This action might not be possible to undo. Are you sure you want to continue?
What Is a Product? Anything received in an exchange to satisfy a need or want is a product. 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. o 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
Convenience²inexpensive, 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
Business Products 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) o MRO Supplies--Maintenance, repair, and operating items that facilitate production and do not become part of the finished Products
o o o o o
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. y 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.
Another form of market testing found with consumer products is even more controlled with customers recruited to a . But other companies may seek more input from a larger group before moving to commercialization. (Note. pricing.) The key objective at this stage is to obtain useful forecasts of market size (e. In addition to gaining customer feedback.g. secondary research. Much effort is directed at both internal research. MARKET TESTING Products surviving to Step 6 are ready to be tested as real products. which is exposed to the full marketing effort as they would be to any product they could purchase. and distribution options (e. 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. 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. the organization must determine if the product will fit within the company¶s overall mission and strategy. 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.. operational costs (e. etc. cost effective production for manufactured products.Step 4. such as discussions with production and purchasing personnel. especially with consumer products sold at retail stores. direct from company. this step is used to gauge the feasibility of large-scale. The most common type of market testing makes the product available to a selective small segment of the target market (e. Once the prototype is ready the marketer seeks customer input..). sales and profits). However.. Once these are made the marketer may again have the customer test the product. retail store. Step 6.g. in this step the customer gets to experience the real product as well as other aspects of the marketing mix. Step 5. In some cases. Additionally. production costs) and financial projections (e. 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 shelves. Now in Step 4 the process becomes very dependent on market research as efforts are made to analyze the viability of the product ideas. and competitor analysis. 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. overall demand). one city)..g. such as advertising. and external marketing research. unlike the concept testing stage where customers were only exposed to the idea. Reaction that is less favorable may suggest the need for adjustments to elements of the marketing mix.g. 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.g.. in many cases the product has not been produced and still remains only an idea. such as customer and distributor surveys.
Step 7. Adjusting the product¶s marketing strategy is required for many reasons including: y y y y 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. Finally. In fact. . 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. Instead certain variables are entered into a sophisticated computer program and estimates of a target market¶s response are calculated. Such efforts require the marketer to develop and refine the product¶s marketing plan on a regular basis. as we will discuss in The PLC and Marketing Planning tutorial. such as a store. there are several hightech approaches to market testing including virtual reality and computer simulations. and are asked to locate and select products.³laboratory´ store where they are given shopping instructions. COMMERCIALIZATION If market testing displays promising results the product is ready to be introduced to a wider market. Some firms introduce or roll-out the product in waves with parts of the market receiving the product on different schedules. With virtual reality testing customers are exposed to a computer-projected environment. marketing strategies change as a product moves through time leading to the concept called the Product Life Cycle (PLC). We will see that marketers make numerous revisions to their strategy as product move through different stage of the PLC. Product interest can then be measured based on customer¶s shopping response. With computer simulations customers may not be directly involved at all. While commercialization may be the last step in the new product development process it is just the beginning of managing the product. Managing Existing Products Marketing strategies developed for initial product introduction almost certainly need to be revised as the product settles into the market.
The product life cycle goes through multiple phases. and requires many skills. A similar life-cycle is seen in the case of products. tools and processes. decline and death. maturity. 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. To say that a product has a life cycle is to assert four things: y that products have a limited life. involves many professional disciplines. From birth to death human beings pass through various stages e. birth. growth.Module: II Product life cycle (PLC) Like human beings. . products also have their own life-cycle.g.
each posing different challenges. manufacturing. 2. There are four stages in product life cycle. Maturity stage 4. Growth stage 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 6. costs become counter-optimal sales volume decline or stabilize prices. Saturation and decline stage . sales volume peaks and market saturation is reached 3. brand differentiation and feature diversification is emphasized to maintain or increase market share 6. purchasing. and products require different marketing. and problems to the seller. Market introduction stage 2. 4. 5. 1. 3. increased competition leads to price decreases 1. financial. prices tend to drop due to the proliferation of competing products 5. 4. 2. profits rise and fall at different stages of product life cycle. These are: Stage 1. 3. profitability diminish profit becomes more a challenge of production/distribution efficiency than increased sales 3. Industrial profits go down 1. 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 makes no money at this stage 1. and human resource strategies in each life cycle stage. 2. opportunities. 6. increase in competitors entering the market 4. costs are lowered as a result of production volumes increasing and experience curve effects 2.y y y product sales pass through distinct stages. 3. 5. 4.
y y y y y Product quality is improved. y Rapid Skimming Strategy y Slow Skimming Strategy y Rapid Penetration Strategy y Slow Penetration Strategy Marketing Strategies at Growth Stage: The overall objective is to sustain the growth rate. Brand building is resorted to. New market segments are trapped. o Style improvement. o Quality improvement. o Feature improvement. New models are introduced. Prices may be lowered to lure the next layer of price-conscious buyers. y Competitive parity.Marketing Strategies at Introduction Stage: While launching a new product. y Emphasis on price. Prices are cut. Flanker products are introduced. Marketing Mix Modification o Advertising o Sales promotion o Personal selling o Price o Distribution o Services Marketing Strategies at Maturity Stage: y y Diversity of models. marketing mix for each variable can be set at a high or low level with different combinations of price and promotion. y Differentiating promotion. Marketing Strategies at Growth Stage: y y Market modification. brands. Marketing Strategies at Decline Stage: y y Withdrawal of weak products in a phased manner. . Product modification. y More intensive or broad based. y Budget increased.
