Internationalization of Branding in the Retail Industry

Introduction

In the past few decades, issues surrounding branding in the retail industry have emerged as a significant concern for retailers, consumers, and the fashion industry alike. Organizations are using branding as a strategy tool in today's business environment with increasing regularity. Although brands and branding are not new ideas, retailers are applying them to more diverse settings where the role of branding is becoming increasingly important (Wentz & Suchard, 1993). The traditional role for brands has recently reemerged as a topic of interest, as retailers are increasingly turning toward the internationalization of brands to survive in the highly competitive industry. With the growing realization that brands are one of a retailer's most valuable intangible assets, branding has emerged as a top management priority in the last decade. As a result of its highly competitive nature, branding carries a significant effect in the retailing industry as one of the main drivers influencing customer perceptions, store choice, and loyalty. Thus, as an attempt to offer more to the consumer than just low prices, retailers are developing marketing strategies that build store equity and differentiate their brand.

A brand is usually defined as a name, symbol, design, or some combination that identifies the product of a particular organization as having a substantial, differentiated advantage (O'Malley, 1991). Research studies reveal that a brand often suggests the best choice, while others view a brand as something the customer knows and will react to (Ginden, 1993). A brand's purpose is to build the product's image, which will in turn influence the perceived worth of the product and increase the brand's value to the customer, resulting in the desired brand loyalty. In the retail industry, brands are developed to attract and keep customers by promoting value, image, prestige, or lifestyle. By using a particular brand, a consumer can cement a positive image (Ginden, 1993). Brands additionally function to reduce the risk consumers face when buying an unfamiliar product.

Since branding is a technique to build a sustainable, differential advantage by playing on the nature of human beings, it remains in retailers' best interest to generate a successful brand. A good brand will give the customer value for the dollar and give employees satisfaction and confidence in their products (O'Malley, 1991). Strong branding also accelerates market awareness and acceptance of new products entering the market. A retail brand identifies the goods and services of a retailer and differentiates them from those of competitors. A retailer's brand equity is exhibited when consumers respond more favorably to its marketing actions than they do to those of competing retailers (Keller, 2003). As a result, the image of the retailer in the minds of consumers is the basis of this brand equity.

Consumer products companies currently face several challenges involving sales, as major retail accounts are consolidating and continue to exercise their increasing buying power. All accounts seem to be more demanding, and are actively working with everything from shopper loyalty cards to high-quality captive label products to shift the consumer's loyalty from manufacturer brands to their own (Booz Allen Marketing, 2005). Perhaps more significantly, acquisitions and expansion no longer stop at national borders; large retailers have become more sophisticated. In response, many consumer product companies have reorganized their sales forces and introduced customer teams (Booz Allen Marketing, 2005). To date, many of these retailers have continued to buy locally, but it will not be long before they figure out how to leverage their global scale with suppliers (Booz Allen Marketing, 2005).

Some retailers have found that the transition away from a purely regional sales structure was simply harder than expected. A review of the related literature reveals that even companies that began the transition several years ago usually cannot point to the specific benefits they receive from their customer team structures (Booz Allen Marketing, 2005). Frequently they have adjusted their organizational models over time, but are left with a sense that each problem they solved created another problem somewhere else (Booz Allen Marketing, 2005). As a result, multiple conflicts arise between brands and channels that cannot be resolved without senior management intervention. According to a recent marketing analysis, the all-powerful brand structure favored by many consumer goods companies may share some of the blame as well. In today's environment of powerful retail partners, the role, focus, and capabilities of the sales force need to be upgraded in order to allow sales management to interact with marketing on a more level playing field (Booz Allen Marketing, 2005).

Historical research indicates that branding is over 100 years old, as the majority of countries had enacted trademark laws to establish the legality of a protected asset by 1890 (The Economist, 1988). Historians note the period from 1800 through 1925 as the richest period of name-giving (Hambleton, 1987). From these beginnings, branding has evolved as a major component of marketing strategy, with uses and applications that continue to grow and diversify. Although the focus of branding has shifted over the last two decades, its importance to the business community and the consumer has not diminished (Cleary, 1981).

Background of Retail Branding

The main focus of the 1980s regarding brands centered on a trend in takeovers, enabling successful brands to become extremely valuable on the open market. Even very early on, the value associated with a brand was viewed in part as more important than the product itself. Early research indicates that many believed the only way to have a successful brand was to buy one. Many felt that the development of new megabrands would be impossible in the future and that money would be better spent on acquisitions than on research and development. The fact that 90–95% of all new products failed strengthened the argument that takeovers made more sense than trying to develop new successful brands (The Economist, 1988).

As a result of the heightened number of acquisitions and takeovers, many brands suffered irreparable harm. With the management changes associated with takeovers and acquisitions, brands failed to maintain a clear image in the consumer's mind as consumer confusion about what a brand represented deepened. The high turnover of brand managers, coupled with a preoccupation with short-term earnings, led to inconsistencies in brand equity (Baum, 1990). Other causes of lowered brand equity were attributed to years of inconsistent advertising and agency management, generic marketing, look-alike advertisements, undistinctive products, and the proliferation of promotions (Wentz, 1993). The strategy of the 1980s influenced the strategy for the 1990s, as retailers began to realize the shortcomings of the previous decade. In the 1990s, the importance of the product itself received more emphasis than ever before.

