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When the fashion house Maskit originally flourished in the 1950s and 1960s, no one probably thought about it as a brand; actually, not many back then thought about ‘brands’ in general, at least not in Israel of those years. Yet if we look at Maskit retrospectively according to the standards of brands known today, it would be acknowledged as a name brand in fashion. The contemporary fashion house of Maskit, revived after a long recess of two decades, has adopted not only the name but also the genuine styling ideation and design creativity of the former fashion house, thus deserving the ‘license’ to exist again. Maskit of our days has already been planned to be a luxury brand based on current knowledge in marketing and management.

Maskit was unlikely to be regarded as a brand in the 1950s-1960s for two conspicuous reasons: First, brands and their functions in modern marketing came to recognition some thirty years later; Second, Israel had a heavy-laden socialist economy with little competitiveness and a just nascent consumer culture (evolving through the 1960s). Furthermore, Maskit was not run in its prime years as a business enterprise: it started in 1954 as a government agency, turned a decade later (1964) into a governmental company. Only in the 1970s has the government loosened its hold on the company and gradually handed it over to private hands. However, that move has more than anything led to the decline and demise of the former Maskit in 1994.

Maskit is very much the story of the people who built it, then and now. The fashion house was founded in 1954 by Ruth Dayan almost incidentally, but with a great spirit for initiative. She was actually asked by government officials to help in identifying and creating employment opportunities in agriculture for new Jewish immigrants from the Middle East and North Africa. However, Dayan noticed that women from North African countries had a special talent and skills in weaving, sewing and embroidery; she also identified that men from Yemen excelled in jewellery. From there the idea of a fashion house employing immigrants started to take form. Since Dayan was not a fashion designer herself, she teamed-up with Fini Leitersdorf, nominated as the house chief designer. Together they developed a unique and genuine concept for fashion design that is at the same time multi-cultural and Israeli-native. Albeit the unusual circumstances of her enterprise, Ruth Dayan was by our current understanding an early woman entrepreneur in Israel of that period. The privatised company did not manage to continue in the footsteps of Dayan and Leitersdorf following their retirement from the fashion house in the late 1970s. Dayan who just celebrated in mid-March this year (2018) her 101st birthday also belongs nonetheless to the present of Maskit as she has helped in creating the newly born fashion house.

  • ‘Maskit’ can have multiple meanings, such as ‘image’ and ‘figure’, but the most appropriate meaning of this old Hebrew word in relation to what the fashion house does would be ‘ornament’.

Sharon Tal, a fashion designer, re-founded Maskit together with her husband Nir Tal in 2014, following more than two years of preparation, research and planning. Sharon Tal is the fashion house chief designer whereas Nir Tal (CEO) is in charge of the business side, specialising in entrepreneurship. Sharon Tal is a graduate in fashion design from Shenkar College of Engineering, Design & Art in Israel. She has subsequently worked in internship for Lanvin in Paris and for Alexander McQueen in London, where she acquired experience in international fashion design. At McQueen in particular she has learned and later advanced to specialise in embroidery, which would prove especially relevant and important for her professional and business venture of re-launching Maskit. On her return to Israel in 2010 she developed interest in starting a fashion house, and with the help of her husband Nir they discovered that the ideals or goals she has been aspiring for in a fashion house had existed in Maskit of Dayan and Leitersdorf.

Sharon Tal met with Ruth Dayan to talk about her interest in reviving Maskit, and it seems that they connected quite quickly — their first meeting extended into several hours, and they continued to work closely together on the initiative thereafter. It appears that shared thinking, the commitment of Sharon Tal to respect and maintain the original vision of Maskit, and the relevance of Tal’s specialisation as well as international exposure for continuing the heritage of Maskit have helped to convince Dayan that Tal was the right person to revive the fashion house. Ruth Dayan has given her blessing to the Tal couple, and has joined them in guidance during the research and planning process. Indeed the success of Maksit to re-establish itself depends greatly on reviving the heritage of Maskit, which Sharon Tal seems to fully recognise and appreciate, as she also respects the personal legacy of Ruth Dayan.

Maskit has made different types of garments in the days of Leitersdorf and Dayan. The concept that was special in many of them was mounting quality fabrics with motives of different ethnic cultures in embroidery.  They combined modern styles of the times with design traditions of embroidery embellishments “made by immigrants, as well as by Druze, Bedouin, Palestinian, Lebanese and Syrian women” [E1; also see Maskit.com: About]. They used for decoration articles like buttons (e.g., made from river stones and shells), some were initially brought by immigrants from their countries of birth. Maskit also produced jewellery, pillow covers, and other home artifacts. Silver and gold for jewellery were also used in decorating garments. The Hungarian-born Leitefsdorf created the integration of Western (European) practices, materials, and design styles known to her with ethnic styles of different communities she came familiar with in Israel. It was a unique way of adopting cross-cultural ethnic fashion styles and designs, fabrics and colours, and fitting them to the Israeli habitat (nature, climate, and contemporary culture), hence making their clothing and other products ‘Israeli native’.

  • Ruth Dayan provided employment to the immigrants and hence has given them an opportunity to assimilate in the country, as well as helping them to preserve their traditions. It should be noted, however, that immigrants fleeing from Arab countries were at great disadvantage with limited choices compared with more veteran immigrants, mostly from European countries, who formed the dominant classes in the young state. Dayan benefitted from belonging to the latter (‘elite’) classes and was close also to ruling political circles (married at the time to General and later Defence Minister Moshe Dayan), which further helped in obtaining funding.

Sharon Tal has the will and intention to proceed along the same guiding lines of design and craftsmanship set by Dayan and Leitersdorf. But the aim of the renewed Maskit is not to relive the past; instead, the Tals strive to fit the concepts and practices of former Maskit to contemporary styles and tastes of our days. Their priority is to keep the fashion house being Israeli-native, representing its culture and nature, but that also means expressing the multiple original ethnic cultures that make up the Israeli society. Their emphasis also appears to be on handwork production and authenticity in everything they do. These implied ‘values’ could be key to achieving high quality, uniqueness and luxury positioning. Authenticity is seen as a basis for differentiation of the fashion brand; it is also approached as a way of establishing luxury in the sense that authenticity has become hard to find in many areas, and in fashionable clothing in particular. Maskit may be authentic in the fabrics and other materials they use, the methods they apply, and the personal and attentive treatment and service they would provide to their customers (including personally customised designs).

Here are some aspects in which Sharon Tal works to continue the heritage of Maskit. The fashion house uses, for instance, soft fabrics as in the past (including silk, linen as well as leather). Weaving in-house is no longer feasible as in the past so quality fabrics are imported (e.g., from the same suppliers as those Lanvin and McQueen work with). Yet Tal still sees hope that it will be possible to acquire quality fabrics made locally, and perhaps produce at Maskit, in the future [H1]. Among the creations of Leitersdorf, one that has given Maskit greater fame is the desert coat (or cloak) — Sharon Tal designed a new ‘desert collection‘ that is “re-interpreted for today’s woman and her lifestyle”. One of the differences in the desert coat of today from the previous is in its being made in linen rather than wool [E1]. Embroidery designed and prepared in-house remains an identifying signature of Maskit. However, the renewed Maskit is ready to give more credit to artisans working with the fashion house, unlike in the past.

Sharon and Nir Tal are clear about their high ambitions. They want Maskit to be an international leading luxury fashion brand. It is meant to compete on a world stage against international fashion super-brands and challenge renowned fashion retail chains. They do not see their competition against fashion designers in Israel since they look forward to see more Israeli designers succeed and the whole fashion industry in the country developing (H2). That may sound a little co-descending but it can also be interpreted as saying that they hope Maskit will be able to pull the fashion industry in Israel up with them, as Maskit has done before in its earlier life. Accordingly, while they aspire to reach overseas, they intend to extend their efforts to global markets only after establishing Maskit in Israel [E1], and wish to be able to return Maskit into being an international fashion house operating from Tel-Aviv [E2], apparently keeping this home base as their anchor.

Maskit led by Dayan has already reached overseas, mainly to the United States. Since 1956 the fashion house presented in fashion exhibitions in New-York and other American cities. Their designs sold at department stores of Neiman Marcus, Bergdorf Goodman, and Saks Fifth Avenue, and they featured in leading magazines like Vogue. Sharon and Nir Tal expect to take the renewed Maskit in the same direction, and their emphasis at least at start also is on the US. Targets are shifting with time, however: many female customers turn to fashion chains to buy their casual and less costly clothing, then invest in more special dressing, higher quality and enduring, from name designers or specialty boutiques — the latter is where Sharon Tal seems to be aiming. As a luxury brand, Maskit would also target women who buy primarily from famed designers [H2]. In addition, Maskit of the past attracted in Israel tourists visiting the country and their relatives (i.e., mostly Jewish, American, and more wealthy). Yet, Israeli customers also used to buy gifts from Maskit, mostly when they wanted to bring or send them to their relatives abroad to leave a good impression on them. This should stay valid today as then. Maskit may also be able to tap a growing desire in Israel to return to its roots (‘authentic Israeli’) or to connect generations of customers wearing Maskit then and now.

The prices of Maskit to end customers are in the mid- to high-range, not for every occasion.  Their blouse shirts or dresses can be even expensive relatively for their categories. Evening dresses or gowns may cost, for instance, from just below 2,000 shekels ($570, €465) up to a few tens of thousands shekels (e.g., a dress with handmade embroidery in a unique technique was sold for 25,000 shekels or more than $7,000)[H2]. The price of a bridal dress may cost (selling only) in the range of 7,500 to 25,000 shekels (~$2,000-7,000)[H3]. Bridal dresses and customised dresses are the more expensive on offer. A blouse could cost, for example, 900 shekels (leather-trimmed tunic blouse — ~$260, €185)[E1]. The items of Maskit, according to Nir Tal, are made to appeal to women who are “pretty sophisticated, and appreciate the art of this clothing” [E1]. The prices are clearly set to support perceived high quality of garments, and in particular the investments in craftsmanship and dedicated handwork.

  • The flagship shop and studio of Maskit are located in the American-German Colony in the old city of Yaffo adjacent to Tel-Aviv. The place is designed to resemble an atelier of many years in business, and includes museum-like displays next to selling areas (also see photos in H3].

