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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
Such efforts require the marketer to develop and refine the product’s marketing plan on a regular basis. 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. 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. and are asked to locate and select products. as we will discuss in The PLC and Marketing Planning tutorial. In fact. Finally. such as a store. 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.shelves. Managing Existing Products Marketing strategies developed for initial product introduction almost certainly need to be revised as the product settles into the market. We will see that marketers make numerous revisions to their strategy as product move through different stage of the PLC. While commercialization may be the last step in the new product development process it is just the beginning of managing the product. 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. Some firms introduce or roll-out the product in waves with parts of the market receiving the product on different schedules. Product interest can then be measured based on customer’s shopping response. . 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. there are several hightech approaches to market testing including virtual reality and computer simulations. COMMERCIALIZATION If market testing displays promising results the product is ready to be introduced to a wider market. Step 7. marketing strategies change as a product moves through time leading to the concept called the Product Life Cycle (PLC). With virtual reality testing customers are exposed to a computer-projected environment.
g. maturity. From birth to death human beings pass through various stages e. .Module: II Product life cycle (PLC) Like human beings. involves many professional disciplines. and requires many skills. To say that a product has a life cycle is to assert four things: • that products have a limited life. products also have their own life-cycle. growth. A similar life-cycle is seen in the case of products. The product life cycle goes through multiple phases. decline and death. tools and processes. 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.
2. Industrial profits go down 4. 3. 4. financial.• • • product sales pass through distinct stages. These are: Stage 1. Maturity stage . There are four stages in product life cycle. prices tend to drop due to the proliferation of competing products 5. makes no money at this stage 1. profits rise and fall at different stages of product life cycle. and human resource strategies in each life cycle stage. costs become counter-optimal 2. 3. 4. purchasing. 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. manufacturing. 5. sales volume decline or stabilize 3. costs are lowered as a result of production volumes increasing and experience curve effects 2. 5. Growth stage 6. brand differentiation and feature diversification is emphasized to maintain or increase market share 6. profit becomes more a challenge of production/distribution efficiency than increased sales 3. 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. Market introduction stage 6. opportunities. sales volume peaks and market saturation is reached 3. prices. and products require different marketing. Saturation and decline stage 1. profitability diminish 4. each posing different challenges. 2. increase in competitors entering the market 4. increased competition leads to price decreases 1. and problems to the seller.
• • • • • Product quality is improved. Prices may be lowered to lure the next layer of price-conscious buyers. o Style improvement. New models are introduced. New market segments are trapped. • . o Quality improvement. Brand building is resorted to. • Budget increased. brands. • More intensive or broad based. • 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. Marketing Strategies at Growth Stage: • • Market modification. o Feature improvement. • Competitive parity. marketing mix for each variable can be set at a high or low level with different combinations of price and promotion. • Emphasis on price. Marketing Strategies at Decline Stage: • • Withdrawal of weak products in a phased manner. Flanker products are introduced. Product modification. Prices are cut. • Differentiating promotion.Marketing Strategies at Introduction Stage: While launching a new product. 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.
more specifically. selected. killed. According to 'best-practice' research by Dr. "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. 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. not only in the technical community. Portfolio Management What is New Product Portfolio Management? A vital question in the product innovation battleground is. In this process. Executive teams confess that serious Go/Kill decision points rarely exist and. recent benchmarking studies have identified portfolio management as the weakest area in product innovation management. Existing projects may be accelerated. However. As a result. and prioritized. but in the CEO's office as well. Much like stock market portfolio managers. criteria for making the Go/Kill decision are non-existent. Despite its growing popularity. Emphasis on special applications. senior executives who optimize their R&D investments have a much better opportunity of winning in the long run. Today's new product projects decide tomorrow's product/market profile of the firm. 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. An estimated 50% of a firm's current sales come from new products introduced in the market within the previous five years. or deprioritized and resources are allocated (or reallocated) to the active projects. it is a problem that every company addresses to produce and maintain leading edge products. Portfolio Management . the common denominator across firms are the goals executives are trying to achieve. new projects are evaluated.• • • • Selective unprofitable segments are left out. Edgett. five main goals dominate the thinking of successful firms: 1. Minimum promotion. Portfolio management for new products is a dynamic decision process wherein the list of active new products and R&D projects is constantly revised. Value Maximization Allocate resources to maximize the value of the portfolio via a number of key objectives . Cooper and Dr. Specialist selling.A Problem Area! Recent years have witnessed a heightened interest in portfolio management.
business arenas and technologies. The three main approaches are: top-down (strategic buckets). 3. 4. Pipeline Balance Obtain the right number of projects to achieve the best balance between the pipeline resource demands and the resources available. 5. Portfolio Management is a high impact. bottom-up (effective gatekeeping and decision criteria) and top-down and bottom-up (strategic check). Balance Achieve a desired balance of projects via a number of parameters: risk versus return. Typically this is conducted via a financial analysis of the pipeline’s potential future value. Sufficiency Ensure the revenue (or profit) goals set out in the product innovation strategy are achievable given the projects currently underway. A variety of methods are used to achieve this maximization goal. ROI.such as profitability. and across various markets. 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. Why is it so important? Companies without effective new product portfolio management and project selection face a slippery road downhill. 2. A typical approach is to use a rank ordered priority list or a resource supply and demand assessment. What are the benefits of Portfolio Management? When implemented properly and conducted on a regular basis. ranging from financial methods to scoring models. short-term versus long-term. Typical methods used to reveal balance include bubble diagrams. and acceptable risk. The goal is to avoid pipeline gridlock (too many projects with too few resources) at any given time. Many of the problems that plague new product . 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. histograms and pie charts.
Boston Consulting Group analysis. portfolio diagram) is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing . According to benchmarking studies conducted by Dr.G. the result is an enviable portfolio of high value projects: a portfolio that is properly balanced and most importantly. Boston Box. and The pipeline has too many low value projects Portfolio Management is about doing the right projects. BCG matrix The BCG matrix (aka B. analysis.C. 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.development initiatives in businesses can be directly traced to ineffective portfolio management. Cooper and Dr. BCG-matrix. supports your business strategy. Boston Matrix. Edgett.
You can then plot the products of your rivals to give relative market share. Problem Children. These are products that are in high growth markets with a relatively high share of that market. Cash Cows generate more than is invested in them. the Boston Matrix is a well known tool for the marketing manager. This may not always be the case.their business units or product lines. Look for some kind of balance within your portfolio. product management. They do not generate cash for the company.  Folio plot of example data set Like Ansoff's matrix. These are products with a low share of a low growth market. These are areas of the business rather than products. When Boeing launch a new jet. This is an SBU not a single product. Keep and build your stars. they tend to absorb it. These are the canine version of 'real turkeys!'. Cash Cows. Try not to have any Dogs. They absorb most money as you attempt to increase market share. and this means that you will need a larger contribution from the successful products to compensate for the failures. Ford own Landrover in the UK. Dogs. and portfolio analysis. Cash Cows. There is an assumption that higher rates of profit are directly related to high rates of market share. Get rid of these products. It was developed by the large US consulting group and is an approach to product portfolio planning. There is another assumption . This is simplistic in many ways and the matrix has some understandable limitations that will be considered later. For example. Some of the Problem Children will become Dogs. This helps the company allocate resources and is used as an analytical tool in brand marketing. These are products with a low share of a high growth market. strategic management. Problem Children and Stars need to be kept in a kind of equilibrium. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth. which may eventually become Cash Cows. They consume resources and generate little in return. These are products with a high share of a low growth market. Stars. The funds generated by your Cash Cows is used to turn problem children into Stars. You would do this for every product in the range. 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). Problems with The Boston Matrix. So keep them in your portfolio of products for the time being. Each cell has its own name as follows. You would look at each individual product in your range (or portfolio) and place it onto the matrix. Stars tend to generate high amounts of income.
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. So Information System services can be treated accordingly. the ratio would be 1:3. The exact measure is the brand's share relative to its largest competitor. If this technique is used in practice. The BCG Matrix thus offers a very useful 'map' of the organization's product (or service) strengths and weaknesses. if the brand had a share of 20 percent. as well as the likely cashflows. If the largest competitor only had a share of 5 percent. the ratio would be 4:1. Be careful. The need which prompted this idea was. . It shows where the brand is positioned against its main competitors. because the higher the share the more cash will be generated. implying that the brand owned was in a relatively strong position. and indicates where it might be likely to go in the future. and one which pointed to cash usage was that of market growth rate. the 'area' of the circle represents the value of its sales. It was reasoned that one of the main indicators of cash generation was relative market share. Brand leaders in this position tend to be very stable—and profitable. The reason for choosing relative market share. 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. indeed. Relative market share This indicates likely cash generation. and the largest competitor had the same. however.that SBUs will cooperate. On the other hand. Thus. not linear. is that it carries more information than just cash flow. Derivatives can also be used to create a 'product portfolio' analysis of services. this scale is logarithmic. the Rule of 123. and triple that of the third. exactly what is a high relative share is a matter of some debate. which might be reflected in profits and cash flows. Use the Matrix as a planning tool and always rely on your gut feeling. This is not always the case. The main problem is that it oversimplifies a complex set of decision. the ratio would be 1:1. If the largest competitor had a share of 60 percent. rather than just profits. Practical use of the BCG Matrix For each product or service. As a result of 'economies of scale' (a basic assumption of the BCG Matrix). at least in terms of current profitability. that of managing cash-flow. It can also show what type of marketing activities might be expected to be effective.
again. makes the use of the BCG Matrix problematical in some product areas. the later application of the names (problem children. that a higher growth rate is indicative of accompanying demands on investment. In particular. and only implies actual profitability. particularly with respect to growth rates. and practitioners. is that the most typical pattern is of very low growth. and also of its attractiveness to future competitors. are what organizations strive for. for graphically illustrating cashflows. Unless the rankings are approached with rigor and scepticism. the purpose of any business. With this or any other such analytical tool. The reason for this is often because the growth is being 'bought' by the high investment. since such simplistic use contains at least two major problems: . but.Market growth rate Rapidly growing in rapidly growing markets. Where it can be applied. less than 1 per cent per annum. Critical evaluation The matrix ranks only market share and industry growth rate. This is outside the range normally considered in BCG Matrix work. 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. later practitioners have tended to over-simplify its messages. enthusiastic managers may claim that cash must be thrown at these businesses immediately in order to turn them into stars. therefore. in those few situations where it could be applied. however. It can also be used in growth analysis. However. as we have seen.they require investment. and therefore should be retained and not sold. the evidence from FMCG markets at least. ranking business units has a subjective element involving guesswork about the future. Determining this cut-off point. 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. It is a good indicator of that market's strength. This is unfortunate. of its future potential (of its 'maturity' in terms of the market life-cycle). the market growth rate says more about the brand position than just its cash flow.) The matrix also overlooks other elements of industry. and one that. which may make application of this form of analysis unworkable in many markets. stars. If used with this degree of sophistication its use would still be valid. 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 penalty is that they are usually net cash users . As originally practiced by the Boston Consulting Group the matrix was undoubtedly a useful tool. The theory behind the matrix assumes. before growth rates slow and it's too late. remember. cash cows and dogs) has tended to overshadow all else—and is often what most students. in the reasonable expectation that a high market share will eventually turn into a sound investment in future profits. What is more.
