Adding Value (RLE Marketing)

Brands and Marketing in Food and Drink

Geoffrey Jones, Nicholas J. Morgan

• Publisher: Taylor & Francis
• Year: 2014
• Print ISBN: 9781138965935
• eBook ISBN: 9781317643814
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

An international group of scholars, drawn from the United States, Europe and Australia and from a number of academic disciplines, explores the history of marketing in the food and drink industries, focusing on the meaning of brands, the ways in which they add value and the surrounding business strategies.

1 Brands and marketing

Geoffrey Jones

Adding value, according to a recent book on corporate strategy, is ‘both the proper motivation of corporate activity and the measure of its achievement’ (Kay 1993: 19). Firms add value in many ways. This volume considers one of the most important: their marketing strategies. Marketing involves a complex range of issues, including logistics, pricing and positioning decisions, advertising, packaging and branding. All of them are considered here, but the discussion has been focused in order to allow a consideration of issues in-depth.

There is, first, a focus on branding. It is, perhaps, an exaggeration to claim that ‘the primary capital of many businesses is their brand’ (Kapferer 1992: 8), but in certain industries and products there is a great deal of truth in such a view. The following chapters explore a number of crucial questions about brands. What is their function? What is the difference between a product and a brand? What is the value of a brand? How were successful brands created? How have some national brands spread across borders to become global brands?

The second focus is on food and drink. There are considerable differences in marketing strategies between consumer and industrial goods, and between durable goods, non-durable goods and services. Branding is relevant only for a limited range of commodities, of which food and drink products are among the most prominent. However, it is believed that the material presented here is of relevance and use to a much wider range of industries than food and drink.

The concentration on food and drink helps to explain the otherwise obsessive preoccupation with the English-speaking world. The marketing stories explored here – Coca-Cola, Kellogg, Johnnie Walker, Foster’s Lager, Sainsbury’s – originate from the United States, the United Kingdom or Australia, though some non-Anglo-Saxon companies and products – such as Carlsberg – are considered. Food and drink are industries in which companies from the English speaking countries have traditional – and continuing – strengths. By 1914 US entrepreneurs had developed a range of products and brands which were to dominate the world industry for the rest of the century: examples included Coca-Cola, Heinz, Campbell Soup and Quaker Oats (Chandler 1990: 149–57). British firms developed fewer global brands, but their influence in food and drink was almost as great. In the 1980s the internationally competitive position of Britain in consumer packaged goods remained a strong part of an otherwise mediocre economy (Porter 1990: 482–96). A volume on brands and marketing of cars and consumer electronics would draw on many Japanese examples. In food and drink, the Americans, British and Australians offer instructive cases.

The third focus is historical. Marketing practitioners and marketing academics have rarely displayed much interest in the history of marketing, but since the early 1980s this situation has changed and there has been ‘a stunning growth’ of research on the subject, at least in the United States (Hollander and Rassuli 1993: xv). The literature on the history of marketing elsewhere is less rich, although recently there has been a steady stream of publications on Britain (Corley 1987; Davenport-Hines 1986; Tedlow and Jones 1993). The very nature of a brand, whose identity is built over time and which can rest so fundamentally on its heritage, makes an historical approach particularly appropriate. Many of the following chapters draw on completely new research as they explore brands and marketing over time. Together, they represent an important addition to the literature on the history of marketing, and add an historical perspective to subjects of major strategic importance in contemporary business.

The chapters in this volume fall into four groups. Chapters 2 to 5 raise many of the key issues of this volume. In particular, they explore the nature and functions of brands, and their value – to firms, consumers and society as a whole. Wilkins provides the essential historical framework in her study of how and when brand names developed in the food and drink industries. She traces their origins back 4,000 years, but shows that in their modern form their growth can be more precisely correlated with the key changes in economic and business life in the late nineteenth century: the rise of the modern industrial enterprise, the development of national as opposed to local markets, changes in the technology of food and drink processing, and urbanization and rising personal incomes.

Wilkins takes us to the heart of brands. Brands guarantee quality and performance delivery. They are a haven of stability in an unstable, or unknown, world. They became important, Wilkins argues, when producers ceased to know consumers personally, as was the case from the late nineteenth century. Their essential and positive function was to convey information. Brands inform the consumer about a product, provide a guarantee of continuing standards of quality, and enhance consumer choice. The reduction of time in transactions lowers the costs of food and drink. There are equal benefits for producers. Brand names enabled firms to expand their markets, and thereby achieve economies of scale and scope, and to use intermediaries and develop modern means of distribution.

