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What Is a Product? Anything received in an exchange to satisfy a need or want is a product.
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A good, a service, or an idea received in an exchange It can be tangible (a good) or intangible (a service or an idea) or a combination of both. It can include functional, social, and psychological utilities or benefits.
PRODUCT CLASSIFICATIONS Products Classes
Consumer:--Products purchased to satisfy personal and family needs Business:--Products bought used in an organization’s operations, to resell, or to make other products (raw materials and components)
Types of Consumer Products
Convenience—inexpensive, frequently purchased items; minimal purchasing effort Shopping--buyers are willing to expend considerable effort in planning and making purchases Specialty--Items with unique characteristics that buyers are willing to expend considerable effort to obtain
Unsought (impulse)--Products purchased to solve a sudden problem, products of which the customers are unaware, and products that people do not necessarily think about buying
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Installations--Facilities and non-portable major equipment Accessory Equipment--used in production or office activities Raw Materials--Basic natural materials Products Component Parts--become part of a Process Materials--not readily identifiable when used directly in the production of other products (e.g. screws, knobs, handles)
MRO Supplies--Maintenance, repair, and operating items that facilitate production and do not become part of the finished Products Business Services--intangible products many organizations use in operations (e.g. cleaning, legal, consulting, and repair services)
- Durable Goods - Non-Durable Goods – consumed during use - soap, food.
Services - selling performance Continuum between Services and Goods – McD’s
- Consumer Goods - bought for personal use. - Convenience - Freq. purchase, min. effort, buy on price or brand. • Impulse Goods - no preplanning, not on your list, going shopping while hungry or without a list leads to more impulse buying, as do in-store displays and sale items.
-Shopping - Considerable time & effort, durable/big ticket, comparisons made. -Specialty - unique. Cust. will go out of their way to find, little or no comparison shopping, price relatively unimportant. - Unsought - Cons. don't seek out or don't know about. Life ins., encyclopedias In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market. There are two parallel paths involved in the NPD process: one involves the idea generation, product design and detail engineering; the other involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product life cycle management used to maintain or grow their market share. New Product Development Process Because introducing new products on a consistent basis is important to the future success of many organizations, marketers in charge of product decisions often follow set procedures for bringing products to market. In the scientific area that may mean the establishment of ongoing laboratory research programs for discovering new products (e.g., medicines) while less scientific companies may pull together resources for product development on a less structured timetable. In this section we present a 7-step process comprising the key elements of new product development. While some companies may not follow a deliberate step-by-step approach, the steps are useful in showing the information input and decision making
that must be done in order to successfully develop new products. The process also shows the importance market research plays in developing products. We should note that while the 7-step process works for most industries, it is less effective in developing radically new products. The main reason lies in the inability of the target market to provide sufficient feedback on advanced product concepts since they often find it difficult to understand radically different ideas. So while many of these steps are used to research breakthrough ideas, the marketer should exercise caution when interpreting the results. Step 1. IDEA GENERATION The first step of new product development requires gathering ideas to be evaluated as potential product options. For many companies idea generation is an ongoing process with contributions from inside and outside the organization. Many market research techniques are used to encourage ideas including: running focus groups with consumers, channel members, and the company’s sales force; encouraging customer comments and suggestions via toll-free telephone numbers and website forms; and gaining insight on competitive product developments through secondary data sources. One important research technique used to generate ideas is brainstorming where openminded, creative thinkers from inside and outside the company gather and share ideas. The dynamic nature of group members floating ideas, where one idea often sparks another idea, can yield a wide range of possible products that can be further pursued. Step 2. SCREENING In Step 2 the ideas generated in Step 1 are critically evaluated by company personnel to isolate the most attractive options. Depending on the number of ideas, screening may be done in rounds with the first round involving company executives judging the feasibility of ideas while successive rounds may utilize more advanced research techniques. As the ideas are whittled down to a few attractive options, rough estimates are made of an idea’s potential in terms of sales, production costs, profit potential, and competitors’ response if the product is introduced. Acceptable ideas move on to the next step. Step 3. CONCEPT DEVELOPMENT AND TESTING With a few ideas in hand the marketer now attempts to obtain initial feedback from customers, distributors and its own employees. Generally, focus groups are convened where the ideas are presented to a group, often in the form of concept board presentations (i.e., storyboards) and not in actual working form. For instance, customers may be shown a concept board displaying drawings of a product idea or even an advertisement featuring the product. In some cases focus groups are exposed to a mock-up of the ideas, which is a physical but generally non-functional version of product idea. During focus groups with customers the marketer seeks information that may include: likes and dislike of the concept; level of interest in purchasing the product;
frequency of purchase (used to help forecast demand); and price points to determine how much customers are willing to spend to acquire the product. Step 4. BUSINESS ANALYSIS At this point in the new product development process the marketer has reduced a potentially large number of ideas down to one or two options. Now in Step 4 the process becomes very dependent on market research as efforts are made to analyze the viability of the product ideas. (Note, in many cases the product has not been produced and still remains only an idea.) The key objective at this stage is to obtain useful forecasts of market size (e.g., overall demand), operational costs (e.g., production costs) and financial projections (e.g., sales and profits). Additionally, the organization must determine if the product will fit within the company’s overall mission and strategy. Much effort is directed at both internal research, such as discussions with production and purchasing personnel, and external marketing research, such as customer and distributor surveys, secondary research, and competitor analysis. Step 5. PRODUCT AND MARKETING MIX DEVELOPMENT Ideas passing through business analysis are given serious consideration for development. Companies direct their research and development teams to construct an initial design or prototype of the idea. Marketers also begin to construct a marketing plan for the product. Once the prototype is ready the marketer seeks customer input. However, unlike the concept testing stage where customers were only exposed to the idea, in this step the customer gets to experience the real product as well as other aspects of the marketing mix, such as advertising, pricing, and distribution options (e.g., retail store, direct from company, etc.). Favorable customer reaction helps solidify the marketer’s decision to introduce the product and also provides other valuable information such as estimated purchase rates and understanding how the product will be used by the customer. Reaction that is less favorable may suggest the need for adjustments to elements of the marketing mix. Once these are made the marketer may again have the customer test the product. In addition to gaining customer feedback, this step is used to gauge the feasibility of large-scale, cost effective production for manufactured products. Step 6. MARKET TESTING Products surviving to Step 6 are ready to be tested as real products. In some cases the marketer accepts what was learned from concept testing and skips over market testing to launch the idea as a fully marketed product. But other companies may seek more input from a larger group before moving to commercialization. The most common type of market testing makes the product available to a selective small segment of the target market (e.g., one city), which is exposed to the full marketing effort as they would be to any product they could purchase. In some cases, especially with consumer products sold at retail stores, the marketer must work hard to get the product into the test market by convincing distributors to agree to purchase and place the product on their store
In fact. In more controlled test markets distributors may be paid a fee if they agree to place the product on their shelves to allow for testing. such as a store. Adjusting the product’s marketing strategy is required for many reasons including: • • • • Changing customer tastes Domestic and foreign competitors Economic conditions Technological advances To stay on top of all possible threats the marketer must monitor all aspects of the marketing mix and make changes as needed. We will see that marketers make numerous revisions to their strategy as product move through different stage of the PLC. With virtual reality testing customers are exposed to a computer-projected environment. Such efforts require the marketer to develop and refine the product’s marketing plan on a regular basis. there are several hightech approaches to market testing including virtual reality and computer simulations. Finally. Managing Existing Products Marketing strategies developed for initial product introduction almost certainly need to be revised as the product settles into the market. Some firms introduce or roll-out the product in waves with parts of the market receiving the product on different schedules. and are asked to locate and select products.shelves. With computer simulations customers may not be directly involved at all. Instead certain variables are entered into a sophisticated computer program and estimates of a target market’s response are calculated. Product interest can then be measured based on customer’s shopping response. Another form of market testing found with consumer products is even more controlled with customers recruited to a “laboratory” store where they are given shopping instructions. . COMMERCIALIZATION If market testing displays promising results the product is ready to be introduced to a wider market. marketing strategies change as a product moves through time leading to the concept called the Product Life Cycle (PLC). This allows the company to ramp up production in a more controlled way and to fine tune the marketing mix as the product is distributed to new areas. While commercialization may be the last step in the new product development process it is just the beginning of managing the product. Step 7. as we will discuss in The PLC and Marketing Planning tutorial.
growth. tools and processes. To say that a product has a life cycle is to assert four things: • that products have a limited life. The product life cycle goes through multiple phases.g. decline and death.Module: II Product life cycle (PLC) Like human beings. . Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures. birth. From birth to death human beings pass through various stages e. A similar life-cycle is seen in the case of products. involves many professional disciplines. products also have their own life-cycle. maturity. and requires many skills.
costs become counter-optimal 2. increase in competitors entering the market 4. 5. There are four stages in product life cycle. 4. increased competition leads to price decreases 1. each posing different challenges. prices. makes no money at this stage 1. and products require different marketing. profits rise and fall at different stages of product life cycle. profitability diminish 4. purchasing. costs are lowered as a result of production volumes increasing and experience curve effects 2. and problems to the seller. 5. 2. Growth stage 6. Characteristics costs are high slow sales volumes to start little or no competition demand has to be created customers have to be prompted to try the product 1. These are: Stage 1. sales volume decline or stabilize 3. opportunities. Maturity stage . 3. and human resource strategies in each life cycle stage. 3. Saturation and decline stage 1. costs reduced due to economies of scale sales volume increases significantly profitability begins to rise public awareness increases competition begins to increase with a few new players in establishing market 2. financial. Market introduction stage 6. profit becomes more a challenge of production/distribution efficiency than increased sales 3.• • • product sales pass through distinct stages. sales volume peaks and market saturation is reached 3. Industrial profits go down 4. prices tend to drop due to the proliferation of competing products 5. 2. 4. brand differentiation and feature diversification is emphasized to maintain or increase market share 6. manufacturing.
New market segments are trapped. • • • • • Product quality is improved. Marketing Strategies at Growth Stage: • • Market modification. o Style improvement. marketing mix for each variable can be set at a high or low level with different combinations of price and promotion. Flanker products are introduced. brands. Brand building is resorted to. Prices are cut. Marketing Mix Modification o Advertising o Sales promotion o Personal selling o Price o Distribution o Services Marketing Strategies at Maturity Stage: • Diversity of models. • Budget increased. • Emphasis on price. Product modification. • Differentiating promotion.Marketing Strategies at Introduction Stage: While launching a new product. o Feature improvement. o Quality improvement. • . • Competitive parity. New models are introduced. Marketing Strategies at Decline Stage: • • Withdrawal of weak products in a phased manner. • Rapid Skimming Strategy • Slow Skimming Strategy • Rapid Penetration Strategy • Slow Penetration Strategy Marketing Strategies at Growth Stage: The overall objective is to sustain the growth rate. • More intensive or broad based. Prices may be lowered to lure the next layer of price-conscious buyers.
Edgett. In this process. Portfolio management for new products is a dynamic decision process wherein the list of active new products and R&D projects is constantly revised. Today's new product projects decide tomorrow's product/market profile of the firm. and prioritized. not only in the technical community. Specialist selling. companies are experiencing too many projects for the limited resources available! Goals of Portfolio Management While the portfolio methods vary greatly from company to company. Portfolio Management What is New Product Portfolio Management? A vital question in the product innovation battleground is. senior executives who optimize their R&D investments have a much better opportunity of winning in the long run. it is a problem that every company addresses to produce and maintain leading edge products. Portfolio Management .A Problem Area! Recent years have witnessed a heightened interest in portfolio management. Value Maximization Allocate resources to maximize the value of the portfolio via a number of key objectives . However. But how do winning companies manage their R&D and product innovation portfolios to achieve higher returns from their investments? There are many different approaches with no easy answers. Existing projects may be accelerated. Emphasis on special applications. According to 'best-practice' research by Dr. Cooper and Dr. more specifically. An estimated 50% of a firm's current sales come from new products introduced in the market within the previous five years. five main goals dominate the thinking of successful firms: 1. or deprioritized and resources are allocated (or reallocated) to the active projects. killed.• • • • Selective unprofitable segments are left out. Despite its growing popularity. recent benchmarking studies have identified portfolio management as the weakest area in product innovation management. criteria for making the Go/Kill decision are non-existent. Much like stock market portfolio managers. selected. As a result. Minimum promotion. but in the CEO's office as well. the common denominator across firms are the goals executives are trying to achieve. Executive teams confess that serious Go/Kill decision points rarely exist and. new projects are evaluated. "How should corporations most effectively invest their R&D and new product development resources?" That is what portfolio management is all about: resource allocation to achieve corporate product innovation objectives.
What are the benefits of Portfolio Management? When implemented properly and conducted on a regular basis. ranging from financial methods to scoring models. Typically this is conducted via a financial analysis of the pipeline’s potential future value. 3. bottom-up (effective gatekeeping and decision criteria) and top-down and bottom-up (strategic check). A typical approach is to use a rank ordered priority list or a resource supply and demand assessment. Business Strategy Alignment Ensure that the portfolio of projects reflects the company’s product innovation strategy and that the breakdown of spending aligns with the company’s strategic priorities. Many of the problems that plague new product . histograms and pie charts. Portfolio Management is a high impact. Pipeline Balance Obtain the right number of projects to achieve the best balance between the pipeline resource demands and the resources available. 4. 2. ROI.such as profitability. Typical methods used to reveal balance include bubble diagrams. Why is it so important? Companies without effective new product portfolio management and project selection face a slippery road downhill. high value activity: • • • • • • • • Maximizes the return on your product innovation investments Maintains your competitive position Achieves efficient and effective allocation of scarce resources Forges a link between project selection and business strategy Achieves focus Communicates priorities Achieves balance Enables objective project selection Top performers emphasize the link between project selection and business strategy. Sufficiency Ensure the revenue (or profit) goals set out in the product innovation strategy are achievable given the projects currently underway. Balance Achieve a desired balance of projects via a number of parameters: risk versus return. and acceptable risk. and across various markets. The three main approaches are: top-down (strategic buckets). The goal is to avoid pipeline gridlock (too many projects with too few resources) at any given time. A variety of methods are used to achieve this maximization goal. short-term versus long-term. 5. business arenas and technologies.
BCG-matrix. BCG matrix The BCG matrix (aka B.G. According to benchmarking studies conducted by Dr. portfolio diagram) is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing . analysis. Cooper and Dr. the result is an enviable portfolio of high value projects: a portfolio that is properly balanced and most importantly.C. Boston Matrix. and The pipeline has too many low value projects Portfolio Management is about doing the right projects. If you pick the right projects. some of the problems that arise when portfolio management is lacking are: • • • • • • Projects are not high value to the business Portfolio has a poor balance in project types Resource breakdown does not reflect the product innovation strategy A poor job is done in ranking and prioritizing projects There is a poor balance between the number of projects underway and the resources available Projects are not aligned with the business strategy As a result too many companies have: • • • • Too many projects underway (often the wrong ones) Resources are spread too thin and across too many projects Projects are taking too long to get to market. supports your business strategy. Boston Box. Edgett. Boston Consulting Group analysis.development initiatives in businesses can be directly traced to ineffective portfolio management.
