associates with their understanding of a company’s image 6. In
terms of company’s financial position reputation is intangible asset: as an
intangible, reputation represents a firm’s past actions and describes a firm’s
ability to deliver value outcomes to multiple stakeholders (Mahon, 2002;
Fombrun, 1996) 7. On the other hand, reputation can be considered as a
derivative of other actions and behaviors of the firm. Stigler (1962) claims
that reputation is the way in which stakeholders, who know little about an
organization’s true intent, determine whether an organization is worthy of
their trust 8.

Based
on these various definitions, reputation can be considered from two points of
view.  In terms of company, reputation is
an intangible asset that allows the company to respond consumer’s needs and
expectations and to create creating differentiation and barriers against
competitors. In terms of stakeholders, reputation shows how company deal with
expectations of its various stakeholders, their behavioral and emotional
reactions.

 

The role of brand equity/reputation on the company’s performance

Managing business’s reputation is
vital to business success regardless of the company’s size. For international
corporations having a good reputation is important to get the trust and
confidence of the consumer as well as to compete against competitors.
Reputations prevent competitive mobility and create returns to companies
because of difficulty to imitate (Porter, 1977) . A strong corporate
reputation assumes goods or services of high quality (Carmeli and Tishler,
2005) and good relation toward customers.

Authors state that good corporate
reputations create strategic value for the company (Dierickx and Cool, 1989;
Roberts and Dowling, 2002; Dowling, 2004) 6. Wartick (1992) suggests that if
negative information is already appeared, it is difficult to change the
perceptions of stakeholders 11. Trust of external stakeholders helps not only
to capture greater market share, but also to attract more investments and build
long-term relationships with investors. Even if your make money, it will be
short-term result that will not last too long. It the era of digital world it
becomes more important to grow the corporate brand than was ever possible
before social media. Without customers’ trust and loyalty, you will lose
competitive advantages at the beginning, lose potential customers and market
share and lose your business at the end.

 

A critical discussion of strategies
for building, maintaining and protecting brand image and reputation

Several experts including Lesley
Everett, the author of popular marketing book “Corporate Brand Personality”, look
at brand equity and reputation from public relations perspective 12. They
believe that the Internet, forums, blogs and podcasts are effective ways of reaching
their intended stakeholders and on-line and off-line communications are a means
of building, maintaining or retaining corporate reputation. Other researchers
focus on copyrights, trademarks and patents as legal protection of brand
equity. There are numerous of documented ways to protect brand equity but the
focus here will be on brand extension as a way of protection corporate
branding.

According to Kotler (1991), there are
three branding strategies which helps to protect brand equity 6. One strategy
involves family or umbrella brand names for each product. This strategy has
both advantages and risks. When the company produce high-quality products or
company’s brand name is about prestige, new product immediately gains positive
brand associations. For example, many auto companies are successful in their
brand extensions: Porsche designs Kitchens, Mercedes-Benz creates Apartments
and Volkswagen produces GTi Watch. Moreover, most of them use the strength of
the brand to market their own fashion lines, accessories and perfumes. The
focus here will be on Bentley Fragrances. Bentley position itself as company
for which care about customers are the first priority. So, they work with the
best perfumers in the world to provide luxury fragrances that would embody
values of excellence, craft and quality of Bentley. Bentley’s customers appreciate
good quality and so expect that in a fragrance. Bentley Fragrances ideally match the
Bentley Motors values: a mix of rum, musk and patchouli makes the fragrance refined and masculine inspired by the woods and
leather synonymous with the handcrafted interior of a Bentley. Bentley Motors marketing
specialists did their job well: understanding the core customers helps them to
create exclusive perfume in limited collection. Company does not need to sell hundreds
of thousands of units to justify the launch. To sum up, Brand Extension
strategy to use family name is an excellent way of leveraging the brand’s
equity in order to help keep costs low, and to improve the likelihood of
success 6.

However, Umbrella brand
strategy of brand extension lead to risks. It is important to consider the impact of an
extension on both the parent brand and the child brand 5. In various mass
media including magazines, online newsletters and conferences, Saatchi and
Saatchi’s CEO, Kevin Roberts concentrated on the ‘mythology of the brand’. The
best example is Harley Davidson brand. Harley Davidson owners really love the
brand. They do not care that motorcycles they ride are not the ultimate in
terms of technology or oil leakage can happen on the road. The most important
thing is the biker myth – the freedom of the open road and the sound – everybody
loves that rumble. Harley Davidson is a typically masculine brand and its
customers are extremely loyal: lots of testosterone-charged Harley owners even
make tattoo the Harley Davidson name and imagery onto different parts of their
bodies. The company tried to use the feelings towards the brand by selling
Harley Davidson cigarette lighters and T-shirts. The company was wrong in
thinking that more products means more sales. It can work, but only in the
short term. Harley Davidson extension to perfumes led to catastrophic
consequences. For bike lovers this an extension was too far. Lots of negative
comments and jokes appeared in blogs: “I want to take Harley Davidson shampoo. It
looks and smells just like motor oil, but it makes my hair so manageable”. CEO
of the Interbrand Group defined Harley Davidson values as strong, masculine and
very rugged values. “For Harley Davidson to go into a sector that doesn’t live
up to what those values are would be disastrous”. Now company realized its
mistake and avoid producing inappropriate products such as perfumes or kids’
clothes.

The second strategy implies unique brand
names for different products without association with the core brand. Each
brand has its own brand identity and develop own brand equity. Volkswagen Group
(which includes Bentley brand as part of brand portfolio) unites twelve brands
with an individual identity and a common goal: mobility. Each brand operates on
the market as independent entity. It is well-known emission scandal that has
dealt a hammer blow not just to Volkswagen’s reputation but potentially to the
entire German nation brand. However, enormous scale of scandal reduced brand
value for 1/3 (from $31 billion to $21 billion) according Brand Finance 13,
other eleven brands continue to operate on the auto market with significantly
less losses than Volkswagen brand. On the one hand, this example shows how
vital to build and maintain firm’s reputation that can cost millions of
dollars. On the other hand, using different brands for different products
reduces the risks and helps not to drive to the bankruptcy due to one mistake.

The third strategy is called a
sub-brand strategy that combines the first two. It is a combination of family brand
name and individual name. The sub-brand strategy helps to diversify risks and
to create specific brand beliefs.

 

Managerial implications and recommendations

1.            
Reputation management is a strategic process that
distinguishes the organization against competitors. It is vital for the
corporation to focus not only on public relations but also on alternative ways
to protect reputation such as brand extension and umbrella brands.

2.            
The primary object of reputation management is to take
into account the expectations and needs of various stakeholders. Researchers
can determine stakeholder preferences and loyalty to support, buy or invest in
comparison to competitors.

3.            
Reputation management should spot the company’s brand
values, and guarantee that these values follow the firms’ behavior to its
employees and its external stakeholders. If your values are “strong, masculine
and rugged”, selling fragrance and baby clothes may be a bad solution.

4.            
Do not forget about your core consumers. Brand
extension into other product categories can be dangerous strategy, lead to
brand dilution concept and even destroy brand.