Casson, in Chapter 3, also addresses the function of brands, and their welfare consequences, but arrives at some different conclusions from Wilkins. Casson begins by disagreeing with views that branding automatically promotes economic efficiency by improving the quality of consumer information. Branding can suppress information to consumers, and there might in any case be other ways of improving consumer information of more value to society. Brands also do more than provide information – a point with which, incidentally, Wilkins readily agrees. They transmit various ‘cultural’ characteristics which manipulate consumer demand. They provide a badge of allegiance, and convey messages about status. Such attributes of brands are well established. The ‘identity’ of a brand consists of a great deal more than a physical description of a product and a guarantee of consistency. Brands develop personalities. They symbolize sets of values, including cultural values of one sort or another. A brand reflects a consumer’s image – not necessarily who they are, but who they wish to be seen to be (Kapferer 1992: 30–45). This is an important reason why brands are so important for alcoholic drinks such as whisky or beer, which are often consumed in public places. It is these characteristics of brands which play such a decisive role in developing a consumer franchise that insulates a brand owner from price competition.

It is the consequences of these branding characteristics that most divides Wilkins and Casson. For Wilkins, consumers are given the choice of which ‘image’ they want to purchase. If the reality of the product does not please her or him, there will be no repeat purchase. For Casson, consumer preferences can be manipulated in ways which make their choice illusory. He points in particular to the fact that mass-produced branded products are often targeted on consumers in the lower social groups. This means that the premium prices charged for branded products are often borne by the poorer sections of society. From the point of view of society, Casson concludes, it might be better to improve reality than to sell dreams and fantasies.

Balasubramanyam and Salisu examine in Chapter 4 the different strands of the conventional economics literature on brands. They begin by considering the debates on the social costs of advertising, but, unlike Casson, incline to the view that advertising plays an important role in educating consumers, whatever manipulative features it may possess. Brands are part and parcel of modern affluent consumer societies, the authors argue. Ostentation and status seeking are features of the consumption patterns of such societies: by facilitating such consumer desires, brands and advertising perform a useful function for society as a whole. There is little evidence, they conclude from their examination of the alcoholic drinks industry, that the spirits distilling firms are able to significantly impact total consumer expenditure on alcohol, although they can shift spending between brands. Balasubramanyam and Salisu also explore the literature on the importance of product differentiation as a barrier to entry of new firms into an industry. It is evident that in young markets the first successful brand can benefit from pioneer advantages, although some would argue that such advantages are not great unless consumers are satisfied with the product. What brands can do is contribute to the exploitation of economies of scale and scope in production and distribution.

In Chapter 5, Napier approaches the role of brands in adding value from another direction: the value of brands on balance sheets. From the mid-1980s, as brands acquired almost a cult status in consumer industries, there was a growing debate on their actual accounting value. This raised in turn wider issues relating to the valuation of intangible assets which had been debated among accountants for decades. Different countries reacted differently to the problem. Germany and Japan were resistant to the concept of brand capitalization. In the United States, accounting conventions made it difficult to show intangibles as assets in company accounts, although there is now an emerging wider debate on the inclusion of ‘soft’ assets on US balance sheets. British companies were more radical in brand valuation, a development stimulated by the high level of corporate acquisition activity seen in the United Kingdom in the 1980s. A series of British companies in the 1980s capitalized the brands of acquired companies, and in 1988 one large firm went even further and capitalized its own home-grown brands, thereby considerably increasing the size of its balance sheet.

As Napier shows, the debate over brand valuation poses extreme difficulties. While few would now deny the role of brands in ‘adding value’, existing brand valuation techniques appear less than wholly reliable. Some of the problems were graphically illustrated by the Philip Morris decision in early 1993 to sharply reduce the price of its Marlboro cigarette. The Marlboro brand – the product of ‘one of the most successful marketing campaigns in history’ (Kay 1993: 258) – had been hailed as the world’s most valuable brand in the early 1990s, but had suddenly experienced rapidly falling sales because of competition from cheaper alternatives. The Marlboro price cuts led, in the short term, to substantial reductions in the share prices of many of the world’s leading branded goods businesses. The episode did not spell the ‘end of brands’, but it certainly illustrated why financial accountants still remained to be convinced about brand valuation techniques.

The issues raised in these opening chapters reappear throughout the rest of this volume, but a number of new themes are also introduced. The chapters which follow demonstrate how successful brands in food and drink were created, and show why some have survived and prospered over long periods. The authors also explore how some brands – outstandingly Coca-Cola – have spread across borders to become global. However, there are also studies of the demise of brands, or their relative decline in the face of new competition.

The four chapters in Part II are concerned specifically with aspects of the history of the marketing of alcoholic drinks. Wilson in Chapter 6 examines the marketing of beer in Victorian Britain. A central theme is the rise of large national brewers in Britain between 1830 and 1900, which included a small number of really big firms such as Bass and Guinness. The marketing strategies of these breweries were centred on networks of agents, which permitted them to break out of their local areas and reach wider markets. Brand names also appeared in this period, but the Victorian brewers maintained that their key competitive advantage lay in maintaining product quality and consistency. Brands have a voice and exist only through communication, but in this period before the extensive use of advertising by brewers, the voice was largely the spread of reputations by word-of-mouth.

