Importance Of Brand Leadership For A Fmcg Brand Marketing Essay

The main objective of this report is to understand the importance of brand leadership for a FMCG brand. The report develops further by analyzing the previous literature on Branding, Brand leadership, and Brand Loyalty which is implied to a FMCG brand. Finally, it underpins the Brand value which enables Irn Bru to create Brand Loyalty.

1.2 Objectives:

To identify the Brand Leadership model used by Irn Bru.

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This is based on Aaker et al. (2000) brand leadership model; an analysis would be carried out in order to compare the model with Irn Bru operations.

To identify consumer motives behind purchasing Irn Bru.

By the help of a devised survey questionnaire, consumer behaviour toward purchasing of Irn Bru will be analysed

To investigate why loyalty develop from consumer perspective in FMCG market.

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Academic literature and dimension of brand loyalty will be used to investigate this objective. Focus group will be brought under practice to indentify these factors.

1.3 Background:

With an increase in the level of competition, and companies offering more than one similar product into the market, it has become necessary to brand the product in order to differentiate it from others. Brands play an important role in modern society, and allow products to be easily identified within the market. The concept of “branding” is used in many aspects of human life i.e. it could be a product, religion, sports, culture etc. As companies are expanding globally, the concept of branding has been recognised as an utmost important factor. Not only to attract set target markets, but also to attain brand leadership. The main aspects of branding include: building a successful brand, differentiating amongst its competitors, and maintaining the brand image in the market. Due to the intensity of the modern market, there has been increase in the spending on marketing; branding is a major aspect (Aaker, 1991; Simmons, G. 2007). Generally, a brand is considered as a product, service, a presence or personality which rides on the mind of consumers. Branding, according to De Chernatony & McDonald (1992), has been characterized as the process of creating value by offering convincing and constant customer experience, which in turn satisfy their needs and wants and keep them coming back. Organisations have started referring to themselves as a ‘branding organisation’ once customers have realized the value of a brand.

With diversity in the market, it has become extremely important for companies to create and maintain high brand awareness and identify how it varies from that of the competition. Internet has proved to be a medium that enables consumers to explore the benefits provided. The increasing number of internet users indicates that global brands can be viewed, and interacted from a single point. Also, the increasing number of online purchases reflects the future of brands. Since more than one company manufactures similar products, the question that arises is: which brand is a market leader? Brand leadership has opened a new gateway for the brands who seek to be on the top of the market. Brands can be an important asset for the company, and in the future they will be an increasingly prominent feature of business dealings.

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AG Barr was founded in 1830 with the foundation of Robert Barr’s cork-cutting business in Falkirk. In 1875, his son diversified the company into aerated water production, and in 1887 operations were extended to Glasgow. The Glasgow-based company was re-named AG Barr in 1904. Its core brands included: Irn-Bru, Tizer and Orangina, the latter of which is produced under licence from Pernod Ricard. The company also distributes Lipton on behalf of Unilever Bestfoods in impulse and cash and carry outlets. In 2001, the company established an agreement with Pepsi Bottling Group to distribute Irn-Bru in Russia. The company will continue to focus on its core brands and markets. High brand loyalty for carbonates brand Irn-Bru has seen it maintain sales in a declining market sector The Company’s main strength lies in its Irn-Bru brand, which shows no sign of a sales decline and seems unaffected by the general switch to fruit/vegetable juice amongst carbonates consumers. To a certain extent it is possible that consumers of Irn-Bru are not much concerned with the health issue; whilst, comparing to other carbonated brands. In order to meet the needs of their potential consumers, Irn-Bru has launched a low-calorie version for the consumers preferring diet carbonated drink. The main strength of Irn-Bru is the inclination of consumers toward Scotland’s other national drink. The performance of Irn-Bru in Scotland is astonishing, despite the economic downfall. The catchy advertisements and the tag line ‘Phenomenal’ has continuously portray the tradition and the uniqueness of the Irn-Bru. AG Barr has also pursued a strategy of diversification through acquisition – the company bought Strathmore mineral water in 2006 and acquired both the TAUT sports drink range and the exotic juice drinks manufacturer Group Rubicon in 2008. (GMID, 2009).

