The brand equation: Does the investment in brand equity really add up for manufacturers?

Jan. 1, 2020
Branding has always been an elusive art, as companies dump loads of money into being top of mind with the customer, while trying to retain a premium status in the face of budget-busting business tactics that focus more on low prices than ever before.
Branding has always been an elusive art, as companies dump loads of money into being top of mind with the customer, while trying to retain a premium status in the face of budget-busting business tactics that focus more on low prices than ever before.

Manufacturers we spoke with say the issue of whether brands really matter depends upon the customer. Techs, for example, are known to be extremely brand conscious and typically are the gatekeeper to a supplier's success. So strong, trusted brands are more important than ever in today's competitive marketplace.

"The shop owner and technician, in particular, need the assurance that every component they install will provide the OE-style fit, performance and reliability expected by the vehicle owner," says Richard Alameddine, vice president of marketing, North American Aftermarket, for Tenneco Inc. "There's a close connection between the technician or shop owner's brand preferences and those of their jobber and distributor."

Some distributors, on the other hand, are telling a different story.

"I make more money off of commodity brands," says Steve Siegel, from United Auto Supply, in Warren, Mich. And that's because the "commodity" brands do not have price sheets.

All in all, "we've survived here in a very tough marketplace in Detroit," he continues.

But when it comes to name brands, a recent decision to a well-known brand is expected to double the sales of that particular line, he adds. So brand does matter, but the supply chain also needs to be cognizant of the price-sensitive customers who prefer the value lines.

"As low cost and high quality manufacturing become more pervasive, for branded products to command a premium, those brands will have to demonstrate superior innovation and customer service," says Rex Green, an investment banker with BB&T Capital Markets.

Alameddine suggests other ways in which brands play a vital role in the distributor's business plans.

"WDs and jobbers are in business to provide the best solutions for every account – if they don't offer the brands the customer prefers, they're going to have a hard time maintaining that relationship," he adds. "Most distributors carry strong, globally recognized brands because they deliver tangible value to the installer in terms of OE fit, performance and reliability. In fact, a trusted brand is almost an extension of the installer's reputation."

Siegel blames previous generations of aftermarket leaders for the race to the bottom with pricing.

"I think the gurus of the aftermarket in the '70s and '80s, they ruined our business," he adds. These folks allowed the industry's major players to diminish brand value by not setting an equal playing field, enabling wholesalers and retailers to bat down the prices until the brand value diminishes with certain product lines, he offers.

Despite these concerns, there are still many stalwart aftermarket companies that continue to invest in brand and maintain their premium standing.

When asked if the investment in brand equity pays off on the "other end," Alameddine answers, "No question about it, and I speak from experience...Tenneco invests very aggressively in protecting and enhancing the value proposition behind each of its aftermarket brands." He also points out that brand relationships can be extended into new categories for a manufacturer, as evidenced by the company's foray into the brakes business.

And as mentioned earlier, the technician is extremely brand-conscious, an assertion with which Siegel agrees. "Most techs and most good shops want to do the job once," he adds. "They don't want comebacks."

A key to the tech getting the right parts is his or her service manager. "The key to a good shop is the service manager," says Siegel. "If he sells the job properly, they have to go with a name brand."

"Technician customers view brand in a different manner than DIY customers," says BB&T's Green. "To the technician, brand loyalty is built on ease of installation and low rates of part failure."

"Brand loyalty is much stronger among technicians who put a high value on their time," he adds. "The perceived fit, form and function benefit of well known brands are difficult to dislodge; that said, the branded manufacturer who is not investing in innovations and customer service will see the value of their brands diminish as technicians retire and the siren song of low cost prevails."

In contrast, success in the DIY marketplace involves a different form of branding, he adds, one that follows the building of product image in the traditional consumer marketplace.