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  • Meyrick Consulting

The Delusional Fallacy of Brand Equity


The food and ingredients industry is highly fragmented, with a plethora of organisations all fighting over the same space, plant-based sector becoming the most competitive of all right now, but there are others.

So, what's the differentiator and what is the long game for the new brands that are having to compete head-to-head with equally new and indeed more established brands?

And - have they got it all wrong?

Since it has been suggested that the brand equity of individual companies in the food and ingredients industry is not as important as their product or price, could we venture so far as to say - the branding of companies is not as critical to success in this industry as it is in other sectors like apparel or automobiles? Maybe, but let's dive deeper than this.

Food and ingredients manufacturers typically sell directly to consumers (e.g., packaged goods manufacturers) or through wholesalers (e.g., grain producers). As a result, most brands do not have extensive shelf presence in grocery stores but are instead sold directly to the end user or an intermediary.

But what about the few that do make it onto the shelves of our stores and most importantly - stay there past the pilot and beyond? Well, we see more and more new brands being granted placement in our stores, many of which have had to battle for a very long time to get there. So let's take a look at - what brand equity is, and how has the food and ingredients industry got it so wrong - the overvaluation of brand equity is killing off many brands before they enter into any real stage of maturity.

What is Brand Equity?

Brand equity is a measure of the value of a brand beyond the tangible assets behind it. The concept of brand equity has been studied by academics, marketers, and brand strategy professionals since the mid-1970s. A brand's equity is determined by the strength and value of its brand associations, the brand's reputation, and its economic value. A strong brand has the power to impact sales, customer satisfaction, and company reputation, which can then lead to increased customer retention and profit. A brand's equity can be broken down into three main components: brand awareness, brand loyalty, and the brand's equity premium (also referred to as brand equity).

Traditional Brand Equity?

Successful brands are those that have positive associations in the customer's mind and that have a track record of delivering on value propositions. Brands that have been successful for decades are rare. One of the best examples of this is Coca-Cola. A brand that has been around for over 100 years and has maintained a positive reputation for all of that time. While it is impossible to predict what the future holds, it is likely that Coca-Cola's established brand equity will help it weather the next century just as well as it has the last. When a company evaluates the value of brand equity, it is essentially forecasting the future value of the brand. This can help companies prepare their budgets and forecast future earnings. Successful brands are companies that are able to grow revenue by leveraging their brand equity. This can be done through various channels, including advertising campaigns, environmental branding initiatives, and product innovation.


Okay so we got that out of the way. What's the problem...


Defining Brand Equity in the Food and Ingredients Industry

Similar to how brands in other industries are built, for food and ingredients brands, brand equity is about the customer experience. In order to have a positive customer experience and drive repeat purchases, food and ingredients brands need to have strong associations with the customer. The best brands not only provide a high-quality product but also have a consistent brand experience across all touchpoints. These brands have a positive social impact, like sustainability, and an authentic and unique brand story.

Whilst this all sounds great; there is a lot of money being invested by the food and ingredients industry into connecting with their consumers in the hope they are able to secure a brand equity equal to that of brands like Coca-Cola, Pataks, Warburtons and Red Bull amongst a few other highly-established brands. This level of brand equity is almost unachievable in today's market.

The Unreachable Commitment

Brand commitment is the customer's willingness to remain loyal to the brand. The Coca-Cola Company is a great example of brand commitment. While the brand is constantly innovating and introducing new products, it takes care to ensure that the core product and brand experience remain consistent. This consistency leads to customer loyalty. When a customer buys a product from a brand they trust, they are committing to that brand. Commitment is important for food and ingredients companies because it is a core part of building a profitable business. As with many industries, customers who commit to a brand are more likely to return to that brand, which drives repeat purchases. This means that a company can rely on a specific customer base to buy its product again and again, even if a competitor enters the market with a lower-priced product.

But this is simply not true for the new food companies hitting the shelves of retailers. According to an early 2022 Mintel report, there has been a huge rise in the number of new food products and brands hitting the shelves of retailers over the last 5-years. Consumers are now constantly looking for the next NEW thing and are less likely to commit to a brand in the way they once did.

But let me just be clear, it's not that food companies are failing. It's that organisations in the food and ingredients business understand the fast-paced nature which is becoming even faster. Companies are able to bring products to market much quicker than they once could. Brands are under constant attack from competitors, not even offering a better option, just a different one - which is what many consumers now seek.


The Fallacy of Future Payoff

The future payoff is a brand's ability to continue to provide value long after the first purchase. Just as Coca-Cola continues to provide value for its customers decades after the first purchase, so do the best food and ingredients brands. This can be seen in products like Teddy Grahams, which are beloved by children and adults alike. Teddy Grahams brand equity allows it to build brand recognition and drive future payoff by sponsoring children's sports teams and team members. This is important for food and ingredients companies because it is a way to build brand equity over time and extend the customer experience beyond the initial purchase. Future payoff can be achieved in a number of ways but mainly through environmental initiatives that promote sustainability and social responsibility.

RedBull is a beverage company that invests heavily in being associated with adrenaline sports and events. Is it possible in today's fast-paced, constantly changing consumer market that any brand would have the time to achieve this degree of market share before a competitor launches their product only to push it off the shelf?

Conclusion

Food and ingredients brands are no different from any other brand in that they need to be strong and consistent in order to drive loyalty and repeat purchases but more than this, they need to taste incredible. The challenge of building brand equity in this industry is significant, and whilst some may take on this challenge with deep pockets and a desire to become the next household brand. In reality, that money would be better spent on innovation and bringing new products to market quickly.

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