Florian Haller

Horizontal brand stretching: Using the brand image for other product categories

In recent years, offering very different product categories under one brand umbrella has become increasingly popular. Xerox expanded its core brand from copiers to computers. General Electric also sells financial services. We can book rooms in luxury Versace hotels, or surf the Internet with Ferrari notebooks. We can even wear shoes or watches from Caterpillar, Porsche or Jeep.

This horizontal brand expansion, i.e. the expansion of a brand into what at first glance appear to be untypical product fields, is also a popular strategy in emerging countries. The reason is simple: it not only helps to accelerate market access and reduce costs, it also uses the leverage of well-known brands in rapidly growing new product categories. One of the most important drivers for the expansion of a single brand into other categories or even industries is the fact that building brands and their distribution channels in large countries such as China or India is very costly. Companies often shy away from making additional investments in a second brand if this is not supported by strong strategic considerations.

Dr. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group) explain in our new Springer publication “Successful brand development in the major emerging markets” (written in German) what is important for horizontal brand expansion.

More confidence in manufacturers with several brands

There is also scientific evidence for this behavior. Research shows that Chinese consumers generally trust better-known brands more than others. First and foremost, because the brand helps to convey greater confidence in product quality and product safety. More than one in three consumers in China believe that companies active in many product categories are more trustworthy than those that are limited to only one or two product segments. This confidence is twice as high as in the US (18%).

This attitude on the part of many consumers in major growth markets gives companies the opportunity to expand their brands in these markets to a very large extent. Perhaps that’s why Coca-Cola presented a casual clothing collection for young and fashionable consumers during Fashion Week in Rio de Janeiro. The beverage company wanted to strengthen its position as the world’s most valuable brand and called on Brazilian designer Thais Rossiter to create a mix of retro, sporty and urban design full of pictorial and floral prints from various sources. The collection ranged from glamorous evening gowns to nylon shorts – all bearing the Coca-Cola trademark.

Haier: First refrigerators, then also electric kettles and computers

China’s largest household appliance manufacturer Haier also extended its core brand, refrigerators, to televisions, kettles, mobile phones and even computers. However, this horizontal brand stretching was also used as an example of overstretching. But this does not seem to have had too negative an effect on Haier, as the company is still the world’s number 1 manufacturer of white goods.

Horizontal brand expansion has particularly good prerequisites in the major growth markets, because consumers here are not yet so strongly committed to certain brands and as they are keen to experiment. In addition, companies active in several product categories between Rio, Shanghai, Mexico City and Mumbai usually become more trusted.

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Florian Haller

Exploiting the full potential: Separate brands for separate markets

In order to increase sales, many international companies are building up a differentiated brand portfolio in the major growth markets, consisting of a brand for the upper market and separate brands for medium and lower segments. This strategy, which is based on many brands, is mainly found in the consumer goods sector and has proven to be very effective if properly implemented. In countries such as China, where regulations often require joint ventures in the development of domestic brands, companies are occasionally forced to develop additional brands for political reasons.

In contrast to the vertical brand expansion described in our previous section, which deals with the development of the middle-income segments through the expansion of a premium brand, this is a broad positioning for several or all important consumer segments, including the entry-level segment of a rapidly developing middle class. This strategy is appropriate if several or all important segments in an emerging market show strong growth and consumers are switching dynamically to higher segments due to their income situation. This is described in detail in our new Springer publication “Successful brand development in the major emerging markets” (written in German) by Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group).

Nothing works without the important entry-level segment

In January 2013, Volkswagen’s Head of Development Ulrich Hackenberg reported that the Wolfsburg-based company was planning its first low-cost vehicle in China as a separate brand together with one of its two Chinese joint venture partners. In March 2013, the joint venture partners BMW and Brilliance confirmed reports of the establishment of a joint sub-brand with the Chinese name “Zhi Nuo”, which can be translated as “The Promise”. For BMW, the new brand was part of an expansion plan into local markets and a further step towards obtaining approval for a second joint venture production plant in Shenyang.