and that is. above all. The cashflow techniques are only applicable to a very limited number of markets (where growth is relatively high. Thus. and almost demands. 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. and funding. 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). money must be diverted from `cash cows' to fund the `stars' of the future. 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. that the apparent implication of its fourquadrant form is that there should be balance of products or services across all four quadrants. It is a foolish vendor who diverts funds from a `cash cow' when these are needed to extend the life of that `product'. since `cash cows' will inevitably decline to become `dogs'. Such brand leaders will. Perhaps the worst implication of the later developments is that the (brand leader) cash bulls should be milked to fund new brands. who has most of his (or her) products in the `cash cow' quadrant. should consider himself (or herself) fortunate indeed. The reality is that it is only the `cash bulls' that are really important—all the other elements are supporting actors. to add some extra growth. such as that of ethical pharmaceuticals). Alternatives As with most marketing techniques. Perhaps the most important danger is. Perhaps the most practical approach is that of the Boston Consulting Group's . but they should not be `milked' to such an extent that their position is jeopardized. This is not what research into the FMCG markets has shown to be the case. It focuses attention. 'Milking cash bulls'. In any case. generate large cash flows. 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. indeed. In the majority of markets. perhaps. It presumes. although he or she might also consider creating a few stars as an insurance policy against unexpected future developments and. The brand leader's position is the one. not least since brands in this position will probably outperform any number of newly launched brands. 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. There is also a common misconception that 'dogs' are a waste of resources. The vendor. on to the `stars'. which is a three-cell by three-cell matrix—using the dimensions of `industry attractiveness' and `business strengths'. to be defended. however. The next most widely reported technique is that developed by McKinsey and General Electric. use may give misleading results.'Minority applicability'. of course. that `cash bulls' will turn into `dogs'. and an excellent marketer. There is an almost mesmeric inevitability about the whole process. or is at least less widely taught). and a definite pattern of product lifecycles can be observed.
ansoff's product / market matrix Introduction The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy. 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. Market penetration seeks to achieve four main objectives: . 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. 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.
The company must: (1) Analyse its current business portfolio and decide which businesses should receive more or less investment. The business is focusing on markets and products it knows well. therefore. It is likely to have good information on competitors and on customer needs. Market development Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets. advertising.• Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies.portfolio analysis . including: • New geographical markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets. This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. that this strategy will require much investment in new market research. It is unlikely. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities. sales promotion and perhaps more resources dedicated to personal selling • Secure dominance of growth markets • Restructure a mature market by driving out competitors.ge matrix The business portfolio is the collection of businesses and products that make up the company. Diversification Diversification is the name given to the growth strategy where a business markets new products in new markets. therefore. strategy . and . this would require a much more aggressive promotional campaign. There are many possible ways of approaching this strategy. 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. For a business to adopt a diversification strategy. 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”. it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.
(2) Develop growth strategies for adding new products and businesses to the portfolio. Secondly.it all depends on how the company is organised. whilst at the same time deciding when products and businesses should no longer be retained. An SBU can be a company division. In both methods. 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. the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. Firstly. 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 . and includes a broader range of factors other than just the market growth rate. These are listed below: . 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). there are several factors which can help determine attractiveness. market attractiveness replaces market growth as the dimension of industry attractiveness. competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. 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.
Distribution strength .Customer loyalty .Market growth .Record of technological or other innovation . direct.Distribution structure (e..Overall risk of returns in the industry . retail.g. wholesale Factors that Affect Competitive Strength Factors to consider include: .Competitive intensity / rivalry .Relative cost position (cost structure compared with competitors) .Strength of assets and competencies .Market profitability .Pricing trends .Access to financial and other investment resources .Market share .Segmentation .Market Size .Opportunity to differentiate products and services .Relative brand strength .
You are gaining short-term sales at the expense of long term sales. Line consistency refers to how closely related the products that make up the line are. lining involves offering several related products individually. this is referred to as trading down. you will likely reduce your brand equity. If a line of products is sold with the same brand name. When you add a line extension that is of better quality than the other products in the line. Line depth refers to the number of product variants in a line. When you add a new product to a line. this is referred to as family branding. Unlike product bundling. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line. When you trade down. or prices. Image anchors are highly promoted products within a line that define the image of the whole line. this is referred to as trading up or brand leveraging. When you add a line extension that is of lower quality than the other products of the line. The number of different product lines sold by a company is referred to as width of product mix. A line can comprise related products of various sizes. types. . qualities. The total number of products sold in all lines is referred to as length of product mix. this is referred to as line filling. When you add a new product within the current range of an incomplete line. Image anchors are usually from the higher end of the line's range.Product Line Product lining is the marketing strategy of offering for sale several related products. colors. it is referred to as a line extension. where several products are combined into one.
Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers. Splendour Plus Coca-Cola. product packaging. It has the advantage of ease of administering. This is a tradition started in the old five and dime stores in which everything cost either 5 or 10 cents.Price lining is the use of a limited number of prices for all your product offerings. A product line extension is the use of an established product’s brand name for a new item in the same product category. This is as opposed to brand extension which is a new product in a totally different product category. Clinic Plus Reese's Peanut Butter Cups. forms. Examples include • • • • • • Zen LXI. particularly in times of inflation or unstable prices. 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. or household use. added ingredients. Surf Excel Blue Splendour. product labeling and product support services. product branding. There are many important decisions about product and service development and marketing. family. The two main forms of classifications are consumer goods and industrial goods. Diet Coke. They are grouped into three subcategories on the basis of consumer buying habits: convenience goods. Consumer goods can also be differentiated on the basis of durability. But product strategy also calls for building a product line. Line Extensions occur when a company introduces additional items in the same product category under the same brand name such as new flavors. package sizes. Consumer Goods Consumer goods are goods that are bought from retail stores for personal. colors. shopping goods. Durable . and specialty goods. Surf Excel. but the disadvantage of inflexibility. In the process of product development and marketing we should focus on strategic decisions about product attributes. Vanilla Coke Clinic All Clear. Zen VXI Surf.
bread.. antiques. a food dish prepared in a specific way). a certain make of automobile) or personal preference (e. such as food. Specialty Goods Specialty goods are items that are unique or unusual—at least in the mind of the buyer. Within stores. Because customers are going to shop for these goods. fine jewelry. but not necessarily. as conveniently as possible. and tabloid newspapers. soft drinks. or worn out. Advertising for shopping goods is often done cooperatively with the manufacturers of the goods. of high value.goods are products that have a long life. bought infrequently.g. These goods are usually. To extend the distribution. Convenience Goods Convenience goods are items that buyers want to buy with the least amount of effort. schools.. a fundamental strategy in establishing stores that specialize in them is to locate near similar stores in active shopping areas. that is.g. such as candy bars. these items are also frequently made available through vending machines in offices. and include milk. Price. radio. Other items that fall into this category are wedding dresses. Buyers know exactly what they want and are willing to exert considerable effort to obtain it. factories. Since convenience goods are not actually sought out by consumers. and television. These goods can be further divided into two subcategories: staple and impulse items. including newspapers. lawnmowers. Ongoing strategies for marketing shopping goods include the heavy use of advertising in local media. Televisions. Nondurable goods are those that are quickly used up. quality. and camping equipment are all examples of shopping goods. and other settings. and toilet paper. and golf clubs. they are placed at checkout stands and other high-traffic areas. . school supplies. Often the attributes that make them unique are brand preference (e. such as furniture and garden tools. and disposable cameras. and are durable. 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. and color are typically factors in the buying decision. Most are nondurable goods of low value that are frequently purchased in small quantities. or that become outdated. style. They differ from shopping goods primarily because price is not the chief consideration. bedding. producers attempt to get as wide a distribution as possible through wholesalers. 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. and they may or may not be durable goods. These goods are usually of higher value than convenience goods. computers.
Accessory Equipment Goods that fall into the subcategory of accessory equipment are capital items that are less expensive and have shorter lives than . shopping. and some are used indirectly. are built to a standard design but can be modified to meet individual requirements. a given item may be a convenience good for one person. buying a pair of shoes might be a convenience purchase. another person might buy shoes only after considerable thought and comparison: in this instance. However. Industrial Goods Industrial goods are products that companies purchase to make other products. such as stamping machines. Nondurable industrial goods that are used up within a year are called expense items. the shoes are a specialty good. and specialty goods is not always clear. Consequently. and a specialty good for a third. These goods are divided into five subcategories: installations. Some installations. Installations Installations are major capital items that are typically used directly in the production of goods. are designed and built for specialized situations. and industrial supplies. accessory equipment. these classifications are based on consumers' buying habits. actual sale of installations requires the technical knowledge and assistance that can best be provided by personal selling. Durable industrial goods that cost large sums of money are referred to as capital items. Unlike consumer goods. Still another individual who perhaps prefers a certain brand or has an unusual size will buy individual shoes only from a specific retail location. For example. robotics equipment. As noted earlier. the shoes are a shopping good. The distinction among convenience. for this 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.Producers and distributors of specialty goods prefer to place their goods only in selected retail outlets. and computerized axial tomography (CAT) scan machines. such as conveyor systems. Other installations. industrial goods are classified on the basis of their use rather than customer buying habits. Consistency of image between the product and the store is also a factor in selecting outlets. for a person who does not want to spend time shopping. The purchase of installations requires extensive research and careful decision making on the part of the buyer. which they then sell. and machine tools. Manufacturers of installations can make their availability known through advertising. fabricated parts and materials. large commercial ovens. a shopping good for another. Some are used directly in the production of the products for resale. raw materials. In contrast. Industrial goods also carry designations related to their durability.
require additional processing before being placed in the end product. There is. and leather. wheat. wheat) may be converted directly into another consumer product (cereal). Buyers of industrial supplies do not spend a great deal of time on their . light bulbs.g. They may work closely with a company in designing the components or materials they require. little difference between offerings within a grade. Examples are iron ore.. While some types of accessory equipment. including the auto industry. or they may invite bids from several companies. copper. desk calculators. They contribute indirectly to the production of final products or to the administration of the production process. timber) may be converted into an intermediate product (lumber) to be resold for use in another industry (construction). lubrication oil. computers. As a matter of fact. Most raw materials are graded according to quality so that there is some assurance of consistency within each grade. This negotiation plus the fact that raw materials are ordinarily sold in large quantities make personal selling the principal marketing approach for these goods. delivery. personal contact must be maintained with the buyers over time. sun roofs. Sellers rely heavily on advertisements in trade publications and mailings to purchasing agents and other business buyers. crude oil. Fabricated materials. including steel and upholstery fabric. Raw Materials Raw materials are products that are purchased in their raw state for the purpose of processing them into consumer or industrial goods. combined with a market made up of buyers from several different types of businesses.g. Many industries. many industries actually buy more fabricated items than raw materials.installations. on the other hand. most are only indirectly involved. Some (e. timber. windshields. Industrial Supplies Industrial supplies are frequently purchased expense items. The relatively low unit value of accessory equipment. Fabricated Parts and Materials Fabricated parts are items that are purchased to be placed in the final product without further processing. In either case. diamonds. such as hand tools. such as wholesalers. and forklifts. Consequently. in order to be in a position to get the business. dictates a broad marketing strategy. and spark plugs. personal selling is a key component in the marketing strategy. and office supplies. When personal selling is needed. Examples include hand tools. it is usually done by intermediaries. sales negotiations focus on price.. Automakers use such fabricated parts as batteries. Supplies include computer paper. They also use several fabricated materials. Others (e. Buyers of fabricated parts and materials have well-defined specifications for their needs. Here again. and credit terms. rely heavily on fabricated parts. however. cleaning supplies. are involved directly in the production process.
