The brand’s center of gravity: ¿what is it and how to use it?

Por Cesar Perez Carballada

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When companies start, they typically have a simple product line concentrated in a certain price range. If successful, they generally expand the product range to other price tiers and, to do so, they typically use the same brand.

This vertical extension (also called “line extension”) can be in any direction: either a company enters first the higher price tiers and then extends the brand downwards to generate volume or it first enters the lower price tiers and then it expands the brand upwards to improve the margin.

In the former case (moving downwards), the brand is initially positioned as premium, achieving recognition and high margins and, then, its brand equity is used to launch cheaper products, leveraging the “halo effect”: by promoting the expensive product, the company sells many of the cheap products that bear the same brand name. This strategy may be successful as long as the brand doesn’t stretch too much (e.g. covering products that are too cheap) and as long as there are no focused competitors (e.g. other brands that focus on a single price tier and have a more specific and stronger positioning).

In the latter case (moving upwards), the brand is launched in the lower tiers and once it achieves critical mass and distribution, it attacks the premium segments where the margins are more attractive. This strategy is more difficult because it is extremely hard to change consumers’ perception (once they perceive a brand as “cheap”, it’s almost impossible to make them perceive it as “premium”) but it might succeed as long as the initial brand hasn’t started from a too low position and as long as the upward movement aims not at the highest price tiers but just at a higher -still affordable- price.

As result of any of these movements, the company ends up with a stretched brand that covers many price tiers. In this case, how can we determine what the final status of the brand is? In other words, if now the brand is present across price tiers, is it a premium, mid-tier or a low-tier brand?

TOUCHPOINTS

In order to answer the prior question, we need to understand that what matters are not the company’s intentions but how consumers perceive the brand. Branding is a battle of perceptions. Thus, we should consider what elements affect the consumers’ perception?

The answer: every touchpoint.

A touchpoint is any time a person comes in contact with your brand –before, during, or after she purchases something from you. It doesn’t include only your advertising or your sales presentations. It also includes what consumers hear from their friends and family or what they read in social media. It also includes their interactions with your call center or customer service reps. What consumers feel when they visit your store, what they read in a press article, what they see in a review site. In sum, every time a consumer experiences anything related to you brand, her perception is shaped by the interaction.

Whether the brand is perceived as “cheap” or “premium” depends on how the company implements all its touchpoints. Again, it’s not only what we communicate in the ads: when a customer calls our call center, do we make her wait and then a low-wage temporary worker is incentivized to shorten de call or do we answer immediately and solve her problems supporting her with an experienced account representative? In the former case, consumers will perceive our brand as cheap, no matter what we claim in our ads.

In sum, if all the touchpoints in the aggregate convey premiumnes, then the brand will be perceived as such; if the touchpoints account for a “cheap” experience, then the brand will be perceived as such, no matter what our powerpoint says.

Having said that, one of the most important touchpoints is the product itself. Once a consumer purchases our product, its consumption will affect dramatically how the brand is perceived. Even before the purchase, consumers will observe and assess the product, and such interactions will also affect the brand.

Thus, if the brand is stretched to cover too many price tiers, from high-price/high performance to low-price/low performance items, how can we know whether the brand is perceived as low tier or premium?

CENTER OF GRAVITY

In physics, the center of gravity is an imaginary point in a body of matter where the total weight of the body may be thought to be concentrated. The concept is useful in designing static structures (e.g., buildings and bridges) and in predicting the behavior of a moving body when it is acted on by gravity. The location of a body’s center of gravity may coincide with the geometric center of the body, especially in a symmetrically shaped object, but the two may not coincide if the object is asymmetrical or composed of a variety of materials with different masses.

Based on that notion from physics, I have developed a novel concept which can help us to solve the puzzle: the brand’s center of gravity. We can consider the brand as an “object” whose “shape” is determined by all the products that bear the same brand name, thus the brand’s center of gravity would be determined by the quantity and position of the products in the ‘value proposition’ space.

The Value Proposition space has two axes (see next chart): the vertical one refers to the product’s benefits and the horizontal one to its price. Most products will be placed close to the regression line because ‘benefits’ and ‘price’ are in general correlated: the more benefits a product offers, typically the higher its price is. It’s important to note that products above the regression line tend to gain market share while the ones below tend to lose it. There are also clusters of products in zones of similar benefit-price levels, which represent the ‘tiers’: low-tier, mid-tier, high-tier and premium. Just to illustrate the concept, I have added automotive brands in Europe.