Cash Cows generate more than is invested in them. These are the canine version of 'real turkeys!'. Ford own Landrover in the UK. Cash Cows. They absorb most money as you attempt to increase market share. Get rid of these products. When Boeing launch a new jet. They consume resources and generate little in return. it may gain a high market share quickly but it still has to cover very high development costs It is normally applied to Strategic Business Units (SBUs). This helps the company allocate resources and is used as an analytical tool in brand marketing. These are areas of the business rather than products. You can then plot the products of your rivals to give relative market share.their business units or product lines. Dogs. Look for some kind of balance within your portfolio. Problem Children. These are products with a low share of a low growth market. Some of the Problem Children will become Dogs. You would look at each individual product in your range (or portfolio) and place it onto the matrix. and this means that you will need a larger contribution from the successful products to compensate for the failures. So keep them in your portfolio of products for the time being. product management. Try not to have any Dogs. These are products that are in high growth markets with a relatively high share of that market. These are products with a high share of a low growth market. Problem Children and Stars need to be kept in a kind of equilibrium. There is another assumption . You would do this for every product in the range. The funds generated by your Cash Cows is used to turn problem children into Stars. They do not generate cash for the company. Problems with The Boston Matrix. This is simplistic in many ways and the matrix has some understandable limitations that will be considered later.  Folio plot of example data set Like Ansoff's matrix. and portfolio analysis. Each cell has its own name as follows. Cash Cows. This is an SBU not a single product. It was developed by the large US consulting group and is an approach to product portfolio planning. they tend to absorb it. These are products with a low share of a high growth market. the Boston Matrix is a well known tool for the marketing manager. Keep and build your stars. which may eventually become Cash Cows. There is an assumption that higher rates of profit are directly related to high rates of market share. Stars. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth. For example. strategic management. This may not always be the case. Stars tend to generate high amounts of income.
Relative market share This indicates likely cash generation. The reason for choosing relative market share. and one which pointed to cash usage was that of market growth rate. The best evidence is that the most stable position (at least in Fast Moving Consumer Goods FMCG markets) is for the brand leader to have a share double that of the second brand. It can also show what type of marketing activities might be expected to be effective. if the brand had a share of 20 percent. It was reasoned that one of the main indicators of cash generation was relative market share. This is not always the case. because the higher the share the more cash will be generated. On the other hand. and triple that of the third. If this technique is used in practice. . It shows where the brand is positioned against its main competitors. Practical use of the BCG Matrix For each product or service. is that it carries more information than just cash flow. Derivatives can also be used to create a 'product portfolio' analysis of services. The exact measure is the brand's share relative to its largest competitor. and the largest competitor had the same. rather than just profits. Brand leaders in this position tend to be very stable—and profitable. the ratio would be 1:3. not linear. the ratio would be 4:1. If the largest competitor had a share of 60 percent. this scale is logarithmic. and indicates where it might be likely to go in the future. the 'area' of the circle represents the value of its sales. As a result of 'economies of scale' (a basic assumption of the BCG Matrix). the Rule of 123. which might be reflected in profits and cash flows. Be careful. Use the Matrix as a planning tool and always rely on your gut feeling. it is assumed that these earnings will grow faster the higher the share. implying that the organization's brand was in a relatively weak position. at least in terms of current profitability. indeed. The BCG Matrix thus offers a very useful 'map' of the organization's product (or service) strengths and weaknesses. as well as the likely cashflows.that SBUs will cooperate. Thus. The need which prompted this idea was. the ratio would be 1:1. So Information System services can be treated accordingly. that of managing cash-flow. The main problem is that it oversimplifies a complex set of decision. If the largest competitor only had a share of 5 percent. exactly what is a high relative share is a matter of some debate. implying that the brand owned was in a relatively strong position. however.
the rate above which the growth is deemed to be significant (and likely to lead to extra demands on cash) is a critical requirement of the technique. Determining this cut-off point. the penalty is that they are usually net cash users . Where it can be applied. of its future potential (of its 'maturity' in terms of the market life-cycle). but. again. which may make application of this form of analysis unworkable in many markets. and one that. less than 1 per cent per annum. remember. before growth rates slow and it's too late. It can also be used in growth analysis. however. enthusiastic managers may claim that cash must be thrown at these businesses immediately in order to turn them into stars. stars. in those few situations where it could be applied. However. in the reasonable expectation that a high market share will eventually turn into a sound investment in future profits. as we have seen. are what organizations strive for. Unless the rankings are approached with rigor and scepticism.Market growth rate Rapidly growing in rapidly growing markets. In particular.) The matrix also overlooks other elements of industry. is that the most typical pattern is of very low growth. ranking business units has a subjective element involving guesswork about the future. and only implies actual profitability. optimistic evaluations can lead to a dot com mentality in which even the most dubious businesses are classified as "question marks" with good prospects. Poor definition of a business's market will lead to some dogs being misclassified as cash bulls. the purpose of any business. that a higher growth rate is indicative of accompanying demands on investment. therefore. the evidence from FMCG markets at least. It is a good indicator of that market's strength. This is outside the range normally considered in BCG Matrix work. for graphically illustrating cashflows. the market growth rate says more about the brand position than just its cash flow.they require investment. The cut-off point is usually chosen as 10 per cent per annum. (It is certainly possible that a particular dog can be profitable without cash infusions required. makes the use of the BCG Matrix problematical in some product areas. and practitioners. What is more. and also of its attractiveness to future competitors. Critical evaluation The matrix ranks only market share and industry growth rate. particularly with respect to growth rates. cash cows and dogs) has tended to overshadow all else—and is often what most students. and therefore should be retained and not sold. The theory behind the matrix assumes. If used with this degree of sophistication its use would still be valid. later practitioners have tended to over-simplify its messages. since such simplistic use contains at least two major problems: . the later application of the names (problem children. As originally practiced by the Boston Consulting Group the matrix was undoubtedly a useful tool. With this or any other such analytical tool. This is unfortunate. The reason for this is often because the growth is being 'bought' by the high investment.
to add some extra growth. The vendor. It presumes. Perhaps the most practical approach is that of the Boston Consulting Group's . 'Milking cash bulls'. There is an almost mesmeric inevitability about the whole process. use may give misleading results. however. who has most of his (or her) products in the `cash cow' quadrant. and an excellent marketer. although he or she might also consider creating a few stars as an insurance policy against unexpected future developments and. This is not what research into the FMCG markets has shown to be the case. Although it is necessary to recognize a `dog' when it appears (at least before it bites you) it would be foolish in the extreme to create one in order to balance up the picture. and almost demands. It is a foolish vendor who diverts funds from a `cash cow' when these are needed to extend the life of that `product'. The cashflow techniques are only applicable to a very limited number of markets (where growth is relatively high. generate large cash flows.'Minority applicability'. The brand leader's position is the one. on to the `stars'. not least since brands in this position will probably outperform any number of newly launched brands. there are a number of alternative offerings vying with the BCG Matrix although this appears to be the most widely used (or at least most widely taught—and then probably 'not' used). In the majority of markets. that `cash bulls' will turn into `dogs'. which is a three-cell by three-cell matrix—using the dimensions of `industry attractiveness' and `business strengths'. Perhaps the worst implication of the later developments is that the (brand leader) cash bulls should be milked to fund new brands. or is at least less widely taught). and a definite pattern of product lifecycles can be observed. and that is. This approaches some of the same issues as the BCG Matrix but from a different direction and in a more complex way (which may be why it is used less. above all. should consider himself (or herself) fortunate indeed. since `cash cows' will inevitably decline to become `dogs'. such as that of ethical pharmaceuticals). The next most widely reported technique is that developed by McKinsey and General Electric. the chance of the new brands achieving similar brand leadership may be slim—certainly far less than the popular perception of the Boston Matrix would imply. Thus. but they should not be `milked' to such an extent that their position is jeopardized. of course. money must be diverted from `cash cows' to fund the `stars' of the future. that the apparent implication of its fourquadrant form is that there should be balance of products or services across all four quadrants. and funding. Alternatives As with most marketing techniques. In any case. It focuses attention. to be defended. Perhaps the most important danger is. The reality is that it is only the `cash bulls' that are really important—all the other elements are supporting actors. There is also a common misconception that 'dogs' are a waste of resources. the main message that it is intended to convey. In many markets 'dogs' can be considered loss-leaders that while not themselves profitable will lead to increased sales in other profitable areas. indeed. Such brand leaders will. perhaps.
These are described below: Market penetration Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets. which the consultancy reportedly used itself though it is little known amongst the wider population. Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. ansoff's product / market matrix Introduction The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy. Market penetration seeks to achieve four main objectives: . The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategy.Advantage Matrix.
including: • New geographical markets. supported by a pricing strategy designed to make the market unattractive for competitors • Increase usage by existing customers – for example by introducing loyalty schemes A market penetration marketing strategy is very much about “business as usual”. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities. There are many possible ways of approaching this strategy. Diversification Diversification is the name given to the growth strategy where a business markets new products in new markets. The business is focusing on markets and products it knows well. The company must: (1) Analyse its current business portfolio and decide which businesses should receive more or less investment. This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. advertising. It is likely to have good information on competitors and on customer needs. For a business to adopt a diversification strategy. and .portfolio analysis . therefore. therefore. this would require a much more aggressive promotional campaign. Market development Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets. strategy . that this strategy will require much investment in new market research. sales promotion and perhaps more resources dedicated to personal selling • Secure dominance of growth markets • Restructure a mature market by driving out competitors.• Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies. for example exporting the product to a new country • New product dimensions or packaging: for example • New distribution channels • Different pricing policies to attract different customers or create new market segments Product development Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. It is unlikely.ge matrix The business portfolio is the collection of businesses and products that make up the company. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.
whilst at the same time deciding when products and businesses should no longer be retained. The McKinsey / General Electric Matrix The McKinsey/GE Matrix overcomes a number of the disadvantages of the BCG Box. a product line or even individual brands . The diagram below illustrates some of the possible elements that determine market attractiveness and competitive strength by applying the McKinsey/GE Matrix to the UK retailing market: Factors that Affect Market Attractiveness Whilst any assessment of market attractiveness is necessarily subjective. competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. there are several factors which can help determine attractiveness. The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and the McKinsey / General Electric Matrix (discussed in this revision note). Secondly. Firstly.(2) Develop growth strategies for adding new products and businesses to the portfolio. In both methods. An SBU can be a company division. market attractiveness replaces market growth as the dimension of industry attractiveness. and includes a broader range of factors other than just the market growth rate. the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. These are listed below: . An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses.it all depends on how the company is organised.
Customer loyalty .Strength of assets and competencies .Market profitability .Distribution strength .Distribution structure (e.Pricing trends .Relative brand strength .Opportunity to differentiate products and services . wholesale Factors that Affect Competitive Strength Factors to consider include: .Competitive intensity / rivalry .Relative cost position (cost structure compared with competitors) .Overall risk of returns in the industry . retail.Access to financial and other investment resources .g.Segmentation . direct.Market share .Market growth ..Market Size .Record of technological or other innovation .
When you add a new product within the current range of an incomplete line. it is referred to as a line extension. If a line of products is sold with the same brand name. Image anchors are usually from the higher end of the line's range. When you add a line extension that is of better quality than the other products in the line. When you trade down. A line can comprise related products of various sizes. The number of different product lines sold by a company is referred to as width of product mix. this is referred to as line filling. When you add a line extension that is of lower quality than the other products of the line. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line. Line consistency refers to how closely related the products that make up the line are. You are gaining short-term sales at the expense of long term sales. When you add a new product to a line. Line depth refers to the number of product variants in a line.Product Line Product lining is the marketing strategy of offering for sale several related products. where several products are combined into one. qualities. Image anchors are highly promoted products within a line that define the image of the whole line. this is referred to as trading down. colors. or prices. Unlike product bundling. you will likely reduce your brand equity. The total number of products sold in all lines is referred to as length of product mix. this is referred to as family branding. lining involves offering several related products individually. . types. this is referred to as trading up or brand leveraging.
Splendour Plus Coca-Cola. shopping goods. It has the advantage of ease of administering. Consumer Goods Consumer goods are goods that are bought from retail stores for personal. Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers. Clinic Plus Reese's Peanut Butter Cups. Surf Excel. but the disadvantage of inflexibility. Surf Excel Blue Splendour. There are many important decisions about product and service development and marketing. Vanilla Coke Clinic All Clear. product packaging. Examples include • • • • • • Zen LXI. They are grouped into three subcategories on the basis of consumer buying habits: convenience goods. This is as opposed to brand extension which is a new product in a totally different product category. and specialty goods. colors. Diet Coke. Zen VXI Surf. Durable . family. Consumer goods can also be differentiated on the basis of durability. package sizes.Price lining is the use of a limited number of prices for all your product offerings. This is a tradition started in the old five and dime stores in which everything cost either 5 or 10 cents. forms. But product strategy also calls for building a product line. product branding. A product line extension is the use of an established product’s brand name for a new item in the same product category. or household use. added ingredients. Reese's Pieces and Reese's Puff Cereal Consumer and Industrial Goods The classification of goods—physical products— is essential to business because it provides a basis for determining the strategies needed to move them through the marketing system. Line Extensions occur when a company introduces additional items in the same product category under the same brand name such as new flavors. In the process of product development and marketing we should focus on strategic decisions about product attributes. particularly in times of inflation or unstable prices. product labeling and product support services. The two main forms of classifications are consumer goods and industrial goods.
Shopping Goods Shopping goods are purchased only after the buyer compares the products of more than one store or looks at more than one assortment of goods before making a deliberate buying decision. school supplies. a fundamental strategy in establishing stores that specialize in them is to locate near similar stores in active shopping areas. including newspapers.g. computers. and other settings. Ongoing strategies for marketing shopping goods include the heavy use of advertising in local media. bought infrequently. Specialty Goods Specialty goods are items that are unique or unusual—at least in the mind of the buyer. but not necessarily. such as candy bars. antiques.g. and are durable. These goods can be further divided into two subcategories: staple and impulse items. They differ from shopping goods primarily because price is not the chief consideration. quality. radio. bedding. Advertising for shopping goods is often done cooperatively with the manufacturers of the goods. Nondurable goods are those that are quickly used up. and toilet paper. and camping equipment are all examples of shopping goods. such as food. Within stores. Buyers know exactly what they want and are willing to exert considerable effort to obtain it. and they may or may not be durable goods. . and color are typically factors in the buying decision. of high value. lawnmowers. To extend the distribution. schools. These goods are usually. such as furniture and garden tools. soft drinks. they are placed at checkout stands and other high-traffic areas. and golf clubs.. fine jewelry. producers attempt to get as wide a distribution as possible through wholesalers. a food dish prepared in a specific way). as conveniently as possible. These goods are usually of higher value than convenience goods. these items are also frequently made available through vending machines in offices.goods are products that have a long life. and television. and disposable cameras. Since convenience goods are not actually sought out by consumers. a certain make of automobile) or personal preference (e. Often the attributes that make them unique are brand preference (e. or worn out. Other items that fall into this category are wedding dresses. Impulse items are other convenience goods that are purchased without prior planning.. Staple convenience goods are basic items that buyers plan to buy before they enter a store. bread. and include milk. style. Televisions. Convenience Goods Convenience goods are items that buyers want to buy with the least amount of effort. that is. and tabloid newspapers. factories. Price. Most are nondurable goods of low value that are frequently purchased in small quantities. Because customers are going to shop for these goods. or that become outdated.