From the business perspective, the Tals approached the launching of Maskit as when creating a start-up, guided primarily by Nir Tal. They wanted the revival of Maskit to be special and different, following the model of revival of brands like Burberry and Lanvin [E1]; it had to reflect the significant achievements of Maskit as a leading fashion house in the country in past years [H2]. It meant that greater effort and resources would have to be invested in the initiative, as in a start-up. The Tal couple gained major funding from key Israeli industrialist Stef Wertheimer, together with his invaluable business wisdom. Launching Maskit as a start-up sounds reasonable in order to recruit the energy needed and concentrate financial and organisational resources in launching the business. However, soon enough comes the time that the fashion house is established and has to realign itself to run for the long-term. There are good indications Maskit could be near that time, if they have not passed it already, and it does not require that they should be established off-shore first. For the long-running fashion house, sustained creativity and innovation are important as much as persistence and discipline. Maskit would be wise not to push itself too far too fast, so as not to burn itself like a start-up.

  • Note: Start-ups in hi-tech, particularly in Israel, do not have too good a reputation in holding for long, hence it would not be wise to use them as a model if the fashion house desires to exist in the long haul and does not plan an ‘exit’.

The brand of Maskit in fashion was not properly valued nor appreciated by the establishment in Israel more than forty years ago (Ruth Dayan noted jokingly in interviews that she lives on a monthly pension of 5,000 shekels as a former worker of the Labour Ministry). But Dayan together with Leitersdorf have demonstrated that a successful brand can be created even without having their minds set to it. Sharon and Nir Tal now have the opportunity to show how high Maskit can reach, and to develop and strengthen its brand, with the much greater marketing and management knowledge and best practices they can now employ. Reborn Maskit is positioned as a luxury brand for women with fine taste in fashion and appeal to nostalgia. The brand’s distinction remains dependent on their commitment to an Israeli-native identity with original creative design in high quality, and keeping their base in Israel even as an international brand.

Ron Ventura, Ph.D. (Marketing)

References in Hebrew:

[H1] Interview with Ruth Dayan & Sharon Tal at Maskit Studio, Xnet, 18 October 2015 (Xnet is an online ‘magazine’ section of Ynet news website, fashion section)

[H2] The New Life of Maskit, Calcalist (economics and business newspaper), 13 December 2017

[H3] New home for Maskit fashion house, Xnet, 28 June 2016

References in English:

[E1] “A Ready-to-Wear Fashion House in Israel’s Ethnic Past“, Jessica Steinberg, Times of Israel, 26 May 2014

[E2] “How the Israeli Fashion Brand Maskit Delivers Authentic Luxury“, Joseph DeAcetis, Forbes’ Opinions, 16 May 2017

 

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Ordinarily, Great Britain is not the first country to come to mind when thinking of chocolate. The names of Switzerland and Belgium are more likely to come up first, and then perhaps some other European countries (e.g., France, Italy, Germany, Austria). However, the British upmarket chocolatier Hotel Chocolat may deeply change our perception of Britain in association with chocolate; that is, following of course consumers’ pleasurable associations with the brand Hotel Chocolat. The brand name identifies both the company and its products (i.e., it is a ‘branded house’ of chocolate). Moreover, the company is a manufacturer as well as a retailer, offline and online, of chocolate products of multiple sorts, all under an encompassing brand, Hotel Chocolat.

Britain has been known for chocolate from companies like Cadbury and Thornton. But their products did not really succeed in raising an equivalent alternative that challenges the quality of chocolate from the better known ‘chocolate nations’. Cadbury in particular is most probably the main source for perceptions of British chocolate generated by consumers; in some of its products Cadbury blurs the distinction between true chocolate and chocolate snacks or confectionary. In 2010 the American company Kraft Foods took over Cadbury in an unfriendly maneuver; yet Kraft had a problem in swallowing the business of the acquired British company and just a year later split all of its confectionary arm including Cadbury to a new spin-off company called Mondelez International. Thornton’s already set a standard of higher quality chocolate delicacies in forms like bars and pralines. It also developed a chain of chocolate delicacy and gift shops. However, the enterprise expansion eventually ran into trouble and in 2015 the brand was acquired by the Italian giant Ferrero (well-known for ‘Ferrero Rocher’, also owner of Nutella).

Hotel Chocolat seems to be different, not merely for its positioning as an upmarket brand but in virtue of the fine feel and taste of its chocolate products — one immediately knows it is different when tasting one of the brand’s chocolate products. Drinking their hot chocolate with cocoa-flavoured cream makes a fitting complement to the pleasure of eating the solid chocolate delicacies. The experience of visiting a boutique shop of Hotel Chocolat (e.g., in Covent Garden in London, in the basement) also is an important contributor to conquering committed chocolate lovers.

Appetising Selection of Chocolates at Hotel Chocolat

Tempting chocolates displayed in cave basement of Hotel Chocolat’s Covent Garden shop

 

Hotel Chocolat was co-founded by Angus Thirlwell, CEO of the company, and Peter Harris (Development Director). In an earlier stage of their chocolate business, the co-founders established a company named ‘Express Choc’ as an online retailer of chocolates in 1993 (no doubt an early venture in e-commerce). They opened their first physical shop in the north of London in 2004 after changing the business name — this event practically marks the initiation of the brand Hotel Chocolat.

Over the years the brand has evolved and broadened its concept and it actually extends beyond products, shops and online store (retailing) — it also includes a Tasting Club (pre-launched 1998), chocolate workshops  (School of Chocolate), café-bars, a restaurant in London, and a hotel with restaurant in the Caribbean Islands. The company is proud of being a grower of cocoa for its products, a unique status for either a chocolate manufacturer or a retailer. The co-founders acquired a cocoa plantation in the Caribbean island Saint Lucia (2006), an initiative that brought Thirlwell back to his childhood in that part of the world, an origin of cocoa. In the estate of the plantation they opened their hotel (‘Boucan’) and a restaurant (2011). Their restaurant in London, established a couple of years later (2013) to bring West Indian tastes to the UK combined with modern British cuisine (e.g., ‘Slow Cooked Cacao Glazed Lamb Shank’), bears the name of the plantation and the year it was created (‘Rabot 1745’).

In an interview to BBC News, Thirlwell explained the reasoning behind the name — at start there seemed to be no logical relation to hotels. As for the choice of ‘Hotel’, Thirlwell replied: “It was aspirational. I was trying to come up with something that expressed the power that chocolate has to lift you out of your current mood and take you to a better place“, like going on vacation where one would stay at a hotel. As said above, seven years later and Thirlwell materialised the symbolic idea of Hotel into physical reality. Regarding the French wording ‘Chocolat’, he said that “everybody agreed ‘chocolat’ sounded better than chocolate”, which is hard to argue with, and added that the sound of the word almost suggests the sound of how chocolate melts in the mouth (he used the Latin term ‘onomatopoeia’) (BBC News: Business, 27 October 2014).

As reflected from his interview to the BBC, Thirlwell is a devout chocolatier, completely enthusiastic about chocolate. This impression is also supported in a personal page about Angus Thirlwell on the website of Hotel Chocolat. He continues to taste products every day and approves every recipe the company produces. A guiding principle that appears highly important to him is using more cocoa in chocolate products and less sugar. It is said that people started to crave cocoa long before anyone added a grain of sugar. This principle was practised, for example, in a product called ‘Supermilk’ that contains 65% cocoa, emphasises the ‘smooth creaminess of milk’, and includes less sugar than a dark chocolate — a feel of milk chocolate that is nearly a dark chocolate. In ‘Our Story’ webpage, Hotel Chocolat laments the overemphasis on sweetness in British chocolate: “Today, sugar is 20 times cheaper than cocoa, and a typical bar of milk chocolate contains more than twice as much sugar as cocoa”. Conversely, the mantra of Hotel Chocolat is explicitly: ‘More Cocoa, Less Sugar’.

A notion of this motto is felt very present indeed in a number of chocolate products of Delicious Orange Tangs by Hotel ChocolatHotel Chocolat, and it is probably at the root of the magic of their chocolate, and their business success. Just for instance, take their chocolate shells filled with Salted Caramel Cream, or Orange Tangs (orange-filled chocolate sticks) that are truly special and delicious (based on the author’s experience). It is all about the pleasure of eating genuine and fine-flavoured chocolate.

Formally, according to the website of Hotel Chocolat, the company operates 93 shops as well as cafés and restaurants. The Telegraph (24 January 2018) tells us that in the weeks running to Christmas 2017 and New Year of 2018 Hotel Chocolat opened ten new shops, bringing their total number to 100 across the UK. The store locator on the website (provided with an interactive map) suggests, however, that the company may have an even larger number of establishments in the UK — 153 locations are designated as ’boutique’ (shops). There are specifically 26 locations of café-bars, and the restaurant in London. It should be noted that café-bars are mostly (or always) integrated with shops, and Rabot 1745 is a complex including the restaurant, shop and café-bar. The brand is also represented in concessions (51 in total). The conflicting numbers are confusing and make it hard to determine the true current number of outlets of the company (could be a result of duplication in the counts of location types in ‘Our Locations’, apparently mainly due to concessions counted as boutique shops). Hotel Chocolat also has two stores in Copenhagen, Denmark, and several outlets in Ireland (seem to function mostly as concessions).


  • The revenue of Hotel Chocolat Group in the financial year 07/2016-06/2017 amounted to £105.24 million, an increase of 15.5% year-on-year; the net income in that period was £8.76m, an impressive rise of 114.6% year-on-year.
  • Hotel Chocolat Group was incorporated in 2013 and is listed on the London Stock Exchange since 2014 (the founders exchanged a third of their holdings for cash, receiving each about £20m, while in total raising £55m).
  • In the past six months the share price shifted between 240p and 380p, standing in late January ’18 at 333p; market capitalization: £375.5m.
Source:  FT.com, (Market Data)
Sales received a lift of 15% during the 13 weeks to 31 December 2017, attributed mostly to a special package in advance of Christmas (a gin ‘advent calendar’ package), a 100% cocoa collection, and the introduction of no-sugar milky chocolate range. Hotel Chocolat makes 40% of its annual sales in the run-up to Christmas and New Year (The Telegraph, 24 Jan. ’18).

