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HOW TO BUILD A PREMIUM BRAND

BRAND MANAGEMENT MID-TERM REPORT

Submitted to:

Prof. Y L R Moorthi

Submitted by: GROUP 4

Sayantan Das 1611348| Ritu Kumari 1611420| Vivek SIdana 1611367| Meghana S 1611337|
Sumit Ranjan 1611354| Nabarun Mandal 1611338

Mid Term Report Submission by Group-4

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Contents
Figures: .................................................................................................................................................................. 2
Abstract .................................................................................................................................................................. 3
Objective ................................................................................................................................................................ 3
Introduction: .......................................................................................................................................................... 3
1. Basic Brand: .......................................................................................................................................... 3
2. Premium Brand: .................................................................................................................................... 3
3. Luxury Brand: ........................................................................................................................................ 4
Framework............................................................................................................................................................. 4
Methodology.......................................................................................................................................................... 5
Premium brands ............................................................................................................................................... 5
Luxury brands ................................................................................................................................................... 7
Factors affecting perception of luxury brands .............................................................................................. 8
Brand extension success drivers ................................................................................................................... 9
Step downline extensions of luxury brands ................................................................................................ 10
Validation of the framework .............................................................................................................................. 11
Limitations/ Constraints of the Framework ..................................................................................................... 12

Figures:
1. Premium brand framework
2. Psychic factor and utility function of premium brand (mid circle)
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Abstract
This exercise develops a framework defining the attributes of a premium brand while clearly
delineating the factors that differentiate luxury brands and premium brands. This is done with
a focus on exclusive and display value of brands along with brand extension success factors.
It further delves into the personal/impersonal factors which define brands with a backdrop of
consumption context, culture, brand knowledge and symbolism. The methodology followed
has been to study research articles based on brand premium, luxury products and brand
extensions of the product.

Objective
The objective of the study is to understand the factors which delineate premium and luxury
brands and find success factors for making a brand premium through introducing a new
brand or through a brand extension.

Introduction:

1. Basic Brand:
Styles and Ambler1 have defined a brand as a summation of all the marketing mix
elements (product, price, place and promotion). The holistic approach describes the
brand as a bundle of attributes that consumer purchase to gain overall satisfaction. The
attributes of a brand may be tangible, rational, real or emotional.
Philip Kotler describes the brand as a mix and match of name, term, sign symbol that
can be used to identify the parent company or seller of the product. It also differentiates
the product in a competitive market2.

2. Premium Brand:
Quelch (1986) defines a few key aspects to premium brands. He say that such brands
display excellence in quality, have high prices, are distributed selectively, the channels
for distribution are high on quality and parsimoniously advertised 3. He comments that
such brands offer higher unit margins and is less vulnerable than the mainstream
products. For the purpose of this paper we continue with this definition of premium
brands.

1
Tim Ambler, Chris Styles, (1997) "Brand development versus new product development: toward a process model of
extension decisions", Journal of Product & Brand Management, Vol. 6 Issue: 4, pp.222-234
2
http://www.learnmarketing.net/branding.htm
3
Quelch, John A.(1987), Marketing the premium product, Business Horizons. May/Jun87, Vol. 30 Issue 3, p38. 8p
Database: Business Source Complete
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3. Luxury Brand:
Interband4 in 2008 gave a description about luxury brand. It says that a brand qualifies
to be in luxury category if it demonstrates price insensitivity and the price premium
provides positive image to the brand. Moreover, the perceived price over the utilitarian
function plays a minor role in the attribute driving the purchase.

Framework

The framework consists of concentric circles. In the innermost circle is the basic brand which
consists of utility function satisficing the purpose of any brand along with brand
identity5(Physique, Relationship, Reflection, Self-Image, Culture and Personality). The Brand
identity provides the basic association of the brand withthat of the customers.

Figure 1 Premium brand framework

4
Asia Pacific Journal of Marketing and Logistics Vol. 27 No. 1, 2015 pp. 82-98
Emerald Group Publishing Limited 1355-5855 DOI 10.1108/APJML-10-2014-0148

5
http://marketinglessons.in/kapferer-brand-identity-prism-concept-example/
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Figure 2 Psychic factor and utility function of premium brand (mid circle)
Thus, these features of basic brand are common to all the extended circles. The mid circle
represents a premium brand. To move from a basic brand to a premium brand, increased
brand equity is required along with increased functionalities and psychic values that the
consume tends to allocate to the brand. The psychic factors contain of 5 factors which shall be
later explained in explanation of premium brands and are divided into personal and non-
personal factors basis whether they are impacted by opinion or by others. The outermost circle
represents the luxury brand. This circle has added physic values (both internal and external)
over the premium brand.

