Brand equity and business cycles
Business cycle fluctuations may affect different brands differently: Some brands may be able to ride the wave of expansionary periods while others may benefit from contractions. A recent study examines whether and how sales-based brand equity (a metric focusing on revenue premia of brands) changes for brands with different strategic positions depending on the business cycle.
Factors that were used to distinguish between different positioning strategies include price level, advertising spend, line length, distribution breadth, brand architecture, and market position.
The study utilizes data on 325 consumer packaged goods (CPG) national brands in 35 categories across 17 years in the U.K. Results show that the effectiveness of the six strategic factors to enhance brand equity often differs between expansions and contractions (see table).
- In economic expansions brands benefit from a premium price position and market leadership to build brand equity.
- In contractions brands can capitalize on factors like advertising, using an umbrella brand architecture and market leadership.
- Distribution adds strongly to brand equity, irrespective of the business cycle. In both good and bad times widely distributed brands have a competitive advantage.
- In expansions, a large assortment is also a strong contributor to brand equity, while it does not harm brand equity in contractions.
Major take aways for national brands and their managers are:
- Evaluation of the distribution strategy is key. Selective distribution may sometimes be a strategic choice – but if it is not managers must examine how trade marketing and channel incentives can help to expand distribution.
- Assortment expansion should be prioritized, unless there are other conflicting issues (e.g., lack of resources). Investing in R&D and innovations can pay off even in bad times as brands are ready to launch innovations when the economy bounces back.
- Management decisions on premium price position, market leadership and advertising are factors with modest effects on brand equity only.
Rajavi, K., Kushwaha, T., & Steenkamp, J. B. E. (2022). Brand Equity in Good and Bad Times: What Distinguishes Winners from Losers in CPG Industries?. Journal of Marketing.