A clear, well-stated and meaningful vision must have helped Hotel Chocolat considerably in its evolution and expansion. It stands on three values people in the company believe in: (1) Originality — not playing by the rules, rather doing things differently, and being creative and innovative. (2) Authenticity — growing cocoa, making and retailing chocolate, being true to cocoa and using natural ingredients (not letting sugar dull the flavour of cocoa itself and not mask the nuances from other ingredients, in line with the mantra cited above), and developing their own recipes in-house at the factory in Cambridgeshire (award-winning). (3) Ethics — committing to a deep sense of fairness that extends to farmers, customers and future generations (i.e., not spoiling the environment with waste in all stages of production).

The description of these three values or principles seems elaborate and specific enough to offer very clear guidelines for all managers and employees in the company to go by. They are accompanied by two business or marketing goals set by Thirlwell: excite the senses with chocolate and making it widely available. The two goals help to add focus to the mission of the brand: the first seems to pertain primarily to the products, the second underlies the network of retailing through physical shops and an online store. Other activities of Hotel Chocolat (e.g., hotel,  restaurants and café-bars, Tasting Club, School of Chocolate) contribute in enhancing the brand: deliver its message across and strengthen closer relationships with customers.

The business revolves around the brand ‘Hotel Chocolat’ and its development as it is their face and voice to the world. That is how customers and other stakeholders recognize everything they do. The more prestigious image of the brand is expressed through their products and packaging, primarily with their premium collections (‘tables’ — e.g., 86 pieces £65, 179 pieces £100). Pricing is also part of supporting the image, though Hotel Chocolat tries not to be excessive (e.g., one can find small-medium packages and boxes for prices in a range of £5-25). The concept of Café bars is gaining weight in aim to come closer to consumers — creating a venue where they can relax and enjoy a good chocolate drink with something light to eat (e.g., brownies) from Hotel Chocolat. The company may tap on a desire of Britons for high-quality chocolate, having a better own experience with chocolates from countries like Switzerland and Belgium. The founders protect the brand from dilution by avoiding, for example, displaying their products on shelves in supermarkets for sale (but their products are sold through concession in departments stores of John Lewis which fits better their brand image). The brand is taken care of meticulously by the founders to maintain an image they worked hard to instill: “a necessity of life, albeit a luxurious one” (Kate Burgess, opinion column, FT.com, 13 March 2016).

The brand of Hotel Chocolat has built its strength in quality of products and the expanse of its brick-and-mortar shops in addition to online retailing, supported by further activities or services. But attention must be paid to challenges ahead. First, how to balance resources correctly between keeping the quality of products and the expansion of the retail network — not falling to the trap of sacrificing the pleasure from the chocolates to their increased availability in the retail chain. Second, how to manage wisely and responsibly reaching out to other countries. In the interview to the BBC News (2014), Thirlwell concluded: “If you are specialist you have got to be absolutely specialist. There is a lot of competition and we want to be in the driving seat.” Consumers who appreciate and love genuine chocolate would surely hope that Hotel Chocolat succeeds in its mission so they can continue to enjoy their delicacies, and be excited.

Ron Ventura, Ph.D. (Marketing)

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In 2016 General Electric (GE) sold its domestic appliances division to Haier from China. The American company reached a dismal situation wherein it needs to repay a large debt and streamline its businesses. Selling the consumer-oriented business may have seemed to the management, led at the time by previous CEO Jeff Immelt, as a means to relieve the company from a business that is out-of-line with its other mostly industry-oriented business areas. However, that division was an asset whose value could not be measured just in financial terms — it was more than a capital asset. It provided a valuable support to the brand of General Electric, together with the lighting business. The incoming CEO John Flannery is planning even more drastic changes to the company’s composition, but removing the appliances division might turn out as an obstacle to his mission. The industry brand of GE could benefit from its long appraised consumer brand.

General Electric is engaged in a range of business areas. In some of them the company has obtained or enhanced its capabilities through acquisitions during the tenures of CEOs Jack Welch (1981-2001) and Jeff Immelt (2001-2017). The businesses of GE feature: (1)  Additive –advanced manufacturing technologies (e.g., 3D printing); (2) Aviation — engines, components and electric systems for jets, and avionics (e.g., innovative digital pilot dash-boards); (3) Power, including gas, steam and nuclear power; (4) Industrial Connections, including electrification, grid and control; (5) Healthcare — medical technologies such as ultrasound, MRI  & CT, digital integrated care (i.e., data sharing and management), patient monitoring, surgical imaging and more; (6) Renewable Energy, including wind, solar and hydro, and innovative hybrid solutions; (7) Transportation — digital automation and industrial Internet-of-Things (IoT) solutions for  locomotives, marine (drilling) and mining.  The businesses of GE today are directed largely to industrial, commercial, and public clients. The last business that targets consumers at least in part is Lighting, offering advanced LED bulbs (e.g., smart IoT-controlled, HD-quality), linear fluorescents, and other products.

Noteworthy, digital transformation is omnipresent through most of the businesses of the company, entailing advanced computer-based digital systems, interfaces, and mobile applications (e.g., IoT apps developed in co-operation with leading hi-tech companies). Much of the digital activity seems to be originated, planned and developed at the Digital division or unit of the company (e.g., industrial apps serving IoT products, Predix — the online platform applying IoT data and predictive analytics, manufacturing software, as well as cybersecurity). Internet-of-Things functionality applies also to lighting products for consumers; it was supposed to be implemented as well in their domestic appliances. In practice, the appliances may still be reliant on GE for IoT technology even after the transition.

For many years the Appliances of GE were commonly associated by consumers with quality and durability — having a refrigerator carrying the art-graphic logo sign of GE in the kitchen was taken as a symbol of social status. In 2015 the appliances division generated revenues of $6.34bn, 7.1% of GE’s total revenues. The combined revenues of GE from appliances and lighting, as reported by the company, stood at $8.8bn (an increase of 4.8% from the previous year). Combined profits were $700m, a margin of 7.7% as percentage of revenues (GE 2015 report on financial results, Segment Operations: Appliances and Lighting). GE overall reported a loss in 2015 (see Chart 2). The company first tried to sell its appliances to Electrolux but the deal was objected by the American Department of Justice. A new process for selling the division started with Qingdao Haier, and after six months of negotiations a deal was closed in June 2016 at a price of $5.6bn. The range of appliances in their new ‘home’ includes refrigeration, cleaning (dishwashers), cooking, laundry (washing machines), accessories such as water filters, and air-conditioning.

The division of appliances is now identified as ‘GE Appliances: A Haier Company’. This company is in an interim period of transition, alas outwards its status creates a bit of confusion about who is really in charge. The company’s website is resident at a domain titled ‘geappliances.com’ and the company retains the brand identity of GE. The association with Haier does not seem too committing. For example, whom consumers should expect to be responsible for their appliances? Or, how to distinguish between appliances that originate from GE or from Haier? The headquarters of GE Appliances remains for the time being in US territory in Louisville, Kentucky, under American executive leadership. Recently, the new company announced the creation of appliance connectivity — operation command by voice and through mobile apps (IoT). Yet the technology is reasonably a direct extension of GE’s development of capabilities of Artificial Intelligence and IoT in their businesses for industry.

Haier has thereof received a strategic foothold on US soil, in hope to strengthen its position in the country and establish a long sought market share in the American market; American consumers have refrained from buying appliances of Haier. The Chinese manufacturer rose from a failing refrigerator factory in Qingdao of thirty years ago by instilling over time quality standards that were much higher than those accustomed in China. Zhang Ruimin, leading the transformation, succeeded remarkably in turning the company into a major national appliances manufacturer in China with global extensions. However, the quality standards at Haier remain behind those of developed countries and therefore the company’s efforts to sell in the ‘West’ have been lingering (1). Haier still has a challenge of closing a gap in quality and credibility, which the acquisition from GE is expected to help overcome.  Many consumers in the US as well as in other Western countries will probably remain concerned by ambiguity about the source of their appliances, being of GE (United States) or Haier (China). Haier also gained important American technological know-how (e.g., in AI) from the American company. General Electric apparently gained a financial relief, but one that may be only for a short-term, and the company may have to pay for it in the future.

The new CEO of GE, John Flannery, revealed in an annual ‘Investor Day’ meeting last month (Nov. ’17) the company’s plan to focus on three business areas: power, aviation, and healthcare. It will exit completely some of its existing business operations (e.g., transportation, lighting, industrial solutions, electrification) while reducing its effort and involvement in others. For example, the company will retain its digital unit or division to develop and sell apps to customers for operating and monitoring equipment reliant on Predix platform, yet with a smaller budget. Flannery was less clear on the future of some areas such as renewable energy where the company is not completely willing to leave and some other arrangement may have to be found. Strategically, the plan is to reduce the span of businesses the company engages. In addition, the CEO informed analysts that the company will have to cut in half its dividends.

The share of GE climbed from a level of $25 to $30+ in late 2015 and held its price as high through 2016 with small fluctuations. Then, the price started to slip down continually through 2017. So much for the effect of selling GE Appliances on equity. By August 2017 the share price already came back to $25. Since Flannery entered the CEO office, and subsequently following the announcement of his plan and the harsh cut in dividends, the share price steeply fell to about $18, as low as the band of $15-20 in which the share fluctuated in 2009-2011.

Chart 1 GE Share Price

Analysts were left unsatisfied and critical about the turnaround plan at GE. They complain for instance that the company is too expansive, and that it must increase efficiency and reduce duplicate costs across the organization (Reuters, 13 Nov. ’17). Others express concern in particular about the debt at GE, and that the plan includes insufficient measures to fix problems with the company’s businesses (CNBC.com, 14 Nov. 2017 — also noted, GE share underperformed S&P 500). Part of the cure will have to include exit from some businesses (e.g., where GE entered by acquiring another company or where it did not build a substantial advantage). Nevertheless, increasing efficiency and reducing duplicate costs can be achieved also by merging some associated areas and consolidating them into a new division, though perhaps narrowing the scope of operation in each field. One example for doing so may be in the area of energy: sources, production or distribution (i.e., power, renewable energy, connections). Another area to consider is ‘digital’ — balancing between development of original technologies and solutions in a central unit, and their implementation for specific systems and equipment in the various business divisions. Letting go of the appliances business could be seen as a logical way to free resources for advancing industry-related areas of expertise that remain. But solving problems of over-expansion and inefficiency in the industry-oriented businesses did not have to come at the expense of the consumer-oriented business in which the company developed product and brand advantages over decades.

