Brands are among a company's most| valuable assets. This month our management page looks at why they are so rarely treated that way

BRANDS are insubstantial things, mere symbols, names, associations. Sometimes they signal real differences between products. Sometimes they are pure illusion. Either way, brands are akin to a product's or company's reputation and they influence consumers' perceptions. The wearer of a Rolex watch is concerned with more than keeping time; the BMW driver with more than getting from place to place. Brands add value by making customers loyal and, often, willing to pay more for the things branded. Roses by another name might smell as sweet, but they would no longer fetch $30 a dozen. Despite the evidence of the value of brands, creating and sustaining that capital are often neglected by consumer-goods com­panies. Under pressure to make big short-run gains in sales, many brand managers are cavalier about the long-term commercial health of their products. Increasingly they are abandoning brand-building activities, such as advertising, in favour of tactics, especially price promotions, which aim to increase market share quickly. In 1980 promotions accounted for about a third of all spending on marketing, with advertising taking up the rest. Now, remarkably, the proportions have reversed. A forthcoming book by David Aaker, a marketing professor at the University of California at Berkeley, tries to cure brand managers of this myopia. Often, Mr Aaker argues, managers are not sufficiently aware of the damage that short-term thinking can do to good brands. A marketing plan centred on discounts and promotions, along with corner-cutting on quality, caused Schlitz, an American lager, to lose its position as a premium beer. In just five years, Schlitz went from $48m in net profits to $S0m in losses. Rarely can rivals inflict such severe damage. To launch a new consumer product in America can cost $75m-100m; even then, most fail. At the same time, old favourites become virtually invulnerable. In 19 of 22 standard product categories, today's leading brand was also on top in 1925. In the category

of food blenders, consumers were still ranking General Electric second — 20 years after the company had stopped making them. The failure of challengers to overcome the resilience of familiar names has led to another tactic also prone to short-termism: brand-stretching. In their eagerness to extend a popular brand's recognition and reputation to a new type of product, says Mr Aaker, managers often overlook basic problems with the "fit" between the old1 name and the new item. Levi Strauss's attempt to stretch itself to cover a line of smart suits failed dismally. Worse, it hurt the core brand it took a snappy advertising campaign to get Levi's jeans business back on track. More perilous still are attempts to milk additional sales from premium brands by taking them downmarket. Cadillac's reputation has still not recovered from its effort to attract lower-income car buyers with its cheaper Cimarron model in the early 1980s. Diluting Cadillac's snob appeal put off image-conscious buyers who might normally have been keen on the car. Undisciplined use of the Gucci name almost brought the company to ruin; at one point there were some 14,000 different Gucci products. Part of the problem is that the organisation of most consumer-goods companies favours short time horizons. Brand managers at firms such as Unilever and Philip Morris usually stay in their jobs for just a year or two. Brand oversight by top management is generally ad hoc. One solution suggested by Mr Aaker is for companies to hire or appoint people solely to monitor the status of brands. These "brand-equity managers" would be charged with taking a—long view on guarding products' images, name associations and perceived quality. They would have the final ray over marketing plans and the decisions of ordinary brand managers. Such a system is being tried at Colgate-Palmolive, and Canada Dry. But unless the incentive structure within the consumer-goods companies is

changed, "brand-equity" managers will provide little more than another layer of bureaucracy. As Mr Aaker points out, the main reason for brand-related short-termism is shareholders' expectations of sparkling quarterly earnings. Because brand equity is hard to put a price on, punters must use returns as a guide to future performance. This is the source of pressure on brand managers to turn to promotions to boost sales. Price promotions can have a dramatic short-term effect on a brand's sales, especially forsome sorts of good. For fruit drinks, increases of more than 400% during the first week of a promotion are common. But a new study by the London Business School shows that such promotions have no lasting effect on sales or brand loyalty. Some consumers switch temporarily to the promoted brand, but once the promotion ends, almost all of them go back to the one they normally prefer. Promotions that merely offer a discount or a rebate can cheapen a brand's image. Since price is often a signal to consumers of a product's quality (witness luxury drinks like Chivas Regal), a brand that is always on special offer loses its appeal. Better, says Mr Aaker, to try promotions that reinforce the brand's image, such as American Express's leather luggage tags, or increase brand awareness, such as Pillsbury's baking contests. Similarly, thoughtful brand-stretching can not only help a new product break into a crowded market but can also enhance the core brand's value. Frozen-juice bars and vitamin-C tablets have reinforced Sunkist's orange-tinted image of good health. But even a good "fit" has limits. Despite the association of a fruit-processor like Dole with all things tropical, Mr Aaker says the company would be stretching things too far if it opened a tropical-travel service. His advice to brand managers echoes the words of David Ogilvy, a legendary adman: "The consumer is no moron; she is your wife."   © The Economist

