THE POSSIBILITIES OF INCREASE OF THE BRAND EQUITY MAGDALENA GREBOSZ

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1 THE POSSIBILITIES OF INCREASE OF THE BRAND EQUITY MAGDALENA GREBOSZ Lodz University of Technology, Lodz, Poland, EU, Abstract In a modern economy intangible assets are increasingly becoming more important than the fixed assets of a company. A brand s position in relation to other assets of the company depends to a large degree on the sector, kind of products and services, relations between customers and the brand as well as its influence on potential buyers. The objective of this paper is to present the concept of brand equity and methods of its evaluation and to analyse the possibilities of increase of the brand value. Building a powerful brand representing strong values makes it possible to achieve the position of the market leader. It is possible to achieve a leading position through highlighting the brands intangible values, the relation between physical features of a product with the country of its origin, through the creation of a brand of exceptional personality or through the co-operation with another brand. Keywords: Brand, brand equity, brand value, co-branding 1. INTRODUCTION Valuation of actual brand value is a difficult task. That is why many companies do not report their brand values in annual financial statements. However, in the case of a company s sales, buyers often primarily pay for a brand. It seems that a company s intangible assets, including brands, are more and more important on the market. Building a powerful brand representing strong values makes it possible to achieve the position of the market leader. As a result, customers do not anticipate additional benefits connected with the usage of a brand. It is also possible to achieve a leading position through highlighting the relation between physical features of a product with the country of its origin or through the creation of a brand of exceptional personality. The equity, financial value and the power of a brand depend primarily on the habits of consumers and their attitude to a particular brand. Today the companies seek new methods to increase brands value. These methods include promotion activities, distribution development, brand extension, rebranding, brand repositioning and co-branding. They may have an impact on the brand equity but a brand with no personality, a brand that neither evokes associations nor conveys a message will not influence the value of the company s assets. 2. BRAND EQUITY CONCEPT Aaker [1] defines brand equity as a set of assets and liabilities connected with a brand, its name and symbol, which determine the value of a product or service marked with a particular brand for a buyer. Individual components of brand equity, i.e. brand awareness, brand loyalty, brand quality and brand associations perform different functions. They are important for both brand owners and buyers. Brand equity provides a customer with additional value through his better understanding of a product or service, confidence in the buying process and satisfaction. This means additional revenue for the company as well as a barrier for competitors. One can argue that it is a residual value based on the positive impressions and attitudes to a brand manifested by all those that have been subject to the influence of different kinds of marketing operations connected with it. Three approaches to brand equity (also defined as brand value or power) prevail in literature: the financial approach, the marketing approach and the extended approach [2].

2 In the case of the financial approach, brand equity is perceived as a monetary value and is defined, depending on the measurement method as [3]: the cost of brand replacement, the value of future cash flows connected with branded products above the value of cash flows that would be connected with similar but unbranded products, current discounted value of future brand related revenues, current operating revenues from the brand multiplied by the P/E (Price/Earning) ratio reflecting future brand-related risks and profits. Brand equity may also have many different meanings in the marketing approach and can be defined as [3]: an equivalent of the multidimensional structure of brand knowledge, the total assets of a brand which demonstrate the tendency to increase the value of a product both for a customer and a company, the difference between the brand and the product; Value added to a product thanks to the brand, a factor diversifying customers reactions to marketing operations in relation to brands; The difference between a consumer s reaction to a marketing mix element connected with a particular brand and the reaction to the same marketing mix element connected with a fictitiously named version of a product or a service, a set of associations and habits on the part of a brand s consumers, participants of distribution channels and the company s employees causing the brand to generate bigger revenues than unbranded products and to have a strong, special and sustainable competitive advantage, net value of a brand image, additional usefulness connected with a brand s name and not with the practical attributes of a product. While defining brand equity according to the extended approach, it is a residual value based on the positive impressions and attitudes to a brand manifested by all those that have been subject to the influence of different kinds of marketing operations connected with it [3]. Both in Polish and foreign economic and marketing literature there exist neither uniform nomenclature nor definitions connected with the concepts of brand equity and methods of its evaluation. Nevertheless, three terms tend to be widely used: brand equity, brand value and brand power, even though these concepts may be defined in various ways or used interchangeably. On the basis of M. Irmscher s approach, the following relations between brand equity and value are assumed in this paper: brand value is perceived in financial terms and defined as the financial value of the brand, and brand equity has non-financial character and is perceived as the effect of brand-related operations. 3. CO-BRANDING AS A POSSIBILITY OF INCREASE OF THE BRAND EQUITY Co-branding occurs when two or more brands are combined into a joint product or are marketed together in some fashion [4]. Co-branding can include cooperation between two partners with a view to creating new product with new brand, as well as cooperation with a view to introducing product signed by two brands. G. Michel [5] has distinguished functional co-branding functional and symbolic co-branding. Co-branding ingredient branding consists in indicating the brand of one or more components of the end product. The symbolic co-branding co-naming consists in the application of another brand in order to stress some symbolic values and create an image. Co-branding is an extremely potent tool for development of market and industry. It is capable of bringing new customers to products, refreshing brand image, increasing the market share, or developing the technologies in companies through technical knowledge exchange. Co-branding is also a method to minimize costs [6].