Still another individual who perhaps prefers a certain brand or has an unusual size will buy individual shoes only from a specific retail location. Unlike consumer goods. the shoes are a specialty good. large commercial ovens. industrial goods are classified on the basis of their use rather than customer buying habits. and a specialty good for a third. and industrial supplies. for a person who does not want to spend time shopping. These goods are divided into five subcategories: installations. Nondurable industrial goods that are used up within a year are called expense items. for this buyer. Accessory Equipment Goods that fall into the subcategory of accessory equipment are capital items that are less expensive and have shorter lives than . For example. raw materials. another person might buy shoes only after considerable thought and comparison: in this instance. Some installations. Some are used directly in the production of the products for resale. Installations Installations are major capital items that are typically used directly in the production of goods. As noted earlier. and machine tools. a given item may be a convenience good for one person. which they then sell. Durable industrial goods that cost large sums of money are referred to as capital items. Industrial goods also carry designations related to their durability. and specialty goods is not always clear. and some are used indirectly. such as stamping machines. shopping. accessory equipment. Consequently. However. buying a pair of shoes might be a convenience purchase. The purchase of installations requires extensive research and careful decision making on the part of the buyer. These outlets are chosen on the basis of their willingness and ability to provide a high level of advertising and personal selling for the product. and computerized axial tomography (CAT) scan machines. robotics equipment. the shoes are a shopping good. The distinction among convenience. Industrial Goods Industrial goods are products that companies purchase to make other products. such as conveyor systems. In contrast. a shopping good for another. Manufacturers of installations can make their availability known through advertising.Producers and distributors of specialty goods prefer to place their goods only in selected retail outlets. fabricated parts and materials. Consistency of image between the product and the store is also a factor in selecting outlets. actual sale of installations requires the technical knowledge and assistance that can best be provided by personal selling. Other installations. are built to a standard design but can be modified to meet individual requirements. these classifications are based on consumers' buying habits. are designed and built for specialized situations.
Examples are iron ore. Fabricated Parts and Materials Fabricated parts are items that are purchased to be placed in the final product without further processing. such as hand tools. little difference between offerings within a grade. on the other hand. Examples include hand tools. and leather.g. Here again. cleaning supplies. including the auto industry. personal contact must be maintained with the buyers over time. and forklifts. diamonds. wheat.g. This negotiation plus the fact that raw materials are ordinarily sold in large quantities make personal selling the principal marketing approach for these goods.installations. sales negotiations focus on price. however. computers. are involved directly in the production process. in order to be in a position to get the business. and office supplies. Supplies include computer paper. When personal selling is needed. and spark plugs. They may work closely with a company in designing the components or materials they require. wheat) may be converted directly into another consumer product (cereal). In either case. and credit terms. Raw Materials Raw materials are products that are purchased in their raw state for the purpose of processing them into consumer or industrial goods. require additional processing before being placed in the end product.. They contribute indirectly to the production of final products or to the administration of the production process. Sellers rely heavily on advertisements in trade publications and mailings to purchasing agents and other business buyers. sun roofs. They also use several fabricated materials. Others (e. While some types of accessory equipment. Consequently. personal selling is a key component in the marketing strategy. lubrication oil. many industries actually buy more fabricated items than raw materials. light bulbs. As a matter of fact. dictates a broad marketing strategy. combined with a market made up of buyers from several different types of businesses. or they may invite bids from several companies. including steel and upholstery fabric. The relatively low unit value of accessory equipment. Most raw materials are graded according to quality so that there is some assurance of consistency within each grade. crude oil. delivery. Many industries. windshields. Industrial Supplies Industrial supplies are frequently purchased expense items. desk calculators. Fabricated materials. most are only indirectly involved. Buyers of industrial supplies do not spend a great deal of time on their . Buyers of fabricated parts and materials have well-defined specifications for their needs. Automakers use such fabricated parts as batteries. such as wholesalers. timber. copper.. it is usually done by intermediaries. There is. Some (e. timber) may be converted into an intermediate product (lumber) to be resold for use in another industry (construction). rely heavily on fabricated parts.
sales representatives may be used. It is not always clear whether a product is a consumer good or an industrial good. such as flour and pick-up trucks. A pickup truck bought for personal use is a consumer good. it is an industrial good. As a result. . depending on how they are used. they are considered industrial goods. When large orders are at stake. On the other hand. can fall into either classification. and are bought to be resold to the final consumer are classified as consumer goods. companies marketing supplies place their emphasis on advertising—particularly in the form of catalogues—to business buyers. are ready to be consumed.purchasing decisions unless they are ordering large quantities. if they are bought by a business for its own use. The key to differentiating them is to identify the use the buyer intends to make of the good. Goods that are in their final form. but flour purchased by a bakery to make pastries would be classified as an industrial good. Some items. Flour purchased by a supermarket for resale would be classified as a consumer good. if purchased to transport lawnmowers for a lawn service.
narrower brands. be easy to recognize. be easy to pronounce. to manage and execute. this means that brands seriously impact shareholder value. be attractive. . published by Interbrand and Business Week. McElroy Principles of brand management A good brand name should: • • • • • • • • • • be protected (or at least protectable) under trademark law.: Easy-Off) or suggest usage (note the tradeoff with strong trademark protection. indicates that the market value of companies often consists largely of brand equity. Research by McKinsey & Company. be easy to translate into all languages in the markets where the brand will be used. or brand. Brand Management is often viewed in organizations as a broader and more strategic role than Marketing alone.) suggest the company or product image. It may also enable the manufacturer to charge more for the product. a global consulting firm. This can result from a combination of increased sales and increased price. in contrast to marketing staff manager roles. and thus. Marketers see a brand as an implied promise that the level of quality people have come to expect from a brand will continue with future purchases of the same product. It seeks to increase the product's perceived value to the customer and thereby increase brand franchise and brand equity. and/or reduced COGS (cost of goods sold). be easy to remember. All of these enhancements may improve the profitability of a brand. which ultimately makes branding a CEO responsibility. In this regard. distinguish the product's positioning relative to the competition.g. The discipline of brand management was started at Procter & Gamble PLC as a result of a famous memo by Neil H. attract attention. well-leveraged brands produce higher returns to shareholders than weaker. in 2000 suggested that strong. and/or reduced or more efficient marketing investment. which are allocated budgets from above. This may increase sales by making a comparison with competing products more favorable. Taken together. suggest product benefits (e.Module: III Branding Brand management is the application of marketing techniques to a specific product. The value of the brand is determined by the amount of profit it generates for the manufacturer. The annual list of the world’s most valuable brands. product line. "Brand Managers" often carry line-management accountability for a brand's P&L (Profit and Loss) profitability.
The third model of brand architecture is most commonly referred to as "corporate branding". Endorsed brands benefit from the standing of their mother brand and thus save a company some marketing expense by virtue promoting all the linked brands whenever the mother brand is advertised. (For Manufacture) Means of identification to simplify handling or tracing. Types of brands • • • • • • premium brand economy brand fighting brand corporate branding individual branding family branding Functions of brand (For consumers) Identification of source of product. Signal of quality level to satisfied customers. Pampers. such as The Courtyard Hotels (product brand name) by Marriott (mother brand name). Assignment of responsibility to product maker. Risk reducer. Source of financial returns. Means of endowing products with unique associations. Procter & Gamble.• stand out among a group of other brands. With "endorsed brand architecture". a mother brand is tied to product brands. In "product brand architecture". considered by many to have created product branding. the company supports many different product brands with each having its own name and style of expression while the company itself remains invisible to consumers. ("Strategic Brand Management" 3rd edition. is a choice example with its many unrelated consumer brands such as Tide. Abunda. Ivory and Pantene. Symbolic device.Kevin Lane Keller) Brand architecture The different brands owned by a company are related to each other via brand architecture. The mother brand is used and all products carry this name and all advertising . Means of legally protecting unique features. Source of competitive advantage. Signal of quality. Search cost reducer.
For this reason. Brand identities may also lose resonance with their target market through demographic evolution. they will create a specific service or product brand for each market that they target.speaks with the same voice. A good example of this brand architecture is the UK-based conglomerate Virgin. A company may decide to rationalize their portfolio of brands from time to time to gain production and marketing efficiency. An older brand identity may be misaligned to a redefined target market. Repositioning a brand (sometimes called rebranding). Brand Orientation refers to "the degree to which the organization values brands and its practices are oriented towards building brand capabilities” (Bridson & Evans. or to rationalize a brand portfolio as part of corporate restructuring. The fast pace of technological development and the increased speed with which imitations turn up on the market have dramatically shortened product lifecycles. 2004). competitive tools – such as brands. . Virgin brands all its businesses with its name Techniques Companies sometimes want to reduce the number of brands that they market. Short-term objectives should be seen as milestones towards longterm objectives. may cost some brand equity. The consequence is that product-related competitive advantages soon risk being transformed into competitive prerequisites. and can confuse the target market. A product’s superiority is in itself no longer sufficient to guarantee its success. this may be to gain retail shelf space (and reduce the amount of shelf space allocated to competing brands). both internally and externally. They may not question strategic objectives if they feel this is the responsibility of senior management. This has resulted in an ever-tougher competitive situation on many markets. Most product level or brand managers limit themselves to setting short-term objectives because their compensation packages are designed to reward shortterm behavior. a restated corporate vision statement. In the case of product branding. increasing numbers of companies are looking for other. Sometimes. This process is known as "Brand rationalization. revisited mission statement or values of a company. The most important driving force behind this increased interest in strong brands is the accelerating pace of globalization. Brand orientation is a deliberate approach to working with brands. more enduring. Challenges There are several challenges associated with setting objectives for a category." Some companies tend to create more brands and product variations within a brand than economies of scale would indicate. A recurring challenge for brand managers is to build a consistent brand while keeping its message fresh and relevant. a brand can be repositioned while retaining existing brand equity for leverage. but ideally. • • Brand managers sometimes limit themselves to setting financial and market performance objectives.
G. Also because of the development of such social technologies. although perhaps equally damaging. It is sometimes difficult to translate corporate level objectives into brand.• • • • • • • Often product level managers are not given enough information to construct strategic objectives. In other words. the objectives of some brands may conflict with those of other brands. It can also mean monitoring for less malicious. The brand manager also needs to know senior management's harvesting strategy. Brand managers sometimes set objectives that optimize the performance of their unit rather than optimize overall corporate performance. such as the unauthorized use of a brand logo or even for negative brand information (and misinformation) from online consumers that appears in online communities and other social media platforms. Analysis). at the root of these marketing effects is consumers' knowledge. The study of brand equity is increasingly popular as some marketing researchers have concluded that brands are one of the most valuable assets that a company has. consumers' knowledge about a brand makes manufacturers/advertisers respond differently or adopt appropriately adept measures for the marketing of the brand . infractions. Brand equity refers to the marketing effects or outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name.C. . Brand equity is one of the factors which can increase the financial value of a brand to the brand owner. Or worse. This is particularly true where compensation is based primarily on unit performance. although not the only one. This is particularly true in regard to the trade-off between stability and riskiness. corporate objectives may conflict with the specific needs of your brand. Overall organisation alignment behind the brand to achieve Integrated Marketing is complex. Online brand reputation protection can mean monitoring for the misappropriation of a brand trademark by fraudsters intent on confusing consumers for monetary gain. The red flag can be something as benign as a blog rant about a bad hotel experience or an electronic gadget that functions below expectations. And. Brands are sometimes criticized within social media web sites and this must be monitored and managed. developing a social strategy to develop or increase social currency becomes increasingly important Online brand management Companies are embracing brand reputation management as a strategic imperative and are increasingly turning to online monitoring in their efforts to prevent their public image from becoming tarnished. Corporate objectives must be broad enough that brands with high-risk products are not constrained by objectives set with cash cows in mind (see B. In a diversified company. Managers tend to ignore potential synergies and inter-unit joint processes.or product-level category.
All of these calculations are. Free association tests and projective techniques are commonly used to uncover the tangible and intangible attributes. at best. Positive brand equity vs. Interbrand estimates brand value on the basis of projected profits discounted to a present value. is due to the brand. A more complete understanding of the brand can occur if multiple measures are used. approximations.[ One high profile firm level approach is by the consulting firm Interbrand. PR. due to catastrophic events to the brand. as derived by its market capitalization . Product Level: The classic product level brand measurement example is to compare the price of a no-name or private label product to an "equivalent" branded product. and still others are at the consumer level. This approach seeks to measure the awareness (recall and recognition) and brand image (the overall associations that the brand has). assuming all things equal. For example. a calculation is made regarding how much the brand is worth as an intangible asset. There are two schools of thought regarding the existence of negative brand equity. some at the product level. hypothesizing only positive brand equity is created by marketing activities such as advertising. The difference in price. A second perspective is that negative equity can exist.Measurement There are many ways to measure a brand. Firm Level: Firm level approaches measure the brand as a financial asset. Brands with high levels of awareness and strong. One perspective states brand equity cannot be negative. negative brand equity A brand equity is the positive effect of the brand on the difference between the prices that the consumer accepts to pay when the brand known compared to the value of the benefit received.and then subtract tangible assets and "measurable" intangible assets. if you were to take the value of the firm. Consumer Level: This approach seeks to map the mind of the consumer to find out what associations with the brand the consumer has. The discount rate is a subjective rate determined by Interbrand and Wall Street equity specialists and reflects the risk profile. attitudes. for example). market leadership. and promotion. . In short. favorable and unique associations are high equity brands. More recently a revenue premium approach has been advocated. stability and global reach of the brand[. such as a wide product recall or continued negative press attention (Blackwater or Halliburton. Some measurements approaches are at the firm level. and intentions about a brand. To do its calculation.the residual would be the brand equity.
e. all starting with "F". This is because family branding allows them to leverage the equity accumulated in the core brand. Freestar and Fusion." This differs slightly from the context in which the term was first published in 1969 by Jack Trout in the paper "Positioning" is a game people play in today’s me-too market place" in the publication Industrial Marketing. while a marketing manager believed that a name change would highlight the new redesign. price.The Battle for Your Mind. Aspects of brand equity includes: brand loyalty. Examples In the early 2000s in North America. the greater the probability that the company will use a family branding strategy rather than an individual branding strategy. The brand-related negative intangible assets are called “brand liability”. individual branding strategies The greater a company's brand equity. probably the most common is: identifying a market niche for a brand.Colloquially. promotion. and perception of quality . which became one of the most significant cars in American auto history. . would be abandoned in favor of three entirely new names. product or service utilizing traditional marketing placement strategies (i. It was then expanded into their ground-breaking first book. The Toronto Star quoted an analyst who warned that changing the name of the well known Windstar to the Freestar would cause confusion and discard brand equity built up. and has a natural tendency to discard all information that does not immediately find a comfortable (and empty) slot in the consumers mind. the term "negative brand equity" may be used to describe a product or service where a brand has a negligible effect on a product level when compared to a no-name or private label product. Brand Positioning Definitions Although there are different definitions of Positioning. By 2007. the Ford Motor Company made a strategic decision to brand all new or redesigned cars with names starting with "F". the Five Hundred. the Freestar was discontinued without a replacement. and competition). Family branding vs. The Five Hundred name was thrown out and Taurus was brought back for the next generation of that car in a surprise move by Alan Mulally. association. compared with “brand equity” . Positioning is a concept in marketing which was first popularized by Al Ries and Jack Trout in their bestseller book "Positioning . packaging. This aligned with the previous tradition of naming all sport utility vehicles since the Ford Explorer with the letter "E". distribution. in which the case is made that the typical consumer is overwhelmed with unwanted advertising. awareness. "Five Hundred" was recognized by less than half of most people. but an overwhelming majority was familiar with the "Ford Taurus". The aging Taurus.
