Harvard Business Review. MARKETING. Customer-Centered Brand Management

Harvard Business Review
MARKETING
Customer-Centered Brand Management
Roland T. Rust Valarie A. Zeithaml Katherine N. Lemon
FROM THE SEPTEMBER 2004 ISSUE
Most managers today agree with the notion that they should focus on growing the lifetime value of their customer relationships. Building loyalty and retention, cross selling related goods and services, broadening offerings to fulfill more of customers’ needs—all are ways of adding to overall customer equity. Indeed, given the cost of winning new customers (much higher than that of keeping current ones), and the ultimately finite universe of buyers out there, a mature business would be hard-pressed to increase profits otherwise.
The problem is, for all that managers buy into this long-term customer focus, most have not bought into its logical implications. Listen to them talk, and you may hear customer, customer, customer. But watch them act, and you’ll see the truth: It’s all about the brand. Brand management still trumps customer management in most large companies, and that focus is increasingly incompatible with growth.
Consider the story of Oldsmobile, an American car brand launched earlier than any other in existence today. In the 1980s, it enjoyed outstanding brand equity with many customers. But as the century wore on, the people who loved the Olds were getting downright old. The managers that parent company General Motors put in charge of the brand realized that maintaining market share meant appealing to younger buyers, who unfortunately tended to see the brand as old-fashioned. We all know what came next: the memorable 1988 ad campaign featuring the slogan, “This is not your father’s Oldsmobile.” In 1990, less memorably but in the same vein, the company’s marketers unveiled its next message: “A New Generation of Olds.” Catchy or not, neither campaign turned back the clock. By 2000, Oldsmobile’s market share had sputtered to 1.6%, from 6.9% in 1985. And in December 2000, General Motors announced that the Oldsmobile brand would be phased out.
Car aficionados might have shed a tear at the passing of a proud old marque, but we see the tragedy differently. Why did General Motors spend so many years and so much money trying to reposition and refurbish such a tired image? Why not instead move younger buyers along a path of less resistance, toward another of the brands in GM’s stable—or even launch a wholly new brand geared to their tastes? Cultivating the customers, even at the expense of the brand, would surely have been the path to profits.
We know why not, of course. It’s because, in large consumer-goods companies like General Motors, brands are the raison d’être. They are the focus of decision making and the basis of accountability. They are the fiefdoms, run by the managers with the biggest jobs and the biggest budgets. And never have those managers been rewarded for shrinking their turfs.
We propose a reinvention of brand management that puts the brand in the service of the larger goal: growing customer equity. This doesn’t mean that brand becomes unimportant. Compelling brand images remain essential to winning and keeping customers’ trade. But it does mean fundamentally changing how management thinks about the goals, roles, and metrics associated with a well-managed brand. These changes will be among the most wrenching your organization ever undertakes. But they’re long overdue.
It’s OK, I’m with the Brand
When a marketer focuses on growing a customer base, and not necessarily a brand, things can look very different. Let’s take an example from the entertainment world, courtesy of songwriter and performer George Clinton. Known as one of the founders of funk, Clinton in the 1970s sought the attention of two different segments of record buyers—mainstream listeners, who liked vocal soul music with horns, and progressive listeners, who liked harder-edged funk. Clinton knew that his band was accomplished enough to play both kinds of music, but he realized that alternating between the styles would muddy the band’s image and serve neither audience well. The solution was simple. The same group of musicians, essentially, recorded and performed under two different band names: Parliament, when the music was aimed at popular tastes, and Funkadelic, when it was edgier. Both bands were very successful, even though some Parliament fans would never listen to Funkadelic and vice versa. The point is that Clinton did not try to make his original brand a big tent by stretching it to accommodate the tastes of very different markets. His branding reflected his customers’ identities instead of his band members’.
That kind of thinking led to Honda’s development and marketing of the Acura Legend in the United States. The same car was introduced in most other countries, including Japan, as the Honda Legend. But the company had good reason to think it would not succeed using that name Stateside. In the 1980s, U.S. buyers, much more than their counterparts elsewhere, associated the Honda brand with economy cars. They expected and trusted the company to provide inexpensive, dependable—if not very exciting—cars. Rather than work to change that image (which served the company well with other models), management decided to launch a new brand. “Acura” had no positive equity established with upscale buyers, but neither did it have baggage to overcome.
Honda’s successful branding strategy stands in direct contrast to Volkswagen’s more recent disappointment with the Phaeton. Volkswagen is one of the world’s most recognizable brands and has excellent brand equity among buyers of low- to medium-priced cars. The Phaeton, however, is a high-priced luxury car, positioned to compete with such icons as BMW and Mercedes. To Volkswagen, the car is simply an extension of the engineering prowess it already prides itself on. And by all accounts, the objective attributes of the Phaeton (fit and finish, comfort, and power) are competitive with those of other luxury marques. Unfortunately, the company’s brand is defined not so much by its exacting producers as by its customers. It has virtually no brand equity among luxury buyers. This is undoubtedly why management’s sales projections were so flawed. When the Phaeton was launched in Europe in 2003, Volkswagen predicted 15,000 would be sold. Several months later, it admitted that only about 2,500 had been.