The company has to come to terms now with damages from excessive expansion-by-acquisition, a strategy led by Welch and followed by Immelt. The ‘elephant in the room’ for the company is GE Capital, the investment bank of General Electric, whose troubles particularly since 2009 inflict on the whole company. Now the company under Flannery plans to heal by letting go of some more of its genuine businesses such as transportation and lighting (Matt Egan, CNNMoney.com, 20 Nov. ’17), that is, in addition to the appliances already shed by Immelt. The company has built an expertise in transportation, especially locomotives, during the past hundred years. Lighting can be regarded as a founder’s asset of the company (i.e., attributed to Thomas Edison); as described by Egan, lighting “symbolizes the company’s history of innovation”. General Electric could find it very difficult to continue after removing parts of its heart and soul.

The intensive occupation of the company with allocation of capital was initiated and developed by Welch but it spiralled out of control under the leadership of Immelt. The latter quadrupled the amount of capital invested in the company (from $42bn in 2001 to $163bn in 2009) which involved a significant increase in borrowing. By 2011 it was recognised as a major problem with the management of Immelt. Geoff Colvin of Fortune described how Immelt as CEO remade the portfolio of GE, for instance by entering new “future industries”  (e.g., healthcare, green energy). However, his aggressive expansion came at a high cost. While the CEO already tried to unburden the company from some businesses (e.g., NBC and Universal Studios), it was seen by analysts as insufficient. The real issue at GE, as Colvin noted, was capital allocation, and it became more so critical at GE Capital (2). The decision to quit the involvement of GE in TV broadcasting and online media (NBC) as well as cinema productions (Universal) sounds very reasonable. Conversely, the claim supported also by Colvin that Immelt was waiting too long to unload appliances (executed only in 2016) and lighting (never completed to-date) from GE should be much less applauded because these business areas made-up a distinct branch at GE with deep roots, and were also carriers of its consumer brand, a valued non-tangible asset.

In a highly critical opinion column in the Financial Times, John Gapper argues that focusing management on capital allocation could kill GE as an industrial company. It would make GE operate more like an equity fund. The company needs to shift because it may no longer be sustainable to run a manufacturing conglomerate as in the 1980s. However, it does not require to treat the business units as equity holdings for capital optimization: “Once efficient allocation becomes the priority, it is hard avoid this cycle.” It cannot be surprising for Flannery to continue this path, following the leadership of Welch and Immelt, considering his long career at GE Capital, up to the latest post he held as head of that division. Culture and a style of management have kept the units of GE stick together like a glue for many years. Without them, Gapper wonders how longer GE can hold together (FT.com 15 Nov. ’17).

The financial figures of GE in 2015 and 2016, as published in the Fortune 500 ranking, show little so far in favour of the impact of exiting from some business activities such as Appliances, measures taken by Immelt to heal the company in his last years in office: The revenues have fallen, but moreover the return on revenues has also decreased from a level of 8%-10% in 2011-2014 to 7% in 2016, after recovering from a loss in 2015 (Chart 2 below). It should be noted nonetheless that the value of assets has already shrunk by 50% between 2011 ($717bn) and 2016 ($365bn).

Chart 2 GE Revenues and Profits

  • General Electric descended from former 6th-9th positions in the ranking of Fortune 500 (US) to 11th place in 2015 and 13th in 2016.

The products of GE for consumers, both appliances and lighting devices, were the ‘face’ of the company to the wide public and a closer form of connection with consumers. Their contribution is in providing stability and longevity to the GE brand, identified by name, logo, and other associated elements. Above all, the brand was represented in products, equipment and devices, in millions of homes, to be useful in the everyday lives of the consumers and make their lives more comfortable. The domestic products also were a channel to implement some of the technological progress and innovation of the company and demonstrate them to a wider public audience. Consequently, exposing consumers (who also happen to be small investors) to GE could help to increase public confidence in the company, especially in turbulent times.

General Electric did not depend on the appliances and may do well without that business. The same may be true for the lighting business. But removing them will not bring the cure either– the selling of GE Appliances apparently has gone wasted so far. Instead, keeping the consumer products would have enhanced the corporate brand. The management could perhaps have gained some peace of mind while reforming their industry-related businesses. In the medium term, making reforms could be a little harder for Flannery and his top-management team to push through. In the longer term, leaving consumer products out of the company — as already happened with the appliances and is expected to repeat with lighting — may remain as a wound, something amiss, in the reputation and brand image of General Electric.

Ron Ventura, Ph.D. (Marketing)

Notes:

(1) “Zhang Ruimin’s Haier Power”, Michael Schuman, Time (Europe), 14 April 2014 (183 (14)).

(2) “Grading Jeff Immelt”, Geoff Colvin, Fortune (Europe), 28 February 2011 (163 (3)).

 

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For Shufersal, the leading food retailer operating supermarkets in Israel, it looks like the sky is the limit. This is a message strongly received from the CEO of Shufersal, Itzhak Aberkohen, in a recent interview given to Globes business newspaper (for its annual publication of consumer-based equity-ranking of brands, July 2017). Shufersal is already a major national retailer, but since the collapse and sell-off of the main competing food chain Mega last year the road ahead is clear more than ever for Shufersal to ride on to stardom. The plans presented by the retailer’s CEO are definitely leading in that direction on different fronts.

  • Note: Shufersal has also been known as ‘Supersol’ but it appears that the retailer is moving to suppress that name in favour of enhancing its Shufersal brand name. The original name chosen for the retailer almost sixty years ago was composed by joining two words: ‘Shufra’ from Aramaic meaning excellent and ‘Sal’ which means basket in Hebrew. The retailer founded the first modern American-style supermarket in Israel in Tel-Aviv in 1958. Israelis frequently name the retailer ‘Supersal’ or ‘Shufersal’. The official choice of ‘Shufersal‘ by the company should make the consumers happy while remaining as true as possible to the legacy name.

The retailing company Shufersal operates over 270 stores. They are divided into multiple sub-chains of different store formats, designed to target different consumer segments or accommodate distinct shopping situations or goals. Three main sub-chains are: “My Shufersal” (the core sub-chain of ‘classic’ supermarkets in neighbourhoods); “Shufersal Deal” (large discount stores); and “Shufersal Express” (small convenience stores in neighbourhoods). Like most food chains, the stores offer in fact not only food and drink products but a larger variety of grocery and housekeeping products, and may sell as well toiletry or personal care products. Shufersal operates in addition a channel for online or digital shopping. It also has its own brand of products carrying the retailer’s name. The CEO seeks to enhance the company’s capacities in these domains, and then extend further. An important aspect in his plan is the digital transformation of the company’s retail operations and services.

  • Note that supermarkets in various countries may selectively add in different times and locations other product ranges (e.g., books and magazines, electric home equipment, housewares).

Shufersal is now on the verge of making a strategic entry into the field of ‘pharma’ retailing with the acquisition of New-Pharm, the second-sized pharma chain in the country. The food retailer already sells toiletry products in its stores, as indicated above, but it has no access to cosmetics (e.g., perfumed lotions, make-up) and non-subscription medications (via pharmacy departments). Taking over New-Pharm would provide it with this capability through the pharma-dedicated and licensed stores. The dominant leader in pharma in Israel is Super-Pharm, which gets the respect of Mr. Aberkohen as a successful and highly professional retail competitor in that field. Shufersal should be able to get better terms for purchasing toiletry products for its supermarkets and other stores, but the addition of cosmetics and pharmaceuticals seems less fitting its current line of business. It makes sense if the retailer had department stores where one of the departments would sell cosmetics, but that is not the case of Shufersal; it would probably have to operate the pharma stores separately. Undertaking the responsibility of operating pharmacies could create even greater complications that may outweigh the benefit of margins from selling OTC medications, nutrition supplements and other devices.

The deal is still awaiting approval of the antitrust supervisor by the end of August 2017. The main obstacle comprises 6-8 flagship stores that the supervisor may not allow the food retailer to have. Aberkohen has said in the interview that the acquisition of the pharma retailer would not be worth it without those stores. There could be additional restrictions due to vicinity of “Deal” stores and “My” supermarkets to some New-Pharm stores.  Aberkohen believes that the increased variety and assortment of toiletry products the company will be able to sell together with the new categories will make an important contribution to its sales potential but will also create a more balanced competitive challenge against Super-Pharm (i.e., as two equivalent retail powers) that will benefit consumers in personal care and grooming. The suppliers are concerned, however, that the bargaining power of Shufersal will become significantly, perhaps exceedingly, stronger in toiletry, and that the retailer will link the trading terms for their presence in New-Pharm stores with presence of their products in the Shufersal stores (Globes [Hebrew], 15 August 2017).

Shufersal’s CEO seems to have little regard for its follower Mega under a new ownership. Most of the chain, neighbourhood supermarkets (“Mega City”, 127 stores), was bought from a holding company (“Alon Blue Square”) in a rather bad state by a medium-sized food retailer of discount warehouse-like stores (“Bitan”) in May 2016. Other discount stores were sold and distributed among some smaller discount retail chains. Since then a few more supermarkets of Mega were apparently sold or closed. Bitan has roughly more than doubled the total number of stores in its ownership since acquiring Mega (on a scale from 70-80 to 180-190). Aberkohen argues that Bitan seems to be taking hold of the operation of Mega City but there is still much work ahead to re-organise its whole retail business. Occasional signs in the stores imply that the new owner is still grappling in effort to manage the additional supermarket chain. There will also come a time to deal with the effort and redundancy of keeping two unconnected brands of the two sub-chains of discount stores and supermarkets (“Bitan Wines” and “Mega City”, respectively).