When they want to know more because you've piqued their interest and started a conversation. Determine each product's share of mind 5. however. Test it on people who don't really know what you do or what you sell."Positioning: The Battle for Your Mind. What most will agree on is that Positioning is something (perception) that happens in the minds of the target market. Determine the target market's preferred combination of attributes (referred to as an ideal vector) 7. Identifying the attributes (also called dimensions) that define the product 'space' 3. Examine the fit between: o The position of your product o The position of the ideal vector 8.that is. It is the aggregate perception the market has of a particular company. Position. Positioning concepts More generally. The process is similar for positioning your company's services. Product positioning process Generally. reactive or passive about the on-going process of evolving a position. don't have the physical attributes of products . Collecting information from a sample of customers about their perceptions of each product on the relevant attributes 4. we can't feel them or touch them or show nice product pictures. the product positioning process involves: 1. Services. product or service in relation to their perceptions of the competitors in the same category. But a company can positively influence the perceptions through enlightened strategic actions. Defining the market in which the product or brand will compete (who the relevant buyers are) 2." in which they define Positioning as "an organized system for finding a window in the mind. It is based on the concept that communication can only take place at the right time and under the right circumstances" (p. So you need to ask first your customers and then yourself. It will happen whether or not a company's management is proactive. you'll know you're on the right track. Determine each product's current location in the product space 6. there are three types of positioning concepts: . 19 of 2001 paperback edition). watch their facial expressions and listen for their response. what value do clients get from my services? How are they better off from doing business with me? Also ask: is there a characteristic that makes my services different? Write out the value customers derive and the attributes your services offer to create the first draft of your positioning.
and logit analysis. clients and regulators all need to shift. conjoint analysis. simply because the definition of "volatility" is that change becomes difficult or impossible to predict. and statistical techniques like multi dimensional scaling. for example. when Goldman Sachs and Morgan Stanley suddenly shifted from investment to commercial banks. factor analysis. which previously flourished on expense account dinners and corporate events. for example. This is especially true of small and medium-sized firms. it can be necessary . many of which often lack strong brands for individual product lines. .1. The expectations of investors. Often these decisions must be made without the benefit of sufficient information. rather than just a product line or brand.to reposition an entire company.even urgent . Symbolic positions o Self-image enhancement o Ego identification o Belongingness and social meaningfulness o Affective fulfillment 3. Repositioning a company In volatile markets. Repositioning a company involves more than a marketing challenge. may for the first time need to stress value as a sale tool. It involves making hard decisions about how a market is shifting and how a firm's competitors will react. employees. Functional positions o Solve problems o Provide benefits to customers o Get favorable perception by investors (stock profile) and lenders 2. various survey techniques. and each company will need to influence how these perceptions change. In a prolonged recession. business approaches that were effective during healthy economies often become ineffective and it becomes necessary to change a firm's positioning. Experiential positions o Provide sensory stimulation o Provide cognitive stimulation Measuring the positioning Positioning is facilitated by a graphical technique called perceptual mapping. Doing so involves repositioning the entire firm. Take. Upscale restaurants.
Brand positioning As we have argued in our other revision notes on branding. A perceptual map defines the market in terms of the way buyers perceive key characteristics of competing products. . Positioning can be defined as follows: Positioning is how a product appears in relation to other products in the market Brands can be positioned against competing brands on a perceptual map. it is the “added value” or augmented elements that determine a brand’s positioning in the market place.
which was initially a record label that has extended its brand successfully many times. Arm & Hammer was able to leverage those attributes into new categories with success. It increases awareness of the brand name and increases profitability from offerings in more than one product category. Both clothing and bedding are made of linen and fulfill a similar consumer function of comfort and hominess. trains) to games stores and video stores such a Virgin Megastores. as illustrated below: Brand Extensions Brand extension or brand stretching is a marketing strategy in which a firm marketing a product with a well-developed image uses the same brand name in a different product category. An example of a brand extension is Jellogelatin creating Jello pudding pops. . A brand's "extendibility" depends on how strong consumer's associations are to the brand's values and goals. Another example is Virgin Group. from transportation (aeroplanes. Ralph Lauren's Polo brand successfully extended from clothing to home furnishings such as bedding and towels.The basic perceptual map that buyers use maps products in terms of their price and quality. The new product is called a spin-off. the cleaning and deodorizing properties of its core product. Arm & Hammer leveraged its brand equity from basic baking soda into the oral care and laundry care categories. Organizations use this strategy to increase and leverage brand equity (definition: the net worth and long-term sustainability just from the renowned name). By emphasizing its key attributes.
Brand extension is one of the new product development strategies which can reduce financial risk by using the parent brand name to enhance consumers' perception due to the core brand equity. Some studies show that negative impact may dilute brand image and equity. Launching a new product. they provide a sufficient depth and breadth proposition to examine consumer behaviour and conceptual framework. the failures of brand extension are at higher rate than the successes. Where the brand-owner partners (sometimes . Secondly. the “Complement” is that consumer takes two product (extension and parent brand product) classes as complement to satisfy their specific needs. At last. The first two measures focus on the consumer’s demand and the last one focuses on firm’s ability. From the line extension to brand extension. Another form of brand extension. etc. Product extensions are versions of the same parent product that serve a segment of the target market and increase the variety of an offering. it can be classified into two category of extension. Poor choices for brand extension may dilute and deteriorate the core brand and damage the brand equity. there are many different way of extension such as "brand alliance". is a licensed brand extension. the “Transfer” is the relationship between extension product and manufacturer which “reflects the perceived ability of any firm operating in the first product class to make a product in the second class”. resulting in a diluted or severely damaged brand image. This tactic is undertaken due to the brand loyalty and brand awareness they enjoy consumers are more likely to buy a new product that has a tried and trusted brand name on it. In spite of the positive impact of brand extension. however. They use three dimensions to measure the fit of extension. An example of a product extension is Coke vs. In practical cases. Tauber (1988) suggests seven strategies to identify extension cases such as product with parent brand’s benefit. This means the market is catered for as they are receiving a product from a brand they trust and Coca Cola is catered for as they can increase their product portfolio and they have a larger hold over the market in which they are performing in. Diet Coke in same product category of soft drinks. In his suggestion. is not only time consuming but also needs a big budget to create awareness and to promote a product's benefits.co-brandingor “brand franchise extension”. extension of productrelated association and non-product related association. Most of the literature focuses on the consumer evaluation and positive impact on parent brand. 81% of new products used brand extension to introduce new brands and to create sales. While there can be significant benefits in brand extension strategies. First of all. Types of product extension Brand extension research mainly focuses on the consumer evaluation of extension and attitude of the parent brand.In 1990s. same product with different price or quality. the “Substitute” indicates two products have same user situation and satisfy their same needs which means the products class is very similar so that can replace each other. there can also be significant risks. negative association and wrong communication strategy do harm to the parent brand even brand family. Following the Aaker and Keller’s (1990) model.
flagship product is usually had the top sales and highest awareness in its product category. A consumer can judge or evaluate the extension by their category memory. Brand extension failure Literature related to negative effect of brand extension is limited and the findings are revealed as incongruent. Theoretically speaking. paying a royalty every time a product is sold. On the other hand. Martinez and de Chernatony (2004) classify the brand image in two types: the general brand image and the product brand image. When two or more products exit in front of consumers. This process is not only related to consumer’s experience and knowledge. When consumers face thousands of products. These failures of extension make consumers create a negative or new association relate to parent brand even brand family or to disturb and confuse the original brand identity and meaning. Some studies suggest that consumer may ignore or overcome the dissonance from extension especially flagship product which means the low perceived of fit does not dilute the flagship’s equity. the negative impact has no specific damage on general brand image and “the dilution effect is greater on product brand image than on general brand image”. which means dilution does occur across the brand extension to the parent brand. Loken and Roedder-John (1993) indicate that dilution effect do occur when the extension across inconsistency of product category and brand beliefs. In consequence. In addition. “Equity of an integrated oriented brand can be diluted significantly from both functional and non-functional attributes-base variables”. changing the beliefs and association in consumers’ mind”. Categorisation theory Researchers tend to use “categorisation theory” as their fundamental theory to explore the links about the brand extension. consumer may maintain their belief about the attributes and feelings from parent brand. The failure of extension may come from difficulty of connecting with parent brand. but also try to categorise the brand association or image with their existing memory. The early works of Aaker and Keller (1990) find no significant evidence that brand name can be diluted by unsuccessful brand extensions. In spite of Aaker and Keller’s (1990) research reported that the prestige brand . they might reposition memories to frame a brand image and concept toward new introduction. They categorise new information into specific brand or product class label and store it. Conversely. their study shows that “brand extension dilutes the brand image. If the brand association is highly related to extension.with a competitor) who takes on the responsibility of manufacturer and sales of the new products. consumer can perceive the fit among brand extension. but also involvement and choice of brand. They suggest that if the brand name is strong enough as Nike or Sony. they not only are initially confused and disorderly in mind. The flagship product is a money-spinner to a firm. Marketer spends budget and time to create maximum exposure and awareness for the product. a lack of similarity and familiarity and inconsistent IMC messages.
Quality of core brand creates a strong position for brand and low the impact of fit in consumer evaluation. Because a small message dissonance would cause great failure of brand extension. and difficulty of making. the greater positive fit can perceive.” To establish a strong brand. even overall parent belief is diluted. You can read some more here Brand equity Brand equity is defined as the main concern in brand management and IMC campaign. BIC Pens tried to produce BIC pantyhose. consumer does have the ability to process information into useful knowledge for them. brand extension is also “diminish consumer’s feelings and beliefs about brand name. former experience and knowledge. The higher the similarity is the higher perception of fit. consumer has his psychology process in mind. A successful brand message strategy relies on a congruent communication and a clear brand image. 3. Although initially accepted a backlash against “New Coke” soon emerged among consumers. it is necessary to build up a “brand ladder”. Although there are few works about the failure of extensions. Not only did Coca Cola not succeed in developing a new brand but sales of the original flavour also decreased. Consumer’s knowledge and experience affect the evaluation before extension product trail. But branding does not always follow a rational line. Similarity between core brand and extension is the main concern of consumer perception of fit. in this article may conclude some points about consumer evaluation of brand extension: 1. A classic extension failure example would be Coca Cola launching “New Coke” in 1985. Studies also suggest that brand extension is a risky strategy to increase sales or brand equity. On the other hand. Every marketer should pursue the long term equity and pay attention to every strategy in detail. fit in category. The negative impact of brand extension would cause a great damage to . One mistake can damage all brand equity. In addition. But in some findings. Example. 4. It should consider the damage of parent brand no matter what types of extension are used.do no harm from failure of extension. Throughout the categorisation theory and associative network theory. literature still provides sufficient in depth research around this issue. Marketers may go behind the order and model created by Aaker and Keller which they are authorities on brand management. They would measure and compares the difference between core brand and extension product through quality of core brand. 2. The more innovation of extension product is. Consequently. Evidence shows that the dilution effect has great and instant damage to the flagship product and brand family. The moderating variable is a useful indication to evaluate consumer evaluation of brand extension. the flagship product would not be harmed. Coca Cola were had to make considerable efforts to regain customers who had turned to Pepsi cola.
for example. the difference is incomparable. One goal in . Orientation of the whole organization towards its brand is called brand orientation. People engaged in branding seek to develop or align the expectations behind the brand experience. From a manager and marketer’s perspective. A brand which is widely known in the marketplace acquires brand recognition. The art of creating and maintaining a brand is called brand management. an operation of branding should maintain brand messages and associations within a consistency and continuum in the long way. Modern value-creation branding-andadvertising campaigns are highly successful at inducing consumers to pay. known as creating value. Brand is the image of the product in the market. as it demonstrates what the brand owner is able to offer in the marketplace. or 5 dollars for a box of breakfast cereal that contains a few cents' worth of wheat. for it is these people the company should wish to find and keep. it is said to have achieved brand franchise. sometimes referred to as the brand image. plus the cost of manufacture. Brands should be seen as more than the difference between the actual cost of a product and its selling price .parent brand and brand family. creating the impression that a brand associated with a product or service has certain qualities or characteristics that make it special or unique. This concept. When brand recognition builds up to a point where a brand enjoys a critical mass of positive sentiment in the marketplace. The psychological aspect. The learned skill of a knowledge worker. can create and maintain will set an enterprise at a serious disadvantage. Because the effects of negative impact from brand extension are tremendous and permanently. Therefore cleverly crafted advertising campaigns can be highly successful in convincing consumers to pay remarkably high prices for products which are inherently extremely cheap to make. rather than a more logical valuation that comprises an aggregate of the cost of raw materials. A brand is therefore one of the most valuable elements in an advertising theme. the type of metal working. The experiential aspect consists of the sum of all points of contact with the brand and is known as the brand experience. 50 dollars for a T-shirt that cost a mere 50 cents to make. plus the cost of distribution. intangibles left wholly from the income statement and balance sheet which determine how a business is perceived. There are many intangibles involved in business. any business. Some people distinguish the psychological aspect of a brand from the experiential aspect. the type of stitch: all may be without an 'accounting cost' but for those who truly know the product. Every messages or brand extension can dilute the brand in nature. is a symbolic construct created within the minds of people and consists of all the information and expectations associated with a product or service. essentially consists of manipulating the projected image of the product so that the consumer sees the product as being worth the amount that the advertiser wants him/her to see. Failing to recognize these assets that a business.they represent the sum of all valuable qualities of a product to the consumer. Careful brand management seeks to make the product or services relevant to the target audience.
Brand love levels are measured through social media posts about a brand. is an emerging term encompassing the perceived value of the brand image. but one of the products has no associated branding (such as a generic. or love of a brand. including brands that otherwise would be candidates for purchase."To what extent is the brand topof-mind and easily recalled or recognized? What types of cues or reminders are necessary?" (Keller) How do customers remember? The tendency of a brand to be thought of in a buying situation is known as “brand salience”. jingles and so on to certain associations in memory. Becoming a Facebook fan of a particular brand is also a measurement of the level of 'brand love'. Brand salience is “the propensity for a brand to be noticed and/or thought of in buying situations” and the higher the brand salience the higher it’s market penetration and therefore its market share. Brand Salience Brand salience measures the awareness of the brand. Salience refers not to what customers think about brands but to which ones they think about. or tweets of a brand on sites such as Twitter. .com. Where two products resemble each other. store-branded product). people may often select the more expensive branded product on the basis of the quality of the brand or the reputation of the brand owner. From the perspective of brand owners. Disney has been successful at branding with their particular script font (originally created for Walt Disney's "signature" logo). It helps the customers to understand to which product or service category the particular brand belongs to and what products and services are sold under the brand name.(Keller) 'Brand love'. Also. which it used in the logo for go. Brands which come to mind on an unaided basis are likely to be the brands in a customer’s consideration set and thus have a higher probability of being purchased. Advertising weight and brand salience are cues to customers indicating which brands are popular. For example. and customers have a tendency to buy popular brands. as it often serves to denote a certain attractive quality or characteristic (see also brand promise). It also ensures that customers know which of their needs are satisfied by the brand through its products. branded products or services also command higher prices. an increase in the salience of one brand can actually inhibit recall of other brands. logo. Consumers may look on branding as an important value added aspect of products or services. Brand Awareness Brand awareness refers to customers' ability to recall and recognize the brand under different conditions and link to the brand name.brand recognition is the identification of a brand without the name of the company present.
