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Imagine buying Coca-Cola from a vending machine and getting an unmarked can of pop with no familiar logo, no red-and-white markings, nothing to identify it as a soft drink, let alone as the Real Thing. Would that product still be Coke as we know it? And would consumers purchase this product without its world-famous packaging?
The truth is, the only physical product that the Coca-Cola Company sells is soft drink syrup to bottlers not the bottles and cans of Coke that consumers buy. The company's greatest success comes from selling its brand, says William Dillon, associate dean for academic affairs and Herman W. Lay Professor of Marketing and Statistics in SMU's Cox School of Business. Dillon's research helps to differentiate among the threads of association and bias that affect consumer product choices and enables companies to make sense of where and why their products achieve their market positions.
To find these results, Dillon says, it's important to distinguish among the factors involved in consumer decisions and how they affect aspects of a brand's identity. He first makes the distinction between brand equity and brand valuation. Brand equity, like equity in a home, "is meant to reflect appreciation the good things and positive associations that accrue because the brand has delivered on its stated promises," Dillon says. "Equity is the brand's asset." Brand valuation, as determined through such exercises as Interbrand's annual top 100 brands list published in Business Week, attempts to attach a measurable value to that asset.
"Strong brands build emotional attachments. They attempt to develop a relationship," says William Dillon of Cox School of Business.
"Typically, one looks at the market share of the brand and the price premium that the brand commands," Dillon says. "The notion is that brands that have created equity command a price premium in the marketplace." Hence consumers may pay $1.89 for a cup of Starbucks coffee when they could purchase the same volume for about 69 cents at another coffee shop. Most equity research tries to assess the strength of a brand through price premium or market share, he says.
One simple way of assessing this is to "equalize the products, label them, and then see how much someone is willing to pay," Dillon says. For example, a coffee company may put the same brew in two containers one labeled "Starbucks" and the other, perhaps, "Bill's Fresh Coffee." If consumers prefer the Starbucks coffee and will pay more for it simply because of the label, their choices appear to be determined by their positive associations with the Starbucks' name.
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Such methods encounter obstacles, however, when it comes to finding an unbranded alternative to use as a base case. Typically, the benchmark is a product with no brand effect, such as a store brand or an unmarked generic. "But there really aren't unbranded products any more," Dillon says. Many in-house and regional brands have established strong presences in the modern marketplace.
To manage such dilemmas, Dillon's work separates the brand effect from the product effect. The brand effect demonstrates that a consumer will pay extra for a cup of Starbucks coffee simply because it's Starbucks, and not because the product is intrinsically better. On the other hand, if consumers believe that Starbucks uses a higher-quality bean, or that its brewing methods produce a better-tasting coffee, their choices are based on the product effect a perception that Starbucks coffee is fundamentally better than that of its competitors.
A consumer may rate a product on a favorable characteristic strength for a pain reliever, or decay prevention for a toothpaste on a scale of 1 to 10. Dillon's models separate the customer's rating into two components: the Brand-Specific Association (BSA), or the actual linkage between the attribute and the brand; and the General Brand Impression (GBI), or the consumer's general like or dislike of the brand itself. This breakdown allows companies to understand the weight that general impressions can carry in driving consumer choice.
Dillon's summary of this work, co-written with Cox Associate Professor of Marketing Amna Kirmani, won the 2002 Paul E. Green Award, given each year to the paper published in the Journal of Marketing Research during the previous year that shows or demonstrated the most potential to contribute significantly to the practice of marketing research and research in marketing.
A benefit of Dillon's model is that it accommodates brand ratings as they typically are gathered in customer tracking surveys for example, the 1-to-10 unfavorable-or-favorable scale. In addition, the model "provides information about the extent to which a brand has achieved superiority or 'ownership' of specific brand attributes," the authors write. A larger BSA rating indicates stronger consumer identification with a positive characteristic, while a larger GBI component indicates that a brand's overall image is playing the primary role in the customer's rating.
The ways in which consumers retrieve or compute personal brand ratings play an important role in the assessment. "When I say 'Starbucks,' that conjures up certain associations that may not only be about the product," Dillon says. "It's also about the environment in which you consume the product, the merchandise, the setting, the social ambience. That these associations build in people's minds, and that people rely on them in making choices, is another measure of the strength of the brand."
Research demonstrates that general brand impressions heavily favor the dominant brand in a category, Dillon says. "When people rate the market leader on a number of attributes, it's not surprising that it comes out the leader on all those attributes even when we know they're not superior on all of them." Dillon calls this "halo error" and says it often distorts the reflection of how well a company has developed an association between its brand and an attribute.
Yet because much of building a brand occurs in its marketing activities, recognizing the social context of a product's use can be even more important than owning an attribute, Dillon says. "Strong brands build emotional attachments. They attempt to develop a relationship." He cites Jell-O as a prime example. "Jell-O historically is a product that allows mothers and children to bond," he says. "It's not the consumption of the Jell-O they remember, but the preparation, the colors, the fun they had in making it" and Jell-O's marketing activities reflect this.
"A product's physical attributes do not represent a sustainable marketplace advantage," he adds. "Over time, competitors will imitate, patents will run out, buyers no longer can tell the difference among similar products. When the product effect dissipates, what's left is people's attachment to the brand. Strong brands recognize this."
Dillon's research also has clear implications for companies that wish to add products to a line or branch into different categories and who must assess whether their brands are capable of carrying a core success into these new endeavors. "As companies move further away from their key products, the brand may play a more prominent role in people's reactions to the new products," Dillon says.
He cites Nike as an example of a company using a strong image to expand its market. When the company began, it carved a strong but narrow niche as a maker of high-performance athletic shoes. Nike's fortunes changed permanently when "they realized that everybody wants to be an athlete for 15 minutes a day," Dillon says. The company's expanded product line, coupled with its "Just Do It" image campaign, transformed Nike from a specialty manufacturer into a global phenomenon. "It wasn't the physical attributes of the product that allowed them to extend the brand it was the imagery they'd built around what it is to wear Nike."
In his classes on "Analytic Methods for Understanding What Consumers Value," Dillon teaches students to ask the right questions about consumer preference. "When our M.B.A. students graduate, they have to wrestle with fundamental questions. Who are your customers? Who should be your customers? What do they value in the categories they consume? People have certain preferences for certain kinds of products, and it's fundamentally important to know why."