Utilizing the first mover advantage and developing additional dynamics

The Unilever Group in Brazil wants to benefit from the opportunities in the mid-market segment in the detergent products segment by positioning itself with OMO as a premium brand, but also with ALA as a brand that has been specially developed for the lower and middle-income groups. In the case of Brazil, these groups live mainly in the north-east of the country. Unilever’s internal campaign name for this region-specific brand extension was “Project Everyman”. Product customization for ALA aimed to better meet the needs of consumers with lower incomes. These included smaller plastic bags instead of the normal three-kilogram pack from OMO, but also different scents such as lavender, which promises happiness in the local culture and is said to attract men, as well as an easily recognizable packaging due to the low literacy prevalence in the region. In the ten years before 2007 Unilever had succeeded in achieving 81% market share in Brazil in the detergent powder sector.

The company developed a portfolio that covered virtually all major segments of the market from the premium brand OMO to Minera (washing powder and household soaps) and down to Campeiro (the cheapest washing powder brand). Before Unilever began to expand into the north-east of the country, it carefully studied local demographic conditions. There are 48 million low-income consumers living in the country’s North-East, or 28% of Brazilians. The usage behavior was relatively easy to determine: Clothes were washed more frequently because people had fewer clothes per person. They mostly used launderettes or even water basins where they could meet and talk to their friends while washing. The entry into this rural market offered the opportunity to develop additional dynamism, benefit from the first mover advantage and become a market leader in consumer marketing for low-income people.

Realizing the full sales potential

Consumer goods giant Procter & Gamble (P&G) pursued a similar strategy of portfolio expansion in the Chinese detergent market in order to realize its full sales potential. The brands Ariel and Tide are available for this purpose. P&G’s flagship detergent brand Ariel is positioned in the premium segment, while Tide is focused on the mass market. In order to achieve a clear differentiation between the two brands, P&G relied on two brand ambassadors who could not be more different. The company was able to win the famous Taiwanese singer, actress and TV presenter Xu Xidi for Ariel. It is considered very quick-witted and somewhat snappish and thus appeals to modern urban Chinese consumers. In Ariel’s TV commercials, Xu Xidi often appears with a playful and funny undertone and shows off her humor to its best advantage. Slogans such as “five-star purity” further underline the premium positioning of the brand.

Tide, on the other hand, is advertised by Chinese TV star Hai Qing. She is known as Everybody’s Darling and is famous for her numerous roles in Chinese soap operas. Through the cooperation with Hai Qing, Tide reaches the rather conservative mass market. As brand ambassador for Tide, she organizes cooking lessons and gives household tips at events or in the social media. The advertising campaigns often show them in a traditional environment together with mothers and children. P&G’s product policy reflects the positioning of both brands. Ariel’s packaging sizes are significantly smaller than Tide’s when defining the segments along approximately the same price level. This makes Ariel the ideal product for Chinese consumers who find large packaging uncomfortable and are more focused on quality, while Tide is the preferred choice of more price-oriented consumers.

In order to exploit the entire sales potential in the major growth markets, separate brands are required for separate markets. The brands must be clearly distinguishable and their respective merits should be communicated in the language and with clear reference to the respective income groups.

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Florian Haller

How vertical brand stretching opens up further income groups

Business in growth markets has become increasingly important for multinational companies over the past decade. However, many companies are focusing too much on the premium segment when expanding into new markets, neglecting the large mid-market segment. Western managers like to underestimate how much purchasing power there is between the top ten percent of the population, the “super-consumers”, and the lower-income consumers in rural areas of the respective hinterland.

The potential of the upper middle class and the economy class is enormous. Therefore, smart brand stretching provides an effective opportunity to expand a brand’s reach and sales beyond the premium segment. It is often used as a strategy in growth markets because it also allows much faster access to the market and causes significantly lower communication costs. For example, it is not necessary to inform and educate consumers about a completely new brand. This is described in detail in our new Springer publication “Successful brand development in the major emerging markets” (written in German) by Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group).

