Healthy sales vs a healthy brand

THINK TANK: Ravi Dhar

Ravi Dhar

Ravi Dhar, professor of marketing at Yale School of Management, points out some essentials of a branding strategy.

A banking company launches a new credit card or loan scheme. Marketers from banks try every trick in the book to meet the high customer sale targets for the new scheme (remember the last time some marketer chased you over the phone to buy his scheme?).

"Bingo! We've done it," exclaims the sales manager as his teams meets all the targets bang on time. Superb effort, isn't it? Everyone's happy. But what about the brand "" people's perception of the product and the company? Think over it.

Business Standard caught on with Ravi Dhar, an authority on consumer behaviour, marketing strategy and brand management from the Yale School of Management, to find answers to such questions related to consumer perception, choices and building brands.

Last year, along with his colleagues, Dhar, who is a marketing professor at the School and professor of psychology at Yale University, started the Center for Customer Insights at Yale.

The centre interacts with leading companies (IBM, HP, Procter and Gamble, and so on) to understand their business problems and brings in research to find answers.

Dhar, who's also an IIT and IIM graduate, says it was his interest in a deeper understanding of consumer behaviour psychology and marketing that drove him to a PhD from the University of California at Berkeley.

"You may deal with many more practical issues if you work in industry after an MBA, but you spend less time on bigger questions, such as why such things happen," says Dhar.

Less is more

A key area of focus for Dhar has been consumer choice. Talk to economists, and they'll always say that more choices are better than less "" what they call as the "rational" or "economic" model of choices.

But, argues Dhar, "Our research showed that giving people too many choices often confuses them and consequently leads to a lower likelihood of buying. It's a kind of a reverse paradox."

He says that of late, more and more companies in the US have reduced the number of their offerings, simplifying or rationalising their product lines.

"This has made it easier for the consumers to choose, particularly when more brands are being launched everyday. The question is, how does the consumer cope with all these choices?" He cites the case of Procter & Gamble in the US, which used to have 15 to 20 different kinds of soaps and 10 types of diapers.

But now it has simplified the product line. "Besides confusing the consumers, it is also an issue on the supply side, which means that the tendency to launch multiple brands complicates manufacturing as well," says Dhar.

Another example is that of automobile giant General Motors, which has many overlapping brands compared to, say, Toyota, which has a simplified brand structure, without too many options.

"While GM offerings have been confusing the consumer, Toyota is doing well with most of its offerings," Dhar points out. Doesn't that apply to our numerous banking and mobile services companies that may have six different credit cards or seven different phone connections to offer, too?

Brands as assets

Dhar points out that nowadays, there are two major assets for companies and both are non-physical "" customers and brands. Customers are assets that you leverage by selling them multiple products. "Once you get customers you decide on what else can you sell them.

So, if you are a Coca-Cola you leverage the customer by selling him mineral water, potato chips and so on. It's always easy to sell more things to existing customers than trying to go after new customers," he says.

Similarly, Dhar sees brands as assets because recognised brand names can be leveraged to easily enter into different product categories. "So growth, besides other factors, also actually depends on how well a company manages its brands."

But at the same time, he warns that managing brands should not be confused with managing sales. "You can manage sales by cutting prices in the short run, and increasing sales, and managers often do that.

But simultaneously you may be hurting the brand because if you keep cutting prices, it cheapens the image of the brand," he explains.

Dhar cites his research on competition in supermarket areas in the US "" specifically, how the difference in price affects the relative market shares "" to bring home the point.

Supermarkets in the US have multiple tiers of pricing "" there are premium brands competing with no-name brands or generics.

What should be the strategy for premium brands to compete with the no-name, low-priced brands?

Should premium brands cut their prices to meet the pricing of nameless brands? What should be the reaction every time no-name brands drop their prices? Most times, managers blindly follow other managers "" if one cuts the price, the other cuts his price, too.

But says Dhar, "Maybe that's not the right strategy, perhaps his strategy should be to raise advertising or not react, because if you react then you are communicating to the customer that there is no difference.

If you don't react, you tell them that you're not worried. In the short run you might lose some market share but in the long-term it might help you. So the question is, how do you balance short-term loss in sales with maintaining your brand strength in the long-term?" Dhar cites a few examples.

To retain market share in the toys market in the US, Toys 'R' Us cut its prices to match those offered by Wal-Mart. "While it was able to retain its market share, it has lost all its money and is almost running out of business. The real challenge is to manage price competition "" how long can you sustain losses, before it starts paying off.

With Wal-Mart getting bigger and bigger, it's now clear that was not the right strategy for Toys 'R' Us. The question is, should it have tried something else? Should it have tried that the strategy that toys are exclusive to Toys 'R' Us or made toys more friendly and accessible to kids compared to Wal-Mart?"

These are not easy questions but, clearly, cutting prices was not the right way, explains Dhar. The professor points to the American automobile industry as another case in point.

Ford has decided to raise or not drop prices even if it loses market share, whereas GM has decided to retain and increase it market share, and will be cutting prices if necessary.

"Which is the right strategy, we'll know in five years. GM's strategy is hurting it in the short-run, and if it sticks to cutting prices in the long run, it is also cheapening the brand, so perhaps it will not help in the long run.

It might hurt in the short-run as well as in the long run. But the problem with Ford's strategy is that if it keeps losing market share... you also need a certain amount of scale. And if you lose that scale, it will be hard to be profitable."

Metric matters

Dhar further points out that it is a normal practice to reward managers for meeting their sales target; these managers help improve sales in the short run, but in the process, damage or cheapen the image of the brand, which hurts the company in the long run.

"You need to reward people for taking good care of these brands because these are assets. Which means you need to cover it with metrics, a measure for the health of the brand. And then you can hold the manager accountable for the health of the brand."

So Dhar says, the emphasis should be to come up with metrics that allow senior managers to ensure that those who are managing the product are not destroying the brand.

Dhar further says that Indian companies need to understand that, "branding is not just the fluff that you do in the end, it's the sizzle. You cannot have the sizzle without the stake.

You do need to have a good product to begin with, a good service and branding then reinforce that promise. It's not that IBM spends a lot of money only on branding, it spends a lot on R&D, too.

You need to have solid products in place, the brand then reinforces that's why the products are superior."