Existing projects may be accelerated. As a result. recent benchmarking studies have identified portfolio management as the weakest area in product innovation management. Value Maximization Allocate resources to maximize the value of the portfolio via a number of key objectives . criteria for making the Go/Kill decision are non-existent. "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. 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. the common denominator across firms are the goals executives are trying to achieve.A Problem Area! Recent years have witnessed a heightened interest in portfolio management. However. but in the CEO's office as well. and prioritized. Cooper and Dr. Much like stock market portfolio managers. killed. more specifically. According to 'best-practice' research by Dr. Emphasis on special applications.y y y y Selective unprofitable segments are left out. or deprioritized and resources are allocated (or reallocated) to the active projects. senior executives who optimize their R&D investments have a much better opportunity of winning in the long run. Edgett. it is a problem that every company addresses to produce and maintain leading edge products. not only in the technical community. Portfolio Management What is New Product Portfolio Management? A vital question in the product innovation battleground is. five main goals dominate the thinking of successful firms: 1. In this process. selected. Portfolio Management . Minimum promotion. Executive teams confess that serious Go/Kill decision points rarely exist and. Today's new product projects decide tomorrow's product/market profile of the firm. Despite its growing popularity. companies are experiencing too many projects for the limited resources available! Goals of Portfolio Management While the portfolio methods vary greatly from company to company. Portfolio management for new products is a dynamic decision process wherein the list of active new products and R&D projects is constantly revised. new projects are evaluated. Specialist selling. An estimated 50% of a firm's current sales come from new products introduced in the market within the previous five years.
Typical methods used to reveal balance include bubble diagrams. A variety of methods are used to achieve this maximization goal. Sufficiency Ensure the revenue (or profit) goals set out in the product innovation strategy are achievable given the projects currently underway. bottom-up (effective gatekeeping and decision criteria) and top-down and bottom-up (strategic check). business arenas and technologies. Typically this is conducted via a financial analysis of the pipeline¶s potential future value. 4. ROI.such as profitability. and across various markets. Portfolio Management is a high impact. Why is it so important? Companies without effective new product portfolio management and project selection face a slippery road downhill. histograms and pie charts. The goal is to avoid pipeline gridlock (too many projects with too few resources) at any given time. Pipeline Balance Obtain the right number of projects to achieve the best balance between the pipeline resource demands and the resources available. 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. Balance Achieve a desired balance of projects via a number of parameters: risk versus return. The three main approaches are: top-down (strategic buckets). 2. 5. A typical approach is to use a rank ordered priority list or a resource supply and demand assessment. Many of the problems that plague new product . short-term versus long-term. and acceptable risk. 3. ranging from financial methods to scoring models. What are the benefits of Portfolio Management? When implemented properly and conducted on a regular basis. high value activity: y y y y y y y y 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.
Boston Box. If you pick the right projects. the result is an enviable portfolio of high value projects: a portfolio that is properly balanced and most importantly.development initiatives in businesses can be directly traced to ineffective portfolio management. According to benchmarking studies conducted by Dr. BCG-matrix. Cooper and Dr. Edgett. supports your business strategy. analysis.G.C. some of the problems that arise when portfolio management is lacking are: y y y y y y 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: y y y y 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. Boston Matrix. portfolio diagram) is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing . and The pipeline has too many low value projects Portfolio Management is about doing the right projects. BCG matrix The BCG matrix (aka B. Boston Consulting Group analysis.