Market analysis: Relevant segments and customer requirements

Many questions must be answered before a brand is stretched. First of all, the market opportunities need to be analyzed. How large are the relevant middle segments? How intense is competition there? What are the prevailing customer wishes and trends? And one of the most important aspects: What are the expected profit margins? Another crucial factor to consider is the cost of manufacturing and organization and the company’s ability to adapt. In our experience, this is the most difficult and tricky aspect. Many companies worldwide are doing outstanding work when it comes to developing complex, high-performance products. But precisely because of their engineering skills and the way they think and work aimed at optimizing quality, it is difficult for them to make products less complex, less powerful and more cost-effective. Finding back to the strategic flexibility of “learning” and reinventing important aspects of a business model is important in building a strong and sustainable position in the growing mid-market segments of emerging markets.

Reach: Including neighboring income groups

In emerging markets, vertical brand stretching is very often used to increase product reach. This innovative strategy has been used in the automotive sector for many years. One speaks of a vertical brand expansion, if one looks at the price and/or the quality of the core brand down or above to reach additional market segments. Mercedes, for example, uses this procedure for vertical brand stretching from the S-Class to the A-Class. Volkswagen also uses the entire range of models from the luxury flagship Phaeton to the miniature car up! Cunning marketing managers see brand expansion as the fastest way to leverage the value of a core brand to be attractive in more market segments.

Identity: The core brand and the new brand must be different

However, vertical brand stretching should include more than just pricing. It can also include a change in product composition or packaging to appeal to a wider range of customers and increase sales. To avoid over-emphasizing the core brand, it is advisable to distinguish between the core brand and the new brand in terms of taste, smell, functions, performance, applications, packaging and brand communication. If the price were the only difference, customers from higher income groups could be tempted to switch to the cheaper brand, which would lead to a loss in sales. The “Crest” toothpaste produced by Procter & Gamble is a good example of how successful brand differentiation can work. To further expand in the mid-market segment in China, Procter & Gamble changed the composition and packaging of the brand. The premium version “Pro Health Complete 7” is aimed at upscale consumers. It has been positioned to combat seven oral hygiene problems caused by modern lifestyles. The property and claim to restore natural tooth whiteness has been reserved exclusively for Crest’s premium products. On the other hand, the basic properties of the cheaper products for caries prophylaxis were the focus of attention.

New research confirms that brand expansion is a key factor for sustainable growth in the major growth markets. In a featured insight, research institute Nielsen described the results of a comprehensive market study that examined 82 brand extensions in 46 different categories in the Indian fast-moving consumer goods (FMCG) market. According to the study, 30% of sales of the top 23 FMCG brands are already achieved through brand expansion. More importantly, it was found that the likelihood of successful brand extension is five times greater than that of new product launches.

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Florian Haller

Shortcut into high-speed markets: The acquisition and revitalization of local brands

Anyone expanding into new markets when building up an international brand is entering a high-speed environment with rapidly changing trends and enormous consumer dynamics. Drivers of this hyper-development can be market reforms, rapidly rising wages, or the emergence of local brand champions. In such an environment, it can make sense to adopt and revitalize an existing local brand. Building your own brand from scratch requires a lot of time and money and can fail due to false assessments. In contrast, the acquisition of an existing brand may require a repositioning, but the considerable growth of the local market will be used much faster. This is described in detail in our new Springer publication “Successful brand development in the major emerging markets” (written in German) by Dr. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group).

As a rule, acquisitions and revitalization of local brands preferably take place in product categories such as food, beverages and other consumer goods, as tastes, habits and preferences can be very local and closely related to the local culture. Consumers here have long been familiar with the local brand. Marketing professionals point to three main advantages in connection with the acquisition and revitalization of local brands:

1. Established names with a high level of awareness facilitate market entry

The McDonough School of Business at Georgetown University has shown in a survey of product categories such as beer, hair care and carbonated soft drinks that a significant part of the success of multinational companies in international markets is due to the acquisition of local brands. If the existing brand is established, customers are familiar with it and the distribution channels are in place. The costly establishment of a reputation is unnecessary, or it is at least much more cost-effective with a reorientation. This increases the chances of success enormously and saves important time.

