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Product and Brand Management

This book is a part of the course by Jaipur National University, Jaipur.This book contains the course content for Product and Brand Management.

JNU, JaipurFirst Edition 2013

The content in the book is copyright of JNU. All rights reserved.No part of the content may in any form or by any electronic, mechanical, photocopying, recording, or any other means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior permission of the publisher.

JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the content whenever the need arises, and to vary it at any time without prior notice.

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Index

ContentI. ...................................................................... II

List of FiguresII. ..........................................................IX

List of TablesIII. ............................................................ X

Case StudyIV. ............................................................ 150

BibliographyV. .......................................................... 155

Self Assessment AnswersVI. ..................................... 157

Book at a Glance

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Content

Chapter I ....................................................................................................................................................... 1Introduction to Product and Product Management ................................................................................. 1Aim ............................................................................................................................................................... 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction .............................................................................................................................................. 21.2 Defining Product ...................................................................................................................................... 21.3 Product Management ............................................................................................................................... 21.4 Product Levels ......................................................................................................................................... 31.5 Product Mix ............................................................................................................................................. 41.6 Product Life Cycle ................................................................................................................................... 4 1.6.1 Introduction Phase ................................................................................................................... 5 1.6.2 Growth Phase ........................................................................................................................... 6 1.6.3 Maturity Phase ......................................................................................................................... 6 1.6.4 Decline Phase ........................................................................................................................... 61.7 Market Evolution ..................................................................................................................................... 7 1.7.1 Emergence................................................................................................................................ 7 1.7.2 Growth ..................................................................................................................................... 7 1.7.3 Maturity ................................................................................................................................... 7 1.7.4 Decline ..................................................................................................................................... 81.8 Product Classification .............................................................................................................................. 8 1.8.1 Durability and Tangibility ........................................................................................................ 8 1.8.2 Consumer Goods Classification ............................................................................................... 8 1.8.3 Industrial Goods Classification ................................................................................................ 91.9 Product Portfolio Management .............................................................................................................. 10 1.9.1 SBU’s characteristics ............................................................................................................ 10 1.9.2 The Boston Consulting Group (BCG) Model ........................................................................ 10 1.9.3 The General Electric (GE) Model .......................................................................................... 13 1.9.4 Adapting Products to Local Conditions ................................................................................. 14 1.9.5 Threats from Duplication ....................................................................................................... 15Summary ..................................................................................................................................................... 16References ................................................................................................................................................... 16Recommended Reading ............................................................................................................................. 16Self Assessment ........................................................................................................................................... 17

Chapter II ................................................................................................................................................... 19New Product Development Process .......................................................................................................... 19Aim .............................................................................................................................................................. 19Objectives .................................................................................................................................................... 19Learning outcome ........................................................................................................................................ 192.1 Introduction ............................................................................................................................................ 202.2 New Product ........................................................................................................................................... 202.3 Factors Contributing to New Product Development .............................................................................. 202.4 New Product Development Process ....................................................................................................... 20 2.4.1 Idea Generation ...................................................................................................................... 21 2.4.2 Idea Screening ........................................................................................................................ 21 2.4.3 Concept Development and Testing ........................................................................................ 22 2.4.4 Marketing Strategy Development .......................................................................................... 22 2.4.5 Business Analysis .................................................................................................................. 22 2.4.6 Product Development ............................................................................................................ 23 2.4.7 Market Testing ....................................................................................................................... 23 2.4.8 Commercialisation ................................................................................................................. 232.5 Product Adoption ................................................................................................................................... 24

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2.6 Product Strategy ..................................................................................................................................... 25 2.6.1 Elements of Product Strategy ................................................................................................ 25 2.6.2 Setting Objectives .................................................................................................................. 262.7 Strategic Alternatives ............................................................................................................................. 26 2.7.1 Increasing Sales/Market Share – Market Development Strategies ........................................ 27 2.7.2 Market Penetration Strategies ................................................................................................ 272.8 Increasing Profitability ........................................................................................................................... 27 2.8.1 Decreasing Inputs .................................................................................................................. 27 2.8.2 Increasing Outputs ................................................................................................................. 272.9 Positioning 28 2.9.1 Choice of Customer Targets ................................................................................................... 28 2.9.2 Choice of Competitor Targets ................................................................................................ 28 2.9.3 Core Strategy ......................................................................................................................... 28 2.9.4 Cost/Price (Value) Strategy .................................................................................................... 28 2.9.5 Non-price Strategy ................................................................................................................. 29Summary ..................................................................................................................................................... 30References ................................................................................................................................................... 30Recommended Reading ............................................................................................................................. 30Self Assessment ........................................................................................................................................... 31

Chapter III .................................................................................................................................................. 33Marketing Management ............................................................................................................................ 33Aim .............................................................................................................................................................. 33Objectives .................................................................................................................................................... 33Learning outcome ........................................................................................................................................ 333.1 Introduction ........................................................................................................................................... 343.2 Marketing Organisation ......................................................................................................................... 34 3.2.1 Product Focused Organisation ............................................................................................... 34 3.2.2 Market Focused Organisation ................................................................................................ 35 3.2.3 Functionally Focused Organisation ....................................................................................... 363.3 Marketing Channels ............................................................................................................................... 36 3.3.1 Channel Selection .................................................................................................................. 37 3.3.2 Indirect Channels ................................................................................................................... 38 3.3.3 Direct Channels ...................................................................................................................... 38 3.3.4 Hybrid Channels .................................................................................................................... 39 3.3.5 Indirect Channel Management ............................................................................................... 39 3.3.6 Channel Arrangements ........................................................................................................... 40 3.3.7 Monitoring Profitability by Channel ...................................................................................... 403.4 Market Planning ..................................................................................................................................... 403.5 The Planning Process ............................................................................................................................. 413.6 Marketing Plan Outline .......................................................................................................................... 41 3.6.1 Executive Summary ............................................................................................................... 41 3.6.2 Situation Analysis .................................................................................................................. 42 3.6.3 Objectives .............................................................................................................................. 43 3.6.4 Product/Brand Strategy .......................................................................................................... 43 3.6.5 Supporting Marketing Programs ............................................................................................ 43 3.6.6 Financial Documents ............................................................................................................. 43 3.6.7 Monitors and Controls ........................................................................................................... 44 3.6.8 Contingency Plans ................................................................................................................ 443.7 Marketing and Sales ............................................................................................................................... 443.8 Market and Sales Potential ..................................................................................................................... 443.9 Sales Forecasting ................................................................................................................................... 453.10 Methods of Estimating Market and Sales Potential ............................................................................. 45 3.10.1 Analysis Based Estimates .................................................................................................... 45 3.10.2 Judgement Based Methods .................................................................................................. 46

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3.10.3 Customer Based Methods .................................................................................................... 46Summary ..................................................................................................................................................... 47References ................................................................................................................................................... 47Recommended Reading ............................................................................................................................. 47Self Assessment ........................................................................................................................................... 48

Chapter IV .................................................................................................................................................. 50Pricing Strategy, Advertising and Promotion.......................................................................................... 50Aim .............................................................................................................................................................. 50Objectives .................................................................................................................................................... 50Learning outcome ........................................................................................................................................ 504.1 Introduction ............................................................................................................................................ 514.2 Setting the Price ..................................................................................................................................... 514.3 The Role of Marketing Strategy in Pricing ............................................................................................ 51 4.3.1 Measuring Perceived Value and Price .................................................................................... 52 4.3.2 The Economic Value Concept ................................................................................................ 52 4.3.3 Using Price Thresholds .......................................................................................................... 53 4.3.4 Using the Perceived Value Concept ....................................................................................... 53 4.3.5 Psychological Aspects of Price .............................................................................................. 53 4.3.6 Relationship between Price and Perceived Quality ............................................................... 54 4.3.7 Odd Ending Prices ................................................................................................................. 54 4.3.8 Competition and Pricing ........................................................................................................ 54 4.3.8.1 Competitors’ Costs .................................................................................................. 54 4.3.8.2 Historical Pricing Behaviour ................................................................................... 54 4.3.9 Role of Cost to Company ....................................................................................................... 554.4 Pricing Objectives .................................................................................................................................. 55 4.4.1 Penetration Pricing ................................................................................................................. 55 4.4.2 Return on Sales/Investment Pricing ....................................................................................... 56 4.4.3 Pricing for Stability ................................................................................................................ 56 4.4.4 Skimming ............................................................................................................................... 56 4.4.5 Competitive Pricing ............................................................................................................... 56 4.4.6 Other Factors Affecting Price ................................................................................................ 564.5 Pricing Tactics ........................................................................................................................................ 564.6 Advertising ............................................................................................................................................. 574.7 Developing Effective Communications ................................................................................................. 584.8 Factors in Setting the Marketing Communications Mix ........................................................................ 594.9 Media Selection ..................................................................................................................................... 594.10 Evaluating Advertising Effects ............................................................................................................ 604.11 Promotions ........................................................................................................................................... 60 4.11.1 Promotion Objectives ........................................................................................................... 61 4.11.1.1 Final Customer Promotions ................................................................................... 61 4.11.1.2 Trade Promotions .................................................................................................. 614.12 Promotion Budgeting ........................................................................................................................... 61 4.12.1 The Total Advertising and Promotion Budget ..................................................................... 62 4.12.2 Allocating Money between Advertising and Promotion ...................................................... 62 4.12.3 Evaluating Customer Promotions ........................................................................................ 62 4.12.4 Effects of Promotions ......................................................................................................... 63Summary ..................................................................................................................................................... 64References ................................................................................................................................................... 64Recommended Reading ............................................................................................................................. 64Self Assessment ........................................................................................................................................... 65

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Chapter V .................................................................................................................................................... 67Financial Analysis and Services ................................................................................................................ 67Aim .............................................................................................................................................................. 67Objectives .................................................................................................................................................... 67Learning outcome ........................................................................................................................................ 675.1 Introduction ........................................................................................................................................... 685.2 Sales Analysis ........................................................................................................................................ 685.3 Profitability Analysis ............................................................................................................................. 69 5.3.1 Cost Classification ................................................................................................................. 69 5.3.2 Using the Contribution Rate .................................................................................................. 705.4 Framework for Control .......................................................................................................................... 705.5 Capital Budgeting .................................................................................................................................. 70 5.5.1 Average Rate of Return .......................................................................................................... 71 5.5.2 Payback .................................................................................................................................. 71 5.5.3 Internal Rate of Return (IRR) ................................................................................................ 71 5.5.4 Present Value .......................................................................................................................... 71 5.5.5 Economic Value Added (EVA) .............................................................................................. 725.6 Services .................................................................................................................................................. 72 5.6.1 Service Categories ................................................................................................................. 725.7 Marketing Strategies for Service Firms ................................................................................................. 72 5.7.1 Differentiation in Services ..................................................................................................... 73 5.7.2 Managing Service Quality ..................................................................................................... 73 5.7.3 Managing Productivity .......................................................................................................... 745.8 Post-Sale Service Strategy ..................................................................................................................... 745.9 Major Trends in Product Support Service .............................................................................................. 745.10 Managing Product Support Services .................................................................................................... 75Summary ..................................................................................................................................................... 76References ................................................................................................................................................... 76Recommended Reading ............................................................................................................................. 76Self Assessment ........................................................................................................................................... 77

Chapter VI .................................................................................................................................................. 79Brand Management ................................................................................................................................... 79Aim .............................................................................................................................................................. 79Objectives .................................................................................................................................................... 79Learning outcome ........................................................................................................................................ 796.1 Introduction ............................................................................................................................................ 806.2 Brand ...................................................................................................................................................... 806.3 Brand Equity .......................................................................................................................................... 806.4 Branding Challenges .............................................................................................................................. 826.5 Brand-Sponsor ....................................................................................................................................... 826.6 Brand Building Tools ............................................................................................................................. 826.7 Brand Strategy Decision ........................................................................................................................ 836.8 Brand Asset Management ...................................................................................................................... 836.9 Packaging and Labelling ........................................................................................................................ 836.10 Laws of Branding ................................................................................................................................. 846.11 Myths about Branding .......................................................................................................................... 846.12 Role and Significance of Branding ...................................................................................................... 84 6.12.1 Significance of Brands from Consumers’ Point of View ..................................................... 84 6.12.2 Significance of Brands from the Marketer’s Point of View................................................. 856.13 Brand Ranking ..................................................................................................................................... 876.14 Brand Challenges ................................................................................................................................. 88 6.14.1 Brand or No Brand ............................................................................................................... 88 6.14.2 Brand Sponsor Decision ...................................................................................................... 88 6.14.3 Brand Name Decisions ........................................................................................................ 89

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6.14.4 Brand Name Strategies ........................................................................................................ 90 6.14.5 Brand Strategy Decisions ..................................................................................................... 90 6.14.6 Brand Repositioning or No Repositioning ........................................................................... 91Summary ..................................................................................................................................................... 92References ................................................................................................................................................... 92Recommended Reading ............................................................................................................................. 92Self Assessment ........................................................................................................................................... 93

Chapter VII ................................................................................................................................................ 95Brand Equity .............................................................................................................................................. 95Aim .............................................................................................................................................................. 95Objectives .................................................................................................................................................... 95Learning outcome ........................................................................................................................................ 957.1 Introduction ............................................................................................................................................ 967.2 Brand Equity .......................................................................................................................................... 967.3 Cost Based Approach ............................................................................................................................ 97 7.3.1 Historical Cost ....................................................................................................................... 97 7.3.2 Replacement Cost Approach .................................................................................................. 97 7.3.3 Market Value Approach ......................................................................................................... 98 7.3.4 Discounting the Cash Flow Approach ................................................................................... 98 7.3.5 Brand Contribution Approach ................................................................................................ 98 7.3.6 Inter-brand Approach ............................................................................................................. 997.4 Price Based Approach ............................................................................................................................ 99 7.4.1 Price Premium Approach ....................................................................................................... 99 7.4.2 Market Share Equalisation Approach .................................................................................... 99 7.4.3 Price Premium at Indifference Approach ............................................................................. 1007.5 Customer Based Approach ................................................................................................................... 101 7.5.1 Brand Knowledge Method ................................................................................................... 101 7.5.2 Attribute Oriented Method ................................................................................................... 1027.6 Types of Brand Association ................................................................................................................. 103 7.6.1 Favourability of Brand Associations .................................................................................... 103 7.6.2 Strength of Brand Associations ............................................................................................ 104 7.6.3 Blind Test Method ................................................................................................................ 1047.7 Latest Measures to Compute Brand Equity ......................................................................................... 105 7.7.1 Direct Measurement Methods .............................................................................................. 105 7.7.2 Indirect Valuation Methods .................................................................................................. 105Summary ................................................................................................................................................... 106References ................................................................................................................................................. 106Recommended Reading ........................................................................................................................... 106Self Assessment ......................................................................................................................................... 107

Chapter VIII ............................................................................................................................................. 109Brand Image, Brand Identity and Brand Valuation ............................................................................. 109Aim ............................................................................................................................................................ 109Objectives .................................................................................................................................................. 109Learning outcome ...................................................................................................................................... 1098.1 Introduction ...........................................................................................................................................1108.2 Brand Image ..........................................................................................................................................1108.3 Definitions of Brand Image ..................................................................................................................110 8.3.1 Brand Image and Celebrity ...................................................................................................112 8.3.2 Brand Personality and Brand Image .....................................................................................1128.4 Brand Identity .......................................................................................................................................1138.5 Brand Valuation.....................................................................................................................................115 8.5.1 Brand Loyalty .......................................................................................................................115 8.5.2 Other Tangibles and Intangibles Valuation ...........................................................................116

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8.5.3 Intangible Assets ...................................................................................................................1178.6 Customer Retention and Brand Marketing ...........................................................................................118 8.6.1 Customer Retention ..............................................................................................................118 8.6.2 Measurement of Customer Retention ...................................................................................118 8.6.3 Benefits of Customer Retention ............................................................................................119 8.6.4 Strategies for Retaining Customers ..................................................................................... 120 8.6.5 Beyond Customer Retention ................................................................................................ 1218.7 Ten Characteristics of the World’s Strongest Brands ........................................................................... 122 8.7.1 Delivering the Benefits that Customers Truly Desire ......................................................... 122 8.7.2 Relevance ............................................................................................................................. 123 8.7.3 Pricing Strategy based on Consumer’s Perceptions of Value .............................................. 123 8.7.4 Properly Positioned .............................................................................................................. 123 8.7.5 Consistency .......................................................................................................................... 123 8.7.6 Sensible Brand Portfolio and Hierarchy .............................................................................. 124 8.7.7 Perfect Use of Marketing Activities ..................................................................................... 124 8.7.8 Understanding what Brand Means to Consumers ................................................................ 124 8.7.9 Long Sustainable Support ................................................................................................... 124 8.7.10 Monitors Sources of Brand Equity ................................................................................... 124Summary ................................................................................................................................................... 126References ................................................................................................................................................. 126Recommended Reading ........................................................................................................................... 126Self Assessment ......................................................................................................................................... 127

Chapter IX ................................................................................................................................................ 129Brands Over Time, Brand Positioning and Consumer Behaviour ...................................................... 129Aim ............................................................................................................................................................ 129Objectives .................................................................................................................................................. 129Learning outcome ...................................................................................................................................... 1299.1 Introduction .......................................................................................................................................... 1309.2 Managing Brands Over Time ............................................................................................................... 1309.3 Brand Life Cycle .................................................................................................................................. 131 9.3.1 Investment, Profitability and Cash Flows and Brand Life Cycle ........................................ 1319.4 Brand Portfolio Management ............................................................................................................... 132 9.4.1 Brand Portfolios are Running Amok ................................................................................... 1329.5 Managing a Brand and Customer Value .............................................................................................. 133 9.5.1 Label .................................................................................................................................... 133 9.5.2 Products - Labels - Brands ................................................................................................... 133 9.5.3 Effect of Communication on Labels and Brands ................................................................. 134 9.5.4 The Mental List .................................................................................................................... 134 9.5.5 The Acid Test ....................................................................................................................... 1359.6 Brand Positioning and Re-positioning ................................................................................................. 135 9.6.1 Success in Positioning ......................................................................................................... 135 9.6.2 Positioning Errors ................................................................................................................ 135 9.6.3 Positioning Strategies as Per Philip Kotler .......................................................................... 136 9.6.4 Brand Re-positioning ........................................................................................................... 1369.7 Brand Marketing and Consumer Behaviour ........................................................................................ 136 9.7.1 Celebrity Endorsements as a Strategy ................................................................................. 137 9.7.2 Six Uses of Celebrity Endorsements ................................................................................... 137 9.7.3 Brand Marketing and Consumer Buying Behaviour ........................................................... 1379.8 Conceptual Implications of the Approaches to Loyalty ....................................................................... 140 9.8.1 Customer Brand Acceptance (CBA) .................................................................................... 140 9.8.2 Customer Brand Commitment (CBC) ................................................................................. 141 9.8.3 Customer Brand Buying (CBB) ........................................................................................... 1439.9 Difference between Trademark, Logo, Symbol and Mascot ............................................................... 145 9.9.1 Logotypes ............................................................................................................................. 145

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9.9.2 Benefits of Logos ................................................................................................................. 146 9.9.3 Brand Mascot ....................................................................................................................... 146Summary ................................................................................................................................................... 147References ................................................................................................................................................. 147Recommended Reading ........................................................................................................................... 147Self Assessment ......................................................................................................................................... 148

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List of Figures

Fig. 1.1 Product managers’ potential interactions .......................................................................................... 3Fig. 1.2 Five product levels ............................................................................................................................ 4Fig. 1.3 Product life-cycle sales and profit .................................................................................................... 5Fig. 1.4 Consumer goods classification ......................................................................................................... 9Fig. 1.5 The BCG growth-share matrix ........................................................................................................11Fig. 1.6 The BCG matrix: cash position and strategy ...................................................................................11Fig. 1.7 The GE matrix ................................................................................................................................ 14Fig. 2.1 New product development process ................................................................................................. 21Fig. 2.2 Product diffusion process ............................................................................................................... 24Fig. 2.3 Hierarchy of objectives ................................................................................................................... 26Fig. 2.4 Strategic alternatives ....................................................................................................................... 27Fig. 3.1 Product-focused structure ............................................................................................................... 34Fig. 3.2 Market-focused structure ................................................................................................................ 35Fig. 3.3 Functionally-focused structure ....................................................................................................... 36Fig. 3.4 Indirect and direct marketing channels ........................................................................................... 36Fig. 3.5 The indirect channel ....................................................................................................................... 38Fig. 4.1 Gap between customer value and cost ............................................................................................ 52Fig. 4.2 Five M’s of advertising ................................................................................................................... 58Fig. 5.1 Components of sales analysis ......................................................................................................... 68Fig. 6.1 Brand equity ................................................................................................................................... 81Fig. 7.1 Approaches to evaluate brand equity .............................................................................................. 96Fig. 7.2 Dimensions of brand knowledge .................................................................................................. 101Fig. 8.1 Brand image ...................................................................................................................................110Fig. 8.2 Dimensions of brand identity ........................................................................................................114Fig. 8.3 Brand hexagon identity ..................................................................................................................114Fig. 8.4 Brand loyalty .................................................................................................................................116Fig. 8.5 The customer retention/value mode.............................................................................................. 121Fig. 8.6 The dimensions of loyalty ............................................................................................................ 122Fig. 9.1 Investment, profitability and cash flows and brand life cycle ...................................................... 131Fig. 9.2 Brand investment .......................................................................................................................... 132Fig. 9.3 Model 1 ........................................................................................................................................ 138Fig. 9.4 Loyalty mainly expressed in terms of revealed behaviour ........................................................... 139Fig. 9.5 Model 3 ......................................................................................................................................... 140Fig. 9.6 Customer brand commitment ....................................................................................................... 141Fig. 9.7 Different approaches to customer loyalty ..................................................................................... 143

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List of Tables

Table 5.1 Cost classification ........................................................................................................................ 70Table 6.1 India’s top 20 brands .................................................................................................................... 88Table 6.2 brand challenges ........................................................................................................................... 88Table 6.3 Licensed brands ............................................................................................................................ 89Table 6.4 Example of segment wise branding ............................................................................................. 90Table 6.5 Brand re-positioning .................................................................................................................... 91Table 7.1 Replacement cost/whirlpool washing machines .......................................................................... 97Table 7.2 Brand values ................................................................................................................................. 98Table 7.3 Example of market equalisation approach ................................................................................... 99Table 7.4 Example of price premium at indifference approach ................................................................. 100Table 7.5 Example of attribute oriented method ........................................................................................ 102Table 7.6 Attribute oriented method for salt brands................................................................................... 102Table 7.7 Example of blind test method .................................................................................................... 104Table 8.1 Attributes of brand image ............................................................................................................111Table 8.2 Celebrities and brand images ......................................................................................................112Table 8.3 Comparison of brand personality with brand image ...................................................................113Table 8.4 Levels of brand loyalty ...............................................................................................................115Table 8.5 Intangibles in company value......................................................................................................117Table 8.6 Intangible asset transaction values ..............................................................................................117Table 8.7 Behaviour and attitudinal variables .............................................................................................119Table 9.1 Brand life cycle .......................................................................................................................... 131

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Chapter I

Introduction to Product and Product Management

Aim

The aim of this chapter is to:

introduce the concept of product •

explain the concept of product life-cycle•

understandhowproductsareclassified•

elucidate the BCG growth-share matrix•

Objectives

The objectives of this chapter are to:

understand the product-mix concept•

enlist different product levels•

explain the various phases in a product-life cycle•

Learning outcome

At end of this chapter, the students will be able to:

understand the product management•

identify the role and responsibilities of product manager•

realise the product portfolio management•


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1.1 IntroductionWe are in the era of the new economy, which is based on the digital revolution and the management of information. Marketing in this environment has to be carefully crafted to meet the challenges in the market place – knowledgeable consumers with increasing buying power, greater variety of available goods and services, great amount of information, ease in interacting and placing and receiving orders, ability to make comparisons of products and services, improved logistics and technology. The Internet is the new channel for business.

1.2 Defining ProductA product is a tangible (good) or intangible (service) information offering to meet the needs, wants, and demands •of the people. Itisavalueproposition,asetofbenefitsofferedtocustomerstosatisfytheneeds.Itisabundleofsatisfaction•that a customer buys.A product will be successful if it delivers value and satisfaction to the customer.•A product is much more than its physical attributes. It is the total concept that a customer buys. The customer •judges the product offering by three basic elements; product features and quality services mix and quality and price.

1.3 Product ManagementProduct management as a discipline is about what the product should be. Product managers are advocates for •the customer’s needs and desires. A large product might have numerous product managers working towards its success at a variety of levels, all •thewayfromthejuniorproductmanagerwritingspecificationsaboutsinglefeaturesetstoaproductstrategydirector who has overall responsibility to executive management for the product direction.A product manager’s responsibilities include the following:•

definingandplanningproductlinesandproductenhancements �managing product contracts and sales �setting strategic direction based on customer needs and business goals �interpreting strategic goals into operational tasks �making proposals to senior management regarding implications of proposed plans �serving as a representative to internal and external clients �taking the lead in establishing tactical plans and objectives �developing and implementing administrative and operational matters ensuring achievement of objectives �evaluating risks and trade-offs �proposing contingency plans �analysing business processes and creating applications to improve or support those processes �branding �working with graphic designers to create look and feel �definingnavigationalflowanduserexperience �definingfeaturesetsandscoopingreleases �

Product managers normally manage a product for only a short time and this leads to short time planning with •no long-term strengths, though there are differences in the way they are handled. Consumers-product managers typically manage fewer products and spend more time on advertising and sales •promotion. These are usually younger people with an MBA or alike. Industrial-product managers spend more time with customers and laboratory and engineering personnel, think •more about the technical aspects of their product and possible design improvements and work more closely with the sales former and key buyers.

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The product manager works on developing a cost-effective marketing mix for the product. He/she also reacts •more quickly to products in the market place. The product manager has to interact with practically all departments of the company – Research & Development, manufacturing, purchasing, sales, market research, packaging, advertising,mediapromotion,publicity,finance,legalanddistribution.

Fig. 1.1 Product managers’ potential interactions

1.4 Product LevelsAproductasatotalconceptmaybeperceivedashavingfivelayers.


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Fig. 1.2 Five product levels

Attheheartis“coreorgeneric”part,thefundamentalbenefitorservicethatthecustomerisreallybuying,and•whatmarketersmustseeasabenefitproviding.Ahotelguestisbuying“restandsleep”,anairlinetravellerisbuying “fast transport” and the purchase of a drill is like buying “holes”.At thesecond level, themarketer turns thecorebenefit intoabasicproduct.Ahotel roomincludesabed,•bathroom, towels, desk, dresser, and a closet.At the third level is the expected product, which is a set of attributes and conditions, buyers expect when they •buy a product. Hotel room should have a clean bed, fresh towels, working lamps, a telephone, a TV and this is the minimum expected.At the fourth level, is the enlarged product that exceeds customer expectations. A wide variety of service and •facilities are added.Atthefifthlevelisthepotentialproduct,whichencompassesallthepossibleaugmentationsandtransformations•the product may undergo in the future.Companies will look for new ways to satisfy customers and distinguish their offer. Delighting the customer will •be the key. It is to be noted that each level adds more customer value.

1.5 Product MixA product-mix is the set of all products and items that a particular seller offers for sale. Firms deal with multi-•productstodiffuseriskacrossdifferentproductgroups.Inaddition,thefirmappealstoalargergroupofcustomersor to different needs of the same customer. Examplesoffirmsdiversifyingintodifferentproductsare:Telco,Videocon,HindustanUnilever,Hindustan•Machine Tools, Kodak, P&G, NEC (Japan), etc. Likewise, Bajaj Electricals has almost ninety products in its portfolio ranging from low value items like bulbs •to high priced consumer durables like mixers and luminaries and lighting projects. Thenumberofproductscarriedbyafirmatagivenpointoftimeiscalleditsproductmix.Thisproductmix•contains product lines and product items. In other words, it’s a composite of products offered for sale by a firm.

1.6 Product Life CycleEachproductgoesthoughalifecycle,whichsignifiesfollowingpoints.

Products have a limited life.•

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Products pass through four distinct stages – introduction, growth, maturity, and decline.•Products rise and fall at different stages.•Productsrequiredifferentmarketingfinancial,manufacturing,purchasingandhumanresourcestrategyineach•life-cycle stage.

Fig. 1.3 Product life-cycle sales and profit

1.6.1 Introduction Phase

The introduction phase of a product includes the product launch with a maximum impact at the moment of sale. •A good example of this is the launch of “Windows XP” by Microsoft Corporation.This period can be described as a money sinkhole compared to the maturity phase of a product. Large expenditure •on promotion and advertising is common and quick, but costly service requirements are introduced. A company must be prepared to spend a lot of money and get only a small proportion of that back. In this phase, •distribution arrangements are introduced. Having the product in every counter is very important and is regarded as an impossible challenge. Some companies avoid this stress by hiring external contractors or outsourcing the entire distribution arrangement. •Thishasthebenefitoftestinganimportantmarketingtoolsuchasoutsourcing.Pricing is something else for a company to consider during this phase. Product pricing usually follows one •or two well structured strategies. Early customers will pay a lot for something new and this will help a bit to minimize that sinkhole. Later, the pricing policy should be more aggressive so that the product can become competitive. Another strategy •is that of a pre-set price believed to be the right one to maximize sales. This however demands a very good knowledge of the market and of what a customer is willing to pay for a newly introduced product.A successful product introduction phase may also result from actions taken by the company prior to the •introduction of the product to the market. These actions are included in the formulation of the marketing strategy. This is accomplished during product development with the use of market research.


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Customer requirements on design, pricing, servicing and packaging are invaluable to the formation of a product •design. A customer can tell a company what features of the product are appealing and what are the unnecessary characteristics that should not appear on the product.

1.6.2 Growth Phase

Growthphaseiscalledasaperiodofrapidmarketacceptanceandsubstantialprofitimprovement.•The growth phase offers the satisfaction of seeing the product take-off in the marketplace. This is the appropriate •timingtofocusonincreasingthemarketshare.Iftheproducthasbeenintroducedfirstintothemarket,thenitisin a position to gain market share relatively easily. A new growing market alerts the competition’s attention.The company must show all the products offerings and try to differentiate them from the competitors’. A frequent •modificationprocessoftheproductisaneffectivepolicytodiscouragecompetitorsfromgainingmarketshareby copying or offering similar products. Other barriers are licenses and copyrights, product complexity and low availability of product components.Promotion and advertising continues, but not in the extent that was in the introductory phase and it is oriented •to the task of market leadership and not in raising product awareness. A good practice is the use of external promotional contractors.Thisperiodisthetimetodevelopefficienciesandimproveproductavailabilityandservice.Costefficiency•andtime-to-marketandpricinganddiscountpolicyaremajorfactorsingainingcustomerconfidence.Goodcoverage in all marketplaces is worthwhile goal throughout the growth phase.Managing the growth stage is essential. Companies sometimes are consuming much more effort into the •production process, overestimating their market position.Accurate estimations in forecasting customer needs will provide essential input into production planning •process. It is pointless to increase customer expectations and product demand without having arranged for relative production capacity.

1.6.3 Maturity Phase

Maturity phase is a period of a slow-down in sales, growth because the product has achieved acceptance by •mostpotentialbuyers.Profitstabilisesordeclinesbecauseofincreasedcompetition.When the market becomes saturated with variations of the basic product, and all competitors are represented in •terms of an alternative product, the maturity phase arrives. In this phase, market share growth is at the expense of someone else’s business, rather than the growth of the market itself. This period is the period of the highest returns from the product.Acompanythathasachieveditsmarketsharegoalenjoysthemostprofitableperiod,whileacompanythatfalls•behind its market share goal, must reconsider its marketing positioning into the marketplace.During this period new brands are introduced even when they compete with the company’s existing product and •model changes are more frequent (product, brand, and model). This is the time to extend the product’s life.Pricing and discount policies are often changed in relation to the competition policies i.e., pricing moves up •and down accordingly with the competitor’s and sales and coupons are introduced in the case of consumer products. Promotion and advertising relocates from the scope of getting new customers, to the scope of product differentiation in terms of quality and reliability.The battle of distribution continues using multi distribution channels. A successful product maturity phase is •extended beyond anyone’s timely expectations. A good example of this is “Tide” washing powder, which has grown old, and it is still growing.

1.6.4 Decline Phase

Declinephaseisaperiodwhensalesshowadownwarddriftandprofitserode.•

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Multi distribution channel is one that offers back up distribution ways. A good example is the use of retail stores •and the use of Internet. The former requires a completely different distribution channel than the latter and a product usually is distributed through the former one. The decision for withdrawing a product seems to be a complex task and there are many issues to be resolved •before it is decided to move it out of the market. Dilemmas such as maintenance, spare part availability, service competitionsreactioninfillingthemarketgaparesomeissuesthatincreasethecomplexityofthedecisionprocess to withdraw a product from the market. Oftencompaniesretainahighpricepolicyforthedecliningproductsthatincreasetheprofitmarginandgradually•discourage the ‘few’ loyal remaining customers from buying it. Such an example is telegraph submission over facsimile or email. Dr. M. Avlonitis from the Economic University •of Athens has developed a methodology, rather complex one that takes under consideration all the attributes and the subsequences of product withdrawal process.Sometimesitisdifficultforacompanytoconceptualisethedeclinesignalsofaproduct.Usuallyaproduct•decline is accompanied with a decline of market sales. Its recognition is sometimes hard to be realised, since marketing departments are usually too optimistic due to big product success coming from the maturity phase.This is the time to start withdrawing variations of the product from the market that are weak in their market •position. This must be done carefully since it is not often apparent which product variation brings in the revenues. The prices must be kept competitive and promotion should be pulled back at a level that will make the product •presence visible and at the same time retain the ‘loyal’ customers. Distribution is narrowed. Thebasicchannelshouldbekeptefficientbutalternativechannelsshouldbeabandoned.Forexample,a0800•telephone line with shipment by a reliable delivery company, paid by the customer is worth keeping.

1.7 Market EvolutionIt must be remembered that not only product, but markets also evolve through four stages: emergence, growth, maturity, and decline.

1.7.1 Emergence

Beforeamarketmaterialises,itexistsasalatentmarket.E.g.fastermeansofcalculations,satisfiedthrough•abacuses, slide-rules, and large adding machines. Now electronic calculators, large ones and now hand-held, including mathematical functions, the marketer recognizes the need and interviews potential buyers.There are different preferences given by different users, and the market is a diffused – preference market. An •optimal product has to be designed.The entrepreneur has 3 options:•

Design to meet the performances of one of the corners of the market (a single niche market) �Two or more products can be designed to capture or more parts of the market (a multiple-niche strategy) �A new product for the middle of the market (a mass market strategy) �

Forsmallfirms,asimplenichemarketstrategymakessense–astheyhavefewerresources.Alargefirmmay•go for mass market or connecting the product, the emergence state begins.

1.7.2 GrowthThenewproductsellswell,nowfirmswillenterthemarketusheringinamarket-growthstage.Thesecondfirmcan enter one of the three markets mentioned above (simple-niche, multiple niche, and mass). It depends on the size of the new competitor.

1.7.3 Maturity

Eventually, the competitors cover and serve all the markets segments and the market sales the maturity stages. •Infact,theyinvadeeachothersmarkets,reducingeveryone’sprofits.Marketfragmentationtakesplacewithfinersegments.


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This is often followed by market consolidation caused by the emergences of a new attribute that has strong •appeal.For example, P&G’s Crest tooth-paste effectively retorted the tooth decay. Due to this, Crest won a lion’s share •of the market. But this also does not last long as competitors will also enter this market and cause splintering again. Competition causes fragmentation and innovation causes consolidation.

1.7.4 Decline

Eventually, demand for present products will begin to decrease which is the market decline stage. Either a •society’s total need level declines or a new technology replaces the old in which case the old technology disappears, replaced by the new technology. For example, paper towel market, originally cotton and linen dish cloth and towels in the kitchen.Spongypapertowelsweredevelopedandthefirmincreaseditsmarketshare.Papertowelsevolvedfroma•simple product and applications through innovation and conception.Customer’s expectations are progressive. One has to maintain the lead in introducing new attributes. The market •leader should learn to route the innovation process. Products have therefore to be developed to meet the market requirements.

1.8 Product ClassificationProductclassificationisbasedoncertaincharacteristics:durability,tangibilityanduse(consumerorindustrial).Market success depends on a good marketing mix. This is the combination of price, product, promotion and place often called ‘the four Ps’.

1.8.1 Durability and TangibilityProductsareclassifiedintothreegroups

Non-durable goods:• These include tangible and consumed in one or a few uses like soft drinks, beer and soap. These are ‘fast consumption’ goods and are purchased frequently; hence need to be made available in many locations, at competitive prices (low margins) with heavy advertising.Durable goods:• These include tangible goods that last long, like refrigerators, machine tools and television sets. They normally require more personal selling and service, command a higher margin and require more seller guarantees.Services:• Theses include intangible, inseparable, variable and perishable products. They require more quality control, supplier credibility and adaptability. Examples are repairs, hair-cuts and plumbing.

1.8.2 Consumer Goods ClassificationThesearegoodsthatconsumersbuyandareclassifiedonthebasisofshoppinghabits:convenience,shopping,speciality and unsought goods.

Convenience goods: • These are purchased frequently, immediately and with minimum effort. They are further sub-divided into

Staples, which are purchased on a regular basis like soap, toothpaste, and biscuits. �Impulse goods, which are purchased without planning, on impulse, like chocolates, candy bars, ice cream, �and magazines.Emergency goods which are purchased when there is urgent need, like umbrellas, and raincoats. �

Shopping goods: • Shopping goods are those which customers select and purchase, based on comparisons of suitability, quality, price and style, like clothes, furniture, major appliances.Speciality goods: • Thesegoodshaveuniquecharacteristicsorbrandidentificationandcustomersmakespecialpurchasing efforts like cars, music systems, photographic equipment, and cell phones.Unsought goods: • Consumers don’t know these goods and do not think of buying these, like special books (encyclopaedias), life insurance.

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Fig. 1.4 Consumer goods classification

1.8.3 Industrial Goods ClassificationThere are normally three groups: materials and parts, capital items and supplies, and business services.

Materials and Parts These goods enter manufacturer’s product completely and fall into two classes: raw materials and manufactured materials and parts.

Raw materials fall into two major classes, which include farm and natural products. •Farm products are perishable and need special marketing practices. They are commodities and need relatively �little advertising and promotion. E.g. rice, wheat, cotton, fruits, livestock, vegetables.Naturalproductsarelimitedinsupply.Theyhavegreatbulkandlowunitvalue.E.g.crudeoil,fish,wood, �iron ore.

Manufactured materials •These fall into two categories Component materials (iron, cement, wires, yarn, etc.) and component parts (motors, tyres, castings, electrical goods).

Component materials are further converted into other products while component parts go directly into �finishedproduct,withnofurtherchange.Price and service are two major considerations, and branding and advertising tend to be less important. �

Capital items Capitalitemsarelonglastinggoodsthathelpdevelopandmanagefinishedproducts.•


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Theyfall into twogroups: installationsandequipments.Installationsare likebuildings,factoryofficesand•equipments consist of machines tools, generators, lifts, computers, etc.Supplies and business services are short lasting goods and services that facilitate developing or managing the •finishedproduct.Againtherearetwotypes–maintenanceandrepairitemslikebrooms,nails,paint,andoperatingsupplies like coal, lubricating oil, furnace oil, paper, pencils.

Business servicesTheseservicesincludemaintenanceandrepairservices(officecleaning,copierrepairsandbusinessadvisory•servicesincludelegal,financial,managementconsulting,advertisingandsoforth.Alloftheseproductshavetheiruniquefeaturesandneedspecificmethodstohandlethem,fromthesupplyand•purchase points of view.

1.9 Product Portfolio ManagementThe collection of businesses (products) is called the business portfolio of the company. Most companies operate •several businesses in terms of “products”.Abusinesscanbedefinedintermsofthreedimensions:customergroups,customerneeds,andtechnology.•Large companies normally manage quite different businesses, each requiring its own strategy. They classify theirbusinessesasStrategicBusinessUnits(SBUs).Thebestbusinessportfolioisonethatfitsthecompany’sstrengths.

1.9.1 SBU’s characteristics

SBU can be either an entire medium size company or a division of a large company, as long as it formulates its •own business level strategy and has separate objectives from the parent company.

It is a single business or collection of related businesses that can be planned separately from the rest of the �company.It has its own set of competitors. �Ithasamanagerwhoisresponsibleforstrategicplanningandprofitperformanceandwhocontrolsmost �ofthefactorsaffectingprofit.