and portfolio analysis. This is an SBU not a single product. There is an assumption that higher rates of profit are directly related to high rates of market share. Stars tend to generate high amounts of income. For example. Look for some kind of balance within your portfolio. Problem Children and Stars need to be kept in a kind of equilibrium. Ford own Landrover in the UK. they tend to absorb it.  Folio plot of example data set Like Ansoff's matrix. You would look at each individual product in your range (or portfolio) and place it onto the matrix. These are products that are in high growth markets with a relatively high share of that market. the Boston Matrix is a well known tool for the marketing manager. which may eventually become Cash Cows. Try not to have any Dogs. They consume resources and generate little in return. Problem Children. These are areas of the business rather than products. These are products with a low share of a high growth market. There is another assumption . When Boeing launch a new jet. You can then plot the products of your rivals to give relative market share. Get rid of these products. This may not always be the case. product management. Problems with The Boston Matrix.their business units or product lines. These are products with a low share of a low growth market. Cash Cows. and this means that you will need a larger contribution from the successful products to compensate for the failures. They do not generate cash for the company. They absorb most money as you attempt to increase market share. It was developed by the large US consulting group and is an approach to product portfolio planning. So keep them in your portfolio of products for the time being. This is simplistic in many ways and the matrix has some understandable limitations that will be considered later. This helps the company allocate resources and is used as an analytical tool in brand marketing. strategic management. These are products with a high share of a low growth market. Each cell has its own name as follows. Some of the Problem Children will become Dogs. Stars. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth. Cash Cows. Keep and build your stars. These are the canine version of 'real turkeys!'. 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). You would do this for every product in the range. Cash Cows generate more than is invested in them. Dogs. The funds generated by your Cash Cows is used to turn problem children into Stars.
not linear. it is assumed that these earnings will grow faster the higher the share. if the brand had a share of 20 percent. 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. If this technique is used in practice. the ratio would be 4:1. As a result of 'economies of scale' (a basic assumption of the BCG Matrix). So Information System services can be treated accordingly. that of managing cash-flow. The main problem is that it oversimplifies a complex set of decision. however. Practical use of the BCG Matrix For each product or service. at least in terms of current profitability. It can also show what type of marketing activities might be expected to be effective. this scale is logarithmic. Use the Matrix as a planning tool and always rely on your gut feeling. This is not always the case. The BCG Matrix thus offers a very useful 'map' of the organization's product (or service) strengths and weaknesses. rather than just profits. the ratio would be 1:3. . as well as the likely cashflows. exactly what is a high relative share is a matter of some debate. the 'area' of the circle represents the value of its sales. and one which pointed to cash usage was that of market growth rate. is that it carries more information than just cash flow. the Rule of 123. indeed. which might be reflected in profits and cash flows. and triple that of the third. If the largest competitor only had a share of 5 percent. Relative market share This indicates likely cash generation. Thus. On the other hand. and indicates where it might be likely to go in the future. The reason for choosing relative market share. Brand leaders in this position tend to be very stable²and profitable. The need which prompted this idea was. If the largest competitor had a share of 60 percent. It shows where the brand is positioned against its main competitors. the ratio would be 1:1. because the higher the share the more cash will be generated.that SBUs will cooperate. implying that the organization's brand was in a relatively weak position. Be careful. implying that the brand owned was in a relatively strong position. The exact measure is the brand's share relative to its largest competitor. It was reasoned that one of the main indicators of cash generation was relative market share. and the largest competitor had the same. Derivatives can also be used to create a 'product portfolio' analysis of services.
as we have seen. before growth rates slow and it's too late. However. The theory behind the matrix assumes. It can also be used in growth analysis. cash cows and dogs) has tended to overshadow all else²and is often what most students. With this or any other such analytical tool. Critical evaluation The matrix ranks only market share and industry growth rate. less than 1 per cent per annum. This is unfortunate. however. for graphically illustrating cashflows. As originally practiced by the Boston Consulting Group the matrix was undoubtedly a useful tool. If used with this degree of sophistication its use would still be valid.Market growth rate Rapidly growing in rapidly growing markets. therefore. is that the most typical pattern is of very low growth. which may make application of this form of analysis unworkable in many markets. the market growth rate says more about the brand position than just its cash flow. 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. but. and therefore should be retained and not sold. ranking business units has a subjective element involving guesswork about the future. This is outside the range normally considered in BCG Matrix work. later practitioners have tended to over-simplify its messages. that a higher growth rate is indicative of accompanying demands on investment. Determining this cut-off point. The reason for this is often because the growth is being 'bought' by the high investment. and one that. of its future potential (of its 'maturity' in terms of the market life-cycle). since such simplistic use contains at least two major problems: .) The matrix also overlooks other elements of industry. particularly with respect to growth rates. the purpose of any business. and also of its attractiveness to future competitors. The cut-off point is usually chosen as 10 per cent per annum. the evidence from FMCG markets at least. remember. makes the use of the BCG Matrix problematical in some product areas. (It is certainly possible that a particular dog can be profitable without cash infusions required. enthusiastic managers may claim that cash must be thrown at these businesses immediately in order to turn them into stars. What is more. optimistic evaluations can lead to a dot com mentality in which even the most dubious businesses are classified as "question marks" with good prospects. are what organizations strive for. In particular. in those few situations where it could be applied. in the reasonable expectation that a high market share will eventually turn into a sound investment in future profits.they require investment. It is a good indicator of that market's strength. and practitioners. Where it can be applied. stars. Unless the rankings are approached with rigor and scepticism. again. the penalty is that they are usually net cash users . Poor definition of a business's market will lead to some dogs being misclassified as cash bulls. and only implies actual profitability. the later application of the names (problem children.
