Why are brands worth investing in?

Germany BrandingTo help think about this question, I have been spending more time in the duty free shop at airports. At Frankfurt Duty Free last week, I could have paid from EUR 10 to EUR 2,700 for my brandy, depending on the brand, origin and premium-ness of the packaging. This same differentials can also be easily be observed in in sparkling wine, perfume and chocolate.

Yes, some of the price variance can be explained by factors such as the use of certain ingredients, ageing time, expensive glass etc. However, in most cases this accounts for only a fraction of the cost of goods. The rest? For want of a better explanation, it comes down to a value that can be ascribed to the presence of branding.
In most cases this branding takes the form of multiple layers. Chanel perfume invites you to be part of the Chanel world, but also invokes the personal brand of the actress Keira Knightly to sell you Coco Chanel, and more recently Chanel Jewellery. Within our industry, Veuve Clicquot balances the name, a striking (and trademarked) orange colour, a beautiful presentation box, and of course the umbrella brand of Champagne, to seal the deal.
Brand layers also exist within the still wine category, but here the branding picture becomes more nuanced. Judging from the pricing in Frankfurt Duty Free, ‘origin’ branding is still a strong driver of value: the Bordeaux selection started at about EUR 20 and went to EUR 300; while the luxury Riesling selection from Pfalz, Mosel and Rheingau tended to cluster between EUR 20 and 40.
Step outside the curated world of travel retail, and the still wine category tends to suffer even more in the brand value stakes. While clearly some powerful brands exist, the main drivers of sales in most markets are more generic “brands” such as countries of origin and grape varieties.
If wine has a branding problem in general, it is particularly acute in the German market, where last week Wine Intelligence hosted its first branding workshop at Geisenheim University to a packed audience of brand owners, producers, retailers and academics. In a session punctuated by lively discussion, participants grappled with how to apply branding theory to the German wine market. It was broadly agreed that so far at least, brands as a whole have not made much headway. German consumers recall fewer brands of wine than consumers in many other major markets, and their affinity levels with those they do remember – whether they think that brand is “for people like them” – are among the lowest recorded in Vinitrac, our global survey of wine drinkers.
It doesn’t help that the ecosystem for consumer goods brands in Germany is fairly harsh. The dominance of hard discount retailers, and their preference for selling very cheap, own-label or captive label products, leaves little room on the shelf for brands in the classic sense, and those that do cling to a listing have to operate on very low profit margins. Once the bills are paid, there is very little left to invest in brand building.
Could this paradigm be about to change? While it is unlikely that wine could command the same margins as perfume anytime soon, there are some signs that the market is waking up to the benefits of branding. Fundamentally, brands are a way of helping consumers fast-track their way through a potentially complex decision-making process to arrive at a utility-enhancing choice without having to waste scarce brain time (what Daniel Kahneman calls “Slow Brain”, or analytical thinking). Wine is a very complex category – among the most complicated consumers have to deal with on a regular basis – so should be ideally placed to benefit from this short-cutting process.
If consumers might appreciate more brand-type help, the supply chain may be waking up to the opportunities of providing it. In Germany, routes to market outside of hard discount have been proliferating in recent years – be they upscale supermarkets, specialist retail, or online retailers – and evidence is growing that younger Germans are becoming more involved in wine and less inclined to accept the relatively limited offerings in hard discount.
Wilhelm Lerner, Wine Intelligence Country Manager for Germany and co-organiser, with Geisenheim, of the Brand Workshop, is optimistic that things are starting to change. “Branding for wine has – up to now – not been a success story in Germany,” he says. “However the convergence of increasing consumer interest, a new generation of marketers and retail category managers and increasing interest of professional international brand owners are creating some interesting momentum in this area which should not be underestimated. I would not be astonished to see well managed, insight-based brands making a difference and outpacing peers in the coming 1 – 2 years.”
Author: Richard Halstead
Email: richard@wineintelligence.com
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