Let’s review now specific cases to further develop the concept. If we sell only 2 products under the same brand name (dark blue dots in the next chart, left side), then its “center of gravity” will be the average of both products, in terms of price and benefits (orange dot). If we add 3 new products under the same brand (red dots in the next chart, right side), the new center of gravity will shift correspondingly. The size of the bubbles may represent the number of units sold by each product, signifying the “mass” of each product, and the center of gravity would be the resulting weighted average.

Now, if we sell 20 different products (see next chart) under the same brand, and all of them belong to the premium segment (i.e. high price and high performance), then the brand’s center of gravity will also be located in the premium segment, because it’s situated at the weighted distance of all the products, and we can affirm without doubt that the brand is premium.

We can use the same framework to explore the questions regarding brand extension. For instance, let’s analyze the case of a company that sells 10 products in the mid-tier (see next chart, left side), all of them under the same brand, thus the brand is clearly positioned in the mid-tier (its center of gravity is the orange dot). Let’s say that the company’s executives decide to convert the brand into a premium one in order to charge price premium and, to do so, they decide to launch a new product in the premium segment, is that enough to turn the brand into a premium one? Of course, the executives will tell anyone who wants to listen that now their brand has become a premium one by pointing out to that single SKU, however our intuition tells us something different, and using the concept of ‘center of gravity’ we can prove it quantitatively. As we can see in the next chart (right side), the center of gravity of the brand (the orange dot) barely moved upwards and it still is firmly fixed in the mid-tier, thus, in spite of the existence of the premium product, the brand is still a mid-tier brand. This is an important learning: a single expensive and high performance product does not convert a “cheap” brand into premium if the vast majority of its products still have low price and low performance. It’s amazing how many executives are delusional about this reality and convince themselves that their vast presence in the low tier doesn’t prevent them from having a premium brand and, then, they are puzzled when consumer are not willing to pay a premium price for their products.

Moving on the opposite direction, if a company sells products in the premium segment (see next chart, left side) and, in order to gain volume, it decides to expand the brand downwards by launching cheaper products, the resulting center of gravity will slightly shift downwards but it will still be in the premium segment (next chart, center); however if the company’s executives, tempted by the promise of a higher market share, continue adding cheaper versions (next chart, right side), the brand’s center of gravity will move downwards significantly and the brand will not be premium anymore, which in turn will put at risk the sales of the expensive products because who wants to buy expensive products from a brand that sell mostly low performance and cheap products? This situation is called “brand dilution” and it is one of the most common ways to kill a brand.

Let’s look at a real example from the automotive industry (see next chart).

Each point represents one of the 44 model variants under the brand Volkswagen Golf across many price tiers in Europe from the cheapest VW Golf 1.2 TSI BlueMotion at 16.975 € to the expensive VW Golf R at 38.325 €. As we can see in the chart, a consumer will be exposed to a mix of mid-tier and high-end products, so is the brand Volkswagen Golf a mid or high-tier one?

The location of the brand’s center of gravity is on the upper limit of the mid-tier, at 24,726 € and almost exactly over the correlation line (the orange dot in the prior chart), thus, even when the brand also sells very expensive models, it is an upper mid-tier brand.

This is another real example, this time for BMW:

BMW also covers many price tiers with 158 models in Europe, from the model 114i (21,900 €) to the 760i (134,900 €). As before, we calculate the brand’s center of gravity (the orange dot) and we see that it’s located at 49,142 €, within the premium segment, due to which we can conclude that BMW is a premium brand in spite of its presence in the high-tier (3 series) and in the luxury segment (6 and 7 series). It’s important to note that BMW’s center of gravity could be higher if it wasn’t for all the cheaper models in the mid-tier and high-tier (1 and 2 Series). Also, we can see that, since the center of gravity is above the correlation line, the brand will tend to gain market share over time.