The next most widely reported technique is that developed by McKinsey and General Electric. money must be diverted from `cash cows' to fund the `stars' of the future. who has most of his (or her) products in the `cash cow' quadrant. It is a foolish vendor who diverts funds from a `cash cow' when these are needed to extend the life of that `product'. In any case. or is at least less widely taught). but they should not be `milked' to such an extent that their position is jeopardized. such as that of ethical pharmaceuticals). This is not what research into the FMCG markets has shown to be the case. and almost demands. In many markets 'dogs' can be considered loss-leaders that while not themselves profitable will lead to increased sales in other profitable areas. generate large cash flows.'Minority applicability'. that `cash bulls' will turn into `dogs'. It focuses attention. and that is. 'Milking cash bulls'. the main message that it is intended to convey. indeed. 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. which is a three-cell by three-cell matrix²using the dimensions of `industry attractiveness' and `business strengths'. and a definite pattern of product lifecycles can be observed. 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. Thus. should consider himself (or herself) fortunate indeed. and an excellent marketer. since `cash cows' will inevitably decline to become `dogs'. that the apparent implication of its fourquadrant form is that there should be balance of products or services across all four quadrants. The reality is that it is only the `cash bulls' that are really important²all the other elements are supporting actors. 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 taught²and then probably 'not' used). The brand leader's position is the one. use may give misleading results. of course. Such brand leaders will. on to the `stars'. however. to add some extra growth. and funding. to be defended. Perhaps the worst implication of the later developments is that the (brand leader) cash bulls should be milked to fund new brands. although he or she might also consider creating a few stars as an insurance policy against unexpected future developments and. Perhaps the most important danger is. In the majority of markets. Alternatives As with most marketing techniques. perhaps. Perhaps the most practical approach is that of the Boston Consulting Group's . It presumes. the chance of the new brands achieving similar brand leadership may be slim²certainly far less than the popular perception of the Boston Matrix would imply. There is an almost mesmeric inevitability about the whole process. The cashflow techniques are only applicable to a very limited number of markets (where growth is relatively high. There is also a common misconception that 'dogs' are a waste of resources. The vendor. not least since brands in this position will probably outperform any number of newly launched brands. above all.
Market penetration seeks to achieve four main objectives: . 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. The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategy. which the consultancy reportedly used itself though it is little known amongst the wider population. 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.Advantage Matrix. ansoff's product / market matrix Introduction The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy.
this would require a much more aggressive promotional campaign. The company must: (1) Analyse its current business portfolio and decide which businesses should receive more or less investment. Maintain or increase the market share of current products ± this can be achieved by a combination of competitive pricing strategies. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets. sales promotion and perhaps more resources dedicated to personal selling Secure dominance of growth markets Restructure a mature market by driving out competitors. including: New geographical markets. This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. advertising. therefore. It is likely to have good information on competitors and on customer needs. and .portfolio analysis . The business is focusing on markets and products it knows well. that this strategy will require much investment in new market research. 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. Market development Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets.ge matrix The business portfolio is the collection of businesses and products that make up the company. it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. 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 ³business as usual´. strategy . For a business to adopt a diversification strategy. therefore. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities. It is unlikely. There are many possible ways of approaching this strategy. Diversification Diversification is the name given to the growth strategy where a business markets new products in new markets.
it all depends on how the company is organised. and includes a broader range of factors other than just the market growth rate. the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio.(2) Develop growth strategies for adding new products and businesses to the portfolio. These are listed below: . Secondly. The McKinsey / General Electric Matrix The McKinsey/GE Matrix overcomes a number of the disadvantages of the BCG Box. 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. whilst at the same time deciding when products and businesses should no longer be retained. a product line or even individual brands . there are several factors which can help determine attractiveness. The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and the McKinsey / General Electric Matrix (discussed in this revision note). 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. market attractiveness replaces market growth as the dimension of industry attractiveness. An SBU can be a company division. In both methods. competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. Firstly.
Opportunity to differentiate products and services .g.Relative brand strength .Access to financial and other investment resources .Distribution strength . direct.Market Size . wholesale Factors that Affect Competitive Strength Factors to consider include: .Customer loyalty .Market profitability .Relative cost position (cost structure compared with competitors) .Market growth . retail.Competitive intensity / rivalry .Segmentation .Distribution structure (e.Strength of assets and competencies .Pricing trends .Market share .Record of technological or other innovation ..Overall risk of returns in the industry .