Beer is also the subject matter of Chapter 7. Johansen explores the reasons why foreign beers have made such a minor impact on the Danish market, while Danish beers have been a notable international success, at least from the 1950s. The lack of import penetration was in part the result of consumer loyalty to Danish products, but also important were a long tradition of trade barriers and to other legislation which prescribed the use of cans and certain types of bottles. From the 1890s the Danish industry was dominated by two firms that eventually merged in 1970 to create Carlsberg; it proved hard for any other brewer to challenge the market leaders, at least until the advent of supermarket own brands. The success of Danish beer abroad was based on considerable technical expertise in beer making. In this case, as in the others considered here, it is evident that strong brands can be considered as the rewards earned by a company for the quality of its product. Equally, however, not all good products become strong brands. Carlsberg had a successful marketing strategy, which included the creation of an attractive image for Danish beer, and the adept use of licensing and foreign direct investment strategies to penetrate foreign markets.

In Chapter 8 attention moves from beer to whisky. Weir focuses on the Distillers Company which, following a large merger in 1925, marketed about 60 per cent of Scotch whisky. From the point of view of this book, Scotch whisky is particularly interesting because of its long history of market segmentation. It had developed a national and international market from the 1860s with the rise of bottled, blended and branded whiskies (Morgan and Moss 1993: 122–3). After 1925 Distillers owned five of the seven leading brands of Scotch whisky, including the renowned Johnnie Walker Scotch whisky. Building on a tradition going back to 1820, Red Label and Black Label (a deluxe blend) were launched as brands in 1909. Distillers itself was eventually taken over in 1986 by Guinness. Weir draws a comparison between the 1920s and the 1980s, both periods when Scotch whisky faced declining demand. Some of the economic theories considered earlier would have predicted that Distillers’ brand portfolio would have served as an effective barrier to entry to the industry, but the actual result was the opposite in the 1980s. When Distillers’ management responded slowly to a loss of market share, the firm became subject to rival take-over bids which led to its acquisition.

Subsequently, under the control of Guinness, the brands of United Distillers were repositioned with an emphasis on high value-added brands and margins. The revival of the Johnnie Walker brand, the repositioning of Red Label, whose image had gravely deteriorated, and the brand extension strategies to use the Johnnie Walker name to fill high-priced and profitable gaps in international markets, became instant case studies in successful brand management (Kapferer 1992: 131–3). Weir leaves open the question whether the strategy of ‘squeezing added value from brands’ (p. 159) will be sustainable in the long term. Almost certainly, the brand identity of Scotch whisky makes such a strategy more viable than for products such as Marlboro cigarettes.

Merrett and Whitwell in Chapter 9 explain the reasons for the success of Australian beer and wine in Britain over recent decades. Branding played a very important part in the foreign marketing of Australian beer. By the early 1980s two national brewers had emerged in Australia, who used brands as a tool in their fierce competitive rivalry. Having developed national brands and considerable brand management skills, the Australian brewers looked abroad for new markets. Australian beer brands, notably Foster’s Lager, entered Britain in the wake of the young Australian expatriates who settled there in the 1960s, but they took off only when the Australian beer began to be produced under licence in Britain. In the mid-1980s the Australians strengthened their position by acquiring British brewers. Foster’s Lager and other beers were promoted using powerful brand images about Australia. The use of the Australian comedian Paul Hogan to advertise Foster’s proved particularly effective. Foster’s acquired a distinctive and very positive brand identity which made it a successful challenger to Carlsberg in the British market by the late 1980s.

The wine story was different, though also a considerable success story. A major part was played by the Australian government marketing agency, which strove to improve and promote the overall image of Australian wines. This work was considerably assisted in the 1980s by the fact that the Australian wine industry had become heavily concentrated in the hands of a few firms which could implement a high degree of quality control, as well as by the depreciation of the Australian dollar which made Australian wine very competitive in foreign markets. Australian wine prices in Britain were carefully positioned higher than the low-quality German wines which dominated the bulk end of the market, but lower than the upper-end price threshold held by certain French wines. Australian wine also drew on images of Australia, though rather more subtle ones of ‘bottled sunshine’ than that used in beer marketing. As in the case of Australian beers, however, the marketing strategies rested on high-quality products. By the 1980s Australian wine producers had developed advanced wine-making techniques which were applied to vineyards which had been planted with premium varieties. The result was wines beside which many French and German products were at a distinct disadvantage in quality.

Part III examines the marketing of non-alcoholic drinks and food products; it begins, appropriately, with Coca-Cola. The historical evolution of the marketing strategy of Coca-Cola and its fierce rival Pepsi-Cola have been extensively researched (Tedlow 1990: 22–111), but in Chapter 10 Giebelhaus introduces a new dimension in his study of Coca-Cola’s marketing outside the United States. The result is a unique insight into how a truly global brand was created. As Giebelhaus writes, Coca-Cola’s achievement ‘in selling what amounts to flavoured sugar water around the world is a tribute to one of the most successful marketing stories in business history’ (p. 211). How was it achieved? The...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Copyright Page
• Table of Contents
• List of figures
• List of tables
• List of contributors
• Preface
• 1 Brands and marketing
• Part I Concepts and debates
• Part II Alcoholic drinks
• Part III Food and non-alcoholic drinks
• Part IV Retailing
• Index