These brands are used to sell the same product across multiple markets. But salient information that is important and received on a regular basis through different channels is passed to the long-term memory (LTM) where it can be stored for many years. Global brands are brands which sold to international markets. and could be considered successful to the extent that the associated products are easily recognizable by the diverse set of consumers. We now know that all decisions made by humans involve memory processes to a greater or lesser extent. Incoming information from the external environment travels by the sensory memory into the short-term (or working) memory (STM) but if it is not acted upon in a very short time the brain simply discards it. Levi's etc.. Marlboro. enduring relationships with consumers across countries and cultures. Memories are stored or filed via connections between new and existing memories in the different parts of the memory. removed from the physicality’s of that reality. expert on salient marketing and mentor at the Underdog Marketing Challenge Global Brand A global brand is one which is perceived to reflect the same set of values around the world. Benefits of Global Branding In addition to taking advantage of the outstanding growth opportunities. Recall is the process by which an individual reconstructs the stimulus itself from memory.It is widely acknowledged that buyer’s do not see their brand as being any different from other brands that are available. the following drives the increasing interest in taking brands global: • • • • economies of scale (production and distribution) lower marketing costs laying the groundwork for future extensions worldwide maintaining consistent brand imagery . not because it is more distinctive. Examples of global brands include Coca-Cola. References Brand Salience: How do Buyers Remember? Article by Terry Reeves. or has a point of difference. McDonald's. They are laid down in a framework making some memories easier to access than others.Global brands transcend their origins and creates strong. They buy a particular brand because they are more aware of it.
distribution. media and advertising execution) These differences will depend upon: • • • • • • • • language differences different styles of communication other cultural differences differences in category and brand development different consumption patterns different competitive sets and marketplace conditions different legal and regulatory environments different national approaches to marketing (media. pricing.) . distribution.• • quicker identification and integration of innovations (discovered worldwide) preempting international competitors from entering domestic markets or locking you out of other geographic markets increasing international media reach (especially with the explosion of the Internet) is an enabler increases in international business and tourism are also enablers • • Global Brand Variables The following elements may differ from country to country: • • • • • • corporate slogan products and services product names product features positionings marketing mixes (including pricing. etc.
A few include: Acronym: A name made of initials such as UPS or IBM Descriptive: Names that describe a product benefit or function like Whole Foods or Airbus . Advertising spokespersons have also become part of some brands. Brand name Relationship between trade marks and brand The brand name is quite often used interchangeably within "brand". In this context a "brand name" constitutes a type of trademark. although it is more correctly used to specifically denote written or spoken linguistic elements of any product. however an interesting thing about local brand is that the local branding is mostly done by consumers then by the producers. A local brand is a brand that can be found in only one country or region. Types of brand names Brand names come in many styles. for example: Mr. if the brand name exclusively identifies the brand owner as the commercial source of products or services. It may also be a brand that is developed for a specific national market. It may be called a regional brand if the area encompasses more than one metropolitan market. Local Branding is usually done by the consumers rather than the producers. A brand owner may seek to protect proprietary rights in relation to a brand name through trademark registration. Examples of Local Brands in Sweden are Stomatol. Mijerierna etc.Local Brand A brand that is sold and marketed (distributed and promoted) in a relatively small and restricted geographical area. Whipple of Charmin toilet tissue and Tony the Tiger of Kellogg's.
icon. gaining new attributes from consumer perspective but not necessarily from the marketing communications an owner percolates to targeted consumers. such as Band-Aid or Kleenex. a product's brand identity may acquire (evolve). Therefore. and station architecture to create a comprehensive consumer brand experience. one of the first visual identities to integrate logotype. color palette. Brand identity is what the owner wants to communicate to its potential consumers. product or service. Brand identity A product identity. from common table salt to designer jeans. Brand identity needs to focus on authentic qualities . Typically. over time. sustainable brand names are easy to remember.and by extension the branded company. brand associations become handy to check the consumer's perception of the brand. A brandnomer is a brand name that has colloquially become a generic term for a product or service. how the brand owner wants the consumer to perceive the brand . the brand name should be on target with the brand demographic. Most products have some kind of brand identity.real characteristics of the value and brand promise being provided and sustained by organisational and/or production characteristics. The brand name should be conceptually on target with the product/service (what the company stands for). alphabet. or brand image are typically the attributes one associates with a brand.Alliteration and rhyme: Names that are fun to say and stick in the mind like Reese's Pieces or Dunkin' Donuts Evocative: Names that evoke a relevant vivid image like Amazon or Crest Neologisms: Completely made-up words like Wii or Kodak Foreign word: Adoption of a word from another language like Volvo or Samsung Founders' names: Using the names of real people like Hewlett-Packard or Disney Geography: Many brands are named for regions and landmarks like Cisco and Fuji Film Personification: Many brands take their names from myth like Nike or from the minds of ad execs like Betty Crocker The act of associating a product or service with a brand has become part of pop culture. Effective brand names build a connection between the brand personality as it is perceived by the target audience and the actual product/service. However. which are often used to describe any kind of adhesive bandage or any kind of facial tissue respectively. The brand owner will seek to bridge the gap between the brand image and the brand identity. . organization. Visual Brand Identity The visual brand identity manual for Mobil Oil (developed by Chermayeff & Geismar). transcend trends and have positive connotations. Brand identity is fundamental to consumer recognition and symbolizes the brand's differentiation from competitors. Furthermore.
Cadbury Flake or Cadbury Fingers in the United States). colors. Chermayeff & Geismar and Saul Bass. Brand parity Brand parity is the perception of the customers that all brands are equivalent. In this case a very strong brand name (or company name) is made the vehicle for a range of products (for example.it adds a greater sense of purpose to the experience. brand identity and logo design naturally grew out of the Modernist movement in the 1950’s and greatly drew on the principals of that movement – simplicity (Mies van der Rohe’s principle of "Less is more") and geometric abstraction. Effective visual brand identity is achieved by the consistent use of particular visual elements to create distinction. Surf and Lynx are all owned by Unilever).The recognition and perception of a brand is highly influenced by its visual presentation. Persil. "No one ever got fired for buying IBM"). In the United States. Omo. or logo. it is just the company's name which is promoted (leading to one of the most powerful statements of "branding". Kool-Aid or Nivea Sun (Beiersdorf)). before the company's downgrading.  Individual branding Main article: Individual branding Each brand has a separate name (such as Seven-Up. Marketing labeled as attitude branding include that of Nike. Starbucks. Branding approaches Company name Often. Naomi Klein describes attitude branding as a "fetish strategy". "A great brand raises the bar -. Safeway. whether it's the challenge to do your best in sports and fitness. which is not necessarily connected with the product or consumption of the product at all. These principles can be observed in the work of the pioneers of the practice of visual brand identity design. such as Paul Rand.. such as specific fonts. the saying. especially in the industrial sector. or the affirmation that the . Mercedes-Benz or Black & Decker) or even a range of subsidiary brands (such as Cadbury Dairy Milk. The Body Shop. and graphic elements. At the core of every brand identity is a brand mark. and Apple Inc. A brand’s visual identity is the overall look of its communications.  Attitude branding and Iconic brands Attitude branding is the choice to represent a larger feeling. which may even compete against other brands from the same company (for example. In the 2000 book No Logo.
Nike and Harley Davidson. There are four key elements to creating iconic brands (Holt 2004): 1. letter font and style of the Coca-Cola and Diet Coca-Cola logos in English were copied into matching Hebrew logos to maintain brand identity in Israel. "Necessary conditions" . 3.A meaningful story-telling fabricated by cultural "insiders". Iconic brands are defined as having aspects that contribute to consumer's selfexpression and personal identity. Many iconic brands include almost ritual-like behaviour when buying and consuming the products. Examples include the Japanese company Muji." . "The cultural brand management process" . which means "No label" in English (from 無印良品 – "Mujirushi Ryohin" – literally. "No-brand" branding Recently a number of companies have successfully pursued "No-Brand" strategies by creating packaging that imitates generic brand simplicity. 4. "Myth-making" .. Although there is a distinct Muji brand. In other words a difference with the way consumers are and how they some times wish they were. CEO. and chairman of Starbucks) The color. and the Florida company No-Ad Sunscreen.Howard Schultz (president. This no-brand strategy means that little is spent on advertisement or classical marketing and .The performance of the product must at least be ok preferably with a reputation of having good quality. These must be seen as legitimate and respected by consumers for stories to be accepted. 2. Examples of iconic brands are: Apple Inc. Muji products are not branded.cup of coffee you're drinking really matters. Some of these brands have such a strong identity that they become more or less "cultural icons" which makes them iconic brands. Brands whose value to consumers comes primarily from having identity value comes are said to be "identity brands". "Cultural contradictions" .Actively engaging in the mythmaking process making sure the brand maintains its position as an icon.Some kind of mismatch between prevailing ideology and emergent undercurrents in society. "No brand quality goods").
golf balls. with new varieties or flavors or sizes. Brand extension The existing strong brand name can be used as a vehicle for new or modified products. furniture.Muji's success is attributed to the word-of-mouth. shoes and accessories. . A line extension is when a current brand name is used to enter a new market segment in the existing product class. Caterpillar to shoes and watches. home decor. The rationale is that having 3 out of 12 brands in such a market will give a greater overall share than having 1 out of 10 (even if much of the share of these new brands is taken from the existing one). tennis racquets and adhesives. Mars extended its brand to ice cream. "No brand" branding may be construed as a type of branding as the product is made conspicuous through the absence of a brand name. In its most extreme manifestation. in a market that is fragmented amongst a number of brands a supplier can choose deliberately to launch totally new brands in apparent competition with its own existing strong brand (and often with identical product characteristics). a simple shopping experience and the anti-brand movement. Multi-brands Alternatively. hotels. Adidas and Puma to personal hygiene. The most frequently quoted example is Intel. a supplier pioneering a new market which it believes will be particularly attractive may choose immediately to launch a second brand in competition with its first. may wish to guarantee its own position by promoting that component as a brand in its own right. Michelin to a restaurant guide. home textile. There is a difference between brand extension and line extension. Procter & Gamble (P&G) did likewise extending its strong lines (such as Fairy Soap) into neighboring products (Fairy Liquid and Fairy Automatic) within the same category. in order to pre-empt others entering the market. etc. which secures its position in the PC market with the slogan "Intel Inside". used by a number of suppliers of the endproduct. simply to soak up some of the share of the market which will in any case go to minor brands. Derived brands In this case the supplier of a key component. (sun-) glasses. Dunlop extended its brand from tires to other rubber products such as shoes. many fashion and designer companies extended brands into fragrances. dish washing detergents. for example. luggage. When Coca-Cola launched "Diet Coke" and "Cherry Coke" they stayed within the originating product category: nonalcoholic carbonated beverages.
and may outperform those products that are not otherwise strongly branded. or store brands. History The word "brand" is derived from the Old Norse brandr. Religious media expert Phil Cooke has written that faith branding handles the question of how to express faith in a mediadominated culture. . uses it to keep the very different parts of the business separate — from Sara Lee cakes through Kiwi polishes to L'Eggs pantyhose. brands in the field of mass-marketing originated in the 19th century with the advent of packaged goods. private label brands. Procter & Gamble is a leading exponent of this philosophy. Alternatively. meaning "to burn. Once again. from local communities to centralized factories. Industrialization moved the production of many household items. Cannibalization is a particular problem of a "multibrand" approach. This also increases the total number of "facings" it receives on supermarket shelves. running as many as ten detergent brands in the US market. Individual and Organizational Brands There are kinds of branding that treat individuals and organizations as the "products" to be branded." It refers to the practice of producers burning their mark (or brand) onto their products. Faith branding treats religious figures and organizations as brands. on the other hand. Although connected with the history of trademarks and including earlier examples which could be deemed "protobrands" (such as the marketing puns of the "Vesuvinum" wine jars found at Pompeii). of differing quality. in which the new brand takes business away from an established one which the organization also owns. to be sold without confusing the consumer's perception of what business the company is in or diluting higher quality products. Personal branding treats persons and their careers as brands. also called own brands. the new product being one stage in this process. Where the retailer has a particularly strong identity (such as Marks & Spencer in the UK clothing sector) this "own brand" may be able to compete against even the strongest brand leaders. also emerged as a major factor in the marketplace.Individual brand names naturally allow greater flexibility by permitting a variety of different products. Sara Lee. The term is thought to have been first used in a 1997 article by Tom Peters. In the hotel business. Nation branding works with the perception and reputation of countries as brands. Marriott uses the name Fairfield Inns for its budget chain (and Ramada uses Rodeway for its own cheaper hotels). Private labels With the emergence of strong retailers. such as soap. it may be the price the organization is willing to pay for shifting its position in the market. This may be acceptable (indeed to be expected) if there is a net gain overall.
When shipping their items. such as youthfulness.the day Philip Morris declared that they were to cut the price of Marlboro cigarettes by 20%. This trend continued to the 1980s. and Quaker Oats were among the first products to be 'branded'. and is now quantified in concepts such as brand value and brand equity. Juicy Fruit gum. Around 1900. Campbell soup. Lyle’s Golden Syrup makes a similar claim. Cattle were branded long before this. Bass & Company. Coca-Cola. following the American Civil War. it was felt that what they really purchased was its brand name. Many brands of that era. Naomi Klein has described this development as "brand equity mania". James Walter Thompson published a house ad explaining trademark advertising. his would be identified by having no markings at all. manufacturers quickly learned to build their brand's identity and personality (see brand identity and brand personality). comes from Texas rancher Samuel Augustus Maverick who. Factories established during the Industrial Revolution introduced mass-produced goods and needed to sell their products to a wider market. From there. the British brewery. having been named as Britain's oldest brand. with its green and gold packaging having remained almost unchanged since 1885. in order to compete with bargain cigarettes. fun or luxury. Philip Morris purchased Kraft for six times what the company was worth on paper. The packaged goods manufacturers needed to convince the market that the public could place just as much trust in the non-local product. the factories would literally brand their logo or insignia on the barrels used. In 1988. to customers previously familiar only with locally-produced goods. mascots. Marlboro Friday: April 2. Marlboro cigarettes were notorious at the time for their heavy advertising campaigns. manufacturers began to recognize the way in which consumers were developing relationships with their brands in a social/psychological/anthropological sense.marked by some as the death of the brand. originally meaning an unbranded calf. This began the practice we now know as "branding" today. for example. claims their red triangle brand was the world's first trademark. 1993 . such as Uncle Ben's rice and Kellogg's breakfast cereal furnish illustrations of the problem. in an effort to increase the consumer's familiarity with their products. extending the meaning of "brand" to that of trademark. By the 1940s. decided that since all other cattle were branded. This was an early commercial explanation of what we now know as branding. It quickly became apparent that a generic package of soap had difficulty competing with familiar. In response to . local products. Another example comes from Antiche Fornaci Giorgi in Italy. and well-nuanced brand image. Companies soon adopted slogans. where the consumers buy "the brand" instead of the product. whose bricks are stamped or carved with the same proto-logo since 1731. as found in Saint Peter's Basilica in Vatican City. the term "maverick". Aunt Jemima. and jingles that began to appear on radio and early television. Even the signatures on paintings of famous artists like Leonardo Da Vinci can be viewed as an early branding tool.
the announcement Wall street stocks nose-dived for a large number of 'branded' companies: Heinz, Coca Cola, Quaker Oats, PepsiCo. Many thought the event signalled the beginning of a trend towards "brand blindness" (Klein 13), questioning the power of "brand value".
