branding, marketing, Agribusiness, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety,

Hobbs, Jill E.

Innes, Brian G.

Kerr, William A.

English

Research Papers in Economics

 
 
 
INTERNATIONAL PRODUCT 
DIFFERENTIATION THROUGH A 
COUNTRY BRAND: AN ECONOMIC 
ANALYSIS OF NATIONAL BRANDING 
AS A MARKETING STRATEGY FOR 
AGRICULTURAL PRODUCTS  
 
CATPRN Trade Policy Brief 2008-05 
April 2008 
 
 
Brian G. Innes 
M.Sc. Candidate 
 
William A. Kerr 
Van Vliet Professor 
 
Jill E. Hobbs 
Professor and Head 
 
Department of Bioresource Policy, Business & Economics 
University of Saskatchewan, Saskatoon, Canada 
 
 
http://www.catrade.org 
 
 
 
Trade Policy Briefs are short summaries of studies funded by the CATPRN.  As such, the briefs 
omit many of the details and all of the references contained in the longer reports.  This brief is 
based on CATPRN Commissioned Paper 2007-05.  The CATPRN is funded by Agriculture and 
Agri-Food Canada but the views expressed in this paper are those of the authors and should not 
be attributed to the funding agency.    
 
2
1. Background 
 
Trade policy initiatives of developed country governments are in flux as a result 
of the increasing restrictions imposed by international trade agreements. As the 
proportion of agri-food trade comprised of commodities declines, new initiatives 
in domestic trade policy are rooted in the trend away from trade in agricultural 
commodities and toward trade in more differentiated agricultural and food 
products. This ongoing shift has increased government interest in incorporating 
differentiation and promotion strategies in their trade policies. Product 
differentiation and agri-food product promotion strategies range from geographic 
indicators in the European Union to country branding programs being 
implemented or given serious consideration in countries as diverse as New 
Zealand, Kyrgyzstan, Ecuador and Canada. 
 
Given the increasing interest in country branding as a trade enhancement 
strategy, the commissioned paper that accompanies this Policy Brief examines 
the role of an effective branding strategy in the global marketplace. It focuses on 
the implications of economic theory for a country branding program that applies a 
brand/logo to products. 
 
A clear distinction between brands and labels is central to our work. A label 
simply identifies a specific product characteristic pertaining only and precisely to 
the product itself (such as origin or composition); whereas a brand is a broader 
concept that captures a product’s characteristics, its reputation, and the 
accumulated customer experience with that brand name and symbol that is 
viewed on the product  at the customer’s point of purchase. In other words, we 
consider that a well functioning brand is more than simply the creation of an 
image in the minds of consumers. Consequently, demand for a product may be 
affected if the brand influences - either positively or negatively –the product’s 
perceived quality. 
 
2.  Country Brands for Export Promotion 
 
The goals of any promotion program can be distilled to increasing the quantity 
sold, profiting more from a fixed quantity of sales via higher prices, or some 
combination of the two. The success of a country brand in accomplishing these 
goals depends upon whether there are barriers to entry that restrict the use of the 
brand. The only opportunity to increase quantity sold and price concurrently 
occurs when the number of firms or the supply of products using the brand are 
limited – because any profits arising from the existence of the brand will be 
eroded through entry. 
 
Origin brands have been successful promotion tools when they provide a 
complementary quality signal to the manufacturer’s own brand. If a country brand 
can credibly signal a positive product attribute complementing the exporting 
firm’s own private brand, then it could be a valuable tool used by a government to  
 
3
promote their agri-food industry. European geographic labels have been shown 
to add value to private brands by providing complementary quality signals. Each 
label represents unique characteristics; the geographic indication represents 
organoleptic quality and the private brand homogeneity. Evidently, an exporter 
will only use the brand if it contributes value to their product and enhances its 
marketability. What challenges need to be managed to ensure that a country 
brand can be an effective tool for agri-food exporters? 
 