such as flour and pick-up trucks. sales representatives may be used. The key to differentiating them is to identify the use the buyer intends to make of the good. depending on how they are used. they are considered industrial goods. . it is an industrial good. companies marketing supplies place their emphasis on advertising—particularly in the form of catalogues—to business buyers. if purchased to transport lawnmowers for a lawn service. if they are bought by a business for its own use. Flour purchased by a supermarket for resale would be classified as a consumer good.purchasing decisions unless they are ordering large quantities. A pickup truck bought for personal use is a consumer good. can fall into either classification. Some items. but flour purchased by a bakery to make pastries would be classified as an industrial good. When large orders are at stake. are ready to be consumed. As a result. On the other hand. Goods that are in their final form. and are bought to be resold to the final consumer are classified as consumer goods. It is not always clear whether a product is a consumer good or an industrial good.
or brand. indicates that the market value of companies often consists largely of brand equity. McElroy Principles of brand management A good brand name should: • • • • • • • • • • be protected (or at least protectable) under trademark law. and/or reduced or more efficient marketing investment. be easy to translate into all languages in the markets where the brand will be used.) suggest the company or product image. It seeks to increase the product's perceived value to the customer and thereby increase brand franchise and brand equity. this means that brands seriously impact shareholder value. which are allocated budgets from above. in 2000 suggested that strong. be easy to recognize. be easy to pronounce. to manage and execute.: Easy-Off) or suggest usage (note the tradeoff with strong trademark protection. in contrast to marketing staff manager roles. . 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. All of these enhancements may improve the profitability of a brand. Taken together. In this regard. and/or reduced COGS (cost of goods sold). a global consulting firm. "Brand Managers" often carry line-management accountability for a brand's P&L (Profit and Loss) profitability. This may increase sales by making a comparison with competing products more favorable. and thus. distinguish the product's positioning relative to the competition. suggest product benefits (e. Research by McKinsey & Company. This can result from a combination of increased sales and increased price. attract attention. product line. Brand Management is often viewed in organizations as a broader and more strategic role than Marketing alone. It may also enable the manufacturer to charge more for the product.Module: III Branding Brand management is the application of marketing techniques to a specific product. published by Interbrand and Business Week. be easy to remember.g. The value of the brand is determined by the amount of profit it generates for the manufacturer. be attractive. well-leveraged brands produce higher returns to shareholders than weaker. narrower brands. The annual list of the world’s most valuable brands. which ultimately makes branding a CEO responsibility. The discipline of brand management was started at Procter & Gamble PLC as a result of a famous memo by Neil H.
is a choice example with its many unrelated consumer brands such as Tide. The third model of brand architecture is most commonly referred to as "corporate branding". Procter & Gamble. Search cost reducer. Assignment of responsibility to product maker. Means of endowing products with unique associations. Source of competitive advantage. a mother brand is tied to product brands. With "endorsed brand architecture". Symbolic device. In "product brand architecture". Ivory and Pantene. 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. Risk reducer.• stand out among a group of other brands. Abunda. Means of legally protecting unique features. (For Manufacture) Means of identification to simplify handling or tracing. such as The Courtyard Hotels (product brand name) by Marriott (mother brand name). Signal of quality level to satisfied customers. 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. Source of financial returns. The mother brand is used and all products carry this name and all advertising . Signal of quality. 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. ("Strategic Brand Management" 3rd edition. considered by many to have created product branding. Pampers.Kevin Lane Keller) Brand architecture The different brands owned by a company are related to each other via brand architecture.
but ideally. competitive tools – such as brands. The fast pace of technological development and the increased speed with which imitations turn up on the market have dramatically shortened product lifecycles. or to rationalize a brand portfolio as part of corporate restructuring. This has resulted in an ever-tougher competitive situation on many markets. Brand orientation is a deliberate approach to working with brands. Challenges There are several challenges associated with setting objectives for a category.speaks with the same voice. The most important driving force behind this increased interest in strong brands is the accelerating pace of globalization. Most product level or brand managers limit themselves to setting short-term objectives because their compensation packages are designed to reward shortterm behavior. They may not question strategic objectives if they feel this is the responsibility of senior management. increasing numbers of companies are looking for other. A product’s superiority is in itself no longer sufficient to guarantee its success. A recurring challenge for brand managers is to build a consistent brand while keeping its message fresh and relevant. In the case of product branding. a restated corporate vision statement. both internally and externally. This process is known as "Brand rationalization. 2004). . A good example of this brand architecture is the UK-based conglomerate Virgin. Short-term objectives should be seen as milestones towards longterm objectives. For this reason. this may be to gain retail shelf space (and reduce the amount of shelf space allocated to competing brands). • • Brand managers sometimes limit themselves to setting financial and market performance objectives. Brand Orientation refers to "the degree to which the organization values brands and its practices are oriented towards building brand capabilities” (Bridson & Evans. The consequence is that product-related competitive advantages soon risk being transformed into competitive prerequisites. 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. more enduring. revisited mission statement or values of a company. a brand can be repositioned while retaining existing brand equity for leverage." Some companies tend to create more brands and product variations within a brand than economies of scale would indicate. may cost some brand equity. Virgin brands all its businesses with its name Techniques Companies sometimes want to reduce the number of brands that they market. and can confuse the target market. they will create a specific service or product brand for each market that they target. Sometimes. Repositioning a brand (sometimes called rebranding). Brand identities may also lose resonance with their target market through demographic evolution.
In other words. the objectives of some brands may conflict with those of other brands. 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. 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. Brands are sometimes criticized within social media web sites and this must be monitored and managed. . Brand managers sometimes set objectives that optimize the performance of their unit rather than optimize overall corporate performance. 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. although not the only one. Online brand reputation protection can mean monitoring for the misappropriation of a brand trademark by fraudsters intent on confusing consumers for monetary gain. Brand equity is one of the factors which can increase the financial value of a brand to the brand owner. at the root of these marketing effects is consumers' knowledge. corporate objectives may conflict with the specific needs of your brand. 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. Managers tend to ignore potential synergies and inter-unit joint processes. And.or product-level category. It is sometimes difficult to translate corporate level objectives into brand. This is particularly true in regard to the trade-off between stability and riskiness. This is particularly true where compensation is based primarily on unit performance. The brand manager also needs to know senior management's harvesting strategy. Also because of the development of such social technologies.• • • • • • • Often product level managers are not given enough information to construct strategic objectives. infractions. consumers' knowledge about a brand makes manufacturers/advertisers respond differently or adopt appropriately adept measures for the marketing of the brand .G. Analysis). In a diversified company. It can also mean monitoring for less malicious. Overall organisation alignment behind the brand to achieve Integrated Marketing is complex.C. Or worse. 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. 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. although perhaps equally damaging.
This approach seeks to measure the awareness (recall and recognition) and brand image (the overall associations that the brand has). at best. For example. and promotion. as derived by its market capitalization . Consumer Level: This approach seeks to map the mind of the consumer to find out what associations with the brand the consumer has. for example).[ One high profile firm level approach is by the consulting firm Interbrand. approximations.Measurement There are many ways to measure a brand. and intentions about a brand. Brands with high levels of awareness and strong.the residual would be the brand equity. stability and global reach of the brand[. 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. More recently a revenue premium approach has been advocated. attitudes. is due to the brand. and still others are at the consumer level. Interbrand estimates brand value on the basis of projected profits discounted to a present value. due to catastrophic events to the brand. a calculation is made regarding how much the brand is worth as an intangible asset. To do its calculation.and then subtract tangible assets and "measurable" intangible assets. The discount rate is a subjective rate determined by Interbrand and Wall Street equity specialists and reflects the risk profile. A second perspective is that negative equity can exist. One perspective states brand equity cannot be negative. some at the product level. such as a wide product recall or continued negative press attention (Blackwater or Halliburton. Firm Level: Firm level approaches measure the brand as a financial asset. Positive brand equity vs. 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. . PR. A more complete understanding of the brand can occur if multiple measures are used. The difference in price. favorable and unique associations are high equity brands. All of these calculations are. There are two schools of thought regarding the existence of negative brand equity. Some measurements approaches are at the firm level. Free association tests and projective techniques are commonly used to uncover the tangible and intangible attributes. assuming all things equal. hypothesizing only positive brand equity is created by marketing activities such as advertising. if you were to take the value of the firm. market leadership. In short.
It was then expanded into their ground-breaking first book. probably the most common is: identifying a market niche for a brand. product or service utilizing traditional marketing placement strategies (i. and competition). the Freestar was discontinued without a replacement.The Battle for Your Mind. Freestar and Fusion. but an overwhelming majority was familiar with the "Ford Taurus". and perception of quality . awareness. This is because family branding allows them to leverage the equity accumulated in the core brand. The brand-related negative intangible assets are called “brand liability”. all starting with "F". compared with “brand equity” . Aspects of brand equity includes: brand loyalty. packaging. the Five Hundred. the Ford Motor Company made a strategic decision to brand all new or redesigned cars with names starting with "F". 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. in which the case is made that the typical consumer is overwhelmed with unwanted advertising. 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. 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.e. and has a natural tendency to discard all information that does not immediately find a comfortable (and empty) slot in the consumers mind. Family branding vs. would be abandoned in favor of three entirely new names. Positioning is a concept in marketing which was first popularized by Al Ries and Jack Trout in their bestseller book "Positioning . price. distribution." 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. Examples In the early 2000s in North America. The aging Taurus. promotion. "Five Hundred" was recognized by less than half of most people. association. By 2007. individual branding strategies The greater a company's brand equity. This aligned with the previous tradition of naming all sport utility vehicles since the Ford Explorer with the letter "E". Brand Positioning Definitions Although there are different definitions of Positioning. . which became one of the most significant cars in American auto history.Colloquially. the greater the probability that the company will use a family branding strategy rather than an individual branding strategy. while a marketing manager believed that a name change would highlight the new redesign.
reactive or passive about the on-going process of evolving a position. we can't feel them or touch them or show nice product pictures. Product positioning process Generally. The process is similar for positioning your company's services. So you need to ask first your customers and then yourself.that is. Collecting information from a sample of customers about their perceptions of each product on the relevant attributes 4." in which they define Positioning as "an organized system for finding a window in the mind. But a company can positively influence the perceptions through enlightened strategic actions. there are three types of positioning concepts: . watch their facial expressions and listen for their response. you'll know you're on the right track. Determine the target market's preferred combination of attributes (referred to as an ideal vector) 7. Examine the fit between: o The position of your product o The position of the ideal vector 8. Services. What most will agree on is that Positioning is something (perception) that happens in the minds of the target market."Positioning: The Battle for Your Mind. When they want to know more because you've piqued their interest and started a conversation. 19 of 2001 paperback edition). Test it on people who don't really know what you do or what you sell. Defining the market in which the product or brand will compete (who the relevant buyers are) 2. the product positioning process involves: 1. Position. It is the aggregate perception the market has of a particular company. don't have the physical attributes of products . Determine each product's share of mind 5. however. Determine each product's current location in the product space 6. Positioning concepts More generally. product or service in relation to their perceptions of the competitors in the same category. It will happen whether or not a company's management is proactive. 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. It is based on the concept that communication can only take place at the right time and under the right circumstances" (p. Identifying the attributes (also called dimensions) that define the product 'space' 3.