Rationale for the topic:

According to Aaker et al. (2000), the emerging paradigm of strategic brand leadership is replacing the classic, tactically oriented brand management system. Leadership has become an important aspect of the brand, as it leads to innovation. A key element of brand leadership is brand vision. The ability to see the future of the company through the customer’s eyes is important, as it sets into motion a long-term strategy for the brand. It is vital to discover how consumers perceive the product and what their view points are, as brand value is highly based on it. Measuring loyalty towards a product is equally important as it will enable Irn Bru to reflect on their strategies.

Chapter two-Literature Review

2.1 Brand and the concepts:

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‘A brand is not a name. A brand is not a positioning statement. It is not a marketing message. It is a promise made by a company to its customers and supported by that company. I may have intelligent agents that can go out and assemble pages of reports on every camcorder on the market, but I don’t have time to read them. I’ll buy Sony’ (Sterne, 1999 cited in Rowley, J. 2004). Due to the different characteristics of product, brand enables to distinguish one brand from another ( Riezebos, R. 2003). One of the main concerning areas in the field of marketing is branding. As brands have grown beyond the national boundaries, it has become vital to manage and operate them with a strategic view. This will enable companies to focus on the specific brand, rather than company as a brand. As the level of competition has risen, companies tend to focus on their branding strategies. A well derived strategy will lead a brand to attain high awareness and success in the market niche. As defined by Pickton and Broderick (2001), branding is a strategy that helps the company and their products to leverage in to the market and it also build brand value for the owners of the brand and also the consumers. Whereas, Randall G (2000) has a presented a different approach: ‘Branding comprises of all fundamental strategic process going within the company; it is a part of marketing, but not restricted only to marketing department’. Based on the benefits offered by a brand, the consumers form a purchasing decision, and evaluate it depending on their needs and wants. According to Temporal (2001), as the importance of branding is increasing, fast moving consumer goods industry is highly benefited by these strategies. Companies have more than one product in the marketplace, and by viewing the soaring profits in this sector. Companies have tried to differentiate it from their rivals, so that consumers find it easy to purchase. Henceforth, brands provide guarantee package to the consumers in terms of value, quality and reliability. Consumers will generate loyalty toward a brand, if the promised quality, value and reliability are full field. As identified by Murphy (1991), Branding adds value to the overall product, and from consumer perspective it provides a self confidence. However, Rowley (2004) has argued by stating that brands not only consist of value, and it also acts an information hub. This enables consumers to eradicate the time spent on searching a specific product offering.

2.2 Brand Equity:

The goal of the brand leadership paradigm is to create strong brands. Brand equity is defined as ‘the set of associations and behaviour on the part of a brand’s customers, channel members and parent corporation that permits the brand to earn greater volume or greater margin than it could without the brand’ (Wood, 2000). Appendix 1 depicts, according to Aaker (1991) major assets of a company can be brought together into five main types: Brand Loyalty, Brand name awareness, Perceived quality, Brand association, and other proprietary brand assets such as copyrights, patents, trademarks. Appendix 2 shows the brand equity chain, where the description provided on the brand leads to the strengthening the brand and this results in creation or building of brand value. Keller (2003; cited in Atilgan et al. 2005) defined Brand equity from a customer based point of view as Customer based brand equity occurs when the consumer has a high level of awareness and familiarity with the brand and holds some strong, favourable, and unique brand associations in memory’. One of the main reasons for a company to brand their product is to attain organisational goals of attracting and creating amongst their consumers by provision of cost efficient products, as it will aid company to acquire higher margin of profit (De Chernatony & McDonald, 1998). Strong brands are the core products of the company and in order to gain a recognition and financial reward, it is important to build a successful brand.