Finally, let’s turn to an example that really pushes the envelope. In Japan, there is a brand called WiLL that is owned and managed by a consortium of consumer goods companies. The companies have little in common on the production side of things; they range from carmaker Toyota to electronics marketer Matsushita (Panasonic) to beer brewer Asahi. But they have a great deal in common in their pursuit of a certain new and affluent demographic. In fact, this target segment of consumers—“new generation” women in their twenties or thirties who like things that are “genuine” and fun—defines the WiLL brand. The design of the WiLL Web site, , is exclusively focused on that rather narrow demographic and psychographic profile. It features a hip mix of Japanese and English, a fashionable color palette, and disparate products unified by the quirky playfulness of their design. The products include the WiLL Vi (an automobile manufactured by Toyota), the WiLL PC (made by Panasonic), and WiLL beer (brewed by Asahi). These megabrands have chosen to become, in essence, private label manufacturers behind a brand they own jointly. It makes sense because, independently, none of them would have invested so heavily in a branding effort that hit just one segment, no matter how squarely between the eyes. For that matter, the list of partnering companies could change, along with the kinds of products offered, and the WiLL brand would remain strong—because its meaning and value stem from its customers.
Customer Equity Is the Point
Forward thinkers like George Clinton, Honda, and the WiLL consortium aside, most companies today are geared toward aggrandizing their brands, on the assumption that sales will follow. But for firms to be successful over time, their focus must switch to maximizing customer lifetime value—that is, the net profit a company accrues from transactions with a given customer during the time that the customer has a relationship with the company. In other words, companies must focus on customer equity (the sum of the lifetime values of all the firm’s customers, across all the firm’s brands) rather than brand equity (the sum of customers’ assessments of a brand’s intangible qualities, positive or negative). And though the two often move in concert, it is important to remember that acting in the best interests of brand equity isn’t necessarily the same as acting in the best interests of customer equity.
Companies must focus on customer equity rather than brand equity.
Suppose we have a customer—let’s call her Ann—who tends to favor one of our current brands, Brand A. To the extent that Ann values Brand A above and beyond the objective value of the product’s attributes, we can say that it has positive brand equity for her. If Brand A’s equity increases in her eyes, Ann is likely to buy it more frequently and perhaps in higher volume per purchase. This of course increases Ann’s lifetime value to the company. But what happens if Ann grows tired of Brand A? Or if the brand ceases to resonate with her? If we manage the customer relationship properly, we can introduce Ann to another of our brands that is a better match with her sensibilities. In fact, we should be willing to do whatever is necessary with our brands (including replacing them with new ones) to maintain our customer relationships. Our attitude should be that brands come and go—but customers like Ann must remain.
The Value of a Brand Depends on the Customer
One of the most important things to understand about a brand is that its value is highly individualized. A customer might grow tired of a brand, or more enamored, independent of how other customers are responding to it. One reader sees the Wall Street Journal as the pinnacle of probity; another calls it a reactionary rag. For some people, Stouffer’s stands for taste and convenience; for others, trans fats and carbs. Between the two extremes are infinite shades of gray.
Yet most marketing managers speak about the value of a brand as though it were solid and monolithic, and they measure brand equity with a summary metric of brand strength. It’s a perfect example of what’s been called the “flaw of averages.” The value they arrive at is true for practically no one—and hardly a useful management tool.
We conducted a survey of customers in two cities to measure brand equity for 23 brands in five industries. Look, for example, at the wide range of values customers assigned to the American Airlines brand. (See the exhibit “Customers Differ on Brand Equity.”) Many marketing decisions proceed from what managers believe to be the strength of the brand. Defining that value as the average would lead to actions that weren’t right for many customers.
Customers Differ on Brand Equity
Assigning an average value to brand equity is dangerous because it obscures the fact that brand value is idiosyncratically assigned by the customer. Managers begin to believe that the value of their brand is somehow intrinsic—that, like a diamond in a necklace, the brand has an objective, inherent value. We know of one company, for example, that stumbled badly as it tried to make headway in South American markets. It was one of the world’s largest and most successful brands, and its marketing managers assumed that its outstanding brand equity was a given. In truth, while the brand tended to have very high equity with consumers in the United States and many other countries, people in South America were more likely to favor local brands. Confused by poor sales, management seemed unable to acknowledge that the brand might not be such an asset. The company only redoubled its efforts at what could be called brand imperialism, with limited success.
Put Your Brands in Their Place
If you accept that the goal of management is to grow customer equity, not brand value, and that brand value is only meaningful at a highly individual level, then you will likely manage your brands in a profoundly different way. Our work with leading companies crafting customer-centric branding strategies suggests seven directives that go against the grain of current practice.
Make brand decisions subservient to decisions about customer relationships.
This means creating or strengthening the role of the customer segment manager and allocating resources to that function rather than to traditional brand managers. It may even make sense to go beyond segments and assign managers to specific customers, if they are big and important enough. In the business-to-business world, this is known as managing key accounts; companies like Ericsson and IBM assign account managers and give them broad authority in marketing to important customers. Consumer companies can also use the approach, organizing around customers or customer segments. Brand managers will still have an important role in the marketing function, but they will be dependent on the customer segment managers for distributing resources. Brand management will become a team-oriented task.
Build brands around customer segments, not the other way around.
Some products, like Viagra, are inherently directed at the needs and requirements of a particular customer segment. Others, like the Black Pride beer once sold actively in the African-American neighborhoods of Chicago, are generic products positioned for a specific segment. Procter & Gamble markets an extensive portfolio of soap brands, each targeted to a different psychographic or demographic segment. Its laundry detergents, too—Tide, Gain, Cheer, Ivory, Bold—are differentiated more by target customer segment than by product features. The world’s largest women’s clothing company, Liz Claiborne, has a simila...