2. A loyal customer base with strong brand loyalty

Time is only one factor to consider. Brand loyalty is another. Many domestic competitors in rapidly industrializing economies are still weak in terms of growth. But they can often refer to a very loyal clientele. This is an important factor for internationally expanding companies, because a loyal local clientele provides the important brand loyalty without having to invest a lot of time and money. If consumers are on average older and more traditional, local brands can even evoke positive memories of their own youth long gone. However, they must be revitalized in the consciousness of consumers and supplemented by other aspects relating to the future.

3. A functioning distribution network minimizes resistance in local channels

One of the best-known examples in international growth markets is a large Indian beverage producer brewing a cola drink to suit the local taste. In 1977, when the Indian government asked Western companies to give up control of their Indian subsidiaries or leave, Coca-Cola withdrew from the country. Indian companies, including Thums Up, tried to conquer the national market for soft drinks. Thums Up dominated the market for 16 years and achieved 35% market share at peak times. But with the reforms from 1991, the government relaxed regulations. Coca-Cola and Pepsi-Cola returned to the Indian market. In 1993, Coca-Cola bought Thums Up and wanted the brand to go out of the market in order to protect its own market share. But the resistance of local traders and consumers prevented this. Following massive protests and a 30% drop in market share, production of Thums Up was resumed. Coca-Cola invested large sums in the brand and took up the earlier advertising campaign with the slogan “Taste the Thunder” again. Bollywood action hero Akshay Kuma became a brand ambassador. The actor Salman Khan, who played an air force pilot, was also engaged. Coca-Cola was thus ahead of a Pepsi advertising campaign in which “Top Gun” hero Tom Cruise appeared. Thums Up took the crown from Pepsi with a market share of 17%. And Coca-Cola was from then on able to attack its competitor in the “Cola Wars” with two different brands.

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Florian Haller

Why geography matters in brand building: Expansion by regions and city clusters

The major growth markets are more like continents than individual countries. Hundreds of languages, regional traditions, tastes and customs make them a huge conglomerate of markets. A “one size fits all” approach is doomed to fail here. However, it makes much more sense and is strategically more appropriate to concentrate on important regional areas or city clusters as a brand in order to find a starting point for the best growth opportunities. The leading cities are only one possible destination. Rapidly growing centers in the “hinterland” are another promising option within the framework of the cluster strategy. This is described in detail in our new Springer publication “Successful brand development in the major emerging markets” (written in German) by Dr. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group).

The art of expanding along city clusters begins with a thorough analysis of the differences between the individual regions. It is not difficult to identify the clusters. They may be groups of cities linked by a particular economic structure, demographic structures, comparable consumer behavior or geographical proximity. Perhaps the biggest – but by no means the only – advantage of focusing existing resources on city clusters is the ability to leverage economies of scale and existing distribution networks. If one is successful in certain clusters, one can also build up a decisive market share, which then can be used as a springboard into other regional clusters.

1. Purchasing power analysis: how to identify the epicenters

One way to identify the most promising clusters for your company is to examine the existing and expected income levels. Are there signs that consumers are starting to buy their first car? Or is an increasing demand for imported or luxury goods ahead? How many middle class households are there and what do reliable forecasts of expected income growth say? Is consumer demand increasing in product segments that affect the company? Managers from successful companies are unanimous in their opinion that precise inquiries are very important to identify the epicenters of future growth. The smaller, suburban cities in the country are expected to generate 60% of the general growth in the fashion industry in the coming years. And by the end of the decade, almost half of consumers in rural areas should belong to the middle class.