Companies need to classify their businesses into SBUs to enable them to analyse their performance and develop •separate strategies for each SBU. Twoofthebestanalyticaltoolsavailabletoclassifytheirbusinessesbyprofitpotential,aretheBostonConsulting•Group model and the General Electric model.

1.9.2 The Boston Consulting Group (BCG) Model

In the early 1970’s, the Boston Consulting Group (BCG) developed a model for managing a portfolio of different •strategic business units (SBUs) or major product lines. The BCG Growth-Share Matrix is a four-cell (2 by 2) matrix used to perform business portfolio analysis as a step in the strategic planning process. The BCG Growth-Share Matrix positions the various SBUs/product lines based on Market Growth Rate and •Market Share relative to the most important competitor.

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Fig. 1.5 The BCG growth-share matrix

Fig. 1.6 The BCG matrix: cash position and strategy

On the horizontal axis: The relative market share serves as a measure of SBU strength in the market.•On the vertical axis: The market growth rate provides a measure of market attractiveness.•Market attractiveness is measured by factors like market size, annual growth rate, competitive intensity, and •rateoftechnologicaldevelopment,governmentpolicyandinfluenceofotherinterestgroups.By dividing the matrix into four areas, SBUs can be distinguished as stars, cash cows, question mark and •dogs.

SBUs/Product Lines with a relative high market share in a high growth market are designated as Stars. �

StarQuestion

Mark(Problem

Child)

Cash Cow Dog

High

High 1.0X

Low

Low

Market Growth 10%

Rate

Relative Market Share

Star

RevenueExpensesNet

Question Mark(Problem Child)RevenueExpensesNet

Cash Cow

RevenueExpensesNet

Dog

RevenueExpensesNet

Maintain Hold

Build/Withdraw

Kill/ Divest

Harvest

Market Growth 10%

Rate

High 1.0X LowRelative Market Share

- - - - - - -- - -

- - - - - - -- - -

++++++

++++

++

+++++

+


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SBUs/Product Lines with a relative high market share in a low growth market are designed as Cash �Cows.SBUs/Product Lines with a relative low market share in a high growth market are designated as Question �Marks or Problem Children.SBUs/Product Lines with a relative low market share in a low growth market are designated as Dogs. �

Question MarksThese are products or businesses which compete in high growth markets but where the market share is relatively •low.A new product launched into a high growth market and with an existing market leader would normally be •considered as a question mark. Because of the high growth environment, they can be a ‘cash sink’.Strategic options for question marks include:•

market penetration �market development �product development �

StarsSuccessful question marks become stars, i.e., market leaders in high growth industries. However, investment is •normally still required to maintain growth and to defend the leadership position.Starsaremostoftimesonlymarginallyprofitablebutastheyreachamorematurestatusintheirlifecycle•and growth slows, returns become more attractive. The stars provide the basis for long term growth and profitability.Strategic options for stars include:•

integration – forward, backward and horizontal �market penetration �market development �product development �joint ventures �

Cash Cows

These are characterised by high relative market share in low growth industries. As the market matures, the need •for investment reduces. Cashcowsarethemostprofitableproductsintheportfolio.Thesituationisfrequentlyboostedbyeconomies•of scale that may be present with market leaders. Cash cows may be used to fund the businesses in the other three quadrants.It is desirable to maintain the strong position as long as possible and strategic options include:•

product development �concentricdiversification �

If the position weakens as a result of loss of market share or market contraction then other options would include •retrenchment (or even divestment).

Dogs

These describe businesses that have low market shares in slow growth markets. They may well have been a cash •cow.Oftentheyenjoymisguidedloyaltyfrommanagementalthoughsomedogscanberevitalised.Profitabilityis, at best, marginal.Strategic options would include:•

retrenchment (if it is believed that it could be revitalised) �liquidation �

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divestment(ifyoucanfindsomeonetobuy!) �

Successfulproductsmaywellmovefromquestionmarkthoughstartocashcowandfinallytodog.•Less successful products that never gain market position will move straight from question mark to dog.•

The BCG is simple and useful technique for strategic analysis. It is convenient for multi-product or multi-divisional companies.Itfocusesoncashflowandisusefulforinvestmentandmarketingdecisions.One should not, however, ignore the limitations of the technique.

Definition(qualitativeandquantitative)ofthemarketissometimesdifficult.•Itassumesthatmarketshareandprofitabilityaredirectlyrelated.•The use of high and low to form four categories is too simplistic.• Growth rate is only one aspect of industry attractiveness and high growth markets are not always the most •profitable. It considers the product or business in relation to the largest player only.• It ignores the impact of small competitors whose market share is rising fast.•Market share is only one aspect of overall competitive position.•It ignores interdependence and synergy.•

Companies will frequently search for a balanced portfolio, for reasons like:Too many stars may lead to a cash crisis.•Toomanycashcowsputfutureprofitabilityatrisk.•Toomanyquestionmarksmayaffectcurrentprofitability.•

1.9.3 The General Electric (GE) Model

The General Electric (GE) Model is also called the GE multi-factoral portfolio analysis. This matrix is a technique •used in product management, brand marketing, to help a company decide what product(s) to add to its product portfolio and which to divest.It is conceptually similar to the BCG model, but more complicated, as more factors are considered and many •of the assessments tend to be based on human judgements rather than cold quantitative facts.Thetwoaxesinthismatrixasshowninfigurebelow,whichincludesmarketattractiveness(ontheYaxis)and•firm’sstrengthsorcompetitiveposition(ontheXaxis).Competitive position is assessed by factors like market share, annual growth in market share, customer loyalty or •brandloyalty,productquality,brandimage,distributionnetwork,productivity,R&Dandfinancialposition.


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Fig. 1.7 The GE matrix

Onexaminingtheproductportfolioofafirm,onemayfindthatsomeSBUsmayfallinthegreensegment,some•in the yellow and some in the red segment.SBUs in the green segment need to be developed and supported. The strategies are one of protecting strategic •position and investing in these SBUs to gain a higher strategic leverage in the marketplace.SBUs in the yellow segment require to be monitored carefully and wherever required, refocusing on selective •investing and building should be done. SBUs in the red segment are to be harvested or divested for obvious reasons of moderate to weak competitive •position in an unattractive market.There are a few other portfolio models. All models have helped managers to think more strategically, understand •the economics of their businesses better, improve the quality of their plans, improve communication between the management, eliminate weaker businesses and strengthen their investment in promising businesses.However portfolio models must be used with caution, as they all have some inherent weaknesses.•

1.9.4 Adapting Products to Local Conditions

Products should meet local market conditions—one of the prerequisites in marketing strategies. The Indian •economy has opened up and is opening up further, and more and more collaborations with foreign companies are being signed up.ManyMNCsareenteringorre-enteringthemarket.ThereisakindofrushamongIndianfirmstograbbrands•andproducts.Withoutgivingthoughtandconductingmeaningfulresearch,thesefirmshaveeitherlaunchedorare launching these products in the Indian market. But is the market ready to accept them?A range of breakfast cereals were launched in the 1990s and had to be withdrawn, as there were no takers. Even •cornflakeshavenotbeensuccessful.Thesamegoesforoatmeal.Thereasonsarenotfartosee.Thoughthelifestyle is changing in India, with higher incomes etc., tradition and habits have a strong hold on the people.Nestle had learnt this lesson and had successfully adapted Maggi Noodles to Indian taste. The Chinese food that •is served in India has a distinctive Indian taste, quite different from what is served in China or in South Asia. Adapting to customers’ tastes, value systems, life style and perceptions is important.

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While this is true universally, the Indian market being culturally different from Europe and North America, and •also culturally heterogeneous, product planners have a greater challenge.

1.9.5 Threats from Duplication

Counterfeits and duplicates are common in India and in Asia, too. Right from tooth pastes, wrist watches, •designer clothes, software, automobile parts, video and audio CDs, and a host of other items are all duplicated or pirated and sold in these countries. Thailand, Taiwan, China and even ex-communist countries in Eastern Europe have large scale pirating and duplication.Tofightthisthreat,theproductplannerorthestrategisthastoexaminehowseriousisthethreatfromduplicatesand•strengthsofthefirm.Thefirmhastobestrongintechnology,financeandmarketingtocounterthisthreat.Some of the actions that a product manager can take are as follows :•

customer education �strong relationship with distribution networks �maintaining adequate stocks with retailers �building brand loyalty �creating entry barriers �lobbying with the government for protection �


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SummaryA product is a tangible (good) or intangible (service) information offering to meet the needs, wants, and demands •ofthepeople.Itisavalueproposition,asetofbenefitsofferedtocustomerstosatisfytheneeds.Itisabundleof satisfaction that a customer buys.Product managers normally manage a product for only a short time and this leads to short time planning with •no long-term strengths though there are differences in the way they are handled. A product-mix is the set of all products and items that a particular seller offers for sale. Firms deal with multi-•productstodiffuseriskacrossdifferentproductgroups.Inaddition,thefirmappealstoalargergroupofcustomersortodifferentneedsofthesamecustomer.Examplesoffirmsdiversifyingintodifferentproductsare:Telco,Videocon, Hindustan Unilever, Hindustan Machine Tools, Kodak, P&G, NEC (Japan), etc. The introduction phase of a product includes the product launch with its requirements to getting it launch in such •a way so that it will have maximum impact at the moment of sale. Growth phase is called as a period of rapid marketacceptanceandsubstantialprofitimprovement.Maturityphaseisaperiodofaslow-downinsales,growthbecausetheproducthasachievedacceptancebymostpotentialbuyers.Profitstabilisesordeclinesbecauseofincreasedcompetition.Declinephaseisaperiodwhensalesshowadownwarddriftandprofitserode.Productclassificationisbasedoncertaincharacteristics:durability,tangibilityanduse(consumerorindustrial).•The marketing mix (the four Ps) depends on the product type. Durability and TangibilityThe collection of businesses (products) is called the business portfolio of the company. Most companies operate •several businesses, in terms of “products”.SBU can be either an entire medium size company or a division of a large company, as long as it formulates its •own business level strategy and has separate objectives from the parent company.The BCG Growth-Share Matrix is a four-cell (2 by 2) matrix used to perform business portfolio analysis as a •step in the strategic planning processThe General Electric (GE) Model is also called the GE multi-factoral portfolio analysis. This matrix is a technique •used in product management, brand marketing, to help a company decide what product(s) to add to its product portfolio and which to divest.Products should meet local market conditions—one of the prerequisites in marketing strategies. The Indian •economy has opened up and is opening up further, and more and more collaborations with foreign companies are being signed up.

ReferencesBoston Consulting Group Matrix (BCG). Available at: < http://www.educationsupport.co.uk/downloads/rjh/•BOSTON_CONSULTING_GROUP_MATRIX.pdf > [Accessed 28th February 2011]Ioannis Komninos, (2002). • Product Life Cycle Management, Urban and Regional Innovation Research Unit. Available at :< http://www.ticamericas.net/Download/bootcamp/ProdManag.pdf > [Accessed 28th February 2011]Phillip J. Windley, The Discipline of Project Management, Available at : < http://www.windley.com/docs/•Product%20Management.pdf > [Accessed 28th February 2011]

Recommended ReadingDonald R. Lehmann and Russell S. Winer, (2004). • Product Management, McGraw Hill Higher Education, 4th edition, 512 pages.Steve Johnson, The Strategic Role of Product Management, Pragmatic Marketing. Available at: <http://www.•pragmaticmarketing.com/strategic-role-of-product-management/Strategic_Role_Product_Management.pdf > [Accessed 28th February 2011]

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Self Assessment

A ___________ is a tangible (good) or intangible (service) information offering to meet the needs, wants, and 1. demands of the people.

producta. product-mixb. product rangec. product life-cycled.

What is called as the set of all products and items that a particular seller offers for sale?2. Product life-cyclea. Product mixb. Product rangec. GE modeld.

Which of the following statement is false?3. Eachproductgoesthoughalifecycle,whichsignifiesthatproductshavealimitedlife.a. Eachproductgoesthoughalifecycle,whichsignifiesthatproductshaveanunlimitedlife.b. Eachproductgoesthoughalifecycle,whichsignifiesthatproductspricesriseandfallatdifferentstages.c. Eachproductgoes thougha lifecycle,whichsignifies thatproductspass throughfourdistinctstages–d. introduction, growth, maturity, and decline.

_____________iscalledasaperiodofrapidmarketacceptanceandsubstantialprofitimprovement.4. Introduction phasea. Maturity phaseb. Decline phasec. Growth phased.

Whichisthephasewhensalesshowadownwarddriftandprofitserode?5. Introduction phasea. Maturity phaseb. Decline phasec. Growth phased.

A product as a total concept may be perceived to have ________layers.6. foura. twob. fivec. sixd.

Which of the following statement is true?7. Maturity phase is a period of a slow-down in sales, growth because the product has achieved acceptance a. by most potential buyers.Maturityphaseiscalledasaperiodofrapidmarketacceptanceandsubstantialprofitimprovement.b. Maturity phase offers the satisfaction of seeing the product take-off in the marketplace.c. Maturity phase is a period of a rise in sales, growth because the product has achieved acceptance by most d. potential buyers.


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_____________arelonglastinggoodsthathelpdevelopandmanagefinishedproducts.8. Raw materialsa. Capital itemsb. Convenience goodsc. Farm productsd.

Which goods are perishable and need special marketing practices?9. Capital itemsa. Shopping goodsb. Farm productsc. Natural productsd.

Match the following:10.

1. Staples A. Purchased without planning

2. Impulse goods B. Purchased when there is urgent need

3. Emergency goods C. Purchased on a regular basis

4. Natural products D. Limited in supply1-A, 2-C, 3-D, 4-Ba. 1-C, 2-A, 3-B, 4-Db. 1-B, 2-C, 3-D, 4-Ac. 1-D, 2-D, 3-C, 4-Bd.

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Chapter II

New Product Development Process

Aim


explain various factors contributing to new product development•

illustrate • challenges in new product development

investigate the various phases in new product development process•

Objectives


understand the price and non-price strategies•

explain ways to identify the right customers targets•

explore the product strategy concept•

Learning outcome

At end of this chapter, the students will be able to:•

understand about new product development and commercialisation•

state the different elements of product strategy and alternative strategies•

reproduce the main stages in product development•


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2.1 IntroductionAs Philip Kotler says, companies that fail to develop new products are putting themselves at great risk. Their existing products are susceptible to changing customer needs and tastes, new technologies, shortened product life cycles and increased domestic and foreign competition.But, at the same time, new product development is risky. Companies have lost large amounts of money on new products,asonlyaboutfivetotenpercentofnewproductsaresuccessful.Introduction of new products has to be seen from the customer’s eyes rather than just from the point of corporate objectives.

For countries like India, following key factors are clear from the activities of the last couple of decades in new product development:

Understand the local culture and adapt the product accordingly.•Value for money is a good positioning slot in price sensitive markets.•The key to success in these price sensitive markets is to make the product available in the lanes and by-lanes, •both in urban and rural areas.International brand helps to get entry.•The key to successful product launching is segmentation.•Markets leapfrog several decades of market development and become mature.•

2.2 New ProductThe term ‘new product’ can suggest different meaning to different people.•According to Booz and Allen, these are new to the world or really new products, e.g. Polaroid camera, Sony •walkman, Hewlett Packard’s laser printer, Xerox copier, Jet engine (about 10% of new products).A new product is perceived by the customer as being new. Research shows that in 70% cases, a new product •involveschangeswithinthecurrentproductlinesofafirm.

2.3 Factors Contributing to New Product DevelopmentWhile most factors are related to external environmental variables, the most important internal factor for new •productdevelopmentisthesurpluscapacityofthefirmatanygiventime.Thisisnottherightapproach,butmostcompaniesdoconsiderthis.Forexample,Godrejlaunchedaseriesofnewbrandsoftoiletsoapstofillitssurplus capacity after Pond’s walked out of Godrej’s manufacturing programme.The external environmental factors affecting are:•Changing customer preferences due to changing lifestyles, changing roles of women, growth in the nuclear and •stand-alone families, increase in education and income levels, and manifold increase in the electronic media.Technological changes in industry and market e.g., colour TVs, satellites. Success of Maggi Noodles is credited •much to TV advertisings. Application of chip technology to the watch industry, which gave quartz watches.Government policies can encourage new product development, e.g., India’s broadest development of the TV •network to cover 70 % of the Indian population and launching of its own satellite INSAT 1B. Manufacturing of compact cars by Maruti followed by new cars launched by Premier (118 NE), Hindustan Motors (Contessa) andthefloodofforeigncarmakers,whoenteredIndiathereafter.Competition between companies to stay ahead results in development of more and more innovative and new •products.

2.4 New Product Development ProcessThenewproductdevelopmentprocessmayvaryfromonefirmtoanother,butgenerallyhaseightstages.

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Fig. 2.1 New product development process

2.4.1 Idea GenerationKotlerdefinesproductideaasapossibleproductthatthecompanymightoffertothemarket.Ideagenerationmeansto create a large pool of ideas. The sources for new product ideas are as follows:

changing customer needs and trends in consumer markets•competitors•R&D scientists•laboratories•foreign markets and media•employees•trade channels•top management•the internet•

2.4.2 Idea Screening

The purpose of idea generation is to create a large number of ideas and the purpose of the succeeding stages •istoreducethatnumber.Thefirstidea-reducingstageisideascreening,whichhelpsspotgoodideasanddroppoor ones. Product development costs rise greatly in later stages, so the company will want to go ahead only with the •productideasthatwillturnintoprofitableproducts.


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The object is to eliminate unsound concepts prior to devoting resources to them. Many companies require their •executives to write up new-product ideas on a standard form that can be reviewed by a new-product committee. The write-up describes the product, the target market, and the competition. It makes some rough estimates of market size, product price, development time and costs, manufacturing costs, and rate of return. The committee then evaluates the idea against a set of general criteria. For example, at Kao Company, the large Japanese consumer-products company, the committee asks questions •such as these:

Is the product truly useful to consumer and society? �Is it good for our particular company? �Does it mesh well with the company’s objectives and strategies? �Do we have the people, skills, and resources to make it succeed? �Does it deliver more value to customers than do competing products? �Is it easy to advertise and distribute? �

Many companies have well-designed systems for rating and screening new-product ideas.•

2.4.3 Concept Development and Testing

An attractive idea must be developed into a product concept. It is important to distinguish between a product •idea, a product concept, and a product image. A product idea is for a possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the •way consumers perceive an actual or potential product.Aproductconcept,asdefinedbyKotler,isanelaboratedversionoftheideaexpressedinmeaningfulconsumer•terms.Forsomeconcepttest,awordorapicturemaybesufficient;however,aphysicalpresentationwillincrease•the reliability of the concept test. Consumers are asked to report to the concept by answering a set of questions designedtohelpthefirmdecidewhichconcepthasthestrongestappeal.

2.4.4 Marketing Strategy DevelopmentThe statement of the marketing strategy consists of three parts, which are as follows:

description of the target market size structure, the planned product positioning and the sales, market share and •profitgoalsinthefirstfewyearsoutlineoftheplannedprice,distributionstrategyandmarketingbudgetforthefirstyear•descriptionanddetailsofthelongrunsalesandprofitgoalsandmarketingmixstrategyovertime•

2.4.5 Business Analysis

Once the management develops the product concept and marketing strategy, it can evaluate the attractiveness •of the business proposal. Businessanalysis includesprojectionsof sales, costs andprofits tofindoutwhether they satisfycompany•objectives. If they do, the concept can move to the development stage. The business analysis can undergo revision as new •information comes in. The “break even” analysis is done and risk analysis is estimated.To estimate sales, the company might look at the sales history of similar products and conduct surveys of market •opinion. It can then estimate minimum and maximum sales to assess the range of risk. Afterpreparing thesales forecast,managementcanestimate theexpectedcostsandprofits for theproduct•includingmarketingR&Doperationsaccountingandfinancecosts.Thecompanythenusesthesalesandcostsfigurestoanalysethenewproduct’sfinancialattractiveness.

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2.4.6 Product Development

In this stage, the product, which was only a description, or a drawing, or a prototype, is converted into a technically •and commercially feasible entity. The step involves a large leap in investment. R&D or engineering develops prototypes that will satisfy and •delight the customers and that can be produced quickly and at budgeted costs. Rigoroustestingoftheproductisdone,includingfunctionaltestsunderlaboratoryandfieldconditionstocheck•whether the product performs safely and effectively.An example of product development – Procter & Gamb1e (P&G) spends $150 million on 4,000 to 5000 studies •a year, to test everything from the ergonomics of picking up a shampoo bottle to how long women can keep their hands in sudsy water. Last year, one elementary school raised $17000 by having students and parents take part in P&G product tests Students tested toothpaste and shampoo and ate brownies while their mothers watched advertisingforTempotissueP&G’spaperwipespackagedtofitinacar.

2.4.7 Market Testing

If the product passes the functional tests, it is dressed up with a brand name and packaging and put to a market •test. This yields valuable information about buyers, dealers, marketing programme effectiveness and market potential.Not all companies undertake market testing, particularly if they have enough experience in the product line. •This also depends on the investment cost and the risk and the time pressure. Consumer products and business productscanbenefitfrommarkettesting.The amount of market testing varies with the type of product. Costs can be enormous and it can allow competitors •to launch their products.

2.4.8 Commercialisation

If the company goes ahead with commercialisation, it will have to begin manufacturing, marketing and promotion, •involving large costs. The company will have to decide when to launch the product, where to launch it, for whom and how to launch •it.Today, in view of the time pressure, many companies use network planning techniques, such as the critical path •scheduling, showing simultaneous and sequential activities needed to launch the product. The planner searches for ways to reduce time along the critical path.Commercialisation is often confused with sales, marketing or business development. The Commercialisation •process has three key aspects:

The funnel. It is essential to look at many ideas to get one or two products or business that can be sustained �long-termIt is a stage-wise process and each stage has its own key goals and milestones �It is vital to involve key stakeholders early, including customers �

Commercialisation of a product will happen only if the following four questions can be answered •satisfactorily:

When? � The company has to decide on the introduction timing. When facing the danger of cannibalising the −sales of the company’s other products, if the product can be improved further, or if the economy is down, the launch should be delayed. Every single bank in Nigeria today has been commercialised. But it is sad enough to know that most −of these banks are not transparent in their various dealings with their clients/customers.

Where? � The company has to decide where to launch its products. It can be in a single location, one or several −regions,anationalortheinternationalmarket.Thisdecisionwillbestronglyinfluencedbythecom-


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pany’sresources,intermsofcapital,managerialconfidenceandoperationalcapacities. Smaller companies usually launch in attractive cities or regions, while larger companies enter a na-−tional market at once. Global roll-outs are generally only undertaken by multinational conglomerates, since they have the −necessary size and make use of international distribution systems (e.g., Unilever, Procter & Gamble). Other multinationals use the “lead-country” strategy: introducing the new product in one country/−region at a time (e.g. Colgate-Palmolive).

For whom? �Theprimarytargetconsumergroupwillhavebeenidentifiedearlierbyresearchandtestmarketing.− These primary consumer groups should consist of innovators, early adopters, heavy users and/or −opinion leaders. This will ensure adoption by other buyers in the market place during the product growth period.

How? � The company has to decide on an action plan for introducing the product by implementing the above −decisions.It has to develop a viable marketing mix and create a respective marketing budge− t.

2.5 Product AdoptionTheconsumeradoptionprocessfocusesonthementalprocessthroughwhichanindividualpassesfromfirsthearingaboutaninnovation(newproduct),tofinaladoption.Thefivestagesofadoptionareasfollows:

awareness •interest •evaluation•trial •adoption•

Fig. 2.2 Product diffusion process

This also depends on the individual readiness to try new products. Based on a study made by Everett Rogers, people canbeclassifiedintofivecategories-

Innovators (2 ½%)•Early adopters (13 ½%)•Early majority (34%)•

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Late majority (34%)•Laggards (16%)•

Somemarketerstargetleadusersorinnovatorswiththeirnewproducts,whowilltheninfluenceothersandbroadenthemarket.Othersdisagreewiththisandcontendthatthemostefficientandquickestrouteistotargetthebroaderor even mass-market directly.

2.6 Product StrategyProduct strategy is the action plan for the product to achieve the objectives of the company. Product strategy should address three related questions which are as follows:

Whereareweheaded?Thefocusisonbasicobjectiveslikegrowthversusprofits.•How will we get there? This is the core of product strategy and addresses issues such as whether to focus on •existingversusnewcustomers.ItissummarisedinaTargetingandPositioningstatementdefiningfollowingpoints:customer targets•competitive targets•theproposition(generaloffering)thatwillenablethefirmtosucceed•Whatwillwedo?Thisaddressesspecificprogrammesortacticstobeemployedinordertoimplementthe•core strategy. Basically, it means working out the marketing mix (product, pricing, promotion, distribution, service).

Benefitsofstrategyareasfollows:It enhances coordination among functional areas of the organisation as well as within marketing. Different •departments of the organisation have different perspectives and hence the need for coordination.Defineshowresourceswillbeallocated–manufacturing,sales,service,finance•It should lead to a superior market position. A good strategy takes cognisance of existing and potential competitors •and their strengths and weaknesses.

2.6.1 Elements of Product Strategy

The elements constituting the product strategy are as follows:•statement of the objective the product should attain•selection of strategic alternatives•selection of customer targets•choice of competitor targets•statement of the core strategy•description of supporting marketing mix•description of supporting functional programmes•Thefirsttwoelementsestablishthegeneraldirectionofthestrategy.Thenextthreeelementsaretheessence•of marketing strategy. Taken together, they are often referred to as “positioning”, that is, how the product is to be differentiated from the competition in the minds of the target customers.The last two elements relate to the implementation of the strategy. There should be consistency between the •strategy and implementation.


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2.6.2 Setting Objectives

Fig. 2.3 Hierarchy of objectives

An organisation has a variety of objectives, beginning with mission or vision and ranging from corporate to •product. Starting with corporate objectives and strategies through ‘divisional objectives’ and strategies to product/brandobjectivesandstrategiesandfinallyprogrammeobjectivesandtactics.Wearemainlyconcernedwiththeproductobjectivesandthetwomostcommonlysetforspecificproductsare•growthintermsofsalesrevenuesormarketshare–andprofitability.Athirdobjectivecouldbecashflow.Thefirsttwoobjectivesofgrowthandprofittendtoworkagainsteachotherandatrade-offbetweenprofitsand•share of market is usually resorted to.The objective to be maximised might be called the primary objective and the objective acting as the constraint, •the secondary objective.Characteristics of good objectives are:•

Theyshouldhavequantifiedstandardsofperformance. �They should be ambitious enough to be challenging, but not unrealistic. �They should have a time frame, within which objectives should be achieved. �

2.7 Strategic AlternativesThe choice of strategic alternatives follows the selection of the primary objective. The diagram assumes the long runobjectivetomaximiselongrunprofits(whichinturnshouldmaximiseshareholdervalue).Theoptionsdependon the objectives. If the objective is growth, the two main ways are market development and market penetration, often by introduction of new products or extensions.

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Fig. 2.4 Strategic alternatives

2.7.1 Increasing Sales/Market Share – Market Development Strategies

These are aimed at non-customers of the product. One approach is to pursue non-users in segments already •targeted,whichisreallytotaptheremainingpotentialfromthosesegmentsidentifiedasprimeprospects.Inshort, old market, new customers.The second approach is to enter new markets, developing segments previously ignored by the product category. •In addition, of course, we have new products, old and new markets.

2.7.2 Market Penetration Strategies

A company’s biggest asset is its customer base, and it should be leveraged as much as possible. Increase in sales •volume or market share can be done by increasing the usage rate of the brand’s existing customers. This can be done by using larger package sizes, promoting more frequent use, or getting a larger share of the business if the customer uses several vendors.Another route is to attract the competitor’s customers, i.e., customer acquisition by brand switching.•

2.8 Increasing ProfitabilityFollowingaresomewaystoincreaseprofitability:

2.8.1 Decreasing Inputs

Onewaytoincreaseprofitsiscostreduction,whichusuallymeansreductionofexpensesonmarketingsuch•as advertising, promotion, selling expenses, marketing research and so forth. But these cost reductions have adverse, long run effects.Another way to decrease inputs is to improve the utilisation of the assets, by keeping down accounts receivable •andforamanufacturedproduct,thecostsofinventories,reducingwastage,andincreasingefficiency.

2.8.2 Increasing Outputs

The easiest way is to increase prices, reducing discounts and so forth. This can lead to drop in unit sales and •hence lost revenue. The competition may do likewise.


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Theotherwayistoimprovethesalesmix,bysellingmoreoftheprofitableitems(the80/20rulei.e.,20percent•oftheproductvariantsproduce80percentofthesalesorprofits).Allthatwehaveseensofardoesnotmeanthatthemanagerislimitedtoeithergrowthorprofits.Managermay•increase both to increase the consumption rate of current customers and to introduce product line extensions.

2.9 Positioning2.9.1 Choice of Customer TargetsChoice of customer targets in selecting a customer target, three key considerations are critical:

Size/growth of the segment:• An important part of customer analysis focuses on which customer groups are growing and how fast. Opportunities for obtaining competitive advantage:• Competitor analysis assesses which market segments competitors are pursuing and their claimed competitive advantages, the resources they can put into the market, and their likely future marketing strategies. Resources available:• Thisisspecifiedintheself-analysispartoftheassessmentofcompetition.

2.9.2 Choice of Competitor Targets

All strategic alternatives involve competition because positioning of the product is done against major •competitors.The strengths and weaknesses of competitors have to be assessed and then the product is positioned against a •weak company.Unfortunately, such easy targets are not always available. A strong second competitor might focus on offensive •warfare and target the leader.

2.9.3 Core Strategy

Thecorestrategydefinesthedifferentialadvantagetobecommunicatedtothetargetcustomers,oftenreferred•to as ‘product positioning’, and made up of two basic categories. These include:

cost/price (economic) differential advantage �differentiation based on product offering or service features �

Differentiationcanincludepsychologicalaswellasfunctionalbenefits.•The positioning decision has four steps:•

Identify alternative positioning themes. �Screenthealternatives,whethereachismeaningfultocustomers,feasible,giventhefirmandproductresources �and customer perceptions, competitively sensible and helpful for meeting the product objective.Selectthepositionthatbestsatisfiesthesecriteria. �Implement programmes (e.g. advertising) consistent with the product position selected. �

2.9.4 Cost/Price (Value) Strategy

This focuses on price or “value” as opposed to product features or some other aspect of the product other than •price. Examples are Wal-Mart, NEC and others.Notallproductscanbelowpriceleaders.Youneedsize,capitalandotherresources.Highvolume,focused•production,efficientfacilitiesandmarketshare,attentiontocorporateoverhead(sizeofstaff,perks,fancyofficesand so on), cost in manufacturing products and delivering services, as well as advertising and promotion. Focus should be on important activities in which their cost is high.This low price core strategy poses real risks. One is that customer tastes shift, and the large volume may no •longer be required. Secondly, technological advances can make it easier for competitors to match the costs or make the product obsolete.

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One advantage of this strategy is that, there is always some segment of customers, which is price sensitive. The •question is how large this price sensitive segment is.

2.9.5 Non-price Strategy

A differential advantage that creates added value in the minds of customers enables the producer to obtain a •higherpricethanthepurecompetitioncase;customersfocusonproductbenefitsotherthanprice.Typicallyfiveareasfordifferentiationexist:•

Quality � , with its many dimensions like improved performance, superior design, trouble-free performance, reliability and durability, customer serviceStatus and image: � Many consumer fashion brands such as Rolex watches and Polo clothing, use this approach.Branding: � Brand names and their values communicated to customers, brand equity, serve as a point of differentiation. IBM, McDonald’s, Nestle, Intel use this approach.Convenience and service: � Home shopping grocery services focus on convenience to get people with home computers to change their buying habits and purchase from home.Distribution: � Differentialadvantagecanbegainedbyreachingcustomersmoreefficientlyandeffectivelythan competitors. For example, Federal Express, through its Powership terminals, allows its customers to determine for themselves where their packages are in the system and to order the ‘product.’

Non-price strategy requires continuous product improvements, may be in perception, to maintain differential •advantage.Italsorequiresflexibilityinboth,productionandmanagementtokeepupwithchangesincustomertastesand•competition.The risks involved are also considerable. The cost/price differential may become so great that customers are •willing to pay less to get less. The biggest problem is that the differential may disappear due to imitation.


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SummaryAs Philip Kotler says, companies that fail to develop new products are putting themselves at great risk. Their •existing products are susceptible to changing customer needs and tastes, new technologies, shortened product life cycles and increased domestic and foreign competitionTheconsumeradoptionprocessfocusesonthementalprocessthroughwhichanindividualpassesfromfirst•hearingaboutaninnovation(newproduct),tofinaladoption.Thefivestagesofadoptionareawareness,interest,evaluation, trial, and adoption.Thenewproductdevelopmentprocessmayvary fromonefirm to another, butgenerallyhas eight stages.•Idea generation is to create a large pool of ideas. The purpose of idea generation is to create a large number ofideas.Thepurposeofthesucceedingstagesistoreducethatnumber.Thefirstidea-reducingstageisideascreening, which helps spot good ideas and drop poor ones as soon as possible. If the company goes ahead with commercialisation, it will have to start manufacture, marketing and promotion, involving large costs. Statement of objectives, selection of strategic alternatives, and selection of customer and competitor targets, •core strategy, supporting marketing mix, and supporting functional programmes are essential elements of a product strategy.The choice of strategic alternatives follows the selection of the primary objective. A company’s biggest asset •is its customer base, and it should be leveraged as much as possible. Increase in sales volume or market share can be done by increasing the usage rate of the brand’s existing customers. This can be done by using larger package sizes, promoting more frequent use, or getting a larger share of the business if the customer uses several vendors.Onewaytoincreaseprofitsiscostreduction,whichusuallymeansreductionofcostsofmarketingsuchas•advertising, promotion, selling expenses, marketing research and so forth. But these cost reductions have adverse long run effects.Non-price strategy requires continuous product improvements, may be in perception, to maintain differential •advantage.Italsorequiresflexibilityinboth,productionandmanagementtokeepupwithchangesincustomertastes and competition.

ReferencesBrand, M., 1998. • New Product Development for Microfinance: Design, Testing and Launch, Microenterprise Best Practices. Available at: < http://www.uncdf.org/mfdl/readings/NewProd2.pdf> [Accessed 2nd March, 2011]Hansen, E., Marketing and New Product Development, Available at: < http://www.forestprod.org/•smallwood04hansen.pdf > [Accessed 2nd March, 2011]

Recommended ReadingDonald R. Lehmann and Russell S. W., 2004. • Product Management, 4th edition, McGraw Hill Higher Education.Hart, S., New Product Development, [Online]. Available at• < http://www.download-it.org/free_files/filePages%20from%20Chapter%2012.%20New%20product%20development.pdf> [Accessed 2nd March, 2011]Kotler, 2007. • Framework for Marketing Management, 3rd edition, Pearson Education India.

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Self Assessment

Thefirstidea-reducingstageis______________,whichhelpsspotgoodideasanddroppooronesassoonas1. possible.

idea screeninga. product developmentb. market testingc. commercialisationd.

In which stage the product, which was only a description, or a drawing, or a prototype, is converted into a 2. technically and commercially feasible entity?

Business analysisa. Market testingb. Idea generationc. Product developmentd.

Which of the following statements is true?3. Project strategy is the action plan for the product, to achieve the objectives of the company.a. Market strategy is the action plan for the product, to achieve the objectives of the company.b. Product strategy is the action plan for the product, to achieve the objectives of the company.c. Product planning is the action plan for the product, to achieve the objectives of the market.d.

____________ strategy requires continuous product improvements, may be in perception, to maintain differential 4. advantage.

Non-pricea. Marketingb. Cost/pricec. Positioning cored.

Whichofthefollowingshouldhavequantifiedstandardsofperformance?5. Product strategiesa. Good objectivesb. Core strategyc. Idea screeningd.

Which is a stage-wise process and each stage of it has its own key goals and milestones?6. Idea screeninga. Product developmentb. Business analysisc. Commercialisationd.


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Which of the following statement is true?7. If the product passes the functional tests, it is dressed up with a brand name and packaging and put to a core a. strategy test.If the market passes the functional tests, it is dressed up with a brand name and packaging and put to a b. product test.If the product passes the functional tests, it is dressed up with a brand name and packaging and put to a c. market test.If the product passes the functional tests, it is dressed up with a brand name and put to a functional test.d.

Which of the following statements is false?8. Commercialisation is often confused with sales, marketing or business development.a. Commercialisation is vital to involve key stakeholders early, including customers.b. Commercialisation a stage-wise process and each stage has its own key goals and milestones.c. The purpose of commercialisation is to create a large number of ideas.d.

A _____________is a detailed version of the idea stated in meaningful consumer terms.9. product concepta. market conceptb. market testingc. product testing d.

Increase in sales volume or ___________ can be done by increasing the usage rate of the brand’s existing 10. customers.

Product strategya. Product b. Market sharec. Market strategyd.

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Chapter III

Marketing Management

Aim


elaborate on marketing planning and sales forecast•

study different organisation structures for marketing•

examine different types of marketing channels•

Objectives


determine the steps involved in planning process•

understand the market potential, sales potential, and sales forecasting •

analyse the structure of product focused organisation•

Learning outcome


identify and understand the objectives of the marketing plan•

state the uses of sales forecasting•

give the outline of marketing plan •


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3.1 IntroductionMarketingmanagementisaprocessinvolvingorganising,planning,implementationandcontrolofafirm’smarketingactivity. It is particularly important since marketers function in a dynamic environment. The marketing opportunities facing organisations depend on the changing needs of society. Consumers are becoming more sophisticated and more discerning in their expectations. Globalisation of the marketplace has not only created new possibilities but also the challenge of new competition. Even within their home markets, environmental concerns and changing demographics are presenting new challenges for marketers.

3.2 Marketing OrganisationWe have seen the typical tasks of a product manager, but these vary quite widely from organisation to organisation, depending on how marketing is organised. There are basically three organisational structures for marketing: organising by product, organising by market, and organising by function.

3.2.1 Product Focused Organisation

Fig. 3.1 Product-focused structure

Figure given above provides a general view of the classic ‘brand’ management structure of the marketing •organisation. The product manager acts as a ‘mini CEO’, with full responsibility of the brand.The weakness is the narrow focus on one product, which can lead to an inability to step back and ask more •fundamental questions about customer needs.Whensignificantdifferencesexistinregionaltastes,thisstructurehasweaknesses.Theproductmanagerstend•to become biased in their quest for short-term sales and market share goals. For industrial products especially, this organisation results in several sales people representing different products from the same company calling on the same customer.Advantages of this system are as follows:•

There is only one person responsible for the success of the product. �The organisation can turn to this one person for information about the product. �Product managers’ training experience is invaluable as they are able to work with other departments of the �organisation and develop persuasion and communication skills.The training and experience gained make them wanted by other companies. �

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3.2.2 Market Focused Organisation

Fig. 3.2 Market-focused structure

Thistypeofstructuredefinesmarketingauthoritybymarketsegment, likeindustrychannel,regionsofthe•country or world or customer size. Thisstructureisusefulwhentherearesignificantdifferencesinbuyer’sbehaviouramongthemarketsegments,•which lead to differences in the strategies and tactics used. For example banks and their corporate customers and consumer business, are quite different in nature.•The advantages are as follows:•The focus is on the customer and hence makes it easier to consider changes in customer tastes and modify or •eliminate, if necessary, some of the products.Useful when the product is a total bundle (like a project) with a number of products made by the company or •when the customer purchases a number of different products from the company.The product managers often have better knowledge of the company’s products than in a product focused •company.Thedrawbackhereistheconflictthatmayeruptwiththeproductmanagementstructurethatmayliebeneath•it. In addition, some of the mini-CEO training and experience of traditional manager is lost. However, most of the skills procedures and activities, required to be a good product manager, are critical for •this structure also.


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3.2.3 Functionally Focused Organisation

Fig. 3.3 Functionally-focused structure

In this structure, the focus is on marketing functions such as advertising and sales promotion. Sales and market-•research can be separate functions. However, no single person is responsible for the day-to-day health of a product. Marketing strategies are designed •and implemented through the coordinated activities.This structure works well when there are only one or two products.•Coordinationbecomesdifficultwhentherearemoreproducts.Secondly,thereisnoonesinglepersonresponsible•for the product. The training also focuses on function rather than general management education.The advantages are as follows:•

Administratively simple - the groups are designed to be parallel to normal marketing activities. �Functional training is better and the persons involved bring better skills to that area. �The marketing head does much of the planning because of his broader business perspective. �

3.3 Marketing Channels

Fig. 3.4 Indirect and direct marketing channels

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Marketing channels are parts of the ‘marketing network’, which consists of the company and its supporting stake holders •(customers, employees, suppliers, distributors, retailers, ad agencies, and others) with whom it has built mutually profitablebusinessrelationships.Competitionisnotbetweencompaniesbutbetweenmarketingnetworks.Marketing channels are used to reach a target market. Marketing channels consists of following points:•

Communication channels (which deliver and receive messages from target buyers and include newspaper, �radio,television,mail,billboards,posters,fliers,audio-videotapesandtheInternet).Distribution channels to display, sell, or deliver the physical product or service(s) to the buyer. They include �distributors, wholesalers, retailers and agents.Service channels to carryout transactions with potential buyers. They include warehouses, transportation �companies, banks, and insurance that facilitate transaction.

