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Posts Tagged ‘Perceptions’

Dear Readers, In coming days the blog-site Consumer Gateway well be re-dressed. The format applied in the past decade (which I still like) has become outdated, and it also no longer supports new editing and design features. During the transition period disruptions may be caused to the look of some posts and pages; your patience and forgiveness will be much appreciated until I sort these out. I hope you find the new appearance pleasant to view and to read through. 


Brands can be imagined as signposts that help consumers navigate through their purchase decision processes. On many occasions brands simplify and shorten the decision process; a strong brand may show the consumer the route to an easier and safer choice decision. Over the years, symbolic (e.g., self-expression, self-image), social (e.g., status, relationship) and emotional meanings of brands gained more attention and emphasis in research and practice. However, we should not let those latter influences of brands overshadow or mitigate our recognition of the essential and useful role reserved for brands in organising and directing consumer decision-making.

An insightful approach to the function of brands in decision-making draws from the theory of information economics. Consumers are commonly met with imperfect and asymmetric information about products they intend to buy, and under these terms they have to make decisions. ‘Imperfect’ implies that the information is usually partial, and may also be inaccurate; ‘asymmetric’ information in particular means that the producers or suppliers know more about the products they sell (e.g., physical attributes, costs) than the consumers who buy from them.  The brand of a product can function in such settings as a signal of the credibility of the product’s origin. The signal could thus serve as a decision aid that helps consumers make a better or more gratifying choice. Theory and research of the past twenty years suggest that the brand as a signal may have impact not only on the outcome of the choice decision (e.g., its quality) but furthermore on the whole course of the decision process (e.g., consideration, evaluation, choice).

The perspective of information economics is relatively less familiar than other theoretical viewpoints. Reference is made here primarily to cognitive-driven theories of attitudes and information processing that receive greater coverage than information economics in the context of brands. Yet, the information economics viewpoint of the brand as a signal, led by Erdem, Swait and Louviere, can be employed beneficially side-by-side with Aaker’s model of brand assets or Keller’s concept of (differential) brand knowledge. These views offer complementing aspects with respect to the role and effects of brands in decision processes. The efficacy of the brand as a signal for credibility applies especially to strong brands. Moreover, each approach describes how consumer-based brand equity is built-up or materialised through decision processes, and also proposes how to model and measure it.

A more formal definition of the brand as a signal specifies the ability of a brand to act as a credible signal (e.g., trustworthy, believable) reflecting on positioning overall of the branded products. It implies that consumers’ perceptions of the branded product on multiple aspects, primarily perceived quality, would be stronger, more believable, or more reliable. Subsequently, we need to understand what can make the brand a more credible signal. Main drivers that contribute to brand credibility include consistency of the brand owner in delivering on its claims or promises (e.g., in advertising), which would make those claims more trustworthy; consistency in the performance of actions on marketing mix elements (e.g., pricing, product capabilities); clarity of messages (e.g., to support its positioning); and the scale of investment in the brand (e.g., offline and online advertising, website and mobile app, sponsorships).

Greater brand investment directly enhances brand credibility. But consistency in execution of marketing actions seems even more important by contributing directly, and strongly, to brand credibility as well as by supporting clarity, which is likely to further add to credibility of the brand. Consequent benefits of higher credibility to consumers are likely to be support for higher perceived quality, reduced perceived risk, and lower information costs (e.g., less search and validation of information). Perceiving less risk in buying the branded product can in addition free the consumer from looking for more information, and therefore reduce in turn the information costs even lower. [1, 2]

In a multi-attribute choice model, each product alternative is assigned values on a set of attributes according to a consumer’s perceptions or beliefs about those attributes. These perceptions may be ‘coloured’ by associations that the consumer holds with the product’s brand name (some associations would ascribe to physical or functional attributes of the product {or service} whereas others may relate to an intangible image of the brand). Utility weights are added for attributes, as applicable by the decision rule — these weights may differ between brands, for any attribute that may be judged, for example, as more compatible with, important for, or even unique to a specific brand. The brand hence may impact the choice decision from consideration of which brands to include in the choice set, through perceptions about the branded products, to utilisation of the information in the decision rule applied (e.g., by alternative or by attribute). (Note: Details about  random error components of perceptions and utilities are omitted here.)[2]

A wider-angle view will account for additional phases or processes surrounding the framework of choice model described above, for instance: (1) The search for information upon which perceptions are formed or updated and the costs that may be incurred in gathering the information; (2) Learning about products by using a form of hypothesis testing to evaluate and screen information; (3) Mental processes engaged during learning and decision-making (e.g., encoding, search and retrieval from memory, preference formation). When a brand helps to organise the information, it is employed as a basis or reference for testing a hypothesis, or affects the meaning given to attribute information, it exercises, and possibly enhances, its brand equity in the minds of consumers.[2]