3 In co-branding, the level of the brand equity has the crucial impact on the final brand equity of co-brand (of co-branding product) and constituent (partners ) brands. Several empirical studies on co-branding have documented positive effects on consumers brand evaluation. Simonin and Ruth [7] examined consumer attitudes toward co-branding and found that consumers attitudes toward the co-brand (of co-branding product) influenced their subsequent attitudes toward the individual partners brands (constituent brands). They identified that the spillover effects from co-branding activity and consumer attitudes toward the cobranding product, as well as toward the original lower equity brand, have been shown to influence subsequent impressions of each partner s brand. Similarly, Hillyer and Tikoo [8] found that strong equity of one brand can lend credibility to the other brand by serving as an augmenting cue in consumer evaluations. Also the findings of Ueltschy and Lacroche [9] demonstrate that the high equity brands tend to act as augmenting cues in the perception of brand equity of a new composite or co-brand between high and low equity brands. There is no doubt that co-branding with a high equity brands is a win-win situation for a low equity brand. 4. EVALUATION OF CO-BRANDING RESULTS OF RESEARCH One of the objectives of this study was to investigate the real effects of co-branding strategies on brand equity in the assessment of the brand managers of studied companies on European market. The analysis of correlation between the expectations and effects of co-branding and two major categories of co-branding strategy (ingredient branding and symbolic branding) were also important. In this paper, the following research questions are identified: If the realization of co-branding strategy can reinforce the brand equity? Which are the expectations of the realization of co-branding strategy concerning the brand equity? If the expectations of companies in field of effects are satisfied? If the expectations are the same that in case of symbolic and functional co-branding? If the effects of ingredient branding are the same that in case of symbolic-co-branding? Thus, the following hypothesis is set forth: H1: Implementation of co-branding strategy allow to reinforce the brand equity Characteristics of research Recent primary research ( ) was looking at fifty large international companies operating in Europe engaged in co-branding projects. A survey was conducted in 50 companies which are present in minimum 3 countries of Europe and have realized co-branding strategy for 3 years. The sample is not representative. In 2009, 11 companies were analyzed and pretested to be able to prepare the complex questionnaire survey. The final research was conducted in between the brand managers with the application of the techniques of personal survey, electronic survey and paper survey. The Statistica and Windows Excel, computer software programs were used to collect data and make the analysis. The choice of companies to be studied was a deliberate one. A full list of companies was prepared in the first half of On its basis, 120 companies operating in Europe engaged in co-branding projects were identified. Questionnaire surveys were carried out throughout all identified companies. As a result, data from 50 companies was obtained, which amounted to 41,7% of all the companies polled. The results of the study show that the co-branding strategy most often used by companies is a ingredient branding (functional co-branding). It is used by 39 of the companies studied, and 11 applied the strategy of symbolic co-branding. 30 companies represented inviting brand and 20 of them invited brand. All the companies declared that they had previous experience in the implementation of co-branding strategy Analysis and Results The analysis of the results of survey helps to determine the major effects of co-branding. The brand managers have evaluated the indicated factors using the six point scaled from 0 to 5 (where 0 means lack of effect, 5 very important effect).