3.  Challenges with a Country Brand 
 
Using a country brand that builds on the collective reputation of a country, its 
citizens, and other products using the brand makes managing it considerably 
more challenging than managing a traditional private brand. Firstly, a country 
brand is impacted by factors beyond the control of the licensor or its users. 
These factors include consumers’ preconceptions of what the country represents 
and the country’s international reputation more generally. Secondly, applying a 
brand to a multitude of different products makes managing even relatively 
straightforward facets of the brand such as product quality and consistency a 
major challenge. For a country branding program to assist in expanding exports, 
foreign consumers must have a positive image of the country and the other 
products that use the brand. 
 
4.  Anticipating Supply and Demand Side Pressures 
 
Using a two-stage decision model, the Commissioned Paper outlines how 
positive brand equity is essential for exporting firms to effectively use the country 
brand. Brands must both deliver brand value from the supply side and create 
brand value on the demand side to be successful. Though not independent of 
one another, the demand/supply distinction highlights that brand equity is 
contingent on both the actions of firms who have chosen to use the brand and 
also the actions of those parties exogenous to the branding strategy. 
 
Supply Side Pressures 
 
On the supply side, maintaining consistent quality products and ensuring that 
branded products reflect the brand’s image are essential for the brand to be a 
credible quality signal.  That is, a brand associated with consistent products is 
better than one associated with inconsistent products; a brand known for high 
quality products is better than one associated with low quality products and so 
on. This is also known as vertical quality differentiation. Avoiding a credibility gap 
that will occur when production practices are incongruent with a brand’s image 
for example, is an important concern because a profit-maximizing firm will have 
little incentive to follow costly production practices consistent with the brand 
image if they are not required to do so. The ability for a brand to represent quality 
and consistency that vertically differentiates products using the brand thus  
 
4
critically depends on the users of the brand uniformly delivering this quality and 
consistency. 
 
If there is no mechanism to ensure that only consistently high quality products 
upholding the brand’s integrity are permitted to use the brand, then the overall 
vertical quality represented by the brand, and consequentially the brand’s equity, 
will decline. In addition to firms not wanting to use a collective co-brand that 
represents a lower quality than their own, firms would also have little incentive to 
improve the quality of their products in a collective organization. In collective 
organizations, such as geographic indications, the costs for quality improvement 
fall on the individual but the benefits accrue to the entire group; thus producers of 
high quality products are penalized by the collective nature of the brand. In the 
absence of quality monitoring, not only would the brand attract those producing 
poor quality products, but it would also not reward those producers who add 
value to the brand. Thus a classic free-rider problem emerges: some firms 
benefit from the investments of others with little or no contribution of their own. 
Simply, a brand will only deliver increased demand if products that use the brand 
are consistent with each other and with the expectations created through 
advertising or other promotional activities.  
 
Demand Side Pressures 
 
In contrast to the supply side pressures that relate to vertical quality factors 
affecting brand equity, the position of one country’s brand relative to other 
countries’ brands in the international marketplace can be thought of as horizontal 
differentiation. This means that certain country brands will appeal more to certain 
consumers. Owing to the dynamic character of the global marketplace, a brand 
can only be differentiated and generate brand equity in the long-term if the 
characteristics that it represents are different from those of its competitors. 
 
Using a horizontal differentiation model, the impact on market share of discrete 
consumer choice between two countries’ products is modelled. If the country 
brand can establish brand equity in the international market, the simplified two-
country case indicates that the long-term success of the brand depends on the 
uniqueness of the brand attributes. If the attributes were not unique then other 
countries with similar attributes would try to mimic the brand with a country brand 
of their own. Realistically, a branded product is never truly unique and is subject 
to imitation by others if the brand establishes a positive level of equity. The 
important prediction of this model is that international competition will reduce the 
market share achieved by a successful country brand when other countries’ 
brands diminish its uniqueness. 
 