2. Understanding consumer drivers: is it all about individuality or just being a part of it?

Brand companies must understand their target markets in detail. Shopping habits and consumer motives can even differ significantly from city to city. For young people in the primary cities it’s about individuality, they don’t want to “follow the herd”, while at the level of subordinate cities it’s more about being a part of it. The fact that the urban population in emerging countries alone is growing by around 60 to 70 million people a year underlines their importance. This corresponds to 60 times the population of Cologne or eight times the population of New York.

3. Key question for the campaign: how homogeneous is the selected cluster?

Another decisive consideration is whether the selected cluster is homogeneous in terms of the defined criteria. A well-known example are the neighboring primary cities Shenzhen and Guangzhou in China. People in Guangzhou speak Cantonese. Most of them were born in and around the city and spend a lot of time at home with their families. In Shenzhen, on the other hand, the population consists of mostly migrants from other parts of the country, and Mandarin is usually spoken there. Integrating the two cities into the same cluster would require two completely different campaigns. Once you have decided on certain regional or city clusters, you have to consider how many submarkets you want to target. The more submarkets there are, the more difficult it could be to achieve the desired efficiency.

Success story: Unilever’s mosaic approach

Large and successful companies such as Hindustan Unilever (HUL) have conducted their own cluster-based campaigns. In the case of HUL, the “Winning in Many India’s” (WIMI) program was developed. In a first step, HUL, the largest company in the country, divided India into five major regions in the field of fast-moving products (FMCG). Then, on the basis of detailed consumer knowledge, another 14 geographical units were identified, which were city clusters. The company no longer regarded India as a homogenous country with few large markets, but as a country consisting of a mosaic of markets.

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Florian Haller

Catching the second wave: Customer loyalty as a special challenge

The dynamics in major growth markets can hardly be surpassed. Many things change at the same time. International brands and new local champions battle it out for market share. Entire development leaps in electronics, cars and Fintech turn markets upside down. Moreover, there are consumers who learn quickly, who are not really loyal and feel confident enough to try out lesser-known brands at an early stage. This makes customer loyalty a problem. Traditional brand loyalty campaigns often fail in the major emerging markets. This is also due to the fact that consumers climb up the premium ladder quickly. They are constantly raising their expectations and want to showcase their new status.

Marketing managers have to deal with extremely mobile target groups. Brand loyalty often puzzles them: What motivates customers to remain loyal to their current brand? Does the cultural background play an important role? Many questions, but only one certainty: In an environment such as the major growth markets, product and brand managers must know their customers particularly well. They need to be as close to them as possible, communicate with them through the most effective channels and give them the full range of brand experience. Dr. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group) provide some useful tips – all details can be found their new Springer publication “Successful brand development in the major emerging markets” (written in German).

1. Pole position first, then flatfoot: How VW pulled out of the loop in China

Volkswagen China is a good example of how important customer loyalty is in large growth countries and what pressure can build against a company. After entering the market in the 1980s, VW initially succeeded in capturing a share of more than 50 percent. But after the WTO accession in 2001, the market share of the Wolfsburg-based company fell below 20 percent. Nevertheless, VW managed to remain number one in China, despite the growing number of buyers who are willing to buy larger cars or experiment with other brands. Brand loyalty reaches about 80 percent in western car markets. In China it is only ten percent. In China, one third of all buyers now buy their second or third car. This makes customer loyalty a huge challenge. VW has responded by significantly expanding its model portfolio so that customers have a wider choice. In addition, a retention strategy was developed. This includes a standardized recording of the most important expectations and the drivers of loyalty. In addition, a strategy for after-sales management (CRM) was developed and consumer motives were analyzed in detail.

2. “Malina” and the card trick: Increasing loyalty through cooperation

There are numerous examples of successful customer loyalty programs in large growth countries. One of these is the “Malina” campaign in Russia for five partners, all of whom were market leaders in their respective product categories. Participants included the Rosinter restaurant chain, the telecom company Vympelcom and the BP-TNK service station chain. Together with Visa Card, they issued a credit card as part of Malina. All family members of the cardholders were able to collect points on a joint account and earn bonuses. In the first year after the start of the program, 2.1 million cards were issued. After two years, Malina was the leading loyalty program in Russia. Rosinter-Restaurants and TGI Friday’s, another partner of the initiative, experienced a double-digit percentage increase in the transaction volume of their cards.

