Summary
The evolution of branding from a legal and differential device to a holistic
construct with functional, emotional, relational and strategic dimensions is caused by transformations in competitive environments.219 The conceptualization of brands as strategic assets has been put forward by the pursuit of competitive advantage by firms. The resource-based view provides the conceptual
foundations for linking brands and branding to the development of sustainable competitive advantage.220
Brands, as intangible assets, are part of the firm´s portfolio of idiosyncratic and difficult–to-imitate resources and capabilities. Within this perspective, brands have a significant potential to enable the achievement and sustenance of superior performance and competitive advantage. According to Aaker, 221 the greater the intangibility of a service, the greater the importance of brand equity as a source of competitive advantage.
The necessity of approaching brands as strategic resources
In terms of strategy, brands have not always been considered important enough to become strategic resources.222 There is also little discussion about how to approach brands and how to compete primarily with them. It is with the emergence of the resource-based strategy perspective that the linking of the firm’s resources and competencies as well as the development of sustainable competitive advantages came to being.223
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219 Louro (2001) p. 851
220 Louro (2001) p. 851
221 Aaker (1991)
222 Urde, Mats. "Brand Orientation: A Mindset for Building Brands into Strategic Resources". Journal of Marketing Management. Vol. 15 (1999), p. 118
223 Urde (1999) p. 118
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As opposed to the traditional strategy view, where competitive advantage is based on physical resources and processes,224 in the resource-based view what constitutes competitive advantage depends upon both material and cognitive resources. Understanding brands as cognitive resources provides the conceptual foundation for linking brands and brand management to the development of sustainable competitive advantage.
The resource-based approach emphasizes the role of a firm's portfolio of idiosyncratic and difficult-to-imitate resources and capabilities as the core determinants of firm performance.225 Brands, as intangible assets, retain a significant potential to enable the achievement and sustenance of superior performance.226 In the same line of thought, Hunt and Morgan introduce the link between intangible assets and competitive advantage: “While competitors can emulate financial and physical assets, intangible assets represent a more sustainable competitive advantage”.227 According to Aaker, the greater the intangibility of the asset, the greater its ability to be a source of competitive advantage.228
Therefore, companies should focus their efforts on intangible assets such as brands, unlike previous decades where the focus was on synergies gained by economies of scale.229
Previous research
As mentioned in before, there are not many academic resources that explain and analyse the direct link between branding and competitive advantage.
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224 Porter (1985) p. 3
225 Louro (2001) p. 851
226 Hall (1993); Barney and Hesterly (1996) in Louro (2001) p. 851
227 Hunt, Shelby; Morgan, Robert. “The Comparative Advantage Theory of Competition”. Journal of Marketing Research. Vol. 59 (1995), no. 2, p. 1.
228 Aaker (1991)
229 Cobb-Walgren, Cathy J.; Ruble, Cynthia A.; Donthu, Naveen. "Brand equity, brand preference, and purchase intent." Journal of advertising. Vol. 24 (1995), no 3, p. 25-40.
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These are the findings of the literature review:
• Woodruff explores the link between customer value and competitive
advantage in his study,230 referring to a shift in organizational orientation to focus on customer value, but he does not mention brands and branding.
• Bharadwaj231 confirms brand equity as a potential source of competitive advantage and identified previous studies that confirmed this: it helps to differentiate the product from competitor´s offerings; services as a proxy for quality and creates positive images in the consumer´s minds; and prevents market share erosion by giving a firm time to respond to competitive threats.
• According to Aaker, brands are strategic assets that provide an
organization with an imitable competitive advantage,232 although he also states that brands “might develop sustainable competitive advantage for firms”.233
• Backhaus writes that, "A successful brand becomes a critical asset and a key source of sustainable competitive advantage for companies".234 The definition of a successful brand and how they become a source of
competitive advantage, however, is not explained in detail.
• Baldauf argues that: “strong brands represent a key component of competitive advantage and function as the main source of a company’s future earnings”.235 In this study, he demonstrated that brand equity’s dimension (perceived quality, brand loyalty and brand associations) were significant predictors of performance measures. The link to competitive advantage was, however, not analysed in this study.
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230 Woodruff (1997)
231 Bharadwaj (1993) p. 89-90
232 Aaker (1996)
233 Aaker (1989)
234 Backhaus, Klaus; Steiner, Michael; Lügger, Kai ."To invest, or not to invest, in brands? Drivers of brand relevance in B2B markets." Industrial Marketing Management. Vol. 40 (2011), no. 7, p. 1082-1092.
235 Baldauf, A.; Cravers, K.; Binder. “Performance Consequences of Brand Equity Management: Evidence from Organizations in the Value Chain”. Journal of Product & Brand Management. Vol. 12 (2003), no. 4 p. 220.
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• Keller states that “building a strong brand with significant equity, provides a host of possible benefits to a company, including greater consumer loyalty and less vulnerability to competitive marketing actions, larger margins as well as less customer price sensitivity.236 An explanation of the direct relationship with competitive advantage was not provided.
• Lassar argues that: “brand equity is regarded as a very important concept in business practice as well as in academic research because marketers can gain competitive advantage through successful brands.237 How marketers can gain this competitive advantage and the criterion for what constitutes a successful brand was not explained in this study.
• Barney238 stresses that strong brands are 1) valuable, to the extent that they enable firms to explore opportunities (e.g. brand extension) and neutralize environmental threats; 2) rare among an organization's current and potential competitors; 3) costly to imitate and 4) without close strategic substitutes. There is not direct link established between competitive
advantages and branding.
• Barney239 also explains that knowledge, values and beliefs are resources that create sustainable competitive advantage insofar as they are
valuable, rare and difficult to imitate.
• In his article "Brand Orientation - Strategy for Survival- The future of many companies lies in brands", Urde argues that "established brands have a great potential for increasing the ability of companies to compete as well as generating their growth and profitability. Awareness of this potential will make brands important in the formulation of company strategies as a source for sustainable competitive advantage”.240
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236 Keller (1993) p. 8
237 Lassar, W; Mittal, B. Sharma, A. “Measuring Customer-Based Brand Equity”. The Journal of Consumer Marketing. Vol. 12, (1995) no. 4, p. 11
238 Barney (1991)
239 Barney, Jay B. “Organizational culture: Can it be a source of sustained competitive advantage?”
Academy of Management Review. Vol. 11 (1986a), p. 656–665.
240 Urde (1999) p. 118
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Validation of branding as a source of competitive advantage
Why should branding be used as a competitive advantage for companies? Main arguments identified in the literature review that confirm and support the
hypothesis of “branding can be a source of competitive advantage for companies” are as the following:
1) Branding provides valuable functions to firms enabling the adaption of differentiation-based positioning strategies241 that lead to competitive advantages based on non-price competition. Differentiation is key for competitive positioning strategies as suggested by Porter.242
2) One key component of branding is positioning, and the essence of brand positioning is that the brand has "unique selling proposition" that gives consumers a compelling reason for buying that particular brand,243, 244 by creating a barrier for the competitors’ offerings.
3) Knowledge, values and beliefs are resources that create sustainable