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BRAND EQUITY
By our News Team | 2022
Researchers focus on the key metric of brand equity to understand how brands are affected by macro-economic business cycles.
Researchers from three US academic institutions have published a new paper in the American Marketing Association’s peer-reviewed Journal of Marketing that examines how six brand attributes affect a brand’s level of performance during economic expansions and contractions.
The study is authored by Koushyar Rajavi, Tarun Kushwaha, and Jan-Benedict E.M. Steenkamp.
Photo credit: Pixabay
They set out to determine how some brands are able to ride the wave of macro-economic expansions, while others are better able to successfully weather macro-economic contractions.
During economic contractions, characterised by lower disposable incomes and tighter budgets, consumers are more price sensitive, less brand loyal and more inclined to shift their purchases to cheaper private labels. This is also a time when consumers prioritise functional attributes over emotional ones.
On the other hand, in economic expansions where there are fewer budgetary restrictions, consumers focus more on emotional attributes and their higher disposable incomes allow them to change their buying behaviours.
Good brand managers understand these circumstances and can grow their brands during economic highs and insulate them from harm when the economy slows.
This new study found that strategic brand factors play an important role in moderating the impact of business cycles on brand equity. The researchers examined six brand factors that strategically position a brand against its competitors. These are:
To understand how brands are affected by the business cycles, the research team focused on brand equity, which is a key performance metric of a brand.
Importance of factors will vary across different business cycles
Why do different brands fare differently during expansions and contractions? Study co-author Rajavi says the researchers argue that the relative importance of price, functional and emotional attributes, as well as functional and emotional risks, vary across the business cycles.
“Brands are different with respect to price, functional and emotional benefits, and attendant risks. Such differences affect consumers’ preferences for brands with different strategic factors over the cycles,” Rajavi explains.
The study utilised data on 325 consumer packaged goods (CPG) national brands in 35 categories across a 17-year period in the United Kingdom.
“Our results show that a premium price position and market leadership build brand equity in expansions – while advertising, using an umbrella brand architecture and market leadership, contribute to brand equity in contractions,” says Kushwaha.
The two brand factors that dominate are distribution and assortment. Steenkamp explains that, during economic contractions, distribution is by far the largest contributor to brand equity.
“Distribution also has a large effect in expansions. In both good times and bad times, extensively distributed brands have an advantage. In expansions, a wide assortment is also a strong contributor to brand equity, while it does not destroy brand equity in contractions,” Steenkamp states.
Key recommendations for brand managers
The study offers the following recommendations for brand managers:
Find out more about the research paper Brand Equity in Good and Bad Times: What Distinguishes Winners from Losers in CPG Industries? here.
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