3. Special privileges: How to satisfy the hunger for privileges

According to an EY survey, customer loyalty in India is only about half as high as in Europe and the US. So how can you keep customers who are willing to change? The COLLOQUY Cross-Cultural Loyalty Study, a global “commitment compass” that examined consumer attitudes in Australia, Canada and the US as well as in the emerging countries Brazil, China and India, provides helpful insights. The study confirms that consumers in emerging markets demand “special service” three times as often as discounts and privileges. And now comes the crucial point: almost three times as many buyers in emerging markets declare that loyalty to their preferred brands pays off. This is clear proof of the potential of customer loyalty programs. Preferential treatment and rewards are appreciated by customers all over the world. But nowhere is the desire for VIP treatment more distinct than in the large growth markets.

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Florian Haller

Good storytelling wins half the battle for young target groups

Most companies are convinced that their brand has fully exploited its potential. But far from it: the brand can only score maximum points in the target group if its tradition, its promise and its unique history are well known. The most general definition of a brand is: “The consumer’s idea of a product or service”. So it’s not just about knowing and recognizing, it’s above all about associative connections. Clearly, this is the big moment of storytelling.

And this often starts from scratch in young markets. After all, international brands are often completely unknown to local consumers and potential customers in the major growth markets. In 2013, 70% of Chinese car buyers were still first-time buyers. Most of them had just obtained their driving licenses. They had no product or purchasing experience. Many of them had never been in a showroom before or had dealt with the technical aspects of an engine. For Western brands, this is a challenge, but also a great opportunity. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group) therefore explain the cornerstones of an engaging storytelling. Further details on that can be found in our new Springer publication “Successful brand development in the major emerging markets” (written in German).

1. Brand knowledge: Managers like to overestimate consumers

A well thought-out strategy with determined implementation is needed. When formulating the strategy, marketing cannot simply assume that the target group being addressed already has the necessary knowledge of the brand simply because connoisseurs of the company are familiar with many details. Brand managers often overestimate what consumers already know. This often results in communication campaigns that do not go far enough. But it is imperative to explain what the brand in question stands for. If this is done in a committed, interesting and motivating way, a lot can be gained. It is important not to overload the storytelling with messages. Target groups in emerging markets are usually 10 or 20 years younger than those in developed Western markets.

2. Understandable messages: Consumers must be addressed in their language

In the new markets, the 30- to 40-year-olds belong to the richest target group, which is already accustomed to exciting and committed marketing techniques. If a bank argues with traditional terms such as “trust” or “security”, its marketing message will not automatically be well received by these “newly-rich” consumers. Many people in these middle income brackets are also consumers without good foreign language skills. Don’t use too many English and technical terms. Admittedly, design and other concrete arguments of conviction are very important for this. But they must be communicated to consumers who are generally not technical experts in their own language. They must also be made aware of why this brand in particular meets their specific needs. Making new customers familiar with the brand requires patience.

3. Tradition is the trump card: With the brand history to the price premium

Every brand strategy must have enough space to tell the history of the brand. You have to take enough time to explain why your brand is unique and how much time it took to become a leading brand. The traditional aspect and the associated foreign brand image are the only sustainable competitive advantage that cannot easily be imitated. Those who tell their own story thus have the opportunity to achieve a clear price premium for the brand, compared to local competitors. This goal can be achieved with clear language and simple explanations as well as with visual clarity and a creative implementation of the campaign. This is the only way to break the communicative flooding in megacities.