In order to be more precise, we should weighted the car models in the chart by their sales numbers because if the cheap models sell ten times more than the expensive ones, then consumers are ten times more likely to interact with the brand via the cheap models, and their brand perception will be shaped more strongly by the cheap products. If we add that dimension (size of the bubbles proportional to the units sold by each model), we get the following chart:

As we can see in the prior chart, there is a large concentration of sales in the lower premium and high-tier. Thus, when considering the actual unit sales numbers, BMW’s center of gravity drops to 42,779 €, still in the premium segment but closer to the high-tier limit. Also, the center of gravity moved closer to the regression line, suggesting that the strong presence of cheaper products decreases the chance of gaining market share in the long run due to a lower value proposition. This is a result of the strong presence of the 1 and 2 Series which represent more than 32% of all BMW sales (in units) in Europe. The 1 Series is particularly dangerous for the brand because it means that BMW set foot in the mid-tier. The 1 Series can help BMW to increase its market share in the short term (more than 130,000 units sold in Europe) but it risks brand dilution: the presence of these cheap models drags the premiuness of the brand by bringing its center of gravity down. It’s true that BMW tries to minimize this effect by charging a price premium vs the competitors’ cars with similar performance but premium consumers sooner or later will notice this dilution and next time they are on the market for a premium car they may decide that they want a real premium brand and switch to Porsche. That’s called the 'brand dilution trap': more market share in the short term at the expense of sales of expensive high-margin models in the future. Perhaps that’s why BMW does not sell the 1 Series in the US even when doing so would generate a large volume of sales, and as result of that, in that country the cheaper model starts at $ 34,950, avoiding the presence in the lower segments and increasing the premiumness of the brand.

We need to bear in mind that the other touchpoints (besides the products) such as advertising, distribution channels and word of mouth also influence how the brand is perceived and they can move the “center of gravity” up or down; however, they cannot fully offset the products’ reality: if the majority of our products are in the mid-tier, no matter what we say in our ads, consumers will think that it is a mid-tier brand.

*****

The brand’s center of gravity is a powerful novel concept which allows us to calculate and to visualize where a brand is located, even if it covers many products across price tiers. This framework also helps us to understand the impact of brand extension, including the idea that extending the brand down can be dangerous due to the risk of dilution. Now you can use this concept to determine your brand’s center of gravity and that of your competitors.



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Author: César Pérez Carballada

Article published inhttp://www.marketisimo.com/

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What is Price Premium and what is the difference with Premium Brand?

By Cesar Perez-Carballada

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Premium Brand and Price Premium are two concepts that we use frequently in marketing but we rarely stop to reflect on their real meaning, which sometimes causes confusion and creates hopeless discussions.

Perhaps the confusion arises due to the fact that both concepts include the word “premium” which leads many people to think, erroneously, that they are the same thing. They are not. For instance, a brand that competes in the mid-tier segment, with low prices, is not a Premium Brand, even if it can command a Price Premium vs. a similar brand. Confusing both terms can be dangerous and can lead to loss of market share.

There other related questions: how much Price Premium can we charge? And how do we make our products able to command Price Premium in the first place?

DEFINITIONS

First we must define Price Premium and Premium Brand:

Collins dictionary (1) defines Price Premium as “a higher than standard price for a good which is perceived to be of higher quality than standard”. Millward Brown, the research agency, defines it as “the additional price that a brand could charge compared to an equivalent, generic product (…) the price that a brand can command over its closest competitor, assuming that the two have similar product specifications.” (2)

As we can see, these definitions don’t restrict Price Premium to the most expensive products: any product can potentially command a Price Premium. How much? One study (3) found that more than 72% of customers are willing to pay a 20 percent premium for their brand of choice relative to the closest competing brand; 40% said they would pay a 50 percent premium. However, in the end, it depends on the strength of the brand. Volvo users are willing to pay 40 percent premium, loyal Coke drinkers 50 percent, and Tide and Heinz lovers are willing to pay a 100 percent premium! (3). If we want to know the Price Premium of our brand, one way to calculate it is via a Conjoint Analysis.

Now we can define Premium Brand. Surprisingly, there are not many sources that formally define the term: it seems that even when everybody uses it, almost nobody has stopped to formally define it. There are two approaches to define premium, firstly, market research firms (as Nielsen in consumer goods, GfK in TV sets or Strategy Analytics in smartphones) aggregate all the brands in a certain category in segments according to their prices and they label the most expensive group as Premium. In this way, a brand or product is premium if it belongs to the most expensive group of brands in a given category. Secondly, some surveys have asked consumers how they define a Premium Brand and, remarkably, only 31% say price is the key defining element. Instead, consumers relate a Premium Brand not only to a superior price but also (and to a higher degree) to an exceptional performance (4) and the highest quality, expressed via its ingredients, packaging, image or even in-store theatre (5).