Choosing the best mix of these channels is the marketer’s job and needs to be done with great care. •The product manager has to develop these channels and maintain good channel relations. Distribution channels •take some time to develop and are assets to be nurtured. They cannot be changed easily.

3.3.1 Channel Selection

Mostproducersdonotselltheirgoodsdirectlytothefinalusers.Betweenthemstandsasetofintermediaries•performing a variety of functions. They constitute a marketing channel (also called a trade channel or distribution channel).There are direct and indirect channels and the product manager has to make a choice.•Direct refers to a ‘zero level channel’ where the manufacturer sells directly to the end-user.•Direct channel is better than the indirect when:•

information needs (technical complexity) are high �product customisation is important �quality assurance matters �purchase orders are large �transportation and storage are complex �

Indirect refers to a two or multi-level channel with intermediaries or middlemen such as wholesaler, retailer, •jobber. Consumer marketing channels are different from industrial marketing channels.Indirect channel is better when:•

one-stop shopping for many product is important �availability is vital �after sales service is important �

Middlemenorintermediariesspecialiseinbuyingandselling,storage,transportation,assembling,financing,•and marketing research and promotion. The producer performs all these functions.Another factor to consider between direct and indirect channels is the level of commitment from the potential •intermediaries. Channel members must be motivated to sell your product when they have multiple products to sell.Higher margins are important, as well as, exclusive rights to distribute or sell the product in a particular geographic •area. Channel commitment can also be gained by providing sales training programmes promotions such as cooperative advertising and ‘pull’ support through customer, providing target advertising.The channel members may some times compete with your products like store brands or private labels.•Customer loyalty to channel member and not to the manufacturer is another factor that affects the decision of •direct and indirect channel.Advances in Information Technology have disrupted channel structures of many industries. Electronic shopping •services and telemarketing are now added to the channel mix, and existing channels are bypassed. For example, Walmart’s deliveries come directly from manufacturers as the suppliers are tied-in directly into Walmart’s central computers which track sales by item.


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3.3.2 Indirect ChannelsThe main members in this type of channels are representatives, wholesalers, and retailers. The distribution/value-added chain is shown below.

Fig. 3.5 The indirect channel

RepresentativesRepresentatives are agents who sell the product or service but carry no inventory or merely refer orders back to the •manufacturers. Representatives are common for many industrial goods as well as insurance and real estate.Theyarelow-costwaytoreachthelargenumberofintermediariesorfinalcustomer.Mostoftentheyworkon•a non-exclusive basis (handle many products and/or clients) and the product manager’s control is limited.Wholesalers•Wholesalers/distributors physically take possession of the product and then resell it to retailers.•Theyprovideanefficientwaytoreachmultiplesmallretailers.•Retailers•Retailerstakepossessionoftheproductandresellittothefinalcustomers.•They could be speciality stores, departmental stores, discount stores and such. •

Channel members as value added intermediariesEach channel member adds value in the chain. They can survive in a free market only if they add value to the •product. They are compensated through margins based on the value of the services delivered.Following services are provided by channel members:•

Marketing research: � gathering information necessary for planning and facilitating interactions with customers.Communications: � developing and executing communications about the product or serviceContact: � seeking out and interacting with prospective customers.Matching: � it involves shaping and fitting (customising) the product or service to the customer’srequirements.Negotiation: � reachingfinalagreementonpriceandothertermsofthetransaction.Physical distribution: � transporting and storing goods (inventory).Financing: � providing credit or funds to facilitate the transaction.Risk taking: � assumingrisksassociatedwithgettingtheproductorservicefromfirmtocustomer.Service: � developing and executing ongoing relationships with customers, including maintenance and repair.

3.3.3 Direct ChannelsDirect channels provide more control. The options available are:

Ownstore,eitherwhollyownedorfranchised.Sufficientvolumesarerequiredtojustifyoperation.•Sales force is excellent in establishing personal relationship, but they are quite expensive.•The Internet•

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Thewebhasbecomeastandardpartofthedirectchannel.Itisnotthefirstnewcommunicationtechnology—•we have seen how the printing press, the radio, television, all revolutionised marketing. Mail, telegraph, and telephone, railway and highway systems, and fax, all provide communication required and are still in use, in spite of the Internet.For most products it is not an adequate channel, as Internet moves information, but not the products (except •music, software). Lastly, its ‘widespread availability’ is limited, even in the USA.The advantages of the Internet are :•

It is interactive. �It is inexpensive. �It has broad scope (not limited geographically). �It is fast. �

The shortcomings are:•Cannot provide physical product (i.e., other channels are required for this). �Cannot provide human contact. �

Trade showsThis is also a direct channel, but often overlooked.•It plays a key role in many categories. Trade shows generate publicity and sales leads, as also actual sales.•

3.3.4 Hybrid ChannelsThese are a combination of channels. A common approach is to use direct sales to large accounts, and wholesaler to small accounts.

Selection and use of all channelsAll channels cannot be selected and used for two reasons:

Cost:• Eachchannelrequiresanadditionalfixedcost(establishingaccountshiringandprovidingbenefitsforsales staff or building and maintaining a website.Channel incentives and conflict:• A channel’s enthusiasm to support a product decreases when other channels compete with the same market. Channel selection involves selecting a portfolio of approaches that is neither too large(whichmakesitinefficient,giveslittleincentivetoanychannelmembertopromotetheproductandleadstoconflictamongthechannels)nortoosmall(leavingimportantcustomersegmentsoractivitiesuncovered).

3.3.5 Indirect Channel ManagementWhen the incentives and goals of the manufacturer and the channel are consistent, channel management becomes easy. Manufacturers generally want to exert some control over the channel and this is generally done by contractual/legal provisions, self-interest and human contact.

Contractual/legal provisions: Some level of written agreement is often useful for setting expectations and •delineatingroles,butthisdoesnotguaranteethewantedperformance.Itisdifficultandexpensivetomonitorbehaviour and to enforce the agreement.Self-interest:Allbusinessesacttomaximisetheirprofitsandchannelsdothesame.Ifthemanufacturerisalarge•company, it can have more control over a channel than a small manufacturer. The reverse is also true.Human contact: Regular contacts between company personnel and channel personnel are likely to encourage •desirable behaviour much beyond that driven by contracts and economic self-interest.Power: Generally, the party with the most power calls the shots and dominates the relationship. The factors that •affect the balance of power are as follows:

The channel’s volume of sales of the product relative to the company’s total product sales �The differentiation of the product compared to competitors’ products. �The switching costs for the channel to replace the product. �The threat of backward integration by the channel �


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The level and quality of information available with the channel member compared to the product manager’s �information.

Product managers can deal with ‘power retailers’ like Walmart in the following manner: •If customers come to the store and ask for the product by brand name, the retailer’s power is diluted. �Customise products and promotions, which mean treating each chain as a separate market segment and �developing a unique approach for each, such as separate brand names.Innovate constantly. �Organise around the customers, i.e., retailers. �Invest in technology. Manage inventories and monitor sales performance using the latest technology available, �matching that with retailers.Cut costs to keep prices down. �Support smaller retailers as well. They may grow and support you in the future. �

3.3.6 Channel ArrangementsChannels perform many duties and are compensated for it, which is open to negotiation. The important areas of arrangement are as follows:

service•delivery •price•returns and allowances policy •support level given by the channel (e.g., display) and the channel by the company (e.g. advertising)•degree of exclusivity afforded by the channel and product (should the dealer sell multiple brands?)•compensation expected for a sale when direct company sales effort and a channel’s region and customers •overlapinventory – who holds it and who pays for it•

3.3.7 Monitoring Profitability by Channel

Manyaspectsofachannelneedtobemonitored–effort,specificsupportprogramme(e.g.advertising),quality•level(cleanliness,intelligenceofpersonnel,etc.),andmostimportantisprofitabilitybychannelwiththeimplicitobjective of adding or deleting a channel.Theproductmanagerhastoassesstheprofitabilityofchannelscarefullyandnotjumptohastyconclusions.•

3.4 Market PlanningThe product manager’s key responsibility is developing a marketing plan. In fact, marketing planning has become •amajoractivityinmostfirms.Thedevelopmentofmarketingplans,whicharegenerallyannualandfocusona product or one or more product lines, is an important function for marketers, one that is believed to improve both coordination and performance.A marketing plan is a written document containing the guidelines for the business centre’s marketing programs •and allocations over the planning period. The emphasis is on ‘written’ document, which calls for disciplined thinking;on‘businesscentre’leveli.e.,theprofitcentreorSBU;andfinallyon‘planningperiod’,whichcanvary from product to product, with short periods for retailing and longer periods for consumer durables and industrial goods. The plan could cover several years for automobiles with annual updates. The typical time frame is annual.The marketing plan can be divided into two general parts: the situation analysis, which analyses the background •of the market for the product and the objectives, strategy, and programs that direct the product manager’s actions.

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It is worth noting that strategic planning and marketing planning are quite distinct. Strategic planning usually •takes place at a higher level in the organisation than marketing planning and happens at the corporate or group level. At this level, the objectives are broad (e.g., return on investment or assets) and strategies are general. Marketing •planningtakesplaceatthebusinesscentrelevelandhasspecificobjectives(e.g.,marketshare)andstrategies(e.g., pursuing the small–business segment). A second difference is that due to the long-term nature of strategic plans,theyusuallyhavealongertimehorizonthanmarketingplans;aperiodofthreetofiveyearsormoreisnormal.The objectives of a marketing plan are to:•

definethecurrentsituationbeingfacedinproductdevelopment �defineproblemsandopportunitiesfacedinthebusiness �establish objectives �definethestrategiesandprogramsnecessarytoachievetheobjectives �pinpoint responsibility for achieving product objectives �encourage careful and disciplined thinking �establish a customer-competitor orientation �

3.5 The Planning ProcessTwo general approaches to planning have been developed. In top-down planning, the market plans are formulated •by senior or middle management with the aid of staff and product management and then implemented by the latter.In thebottom-upplanning, the lowerranksdowntofieldsalespeopleareactivelyinvolvedin theplanning•process through collecting competitor and customer information and making forecasts. The information is subject to higher-level review, but lower management personnel play key roles in the process. •Bottom-up planning systems have better implementation than top-down approaches, since the people charged with executing the plan are involved in its development.Steps in the planning process are as follows:•

update the facts about the past �collect background data �analyse historical and background data �develop objectives, strategies, and action programs �developproformafinancialstatements �negotiate �measure progress �audit �

Theplanningsequenceisalogicalflowofeventsleadingfromdatacollectionandanalysistostrategyformulationto auditing the performance of the plan.

3.6 Marketing Plan OutlineFollowing are the main aspects considered while designing a marketing plan.

3.6.1 Executive SummaryIt involves one to three page synopsis of the plan providing highlights of the current situation, objectives, strategies, principalactionprograms,andfinancialexpectations.


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3.6.2 Situation AnalysisCategory analysis

Aggregate market factors• category size �category growth �stage in the product life cycle �sales cycle �seasonality �profits �

Category factors• threat of new entrants/exits �bargaining power of buyers �bargaining power of suppliers �pressure from substitutes �category capacity �current category rivalry �

Environmental factors• technological �political �economic �regulatory �social �

Company and competitor analysisproduct features matrix•objectives•strategies•marketing mix•profits•value chain•

Differential advantage/resource analysisability to conceive and design new products•ability to produce/manufacture or deliver the service•ability to market•abilitytofinance•ability to manage•will to succeed in this category•expected future strategies•

Customer analysisWho are the customers?•What do they buy and how do they use it?•Where do they buy?•When do they buy?•

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How do they choose?•Why they prefer a product?•How they respond to marketing programs•Will they buy it again?•long-term value of customers•segmentation•Planning assumptions•

market potential �category and product sales forecasts �other assumptions �

3.6.3 Objectives

corporate objectives (if appropriate)•divisional objectives (if appropriate)•marketing objective(s)•volumeandprofit•time frame•secondary objectives (e.g., brand equity, customer, and new product)•program (marketing mix)•

3.6.4 Product/Brand Strategy

customer target(s)•competitor target(s)•product/service features•core strategy•value proposition•product positioning•

3.6.5 Supporting Marketing Programs

integrated marketing communication plan•advertising•promotion•sales•price•channels•customer management activities•website•marketing research•partnerships/joint ventures•

3.6.6 Financial Documents

budgets•pro forma statements•


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3.6.7 Monitors and Controls

marketing metrics•secondary data•primary data•

3.6.8 Contingency Plans

Also known as a disaster recovery plan, the contingency plan is simply a secondary or alternative course of •action that can be implemented in the event that the primary approach fails to function as it should.

3.7 Marketing and SalesOne of the key elements in a product manager’s portfolio is ‘market and sales potential’. Based on this, the •manager ‘forecasts’ sales, taking into account the numerous factors that affect business.

Potential: � Themaximumsalesreasonablyattainable,underagivensetofconditionswithinaspecifiedperiod of time (i.e., what you might or could achieve).Forecast: � Theamountofsalesexpectedtobeachievedunderasetofconditionswithinaspecifiedperiodof time (i.e., what you probably will achieve).

Potential represents what ‘could’ happen while forecasts represent ‘expectations’ which (usually) fall far below •the potential in a market. Both potential and forecasts depend on a set of conditions which are as follows:

What customers do? �What the company does? �What competitors do? �What occurs in the economic and cultural environments? �

They are time dependent, that is what may not be possible in the short run, may be quite attainable in the long •run. Strategic plans depend on long term potential while annual plans focus mainly on short-term potential forecasts.

3.8 Market and Sales PotentialMarket or sales potential changes depend on market factors such as average category price or general economic •conditions. Itisquitedifficulttoestimatetheupperlimitormaximumofsales.Itisalsodynamicandchangesovertime.•Hencetheterm‘underasetofconditionswithinaspecifiedperiodoftime’isused.Salespotentialisthefirst-levelanalogytomarketpotential.Thiscanbeobtainedbymultiplyingtheestimated•marketpotentialbythemarketshareofthefirm.Thissharefixingshouldrepresentpotentialshare,whichthefirmcouldachieveunderoptimalconditions.Uses: • Therearefivemajorusesof‘potential’whichareasfollows:

To make entry/exit decisions. Decisions of what markets to be in are taken based on these key �considerationsTo make resource level decisions �To make location and other resource allocation decisions �To set objectives and evaluate performance �As an input to forecasts �

Information sources: • The general approaches to assessing potential are:Past sales data (not valid for production) �Government sources �Trade Associations �Private companies (to track and forecast sales for various industries) �

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Financial and Industry Analysts �Popular press �The Internet �

3.9 Sales ForecastingThisdealswithexpectationsinthefuture.Thefocusisonsales,marketshare,andprofits.Resourcesusedshould•also be taken into account and forecast correctly. Cost is also an important factor to forecast. The other factors, to be forecast, include the rate of change of technology and general economic conditions. •Finally, in global businesses, currency exchange rates need to be forecast.The uses of forecasts are: as follows•

To help set budgets and the resources required. �To provide a base for a monitoring system. Deviations from forecasts serve as warnings to product managers �to re-examine the market and their strategy in it and lead to a better understanding of the market and the underlying causes.To aid in production planning – accurate forecasting helps in just-in-time production and distribution systems �with low-level inventory.Byfinancialanalyststovalueacompany �

A good forecast takes into account four major categories of variables:•customer behaviour �past and planned product strategies �competitor action �the environment (state of the economy, key industries, demographic changes in the population, costs of �basic resources)

A forecast should not be a single number but rather a range of possible outcomes based on which strategies can •be worked out for the different likely numbers. Normally, the forecasts are limited to three - expected, benign and hostile (or most likely, optimistic and pessimistic).The level of accuracy is a function of the time spent on forecasting, which means the cost. Hence, good •management judgement is required.

3.10 Methods of Estimating Market and Sales PotentialFollowing methods may be used to determine market and sales potential.

3.10.1 Analysis Based Estimates

Determine the potential buyers or users of the product (buyers are customers who have the need), the resources •necessarytousetheproduct,andtheabilitytopay.Analternativeapproachistofindoutwhocannotqualifyas a potential customer.Determinehowmanyareineachpotentialgroupofbuyersdefinedbystep1.•Estimate the purchase or usage rate. This can be done by taking either the average purchasing rate determined •by surveys or other research. Market potential is then calculated by multiplying the number obtained from step 2 by the number from step 3.For example, take the consumption of ice cream. If the total population is 250 million, of these 20 million suffer •from diabetes (and hence cannot consume regular ice cream), and 30 million are lactose intolerant, leaving 200 million potential customers. On average, if the consumption per person is 28 litres per year, this means potential is 200 x 28 million litres per year (5.6 million litres), which at Rs.100 per litre, translates into Rs.560 billion market.This method has to be used very carefully and proper judgement has to be applied to check if the estimate •makes sense.


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The factors that are used to obtain a weighted index for a particular area or region depend on the area and the •product.

3.10.2 Judgement Based MethodsA large number of books have been written on methods for forecasting. The four basic approaches are judgement based,customerbased,salesextrapolation,andmodelbased.Thefirstmethod,judgementbasedreliessolelyonjudgement. The extrapolation method uses the last year sales level and adds a percent, the estimated percentage change in sales. For example, sales of refrigerators could be forecast to be 6 percent more than last year’s.

Sales force compositeSales people are asked to make sales forecasts. Their forecasts can, then, be aggregated to create a sales forecast •for the product or product line. These forecasts should actually be quite accurate as the sales people are close to customers and thus are in an •excellent position to understand their purchasing plans.Unfortunately, they are either on the low side (if they are used to set quotas for the sales people) or on the high •side to impress the sales manager.

Delphi methodThe process begins by asking a number of individuals to independently produce a forecast. An outside person •collects the forecasts and calculates the average.Next, the person returns to each participant both the original forecast and the average and asks the participants •to reconsider their initial forecasts. Typically, the participants then change their forecasts to more nearly be conventional to the average.If the process is repeated several times, consent is generally achieved. Delphi panels are often resorted to for •forecasting sales of new technologies for which historical data do not exist.Jury of expert opinion•Anextremeexampleofthismethodreliesonasingleexpert’sopinions.Thismethod,withallitsflaws,does•help as a supplement to other methods.

3.10.3 Customer Based MethodsThis set of methods relies on customer data.

Market testing: • This involves primary market research, including small intercept surveys, focus groups and at-home or at-work situations in which potential customers are asked to respond to a product concept.Market surveys: • Hereagain,thereisaspecificformofprimarymarketresearch.Questionnairesarepreparedandgiventopotentialcustomersforfillingup.Extrapolationisthendonetoformdemandforecasts.Purchasingagents are often surveyed to determine demand for industrial products.Sales extrapolation methods: • This third set of methods utilises historical sales data and several mathematical time-series approaches, which are available, such as moving averages, exponential smoothing regression analysis, etc. Details of these are found in books and articles have to be consulted.Model Based Methods: • This is the fourth category of forecast methods, including regression analysis, loading indicators, econometric models, details of which can be found in specialised books.

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SummaryMarketingmanagementisaprocessinvolvingorganising,planning,implementationandcontrolofafirm’s•marketing activity.There are basically three organisational structures for marketing: Organising by product, by market, and by •function.Marketing channels are parts of the ‘marketing network’ which consists of the company and its supporting •stake holders (customers, employees, suppliers, distributors, retailers, ad agencies, and others) with whom it has builtmutuallyprofitablebusinessrelationships.Competitionisnotbetweencompaniesbutbetweenmarketingnetworks. Marketing channels are used to reach a target market. There are direct and indirect channels and the product manager has to make a choice.Direct refers to a ‘zero level channel’ where the manufacturer sells directly to the end-user. Indirect refers to a •two or multi-level channel with intermediaries or middlemen such as wholesaler, retailer, jobber. Consumer marketing channels are different from industrial marketing channels. The main members in an indirect •type of channels are representatives, wholesalers, and retailers.A marketing plan is a written document containing the guidelines for the business centre’s marketing programs •and allocations over the planning period. The marketing plan can be divided into two general parts: the situation analysis, which analyses the background of the market for the product and the objectives, strategy, and programs that direct the product manager’s actions.Theplanningsequenceisalogicalflowofeventsleadingfromdatacollectionandanalysistostrategyformulation•to auditing the performance of the plan.Potentialisthemaximumsalesreasonablyattainable,underagivensetofconditionswithinaspecifiedperiod•of time (i.e., what you might or could achieve).Forecastistheamountofsalesexpectedtobeachievedunderasetofconditionswithinaspecifiedperiodof•time (i.e., what you probably will achieve).Salespotentialisthefirst-levelanalogytomarketpotential.Thiscanbeobtainedbymultiplyingtheestimated•marketpotentialbythemarketshareofthefirm.Thissharefixingshouldrepresentpotentialshare,whichthefirmcouldachieveunderoptimalconditions.

ReferencesChandon.P., • Marketing Management [Online] Available at < http://faculty.insead.edu/chandon/personal_page/Documents/Teaching-EMBA_Syllabus.pdf > [Accessed 3rd March 2011].Kotler .P., 2001. • Marketing Management, Millenium Edition [Online]. Available at: <http://www.saokim.com.vn/files/download/marketing/marketing-management.pdf>[Accessed3rd March 2011].Paul Christ, 2011, • Knowthis.com [Online] (Update 7 March 2011). Available at: <http://www.knowthis.com/principles-of-marketing-tutorials/marketing-planning-and-strategy/ > [Accessed 3rd March 2011].

Recommended ReadingLoudon D.L., Stevens R.E., and Wrenn B., 2004. • Marketing Management,TheHaworthPress,NY,Routledge.p.373.Peter J.P., Donnelley J.H., 2010. • Marketing Management. 10th edition. Mc-Graw Hill Companies. p.848.


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Self Assessment

_______________organisationisusefulwhentherearesignificantdifferencesinbuyer’sbehaviouramongthe1. market segments, which lead to differences in the strategies and tactics used.

Market focuseda. Product focusedb. Functionally focusedc. Indirect channeld.

Which of the following statement is false with respect to advantages of product focused organisation?2. There is only one person responsible for the success of the product.a. The organisation can turn to one person for information about the product.b. The training and experience gained make them wanted by other companies.c. The product managers often have better knowledge of the company’s products than in a product focused d. company.

Which of the following works well when there are only one or two products?3. Product-focused structurea. Functionally-focused structure b. Market-focused structurec. Marketing channelsd.

_____________ are used to reach a target market.4. Product-focused structurea. Functionally-focused structure b. Marketing channelsc. Market-focused structured.

Which of the following is false?5. Direct method is better than the indirect when quality assurance matters.a. Direct method is better than the indirect when product customisation is important.b. Direct method is better than the indirect when purchase orders are large.c. Direct method is better than the indirect when after sales service is important.d.

_______________takepositionoftheproductandresellittothefinalcustomers.6. Wholesalersa. Retailersb. Representativesc. Channel membersd.

Which of the following is false with respect to advantages of internet?7. It is interactive.a. It is fast.b. It plays a key role in many categories.c. It has broad scope (not limited geographically).d.

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Which process begins by asking a number of individuals to independently produce a forecast?8. Delphi methoda. Market surveysb. Sales forecastingc. Analysis based estimatesd.

The marketing plan can be divided into two general parts: the situation analysis and __________.9. potentiala. programs b. forecastsc. salesd.

Which is the fourth category of forecast methods, including regression analysis, loading indicators, econometric 10. models, details of which can be found in specialised books?

Market surveya. Market testingb. Sales Extrapolation methodc. Model based methodd.


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Chapter IV

Pricing Strategy, Advertising and Promotion

Aim


analyse the steps involved in setting a price to meet the pricing objective•

investigate the relationship between price and perceived value•

explore the role of marketing strategy in pricing•

Objectives


understand the price and customer value•

determine the different pricing strategies and the pricing tactics available•

study the factors in setting the marketing communications mix•

Learning outcome

At the end of this chapter, the students will be able to:

learn about pricing strategy •

explain the concept of advertising and sales promotion•

illustrate the • media planning and budgeting

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4.1 IntroductionPrice, one of the key elements of the marketing mix, is what produces the revenue. The other elements produce costs. Prices are easy to adjust and it takes very little time, compared to changing product features, channels and promotion. Price is the value positioning of the company’s product or brand. Price has always been the major determinant of buyer choice, more so in poorer nations and among poorer groups and with commodity-type products. Non-price factors have become more important in the recent past, but price still remains one of the most important elements determiningmarketshareandprofitability.

Price goes by different names like rent, tuition-fee, doctor’s fee, airline, taxi and railway fares, bank interest, toll, insurancepremium,wage,commissionandsoon.Withalltheimportancethatpricingdeserves,manyfirmsdonothandle it well. Pricing is too cost-oriented and is set independent of the other elements of the marketing mix; it is not revised often enough to capitalise on market changes and price is not varied enough for different product items, market segments, distribution channels and purchase occasions.

4.2 Setting the PriceNo decision is more critical than the appropriate price to charge customers. It is a readily observable component •of the product that results in consumers purchasing or not purchasing it and also affects margin per unit sold. With most of the products having similar features and quality, price becomes one of the key elements in a customer’s buying decision.Cost-basedpricingisthetraditionalway,becausemostofthetime,accountantsorfinancialanalystshavefixed•the prices, or perhaps the top management.Costs do matter in setting price. But ‘customer value’ (what a product or service is worth to the customer in •rupees) is much more important. The company must set its price in relation to the value delivered and perceived bythecustomer.Ifthepriceishigherthanthevaluereceived,thefirmwilllooseoutonpotentialprofits;ifthepriceislowerthanthevaluereceived,thefirmwillfailtoreapprofits.The company has to consider many factors in setting its pricing policy. The six-step procedure by Kotler is •useful and effective is as follows:

selecting the pricing objective �determining demand �estimating costs �analysing competitor’s costs, prices and offers �selecting a pricing method �selectingfinalprice �

4.3 The Role of Marketing Strategy in PricingMarketingstrategyisfirstdesignedandthenimplementedwiththemarketingmix.Thepricemustbeconsistent•with the marketing strategy that is developed, consisting of market segmentation and core strategy or product positioningdecisions.Strategydecisionsdonotleadtoaspecificprice-settingrule;rathertheygivegeneralguidelines for whether a price should be low or high.The product manager needs to understand the price sensitivity of the different market segments and how much •priceflexibility(i.e.,thewidthofthepriceband)existsinthetargetedsegments.Pricevariationsexistwithinsegments because of the following reasons:

Customers become brand loyal to certain products or suppliers. They tend to rate price relatively low �compared to other factors like reliability, speed of delivery, brand equity and so forth.In some industries, the price charged is less visible than it is at super markets or other retailers, where the �price is marked on the item. For many industrial products, the list price is only a basis from which discounts that vary among customers are given.Competitive intensity can vary among segments; the larger the number of suppliers and the more intense �the competition, the narrower the price band.


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4.3.1 Measuring Perceived Value and Price

We have already seen that the key to setting price and understanding why customers react the way they do to •prices is perceived values. Customers have some notion of what constitutes a good or a bad price. This notion is developed by comparing •thepricetotheperceivedvalueorbenefitsthatwouldbederivedthroughpurchasing.Itcanbealsodevelopedby comparing price to a reference point, like the past price.We consider three possible relations among perceived value, price and variable cost.•

Perceived value > price > variable cost �Price > perceived value > variable cost �Price > variable cost > perceived cost �

Fig. 4.1 Gap between customer value and cost

Weassumethatthepriceisgreaterthanvariablecostinallthethreesituations.Inthefirstcase,themanufacturer•chargeslessthanthecustomers’trueperceivedvalue,thus,sacrificingprofits.Customersthinkthattheyaregetting a bargain, but they do not tell this to the manufacturer.In the second scenario, the situation is unfortunate. The customers think that it is a ‘bad deal’ and do not buy •the product.In the third case, it is a total failure and the product has to be weeded out in the new-product development •process.Intheabovefigure,themaximumpricethatcanbechargedisthecustomervalue.PriceAgivesmostofthevalue•to the producer, while price B gives most of the value to the customer, thus enhancing customer satisfaction and building market share.

4.3.2 The Economic Value Concept

For industrial products particularly, a useful way to estimate customer value is through a method called ‘value-•in-use’(sometimesreferredtoasfieldvaluein-use).Thetotalcustomer’seconomicsareestimatedforareferenceproduct (which could be a competitor’s product). If the purchase price of the reference product is Rs.30, 000; and if the start-up costs are Rs.20, 000 and the post purchase costs are Rs.50, 000 (e.g., for maintenance) the total life cycle costs become Rs.1, 00, 000.Assuming the product manager’s product has less start-up and post purchase costs, say less Rs.10, 000 each •through some additional features and less consumption, then the customer should be willing to pay Rs. 30, 000 more for the product (Rs.20, 000 in reduced life cycle costs plus Rs.10, 000 extra value).If the variable cost of the product is Rs.30, 000, the product manager can even price his product at Rs.60, 000 •bringing the life cycle costs to Rs.1,10, 000 (Rs.60, 000 for the purchase price and Rs.50, 000 for the start-up and maintenance costs). He can even reduce the purchase price and give some inducement to the customer.

Rs. Customer valuePrice (A)

Price (B)Cost

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4.3.3 Using Price Thresholds

Another approach is by using price thresholds, which involves primary marketing research. One important •threshold is called the reservation price, which is the highest price a customer would pay for a product. The second threshold is the lowest price that a customer would pay for the product. Obviously, a customer •would pay as little as possible, but often they associate low price with low quality and hence there is the low price threshold.These two thresholds are then used by the product manager to price his product, by identifying customers most •likely to buy the product and these respondents are then shown a card with a range of prices and asked questions as to the maximum and minimum prices one would pay and the most acceptable price.

4.3.4 Using the Perceived Value Concept

Consider a functional relationship among market share, perceived value and price: Market share is proportional •to ƒ

This proportional relationship provides some useful insights into managerial behaviour. How can an observed •decline in market share of a product be reversed? The immediate response is usually a decrease in the denominator i.e., a price cut, either through list price or a price promotion. The other way is to increase the numerator, that means increase the perceived value of the product. This can be done by following ways:

improve the product itself (quality, offer better service, or a longer warranty period) �advertise to enhance the product’s image �institutevalue-addedservices,suchastechnicalsupportorfinancinginthedistributionchannels �improve the sales effort by training the sales force to sell value rather than price �

Reducingpriceisamorecommonwaytoregainsharelosses,butthereducedprofitmarginrequiresalarge•increase in unit volume of sales to offset it.It is, therefore, worth considering increasing the perceived value rather than immediately cutting price.•

4.3.5 Psychological Aspects of Price

Customers continually assess the prices charged for products based on price purchasing experience, formal •communications (e.g., advertising) and informal communications (e.g., friends and neighbours) and point of purchase or web derived listings of prices and they use these assessments in the ultimate purchase decision. Two key concepts relating to the psychological aspects of pricing are reference prices and the price-perceived •value relationship. There are two kinds of reference prices: internal and external, sometimes referred to as “temporal” and “contextual” respectively.Reference price is any standard of comparison against which an observed price is compared. •External reference prices are usually observed prices that are typically posted at the point of purchase. •Internal reference prices are mental prices used to assess an observed price and have a strong effect on buying •behaviour. These include following factors:

fair price or what the product ought to cost �price frequently charged �last price paid �upper amount (reservation price) someone would pay �lower threshold or lowest amount a customer would pay �price of the brand usually bought �average price charged for similar products �expected future price �typical discounted price �


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Many of these considerations contribute to the concept of ‘perceived’ price; the price the customer thinks is the •current actual price of the product. For example, customers will perceive promotion price as the actual price and when the brand comes off deal •and returns to the regular price, they may perceive this as an increase in price.

4.3.6 Relationship between Price and Perceived Quality

Sometimes a higher price can lead to higher demand rather than lower demand. This occurs when price is used •as a signal for high quality. One reason is the feeling of exclusivity or prestige.Pricing a product high means fewer customers can afford it, for examples Rolex watches, Rolls Royce cars, •Mont Blanc Pens and so on.A second example is when the products are referred to as ‘experience’ goods, like perfume, wine and services •such as consulting and legal advice, which have to be actually tried to know how good they are. The ultimate is life insurance; no matter what you pay, you will never use the product.Remember that price must be consistent with marketing strategy. Exotic vodka supported with highly creative •advertising stressing exclusivity and prestige cannot be priced at Rs.100 a bottle, without striking a discordant feeling in the upscale consumer.

4.3.7 Odd Ending Prices

These are ‘just below’ prices like Rs.99 (and not Rs.100) for a product. These have some psychological impact •on purchasing behaviour. Thereisnospecificexplanationforthis.•

4.3.8 Competition and Pricing

This is the third critical element in pricing decisions. The competitor’s prices act as a reference point.•Two factors, that are important to understand the role of competition in the pricing decision, are the competitor’s •costs and the historical pricing behaviour in the category.

4.3.8.1 Competitors’ Costs

Assuming no brand would be priced below variable cost for an extended period, cost estimates provide the •product manager of how low some competitors can price. Cost estimates also give some idea of the margins in the category.Thebestwaytofindoutcostsofmanufacturedproductsistopurchasecompetitors’productsandtakethem•apart, studying the costs of components and packaging.Another way is to use publicly available data on the competitors, like annual reports. Average margins can be •determined with help of these.

4.3.8.2 Historical Pricing Behaviour

It is useful to examine historical behaviour to understand price changes.•The product manager makes pricing decisions in this context. First, the decision can be proactive i.e., the product •manageristhefirsttoeitherraiseorlowerpriceandhe/sheobserveswhatthereactionis.Second,thedecisioncan be reactive, i.e., the product manager has to decide whether to match the price, keep it the same or reduce the price more or less than the competition. In thefirstcase,manager is the leaderand in thesecondcase, themanager isa follower. It isbetter tobe•proactive,becausethatforcescompetitorstomakedifficultdecisionsattimesandincircumstancesnotoftheirown choosing.In other words, the product manager is setting the rules of the game. Competitor analysis gives clues to the •pricingbehaviourintheproductcategory.Iftheobjectiveseemstobeprofitoriented,thebrandwillnotbeanaggressive price cutter.

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Alternatively, if the objective is to increase market share, lower price might be used as a weapon. Other factors •arefinancialhealthoftheproductorparentcompanyanditscapacity.

4.3.9 Role of Cost to Company

Prices are often based on the costs to the company, i.e., variable costs plus some allocation for overheads plus •some margin. This method does not take into account the customer and the resulting price may be above or below what the customer is willing to pay.The other problems are the development costs involved in bringing new products to market. These costs are •very high and have to be recovered. Hence, initially, the prices of products, particularly pharmaceuticals, are very high, but get reduced when the drugs come off patent and generics enter the category. Overheadcostssuchascorporateofficeandstaffsalaries,CEO’ssalaryandhisperquisitesandsoonhavealso•to be recovered. These are not associated with any one product and have to be recovered from all the company’s products. The mechanism used to allocate these overhead costs is often random and bears no relationship to how individual •products utilise overhead. The thirdkindof costs is directfixed, and includes theproductmanager’s salary, product advertising and•promotion and so on and is associated with individual products but do not vary with volume. Finally, there are variable costs, the per-unit costs of making the product or delivering the service. These, of •course, must be recovered with price. There are, therefore, several kinds of costs to be considered while setting the price of the product. This category •includes the costs of plant, inventory, receivables and the like, that are tied to the product.Many companies attempt to account for these by calculating the opportunity cost of the resources committed •totheproductbymultiplyingtheamountofresourcesbyeitherthefirm’saveragecostofcapitalorreturnoninvestment.Bysubtractingthesefromrevenues,theso-calleddirectproductprofitabilityiscalculated.•A second problem with using costs to set price, particularly variable or unit costs, is that they may be a function •ofvolumeandtherefore,difficulttoknowinadvancewhendevelopingmarketingplans.Further,unitcostsmayberelatedtotheutilisationofcapacity.Itisadvisableforproductmanagerstosimulateprofitsandsalesvolumes using a number of possible prices and costs.Customersdonotreallycarewhatthefirm’scostsare;priceincreasesbyfirms,duetoincreaseincosts,are•notpalatabletothem.Thepriceincreasemaystick,butonlyifthereisvaluebehindtheproductthatjustifiesthe higher price.

4.4 Pricing ObjectivesGeneral pricing objectives are set after the three major background analyses category, customer, and competition are performed and the marketing strategy is determined. The pricing objectives are penetration, skimming, customer value, cost, return on investment and stability.

4.4.1 Penetration Pricing

Penetration or market share pricing is employed when most of the value – cost gap is given to the customer and •thefirmkeepsasmallmargin.Itisoftenusedasanentrystrategyforanewproductandisusefultodiscouragecompetitive entry. The objective is to build or keep market share. It is appropriate when scale effects lead to a volume-cost •relationship and is necessary for price-sensitive market segments. Penetration pricing generally should not be used with products or services subject to a price-perceived quality •relationship or when the product has a strong competitive advantage.Another limitation is that customers accept price reductions, while rejecting price increases.•


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4.4.2 Return on Sales/Investment Pricing

This objective has limited usefulness. The price is set for a rate of return demanded by the senior managers of •the company, ignoring customer value and competition.It is useful only when the product has a monopoly or near monopoly position. A good example of this is the •price of electricity or gas.

4.4.3 Pricing for Stability

Sometimes customers for industrial products are more concerned about price stability than levels. •Profit forecasts and long range plans cannot be made early when prices i.e., buyers’ costs fluctuate •dramatically.

4.4.4 Skimming

This is opposite of penetration pricing and also called prestige pricing. Skimming returns more of the value to •the producer rather than the customer.If there is a strong price-perceived quality relationship (e.g., wine) and the core strategy is to position the product •at the high-end of the market, this makes sense.It is also done when competition is absent or is marginal. Skimming is a good objective when costs are not •related to volume.

4.4.5 Competitive Pricing

The price is set at the category average or matching a particular competition. This is appropriate when customers •think that the products in the market are similar and view the market as a commodity category. Itmayalsobenecessaryasaproductcategorywithhighfixedcosts.•

4.4.6 Other Factors Affecting Price

There are many other factors affecting pricing decisions. Those include stage of the product life cycle. Initially, •when little competition exists, focus is on the customer and value is stressed and no mention is made of either variable or investment costs to be recovered. When competition enters, the focus is on both customers and competitors. Customer value is still important, •but competitor’s reaction is also addressed.In the late stages of the product category, the focus shifts towards competitors and costs to determine whether •remaininginthemarketmakeseconomicsense.Hereprofitabilityanalysisisthekey.Other factors like threat of new entrants, power of buyers/suppliers, rivalry, pressure from substitutes, and •unusedcapacityalsoinfluencepricingdecisions.Whilethefirstfourfactorsdonotneedexplanation,unusedcapacityisparticularlyimportantinahigh-fixed-•cost, high-contribution-margin (price less variable cost) product category. This is seen in markets like airlines whererevenuesarerequiredtocoverfixedcosts.When economies of scale are important (e.g., automobile manufacturing), overcapacity leads to price wars •because the degree of capacity utilisation directly affects unit costs.

4.5 Pricing TacticsSomespecificpricingtacticsareasfollows:

Price bundling:• This include offering products in a package, priced lower than the sum of the individual components,e.g.,astereosystemcomprisinganamplifier,atuner,aCDplayerandaDVDplayerinanattractivecase. Sometimes the package can be priced higher than the sum of the components.Complementary pricing:• For example, razors are priced modestly while the blades give huge margins. A similar pattern is seen in HP printers and printer cartridges. This can be done only when there is limited competition

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for the consumable component.Value pricing:• Here, most of the value-cost difference is given to the customer i.e., ‘a good deal’. It is related to customer expectations.Everyday low pricing:• This is used mainly in retailing. It is adopted successfully by Wal-Mart, Home Depot and others. They keep their prices low, permanently, instead of only during promotions.Hidden price increases:• Whenitisdifficultforfirmstoraisepriceseitherduetocompetitionorrestrictedcustomer budgets during periods of recession, they raise prices without explicitly increasing the posted price. They do this by reducing the quantity of goods in the package.Price discrimination:• This includes giving special prices to certain categories of customers like senior citizens or quantity discounts.Discounting:• Periodic discounting is often done to get rid of stocks and on goods that are slow sellers.Auctions:• These have become common due to the Internet and e-commerce, where customers specify the price they wish to pay. E-bay is one of the main players in this type.