4. Educating the consumer: For each product there are instructive campaigns

Educational campaigns or brand academies are particularly suitable for informing a target group about the brand history and special unique selling points. There are many educational examples of awareness-raising campaigns. For example, the highly creative and very successful “MINI Academy for Rapid Learners”. Its success is due to the fact that it has been excellently integrated into the local cultural framework. In Europe, MINI has the image of a cheeky, flexible and individualistic small car. In 2009, the brand was still not able to develop the hoped-for potential in China so quickly. In China, the MINI was initially considered a cute little car for young women and a fun car for young people as a whole. Men and older customers were underrepresented in this group. The MINI managers wanted to make “the most exciting small car in the world” interesting for a broader group of buyers. To this end, a creative strategy was developed around the themes of “dynamic driving experience”, “cult design” and “tradition”. A MINI Academy was founded to inform Chinese consumers about the rich tradition and history of the MINI brand. The Academy was a platform that made it possible to communicate within the local cultural environment via different media channels and at the same time to establish a strong connection to the Chinese mentality.

There are many success stories proving how well storytelling can attract young target groups in growth markets. The history of the brand and its special features must be clearly highlighted. Educational campaigns with instructive and easy-to-understand content are achieving great success.

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Florian Haller

Foreign sells: Why the country-of-origin effect is an important brand lever

Colorful advertisements, television ads and tourism: foreign influences in the major growth markets are getting ever stronger – and they are leaving a clear mark on the perception of local consumers. In addition, the economic opening up of these markets through their WTO entry and bilateral trade agreements are flushing more and more Western brands onto local shelves. The more respected the country of origin, the greater the propensity to buy. Sometimes the foreign brand origin proves to be an important factor in the international brand development. Niklas Schaffmeister (Managing Partner Globeone) and Florian Haller (CEO Serviceplan Group) explain why this is the case and they elaborate on additional advantages of this positioning concept. Read more about this in our new Springer publication “Successful brand development in the major emerging markets” (written in German).

Since the 1970s, research has consistently shown that consumers intuitively attribute positive or negative characteristics to a company or brand when they know the country of origin. This results in a so-called image transfer: associations with the country of origin are transferred to the company or the brand. This country of origin effect contributes significantly to a kind of “subconscious brand DNA” and therefore continues to play an important role in today’s marketing.

Two facets of the country of origin: production and design

For consumers, the non-domestic origin of trademarks is usually indicated by a reference to the country of origin. Sometimes the country of origin is further differentiated into the country of manufacture and the country in which the product was developed (country of design). In principle, the country of origin is the country in which the group headquarter that markets the product or brand is located. However, the product does not necessarily have to be manufactured there.

A country of origin perceived as positive has a positive effect on brands, for example by perceiving the quality of a brand as significantly higher. Much evidence suggests that certain countries of origin increase the prestige factor of brands. The following three factors show why the country of origin plays such an important role in international brand development – especially in the major growth markets.

1. The country of origin as a distinctive feature of brands

As a rule, consumers associate specific ideas with different countries. For example, the USA is considered to be very innovative and technology-oriented. For brands, it can be much more effective to use this existing knowledge of the country of origin effect than to communicate the same qualities and characteristics individually and without reference to the country of origin – for example through expensive advertising.

2. Growing claims are tied to foreign brands

In many growth markets, foreign brands are used to demonstrate social advancement: they are more expensive, not yet very widespread and are associated with high prestige. The preference for foreign brands is usually pronounced in product categories where the country of origin is supposed to have a higher level of competence. The preference for foreign brands is increasing in step with income. Against this background, the emphasis on brand origin offers a cost-saving and effective opportunity to attribute to a foreign brand such characteristics as quality, flawless functionality and excellent design.

3. Limited availability increases demand

Many emerging markets are opening up slowly, which in turn means that foreign brands are only available to a limited extent. Brands from Western countries in particular therefore enjoy a high reputation in these growth markets due to their relative novelty and scarcity. In addition, many local products cannot yet keep up with the products developed in the West.

