Wednesday, October 14, 2015

VW and Brand Equity Transfer

The VW emissions-rigging scandal has brought to light an interesting area of brand management - brand equity transfer. Experts are now discussing whether the VW fall from grace will affect Germany's perception as a country that manufactures reliable, high-quality products, especially in the automotive sector. This is related to the "country of origin" interaction between countries and industries that are closely related to those countries. For instance, when one thinks of watches, Switzerland comes to mind. When one thinks of wine, France and perhaps Italy, Spain, the US, Argentina, Chili, Australia and South Africa come to mind. When one thinks of chocolate, Belgium comes to mind. And when one thinks of automobiles, Japan, the US, Germany and perhaps South Korea come to mind.

The same thing happens on a regional or state level. When one thinks of wine in the US, California is the first state that comes to mind. But New York, Washington and Oregon also might come to mind. This can even occur on a city level. When one thinks of fashion, Paris, Rome, New York and Milan often come to mind. 

A better way to illustrate this is to think about a product category and place that are not linked in people's minds. Consider precision luxury watches from Mexico or fine wine from Kazakhstan or performance automobiles from Cuba or super-yachts from India. None of these combinations will make sense to most people. There are no linkages between these brands.

The "country of origin" effect is due to brand equity and association transfer between a place and a product (or service) category. That is, the two brands are linked. Therefore, their associations are linked. This can be a blessing or a curse. As long as both brands are strong and benefit from the linkage, this works. As soon as one of the brands, in this case the place or the product category (or in the case of VW, a brand within the product category) has problems it can harm all of the associated brands. 

So "country of origin" effect of countries on industries (and vice versa) is a sub-set of brand equity transfer between two brands.

Do I think the VW scandal will permanently harm Germany's reputation as a country that produces reliable, well-made automobiles? No, not unless other German automobile brands are also mired in scandals. Can it slightly tarnish Germany's reputation in the short-run? Yes.  

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