In reality, both approaches are right since price and performance are two sides of the same coin. Thus, we define a Premium Brand as one that competes in the premium segment (top-of-the-line products) which has both a superior price and performance. We can illustrate this concept visually by using a framework called “Value Proposition”, which we have used in prior posts. As we can see in the next chart, the framework has two axes: the vertical one refers to the product’s benefits and the horizontal one to its price. Just to illustrate it, we have added automotive brands in Europe.

The vertical axis refers to the benefits of the product for the consumer, which includes a combination of functional and emotional elements because consumers make decisions based both on the functional characteristics of a product (a logic and rational process) and on the symbolic meaning of the brand (a highly emotional process).

Most products will be placed close to the regression line because ‘benefits and ‘price’ are in general correlated: the more benefits a product offers, typically the higher its price is. There are also clusters of brands in areas of similar benefit-price levels, which represent the ‘tiers’: low-tier, mid-tier, high-tier and premium.

In the real market, this correlation between benefits and price is not perfect and some brands deviate from the trend: if a brand offers superior benefits at the same price (see case A in next chart) or the same benefits at a lower price (case B), then that brand will gain market share due to its superior value proposition. The inverse is also true: any car below or to the right will tend to lose market share due to an inferior value proposition. In general, brands above the “regression line” will tend to gain market share, and those below the line will tend to lose market share.

Consumers are willing to pay more for a product (Price Premium), even when it’s functionally similar to another one, if its emotional benefits are superior, making it a better choice overall.

For instance (see next chart), the Volkswagen Golf Plus 2.0 TDI may have similar features (functional performance) than the BMW 118d but the brand BMW has a superior symbolic meaning over VW Golf, therefore BMW has three options: (i) charge a similar price to the VW Golf (around 27,000 €)(6) and sell more units (gain market share), (ii) raise its price to sell the same quantity as VW but collecting the extra profits (increased profitability), or (iii) any combination of the two prior options.

Option (ii) reflects the Price Premium that BMW commands over VW due to the symbolic emotional meaning of its brand.

In summary, as we can see I the next chart, while only top-of-the-line brands are considered Premium, brands at every price level can command Price Premium over similar products, as long as they have a differentiated positioning (symbolic emotional meaning). Actually, the ultimate role of a strong brand is to develop such positioning so that it can command a price premium over comparable products.

IMPLICATIONS

Having covered the basic concepts, we can now discuss two implications which are important for the day-to-day decisions: (1) although it may sound like a misnomer, not all Premium Brands can command a Price Premium, and (2) we don’t need a Premium Brand to charge Price Premium.

(1) “Not all Premium Brands can command a Price Premium”

As we can see in the next chart, in the premium segment (top right) a product can have both a Premium Brand and a Price Premium. For instance, a BMW 335d might have a similar functional performance that the Volkswagen Passat 3.6 V6, but BMW is able to command a higher price, approximately +10% (6) due to its brand’s superior symbolic emotional meaning. Only in the premium segment the two elements (premium brand and price premium) can co-exist because in the other tiers the brands are not, by definition, premium. However, not every brand that competes in the premium segment can command Price Premium: VW Passat cannot do so vs BMW even when it can be considered a Premium Brand.

(2) “We don’t need a Premium Brand to charge Price Premium”

As we can also see in the prior chart, brands in any price tier can command Price Premium. If a product competes in the mid-tier (bottom-left) and thus it’s not the best performing in its category, it can still command a higher price vs. other mid-tier products as long as its brand has higher emotional associations than its competitors. For instance, Volkswagen Golf is not a premium brand however, consumers are willing to pay more for it than for the Seat Leon (which –functionally- is almost identical since they both share the same platform, components and engine)(7), therefore we can say that VW Golf commands “Price Premium” vs. the Seat Leon, although it’s not a Premium Brand.