When you trade down. this is referred to as family branding. When you add a new product within the current range of an incomplete line. qualities. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line. Unlike product bundling. Line consistency refers to how closely related the products that make up the line are. colors. lining involves offering several related products individually. The total number of products sold in all lines is referred to as length of product mix. When you add a line extension that is of lower quality than the other products of the line. types. Line depth refers to the number of product variants in a line. where several products are combined into one. it is referred to as a line extension.Product Line Product lining is the marketing strategy of offering for sale several related products. Image anchors are usually from the higher end of the line's range. A line can comprise related products of various sizes. or prices. you will likely reduce your brand equity. Image anchors are highly promoted products within a line that define the image of the whole line. The number of different product lines sold by a company is referred to as width of product mix. . When you add a line extension that is of better quality than the other products in the line. this is referred to as line filling. this is referred to as trading up or brand leveraging. You are gaining short-term sales at the expense of long term sales. this is referred to as trading down. If a line of products is sold with the same brand name. When you add a new product to a line.
This is as opposed to brand extension which is a new product in a totally different product category. Examples include y y y y y y Zen LXI. The two main forms of classifications are consumer goods and industrial goods. It has the advantage of ease of administering. or household use. But product strategy also calls for building a product line. Diet Coke. Consumer Goods Consumer goods are goods that are bought from retail stores for personal. Vanilla Coke Clinic All Clear. Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers. Consumer goods can also be differentiated on the basis of durability. Zen VXI Surf. but the disadvantage of inflexibility. forms. product packaging.Price lining is the use of a limited number of prices for all your product offerings. particularly in times of inflation or unstable prices. This is a tradition started in the old five and dime stores in which everything cost either 5 or 10 cents. Clinic Plus Reese's Peanut Butter Cups. In the process of product development and marketing we should focus on strategic decisions about product attributes. and specialty goods. family. Surf Excel. Splendour Plus Coca-Cola. A product line extension is the use of an established product¶s brand name for a new item in the same product category. There are many important decisions about product and service development and marketing. colors. shopping goods. Durable . added ingredients. Line Extensions occur when a company introduces additional items in the same product category under the same brand name such as new flavors. product labeling and product support services. Surf Excel Blue Splendour. package sizes. They are grouped into three subcategories on the basis of consumer buying habits: convenience goods. Reese's Pieces and Reese's Puff Cereal Consumer and Industrial Goods The classification of goods²physical products² is essential to business because it provides a basis for determining the strategies needed to move them through the marketing system. product branding.
. schools. lawnmowers. antiques. Convenience Goods Convenience goods are items that buyers want to buy with the least amount of effort. or worn out. a fundamental strategy in establishing stores that specialize in them is to locate near similar stores in active shopping areas. these items are also frequently made available through vending machines in offices. factories.g. Buyers know exactly what they want and are willing to exert considerable effort to obtain it. Impulse items are other convenience goods that are purchased without prior planning. and tabloid newspapers. Specialty Goods Specialty goods are items that are unique or unusual²at least in the mind of the buyer. and are durable. . Ongoing strategies for marketing shopping goods include the heavy use of advertising in local media. and disposable cameras. bought infrequently. soft drinks. or that become outdated. such as candy bars. Often the attributes that make them unique are brand preference (e. Price. they are placed at checkout stands and other high-traffic areas. Other items that fall into this category are wedding dresses. Within stores. and color are typically factors in the buying decision. and toilet paper. such as furniture and garden tools.g. Since convenience goods are not actually sought out by consumers. 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. Because customers are going to shop for these goods. as conveniently as possible. and camping equipment are all examples of shopping goods. These goods are usually. that is. but not necessarily. producers attempt to get as wide a distribution as possible through wholesalers. and television. Advertising for shopping goods is often done cooperatively with the manufacturers of the goods. and they may or may not be durable goods. bedding. Nondurable goods are those that are quickly used up. These goods are usually of higher value than convenience goods. and other settings. Televisions. a certain make of automobile) or personal preference (e. To extend the distribution. Most are nondurable goods of low value that are frequently purchased in small quantities. a food dish prepared in a specific way). radio. and golf clubs. bread.goods are products that have a long life. of high value. such as food. These goods can be further divided into two subcategories: staple and impulse items. computers. style. They differ from shopping goods primarily because price is not the chief consideration. fine jewelry. quality.. school supplies. including newspapers. and include milk. Staple convenience goods are basic items that buyers plan to buy before they enter a store.
