Power of brand in the multichannel world: the good, the bad, and the …..best

Kusum L. AilawadiCharles Jordan 1911 TU’12 Professor of

MarketingTuck School at Dartmouth

Back in the ClassroomTuck Reunion, October 2013

The Power of Consumer Loyalty

Willingness to search for

preferred store

Willingness to search for

preferred brand

Assortment Access Service Private LabelCompeting Channels

Legal/Institutional Norms

Product quality Advertising TechnologyCompeting Brands

Consumer Data

Consumer Loyalty

Channel Power Brand Power

Challenges for brands…. Brand equity vis a vis retailers Managing distribution coverage Preserving loyalty when search is costless Preventing price erosion online

Challenges for brands….

Brand equity vis a vis retailers

Managing distribution coverage Preserving loyalty when search is costless Preventing price erosion online

Brand Equity of Some Manufacturers and Retailers

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

5

10

15

20

25

30

35

40

Sony Samsung Apple

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

5

10

15

20

25

30

35

40

Amazon Best Buy Walmart

Data: Brand Asset Valuator ©

Some Retailers and Their Private Labels

Walmart Sam's Choice Great Value0

2

4

6

8

10

12

14

16

Costco Kirkland0

2

4

6

8

10

12

14

16

Target Archer Farms0

2

4

6

8

10

12

14

16

Whole Foods 365 Brand0

2

4

6

8

10

12

14

16

Retailers and their PLsThe brand equity of CPG retailers’ PL

continues to be low.A useful contrast: Kenmore and Craftsman

have higher brand equity than their retail owner. Now in Costco and Ace Hardware.

Another useful contrast: Trader Joe’s had a pure PL strategy, now bringing in national brands

How much PL power do US retailers have and are they “using it up”?

Challenges for brands…. Brand equity vis a vis retailers

Managing distribution coverage

Preserving loyalty when search is costless Preventing price erosion online

Distribution Share Curves

Source: Farris, Antitrust Bulletin 2004

Convexity of curve in CPGConsumers don’t search – likely to switch if

preferred brand is unavailable in the store.Large retailers stock multiple brands but last

few points of distribution carry only a few.Of course, large brands also get more

distribution.Increasing returns drive pressure to expand

coverage.

ShareDistribution

Source: Reibstein and Farris, Marketing Science 1995

But, in other contexts?Consumers search for durablesSearch is easy online But, higher preference + WTP at branded

and previously visited websites (Brynjolfsson & Smith 2000)

If these are also the sites with good SEO and search advertising, curve can be VERY concave

Brands can get most of the market share returns at the first few points of online distribution

Challenges for brands…. Brand equity vis a vis retailers Managing distribution coverage

Preserving loyalty when search is costless

Preventing price erosion online

SearchWhat do consumers search for?How much?Where?

Branded vs Generic Search

Direct ROI on branded keyword paid search ads > generic (more clicks & conversion, lower cost/click).

Generic search can spill over to branded through “awareness of relevance” (Rutz and Bucklin 2011), increasing generic ROI.

But, what is the volume of branded vs. generic search?Google Insight/Trends data 2007-2012

Categories where Search is Branded

ereader sony

kindle ereader

nook ereader

nook best ereader

ereader books

kobo kobo ereader

pandigital ereader

pandigital0

20

40

60

80

100

120

"Ereader"

hitachi tools

hitachi power tools

hitachi dewalt dewalt tools

dewalt power tools

electric power tools

chicago power tools

chicago tools

bosch power tools

0

20

40

60

80

100

120

"Power Tools”

More ……

keur

ig coff

ee

keur

ig coff

ee m

aker

keur

ig

cuisin

art

cuisin

art c

offee

mak

er

best

coff

ee m

aker

coffee

mak

ers

singl

e co

ffee m

aker

coffee

mak

er re

views

clean

coffee

mak

er0

20406080

100120

"Coffee Maker"

nike

runn

ing

shoe

s

nike

runn

ing

nike

sho

es

best

runn

ing

shoe

s

asics r

unni

ngas

ics

asics r

unni

ng sh

oes

new ru

nnin

g sh

oes

runn

ing

shoe

s wom

en0

20406080

100120

"Running Shoes"