Appendix I: Aaker’s theory on Brand Equity

Appendix 2: Brand Equity chain

Source: Wood (2000)

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2.3 Brand Leadership:

Leading brands are perceived to be relevant, unique and compelling. They inspire customer loyalty and enable organizations to charge price premiums. They increase bargaining power with business partners, make it easier to hire and retain talented employees and provide organizations with clear strategic directions and platforms for future growth. Together, these lead to well above average financial performance and a market valuation that far exceeds book value. (Aaker, 2000) Leading brands are organizational assets that must be preserved, enhanced and leveraged for the benefit of their organizations. Aaker & Joachimsthaler (2000) developed a Brand Leadership model which will enable companies to build strong brands for the future. It comprises of four challenges which an organisation should consider.

2.3.1 Organisational Challenge:

Every organisation should structure and process their functions that will lead them to be a strong brand in the market place. A clear organisational hierarchy should be made so that brands are not at the mercy of ad hoc decisions made by those with no long term interest. When a company increases its portfolio, and extends the production line, every manager from a different production line should provide a common set of inputs, outputs and knowledge that will benefit the organisation. The inter-communication will enable the sharing of insight, experience and brand building initiatives. As companies are going international, there lies a trend which companies struggle to confront with, and organisational challenges are raised. With the increasing competition for talent growing amongst business networks, current economic activities rationalise the challenges which are created within the firm. In order to gain competitive advantage, change in organisational strategy is important as response to market need is important.

2.3.1.2 Brand Strategy:

Strategies are always used to gain sustainable competitive advantage, which could reflect from any part of the organization’s operation. The marketplace is the evaluator of this advantage. Brand strategy is the process whereby the offer is placed to evoke the perception of advantage (Arnold, 1992). Almost all the features of Brand Management are driven by the overall brand strategy; otherwise a company might be leading with a confused perception and image of the brand. Strategy gives focus and direction to brand management and provides the platform that enables brand managers to gain consistency in all their brand related activities (Temporal, 2002). According to Reizebos (2003), a brand strategy is based on two parameters: differentiation and added value. Differentiating refers to the practice of trying to establish the difference between a company’s own product and that of the competitor. This signifies that the intention of the brand strategy has a competitive character. By targeting the differentiation strategy, the firm tends to deliver a brand competitive advantage. The other fundamental trait of a brand strategy is ‘added value’, which refers to the fact that a brand has more value for consumers than the bare product. In order to create such an added value, the brand must be meaningful for the consumers (Reizebos, 2003). Appendix 3 shows different branding strategy approaches adapted by brands, and their advantages and disadvantages (Drummond & Ensor, 2001).

2.3.2 Brand Architecture:

Pertomilli et al. (2002) defines brand architecture from a company perspective as a combination of strategies which include managing, organising and operating in to the market with their brands.

2.3.2.1 Branding in FMCG sector:

Branding plays a significant role in FMCG sector, as there are myriad of products in the market. Due to presence of high number of products, it acts a powerful instrument in creation of differentiation and higher store presence. Since the competition is intense in this sector, it is highly important for firms to make their brand identifiable from others. Packaging, graphics and promotional activities such as advertisement is used to attract consumers (Ellwood, 2002). Brands operating in this sector are highly cost efficient and production is carried out in masses. A high capital is required to establish production of FMCG brand, as production cost is high; such firms enjoy the benefits of economies of scale. As identified by Moffett et al. (2002), products are not confined within a region or country. With increase in globalisation, brands can be found in any part of the world. Companies need to consider the global implications of marketing and try to gain brand leadership in the marketplace. For the FMCG sector, advertising plays a pivotal role and is the best channel to communicate with the targeted audience. Moreover, with the advancement of internet and information provided on it, consumers tend to opt to review product information online before purchasing it. With high competition and many brands offering same product quality, it is very difficult to generate brand loyalty in FMCG sector.