In a prolonged recession. Often these decisions must be made without the benefit of sufficient information. simply because the definition of "volatility" is that change becomes difficult or impossible to predict. clients and regulators all need to shift. Functional positions o Solve problems o Provide benefits to customers o Get favorable perception by investors (stock profile) and lenders 2. Doing so involves repositioning the entire firm.even urgent . may for the first time need to stress value as a sale tool. Symbolic positions o Self-image enhancement o Ego identification o Belongingness and social meaningfulness o Affective fulfillment 3. various survey techniques. This is especially true of small and medium-sized firms. It involves making hard decisions about how a market is shifting and how a firm's competitors will react. and each company will need to influence how these perceptions change. business approaches that were effective during healthy economies often become ineffective and it becomes necessary to change a firm's positioning.1. conjoint analysis. for example.to reposition an entire company. Experiential positions o Provide sensory stimulation o Provide cognitive stimulation Measuring the positioning Positioning is facilitated by a graphical technique called perceptual mapping. Repositioning a company In volatile markets. factor analysis. many of which often lack strong brands for individual product lines. when Goldman Sachs and Morgan Stanley suddenly shifted from investment to commercial banks. rather than just a product line or brand. which previously flourished on expense account dinners and corporate events. and statistical techniques like multi dimensional scaling. it can be necessary . Upscale restaurants. and logit analysis. Take. Repositioning a company involves more than a marketing challenge. . for example. The expectations of investors. employees.
. A perceptual map defines the market in terms of the way buyers perceive key characteristics of competing products.Brand positioning As we have argued in our other revision notes on branding. 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.
trains) to games stores and video stores such a Virgin Megastores. the cleaning and deodorizing properties of its core product.The basic perceptual map that buyers use maps products in terms of their price and quality. Both clothing and bedding are made of linen and fulfill a similar consumer function of comfort and hominess. The new product is called a spin-off. Another example is Virgin Group. Ralph Lauren's Polo brand successfully extended from clothing to home furnishings such as bedding and towels. By emphasizing its key attributes. An example of a brand extension is Jellogelatin creating Jello pudding pops. which was initially a record label that has extended its brand successfully many times. . Arm & Hammer leveraged its brand equity from basic baking soda into the oral care and laundry care categories. 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. Arm & Hammer was able to leverage those attributes into new categories with success. A brand's "extendibility" depends on how strong consumer's associations are to the brand's values and goals. It increases awareness of the brand name and increases profitability from offerings in more than one product category. from transportation (aeroplanes. Organizations use this strategy to increase and leverage brand equity (definition: the net worth and long-term sustainability just from the renowned name).
Tauber (1988) suggests seven strategies to identify extension cases such as product with parent brand’s benefit. In practical cases. 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”. is a licensed brand extension. Most of the literature focuses on the consumer evaluation and positive impact on parent brand. Following the Aaker and Keller’s (1990) model. Product extensions are versions of the same parent product that serve a segment of the target market and increase the variety of an offering. Poor choices for brand extension may dilute and deteriorate the core brand and damage the brand equity. same product with different price or quality. Secondly. In his suggestion. Diet Coke in same product category of soft drinks. there are many different way of extension such as "brand alliance". they provide a sufficient depth and breadth proposition to examine consumer behaviour and conceptual framework. While there can be significant benefits in brand extension strategies. In spite of the positive impact of brand extension. Launching a new product. 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. the “Complement” is that consumer takes two product (extension and parent brand product) classes as complement to satisfy their specific needs. the failures of brand extension are at higher rate than the successes.co-brandingor “brand franchise extension”. resulting in a diluted or severely damaged brand image. negative association and wrong communication strategy do harm to the parent brand even brand family. 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. Types of product extension Brand extension research mainly focuses on the consumer evaluation of extension and attitude of the parent brand. Some studies show that negative impact may dilute brand image and equity. First of all. An example of a product extension is Coke vs. extension of productrelated association and non-product related association. it can be classified into two category of extension. etc. 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. From the line extension to brand extension. Where the brand-owner partners (sometimes . Another form of brand extension. The first two measures focus on the consumer’s demand and the last one focuses on firm’s ability.In 1990s. 81% of new products used brand extension to introduce new brands and to create sales. They use three dimensions to measure the fit of extension. 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. is not only time consuming but also needs a big budget to create awareness and to promote a product's benefits. however. At last.
but also involvement and choice of brand. In addition.with a competitor) who takes on the responsibility of manufacturer and sales of the new products. Categorisation theory Researchers tend to use “categorisation theory” as their fundamental theory to explore the links about the brand extension. They suggest that if the brand name is strong enough as Nike or Sony. their study shows that “brand extension dilutes the brand image. 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. which means dilution does occur across the brand extension to the parent brand. If the brand association is highly related to extension. They categorise new information into specific brand or product class label and store it. consumer may maintain their belief about the attributes and feelings from parent brand. changing the beliefs and association in consumers’ mind”. but also try to categorise the brand association or image with their existing memory. A consumer can judge or evaluate the extension by their category memory. 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 failure of extension may come from difficulty of connecting with parent brand. paying a royalty every time a product is sold. When two or more products exit in front of consumers. a lack of similarity and familiarity and inconsistent IMC messages. 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”. In consequence. Theoretically speaking. The early works of Aaker and Keller (1990) find no significant evidence that brand name can be diluted by unsuccessful brand extensions. “Equity of an integrated oriented brand can be diluted significantly from both functional and non-functional attributes-base variables”. Loken and Roedder-John (1993) indicate that dilution effect do occur when the extension across inconsistency of product category and brand beliefs. The flagship product is a money-spinner to a firm. This process is not only related to consumer’s experience and knowledge. Marketer spends budget and time to create maximum exposure and awareness for the product. consumer can perceive the fit among brand extension. In spite of Aaker and Keller’s (1990) research reported that the prestige brand . Conversely. flagship product is usually had the top sales and highest awareness in its product category. they not only are initially confused and disorderly in mind. they might reposition memories to frame a brand image and concept toward new introduction. When consumers face thousands of products. Brand extension failure Literature related to negative effect of brand extension is limited and the findings are revealed as incongruent. 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.
On the other hand. Example. Consequently. But branding does not always follow a rational line. Marketers may go behind the order and model created by Aaker and Keller which they are authorities on brand management. even overall parent belief is diluted. Because a small message dissonance would cause great failure of brand extension. former experience and knowledge. Consumer’s knowledge and experience affect the evaluation before extension product trail. You can read some more here Brand equity Brand equity is defined as the main concern in brand management and IMC campaign. Similarity between core brand and extension is the main concern of consumer perception of fit. Although initially accepted a backlash against “New Coke” soon emerged among consumers. the flagship product would not be harmed. literature still provides sufficient in depth research around this issue. In addition. It should consider the damage of parent brand no matter what types of extension are used. But in some findings. in this article may conclude some points about consumer evaluation of brand extension: 1. They would measure and compares the difference between core brand and extension product through quality of core brand. Quality of core brand creates a strong position for brand and low the impact of fit in consumer evaluation. Throughout the categorisation theory and associative network theory. The higher the similarity is the higher perception of fit.do no harm from failure of extension. BIC Pens tried to produce BIC pantyhose. the greater positive fit can perceive. A successful brand message strategy relies on a congruent communication and a clear brand image. brand extension is also “diminish consumer’s feelings and beliefs about brand name. Studies also suggest that brand extension is a risky strategy to increase sales or brand equity. fit in category. The negative impact of brand extension would cause a great damage to . Although there are few works about the failure of extensions. The moderating variable is a useful indication to evaluate consumer evaluation of brand extension. Every marketer should pursue the long term equity and pay attention to every strategy in detail. Coca Cola were had to make considerable efforts to regain customers who had turned to Pepsi cola. The more innovation of extension product is. consumer does have the ability to process information into useful knowledge for them. it is necessary to build up a “brand ladder”. Not only did Coca Cola not succeed in developing a new brand but sales of the original flavour also decreased. consumer has his psychology process in mind. 2. One mistake can damage all brand equity. 3. 4. and difficulty of making. A classic extension failure example would be Coca Cola launching “New Coke” in 1985. Evidence shows that the dilution effect has great and instant damage to the flagship product and brand family.” To establish a strong brand.
as it demonstrates what the brand owner is able to offer in the marketplace. A brand is therefore one of the most valuable elements in an advertising theme. known as creating value. or 5 dollars for a box of breakfast cereal that contains a few cents' worth of wheat. plus the cost of distribution. There are many intangibles involved in business. One goal in . 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. Orientation of the whole organization towards its brand is called brand orientation. The learned skill of a knowledge worker. The experiential aspect consists of the sum of all points of contact with the brand and is known as the brand experience. Brand is the image of the product in the market. plus the cost of manufacture. an operation of branding should maintain brand messages and associations within a consistency and continuum in the long way.they represent the sum of all valuable qualities of a product to the consumer. Because the effects of negative impact from brand extension are tremendous and permanently. can create and maintain will set an enterprise at a serious disadvantage. for it is these people the company should wish to find and keep. The psychological aspect. Some people distinguish the psychological aspect of a brand from the experiential aspect. the type of metal working. 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. 50 dollars for a T-shirt that cost a mere 50 cents to make. Careful brand management seeks to make the product or services relevant to the target audience. This concept. it is said to have achieved brand franchise. Failing to recognize these assets that a business. is a symbolic construct created within the minds of people and consists of all the information and expectations associated with a product or service. When brand recognition builds up to a point where a brand enjoys a critical mass of positive sentiment in the marketplace. Modern value-creation branding-andadvertising campaigns are highly successful at inducing consumers to pay. A brand which is widely known in the marketplace acquires brand recognition. The art of creating and maintaining a brand is called brand management. Every messages or brand extension can dilute the brand in nature. People engaged in branding seek to develop or align the expectations behind the brand experience. the difference is incomparable. intangibles left wholly from the income statement and balance sheet which determine how a business is perceived. the type of stitch: all may be without an 'accounting cost' but for those who truly know the product. Brands should be seen as more than the difference between the actual cost of a product and its selling price . for example. sometimes referred to as the brand image. creating the impression that a brand associated with a product or service has certain qualities or characteristics that make it special or unique. From a manager and marketer’s perspective.parent brand and brand family. any business.
brand recognition is the identification of a brand without the name of the company present.com. logo."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”. is an emerging term encompassing the perceived value of the brand image. 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. Where two products resemble each other. Disney has been successful at branding with their particular script font (originally created for Walt Disney's "signature" logo). an increase in the salience of one brand can actually inhibit recall of other brands. 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. From the perspective of brand owners. store-branded product). and customers have a tendency to buy popular brands. Also.(Keller) 'Brand love'. as it often serves to denote a certain attractive quality or characteristic (see also brand promise). 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. Brand Awareness Brand awareness refers to customers' ability to recall and recognize the brand under different conditions and link to the brand name. . Consumers may look on branding as an important value added aspect of products or services. including brands that otherwise would be candidates for purchase. Brand love levels are measured through social media posts about a brand. or tweets of a brand on sites such as Twitter. Salience refers not to what customers think about brands but to which ones they think about. 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. For example. or love of a brand. 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. which it used in the logo for go. but one of the products has no associated branding (such as a generic. Advertising weight and brand salience are cues to customers indicating which brands are popular. jingles and so on to certain associations in memory. Brand Salience Brand salience measures the awareness of the brand.
