Related Terms: Private Labels
A brand is a name and/or a symbol that uniquely identifies a seller's goods or services in the market. Nielsen Media Research lists more than 500,000 brands worldwide in more than 2,000 product categories. Brands enable customers rapidly to recognize the makers of goods or providers of services. Over time, and with consumer experience, brands acquire reputations for quality, value, price-level, reliability, and many other traits that help consumers choose among competing offerings. They are convenient and highly abbreviated tools of communication.
Brands have been used since ancient times. Cattle-branding crossed the Atlantic from Spain, for example, but "trademarks" had been used long before that time by potters and silversmiths to identify their products. In legalese, in fact, a brand is a trademark. Ornate signs hung on inns and taverns served the same purpose. Since the second half of the nineteenth century, branding has evolved into an advanced marketing tool. The industrial revolution, new communication systems, and improved modes of transporting goods made it both easier and more necessary for companies to advertise brands over larger regions. As manufacturers gained access to national markets, numerous brand names were born that would achieve legendary U.S. and global status.
Based on a Business Week scoreboard of the 100 top global brands, eight brands in 2005 were U.S. in origin. In rank order these were Coca-Cola, Microsoft, IBM, GE, Intel, Nokia (Finland), Disney, McDonald's, Toyota (Japan), and Marlboro. To make the Business Week "top 100" a company must sell 20 percent or more of its product outside its home country. Among U.S. automakers only Ford makes the list (ranked 22nd); but motorcycle aficionados will be pleased to learn that Harley-Davidson is present (ranked 46th). The last five on the list were Levi's (96th), LG (97th, Japan), Nivea (98th, Germany), Starbucks (99th), and Heineken (100th, Netherlands).
A brand is backed by an intangible agreement between a consumer and the company selling the brand. A consumer elects to buy a brand, rather than a competitor's, based primarily on the brand's reputation. He or she may stray from the brand occasionally because of price, accessibility, or other factors, but some degree of allegiance will continue to exist until a different brand gains the customer's loyalty. Until then the consumer will reward the owner of the brand with dollars, almost assuring future cash flows to the company.
Price and brand are complexly related. Branded goods are always more expensive than "store" or "generic" brands. Some products have a "brand equity" so high that they always command a premium. In some cases high price itself may be a defining aspect of the brand—and consumption of that brand may signal to others the consumer's wealth or social status. In more competitive environments, brand commands loyalty only when the price is right.
There are two major categories of brands: manufacturer and dealer. Manufacturer brands, such as Ford, are owned by the producer or service provider. The best-known brands are held by large corporations that sell multiple products or services affiliated with the brand. Dealer brands, like Die-Hard batteries, are usually owned by a middleman, such as a wholesaler or retailer. These brand names often are applied to the products of smaller manufacturers that make a distribution arrangement with the middleman rather than trying to establish a brand of their own. Manufacturers or service providers may sell their offerings under their own brands, a dealer brand, or as a combination of the two types, called a mixed brand. Under the latter arrangement, part of the goods are sold under the manufacturer's brand and part are sold under the dealer brand.
In launching new products into the market, start-ups have fewer options than companies with one or more established brands. Start-ups must first decide if the product is likely to reach a wide enough market to merit the costs of formally establishing a brand; if yes, they have to select a name and launch a marketing program to build recognition for the brand. An intermediate position is possible and frequently used. The brand is named and money is spent on suitable packaging and limited advertising. Then the brand is allowed to establish itself slowly by word of mouth. Many brands have been established in this way.
An established company may choose to follow the same strategy. But because it has one or more brands already recognized, it may elect, instead, to launch the new product under an existing name. The down-side of this strategy is that it may dilute the equity of the established brand if the new product proves to be unpopular.
Launching new products under a new brand name is in many ways identical to starting a new operation—with the difference that many of the basic business operations are already in place. New launches cost more money and are avoided where possible. An Ernst and Young study conducted in 1998 bears this out. Ernst and Young found that 78 percent of product launches in that year were line extensions; their owners risked brand dilution rather than bear the higher costs of establishing new identities.
Strategies of maintaining the value of brands are discussed in another article in this volume. See Brand Equity.
By legal definition, a brand is a trademark, also called a service mark when the brand is associated with a service. Trademarks may be protected by virtue of their original use. Most U.S. trademarks are registered with the federal government through the Patent and Trademark Office of the U.S. Department of Commerce. Federal trademark registration helps to secure protection related to exclusive use, although additional measures may be necessary to achieve complete exclusivity. The Lanham Act of 1946 established U.S. regulations for registering brand names and marks. They are protected for 20 years from the date of registration. Various international agreements protect trademarks from abuse in foreign countries.
Trademarks have suffered from infringement and counterfeiting since their inception. The U.S. government, in fact, does not police trademark infringement; it leaves that task to registrants. In FY 2004, U.S. Customs seized $138.8 million worth of so-called "gray goods" in violation of intellectual property rights, up from $45.3 million in FY 2000. Data available for mid-FY 2005 suggest that FY 2005 seizures will be around $95.3 million, down from FY 2004. In any case very substantial sums are involved in seizures alone. Data on total goods reaching the market are not collected. Gray goods do substantial damage to owners of actual brands by depriving them of the extra profits earned by years of high-level performance—and also by damaging the brand reputations if the counterfeited goods are of slip shod quality.
Aaker, David. Brand Portfolio Strategy. Free Press, 2004.
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"Top 100 Global Brands Scoreboard." Business Week Online. Available from http://bwnt.businessweek.com/brand/2005/. Retrieved on 10 January 2006.
U.S. Department of Homeland Security. U.S. Customs Bureau. "Yearly Comparisons: Seizure Statistics of Intellectual Property Rights." Available from www.cbp.gov/xp/cgov/import/commercial_enforcement/ipr/seizure/seizure_stats.xml. Retrieved on 10 January 2006.
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