In nutshell, one can move from the innermost circle (basic product) to the outer most circle
(luxury product) in order to achieve luxuryness and vice versa for making a luxury product to
basic product. This can be done in two stages:

Step 1:Add extra features alog with brand equity and psychic values

Step 2:Addition of extra physic factor over Step 2 .

Methodology
Premium brands
a. Conspicuousness:
According to Grossman and Shapiro, 19886, consumers of premium brands sought
status and social prestige from the consumption and acquisition of these products.
These consumers bought these brands because they want to impress others through a
display of wealth and elevated social status.

6
Grossman, G.M. and Shapiro, C. (1988), Foreign counterfeiting of status goods, The Quarterly Journal of Economics,
Vol. CIII No. 412, pp. 79-100.
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Display value: Conspicuousness is dependent on the display value of the brand.

Display value refers to consumers wanting to display their personal traits through
brands.
An example of this is Apple iPhone, a premium product which is considered to increase
social status and tech savviness of the owner.

b. Uniqueness:
Uniqueness of a brand consists of scarcity and exclusive value provided by the premium
brand. If the brand is in limited supply, it is perceived to be more exclusive and this
increases the value of the brand7.
An example of this can be Oneplus which initially sold phones online exclusively to
selected customers and this made the brand unique and premium.

c. Quality:
Quality means that the brand is of superior performance and quality. If the brands
products are of inferior quality, its premium image cannot be sustained. Higher quality
can be in the form of consistency, superior product features and expertise.

d. Hedonism:
Hedonism refers to the feeling of pleasure and self-indulgence that comes with buying
premium brands. According to Vigneron and Johnson (1999)8, consumers seeking
hedonic value place more importance on their own thoughts and feelings.
For example, Magnum is a premium ice-cream brand which a consumer might buy for
self-indulgence and hedonism.

e. Extended Self:
According to Belk, 1988, consumers buy premium brands which they consider to be a
reflection of and a contributor to their own identities9. Consumers can integrate symbolic
meanings and messages of the brand into their own selves.
For example, Rayban brand is considered to be stylish and consumers who buy this
brand can think of themselves as stylish for owning Rayban sunglasses.
The first three dimensions conspicuousness, uniqueness and quality - refer to non-personal
related attributes of a premium brand while hedonism and extended-self refer to refer to
personal oriented attributes of brand.

f. Brand equity:
According to Walfried Lassar, Banwari Mittal and Arun Sharma, brand equity is said to have
two dimensions namely customer based and financial. The financial dimension refers to the

7
Yuri Seo and Margo Buchanan-Oliver (2014), Luxury branding: the industry, trends, and future conceptualisations
8
Vigneron, F. and Johnson, L.W. (2004), Measuring perceptions of brand luxury, Journal of Brand Management, Vol. 11
No. 6, pp. 484-506.
9
Belk, R.W. (1988), Possessions and the extended self, Journal of Consumer Research, Vol. 15 No. 2, pp. 139-168.
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financial value added to the firm by it. Consumer based dimension takes into consideration the
response of the consumers to the brand name. It is argued that the financial perspective
measures the results of the consumer based dimension and that consumer based brand equity
drives financial gains without discussing it in detail10.

Aakers (1991) definition of brand equity is more comprehensive as it says brand equity of a
brand is linked to its symbol or its name and that it is a set of asset or liabilities that adds to or
reduces the value provided by a product or service to a firm and/or to the its customers.11

Lisa Woods paper on brand equity again talks about a marketer and an accountants
perspective of brand equity and is similar to that of Walfried Lasaar, Banwari Mittal and Arun
Sharmas take on brand equity. However, it mentions of Feldwicks (1996) take on brand equity
which talks about three aspects - financial as in total value of the brand as an asset on the
balance sheet, the consumers attachment to the brand and consumer associations about the
brand12.

For this project Feldwicks definition of brand equity is considered due to its simplicity,
comprehensiveness and because it can combine the views of Aaker to that of two perspective
model to a fair extent.

Luxury brands

Luxury brands differ from premium brands on the following attributes1:

a. Timelessness:

According to Kapferer, 2012, a luxury brand has to be modern while at the same time laden
with the brands history. It has the property of being timeless. While the products of premium
brands are regularly updated by new technology, their value as second-hand products reduce
over time. This does not apply to luxury products for which prices might even increase over
time.

