To invest, or not to invest, in brands? Drivers of brand relevance in B2B markets

Abstract

When allocating resources to brand investments, managers should consider the relevance of brands to the purchase decision process. Past research on consumer markets shows that brand relevance generally is driven by three functions: image benefits as well as information cost and risk reductions. This study is the first to investigate these underlying mechanisms of brand relevance in a business-to-business setting. Our main contribution is that, in contrast with consumer markets, brand relevance in industrial markets depends primarily on risk and information cost-reducing effects. Therefore, business-to-business firms should invest in their brands using tactics that support the reduction of risk and information search costs for customer decision making. This article also demonstrates that brand relevance differs across product categories, such that depending on the specific category, investing in brands may or may not be a promising strategy.

Introduction

In addition to well-known consumer brands, such as Coca-Cola and Apple, many business-to-business (B2B) brands—including IBM, Intel, General Electric, Cisco, Oracle, and SAP—are among the world's most valuable brands (Interbrand, 2010). Brands are therefore relevant not only in business-to-consumer (B2C) markets, but also in B2B markets (for an extensive review see Glynn, in press). We interpret brand relevance as the “overall role of brands in customers’ decision making” (Fischer, Völckner, & Sattler, 2010, p. 824). Prior research conducted in B2C markets indicates differences in brand relevance across product categories (Fischer et al., 2002, Fischer et al., 2010, Hammerschmidt et al., 2008), but no previous studies addressed product category-specific brand relevance in B2B markets. Yet, B2B firms need to understand whether or not brand relevance varies across product categories, as well as what drives their brand relevance. This study addresses both of these fundamental questions.

If brand relevance differs across product categories, then information about category-specific levels should determine resource allocations for brand-building efforts. Investing in brands that operate in low brand relevance categories might be a less efficient investment than devoting resources to a brand with high brand relevance on a category level. Although we find in our empirical study that brand relevance differs significantly across categories, the small absolute amount of the differences suggests that brand relevance is not only driven by product-categories. We therefore assess additional drivers of brand relevance in a B2B context. In line with previous research, we measure the relative importance of brand functions that should determine brand relevance. In particular, brands reduce perceived purchase risks, reduce information costs involved in decision making, and evoke specific image effects, such as status. In B2C markets, image-related brand functions are the most important driver of the brand's influence on purchase decisions (Fischer et al., 2002) we test whether these results transfer to B2B markets. In contrast with findings from B2C markets, we find that risk reduction is the most important brand function for B2B settings. This might be due to the specifity of organizational buying behavior (Homburg, Klarmann, & Schmitt, 2010). This ranking regarding the relative influence of brand functions is highly important as it can determine appropriate strategies and marketing actions to increase the influence of brands and thus ultimately enhance brand equity.

Accordingly, this study is motivated by both theoretical and practical interests. From a theoretical perspective, we detail contextual factors that may influence brand relevance in B2B markets and assess the effect of the category on brand relevance. From a practical perspective, our results offer guidelines to managers with regard to focusing on specific brand functions when developing communication strategies. Finally, our study offers researchers a means to explain heterogeneity in brand-building studies.

In Section 2, we present our conceptual background and derive our hypotheses. In Section 3, we describe our study design and the methodological approach, before presenting the empirical study results in Section 4. We conclude with a discussion of our study contributions, implications for managers, and avenues for further research.