Counting Sheep: Maintaining Brand Equity with Multi-Category Brands

Counting Sheep: Maintaining Brand Equity with Multi-Category Brands

Who says social science can’t provide us with anything useful? The Tragedy of the Commons is one of the most enduring concepts from psychology and social science, with a surprising range of applications. In essence, the Tragedy of the Commons (ToC) comes about when a common resource is over-exploited because there is not an explicit cost associated with it that is borne by the exploiter. Maintenance of the resource thus depends upon social norms, rather than a price. In this case the ToC has important lessons for brands seeking to maintain the equity they have so painstakingly built.

What types of brands are most likely to become susceptible to ToC? Because companies are always looking to fully leverage their investment in building brand equity, one increasingly common strategy is to utilize a single brand across multiple product categories. Costco’s Kirkland Signature covers everything from chicken thighs to shirts, Home Depot’s HDX brand covers hundreds of products from hand tools to shelving units, and Amazon Basics similarly covers hundreds of products from gas patio heaters to USB cables.

There are, of course, a number of advantages to such a strategy. Building fewer brands means a more concentrated marketing investment, and having multiple points of entry into the brand aids in building brand awareness and recognition. The same brand is encountered by customers in multiple categories, so the frequency of impressions can increase, in more contexts, thus building trust though familiarity.

So what can this possibly have to do with sheep? Prior to the 16th and 17th centuries, villages in England typically had common land available to the townspeople to graze their sheep. The “tragedy” comes about as a result of short term individual interests – if the cost of the resource (in this case grazing land) is not borne by the individual, the temptation for the individual is to maximize their usage of the resource. Each villager, chasing his or her own self-interest, would add additional sheep to the flocks, since the cost of grazing (i.e. zero) does not change regardless of the number of sheep grazing. As villagers add sheep, the herds soon grow too large to be sustained. Within a short period of time, the result is over-grazing, which effectively ruins the land. The key point here is that land is damaged for many years – it’s not just that there is insufficient land to graze the current number of sheep, a problem that would be easily rectified by simply reducing the number of sheep. The fact is that the overgrazing does so much damage to the land that it actually makes it impossible for grass to grow at all and to sustain any level of grazing. The resource is destroyed, and at this point all the villagers suffer, not just the ones who increased the size of their flocks.

So narrow self-interest has two effects in the context of a common asset – it encourages “cheating” or taking excess advantage of the asset since there are no additional costs involved. And more disastrously, it has the effect of not only failing to sustain the “additional sheep,” but essentially destroying the common asset and making it worthless for all, regardless of whether or not certain individuals maintained a “fair and reasonable” level of asset use.

Because some brands are spread across multiple categories, they typically have multiple stakeholders. The chicken buyer and the shirt buyer at Costco both have an interest in maintaining the solid reputation of the Kirkland Signature brand, which is based largely on the quality of the products they offer. Thus the brand is a common asset that can assist all stakeholders in their success. The brand is the grazing land, and the stakeholders in the brand’s success are the villagers. A well-respected brand is a significant resource for all buyers involved, and yet each buyer/stakeholder is dependent on all the others to maintain the level of quality that supports the brand’s reputation.

But here’s where the narrow self-interest comes in to play. Sourcing professionals or buyers are often encouraged to be entrepreneurial, viewing their categories as their own enterprises and empowered to make key decisions to further their success. Compensation or other incentives are often linked to sales, margin, or margin dollars. Whether consciously or not, in these instances the temptation for the buyer is to “free ride” on the brand’s reputation, while at the same time sourcing cheap products to maximize sales or margin. The overgrazing has begun. Lower quality products that boast a well-regarded brand may provide a temporary boost to margin dollars (the initial boost in flock size), but the degradation of the brand (common grazing land) has started. Customers may forgive brand transgressions occasionally, but if it continues, the brand will degrade. Customers can no longer transfer brand knowledge from one category to the others (e.g. “the chicken is great but the coffee is substandard”) and thus it ceases to effectively function as a brand.

As in the case of the overgrazed commons, the brand degradation affects all stakeholders. The other stakeholders (whether it be buyers, shareholders, or other employees) start to suffer despite the fact that they may have maintained the original level of quality in their categories, but they may themselves succumb to the temptation to follow suit, lowering quality in more categories in a bid to maintain sales revenue.

This does not need to be a conscious decision by the buyers, and in all likelihood it seldom is. But this makes it all the more pernicious, where incentive structures, compensation plans and corporate guidance that are far removed from specific brand decisions can lead to unintended and long term consequences. As companies look increasingly to multi-category brands, the importance of brand integrity and oversight becomes ever more critical.

Leave A Message