Benefits of Global Branding In addition to taking advantage of the outstanding growth opportunities. They are laid down in a framework making some memories easier to access than others. They buy a particular brand because they are more aware of it. enduring relationships with consumers across countries and cultures.It is widely acknowledged that buyer’s do not see their brand as being any different from other brands that are available.. Examples of global brands include Coca-Cola. not because it is more distinctive. Memories are stored or filed via connections between new and existing memories in the different parts of the memory. References Brand Salience: How do Buyers Remember? Article by Terry Reeves. Recall is the process by which an individual reconstructs the stimulus itself from memory. We now know that all decisions made by humans involve memory processes to a greater or lesser extent. These brands are used to sell the same product across multiple markets. 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 .Global brands transcend their origins and creates strong. removed from the physicality’s of that reality. and could be considered successful to the extent that the associated products are easily recognizable by the diverse set of consumers. 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. McDonald's. Levi's etc. Global brands are brands which sold to international markets. 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. or has a point of difference. 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. Marlboro.
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. distribution. etc.• • 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.) . distribution. pricing.
A brand owner may seek to protect proprietary rights in relation to a brand name through trademark registration. Brand name Relationship between trade marks and brand The brand name is quite often used interchangeably within "brand". It may also be a brand that is developed for a specific national market. however an interesting thing about local brand is that the local branding is mostly done by consumers then by the producers. if the brand name exclusively identifies the brand owner as the commercial source of products or services. although it is more correctly used to specifically denote written or spoken linguistic elements of any product. Mijerierna etc. Advertising spokespersons have also become part of some brands. for example: Mr. It may be called a regional brand if the area encompasses more than one metropolitan market. Types of brand names Brand names come in many styles.Local Brand A brand that is sold and marketed (distributed and promoted) in a relatively small and restricted geographical area. 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 . Local Branding is usually done by the consumers rather than the producers. A local brand is a brand that can be found in only one country or region. Whipple of Charmin toilet tissue and Tony the Tiger of Kellogg's. In this context a "brand name" constitutes a type of trademark. Examples of Local Brands in Sweden are Stomatol.
over time. or brand image are typically the attributes one associates with a brand. Furthermore. brand associations become handy to check the consumer's perception of the brand. color palette. from common table salt to designer jeans. . Brand identity is what the owner wants to communicate to its potential consumers.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.real characteristics of the value and brand promise being provided and sustained by organisational and/or production characteristics. how the brand owner wants the consumer to perceive the brand . product or service. The brand name should be conceptually on target with the product/service (what the company stands for). Visual Brand Identity The visual brand identity manual for Mobil Oil (developed by Chermayeff & Geismar). Brand identity is fundamental to consumer recognition and symbolizes the brand's differentiation from competitors. Most products have some kind of brand identity.and by extension the branded company. Therefore. However. a product's brand identity may acquire (evolve). the brand name should be on target with the brand demographic. transcend trends and have positive connotations. The brand owner will seek to bridge the gap between the brand image and the brand identity. such as Band-Aid or Kleenex. Brand identity needs to focus on authentic qualities . and station architecture to create a comprehensive consumer brand experience. alphabet. one of the first visual identities to integrate logotype. icon. Typically. A brandnomer is a brand name that has colloquially become a generic term for a product or service. which are often used to describe any kind of adhesive bandage or any kind of facial tissue respectively. sustainable brand names are easy to remember. Brand identity A product identity. gaining new attributes from consumer perspective but not necessarily from the marketing communications an owner percolates to targeted consumers. Effective brand names build a connection between the brand personality as it is perceived by the target audience and the actual product/service. organization.
Starbucks. Kool-Aid or Nivea Sun (Beiersdorf)).. In the 2000 book No Logo. before the company's downgrading. whether it's the challenge to do your best in sports and fitness. it is just the company's name which is promoted (leading to one of the most powerful statements of "branding". Mercedes-Benz or Black & Decker) or even a range of subsidiary brands (such as Cadbury Dairy Milk. Branding approaches Company name Often.The recognition and perception of a brand is highly influenced by its visual presentation. or logo. Brand parity Brand parity is the perception of the customers that all brands are equivalent. and graphic elements. At the core of every brand identity is a brand mark. "No one ever got fired for buying IBM"). the saying. Effective visual brand identity is achieved by the consistent use of particular visual elements to create distinction. These principles can be observed in the work of the pioneers of the practice of visual brand identity design. "A great brand raises the bar -. Naomi Klein describes attitude branding as a "fetish strategy". which may even compete against other brands from the same company (for example.it adds a greater sense of purpose to the experience. The Body Shop. Marketing labeled as attitude branding include that of Nike. In this case a very strong brand name (or company name) is made the vehicle for a range of products (for example.  Attitude branding and Iconic brands Attitude branding is the choice to represent a larger feeling. especially in the industrial sector. colors. Surf and Lynx are all owned by Unilever). such as Paul Rand. Omo. Safeway.  Individual branding Main article: Individual branding Each brand has a separate name (such as Seven-Up. Persil. and Apple Inc. Cadbury Flake or Cadbury Fingers in the United States). 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. or the affirmation that the . In the United States. Chermayeff & Geismar and Saul Bass. A brand’s visual identity is the overall look of its communications. which is not necessarily connected with the product or consumption of the product at all. such as specific fonts.
"Necessary conditions" . There are four key elements to creating iconic brands (Holt 2004): 1. Nike and Harley Davidson. Although there is a distinct Muji brand. Many iconic brands include almost ritual-like behaviour when buying and consuming the products. and chairman of Starbucks) The color. "No-brand" branding Recently a number of companies have successfully pursued "No-Brand" strategies by creating packaging that imitates generic brand simplicity. 3. CEO. "Cultural contradictions" . Iconic brands are defined as having aspects that contribute to consumer's selfexpression and personal identity.cup of coffee you're drinking really matters. 2. and the Florida company No-Ad Sunscreen. "The cultural brand management process" . Muji products are not branded. Examples include the Japanese company Muji." . This no-brand strategy means that little is spent on advertisement or classical marketing and . "Myth-making" .Some kind of mismatch between prevailing ideology and emergent undercurrents in society. Examples of iconic brands are: Apple Inc. 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. "No brand quality goods"). which means "No label" in English (from 無印良品 – "Mujirushi Ryohin" – literally. Some of these brands have such a strong identity that they become more or less "cultural icons" which makes them iconic brands. 4. Brands whose value to consumers comes primarily from having identity value comes are said to be "identity brands".Howard Schultz (president.A meaningful story-telling fabricated by cultural "insiders"..Actively engaging in the mythmaking process making sure the brand maintains its position as an icon. These must be seen as legitimate and respected by consumers for stories to be accepted. In other words a difference with the way consumers are and how they some times wish they were.The performance of the product must at least be ok preferably with a reputation of having good quality.
used by a number of suppliers of the endproduct. dish washing detergents. Dunlop extended its brand from tires to other rubber products such as shoes. (sun-) glasses. luggage. When Coca-Cola launched "Diet Coke" and "Cherry Coke" they stayed within the originating product category: nonalcoholic carbonated beverages. furniture. Multi-brands Alternatively. many fashion and designer companies extended brands into fragrances. 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 line extension is when a current brand name is used to enter a new market segment in the existing product class. 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). Derived brands In this case the supplier of a key component. . with new varieties or flavors or sizes. The most frequently quoted example is Intel. simply to soak up some of the share of the market which will in any case go to minor brands. Brand extension The existing strong brand name can be used as a vehicle for new or modified products. home textile.Muji's success is attributed to the word-of-mouth. Michelin to a restaurant guide. hotels. 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. tennis racquets and adhesives. There is a difference between brand extension and line extension. Adidas and Puma to personal hygiene. etc. may wish to guarantee its own position by promoting that component as a brand in its own right. in order to pre-empt others entering the market. which secures its position in the PC market with the slogan "Intel Inside". a simple shopping experience and the anti-brand movement. shoes and accessories. Caterpillar to shoes and watches. for example. Mars extended its brand to ice cream. 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. golf balls. "No brand" branding may be construed as a type of branding as the product is made conspicuous through the absence of a brand name. home decor.
running as many as ten detergent brands in the US market. Nation branding works with the perception and reputation of countries as brands. Faith branding treats religious figures and organizations as brands. uses it to keep the very different parts of the business separate — from Sara Lee cakes through Kiwi polishes to L'Eggs pantyhose. The term is thought to have been first used in a 1997 article by Tom Peters. such as soap. in which the new brand takes business away from an established one which the organization also owns. Procter & Gamble is a leading exponent of this philosophy. brands in the field of mass-marketing originated in the 19th century with the advent of packaged goods. 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). Religious media expert Phil Cooke has written that faith branding handles the question of how to express faith in a mediadominated culture. to be sold without confusing the consumer's perception of what business the company is in or diluting higher quality products. private label brands. Industrialization moved the production of many household items. the new product being one stage in this process. or store brands. on the other hand. also emerged as a major factor in the marketplace. also called own brands. This also increases the total number of "facings" it receives on supermarket shelves. Personal branding treats persons and their careers as brands. Private labels With the emergence of strong retailers. Once again. Sara Lee. Marriott uses the name Fairfield Inns for its budget chain (and Ramada uses Rodeway for its own cheaper hotels). In the hotel business. 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. History The word "brand" is derived from the Old Norse brandr." It refers to the practice of producers burning their mark (or brand) onto their products. it may be the price the organization is willing to pay for shifting its position in the market. Cannibalization is a particular problem of a "multibrand" approach. Individual and Organizational Brands There are kinds of branding that treat individuals and organizations as the "products" to be branded. This may be acceptable (indeed to be expected) if there is a net gain overall.Individual brand names naturally allow greater flexibility by permitting a variety of different products. meaning "to burn. and may outperform those products that are not otherwise strongly branded. Alternatively. from local communities to centralized factories. . of differing quality.
the factories would literally brand their logo or insignia on the barrels used. originally meaning an unbranded calf. It quickly became apparent that a generic package of soap had difficulty competing with familiar. This was an early commercial explanation of what we now know as branding. Campbell soup. and jingles that began to appear on radio and early television. This trend continued to the 1980s. his would be identified by having no markings at all. it was felt that what they really purchased was its brand name. with its green and gold packaging having remained almost unchanged since 1885. Philip Morris purchased Kraft for six times what the company was worth on paper. Around 1900. having been named as Britain's oldest brand. to customers previously familiar only with locally-produced goods. and is now quantified in concepts such as brand value and brand equity. mascots. 1993 . and well-nuanced brand image. extending the meaning of "brand" to that of trademark. In response to . manufacturers quickly learned to build their brand's identity and personality (see brand identity and brand personality).the day Philip Morris declared that they were to cut the price of Marlboro cigarettes by 20%. Many brands of that era. decided that since all other cattle were branded. comes from Texas rancher Samuel Augustus Maverick who. The packaged goods manufacturers needed to convince the market that the public could place just as much trust in the non-local product. Naomi Klein has described this development as "brand equity mania". fun or luxury. In 1988. the term "maverick". in order to compete with bargain cigarettes. for example. such as youthfulness. manufacturers began to recognize the way in which consumers were developing relationships with their brands in a social/psychological/anthropological sense. Another example comes from Antiche Fornaci Giorgi in Italy. Coca-Cola. such as Uncle Ben's rice and Kellogg's breakfast cereal furnish illustrations of the problem. local products.marked by some as the death of the brand. Bass & Company. Juicy Fruit gum. This began the practice we now know as "branding" today. whose bricks are stamped or carved with the same proto-logo since 1731. By the 1940s. the British brewery. Companies soon adopted slogans. following the American Civil War. Marlboro cigarettes were notorious at the time for their heavy advertising campaigns. From there. Cattle were branded long before this. Factories established during the Industrial Revolution introduced mass-produced goods and needed to sell their products to a wider market. Aunt Jemima. Marlboro Friday: April 2. and Quaker Oats were among the first products to be 'branded'. in an effort to increase the consumer's familiarity with their products. Lyle’s Golden Syrup makes a similar claim. as found in Saint Peter's Basilica in Vatican City. claims their red triangle brand was the world's first trademark. Even the signatures on paintings of famous artists like Leonardo Da Vinci can be viewed as an early branding tool.When shipping their items. James Walter Thompson published a house ad explaining trademark advertising. where the consumers buy "the brand" instead of the product.
