I was driving through the city with my wife today and we see a shop with a banner. “Clothes by weight. Rs 30 (i.e. about 75 cents) for 100 grams“. Yes they are selling clothes by weight. The one thing that I was reminded of was the value of a brand. If the brand is not there. The only selling point is the price. Which is more or less the cost price + 25% (or let’s just say x%). Customer are not foolish to pay a premium for the brand. Then why is it that people pay for the brand… The simple answer for it would be that in the entire value chain, it is the brands that have the ability to creep into the customers mind.
Let’s take the example of Sony. Sony has always been a brand which lives in the customers head. And the best way to explain the above layers is to take the example of the Walkman.
Companies made music systems where the base criterion was defined. Let’s say 100Watts PMPO, stereophonic sound etc. All they need is the specs and they can manufacture the product. The only selling point here would be the cost. And higher volumes would be the only way to make profits or to even break-even.
Then some companies would go a step beyond and design a music system which delivers the best in terms of sound quality. What they would do is study the customer type. They would then realize that the Indian buyer wants to hear classical Indian music or bollywood music which is different from opera or pop or rock. They would thus defines the customer needs and manufactures different music systems for different places. Typically these companies learn to walk in the customers shoes.
Then comes in Sony. They study the behavior of their customers. They realize that people need to carry their music with them where ever they go. And that is what leads to products like the Walkman. Needless to say that Sony does business in the tunes of billions of dollars every year. This is the way all brands work.
A common thing that most people think is that they can always go up the value chain. But as we see above each layer needs a different mindset.
Ford always made cars for the masses and Rolls Royce always made cars for the top end of the market. They do get perfect with time, but they continue to be in the same layer. It takes a lot of effort and work to move from one layer to another.
One good example that comes to my mind is the Lexus from Toyota which managed to go up the value chain. Even after the Toyota brand had grown all over world it was still considered as the car for the masses. They wanted to break it but break could mean loosing the loyal customer base they had. Hence, they worked on a completely new brand – Lexus. Lexus was never marketed as a Toyota product. It was just a high end car. And it worked Toyota managed to get into that market as well.
One interesting point to be noted is that , Every layer in the value chain has a lot of potential for growth. The challenge lies in building that brand. A brand is respected not because of the layer in which it operates but because of the values that it starts to signify with time. Toyota for example is not a brand in the existential layer. It is more of a company in the experiential layer. But the brand has grown because of the reputation it has built for itself as the cheap reliable vehicle. As a result Toyota is a lot bigger than the Rolls Royce.
Wal-Mart the super market chain is a good example of a successful explicit layer group. They are neither in the experiential or the existential layer. They are built a brand which has redefined the term discount retailing. I was reading the book “Made in America ” by Sam Walton. There is a wonderful story there where one of the Wal-Marts executives explains the way Wal-Mart charges it customers. He gives an example of a product which they got for 55 cents. This product was actually priced at $2.5 in the market. The executive says that he suggested to Sam Walton to mark the product at $1.5 and sell. This would still mean that it is lot cheaper than the market price. However, he says that Sam Walton did not agree to it. Wal-Mart has a rule that they’ll sell everything with a 30% margin only. Nothing more than that. This ensures that the customers gets it the cheapest. Such philosophies become a part of any organization’s values with time. This also gives customers a trust in the brand value of Wal-Mart that they are the cheapest retailers in the market. That is how brands are built. One has to define that philosophy and then just live by it.
Every brand has the ability to go beyond just the customer expectations. They are able to offer products and services which the customer would need in future. Many a times the customer is not even aware that he needs such a product in the first place. But with time it becomes a necessity in his life. Every brand also builds up reputation which customer learns to associate with.
And when you think of a brand building exercise one of the best examples that comes to my mind is the mastercard brand building program for the masses…. Visa their main competitor catered to the upscale market. And then came in master card which touched a cord in the common man’s heart. They have build a brand which symbolizes a brand that cares for a little things which we all cherish in our life, which is well… Priceless.