4.6 AdvertisingAdvertisingisconsideredtobeoneofthefivemajormodesofcommunication.Thecommunicationmixconsistsof:

Advertising:• It is any form of non-personal presentation and promotion of ideas, goods and services by an identifiedsponsor.Itisdifficulttomakegeneralisationsastherearemanyformsandusesofadvertising.Yetthe following qualities can be noted:

Public presentation confers a kind of legitimacy on the product and suggests a standardised offering. �Pervasiveness – the message can be repeated many times and buyers can receive and compare the messages �of various competitors. Large scale advertising says something positive about the seller’s size, power and success.Amplifiedexpressiveness–Throughcleverandartfuluseofprint,soundandcolour,thecompanyandthe �product can be channelized.Impersonality – Advertising is a monologue in front of and not a dialogue with the audience. The audience �does not feel obligated to pay attention or respond to advertising.Advertising builds a strong image for a product and a wide reach. Some forms are expensive, like TV and �some are not, like newspaper advertising.

Sales promotion:• It is a variety of short term incentives to encourage trial or purchase of a product or service. SalesPromotionmeans tools used are coupons, contests, premiums, etc.Thebenefits are communication,incentive and invitation. This is mostly done to draw a stronger and quicker buyer response, and used for short-run effects as to dramatise product offers and boost sagging sales.Public relations and publicity:• It is a variety of programmes designed to promote or protect a company’s image or its individual products. It provides high credibility, ability to catch buyers’ off-guard and dramatisation.Personal Selling:• It is face to face interaction with one on more prospective purchasers for the purpose of making presentations, answering questions and procuring orders. It has qualities of personal confrontation, cultivation and response.Direct and interactive marketing which includes use of mail, telephone, fax, e-mail on Internet to communicate •directlywithorsolicitresponseordialoguefromspecificcustomersandprospects.To develop an advertising programme, marketing managers must always start by identifying the targetmarketandbuyermotives.Theycanthenmakethefivemajordecisionsknownas‘thefiveM’s’ - Mission, Money, Message, Media, and Measurement.’


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Fig. 4.2 Five M’s of advertising

Packaging and graphics could also be added and taken as the sixth element of the communication mix.•A coherent communication mix is usually referred to as ‘integrated marketing communications.’ An integrated •approach is a combination of activities, which is considered better than one should be consistent rather than at cross purposes. For example a point of purchase (POP) display might use the same display theme on a character used in a TV •ad. The whole mix must deliver a consistent message and strategic positioning.

4.7 Developing Effective CommunicationsThis is an eight step process. The steps are listed below:

Identify the target audience:1. Potentialbuyersofthecompany’sproducts,currentusers,decidersorinfluencers,individuals,groups,particularpublicsorthegeneralpublic.Thetargetandaudienceisacriticalinfluenceonthecommunicator’s decisions on what to say, how to say it, when to say it, where to say it and to whom to say it.Determine objectives:2. The marketer might want to put something into the consumer’s mind (Cognitive stage), or change his attitude (Affective stage) or get him to act (Behaviour stage)Design message:3. Develop an effective message, which ideally should gain attention, hold interest, arouse desire and elicit action. In practice few messages take the consumer all the way from awareness through purchase, but this framework suggests the desirable qualities of communication. Formulating the message includes: What to say (message content), how to say it logically (message structure), how to say it symbolically (message format) and who should say it (message source).Select channels:4. Theymustbeefficienttocarrythemessage.Therearepersonalchannels(likesalespeopleofpharmaceutical company meeting physicians), face to face communication, person to audience, over the telephone orthroughe-mail.Personalinfluencecarriesgreatweight,particularlyinthecaseofexpensiveproductssuggestssomething about the user’s status or taste. News conferences, grand openings, sports sponsorships are some of theeventsusedtoachievespecificcommunicationeffectswithatargetaudience.Establish budget:5. One of the methods is the affordable method, which is self explanatory. The second method is the percentage-of-sales method; say two percent of the total sales. The third is the competitive parity method where the budget is matched to the competitor’s and therefore linked to the industry as a whole. The fourth methodistheobjective-and-taskmethod,wherethemarketersdeveloppromotionbudgetsbydefiningspecificobjectives, determining the tasks that must be performed to achieve theses objectives, and estimating the costs. Thesumofthesecostsistheproposedpromotionbudget.Finally,acost-benefitanalysisisdonebeforetakingafinaldecision.

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Decide the media mix:6. Thisisafieldinitselfandisaspecialtywithinadvertisingagencies.Thereforethemedia plan is often left to ‘experts’. The different promotional tools are available, which have their own unique characteristics and costs.Measure results:7. The communicator must measure the impact of the plan on the target audience. It includes awareness, trial and satisfaction.Manage integrated marketing communications:8. This is a concept of marketing communications comprehensive plan, which evaluates the strategic sales of a variety of communication disciplines like general advertising direct response, sales promotion and public relations and combine these disciplines to provide clarity, consistency and maximum impact through the integration of discrete messages.

4.8 Factors in Setting the Marketing Communications MixThe factors to be considered are type of product market, consumer or business, consumer readiness to make a •purchase and stage in the product life cycle.Anotherimportantfactoristhecompany’smarketrank-marketleadersderivemorebenefitfromadvertising•than from sales promotion. Conversely, smaller competitors gain more by using sales promotion.Advertising plays an important role in both business and consumer markets. Corporate advertising builds up •the company’s reputation and helps the sales representatives.Advertising and publicity play a key role in the buyer-readiness stage; their role is awareness building. Customer •comprehensionisaffectedbyadvertisingandpersonalselling,andcustomerconvictionisinfluencedmostlybypersonalselling.Closingthesale,re-orderingismostlyinfluencedbypersonalsellingandsalespromotion.Thus promotional tools vary in cost-effectives at different stages of buyer readiness. They also vary in cost-•effectiveness at different stages of the product life cycle.In the introduction stage, advertising and publicity have the highest cost-effective uses, followed by personal •selling to gain distribution coverage and sales promotion to induce trial. In the growth stage, demand has its own momentum through word of mouth. In the maturity stage, sales promotion advertising and personal selling all grow important, while in the decline •stage, sales promotion continues strong, advertising and publicity are reduced and sales people give minimum attention to product.

4.9 Media SelectionMediaplanningisaspecialisedfieldandisnormallyleftuptothe‘experts’.Themediaplandefineswhere(inwhichmedia like TV, newspapers, radio, the internet, etc.) and when (time of year, day, etc.) advertising will appear.Where

The decision of where to advertise has three basic components as follows: •match to target audience �contextualfit �duplication and wear out �

Tryingtomatchtargetandaudiencestypicallyleadstoacomparisonofvehiclesintermsofefficiencyinreaching•desirable audiences. “Cost per thousand” (CPM) is the yardstick for comparing vehicles. CPM measures how much it costs the advertiser to reach 1000 customers by using a particular medium. Ratings and circulation data (newspaper and magazine) are vital inputs to decisions.Another important aspect of a media plan is regional differentiation. Product usage varies by region and so also •features desired and cultural preferences.Therefore though regional vehicles may cost more in a CPM sense it is often desirable to focus on certain regions •and use somewhat different messages and media by region.

Contextual fitItisdifficulttodemonstrateoperationofamachineontheradioonincorporatemusicorothersoundsinprint•mediaorprovidedetailedinformationthatwillberecalledinradioorTVads.Thisisthecontextualfit.


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Productfit involves the interactionbetween theproduct imageand the imageof thevehicle.Forexample,•advertisingimportedcrystalglassorfinewine,duringwrestlingmatchesonTVdoesnotmakesense.The interaction of ad image and its immediate context is also relevant. For example, a humorous ad may lose its •effect if placed in the context of a comedy show or a series of several humorous ads. When competitive products in the same category are advertised close together, the effect is lost and many consumers cannot distinguish the claims from one another.

Duplication and wear outDepending on the goal, duplication (multiple exposures to the same ad) may be either desirable (e.g., for a •complicated message or concept) or wasted (e.g., for a simple message).Customers also tire of exactly the same message fairly quickly, though less so for complex messages than •simple ones.

WhenThe two issues of ‘when’ are seasonality and spending pattern. For example, advertising for rain-shoes and •raincoats,umbrellasshouldbedonejustbeforetherainyseasonsetsinorcoldremediesintheusualcold/fluseason.Spending pattern refers to the timing of the advertisements during the life cycle of the product. For example, •heavy spending on advertising is more effective early in the life cycle i.e., during the introduction and growth stages.Many studies suggest that an uneven spending pattern (pulsing) is more effective than a level pattern i.e., spending •is bunched in a short span of time and not level or uniform throughout the relevant time period.

Other considerationsMediaexpertsgetbetterratesforTVandothermediaforadvertisingandhenceitisbeneficialtoleaveitto•them to negotiate the media prices. Large advertisers of course get better rates than small advertisers.•

4.10 Evaluating Advertising EffectsMeasuring the results or advertising and other communications is very important. The impact on the target •audience has to be measured by asking the members of the target audience whether they recognise or recall the message, how many times they saw it, what points they recall, how they felt about the message and their previous and current attitudes towards the product and company. The communication should also collect behavioural measures of audience response, such as how many people •bought the product, liked it and talked to others about it.Feedback measurement covers brand awareness, brand trial and satisfaction (e.g., 40% aware and 60% not •aware.30%triedand70%didnottry.80%satisfied20%disappointed).This particular ad program needs to be the strengthened as only 40% are aware and of these only 30% tried, •though80%ofthemweresatisfied.

4.11 PromotionsSales promotion or simply promotion consists of a collection of devices aimed at generating active customer •response within a short period of time.Promotion aimed at distribution/retail channels are termed as trade promotions, while promotions aimed at •customers are termed as retail promotion. Companies spend large amount of money towards promotions.

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4.11.1 Promotion Objectives

Promotion objectives may be either offensive or defensive. Offensive programs attempt to gain an advantage •through exclusivity: being the only company to offer a particular promotion or level of promotional support. However,competitorsquicklymatch(providedefensive)promotions(e.g.,airlinefrequentflierprograms).Further,insomeareas,notablyconsumerpackagedgoodsthechannels(e.g.,Wal-Mart)havebecomesufficiently•powerful to both demand and schedule promotions. This leads to companies promoting goods to match competition and satisfy the channels though promotion may not be required.

4.11.1.1 Final Customer Promotions

This is typically, a short-run objective, at least for existing or mature products. The operation objective is to •generate immediate response in the form of sales. The objectives range from generating awareness to increasing product understanding to improving attitude •towards purchase.

4.11.1.2 Trade PromotionsThese objectives fall into three main categories, which are as follows:

Togetthetradetobuyorstocktheproductingreaterquantitiesbyofferingvariousfinancialincentives.•To increase the level of trade support given to the product by means other than increasing their inventories. A •variety of allowances and direct incentives are given. To build relationship by giving an extra product to a channel with no explicit strings attached.•

Reasons for conducting trade and consumer promotionsTrade promotions (in the order of rank 1 to 8)

introducing a new product1. getting more retailer push2. achieving sales/ contribution targets3. maintaining shelf space4. meeting competition5. increasing consumer usage rate6. motivating the sales force7. reducing inventory8.

Customer promotions (in the order of rank 1 to 11)introducing a new product1. increasing sales2. inducing brand switching3. increasing consumer usage rate4. achieving sales/contribution targets5. lower price to more price sensitive consumers6. retaining loyal customers7. meeting competition8. expanding category volume9. increasing total shelf space10. conducting market research11.

4.12 Promotion BudgetingDeciding on a promotion budget is similar in approach as for advertising. The question to be asked is how much money should be spent on the total advertising and promotion budget and out of this how much on promotion?


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4.12.1 The Total Advertising and Promotion BudgetStudies have shown that seven factors affect the total budget for advertising and sales promotion for manufactured goods. Companies spend more on advertising and promotion relative to sales in following cases:

The product is relatively standardised.1. There are many end users.2. The typical purchase amount is small.3. Sales are made through channel intermediaries rather than directly to end users.4. The product is premium priced.5. The product has a high contribution margin.6. The product or service has a small market share.7.

4.12.2 Allocating Money between Advertising and PromotionThe three important factors which affect the money allocation decision are as follows:

The total amount of budget resources is available. If the marketing budget is small, extensive media advertising •is usually not worthwhile unless the target market is local, because advertising needs a minimum or threshold amount to have any impact. Below this threshold value, the money is virtually wasted. In such cases, spending on sales promotion produces a greater impact than advertising.Customer factors like brand loyalty. Promotion money spent on a product or service having high levels of •loyalty mainly rewards existing customers. This may not be the best way to spend money though it may increase customer retention. Promotions can attract not very loyal customers and brand switchers. Promotions also bring inbenefitiftheproductisnotcomplexandbuyingdecisionisroutine;advertingismoreeffectivewhentheproduct is complex and requires a fair amount of information processing.The unique ‘Consumer Franchise Building’ (CFB) factor, which is the set of all activities that build brand •equity, including advertising, sampling, comparing and product demonstrations, non-CFB activities focus on price alone and include trade promotions, short-term price deals and so on. The product manager has to track the following ratio:

CFB ratio =

One rule of thumb is that the CFB ratio should stay above 50 to 55 percent for a brand to remain healthy.

4.12.3 Evaluating Customer Promotions

As with evaluating advertising effects, promotions also have to be evaluated, both short-term and long term. •Care has to be taken in interpreting the results.A price promotion that increases sales but fails to attract a substantial number of new customers may be a failure, •because it basically gave a discount to current customers who may have simply stocked up, thus depressing future sales.To assess the value of a promotion, it is necessary to estimate both the source of additional sales (accelerated •or not, increased quantity or not, loyal buyers on non regular/captured buyers) and its overall magnitude. The profitconsequencesofeachalsoneedtobeconsidered.Manufacturer promotions have direct effects on customers, and indirect effect on channel (retailer) behaviour. The •retailers may increase stock of the good or run their own promotions in conjunction with the manufacturer.Amajorfactoraffectingtheprofitabilityofpromotionsiswhetherthegoodiseasilystockpiled.Perishable•goods and services (e.g., seats on an airplane), cannot be stockpiled; whereas, soaps and paper-towels can be. Hence, soap/ paper towel promotions tend to result in stockpiling and if competitors match the promotion, leadtolowerprofits.Ontheotherhand,promotiononunderusedservicesorperishablegoodsmayproduceincreasedprofits.

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4.12.4 Effects of Promotions

Customer perceptions of the brand may change, as brands bought on promotion may be seen as lower in quality •and in the extreme, something it makes sense to buy only on deal. If there are regular promotions, customers tend to wait for them and stockpile.After the promotion period, the return to the normal prices is seen by consumers as a price increase.•Competitors’ reaction also has to be taken into consideration. When competitors match promotions, which leads •toapromotionspiral,customerswillbenefitandharmcompanies’profits.


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SummaryPrice is one of the key elements of the marketing mix. It is what produces revenue. The other elements of the •marketing mix produce costs.The price objective and subsequent decisions can be only made with adequate analysis of the market and keeping •the marketing strategy in mind.Customers and their perceived value for the product and your brand, competitors and your company with the •costs and pricing actions, and the stage of the product line cycle, etc. all impact the selection of what price to charge.Focus should be on how much customers are willing to pay. Product managers have to decide where the price •should be in the range between cost and the value that customers place on the product.The Internet will play an important role in the prices charged for a product or service. Auctions on the Internet •are gaining ground and product managers have more pricing options.Advertising is one of the elements of communication mix, the others being public relations, sales promotions, •direct marketing, and packaging and graphics. Developing effective communication is essential for the successful marketing of a good or service.•Advertising is any paid form of non-personal presentation and promotion of ideas, goods or services by an •identifiedsponsor.Advertisingincludesnotonlybusinessfirmsbutalsocharitable,non-profit,andgovernmentagencies that advertise to various publics.Developing an advertising programme consists of setting advertising objectives, establishing a budget, •choosing the advertising message, deciding on the media, and evaluating the communication and sales effects of advertising.Sales promotion consists of a diverse collection of incentive tools, mostly short term, designed to stimulate •quicker or greater purchase of particular products or ser vices by consumers or the trade. Sales promotion, trade promotion and business promotions are all parts of this drive.Public relations (PR) involve programmes designed to promote or protect a company’s image or its individual •products. The main tools of PR are publications, events, news, speeches, public-service activities and identity media.Direct marketing is an interactive marketing system that uses one or more media to affect a measurable response •or transaction at any location. Electronic marketing is a part of this and is showing explosive growth.Integrated marketing communications is the buzz term for companies to establish the right overall communications •budget and the right allocation of the funds to each communication tool.Direct marketers must plan campaigns by deciding on objectives, target markets and prospects, offer and prices, •followed by listing the campaign.

ReferencesCarter McNamara, • Advertising and Promotions [Online] Available at: < http://managementhelp.org/ad_prmot/ad_prmot.htm> [Accessed 4th March 2011].Daryn Edlema, 1999-2011. • What is Pricing Strategy?[Online] Available at: <http://www.ehow.com/about_5079100_pricing-strategy.html> [Accessed 4th March 2011].

Recommended ReadingApplegate E., Johnsen A., 2007. • Cases in Advertising and Marketing Management: Real Situations for Tomorrow’s Managers.UnitedKingdom,Rowman&Littlefield.p.217.Hackley C.E., 2005. • Advertsisng and Promotion. SAGE Publications India Pvt. Ltd, , New Delhi, p.264.Jennifer Sable, 2010. • How to Determine Pricing Startegy [Online] (Updated 10th December 2010) Available at: < http://www.ehow.com/how_7474651_determine-pricing-strategy.html> [Accessed 4th March 2011].

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Self Assessment

____________, one of the key elements of the marketing mix, is what produces the revenue.1. Pricea. Advertisingb. Marketc. Promotiond.

Which of the following statement is true?2. External reference prices are mental prices used to assess an observed price and have a strong effect on a. buying behaviour.Internal reference prices are mental prices used to assess an observed price and have a strong effect on b. product behaviour.Internal reference prices are mental prices used to assess an observed price and have a strong effect on c. market behaviour.Internal reference prices are mental prices used to assess an observed price and have a strong effect on d. buying behaviour.

Which of the following is used as an entry strategy for a new product and is useful to discourage competitive 3. entry?

Skimminga. Penetration pricingb. Competitive pricingc. Investment pricingd.

Which of the following statement is false?4. Skimming is opposite of penetration pricing and also called prestige pricing.a. Skimming is a good objective when costs are not related to volume.b. In skimming, price is set at the category average or matching a particular competition.c. Skimming returns more of the value to the producer rather than the customer.d.

____________ is any form of non-personal presentation and promotion of ideas, goods and services by an 5. identifiedsponsor.

Sales promotiona. Pricing strategyb. Advertisingc. Personal sellingd.

Which of the following provides high credibility, ability to catch buyers’ off-guard and dramatisation?6. Personal sellinga. Public relations & publicityb. Advertisingc. Pricing d.


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_______________consists of a collection of devices aimed at generating active customer response within a 7. short period of time.

Promotiona. Advertisingb. Marketing mixc. Personal sellingd.

Which of the following statement is false?8. The competitor’s prices act as a reference point.a. The completion and pricing is the third critical element in pricing decisions.b. Cost estimates also give some idea of the margins in the category.c. To understand price changes, it is useful to examine competitor’s price behaviour.d.

____________ is useful only when the product has a monopoly or near monopoly position.9. Penetration pricinga. Skimming b. Investment pricingc. Competitive pricingd.

______________ has qualities of personal confrontation, cultivation and response.10. Public relations and publicitya. Advertisingb. Sales promotionc. Personal sellingd.

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Chapter V

Financial Analysis and Services

Aim

The aim of the chapter is to:

explore the meaning of sales analysis•

understandthemarketingstrategiesforservicefirm•

illustratetheclassificationofcost•

Objectives

The objectives of the chapter are to:

examine the major trends in product support service•

determine how companies can improve their differentiation, quality, productivity and services•

enlist various methods of used to perform the proposal evaluation•

Learning outcome

At the end of this chapter the students are expected to:

discuss how services differ from goods•

explain the capital budgeting and the basics of evaluating different proposals for investment•

studythefinancialdimensionsoftheproductmanager’sjob•


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5.1 IntroductionProductmanagersneedtobewell-informedaboutthefinancialdimensionsoftheirjobsaswellasthemarketingpart, since theyareconsideredmini-CEOs inmanycompaniesandhavecomplete responsibility forprofitandloss for their products. Apart from being familiar with human resources, operations management and the internal andexternalmarketenvironment,theyshouldhaveadequateknowledgeofthefinancialaspectsoftheproduct’sperformanceandtheoverallfinancialimplicationsoftheirdecisions.

Financial decision-making is closely related to product strategy. We have seen that the ultimate objective of product managersisprofitability,whetherornottheshorttermobjectiveinthemarketingplanisorientedtowardshareorprofits.Theproductmanagermust,therefore,haveagoodunderstandingofhowprofitsarecomputedandhowsales/financialanalysesaremade.Profitabilityneedstobereportedinamarketingplanandanalysisoftherelativesales performances of different product variants can lead to a new marketing strategy or the pruning of a product line.Theseanalysesaredonebeforebudgetingorex-post,aftertheplanningperiodandatspecificintervalswithinthe planning period.

5.2 Sales AnalysisSalesandprofitsbythemselvesarelikethetipofaniceberg,withalarge,hiddenmassofrealproblems.Hence,•aproductmanagerhastolookdeepbelowtoseetherealinvisibleproblemsandfindsolutionsortakeruthlessdecisions.Salesanalysisisdefinedas,“thegathering,classifying,comparingandstudyingofcompanysalesdata.”All•companies gather data to measure the performance of their product but most companies do not study their sales records systematically.Firstly,howaresalesdefined?Theycanbedefinedintermsoforders,shipments,orcashreceipts.Thedefinition•can matter a great deal, particularly for manufactured products. Some companies book sales when the product is shipped before receiving payment for them.

Fig. 5.1 Components of sales analysis

Sales

Orders

Products

Customers

MarketsHistorical

Current

Predetermined

Average

Market Share

Areas

Organisational Units

Order Sizes

Methods of Sale

Terms of Sale

Types of Selling Strategies

Time Periods

Shipments Dollars

Units

Percentage of Total

Explana-tion of framework

Sales may bedefinedinthese terms

Measured in these units

Classifiedintothese categories

And compared or appraised according to these standards

Cash Receipts

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Secondly, in what units can sales be analysed? Sales can be measured in terms of currency, units, or percentage •of company sales among other measures. Currency is useful, particularly when the product can be purchased in a large number of sizes. However, increase in sales in currency terms hides price increases (units do not have that problem).Thirdly,inwhatcategoriesorclassificationscanthesalesdatabeplaced?Theycanbeproductsize,geographical•area, product types, customer types, markets or channels, order sizes and time periods. Order size is a particularly useful way to break down sales.Fourthly, what are the appropriate standards against which sales can be compared? Some of these standards are •historical results, current results from another category in the same time period, some predetermined standard such as an objective or quota averages across the company or some other business unit, and sales relative to market share.A good example of the value of sales analysis is Reebok’s experience in the late 1990s. The brand had fallen •from the success it had in the 1980s and an analysis of the sales by style found that out of the 1,200 existing styles, 1,000 of them generated only 0.003 percent of Reebok’s volume. An immediate action was to reduce the number of styles to the 600 generating most of the sales volume, which permitted a greater ability to focus marketing dollars where they counted.

5.3 Profitability AnalysisThereareseveralapproachestocomputingprofits.Oneapproachcalledthe‘full-costingapproach’takesinto•account all costs associated with the product or service. This is the most popular approach, provided that the company has only one product. Whenthecompanyhasseveralproducts,thedistributionoffixedcostsbecomesdifficultandisoftenarbitrary.•The strength of this approach is that it ensures that all the costs of the company are covered by the products.Asecondapproachisthe‘contributionorientedsystem’,inwhichthenotionofprofitabilityiscalled‘contribution•margin’. This is basically, the amount of money left over after accounting for variable costs that goes towards coveringfixedcosts.

5.3.1 Cost ClassificationThe two basic categories of cost are –

Operating expenses: � It includes direct labour, direct supervision, materials, and operations overhead.Non-operating expenses: � Itincludesadvertisingandpromotion,fieldsales,marketing,customerservice,administrative, and general expenses.

Variable costs are those that vary directly with total volume of sales or production.•Fixed costs do not vary in amount with the volume of sales or production.•Thesestatementsareoversimplified,asallcostsvaryatsomelevelofsales.Fixedcoststendtofollowastep•pattern. They can increase with a large jump in sales, but remain level at this new plateau. Much of the non-operatingcostsarefixed.Costclassificationstatementisshownbelow.


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Components

Category Total Cost (Rs.) Variable Fixed

Operating Expenses(Rs. 000)Direct labourDirect supervisionSocial SecurityMaterialsOperations Overhead

2,500 500 255 5 840

2,500 500 255 5 200 640

Subtotal 4,100 3,460 640

Non operating expenses(Rs.000)AdvertisingPromotionField SalesProduct managementMarketing managementMarketing researchCustomer serviceTestingGeneral and administrative

700 200 1,700 25 250 175 1,500 300 1,000

200

240

440

700 200 1,500 25 250 175 1,260 300 1,000

Subtotal 6,000 440 5,560

Total 10,100 3,900 6,200

Table 5.1 Cost classification

5.3.2 Using the Contribution Rate

Break-even:• Product managers need to know their ‘break-even’ in both units and in currency. This is the extent theyhavetoselltorecoverfixedcosts.Theformulaeare:

Break-even in units = Fixed costs/variable margin per unit �Break-even in Rupees = Fixed costs/variable margin rate �

Safety factor:• This is the amount over (or under) the break-even volume currently being sold.Safety factor = (Current sales volume – Break-even volume)/Current volume �

5.4 Framework for ControlAspecifickindofanalysis,called‘variance’analysisisusedforcontrolonly.Avarianceisadiscrepancybetween•aplannedfigureorobjectiveandtheactualoutcome.Likethesalesanalysispresentedearlier, themajorbenefitofvarianceanalysis is identificationofpotential•problem areas, not diagnosing the causes of the problems.The market size variance, price-quantity variance, market share variance are some of the factors that have to •beinvestigatedandtheproblemidentified.

5.5 Capital BudgetingProduct managers often have to weigh alternatives when making incremental changes in a product or deciding •whether or not to introduce a new variant.

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Product managers also have to consider marketing mix expenditures, such as advertising, promotion, sales •force and so on.The resources available have to be rationed among a set of risky projects and the product managers have to be •able to do this.Thebasicsofcapitalbudgetinginvolvesfivediscretestepswhichareasfollows:•

generate investment proposals �estimatecashflowsintheproposals �evaluatethecashflows �select projects based on an acceptance criterion �re-evaluate the projects after their acceptance �

Productmanagersmusthavesomeideaofinvestmentproposalsandgeneratingcashflows.Theydevelopsales•forecasts and get estimates of penetration rates over time, from market surveys and other research sources.They have to be quite skilled at evaluating the attractiveness of the different proposals, which could be new •products,refinements,oreveninvestmentsinadvertising.

Thefivemajormethodsusedtoperformthisevaluationareasfollows:

5.5.1 Average Rate of Return

Thisistheratiooftheaverageannualprofitsaftertaxestotheaverageinvestmentintheproject.Avariantof•thismethoddividestheaverageannualprofitsbytheoriginalinvestmentratherthanbytheaverage.Thismethodissimple,butitignoresthetimingoftheprofitssinceitvaluestheincomefromthelastyearas•muchasincomefromthefirstyear.

5.5.2 Payback

This method calculates the number of years it will take to recover the initial investment in the project. It is the •ratiooftheinitialinvestmentovertheannualcashflows(notprofitsasintheaveragerateofreturnmethod).IftheinitialinvestmentisRs.100,000andtheannualcashflowisRs.20,000;thepaybackperiodis5years.If•theannualcashflowsarenotequal,youcancalculatethepaybackperiodbysimplyaddingtheyearlyflows,up to the point where the initial investment is recovered. The calculated payback period is then compared to a threshold level; if it is less, it is accepted.

5.5.3 Internal Rate of Return (IRR)

Mostanalystsusesomekindofdiscountedcashflowanalysistoevaluateprojects.Thekeypointisthatan•equivalent amount of money in the future is not worth as much as it is today. Thismethodandthepresentvaluemethodstakeaccount,ofboth,thesizeandthetimingofthecashflows•returned by a project.Let ‘r’ be a rate of interest. Assuming the initial investment in the project occurs at time ‘o’ and ‘n’ is the last period •whencashflows(A)canbeexpected,theinternalrateofreturniscalculatedfromthefollowingformula:

A0 = A1 / (1+ r) + A2 / (1 + r)2 + … +…+An / (1 + r)n

Therefore,‘r’istheratethatdiscountsthefuturecashflowsfromtheprojecttoequaltheinitialinvestment.•As with other methods, ‘r’ must be compared to an internal hurdle rate or requirement set by management for a project to be accepted. Obviously, this rate should be higher than what is called the risk free rate; the rate the company could get by putting the money in the bank.

5.5.4 Present ValueThe net present value of a proposal is:

NPV = At / (1 + k)tWhere‘k’istherateofreturnthecompanyrequires.Thisisoftenreferredtoasthe‘discountrate’orthefirm’s‘opportunity cost of capital’. When ‘t =0’, ‘A’ is the initial investment and is thus a large negative number. The


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present value method states that if NPV is greater than ‘0’, the project should be accepted; i.e. you should accept the project if the present value of cash received from it is greater than the present value of cash spent.

5.5.5 Economic Value Added (EVA)

EVAisafinancialperformancemeasurebasedonoperatingincomeaftertaxes,theinvestmentinassetsrequired•to generate that income, and the cost of the investments in those assets (cost of capital).The EVA formula is:•EVA = After-tax operating income – (investment in assets x weighted average cost of capital)•EVA is thus a monetary amount. If the amount is positive, the company has earned more after-tax operating •income than the cost of the assets employed to generate that income. In other words, the company has created wealth. If EVA is negative, the company is consuming capital. If it is positive, the project is accepted.•

5.6 ServicesThere has been a phenomenal growth in recent years in the services sector. Service jobs account for over 60 •percent of all jobs and gross domestic product. Service industries are quite varied.Thegovernment sector (military services, police andfire departments,•hospitals,postoffices,railways,courts,employmentservices,schoolsandhighereducation,andsoon),theprivatenon-profitsector(charities,education,hospitals,libraries,museums,andsoon);businesssector(airlines,hotels,banks,insurance,lawfirms,managementconsulting,medicalpractice,accounting,repairs,andmaintenance,real estate, tourism, computer software, and so on). All these form part of the service industry.A ‘service’ is any act or performance that one party can offer to another; that is essentially intangible and does •not result in the ownership of anything. Its production may or may not be tied to a physical product.

5.6.1 Service Categories

Product offerings are distinguished in following ways:•Pure tangible goods such as soap, rice, toothpaste, without any accompanying services. �Tangible goods with accompanying services such as cars, computers, machines, and equipment with their �display rooms, delivery, repairs and maintenance, application aids, training, installation, warranty.Hybrid, consisting of equal parts of goods and services such as restaurants. �Major services with accompanying minor goods and services, e.g. airline passengers buy transportation �services, which include some tangibles like food and drinks, airline magazines.Pure services such as haircuts, beauticians, massage, psychotherapy, courier, banking. �

Services have four major characteristics that affect the design of marketing programmes: intangibility, •inseparability, variability and perishability.

Intangibility: � Services cannot be seen, felt, tasted, heard or smelled.Inseparability: � Services are typically produced and consumed simultaneously (whereas goods can be produced and stored, consumed or eaten).Variability: � Services are highly variable, as they can be provided by different people, at different places at different times.Perishability: � Servicescannotbestored.Whendemandfluctuates,servicefirmshaveproblems.

Marketing programmes have, therefore, to be designed taking into account these four characteristics.•

5.7 Marketing Strategies for Service FirmsThe well-known four P’s of the marketing mix are not adequate for services. Three additional P’s are needed •for service marketing: people, physical evidence, and process.

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‘People’ provide services, and hence the selection, training, and motivation play a vital role in giving customer •satisfaction. Employees should exhibit competence, caring attitude, responsiveness, initiative, problem-solving ability and goodwill.Companies demonstrate their service ability through ‘physical evidence’ and ‘presentation’. Hotels will develop •a look and style of dealing with customers and achieve their intended customer value proposition like cleanliness, speedorsomeotherbenefit.Service companies can choose among different processes to deliver their services, e.g. restaurants use different •processes like cafeteria style, buffet, fast food or candle light service.Service business is affected by several elements – the external environment which is seen by customers and •the internal environment, which is not visible to customers. Both of these have to be developed carefully to provide customer satisfaction. ‘External marketing’ is the normal work to prepare price, distribute and promote the service to customers.‘Internal marketing’ is the work to motivate and train employees to serve customers well. In short, it is getting •everyone in the organisation to practice marketing.Services are generally high in experience and credence qualities; hence there is more risk in purchase. The •consequences are that service consumers generally rely on word of mouth rather than advertising. They rely heavily on price, personal and physical cues to judge quality. They are highly loyal to service providers who satisfy them.

5.7.1 Differentiation in Services

Services can be differentiated. Price form the main element of differentiation. The alternatives to price •differentiation are: offering, delivery or image. The offering can include innovative features (i.e., apart from the primary service package, provide secondary •servicefeature)likeairlinesofferingmovies,music,freedrink,frequentflierawardandsoon.Hotelsofferrooms to business/high tech travellers with facilities like computers, fax machines and e-mail. Banks offer extra services like credit cards, mutual funds, auto and life insurance, payment of bills, car leasing plans and so on.Faster and better delivery systems can differentiate one service company from another. Reliability is a key factor •in on-time delivery, order completeness and order-cycle time. Resilience is another factor – handling emergencies, productrecallsandansweringinquiries.Innovationisthethirdfactor–findingwaystohelpcustomers.Image can differentiate the service companies by creating brands, like certain hospitals, banks or hotels.•

5.7.2 Managing Service Quality

Customers expect service from service companies and form opinions from past experience, word of mouth and •advertising.Customerexpectationshavetobecateredto.Researchershavefoundfivedeterminantsofservicequality.These are, in the order of importance:•

Reliability � – performance of promised service dependably and accurately.Responsiveness � – Willingness to help customers promptly.Assurance � –Knowledge,courtesyandabilitytoconveytrustandconfidence.Empathy � – Provision of caring, individualised attention to customers.Tangibles � – Appearance of physical facilities, equipment, personnel and communication materials.

Various studies have shown that well managed service companies have the following practices in common: •a strategic concept �a history of top management commitment to quality �high standards, self-service technologies �system for monitoring �an emphasis on employee satisfaction �


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All these practices are self-evident and need no explanation, except perhaps, Self-Service Technologies •(SSTS). These are services provided by machines and equipment like vending machines ATMs, self-pumping gas stations, •self-billing at super stores, self-ticket purchasing on the internet and so on. They make service transaction more accurate, convenient and faster.

5.7.3 Managing ProductivityService productivity can be improved in following ways:

service providers working more skilfully with better selection and training•increasing the quality of service by surrendering some quality, like doctors handling more patients and giving •lesstimetoeachpatient(withoutsacrificingeffectiveness)adopting a ‘manufacturing attitude’ towards producing services by adding equipment and standardizing procedures •(like McDonald’s Fast Food retailing)reducing or making obsolete the need for a service by inventing a product solution (like The Wash-and-Wear •shirt reduced the need for the commercial laundries)designing a more effective service•presenting customers with incentives to substitute their own labour for company for company labour (e.g. ATMs, •Petrol pumps, self-service restaurants)

5.8 Post-Sale Service StrategyThis is an important element of service and companies have different strategies. Some supply the parts and •services themselves, as they want to stay close to the equipment and know its problems.Some transfer the maintenance and repair service to authorised distributors and dealers as they are closer to the •customers and can offer quick service. Someleaveittoindependentservicefirms–theirpricesnormallytendtobelowerandtheirservicesfaster.•

5.9 Major Trends in Product Support ServiceThe following trends have been observed:

Equipmentsaremorereliablenowandmoreeasilyfixable,duetotheshiftfromelectromechanicaltoelectronic•equipment. They are modular and with more disposability to facilitate self-servicing.Customers are becoming more knowledgeable and more sophisticated about buying product support services. •They want separate prices for each service element and the right to select the elements they want, a sort of ‘services unbundling.’Third party service organisation now serves a greater range of equipment, so that customers have to deal with •only one service provider and not a multitude.Service contracts and (or extended warranties) may diminish their importance, as the products are becoming •more reliable for extended periods.Customerservicechoicesareincreasingrapidlyandthisisholdingdownpricesandprofitsonservice.Equipment•manufacturershavetoconstantlyfindoutdifferentmeanstomakemoneyandnotonlyonservice.Call centres and customer service representatives provide better service,more efficiently,mostly on the•telephone.Harnessing technology to give better service to customers and making service workers more productive (e.g., •computerisation of the banks accounts and access on the internet, patients records in hospitals with access to doctors on their miniature computers and such).

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5.10 Managing Product Support ServicesMany products need a service bundle, called Product Support Services. This is becoming a major battle-arena •forcompetitiveadvantage.Manycompaniesmakeover50percentoftheirprofitfromtheseservices.Thethreespecificworriesofcustomershavetobeaddressed:•

reliability and failure frequency �downtime duration - the larger the downtime, higher the cost, the seller’s service dependability is at stake �out-of-pocket costs of maintenance and repair – amount that the customer have to spend on regular �maintenance and repair costs

For expensive equipment, manufacturers offer facilitating services such as installation staff, training maintenance •andrepairservicesandfinancing.Theymayaddlongerproductwarranties,qualityaudits,trade-inallowancesand the like.


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SummaryFinanceandmarketinghavetoworkcloselytoachievethecommonobjectiveofmakingprofitsforthecompany.•Theproductmanagers,whoarethemainresponsibleforgeneratingamarket,salesandprofits,andinvestment,needtohaveagoodfoundationinfinance.For a product to have a value for customers and satisfy the customer needs, the offer has to be competitive. They •shouldhaveagoodunderstandingofhowprofitsarecomputedandhowsales/financialanalysesaremade.Sales analysis, which is the gathering, classifying, comparing, and studying of company sales data, is done to •lookdeepbelowthesurfaceandseetherealinvisibleproblemsandfindsolutionsortakeruthlessdecisions.Thereareseveralwaysofdefiningsales–intermsoforders,shipments,cashreceiptsandcanbeclassifiedor•categorised based on size, geographical area, product types, customer types, markets or channels, order sizes and time periods. And lastly, how are they to be compared.Profitabilityanalysiscanbedoneusingseveralmethods–thefullcostingapproach,thecontributionapproach.•Variablecosts,fixedcostsandtheireffectsonprofitshavetobecarefullyexamined.Capital budgeting is one more area where product managers need to be skilled and should take into account •strategicconsiderations.Thefivemajormethodsused toevaluate theeffectivenessofdifferent investmentproposals are average rate of return, payback, internal rate of return, present value and economic value added.A service is any act or performance that one party can offer to another that is generally intangible and does not •result in the ownership of anything. It may or may not be tied to a physical product.Services are intangible, inseparable, variable, and perishable. Each characteristic has challenges and requires •certainstrategies.Productmanagersmustfindwaystogivetangibilitytointangiblestoincreasetheproductivityof service providers to increase and standardise the quality of service to match the supply of service during peak and non-peak periods with market demand.

ReferencesFinancial Analysis,• [Online]Available at: < http://www.investopedia.com/terms/f/financial-analysis.asp>[Accessed 9th March 2011].Prof. R. Madhumati• , Capital Budgeting, [Online] Available at: <http://nptel.iitm.ac.in/courses/IIT-MADRAS/Management_Science_II/Pdf/2_4.pdf > [Accessed 9th March 2011].

Recommended ReadingCharles K. Fur, 2003• . What is Profit Analysis, [Online] (Updated 2011). Available at: <http://www.wisegeek.com/what-is-profit-analysis.htm>[Accessed9th March 2011].Profitability Analysis (COPA),• [Online], Available at: <http://help.sap.com/printdocu/core/print46c/en/data/pdf/COPA/COPA.pdf > [Accessed 9th March 2011].2002. • Capital Budgeting, [Online](Updated2010)Available at: <http://www.netmba.com/finance/capital/budgeting/> [Accessed 9th March 2011].

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Self Assessment

_____________isdefinedas“thegathering,classifying,comparingandstudyingofcompanysalesdata.”1. Sales analysisa. Profitabilityanalysisb. Forecastingc. Capital budgetingd.

Which of the following includes direct labour, direct supervision, materials, and operations overhead?2. Non-operating expenses a. Operating expensesb. Safety factorc. Break-even d.