Categories where search is generic

elec

tric to

othb

rush

bes

t

best

toot

hbru

sh

elec

tric to

othb

rush

son

icar

e

soni

care

soni

care

toot

hbru

sh

toot

hbru

sh re

view

s

elec

tric to

othb

rush

bra

un

elec

tric to

othb

rush

review

s

brau

n to

othb

rush

oral

-b to

othb

rush

0

40

80

120

"Electric Toothbrush"

cam

era

digi

tal c

amer

a

best

dig

ital c

amer

as

best

cam

eras

cano

n di

gita

l cam

eras

cano

n ca

mer

as

sony

cam

eras

sony

dig

ital c

amer

as

niko

n di

gita

l cam

eras

niko

n ca

mer

as0

20406080

100120

"Digital Cameras"

Branded versus Generic Search Varies across categories:

Brand Relevance in Category (Fisher, Volckner & Sattler 2010),

Repeat purchase categories “Technical feature” categories

More branded search => focus on harvesting rather than generating demand

More branded search for high equity brands Higher brand equity => Higher “search

equity”=> More control over where the clicks and purchases go online

Extent of search before purchase…Based on web sessions in which consumer purchased:

Shoes, bed & bath, baby supplies, tools etc., handheld devices, audio/video, office supplies, sport & fitness, health & beauty products.

20% of purchases are at first site visited, 37% at first two, and 51% at first three. Little difference across categories.

Among purchases made at first site visited, Amazon 22% of the time, Wal-Mart 9%, QVC 5%, Amway 4%, JCP 3%

Significant differences across categories…….Source: comScore, Inc. 2011 data for random sample of ≈ 70K panelists

Purchase without SearchCategory #1 #2 #3

Audio/Video Walmart 35% Amazon 19% Best Buy 16%

Baby Supplies Amazon 30% Walmart 19% ToysRUs 12%#

Bed & Bath Walmart 15% JCP 12% Amazon 11%

Handhelds Amazon 53% Walmart 13% Apple 10%

Health & Beauty

Amazon 23% Amway 13% QVC 8%

Office Supplies Walmart 24% Amazon 16% Office Depot 13%

Shoes JCP 8% Zappos 7% QVC 7%

Sport & Fitness Amazon 44% Walmart 12% Cabelas 7%

Tools Amazon 40% Sears 12% Home Depot 10%

Walmart, JCP, QVC drop with search

Highest Share Websites

Excluding travel, tickets, and other services

Amaz

on

Wal

-Mar

tQVC

Amway

Yahoo

Best B

uy

Apple

Dell

Victor

ia's S

ecre

t

JC P

enne

y0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Mkt. Share

Where do consumers search?Which is the biggest online “shopping mall”Google vs. AmazonWhich consumer segments search at AmazonWhich segments do you want to capture

online?

Challenges for brands…. Brand equity vis a vis retailers Managing distribution coverage Preserving loyalty when search is costless

Preventing price erosion online

Prices and Price Sensitivity OnlinePrices levels are lower online

“Integrity” in posted prices common among mulitchannel retailers

Pure-play prices lower than multichannel pricesBut price dispersion is greater

high share e-tailers don’t have the lowest pricesAnd price sensitivity is not!

Specially in presence of additional service and information on non-price attributes

WTP higher at branded and familiar websites=> Can/should limit price erosion with distribution

control

Sources: Lynch & Ariely 1998; Brynjolfsson & Smith 2000; Smith & Brynjolfsson, 2001; Ancarani & Shankar 2004

Distribution and pricing controlBrands that are not on AmazonRPM MAPs and UMAPsProduct control

Power of Brand OnlineBrand Equity

Branded Search

More clicks, lower

cost/click

+SEO+Affiliates

= Search Equity

Lower e-tailer dependence

Fewer distribution

points

More price and image

control