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
should be recorded in the books only when some consideration in money or money’s worth has been paid for it. All brand names may be revalued with either upwardly or downwardly adjustments. Thus it is easier to value them. If brands are capitalised. Now that AS . Acquired brands must initially be recorded at their cost of acquisitions. goodwill in general. 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. Accounting for Fixed Assets. IN AUSTRALIA: Acquired goodwill has to be amortised though the P&L account for a maximum period of 20 years. VALUATION OF BRANDS: .company. As a matter of financial prudence goodwill is written off over a period. Clearly this is the best evidence to show that homegrown brands have a value too. Allowing home grown brands to be capitalised would eliminate this inconsistency. IN USA: It is a standard practice to capitalise and amortise goodwill. Hence ‘dog’ goodwill must be written off while ‘cat’ goodwill need to be. No asset revaluation is permitted. the depreciation period varies considerably. If a business builds its own factory instead of buying one. Five years is the maximum in Japan. Thus there is no incentive for US companies to distinguish brands from goodwill. the brands can be valued if and only if they are purchased and not self generated. we capitalize it. 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. Companies know more about homegrown brands. ELSEWHERE: In most countries the acquired brands are capitalised and then amortised through the P&L.26 is applicable. Reliance could benefit a great deal by valuing brands and including them in the balance sheet. and the brands expected life in Germany. management is more likely to continue a process of maintaining the values. Maintenance costs of goodwill and all other intangibles must be written off to expenses. IN INDIA: According to AS – 10. Proctor and Gamble. Major MNC’s like Unilever group. as the resulting treatment would be identical. However this is not mandatory. as it is a relatively new concept in India. All purchased intangibles must be treated in the same way as goodwill. so that fixed assets may be revalued at market price every 3 to 5 years. issued by the Institute of Chartered Accountants. Nestle and reputed Indian companies like Tatas. Intangible assets like brands may be carried at market value. Australian has a modified historical cost accounting system. 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. No guidelines has been issued by ICAI on brand valuation. But unlike in UK and US. forty years in France.
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 . Conceptually the system is sound as it is based on hard. Moreover the use of market value for balance sheet purposes is prohibited by the companies act. The major benefits of branded products to manufacturers often relate to the security and stability of future demand rather than to premium pricing. 03. advertising and research and development expenditure devoted to the brand over a stipulated period.Brands are not developed with the purpose of trading in them. 02. Valuation based on premium pricing of a branded product over a non branded product. proven data. But the determination of reliable forecast cash flows is fraught with difficulty. Considering the drawbacks of the existing methods of valuation INTERBRAND GROUP. There are various methods of valuation but each has its own draw backs. If it were so failed brands may well be attributed high values. Valuation at market price 04. recognition or awareness. DRAWBACKS IN EACH OF THEM 01. Further many branded products have no generic equivalents. 05. 02. A brand valuation based solely on consumer esteem or awareness factors would bear no relationship to commercial reality. Valuation based on customer related factors such as esteem. They are briefly discussed below: METHODS OF VALUATION 01. 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. 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. Valuation based on potential future earnings discounted to present day values. Valuation based on the aggregate cost of all marketing. the leading international branding consultancy came up with an earnings multiple system for valuing brands. Brand value is not always a function of the cost of its development. Not may of those who are aware would actually buy it. 05. 03. 04.
market. However. For this reason. Once the multiple is determined it is multiplied by the brand earnings to arrive at the brand value. devoted to the brand since its birth. greater the multiple.BRAND EARNINGS: A vital factor in determining the value of a brand is its potential profitability over time. Stronger the brand. such as marketing. internationality. A brand may be essentially a commodity product or may gain much of its profitability from its distribution system. As the brand moves into the number 2 or particularly the no. Once a brand has become a powerful world brand the growth in value no longer increases at the same rate. As brand strength increases from virtually zero ( an unknown or new brand) to a position as number 3 or 4 in a market. established brand names are going to be a major asset and its importance will be increasingly in the future. a smoothing element is introduced viz. 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. 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. an assumption is being . Also there is a possibility of the valuation getting affected by an unrepresentative years profit. Not all of the profitability of a brand can necessarily be applied to the valuation of that brand. stability. the value increases gradually. trend. support and protection. With a plethora of brands flooding the market. 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. BRAND STRENGTH: Brand strength is a composite of seven weighted factors: Leadership. This method is explained with the help of a problem in the exhibit. advertising and R&D expenditure. 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. The elements of profitability which do not result from the brands identity must therefore be excluded. 2. a three year weighted average of historical profits. These are the aggregated investment costs.1 position in its market there is an accelerated increase in its value 3.
the price other than putting the brand up for sale on the market.made that none of these costs were ineffective. For example. even though the brand may be being ‘milked’ by its owners. 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. representative of the brand strength. with very little attached to them. The value of a brand also depends on unquantifiable elements. such as management’s expertise and the firm’s culture. For example. however. the price actually paid for a brand is determined by the strategy of the buyer. 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. However. The Interbrand approach is based on the assumption that the discount rate is given by a ‘Brand multiple’. like horses. These are all important elements of brands and high scores on these are indicative of strong brands. However it is sometimes difficult to find a comparable generic product. with this method is that it assumes buoyant historical earnings levels. By virtue of little more than its heritage. In order to determine brand value. However. a company must calculate the benefits of future ownership. who may plan for the brand to play a very different role from its existing one. 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. The problem. One of the most widely-accepted ways of assessing the brand value is provided by Interbrand (Birkin 1994). such as recognition. Overall this approach to brand valuation raises many questions and without wellgrounded assumptions could be problematic. it is vary difficult to derive a relationship from an amalgam of these factors to arrive at an objective valuation. but what value should be placed on it? Worst of all. For example. i. current and future cash flows of the brand and discount them to take inflation and risk into account.e. while the price of a house is usually set by the seller. Finally there is also a question of financially accounting for the many failed brands that had substantial sums spent on them. most consumers are aware that Rolls-Royce is a famous brand. esteem and awareness. what is the unbranded counterpart of a Mars-Bar? This method also assumes that all brands pursue a price-premium strategy. Moreover. is the fact that there are many famous brands. Moreover. a high multiple characterises a brand in which the firm . Yet another way of valuing a brand is to assess its future earnings discounted to present-day values. The valuation of a brand based on its market value assumes the existence of a market in which brands. For example. are frequently sold and can be compared. a 100-year-old brand is more likely to have had more investment than a 20-year-old brand. 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. however. 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. The management team need to agree how the historical costs should be adjusted for past inflation. out of which experience the successful brand arose. Some have proposed valuing brands on the basis of various customer-related factors. such as Co-op. Unilever paid 70 million pounds for Boursin just to gain shelf-space for its expansion plans for other parts of its brand portfolio.
that is six in this case. Both brands may show similar brand profits. 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. If though a change in strategy for the brand is envisaged these weightings need to be reconsidered. a firm may market two brands of bread. provided there is no change in brands strategy. The interbrand method is similar to deriving a company’s market value through its price/earnings (P/E) ratio. while the profit of the second brand is much more dependent on the few distributors with the distribution systems. 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. yet the profit of the first brand is heavily influenced by the strength of branding. Just as the P/E ratio equals the market value of the company divided by its after tax profits. Having calculated the brand’s profit. This is found through evaluating the brands strength since this determines the reliability of the brand’s future earnings. Following the logic of other forecasting systems. When looking at historical profits. This also translates into a low discount rate. likewise the brand multiple equals the value of the brand divided by the gross profit generated by this brand. These aggregated profits are then divided by the sum of the weighting factors. One competes through major grocery stores against other branded breads. There may be instances where the same production line is used for both the manufacturer’s brand and several own labels. Finally each year’s profit should be adjusted for inflation. any profits arising from shade own label production need to be subtracted. For example.is confident of continuing stream of future earnings and consequently represents low risk for the company. two to the previous year and one to the year before that. the brand multiple then needs to be calculated. and the other may be sold to a few distributors who sell this with related products through door-to-door delivery. P/E = Market value of equity Brand Multiple = Brand equity Profit Brand Profit To calculate the brand value. to reduce the effect from any unusual year’s performance in previous three years profits are averaged.e. Therefore. i. 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. 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. Where this is the case. a three-year weighted average is used. The brand profit should be the post-tax profit after deducting central overhead costs. 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. Interbrand argue that a brand’s strength can be found from evaluating the brand against seven factors: . the more recent profits are likely to be more indicative of future profits.
for example. Ø Market : Marketers with brands in non-volatile markets.Ø Leadership : There is well-documented evidence showing a strong link between market share and profitability. Interbrand argue that there is an S-curve relationship between the multiple and the brand strength score. thus leadership brands are more valuable than followers. Ø Stability : Well-established brand’s. Ø Trend : The overall long-term trend of the brand shows its ability to remain contemporary and relevant to consumers. are strong assets. a brand . 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. which have a notable historical presence. as well as the quality. of consistent investments and support are indicators of strong brands. for example foods. and therefore is an indication of its value. Thus part of the brand’s strength comes from the markets it operates in. Ø Support : The amount. as shown in the graph below. A brand leader can strongly influence the market. Thus having calculated. thus this criteria must be met to score well on leadership. 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 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 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. set prices and command distribution.