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2.3.2.3 Benefits of Branding in FMCG sector:

A successful brand is one which evokes the consumers by creating and sustaining a strong, positive and lasting impression. (Fill, 1999). For a FMCG company, it is important to create trust towards its brand in minds of consumers. This trust is being built by providing better quality and satisfaction. Once the trust is created, it subjects to the top most choice of the consumers mind set and leads to re-purchasing actions. The approval of customers signifies that branding, from consumer perspective, is a method which reduces the time taken for decision-making and related perceived risk of the product. This shows that the brand name provides information about the quality, price, and attributes of the product without requiring the consumer to undergo the time consuming process (Fill, 1999).

2.3.2.4 Branding in the soft drink sector:

With the fierce competition in the soft drink industry, firms are fighting for market share. Companies should reflect upon their branding strategies, as they are of paramount importance. Companies should extend their brands to various market niches in order to meet the needs of the consumers. The scope and opportunity in this market is high, as products can be differentiated by infusing different flavours. It would be appropriate to emphasize that the value which the brand adds to the product is intangible, however, its presence is undeniable and with immense significance. Considering the characteristics of soft drinks, branding is an ideal marketing tool which allows companies to position and differentiate between the offered product and its incremental value.

International product portfolio analysis

The Boston Consulting Group (BCG) originated an early version of product portfolio analysis. The BCG version classifies a company’s products into four categories: stars, cash cows, problem children, and dogs. The classification is based on market share and market growth rate. The optimum product portfolio for one market is different from that of another. Product A, for example, may be a star in country X, and a dog in country Z. Individualizing the use of portfolio techniques for each country will help define different product portfolios for each foreign market. Although portfolio analysis of products for international sale is relatively new, it can assist the company in determining how to allocate resources among different markets.

Positioning a new product/brand depends upon the firm’s ability to describe product attributes that will generate a flow of benefits to buyers and users. The international marketer planner must put these attributes into bundles so that the benefits created match the special needs of each targeted market segment or subculture. Product positioning then is viewed in a multidimensional space, commonly referred to as the”perceptual space” or “product space” (Johanson, 1985). In terms of perceptual space, a particular version of a product is graphically represented as a point specified by its attributes. Competitors (local and international) and other products are similarly located. If points representing other products are close to the point representing the new product, then these are products similar to the new prototype. If the prototype is positioned away from its closest competitors in the world markets and its positioning implies positive features, then it is likely to have a significant competitive advantage. This mapping process is appropriate for each foreign country/market segment contemplated.

2.3.3 Brand identity

2.3.3.1 Competitive Analysis:

According to Cohen (1988), competitive analysis permits the understanding of differential competitive advantage, as well as the comparative advantages in relation to competitors. Intense competition requires operations to be carried out with maximum efficiency. The key to this is large-scale production to reduce the value of fixed costs per bottle. With increasingly sophisticated vehicles and rising investment costs, the optimum economic scale increases (Rees, 1999).

Industry Analysis Using Porter’s Five Forces

According to Besanko (2007), in order to devise and execute successful strategies, a firm must understand the nature of the markets in which they operate and compete. In 1980, Micheal Porter developed five forces to analyse the extent of competition. ‘Understanding the nature and strength of each of the five forces within an industry assists managers in developing the competitive strategy of their organization.’ (Campbell D., 2002, p.134)

The Five Competitive Forces for Irn Bru:

A structural analysis of the UK carbonated soft drinks industry examines the impact the various forces have on this industry. Firms operating in the carbonated soft drink market in the UK, face tough competition from the rivals. Every soft drink organization should review its rivals’ products, analyse any potential new entrants in the market, understand the demand of substitute products, review the consumption pattern and demand amongst the buyers, and identify appropriate suppliers. Porter’s five force model is used to analyse the magnitude of competition. The intensity of competition within the industry is quite high, with regular advertising wars taking place; on the other hand, sales are increasing and the products are differentiated. There are high barriers to limit entry such as: the high capital required for production and distribution, increasingly advanced and specialised technology, lack of access to distribution, and strong consumer loyalty to recognised brands.

