Why brands are not forever

MICROVIEW

Last week, we saw Procter & Gamble start a price war in the upper reaches of the detergents market, prompting market leader Hindustan Lever to follow suit.

What this signals "" yet again "" is that there is no such thing as a long-term premium brand "" a brand that can withstand price competition for all times to come. Every brand has the potential for commoditisation. The only question is how long can a marketer delay that eventuality.

This may sound like apostasy for those who believe all the hoopla about branding, but the fact is brands haven't been going anywhere for some time now.

No matter which product group you look at "" whether it is soap and toothpaste, TVs and computer hardware, cars and two-wheelers, or even IT services "" pricing power has steadily been reducing for most brands.

If this leaves traditional brand theory down in the dumps, so be it. Marketing gurus who have been assigning mystical powers to brands need to come down to earth. The reality is that no brand can reasonably expect to possess pricing power forever.

My take on this is simple. Pricing power is almost always the result of information asymmetry "" or monopoly. You cannot sell your product at a higher price simply by calling it a brand (or a power brand, for that matter). If it looks and feels and smells similar to other products in its category, and if it appears to be delivering the same or similar benefits, it cannot ultimately sell at a price higher than its rivals. And it doesn't matter whether you are selling Lux soap or a Mercedes car.

Let me explain with an example. If you are walking around thirsty in a desert and a guy appears with a Bisleri bottle, the chances are you will pay much more than the MRP for a swig. But would you do the same if you knew there was a clean drinking water source nearby?

You may still buy Bisleri, but not at a premium. The high price you were earlier willing to pay for it was the result of your lack of knowledge about alternatives. Information asymmetry is at work here.

Traditionally, we have paid more for brands because we have been risk-averse; we don't know whether other products can deliver the same bang at a lower price. But this situation is changing rapidly.

The Internet, hyper-competition and the growth of retail malls have made it possible for consumers to compare and evaluate more and more products by feature and price "" and people are slowly realising that premium brands are not really all that they are cracked up to be.

Picture yourself in a departmental store. All brands of toothpaste or soap are stacked together; you can always check prices and choose the lowest price one "" if you want to. Today, even kirana shops are rearranging themselves like mini departmental stores to attract customers. As for the Internet, it is the ultimate medium for price comparisons "" a sure graveyard for brands.

The earlier information asymmetry that allowed brands to extract huge premia from ill-informed buyers is now being corrected. In future, all brands will have to provide real additional value to the consumer if they want higher prices.

And even this premium cannot stay for all times to come: the minute a competitor discovers the difference between your costs and prices, he will try to cut you out with a lower priced product. The only way to avoid this is to build a monopoly "" through patents and international property rights. But don't count on it. For every Microsoft there is Linux willing to give things away free.

What branding does is help you sustain an information asymmetry in favour of your product. It is in the manufacturer's interest to let the consumer keep believing that he is getting more than he actually is. So the effort is to try and build a greater emotional connect with the consumer through more vivid brand imagery and 'experiential' marketing.

Brands are getting more and more into esoteric and emotive areas precisely because rational reasons for buying a product are steadily reducing for most categories. A Honda City may be just marginally less comfortable than a Mercedes to drive, but one still pays a huge premium for a Merc because of that intangible value called status.

Actually, it is not the Merc, but your mental state that delivers this value. The Merc brand extracts a premium by understanding your emotional needs.

But increasingly, as Merc's rivals realise this, they will try and build 'status' into their cars. And the power of the Merc brand will start eroding. Even in niches, riches cannot last forever.

In the information age, an information asymmetry cannot endure. The function of branding today is to delay the process. Brands can be made to work better only if we realise the transient nature of their power.

rjagann@business-standard.com