Other researchers have suggested that brands are not static and need to change with their environment (Berry, 1993). In the 1990s, retailers turned away from creating new brands and focused on strengthening and expanding those already in existence. The new focus of branding was the creation of mutually beneficial situations. Finding the right brand mix for the consumer while generating adequate sales became a great challenge for retailers and marketers. As consumers became more price-sensitive, the brands themselves lost some importance (Allen, 1993). In the 1990s, retailers became concerned primarily with financial considerations, as they desired brands that would increase their business value.

In the early 2000s, the issues became more practical, such as a focus on sales and profits. Research indicates that present-day retailers are concerned with what the customer is willing to pay for their product (Berry, 1993). Currently, branding faces three challenges: branders must understand the price elasticity for their product, adequate price controls must be in place, and retailers must have effective and efficient brand-building activities that focus on current and new products (Berry, 1993). According to a recent survey, the number one brand in a line enjoys a 20% return while the number two brand earns a 5% return and all the rest lose money (Berry, 1993). In 2005 and onward, large retailers continued trying to expand into markets abroad, resulting in an internationalization of brands in the retail industry. One study notes that retailers will continue trying to enhance their brand's relevance to customers and focus on the brand's personality to build an emotional bond between the brand and the consumer (Baum, 1990). As a result, with branding entering new and diverse areas, the future of branding appears bright.

Most major retailers follow the same patterns in brand creation and positioning. To create or position a brand in the marketplace, a retailer must start with the culture of the whole company. The retailer should first determine how they want the brand to interface with the public. A review of the related literature reveals that when a host of products or services fall under one brand, successful positioning demands strong definition. Brands can be multi-level, but it remains the retailer's duty to define the brand. Once defined, communication to the public becomes paramount. Thus, the branding process affects all forms of communications, from advertising to public relations to product packaging. A retailer must make sure that the public understands their brand immediately; when brand positioning is confused, the brand itself is lost. A strong brand takes time to build but only an instant to damage.

Consumer choice affects branding because the strategy of pulling products through the marketing channel encourages retailers to carry branded products in reaction to consumer demands. Some manufacturers also pursue brand extension — a scheme that requires adding related products to an existing stream of branded products or developing a new line with the same brand identity. In doing so, manufacturers capitalize on the brand's reputation and identity, and consumer choice is based upon brand preferences. Brands that attract consumers more strongly are termed brand-driven purchases. It is also important for retailers to note that a branded retail store should offer a uniform consumer experience and a wider choice under one roof.

Building a Brand and the Role of a Retail Brand

Internet marketing has become a strategic tool, as online marketing, if properly developed and implemented, has tremendous potential as a strategy to build brand image, collect information from highly motivated and targeted consumers, and provide an avenue for selling products worldwide. Many website visitors may be reluctant to purchase online due to unresolved concerns about the online shopping experience, or they may choose to purchase online due to perceived benefits. Actions that reduce barriers by effectively addressing visitor concerns can lead to increased confidence in the online purchase process, while actions that increase perceived benefits may lead to greater motivation to purchase.

The role of a retail brand in the retail industry is a significant one. One of the first steps in maintaining customer loyalty and earning profits is to build and sustain a positive brand image. The image is based on a total product concept that includes colors, symbols, words, and slogans — with a clear, consistent message rather than simply a name (Berry, 1988). Research studies indicate that once a retailer establishes this image through a brand name, it should remain consistent (The Economist, 1988). Creating a brand image involves getting customers to know that the brand exists. Once a brand has been separated from the crowd, it is easier to develop its image, and the branding process itself may be the starting point for product differentiation (Allen, 1992). Many retail brands are similar, and brand leaders are often nearly identical to one another. The image a top brand develops may be the only way for consumers to tell the difference (Carey, 1991).

The consumer will perceive one brand as more desirable than a competitor's and purchase it based on those perceptions. Research indicates that brand identity is created based on how well the brand has been differentiated from other competitors. Each retailer must decide how branding fits into its general strategy because one strategy does not work for all. Some brand managers agree that the most effective way to use branding is by matching specialized products with specialized markets (Carey, 1991). Thus, choosing the right name, using the right advertising, applying the best strategy, and using the most relevant application techniques are necessary elements to make a branding effort successful. Brand owners, retailers, and marketers must deal with the changing nature of society and other factors that affect their ability to be effective.

In the past few decades, issues surrounding branding in the retail industry have emerged as a significant concern for retailers, consumers, and the fashion industry alike. The growth of promotions and private labels has been viewed by many as an indication of a new growth of retailer power; however, this very growth of discounters and warehouse clubs has put immense pressure on traditional retailers and significantly increased retail competition both within and between retail formats. Since a large portion of most retailers' revenue and profit comes from selling manufacturer brands, which many of their competitors also offer, building their own equity is a particularly challenging problem, but one with big potential rewards (Ailawadi, 2004). Such equity insulates them from competing retailers, which has the direct impact of increasing revenue and profitability, and the indirect impact of decreasing costs as their leverage with brand manufacturers also increases (Ailawadi, 2004).