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A final, but very critical, point to bear in mind is that the forces themselves change over time. Sometimes in a predictable way, other times not. However, it is usually possible for the firms to have some influence over these changes. If no action is taken to counter the forces, it is extremely likely that the forces will grow stronger over time. Each firm needs to consider the actions that it could take to counter the forces, or position itself in such a way as not to face their full impact. For example, merging with a rival not only eliminates a competitor but also reduces the number of competitors in the market as a whole, something that can benefit all rivals by reducing competitive intensity.

Threat of Rivalry:

In the UK’s soft drink industry, Irn Bru faces the greatest competition from its arch rival Coca-Cola and Britvic soft drinks (Appendix, X). Their presence all round the globe shows their potential strength, and demand in the consumer market. As can be seen from the table, Irn Bru has made constant strides in an upward direction by gaining market share.

Manufacturers’ retail value brand shares in carbonates, 2006-08

2006

2007

2008 (est.)

% change

£m

%

£m

%

£m

%

2006-08

Coca-Cola GB, of which:

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1,302

65

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1,334

66

2.9

– Coca-Cola

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5

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61

3

61

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3

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3

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21

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17

1

15

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-28.6

Britvic Soft Drinks, of which:

Can You Include Data Analysis?

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277

14

280

14

305

15

+10.1

– Pepsi

215

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28

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38

2

28

1

23

1

-39.5

AG Barr – Irn-Bru

82

4

86

4

91

5

+11.0

Other

96

5

94

5

88

4

-8.3

Own-label

239

12

235

12

200

10

-16.3

Total

1,990

100

1,997

100

2,018

100

+1.4

Source: Mintel, 2009

Loyalty towards brand names is another factor to measure brands performance. Brand loyalty in the soft drink market is another component which Irn Bru has to deal with from its rivals. Coca Cola and Pepsi are well established brand names all around the globe. Due to high brand awareness and product availability, they attain high market share. The presence of Irn Bru in the international market is very limited. Perhaps, due to its authenticity, it is famous in Scotland, and has struggled in other international markets (e.g. Russia, South Africa, Australia, America and Canada). The soft drink industry is mature, with nominal current growth and limited ability of firms to increase revenues at the pace they may have become accustomed to in the past. Of course, new markets, such as in Middle East or Southern Asia, may result in major new growth opportunities. The current makeup of the industry line-up leads to higher levels of competition. On one hand, key rivals offer different products, but similar in size, which increases competition. Differences in companies’ philosophies, cultures, and histories result in varied strengths and weaknesses, and lead to different strategies in pursuit of competitive advantage; the overall predictability of the industry development decreases and industry volatility increases. Irn Bru has a strong presence in the Scotland, due to the fact that it is the country of origin and a strong culture is associated with it.

Threat of new entrant:

Entry to the market, on a large scale, is difficult. The risk of new entrant in the soft drink industry is low. The presence of renowned brands like Coca-Cola and Pepsi, and their strong distribution channels in major grocers, public houses, and fast food outlets dominate the industry. Moreover, as the market is saturated, growth tends to be minimised. Such situations prevent new entrants from entering the market, and competing against strong brands. With high fixed cost attached i.e. labour, warehouse, logistics and economies of scale, it is difficult for new entrants to compete with established brands. Market saturation and high fixed costs, the levels of barriers are increased, and henceforth, entering into the UK soft drink market is difficult. Furthermore, because the products are have already acquired the impression of good experience, and reputation matters, very heavy advertising would be a necessity to gain a foothold as a brand producer. Entry as an own label producer might be possible, but it would demand a large scale operation to keep costs down and be as competitive as the existing large own-label producers. Even with the removal of trade barriers and generally greater harmonization within the European Union, major continental firms have appeared to be reluctant to plan a takeover on the UK market. There are at least several strong brands for every consumer segment currently in the carbonated soft drink industry. Consumers do have a choice, and many have developed brand loyalty. It would be difficult for new entrants to sufficiently differentiate their products and to build brand identity and loyalty.

