Brand Equity to Customer Loyalty Essay

An examination of brand equity leading to customer loyalty in the clothing industry using the Loyalty Ladder model. Abstract Purpose – The aim of this paper is to examine if there is a correlation between brand equity and brand loyalty. The author will research the sources of brand equity for three international clothing companies: Abercrombie & Fitch, Marks & Spencer, H&M and apply each company to the Loyalty Ladder. Methodology – Secondary literature was used throughout this study, mainly including; Annual Reports, Academic Journals & Datamonitor reports. Findings – All three companies have a strong brand image and they do have many customers’ who are loyal to their products. All companies experienced growth in revenue in 2010. The companies examined are now in the process of growing their businesses in emerging markets. The loyalty of customers does remain but it is mainly due to the companies innovative marketing strategies, which have resulted in increased revenues within the companies. Constant brand re-enforcement is extremely important to keep customers loyal to a brand. 1.0 Introduction Keller (1993) recognised two reasons to study brand loyalty; for financially based reasons and to improve marketing productivity. Tolba & Hassan (2009) studied the correlation between brand equity and customer loyalty which has seen significant research over the years. The authors conducted an in-depth study of 17 brands within the automobile industry. The findings showed that loyalty and satisfaction were the strongest predictors of brand preference and intention to purchase. The research was broken down into three areas; those who had never tried the brand, those who had tried once and those who had purchased the product. (See Figures 1.0-1.2). For those who had never tried the brand, they would not have been satisfied or loyal to a brand as they had never tired it. Perceptions of the brands image and value towards the brand impacted the results, therefore branding is fundamental in creating a personality and image of the brand that the customer can relate to. Patwardhan & Balasubramanian (2011) have taken brand equity one step further and discuss consumer â€Å"attraction† to brands. The authors believe that attraction and romance with a brand will increase loyalty to a higher level; a deeper and more intense level. The customer will experience security and trust the brand. â€Å"We define brand romance as a state of emotional attachment (evoked in response to the brand as a stimulus) that is characterized by strong positive affect toward the brand, high arousal caused by the brand, and a tendency of the brand to dominate the consumer’s cognition. Brand romance is subject-specific. Different consumers may enjoy different levels of romance with respect to the same brand†. Pawardhan & Balasubramanian conducted a study on numerous undergraduate students and asked them specific questions in relation to brand loyalty. The outcome of the study found that brand romance did exist even though the feelings and emotions behind the romance were not explained. There were a certain brands which kept re-occurring as brands with which students felt romantic about. These were Nike, Ford, Coca Cola, Dr. Pepper, Cingular, Sprint and Abercrombie & Fitch. The author of this paper believes that if marketing managers could harness this idea and â€Å"connect† customers’ emotions and feelings to their brands, it may increase loyalty; especially in such a competitive market it could help to retain more customers. If a customer experiences â€Å"romance† they may have a longer lasting relationship with a brand. Marketers have created the concept of the â€Å"The Loyalty Ladder†. The rungs on the ladder represent; prospect, customer, client & advocate. (See Figure 2.0).The idea of the romance being that a customer would remain on the top rung of the ladder for longer if the relationship was on a deeper level. 2.0 Abercrombie & Fitch Aaker and Mc Laughlin (2007) highlight the sources of brand equity (See Figure 3.0); brand awareness, brand association, perceived quality & brand loyalty. Brand awareness relates to the presence of the brand in the mind of the customer. Brands with high visibility tend to be purchased more frequently and also need to be maintained in the marketplace to re-enforce the brand awareness. As stated above, Abercrombie & Fitch is a brand name which people felt strongly about; it has international brand awareness and brand association. The brand is perceived as high quality, trendy and â€Å"American†. Abercrombie & Fitch have a huge loyal customer following. Lane (2007) describes the brand as being targeted at 18-22 year olds, mainly college students. The company was established in 1892 and went bankrupt in the 1970’s. The company was re-branded in the 1980’s to become a huge success. The annual report states that â€Å"The Company considers the in-store experience to be its primary marketing vehicle. The Company’s marketing strategy emphasizes the senses to reinforce the aspirational lifestyles represented by the brands. ..The Company also engages its customers through social media and mobile commerce in ways that reinforce the aspirational lifestyle of the brand†. Abercrombie & Fitch Annual Report 2010. Abercrombie & Fitch advertisements are all very consistent; black and white, topless men, beautiful males and females and often very sensual. (See Figure 4.0).Abercrombie and Fitch are famous for having had many controversial pieces of clothing and advertisements in the past but this has added to their brand image and increased media awareness. When the recession threatened many companies, Abercrombie & Fitch did not reduce sales prices, as they did not want to take away from the brands image and perceived high quality. The company did suffer a reduction in sales, however, to overcome this, management opened stores in new and emerging markets as the American market was maturing. Abercrombie & Fitch opened their first store in London in 2007 and have opened their doors in Japan to a new loyal market of young advocates. (They also sell online to the Chinese market). In the past few years there has been a shift in Chinese and Japanese culture. Teenagers in