Mr. Aberkohen has no greater regard for the other discount food retailers (the more familiar and popular of them is “Rami Levy” with 44 stores, increasing by 10 stores in the past year). In his view, Shufersal does not consider itself as opposed to Rami Levy or the other players; it is engaged in its own plans and mission with a focus on innovation. A key to success in the long-term, in his opinion, is an emphasis on managing existing (‘same’) stores and innovation, not adding more and more floor area. He thus maintains that while the competitors, particularly Bitan/Mega, are so busy handling the additional space in new stores, Shufersal will have the time it needs, as a window of opportunity, to create innovation (e.g., Internet, robotics) and gain an advantage of 3-5 years ahead.

  • So far consumers have not gained in terms of cost of shopping from the deal of selling Mega. According to Israeli business newspaper “Calcalist” there are worrying signs to the contrary. Mega under its new ownership has not been pressuring prices downwards (attributed to financial obligations of its owner Nahum Bitan), and Shufersal that had identified this weakness, took the opportunity to raise prices in its stores while gaining in bargaining power vis-à-vis its suppliers. A rise in prices (i.e., index of barcoded products) and an increase in sales revenue in the food retail sector (including non-barcoded outlets) point to a change in trend from 2014-2015.

The CEO of Shufersal is looking forward to digital transformation of retailing and shopping experiences, involving innovation both in online self-service customer-facing platforms and in the preparation and delivery of online orders. He expects great advances in the operation of logistic centres where robots and humans will take part in collating products from shelves for online orders and packing them for dispatch and delivery to customers. Three centres are in development. Enthusiastically, he proclaims that the online apparatus will involve a lot of automation, digital (features) and robotics.

Shufersal is clearly adopting the new language of data-driven marketing, Big Data, and digital automation of interactions with its customers-shoppers. The company is said to pull together to that aim its information systems, supply chain, and data pools from its customer loyalty club and club of credit card holders. This will enable it in the future to customise offers and services much better to its customers. Aberkohen talks of providing services to suppliers based on their platform of big data but he may have to think more in terms of collaboration, especially with the stronger manufacturing suppliers (i.e., sharing data on shopping patterns in exchange for support and aid in resources for analysing the data using advanced tools and methods of data science). Aberkohen believes that in the future we will see fewer stores, and smaller ones, due to transition of shoppers to online ordering and direct delivery to their homes or offices (currently online orders account for 12% of sales at Shufersal).

Moreover, the CEO is expecting a considerable expansion in ranges of products the retailer will make available to its customers via online shopping. This will include also orders from overseas (e.g., through partners in the US). He refrains from likening Shufersal to Amazon but is surely getting inspiration from the international online master. It could relate to: (a) A wide variety of products that a retailer can offer on the Internet (besides, Amazon could be getting more deeply engaged in food retailing with the recent pending acquisition of Whole Foods); (b) Employing robotics and humans in logistic centres; and (c) Advanced and dynamic analytics to customise offers to shoppers.

  • The measure of consumer-based brand equity of Globes/Nielsen is based on three key metrics: willingness to recommend, intention to buy tomorrow, and favourability. The top brand of food chain stores is Rami Levi (discount stores). This position may be credited to the personal character and initiative of Mr. Levi and his high media profile (e.g., proclaiming to fight and act for the good of consumers). Shufersal is in the second-best position in the eyes of consumers. The original brand of Bitan is ranked 7th whereas Mega City has fallen down to the ungracious 11th place (one before last).

Shufersal’s own brand currently captures about 20% of total sales. The CEO aims to increase this share to a level of 40%-50% to be in par with similar retail chains overseas. The retailer will have to walk on a thin rope when cutting down purchases of branded products from national manufacturers without ruining relations with them. Shufersal already offers milk, cheese and meat (beef) under its private label (a precedent in Israel), yet the CEO admits they still value and need their relationship with the leading national producer of these food products (Tnuva). In the past Shuferal has also had a bitter battle with another producer of dairy and other food products (Strauss). Other categories in which the retailer markets under its name include baby diapers and milk formulae; the CEO has the full intention to add more product types to this list and expand the shelf space and volume assigned to Shufersal’s own brand. The proposition according to Aberkohen is to bring quality products at value-for-money. Shufersal has taken additional strategic steps in recent years to tighten their control over the display of products in their stores: assigning their own workers to place most products on shelves in-store instead of allowing representatives of suppliers to do so, and bringing-in most products to stores independently from their logistic centres.

The CEO of Shufersal is cognizant that many consumers do not strive to shop in large discount stores that are usually located at the outskirts of cities or in industrial areas. Often enough consumers prefer convenience to lower cost. People who work long hours, including young adults early in their career, and even students, cannot afford the time or pass over the option of shopping in those stores. It may be added that for older consumers (e.g., pensioners), discount stores may simply be out of reach, especially if one does not drive. Supermarkets in shopping malls (so-called ‘anchors’) are also considered by Aberkohen as obsolete. These consumers-shoppers prefer visiting (at least during the week) a supermarket or even a convenience store in their neighbourhood — they are too pressed in time with duties or other engagements to bother about the somewhat higher cost (Mr. Aberkohen brings his own daughter as an example). Nevertheless, if the neighbourhood stores do not work out as a practical option, they will probably order online.

To top the list of the plans of Shufersal’s CEO, he sees the retailer engaged in a variety of peripheral services consumers may like to have at easy reach such as non-banking financial services (e.g., loans), insurance, travel (including holidays abroad), and optometric (eye-glasses). Some of the services are likely to be made available only online (e.g., insurance, travel), next to additional shopping options Shufersal expects to generate. Although Aberkohen does not refer specifically to the mobile channel, it is reasonable that much of what he describes in relation to an online channel is necessarily applicable these days in a mobile channel.

Shufersal’s CEO has high aspirations for the retail company he leads. Aberkohen’s plans may change not only the consumption culture in the country, as he maintains, but also the nature and character of the company itself. Hence, Shufersal’s management will have to watch carefully what areas it is about to enter and how qualified the company is to make those extensions. They will have to consider, for example, how to integrate the business areas of New-Pharm into the portfolio of Shufersal. They should not underestimate the trouble that discount retailers can cause them. Moreover, as Shufersal makes more moves to fortify its retail business, its management must act with sense and sensibility amid tensions that such moves cause, and are likely to continue to cause, with suppliers as well as consumers. The expansion and addition of products and services for the benefit of consumers is a positive venture, but Shfuersal still has to convince them as such, every day.

Ron Ventura, Ph.D. (Marketing)

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One of the more difficult and troublesome decisions in brand management arises when entering a product category that is new to the company: Whether to up-start a new brand for the product or to endow it with the identity of an existing brand — that is, extending a company’s established brand from an original product category to a product category of a different type. The first question that would probably pop-up is “how different is the new product?”, acting as a prime criterion to judge whether the parent-brand fits the new product.

Notwithstanding, the choice is not completely ‘black or white’ since intermediate solutions are possible through the intricate hierarchy of brand (naming) architecture. But focusing on the two more distinct strategic branding options above helps to see more clearly the different risk and cost implications of launching a new product brand versus using the name of an existing brand from an original product category. Notably, the manufacturers, retailers and consumers, all perceive risks, albeit from the different perspective of each party given its role.

  • Note: Brand extensions represent the transfer of a brand from one type of product to a different type, to be distinguished from line extensions that pertain to the introduction of variants within the same product category (e.g., flavours, colours).

This is a puzzling marketing and branding problem also from an academic perspective. Multiple studies have attempted in different ways to identify the factors that best explain or account for successful brand extensions. While the stream of research on this topic helpfully points out to major factors, some more commonly agreed upon, a gap remains between the sorts of extensions predicted to succeed according to the studies and the extensions performed by companies that happen to succeed or fail in the markets in reality. A plausible reason for missing the outcomes of actual extensions, as argued by the researchers Milberg, Sinn, and Goodstein (2010), is neglecting the competitive settings in categories that are the target of brand extension (1).

Perhaps one of the most famous examples of a presumptuous brand extension has been the case of Virgin (UK), from music to cola (drink), airline, train transport, and mobile communication (ironically, the origin of the brand as Virgin Music has since been abolished). The success of Virgin’s distant extensions is commonly attributed to the personal character of Richard Branson, the entrepreneur behind the brand: his boldness, initiative, willingness to take risks, and adventurism. These traits seem to have transferred to his business activities and helped to make the extensions more credible and acceptable to consumers.

Another good example relates to Philips (originated in The Netherlands). Starting from lighting (bulbs, now more in LED), the brand extended over the years to personal care (e.g., face shavers for men, hair removal for women), sound and vision (e.g., televisions, DVD and Blue-Ray players, originally in radio sets), PC products, tablets and phones, and more. Still, when looking overall at the different products, systems and devices sharing the Philips brand, they can mostly be linked as members in a broad category of ‘electrics and electronics’, a primary competence of the company. As the company grew with time, launched more types of products whilst advancing with technology, and its Philips brand was perceived as having greater experience and good record in brand extensions, this could facilitate the market acceptance of further extensions to additional products.

  • In the early days of the 1930s to 1950s radio and TV sets relied for operation on vacuum tubes, later moving to electronic circuits with transistors or digital components. Hence, historically there was an apparent physical-technological connection between those products and the brand’s origin in light bulbs, a connection much harder to find now between category extensions, except for the broad category linkage suggested above.

Academic research has examined a range of ‘success factors’ of brand extensions, such as: perceived quality of the parent-brand; fit between the parent-brand and the extension category; degree of difficulty in making an extension (challenge undertaken); parent-brand conviction; parent-brand experience; marketing support; retailer acceptance; perceived risk (for consumers) in adopting the brand extension; consumer innovativeness; consumer knowledge of the parent-brand and category extension; the stage of entry into another category (i.e., as an early or a late entrant). The degree of fit of the parent-brand (and original product) with the extension category is revealed as the most prominent factor contributing to better acceptance and evaluation (e.g., favourability) of the extension in consumer studies.

Aaker and Keller specified in a pioneer article (1990) two requirements for fit: (a) the extension product category is a direct complement or a substitute of the original category; (b) the company, with its people and facilities, is perceived as having the knowledge and capability of manufacturing the product in the extension category. These requirements reflect a similarity between the original and extension product categories that is necessary for successful transfer of a favourable attitude towards the brand to the extension product type (2). A successful transfer of attitude may occur, however, also if the parent-brand has values, purpose or image that seem relevant to the extension product category, even when the technological linkage is less tight or apparent (as the case of Virgin suggests).

