January 20, 2010

How to Preserve (and Grow) Brand Value in a Downturn

Research by Dr. Robert P. Leone

One effect of the shaky economy is the dramatic shift in consumer spending patterns. Consumer demand for more value may continue long after an economic recovery, possibly leading to bankruptcy or demise for some well-known companies if they don’t adjust their positioning.

Companies can successfully fight back against declining profits and eroding market share through a pair of powerful positioning strategies, say marketing experts Dr. Robert P. Leone of the Neeley School of Business at TCU, and Dr. Randle D. Raggio of Louisiana State University.

“Postscript: Preserving (and Growing) Brand Value in a Downturn” is an extension of their earlier work and recently appeared in a special issue on brand valuation in the Journal of Brand Management. Dr. Leone, professor of marketing and a prominent marketing researcher, also guest edited the issue.

“Consumers have a new mindset about buying branded goods. The economic downturn has caused everyone to rethink every purchase decision, including purchases that used to be automatic for them. Now they ask themselves if they really need to buy a name brand,” Dr. Leone says. “As a result, consumers have totally changed their purchasing behaviors.”

The two strategies recommended by Dr. Leone and Dr. Raggio to help companies sway consumer choice are called “just good enough” and “altered amortization.” Depending on certain factors, either approach could be successful, but only one can be chosen for any brand since the approaches are mutually exclusive.

Both, however, are all about value.

In the “just good enough” strategy, brands are marketed as having adequate quality at low prices, influencing consumers to feel that prestige brands aren’t worth their higher prices when lesser brands will do.

“With breakfast cereal, for example, as money got tight many consumers switched to store brands to save a buck or two per box,” says Dr. Leone. “The attitude is ‘This store brand is good enough.’”

Even some luxury products can be marketed as being just good enough. For instance, the Hyundai Genesis, a luxury sedan, has been directly compared to Lexus but is much less expensive.

"If Hyundai can convince you the Genesis is substantially the same as a Lexus, with essentially the same features, why pay thousands more for the Lexus?” Dr. Leone says. “Hyundai is not claiming to be a prestige brand, but they’re claiming the Genesis is just as good.”

In contrast, the “altered amortization” strategy portrays prestige brands as being worth the costly price tags through attributes such as being longer lasting, requiring fewer repairs, experiencing less depreciation, and offering extra amenities such as money-back guarantees and extended warranties.

“Some products can capitalize on an image of high quality and durability, which some consumers may not have considered so much before. With vehicles, for instance, durability and fuel economy are now much more important to potential buyers than styling since these save money in the long run,” explains Dr. Leone.

Brands not decisively marketed as offering the best value, either by being just good enough or presenting altered amortization, risk fading from the marketplace. These brands are “stuck in the middle.”

“A brand stuck in the middle is not a ‘value’ offering. It doesn’t have the lowest price in terms of the value proposition, and it’s not a high-quality product that would cost less over time due to reliability and durability,” Dr. Leone says. “Before the economic downturn, a lot of consumers were willing to buy from companies in the middle. Now they’re not.”

Companies also must make the right choice between the “just good enough” or “altered amortization” strategies.” Choosing incorrectly can be dangerous. Lesser brands that reach for altered amortization face huge upfront costs. Prestige brands that lower pricing toward just-good-enough status could see increases in purchase volume, but may damage brand image and long-term profitability.

“Taking a high-prestige brand and heading downstream with it is risky,” says Dr. Leone. “It would be better for the company to come up with an entirely different brand name for a ‘just good enough’ product.”

Even when the right choice is made, either strategy carries increased expenses for aggressive promotion and advertising. In addition, altered amortization may require research and development expenditures to back any claims of superior quality and develop new value-related add-ons.

“Brands really have to focus on their value proposition and decide what they want to be to their customers,” Dr. Leone says.

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