  • Swait, Erdem, Louviere, and Dubelaar proposed a measure (metric) of consumer-based brand equity, constructed from the perspective of information economics which regards the brand as a signal for higher quality and reputation. They called their measure the “Equalization Price“. Deriving the EP estimate for a brand is based on a comparison between two settings: (1) A hypothetical market where there is no differentiation between brand alternatives, and total utility for all alternatives is the same (for simplicity, it can be set to 0 for all brands); (2) A simulated market (choice set scenario) where brand alternatives exhibit different total utilities. Their approach is rather different from many others in its reference to a ‘hypothetical alternative’ and to the total utility of an alternative instead of a brand-specific component.
  • The Equalization Price denotes the level to which the price for a brand-product alternative can be raised until its total utility for a consumer in the simulated market (choice scenario) becomes equal to the ‘common’ utility {0} (i.e., the price at which the utilities are equivalent). Weaker brands could be assigned a negative EP. The researchers applied their brand equity estimates to analyse the potential of brands to extend from the ‘mother’ category into a ‘new’ category (e.g., Levi’s extending from jeans to athletic shoes). (Technical note: The EP estimates are derived from a probabilistic multinomial choice model based on a choice experiment — the ‘total utility’ refers to the deterministic portion of utility). [3]

Let us look next in greater resolution at differences in the chain of effects of brand credibility between stages of the decision process. The contribution of brand credibility in reducing perceived risk is more crucial in the early stage of considering which brands are eligible at all to be chosen from. Brands associated with too much risk will be eliminated in this stage of constructing the consideration set, and they will be excluded from any further operations. The savings that can be gained in information costs will also be important at this stage. In other words, “perceived risk and information costs saved play a screening role in the choice process”. On the other hand, enhancing perceived quality, in virtue of greater brand credibility, has greater impact when evaluating alternatives prior to making the choice decision. Therefore, brand credibility can increase the probability of the branded product of both being considered for buying and of being eventually chosen, but there is a difference in how the outcomes are achieved between those decision stages. [1]

It has also been found that this distinction in impact of perceived risk and perceived quality between stages will be more pronounced in product categories characterised by greater uncertainty and higher sensitivity to uncertainty. At the brand level, inconsistency in executing marketing mix elements (e.g., pricing, distribution) is likely to increase consumer uncertainty regarding the brand claims, and thereof hurts the credibility of the brand (see the effect via clarity noted earlier). Erdem and Swait discuss managerial implications of the role of brand credibility for customer relationship management (e.g., cognitive and affective impacts of credibility) and brand extensions. They also review other research in which they substantiated the contributions of specific aspects of brand credibility over choice stages and product categories (e.g., overall and distinct effects of trustworthiness by consistently delivering on brand claims and expertise in execution of elements of the marketing mix, such as technological competence in product development and design).

The Internet opens before the consumers an ocean rich with information at their fingertips on personal computers and mobile devices, in a plethora of commercial and non-commercial websites and mobile applications. So it would seem that a great part of the problems confronted by the field of information economics have been resolved for consumers. Yet, searching and gathering relevant information for a purchase decision in many product categories still takes time and requires cognitive effort, and sometimes also psychic effort or emotional stress.

Different costs may be more significant these days than were in the pre-Internet age but they cannot be discarded. For example, with so many sources of information available and easily accessible, it takes more time to review just several of them, and it is increasingly necessary to cross-check information found on various websites or apps (e.g., direct competitors, online shopping platforms, trade and professional portals). In reality, consumers normally access and review only a small portion of information available in a domain (e.g., how many and how often consumers open a window to read technical specifications).

Furthermore, even if information is less imperfect, there are still issues concerning asymmetric information because a greater part of information on products and services is controlled and provided by interested commercial businesses. In addition, biases and diversions could be luring in online information sources that consumers may not suspect, because they are not directly associated with the companies and brands originally providing the product or service of interest (e.g., search engines, online shopping platforms, social media — younger consumers increasingly stay in the confinements of “closed gardens” of social network platforms and do not explore the Internet enough).

Addressing brand equity from the perspective of information economics highlights a crucial value a brand can offer, brand credibility, with a very practical function in purchase decision-making. There is somewhat an illusion in believing that consumers are far less challenged today by constraints and costs of obtaining and using information for making choice decisions. If only for that reason, brands are promised to continue to play a vital facilitating role in the decision process. Moreover, when consumers can rely on credibility of a brand as a signal, this continues to reinforce the brand equity.

Ron Ventura, Ph.D. (Marketing)

Feel Well. Keep Good Health.

 

References:

[1] The Information-Economics Perspective on Brand Equity; Tülin Erdem and Joffre Swait, 2016; Foundations and Trends in Marketing, 10 (1), pp. 1-59 (DOI: 10.1561/1700000041)

[2] Brand Equity, Consumer Learning and Choice; Tülin Erdem, Joffre Swait, Susan Broniarczyk, Dipankar Chakravarti, Jean-Noël Kapferer, Michael Keane, John Roberts, Jan-Benedict E.M. Steenkamp, & Florian Zettelmeyer, 1999; Marketing Letters, 10 (3), pp. 301-318

[3] The Equalization Price: A Measure of Consumer-Perceived Brand Equity; Joffre Swait, Tülin Erdem, Jordan Louviere, & Chris Dubelaar, 1993; International Journal of Research in Marketing, 10, pp. 23-45

 

 

 

 

 

 

 

 

 

 

 

 

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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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