“Made in Germany”: Germany as a favorite

Among the countries currently benefiting most from a positive country of origin image are Germany, the USA, Japan and Switzerland, due to their tradition, excellent quality and state-of-the-art technology or engineering. “Made in Germany”, for example, has been regarded for decades as a quality feature that communicates prestige and reputation in a great measure. The advantage: the country of origin image cannot really be imitated by competitors and is therefore a sustainable differentiation factor. For global marketers, this clearly means that the better the COO image, the more clearly the origin should be communicated.

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Tobias Wegmann

Programmatic is only just beginning

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Programmatic advertising (PA) is a multi-faceted term. Many market players use it as a buzzword, a label for the hype that has at times raised very high expectations among lots of market players, especially advertising customers. Others frequently use PA as a synonym for automation projects that are several years overdue, especially in so-called classic media, but in which nothing is “programmatic”. At mediascale, we generally define programmatic advertising as data-driven media-buying and as a process we are only just beginning.

Therefore, the disappointment that may have occurred with one or other advertisers is not a fundamental issue for programmatic advertising. Rather, it should be an incentive to take programmatic to the next level: on the one hand, by rethinking the set-up of service providers and technology; on the other, individual expectations should be reasonably calibrated.

In recent years, it has mainly been venture capital-financed players, who wanted to be part of the media value chain, who have fuelled the programmatic hype starting from their own interests, which has led to high expectations. And of course they have claimed “their” part of the supply chain. But those who worked more intensively with the market knew that the quantity and quality of the available profile data for programmatic campaigns is limited. However, only good data can increase the efficiency of campaigns significantly enough so that the additional costs for the additional members of the value chain are reintegrated. A possible disappointment was thus an announcement or based on unrealistic expectations.

In many conversations with our customers, we have realistically presented both the possibilities as well as the limits of data-driven advertising in order to rule out exaggerated expectations of PA from the outset. In doing so, the following assumptions were made, which our customers, sometimes against their initial will, have been getting along well with so far:

  • Programmatic advertising is not a new channel with completely different rules to traditional display business. Also when auctioned and backed by data, a content ad remains a content ad and will not develop the advertising impact of an instream pre-roll large format
  • Meaningful, validated data is the indispensable basis for programmatic advertising. Here it is important to look carefully and carry out comprehensive auditing of the available data offers. At first glance, the data market in DMPs seems expansive. But data segments that deliver what they promise (delivering a corresponding uplift to campaigns) are by no means abundant. And they have their price.
  • An impression that cannot be assigned to valuable data should not be bought programmatically. As meaningful as it is to uniformly track all advertising contacts and accumulate all campaigns and pseudonymous profile data in one system, it makes little sense to put untargeted campaign volume into systems just to have bought it “programmatically”. This results in costs and technical performance losses that are not offset by financial added value.
  • The open market, open to all, originally proclaimed by many to be programmatic’s central promise of salvation, has created more problems than it solves, as it has also opened up the market to a plethora of dubious players. The efforts of the large, open sell-side platforms to push the black sheep out are commendable, but unfortunately not always successful. That is why we only buy inventories that we can thoroughly test, both technically and commercially. Furthermore, whenever possible, we buy from partners (often in private marketplaces) that we know and have established business relationships with – including any sanction options which may be necessary in the interest of the customer in an emergency.
  • And we’re not forgetting the creation: What use is the most sophisticated planning on a profile basis, if only one means of advertising is available? That’s why data driven creativity is, in our view, the indispensable fourth pillar of programmatic advertising – alongside technology, media space and data.

Today, programmatic has already caused major changes in the digital media business. But we are sure that this transformation process is far from finished yet. And it will encompass more and more media types in the future: TV, out-of-home, audio, cinema and eventually also print. In five years at the latest, we will be able to plan, book and control more and more channels via programmatic. In addition, people’s media use is evolving, new, relevant platforms are being created at ever-increasing speed, and data protection requirements also require fundamental and sometimes new solutions. All these challenges keep us busy and agile. Staying at the current level of development is not a solution. Particularly as we are just scratching the surface with programmatic.

This article was first published in adzine.

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