*****

Confusing the terminology can take you in the wrong direction. Now you know that you can charge a Price Premium at any price point, and to do so, an emotional branding is required. Finally, don’t assume that because your product competes in the premium segment your product is automatically entitled to Price Premium vs other products in that segment: you still need to earn it.



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Sources:
(1) Collins English Dictionary, HarperCollins, retrieved on March 6th, 2018
(2) “Command a Price Premium for Profitable Growth”, Nigel Hollis, Kantar Millward Brown, May 20, 2014
(3) Marketing: An Introduction (7th ed.). Armstrong, G., & Kotler, P. New Jersey: Pearson Prentice Hall. 2005
(4) “Moving on up”, Nielsen’s survey in 63 countries (n=30,000), December 2016
(5) “The Brand Challenge”, Shoppercentric’s survey the UK (n=1000), March 2013
(6) “Cars of Europe”, retrieved on December 3, 2017
(7) “SEAT, Skoda and Volkswagen: what’s the difference?”, Hugo Griffiths, Carbuyer, September 2nd, 2016


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Author: César Pérez Carballada

Article published inhttp://www.marketisimo.com/

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Emotional branding for rational marketers

By Cesar Perez-Carballada

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As much as we like to think that we are rational beings, truth is that emotions have a critical role in how we human beings make decisions.

Nobel laureate Herbert Simon perhaps said it best when he wrote in 1983: “In order to have anything like a complete theory of human rationality, we have to understand what role emotion plays in it” (1)(2).

Since then, multiple researchers have confirmed the role of emotions in decision making. A famous example is the neurologist Antonio Damasio (3) who conducted clinical observations of victims of brain trauma: physical damage to their frontal lobe resulted in a significant reduction in their ability to experience emotion (while leaving other cognitive functions minimally affected) which profoundly diminished their capacity to make decisions. Another more recent example is Dan Ariely and the findings explained in his book “Predictably Irrational” (4).

Choosing a brand over another is a decision and, as such, it also subject to emotions. In reality, while emotions overwhelmingly drive behavior, it is misguided to believe that thinking and feeling are somehow mutually exclusive. Emotion and logic are intertwined. However, one of the longest-running debates in marketing is whether to use a rational or emotional advertising approach. Many companies are inclined to favor the rational side and try to explain the features and functional superiority of their products. This strategy may work if the functional benefits are substantially superior but in a world in which products are becoming more and more similar, emotions become the most sustainable (and only?) way to differentiate a brand.

One of the most comprehensive advertising test ever conducted proved that it’s critical to combine both rational and emotional elements. A few years back, Millward Brown tested 1,795 ads from 33 countries covering 37 categories and they found a clear relationship between the emotional impact of advertising and the short-term sales return (sales generated in the eight weeks from ad air date)(5). This relationship was much stronger for established brands than for new brands. Similarly, established brand ads with purely emotional content and no rational messaging tended to out-perform those with just rational messaging. The reverse was true for new brands, where rational content was more likely to drive sales. However, the test found that the most potent communication is a combination of the emotional and rational together. Emotions are an important driver of decisions, but successful brands also provide a rational 'reason for choice' to help consumers justify their decisions.

The challenge is how to choose the right emotional focus. Even companies that are open to the emotional motivations are deceived by market research: they rely on traditional research techniques to select what benefits to communicate, however this may prove to be incorrect because when our emotional desires begin to shift toward a prospective brand, we align our reasons to be consistent with that intention. Our critical mind is always looking for evidence to support our beliefs. The stronger the emotion, the stronger the belief, and the greater the tendency is to seek out supporting evidence. We are not rational, we are rationalizers (6). This tendency creates problems when people in survey research and focus groups seek out reasons to explain their feelings about new products, concepts, and ads. Self-reported research shines the spotlight on their logical interpretation of emotion, rather than the motivators of behavior, the emotions themselves. Respondents and subsequently marketers often end up inventing rationalizations instead of identifying the real emotional motivators. Brands suffer and concepts die prematurely as marketers try to react to the sometimes arbitrary reasons people make up.

Emotions activated by a brand may relate to how we want to be perceived by others and/or how we perceive ourselves. Thus, brands are typically used as personality statements (some people call these statements "badges"). Your choice of a badge is often determined by the statement you want to make to your friends, neighbors, coworkers or relatives. Sometimes it is determined by the statement you want to make to yourself. People define themselves through brands they use, the branded clothes they wear, the cars they drive, the drinks they consume, favorite spots to hang out, and so on (7).