  • Aaker and Keller found that fit, based especially on competence, stands out as a contributing factor to higher consumer evaluation (level of difficulty is a secondary factor while perceived quality plays more of a ‘mediating’ role).

Volckner and Sattler (2006) worked to sort out the contributions of ten factors, as retrieved from academic literature, to the success of brand extensions; relations were refined with the aid of expert advice from brand managers and researchers (3). Contribution was assessed in their model in terms of (statistical) significance and relative importance. The researchers found  fit to be the most important factor driving (perceived) brand extension success in their study, followed by marketing support, parent-brand conviction, retail acceptance, and parent-brand experience. The complete model tested for more complex structural relationships represented through mediating and moderating (interacting) factors (e.g., the effect of marketing support on extension success ‘passes’ through fit and retailer acceptance).

For brand extensions to be accepted by consumers and garner a positive attitude, consumers should recognise a connectedness or linkage between the parent-brand and the category extension. The fit between them can be based on attributes of the original and extension types of product or a symbolic association. Keller and Lehmann (2006) conclude in this respect that “consumers need to see the proposed extension as making sense” (emphasis added). They identify product development, applied via brand (and line) extensions, as a primary driver of brand growth, and thereby adding to parent-brand equity. Parent-brands do not tend to be damaged by unsuccessful brand extensions, yet the authors point to circumstances where greater fit may result in a negative effect on the parent-brand, and inversely where joining a new brand name with the parent-brand (as its endorser) may protect the parent-brand from adverse outcomes of extension failure (4).

When assessing the chances of success of a brand extension, it is nevertheless important to consider what brands are already present in the extension category that a company is about to enter. Milberg, Sinn, and Goodstein claim that this factor has not received enough attention in research on brand extensions. In particular, one has to take into account the strength of the parent-brand relative to competing brands incumbent in the target category. As a starting point for entering the extension category, they chose to focus on how well consumers are familiar with the competitor brands vis-à-vis the extending brand.  Milberg and her colleagues proposed that a brand extension can succeed despite a worse fit with the category extension due to an advantage in brand familiarity, and vice versa. Consumer response to brand extensions was tested on two aspects: evaluation (attitude) and perceived risk (5).

First, it should be noted, the researchers confirm the positive effect of better fit on consumer evaluation of the brand extension when no competitors are considered. The better fitting extension is also perceived as significantly less risky than a worse fitting extension. However, Milberg et al. obtain supportive evidence that in a competitive setting, facing less familiar brands can improve the fortune of a worse fitting extension, compared with being introduced in a noncompetitive setting: When the incumbent brands are less familiar relative to the parent-brand, the evaluation of the brand extension is significantly higher (more favourable) and purchasing its product is perceived less risky than if no competition is referred to.

  • A reverse outcome is found in the case of better fit where the competitor brands are more highly familiar: A disadvantage in brand familiarity can dampen the brand extension evaluation and increase the sense of risk in purchasing from the extended brand, compared with a noncompetitive setting.

Two studies performed show how considering differences in brand familiarity can change the picture about the effect of brand extension fit from that often found without accounting for competing brands in the extension category.

When comparing different competitive settings, the research findings provide a more constrained support, but in the direction expected by Milberg and colleagues. The conditions tested entailed a trade-off between (a) a worse fitting brand extension competing with less familiar brands; and (b) a better fitting brand extension competing with more familiar brands. In regard to competitive settings:

The first study showed that the evaluation of a worse fitting extension competing with relatively unfamiliar brands is significantly more favourable than a better fitting extension facing more familiar brands. Furthermore, the product of a worse fitting brand extension is preferred more frequently over its competition than the better fitting extension product is (chosen by 72% vs. 6%, respectively). Also, purchasing a product from the worse fitting brand extension is perceived significantly less risky compared with the better fitting brand. These results indicate that the relative familiarity of the incumbent brands that an extension faces would be more detrimental to its odds of success than how well its fit is.

The second study aimed to generalise the findings to different parent-brands and product extensions. It challenged the brand extensions with somewhat more difficult conditions: it included categories that are all relevant to respondents (students), and so competitor brands in extension categories are also relatively more familiar to them than in the first study. The researchers acknowledge that the findings are less robust with respect to comparisons of the contrasting competitive settings. Evaluation and perceived risk related to the worse fitting brand competing with less familiar brands are equivalent to the better fitting brand extension facing more familiar brands. The gap in choice shares is reduced though in this case it is still statistically significant (45% vs. 15%, respectively). Facing less familiar brands may not improve the response of consumers to the worse fitting brand extension (i.e., not overcoming the effect of fit) but at least it is in a position as good as of the better fitting brand extension competing in a more demanding setting.

  • Perceived risk intervenes in a more complicated relationship as a mediator of the effect of fit on brand extension evaluation, and also in mediating the effect of relative familiarity in competitive settings. Mediation implies, for example, that a worse fitting extension evokes greater risk which is responsible for lowering the brand extension evaluation; consumers may seek more familiar brands to alleviate that risk.

A parent-brand can assume an advantage in an extension category even though it encounters brands that are familiar within that category, and may even be considered experts in the field: if the extending brand is leading within its original category and is better known beyond it, this can give it a leverage on the incumbents if those brands are more ‘local’ or specific to the extension category. For example, it would be easier for Nikon leading brand of cameras to extend to binoculars (better fit) where it meets brands like Bushnell and Tasco than extending to scanners (also better fit) where it has to face brands like HP and Epson. In the case of worse fitting extensions, it could be significant for Nikon whether it extends to CD players and competes with Sony and Pioneer or extends to laser pointers and faces Acme and Apollo — in the latter case it may enjoy the kind of leverage that can overcome a worse fit. (Product and brand examples are borrowed from Study 1). Further research may enquire if this would work better for novice consumers than experts. Milberg, Sinn and Goodstein recommend to consider additional characteristics that brands may differ on (e.g., attitude, image, country of origin), suggesting more potential bases of strength.

Entering a new product category for a company is often a difficult challenge, and choosing the more appropriate branding strategy for launching the product can be furthermore delicate and consequential. If the management chooses to make a brand extension, it should consider aspects of relative strength of its parent-brand, such as familiarity, against the incumbent brands of the category it plans to enter in addition to a variety of other characteristics of product types and its brand identity. However, the managers can take advantage as well of intermediate solutions in brand architecture to combine a new brand name with an endorsement of an established brand (e.g., higher-level brand for a product range). Choosing the better branding strategy may be helped by better understanding of the differences and relations (e.g., hierarchy) between product categories as perceived by consumers.

Ron Ventura, Ph.D. (Marketing)

Notes:

1. Consumer Reactions to Brand Extensions in a Competitive Context: Does Fit Still Matter?; Sandra J. Milberg, Francisca Sinn, & Ronald C. Goodstein, 2010; Journal of Consumer Research, 37 (October), pp. 543-553.

2.  Consumer Evaluations of Brand Extensions; David A. Aaker and Kevin L. Keller, 1990; Journal of Marketing, 54 (January), pp. 27-41.

3.  Drivers of Brand Extension Success; Franziska Volckner and Henrik Sattler, 2006; Journal of Marketing, 70 (April), pp. 18-34.

4. Brands and Branding: Research Finding and Future Priorities; Kevin L. Keller and Donald R. Lehmann, 2006; Marketing Science, 25 (6), pp. 740-759.

5. Ibid. 1.

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Every once in a while air passengers are bound to suffer from disruptions to their travel plans because of strikes in airlines due to work disputes, primarily with their pilots. Disruptions mean they may get as bad as complete cancellation of planned and paid-for flights whereof passengers are left stranded in their home airport or in some foreign country (strikes mostly affect international flights). The painful outcome of those disputes and strikes is that everybody ends up bruised to some extent — the airlines and their management, employees, and obviously the passengers-customers — whether in the short-term or long-term, monetarily and non-monetarily.

The highest-profile strike of recent times relates most apparently to the German major airline Lufthansa. It is actually a dispute lingering since 2014, causing repeated waves of strikes by its pilots. But this blog article will focus more closely on another dispute and chain of strikes at the Israeli airline El Al because it has brought the airline too close to the brink of business collapse.  Incidentally, as in Lufthansa, this dispute is also going on-and-off since 2014.

Of course there have been strikes in other airlines (e.g., Air France, Korean Air, China Airlines [Taiwan]) but the disruptions at Lufthansa seem to surpass them all in scale. Most strikes, as in the cases listed above, are triggered by the pilots, and that is crucial because the whole operation of an airline depends on them, giving them a lot of power over the management and owners of the respective company. Moreover, the lives of so many people (passengers) are in the hands of the pilots, relying on their professional skills and resourcefulness. The hot public debate surrounding those strikes is usually whether the pilots are abusing that power or are they making justified claims towards their employers.

There are, nevertheless, other types of strikes, as in the case, for example, of British Airways where the latest dispute was called by cabin crew members, specifically those hired after 2010 in apparently worse terms than for their more veteran colleagues. The ensuing strike was particularly disturbing because it was declared on last Christmas and the following days running to New Year (a continued strike occurred in January 2017). But the strikes by pilots tend to differ from strikes by other airline employees in impact on the regular flight schedule and implications of the demands made.

  • Unfortunately for some passengers in Britain, that holidays strike at British Airways coincided with other sanctions by airport workers of a Swiss contractor. The article will refer later on to other sources of disruption to air travel versus strikes originated within the airlines.

The primary demand of the pilots of Lufthansa is for a pay rise at an annual average rate of 3.7% to be paid retroactively to 5,400 pilots over a period of five years since 2012. The pilots’ union claimed that their compensation has eroded with inflation due to a wage freeze, causing them “a significant loss of purchasing power”. Lufthansa offered a rise of 4.4% from now on to be paid in two installments and another one-off payment. Drastic disruptions to the airline’s flight schedule occurred most recently in November 2016 as no agreement was reached by that time.