WHAT ARE BRANDS Brands are those non-physical elements of a business, which have potential future earnings. They are separately identifiable, intangible assets that one capable of being reliably measured. Difference between Brand and Goodwill: Goodwill is defined as the difference between the net assets of a company and the price paid by its purchaser. EMERGENCE OF BRANDS THE BACKGROUND: The debate of the brands came to the force in the late 1980’s with the activities of a number of food companies. In early 1988, Nestle (UK) made a bid for Rowntree, with more than twice the Company’s market capitalization at that time. Mc Dougall started capitalizing the brands that they owned or acquired, implying that these brands possessed hidden values. The service sector companies like The Daily Telegraph Ltd, Lonhro plc etc have valued their brands and showed them in balance sheets. Thus began the hottest debate on brands in Balance Sheet. THE PRESENT SITUATION In UK – It had a divergent treatment for goodwill and brands. If brands can be shown as separable assets, they need not be written off, as goodwill should be. Brands should be fully amortised over their useful economic life of upto 20 years except in special circumstances. Homegrown brands are not allowed to be shown in the balance sheet, as it is very difficult to identify the cost of the brand developed. Many companies have incorporated brand values in their balance sheets. Wide Technical Report 780 UK had removed the differential treatment of brands. Now there is a distinction between brands and goodwill in UK practice. This means like Goodwill, brands should be written off immediately upon acquisition. WHY BRANDS SHOULD BE INCLUDED IN BALANCE SHEET TRADITIONAL VIEW BLURRED: The traditional view is that any valuation figure, other than one supported by a specific purchase price on change of ownership is too arbitrary at all to be credible. Also the traditional view is that the balance sheet is not intended as a statement of corporate worth and that subsequently, inclusion of values of brands in fixed assets would mislead the figures in the balance sheet. The flaw: First of all the view that only those assets which have substance or spatial dimension should be properly considered as a ‘valuable asset’ for accounting purposes is questionable. Any value fixed on a given brand is dubious, but many of the fixed assets that are shown in balance sheets have similar contestable figures- like land etc.
Eg. Assets like ‘Hero Honda’ (two wheeler) after being used for 8 years are being offered for sale at Rs. 17,000 as against the cost of Rs.12, 000. UNFAIR VIEW: The effect of the above is that in the failure to recognize brands and in the systematic undervaluation of assets (at historic costs) acknowledged to exist, companies maintain substantial unrevealed reserves. Such a practice can not be justified as fair in the interests of shareholders or investors. The shareholder has the right to be appraised of the totality of assets that are available with the company. Besides understatement of intangible assets like brands, when the company is using them to earn profits is not useful to the shareholders in judging the efficiency of management. We do value real estate on the basis of the future income. Similarly brands should be valued based on their future earnings potential. Adventurous bankers, (in UK), have started to talk about issuing backed securities and/ or using brand collateral as security for debt issues. HOW DOES BRAND VALUATION EFFECT STOCK MARKET: It is argued that the net worth of a company is readily calculable by the market price of the company. This price is reflective of the present and prospective returns there on. Then the difference between the above net worth of the company and as proclaimed by the company is of great importance to the shareholders and investors. Since the market prices are volatile, the shareholders, investors would rather prefer to look at the Balance sheet that includes future earnings potential of the company, than depending on the stock market prices. Brands in balance sheet would at least reduce his apprehensions since the inclusion lead to a fair picture of the rate of return. Further, the management’s efficiency is reflected in the ROI that is achieved by the company. Ex. the ratio, PAT / Fixed assets + Net current assets, without brand value, this would show a much higher value. The ROI thus becomes a better indicator if brand value is included. THE ADVANTAGES: 1. The inclusion of brand value in balance sheet gives a better picture of the company as having good assets and good brand value. 2. At the same time apparent return on assets (without inclusion of brands) will be brought down to more realistic figures. 3. In many of the takeovers, goodwill element in the price of the net assets has been increasing. Sometimes the price paid for goodwill is greater than the acquiring company’s net worth with the result that the consolidated accounts show negative shareholders equity. This looks preposterous. Some of the companies have reassessed the assets acquired in take overs and reclassified the goodwill as brands. 4. Company’s brand management will certainly be sharpened up (e.g. brand P&L accounts)
5. The Company’s debt equity ratio is improved i.e. it reduces the gearing ratio and so increases the Company’s borrowing capacity. 6. It particularly helps service sector companies where there are low assets levels, but strong cash flow and customer bases. 7. The company is more expensive to acquire which may deter hostile bids. 8. The asset value does not come down as long as it is maintained by proper promotional and advertising efforts. There is no depreciation and thus no impact on P&L. 9. The goodwill arising from an acquisition can be reduced. 10. Recognising the value of brands separately at the time of acquisition reduces the amount of goodwill that must be written off either directly to reserves or by amortisation over a number of years. Immediate write off has detrimental effect on consolidated reserves and confuses the real value of acquisition of the business whereas amortisation has a continuous adverse and unrealistic effect on future profits. 11. It helps better comparison between companies operating in similar markets, or between companies with varying mixes of acquired and homegrown brands. 12. Many creditors have found in an insolvency situation that some current assets such as inventory are relatively worthless even though classified as current asset. Also, we cannot recover goodwill but brands can be transferred and can be converted into cash. 13. For the businessmen brands are often the most important competitive advantage. It is the success or failure of brands that so often determines the manager’s success or failure. This concept will be translated into reality if brands are included in the balance sheet. SHOULD BRAND BE AMORTISED? The amortisation period is the period during which benefits are expected to arise. The life is deemed to be finite (prudence principle) but not fixed. Most of the businessmen find it easier to write off immediately against reserves and weaken the balance sheet than to touch the EPS by amortising brands. Most of the companies are inclined to amortise it. But the guidelines prescribed by the Accounting bodies are against it. “DOUBLE COUNTING”: The acquisition of the brand is reflected in the balance sheet at cost. The companies spend significantly on marketing support of brands which is charged through P&L account. If the brands are depreciated, this would lead to double counting. SHOULD HOMEGROWN BRANDS BE VALUED AND AMORTISED? In disallowing the capitalisation of homegrown brands, a degree of comparability between competing company is lost. Whether acquired or home grown, brands require considerable expenditure, generate substantial income and add substantial value to the
Australian has a modified historical cost accounting system. No asset revaluation is permitted. why should brands be treated differently? If accounting laws force companies not to value home grown brands they could easily find a way out by selling the brands to another company and again buy back from them. Companies know more about homegrown brands. However this is not mandatory. Clearly this is the best evidence to show that homegrown brands have a value too. forty years in France.company. Allowing home grown brands to be capitalised would eliminate this inconsistency. All purchased intangibles must be treated in the same way as goodwill. Proctor and Gamble. IN AUSTRALIA: Acquired goodwill has to be amortised though the P&L account for a maximum period of 20 years. Five years is the maximum in Japan. A court appeal made a distinction between ‘CAT’ goodwill which is loyal to the business and stays with the buyer if it is sold and a ‘DOG’ goodwill which is loyal to the owner and thus is lost to the business in case of a sale. ELSEWHERE: In most countries the acquired brands are capitalised and then amortised through the P&L. and the brands expected life in Germany. Now that AS . All brand names may be revalued with either upwardly or downwardly adjustments. Hence ‘dog’ goodwill must be written off while ‘cat’ goodwill need to be. management is more likely to continue a process of maintaining the values. If brands are capitalised. As a matter of financial prudence goodwill is written off over a period. as it is a relatively new concept in India. goodwill in general. Maintenance costs of goodwill and all other intangibles must be written off to expenses. so that fixed assets may be revalued at market price every 3 to 5 years. the brands can be valued if and only if they are purchased and not self generated. Intangible assets like brands may be carried at market value. issued by the Institute of Chartered Accountants. the depreciation period varies considerably. Major MNC’s like Unilever group.26 is applicable. No guidelines has been issued by ICAI on brand valuation. as the resulting treatment would be identical. VALUATION OF BRANDS: . Nestle and reputed Indian companies like Tatas. Reliance could benefit a great deal by valuing brands and including them in the balance sheet. IN INDIA: According to AS – 10. we capitalize it. should be recorded in the books only when some consideration in money or money’s worth has been paid for it. The argument in favour of capitalising brand names is related to the old adage – out of sight (if it is written off) out of mind. Thus it is easier to value them. Accounting for Fixed Assets. But unlike in UK and US. Thus there is no incentive for US companies to distinguish brands from goodwill. IN USA: It is a standard practice to capitalise and amortise goodwill. Acquired brands must initially be recorded at their cost of acquisitions. If a business builds its own factory instead of buying one.
05. There are various methods of valuation but each has its own draw backs. proven data. Considering the drawbacks of the existing methods of valuation INTERBRAND GROUP. But the determination of reliable forecast cash flows is fraught with difficulty. Valuation based on customer related factors such as esteem. Valuation based on premium pricing of a branded product over a non branded product. Moreover the use of market value for balance sheet purposes is prohibited by the companies act. In this system to determine brand value certain key factors need to be considered: • Brand earnings ( or cash flows) • Brand strength ( which sets the multiple or discount rate) • The range of multiples ( or discount rates) to be applied to brand earnings . 05. Valuation based on potential future earnings discounted to present day values. advertising and research and development expenditure devoted to the brand over a stipulated period. 03. Discount values of future potential earnings of the brands seems to be an appropriate one.One of the most important reasons why a valuable asset like brands is not shown on the balance sheet is because of the complexity involved in its valuation. The major benefits of branded products to manufacturers often relate to the security and stability of future demand rather than to premium pricing. Further many branded products have no generic equivalents. Valuation based on the aggregate cost of all marketing. 02. A brand valuation based solely on consumer esteem or awareness factors would bear no relationship to commercial reality. If it were so failed brands may well be attributed high values. DRAWBACKS IN EACH OF THEM 01. 02. They are briefly discussed below: METHODS OF VALUATION 01. 04. Brand value is not always a function of the cost of its development. Conceptually the system is sound as it is based on hard. Valuation at market price 04. recognition or awareness. Not may of those who are aware would actually buy it.Brands are not developed with the purpose of trading in them. the leading international branding consultancy came up with an earnings multiple system for valuing brands. 03. However if the company can show that it is the beneficial owner of a valuable asset then the seemingly serious difficulty of putting a firm price (value) on brand cannot be accepted as a reason ( by any accounting principle) for refusing to record the value of brands in balance sheet.
Once a brand has become a powerful world brand the growth in value no longer increases at the same rate. The brand is scored for each of the above factors according to the weights attributed to them and the resultant total known as the “ brand strength score” is expressed as a percentage. support and protection. trend. Also there is a possibility of the valuation getting affected by an unrepresentative years profit. With a plethora of brands flooding the market. Other Theories in Meausuring the financial value of a brand The first approach aims to calculate the brand’s value on the basis of its historic costs. stability. internationality. such as marketing. 2. For this reason. The relationship between brand strength and multiple applied is represented by a ‘S’ curve BRAND STRENGTH The shape of the ‘S’ curve is because of the following reasons: 1. devoted to the brand since its birth.1 position in its market there is an accelerated increase in its value 3. Once the multiple is determined it is multiplied by the brand earnings to arrive at the brand value. However. a smoothing element is introduced viz. Stronger the brand. market. established brand names are going to be a major asset and its importance will be increasingly in the future. These are the aggregated investment costs.BRAND EARNINGS: A vital factor in determining the value of a brand is its potential profitability over time. Not all of the profitability of a brand can necessarily be applied to the valuation of that brand. As brand strength increases from virtually zero ( an unknown or new brand) to a position as number 3 or 4 in a market. a three year weighted average of historical profits. As the brand moves into the number 2 or particularly the no. greater the multiple. an assumption is being . This method is explained with the help of a problem in the exhibit. The elements of profitability which do not result from the brands identity must therefore be excluded. the value increases gradually. BRAND STRENGTH: Brand strength is a composite of seven weighted factors: Leadership. THE RANGE OF THE MULTIPLES: From the brand strength score the multiple to apply to the brand related profits is determined. CONCLUSION: Valuation of brands is till in its infancy. A brand may be essentially a commodity product or may gain much of its profitability from its distribution system. advertising and R&D expenditure.
with very little attached to them. The value of a brand also depends on unquantifiable elements. such as Co-op. Finally there is also a question of financially accounting for the many failed brands that had substantial sums spent on them. it is vary difficult to derive a relationship from an amalgam of these factors to arrive at an objective valuation. i. Some have proposed valuing brands on the basis of various customer-related factors. Overall this approach to brand valuation raises many questions and without wellgrounded assumptions could be problematic. The management team need to agree how the historical costs should be adjusted for past inflation. while the price of a house is usually set by the seller. However. For example. the price actually paid for a brand is determined by the strategy of the buyer. most consumers are aware that Rolls-Royce is a famous brand. For example. By virtue of little more than its heritage. Another approach is that of comparing the premium price of a branded product over a non-branded product: the difference the two prices multiplied by the volume of sale of a branded product represents the brand value. even though the brand may be being ‘milked’ by its owners. who may plan for the brand to play a very different role from its existing one. Yet another way of valuing a brand is to assess its future earnings discounted to present-day values. However it is sometimes difficult to find a comparable generic product. a high multiple characterises a brand in which the firm . like horses. However. For example. The Interbrand approach is based on the assumption that the discount rate is given by a ‘Brand multiple’. what is the unbranded counterpart of a Mars-Bar? This method also assumes that all brands pursue a price-premium strategy. esteem and awareness. representative of the brand strength. These are all important elements of brands and high scores on these are indicative of strong brands. The problem. however. such as management’s expertise and the firm’s culture. out of which experience the successful brand arose. In order to determine brand value. Moreover. Moreover. while the price of a house is usually set by the seller. Since several years have to pass before it is evident whether the brand is successful. since such a market does not yet exist there is no means of estimating a market price other than putting the brand up for sale on the market. with this method is that it assumes buoyant historical earnings levels. Unilever paid 70 million pounds for Boursin just to gain shelf-space for its expansion plans for other parts of its brand portfolio. a 100-year-old brand is more likely to have had more investment than a 20-year-old brand. the price other than putting the brand up for sale on the market. a company must calculate the benefits of future ownership. is the fact that there are many famous brands.e. It is clear that the brand value of Swatch or Daewoo for example could not be assessed on this basis when equivalent competitive brands are sold at a higher price.made that none of these costs were ineffective. such as recognition. current and future cash flows of the brand and discount them to take inflation and risk into account. For example. when should a company start to include the brand value in its balance Sheet? Another drawback of this method is that it ignores qualitative factors such as the creativity of advertising support. but what value should be placed on it? Worst of all. are frequently sold and can be compared. The valuation of a brand based on its market value assumes the existence of a market in which brands. One of the most widely-accepted ways of assessing the brand value is provided by Interbrand (Birkin 1994). however.