RATIONAL REASONS FOR EMOTIONAL BRANDING

In the end, the case for emotional branding is not to develop nice ads or cool brands. Instead, there is a very rational reason to support it: emotional branding is potentially the only way to differentiate our products in the long term allowing us to sell more and/or to charge higher prices, even if they are functionally similar to the competitors.

We can explain these two positives externalities by using the Value Proposition framework. As we can see in the next chart, there are two axes, the vertical one refers to the benefits of the products in the marketplace and the horizontal one refers to their prices. Just to illustrate it, we have added automotive brands in Europe.

The vertical axis refers to the product benefits for the consumer, where benefits encompass a combination of functional and emotional elements. Here we define emotional benefits as the symbolic meaning attached to a brand in consumers mind related to feelings (“When I buy or use this brand, I feel ___”). Thus, a consumer makes a decision based on both the product (i.e. functional features: mostly a rational process based on logic) and the brand (symbolic meaning typically related to emotional associations), of course regular consumers dont distinguish consciously between the two and their minds typically intertwine both elements.

Most products will be placed close to the regression line in the framework because benefits and price are correlated: the more benefits a product offers, typically the higher its price is. Based on their relative value (benefits-price ratio), we can determine clusters: low-tier, mid-tier, high-tier and premium.

In the real marketplace, this correlation between benefits and price is not perfect and some brands deviate from the trend: if a brand offers superior benefits at the same price (see case A in next chart) or the same benefits at a lower price (case B), then that brand will gain market share due to its superior value proposition. The inverse is also true: any product below or to the right will tend to lose market share due to an inferior value proposition. In general, brands above the “regression line” will tend to gain market share, and those below the line will tend to lose market share.

If we consider all these elements, then we can see how consumers are willing to pay more (price premium) for a product that functionally is similar to another one as long as its emotional benefits are superior, making it a better choice overall.

For instance (see next chart), the Volkswagen Golf Plus 2.0 TDI may have similar features (performance) than the BMW 118d but the brand BMW has a superior symbolic meaning over VW Golf, therefore BMW has three options: (i) charge a similar price to the VW Golf (around 27,000 €)(8) and sell more units (gain market share), (ii) raise its price to sell the same quantity as VW but collecting the extra profits (increased profitability), or (iii) any combination of the prior options.

The emotional branding explains the Price Premium that BMW is able to charge over VW or its extra market share.

Emotional branding also explains luxury products: typically these products are functionally at a similar level than that of premium products (and sometimes at a lower level!) but their prices are significantly higher. For instance, is a $420,000 Rolls Royce Phantom five times better than a $83,000 BMW 7 Series ? According to many comparison sites (9), their features are similar. If we considered only product features, we would get the next chart. Then, how is it possible that luxury products can justify such high prices given their lack of advantage in product features?

The answer again relies in the emotional connection with the consumers. The purpose of emotional branding is to create a bond between the consumer and the product by provoking the consumers emotion.

Not only luxury products can enjoy that kind of connection. Timberland has created a lifestyle around their brand, one of strength, perseverance and individual power. Timberland makes sure it is the guy alone in the wilderness, testing his mettle against the elements. They create a sense of a lone warrior archetype.

Nikes hero archetype, for example, has inspired fervent customer loyalty throughout the world. The hero starts from humble beginnings, challenges a terrifying foe, and against all odds, prevails. Nike takes the emotional marketing story of the hero and turns it inward. “You are the hero, and your lazy side is the villain. They know that while some people may identify with an external foe, all people identify with an internal one,” says marketing consultant, Graeme Newell (7).

With time and repetition (“operant conditioning”), brands can establish a lasting connection in the mind and heart of consumers. In order for humans to create a relationship between themselves and a brand, the brand needs to portray a particular personality with specific values and symbols attached to it.

EMOTIONAL VS FUNCTIONAL EQUILIBRIUM

As we explained, both functional and emotional benefits are important, however their weight varies across categories and across price tiers.

Our intuition tells us that the role of emotional branding is not the same when buying salt than when buying a car nor is it the same when buying a cheap or a luxury car, thus how does emotional branding vary across categories and price tiers?