particular have become â€Å"Americanised†. Abercrombie & Fitch is a very popular brand in these countries as it represents the â€Å"American way of life†. In a study conducted by Parker et al (2004) it was found that the three most important aspects to a teenager were style, look and fit. Abercrombie and Fitch certainly contain these three elements. Tully (1994) supports the idea that it is relatively easy to form a â€Å"global teen strategy† & suggests that it is â€Å"†¦easy to form a global teen strategy, as teens around the world tend to have similar attitudes†. The research conducted by Parker et al (2004) showed this to be slightly untrue as US and Japanese teenagers tend to have more similarities towards the Chinese teenagers, as teenagers in China have less disposable income. However this is changing as China is an important emerging market. The Abercrombie & Fitch annual reports state that stores across China and Hong Kong are due to open in 2012. The author of this paper believes that the Abercrombie and Fitch brand is a perfect example of a brand romance. There are no loyalty cards or personal accounts to entice customers to climb the ladder. The famous brand and its image is enough to create an intense and emotional feeling within teenagers and young adults to become advocates of the brand. The loyal advocates (mainly 18-22 years old) of the brand remain perched on the top rung of the ladder until the next generation takes its place. The loving relationship lasts for approximately four years, until the customer topples from the top rung of the ladder. Abercrombie and Fitch also have other brands (Hollister & Gilly Hicks), which are not discussed in this article. What is different about this brand is how the company do not offer cards, accounts etc. like many other companies. Through their website they offer the chance to work in their stores and become a â€Å"store model†. Another perfect example of how aspirational this brand really is. (Abercrombie & Fitch official website) 3.0 Marks & Spencer (M&S) As mentioned earlier Aaker and Mc Laughlin 2007 highlight the sources of brand equity (See Figure 3.0); brand awareness, brand association, perceived quality & brand loyalty.. Marks and Spencer (M&S) were famous for their fleeting sales even before the recession and were faced by a takeover bid by Sr. Philip Green. M&S did not reduce their premium prices and instead invested heavily in a marketing campaign which eventually proved to be a success. (Marketing Society UK 2010). The net profit was  £526.3 million in the financial year ending 2010, an increase of 3.6% over 2009. (See Figure 5.0) Campaigns to re-enforce the M&S brand included the â€Å"125 years campaign†, taglines included â€Å"quality worth paying for† and â€Å"quality worth every penny† (See Figure 6.0). These campaigns also feature famous celebrities such as Twiggy, Mylene Class & Danii Minogue. (Marketing Society UK 2010). Walshe (2008) discusses M&S in the marketplace (See Figure 7.0). He describes the market as â€Å"weak†, the business as â€Å"ok† and the brand as â€Å"strong†. If a marketing strategy can successfully increase awareness of the brand then sales will increase. M&S experienced a lot of volatility in the marketplace and discusses how it was the business that was â€Å"temporarily broken† and not the brand. Through a strategy of changing product ranges, motivating employees and reminding customers about the brand and what it stood for, the company increased its profits. Throughout the marketing campaigns, the message of quality and good value was kept consistent so the brand association remained the same. Different forms of advertising have been researched to identify which types can affect brand association. The discussions are mainly broken into two categories; price and non-price advertising. (Kaul et al 1989, as cited by Clayton & Heo 2011). Non-price advertising can be described as differentiation or reminder advertising (Mitra and Lynch 1995, as cited by Clayton & Heo 2011). In a study conducted by Clayton and Heo (2011) on whether advertising affects brand association, the study concluded that promotional based messaging lowers the brand image, attitudes and perceptions of the brand. The authors do state that value-oriented messages have the ability to deteriorate brand associations. M&S have also created their brand as an association to corporate social responsibility, including expenditure in areas of climate change, sustainable raw materials and waste. (Datamonitor 2011 (a)). Customers perceive M&S to be a brand of high quality which the company constantly communicate in advertising campaigns. Tresidder (2010) in an article discussing a food campaign by M&S describes how the slogan is â€Å"This is not just food†. The advert ‘‘directs perception’’ by creating/reinforcing ‘‘signposts’’ of the M&S experience. â€Å"Thus, the text directs perception while guiding the social and cultural significance of the images used;, a conversion process takes place in which meaning is guided by changing perception through various techniques such as the use of text, changes in context and the meaning of the gastronomic experience† (Marshall, (2005) as cited by Tresidder (2010)). As stated earlier the loyalty ladder consists of four components; prospect, customer, client and advocate. In Tolba and Hassan’s (2009) research discussed earlier, the research showed that people who never tried a brand based their assumptions on which brands they preferred based on the image and attitude. In relation to M&S, a prospect customer will rely on advertisements, word of mouth, physical outlook of store and any other media surrounding the brand. M&S are opening new stores in emerging markets and will have many more prospect customers as opposed to the maturing domestic market. Once prospect customers have stepped up the ladder from prospect to customer, M&S offer a M&S credit card which gives the cardholder points. A premium card is also available got frequent shopper who are clients and advocates which offers treble points. (marksandspencer.com). Clients and advocates of M&S tend to be of a mature age and trust the M&S brand. More recently M&S have used celebrities in their adverts to gain a younger market share. The company is