Which of the following statements is true?3. Average rate of return is the amount over (or under) the break-even volume currently being sold.a. Payback is the amount over (or under) the break-even volume currently being sold.b. Safety factor is the amount over (or under) the capital currently being sold.c. Safety factor is the amount over (or under) the break-even volume currently being sold.d.

Whichmethodcalculatesthenumberofyearsafirmwilltaketorecovertheinitialinvestmentintheproject?4. Paybacka. Average rate of returnb. EVAc. Present valued.

_____ is a monetary amount.5. Paybacka. Average rate of returnb. EVAc. Present valued.

Match the following6.

1. Intangibility A. Services are typically produced and consumed simultaneously.

2. Inseparability B. Services are highly variable.

3.Variability C. Services cannot be stored.

4. Perishability D. Services cannot be seen, felt, tasted, heard or smelled.

1-A, 2-C, 3-B, 4-Da. 1-C, 2-D, 3-A, 4-Bb. 1-D, 2-A, 3-B, 4-Cc. 1-B, 2-D, 3-C, 4-Ad.


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__________ is the work to motivate and train employees to serve customers well.7. Servicea. Internal marketingb. Trainingc. Etiquettesd.

Product managers need to know their ‘_____________’ in both units and in currency.8. break-evena. capitalb. variancec. serviced.

Which is the amount over (or under) the break-even volume currently being sold?9. Operating expensesa. Capital budgetingb. Safety factorc. Break-even d.

If EVA is ________, the company is consuming capital. If it is_________, the project is accepted.10. positive, negativea. positive, neutral b. neutral, negative c. negative, positived.

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Chapter VI

Brand Management

Aim


explore the laws of branding•

determinetheroleandsignificanceofbranding•

study the branding challenges•

Objectives


brieflyviewthemeaningofbrand•

understand the brand-asset management•

examinesignificanceofbrandsfromconsumers’pointofview•

Learning outcome


identify brand building tools•

state the ranking of brands in India•

discussfivechallengesinbrandmanageme• nt


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6.1 IntroductionBrand management is so important that it will be treated as a separate, special discipline. However, the product manager must have some basic knowledge of brands and brand management (a product manager is also called a brand manager) and hence is included here. Managing a product’s reputation is one of the most important strategic tasks facing the product manager. A brand name is an asset, and a valuable one at that.

Brandsremainpowerfulandprofitable.Brandnamescombatlowerpricedcompetitors.ThebigbrandsinIndiaareColgate, Amul, Lux, Lifeboy, Zee TV, Rin, Dettol, Coca-Cola, Pepsi, ITC, Britannia and many others like Sony, Toyota, Honda, etc. Brand is a major issue in product strategy.

6.2 BrandTheAmericanMarketingAssociationdefinesBrandas:Aname,term,sign,symbol,ordesign,oracombination•of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. Thebrandidentifiesthesellerormaker,andisexclusive,ininfinity.Itisalong-termasset.Companiesneedto•research the position their brand occupies in the customers’ minds.A brand can convey up to six levels of meaning:•Attributes:• Every brand brings to the consumer mind certain attributes and characteristics. For example, Akai and Aiwa suggest low priced white goods. Honda vehicles suggest style, comfort and well-engineered product. Mercedes brings to mind expensive, well built, well engineered, durable, high prestige automobiles.Benefits:• Theattributesmustbetranslatedintofunctionalandemotionalbenefits.Forexample,‘fuelefficient’attributemustbetranslatedinto‘savings’benefit.Emotionalbenefitlike‘prestige’mustbetranslatedthroughlifestylepositioning.Theattribute‘durable’couldtranslateintothefunctionalbenefitandtheattribute‘expensive’translatesintotheemotionalbenefit(status)Values:• Sometimes brand conveys to consumers values in terms of social welfare. For example, TISCO’s mission statementis‘ourfirstobjectiveissocialwelfareandsecondtomanufacturesteel’.HeroHonda’spunchlineis,‘We care’. Mercedes stands for high performance, safety and prestigeCulture:• A brand may represent certain culture. For example, Sony Music and Sony exhibit a high quality Japanese company. Siemens represent highly technical electrical engineering and electronics products of German design, like mobile handsets, transformers, electric motors, etc. Mercedes represents German culture; organised,efficient,highquality.Personality:• A brand can project a certain personality. For example, scooters manufactured by Bajaj Auto represent middle class personality. Mercedes may suggest a no-nonsense boss (person), a reigning lion (animal) or an austere palace (object).User:• This suggests the kind of consumer who buys or uses the product. A top executive behind the wheel of a Mercedes and not a young secretary.

6.3 Brand EquityBrands vary in the amount of power and value they have in the marketplace. Customers will pay more for a •strong brand. Clearly, brand equity is an asset and results in customers showing a preference for one product over another when these are basically identical. The extent to which they are willing to pay more for the particular brand is a measure of brand equity.Brandequityisdifferentfrombrandvaluation,whichisthetotalfinancialvalueofthebrand.In2001,theworld’s•most valuable brands were: Coca-Cola, Microsoft, IBM, General Electric, Nokia, Intel, Disney, Ford, McDonalds and AT&T. Coca-Cola brand value was $69 billion, Microsoft was $65 billion and IBM $53 billion.Itisdifficulttovalueabrandprecisely.InIndia,in2000,theDaburbrandwasvaluedatRs.5,000crorestaking•into account market capitalisation, sales and goodwill. The Infosys brand was valued at Rs.1,727 crores. Lakme was sold to HLL for Rs.110 crores.

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According to Lehman and Weiner, “brand equity is described in terms of awareness association (image), attitude •(overall quality), attachment (loyalty) and activity (word of mouth).”David Aaker developed his version of brand equity and is shown below.•

Fig. 6.1 Brand equity

Itincludesfivecategorieswhichareasfollows:•Brand loyalty:• customers go repeatedly for the product and are attached to the product. This insulates a brand fromcompetitivepressures,suchasadvertisingandpricepromotionandleadstohigherprofits.Brand awareness:• the simplest form of brand equity is familiarity. Customers prefer brands with which they are familiar.Perceived quality:• a known brand conveys an aura of quality.Brand associations:• anything linked to the memory of a brand. They include subjective and emotional associations.Other brand assets:• such as patents, trademarks are clearly valuable.Brandequitycreatesvalueforboth,customersandthefirm.•

Brand equity

Brand loyalty

Reduced marketing costs

Trade leverage

Attracting new customers● Createawareness● Reassurance

Time to respond to competitive threats

Provides value to customer by enhancing customer’s

● Interpretationprocessing of information

● Confidencein the purchase decision

● Usesatisfaction

Provides value tofirmby enhancing:

● Efficiencyandeffectiveness of marketing programs

● Brandloyalty

● Price/margins

● Brand extensions

● Tradeleverages

● Competitiveadvantage

Anchor to which other associates can be attached

Familiarity – liking

Signal of substance/ commitment

Brand to be considered

Reason-to-buy

Differentiate/position

Price

Channel member interest

Extension

Help process/ retrieve information

Reason-to-buy

Create positive attitude/feelings

Extension

Competitive Advantage

Brand awareness

Perceived quality

Brand associations

Other proprietary brand assets


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High brand equity provides a number of competitive advantages, such as:•The company will have more trade leverage in bargaining with distributors and retailers because customers •expect them to carry the brand.The company can charge a higher price than its competitors because the brand has higher perceived quality.•The company can more easily launch extensions because the brand name carries high credibility.•The brand offers the company some defence against price competition.•

6.4 Branding ChallengesA vendor has to face several branding challenges:

Branding decision:• It includes decisions related to brand or not to brand. Branding is a very strong force today and everything is branded, including commodities like salt, rice, fruits, nuts and bolts. Even bricks are branded. We have already seen the advantages of branding.Brand-sponsor decision:• It includes manufacturer brand, distributor (private) brand, licensed (brand).Brand-name decision:• It includes individual names, blanket family name, separate family names, company – individual names.Brand-strategy decision:• line extensions, brand extensions, multi-brands, new brands, co-brandsBrand-repositioning decision:• repositioning, no repositioning

6.5 Brand-SponsorA brand may be launched as a manufacturer’s brand (a National brand), a distributor brand (a private brand), •or a licensed brand name. Manufacturers’ brands dominate, but large retailers and distributors have been developing their own brands. Retailers such as Benetton, GAP, and Marks and Spencer carry mostly own brand merchandise. Private brands offer two advantages, which are as follows:•Theyaremoreprofitable.•They develop exclusive store brands to differentiate themselves from competition.•Manufacturers of national brands have to deal with the growing power of retailer brands. Consumers are also •changing their attitudes and have a set of acceptable brands, rather than one brand. They are also price sensitive. The quality levels of all brands tend to be equivalent.Brand names – Four strategies are available, which are listed below:•Individual names:• Products have different brand names and failure of one product will not tarnish the reputation of the company.Blanket family names:• Same name is adopted, like General Electric, Heinz, Campbell. Development costs are less and sales of the new product will be strong if the manufacturer’s name is good.Separate family names for all products:• Sears has Kenmore for appliances, Craftsmen for tools and Homart for home installations. Companies often invent different family names for different quality lines within the same product class.Corporate name combined with individual family product names:• Followed by Kellogg’s, GE, Honda and Hewlett Packard. Their company name legitimises and the individual name individualises the new product (e.g. Kellogg’sRiceCrispies,Kellogg’sCornflakes).Selection of brand names has to be done carefully:• Suggestbenefits,productorservicecategory,highimageryqualities, easy to spell, pronounce, recognise and remember, distinctive and should not carry poor meanings in other countries and languages.

6.6 Brand Building ToolsWhentelevisionsfirstappeared,audio-visualadvertisingwasthemosteffectivebrand-buildingtool.Notanymore,though in poorer countries, televisions are still at the top. The other tools are:

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public relations and press releases•sponsorships•clubs and consumer communities•factory visits•trade shows•event marketing•public facilities•social cause marketing•high value for money•founders or a celebrity personality•mobile phone marketing•

6.7 Brand Strategy DecisionThis depends on whether the brand is a functional brand (like detergent soap, superior economy relying heavily •on ‘product’ and ‘price’ features), an image brand (like Armani suits, Cartier watches or Mont Blanc pens) associating them with celebrity users, or an experiential brand (where consumers not only acquire the product, but experience it, as in coffee shops, book stores, Disneyland, or a winery).Acompanycanintroducelineextensions(existingbrandnameextendedtonewsizesorflavours,intheexisting•product category), brand extensions (brand names extended to new product categories), multi-brands (new brand names introduced in the same product category), new brands (new brand name for a new category product) and co-branding (combining two or more well-known brand names).

6.8 Brand Asset ManagementPrint and media have played a large role in building strong brands. Other forces are now in play. Customers •come to know of a brand through personal observation and use, word of mouth, meeting company personnel, telephone experience, accessing websites. These experiences can be positive or negative.Companies have to put in as much quality in these experiences as it does in producing its ads. Company personnel •must be well trained to handle customers, starting with telephone operators, sales staff, order takers, accountants and so on. Likewise, companies’ distributors and dealers have to be trained to serve their customers well. Brands have to be managed as assets and need long term strategy and inclusive team work.Brand managers with short term objectives are inadequate. Companies are establishing brand asset management •teams to manage their major brands, including handling unexpected negative publicity, as happened in the case of Coca-Cola in India in 2005 (pesticides found in the product).Companies who specialise in brand-asset management have been in operation and focus on brand management •and nothing else.

6.9 Packaging and LabellingPackaging

ManymarketershavecalledpackagingthefifthPofthemarketingmix.Mostmarketers,however,treatpackaging•and labelling as an element of product strategy.Packaging has to be designed and tested. Further, attention has to be given to increasing environmental and •safety concerns about packaging, which can create major problems in solid waste disposal. Packaging also adds to the cost of the product and in some cases may cost more than the product itself, like toothpaste.

LabellingSellers have to label their products. Labels identify the product, grade them and sometimes describe the •product. Attractive labels promote the product. Labels eventually become outmoded and need freshening up. •


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Laws now require labels to indicate date of manufacture, expiry date, unit pricing, grade labelling, and •composition, apart from weight, and volume. Misleading and deceptive labels constitute unfair competition.

6.10 Laws of BrandingTen Commandments of branding are as follows:

Brands are not about you. Brands are about them.1. If the branding is wrong, so is everything else.2. Advertising grabs their minds, branding gets their hearts.3. Build the brand from your strengths.4. If you cannot articulate it, neither can anyone else.5. The success of brand varies directly with the ability to accept the mantle of leadership.6. The stronger your brand, the less susceptible you are to pricing issues and competition.7. The brand begins in the business plans.8. Advertising is not branding.9. There is no such thing as co-branding.10.

6.11 Myths about BrandingBranding is advertising and advertising is branding.•Branding is loyalty.•Branding changes consumer behaviour.•Because a company focuses on price, it is not branding.•Because a brand fails, branding is bad or dead.•Thewebmakesbrandingmoredifficult.•Ascustomerscanbroadcasttheirexperiences,web-basedbrandingismoredifficult.•

6.12 Role and Significance of BrandingDescribedbelowisthesignificanceofbrandsaccordingtocustomersandmarketers.

6.12.1 Significance of Brands from Consumers’ Point of ViewBrands provide a tool of self expression

Brands provide opportunities for consumers to express themselves in different ways. Brands help consumers •to express their psychological needs like personality, social status, aspiration, etc. Brands exist in consumers’ minds and sometimes speak more than words do. For example, owners of ‘Honda-•Activa’ express pride in owning a technically advanced vehicle.

Brands offer choiceSincemarket segmentationhas become the buzzwordof the twenty-first century,marketers are providing•different choices to different consumer segments. Brands provide choices to consumers, allowing them to distinguish between the various company product •offerings. For example, HLL offers Lifebuoy for the low income segment, Breeze and Lux for medium income and Dove •and Pears for luxury class.

Brands simplify the decision making processSuppose a consumer enters a home appliances shop, he is offered goods in varieties ranging from cheap to high •priced. In case the consumer has not thought over what he/she wants to buy, he/she might get confused. In such cases, •ifheknowsanybrand,thedecisionmakingissimplified.

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Brands assure minimum qualityTo the extent possible, consumers try to buy products/services which have certain quality. •Since a brand is regularly advertised, consumers perceive a minimum quality from the product/service. For •example, inspite of low priced models offered by Akai and Aiwa for music systems, Philips today also maintains a reasonable market share.

Less riskBuying a commodity at low price without knowing about the promoters is like jumping in the dark. As such, •consumers may not like to buy a product if they have doubts about the performance of a product.A positive experience of a brand provides consumers reassurance and comfort in purchasing a brand, even •though it is expensive. Trust or faith is one of the major factors why consumers buy certain products following certain technology.For example, GSM technology is much advanced than CDMA technology, but the way RIM branded telecom •services presents the product, the perception is CDMA is the latest technology.

Brand emotional dimensionFor industrial products, rational appeal (promotion based on merits of the product) is always helpful, but in •case of consumer goods, if the marketer wants to stand out, he must try to build the brand around emotional dimensions like pride, love, threat, humour, affection, etc. For example P&G’s Vicks talks about ‘mother’s touch’ rather than ‘pain-balm’, soft drink giants like Coca-Cola •and Pepsi also have used emotional dimensions in their product offerings.Brands add an emotional component to the customer relationship and become friends with the consumer.•

6.12.2 Significance of Brands from the Marketer’s Point of View

A Brand can be built for anythingIt is possible to brand a service, a product, a company, as well as a country and a person. Since the brand building •steps remain unchanged irrespective of the object, anything can be branded. For example, Sanjeev Kapoor and Shiv Khera are brands in themselves in the form of personalities, US as a •country is a famous brand for computer technology. The only difference is the time span. The time required in branding a person or a country is much more as compared to the time required for branding a product, service or a company.

Brand building steps remain the sameBrands can be created by using many models. The popular models are ‘master brand’ and ‘brand personality’.•A brand can be generated by developing distinctive identity in the form of brand personality and then it could •bepositionedacross targetconsumers.Alternatively, themasterbrandcouldbedevelopedfirst likeKnorr,Annapurna, Saffola, etc. and brand extensions could be addressed to different segments. Thus, the same model could be used for branding a product as well as service. In any case, whatever promises a brand offer, if it cannot maintain them, it would lose credibility.For example, RIM promised a handset at Rs.500/- during the Diwali festival of 2003 and it maintained the •samewhichreflectedinsaleofthreelakhshandsetsinoneweek’stime.Whereas,Wipro’sNetKrackercouldnot maintain the promise of offering net services at Rs.10/- and lost to Satyam.

Since a brand is created around differentiation, the marketer can avoid the commodity trap The branding process revolves around differentiation, due to which the marketer is able to create a unique image •and hence can command price premium. Consumers never pay price premiums for a commodity. For example, most food- grains are sold on commodity basis, only Satnam Overseas could develop the ‘Kohinoor’ •brand for Basmati rice. Most MNC’s try to create a brand in the shortest possible time span. To brand the tyres,


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the Indian Company MRF took more than 10 years whereas MNC Bridgestone could generate the brand within 3-4 years.

Appropriate market positioning is the key success factorUnderstanding the core of the brand and accordingly designing an appropriate market positioning strategy will •determine the success of a brand. Forexample,R&Cpositioned‘Dettolliquid’onthe‘antiseptic’attributeandforthelastfivedecadesitsounds•well. In between, it extended the brand from ‘liquid’ to ‘just 100% bath soap’ without talking about antiseptic properties. The result - it failed. When the soap was re-positioned as antiseptic bath soap, it started moving to consumers. Since market positioning is the set of strategies used to manage the perceptions of target customers, it is the major part of the branding process.However, very few marketers understand the true positioning strategy. For example, BPL, Philips, Onida never •identifiedhealthwithhomeapplianceslikewashingmachines,refrigerators,airconditioners,microwaveovens,etc. LG electronics successfully linked health with fabric care for washing machine, healthy air for AC, healthy food for microwave oven, etc. This strategy was so successful that within ten years LG could create a market worth Rs.9, 000 crores, for which Videocon has taken 25 years.

Brand consumption experience The brand consumption experience should be good throughout the brand life. This consistency of experience •will be crucial in building the brand. Brands which last forever are designed and maintained by experienced brandmanagersandhencecustomerscanexpectthesamebenefitsyearafteryear.For example, in audio systems, Philips is still the most preferred brand due to the brand consumption experience •by customers.

Brand and profitabilityBycreatingsuccessfulbrands,acorporatecanchangeitsfortune.Alossmakingfirmcanturnouttobeprofitable•ifthebrandclicksinthemarketplace.Forexampletill2002,MangaloreRefineryPvt.Ltd.(MRPL)wasinbiglosses because it used to sell commodities. During 2003, when it branded the oil products, it entered into black and white from red. Intel Corporation, a •microchips manufacturer from US, was a loss making company till the mid 1980’s.Itsuccessfullydevelopedthebrandaround;‘IntelInside’i.e.‘Reliability’anditbecametheprofitablecompany•of the 1990’s. Tata power is a thirty year old brand maintained around, uninterrupted power supply. Reliance is also building the ‘Reliance Energy’ image on the same attributes to break even fast.

Brand and InternetInternet or E-Commerce is a powerful media to develop and build brands. Due to the ‘reach’ capacity of the •internet, the time required to build a brand can be squeezed. Moreover it is possible for the customer to have a brand experience on internet screen. Since on the internet, the marketer can present his brand in an impressive manner, the customer can be motivated •quickly.

Modes of market segmentation are changingTill 2000 AD, marketers used to segment the market traditionally around demographics i.e., age, sex, income, •etc.Due to the emergence of e-commerce, new ways of segmentation like value segmenting, time segmenting and •lifestyle segmenting are becoming pre-requisites for brand success.

Brand and mass customisationMarket segmentation means regrouping a bunch of consumers from a big market into a small, approachable •

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group, who will respond similarly to a marketing mix programme. There could be many market segments and the marketer may not have enough resources to tap each segment.Hence mass customisation, even though highly intended by marketers, was impracticable. Now software •technology can equip marketing strategy with technological revolution to customise the product/service offerings. Thus, to treat every individual customer differently was a dream till 2000 AD, which is coming to reality in the twenty-firstcentury.By outsourcing the software from professionals, the marketer can limit cost and can reach every possible •segment.

Size of the marketer is less importantEarlier it was thought that, to become a global brand, physical manufacturing assets at many locations and mass •distributionareessential.Inthetwenty-firstcenturythisisnotrequired.Smallercompaniescandevelopglobalbrands by using the BPO and internet intelligently.Anewcategoryoffirmsaretakingbirth,‘SmallOffice,HomeOffice’(SOHO).Onthenet,acompanycancreate•really good looks without having a physical presence. Branding has the power to generate that image.

Brand loyalty is difficult to maintainCustomerloyaltyissignificantfromthesalesturnoverpointofview.TheanswercouldbeCRM.However,•today the consumer is choosier, more demanding and more intelligent. He is likely to switch to the next brand if it offers better value.ExactlythatiswhyHLLexperienceddeclineinitssalesandprofitabilityduringthelasttwoyears.Hencethe•marketer needs to adopt the marketing mix strategy very frequently to survive. Those, who fail to do so, may die without any noise.

Financial power of brandsThevalueofthebrandandtheactualinvestmentdonebythemarketerdoesnotmatch.Thosebrandsarefinancially•powerful brands that have brand value two to three times the total investment. For example, during 1993, when Parle sold its soft drink brands to Coca-Cola at Rs.180 crores, its total investment was only Rs.55 crores. Thus,abrandcancreatesustainablecompetitiveadvantage(SCA)intheformoffinancialassettoequitybase•and ratio of sales to equity in the range of 5 to 20. For example Colgate, Lakme and Ponds have used the same strategytoenhancethefinancialpowerofthebrand.

6.13 Brand RankingIndia’s Top 20 Brands

Brand Rank by trust Rank by sizeColgate 1 10Dettol 2 58Pond’s 3 28

Lux 4 13Pepsodent 5 34Tata Salt 6 21Britannia 7 6

Rin 8 19Surf 9 29

Close-up 10 42Lifebuoy 11 14

Fair & Lovely 12 18


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Vicks 13 62Titan 14 NARasna 15 NAPhilips 16 36Bata 17 NAPepsi 18 2

Clinic Plus 19 33Horlicks 20 20

Table 6.1 India’s top 20 brands

6.14 Brand ChallengesMarketersnormallyfacethefollowingfivechallengesinbrandmanagement.

1 2 3 4 5

Branding Decisions

Brand-Sponsor Decisions

Brand-name Deci-sions

Brand Strategy Decisions

Brand Repositioning Decisions

To brand or not to brand

Manufactur-er’s brand Private or Distributor’s brandLicensed

brand

Individual product names Blanket family names Separated family names Company/indi-vidual names

Line Extension Brand extension New brands Co-brandsMulti-brands

Re-positioningNo re-positioning

Table 6.2 brand challenges

6.14.1 Brand or No BrandBrand as a marketing concept has become so common that we cannot think of buying a product which is not branded. Now a days low priced food products and other products are also branded like, ‘Friendly wash’, ‘Dandi Namak’, Livon’,etc.Brandingoffersthefollowingbenefitstomarketers.

To manufacturers: Distinctiveness, legal protection, systematic promotion, expands market reach, brand loyalty, •market segmentation.To distributors: Goodwill, quality-perceptions, higher turnover, ease of sale.•To consumers: Identity of marketer, easy to shop, consistent quality, psychological satisfaction, uniform price, •status.

6.14.2 Brand Sponsor Decision

Manufacturer’s brand: The manufacturer uses his corporate name as brand name throughout the value chain. •For example Godrej, Tata, Whirlpool, LG, Sony, etc.Private or distributor’s brand: The trend of branding the product / services by distributor is recent (especially •after 1995). The distributor, who distributes other manufacturers’ brands also creates his own brands and distributes these through his network. Since the respective distributor is popular in that city or part of the city, the product so branded by the distributor becomes acceptable to the masses. There are two ways of creating distributor brands.

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Distributor does not manufacture, only sells the brandIn this case, the distributor becomes the brand-personality because of his behaviour and skill. Whatever he says •to the customer becomes the decision for them and they blindly follow the distributor.For example, Chitale Milk receive milk from Bhilawadi. At Pune, M/s. B.G. Chitale pack the milk and distribute •to 1.70 lakh households. Due to quality maintenance and timely delivery, Chitale is the most successful brand of Pune. Similarly, many sweets are not manufactured by ‘Chitale Sweets’, but whatever they sell, becomes popular. Another example is Dass Electricals. Mr. Dass started his career in 1969 as a repair mechanic. Due to his skill and honesty he became the brand. Today he has 8 showrooms in Pune.Mr. Dass, who has not even passed SSC, earns more than Rs.25 crores commission by distributing brands like •Philips, LG, Whirlpool, Sony, Samsung, etc. One more brand personality as distributor is Dorabji. Their outlet sells all groceries as well as furniture etc. Dorabji’s third generation is now running the business and the faith gained by the shop is surprising.Distributors manufacture their own brands and sell these along with other manufacturers’ brands (This is also •called private brands)

Licensed brandThe manufacturer obtains the rights of using reputed companies brands for goods manufactured by him on •royalty payment basis. Thisstrategyisusedwhenthemanufacturerisnotconfidentaboutcreatingasuccessfulbrandonhisownorhe•does not want to take a risk with his career. Following are some examples of licensed brands.

Sr.No. Name of the Distributor Goods distributed Private Brands1 Shopper’s Stop Garments, Jewellery Ready-mades2 India Woolens Fabric Ready-mades3 Jaihind Collection Fabric Ready-mades4 Chitale Milk Milk Milk Products

5 Everest DistributorBooks on Computer, Engineering, Entrance Test, Management

Engineering and Management books

6 ICFAI Management Education Management books and Magazines

Licensor License Product Brand NamePiaggio, S.P.A, Italy Bajaj Auto Scooters Vespa Arrow Arvind Mills Shirts ArrowLee Arvind Mills Jeans LeeKawasaki BajaKawasaki Bajaj Auto Motorcycles

Table 6.3 Licensed brands

6.14.3 Brand Name DecisionsThe characteristics of a good brand name are as follows:

Itshouldsuggesttheproduct’sbenefitslikeBurnol,Drainex,NetKracker,Fair&Lovely,etc.•It should convey product quality like Robin Blue.•The name must be catchy and easy to pronounce like Rin, B4U•It should not have poor meaning in some other languages. For example the meaning of ‘Nova’ (a Kinetic scooter) •in Spanish language is ‘does not go’.


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6.14.4 Brand Name StrategiesIndividual product names

The marketer prefers to promote products by individual product names. For example, HLL’s strategy is to brand •individually like Lux, Lifebuoy, Surf, and Vim. In a similar way, Arvind Mills adopt individual product names like Lee, Arrow, Excalibur, Ruff & Tuff, etc.Themainadvantageisanyoneproductfailuredoesnotreflectintothecompany’sbrandequity.Forexamplethe•flopproductsofHLLareSurfliquid,Lifebuoy-liquid,HimaPeas,LuxShampoo,etc.Howevertheseproductshardly affected the image of the company.

Blanket family namesThemarketerpromotesallproductsbyfixingthe‘companyname’beforetheproductgenericclass.Forexample,•BPL Microwave oven, Videocon TV, and Whirlpool Washing Machine. The main advantage is low promotional expenditure in the initial stage. Moreover customer satisfaction in the •product leads to buying other products of the same marketer.

Separate family namesThe marketer prefers segment wise branding. Following are classic examples.•

Reliance Industries Ltd. Raymonds

Brand name Products Brand name ProductsVimal TextilesLegacyHarmony

Sarees, Shirting, suiting and dress material, Readymade curtains

ParxPark Avenue

Medium price suiting and shirting as well

Table 6.4 Example of segment wise branding

Company/individual namesThe marketer uses company’s trade name before or with individual product name. Companies use this policy •to legitimise their own name and to individualise the product. For example, Kellogg’s Wheat Flakes, Kellogg’s Corn Flakes, Kellogg’s Chocos, etc.•

6.14.5 Brand Strategy DecisionsLine extensions

These are additional items in the same product category under the same name. Colgate’s line extension was •Colgate Regular, Colgate Floriguard, and Colgate Gel (blue and red). The line extensions are the outcomes of the pressure from consumers to provide variety.•

Brand extensionsUsing the same brand name before a newly launched variety with a different USP is called brand extension. It •can be done in two ways as follows:Related Brand Extension – Lifebuoy to Lifebuoy Plus and Lifebuoy Gold.•Unrelated Brand Extension –Tata Steel, Tata Timken, Tata Motors and Cinthol to Cinthol Talc, Cinthol Deodorant. •Brand extensions are the decisions of marketers to encash brand equity.

Multi-BrandsThese are the additional brands in the same product category. Multi brands are introduced to ensure more •distribution shelf space.

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For example in the Soft Drink market, Parle had four soft drinks for four segments like Thumps Up, Mazza, •Limca and Gold Spot.

Co-brands or cross promotion or dual brandingTwo brands work better as one. This statement seems to have paid off for cobranded credit cards. Out of 2.2 •mm credit cards sold, 23% were co-branded. In case of co-branded cards, typically, card companies tie up with a partner to offer unique value to their customers. The partners could be oil companies, telephone companies, air travel, media, departmental stores and •entertainment. For example, there is ICICI Bank – BPL Mobile credit card that gives free one-year mobile insurance against loss, theft or damage.It also gives free voicemail roaming facility at no additional deposit. Jet Airways – Citibank Gold card gives free •membershiptothefrequentfliers’club.During2003Petroandairlinecardshavebecomepopular,accountingfor a major share of the co-branded card market. It was observed that consumer spending was higher (up-to 30%) on these cards than plain vanilla credit cards •of the same company. When somebody compares plain credit cards and co-branded credit cards, co-branded cardholdersarelesslikelytobeenticedbyshort-termbenefitsfromotherissues.Also, customers are more likely to spend more and pay full fees. Typically co-brand reward programmes are •much more powerful than regular card reward programmes. Besides, customers get exclusive discounts and services from a number of merchants.

It involves two or more well known brands to combine in an offer as follows:Videocon Washing Machine with Surf �Vimal textiles with Ariel Detergent �Maruti cars with MRF tyres �BPL Microwave ovens with Borosil glass containers �

6.14.6 Brand Repositioning or No RepositioningCompanies need to periodically audit their brands’ strengths and weaknesses, and re-position the brands when required, to cater to changing customer preferences or new competitors. When a marketer launches a brand, spends a few crores of rupees on brand management and after some time brand sale declines. What should the marketer do in this situation? Answers are, either opt for re-positioning or allow the brand to die. Following are some of the examples of brand repositioning.

Company Brand Earlier Positioning Re-positioning

HLL Organic Shampoo Root nourishing shampoo

Improved shampoo by adding gluosil to reduce hair breakage by 50%

Cadbury’s Dairy Milk Chocolates For children All aged customersPioma Ind. Rasna For children Parents with kidsP&G Vicks For headache For coldsParas Moov Waist ache Back and waist ache

HLL Close-up Youngcouples Individual youth

Table 6.5 Brand re-positioning


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SummaryBrand management is so important that it will be treated as a special discipline separately. However, the product •manager must have some basic knowledge of Brands and Brand management (a product manager is also called a brand manager) and hence is included here. Managing a product’s reputation is one of the most important strategic tasks facing the product manager. A brand name is an asset, and a valuable one at that. Brand is a name, term, sign, symbol or design or combination of them, intended to identify the goods or services •ofonemarketerfromthoseofcompetitors.Brandsprovidebenefitstoconsumersandmarketers.Majordecisionsinvolved in brand management are branding decisions, brand sponsor decisions, brand name decisions, brand strategy decisions and brand repositioning decisions.Brands vary in the amount of power and value they have in the marketplace. Customers will pay more for a •strong brand. Clearly, brand equity is an asset and results in customers showing a preference for one product over another when these are basically identical. The extent to which they are willing to pay more for the particular brand is a measure of brand equity.Privatebrandsaremoreprofitableandtheydevelopexclusivestorebrandstodifferentiatethemselvesfrom•competition.Companies need to periodically audit their brands’ strengths and weaknesses, and re-position the brands when •required, to cater to changing customer preferences or new competitors.Packaging has to be designed and tested. Further, attention has to be given to increasing environmental and •safety concerns about packaging, which can create major problems in solid waste disposal. Packaging also adds to the cost of the product and in some cases may cost more than the product itself, like toothpaste.Market segmentation means regrouping a bunch of consumers from a big market into a small, approachable •group, who will respond similarly to a marketing mix programme. There could be many market segments and the marketer may not have enough resources to tap each segment.Brand as a marketing concept has become so common that we cannot think of buying a product which is not •branded. Now a days low priced food products and other products are also branded like, ‘Friendly wash’, ‘Dandi Namak’,Livon’,etc.Brandingoffersthefollowingbenefitstomarketers.

ReferencesBlackett T., 2004. • Brands and Branding. Interbrand, pp.1 10.Verma H.V., 2006. • Brand Management: Text and Cases. 2nd edition, Excel books, Anurag Jain. pp. 43– 81.

Recommended ReadingHaseeb Murtaza, • Brand Management [Online] Available at: <http://www.scribd.com/doc/3979762/Brand-Management> [Accessed 9th March 2011].Kotler. P., Pfoertsch W., Michi I., 2006. • B2B Brand Management. Springer Berlin. Germany, Springer. p.357.Understanding Brand- What is a Brand? • 2008.[Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/what-is-brand.htm> [Accessed 9th March 2011].

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Self Assessment

The__________identifiesthesellerormaker,andisexclusive,ininfinity.1. producta. brandb. managerc. marketd.

Which of the following includes decisions related to brand or not to brand?2. Branding decisiona. Brand-repositioning decisionb. Brand-name decisionc. Brand-strategy decisiond.

_______________aremoreprofitableandtheydevelopexclusivestorebrandstodifferentiatethemselvesfrom3. competition.

Sponsorsa. Auditsb. Private brandsc. Brand extensionsd.

Which of the following statements is false?4. Branding is advertising and advertising is branding.a. Branding changes consumer behaviour.b. Branding is loyalty.c. The success of brand varies indirectly with the ability to accept the mantle of leadership.d.

The simplest form of _________ is familiarity.5. brand loyaltya. brand awarenessb. brand equityc. brand assetsd.

Which is a powerful media to develop and build brands?6. Sellinga. Internetb. Advertisec. Packagingd.

Manymarketershavecalled_________asthefifthPoftheMarketingMix.7. prosperitya. packagingb. perceived qualityc. personalityd.


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What insulates a brand from competitive pressures, such as advertising and price promotion and leads to higher 8. profits?

brand loyaltya. brand awarenessb. brand equityc. brand assetsd.

____________identify the product, grade them and sometimes describe the product. 9. Packaginga. Sellersb. Sponsorsc. Labelsd.

Which of the following includes line extensions, brand extensions, multi-brands, new brands, co-brands?10. Branding decisiona. Brand-repositioning decisionb. Brand-name decisionc. Brand-strategy decisiond.

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Chapter VII

Brand Equity

Aim


understand the concept of brand equity•

explain the different approaches to brand equity•

examine the types of brand association•

Objectives


elucidate the term brand equity and its applications•

determine the latest measures to compute brand equity•

examine the cast based approach with examples•

Learning outcome


elucidate price based approach to brand equity•

discuss the customer based approach with examples•

understand the strength of brand associations•


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7.1 IntroductionCreating a brand is a comparatively easy task, but maintaining a brand or sustaining the brand and growing across a highlycompetitivemarketisagreatjob.Themostsuccessfulbrandof1990’s,‘Ceasefire’fromRealValueAppliancesbecameaBIFRcaseinNovember2002.Ceasefire’sbiggestproblemwasitsinabilitytogrowinthecategoryafteritsinitialsuccess.Salesdeclined;therewasnoaddedbenefitthatthebrandofferedinthemarketplace.Italsosharedthe peculiar problem of being a one-time purchase, but being relatively low value as compared to other consumer durables.In such category creator brands, it requires a tremendous amount of sustenance to keep the category at the top of the mind and sometimes the returns on base items may not even justify the cost.

Brand equity is brand worth. A marketer having a brand is worth much more than someone with no brands. To understandthevalueorworthofthebrandanditsmarginalbenefitsoverothercommoditiesisacomplextask.Itcallsforseparatingthatpartoftheprofitsincreasedbythebrandfromthoseapplicabletootherassets.Howeverbrand equity can be studied through three approaches like cost based, price based and consumer based.

7.2 Brand Equity“Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbols add to or subtract •fromthevalueprovidedbyaproductorservicetoafirmand/ortothatfirm’scustomers.”It is the combination of ad-awareness, ad-viewership, image or perceived quality and association of symbol in •the consumer’s mind.The brand in lifeline is the brand equity. If a brand generates a sharp and highly focused association in the •consumer’s mind, then it has got equities. The equity is not built just by advertising but a combination of ad, product and distribution.Brandequityconsistsofdifferentialattributesunderpinningabrandwhichgivesincreasedvaluetothefirm’s•balancesheet.Itcanbemeasuredbyincrementalcashflowfromassociatingthebrandwiththeproduct.Itisthetotalityofthebrand’sperception,includingtherelativequalityoftheproductsandservices,financial•performance, customer loyalty, satisfaction and overall esteem towards the brand. Brand equity relates to how the customers, employees and all the stakeholders feel about a brand.Brand equity can be studied under three approaches, like cost based, price based and consumer based. These •approaches are discussed below.

Fig. 7.1 Approaches to evaluate brand equity

Cost Based

Brand Equity

• Historical cost• Replacement cost• Market value• Discounted cash

flow• Brand contribution• Inter-brand

method

• Price premium• Equalisation

price• In different price

• Brand knowledge• Attitude rating• Blind test

Price Based Consumer Based

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7.3 Cost Based ApproachExplained below are the approaches that are based on cost:

7.3.1 Historical Cost

Historical cost is the money, which has been spent on the brand equity. Suppose Paras have spent Rs. 10 crores •on Livon and Rs. 20 crores on Moov as on 1.6.04, then the company expects back at least this amount if it wants to sell the brand to another marketer.This approach sounds good from the brand-builder point of view. However, the company, who is acquiring the •brand,isinterestedinthefuturecashflowsfromthebrand.Thefactscouldbe,afterspendingsayRs.10croreson acquiring Livon and Rs.20 crores on acquiring Moov, there may not be guarantee of realization of even ten per cent of that amount in future sales.Forexample,ColgatecouldnotgetanybenefitbyacquiringCibacatoothpaste,whereas,Coca-Colacouldget•Rs. 1,700 crores sales on expenditure of Rs.45 crores on Thumps-Up, during the last 10 yearsCostincurredinbrandsmaynotbethemeasureoftheefficiencywithwhichthemoneyhasbeenspentbythe•marketer. The developmental expenditure of American Companies, say Ford, could be much more than an Indian company,sayMarutiandJapanesecompanysaySuzukiandHonda.YetmanycarmodelsofGMandFordaresuccessful in India, whereas every Honda and Toyota model became a successful brand. Look at consumer non-durable giant HLL and its rival Cavin Kare. At one tenth of the cost of Fair & Lovely, Cavin Kare developed Fairever.Hence,itissaidthatpoorlyspentfinanceshardlyreflectintobrandequity.Hence,thehistoricalcostsmaynotbeanadequatemeasureofabrand’sfuturecashflowswhencostsareadjustedtopresentworth.

7.3.2 Replacement Cost Approach

The estimate of replacement of the brand after adding launching cost, production and administrative costs •cumulatively incurred upto date plus brand premium due to brand loyalty plus development expenses for distribution network.Replacement cost approach calls for the exercise to estimate the cost of creating a brand with similar turnover, •profitability,distributionreach,brandloyalty,etc.Thesumofallthesecostsisthebrand’sequity.Some of the limitations of these methods are, even though it looks simpler, these are complex and time •consuming. If a company is manufacturing only one product, then production and marketing expenses can be easily computed.But for a company like Whirlpool, which is manufacturing and marketing many brands, allocation of expenses •isabitdifficult.Thoughitisabettermethodthanhistoricalcost,itfacesthesamedilemmaorsetback–whatis the guarantee that if a brand is created by spending Rs.2, 455 crores, it will be able to generate 26% market share, which whirlpool commands?Replacement cost of some of the brands is as follows.•

National launch of brand in 1997 Rs. 5.0 crores

Production, administrative and marketing expenses from 1997-2004

Rs. 1800 crores

Brand premium over Videocon /BPL due to bran loyalty Rs. 450 crores

Developmental expenditure on dealer network Rs. 200 crores

Total Rs. 2455.0 crores

Replacement cost of Whirlpool Washing Machineas on 1.6.04 is Rs. 2455.0 crores

Table 7.1 Replacement cost/whirlpool washing machines


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7.3.3 Market Value ApproachThe brand value for a particular brand is obtained by visualising the price, if the brand is acquired by another •marketer or comparing the marketer’s brand value that had been realised in recent part merger or acquisition deal. This(M&A)figurecouldprovideareasonableestimateofthemarketvalueofthebrand.Givenbelowaresome•of the acquisitions and the prices involved.