This is reflected in the growth in the ratio of market capitalised . Several questions have been raised about the interbrand method. for consumers to choose from. Although interbrand has derived the data for the S-curve from the multiples involved in actual brand negotiations. 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. from graph below this gives a multiple of 16. companies have taken advantage of more open trade opportunities by using the competitive advantage provided by brands and technology to access distant markets. i. the introduction of the European single currency.e. the brand equity resulting from such a multiple might be overvalued.strength score of 71. copyright and know how). government regulation and increased advertising spend. particularly globalisation. Research has found that brands achieve respectable spontaneous awareness scores only after a high level of prompted awareness has been achieved. and suppliers thereof. 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. As the S-curve ignores this additional factor. 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. including ease of price comparison through the internet. Further more. consumers have also been provided with greater information to make informed decisions. but beyond a certain point its rate of growth is much greater. For Example. In particular. 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. outsourcing and ebusiness. are fundamentally changing the way business is conducted. It gradually acquires strength with consumers and retailers in different stages. Therefore the relationship between the brand strength and brand multiple may be better represented by a less regular pattern. market multiples may not necessarily be a correct indicator of the brand strength. However experimental analysis shows that the development of the brand is susceptible to threshold effects. Despite these limitations. With this increased choice. 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. in the case of Reckitt & Colman a one-point variation in the multiple corresponds to 54 million pounds difference in brand value. A slight variation in the multiple can modify the value of the brand significantly. patents. firms having growing historical brand valuation databases enabling mangers to access which strategies are particularly effective at growing their brands. the brand’s value is 16 times its three-year weighted average profit. In Search of Brand Value in the New Economy The dynamics of the new world economy.
Essentially. £500 million and the recorded assets are only £100 million then the remaining £400 . 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. In other words. the ratio is similar. a price representing five times the recorded net assets of the target company. As you can imagine. Such an acquisition can lead to some distinctly funny looking accounting results.089 13. provide ownership of value. If it is valuable. In the UK. media and financial services).134 10.value to book value of listed companies. this ratio has increased from 1:1 to 5:1 over the last twenty years. Unilever and Coca Cola spend billions each year supporting their brands. patents (such as technology and pharmaceutical) and brands (such as pharmaceutical. Businesses.626 We should stress that owning a trademark does not. Attempts have been made to account for IP. 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 25.828 28. the sectors with the highest ratio of market capitalisation to book value are heavily reliant on copyright (such as the media sector). in itself. value to the company. or very limited.389 17. such as Nike. then why isn't it accounted for? It is often asked why this value does not reside on the balance sheet. In the US. say. The first attempt was in 1988 when Nestle acquired Rowntree for £5 billion. if a collection of assets is acquired for.169 28. Brands clearly have significant value. The value in a trademark is the protection it provides to a brand that generates cash flow. Many companies spend millions of pounds protecting trademarks that are of no. We would argue that the remaining 70% of unallocated value resides largely in intellectual property and certainly in intellectual assets. food and drink. Noticeably.643 10. In the UK. with less than 30% of the capitalised value of FTSE 350 companies appearing on the balance sheet. accounting and value should not be confused.
This recognition of value in IP is.million gets written off through the profit and loss account. 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. companies often try to differentiate their products not through physical characteristics or product specifications but through emotive characteristics contained and developed in their brands. Do Brands have value on the internet? . Accordingly. 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. acquired brands can be capitalised but only where it can be shown that they are separable from goodwill. This results in a balance sheet substantially less healthy than prior to the acquisition. 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. clearly it is not possible to capitalise such internally generated assets. 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. if not its value. The issue is not whether brands are accounted for but whether and how they are actively managed to enhance the company's value. not surprisingly. Indeed. The problem that arises from not accounting for brands is that it removes a key metric by which brand management might be measured. The key strength of brands is in their ability to maintain customer loyalty. showing some brands but not others. Accordingly. Many balance sheets are therefore inherently inconsistent. On the other hand. The current position is that internally generated intangible assets cannot be capitalised unless they have a "readily ascertainable market value". led by organisations with leading brands. However. Intellectual property is more often created internally than acquired. companies selling branded products have a more stable level of sales than non-branded companies. One reason for this is that companies compete either through price or product differentiation. As no such market exists for brands. making product differentiation very difficult. it is difficult to identify leading companies that do not have strong brands. Some companies now make an effort to report on the importance of their IP. As a result.
However. what will make it use any particular store? Clearly. Some questions remain: Will Amazon. Everybody has heard of Amazon. A good idea on the internet can be imitated almost immediately. surely such measures would be worth considering when making investment and other management decisions.com companies is even more dramatic. It remains to be seen whether these large investments in internet branding will yield long term results. Certainly such measures are rarely reported publicly. This is supported by data on UK advertising spend which shows that advertising by .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.com but it hasn't yet made a profit. a trend which is likely to be followed in the UK. If a consumer has 100 internet book stores to choose from.com companies in 1999 is forecast to exceed £100 million compared to £35 million in 1998. as there are few barriers to entry. despite brands being so critical in the New Economy. Once it is accepted that brands do have value then there is a need to understand and protect that value. New companies have quickly entered the market. 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. Management The regular valuation of brands would allow a company to monitor the effect thereon of its strategy. In the US the growth in advertising for . internet companies face intense competition. their return on brand investment or brand contribution to shareholder value.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. and have the ability to offer exactly the same products and services. internet companies have to establish brands very quickly in order to develop and maintain their subscriber base. . For companies whose primary assets are their brands. The importance to a business of its brands and underlying trademarks is unquestionable. few companies use metrics of any sort to monitor the growth or otherwise in their brand values. We have set out below the more common circumstances in which brands either are or should be valued.
they will pay the advertisers a fee. the fees might be linked to measures of customer loyalty or brand value. Reporting is not only a reference to financial statements. Nevertheless. Litigation IP damages arising from litigation is all about IP value. Previously they paid a fixed fee for an advertising campaign. This theory applies equally well regardless of whether the transaction is a sale. current accounting standards and practice do not require intellectual property to be accounted for on a balance sheet. the value of their brands significantly exceeds the value of their plant and machinery. As our brief commentary on valuation . Transactions Brands are often valued in connection with proposed or completed transactions. Ultimately. That royalty rate. joint venture or strategic alliance. Strategic management is ultimately focused on creating shareholder value. that Proctor and Gamble have changed the way they pay for advertising fees. perhaps. This necessarily requires a valuation to be performed. It was recently reported. each party to the transaction will be better placed to negotiate if they have valued the brand(s) in advance. for example. indeed they make it difficult to do so. that profit is underpinned at the very least by a reasonable royalty rate. For many consumer goods companies. in turn.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. Although IP damages typically manifests itself in a claim for lost profit. once brands have been capitalised. For these companies to maximise shareholder value it is essential to maximise the value of their brands. Marketing spend which does not increase the value of the brand may be misdirected. In future. in part determined by the level of additional sales derived from the campaign. it is necessary to ensure that their value does not fall below the value shown in the balance sheet. 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. represents the amount a willing third party licensee would pay to use the IP. Although the price will ultimately be a matter for negotiation. Reporting As noted above.
Accordingly. Identifying the optimum framework for ownership. This is a bigger problem for corporate brands than product brands. Whether brands are separable from the underlying business is often debated and needs to be considered in each case. In addition. However. All methodologies attempt to identify that part of earnings or price which can be attributed purely to the brand. This area is complex and. there are disputes which actually require the IP to be valued. and (3) it needs to be able to generate cashflows in its own right. (2) it needs to have legal title which can be transferred . It is important when considering such arrangements to understand. we recommend the use of more than one methodology in each case.methodologies below shows. like business and property valuations. subjective. with the results cross-checked to ensure a reasonable result. the royalty approach is a common form of IP valuation. care must be taken to separate out goodwill from any brand valuation to avoid over valuing a brand. Due to the judgmental elements. Taxation and transfer pricing The ownership. Brand valuation methodologies Having established that brands are valuable and should be valued the question arises as to how to value them. This manifests itself in the practical problem of separating the cash flows attributable to the brand from cash flows attributable to other factors. certain robust methodologies have been developed.e. Can brands be valued? For an asset to be valued. it needs three key properties: (1) it needs to be separable from the other assets of the business . inter alia.enter the trademarks. licensing and use of IP across a world-wide business can save a multinational group millions of pounds in tax. . However. some of which are summarised below. can be sold without selling a business of the entity. the value of the IP. particularly goodwill. it is often very difficult to separate the value of the brand from other intangible assets.i. We also recommend consistency of use over time so as to reduce the comparative effect of judgement wherever possible. and methods of charging for the use of IP are key factors in the location of a multi-national group's profits.
prices charged for each product will vary between regions. The price difference of 15p can be described as the value of the brand. The difficulty is in (1) forecasting future cash flows (2) estimating what proportion of those future cash flows can be attributed to the brand. if they are not. In many cases. 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. it is difficult to find a nonbranded competitor to compare prices with. The same valuation technique still applies. 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. For instance Coca Cola may be able to charge 50p for a Coke whereas an unbranded cola may only sell for 35p per can. per can. Gucci may actually be charging licensees a royalty for use of the name. The sum of the discounted annual price premium would be the estimated value of the brand. for example. branded products will be able to charge a price premium as well as sell greater volumes than the non-branded competitors. For example. and will change throughout the year. This approach is often used for brands on the theory that a branded product can be sold for more than an unbranded product. then names comparable to Gucci may be used to derive benchmarks for reasonable royalty . This estimate is based on either actual license agreements.e. The relief from royalty method This method is based upon the amount a hypothetical third party would pay for use of a trademark. If an asset has no future economic benefit then it has no value. given promotions etc. The following methods attempt to answer these questions. 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. Secondly. Firstly. 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. alternatively the amount the owner is relieved from paying by virtue of being the owner rather than the licensee. provides an estimate of the value of the brand name Gucci. The estimate of how much a hypothetical third party would pay to be able to use. at today's prices. The future economic benefits will thus be the profits attributable to the additional volume generated by the brand. the name Gucci on their products. the 15p).The basic premise underlying the value of any asset is that its current value equals the future economic benefits derived from its use. and (3) determining an appropriate discount rate to put those cash flows in present day terms. There are problems with the premium pricing method. comparable market data or financial analysis.
possibly based on factors relating to the strength of the brand. is deducted from the total forecast profitability. One shortcoming of this approach is that it is difficult to objectively attribute a profit element to all of the other factors. Once a royalty rate has been estimated it is necessary to estimate the life of the brand and the level of annual sales. The multiple could be determined by the companies P/E ratios. can then be attributed to intangible assets. 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. Earnings basis This method focuses on the maintainable profitability attributable to the intangible asset. 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. . such as tangible assets and working capital. then the profit attributed to intangible assets is £20 million. the royalty rate is usually expressed as a percentage of sales. in our experience. For valuation purposes. To calculate the value of the brand a multiple is applied to the portion of the £20 million profit attributed to the brand. This is the most simplistic and. 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. Therefore if a multiple of 10 was considered appropriate and. The profit remaining. the profit attributed to the brand is the full £20 million. comparable rates used for other companies. by matter of deduction. comparable agreements on which to base the hypothetical royalty rate. Secondly. One difficulty with it is the lack of actual. The profitability of the product that can be attributed to all other factors. most commonly used method for valuing intellectual property. This would then be divided between the company's various intangible assets. for simplicity. such as tangible assets. the profit attributed to the brand will depend on how certain costs are allocated.rates. if Gucci had expected future profitability of £100 million and the profit attributed to other factors was estimated at £80 million. the calculation of a multiple is highly subjective. then the value of the brand would be £200 million (20 x 10). For example. Thirdly. or calculated from scratch.