If though a change in strategy for the brand is envisaged these weightings need to be reconsidered. the brand multiple then needs to be calculated. There may be instances where the same production line is used for both the manufacturer’s brand and several own labels. provided there is no change in brands strategy. Therefore. The next stage in arriving at a realistic assessment of the brand’s profit is to deduct the earning that do not relate to brand strength. that is six in this case. The brand profit should be the post-tax profit after deducting central overhead costs.is confident of continuing stream of future earnings and consequently represents low risk for the company. the more recent profits are likely to be more indicative of future profits. One competes through major grocery stores against other branded breads. Interbrand argue that a brand’s strength can be found from evaluating the brand against seven factors: . we multiply the Brand profit by the Brand multiple: Brand profit x Brand multiple = Brand Equity When calculating the brand profit several issues need to be considered. applying a weighting of three to the current year. Following the logic of other forecasting systems. Having calculated the brand’s profit. These aggregated profits are then divided by the sum of the weighting factors. Just as the P/E ratio equals the market value of the company divided by its after tax profits. P/E = Market value of equity Brand Multiple = Brand equity Profit Brand Profit To calculate the brand value. two to the previous year and one to the year before that. This also translates into a low discount rate. yet the profit of the first brand is heavily influenced by the strength of branding. Where this is the case. The interbrand method is similar to deriving a company’s market value through its price/earnings (P/E) ratio. A historical statement of the brands profit is first required since as a good approximation tomorrow’s profits are likely to be similar to today’s. Finally each year’s profit should be adjusted for inflation. likewise the brand multiple equals the value of the brand divided by the gross profit generated by this brand. a firm may market two brands of bread. For example. any profits arising from shade own label production need to be subtracted. and the other may be sold to a few distributors who sell this with related products through door-to-door delivery. This provides a link between a share capital and the company’s net profits and thus the brand multiple can be applied to a single brand within the company to calculate its value. To eliminate the earning which do not relate to branding the most common approach is charging the capital tied up in the production of the brand with the return expected from producing a generic equivalent. while the profit of the second brand is much more dependent on the few distributors with the distribution systems. When looking at historical profits. Both brands may show similar brand profits.e. i. to reduce the effect from any unusual year’s performance in previous three years profits are averaged. This is found through evaluating the brands strength since this determines the reliability of the brand’s future earnings. a three-year weighted average is used.
for example. A brand leader can strongly influence the market. set prices and command distribution. Strength Maximum Score Factor Leadership 25 Stability 15 Market 10 Internationality 25 Trend 10 Support 10 Protection 5 Total Score 100 The higher brand strength score the greater its multiple score. of consistent investments and support are indicators of strong brands. for example foods. are better able to anticipate future trends in therefore confidently devise brand strategies than marketers operating in markets subject to technological or fashion changes. Ø Trend : The overall long-term trend of the brand shows its ability to remain contemporary and relevant to consumers. Ø Market : Marketers with brands in non-volatile markets. a brand . Ø Internationality : Brands which have been developed to appeal to consumers internationally are more valuable than national or regional brands because of there greater volumes of sales and the investment to make them less susceptible to competitive attacks. Ø Stability : Well-established brand’s. Ø Support : The amount. Thus part of the brand’s strength comes from the markets it operates in. thus leadership brands are more valuable than followers. Interbrand argue that there is an S-curve relationship between the multiple and the brand strength score. Ø Protection : Registered trademark protects the brand from competition and any activities to protect the brand against imitators augers well for the future of the brand. as well as the quality. thus this criteria must be met to score well on leadership. are strong assets. and therefore is an indication of its value. Thus having calculated.Ø Leadership : There is well-documented evidence showing a strong link between market share and profitability. as shown in the graph below. which have a notable historical presence.
Despite these limitations. for consumers to choose from. How valuable is Intellectual Property? The change in the nature of competition and the dynamics of the new world economy have resulted in a change in the key value drivers for a company from tangible assets (such as plant and machinery) to intangible assets (such as brands. Interbrand argues that a new brand grows slowly in the early stages then it increases exponentially as it moves from national to international recognition and then slows down as it progresses to global brand status. consumers have also been provided with greater information to make informed decisions. All these multiples have been derived from the final transaction figures and may be inflated because market prices for brand acquisition often include an element of overbid. companies have taken advantage of more open trade opportunities by using the competitive advantage provided by brands and technology to access distant markets. Several questions have been raised about the interbrand method. including ease of price comparison through the internet. With this increased choice. In particular. and suppliers thereof. in the case of Reckitt & Colman a one-point variation in the multiple corresponds to 54 million pounds difference in brand value. but beyond a certain point its rate of growth is much greater. the brand’s value is 16 times its three-year weighted average profit. government regulation and increased advertising spend. the interbrand method is a popular method amongst firms valuing there brands and is been adopted by more companies as a practical way to determine the value of their brands. Research has found that brands achieve respectable spontaneous awareness scores only after a high level of prompted awareness has been achieved. from graph below this gives a multiple of 16. outsourcing and ebusiness. firms having growing historical brand valuation databases enabling mangers to access which strategies are particularly effective at growing their brands. A slight variation in the multiple can modify the value of the brand significantly. are fundamentally changing the way business is conducted.e. It gradually acquires strength with consumers and retailers in different stages. The growth in recent years in global companies (primarily through cross-border mergers and e-business) has led to an explosion in the number of goods and services. Although interbrand has derived the data for the S-curve from the multiples involved in actual brand negotiations. In Search of Brand Value in the New Economy The dynamics of the new world economy. As the S-curve ignores this additional factor. i. However experimental analysis shows that the development of the brand is susceptible to threshold effects. For Example. Further more. copyright and know how). Therefore the relationship between the brand strength and brand multiple may be better represented by a less regular pattern. patents. particularly globalisation. the brand equity resulting from such a multiple might be overvalued. This is reflected in the growth in the ratio of market capitalised . the introduction of the European single currency.strength score of 71. market multiples may not necessarily be a correct indicator of the brand strength.
Unilever and Coca Cola spend billions each year supporting their brands.089 13.value to book value of listed companies. such as Nike. the ratio is similar. with less than 30% of the capitalised value of FTSE 350 companies appearing on the balance sheet.643 10. We would argue that the remaining 70% of unallocated value resides largely in intellectual property and certainly in intellectual assets. Businesses. Such an acquisition can lead to some distinctly funny looking accounting results. a price representing five times the recorded net assets of the target company. Many companies spend millions of pounds protecting trademarks that are of no. Essentially. In the UK. provide ownership of value.626 We should stress that owning a trademark does not. the growth in trademark registrations has also demonstrated the increased focus on brand importance: Year 1998 1994 1990 1986 1982 1978 1974 Number of trademark registrations 25. then why isn't it accounted for? It is often asked why this value does not reside on the balance sheet. if a collection of assets is acquired for. In the UK.389 17.134 10.828 28. food and drink. As you can imagine. say. In other words.169 28. In the US. it is because balance sheets are a record of historic cost whereas value is a reflection of the market's expectation of a company's future cash flows and the risks inherent in those projected cash flows being achieved. or very limited. £500 million and the recorded assets are only £100 million then the remaining £400 . the sectors with the highest ratio of market capitalisation to book value are heavily reliant on copyright (such as the media sector). patents (such as technology and pharmaceutical) and brands (such as pharmaceutical. accounting and value should not be confused. in itself. Attempts have been made to account for IP. The first attempt was in 1988 when Nestle acquired Rowntree for £5 billion. Noticeably. value to the company. media and financial services). this ratio has increased from 1:1 to 5:1 over the last twenty years. Brands clearly have significant value. The value in a trademark is the protection it provides to a brand that generates cash flow. If it is valuable.
This certainty of future cash flows is of great benefit to companies and would be reflected in a higher valuation than an equivalent company with greater uncertainty over future cash flows. showing some brands but not others. Accordingly. As a result. One reason for this is that companies compete either through price or product differentiation. in the new global economy there are an increasing number of suppliers of similar products. with the latter being preferable as it helps to maintain profit margins. Indeed. Do Brands have value on the internet? . The problem that arises from not accounting for brands is that it removes a key metric by which brand management might be measured. not surprisingly. if not its value. companies selling branded products have a more stable level of sales than non-branded companies. This results in a balance sheet substantially less healthy than prior to the acquisition. The current position is that internally generated intangible assets cannot be capitalised unless they have a "readily ascertainable market value". clearly it is not possible to capitalise such internally generated assets. This recognition of value in IP is. acquired brands can be capitalised but only where it can be shown that they are separable from goodwill. The issue is not whether brands are accounted for but whether and how they are actively managed to enhance the company's value. Intellectual property is more often created internally than acquired. it is difficult to identify leading companies that do not have strong brands. As no such market exists for brands. However. companies often try to differentiate their products not through physical characteristics or product specifications but through emotive characteristics contained and developed in their brands.million gets written off through the profit and loss account. Accordingly. Some companies now make an effort to report on the importance of their IP. led by organisations with leading brands. Many balance sheets are therefore inherently inconsistent. with the associated expenses (such as research and development or advertising costs) being expensed through the profit and loss account rather than being capitalised on the balance sheet. On the other hand. some IP that is acquired goes on the balance sheet (as there is a point in time opportunity to place a cost on it) but most does not. The key strength of brands is in their ability to maintain customer loyalty. making product differentiation very difficult.
and have the ability to offer exactly the same products and services.The focus on brand development is not limited solely to traditional companies but is also key for internet companies and companies investing in e-businesses. surely such measures would be worth considering when making investment and other management decisions. However. few companies use metrics of any sort to monitor the growth or otherwise in their brand values. Management The regular valuation of brands would allow a company to monitor the effect thereon of its strategy.com companies in 1999 is forecast to exceed £100 million compared to £35 million in 1998.com but it hasn't yet made a profit. A good idea on the internet can be imitated almost immediately. The importance to a business of its brands and underlying trademarks is unquestionable. as there are few barriers to entry. what will make it use any particular store? Clearly. We have set out below the more common circumstances in which brands either are or should be valued. Everybody has heard of Amazon. New companies have quickly entered the market. Certainly such measures are rarely reported publicly. It remains to be seen whether these large investments in internet branding will yield long term results. . For companies whose primary assets are their brands. Some questions remain: Will Amazon. internet companies face intense competition. If a consumer has 100 internet book stores to choose from. despite brands being so critical in the New Economy. their return on brand investment or brand contribution to shareholder value. a trend which is likely to be followed in the UK. internet companies have to establish brands very quickly in order to develop and maintain their subscriber base. Once it is accepted that brands do have value then there is a need to understand and protect that value.com companies is even more dramatic.com benefit in the long term from the subscriber base it is building in the short term? Will its customers remain loyal or will they move to lower price options later? Why value brands? We find it surprising that. Has the implementation of management strategy resulted in brand value creation or brand value destruction? Would more value be achieved with a different strategy? Should investment dollars be diverted to other brands? A policy may well increase sales and even profits in the short term but may reduce the value of the brands and ultimately the company in the longer term. In the US the growth in advertising for . This is supported by data on UK advertising spend which shows that advertising by .
Litigation IP damages arising from litigation is all about IP value. joint venture or strategic alliance. in part determined by the level of additional sales derived from the campaign. represents the amount a willing third party licensee would pay to use the IP. That royalty rate. Reporting As noted above. it is necessary to ensure that their value does not fall below the value shown in the balance sheet. indeed they make it difficult to do so. It was recently reported. Ultimately. Reporting is not only a reference to financial statements. Strategic management is ultimately focused on creating shareholder value. once brands have been capitalised. in turn. they will pay the advertisers a fee. Transactions Brands are often valued in connection with proposed or completed transactions. In future. Previously they paid a fixed fee for an advertising campaign. For these companies to maximise shareholder value it is essential to maximise the value of their brands. perhaps. the fees might be linked to measures of customer loyalty or brand value. This necessarily requires a valuation to be performed. current accounting standards and practice do not require intellectual property to be accounted for on a balance sheet. Although the price will ultimately be a matter for negotiation. each party to the transaction will be better placed to negotiate if they have valued the brand(s) in advance. Nevertheless. Marketing spend which does not increase the value of the brand may be misdirected. As our brief commentary on valuation . the value of their brands significantly exceeds the value of their plant and machinery. Management that do not report to shareholders may nevertheless want regular valuations done to enable them to assess over time whether the value of a brand has been enhanced or whether it has greater value if used differently.The monitoring of brand value is also a useful tool in determining the success or failure of advertising campaigns and the efficiency of marketing spend. This theory applies equally well regardless of whether the transaction is a sale. that profit is underpinned at the very least by a reasonable royalty rate. For many consumer goods companies. Although IP damages typically manifests itself in a claim for lost profit. for example. that Proctor and Gamble have changed the way they pay for advertising fees.
the royalty approach is a common form of IP valuation. Taxation and transfer pricing The ownership. Accordingly.i. and (3) it needs to be able to generate cashflows in its own right. This manifests itself in the practical problem of separating the cash flows attributable to the brand from cash flows attributable to other factors. licensing and use of IP across a world-wide business can save a multinational group millions of pounds in tax. This area is complex and. However. there are disputes which actually require the IP to be valued. It is important when considering such arrangements to understand.enter the trademarks. we recommend the use of more than one methodology in each case. with the results cross-checked to ensure a reasonable result. This is a bigger problem for corporate brands than product brands. Brand valuation methodologies Having established that brands are valuable and should be valued the question arises as to how to value them. it needs three key properties: (1) it needs to be separable from the other assets of the business . like business and property valuations. In addition. (2) it needs to have legal title which can be transferred . Due to the judgmental elements. and methods of charging for the use of IP are key factors in the location of a multi-national group's profits.methodologies below shows. inter alia. Can brands be valued? For an asset to be valued. All methodologies attempt to identify that part of earnings or price which can be attributed purely to the brand. We also recommend consistency of use over time so as to reduce the comparative effect of judgement wherever possible. it is often very difficult to separate the value of the brand from other intangible assets.e. some of which are summarised below. particularly goodwill. subjective. Identifying the optimum framework for ownership. . the value of the IP. Whether brands are separable from the underlying business is often debated and needs to be considered in each case. care must be taken to separate out goodwill from any brand valuation to avoid over valuing a brand. can be sold without selling a business of the entity. certain robust methodologies have been developed. However.
if they are not. To value the brand it would be necessary to forecast the number of annual sales of the branded product and multiply this by the price premium (i. The estimate of how much a hypothetical third party would pay to be able to use. and will change throughout the year. and (3) determining an appropriate discount rate to put those cash flows in present day terms. In many cases. for example.The basic premise underlying the value of any asset is that its current value equals the future economic benefits derived from its use. the name Gucci on their products. This estimate is based on either actual license agreements. The future economic benefits will thus be the profits attributable to the additional volume generated by the brand. then names comparable to Gucci may be used to derive benchmarks for reasonable royalty . branded products will be able to charge a price premium as well as sell greater volumes than the non-branded competitors. prices charged for each product will vary between regions. Premium profits The underlying principle supporting the premium profits method is that a value can be determined by capitalising the additional profits generated by the intangible asset. alternatively the amount the owner is relieved from paying by virtue of being the owner rather than the licensee. Gucci may actually be charging licensees a royalty for use of the name. Secondly. The relief from royalty method This method is based upon the amount a hypothetical third party would pay for use of a trademark. This approach is often used for brands on the theory that a branded product can be sold for more than an unbranded product. For example. Firstly. The same valuation technique still applies. In addition it is very difficult and subjective to establish how much of the pricing differential can be attributed to the brand and how much relates to other factors. The difficulty is in (1) forecasting future cash flows (2) estimating what proportion of those future cash flows can be attributed to the brand.e. The sum of the discounted annual price premium would be the estimated value of the brand. it is difficult to find a nonbranded competitor to compare prices with. The price difference of 15p can be described as the value of the brand. per can. There are problems with the premium pricing method. The following methods attempt to answer these questions. If an asset has no future economic benefit then it has no value. comparable market data or financial analysis. at today's prices. given promotions etc. provides an estimate of the value of the brand name Gucci. For instance Coca Cola may be able to charge 50p for a Coke whereas an unbranded cola may only sell for 35p per can. the 15p). It may be that the branded product can not sell at a higher price than the non-branded product but instead can sell greater volume.
the profit attributed to the brand is the full £20 million. Earnings basis This method focuses on the maintainable profitability attributable to the intangible asset. Therefore if a multiple of 10 was considered appropriate and.rates. For valuation purposes. is deducted from the total forecast profitability. The profit remaining. Thirdly. The multiple could be determined by the companies P/E ratios. The final step is to bring these projected future cash flows back to today's prices by discounting for the time value of money and the risks associated with achieving those cash fows. possibly based on factors relating to the strength of the brand. or calculated from scratch. the royalty rate is usually expressed as a percentage of sales. This would then be divided between the company's various intangible assets. By multiplying the level of annual sales by the royalty rate and summing all years gives you an estimate of the future economic benefit of the brand. We seek to resolve this problem either by reference to our own confidential database of royalty rates or by analysing the profitability of the products in question in order to estimate the royalty that a hypothetical third party would be prepared to pay in order to generate those profits. such as tangible assets. the calculation of a multiple is highly subjective. in our experience. comparable agreements on which to base the hypothetical royalty rate. Once a royalty rate has been estimated it is necessary to estimate the life of the brand and the level of annual sales. comparable rates used for other companies. To calculate the value of the brand a multiple is applied to the portion of the £20 million profit attributed to the brand. if Gucci had expected future profitability of £100 million and the profit attributed to other factors was estimated at £80 million. The profitability of the product that can be attributed to all other factors. . by matter of deduction. most commonly used method for valuing intellectual property. such as tangible assets and working capital. One difficulty with it is the lack of actual. then the value of the brand would be £200 million (20 x 10). For example. the profit attributed to the brand will depend on how certain costs are allocated. for simplicity. then the profit attributed to intangible assets is £20 million. can then be attributed to intangible assets. Secondly. This is the most simplistic and. One shortcoming of this approach is that it is difficult to objectively attribute a profit element to all of the other factors.