1 What are the advantages to a company of building up a brand?

2 What mistake have brand managers been making in their marketing?

3 What do the terms 'brand-stretching' and 'taking a brand downmarket' mean?

4 Why is it dangerous to take a brand downmarket?

5 What is the thinking behind the appointment of 'brand-equity managers'?

6 How effective are price promotions in the short-term? And in the long-term?

7 What negative effect can price promotions have on brands?

8 What benefits can brand-stretching bring?

Hello to the good buys

A new marketing campaign promising hassle*-free and faster fuel buying for customers is under way in America. Suzanne Peck reports on the 18-month research project which involved Shell Oil researchers 'moving in' with their customers to test their buying habits.

Three years ago when Sam Morasca asked his wife what could be done to exceed her expectations when buying gasoline*, her answer 'that I would never have to think about it any more' made him pause and think. The marketing people from Shell Oil Products, of which Sam is vice-president, were desperately seeking ways to increase the business, and to come up with a strategy which would put them clearly ahead of their competition by differentiating* the Shell Oil brands in the eyes of consumers. 'We are big business for Shell Oil, contributing US $7 bn of revenue, and the leading retailer of gasoline, but it is a fragmented market and the mission was to profitably expand the business,' said Sam.

Today, after 18 months of cutting edge research, Shell Oil is on track to make buying fuel at their 8,900 service stations clearly different with a new brand initiative. Its aim is to deliver through facilities, systems upgrades*, and new operating practices, a hassle-free fueling experience targeted at specific customer segments.

Over the past few years, the company has been developing detailed knowledge of consumer needs and attitudes, which formed the basis for the new brand initiative. Team leader Dave Yard, manager of Strategy and Planning - Marketing, picks up the story. 'We began with a customer segment study of 55,000 people, who we stopped in shopping malls in six cities for a 45-minute interview into their attitudes, especially regarding driving and cars. The result was that everyone wanted three things from a service station: competitive price, a nearby location and good quality fuel -something they all believed was already being delivered by the industry.'

This meant their buying decisions were influenced by other factors - some wanted full-serve outlets like the old days, some chose a service station depending on whether it looked safe or not. 'There were ten different segments with different needs, and we wanted a better understanding of each of these audiences.'

A focus group was set up for each segment; an anthropological study was carried out, which involved team members spending waking hours with people from each segment, watching them at home and accompanying them on shopping trips to see their buying habits; and a clinical psychologist was hired to create a psychological profile of each segment.

The study indicated that three groups, which comprised 30% of the driving public, should be targeted:

• Premium Speeders - outgoing, ambitious, competitive and detail orientated. They drive upmarket cars which make a statement* about them. Efficiency rules, plus fast pumps, quick access and payment.

• Simplicity Seekers - loyal, caring and sensitive, frustrated with complexities of everyday life. Want simple easy transactions.

• Safety Firsters - control orientated, confident people, like order and comfort of the familiar. Higher value on relationships and go out of their way* to stations that make them feel comfortable. Prefer to stay close to cars.

'The common thread was that they all wanted a faster and easier service than anything already available,' said Dave, 'so the study ended and the launch began.' The field organisation and Shell Oil retailers combined forces to determine how to eliminate the little hassles that customers sometimes face, such as improved equipment and clearer instructions at the pump. New innovations are currently being test marketed. A new advertising campaign was launched and a sophisticated measurement system introduced to monitor satisfaction, behavior and perception of the brand. 'Fueling* a car is a necessity of life and I believe we are ahead of the game - but we won't allow ourselves to stop and be caught up.'

*hassle: problems

'gasoline (US): petrol (CB)

*to differentiate: to show how products are different

from each other