For example, luxury cars are sold at high prices at auctions even though they are second hand
products. The same does not apply to second hand cars of premium brands such as
Volkswagen.

b. Price premium due to intangibles:

10
Walfried Lassar, Banwari Mittal, Arun Sharma, (1995) "Measuring customerbased brand equity", Journal of
ConsumerMarketing, Vol. 12 Issue: 4, pp.11-19, https://doi.org/10.1108/07363769510095270
11
Reza Motameni, Manuchehr Shahrokhi, (1998) "Brand equity valuation: a global perspective", Journal of Product & Brand Management,
Vol. 7 Issue: 4, pp.275-290, https://doi.org/10.1108/10610429810229799

12
Lisa Wood, (2000) "Brands and brand equity: definition and management", Management Decision, Vol. 38 Issue: 9,
pp.662-669, https://doi.org/10.1108/00251740010379100
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Luxury brands command an unreasonable price premium over premium and non-premium
brands that can be mainly attributed to three factors namely,

i. Heritage & history

Example: Taj hotels is a luxury brand which has a rich heritage and history of Palaces and
royalty.

ii. Country of origin

Example: French wine and Italian leather may command a higher price because such products
from these countries are assumed to more luxurious.

iii. Craftsmanship

Example: Lamborghini cars are handmade and the carefully constructed craftsmanship
contributes to the luxury component of the car.

c. Social marker

Luxury brands allow the consumer to feel socially significant and privileged. Those who buy
luxury brands have a desire to be a part of a superior class or elite group of people.

An example of this are luxury watches like Rolex which is considered to be worn by an elite
class of people.

d. Customization/personalization:

Luxury brands offer personalization to their products and services. For example, a luxury car
brand such as Lexus provides personalized car repair by providing an exclusive relationship
with the mechanic. Prada provided monogrammed shoes as a form of personalization.

Factors affecting perception of luxury brands

The opinion of the consumer in deciding whether the brand is premium or luxury is based on
luxury consumption behavior of the customer which includes the stages before luxury buying,
luxury buying process and consequences of buying process. Motivations for luxury buying
include self-expression (presence of quality, status and exclusivity) along with social
associations and range of perceptions which range from self-indulgence to show off.

Culture: Perception of a luxury brand depends on personal beliefs and cultural norms. The
perception of luxury goods by eastern and western cultures will be different. Research has
shown that while both cultures tend to value self-conscious consumption, for western cultures,
it is more private and for eastern cultures, it is about public self-conscious consumption.
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Though, a shift is being observed in the way current generations in eastern countries look at
luxury brands compared to previous generations.13

Gender: It has been observed that males pay more attention to functional attributes whereas
females pay attention to comprehensive information processing. Thus, female customers tend
to adopt a holistic approach while males follow heuristics in making decisions.

Brand knowledge in emerging markets is limited and this situation is used as an opportunity
by new brands to project a premium image which might be different from the image of these
brands in developed countries.14 For instance, GAP is not premium in developed countries but
it is perceived as a premium brand in India.

Brand extension success drivers

Brands extension which uses the brands name of the existing brand in its product name can
command premium pricing when compared to an unbranded or private label product with same
functional features. Also, having knowledge on the monetary effects of extending a brand helps
in decision making of resource allocation. The most crucial factors aiding to the success of the
brand extensions are as follows:

Parent brand quality: The consumers perception of the parent brand and its products
is an essential indicator of the brand equity.

Perceived availability: The perceived value of the product extensions distribution

channel indicates the uniqueness and the high quality of the new product to the
consumer. Hence it generates a positive awareness of the brand.

Perceived advertising support: When an advertisement is released focusing solely

on the product extension, the customer realizes about the stake the parent company
has on this extension, consequently improving the brand awareness.

Figure 3 Brand Extension

13
Varsha Jain, Subhadip Roy, Ashok Ranchhod, (2015) "Conceptualizing luxury buying behavior: the Indian perspective",
Journal of Product & Brand Management, Vol. 24 Issue: 3, pp.211-228
14
Beate Elizabeth Stiehler, (2016) "Co-creating luxury brands in an emerging market: Exploring
consumer meaning making and value creation", Qualitative Market Research: An International
Journal, Vol. 19 Issue: 4, pp.395-415
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Consumer experience in the extension category: The more a consumer is

experienced or familiar with the product category of the new product the better it is for
the success of the brand. In case of new product, they rely only the parent brand name
as a cue for purchase

To conclude, parent brand quality and perceived availability are the biggest drivers for the price
premium, on the other hand the monetary effects were impacted equally by all the factors, as
per Henrik Sattler, Franziska Vlckner, Claudia Riediger , Christian M. Ringle15

Step downline extensions of luxury brands16

The ever-changing lifestyle has fostered the aspirational quotient in the customer. There is
constant plea to enhance ones social image and self-esteem. The desire to belong to an
exclusive club of affluent customers serves as an indication of higher status. This has emerged
as an important social need. All aspirational consumers want to display enhanced status in the
society.

