Value of Brand to Manufacturer

Manufacturers invest effort in branding for a variety of reasons. If the trademark has been effectively registered, the manufacturer has, a legally-protected right to an exclusive brand name, enabling it to establish a unique identity reinforced through its advertising and increasing the opportunity of attracting a large group of repeat purchasers.

With the high costs of developing new brands, the emphasis in the 1990s is on existing brand development and line extensions. The most recent examples are Budweiser, a premium-priced beer moving into the jeans market, and retailers such as Sainsbury and Tesco targeting the financial service sector. Virgin provides the best example of a brand being stretched. Already covering cola, retailing, vodka financial investment and airlines, in 1997 it announced plans to move into the jeans and cosmetics market. Many question whether the Virgin brand risks shouting its value with so many different products under its umbrella. However, its previous successes may disprove such fears. One recent study has assessed the degree of stretch ability of brands. It suggests that only few brands, like Marks & Spencers, Virgin and Nike, are capable of successfully leaping into unknown territories. Clearly, good brands keep on building a corporate image and hence reduce the cost of new line additions carrying the family brand name. However, marketers of overstretching the brand’s core values, as Levis did in the early 1980s with their unsuccessful move from jeans into the suit market. Brand extension is such a popular choice because it offers an apparently easy and low risk way of leveraging the brand equity, it is essential; however, to realize that there is a cost to it. First, if a brand its credibility in one sector, the whole umbrella range could be affected. Secondly, even successful repetitions of brand’ extensions may dilute or exhaust the brand value of the core product. Managers should then carefully consider whether it is worth running the risk of tarnishing the brand image and reducing the core brand equity. Only by gathering sufficient information can they decide whether to use brand extension or to develop a unique new brand. Distributors more receptive to presentations of brand extensions or even of new brand Those manufacturers with strong brands maintain greater control over the balance of power between the manufacturer and distributor and indeed, some argue that this is one of the key benefits of strong brands. For example, Kellogg’s have been quoted as saying –

The only discounts available to customers are those shown of price list, and all those discounts relate to quantity bought and t6.oo payment there is no possibility of special deals.

In view of the pressures facing brand manufacturers from the powerful multiple retailers, such a comment is indeed a brave statement about a belief in the power of strong manufacturers’ brands.

It is also possible for a manufacturer with strong brand name to market different brands in the same product field which appeals different segments. This is seen in the washing detergents a soap market, where Unliver and Procter & Gamble market different brands with minimal cannibalization between brands from same manufacturer. Furthermore, by developing sufficiently entailed manufacturer brands that consumer’s desire, higher can be charged, as consumers pay less attention to price comparisons between different products because of brand distinctiveness. This clearly enhances profitability.

Retailers see strong manufacturer brands as being important since through manufacturers’ marketing activity (e.g. advertising point of sale material, etc.), a fast turnover of stock results. Also, with more sophisticated marketers recognizing the importance of long- term relationships with their customers, many manufacturers and distributors have cause to recognize that their future success depends on each other and therefore strong manufacturer brands are seen as representing profit opportunities both for distributors and manufacturers? Some retailers are interested in stock in strong brands, since they believe that the positive image of a brand can enhance their own image. Recent research has provided clear evidence that a favorable image from a manufacturer’s brand can further enhance the image of an already well-regarded store.

Recalling the discussion in the previous section about brand Names acting as a means of short-circuiting the search for information consumers appreciate manufacturer’s brands since they make shopping less time -consuming exponent As already noted, manufactures bands are recognized as providing a consistent guide to quality consistency. They reduce perceived risk and make consumers confident and in some product fields (e.g. clothing, cars) they also satisfy strong status needs.

Why, then, do so many manufacturers also supply distributors brand? First, it is important to understand why distributors are so keen on introducing their own brands. Research has shown that they are particularly keen on distributor brands because they enable them more control over their product mix. With a strong distribution brand range, retailer’s average rationalized their product range to advantage of the resulting cost savings and many stock a manufacturers brand leader, their own distributor’s brand and possibly and manufacturer’s brand. Trade interviews have also shown that distributor brands offered better margins than the equivalent manufacturer’s brand, with estimates indicating the extra profit margin to ‘be about 5 per cent more than the equivalent manufacturer’s brand. Some of the reasons why manufacturers become suppliers of distributors’ brands are –

• Economies of scale through raw material purchasing, distribution and production; any excess capacity can be utilized;
• It can provide a base for expansion;
• Substantial sales may accrue with minimal promotional or selling costs;
• It may be the only way of dealing with some important distributors (e.g. Marks & Spencer);
• If an organization does not supply distributor brands, their competitors will, possibly strengthening the competitors’ cost structure and trade goodwill.

Consumers benefit from distributors’ brands through the lower prices being charged, but it is interesting to note that our own research found that consumers are becoming increasingly confident about distributors’ brands and no longer perceive them as ‘cheap and nasty’ weak alternatives to manufacturers’ brands, but rather as realistic alternatives.