Industrial goods also carry designations related to their durability. and machine tools. The purchase of installations requires extensive research and careful decision making on the part of the buyer. Nondurable industrial goods that are used up within a year are called expense items. These goods are divided into five subcategories: installations. and some are used indirectly. Other installations. Some are used directly in the production of the products for resale. Some installations. and computerized axial tomography (CAT) scan machines. However. such as conveyor systems. actual sale of installations requires the technical knowledge and assistance that can best be provided by personal selling. The distinction among convenience. Consequently. As noted earlier. for a person who does not want to spend time shopping. Accessory Equipment Goods that fall into the subcategory of accessory equipment are capital items that are less expensive and have shorter lives than . Installations Installations are major capital items that are typically used directly in the production of goods. Consistency of image between the product and the store is also a factor in selecting outlets. fabricated parts and materials. a shopping good for another. and a specialty good for a third. are built to a standard design but can be modified to meet individual requirements. accessory equipment. raw materials. and specialty goods is not always clear. another person might buy shoes only after considerable thought and comparison: in this instance. the shoes are a shopping good. buying a pair of shoes might be a convenience purchase. Manufacturers of installations can make their availability known through advertising. robotics equipment. In contrast. and industrial supplies. a given item may be a convenience good for one person. For example. Still another individual who perhaps prefers a certain brand or has an unusual size will buy individual shoes only from a specific retail location. Unlike consumer goods. for this buyer. which they then sell. shopping. Durable industrial goods that cost large sums of money are referred to as capital items. Industrial Goods Industrial goods are products that companies purchase to make other products. industrial goods are classified on the basis of their use rather than customer buying habits. such as stamping machines.Producers and distributors of specialty goods prefer to place their goods only in selected retail outlets. these classifications are based on consumers' buying habits. large commercial ovens. the shoes are a specialty good. 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. are designed and built for specialized situations.
are involved directly in the production process. While some types of accessory equipment. such as hand tools. cleaning supplies.. it is usually done by intermediaries. They contribute indirectly to the production of final products or to the administration of the production process. and forklifts. lubrication oil. dictates a broad marketing strategy. Industrial Supplies Industrial supplies are frequently purchased expense items. Buyers of fabricated parts and materials have well-defined specifications for their needs. in order to be in a position to get the business. personal selling is a key component in the marketing strategy. combined with a market made up of buyers from several different types of businesses. Others (e. Some (e. This negotiation plus the fact that raw materials are ordinarily sold in large quantities make personal selling the principal marketing approach for these goods. Sellers rely heavily on advertisements in trade publications and mailings to purchasing agents and other business buyers. require additional processing before being placed in the end product. many industries actually buy more fabricated items than raw materials. windshields. including the auto industry. Automakers use such fabricated parts as batteries. wheat) may be converted directly into another consumer product (cereal). however. Examples are iron ore. and office supplies. Here again. Consequently. sales negotiations focus on price. diamonds. such as wholesalers. and credit terms. They may work closely with a company in designing the components or materials they require. personal contact must be maintained with the buyers over time. most are only indirectly involved.. sun roofs. Most raw materials are graded according to quality so that there is some assurance of consistency within each grade. The relatively low unit value of accessory equipment. crude oil. Supplies include computer paper. wheat. timber) may be converted into an intermediate product (lumber) to be resold for use in another industry (construction). desk calculators.installations. In either case. or they may invite bids from several companies. Many industries. Fabricated materials. on the other hand.g. As a matter of fact. There is. delivery. light bulbs. computers. and spark plugs. including steel and upholstery fabric. copper. timber. rely heavily on fabricated parts. They also use several fabricated materials. Raw Materials Raw materials are products that are purchased in their raw state for the purpose of processing them into consumer or industrial goods. Fabricated Parts and Materials Fabricated parts are items that are purchased to be placed in the final product without further processing. and leather. Examples include hand tools. When personal selling is needed. Buyers of industrial supplies do not spend a great deal of time on their .g. little difference between offerings within a grade.
it is an industrial good. . and are bought to be resold to the final consumer are classified as consumer goods. A pickup truck bought for personal use is a consumer good. companies marketing supplies place their emphasis on advertising²particularly in the form of catalogues²to business buyers. but flour purchased by a bakery to make pastries would be classified as an industrial good. such as flour and pick-up trucks. Flour purchased by a supermarket for resale would be classified as a consumer good. if purchased to transport lawnmowers for a lawn service. On the other hand. It is not always clear whether a product is a consumer good or an industrial good. are ready to be consumed.purchasing decisions unless they are ordering large quantities. When large orders are at stake. if they are bought by a business for its own use. As a result. Some items. depending on how they are used. can fall into either classification. sales representatives may be used. The key to differentiating them is to identify the use the buyer intends to make of the good. they are considered industrial goods. Goods that are in their final form.