On a single day starting the latest ‘wave’ on 23rd November Lufthansa had to cancel according to media reports around 900 flights, affecting about 100,000 passengers. That leg of the strike extended for four days, causing overall cancellation of nearly 2,800 flights, affecting 350,000 passengers. The strike resumed on 28th November for two more days, forcing the cancellation of 1,700 flights with around 180,000 passengers in total affected. It was planned to start with short-haul flights and then expand to include also long-haul ones. (Note: Only flights under the banner of Lufthansa were implicated, excluding  Brussels Airlines, Austrian Airlines and Swiss Airlines also owned by the  group). [Sources: The Guardian 23rd Nov.; Reuters 28th Nov. 2016.]

It is hard to put an exact figure on the financial damages from those strikes. Reports suggest that the airline’s cost accrued from each striking day runs in millions of euros; total cost to Lufthansa since 2014 is estimated at €500m. It is hoped the dispute is now coming to a close following arbitration; the airline agreed to a four-stage wage increase of 8.7% plus a one-off payment, awaiting final approval and confirmation.

The pilots in El Al have demands for pay rise and improvement of working conditions. The dispute over working conditions may tell even better how deep and bitter is the conflict between the pilots and the company’s management and owners. Two issues are most striking. First, the pilots complain of an unreasonable workload because the airline is adding too many flights to its schedule, including to new destinations, and which they cannot sustain — the pilots argue they risk arriving to flights too tired and unfit to perform them. The second issue concerns the terms of employment of pilots ages 65-67: Retirement age in Israel for men is currently 67 but recent global regulation (2014) determines that pilots of age 65 and above cannot fly passenger aircrafts. The last strike over the dispute as a whole took place in mid-November 2016. An initial agreement was almost signed when the second issue triggered an additional strike in the past month. To resolve the age gap El Al suggested the senior pilots will work as instructors and examiners and in other managerial jobs but their income will be reduced considerably. The pilots did not agree to this condition. Last week a draft agreement was signed that will hopefully put an end to the dispute and the annoying disruptions of flights — but no one yet is ready to assure passengers of no more surprises.

El Al’s passengers had to suffer from flight delays and cancellations during several strikes. Although there were not too many cancellations that El Al had to announce (certainly not anywhere near as many as for Lufthansa), the ‘surprise’ nature of disruption of normal schedule was hard to tolerate and resolve — pilots would simply inform El Al at the last minute that they are sick and cannot attend their flights. El Al would then struggle to find replacing pilots from within and outside the company, leading in the ‘fortunate’ cases to delays of up to 12 hours in flight departures and in worse cases to flight cancellations. This mode of action by the pilots threatens to destroy customer confidence in the service provider as disruption comes completely with no warning and no preparation — the passenger arrives to the gate for his or her flight, yet the pilot does not. El Al tried to hire other airlines to execute the flights in jeopardy, a reasonable reaction that angered pilots even more (they argued it was more of a routine by management to deliver flights added to the already-busy schedule). All this wrangling was fought on the back of passengers.

The pilots and the airline’s leadership were so embroiled in their dispute, publicly attacking each other with all sorts of allegations, that they may have not been able to see anymore how this conflict appears especially to customers, nor how it affects them. Of course each side apologised and claimed they cared dearly about the customers, but it became increasingly difficult to believe them. Some of the details that were revealed were rather bizarre and difficult to accept. For instance, the allegation that pilots are extending long-haul flights by up to an hour to exceed 12 hours (e.g., to North America) to gain a bonus. Or, the pilots’ requirement that they would return from long-haul flights in Business Class and be paid as if they carried out the return flight to Israel. These claims made it harder to support the pilots’ struggle.

The pilots were not doing too well in gaining the support of the consumer public. They have let their grudge with the employer to be targeted at passengers. For example, during a flight in last November from a European city to Tel-Aviv they refrained from talking to the passengers and giving them customary updates about flight progress, weather conditions and other information. The captain indeed gave a welcome message at the beginning of the flight but not at half-time or towards the end of the journey as in the normal conduct of rapport on El Al’s flights. Before landing there was only a standard recorded message. It has to be understood that the Israeli public holds the pilots at high esteem and credits them with making El Al one of the safest airlines globally. Hearing the voice of the captain or first officer giving their messages to passengers is an important part of the relationship — it goes beyond the information conveyed in carrying a voice of authority, reassuring and friendly. At the end of the flight, while passengers disembarked, the pilots also remained seated in their cockpit cabin, another irregular conduct. It is a sad mistake, just like a statement made on TV by the union’s representative in the last strike that El Al’s pilots “could not find the motivation” to attend their flights, an agitating statement and a poor display of disrespect.

However, the owners and senior management of El Al should not feel comfortable and content either about their performance.  It seems they were not listening close enough to warnings from pilots for months about the course of the company. El Al’s leadership has chosen an aggressive strategy of expansion at all cost in an effort to hold on in an open competition on airway routes. This expansion included addition of destinations, increasing the frequency of flights, and the launch of a low-cost subsidiary (“Up”). El Al is trying to do something it simply cannot — it cannot become Lufthansa and it cannot beat airlines like Ryanair or EasyJet. The airline’s leadership must re-consider  the range and number of its destinations with respect to its resources.

The alternative cost of the expansion is negligence of the quality of service on board its flights — over recent years the airline omitted benefits to passengers in Economy/Tourist Class such as drinks served (including personal servings of wine or beer), free Israeli newspapers on flights home, and failing to upgrade their entertainment systems on airplanes in medium-range flights (3+ hours). Creating tourist sub-classes nowadays from standard to premium may start to correct the existing deficiencies. El Al must re-instate a realistic focus on quality of service and regain a competitive advantage on assets it can support — service onboard in addition to security and safety.

Flight disruptions may result from events other than a strike at the airline: take for example terrorist attacks or threats, strikes of airport workers, and phenomena of nature such as heavy snow or the event of volcanic ash clouds created by the eruption in Iceland in 2010. Yet, on these occasions an airline can justifiably claim to be upset by a “superior force” not in its control. It does not have that kind of protection when the disruption originates within its organization. Travel customers purchase their flight tickets from the airline and hence they least expect the airline to be the source of disruption. Besides the legal terms, there is a contract of the airline’s brand with its customers to be consistent and reliable in serving them and providing them value for their money. That is also the essence of keeping a brand’s promise.

Passengers endure different types of cost due to a flight disruption, foremost in the case of outright cancellation: financial losses (e.g., flight fare itself if cancelled, continued flights missed, ground services in the destination country such as lodging and transportation, and business-related damages when applicable), inconvenience of making new travel arrangements or cancellations, and the anguish of going through the ordeal. In some cases being stranded in a foreign country may cause greater costs than if being still in the home country. Beyond the bad experience of dealing with the disruption itself, one should not underestimate additional less direct costs: (a) putting off the excitement of anticipation before leaving on a vacation or for a special event, causing deep disappointment and frustration; (b) spoiling the enjoyment of a trip at its end on return home, causing anger and sadness (happy or unhappy memories of an experience are affected by its peak-moment, up or down, and its ending).

The disruptions in El Al because of the pilots’ strikes may have not been as severe as in other large airlines, particularly in Lufthansa, but the dispute threatened to have  much more severe consequences for the airline:

  • First, because something basic in the trust and confidence of Israeli consumers in El Al, which is essential for its survival, was in critical danger of being broken.
  • Second, El Al does not have the financial backing of a company like Lufthansa and probably other “big players” and cannot tolerate the same level of losses and damages to its brand stature.
  • Third, El Al allowed the dispute to build-up with increasing animosity and disruptions until it was very close to a tipping-point of collapse — pilots in charge of divisions of its aircraft fleet have officially resigned and the final trigger would have been resignation of El Al’s chief pilot. Was it necessary to threaten to fire the last fatal bullet?

The Israeli public still perceives El Al as its national airline although it is now in private ownership.  All stakeholders within the organization should bear that responsibility and share the interest to act carefully and cleverly to maintain that position. It is highly important for preserving the loyalty of their core target segment of Israeli consumers, but no less vital, remaining a preferred airline for Jews around the world. This strength, and further measures of improved business focus, can also increase its attractiveness to any tourists visiting Israel for flying El Al.

Ron Ventura, Ph.D. (Marketing)

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It is usually not a pleasant feeling to be alone in a scary place or event — think of being stuck in a dark elevator or being involved in a car accident. People commonly seek to be with someone for comfort and company. But the companion does not always have to be another person. A research by Dunn and Hoegg (2014) provides corroboration that the need to share fear matters to humans while the identity of the companion, whether a person or an object, is less critical.  More specifically, sharing fear with a product from an unfamiliar brand may facilitate a quick emotional attachment with that brand without requiring to build a relationship over a lengthy period of time (1).

Fear is evoked by the presence or anticipation of a danger or threat. Feeling fear may be triggered by an unfamiliar event to which one is unsure how to respond (uncertainty) or an unexpected event at a specific moment (surprise); experiencing fear is furthermore likely when the event encountered is both unfamiliar and unexpected. It is important to note, nonetheless, that not every encounter with an unfamiliar or unexpected event necessarily leads to  fear. The Amygdala in the temporal lobe of the brain is the “centre” where fear arises. However, the amygdala like other brain structures is responsible for multiple functions. The amygdala is activated in response to unfamiliarity, unpredictability or ambiguity, but not every instance necessarily means the evocation of fear. For example, tension from facing an unfamiliar problem that one is at loss how to solve may not result in fear. Additionally, fear as well as other states of emotion are the outcome of appraisal of physical feelings (e.g., faster heartbeats, startle, warmth), considering the conditions in which they were triggered; it is a cognitive interpretation of their meaning (“why do I feel that way?”). Activation of other brain structures together with the amygdala may influence whether similar feelings triggered by an unexpected event are interpreted, for instance, as fear, anger, or surprise. The context in which an event occurs can matter a lot for the appraisal of emotions (2).

Dunn and Hoegg emphasise the emotional charge of consumer attachment with a brand versus cognitive underpinnings. Brand attachment has often been conceptualised as the product of a relationship between consumers and the target brand built over time. It should take a longer time to achieve a more solid brand attachment because of cognitive processes for establishing brand connections in memory and stronger favourable brand attitudes. However, this explanation is subject to criticism of missing the important role of emotions in bonding between consumers and a brand which does not necessarily require a long time. By focusing their studies on unfamiliar brands, Dunn and Hoegg intended to show that emotional attachment can emerge much more quickly when the consumers are distressed and are looking for a partner to share their fear with, and that partner or companion can be a brand of a given product.