also the leading department store retailer in the UK. The clothing and fashion segment is estimated to have led to such leadership. (Datamonitor 2011(a)) . Huang & Huddleson (2009) conducted a study on own brand products and concluded that own-brands can often have a product advantage over competition which creates a competitive advantage because the retailer is creating their own products, they put more effort into the production and image of the product. Marks and Spencer have launched an internet channel through â€Å"M&S Direct†. Customers can shop online and a new facility called â€Å"Shop your Way† enables customers to order online, in stores or over the phone. Products are delivered free of charge to the nearest store. Through M&S direct, customers can join discussions and see what is happening in their local stores. March and Quinton (2009) discuss viral communities and how they impact the on loyalty ladder. They state how impostant social networks are for marketers and how they act as a â€Å"conduit for intra customer dialogue†.The authors posited the idea of a â€Å"social network contributor ladder† for online users. â€Å"This understanding will enable marketers to communicate more effectively with both the influencers and other members of the social network ladder†. (See Figure 8.0) March and Quinton (2009) 4.0 Hennes & Mauritz (H&M) A prime example of a strong own brand image is the Swedish company H&M. Mc Coll & Moore (2010) conducted a study to examine own brands and product brands. It has been increasingly competitive in the past few decades with companies setting up stores internationally. The authors discuss that own brands such as H&M will be more successful if they reflect the corporate brand image which must also be strong in the marketplace. Own brands have more control over products which gives them a competitive advantage. (Mc Coll & Moore 2010). H&M is a global brand based on its â€Å"value creating retail concept†. H&M have built their powerful brand based on a business model of fashion and quality at the best possible price. (Ilonen et al 2010). H&M mainly create brand awareness through television, internet,and mobile phone. H&M have an iphone application and online game â€Å"Mytown†, where players can view â€Å"virtual goods†. (WARC news Sep 2010). In April 2011 H&M launched it’s free Android application. This enables customers to browse clothing, check out offers and watch exclusive videos. There is a huge international brand awareness of H&M, with stores operating throughout Europe, South Korea & Israel. The company is now focusing on new emerging markets such as Romania & Croatia and opened their first stores in these countries in 2011. H&M have sponsored celebrities in the past to create a strong brand association. They chose those who they perceived were most suitable to position H&M as an upscale fashion retailer offering clothing at best price, Roberto Cavalli, Jimmy Choo & Madonna are examples of celebrities who endorsed the H&M name. (Datamonitor 2011 (b)) H&M has a fast retail policy & quickly follows market tends to deliver merchandise to its outlets daily. The loyal customers of H&M tend to be young and fashion conscious. H&M has kids, women and men’s clothing shoes and accessories. The company has experienced revenue growth year on year even throughout the recession ( See Figure 9.0). In relation to the loyalty ladder, as discussed earlier by Tolba & Holsan (2009) a prospect customer will purchase based on perception and image of the brand. There is no doubt that this brand has a strong market presence. Also, as most of the customers are younger there will be more of an influence by friends, peers and the fashion industry to conform to trends. (Parker et al 2004) . Some companies’ have reduced mobile marketing communication during the recession but as mentioned earlier, H&M rely heavily on mobile marketing. They use technology to communicate discounts etc. very often people who receive these messages send them on to friends, this results in a usually a 50% increase of people in-store. H&M see this as a success in creating massive â€Å"footfall in their stores. (Carter 2008).This form of marketing is also useful as when people send on these messages, it can draw prospect buyers into the stores. Once the prospects have climbed to the next rung of the ladder and become customers, H&M offer an account. This account allows customers to have limited access to the â€Å"virtual dressing room† and other benefits such as communication via internet, mobile phone applications and offers which draw the customers back in-store time and time again, to eventually become clients and advocates of the H&M brand. 5.0 Conclusion All three companies discussed in this paper have strong brand images which are constantly communicated to the public. Customer loyalty does remain as a result of strong marketing strategies and constant brand re-enforcement. In relation to M&S and A&F, sales have slowed down as their domestic markets are maturing and people have less disposable income due to the recession. However, both companies have weathered previous recessions. Many customers still desire to buy these brands and the strong brand image will help increase sales in emerging markets. Both M&S and Abercrombie & Fitch had an increase in 2008, which dropped in 2009 but increased in 2010 again. H&M has a steady increase year on year. Abercrombie & Fitch is due to open in Dublin at the end of this year and also due to open in Paris and Milan. All three companies are concentrating on new and emerging markets as their domestic markets mature. (See Fig 10.0) The author of this paper has posited a new loyalty scale as opposed to the loyalty ladder, see (fig 11.0). The loyalty ladder does not account for customers who are dissatisfied or â€Å"anti† a brand. Customers begin as prospects and can go up or down the scale depending on their experience with the brand. The internet plays a crucial part in communicating with customers and creating relationships to strengthen bonds with them through social networking sites and discussion fora. With so many global brands in society, it is important to keep re-enforcing brands to keep customers firmly perched on the top rungs of the loyalty ladder.