Over a period, a luxury brand can be made accessible to a larger set of consumers through
democratization phenomenon. The phenomenon states that a brand can diffuse or launch a
new extension of product range in the product line of the same product category. The new
extension could be a subset with reduced pricing and feature when compared to the original
one. These product extensions could be in the form of sub-brands or nested brands which are
widely accepted by the status seeking innovators.

Moreover, research has proven that the brand extension is successful if it is analogues to the
original product. However, there exists threat of cannibalization of the old product by the new
product and brand perception dissonance among the customers. Utmost care should be taken
while promoting the product as the new product, as it should not be projected as a substitute
for the older one. The company should closely monitor the relationship of the existing product
with the customer and then only extend the brand relation. The ideal way to position the new
line extension would be placing it as status-enhancing relationship this would help the
customer to accept the product on a large scale.

For example: In the automobile industry, people tend to like some of the features of a luxury
car but does not end up buying them. They usually collect all the information about the luxury

15
The impact of brand extension success drivers on brand extension price premiums < www. e lsevi e r.com/locate/i j
www.elsevier.com/locate/i j resmar>
Henrik Sattler a,, Franziska Vlckner b,1, Claudia Riediger a,2, Christian M. Ringle c,d,3
16
Kamilla Hanslin, Anne Rindell, (2014) "Consumer-brand relationships in step-down line extensions of luxury
and designer brands", Journal of Fashion Marketing and Management, Vol. 18 Issue: 2, pp.145-168
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brand and then shortlist key features of their desired car. Hence, some automobile company
launches variants with the selected luxury feature.

E.g.: 1. Jimmy choo shoes is a luxury brand and to increase its reach the parent company
launched Hunters shoes as a premium brand in that category. 2. Adidas originals launched a
slightly cheaper variant Adidas neo to reach out a mass target audience who aspired to join
this premium community. This step of the company was well accepted by the consumer and
the sale of Adidas shoes was increased many folds. 3. The parent company Marriott launched
Marriot hotels and after a few years, the company launched Country Inn with reduced features
and amenities as compared to the initial offering. This strategic move was basically to cater to
the ambitious segment who longed to be in the same group.

Validation of the framework

The framework proposed above explains the factors which delineate premium and luxury
brands and find success factors for making a brand premium, to validate it we take the example
of two brands in the same category and apply the framework to validate the stated hypothesis.

We take the example of Royal Enfield Bullet for a premium brand and Harley Davidson as
a luxury brand in the motorcycle category. Both the brands satisfy the attributes of the middle
circle like conspicuousness by increasing the social status of the consumer. Similarly, both the
bikes are of better quality and of low in number when compared to other bikes in the market
relating to the values of quality and uniqueness. The self-image of the consumer of being a
macho because of owning these brands proves the value of extended self.

But when it comes to the luxury circle Harley Davidson scores better compared to Bullet. A
Harley Davidson treats his/her bike as a prized possession because of the brands heritage of
being one of the oldest luxury cruiser bikes. Consequently, the owner becomes a member of
the exclusive Harley owners group which makes him feel privileged. Every Harley has plenty
of customization options right from exhaust to lights, so that every owner has a distinct bike
according to their taste. All these helps satisfy the values of timeless nature, social marker,
premium pricing due to heritage and craftsmanship making it a luxury brand. On the other
hand, lack of personalization options, premium pricing due to intangibles restricts Bullet to
being a premium Brand.
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Limitations/ Constraints of the Framework

We didnt consider the conversion of existing mass brand to premium brand because of
presence of examples in the industry where a same brand couldnt co-exist in both segments.
e.g. Marutis attempt to foray into premium segment with the launch of Grand Vitara, which
eventually flopped in the Indian auto market.

But there is a need to revisit the framework, keeping this aspect in mind because of very few
brands who have been successful in doing that, like Samsung- a premium brand as of now
when compared to its entry in Indian market as a mass brand.