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. provided that we retained ownership of our brands. we would continue to be successful and profitable. Summary Brands have never been as important or as valuable as they are at present. owing to the dynamics of the new world economy and the increased power of the consumer. not only at the protection and enforcement level.Marketing transaction comparatives As companies restructure to successfully compete in the New Economy there are an increasing number of brand sales in certain industries. "Brands are the core of our business. brands should be managed as the key business asset that they are. but also in terms of building shareholder value. We could. 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. in 1998 Diageo sold its Bombay Gin and Dewar's Scotch whisky to Bacardi for US$1. creating or destroying . This level of management requires the development of appropriate metrics for measuring brand management performance. distribution. All aspects of the brand mix will need to be actively managed to ensure that the brand remains continually relevant and desirable to consumers. These brand disposals can be used as a bench mark by which to value the brands of other products in the same industry.9 billion. subcontract all of the production. It is our brands that provide the profits of today and guarantee the profits of the future. For example. of which we would argue valuation is a key management tool. if we so wished." As such. Their importance was summarised by Sir Allen Sheppard (then the Chairman of Grand Metropolitan plc). Although brands are key to the success of many companies. sales and service functions and. they do not guarantee earnings stability.
Moreover. This means that just because a brand is doing well commercially. both of which may be contributing to the brand's success. The reason though quite apparent often goes unnoticed. Thus while building strong brands the motto must be for the brand to achieve self-reliance and do away with dependence on providence. as in the case of wrestling. brands must not only be strong physically but they need to be strong intellectually. . Building strong brands requires brands-even the market leaders. There is a need to communicate the brand strengths and value offering to the target masses. building of a strong brand does not stop at that. How does all of this translate into marketing? The fact remains that in marketing too. there may be some brands which may not have any exceptional strengths. external opportunities will be fleeting and may follow the axiom of easy come easy go. brands must consciously cultivate those strengths that make them stand out in the marketplace. while contributing to the success of the brand are not unique and other players in the marketplace can also avail of them. is that while brand strengths are inherent. Once the basic strengths of the brand have been identified. Brands wrestle each other in the arena we call the marketplace. The strength of a brand must come from within and must not be confused with windfall opportunities in the marketplace. one cannot therefore. If one is looking forward to building a strong brand. Very often. it does not imply that it is a strong brand. in the game of wrestling. the winner does not win simply by might. it’s the strength on mind that is put to test and not the strength of muscle. There needs to be a clear-cut distinction between the brand's intrinsic strengths and external opportunities. it is the player's strategy and technique that gets him to win. Thus. However. Thus building strong brands is more a function of creating sound strategy than simply the function of the market share of the brand. An interesting motive for building strong brands is that brand strengths are unique for each brand. We see it everyday. There could be other factors that may be contributing to its commercial success.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. to introspect and realize their inner potential. The difference between the two however. 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. the key is to understand how more value can be delivered using those strengths. count on the external opportunities for strength. 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. In this scenario. However.
The lesson here is that differentiation and singular distinction are necessary for strong brands. be able to operate during both night and day in most weather conditions. recognizing and complying with all traffic laws. If my automobile does not possess these points of parity with competing brands. run on a widely-available fuel source. and provide a fair level of personal safely to occupants. As an example. Nonetheless. seat at least two people comfortably with luggage.The above process of building strong brands surely seems to be a time-consuming. they might not be enough if consumers do not view your product or service as measuring up on “minimum product expectations”. defensible position. if you create what you consider to be a wonderful point of differentiation and position. they must either be strong enough to wrestle competition or be prepared to lose to the others and perish for good. inflatable tires. Points of Parity My discussion of strategic awareness. Consumers might expect that at minimum my automobile have four wheels with rubber. but they do not solely make for a strong brand. points of singular distinction. What a strong position and unique selling proposition! However. and brand equity would not be complete without discussion of brand points of parity. Consumers view these associations as being necessary to be considered a legitimate product offering within a given category. be street legal. tricky and complex one. adjusting speed for traffic conditions. unless I have fully consider my brand’s points of parity with other products in the category. Brand Equity . Your brand must also measure up well against the competition on expected criteria so as to neutralize those attributes. and delivering passengers and cargo to the proper destination without the need for operator intervention. in the arena called the marketplace. Points of parity are necessary for your brand but are not sufficient conditions for brand choice. In other words. then it might be too different and might not be seen as a viable choice or a strong brand. Alas. I probably will not meet with success. where brands must either do or die. I’ve invented the first car with functional auto-pilot. Once you have met the points of parity requirement and then you provide a unique selling proposition and hold a strong. Points of parity are those associations that are often shared by competing brands. be able to operate on existing roads and highways. then you have the makings of a very strong brand. 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.
A brand represents all the tangible and intangible qualities and aspects of a product or service. or the holistic value of the brand to its owner as a corporate asset. Intangible qualities. image. lifestyle. 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. Your name and who you are is. More things to know about brands As I mentioned earlier. Branding is all about perception. A brand also stands for the immediate image. 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. emotions. A brand promises to deliver value upon which consumers and prospective purchasers can rely to be consistent over long periods of time. a brand is more than just a word or symbol used to identify products and companies. Without brand equity. . It is precisely because brands represent intangible qualities that the term is often hard to define.Brand Equity is the sum total of all the different values people attach to the brand. you must understand that you already have a brand. 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. The brand called "you". Everyone has at least one brand. your personal brand. and feelings are often hard to grasp and clearly describe. A brand represents a collection of feelings and perceptions about quality. and status. in fact. and the perceived quality attributed to the product independent of its physical features. 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. 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. the issue is how well your brand is managed. You already have at least one brand First of all. you simply have a commodity product. but unbranded product. A brand is nearly worthless unless it enjoys some equity in the marketplace. perceptions. The issue then is not whether you have a brand.
not just sell product. however. at least in part. 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. People do not purchase based upon features and benefits .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 customers will automatically think of you first when they think of your product category. Branding helps make purchasing decisions easier. A strong brand helps you sell value and the intangibles that surround your products. This attachment then causes your market to make decisions based. A brand impresses your firm's identity upon potential customers. A solid branding strategy communicates a strong. In a commodity market where features and benefits are virtually indistinguishable. not necessarily to capture an immediate sale but rather to build a lasting impression of you and your products. branding delivers a very important benefit. You might even understand that brand management is all about shaping and managing perceptions. 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. upon emotion-. A strong brand can command a premium price and maximize the number of units that can be sold at that premium. Branding builds name recognition for your company or product.not necessarily just for logical or intellectual reasons. A brand will help you articulate your company's values and explain why you are competing in your market. consistent message about the value of your company. why you should care about branding in the first place. Branding will help you "fence off" your customers from the competition and protect your market share while building mind share. Branding creates trust and an emotional attachment to your product or company. Once you have mind share. A strong brand can make actual product features virtually insignificant. In this way. A strong branding campaign will also signal that you are serious about marketing and that you intend to be around for a while. 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. A strong brand signals that you want to build customer loyalty. You may still be asking yourself.
marketers are at work setting the right level of expectations and shaping the customer experience. Clearly articulate your brand identity Brand Identity means what the brand means to the customer. Note that these companies sell several products .People do not make rational decisions. 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. Google. but the company brand is the strongest. companies are striving hard to beat customer expectations . Five Steps to Build a Strong Brand In today’s highly competitive world. 1. This article builds on the theory of Customer relationship management & sales. They attach to a brand the same way they attach to each other: first emotionally and then logically. Over a period of time companies can build a strong brand . let's talk about how you will go about building a strong brand. are the classic examples of how companies built a strong brand through customer experience. For example Intel’s Pentium processor.. Wal-Mart etc.and many of these products are also branded. So now that you understand some of the reasons why you should want to build a strong brand. Cisco. Similarly. Cisco’s Catalyst Router etc. A positive brand value is created if customer experience exceeds his expectations. Brand identity sets . purchase decisions are made the same way—first instinctively and impulsively and then those decisions are rationalized. Intel. E-bay. these products are market leaders in their respective segments. you may want to read the earlier article on Levels of Customer Relationship before reading further. In this article..one with high brand value. but customers remember the company brand more than the product brand. I want to highlight the five steps needed to create a strong brand.
relaxing and pleasing environment. Customers expect bargain prices at Wal-Mart. relaxing and pleasing environment. marketer must see if he/she is getting the kind of coffee at Starbucks in the right environment as expected by the customer. For example. Another classic example is ‘Starbucks’ . to them Starbucks means excellent coffee served in a warm. The actions of each department will then be aligned with the customer value proposition.the customer expectations.Starbuck coffee has a special meaning to its customers. you need to create a consistent and compelling experience at each of these touch points. The key is to clearly articulate the brand identity. A clear brand identity sets right level of expectations by the customer. To create a holistic brand experience. This statement sets the customer expectation. Establish a customer value proposition Customer value proposition is the natural outcome of the brand identity. marketer must work as a mystery shopper and see if the customer experience is consistent with the customer value proposition and brand identity. For example only if all employees of Starbucks understand the customer value proposition . For example. Then that message must be communicated to the entire organization so that each department and each individual understands what it means to them. 2. Take an . Define the optimal customer experience. 3.then they will be able to deliver an excellent cup of coffee in a warm. It is what the customers think of your brand. A classic example is from Wal-Mart’s "Everyday Low prices". and that will help you define how customers interpret it. customers think of Wal-Mart as place to get great bargains. For example. Identify all contact points where customers interact with your company.
thus gaining brand value & customer loyalty. Customers of starbucks are so loyal that they are even promoting starbucks to others. Here again a classic example will be Starbucks.outside-in perspective when aligning each department with your customer value proposition and brand identity. It pays to be an active listener to learn and respond to the customer needs. The marketing team of Intel is always listening to customer to learn what features are needed in the future products . Another very good example is Intel.by promoting organic farming. There may be an understanding gap between what the customer wanted and what the marketer understood.that information is passed on the R&D teams . Note that the marketer can only test the level of customer experience based on his/her understanding of customer’s expectations. 5. the company releases new products with enhanced features/performance as per its pre-announced product roadmap. Never assume anything about what the customer thinks of your company. ethical purchasing etc. Intel sells microprocessors to computer manufacturers. As a result Intel enjoys the highest levels of relationships with its customers . 4. These ideas were given to Starbucks by their customers.a level at which customers are willing to invest and co-develop new products. Cultivate relationships with customers Relationship with customers must be treated carefully. Strengthen your brand over time . loyal customers into customer champions. Improving the levels of relationship with customer means enhancing customer experience .In my earlier article I have written in detail about the levels of relationship a firm can enjoy with the customer. Companies need to respond positively to customer feedback and that will turn casual customers into loyal customers.so that the new products will have the feature required by the customer. Starbucks has also responded in kind .
To build a strong brand. The converse of GO-ERROR. This will have a direct correlation with the brand value. 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. in light of successes achieved by competitors with similar developments.Enhancing the level of customer-brand relationship will have a direct impact on the brand. Closing thoughts Customers don't buy products. See Go Error drop-error Definition: A decision to drop a PRODUCT from the line. To begin with. customers buy relationships . Drop Error . one needs strong customer relationships. might have been successful if developed. If you observe any popular brand today. . 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. or to discontinue development of a new product which subsequently proves to have been a premature decision. All this will eventually result in a strong brand. organizations must work on enhancing customer experiences and that results in a higher level of customer relationship. you will see that company promoting that brand has succeeded in building a strong relationship with its customers. in hindsight. through series of positive interactions with the brand/company.a mistake made by a company in deciding to abandon a new product idea that.
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