On the same grounds, the researchers chose a scale of emotional attachment (Thomson, MacInnis and Park, 2005 [3]) as more appropriate over a scale that combines emotional and cognitive aspects of attachment and gives greater weight to cognitive constructs (Park, MacInnis et al., 2010 [4]). The emotional scale comprises three dimensions: (a) Affection (affectionate, friendly, loved, peaceful); (b) Passion (passionate, delighted, captivated); (c) Connection (connected, bonded, attached). Nevertheless, in the later research Park and MacInnis with colleagues offer a broader perspective that accounts for two bases of brand attachment: (i) a connection between self-concept and a brand; and (ii) brand prominence in memory.

While ‘brand prominence’ can be regarded as more cognitive-oriented (accessibility of thoughts and feelings in memory), a ‘brand-self connection’ entails the expansion of one’s concept of self to incorporate others, such as brands, within it — and that involves an emotional element. Park and MacInnis et al. emphasise the brand-self connection as the emotional core of their definition of brand attachment, while brand prominence is a facilitator in actualizing the attachment (analyses substantiate that brand attachment is a better predictor than attitudes of intentions to perform more difficult types of behavior reflecting commitment, and the brand-self connection is more essential for driving this behaviour). The three-dimension scale of emotional brand attachment seems very relevant for the research goals of Dunn and Hoegg, even though it is more restricted from a stand-point of the theoretical roots of brand attachment.

The desire to affiliate with others in scaring and upsetting situations is recognised as a mechanism for coping with negative emotions in those situations. Episodes of armed conflict, terrorist attacks, and natural disasters make people get closer to each other, unite and show solidarity. However, the researchers note that the act of affiliation is essential for coping rather than the affiliation target. That is, the literature on affiliation or attachment relates to interpersonal connections as well as attachment to objects (although objects are viewed as substitutes in absence of other persons [pet animals should also be considered]). We can find support for possible attachment to products and their brands in the human tendency to animate or anthropomorphise objects by assigning them traits of living beings, whether animals or humans. Brands may be animated in order to help consumers relate with them more comfortably, making them appear more vivid to them. It is one of the processes that facilitates the development of consumers’ relationships with their brands in use; consumers connect with brands also through the role brands fulfilled in their personal history, heritage and family traditions, and how brands integrate in their preferred lifestyles (5).

Dunn and Hoegg investigate how consumers connect with a brand on occasions of incidental fear. They make a clear distinction between events that may trigger fear (or other emotions) and fear appeals strategically planned in advertising (e.g., in order to induce a particular desired behaviour). Events that incidentally cause fear would be independent and uncontrolled. Additionally, the intensity and range of emotions felt is expected to differ when consumers actively participate in an event and hence experience it directly in contrast to watching TV ads — in direct consumer experiences, emotional feelings are likely to be more intensive and specific.  In a model for measuring consumption emotions developed and tested by Richins, fear is characterised as a negative and more active (as opposed to receptive) emotion, next to other emotions such as anger, worry, discontent, sadness and shame (6).

  • In their experiments, the researchers try to emulate incidental fear by displaying to participants clips from cinema films or TV series’ episodes, and present evidence that manipulations successfully elicited the intended emotions as dominant in response to each video clip. Yet, it remains somewhat ambiguous how real and direct the experience of watching scenes in a film or a TV programme is perceived and felt with regard to the emotions evoked.

The following are more concrete findings from the studies and their insights:

Emotional brand attachment is generated through perception that the brand shares the fear with the consumer — Study 1 confirms that emotional attachment with an unfamiliar brand is generated when a product (juice) by that brand is present and can be consumed during the fear-inducing experience (more than for emotions of sadness, excitement and happiness). But moreover, it is shown that the emotional attachment is mediated (conditioned) by perception of the consumer that the brand shared the fear with him or her.

Humans precede product brands —  Sharing fear with a brand contributes to stronger emotional brand attachment, but only if they still have a desire generated by fear to affiliate with others. If conversely that desire is satiated by a perception of the consumers that they are already socially affiliated with other people, the effect on brand attachment is muted.

  • Note: Participants in Study 2 were asked to perform a search with words related to feelings of affiliation and social connectedness (e.g., included, accepted, involved) to prime affiliation. Given the statements used to measure (non-)affiliation (e.g., “I feel disconnected from the world around me”), it is a little questionable how effective such a priming condition could be (though the authors show it was sufficient). It might have been more tangible to ask participants to think of people dear to them, family and close friends, and write about them.

Balancing negative and positive emotional effects on attitudes — Based on analyses in Study 2 the researchers also suggest that increased positive effect of emotional brand attachment may counterbalance and override a negative influence of ‘affect transfer’ on attitudes due to fear.

Presence of the brand and attention to it are required yet sufficient — Study 3 demonstrates that neither consumption of the product (juice) nor even touching it (the bottle), both forms of physical interaction, are really needed for feeling affiliated and forming emotional attachment — forced consumption in particular does not contribute to stronger perceived sharing or emotional attachment than merely seeing the product when feeling fear, that is making an eye contact and visually attending to the product in search for a companion. (Unexpectedly, in the case of action and excitement, consuming the drink increases emotional attachment.) Study 4 stresses, nevertheless, that the brand must be present during the emotional event for generating increased emotional attachment — having the brand nearby while experiencing the fear is essential for consumers to feel connected with the brand as their sharing partner (tested with a different product, potato chips).

The research paper suffers from a deficit in practice. That is, marketing managers and professionals might be disappointed to discover that it could be most difficult to have any control of those situations of incidental fear and to act on them to their advantage. In order to have any influence on the consumer a company would be required to anticipate an individual event in advance and to find a way to intervene (i.e., make their product present) without being perceived too intrusive or self-interested — two non-negligible challenges. An additional restriction is posed by the relation of the ‘fear effect’ to brands not previously familiar to the consumers.

Let us consider some potential scenarios where brands might benefit and the difficulties that are likely to arise in implementing it:

Undertaking medical treatments or tests — Some treatments can be alarming and frightening on occasion to different patients. A sense of fear is likely to enter already, and perhaps especially, while waiting. It is a opportunity for introducing the brand-companion in the waiting hall; even more so given that patients are usually not allowed to or prevented from using artifacts during the treatment (mostly no food and drinks). First, a company may have a difficulty to obtain access to places where patients wait for treatment. Second, consumers-patients are likely to bring products with them from home to entertain them (of brands they know). Third, patients often arrive with a family or friend companion, thus satisfying their need for affiliation with another person which dominates affiliation with an object. Still, there is room for ingenuity how to locate the brand close enough to the treatment episode (e.g., shops offering books or toys, especially for children, in the premises of a clinic or hospital).

Trekking or hiking in nature — Some routes, particularly in mountainous areas, can be quite adventurous, not to say dangerous. If a brand could find a way to introduce its product just before the consumer starts the hiking trip, it may benefit from being with him or her if fear arises. One problem is that hikers are advised and even required not to embark alone on more dangerous routes. Another problem is that those trekking or hiking sites often offer local brands, that while not being familiar to the consumers they also are not likely to be available to them at home, and thus the opportunity to develop a relationship based on the early emotional attachment is lost.

Offering legal, financial, insurance, and technical services in events of crisis — In various occasions of accidents, malfunctions, and disasters, people need help to cope with the crisis and the negative emotions it may evoke, particularly fear. A service provider would be expected to counsel the customer in his or her distress, and of course propose a solution (e.g. how to fix one’s home after a fire or an earthquake). Unfortunately,  one cannot make an eye contact with an intangible service. The company has to find creative and practical ways to make itself readily visible and accessible to the consumer when needed by offering instruments and cues for making contact (e.g., an alarm and communication device for the elderly and people with more risky medical conditions).

  • Dunn and Hoegg are aware of the limitation of the findings to unfamiliar brands. They reasonably propose that “because fear leads to a general motivation to affiliate, emotional brand attachment would be enhanced regardless of the familiarity with the brand” (p. 165). It should take further research, however, to substantiate this proposition.

Despite the possible difficulties companies will likely need to deal with, the doors are not completely shut to them to benefit from this phenomenon. But they must come up with creative and non-intursive solutions to make their brands and products present in the right place at the right time. At the very least, marketers should be aware of the potential effect of sharing fear with the consumer and understand how it can work in the brand’s benefit. It is worth remembering, after all, the saying “a friend in need is a friend indeed” whereby in some incidents the friend can be a brand.

Ron Ventura, Ph.D. (Marketing)

Notes:

(1) “The Effect of Fear on Emotional Brand Attachment”; Lea Dunn and JoAndrea Hoegg, 2014; Journal of Consumer Research, 41 (June), pp. 152-168.

(2) “What Is Emotion?: History, Measures and Meanings”; Jerome Kagan, 2007; New Haven and London: Yale University Press. Also see: “The Experience of Emotion”; Lisa Feldman Barrett, Bejta Mesquita, Kevin N. Ochsner, & James J. Gross, 2007; Annual Review of Psychology, 58, pp. 373-403.

(3) “The Ties That Bind: Measuring the Strength of Consumers’ Emotional Attachments to Brands”; Mathew Thomson, Deborah J. MacInnis, & C. Whan Park, 2005; Journal of Consumer Psychology, 15 (1), pp. 77-91.

(4) “Brand Attachment and Brand Attitude Strength: Conceptual and Empirical Differentiation of Two Critical Brand Equity Drivers”; C. Whan Park, Deborah J. MacInnis, Joseph Priester, Andreas B. Eisengerich, & Dawn Iacobucci, 2010; Journal of Marketing, 74 (November), 1-17.

(5) “Consumers and Their Brands: Developing Relationship Theory in Consumer Research”; Susan Fournier, 1998; Journal of Consumer Research, 24 (March), pp. 343-373.

(6) “Measuring Emotions in the Consumption Experience”; Marsha L. Richins, 1997; Journal of Consumer Research, 24 (September), pp. 127-146.

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