Research by McKinsey & Company. which ultimately makes branding a CEO responsibility. 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. be easy to translate into all languages in the markets where the brand will be used. "Brand Managers" often carry line-management accountability for a brand's P&L (Profit and Loss) profitability. The discipline of brand management was started at Procter & Gamble PLC as a result of a famous memo by Neil H. All of these enhancements may improve the profitability of a brand. This can result from a combination of increased sales and increased price. It may also enable the manufacturer to charge more for the product. or brand. well-leveraged brands produce higher returns to shareholders than weaker.) suggest the company or product image. This may increase sales by making a comparison with competing products more favorable. published by Interbrand and Business Week. narrower brands. which are allocated budgets from above. in 2000 suggested that strong. a global consulting firm.: Easy-Off) or suggest usage (note the tradeoff with strong trademark protection. Taken together. It seeks to increase the product's perceived value to the customer and thereby increase brand franchise and brand equity. indicates that the market value of companies often consists largely of brand equity. In this regard. be easy to remember. distinguish the product's positioning relative to the competition. McElroy Principles of brand management A good brand name should: y y y y y y y y y y be protected (or at least protectable) under trademark law. .Module: III Branding Brand management is the application of marketing techniques to a specific product. be attractive. and/or reduced or more efficient marketing investment. and/or reduced COGS (cost of goods sold). attract attention. this means that brands seriously impact shareholder value. to manage and execute. in contrast to marketing staff manager roles. be easy to recognize. suggest product benefits (e. be easy to pronounce. Brand Management is often viewed in organizations as a broader and more strategic role than Marketing alone.g. The value of the brand is determined by the amount of profit it generates for the manufacturer. and thus. product line. The annual list of the world¶s most valuable brands.
a mother brand is tied to product brands. This process is known as "Brand rationalization. Sometimes. Symbolic device." Some companies tend to create more brands and product variations within a brand than economies of scale would indicate. this may be to gain retail shelf space (and . ("Strategic Brand Management" 3rd edition. Abunda. 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. Virgin brands all its businesses with its name Techniques Companies sometimes want to reduce the number of brands that they market. 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. Means of legally protecting unique features. Means of endowing products with unique associations. The third model of brand architecture is most commonly referred to as "corporate branding". (For Manufacture) Means of identification to simplify handling or tracing. A good example of this brand architecture is the UK-based conglomerate Virgin. Risk reducer. Procter & Gamble.Kevin Lane Keller) Brand architecture The different brands owned by a company are related to each other via brand architecture. Pampers. In "product brand architecture". Assignment of responsibility to product maker. Signal of quality. considered by many to have created product branding.y stand out among a group of other brands. Source of financial returns. 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. they will create a specific service or product brand for each market that they target. Ivory and Pantene. The mother brand is used and all products carry this name and all advertising speaks with the same voice. such as The Courtyard Hotels (product brand name) by Marriott (mother brand name). With "endorsed brand architecture". In the case of product branding. Signal of quality level to satisfied customers. Search cost reducer. is a choice example with its many unrelated consumer brands such as Tide. Source of competitive advantage.
An older brand identity may be misaligned to a redefined target market. more enduring. This is particularly true in regard to the trade-off between stability and riskiness. increasing numbers of companies are looking for other. and can confuse the target market. the objectives of some brands may conflict with those of other brands.or product-level category. In a diversified company. or to rationalize a brand portfolio as part of corporate restructuring. Brand orientation is a deliberate approach to working with brands. Often product level managers are not given enough information to construct strategic objectives. It is sometimes difficult to translate corporate level objectives into brand. may cost some brand equity. Repositioning a brand (sometimes called rebranding). both internally and externally. Challenges There are several challenges associated with setting objectives for a category. 2004). The most important driving force behind this increased interest in strong brands is the accelerating pace of globalization. Corporate objectives must be broad enough that brands with high-risk products are not constrained by objectives set with cash cows in . A company may decide to rationalize their portfolio of brands from time to time to gain production and marketing efficiency. but ideally. Brand Orientation refers to "the degree to which the organization values brands and its practices are oriented towards building brand capabilities´ (Bridson & Evans. This has resulted in an ever-tougher competitive situation on many markets.reduce the amount of shelf space allocated to competing brands). They may not question strategic objectives if they feel this is the responsibility of senior management. a restated corporate vision statement. A recurring challenge for brand managers is to build a consistent brand while keeping its message fresh and relevant. y y y y y Brand managers sometimes limit themselves to setting financial and market performance objectives. Most product level or brand managers limit themselves to setting short-term objectives because their compensation packages are designed to reward shortterm behavior. Brand identities may also lose resonance with their target market through demographic evolution. Short-term objectives should be seen as milestones towards longterm objectives. competitive tools ± such as brands. corporate objectives may conflict with the specific needs of your brand. a brand can be repositioned while retaining existing brand equity for leverage. The consequence is that product-related competitive advantages soon risk being transformed into competitive prerequisites. The fast pace of technological development and the increased speed with which imitations turn up on the market have dramatically shortened product lifecycles. Or worse. For this reason. revisited mission statement or values of a company. A product¶s superiority is in itself no longer sufficient to guarantee its success.