Research indicates that consumers play a major role in either building or eliminating brand equity. Retailers create brand images by attaching unique associations to the quality of their service, their product assortment and merchandising, pricing, and credit policy. In most consumer industries, the image and equity of retailer brands also depends on the manufacturer brands they carry and the equity of those brands (Ailawadi, 2004). Retailers use manufacturer brands to generate consumer interest, patronage, and loyalty in a store. In retail, manufacturer brands operate as a basic brand that often generates the most consumer revenue, usually more than the retailer brand generates. Thus, manufacturer brands help to create an image and establish a positioning for the retail store. Retailers also compete with manufacturers for consumer pull to increase their relative market power and their share of total channel profit (Steiner, 1993). In doing so, they may sell some of their own brands; for example, retailers who carry only their own private label products, such as GAP and Brooks Brothers. Private label products may have their own unique brand names or be branded under the name of the retailer. Private label products allow the retailer to differentiate its offerings from competing retailers, and some retailers manage their brands more effectively than others, as is evident in their performance.

Current branding trends have greatly evolved since their origin in the 1960s. Marketing used to be a lot simpler; in the mid-1960s, the three major television networks could still be counted on to deliver messages to the vast majority of consumers on a regular basis. Media strategy was as elemental as advertising, and years before the invention of the remote control, people sat, watched, and listened to each message (Kimball, 2005). When they were not watching TV, consumers turned to a handful of broadly targeted magazines that boasted huge circulations and delivered large audiences to their advertisers (Kimball, 2005). A largely uniform American population with limited media choices meant that a single campaign could serve a national brand from coast to coast. This steady, homogeneous media environment made it relatively easy for a product to gain attention, especially with a limited number of competing consumer brands (Kimball, 2005). Product launches had long lead times, reflecting painstaking mechanical production processes; in the pre-digital era, the race to market was a marathon, not a sprint (Kimball, 2005).

Extending a Retail Brand: Internationalization

A retail brand can be extended as a means of taking a popular, successful brand into a new market — a process termed the "internationalization" of a brand. Although other trends in branding exist, brand extensions represent the most enduring and popular trend in today's market. Brand extensions are one of the oldest branding application techniques used because many retailers are tempted to extend a popular, successful brand into new markets. In some cases this has been very effective, while in others it has been disastrous. According to the research, a retailer that desires to extend a brand into new markets must ensure that the link is obvious; consumers must easily identify why a retailer is using the brand name on a new product. It is therefore dangerous to use a name where it simply does not fit (The Economist, 1988). If the product and the brand do not mesh, customers will not buy the product, and the previous products sold under the same brand may become diminished in value. There are many examples of retailers that have overextended their brands, some at the expense of the core brand, while others have extended their lines in a way that has radically altered the personality of the core brand (Dagnoli, 1990).

However, a review of the literature indicates that there are some very good reasons to extend a brand, and that such extensions can lead to increased profits and success. This is because it is much harder to build new successful brands than it is to defend old ones (The Economist, 1988). There are also many failures associated with new brand introductions. On the other hand, when a retailer uses a brand name that has already been established, a few of the risks usually associated with new brands may be eliminated. The idea of using an established name to promote a new line or to merge successful lines together is attractive. Although poor brand management was identified as a key element that negatively affected brands in the 1980s, many retailers that have internationalized their brands demonstrate that this method may prove to be a successful strategy for the 2000s.

Hassler (2003) concludes that to own and maintain brands within changing market environments demands highly sophisticated entrepreneurial skills. Initially, increasing labor costs and the consequent rise in disposable incomes and national buying power created a market framework of growth for several successive years (Hassler, 2003). A market of great expectations then transformed into one of strong decline, as concentration on a single geographical market proved to have very critical consequences for most brand owners (Hassler, 2003). The economic crisis pushed many firms to develop export-marketing networks in an attempt to compensate for losses of sales (Hassler, 2003). As a result, many companies turned to a strategy of brand internationalization. One noted downside of internationalization is that it may result in a basic distribution of cheap, ready-made garments. However, Hassler (2003) notes that this carries the potential for future economic growth. In this respect, agents could fulfill a crucial role in the search for new overseas customers and export-marketing networks (Hassler, 2003).

Indonesian brand-owners have been the focus of many internationalization studies. Researchers note that Indonesian brand-owners could initiate the diversification of geographical target markets toward other developing countries or emerging markets. Hassler (2003) notes that foreign agents currently operating in Indonesia usually belong to larger business networks with external headquarters, and have never reached a status beyond mere representation to control product quality and follow up orders. All financial transfers and transactions between manufacturers and buyers must be conducted at the agent's headquarters, outside Indonesia. Therefore, the business of independent traders and agents remains a domain of native Indonesian firms (Hassler, 2003).