Understanding the Dynamics of 6P Branding Strategy with Brand Equity for a Mature Customer-Goods Brand using a System Dynamics Model

Akhmad Hidayatnoa, Daisy Nadia Putrib, Irvanu Rahmanc

a,b,c System Engineering, Modeling, and Simulation Laboratory Industrial Engineering Department, Faculty of Engineering,

University of Indonesia, Depok 16424 E-mail : akhmad@eng.ui.ac.id

ABSTRACT

With high economic growth, the Indonesia’s Fast-Moving Consumer Goods (FMCG) companies also experiencing a rapid market growth that has attracted more new players in the market. For both new and established FMCG companies, success in building and sustaining a brand is the key driving factor in winning the competition. A major concern in brand equity, as measurement of the intrinsic value of the brand competitiveness, is how to understand the behavior of brand equity overtime in relationship to the brand management strategy the major concern. This is especially true for an established mature brand to stayahead. Therefore, this research develops a system dynamic model simulating the impact of brand strategy implementation to brand equity as a medium for understanding these relationships. Brand equity consists of brand-loyalty, brand-awareness, brand association and perceived product quality. Brand strategy consists of 6P factors: product, price, place, promotion, proposition and pack. The research investigates three plausible scenarios: aggressive competitor, business-as-usual, and passive competitor. The model shows how mature brand would have a different behavior than new brand that requires a different 6P branding strategy than a new or growing brand.

Keywords

Simulation, System Dynamics, Brand Strategy, Brand Equity, Brand Awareness, Brand Loyalty

1. INTRODUCTION

With the increased market-size of Fast-Moving Consumer Goods (FMCG), due to Indonesia’s high economic growth, has lured new companies to enter the market or old companies to expand its current product portfolio. Any mature product must be able to defend itself with the wave of new or rebranding old product. Which means brand strategy represents a key important aspect in marketing for FMCG companies. However, the process of building and sustaining a brand is highly complex and unstructured. Many dynamic variables, which are mostly tacit knowledge, affects this process and makes it difficult for brand managers to predict how branding strategy implementations could affect the brand as a whole.

This research developed a model that would help brand managers, who are responsible for a brand specifically in FMCG companies. The purpose of the model is to produce a brand equity model as a learning tool for brand managers to simulate interactions amongst indicators of brand equity in the system in order to evaluate the implementation of 6Ps branding strategies. It is suggested that the development of a system dynamic model will enhance the decision making process of brand managers.

2. LITERATURE REVIEW

Competition among brands is one of the most important key that determines business competitiveness to win the market. Companies with strong brands portfolio will have better options to compete rather than competing in price and specification alone [1]. Brand is a set of attributes that sticks to certain product or service, such as character, value, association, and quality that consumers have in mind and could interfere with consumers buying process [2]. Brand management roles are very crucial in managing brands to grab market potential through the application of branding strategy. According to Martins (2000) and Sampaio (2002), branding is an effort that aims to generate and develop brand value. Branding is also perceived as brand management process to generate brand equity and in turn will make the brand become more valuable and maximize its effect among the competitions [3]. The concepts that endorse brand equity are the most popular common practices in modern businesses since it considered as key business performance in maximizing its profit.

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Brand equity is an example of a complex system that is affected by dynamic interaction among factors, both among elements that structure it and the interactions among those elements to the application of branding strategy. Aaker (1991) defines brandequity as a set of added values that is given by a brand to a product or service [4]. Brand equity give an added-value in increasing marketing efficiency and affectivity, build brand-loyalty, increase profit margin, and increase bargaining position toward seller [5]. Brand concept that aligns with brand equity will enable companies to evaluate their brand more effectively therefore will be able to develop a better branding [6].

For the model, brand equity consists of four elements: brand-awareness, brand-loyalty, perceived-quality, and desire-to-buy brand [7]. Oliver (1997) describe brand-loyalty as consumer commitment to repeat purchase of a product, although it is rather situational and very much affected by marketing effort to change this tendency [6]. Brand awareness is the ability of potentialconsumers to recall or remember a brand and link it to its product or service. Perceived-quality is defined as consumer’s perspective toward overall quality of a product or service. It is rather subjective and cumulative over time [6]. Otto & Bois (2001), defined desire-to-buy brand as consumer's aspiration to buy certain brand [7].

There is a need of a learning medium, in a form of a model, to solve this brand complexity to highlight the interactions among brand equity elements and with branding strategy. With a more understanding of these interactions, brand managers will be able to evaluate their branding strategy to survive and grow as competition is getting crowded. It should be able to accommodate the concept of brand equity as the accumulation of relevant consumers and their expectations [8]. System dynamics methodology could accommodate understanding these complexities understanding through behavior changes over time when there is a change in the structure [9]. System dynamics is also accommodates scenario implementation test needed in this research. It could also show how it affects toward the whole system behavior [10].

3. RESEARCH METHODS

The research methodology follows the four steps of systems dynamics modeling methodology of conceptualization, development, validation, and model usage and analysis.

3.1. Model Conceptualization

Interaction amongst variables and feedback from each variable are the focus in system dynamics modeling. System diagram is a perfect tool to represent interaction and feedback from variables. Figure 1 shows the system diagram for Brand Equity Model. The primary users are brand managers, which have to manage the brand to achieve desired key outputs from the system: brand-awareness, desire-to-buy brand, brand-loyalty and product perceived-quality. Other stakeholders of the system would also influence the output definition from the system. Brand managers would like to exercise certain branding scenarios to the interaction in the model and see how the results changes. The model must also account input from exogenous variables such as price, availability media exposure, shown on the left side of the diagram.

Based on the systems diagram, the construction of the model was starting by examining Otto’s Brand Equity Model (Figure 2). In this linear model, desire-to-buy brand approached to be the effect pool from three other brand equity indicators. Consideringthe definition of brand equity as value added generated by the brand, desire-to-buy brand becomes the closest indicator for assessing Brand Equity success in adopting consumers. Otto also stated that desire-to-buy brand indicator is able to summarize the effects produced by other elements such as brand-awareness, brand-loyalty, and perceived-quality [7].

However, Otto’s model does not explain about how each variable affecting the adoption process of a product. Therefore, a new concept, shown in Figure 3, was developed on explaining how each stage in the adoption process s influence bay the variables Otto’s model.

Figure 4 illustrates the translation of the Otto’s model into CLD. It shows how product attractiveness and customer satisfactioncan build perceived-quality. Increased in perceived-quality is the result of the interaction amongst four factors: product, price, packaging, and availability, and balanced by the brand negative image. Perceived-quality is considered as ‘moment of truth’ to consumers, whether the product is good or not. If consumer perceived it acceptable and preferable, consumers will tend to buy more and increase brand-loyalty. In turn, brand-loyalty will affect customer satisfaction.

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Figure 1: Model Conceptualization of Brand Equity Model as a System Diagram

Figure 2: Model Assumptions based on Otto’s Brand Equity Model

Figure 3: How Each Brand Variables affecting the Adoption Process

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Figure 4: Causal Loop Diagram of Brand Equity Model

In brand-awareness, promotion effectiveness will affect brand-awareness but can be distracted by the distortion of competitor attractiveness. Promotion investment is likely to improve the effectiveness of promotional campaigns and the effectiveness of this campaign will ultimately increase brand-awareness. The more consumers know the brand; it will increase brand-loyalty. Likewise, the more loyal consumers know the brand better. Desire-to-buy brand can influence brand-awareness and brand-loyalty. In turn, they can also affect the desire-to-buy brand. Besides distorting promotion effectiveness, attractiveness competitors will also distract the desire-to-buy brand and brand-loyalty.

3.2. Model Development (SFD)

In order to complement the secondary data obtained through company reports, a Focus Group Discussion (FGD) was conducted to gain insight on the relationships of the model. The model was shown and discussed in the FGD, and the complete model is illustrated in Figure 5

Figure 5: Brand Equity Model Birds-Eye View

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3.3. Model Validation

The model underwent four validation methods in SD: dimensional consistency test, structure assessment test, behavior validation test, and sensitivity analysis test. For the behavior validation test, output from our model validate the reference mode from Otto’s desire-to-buy brand variable (Figure 6) [7].

Figure 6: Desire-to-buy Brand Indicator Model Simulation Validation

Sensitivity analysis validation aims to determine how sensitive a variable affect other variables and sees whether the responseof the model is appropriate with the response in real behavior condition. The model used two exogenous variables: brand-loyalty and competitor attractiveness.

Figure 7: Brand-loyalty toward Competitor Attractiveness Change

Based on Figure 7, we can see that level of competitor attractiveness is strongly influence the brand-loyalty. Competitor Attractiveness will give pressure to brand-loyalty. A higher increase of Competitor Attractiveness will result a higher pressureon brand-loyalty that may caused decline in brand-loyalty value. These behaviors correspond with the real live perceptions.

3.4. Scenario Development

From the results of simulation scenarios, conducted summary on each indicator of each scenarios to get an idea of how the effect of these scenarios running on each indicator. Since brand strategy links with competitor brand strategy, the scenarios were developed based on the brand manager’s plausible responds to any changes in the competitor brand strategy. Any competitor strategy would affect their products attractiveness. Business-as-usual scenario illustrates the currently implemented6Ps branding strategy. Aggressive-competitor scenario is when the brand manager responds if competitor aggressively increases its product competitiveness. Passive-competitor scenario is when the competitor actually loosens the product brand positioning. The model runs for five years, a long term planning perspectives for a FMCG company.

4. RESULTS AND DISCUSSION

4.1.1 Desire-to-buy Brand

Figure 9 shows the behavior over time of desire-to-buy brand which rose slowly at first, but then accelerated and slowed down again at the end of the period because of the balancing effect of the variable representing the dilution effect of consumer boredom.

On passive-competitor-scenario, desire-to-buy brand experienced faster movement behavior over time curve resulting greater value than business-as-usual scenario as much as 3% by the end of the simulation period. Meanwhile, on passive-competitor-scenario, desire-to-buy Brand experience slower movement behavior over time curve resulting decline value than on business-as-usual scenario as much as 3% by the end of the simulation period.

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Figure 8: Scenarios for 6P Branding Strategies

4.1.2 Brand Awareness

Figure 10 shows how brand-awareness creates an exponential curve behavior over time, as the effect of the interaction between promotion investment and promotion exposure. Two balancing-loop structures on the CLD between brand-awareness, investment promotion and brand-awareness, and with the competitive pressure on promotion effectiveness is not significantly influence the brand-awareness to create a limit to growth behavior. Both loops just reduce the growth level of the brand-awareness. These behaviors show loyalty in mature brand is very strong comparing to any attack from competitors promotion.

Figure 9: Desire-to-buy Brand Behavior Over Time in Each Scenarios

Between the scenarios, on aggressive-competitor-scenario, brand-awareness indicator performance decreased compare to its simulation result on business-as-usual scenario implementation. Promotion effectiveness is one of the most influencing variable to brand-awareness, which itself is influenced by the promotion investment, promotion exposure, as well as competitive pressure caused by competitors attractiveness.

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Figure 10: Brand-awareness Behavior Over Time in Each Scenarios

In the case of a mature brand, the distortion from competitor attractiveness plays a bigger dominating effect to promotion effectiveness. Therefore, when it reaches to a saturation point, increase in consumer awareness level is slowing down. Consumers are uninterested with the same marketing messages. This would affect on the brand-awareness performance. It shows in the aggressive-competitor-scenario by experiencing slower movement on behavior over time curve and declining brand-awareness value as much as 3% by the end of the simulation period.

From the model, brand-awareness indicator performance on passive-competitor-scenario increased by 7% compared to the scenario. This happens due to a decline in attractiveness competitors that has an effect of investment promotion become even stronger in promotion effectiveness, although the investment amount is reduced.

4.1.3 Brand Loyalty

Brand-loyalty also increased exponentially due to the reinforcing loop structure between brand-awareness, brand-loyalty, desire-to-buy brand, and perceived-quality (Figure 11).

Figure 11: Brand-loyalty Behavior Over Time in Each Scenarios

Brand-loyalty on aggressive-competitor-scenario shows lower performance than business-as-usual, as the competitor awareness increased. Since competitor awareness influenced brand-loyalty in reverse, brand-loyalty went down by 25% as competitor awareness increased. On the contrary, brand-loyalty indicator on passive-competitor-scenario experience faster movement on behavior over time curve than business-as-usual scenario much as 25% at the end of the simulation period

4.1.4 Perceived Quality

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Figure 12 shows that perceived-quality is remained constant due to the fact that the brand has reached a mature stage in its brand life cycle. The launch of new products, new packaging, premium price, and improved distribution availability do not show significant effect on perceived-quality.

Figure 12: Brand-awareness Behavior Over Time in Each Scenarios

The lack of significant change in the perceived-quality also leads to lack of changes in satisfaction level, which in turn resulted to lack of change in the perceived-quality in total.

Perceived-quality on passive-competitor-scenario changes in two variables of the 6Ps branding strategy: distribution availability level (reduced to 70%) and price premium level. The simulation results of perceived-quality on passive-competitor-scenario showed similar results with the business-as-usual scenario; whereas on aggressive-competitor-scenario, a launch of new products and packaging and increases availability has caused slightly better result than business-as-usual scenario.

5. CONCLUSION

Based on the model, mature brands performance depend on competitor attractiveness. In a passive-competitor environment, when the competitor attractiveness declined, performance of all brand equity indicators moves up even when all branding strategy elements declined. On the contrary, when the competitor attractiveness increased and all the company branding strategy elements rose, the performance of all brand equity indicators declines. Therefore, mature brand should be very carefulon maintaining its competitiveness against competitors, because it would need higher effort just to reach back its prior position on all indicators once the brand lost its prime position.

REFERENCES

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117. [4] Aaker, D. A. (1991). Managing Brand Equity. New York: Free Press. [5] Bagozzi, R., Rosa, J., Celly, K., & Coronel, F. (1998). Marketing management. Upper Saddle River: Prentice Hall. [6] Tuominen, P. (1999). Managing Brand Equity. LTA , 65-100. [7] Otto, P. A., & Bois, J. R. (2001). Brand Management Facilitation: A System Dynamics Approach for Decision Making. PAD , 824-

843. [8] Ahmad, N. (1998). Brand Equity form A System Dynamics & Decision-Making Perspective. New York: Strategic Decisions Group. [9] Lyneis, J. M. (2000). System Dynamics for Market Forecasting and Structural Analysis. Sys Dyn Rev 16(1) , 3-25. [10] Fahey, L., & Randal, R. M. (1998). Learning from the future. New York: John Wiley & Sons.

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