The quality and consistency of products using the brand and the presence of 
competing country brands will both affect the level of a country brand’s equity. 
How much brand equity remains as a result of these supply and demand 
pressures is important, as the value of the brand must be greater than the costs  
 
5
of establishing and managing it for the country branding program to be a 
worthwhile exercise.  
 
5.  Managing a Country Brand 
 
For country brands to be successful in the long-term, users of the country brand 
must contribute to the brand’s equity. Knowing that firms will have a tendency to 
free-ride on the efforts of other firms, brand equity is unlikely to be sustained in 
the long-term without an appropriate system of quality assurance.  
 
An appropriate level of quality assurance needs to reflect the claims made by the 
brand to ensure that monitoring and enforcement is proportional to the potential 
benefits of compliance. The underlying tenet of the optimal choice of quality 
assurance mechanism is that firms will “cheat” the assurance mechanism to the 
point where the marginal cost of the expected penalty is equal to the marginal 
benefit of marketing a low quality product with the brand. Thus, the optimal 
assurance system will ensure that non-compliance costs for the individual 
members appropriately reflect the resulting loss in brand equity. The goal of a 
quality assurance system for a country brand would be to ensure that firms and 
products using the brand are consistent with the image communicated. 
 
6.  Potential for Other Countries to Restrict Country Branding 
 
Costs incurred with a country branding program are small relative to production 
and thus do not seem at odds with the existing Uruguay Round Agreement on 
Agriculture. As long as branding expenditures are considered “widely available” 
then they would likely fall under the current de minimus allowance for subsidies 
and would not be subject to countervail. If a branding program was not deemed 
“widely available” owing to its focus on agri-food exports, then it would likely be 
classified as a specific subsidy subject to agreed upon restrictions and 
reductions. Considering the size of a country’s agricultural production, it is 
unlikely that a branding program will represent more than five percent of the 
product’s total cost and thus it will not be either actionable or subject to agreed-
upon reductions. If the current Doha Round proposals to reduce de minimus are 
agreed, then subsidies for branding may be open to the complaints of trading 
partners. 
 
Restricting or copying product claims, logos, and trademarks associated with a 
particular country’s brand by competing countries is also a concern. According to 
the existing GATT agreement, an international competitor would be prevented 
from misrepresenting a product’s country of origin. Protection as a geographic 
indication under the TRIPS agreement, however, is contingent on proving a 
connection between the quality the brand represents and the terroir of the 
country – something that would be difficult to prove for most countries. Protecting 
country brands and their trademarks would inevitably be subject to the same 
need for country specific legal protection from competitors as private brands.   
 
6
7. Conclusions 
 
A country branding strategy for agricultural exports may be an effective way to 
promote a country’s products on the international market. Nevertheless, 
significant challenges exist for a country brand due to difficulties in managing 
both the product-country image and product quality. For a brand to be 
successful, some means of assuring a consistent product quality is necessary to 
ensure long-term brand equity. The absence of prescribed quality standards and 
the presence of adverse selection may well drive down the quality or consistency 
of products to the point where the brand no longer has value. 
 
A country brand will only be successful facing competition from other countries in 
the international marketplace if its claims are credible and unique. Initial success 
of the brand will deteriorate if consumers’ expectations are not met or other 
countries imitate the claims made by the brand. 
 
There may be opportunities for country brands to promote agri-food products in 
the international market, in certain countries for certain products, where a 
complementary quality can be identified and managed. To succeed, a country 
brand must credibly signal a unique product image to consumers. The analysis 
presented in the Commissioned Paper suggests that building a credible quality 
signal is not a simple task, and that quality assurance programs have an 
important role to play in maintaining the credibility of quality claims. 

International Product Differentiation Through a Country Brand: An Economic Analysis of National Branding as a Marketing Strategy for Agricultural Products

International Product Differentiation Through a Country Brand: An Economic Analysis of National Branding as a Marketing Strategy for Agricultural Products

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics