[MUSIC] Let me ask you a question. Who's the greatest living author? Now, some of you will say J.K. Rowling, the author of the Harry Potter series. You're voting with your pocketbook. She sold the most books, but critics might not agree. They don't think of her as a great author. As a matter of fact, when J.K. Rowling wrote The Casual Vacancy, the critics derided her. They did not consider it great fiction. Certainly not great adult fiction. The customers disagreed. She sold 125,000 books in her first week. Ten times as many as the second book on the bestseller list. Now consider this other author, Robert Galbraith. He wrote The Cuckoo's Calling. The Cuckoo's Calling was praised by critics. For a first time author, they thought this was great fiction. Customers, on this case, did not agree. She hardly sold more than 1,500 copies in about three months. That is, until it was found out that actually JK Rowling wrote The Cuckoo's Calling under a pseudonym. She wanted to know whether the critics actually thought her writing was bad or if it was her brand that made them think her writing was bad. So this is an example where both the critics and the customers were effected by the brand. The customers in a positive way, and the critics in a negative way. Take a look at this brain scan by McClure and his colleagues, which appeared in a journal called Neuron. What they did is they put adults in a brain scanner, and they sucked on a liquid through a straw. And what this shows is a difference in brain activation between when they did not know what this liquid was and when they thought it was Coca-Cola. Now this brain scan shows you the activation in the brain of people who actually like Coca-Cola. And what it shows is the bilateral hippocampus where our long term memories are stored. And it immediately activates a part of the brain called the dorso-lateral prefrontal cortex, which is our reward center of the brain. What's interesting here is that the reward happened before people tasted the liquid. Just the name Coca-Cola gave you the reward. Now the question is, what is this brand image, this activation worth to companies? So here are two versions of aspirin. It's literally the identical product. One is branded as Bayer, a well-known and well-regarded brand. And the other one is a store brand. It's not a bad store brand, but it's not the same as Bayer. They're priced radically different. Once is priced three times higher. So one return to the brand image is that you get a price premium for your products. This is not just in consumer markets. Intel in the 1990s at the peak of the brand Intel Inside, commanded about a 20% price premium over the same computer chip in computers where it was branded as Intel Inside when there was no branding. It can also affect the actual taste of a product. If I tasted coffee, and I have no idea what it is, let's call it 100% of taste. If I branded Nespresso, I might rate the taste as a lot higher. If I called it a store brand, I might rank the taste as lower. It's the same product but it taste differently with a different brand name. Let's take a look at this image. It's a piece of packaging that I scanned some years ago, when my son had a tooth ache, he was only a few months old and we were traveling. My wife at that point asked me to get him baby Tylenol, to help with the pain. I went to the store, or the pharmacy I should say, and I found this. It was called Leader. A fine brand name, I thought, the ingredients exactly the same as baby Tylenol, at least the active ones. Also, it has an image of a little ball held by a baby. I thought my son would appreciate that image, he couldn't actually read the brand name. Now consider the reaction of my wife. As I returned to the hotel room, she looked at this product, she looked at me and she said what is this? I said, it's baby Tylenol, it's what you asked me to get. She said, it doesn't say baby Tylenol, adding, what did you save? And then unspoken, to harm the life of our little baby? So obviously, branding has a huge effect on people's behavior, even if rationally it's the same product. And branding really plays this role of a signal. When it comes to painkillers for example, my colleague Brock Bonenberg at Tilburg University has shown with his colleagues that the more people know about the product category, the more they know about painkillers, the less they rely on the branded product. The more they will have generic products in their closet. Brand is also a symbol. Ever since Sid Levy wrote the article, Symbols for Sale in Harvard Business Review in 1959, we've considered brand not just to serve functional benefits, but to serve symbolic ones. It might be status, it might signal belonging. Maybe of Arsenal, the greatest football club on this planet wins a game, you'll see more people wearing Arsenal shirts. Even myself. Because we want to partake in the success of the club. We want to be part of the club itself. So to summarize, customer based brand equity, a phrase coined by Kevin Keller, considers customers' willingness to pay. One way brands can command higher returns is by charging consumers more for the same product or it might be a volume premium. Some brands like Aldi or Walmart or Zara. They trade on volume, not at price premium. And strong brands also have a stronger bond with their customers, so you keep them longer. So something like customer lifetime value is greater for strong brands. Now, how do we figure out the brand value? We think of the brand, maybe compared to the generic. We think of a razor by Gillette versus an unnamed razor, and we think about how much more a customer is willing to pay and how many more of these raises will you sell. You project this into the future, discount it into the present, and that gives you the overall value of the brand. In that sense brand is really something extra to the product. In the next video when we talk about employee based brand equity, I'll talk about brand, where it brings value, not as something extra to the product, but something that's really intrinsic to the product itself. [MUSIC]
