Scarcity is an issue only because of utility. Sellers, whether of goods or services, are able to sell more when buyers are aware of the sellers and have confidence in them. Brand is one of the primary means by which sellers make themselves known as trustable entities. Since credibility and reliability are the keywords here, asset creation here is basically about investing in building a reputation and protecting it. Investments in brand building are foregone and non-recoverable if sellers renege on delivering. No wonder, buyers generally believe that a branded product is more reliable than one which is not. In fact, to extend the argument further, a ‘bigger’ brand is more likely to be trusted than a ‘smaller’ brand, since higher the perceived sunk costs in brand development, higher the incentive for the seller to ensure that the product does not disappoint the buyer!
(As an aside, I would like to point out that perceived high sunk costs needn’t be real. If you need advice on brand building and management that maximizes your return on investment, you can get in touch with professional brand consultants like AimHigh Consulting.)
So branding gets the seller to tap into a growing loyal customer base. But, what does the buyer get?
The economic cost of buying something is not just the price one pays for the product. Among other things, it also includes the cost of finding what exactly one wants and ensuring that the product is worth the money it costs. Search costs also include the opportunity cost of time spent looking for such information. This significant size of the costs associated with information causes buyers to seek sub-optimal information regarding products and can result in inefficiency. However, brands minimize search costs because, although they don’t say much about the product sold, they communicate relevant information about the sellers to the buyers.
Since resources are limited and have alternate uses, minimizing search costs improves efficiency and effectively puts more resources in the hands of the buyers. This additional purchasing power with the buyers can be tapped either by charging a brand premium on price or by selling more. Thus, a strong brand can earn you a return beyond the scarcity rent, due to the additional consumer surplus it generates!
If search costs can be minimized across the economy, it certainly will be growth inducing. But what about the costs of brand building? Will there be a decline in producer surplus, along side the increase in consumer surplus? Even if there will be, as long as the increase in consumer surplus is more than the decrease in producer surplus, overall welfare should improve.
Yet, for an individual seller who is not sure of tapping the entire additional consumer surplus generated by branding, the cost of branding should be a very serious concern. Of course, it is also important to remember that a producer can normally have a greater control and influence on his surplus than that of the consumer. Therefore, to the extent that consumer surplus can be positively improved, and the cost of branding can be controlled, brand building and management should offer tremendous possibilities in the market place.
While the cost of brand building was always an issue, it wasn’t always as much of an issue as it is now. The reason for this is the emergence of information intermediaries, especially third party retail web-sites and multi-brand stores, which provide easy price comparisons between products. The availability of information in a single place, say, on Amazon website or in a posh mall round the corner, about the existence and reliability of various brands can influence customers to try out lesser brands, especially if there is a ready price advantage. This essentially means that the ability of sellers to charge a brand premium is coming down.
There are even scholarly works today which argue that reduction in search costs due to availability of cheaper comparable information has reduced the significance of brands. To the extent this is true it highlights the need to manage branding costs better. However, none of them say that branding has become irrelevant. Other things remaining the same, buyers, even on Amazon website, pay a premium for branded articles. Increased availability of information has just ensured that the markets have become more competitive.
In the light of this emerging scenario, any brand building exercise will have to look beyond mere advertizing. Splashing millions of rupees only on advertizing without considering complementarities surely does not maximize the return on investment.
In this context, Public Relations (PR) is one area where most companies under-spend.
A PR exercise involves identifying the target audience, which needs to be communicated to. Audiences are broadly of two types: Active and Passive. Active audiences are already aware of the product and are interested in it. Passive audiences need to be persuaded by appealing to their self-interest. To begin with, a PR professional is, therefore, an audience expert.
PR professionals also have more direct access to the media and have much better media literacy than the average Joe. Therefore, they are able to judge how best to use the media to convey what the seller wants. They are basically communication generalists who know that the communication process is selective and that people consume media products for a reason. PR significantly contributes to ‘framing’ or the shaping of views through selective choice of facts, themes, imagery and words used in the media, which determines how a product, a person, or a development is discussed. The pattern of media coverage of a particular topic helps to determine what the public perceives as important. This agenda setting is done by the media, but again PR professionals have a huge influence on it.
Before a product can be sold to a passive audience, awareness and interest need to be generated. PR professionals motivate the audience to become aware and generate interest using various tactics that improve the design, style and delivery of message. They simplify the message and relate it to what the audience already knows. Given their expertise, they structure the message for optimal processing, ensure timely repetition and create an environment where the message is most likely to be heard. By persuading the passive audience, by shifting customer loyalties in your favor, and by increasing the size of the active audience, PR effectively complements advertizing and sales efforts.
Ideally, a holistic communication strategy, spanning advertisement to PR to corporate communication, needs to be in place for any organization trying to maximize its value. Starting from brand positioning to strategic communication management, brand building exercise needs to be a carefully thought out process if the exercise is to be relevant for the changing times. However, not only the planning part, but also the execution of such an exercise is too crucial to be left to non-specialists within the organization. That is where even corporates which understand the importance of brand communication sometimes make a mistake. The fact is that, even cost-wise, specialist firms are able to ensure better value for money due to their expertise as well as due to lower average costs arising from economies of scale.
A brand is a unique asset with high potential returns. Build it carefully, for it doesn’t give you much of a second chance!
Posts
No comments:
Post a Comment