Summary Brands have never been as important or as valuable as they are at present. provided that we retained ownership of our brands. brands should be managed as the key business asset that they are. For example. It is our brands that provide the profits of today and guarantee the profits of the future. not only at the protection and enforcement level. distribution. This level of management requires the development of appropriate metrics for measuring brand management performance. "Brands are the core of our business. Although brands are key to the success of many companies. owing to the dynamics of the new world economy and the increased power of the consumer. All aspects of the brand mix will need to be actively managed to ensure that the brand remains continually relevant and desirable to consumers. It is mainly because of this need to actively manage all aspects of the brand that regular valuations are essential to determine whether the company strategy and tactics are maintaining. Their importance was summarised by Sir Allen Sheppard (then the Chairman of Grand Metropolitan plc).9 billion. subcontract all of the production. sales and service functions and. creating or destroying . they do not guarantee earnings stability. By analysing the acquisition price as a multiple of current or forecast sales it would be possible to estimate the value of another brand in the same sector. we would continue to be successful and profitable.Marketing transaction comparatives As companies restructure to successfully compete in the New Economy there are an increasing number of brand sales in certain industries." As such. of which we would argue valuation is a key management tool. if we so wished. in 1998 Diageo sold its Bombay Gin and Dewar's Scotch whisky to Bacardi for US$1. These brand disposals can be used as a bench mark by which to value the brands of other products in the same industry. but also in terms of building shareholder value. We could.
We see it everyday. it’s the strength on mind that is put to test and not the strength of muscle. It may so happen that most of these factors will be external to the brand and may not have anything to do with the brand. one cannot therefore. However. An interesting motive for building strong brands is that brand strengths are unique for each brand. Once the basic strengths of the brand have been identified. building of a strong brand does not stop at that. The strength of a brand must come from within and must not be confused with windfall opportunities in the marketplace. In this scenario. external opportunities will be fleeting and may follow the axiom of easy come easy go. There is a need to communicate the brand strengths and value offering to the target masses. to introspect and realize their inner potential. there may be some brands which may not have any exceptional strengths. Moreover. If one is looking forward to building a strong brand. as in the case of wrestling. However.Building Strong Brands-Because Might is Not Always Right Do brands really need to be strong? The answer to this question is yes and is obvious to most of us. There needs to be a clear-cut distinction between the brand's intrinsic strengths and external opportunities. is that while brand strengths are inherent. Brands wrestle each other in the arena we call the marketplace. This means that just because a brand is doing well commercially. Very often. the key is to understand how more value can be delivered using those strengths. The difference between the two however. it is the player's strategy and technique that gets him to win. the winner does not win simply by might. Building strong brands requires brands-even the market leaders. Another aspect of building strong brands is that the strengths of the brand must be cultivated and communicated to the target audience. Marketplace opportunities however. in the game of wrestling. brands must consciously cultivate those strengths that make them stand out in the marketplace. . Thus while building strong brands the motto must be for the brand to achieve self-reliance and do away with dependence on providence. Thus building strong brands is more a function of creating sound strategy than simply the function of the market share of the brand. count on the external opportunities for strength. it does not imply that it is a strong brand. both of which may be contributing to the brand's success. brands must not only be strong physically but they need to be strong intellectually. How does all of this translate into marketing? The fact remains that in marketing too. The reason though quite apparent often goes unnoticed. Thus. while contributing to the success of the brand are not unique and other players in the marketplace can also avail of them. There could be other factors that may be contributing to its commercial success.
then it might be too different and might not be seen as a viable choice or a strong brand. I’ve invented the first car with functional auto-pilot. be able to operate during both night and day in most weather conditions. and provide a fair level of personal safely to occupants. where brands must either do or die. I probably will not meet with success. defensible position. unless I have fully consider my brand’s points of parity with other products in the category. and delivering passengers and cargo to the proper destination without the need for operator intervention. As an example. run on a widely-available fuel source. be street legal. The lesson here is that differentiation and singular distinction are necessary for strong brands. Points of Parity My discussion of strategic awareness. inflatable tires. tricky and complex one. be able to operate on existing roads and highways. and brand equity would not be complete without discussion of brand points of parity. they must either be strong enough to wrestle competition or be prepared to lose to the others and perish for good. in the arena called the marketplace. seat at least two people comfortably with luggage. adjusting speed for traffic conditions. Once you have met the points of parity requirement and then you provide a unique selling proposition and hold a strong. Brand Equity .The above process of building strong brands surely seems to be a time-consuming. If my automobile does not possess these points of parity with competing brands. I might produce a wonderful new automobile that uses advanced global positioning and sensor technologies that render a driver obsolete by automatically routing the car. Consumers view these associations as being necessary to be considered a legitimate product offering within a given category. Nonetheless. Points of parity are necessary for your brand but are not sufficient conditions for brand choice. they might not be enough if consumers do not view your product or service as measuring up on “minimum product expectations”. Your brand must also measure up well against the competition on expected criteria so as to neutralize those attributes. Consumers might expect that at minimum my automobile have four wheels with rubber. then you have the makings of a very strong brand. In other words. What a strong position and unique selling proposition! However. if you create what you consider to be a wonderful point of differentiation and position. points of singular distinction. recognizing and complying with all traffic laws. but they do not solely make for a strong brand. Points of parity are those associations that are often shared by competing brands. Alas.
Without brand equity. It is precisely because brands represent intangible qualities that the term is often hard to define. The issue then is not whether you have a brand. and the perceived quality attributed to the product independent of its physical features. lifestyle. You already have at least one brand First of all. but unbranded product. The brand called "you". or the holistic value of the brand to its owner as a corporate asset. . the issue is how well your brand is managed. Your name and who you are is. A brand represents all the tangible and intangible qualities and aspects of a product or service. you simply have a commodity product. Wouldn't it be nice to have people perceive you the way you would like them to perceive you? That is what branding and brand management are all about. A brand represents a collection of feelings and perceptions about quality. A brand promises to deliver value upon which consumers and prospective purchasers can rely to be consistent over long periods of time. Brand Management If a brand is not effectively managed then a perception can be created in the mind of your market that you do not necessarily desire. and feelings are often hard to grasp and clearly describe. or perceptions people experience when they think of a company or product. the intangible value associated with the product that can not be accounted for by price or features. Everyone has at least one brand. A brand also stands for the immediate image. emotions. Brand equity can include: the monetary value or the amount of additional income expected from a branded product over and above what might be expected from an identical. Branding is all about perception. your personal brand. a brand is more than just a word or symbol used to identify products and companies. Brands create a perception in the mind of the customer that there is no other product or service on the market that is quite like yours. and status. perceptions. you must understand that you already have a brand. in fact. image.Brand Equity is the sum total of all the different values people attach to the brand. Intangible qualities. More things to know about brands As I mentioned earlier. A brand is nearly worthless unless it enjoys some equity in the marketplace.
A brand will help you articulate your company's values and explain why you are competing in your market. you customers will automatically think of you first when they think of your product category. A solid branding strategy communicates a strong. In this way. consistent message about the value of your company. This attachment then causes your market to make decisions based. Branding creates trust and an emotional attachment to your product or company. branding delivers a very important benefit. A strong branding campaign will also signal that you are serious about marketing and that you intend to be around for a while. A strong brand can make actual product features virtually insignificant. In a commodity market where features and benefits are virtually indistinguishable. A brand impresses your firm's identity upon potential customers. Once you have mind share. A strong brand helps you sell value and the intangibles that surround your products. why you should care about branding in the first place. however. You may still be asking yourself. not necessarily to capture an immediate sale but rather to build a lasting impression of you and your products. Branding helps make purchasing decisions easier. A strong brand signals that you want to build customer loyalty. upon emotion-. not just sell product. The benefits of a strong brand Here are just a few benefits you will enjoy when you create a strong brand: • • • • • • • • • A strong brand influences the buying decision and shapes the ownership experience.not necessarily just for logical or intellectual reasons.Brand management recognizes that your market's perceptions may be different from what you desire while it attempts to shape those perceptions and adjust the branding strategy to ensure the market's perceptions are exactly what you intend. You might even understand that brand management is all about shaping and managing perceptions. at least in part. a strong brand will help your customers trust you and create a set of expectations about your products without even knowing the specifics of product features. People do not purchase based upon features and benefits . A strong brand can command a premium price and maximize the number of units that can be sold at that premium. So you may now have a better understanding of what a brand is and why awareness about your brand does not necessarily mean your brand enjoys high brand equity in the marketplace. Branding will help you "fence off" your customers from the competition and protect your market share while building mind share. Branding builds name recognition for your company or product.
Wal-Mart etc. They attach to a brand the same way they attach to each other: first emotionally and then logically. I want to highlight the five steps needed to create a strong brand.People do not make rational decisions.and many of these products are also branded. A positive brand value is created if customer experience exceeds his expectations. In this article. This article builds on the theory of Customer relationship management & sales. Five Steps to Build a Strong Brand In today’s highly competitive world. companies are striving hard to beat customer expectations .marketers are at work setting the right level of expectations and shaping the customer experience. are the classic examples of how companies built a strong brand through customer experience. Over a period of time companies can build a strong brand . E-bay. purchase decisions are made the same way—first instinctively and impulsively and then those decisions are rationalized. these products are market leaders in their respective segments. Note that these companies sell several products . Clearly articulate your brand identity Brand Identity means what the brand means to the customer.. So now that you understand some of the reasons why you should want to build a strong brand. Companies mentioned above started small but built a solid reputation with the customer along the way and in the process the name of the company evolved into a strong brands as well. Brand identity sets . Cisco. but customers remember the company brand more than the product brand. Google. let's talk about how you will go about building a strong brand. Cisco’s Catalyst Router etc. Similarly. but the company brand is the strongest.. For example Intel’s Pentium processor. you may want to read the earlier article on Levels of Customer Relationship before reading further. 1. Intel.one with high brand value.
For example.the customer expectations. Another classic example is ‘Starbucks’ . marketer must work as a mystery shopper and see if the customer experience is consistent with the customer value proposition and brand identity. A clear brand identity sets right level of expectations by the customer. It is what the customers think of your brand. relaxing and pleasing environment. This statement sets the customer expectation. Define the optimal customer experience. For example only if all employees of Starbucks understand the customer value proposition .then they will be able to deliver an excellent cup of coffee in a warm. The actions of each department will then be aligned with the customer value proposition.Starbuck coffee has a special meaning to its customers. you need to create a consistent and compelling experience at each of these touch points. 2. For example. For example. Take an . to them Starbucks means excellent coffee served in a warm. marketer must see if he/she is getting the kind of coffee at Starbucks in the right environment as expected by the customer. To create a holistic brand experience. Identify all contact points where customers interact with your company. and that will help you define how customers interpret it. Establish a customer value proposition Customer value proposition is the natural outcome of the brand identity. relaxing and pleasing environment. customers think of Wal-Mart as place to get great bargains. Then that message must be communicated to the entire organization so that each department and each individual understands what it means to them. The key is to clearly articulate the brand identity. A classic example is from Wal-Mart’s "Everyday Low prices". Customers expect bargain prices at Wal-Mart. 3.
Starbucks has also responded in kind . 5. There may be an understanding gap between what the customer wanted and what the marketer understood. The marketing team of Intel is always listening to customer to learn what features are needed in the future products . loyal customers into customer champions. ethical purchasing etc. Cultivate relationships with customers Relationship with customers must be treated carefully. Improving the levels of relationship with customer means enhancing customer experience . Customers of starbucks are so loyal that they are even promoting starbucks to others. Another very good example is Intel.In my earlier article I have written in detail about the levels of relationship a firm can enjoy with the customer. 4. These ideas were given to Starbucks by their customers. Strengthen your brand over time .outside-in perspective when aligning each department with your customer value proposition and brand identity.by promoting organic farming. It pays to be an active listener to learn and respond to the customer needs. Companies need to respond positively to customer feedback and that will turn casual customers into loyal customers.a level at which customers are willing to invest and co-develop new products. Note that the marketer can only test the level of customer experience based on his/her understanding of customer’s expectations. Intel sells microprocessors to computer manufacturers. Never assume anything about what the customer thinks of your company.so that the new products will have the feature required by the customer.thus gaining brand value & customer loyalty. the company releases new products with enhanced features/performance as per its pre-announced product roadmap. Here again a classic example will be Starbucks. As a result Intel enjoys the highest levels of relationships with its customers .that information is passed on the R&D teams .
you will see that company promoting that brand has succeeded in building a strong relationship with its customers. the first time customer starts at a low level of relationship( I call it level-1 ) and over a period of time.This is a popular phrase in marketing. To build a strong brand. the level of relationship can be increased to a higher level ( Max of level-6) Marketer must have a time bound plan to improve the levels of relationship which the customer enjoys with the company/brand. or to discontinue development of a new product which subsequently proves to have been a premature decision.Enhancing the level of customer-brand relationship will have a direct impact on the brand. in light of successes achieved by competitors with similar developments. To begin with. See Go Error drop-error Definition: A decision to drop a PRODUCT from the line. customers buy relationships . in hindsight. If you observe any popular brand today. All this will eventually result in a strong brand.a mistake made by a company in deciding to abandon a new product idea that. Closing thoughts Customers don't buy products. The converse of GO-ERROR. . might have been successful if developed. one needs strong customer relationships. organizations must work on enhancing customer experiences and that results in a higher level of customer relationship. To build a strong brand. Drop Error . through series of positive interactions with the brand/company. This will have a direct correlation with the brand value.
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