Secrets to Superior Persistence in Brand Performance
can all agree the brands with superior persistence maintain relatively
high market shares that endure over the long-run. Superior persistence
in brand performance, however, remains an elusive goal for most
are the underlying factors that influence superior persistence?
Are these factors innate in the market and the competitive set
where the brand competes, or are there specific elements that
management can influence to improve the chances at capturing superior
the Zyman Institute of Brand Science, we've made progress in answering
these questions. And the good news is: there is room for managing
the marketing mix to optimize brand performance for superior persistence.
Impact: Digging Deeper
what degree do brands contribute to firm performance?
brands contribute more or less in comparison to the performance
contribution attributed to industry structure and competitive
results may not be quite what you expect. Brands, and other intangibles
such as innovation competencies of a firm, lead to sustainable
competitive advantages that can significantly drive a firm's performance.
the big surprise for many is that performance gains attributed
to the brand are actually far greater than performance gains based
on industry structure or resource allocation.
that are sustained superior performers are those that maintain
a higher than average market share over an extended time span.
These brands are said to be superior persistent performers because
their performance endures. For these brands their performance
neither erodes to an earlier performance level nor reverts to
the category average. Somehow they stay above the crowd.
neoclassical economics suggests that brand performance is influenced
by competitive behavior and that in the long-run firms cannot
sustain abnormal performance as participants are forced into equilibrium
by perfect competition.
perfect competition opportunities for earning profits based on
favorable conditions rapidly evaporate as new entrants flood the
market, increase the output supply, and drive the price down to
average cost. Thus, the Michael Porter "School of Strategy"
views the industry structure and the competitive environment as
the primary force in influencing firm performance.
for brand managers the economists are not always completely right.
have ample evidence suggesting that brand performance can be sustained
firms such as Coca-Cola, Kellogg, Gillette, Campbell and Microsoft
have consistently not only maintained higher performance than
their immediate competitors, but have also performed above market
is Tobin's Q?
q is a forward looking indicator. The Q Ratio, or q, is
the value of capital relative to its replacement cost. Q
reflects the financial claimants' expectations about future
value of the cash flow that will accrue to the firm's assets.
Tobin, a Nobel Prize winning economist, developed the metric
to help predict investment decisions. Firms that exhibit
high Q ratios essentially are reflecting their valuation
based on high investments in intangible assets.
Q is similar to the market-to-book ratio, however Tobin's
Q uses replacement costs of tangible assets instead of book
value of assets. The use of replacement costs avoids accounting
complications associated with the market-to-book ratio.
might think this performance is only exhibited for differentiated
products, however even in the case of a commodity product like
salt we see over an extended period of time both a price premium
and market share advantage being held by the industry leader,
Salt, established in 1848, has been the industry leader for quite
a long time.
flies in the face of economist's logic.
so, what drives performance? We find that brand equity is the
primary factor driving firm performance. When using Return on
Sales (ROS) as the performance metric, brand equity contributes
to nearly half of the elicited value. When using Tobin's Q as
a metric the value attributed to the contribution of brand equity
is over 60% (see sidebar: What is Tobin's Q?).
how brands influence firms' performance makes the superior persistence
of brand performance a prominent issue. To determine which factors
support brand persistence I teamed up with C.B Bhattacharya
of Boston University and ZIBS' Doug Bowman at Emory.
Utilizing data covering 78 packaged goods product categories over
a seven year period, we began to look for persistence drivers.
evaluating sustained persistent brands we explored two areas:
what are the attributes of the market category that lead to superior
what are the attributes of brands that lead to superior persistence?
some categories show greater persistence than others? If we knew
the answer to this it can guide our choice of where to compete
in the future.
there brand strategies that lead to superior persistence? If we
knew the answer to this we could shape our brand strategies to
enhance our brand's performance.
research findings on superior persistence were intriguing and
not always completely intuitive at first glance.
competition is not an attractive method of meeting the market
since profits are driven out of the market. Consequently, most
brand managers are tasked with making markets imperfect.
findings demonstrate there are various methods of managing brands
that reinforce imperfect markets. These results can be used both
by manufacturer's brand managers and retail management to make
for Senior Management? The Factors Driving Company Performance
managers can use these findings to make market selection, and
marketing mix decisions.
a highlight of the research let's look at our price promotions
found that deeper price promotions can lead to superior persistent
performance. What is the rationale for this? Pricing with
fewer deep discounts, in contrast with many small discounts, has
advantages. Deep discounts are effective in stimulating product
trials, and of course you need trials to convert non-users into
customers. Deep discounts can also be used strategically as a
defensive mechanism to inhibit customers from trying competitive
offers. When a competitor launches a new product a deep discount
can entice customers to load up on your product, effectively taking
them off the market until their supply is depleted. Deep discounts
can also be given as rewards to loyal customers.
can also use our research findings to make product assortment
choice decisions and improve private label strategies.
take a look at a finding effecting retailers. A seemingly counter
intuitive finding is the nature of private label competition.
It seems like common sense that private labels would do better
in more basic commodity categories. However, our results show
that private labels actually do better in categories with greater
differentiation. In these categories private labels form a
second tier of product offerings. Will this insight change private
label planning? It should.
is a relief to know superior persistence in brand performance
is something that managers can strive for by proactively managing
their brands. We have illustrated how brands are a critical contributor
to a firm's financial performance.
Standing Out Over the Crowd: Superior Brand Persistence
results show that brands are the singlemost important driver of
a firm's performance. The impact of branding on firm performance
outweighs both the impact of the competitive environment and resource
the good news is that pursuing the goal of superior persistence
in brand performance is no longer a wild goose chase. Management
can influence brand performance through selective category participation.
And once they select the category in which to compete managers
now have insight into how to better manage brands for optimal
Further Information: Contact Sundar
You didn't think we'd give it all away here did you? For further
information on brand equity's impact on firm performance, or on
superior persistent brand performance contact Sundar Bharadwaj.
He can be contacted at firstname.lastname@example.org.
Bharadwaj is a Director of Academic Programs of the Zyman
Institute of Brand Science, and Professor of Marketing at
Emory University’s Goizueta Business School. Contact him at email@example.com.
article was edited by Greg Thomas, the Director of Programs
for the Zyman Institute of Brand Science. Greg is passionate
about driving innovation in the practice of brand management.
He has worked for Fortune 500 companies, consulted to a wide array
of clients, and holds an MBA from the University of Texas.