4 Among the most important results, the brand managers mentioned the reinforcement of the brand equity (average 3.58). As we can note this effect of the realisation of co-branding strategy has symbolic character and is connected especially with intangible features of brand. The high evaluation of brand equity reinforcement emphasizes the significance of the possibilities of the brand associations transfer and growth of the brand awareness thanks to realization of co-branding strategy. These findings confirmed the results of previous research among customers concerning the influence of the partners brands equity made by Simonin and Ruth [7] or Hillyer and Tikoo [8]. The comparison of the assessments of effects of co-branding with expectations of the brand managers oscillate at the level 0.46 which can be evaluated as small. To characterize the different categories of co-branding, the correlations among the variables were compared. The analysis of results shows that the correlations between effects and category of co-branding are on the high level. The companies which were engaged in the realization of symbolic co-branding strongly stressed the possibility of reinforcement of the brand equity (4.18). The companies which have realized the strategy of ingredient branding (functional co-branding) also confirmed that the co-branding allows to reinforce the brand equity (3.41), but the marks were lower. However, the results of research confirm that we should stress the high significance of symbolic issues even in case of functional-based cooperation. CONCLUSIONS AND DISCUSSION In a modern economy intangible assets are increasingly becoming more important than the fixed assets of a company. The service sector dominates the market and companies build their equity on knowledge, relations with customers and business partners, as well as brands. Through building a strong brand it is possible to greatly enhance a company s value. A brand does not function only on the label, but in customers awareness. Its philosophy and set of associations decide its power. A customer s willingness to identify with a brand s philosophy and personality is critical to its success. A test of H1 that implementation of co-branding strategy allows to reinforce the brand equity was supported. This hypothesis which stresses symbolic character of co-branding was confirmed both by the companies which applied ingredient branding (functional co-branding) strategy and symbolic co-branding strategy. It is important to delimit the contributions of this research properly. The recommendations in this study are set fourth, of course, with the caveat as to the limitations of the sample. A future study could also examine the customers and theirs opinions concerning co-branding products and the effects of co-branding on the partners brands. Variability and complexity of environment are forcing companies to research the sources of competitive advantage beyond their own organization. In recent years, companies have built their own competitive advantage by using the relationships with partners. Consequently, co-branding has become a rapidly growing strategy in relations between companies. Co-branding helps to reinforce the level of the brand equity and consequently can impact the brand value. Strong brands are able to increase cash flows and, in this way, the company s value due to the following [10]: obtaining higher prices due to customers belief in the advantages and quality of branded products or due to their evoking desired associations and connections to experience, customers are usually willing to pay more for them, bigger turnover instead of taking the opportunity provided by the rise in prices well-grounded by a strong brand, some companies can sell their products at a price equal or close to the average market price for the product category but, using the brand s reputation, increase their sales, cost reduction main manufacturers of branded products achieve the economies of scale, which allows for lowering operating costs especially in marketing and distribution,

5 better use of fixed assets owners of strong brands have much bigger possibilities of economic management of sustainable operating assets mainly thanks to the economies of scale in the use of their production and distribution base. Decisions concerning a brand must guarantee an increase in the company s profits, similarly to a change of its logistic system or construction of a new plant. Consequently, brand strategies as co-branding should be a subject to in-depth analysis by shareholders, most of all due to profits produced by particular brands. The impact of potential co-branding on the brand equity and as a result on the brand value should be analysed and the suitable partner s brand should be selected. LITERATURE [1] AAKER, D.A. Managing Brand Equity. New York: Editions Free Press [2] IRMSCHER, M. Modeling the Brand Equity Concept, Marketing and Research Today, 1993, Vol. 21(2), p [3] GREBOSZ, M. Brand Management. Lodz: Wydawnictwo Politechniki Łódzkiej, 2008 [after:] IRMSCHER, M. Modeling the Brand Equity Concept, Marketing and Research Today, 1993, Vol. 21(2), p [4] KELLER, K.L., APERIA, T., GEORGSON, M. Strategic Brand Management. A European perspective. Harlow: Pearson Education, [5] MICHEL, G. Au coeur de la marque. Paris : Dunod, [6] GREBOSZ, M., BAKALARCZYK, S. Team management organization in co-branding projects. Human Factors and Ergonomics in Manufacturing & Service Industries. doi: /hfm [7] SIMONIN, B.L., RUTH, J.A. Is a Company Known by the Company it Keeps? Assessing the Spillover Effects on Brand Alliances on Consumer Brand Attitudes. Journal of Marketing Research, 1998, Vol. 35 (February), p [8] HILLYER, C., TIKOO, S. Effects of Co-branding on Consumer Product Evaluations. Advances in Consumer Research, 1995, Vol. 22, p [9] UELTSCHY, L.C., LACROCHE, M. Co-Branding Internationally: Everybody Wins? Journal of Applied Business Research, 2004, Volume 20 (3), p [10] DOYLE, P. Marketing wartości. Warszawa: Wydawnictwo Felberg SJA, 2003.