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Researchers from the Georgia Institute of Technology, George Mason University and the University of North Carolina – Chapel Hill have published a new article in the Marketing Review which examines how six brand attributes affect a brand’s performance during economic booms and busts.
The study, to be published in the marketing magazine, is titled “Brand equity in good times and bad: What separates winners from losers in the CPG industries?” and is written by Kushyar Rajavi, Tarun Kushwaha and Jan-Benedict EM Steenkamp.
How are some brands able to ride the wave of macro expansions while others are better able to ride out contractions successfully?
During economic contractions, characterized by lower disposable incomes and tighter budgets, consumers are more price-sensitive, less brand loyal, and more likely to shift purchases to (cheaper) house brands. It is also a time when consumers prioritize functional attributes over emotional attributes. In phases of economic expansion, on the other hand, with fewer budgetary restrictions, consumers focus more on emotional attributes and their higher disposable incomes allow them to modify their purchasing behaviors. Good brand managers can grow their brands during economic peaks and protect them from damage when the economy stagnates.
This new study reveals that strategic brand factors play an important role in moderating the impact of business cycles on brand equity. The researchers look at six brand factors that strategically position the brand against its competitors: price positioning (value vs. premium), ad spend (low vs. high), line length (short vs. long), breadth of distribution (selective vs. extended), brand architecture (single-category brand strategy or umbrella category), and market position (follower or leader). To understand how brands are affected by economic cycles, they focus on brand equity, which is a key performance metric of a brand.
Why do different brands behave differently during expansions and contractions? Rajavi says, “We argue that the relative importance of price, functional and emotional attributes, as well as functional and emotional risk, varies across business cycles. Brands differ in price, functional and emotional benefits, and associated risks. Such differences affect consumer preferences for brands with different strategic factors over economic cycles.
The study uses data on 325 national consumer packaged goods (CPG) brands across 35 categories over 17 years in the UK “Our findings show that premium price position and market leadership builds brand equity. brand in expansions while advertising, using umbrella brand architecture, and market leadership contributes to brand value in contractions,” says Kushwaha.
The two dominant brand factors are distribution and assortment. Steenkamp explains that “During contractions, distribution is by far the largest contributor to brand equity. Distribution also has a large effect on expansions. In good times and bad, widely distributed brands have an advantage. In expansions, a large assortment also contributes strongly to brand equity, while it does not destroy brand equity in contractions.”
The study offers the following recommendations for brand managers:
- Managers of selective distribution brands need to consider whether this is a strategic choice or the result of poor implementation of distribution expansion strategies. If it is a strategic choice, this research points to the negative consequences. If this is an undesirable outcome, managers may need to increase investment in channel incentives or, if the company already spends heavily on trade marketing, examine why channel incentives are not happening. do not translate into wider distribution.
- Assortment expansion should be a priority for brand management, unless there are other overriding considerations (eg, lack of resources). It is possible to change the brand’s competitive positioning from a limited-variety brand to a wide-assortment brand, if the brand management so decides. However, this will take time. With the high risks of a recession in 2023-24, managers planning for the long term might want to go against the general practice of cutting R&D spending during recessions and investing more instead. Given how long it takes to develop new products, they might be ready to launch just as the economy rebounds, reaping all the benefits.
- A premium price position and market leadership builds brand equity in expansions. Advertising, using umbrella brand architecture, and market leadership contribute to brand equity in contractions. However, the effect of management decisions regarding these factors has only a modest effect on brand value. Thus, these factors are of secondary importance when it comes to increasing brand equity.
Full article and author contact details available at: https://doi.org/10.1177/00222429221122698
About Marketing Review
The Marketing Review develops and disseminates knowledge on real-world marketing issues useful to scholars, educators, managers, policymakers, consumers, and other societal stakeholders around the world. Published by the American Marketing Association since its founding in 1936, JM played an important role in shaping the content and boundaries of the marketing discipline. Shrihari Sridhar (Joe Foster ’56 Chair in Business Leadership, Professor of Marketing at Mays Business School, Texas A&M University) is the current editor.
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The title of the article
Brand equity in good times and bad: What separates winners from losers in the CPG industries?
Publication date of articles
August 16, 2022
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