Some categories are more prone to emotional decisions such as cosmetics and handbags than others such as financial services or B2B products. One way to quantify the specific weight of the emotional benefits is the one exemplified by Interbrand and its brand value ranking (10). The firm calls it “Role of Brand Index” and it defines it as “portion of the purchase decision attributable to the brand as opposed to other factors (for example, purchase drivers such as price, convenience, or product features)”. This Index is expressed as a percentage, such that if the RBI is 25%, then one quarter of the decision to buy certain product is due to the emotional benefits attached to its brand.

In terms of price tiers, one would assume that when dealing with more expensive products, logic becomes more important because the consequences of a bad decision are larger. Actually, contrary to that assumption, the emotional elements are increasingly more important when we go up in the price continuum in the same category: feelings are more important when deciding between premium brands than when doing so between cheap brands.

Thus, it’s important to note that the equation ‘benefit = functional + emotional‘ has two characteristics:

(1) The weight of both components (functional and emotional benefits) varies across the price continuum: the higher in the scale, the more important the emotional component

(2) The type of emotional benefits also varies across the price continuum: higher in the scale the symbolic meaning becomes more abstract and detached from the product

We can see both elements explained in the following table:

In that table we can see how the importance of the emotional benefits grows when we move up in the price ladder. At the bottom, we can find the entry-level products such as retailers cheapest private labels for which consumers don’t pay any Price Premium, on the contrary, in this segment consumers decide which product to buy mostly based on price and the emotional benefits have no weight.

When we move up, from low to mid-tier, consumers rely more and more on emotional benefits but still the functional elements carry more weight and the emotional benefits are pretty rudimentary (basic meaning of quality and familiarity with the brand). In the high tier and, even more in the premium segment, the emotional benefits increase their weight to impact more on the decision and these emotional motivations are more abstract and complex related to self-expression and status.

Finally, at the top, the emotional benefits outweigh the functional ones when a consumer purchases a luxury product and the symbolic meaning is more complex, related to self-expression, prestige/status and scarcity/timeless.

The implication is that, when managing a brand that competes at the low end of the price spectrum, we can differentiate our product based on some of its functional characteristics and add some basic notions of emotional branding, however, when managing a brand at the high-end or premium segments, the emotional benefits become crucial and may define which brands succeed and which ones fail, specially when there are no big differences in terms of functional performance.

*****

Now you understand the power of the emotional branding: the ability to charge more for a similar product. The good news is that you can infuse any brand with emotional meaning and achieve, as result, price premium, so its up to you: are you going to continue competing on price in a race to the bottom or will you differentiate your brand via emotional branding to amass higher profits?




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Sources:
(1) “Reason in Human Affairs”, Herbert A. Simon, Stanford University Press; 1 edition, July 1, 1990
(2) “The Myth Of Rational Decision-Making”, Vivian Giang, Fast Company, July 6, 2015
(3) “Emotion, Decision Making and the Orbitofrontal Cortex”, Antoine Bechara, Hanna Damasio, Antonio R. Damasio, Cerebral Cortex, Volume 10, Issue 3, 1 March 2000, Pages 295307
(4) “Predictably Irrational: The Hidden Forces That Shape Our Decisions”, Dan Ariely, Harper Perennial; Revised and Expanded ed. Edition, April 27, 2010
(5) “Millward Brown reveals the most comprehensive advertising pre-testing validation ever conducted covering 37 categories and 33 countries”, Campaign Brief, November 2, 2011
http://www.campaignbrief.com/2011/11/millward-brown-announces-the-m.html
(6) “The End Of Rational Vs. Emotional: How Both Logic And Feeling Play Key Roles In Marketing And Decision Making”, Douglas Van Praet, Fast Company, May 16, 2013
(7) “Emotional Branding and the Emotionally Intelligent Consumer”, Christie Barakat, Adweek, January 12, 2014
(8) http://www.cars-of-europe.com, retrieved on December 3, 2017
(9) https://www.carwale.com/comparecars/rollsroyce-phantomcoupe-vs-bmw-7-series-2013-2016/, retrived on November 2017
(10) http://interbrand.com/best-brands/best-global-brands/methodology/, retrieved on December 3, 2017


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Author: César Pérez Carballada

Article published inhttp://www.marketisimo.com/

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