Threat of Substitute:

There are number of substitute for carbonated soft drinks e.g. mineral water, fruit juice, energy drinks, tea, coffee etc. Water and sport drinks provide more variety that appeals to the consumers who seek the healthier options. However, carbonated soft drinks have gradually been gaining market share at their expense and this trend does not appear set to reverse. In addition, carbonated soft drinks have a particularly strong appeal to the youth market (10-25years), which is where most of the sales can be traced to. Overall, the threat appears relatively weak, especially to the core youth market.

Power of suppliers:

Soft drink industry suppliers do not hold a strong competitive pressure. There are usually several suppliers to choose from for any of the soft drink components; therefore, the rivalry between suppliers is high, and companies have many options, including manufacturing components themselves, which some of them still do. Again, relatively weak pressure exists, with the exception of sugar producers and plastic suppliers. The work force is not highly organised, nor is it militant.

Power of Buyers:

The large numbers of consumers willing to purchase a bottle of carbonated soft drink mean that the actions of a single consumer will not have a notable effect on a company’s performance. At the same time, however, these consumers face low switching costs and have varied degrees of brand loyalty, which requires companies to spend significant resources on capturing and retaining that individual consumer. Over 65% of sales are sold through multiple grocers. The top five grocery chains account for nearly 70% of all grocery sales and are thus in a strong bargaining position. Some 8% of sales are through fast food restaurants, and 6% sales are through public houses. (Mintel, 2009) The remainder of sales are relatively weak buyers, including off-licences, confectionaries, newsagents and restaurants. Soft drink manufacturing companies distribute the products to these stores so that they can be sold to the consumers. The top grocers buy soft drinks in bulk, as it allows them to purchase goods at a cheaper price.

The strongest pressures come from the power of buyers and the fairly intense non-price competition within the industry. Nevertheless, overall the industry seems to be in a fairly healthy position: the leading firms are very profitable and industry growth is expected to be steady around 8% over the period 2007-9. Cola, as a product, appears to be reaching maturity, but other segments offer prospects of development and growth. This plays to an advantage in the hand of Irn Bru, as the product offered is completely contrary to the Cola’s. At the same time, the firms are actively competing on quality and bringing new products to market, as well as being innovative in terms of reducing costs by investing in new technology and machinery, developing new forms of packaging and offering better distribution services. The danger is that the firms may not be able to sustain the route to growth and instead may seek growth through techniques such as undercutting rivals’ prices in a market share game. In this situation, profits are likely to deteriorate rapidly if destructive head-to-head price competition becomes the main competitive instrument.

2.3.3.2 The Brand Positioning Concept:

According to Kotler (1997), ‘Positioning is the act of designing the company’s offering and image so that they occupy a meaningful and distinct competitive position in the target customers’ minds’. The positioning of a brand is not about the quality which products provide, but it is what consumer thinks about the brand. For positioning, it is important how a consumer perceives the product rather than its physical nature. According to King (1991; cited in Fill 1999), advancements in technological fields have allowed products to offer similar functional and physical appearance, where consumers choices and decision will be based on the brand name. Henceforth, positioning origination as a brand will evoke actual and potential customers. According to McCormack (1984, cited in Olsson 2004), positioning is a factor which determines what consumers are actually purchasing while buying any product or service; and subsequently communicating related imitations and inspirations to the buyer. An organization should primarily evaluate and identify where they stand in the market spectrum and then position it accordingly.

2.3.3.3 Branding from Consumer’s Perspective:

A brand provides not only a source of information, but also performs certain other functions which justify its attractiveness and its monetary return, when they are valued by buyers. According to (Kapferer, 2008), there are eight main functions (Appendix 4), Identification and practicality are mechanical and concern the essence of the brand i.e. to function as a rec