Brand Replacement costin Rs. Crores

Surf 825Ariel 110

Close-Up 300Colgate-Gel 125Tata Motors 2950

Maruti 7885Dettol 235Dabur 5100

Table 7.2 Brand values

This method can also be useful in computing the brand equity of the company which has acquired the brand. Mathematically it can be expressed as follows:

Brand Equity of Acquirer = Price paid for acquisition *

Suppose, Electrolux’s sales turnover is 12 times the turnover of Kelvinator, then brand equity of Electrolux = 255 x 12 = Rs. 3,060.0 crores.

7.3.4 Discounting the Cash Flow ApproachThisapproachcallsforestimatingthecashflowswhichmayaccumulatetoabrandinforthcomingyearsandthenconvertingthesecashflowstopresentworthvaluesuingthestandardtablesontimevalueofmoney.Mathematically,

PV = CF1/(1+ R)1+ CF2/(1+R)2 + CF3/(1+R)3.........+ CFn/(1 + R)n

Where,PV = Present value of the brandCF=Cashflowfrom1styeartonthyearR=Cashflowdiscountingrate.UsuallyRisassumedequivalenttocommercialrateofinterest

7.3.5 Brand Contribution ApproachThisapproachattemptstofindoutthevaluethatisaddedbythebrand‘brand’totheproduct.Itcomparestheprofitsearnedbythebrandwiththeprofitsearnedbygenericproductsofunbrandedgoods.ThedifferencebetweenthetwofiguresmultipliedbyanintegeristhebrandequityMathematically,

BE = IX {Profits from the brands – Profits for unbranded production in same category}

Where,BE = Brand equityI = Integer. The value of this integer is average of expenses incurred on brand management.

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7.3.6 Inter-brand ApproachThisisthescientificmethodtoevaluatebrandequity.Ithasthefollowingsteps:

Weightageaverageofthelastthreeyears’profitsofthebrandiscalculated.•The answer is then multiplied with P/E of the industry in which the company operates.•Boththeabovefiguresaremultipliedbybrandstrengthscore.•

7.4 Price Based ApproachThis approach uses the retail price of the brand as basis for evaluation.

7.4.1 Price Premium Approach

Price Premium is computed by comparing the difference between the retail price of the brand and the retail •price of an unbranded product in the same category. For example, Singer Food Processor’s retail price is Rs.5, 000/- and that of unbranded one is Rs.3,000/-, then brand equity of Singer = {5,000-3,000} = Rs.2,000.This is simple in case the company has a single product. But when the company is offering many variants of a •brand, this method cannot be used. This is because in the respective variety of the brand, unbranded products may not be available.Moreover,thesamevarietyunderdifferentbrandswillmaketheissuestilldifficult.Forexample,HLLoffers•liquid cleaning medium under two brands viz., Surf liquid and Lifebuoy liquid. In this case, the brand equity of Surf liquid will be always higher than Lifebuoy liquid, irrespective of the quantity sold under each category. Some products are sold at bare minimum prices to attract the masses. For example Nirma, Dandi Namak, Babool toothpaste,etc.,inwhichthepricebrandshaveinsignificantbrandequity.

7.4.2 Market Share Equalisation ApproachThis approach takes into account the market shares of key marketers and retail price of each brand for evaluating brandequity.Thefollowingillustrationclarifiestheapproach.Theillustrationhighlightsshampoobrands.

Sr. No. Shampoo Brand Retail Price Market Share1. Sunsilk Rs. 52 40%2. Clinic All Clear Rs. 50 30%3. Vatika Rs. 48 20%4. Rejoice Rs. 39 10%

Table 7.3 Example of market equalisation approach

We assume that in the shampoo market, only four of the abovementioned brands are available. •Now to calculate brand equity, we must identify the price at which the market share of each of the above player •/ brand is equal.It is seen that Sunsilk and Clinic All Clear are the most popular brands and unless some consumers from these •two brands (15% from Sun Silk and 5% from Clinic All Clear) switch to other brands, the market shares will not be equal. Hence we have to identify the price points at which this changeover might happen. Given below is a hypothetical situation of brand market share equalisation.

Now brand equity can be calculated by using a mathematical formula as follows.

Brand Equity = Price of the brand in paise/10(To convert the price of brand in paise, we multiply by 100)Hence the brand equity of the above brands is as follows:


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Sun Silk - 700Clinic All Clear - 600Vatika - 500Rejoice - 40

In practice, to get an accurate measure of brand equity, the exercise is repeated for all pack sizes and the weighted average is calculated.

7.4.3 Price Premium at Indifference Approach

This approach tries to compare the free prices of the brand at the point of indifference.•Let us study two brands, say Pepsodent 2 in 1 and Forhan’s. Let us repeat the exercise as described in the Market •Share Equalisation Approach. We assume that on an average, a customer switches from Pepsodent 2 in 1 to Forhan’s at Rs. 60.

Brand Retail Price per 150 ml tube Market Share

Pepsodent 2 in 1 Rs. 42 35%Forhans Rs. 40 7%Colgate Gel Rs. 55 30%Close-up Rs. 50 28%

Table 7.4 Example of price premium at indifference approach

Then mathematically,

Brand Equity of Pepsodent 2 in 1 = * 100

= 60/40-1*100 = 50.0

Hence, Brand Equity of Pepsodent 2 in 1 is 50.

Assuming revised price for Colgate gel Rs.50 and Close Up is Rs.52, Brand Equity of Colgate Gel is 25.0, and Brand Equity of Close Up is 30.0.

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Fig. 7.2 Dimensions of brand knowledge

From the above discussions, we can conclude that Pepsodent 2 in 1 has much more brand equity as compared to Forhan’s, Colgate Gel and Close Up.

7.5 Customer Based ApproachThis approach uses consumer’s knowledge about the brand to evaluate the brand equity.

7.5.1 Brand Knowledge MethodBrand knowledge may be expressed as a sum of brand awareness and brand image. Each dimension of the brand can be measured on a scale ranging from 1 to 10. The weighted sum of these dimensions will be the measure of brand equity.

Brand recallSuppose you draw a sample of 100 from metros 7 mini metros and ask them simple questions – which brand •comes to your mind when you think of detergent powder? If 60% of the respondents say Surf, then the conclusion is, Surf is top of the mind awareness and hence could have higher brand equity. If the customer provides the same after 2-3 hints, then the brand has lower awareness level and so low brand equity.The marketer may create a different category of goods based on price and may ask a question like – which •home appliance brand comes to your mind when you perceive low price? The instant answer could be Aiwa or Akai.Thus,ascalecouldbeformulatedwherehighscore(near10)signifieshighbrandrecall.Insimilarfashion,the•other parameters like brand recognition, favourability of brand association, uniqueness of brand associations and strengths of brand associations can be measured. When these scores are summed up and averaged, the marketer gets the value of brand equity.


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7.5.2 Attribute Oriented MethodThe exercise is done as follows:

For a particular brand all the attributes are listed. Respondents are asked to provide rating for each attribute •out of 10. Scores for all the attributes are added. The same exercise is done for all other brands in the list and then the •scores are calibrated out of 100, which is a measure for brand equity. Let us study the method for the Talcum Powder Industry. The scores out of 100 represent brand equity. We can •say that Glaxo’s Nycil has brand equity (82) followed by Ponds (80) and Dermicool (72).

Attribute Ponds Johnson Baby

Heaven’s Garden Nycil Shower to

ShowerDermicool

Freshness 8 7 6 8 6 6

Fragrance 9 8 6 8 6 7Freedom from

sweat 7 6 6 9 8 8

Appearance 7 5 5 7 8 8

Desirability 9 5 5 9 6 7

Total out of 50 40 31 28 41 34 36

Total out of 100 80 62 56 82 68 72

Table 7.5 Example of attribute oriented method

If all dimensions are provided scores out 10 for a category of goods, it provides brand equity or brand knowledge basis. Given below is the illustration for salt brands.

Key Brands in salt category

Dimensions of Brand Knowledge Scores out of 10

Tata Salt

Knorr Annapurna Nirma Shudh Dandi

Brand Recall 9 6 7 5

Brand Recognition 8 6 5 5

Type of Brand Association 7 6 5 5Favourability of Brand

Associations 7 6 6 6Strength of Brand

Associations 7 6 7 6Uniqueness of Brand

Associations 7 6 7 5

Attributes 7 6 8 6

Total Score/ Brand Equity 52 42 45 38

Table 7.6 Attribute oriented method for salt brands

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This method suggests that brand equity may not lie in the price at which the brand is sold but how it is associated •in the consumer’s mind. However brand equity normally is much more than the attributes or brand knowledge dimensions, which could be the main limitation of this method.Brand Associations: Brand associations are the informational nodes linked to the brand in memory and contain •themeaningofthebrandforconsumers.Itmeansbenefits,attributes,attitudes,personality,price,socialclass,etc. to the brand in memory. The strength, favourability and uniqueness of brand associations play a major role in determining the differential response that makes brand equity.

7.6 Types of Brand AssociationBasedonlevelofabstractionortheinformationtobedevelopedaroundabrand,theassociationscanbeclassifiedbasedon–Attributes,BenefitsandAttitudes.

AttributesThese are the descriptive features which characterise a product or service. This can further be divided into •product related attributes and non-product related attributes. Product related attributes refer to the product’s physical composition that determines the nature and level of •product performance. For example in a music system, the attributes could be presence of VCD, MP3, Wattage, etc. Non-product related attributes are not directly linked with product performance but affect the purchase or •consumption process. For example colour of a car or two wheeler or package appearance of say a soft drink. Some of the non-product related attributes are price, user category, usage occasions, quality of wash, high percentage of dryness, etc.

Benefits Benefitscouldfurtherbeclassifiedasfollows–

Functionalbenefits(basicmotivators)•Symbolicbenefits(socialapproval,selfimage)•Experimentalbenefits(sensorypleasure,approval,andselfimage)•Experimentalbenefits(sensorypleasure,varietyandcognitivestimulation)•

ForPanteneShampoo,thefunctionalbenefitisanti-dandruffandhairconditioning,symbolicbenefitisbeautyandhealthofhairandexperimentalbenefitisthefeelingofbeautyandcleanliness.

ForHDFC, the functionbenefit is branding andfinancial services, symbolic benefit is, it acts as a friend andexperimentalbenefitiscustomerfriendly,innovativeandaggressive.

Attitudes These are the most abstract form of brand associations expressed in terms of consumers’ overall evaluation •of brand and meaning to them. Attitudes are important because it forms the basis for actions and behaviour of consumers. There are three dimensions of attitude viz. Cognitive (knowledge base perception), affective (emotions and •feelings towards brand), conative Cintention to behave in a particular manner).

7.6.1 Favourability of Brand Associations

Associations, which are developed because of the brand-meeting consumer needs and hence consumer-expressing •satisfaction, are termed favourability of brand associations. Creating a favourable association requires focusing on certain attributes that deliver value to customers, delivering •promises on time, etc.


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7.6.2 Strength of Brand Associations

The strength of brand associations is the critical determinant of the kind of information recalled by the consumer •and thus affects brand-buying decisions. These associations are formed in three ways - on the basis of experience, communication, some assumptions or inferences arrived at from some information. Thefactors,whichinfluencestrengthofthebrandassociations,arethepresenceofbrandinformationinconsumer•memory, line between two consecutive exposures and number and type of external cues acting on consumers.This is the unique selling proposition, which compels consumers to buy a particular brand. These USPs •may be communicated explicitly by making direct comparison with competitors or may be hammered in commercials.Forexample,BajajBoxerandKineticVelocityhammeringfeelefficiency.Thus,theoverallsuccessofabrand•largely depends on the strength of brand associations, favourability of its evaluation and uniqueness of those associations.

7.6.3 Blind Test Method

Brandequity,asper theblind testmethod, isdefinedas thedifferencebetweenoverallperformanceunder•subjective criteria and objective criteria. The subjective score of a brand is calculated by asking open-ended question, like rate following brand out of •100 as per your preference of buying, whereas the objective performance of the brand is calculated by asking the respondents to brand the various brands. Let us discuss select brands of the car industry.

Maruti Zen Indica V2 Fiat palio Matiz Santro Zing

Subjective Score (A) 80 82 45 40 75

Objective Score (Each Attribute out of 10)

Braking 7 8 7 6 7

Engine Performance 8 7 6 5 7

Gearing Performance 8 7 7 6 7

Steering Drivability 8 7 6 6 7

Overall Looks 9 7 8 6 8

FuelEfficiency 8 7 6 5 7

Comfort 8 8 6 6 8

Safety 7 8 7 6 7

Objective score out of 80 63 59 53 46 58

Objective score out of 100 (B) 79 74 66 57 72

Brand Equity = (A) – (B) 1.0 8.0 -21 -17 3.0

Table 7.7 Example of blind test method

The above illustration concludes that brand equity of the brand Indica V2 is the highest (8), followed by Santro •Xing (3) and Maruti Zen (1).The main disadvantage of this method is that accuracy with subjective and objective scores is not obtained. •For example, the attributes considered by one marketer for objective criteria may not be avertable to the other marketer.

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For the automobile industry, whether 2 wheeler, 3 wheeler, 4 wheeler or 6 wheeler, the attributes could be •standardised but for consumer products like shampoo, soap, toothpaste, and such standardisation may not be possible.

7.7 Latest Measures to Compute Brand EquityFollowing are some ways to compute brand equity:

7.7.1 Direct Measurement Methods

The direct measurement method suggests adding all the brand’s communication investments, adjusted for •inflection.Anadditionaladjustmentissometimesmadetoaccountfortheopportunitycostofthemoneyinvestedin brand building. This adjustment is called the discount rate and it is used to compute the net present value of the successive •investments i.e., what they are worth today. This method is simple, but it overvalues brands. It also penalises brands that do not advertise heavily.

Brand 2001 2002 2003 2004 2005 2006 2007

HLL’s Fair & Lovely 1.1 1.25 1.5 1.85 2.0 2.35 2.5

Awareness valuationThis method estimates the communication investment required to build the level of awareness due to which •current market share has been achieved.For example, a brand that is used by 5% of its target population, but was tried by 15% of them. The brand •has an awareness of 60%, which is due to communication investment of 800 GRPs. Assuming, Rs.1, 00,000 investment needed to create one GRP (Reference - Economic Times); the brand could be valued as Rs.8 crores. The advantage of the method is that, it is easy to use and requires less research than any other method.It also reflects the current cost of re-creating the brand today independently of theway itwas actually•created.

7.7.2 Indirect Valuation MethodsExcess earning method

Thismethodtriestoassesstheincreaseinprofitorcashflow,attributabletothebrand.Thenitprojectsthese•cashflowsovertheusefullifeofthebrand(usually10years)anddoesa‘discountedcashflow’analysis,whereeachyear’sprojectedcashflowisdiscountedaccordingtotheassumedriskontheinvestmentandhowforitwill materialise.Thesumofthesecashflowsplustheresidualvalueofthebrandattheendoftheanalysisgivesthebrandvalue•atthetimeoftheanalysis.Themajordifficultywiththisanalysisresidesinestimatingtheincrementaleffectofthebrandonsalesorprofits.

Relief from royalty methodThe method argues that, if the company did not have the use of its brand name, it would need to license that •right in exchange for a royalty fee. Thoseroyaltyfeesareusuallybasedonpercentageofsales(notprofits).Thevaluationconsistsoffirstestimating•the fee as a percentage of sales and then projecting that fee over the useful life of the brand.The marketer then computes the ‘net present value’ of the sum of those fees over the expected life of the •brand.


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SummaryBrand equity is the totality of the brand perception, including the relative quality of the product and services, •financialperformance,customer loyalty,satisfactionandoverallesteemtowards thebrand.Thereare threeapproachestowardsevaluatingbrandequity.Thefirstoneiscostbased,secondoneispricebasedandthirdone is consumer based.“Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbols add to or subtract •fromthevalueprovidedbyaproductorservicetoafirmand/ortothatfirm’scustomers.”Brandequitycanbemeasuredbyincrementalcashflowfromassociatingthebrandwiththeproduct.•Brand equity can be studied under three approaches like cost based, price based and consumer based.•Price premium is computed by comparing the difference between the retail price of the brand and the retail price •of an unbranded product in the same category.Market Share Equalisation Approach takes into account the market shares of key marketers and retail price of •each brand for evaluating brand equity.Brand knowledge may be expressed as a sum of brand awareness and brand image. Each dimension of the brand •can be measured on a scale ranging from 1 to 10. The weighted sum of these dimensions will be the measure of brand equity.The direct measurement method suggests adding all the brand’s communication investments, adjusted for •inflection.Anadditionaladjustmentissometimesmadetoaccountfortheopportunitycostofthemoneyinvestedin brand building. Associations, which are developed because of the brand-meeting consumer needs and hence consumer-expressing •satisfaction, are termed favourability of brand association.The strength of brand associations is the critical determinant of the kind of information recalled by the •consumer and thus affects brand-buying decisions. These associations are formed in three ways - on the basis of experience, on the basis of communication, on the basis of some assumptions or inferences arrived at from some information.

ReferencesBrand Equity–Meaning and Measuring Brand Equity• [Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/what-is-brand.htm> [Accessed 10th March 2011].Verma H.V., 2006. • Brand Management: Text and Cases. 2nd edition, Excel books, Anurag Jain. pp.197 –231.

Recommended ReadingBrand & Customer Equity • [Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/what-is-brand.htm> [Accessed 10th March 2011].Haseeb Murtaza, • Brand Management [Online]. Available at: <http://www.scribd.com/doc/3979762/Brand-Management> [Accessed 10th March 2011].Kotler. P., Pfoertsch W., Michi I., 2006. B2B Brand Management. Springer Berlin. Springer. p.357.•

http://www.scribd.com/doc/3979762/Brand-Management

http://www.scribd.com/doc/3979762/Brand-Management

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Self Assessment

_______________ is the amount of funds spent on the brand equity.1. Replacement costa. Historical costb. Market valuec. Price premiumd.

Whichapproachattemptstofindthevaluethatisaddedbythebrandtotheproduct?2. Brand contribution approacha. Market value approachb. Replacement cost Approachc. Inter-brand Approachd.

Which of the following statements is true?3. Price premium approach uses the retail price of the brand as basis for evaluation.a. Brand knowledge method uses the retail price of the brand as basis for evaluation.b. Price based approach uses the retail price for branding.c. Price based approach uses the retail price of the brand as basis for evaluation.d.

______________ may be expressed as a sum of brand awareness and brand image.4. Historical costa. Market valueb. Brand knowledgec. Price premiumd.

Which of the following is false?5. Brand contribution approach attempts to find out the value that is added by the brand ‘brand’ to thea. product.Brand Equity = Price of the brand in paise/10b. Benefitsarethedescriptivefeatureswhichcharacteriseaproductorservice.c. Customer based approach uses consumer’s knowledge about the brand to evaluate the brand equity.d.

_____________ are important because it forms the basis for actions and behaviour of consumers. 6. Attitudesa. Benefitsb. Attributesc. Brand recalld.

Whichofthefollowingcomparestheprofitsearnedbythebrandwiththeprofitsearnedbygenericproducts7. of unbranded goods?

Inter-brand approacha. Price-based approachb. Price premiumc. Brand contribution approachd.


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Which method can also be useful in computing the brand equity of the company which has acquired the 8. brand?

Brand contribution approacha. Market value approachb. Replacement cost Approachc. Inter-brand Approachd.

Which of the following statements is false?9. Brand Equity is the combination of ad-awareness, ad-viewership, image or perceived quality and association a. of symbol in the consumer’s mind.Brandequitycanbemeasuredbyincrementalcashflowfromassociatingthebrandwiththeproduct.b. Brand equity can be studied under three approaches like market based, brand based and product based.c. Brand equity can be studied under three approaches like cost based, price based and consumer based.d.

___________ approach takes into account the market shares of key marketers and retail price of each brand 10. for evaluating brand equity.

Market share equalisationa. Price premiumb. Consumer basedc. Price basedd.

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Chapter VIII

Brand Image, Brand Identity and Brand Valuation

Aim


explore the customer retention and brand marketing•

explain brand identity•

look into the relationship between brand image and celebrities•

Objectives

The objectives of the chapter are to:

determine the difference between brand personality and brand image•

understandthedefinitionsofbrandimage•

examine the valuation of brand loyalty•

Learning outcome


understand about brand identity and brand image•

identify and enlist ten characteristics of the world’s strongest brands•

stateandexplaindefinitionandbenefitsofcustomerretention•

discuss the strategies for retaining customers•


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8.1 IntroductionEverymarketertriestocreatecertainimageofthebrand,naturallyfordifferentiationandprofitgeneration.Manyexperts call image an impression about the brand. Brand identity is the sum of the brand expressed as a product, organisation, person and symbol. Brand valuation means measuring the value of brand loyalty, customer relations, workforce, etc.

8.2 Brand ImagePhilip Kolter suggests visualising a brand pyramid in constructing the image of a brand. At the lowest level are the brand attributes; at the middle level are the brand’s beliefs and values. For example, HLL’s Pears and Dove soap maytalkaboutitsattributesofcleansingcream,itsbenefitofsofterskinanditsvalueasattractive.

Marketers must decide at which level to anchor the brand’s identity. The attributes could be the least desirable level.Buyersmaybemoreinterestedinbenefits.Competitorscaneasilycopyattributessincecurrentattributesmay become less desirable.

Fig. 8.1 Brand image

8.3 Definitions of Brand ImageBrand image and brand personality is one and the same. It is the totality of the impressions about the brand. The •total impression includes physical, functional and psychological aspects of the brand.Brand image is the measurable aspect of the brand. Many researchers argue that the word brand image is •something much more intuitive and overarching than just attitude measure.Anassociationandimage,bothrepresentperceptionswhichmayormaynotreflectobjectivereality,whereas•image of competence may be based upon the appearance of the product/service provider.Brand image is the opinion of the consumer on brand features, information, users, evaluation, product statements •and company statements. It can be understood very well that not all customers perceive brand image through brand thoughts. Many •customers may not evaluate the company or even the product. For example, when blind tests were conducted for cigarettes and soft drinks, consumers could not differentiate brands when the name was masked. However, certainattributesofbrandimagelikebrandinformationandbrandfeaturesdefinitelyaffectbrandimage.

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Attributes of Brand Image

Brand ThoughtsPaint Brand Hard Drink Brand Ice-Cream Brand

Brand Features It is a powder as the paint It is a transparent It is colourful ice-

cream

Brand Information Is it cheap and reliable? Is it genuine?

Is it available in family packs?

Brand Users Is it for rural or urban consumers? It is expert It is for lower and

middle classBrand evaluation Grand Product The real taste Value for

Product statementsIt can be substituted for traditional painting material

This is the product which suits my lifestyle

This is the ice-cream I was waiting for

Company statements National and International Brand

Nationally and Internationally reputed company

Today it is regional brand but very soon it will be national

Table 8.1 Attributes of brand image

Brandimagehasthreecomponents–productattributes,consumerbenefitsandbrandpersonality.Brandimage•is derived from three sources, which are provider driven image, product driven image and user driven image.

Provider driven imageThe image, which is derived from the company/brand can be called provider driven image. The presence of •the brand is due to the company or marketer. For example Godrej and Tata are 100-year-old brands and signify the hallmark of quality. Even a salt branded as Tata-salt becomes successful due to reputation earned by the name Tata.In similar fashion Umbrella brand, Surf, Amul, Lifebuoy, Dabur have also earned a good reputation. However •marketresearchindicatesthatbrandimageisnotsignificantlyaffectedbytheorganisation’snameunlesstheorganisation’s name itself has been used consistently as the brand name. For example Lux is so popular that the manufacturer’s name (HLL) is immaterial in brand image.

Product driven imageThe image derived from the performance of the product is product driven image. Thus, the image highly depends •on the ingredients. ForexampletheGodrejRefrigeratorimageisverybrightduetoitsdurablecompressor.YamahaandHero•Honda motorcycles’ images are derived from semi-urban and rural areas due to their sturdy image. LG and Carrier Aircon emerged as the leading brands in the air conditioner business due to product offerings - Split Air conditioners with remote control.

User driven imageIn this case, the brand image is derived from the lifestyle of the users. For example Manikchand Gutkha and •Kothari’sPanMasalaaredrivenbyhi-ficonsumerlifestyles.Similarly Wills Life Style Readymades are driven by high net worth customer lifestyles. Van Heusen and Louie •Phillip shirts are an expression of middle management executives. Nirma soap and detergent is mostly used by rural families. In case of management education, high net worth students prefer Harvard or Kellogg’s of US or IIMs and ICFAI •in India.


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8.3.1 Brand Image and Celebrity

Threefactorsinfluenceconsumerattitudestoabrandwhenitisendorsedbyacelebritypersonality.Thesefactors•are attractiveness, trustworthiness and expertise. For example Aishwarya Rai and Maduri Dixit, if endorse beauty creams, looks credible (Aishwarya already endorses Lux beauty soap).Similarly, recently the Chef, Mr. Sanjeev Kapoor endorsed, ‘oil free chicken frying machine’ which is trustworthy, •as well when he talks about Kenstar microwave oven, his knowledge highlights the expertise. Given below are some of the examples of celebrities and brand images.In summary, to develop a brand image, the marketer must able to highlight something unique. For example •Friendly detergent highlighted skin friendliness, Red & White cigarettes exhibited the macho-man, etc.

Factors Image Celebrity Product

AttractivenessElegant

BeautifulGlossy

Sonali BendreUrmila

Sachin Tendulkar

Nirma Beauty SoapLux

Palio Car

Trustworthiness DependableReliable

Sanjeev KapoorSachin & Sehwag

Microwave KenstarBoost

ExpertiseKnowledgeQualifiedSkilled

Saurav GangulyTarla DalaShahrukh

Tiger biscuitsFood products

Pepsi

Table 8.2 Celebrities and brand images

8.3.2 Brand Personality and Brand Image

Brand personality and brand image are two different dimensions of any brand. Brand image is how the brand •is perceived by the customers, whereas brand personality is the cause, while brand image is the effect. Brand personalityisthesumtotalofallthesignificanttangibleandintangibleassetsthatabrandpossesses.Thefreeflowingabilityof thesalt,distinctivelogoandperfectcommunicationwithpremiumpriceareall•part of brand personality of Captain Cook salt. Knowledgeable selling in the OEM and replacement market of tyres, effective communication and dealer promotion created the ‘reliable and trustworthy’ image of MRF and Ceat.Brands could be functional or representational. Functional brands like Vim, Nirma detergent simply do the job •ofpricebenefitassociatedwithperformance.Representational brand has to do with the aspirations, role models and lifestyles of the users. For example •IBM, Microsoft gets transformed from hardware/software manufacturer to technological manufacturer due to the image about US - advanced country. Given below are comparisons of brand image and brand personality for some selected brands.

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Brand Brand Personality Brand Image

Horlicks Marketing communication Energy

Philips Music Quality leading electronics manufacturer

ReliableTechnologically advanced

Honda Activa GearlessButton start Comfort

Wipro Shikakai Marketing communicationShikakai as a part of brand name Traditional hygienic

Britannia Little HeartsPuffed biscuitsInnovative packingHeart shaped biscuits

NoveltyAttractiveRomantic

Dove Soap Price Soft Money for value Skin care

Bajaj Pulsar Price Button start Money for value Comfort

Table 8.3 Comparison of brand personality with brand image

8.4 Brand IdentityPhilip Kolter says, “Building the brand identity requires decisions on the brand’s name, logo, colours, tag line, •and symbol. At the same time a brand name is much more than a name, logo, colours tag line and symbol. A brandisessentiallyamarketer’sabilitytosticktothepromisestodeliveraspecificsetoffeatures,benefitsandservices consistently to buyers.”DavidAakerdefinesbrandidentityasthesumofthebrandexpressedasaproductorganisation,personand•symbol. For example, brand as product refers to the acceptance of the brand as a product. In detergent category, if price is considered important, Ghari, Friendly Wash and Nirma are good brands as products. In the compact and executive car market segment, Santro Maruti Alto and Indigo are good products besides •good brands. Brand as organisations highlight that a brand is successful among other things because of the organisational culture, values, mission, etc. Dabur India have brought out a series of successful products like Vatika, Real, Coolers, Lal Dantmanjan, Baby-oil, Chyawanprash, etc. Dabur has achieved the momentum of launching successful brands at regular intervals due to its commitment •to technology and innovation. Marico Industries Ltd. (MIL) is another consumer non-durable giant, having a lion’s share in hair oil (Parachute), edible oil (Saffola, Sweekar), starch (Revive), and Jam (Sil). The Sil brand is manufactured at Pune in its subsidiary unit, Kanmoor Foods. Brand as a person refers to the question, “what happens to this brand when it becomes a person,” if this is to be seen from brand’s marketing communication, Spinz talc would be masculine, Head & Shoulders shampoo feminine and Thumbs Up young and vibrant. Brand as symbol refers to heritage and what the brand stands for. For example Gillete brand refers to the personal •care category and the symbol exhibits luxury. All the above dimensions are illustrated below.


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Fig. 8.2 Dimensions of brand identity

Fig. 8.3 Brand hexagon identity

Mr. Kapferer, one more researcher on brand, argues that brand identity is six sides of a hexagon, named as •Physique,Personality,Culture,Relationship,ReflectionandSelfImage.Physique is the basis of the brand. For example physique of LG is technology and reliability while for Godrej, •MRF and Ceat it is the trust. Mr. Kapfere describes, ‘what happens to a brand when it becomes a person’ (Please referdefinitionunderpoint2fordetailsofthispoint).Culturerepresentstheorganisation,itscountryoforiginand the value it stands for. For example, Japan is known for its hardworking and quality aspects, because of which Japanese companies like Toyota, Suzukim, Sony have earned global reputation. Relationship is the link between the consumer and the organisation. For example relationship of consumer with •Tata’s Indica is ‘safety’ whereas with Videocon’s washing machine ‘dependability’. Reflectionistheconsumer’sperceptionofwhatthebrandstandsfor.ForexampleCoke’sThumps-Up,Colaand•PepsiCo’sPepsireflectsyouthfulvalues.Selfimageiswhatthebrandowner/userthinksofhimself.ASonatacar owner might perceive himself one of the elite and might be treating Sonata as the India’s best car.Fromabovediscussions(DavidAaker’sdefinitionandKapfere’sdefinition),wemayconcludethatthebrand•personality is the subset of the brand identity.

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8.5 Brand ValuationBrand valuation can be seen from two angles – Tangibles valuation and Intangibles valuation. One of the major ingredients of brand intangibles is brand loyalty.

Levels Characteristics

Lowest level –Price sensitive buyers1. Non-loyal buyers, who do not attach any importance to the brand. . The buying is based on convenience or price.

Second level buyers2. These buyers have no reason to change, but may switch because of the stimulation from the competi-tors.

Third level buyers3. This segment is little bit safe to marketer because buyers would switch only when competitors are able to overcome switching costs for them.

Fourth level buyers4.

The buyers have positive attitude towards brand which is due to associations, emotional attachment or a high perceived quality. Buyers consider brand as a friend and have long term relationship.

Top level – Committed buyers5. Buyers continue the relationship in long the run with same mutual thrust. Customers treat brand as the vehicle of self-expression.

Table 8.4 Levels of brand loyalty

8.5.1 Brand Loyalty

Loyalty is at the heart of equity and is one of the important brand assets. Brand loyalty is a conscious or •unconscious decision expressed through intention or behaviour to repurchase a brand continually.If the consumer prefers the brand even on the face of competitors with superior features and offers, then brand •is said to have high brand equity. Loyaltyreflectstheconsumer’sattitudetowardsthebrand,especiallywhenthereisachange,eitherinpriceor•product features. As the brand loyalty increases, the vulnerability of consumer base to competitive action gets reduced.

Valuation of brand loyaltyThe factors used for loyalty measurement are different at each level mentioned as above in table 8.4. At the •lowest and second level, loyalty is not recognisable.Loyaltymeasurementofthislevelisintermsofsalesturnover,product’sprofitmargins,priceattractiveness•and price sensitivity. These are the main factors for purchase and repurchase behaviour of customers at these levels.


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Fig. 8.4 Brand loyalty

At third and fourth levels, loyalty is measured in terms of potential spending by customers, recalling level of •the brand, perceived attributes of product, number of other brands purchased during the same time and changed attitude towards brand.At the top level, loyalty is measured through satisfaction level, total spending on brand, liking in terms of respect, •friendship, trust, etc. One more important measurement for customers’ commitment is their involvement in reading, word of mouth and number of people to whom they refer the brand. The measurement tools are structured for which semantic differential scale, interval scale, rating and ranking •scales and in-depth interviews are used.

8.5.2 Other Tangibles and Intangibles Valuation

InFMCGsandPharmaceuticals,brandsconstitutesignificant intangibleassets inacquisitionsandmergers.•In many cases, corporate acquire only brands and not the business. The reasons for acquiring brands could be many. For example, Coca-Cola bought Parle soft drink brands for immediate visibility and possession of a well-•established distribution network. Knoll Pharmaceuticals sold out Coldarin and Burnol brands because it wanted to get out of the OTC segment and wanted to restrict itself to ethical drugs. Colgate’s acquisition of Cibaca brand of toothpaste and toothbrushes was to kill competition and increase CP’s market share. In this context, the market for brands has already become active and hence of underlying values is becoming relevant to the owners.Several methods for valuation exist, such as brand earnings multiple approach, relief from royalty approach, •profitsplitapproach,etc.Afewapproachesarediscussedbelow.

Relief from royalty approachThe valuer estimates the amount of hypothetical royalty income that could be generated if the brand were leased •by an independent third party owner to the business that is currently using the intangible, in an arm’s length transaction. The value of the brand is the present value of hypothetical royalty income that would be generated. Since the •approach often involves the analysis and selection of market driven royalty rates, this is a complex and time-consuming approach.

Profit-split approachThisapproachalsoassumesthatanindependentthirdpartyownsabrandandlicensesitforanassociatedprofit.•Thevaluerhastoestimatetheamountofeconomicincomethatisgeneratedafterapportioningfixedcostoverother assets and the brand under consideration.

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The method involves assessment of business income and fair returns expected on tangible assets in order to •arriveatthenetprofitorcashflowstobeascribedtoalltheintangibles.Anumberoffactorsformthebasisforsplittingthisprofitandapportioningtothebrandincludingmarketshare,•entrybarriers,operatingprofitandtheremainingusefullifeoftheasset.

Customer relations valuationsMarketers are dependent on their relationship with customers for revenue generation. If customer could be •retained and repeat business is sought, then the value of this intangible may be high, especially in service sectors like the business of credit cards, consultation, telecom services, banking, etc.The valuation methodology, usually adopted for valuing customer relationship, is based on remaining useful •lifeanalysiswithreferencetocustomerportfolioanditsimpactonfutureexpectedcashflows.Thelogicisthatcurrent customer relationships are valuable intangibles but are expected to decay over the years.

Indian Company Book Value of Assets (Value in billion)

% of Intangibles in Company Value

Infosys 21.4 95%Pond’s India Ltd. 12.3 92%

Wipro 9.6 90%HILL 9.5 89%SKBC 9.2 89%

Tata InfoTech 8.6 88%Hero Honda 5.7 82%

Colgate - Palmolive 5.2 81%

Table 8.5 Intangibles in company value

Over 80% of the market value of top ten of the fortune 500 companies are intangibles.

8.5.3 Intangible AssetsTypical intangible asset transaction values in key industries are as follows:

Industry Industrial AreaAirline Software for reservation system and route systemAutomobile Model designs and manufacturing processBroadcast TV/Radio Licenses, personality contracts, advertising contractsCable TV Franchise agreements, subscriber relationshipBanking Customer relationships, proprietary softwareComputer Manufacturing Manufacturing process, trademarks, Manufacturing patented products

Fast Food Trademarks, product recipes

Pharmaceuticals FDA approvals, trademarks, patents, physician relationships, relationship with original patent holder

Retailing Trademarks, distribution system

Telecommunications Software, technology, customerrelationships, licenses

Table 8.6 Intangible asset transaction values


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8.6 Customer Retention and Brand MarketingCustomerretentionisnotgiventheattentionbymostfirms.Ithasbeenfoundthatcustomerretentionhasmore•impactonprofits thanmarketshare,economiesofscaleandothervariables thatareconsidered toprovidecompetitiveadvantagetoafirm.Infact,ithasbeenfoundthatcompaniesthatreducedcustomerdefectionsby5percentcouldboostprofitsfrom25percentto85percent.Traditionally, marketing management has relied on variation and combination of the marketing mix elements •(product, price, place and promotion) to achieve market dominance through enhanced market share by acquiring new customers. This approach considers the formation of homogeneous segments of relatively heterogeneous customers. It does •not take into account the history of association between the customer and the seller and hence does not reveal the actual buying behaviour of the customer.Aggressive branding and promotions are other tactics used by sellers adopting the traditional marketing approach. •Butbrandswiththehighestmarketsharearenotalwaysthemostprofitable.Insomecases,theymayevenbeunprofitable.The relationship marketing approach on the other hand, focuses on customer retention, encouraging increased •spends and on long-term relationships with customers. Gronroos, a research scholar, has stated, “Marketing is toestablish,maintainandenhancerelationshipswithcustomersandotherpartiesataprofitsothatobjectivesofthepartiesinvolvedaremet.Thisisdonebyamutualexchangeandfulfilmentofpromises.”Customerretentionshouldthusbecomeapartofthestrategicmarketingplanningprocessofanyfirm.Itis•importanttodefinecustomerretentionandalsotounderstandhowitcanbemeasured.

8.6.1 Customer Retention

Since customer retention is of prime importance, it is essential to understand what any organisation should retain. •Both attitudinal and behavioural variables need to be understood when studying customer retention. Attitude variables act as experience in most cases of behavioural changes, so it is inappropriate to consider only •one variable as explaining customer retention. It is generally a resultant composite of multiple variables.Thedefinitionofcustomerretentionshouldtakeintoconsiderationitsappropriatenesstothebusinessofthe•firm.Thereareissuesregardingwhethertheabsolutenumberofcustomersortheirrelativepurchasesshouldbeconsideredfordefinitionpurposes.An associated concern is whether purchases should be in terms of volume or value. Research has also indicated •thatthedefinitionofcustomerretentionthatisintermsofpercentageshareofcustomersavings,borrowings,spending, or purchases is more than just absolute numbers of customers.Hidden defections have also to be kept track of. An example of hidden defection is that the growth in sales to •aparticularretainedcustomerisslowerthanthegrowthofthemarket.Appropriatenessofdefinitionthusleadsus to the issue of measurement of customer retention.

8.6.2 Measurement of Customer Retention

It is important to measure customer retention since this helps to set benchmarks and gauge performance against •this benchmark. Without measuring customer retention it cannot be managed.Studies have shown that a relatively small percentage increase in the customer retention rate can lead to a large •increase in the net present value of customers. Crude retention rate is the absolute percentage of customers that are retained.For example, if the number of customers drops from 1000 to 900, the crude rate is 90 percent. A better measure •is the weighted retention rate in which the customers are weighted by the volume of purchases made by each of them. The Life Time Value (LTV) is a useful concept in measuring customer retention. The LTV of a customer depicts the customer’s net present value to the seller. In this kind of analysis the cost of acquiring a customer is taken as a sunk cost. The only costs considered are the selling and servicing costs. By assuming the period of futuresustainedrelationship,thenetvalueofcashflowsandasuitablediscountrate(thisistakenafteraccountingfor the company’s cost of capital and risk), the LTV for a customer is arrived at.

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LTVisadifficultconcepttooperation.Thereisnoclarityaboutwhatthelifetimeofaconsumeris–itcanbe•age, working life, product life cycle, etc. Estimating the value through studying the past is also not precise. Assuming purchase probabilities into the future is also not easy. Moreover, carrying out this exercise for each and every individual customer is a long and tedious process.Hence, if carried out at aggregate group level, questions about who should actually be the constituents of the •groupplaysasignificantrole.

