Four years ago, E retired as Financial Director of an airport company to become

Question

Four years ago, E retired as Financial Director of an airport company to become an ethical entrepreneur. He now employs ten people producing natural spring water and selling it in both still and sparkling varieties in individually sized plastic bottles. There has been no staff turnover whatsoever. The company, called 99, uses 'green' electricity and all profits go to a charity that installs pumps to provide clean water to some of the poorest communities in the world. Thanks to E's business contacts, 99's water is sold in a few garages, on airplane flights and in airport shops. He has, however, found it impossible to get its water stocked by supermarkets because they want to charge a standard 'joining fee' for small suppliers, even though they know that 99 exists for charitable purposes. Despite this, and the fact that competition in the industry is intense, 99 has achieved rapid growth and significant profits (E receives no salary and the wages of employees are modest). Every time 99 sells enough bottles to build a new pump, it sends two employees abroad to help with the installation and pictures are published on the company website.
A recent national survey indicates that customers want products supplied and marketed responsibly and blame large retailers for not providing more environmentally and socially friendly products. Three quarters of respondents in the survey say that they 'completely agree' that they would choose a socially and environmentally responsible product over one that was not, and two thirds say that they would work for an ethical employer even if it meant being paid less. Last year E turned down a financially lucrative offer to sell 99 to a leading drinks company,
believing that it did not really share his vision and was merely attempting to buy credibility with the growing number of consumers with ethical concerns. Now Z, a large food and drinks company has made a similar offer. Z sees the acquisition of 99 as a way of complementing its product portfolio and furthering its marketing strategy of addressing consumers concerned about green and ethical issues. Z, which began as a workers' cooperative, makes charitable donations annually, has carbon labelling on all of its products and has plans to make all packaging biodegradable or recyclable. Z's distribution also involves the use of low-carbon vehicles.
Should the takeover go through, Z promises to operate at a distance, allowing 99 to run in a similar way and promises to increase the current level of water pumps financed incrementally every year to double the numbers within the next five years. Z is also reviewing its HR activities and feels it could learn from aspects of 99's operation which it believes exhibits best practice and societal trends.
E believes that, by agreeing a deal with Z, there would be a number of benefits for 99 which would include:
- financing more clean water pumps;
- an improved distribution network and environmentally cleaner transport;
- the opportunity to ensure bottles and packaging become 100% biodegradable or recyclable;
- expertise to develop the 99 brand still further;
- an ability to get 99's water onto supermarket shelves.
Explain the reasons why a strong brand is so important to companies such as 99.

Explanation / Answer

Communication of the organisational vision
Brands are a shorthand means of communicating to the market place what an organisation stands for. As well as communication of the unique product characteristics, brands assist image creation and vision projection. These factors are important for 99, which through its brand can share its vision for globally available clean water whilst respecting the environment.
Differentiation of product from competitors
A strong brand distinguishes a company from its competitors by making it easily recognisable. 99 is recognised as a charity brand. In this case, a particular difficulty is that there are plenty of natural bottled natural spring water products on the market and competition in the industry is intense. This makes the value of the 99 brand more important because it helps emphasise a source of differentiation from the competition. It appears that because of its beliefs, 99 has already found a market niche in the face of bigger competitors but the basis of differentiation may need greater emphasis through effective brand management.
Ability to command premium prices
Branding that communicates 99's social and environmental credentials allows 99 to charge a little more for its products. The importance of 99 having a strong brand is what it can achieve through it. A strong brand is good for sales, so contributing to 99's corporate aims. The scenario indicates that most consumers choose socially and environmentally responsible products over others. This is fortunate for 99 as a relatively small player in a large bottled water market. Due to an insufficient volume of production and consequent diseconomies of scale allied to the more costly green electricity, 99's unit costs are likely to be relatively high. Unlike large bottled water producers, 99 is unable to compete on the basis of charging low prices for its products. The strength of the brand and customer loyalty means that despite the fact that unit prices may not be the cheapest, 99 can still remain competitive.
Perceived superiority of the product
Branded goods will always attract higher prices than unbranded products. Their appeal is that because of branding they are somehow perceived as being 'superior' in some way. In the case of 99, the nature of this superiority is the company policies and aspirations that lie behind the product. The product is, as a result, less price sensitive in the face of competitor actions such as price cuts, due to its brand.
Connection with the customer base
The 99 brand represents the linkage between the product and what it stands for and the consumers' beliefs. Successful brands create special relationships with customers because of their intangible qualities that provoke strong emotional responses by individuals. Presently, 99 uses 'green' electricity and funds the provision of clean water to some of the poorest communities in the world. These ideals apparently resonate with consumers. Modern consumers have higher expectations of companies than ever before, thanks to greater choice of products and easy access to company information. A brand is a way of describing all the information or perceptions that are connected with a particular product or service. The brand is therefore important in captivating consumers and fulfilling their expectations.
Perception management
Brands shape perceptions. There is no suggestion that E has expertise in brand development and management (indeed he sees the tie-up with Z as an opportunity to develop the 99 brand further). A recent national survey indicates that customers blame large retailers for not providing more environmentally and socially friendly products. It may be that this widely held view has worked to 99's advantage. In short, 99's growth might in part be explained as being a result of being an independent, small brand with, so far, possibly unsophisticated promotion and packaging. One danger of a tie-up with Z might be that customer loyalty could be jeopardised. Care will have to be taken to ensure that 99 loses none of its 'smallness appeal' but the brand is developed sensitively.
Customer loyalty
When customers have a level of familiarity and recognition for the 99 name and its associated aspects such as symbols and strap line, brand awareness has been achieved. This awareness will hopefully lead to brand loyalty, repeat sales and habitual buying of 99's water(subject to easy availability). Repeat sales are particularly important for fast moving consumer goods (FMCG) such as 99's water which by nature are low cost and rely on sales volumes. A maxim of marketing is that it is more effective to satisfy customers who will make repeat purchases rather than having to constantly attract brand new customers. For the customer, choice is simplified when making a purchase because the 99 brand is in tune with their needs and wants. Satisfied customers also act as a source of promotion and influence to others leading to increased sales and market penetration.
Brands as corporate assets
Positive brands are a significant source of organisational strength and may even be a key organisational asset. Despite being intangible, brands such as 99 can be of substantial value. 99's success has led to two take-over bids being made because larger players value the 99 brand that has been created and developed. Sources of water and green technology are in no way unique or particularly valuable. What is of value, however, is the inherent goodwill and reputation the brand communicates when persuading customers to make a purchase or retailers to stock 99's water.
A means of customers making a statement
Brands are important because they allow individual customers to make statements about themselves. For instance, branded watches, jewellery, footwear and clothing help project images for those who wear them as being either sophisticated, trendy, fun-loving or sporting etc. In the case of 99's water, it is likely that customers buying a bottle of water will feel that they have (however indirectly and modestly) somehow contributed to some worthy cause. The statement customers are making when they buy 99's water is that they 'care'.
Reassurance over the purchase
Following a purchase, the individual customers will inevitably consider whether they made the 'right' choice or not. Companies hoping to achieve long-term success need to create relevant and consistent experiences for their customers. In the case of 99's water, the drink itself must have an acceptable taste and the bottle must be of an appropriate standard. It is the underlying ethics of the company however, that give reassurance to a customer that they
have made the 'right' purchase.

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