Behaviour Variables Attitudinal VariablesNumber of customers (including Salience of brand proposition and its dormant) Salience of brand proposition and its components

Number of active customer Brand preference

Frequency of buying Psychological commitment/loyalty

Number of active customer Brand preference

Frequency of buying Psychological commitment/loyalty

Recency of buying Trust

Size of expenditure Empathy

Share of expenditure Propensity to consider buying / use again / contribute process

Extent of cross-sales Propensity to pay more / a premium

Adjustbuying/usageprocedurestofitsupplier Likelihood to recommend / advocacy

Routinised re-ordering Top-of-mind awareness

Join club

Proven adequacy

EnquiriesProvide information when requested regarding needs and/or characteristicsNotificationofcomplaintsandsuccess

Give you more time than competitors/before

Pay attention to organisation’s announcement

Table 8.7 Behaviour and attitudinal variables

8.6.3 Benefits of Customer RetentionCustomerretentionaffectsbothrevenuesandcostintheequationofprofitability.

Profit = Revenue – CostRevenues are enhanced due to increased sales and costs are lowered due to lesser generation and marketing costs ofsuchrevenues.Scholarshaveoutlinedsixeconomicbenefitsofcustomerretention,whichareasfollows:

savings on customer acquisition or replacement costs1. aguaranteeofbaseprofitsasexistingcustomersarelikelytohaveminimumspendperperiod2. growth in per customer revenue over time3. areductioninrelativeoperatingcostsasfirmscanspreadthecostovermanycustomersandovera longer4. periodfree of charge referrals of new customers from existing customers5.


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price premiums as current customers usually do not wait for promotions or price reductions before they make 6. theirpurchases.Certainnon-economicbenefitsfromcustomerretentionareincreasedcustomertrust,commitmentand cooperation.

8.6.4 Strategies for Retaining CustomersIn service marketing, customer retention has been conceptualised as resulting from customer perceptions of service quality and customer satisfaction. Scholars have advocated four steps as essential to retain customers:

definethemarketstructure1. segment the customer base and determine segment value2. identify the segments’ service needs3. implement a segmented service strategy4.

It is important to retain employees and investors in order to retain customers. Disloyal employees are not motivated enough to build a base of loyal customers. Similarly, disloyal investors will not be interested in building long-term relationships. The team of customers, employees and investors must hence share a common vision of a long-term relationship.

Itisimportantforthefirmtounderstandthereasonsthatmakecustomersswitch.Someofthereasonscouldbeprice,inconvenience; core service failure, ethical problems, involuntary factors, competitive issues and service encounter failures.Understandingthecausesofswitchingwillhelpthefirmdevelopbarrierstopreventswitching.

Interviewing former customers is another way to understand why they switched. This can provide information that isspecificandactionable.Studieshaverevealedsixtypesofdefectors,whichareasfollows:

price defectors, who switch to a low priced competitor1. product defectors, who defect to a superior product offered by a competitor2. service defectors, who leave due to poor service3. market defectors, who are lost but not to any other business - they may go out of business or to another 4. markettechnological defectors, who switch to products offered by companies outside the industry5. organisational defectors, who switch due to internal or external politics6.

Analysing complaint and service data is a good method to identify problems and understand why customers •defect. Analysis should be statistical and should be fairly detailed in order to understand the underlying patterns of the problems. Strategic bundling is another way of erecting a barrier against defections that can lead to enhanced customer •retention. A bundle is a group of products or services offered as a single cost saving and convenient package. A customer who opts for a bundle will not switch to a competitor even if he is offered a better deal on a single item of the bundle.Usage analysis is a method that can be effectively used to help in customer retention. Segmenting markets by •consumption can provide valuable insights into the mix of customers. Heavy users are more valuable than the medium or light ones and appropriate strategies have to be devised to retain them.Similarly,inthebusinesscontext,wefindtheParetoPrincipleorthe80/20ruleinoperation.Keyaccountsthat•comprise about 20 per cent of the business customers are responsible for about 80 per cent of the sales generated. Such and heavy key users are prone to poaching by competitors. Hence, it is important to concentrate advertising, promotion, sales, and communication efforts on this segment. •Medium customers should be targeted with revenue enhancement strategies through phone calls and e-mails. Thelightorunprofitablecustomersshouldbeservedinnewwaystoupgradethem.The strategies for retaining customers are a function of the nature of the product, the stage of the product life •cycle, and the buying behaviour of the customers.Customer value affects customer retention. Loyalty of the customer increases with customer satisfaction at an •increasing rate.

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Segmentation of customers should be done by satisfaction levels, prior to the strategising of retention activities. •Given below is the customer value and retention model.

Fig. 8.5 The customer retention/value mode

8.6.5 Beyond Customer Retention

It is not enough to just retain customers through prevention of defection. Positive changes in customer spending •can have ten times the impact of customer retention. It has been found that a lot more of customers decrease their spending than defect. Managing this download •migration in spends is a challenge. This is more important in industries where the customer deals with more than one company for the same product or service. An example is the credit card industry where a customer can have credit cards of more than one company. •Managing this kind of migration effectively helps stop the downward spiral and brings about a reversal in spendstowardshigherfigures.Customer satisfaction, measured broadly, can indicate the likelihood of customers defecting. But it does not help •understandwhatmakescustomersloyal.Loyaltymayberelatedtothedifficultyoffindingareplacement.Customer satisfaction measurement alone does not explain the tendencies of customers to change their spending •patterns. Spending patterns may change as a result of changes in lives, changes in what the company or its competitors are offering. Thus, it is crucial to understand what factors actually drive loyalty.Researchers have combined the different degrees of loyalty exhibited with the spending patterns, into six •customer segments. Fig. 8.6 illustrates these in detail.Loyalists may be emotionally attached to their brands (emotive loyalists), don’t feel like taking the trouble •to switch (inertial loyalists) or rationally choose the best option (deliberative loyalists). The remaining three segments are the downward migrators, who spend less. Downward migrators may do so since their lifestyles have changed (lifestyle downward migrators), rationally reassess their options and needs (deliberative downward migrators)ormaybeactivelydissatisfiedwiththeproductorservice(dissatisfieddownwardmigrators).The emotive loyalists are least likely to defect. Inertial loyalists too are unlikely to switch easily. Thus, retention •activities aimed at the deliberative loyalists are the most rewarding.Loyaltyprofiling is influencedby factors suchas the frequencyofpurchase, the frequencyof interactions•suchasservicecalls,theemotionalorfinancialimportanceofapurchase,thedegreeofdifferentiationamongcompetitive offerings, and the case of switching.Theloyaltyprofilesconsistingofthesixsegmentsillustratedabovehelpdevelopdifferenttacticstoaddress•different segments. When this is combined with customer - value analysis, the company can concentrate on loyalty building by assessing the size of each opportunity. Downward migration has been reduced by 20 to 30 percent companies who have understood the many facets of customer retention and loyalty.


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Customer retention and arresting downward migration thus hold the key to superior business performance.•

Fig. 8.6 The dimensions of loyalty

8.7 Ten Characteristics of the World’s Strongest BrandsFollowing are the top ten qualities found in strongest brands in the world:

8.7.1 Delivering the Benefits that Customers Truly Desire

The brand should focus relentlessly on maximising the customers’ product or service experiences. There should •also be a system whereby the customers’ comments reach the person who can effect the change.Starbucks was a small-town coffee retailer in the early 80s. Then, while on vacation in Italy, Howard Schultz, •the Chairman was inspired by the romance and the sense of community he felt in Italian coffee houses. “It seemed so obvious,” Schultz says in the book ‘Pour your heart into it’. “Starbucks sold great coffee beans but we didn’t serve coffee by the cup. We treated coffee as a product, something to be bagged and sent home along with the groceries. We stayed one big step away from the heart and soul of what coffee has meant through the centuries.” Subsequently, Starbucks began to focus its attempts on building a coffee-bar culture, opening coffee houses like those in Italy. The extreme vertical integration paid off. Starbuckshassuccessfullydeliveredsuperiorbenefitstocustomersbyappealingtoallthefivesenses-theenticing•aroma of the beans, the rich taste of the coffee, the product displays and attractive artwork adorning the walls, the contemporary music playing in the background and even the cosy, clean feel of the tables and chairs.

Customer base behaviour

Loyalists

Emotive loyalists

Inertial loyalists

Deliberative loyalists

Lifestyle downward migrators

Deliberative downward migrators

Dissatisfieddownward migrators

Downward migration

Dimension of loyalty

BehaviourAttitude, needs, satisfaction

• Rarely reassess purchase decisions

• Strongly feel that chosen brand is best for them

• Infrequently reassess purchase decisions

• Uninvolved: do not consider change or feel it is not worth effort

• Frequently reassess purchase decisions

• Choose new brand through rational criteria

• Activelydissatisfied• May be prompted to

re-evaluate because ofspecific experience

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8.7.2 Relevance

In strong brands, brand equity is tied both to the actual quality of the product or service and to various intangible •factors. Those intangibles includes ‘user imagery’ (the type of person who uses the brand); ‘usage imagery’ (the type of situation in which the brand is used); and the type of personality the brand portrays (sincere, exciting, competent, rugged); the feeling that the brand tries to elicit in customers (purposeful, warm); the type of relationship it seeks to build with its customers (committed, casual, seasonal).Gillette pours millions of dollars into R&D to ensure that its razor blades are as technologically advanced as •possible, calling attention to major advances in sub-brands (Trac II, Atra, Sensor, Mach 3) and signalling minor improvementswithmodifiers(AtraPlus,SensorExcel).‘Relevance’ has a deeper, broader meaning in today’s market. Increasingly, consumer perceptions of a company •as a whole and its role in society affect a brand’s strength as well. In the Indian context, the Tata Group’s commitment to social causes has created an indelible impression of a •kind, concerned company. There is a feel-good factor associated with the brand.

8.7.3 Pricing Strategy based on Consumer’s Perceptions of Value

Therightblendofproductquality,design,features,costsandpricesisverydifficulttoachieve,butwellworth•the effort. Many managers are woefully unaware of how price can and should relate to what customers think of a product, and therefore they charge too little or too much. Horlicks has been one of the most admired brands in the country and also one of the most trusted. It accounts •for 75 percent of the total revenues of GSK India that amounts to about Rs.800 crores. Gradual price hikes had become a regular feature of the brand, but in 2002, the price crossed the psychological 100 rupee barrier. The markets where the brand was really strong (the east and the south) being extremely price sensitive, showed a sharp reaction to the price hike. Horlicks is in a position where it cannot command its price despite a near monopoly. At above 100 rupees for a 500 gm. pack, the pricing crossed the consumer’s perception of value.

8.7.4 Properly Positioned

Brands that are well positioned occupy particular niches in customer minds. They are similar to, and different •from,competingbrandsincertainreliablyidentifiableways.The most successful brands in this regard keep up with competition by creating points of parity in those areas •wherecompetitorsaretryingtofindanadvantagewhileatthesametimecreatingpointsofdifferencetoachieveadvantages over competitors in other areas.Perfetti, a $1.3 billion giant internationally, entered the Indian market with Alpenliebe. Today, the single brand •is worth Rs.160 crores in an Rs.1, 200 crore sugar confectionery market. The positioning has been perfect, ‘the family candy’. Advertisements have always featured the Indian joint family. Whether it is the poor old grandmother who has lost most sense but is quick to spot the Alpenliebe, or the naughty little boy of the house, the message has been clear. It has emerged the single largest brand in the sugar confectionery market today.

8.7.5 Consistency

Maintaining a strong brand means striking the right balance between continuity in the marketing activities and •the kind of change needed to stay relevant. The brand’s image should never get muddled or lost by a cacophony of marketing efforts that confuse customers •bysendingconflictingmessages.DettolfightsgermsineveryIndianhousehold.Itensuresthatchildrendon’tfallillandareabletorecord100•per cent attendance in school. It kills germs accumulated in the marketplace, crowded public transport and playing in the dirty mud. Dettol has been consistent with its image and its product and has almost become a generic disinfectant.


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8.7.6 Sensible Brand Portfolio and Hierarchy

Most companies do not have only one brand. They create and maintain different brands for different market •segments. Different brands within a company hold different powers. The corporate brand acts as an umbrella. Brands at each level of hierarchy contribute to the overall equity of the portfolio through their individual ability •to make consumers aware of the various, products and foster favourable associations with them.HyundaiMotorsinIndiaisastellarexampleofthis.TheyfirstintroducedtheSantroatthepriceoftheMaruti.•Promisinggreaterfuelefficiency,theyentrenchedthemselvesintothemindsandpocketsoftheprice-consciousIndian customer. Then they came up with the Accent, which was priced slightly above the Esteem, but which looks far superior and the guarantee of good performance already established by the Santro. Finally came the Sonata, modelled on the Jaguar and priced just right to justify the luxury tag. Hyundai Motors •has created three different sub-brands, each with a distinct image and its own source of equity.

8.7.7 Perfect Use of Marketing Activities

At the basic level, a brand is made up of all the marketing elements that can be trademarked - logos, symbols, •slogans, packaging, signage and so on. Strong brands mix and match these elements to perform a number of brand-related functions, such as enhancing or reinforcing consumer awareness of the brand or its image and helping to protect the brand competitively and legally.Coca-Cola makes excellent use of many kinds of marketing activities. These include media advertising, •promotions and sponsorship. There is also direct response through the Coca-Cola catalogue which sells licensed coke merchandise and interactive media, the company’s website which offers among other things, games, a trading post for collectors of Coke memorabilia, and a virtual look at the world of Coca-Cola museum in Atlanta. Through it all, the company reinforces its key values of ‘originality’, ‘classic refreshment’ and so on. The brand is always the hero.

8.7.8 Understanding what Brand Means to Consumers

Managers of strong brands appreciate the totality of their brand’s image - all the different perceptions, beliefs, •attitudes and behaviours customers associate with their brand, whether created intentionally by the company or not.Asaresult,managersareabletotakedecisionsabouttheircompanywithconfidence.In today’s age of global brands, a brand’s image may not be the same throughout the world. Honda means quality •and reliability in the US, but in Japan, where quality is given for most cars, Honda represents speed, youth and energy.Coke’s‘paanch’campaignfortheruralmarketwith‘thanda’thatsignifiedacolddrinkinrurallingowas a clear winner because it understood what coke meant to its village customers.

8.7.9 Long Sustainable Support

Brandequitymustbecarefullyconstructed.Afirmfoundationforbrandequityrequiresthatconsumershave•the proper depth and breadth of awareness and strong favourable and unique associations with the brand in their memory.In November 2002, all hope was extinguished at Real Value, the manufacturers of Cease Fire extinguishers. •Asked to wind up by BIFR, a brand that had good recall, a catchy name and had become the tenth fastest-growing brandinthecountrywasnomore!Surely,somethinghadgoneinexplicablywrong.Thebrandwaslaunchedwithgreatfanfare,butthefinancialmuscletosupportitinthelongrunwassimplynotthere.

8.7.10 Monitors Sources of Brand Equity

Strong brands generally make good and frequent use of in-depth brand audits and on-going brand tracking •studies. A brand audit is an exercise designed to assess the health of a given brand. Typically, it consists of a detailed internal prescription of how exactly the brand has been marketed (brand •inventory) and a thorough external investigation through focus groups and consumer research of what it could mean to consumers (brand exploratory).

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In the late 1980s, Disney became concerned that some of its characters like Mickey Mouse and Donald Duck •werebeingusedinappropriatelyandwereoverexposed.Disneylauncheditsfirstmajorconsumerresearchtoinvestigate how consumers felt about the Disney brand.DisneycharacterswereassociatedwithTidedetergent,wheretheconnectionwasabsolutelymissing!Same•withthecaseofJohnsonwax,diapers,carsandhamburgers!ConsumersfeltthatnotonlydidDisneyaddnovalue to the associated product; it also involved children in a decision that they would have otherwise ignored. Disney moved quickly to establish a brand equity team, to better manage the franchise and more selectively evaluate licensing and third party promotions.


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SummaryBrand identity is the sum of the brand expressed as a product, organisation, person and symbol. Brand valuation •means measuring the value of brand loyalty, customer relations, workforce, etc.Brand Image and brand personality is one and the same. Brand image is the totality of the impressions about the •brand. The total impression includes physical, functional and psychological aspects of the brand. Brand image is the measurable aspect of the brand. Many researchers argue that the word brand image is something much more intuitive and overarching than just attitude measure.Brand personality and brand image are two different dimensions of any brand. Brand image is how the brand •is perceived by the customers, whereas brand personality is the cause while brand image is the effect. Brand personalityisthesumtotalofallthesignificanttangibleandintangibleassetsthatabrandpossesses.Philip Kolter says, “Building the brand identity requires decisions on the brand’s name, logo, colours, tag line, •and symbol. At the same time a brand name is much more than a name, logo, colours tag line and symbol. A brandisessentiallyamarketer’sabilitytosticktothepromisestodeliveraspecificsetoffeatures,benefitsandservices consistently to buyers.”Brand valuation can be seen from two angles – tangibles valuation and intangibles valuation. One of the major •ingredients of brand intangibles is brand loyalty.Loyalty is at the heart of equity and is one of the important brand assets. Brand loyalty is a conscious or •unconscious decision expressed through intention or behaviour to repurchase a brand continually.It is important to measure customer retention since this helps to set benchmarks and gauge performance against •this benchmark. Without measuring customer retention it cannot be managed.In service marketing, customer retention has been conceptualised as resulting from customer perceptions of •service quality and customer satisfaction.

ReferencesBrand Loyalty, [Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/what-is-brand.•htm> [Accessed 11th March 2011].Kapferer J.N., 2008. • The New Strategic Brand Management, 4th edition, London, United Kingdom, Kogan page Publishers. pp.171 –180.

Recommended ReadingBrand Image, [Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/brand-image.•htm> [Accessed 11th March 2011].Kotler. P., Pfoertsch W., Michi I., 2006. • B2B Brand Management. Springer Berlin. Heidelberg, Germany; Springer. p.357.Verma H.V., 2006. • Brand Management: Text and Cases. 2nd edition, Excel books, p.473.

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Self Assessment

_______________ is the sum of the brand expressed as a product, organisation, person and symbol. 1. Brand identitya. Brand imageb. Brand valuationc. Brand userd.

Which of the following means measuring the value of brand loyalty, customer relations, workforce, etc?2. Brand imagea. Brand valuationb. Brand featuresc. Brand evaluationd.

Which of the following is true?3. Brandfeaturehasthreecomponentslikeproductattributes,consumerbenefitsandbrandpersonality.a. Brandimagehasthreecomponentslikeconsumerattributes,marketbenefitsandbrandpersonality.b. Brand image has two components like product attributes and brand personality.c. Brandimagehasthreecomponentslikeproductattributes,consumerbenefitsandbrandpersonality.d.

Which of the following is false4. Retention of employees and investors has no relation with retention of customers. a. Disloyal employees are not motivated enough to build a base of loyal customers.b. Itisimportantforthefirmtounderstandthereasonsthatmakecustomersswitch.c. Understandingthecausesofswitchingwillhelpthefirmdevelopbarrierstopreventswitching.d.

______________ is a conscious or unconscious decision expressed through intention or behaviour to repurchase 5. a brand continually.

Brand valuationa. Brand imageb. Brand identityc. Brand loyaltyd.

Which of the following is true?6. Brand loyalty can be seen from two angles – Tangibles valuation and Intangibles valuation.a. Brand valuation can be seen from two angles – Tangibles valuation and Intangibles valuation.b. Brand valuation can be seen from two angles – Product valuation and Intangibles valuation.c. Brand valuation can be seen from only Intangibles valuation.d.

The image, which is derived from the company/brand can be called_____________ driven image.7. producta. processb. providerc. buyer d.


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Which brand image is derived from the lifestyle of the users?8. User driven imagea. Product driven image b. Provider driven imagec. Company statement imaged.

_______________isthesumtotalofallthesignificanttangibleandintangibleassetsthatabrandpossesses.9. Brand imagea. Brand personalityb. Brand valuationc. Brand featured.

_________________is the consumer’s perception of what the brand stands for.10. Relationshipa. Physiqueb. Reflectionc. Self imaged.

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Chapter IX

Brands Over Time, Brand Positioning and Consumer Behaviour

Aim


explore the brand life cycle•

study how to manage brands over time•

elucidate the positioning strategies by Philip Kotler•

Objectives


determine the brand positioning and repositioning•

understand the difference between trademark, loge, symbol, mascot and so on•

examine brand marketing and consumer buying behaviour•

Learning outcome


state and reproduce the six uses of celebrity endorsements•

reproduceinvestment,profitabilityandcashflowsandbrandlifecycle•

discuss the r• elation between brand celebrity and consumer behaviour


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9.1 IntroductionOnce a brand is created, to safeguard the investment, the marketer must review the brand at regular intervals, so that the brand keeps pace with the changing needs of the consumers. For example, during 2004, P&G aggressively reduced the prices of its detergent brands like Tide and Ariel. Though HLL’s Surf is strong or a power brand; HLL understoodnewexpectationsandfulfilledthesethroughSurfExcelBlue,italsoreducedtheprice.Brand positioning is the art of creating a distinct image in the minds and hearts of customers. For example, whenever somebodythinksofantisepticliquid,thefirstthingthatcomestohis/hermindisDettol.Duringthebrandmanagingbrands over time, brand positioning and consumer behaviour life cycle, the marketer may have to re-position the brand manytimestoutilisethebrandnameforprofitability.Manymarketershavedonere-positioningtwiceorthrice.

Consumer behaviour is strongly associated with brand logos, signs, mascots, celebrities, etc. Managing these tangibles with the intangible image of the brand is the big challenge for any marketer.

9.2 Managing Brands Over TimeApart from advertising, customers know about brands through a range of contacts and touch points like personal •observation and use, word of mouth, meeting company personnel, telephone experience, seeing web pages, etc. Any of these experiences could be positive or negative. The marketer must put in as much quality in managing these experiences as it does in producing ads.The marketers must balance communication expenditure among the main communication media. These include •seven communication vehicles viz. advertising, public relations, trade and sales promotion, consumer promotions, direct marketing, event marketing and internal employee communications.In the 21st century, marketers are increasingly moving their brand management budgets to public relations, •direct marketing, event marketing and employee training. For example, Reliance Ind. Ltd. does not leave any event and spends Rs. 450 crores in employee training.Oneofthemajorinfluencesonbrandperceptionistheexperiencedcustomershavewiththecompany’spersonnel.•For example, in telecom services marketing, even a telephone operator is important person. Therefore marketers need to train its employees regarding their products and services so that their enthusiasm will spill over to the customer. For example AT & T, Videocon, LG, Tam, ICICI, Titan, BPL, ITC and Ashok Leyland have succeeded in creating enthusiastic employees.Marketers must go one step ahead and train and encourage their distributors and dealers to serve their customers •well. Poorly trained dealers can ruin the best of efforts made by the company to build a strong brand image. Nokia, Samsung are very aggressive in training dealers’ salesmen whereas BSNL, though a low price telecom serviceprovider,isnotabletobuildasignificantimageduetotheslow,unresponsiveserviceprovidedbyitsdealers.From the above discussions, we might say that managing a company’s brand can no longer be entrusted to •only brand managers. The brand manager may not have enough power and scope to do all the things that are necessary to build and enhance the brand. Companies’ incentive systems may drive them to pursue short-term results, whereas managing brands calls for longer-term strategy and more inclusive managing brands calls for longer term strategy and more inclusive teamwork.Marketers have started establishing brand management teams to manage their Power Brands or Super Brands. •For example, in India, the pioneer was HLL and then immediately followed by Britannia, Amul, Cadbury’s, etc. These marketers have appointed ‘brand equity managers’ to maintain and protect the brand image, association, quality and to prevent short term tactical actions by overenthusiastic brand managers from hurting the brand. Brand Equity managers also have to handle unexpected negative publicity as happened with Cadbury’s in •1993 and 2003 and with Coca Cola during 2003. While negative information about a brand might drive some consumers away, others remain loyal. How negative information affects buying decisions is determined by consumers’ commitment to brand.

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9.3 Brand Life Cycle

Brand Life CycleBrand

Management Strategies

Introduction Growth Maturity Decline

Distribution Build selective distribution

Build intensive distribution

Build more intensive distribution

Go for selective & exclusive distribution phase out unprofitableoutlets

Advertising

Build brand awareness across early adopters & dealers

Build awareness and interest in the mass market

Stress brand difference & benefits

Reduce advertising only to retain loyal customers

Sales

Use heavy sales promotion to accelerate trial use

Motive dealers tofulfilheavydemand and boost the sales

Increase sales promotion to encourage brand switching

Reduce to rock bottom

Table 9.1 Brand life cycle

9.3.1 Investment, Profitability and Cash Flows and Brand Life Cycle

Fig. 9.1 Investment, profitability and cash flows and brand life cycle

Introduction phase: Lot many investments (resources) are needed to build and grow a new brand. The consumer •and distributors’ acceptance grows, sales increase, and the brand moves to the growth phase.Therateofincreaseofbrandsalesisrapid.Satisfiedconsumersspreadwordofmouthandnewcustomersaswell•repeat sales grow. During this phase, the marketer needs to support the brand through reasonable investments andsupportthroughdistributors;themarketermightbreakevenandgainatinyprofit.If a brand is maintained properly, it would enter into the maturity phase or every chance of direct entry to •decline is possible. During the maturity phase, the marketer is able to consolidate the market share and hence experiencesverygoodprofitability.


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If the brand is not supported with brand extensions and appropriate distribution support, it might perish and •henceincurnegativeprofits.Ifthemarketerwantstorevivethebrand,hugeinvestmentwouldberequired.

Fig. 9.2 Brand investment

9.4 Brand Portfolio ManagementManaging a portfolio of brands poses many challenges. Any laxity in managing them will not only have its •effectonmarketingandcreateconfusionforcustomersbutwillalsoaffectcorporateprofitability.This is all the truer in during slowdownwhen under- performing brands in the portfolio are deficient to•divest. A portfolio of brands can be managed most effectively by gathering data about equity in each brand and a •particular brand’s economic contribution.

9.4.1 Brand Portfolios are Running Amok

The 1990s have seen an increased activity in mergers and acquisitions. As a result, many corporate brand •portfolios have been subject to a shake-up with new brands coming into their fold and often companies have founditdifficulttomanageproperallocationofresourcesamongthem.In the case of large corporate houses that thrive on master brands, placing the newly acquired brands under the •masterbrandshasbeenadifficulttaskbecauseoftheinherentdifficultyforthemasterbrandtoberelevantinthe new territory associated with the new brands that comes in. Senior executives in many companies often face difficultyindeterminingthebrandportfoliothatmaximisesthereturnoninvestment.Some of the common uncertainties relating to this are whether they can remove the brand from the portfolio •withoutaffectingtheprofitabilityofotherbrandsintheportfolio,canthebrandbesuccessfullyrepositioned,deciding which brand should be global and which brand should be local, should some brands in the portfolio actasafirewalltotheotherbrands.

Whenbrandswithinaportfolio lose theirdifferentiation, ithas severeeffectson theprofitsof a company.Toeffectively manage the portfolio of brands, companies should follow four rules:

Align the brand portfolio with business designTo be successful, branding decisions should be tied to the business designs. Managers should simultaneously •look at the usefulness of having business brands and the need to manage a complex portfolio of brands.Managingtheseconflictingactivitiesisacomplextaskanddependsonthesetofcustomersbeingservedand•the different channels of access.

Low High

Decline

Introduction

Maturity

Growth

* HighcashflowInvestment for revival

* High investment* Negativecashflow

* Positivecashflow

* High investment* Zerocashflow

Low

High

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Consider Building the Pyramid:Many companies manage portfolio of brands as a set of unrelated brands. This leads to thinning differentiation •betweenbrands.Companiescanbenefitbybuildingapyramidofbrands,creatingbrandsatdifferentpricepointsor catering brands tailored to different segments.This approach requires companies to take care of the bottom of the pyramid, due to its susceptibility to attack •from low cost manufacturers who usually grab the market through aggressive pricing.

Grow winners and harvest losersNewbrandstotheportfoliocanspruceupmarketpenetration,butinasloweconomy,companiescanbenefit•fromfocusingonafewpowerfulbrandsthatusuallyenjoybenefitslikepremiumprice,economiesofscaleandefficientdistribution.Unilever has aggressively pursued the strategy of cutting down the number of brands from 1600 to 400 power •brands.Theunprofitablebrandswillbeeithersold,eliminatedorwillbebroughtundertherelatedpowerbrandumbrella.

Play the cards you are dealtCompanies having strong brands usually try to stretch their brands to unrelated areas. •This often results in the existing brand equity. Starbucks realised this when they sold branded furniture. Instead •companies can be more effective when building a new brand or buying a new one.

Implications for skills and the organisationAcompany’sunderstandingofbrandequityanditseconomiccontributiontoprofitabilitywillhelpindeveloping•a winning brand portfolio. The insights that are gained from this understanding should drive the organisation towards better management •of the portfolio of the brands; Companies that execute the portfolio approach will have reward systems in place that for employees who further the cause of the entire portfolio and not individual brands. Dupont has realised that using different sales people and Managing Brands Over Time, Brand Positioning and •Consumer Behaviour channels to sell different brands to the same contractor may not be as effective as an integrated sales approach.The marketing and brand building efforts have often been at cross-purposes. But for a better management of •theportfolioofbrands,thereshouldbecoordinationbetweenthefunctions,leadingtoefficientfunctioningoftheorganisationandbenefitfromthebrandstodrivegrowth.

9.5 Managing a Brand and Customer Value9.5.1 Label

“Brand” is one of the most indiscriminately used and therefore, abused words in the marketplace today. •Manyofthemcreateanillusionofbeingabrandthroughtheirhighprofilecampaigns,celebrityendorsements,•etc. The hype is short-lived and so is its existence in the market. Let us call such vanishing Brands - Labels.

9.5.2 Products - Labels - Brands

Products:Factoriesmanufactureproducts.Productsconformtosomespecificationsandcomplywithsomequality•standards. All the product descriptors carry engineering or manufacturing terminology, which cannot be grasped by the customer. The products have some features, which are not necessarily understood by the customer. Hence, the best of the products may not be noticed and appreciated by the customers.•The feature needs to be translated into advantage to the customer, for him/her to notice it. The product features get •translated to Functional Value Propositions (FVP) for the customer. The superiority of the functional proposition is the key to success in the market. It creates a rational reason or appeal for the customer. The customer can compare the FVPs, think and take a conscious decision.


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Asuperiorproductcanredefinethemarket;dislodgetheexistingproductinthemarket.Itishowevervulnerable•to any new product offering a better functional value Proposition. The better functional value proposition could be also be offered by offering similar functionalities at lesser price. Thus, products offering just functional value proposition are quite vulnerable.Brands: A better safeguard is to offer the customer an emotional reason to purchase over and above the functional •one.LetuscallitEmotionalValueProposition(EVP).Theemotionalreasonisdifficulttobereplicatedbythecompetitor; hence, even if the competitor matches the FVP, EVP creates the immunity. The customer starts seeingadefinitebenefitinassociatingwithit.Successfulbrandsowntheemotionsinthecustomer’smind.Thecustomers associate the feeling of safety with Volvo and trustworthiness with TATA.Labels: However, the EVP follows FVP in the value chain. Mere EVP in the absence of FVP does not lay any •foundation for long-term brand building. Thus, anything that offers either FVP or EVP is referred to as “Labels”. Needlesstosay,Labelsdonotofferanyself-expressivebenefittothecustomers.

9.5.3 Effect of Communication on Labels and Brands

The difference in value propositions creates the distinction between Brands and Labels. However, effective •communication is quite capable of bridging this gap very easily.A Label with very effective, high decibel and high visibility communication can easily create an illusion of •being a brand. The communication may be very catchy with extremely high recall. The customer may cherish the communication, be amused by it. But it may not lend itself effectively to build a brand.Emotional Labels are those, which offer just the emotional value and don’t back it up with a tangible value •proposition. The case of Home Trade is an ideal example. Home Trade connected extremely well with customers emotionally almost instantly. The brand ambassadors, the storyboard and the screenplay of the ads created an immediate positive feeling, which was never backed up by solid functional value. It perished as a result.On the other hand, there are quite a few examples of very effective communication about the product offering •the customer without generating favourable emotions. For instance, out of close to 50 Tea brands tracked in NRS 2002, there is only one brand that has made to the Super brand status in India. Each brand offers a tangible functional value proposition, the missing link is emotional connect. These can be termed as functional labels.Both types of Labels fail to lay the foundation of long-term brand building. Functional Labels may generate •trials in logical, left brained customers. But the customer’s loyalty is not guaranteed. The customer is always evaluating and looking for better products/bargains. The Label has to take the same, if not better, amount of efforts every time to win the same customer.Emotional Labels merely create a feel good factor. Any Brand experience that is created out of this feeling is •most likely to end up in customer dissonance due non-performance of the product on the required parameters.

9.5.4 The Mental List

Customershaveafinitememory.Thereareonlyafinitenumberofbrandnames,logos,valuepropositionsthat•canbestoredthere.Theentireprocessofmakingadecisionissimplifiedbycreatingamentallistofbrands.A brand can win the prized place in the mental list once it proves itself on the hostile scrutiny of the credentials •by the customer. Such a list is created for all the categories, even for those, which are considered impulse purchase categories.In a shop intercept study conducted by Vertebrand among 100 randomly selected customers in Bangalore, 89% •were pre-decided on the brand of potato chips they would have bought in case they decide to buy one. The list is invoked at the time of the purchase decision.The brands in the mental list have a headstart. The other brands have to prove their mettle to win the purchase •decision in their favour. The list is updated all the times, while evaluating the brand, watching its ads, using competitive brands, talking to friends, watching a movie, etc.

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9.5.5 The Acid Test

Brands hold a long-term competitive edge over all the Labels. The emotional connect coupled with strong •functional value creates a long lasting relationship with the customer. Naturally, having a portfolio of successful brands is the aim of any marketer. But they need to be very careful about their portfolio.They need to continuously scrutinise the portfolio to separate the Brands from the Labels. All the popular •parameters such as ad recall, repeat purchase rate, etc. fail to do it. Here is a small test to do this. Just ask the customer, whether she “thinks” about your brand. Peep in his/her mind to know whether your Brand owns a placeinhis/hermindscape.IfyourBranddoesso,itindeedisaBrand;otherwiseitisapoorLabel!

9.6 Brand Positioning and Re-positioningPhilipKotlerdefinespositioningas,“Positioningstartswithaproduct,apieceofmerchandise,aservice,a•company, an institution, or even a person....... But positioning is not what you do to a product. Positioning is what you do to the mind of a prospect. That is, you position the product in the mind of the prospect.”A competitor may have three strategic alternatives as follows:•

Prepare perceptual map and strengthen current position in the consumer’s mind like R& C does for �Dettol.To grab unoccupied position. For example Coke positioned ‘Slice’ soft drink as ‘snack food’. �To de-position or re-position the competition in the customer’s mind. �

9.6.1 Success in Positioning

Whatever may be the product/service and whatever may be the customer segment; each customer perceives •three value disciplines like technological frontier (product leadership), highly reliable performance (operational excellence) and high end responsiveness in meeting their individual needs (customer intimacy).The marketer needs to adapt the following rules to ensure success while positioning the brand.•

Become best at one of the three value disciplines as explained. �Achieve an adequate performance level in other two disciplines. �Keep improving one’s superior position in the chosen discipline so as not to lose out to a competitor. �Keep becoming more adequate in the other two disciplines, because competitors keep raising customer �expectations.

9.6.2 Positioning ErrorsMarketers must try to avoid the following positioning errors:

Under positioning• Since marketers do not research enough, the brand is seen as just another entry in an already crowded market �and hence customers have a vague idea of a brand. For example ‘Blue-Pepsi’ and ‘Vanilla-Coke’, etc. �

Over positioning• Consumers may have too narrow an image of a brand and hence consumers might have an ill image on �price. For example ‘Tanishq Jewellery’ and ‘Asmi Diamond’. Similarly contact lenses, initially had such an image, �which was wiped out by Bosch & Lamb.

Confused positioning• Ifmanybenefitsareclaimedfromonebrand,theconsumerisconfused.Forexample,during1998-2000,the �brand‘ProtekSoap’waslaunchedwhichclaimedbenefitslikepimpleremover,fairnessofskin,deodorant,etc.Nobody believed in it and hence the brand has gone to the dogs. �


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Doubtful positioning• Buyersmayfindithardtobelievethebrandclaimsinviewoftheproduct’sfeatures,priceorthereputation �of the manufacturer.For example, Daewoo’s Cielo car was being sold at Rs.4.90 lakhs. Looking at the size of the car and reputation �of the company, it developed negative publicity and ultimately the production of the car was stopped.

9.6.3 Positioning Strategies as Per Philip KotlerPhilip Kolter suggests the following positioning strategies for a theme park:

Attribute positioning: The marketer can position itself on any one or any attributes, such as size or number of •years in existence. For example Disneyland advertises itself as the largest theme park in the world.Benefitpositioning:Theproduct ispositionedastheleader inacertainbenefit,saylikeathemeparkwith•fantasy experience.

Use or application positioningPositioning is using the product at best for some use or in any application. For example, theme park which •entertains in the shortest possible time.User positioning - Positioning as best for some user group, say like a theme park is best for thrill seekers.•Competitor positioning - The product claims to be better in some many than a named competitor, say like a •theme park with greater variety of animals than any other such park.Product category positioning – A product can be positioned as the leader in a certain product category, say like •theme park as a great educational institution.Quality or price positioning - The product is positioned as offering the best value, say like theme park visit as •value for money.

9.6.4 Brand Re-positioning

Re-positioning or de-positioning is changing the positioning of a brand. With a particular positioning, a brand •may work say for 3-5 years and then sales start declining. In case of Cadbury’s one particular positioning ‘For kids’ worked for 23 years (1970-1993). Similarly positioning like ‘Tandurusti Ki Raksha’ worked for Lifebuoy for 40 years (1960-2000AD). However •brands which were launched in the 1990s and 2000s, require re-positioning due to the changing needs of consumers. If a marketer does not respond quickly to market needs, the brand may perish. A brand could be re-positioned in the following ways.

increasing relevance to customer �highlighting more occasions for usage �identificationofappropriateposition �making the brand serious �to counter attack on falling sales �inducing or creating new customers �highlighting as a most contemporary brand �to sustain changed market conditions �

9.7 Brand Marketing and Consumer BehaviourThe brand is a name, term, symbol, words, etc. used to differentiate the marketer’s products/services with the competitor’s. Brands have added values of symbolism meanings and values over and above their physical constituents.

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Consumers perceive brands in their own personal way and attach their own values to them and the symbolic interpretation of each brand varies according to age, income, and sex education of the target audience. Hence the brand’s symbolic meaning cannot be the same for all. How the target customer responds to brand celebrities, logos, icons, etc. is very much essential in brand marketing. Let us study each one step by step.

9.7.1 Celebrity Endorsements as a Strategy

Signing up stars for endorsements is a time-tested strategy and has been effectively used by some of the top •brandsintheworldincludingNikeandPepsi.InIndiatoo,HLLhasusedHindifilmstarstoendorsetheirbeautysoapLuxsincethefifties.Vimal,ThumpsUp,GwaliorandDinesharesomeoftheotherbrandsthatusedstarappeal in the early days of mass advertising. And who can forget Kapil ‘Palmolive’ Dev?Ask about the objective of using a celebrity in an ad and most admen will talk about making an impact on •thebottom-line.Theybelievethatstarendorsementshaveseveralbenefits,keyamongthembeingbuildingcredibility, fostering trust and drawing attention ... any or all of which can translate into higher brand sales. So how does one decide whether to put a celebrity in an ad? Ideally, this should be dictated by the communication idea. At times celebrity endorsement is used to build credibility to the brand offer.Most experts concur that, when used judiciously, celebrity endorsements can be an effective strategy. “Using •a celebrity by itself is not a bad idea provided it is done intelligently”. And there are many examples of good and bad use of celebrities. Take Amitabh Bachchan who has been used by some companies like Parker Pens and ICICI Home Loans remarkably well while some others have been unable to exploit his Big B status too well. Shah Rukh Khan’s endorsement of Hyundai Santro too seems to have worked well. Cricketers like Rahul Dravid for Castrol in an attempt to break out of the clutter, as well as to have an image rub off of ‘dependability’ onto the brand. Celebrity endorsements are capable of manifesting both favourable and adverse effects for the brand with which •they associate. Let’s analyse both.

9.7.2 Six Uses of Celebrity Endorsements

Establishes Credibility: Approval of a brand by a star fosters a sense of trust for that brand among the target •audience. This is especially true in case of new products.Attracts Attention: Celebrities ensure attention of the target group by breaking the clutter of advertisements and •making the ad and the brand more noticeable.AssociativeBenefit:Acelebrity’spreferenceforabrandgivesoutapersuasivemessage-becausethecelebrity•isbenefitingfromthebrand,theconsumerwillalsobenefit.Psychographic Connect: Stars are loved and adored by their fans and advertisers use starts to capitalise on these •feelings to sway the fans towards their brand.Demographic Connect: Different stars appeal differently to various demographic segments (age, gender, class, •geography, etc.).Mass Appeal: Some stars have a universal appeal and therefore prove to be a good bet to generate interest •among the masses.

9.7.3 Brand Marketing and Consumer Buying BehaviourPerspectives on customer loyalty

Customer loyalty presents a paradox. Many see it as primarily an attitude based phenomenon that can be •influenced significantly by customer relationshipmanagement initiatives such as the increasingly popularloyaltyandaffinityprogrammes.However, studies show that loyalty in competitive repeat purchase markets is shaped more by the passive •acceptance of brands than by strongly held attitudes about them. From this perspective, customer loyalty can be best explained as three distinct models as detailed below:•

Model 1: Loyalty as primarily an attitude that sometimes leads to a relationship with the brand. �Model 2: Loyalty mainly expressed in terms of revealed behaviour (i.e. the pattern of purchases). �


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Model 3: Buying moderated by the individual’s characteristics, circumstancesand / or the purchase �situation.

Model 1: Loyalty as primarily an attitude that sometimes leads to a relationship with the brandMany argue that there must be strong “attitudinal commitment” to a brand for true loyalty to exist. This is seen •as taking the form of consistently favourable set of beliefs towards the brand purchased. These attitudes may be measured by asking how much people say they like the brand, feel committed to it, will •recommend it to others, and have positive beliefs and feelings about it – relative to competing brands.The strength of these attitudes is the key predictor of a brand’s purchase and repeat patronage. Analyses of cases •such as Federal Express, Pizza Hut franchises and Cadillac dealerships reveal that attitudinally loyal customers are much less susceptible to negative information about the brand. Moreover, the revenue stream from them becomes more predictable and can become considerable over time. •Anextensionofthe“attitudesdefineloyalty”perspectiveistosuggestthatconsumersformrelationshipswith•some of their brands. So much so that loyalty becomes a committed and affect-laden partnership between consumers and brands. It is a partnership that will be even stronger when supported by other members of a household or a buying group, and where consumption is associated with community membership or identity. Examples in support of this argument include Skoal smokeless tobacco among some North American cowboys, •the Beanie Babies craze and the classic case of Harley Davidson bikers. Managerial measures:•Strengthening emotional commitment of buyers through image-based or persuasive advertising and personal •service programmesDesigning loyalty programmes for strengthening commitment and creating velvet handcuffs to bond the customer •to the brand

Fig. 9.3 Model 1 - Loyalty as primarily an attitude that sometimes leads to a relationship with the brand

Model 2: Loyalty mainly expressed in terms of revealed behaviour (i.e., the pattern of purchases)This is the most controversial, yet the best supported by data. The controversy comes about because loyalty •in this model is explained mainly with reference to the pattern of past purchases with only secondary regard to underlying consumer motivations or commitment to the brand. Studies indicate that few consumers are “monogamous” (100 percent loyal) or “promiscuous” (no loyalty to any brand). Rather most are “Polygamous” (i.e. loyal to a portfolio of brands in a product category). From this perspective, loyalty may be explained as “an ongoing propensity to buy the brand, usually as one of the several”.

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In this case, researchers tend to adopt a market focus (e.g. key performance measures are brand shares, penetration, •averagepurchasefrequencies,repeatbuyingforadefinedperiod).Loyaltyhereisinferredtooperateinthefollowing manner. Through trial and error, a brand that provides a satisfactory experience is chosen. Loyalty to the brand (measured by repeat purchase) is the result of repeated satisfaction that in turn leads to a weak commitment.The consumer buys the same brand again, not because of any strongly held prior attitude or deeply held •commitment, but because it is not worth the Managing Brands Over Time, Brand Positioning and Consumer Behaviour time and trouble to search an alternative. If the usual brand is out of stock or unavailable for some reasons, then another functionally similar (or substitutable) brand (from the portfolio) will be purchased. However, with the over repeated purchases, a weak commitment to the number of brands purchased in a product •category can be formed. Those who subscribe to the “attitude drive behaviour” and “relationship” approach rule out the revealed behaviour as a dominant measure of loyalty.

Managerial measuresBuyers are sceptic about ads and aloof towards loyalty schemes. Hence managers maintain their share of category •sales by matching competitor initiatives and by avoiding supply shortages.Loyalty programmes are launched to match competitors or only as publicity generating gestures.•Growth is achieved via increased market penetration.•

Fig. 9.4 Loyalty mainly expressed in terms of revealed behaviour

Model 3: Buying moderated by individual’s characteristics, circumstances and / or the purchase situationsComponents of Model 3, the contingency approach, argue that the best conceptualisation of loyalty is to allow •the relationship between attitude and behaviour to be moderated by contingency variables such as the individual’s current circumstances, their characters and / or the purchase situation faced.That is, a strong attitude towards a brand may provide only a weak prediction of whether or not the brand will be •bought on the next purchase occasion because any number of factors may so determine which brand is deemed tobedesirable.Individualcharacteristicsarereflectedinthedesireforvariety,habit,theneedtoconform,thetolerance for risk, etc. Purchase situation effects include product availability, promotions / deals, the particular use of occasion (e.g. gift, personal use, family use), etc. A three factor model emerges based on antecedents (including weak prior attitudes and characteristics of the •consumer), contingency factors (including type of use of occasion and the purchase situation) and consequences (up-dated attitudes, intentions and the actual purchase behaviour).The difference between this contingency perspective and the attitude perspective is that the contingency variable •is elevated from the status of loyalty inhibitors in Model 1 to loyalty co-determinants in Model 3. Attributes of the individual and the purchase situation are conceptualised as “nuisance” variables that inhibit the natural


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evolution of customer loyalty whereas in the contingency model these variables are seen as playing a primary and inescapable role in explaining the observed patterns of purchase behaviour.This is even more evident where attributes are weakly held. Here it is repeated satisfaction and weak commitment •that together with other relevant contingency variables co-determine future brand choices.

Managerial MeasuresProsaic factors are emphasised on like, avoiding stock-outs, extending opening hours, offering the appropriate •assortment mix. Having 24 hour call centres, providing online access, etc.Price promotions, deals and special offers are used to attract the customers of competitor brands.•Loyalty schemes may be used by those who operate in markets with very little product / service differentiation •– many of these can be seen as continuous promotional programmes.An image-building programme may also be run along with the above.•

Fig. 9.5 Model 3- Buying moderated by individual’s characteristics, circumstances and/or the purchase situations

9.8 Conceptual Implications of the Approaches to LoyaltyThe aforesaid three perspectives of loyalty can be related to a framework for understanding customer loyalty •that encompasses Customer Brand Acceptance (CBA), Customer Brand Commitment (CBC) and Customer Brand Buying (CBB).Alltheseloyaltypatternsprofilecustomers,notbrandspersei.e.consumersaredistributedacrossthecurves•with respect to their loyalty to a brand. For instance, most customers may accept a number of airlines while a few customers may be committed to one or two airlines and some others may buy purely on the price / route combination. These people’s air travel schedules may result in them having quite a few brands in their portfolio. The loyalty patterns are elaborated hereunder.

9.8.1 Customer Brand Acceptance (CBA)

Brand distinctiveness affected•The concept of Customer Brand Acceptance (CBA) is the base case of customer loyalty in competitive �repeat purchase markets. It draws heavily on Model 2, but also brings together some elements of Model 1 and 3. The contribution ofModel 2 is that customers exhibit loyalty to a number of brands because there is little reason to develop �attitudinal loyalty to any one of the brands purchased. A prime reason for this is that a proliferation of brands in most markets has destroyed one of the key reasons for exclusive loyalty, viz. Brand distinctiveness.

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Need arousal is a trigger to the purchase process•TheconceptofCBAcanbewellelucidatedintermsofthefive-stagemodelofcustomerchoice(SeeBox- �Customer Brand Acceptance). Need arousal is included as a trigger to the purchase process but this operates mainly on product category decisions, not brand based ones. For instance for a desire to stay sober, the need is for low alcohol beer, but not necessarily for any particular brand of low alcohol beer. Since this is a model of ongoing CBA frequently purchased products, the (external) information search and evaluation stages are assumed to have been completed after the initial one or two purchases in the category and so are not explicitly included in the diagram. Choice among the functionally equivalent alternativewill reflect the accessibility, availability and �conspicuousness of the brand at the point of purchase. Most likely this will be seen as a set of acceptable brandsthatareorderedasfirstfavourite,secondfavourite,thirdfavouriteandsoforth.Typically,therelativelikelihood of buying each brand will endure over successive purchase cycles, assuming the brands remain functionally adequate and accessible. Satisfaction with past purchases and any consequential habit formation explain most of a person’s ongoing propensity to buy one or a number of acceptable brands.Unexpectedpurchasesituationonsalemayinfluencetheactualbrandchosenonaspecificpurchaseoccasion �(drawing on model 3). The introduction of new brands or the reformulation of current brands may alter the purchase propensities although the aggregate impact on short to medium-term brand loyalty is likely to be marginal.

Similar attitudes reported for descriptive attribute beliefs•This is not to suggest that attitudes will not form towards these brands over time (model 1), but they will �be of secondary importance to the functional adequacy of the brand. Indeed, for the markets which are the focus here, research shows that this belief may simply be a playback of the message content of the brand’s advertising or publicity, i.e. simple learning. This can be seen in the very similar attitudes reported for descriptive attribute beliefs (for example, “Volvos are �safe”, “United Airlines is friendly”, “Woolworths offers fresh food”) by both brand users and non-users.

9.8.2 Customer Brand Commitment (CBC)

Fig. 9.6 Customer brand commitment

Brand component that drives choice and commitment•The first exception to Customer Brand Commitment (CBA) concerns those consumers who value �psychological and social value more than function. This is easiest to see when these consumers are buying high-identity products (luxury goods, expensive cosmetics, etc.) and thinking of life choices (education, sporting allegiances, etc.). Here, there may be a brand component that drives choice and commitment for


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asignificantnumberofcustomers,especiallytheinitialadoptionofsomedistinctivebrandssuchastheApple Mackintosh, the Sony Walkman and Harley Davidson motorbikes.This is what CBC is all about. In this situation, attitudes, values and social norms are seen as having a �majorinfluenceandtheconsumercandeveloparelationshipwiththebrand–inkeepingwithModel1.Theserelationshipsdefinedintheconsumer’smindmayhelptodifferentiateonebrandfromanotherandthe buyers end up supporting a price premium for that brand.

Allegiance, however, is never assured•The aforesaid commitment is, however, not guaranteed – especially when the focus is on frequently bought �brands. First, even for cases where the level of consumer involvement is high, differentiation among brands may be relatively low (such as with most airlines and hotel chains) – resulting in the type of behaviour best described by CBAForexample,frequentflierstendtouseanumberofdifferentairlines;researchoninternationaltravellers �indicatesthatthesepeoplearetypicallymembersofmultiplefrequent-flierprogrammesandthereforeshowmulti-brandloyaltytoboth,theairlinesandtheirprogrammes.Itismainlytheinfrequentflyerswhoareloyaltoasinglefrequentflierprogramme,butinvariably,thesearethelessprofitablecustomers. In most markets, the socio-psychological elements of competing brands may, in fact, offer limited scope �for creating meaningful differentiation.

Even loyalty leaders cannot be complacent•Even where a relationship develops, it may not be only one in particular product category. For instance, �customers who have “compartmentalised friendships” with different brands of coffee, say Starbucks in the morning and Folgers in the afternoon.Moreover, with CBC, while the non-functional sources of value may be strong, they will not eliminate the �need for the brand to “do the job”. Harley Davidson, one of the strongest personality-relationship brands, was forced to instigate quality improvement programme to save the brand from Japanese competition.

Profitboostingsecretsofloyaltyleaders•Thecompaniesthatbestunderstandcostsavingsandprofitenhancementthroughloyaltytakemanydeliberatesteps,some of which are:

Modify customer-acquisition incentives•Reward your sales teams and marketing channels for acquiring customers that stick. Consider commission or bonus reductions if customers defect before 18 months.

Re-allocate marketing investments•Systematically rank all of your customer acquisition campaigns towards programmes that attract the richest mix of loyalcustomers(manyfirmstodayarewastinghalfoftheirmarketingexpensesondisloyalcustomerswhoneverstick around long enough to pay back the acquisition investment).

Identify ways to help under-performers•Develop annual relationship report cards on suppliers and dealers (and customers and employees) with as much care as you give to annual reports for investors.

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Fig. 9.7 Different approaches to customer loyalty9.8.3 Customer Brand Buying (CBB)

The other exception to CBA concerns those consumers who exhibit very low levels of loyalty. Their choices •are shaped by considerations of immediate availability, price promotions, etc. and at most, weak attitudes (e.g. users of an on-line travel agency may express liking for it because it obtains for them best price air fares). The concept of EB is closely allied to Model 3, where contingencies are co-determinants of choice and not simply nuisance factors.Thus CBC and CBB are the exceptions rather than the rule in most repeat purchase markets. One way to see this is •a sampling problem. Consider the example of car rental: If we were to draw from a large sample of the population, most customers of Avis or Hertz would be characterised by CBA and only a few by CBC (committed to Hertz) orCBB(rentingfromliterallyanycarhirefirmthathappenedtobediscountedatthetimeofpurchase).This above notion of a loyalty continuum with the three anchor points of customer brand acceptance, customer •brand commitment and customer brand buying provides the necessary basis for evaluating the aims and potential commercial effectiveness of loyalty programmes in terms of customer related issues.Loyalty programmes and their implications•

Loyaltyprogrammesareschemesofferingdelayed,accumulatingeconomicbenefitstoconsumerswhobuy �the brand. Usually this takes the form of points that can be exchanged for gifts, free products or aspiration rewards such as air-miles. Airlinefrequent-flierprogrammeshavebeenaprototypeformanyoftheschemes.Affinityprogrammesare �aspecifictypeofloyaltyprogrammesaswell,whicharedesignedtoenhancetheemotionalbondbetweenthe customer and the brand. Mechanisms are set up to enhance two way communications for the customer to get to know the brand better and for the company to learn more about the customer. Examples include telephone helpline, club membership, alumni associations, newsletter, website “chat” groups, etc. Hybrids also exist. For instance, where the focus is on enhancing the emotional bond between customer �andbrand,anda thirdparty(e.g.acharity)receivesafinancialbenefit;or theestablishmentofaclub,where consumers pay for membership in return for access to special events and offers. This latter format is prevalent in countries like Germany where trading laws prohibit incentive based schemes (for instance, Volkswagen Club, Swatch the Club, Mercedes, Mastercard, etc.).

Loyalty resembles habit•Whatgivespoignancytotheconceptofcustomerloyaltyisthesupposedjustificationitgivesmanagersto �spend dollars on CRM programmes and the costly customer databases that support these. However, critics argue that loyalty, both attitudinal and behavioural, for most customers is quite passive and resembles habit rather than serious commitment. And also, they assert that there is little or no evidence that any changes in customer behaviour justify the enormous expenditure on these programmes.Supporters of loyalty programmes have in mind Model 1, where the programme is seen to reinforce CBC �– type outcomes or they envisage a combination of Models 3 and 1, where consumers with no loyalty


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(CBB–types)areconvertedintosingle-brandloyal(CBC–type)becauseofthecustomerbenefitsoftheprogramme. Critics favour the multi-brand divided loyalty model (Model 2) and assume that most of the customers are CBA type who is not strongly swayed by the programme.

Loyalty programmes from an individual’s perspective•It can be seen as a vehicle to increase single brand loyalty, decrease price sensitivity, induce greater consumer �resistance to counter offers or counter arguments, dampen the desire to consider alternative brands, attract a larger pool of customers.However, most of the customers are multi-brand loyal and loyalty schemes cannot turn them single brand �loyal overnight.Most people buy only what they need and are not usually carried away by the schemes. �Loyalty programme is seen as a brand extension aid (e.g. Tesco attempts to expose its Clubcard members �tohighmarginwines,financialservicesandelectricalgoodsaswellaslowermargingroceries).

Loyalty programmes from a market perspective•Atanaggregatelevel,repeat-purchasemarketstypicallyhaveawelldefinedstructure–viz.,mostbrands �exhibit a double jeopardy effect whereby small brands have fewer buyers who buy them less often than bid brands. Whatever Managing Brands Over Time, Brand Positioning and Consumer Behaviour their market shares, it �is to be expected that, for all brands, there will be some CBB and CBC buyer and a majority of CBA buyers. This market structure gives rise to three strategies for enhancing the observed level of repeat purchase or loyalty of a brand. A possible fourth strategy is also considered in this regard.

Strategy 1: Grow the size of the brandThis can be achieved by making acceptable to a large number of potential customers in keeping with the focus •on CBA.Tactically, this means exposure at the point of purchase, offering greater perceived value, gaining wider •distribution, suggesting more usage occasions, etc.Loyalty schemes and the concept of value•

Thereisanassumptionthatloyaltyschemesprovidebenefits,whichrepresent“value”tocustomersandit �is because of this that the loyalty schemes can encourage loyalty. However, the extent to which the loyalty schemes offer value to customers is also questionable. Because value will represent different things to different people and will be different in different contexts. However,fiveelementscanbeidentifiedthatdeterminethevalueofaloyaltyscheme.Theseinclude: �

Cash value – how much the reward represents as a proportion of spend• Choice of redemption options – the range of rewards offered•Aspirational value – how much the customer wants the reward•Relevance – the extent to which rewards are achievable•Convenience – Ease of participation in the scheme•

Strategy 2: Create a niche brandThis can be done by aiming to keep the number of buyers relatively low but at the same time increasing the •average bought by these buyers. This could be achieved by reducing the distribution coverage of the brand and using the money saved to better support or promote the brand to current customers.This strategy implies a higher proportion of behaviourally loyal and committed buyers for the level of market •share than predicted by the DJ effect. In its early years, the Body Shop was a successful niche brand.Strategy 3: Become a “super-loyalty brand”•Here a brand is expected to become a “super-loyalty brand”. These are brands that exhibit signs of strong •commitment and that have higher than expected repeat purchase (i.e. an above average number of CBCs at a high level of market share).

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During the early 1990s, icon status Nike appeared to be such a super loyalty brand.•Strategy 4: Exploit the desire of customers for change-of-pace•A fourth strategy implied by the DJ effects is to exploit the desire of customers for change-of-pace. There the •penetration is higher and the repeat purchase rate lower than predicted by the DJ effect. Some imported and premium beer brands fall into this category, though the typical beer brand of this type is really very small. This is primarily a penetration effect and cannot be seen as loyalty building unless an organisation offers a •portfolio of these brands.Reasons behind this thrust on loyalty schemes•In spite of all the negative reasons, the fact remains that more and more loyalty programmes are being introduced. •And the reason for so much momentum behind these programmes is as follows:Vehicles for maintaining customer loyalty•

It is possible to see loyalty programmes as vehicles for maintaining customer loyalty (i.e. for keeping the �brand in the customer repertoire) or for maintaining brand share (where the programme works in combination with other valued enhancements, including product and service improvements). Here, rather than trying to induce single brand loyalty from customers who previously have exhibited divided �brand loyalty, a more realistic aim is to build on existing levels of CBA.Ifthecustomersfeeltheneedforaffinity,ordesireanexplicitrewardfortheirloyalty,theywilljointhe �programmes of the brands they buy. The critical issue then is for the programme to reinforce the value proposition of the parent brand – enhancing brand equity, not just building loyalty programme equity. The critical task for the programme manager is to design a cost effective scheme to achieve this aim. �

Improves brand accessibility and market conspicuousness•Another role for loyalty programmes can be to improve levels of accessibility and market conspicuousness �for a brand. This can manifest itself as a more credible proposition to retailers in order to secure more shelf spaceandbenefitfrom“retailpush”. In other cases it may provide more opportunities to talk with customers and, perhaps, more opportunity �to sell brand extensions to customers. In their case, the aim of the programme is to get the brand into the customer’s set of acceptable brands.This, however, is not a substitute for the inherent functional, psychological and economic value designed �into the brand, but rather it simply makes the brand easier to consider. If, for some people the programme provides additional emotional value, then this is a bonus.

9.9 Difference between Trademark, Logo, Symbol and MascotThe Greek word • ‘logos’ means ‘word’ and ‘typos’ means ‘impression’. It has also been referred to as a trademark, service mark, mark or marquee, but logo as a word seems to have entered the common parlance. While a trademark is often confused with just the name, unless it is a unique name, it cannot be patented. A •logo can be a piece of type, a symbol, a picture or a combination of any or all of these. A logo can usually be trademark protected.A mascot may or may not be a part of the logo of a brand. For example, AirIndia’s logo.•For the purpose of understanding the role of logos we will look into only into the elements (type or symbol or •both), which form the integral part of the brand’s signature identity.

9.9.1 Logotypes

Textbooksclassify logosas threebroadtypes.Thefirstclass is logoswith juststrongwordmarks(andno•accompanying symbol separate from the name) and brands such as Coca Cola, Dunhill and Kit Kat have logos that fall in this category. In India brands like Raymond, Usha and Indica have logos that only comprise of the lettering.


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The second class of logos is abstract symbol, Mercedes star, Rolex Crown, CBS Eye and possible the most •famous of this class is the Nike swooshes. In India brands like Wipro (Rainbow Flower) and Aditya Birla (Sun) have logos that fall in this class.The third class of logos comprises all that is in between, where designers have strived to device a logo to reinforce •or embellish the brand naming. Some international logos like the Red Cross and Apple have visual renditions of the brand names. Sometimes the logo can be pictorial symbol, like the Prudential Rock, Ralph Lauren’s Polo and McDonald’s Golden Arches (which in fact started its life as a shop signage). In India too we have several examples of this type Thermax ‘T’, LIC ‘hands’, UTI ‘Kalash’.

9.9.2 Benefits of Logos

Logos,asthedesignerspointout,isbut‘flypaper’towhichbrandassociationscangetattached.Withtheright•inputs, they get instant recognition and recognition in turn leads to recall of associations. The three-pointed star on ATP tournament nets is enough to remind the viewer of Mercedes and its class. A ‘swoosh’ on the side of a shoe is all that is needed to trigger a brand memory of Nike.•A study by Cogito Consulting of FCB-Ulka Group has shown that visual cues are remembered much more •than just audio cues or slogans. This seems to hold true for both heavily advertised brands and not very heavily advertised brands, as well as for younger (<5 years) brands and older brands.The difference in recall is the highest in the case of young, low advertising brand, with scores as much as twice •for visual cues, compared to slogans (76 percent v/s 38 per cent).

9.9.3 Brand Mascot

The Air India Maharaja has been a mascot for Air India for many years clearly welcoming passengers all across •the world, symbolising a Maharaja like treatment to its travellers. In between, a few years ago there was an attempt to change the logo and the styling of Air India. Has the consistent use of the Maharaja mascot been useful to Air India for its business?These and many other questions come to the mind of a brand marketer while using or deciding to use mascots •in their brand strategy. Before putting forth a model for evaluating brand mascots, the real meaning of a mascot is ‘a person or animal •or thing that is supposed to bring luck to its users’. ‘Brand mascots’ do not work then it is ‘Brand Mass Costs’. It meansthateffective‘BrandMascots’increaseawareness;salesandprofitswhereasineffective‘Brandmascots’do not amass customers or wealth, yet incur “MASS COSTS”.

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SummaryBrand positioning is the art of creating a distinct image in the minds and hearts of customers. Consumer •behaviour is strongly associated with brand logos, signs, mascots, celebrities, etc. Managing these tangibles with the intangible image of the brand is the big challenge for any marketer.The marketers must balance communication expenditure among the main communication media. These include •seven communication vehicles viz. advertising, public relations, trade and sales promotion, consumer promotions, direct marketing, event marketing and internal employee communications.Managing a portfolio of brands poses many challenges. Any laxity in managing them will not only have its •effectonmarketingandcreateconfusionforcustomersbutwillalsoaffectcorporateprofitability.“Brand” is one of the most indiscriminately used and therefore, abused words in the marketplace today. •Manyofthemcreateanillusionofbeingabrandthroughtheirhighprofilecampaigns,celebrityendorsements,•etc. The hype is short-lived and so is its existence in the market. Let us call such vanishing Brands - Labels.Products:Factoriesmanufactureproducts.Productsconformtosomespecificationsandcomplywithsomequality•standards. All the product descriptors carry engineering or manufacturing terminology, which cannot be grasped by the customer. The products have some features, which are not necessarily understood by the customer. PhilipKotlerdefinesPositioningasfollows,‘Positioningstartswithaproduct,apieceofmerchandise,aservice,•a company, an institution, or even a person....... But positioning is not what you do to a product. Positioning is what you do to the mind of a prospect. That is, you position the product in the mind of the prospect.’Attribute positioning: The marketer can position itself on any one or any attributes, such as size or number of •years in existence. For example Disneyland advertises itself as the largest theme park in the world. Re-positioning or de-positioning is changing the positioning of a brand. The brand is a name, term, symbol, words, etc. used to differentiate the marketer’s products/services with the •competitor’s. Brands have added values of symbolism meanings and values over and above their physical constituents.Consumers perceive brands in their own personal way and attach their own values to them and the symbolic •interpretation of each brand varies according to age, income, and sex education of the target audience.The Greek word • ‘logos’ means ‘word’ and ‘typos’ means ‘impression. It has also been referred to as a trademark, service mark, mark or marquee, but logo as a word seems to have entered the common parlance.

ReferencesVerma H.V., 2006. • Brand Management: text and cases. 2nd ed., Excel books, A-45, Nariana, Phase1, New Delhi 110 028; Anurag Jain. Pp.345–392.Brand Positioning – Definition and Concept [Online] (Updated 2011) Available at: <http://www.•managementstudyguide.com/what-is-brand.htm> [Accessed 12th March 2011].

Recommended ReadingHaseeb Murtaza, Brand Management [Online] Available at: <http://www.scribd.com/doc/3979762/Brand-•Management> [Accessed 12th March 2011]Kapferer J.N., 2008. • The New Strategic Brand Management, 4th edition, United Kingdom, Kogan page Publishers. p.560.Kotler. P., Pfoertsch W., Michi I., 2006. • B2B Brand Management. Springer Berlin. Springer. p.357.


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Self Assessment

_______________ is the art of creating a distinct image in the minds and hearts of customers.1. Brand imagea. Brand positioningb. Brand valuationc. Brand mascotd.

Which of the following have added values of symbolism meanings and values over and above their physical 2. constituents?

Brandsa. Logosb. Trademarkc. Labelsd.

Which of the following statement is true?3. Product behaviour is strongly associated with brand logos, signs, mascots, celebrities, etc.a. Market behaviour is strongly associated with brand logos, signs, mascots, celebrities, etc.b. Consumer behaviour is strongly associated with brand logos, signs, mascots, celebrities, etc.c. Consumer behaviour is strongly associated with brand logos, and products.d.

Anything that offers either FVP or EVP is referred to as ‘__________.’4. Logosa. Labelsb. Mascotsc. Productsd.

Which of the following is true?5. During the introduction phase, the marketer is able to consolidate the market share and hence experiences a. verygoodprofitability.During the maturity phase, the marketer is able to consolidate the market share and hence experiences very b. badprofitability.During the growth phase, the marketer is able to consolidate the market share and hence experiences very c. goodprofitability.During the maturity phase, the marketer is able to consolidate the market share and hence experiences very d. goodprofitability.

The consumer and distributors’ acceptance grows, sales increase, and the brand moves to the_________ 6. phase.

growtha. maturityb. introductionc. declined.

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The concept of ________________________ is the base case of customer loyalty in competitive repeat purchase 7. markets.

Customer Brand Commitment (CBC)a. Customer Brand Acceptance (CBA)b. Customer Brand Buying (CBB)c. Brand imaged.

Which of the following is false?8. A mascot can be a piece of type, a symbol, a picture or a combination of any or all of these.a. A logo can usually be trademark protected.b. Logos,asthedesignerspointout,isbut‘flypaper’towhichbrandassociationscangetattachedc. The Greek word d. ‘logos’ means ‘word’ and ‘typos’ means ‘impression’

__________or de-positioning is changing the positioning of a brand.9. Brandinga. Logob. Trademarkc. Re-positioningd.

Which of the following is true?10. A Logo with very effective, high decibel and high visibility communication can easily create an illusion of a. being a brand.A Label with very effective, high decibel and high visibility communication can easily create an illusion b. of being a product.A Label with very effective, high decibel and high visibility communication can easily create an illusion c. of being a brand.A mascot with very effective, high decibel and high visibility communication can easily create an illusion d. of being a brand.


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Case Study I

Pricing of Innovative ProductSameer Malhotra completed his MBA after his graduation in commerce. He did MBA in Marketing from USA. AfterhereturnedtoIndia,hestartedCoolCreamPvt.Ltd.,acompanyrecognizedasthemanufactureroffinestice-creams throughout the country.

Sameer used to love eating ice-creams. Once he had cough, and he still wanted to eat ice-cream. His sister poured ginger juice on the ice-cream and forced him to eat it. Sameer really liked it, and thought of introducing a new ginger ice-cream. Sameer instructed the R&D centre at Cool Cream to develop a ginger ice-cream. The product was named asAdrakIce-creamandwastestedinthemarket.Themarketingstrategywastoemphasizeonthebenefitsoftheginger ice-cream. It will protect the throats and people can enjoy the ice-cream. The test marketing was carried out and there was tremendous response by the old people and teenagers for this Adrak Ice-cream.

However, the pricing strategy was not yet decided by Sameer. So, Sameer called a conference of various departments’ toworkoutapricingstrategyofAdrakIce-cream.ThefinancemanagerRajAroradecidedtokeepalowintroductoryprice and increase it as the sales build up. Stabilize the price as sales growth levels off. Reintroduce low prices when the sales decline till the product has to be withdrawn or cloned.

However,thecostofproductionwashigherthantheprofits.Thatiswhy,otherfinancemanagerRamDeshmukhinsistedonmarketskimmingpriceatthetimeoflaunch.ThepriceofAdrakice-creamshouldbefixedorslightlyhigherthantheotherice–creams.SameerselectedthepricingstrategydecidedbyRamandearnedhugeprofits.

QuestionsSameer has selected the pricing strategy decided by Ram. Was it a wise decision? What are the advantages of 1. the skimming price strategy? AnswerSameer has taken a wise decision. The advantages of skimming price strategy are as follows:

This pricing strategy will help the company to recover a majority of its initial development and launching a. costs quickly. It should be planned so that these costs are recovered before competition materializes. This strategy is also expected to maximize returns before competition can catch up. A high price at the time of its launch would make the customers believe that Adrak ice-cream is a high b. quality product developed after a lot of research.Prices for skimming the market are likely to enhance returns from every ice-cream sold, thereby reducing c. liabilities.During the competition, when the price is lowered the competitors would have to match the lowered price d. at the time when their own costs are higher. Thus, the competitors can be attacked when they are most vulnerable, i.e. the introductory phase of their product launch.

Why did not Sameer select the pricing strategy decided by Raj?2. AnswerRajhaddecidedtofixlowpriceatthetimeoflaunchingtheitem.Sameerdidnotselectthispricingstrategybecause of the following reasons:

This policy does not take into account the fact that the product can be easily copied.a. Low price for a product like innovative ice-cream could create doubts about the quality of the product.b. The strategy does not cater to the effects of competition.c. It will take a long time to recover the expenses of initial R&D, production of the new product, etc. It is d. possible that theses expenses may never be recovered.

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If you are in place of Sameer which pricing strategy will you select? Why?3. AnswerIf I was in place of Sameer, I would have selected the pricing strategy decided by Raj.If the initial price of the Adrak Ice-cream is higher than the other ice-creams, it will attract the customers as it should be of good quality. As the Adrak ice-cream involves more cost of production and preservation, the cost should be recovered by setting the price higher at the time of launch. Liabilities due to product development, setting up of the production lines, advertising expenses, uneconomical levels of production, etc are the maximum in the initial stages of the product life cycle. Skimming price will help to get maximum returns, on every Adrak ice-cream sold.

Why is pricing so important while introducing a new product in the market?4. AnswerPricing is one of the four P’s of marketing mix. The pricing strategy must be correlated to the product’s life cycle. In this case, the price and promotion have close relationship with each other. Determining the best pricing strategy for a product depends on the product itself, the place and the promotion. The pricing at the time of the launch of the product is important from the point of growth or facing the competition at any point.


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Case Study II

Nestlé’s Brand Management StrategiesIn the mid-1860s, Henri Nestle (Henri), a merchant, chemist, and innovator experimented with various combinations ofcow’smilk,wheatflourandsugar.Theresultingproductwasmeanttobeasourceofinfantnutritionformotherswho were unable to breast-feed their children. In 1867, his formula saved the life of a prematurely born infant. Later that year, production of the formula, named Farine Lactee Nestle, began in Vevey, and the Nestle Company was formed. Henri wanted to develop his own brands and decided to avoid the easier route of becoming a private label. He also wanted to make his company a global company. Within a few months of establishing his company, Henri began to sell his products in many European countries. In the initial years, Henri restructured the organization to facilitate research, improve product quality, and develop new products. In 1875, Daniel Peter, Henri’s friend and neighbour, developed milk chocolate.

In 1867, his formula saved the life of a prematurely born infant. Later that year, production of the formula, named Farine Lactee Nestle, began in Vevey, and the Nestle Company was formed. Henri wanted to develop his own brands and decided to avoid the easier route of becoming a private label. He also wanted to make his company a global company. In mid-1988, Nestle SA (Nestle), the world’s largest consumer packaged foods company based in Switzerland, acquired Rowntree Mackintosh PLC (Rowntree), in the largest ever acquisition deal of a British company during that time. Rowntree was the world’s fourth largest manufacturer of chocolates and sweet products, with well-known brands like Kit Kat, After Eight, Smarties and Rolo. The deal attracted considerable attention all over the world since several bids to acquire Rowntree were rejected. Rowntree claimed that the bids were too low for its valuable, well-recognized brands. In the end, Rowntree was acquired by Nestle for £2.5 billion, two and a half times the pre-bid price and eight times the net asset value of the company. This acquisition made Nestle the largest chocolate manufacturer in the world.

Nestlé’s Branding StrategyThe Nestle brand itself had played a key role in the company’s globalization efforts. In 1996, about 40% of the total revenues were generated from products covered by the Nestle corporate brand. Nestlé’s logo was an important part of the company’s corporate identity. The ‘nest’ was a graphic translation of Henri Nestlé’s name, which meant “little nest.”However, in the beginning there were many branding challenges faced like what will be the branding strategies and brand-name decision.

The Kit-Kat BrandWhen Nestle acquired Rowntree’s brands in 1988, the major challenge before the company was managing them. Rowntree had a “one product, one brand” policy. The brands Kit Kat, After Eights, Smarties and Rolo were marketed with no mention of Rowntree. Rowntree’s brands were not strongly managed European brands. Before the 1980s, ‘country managers’ outside the UK in several European countries managed Rowntree’s business. They were free to run their units provided business objectives were met. The orientation at Rowntree was short-term just to meet annual business objectives and country managers added nothing to the overall organization. Even though Kit Kat was a leading brand in UK, it was ignored outside the country. In the early 1980s, Rowntree established Rowntree ContinentalEurope,whichhandledbusinessresponsibilitiesoutsidetheUKinEurope.However,thisdidnotbenefitKit Kat, which was launched in Europe by Rowntree Continental Europe as a multi-local brand.

Divesting Non-Strategic BrandsThe success of the Kit Kat brand inspired Nestle to think and act ‘globally’ i.e. establishing global as well as local brand identity. Nestle had taken a similar approach to several other acquired sub-brands. Moreover, Nestle introduced the Kit Kat brand in several other countries across the globe. Nestlé’s brand management strategy included the divestment of non-strategic brands. In February 1999, Nestle negotiated the sale of its Findus brand of frozen food to EQT Scandinavia BV.

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QuestionsHow was Nestle emerged?1. What were the Nestlé’s branding strategies?2. What were branding challenges faced earlier for Nestle?3. What was Nestlé’s logo? Why is logo important in branding?4.


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Case Study III

The Gillette Co. - The Best a Man can GetGillette is known world over for its razor blades. Its manufacturing operations are conducted in more than 50 locations in 26 countries and its products are distributed in over 200 countries. In 1901, King C. Gillette and William Nickerson started the American Razor Company in Boston to produce Gillette razor sets. They could sell only51razorsetsinthefirstyear.However,inthenextyeartheysold90,844sets.Withinfouryears,in1905,Gilletteestablisheditsfirstoverseasoperations.Itdevelopedsalesbydistributingfreerazorbladesandwithboxesof Wrigley’s chewing gum.

During 1960s and 1970s the company expanded its product range by introducing Right Guard (deodorant), Trace 2( twin blade razor), Cricket (disposable lighter), Good News (disposable razor), and Erase Mate ( Erasable pens). It also acquired Braun (electric shavers and appliances). In 1984 it even branched into dental products.

The different marketing strategies adopted by the company are as follows:Identifying a product for which there was need and developing from the beginning a high quality product a. and convincing the customers to buy the products. This enabled the company to sell more expensive product atahighermarginofprofit.They carried out market research, studied the needs of the customers and produced new products as demand b. arose. The company always did considerable market research and design engineering. From the data obtained after the research, it launched a new razor in 1990, known as ‘Sevor’. Researches have stated that this is the most successful product launched in Gillette’s history and has helped it grab 9 per cent of the US market share in the year it was launched. They carried out test marketing and sales wave’s research.c. Aftertheresearch,theyimplementedpricingstrategiesthatmadehugeprofits.d. They studied product lie cycle and carried out effective product planning.e.

Thus,Gillettehasmaderemarkableprofitsandestablishedasthemostsuccessfulorganisation.

QuestionsWhat were the different marketing strategies carried out by Gillette Co.?1. What are the stages of product life cycle?2. What are the advantages of test marketing?3. Customer behavior should be considered while deciding pricing strategies. Give reasons.4.

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Bibliography

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Brand Image, [Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/brand-image.•htm> [Accessed 11th March 2011].Charles K. Fur, 2003• . What is Profit Analysis, [Online] (Updated 2011). Available at: <http://www.wisegeek.com/what-is-profit-analysis.htm>[Accessed9th March 2011].Donald R. Lehmann and Russell S. Winer, (2004). • Product Management, McGraw Hill Higher Education, 4th edition, 512 pages.Hackley C.E., 2005. • Advertsisng and Promotion. SAGE Publications India Pvt. Ltd, , New Delhi, p.264.Hart, S., New Product Development, [Online]. Available at• < http://www.download-it.org/free_files/filePages%20from%20Chapter%2012.%20New%20product%20development.pdf> [Accessed 2nd March, 2011]Haseeb Murtaza, • Brand Management [Online] Available at: <http://www.scribd.com/doc/3979762/Brand-Management> [Accessed 9th March 2011].Jennifer Sable, 2010. • How to Determine Pricing Startegy [Online] (Updated 10th December 2010) Available at: < http://www.ehow.com/how_7474651_determine-pricing-strategy.html> [Accessed 4th March 2011].Kapferer J.N., 2008. • The New Strategic Brand Management, 4th edition, United Kingdom, Kogan page Publishers. p.560.Kotler, 2007. • Framework for Marketing Management, 3rd edition, Pearson Education India.Kotler. P., Pfoertsch W., Michi I., 2006. • B2B Brand Management. Springer Berlin. Springer. p.357.Loudon D.L., Stevens R.E., and Wrenn B., 2004. • Marketing Management,TheHaworthPress,NY,Routledge.p.373.Peter J.P., Donnelley J.H., 2010. • Marketing Management. 10th edition. Mc-Graw Hill Companies. p.848.Profitability Analysis (COPA),• [Online]. Available at: <http://help.sap.com/printdocu/core/print46c/en/data/pdf/COPA/COPA.pdf > [Accessed 9th March 2011].Steve Johnson, The Strategic Role of Product Management, Pragmatic Marketing. Available at: <http://www.•pragmaticmarketing.com/strategic-role-of-product-management/Strategic_Role_Product_Management.pdf > [Accessed 28th February 2011]Understanding Brand- What is a Brand?,• 2008.[Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/what-is-brand.htm> [Accessed 9th March 2011].Verma H.V., 2006. • Brand Management: Text and Cases. 2nd edition, Excel books, p.473.

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Self Assessment Answers

Chapter Ia1. b2. b3. d4. c5. c6. a7. b8. c9. b 10.

Chapter IIa1. d2. c3. a4. b5. d6. c7. d8. a9. c 10.

Chapter IIIa1. d2. b3. c4. d5. b6. c7. a8. b9. d 10.

Chapter IVa1. d2. b3. c4. c5. b6. a7. d8. c9. d10.


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Chapter Va1. b2. d3. a4. c5. c6. b7. a8. c9. d 10.

Chapter VIb1. a2. c3. d4. c5. b6. b7. a8. d9. d10.

Chapter VIIb1. a2. d3. c4. c5. a6. d7. b8. c9. a10.

Chapter VIIIa1. b2. d3. a4. d5. b6. c7. a8. b9. c10.

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Chapter IXb1. a2. c3. b4. d5. a6. b7. a8. d9. c10.