C. Online brand reputation protection can mean monitoring for the misappropriation of a brand trademark by fraudsters intent on confusing consumers for monetary gain.y y y y mind (see B. The brand manager also needs to know senior management's harvesting strategy. infractions. although perhaps equally damaging. Brand equity is one of the factors which can increase the financial value of a brand to the brand owner. as derived by its market capitalization . 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. 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. if you were to take the value of the firm. Brands are sometimes criticized within social media web sites and this must be monitored and managed. at the root of these marketing effects is consumers' knowledge. In other words. Analysis). This is particularly true where compensation is based primarily on unit performance. 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. In short. 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. Overall organisation alignment behind the brand to achieve Integrated Marketing is complex. and still others are at the consumer level. Also because of the development of such social technologies.G. Measurement There are many ways to measure a brand. although not the only one. And. some at the product level. Brand managers sometimes set objectives that optimize the performance of their unit rather than optimize overall corporate performance. It can also mean monitoring for less malicious. Managers tend to ignore potential synergies and inter-unit joint processes. a calculation is made regarding how much the brand is worth as an intangible asset. For example. consumers' knowledge about a brand makes manufacturers/advertisers respond differently or adopt appropriately adept measures for the marketing of the brand . Firm Level: Firm level approaches measure the brand as a financial asset. 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. Some measurements approaches are at the firm level.
the residual would be the brand equity. the greater the probability that the company will use a family branding strategy rather than an individual branding strategy. Colloquially.. at best. individual branding strategies The greater a company's brand equity. attitudes. This is because family branding allows them to leverage the equity accumulated in the core . compared with ³brand equity´ . hypothesizing only positive brand equity is created by marketing activities such as advertising. The discount rate is a subjective rate determined by Interbrand and Wall Street equity specialists and reflects the risk profile. Consumer Level: This approach seeks to map the mind of the consumer to find out what associations with the brand the consumer has. market leadership. is due to the brand. and promotion. due to catastrophic events to the brand. such as a wide product recall or continued negative press attention (Blackwater or Halliburton. Positive brand equity vs. A more complete understanding of the brand can occur if multiple measures are used. Interbrand estimates brand value on the basis of projected profits discounted to a present value. This approach seeks to measure the awareness (recall and recognition) and brand image (the overall associations that the brand has). To do its calculation. and intentions about a brand. stability and global reach of the brand[. The difference in price. More recently a revenue premium approach has been advocated. One perspective states brand equity cannot be negative. Free association tests and projective techniques are commonly used to uncover the tangible and intangible attributes. 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. 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. PR. approximations. Brands with high levels of awareness and strong.[ One high profile firm level approach is by the consulting firm Interbrand. for example). All of these calculations are. The brand-related negative intangible assets are called ³brand liability´. There are two schools of thought regarding the existence of negative brand equity. favorable and unique associations are high equity brands.and then subtract tangible assets and "measurable" intangible assets. 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. A second perspective is that negative equity can exist. Family branding vs. assuming all things equal.
brand. and competition)." in which they define Positioning as "an organized system for finding a window in the mind. Positioning is a concept in marketing which was first popularized by Al Ries and Jack Trout in their bestseller book "Positioning . The aging Taurus. the Ford Motor Company made a strategic decision to brand all new or redesigned cars with names starting with "F". distribution. Brand Positioning Definitions Although there are different definitions of Positioning. probably the most common is: identifying a market niche for a brand. would be abandoned in favor of three entirely new names. Aspects of brand equity includes: brand loyalty. Examples In the early 2000s in North America. all starting with "F". It is the aggregate perception the market has of a particular company. but an overwhelming majority was familiar with the "Ford Taurus". and perception of quality .The Battle for Your Mind. What most will agree on is that Positioning is something (perception) that happens in the minds of the target market. and has a natural tendency to discard all information that does not immediately find a comfortable (and empty) slot in the consumers mind. It is based on the concept that communication can only take place at the right time and under the right circumstances" (p. association. It was then expanded into their ground-breaking first book. promotion. "Five Hundred" was recognized by less than half of most people. price. in which the case is made that the typical consumer is overwhelmed with unwanted advertising. which became one of the most significant cars in American auto history. product or service in relation to their perceptions of the competitors in the same category. the Freestar was discontinued without a replacement. the Five Hundred. 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. This aligned with the previous tradition of naming all sport utility vehicles since the Ford Explorer with the letter "E". Freestar and Fusion.e. It will happen whether or not a company's management is ." 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. packaging. while a marketing manager believed that a name change would highlight the new redesign. product or service utilizing traditional marketing placement strategies (i. awareness. By 2007. 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. 19 of 2001 paperback edition). "Positioning: The Battle for Your Mind.
however. Services. Determine each product's current location in the product space 6. Determine each product's share of mind 5. Position. don't have the physical attributes of products . When they want to know more because you've piqued their interest and started a conversation. the product positioning process involves: 1. Identifying the attributes (also called dimensions) that define the product 'space' 3. Positioning concepts More generally. But a company can positively influence the perceptions through enlightened strategic actions. Product positioning process Generally. 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. Test it on people who don't really know what you do or what you sell. there are three types of positioning concepts: 1. Examine the fit between: o The position of your product o The position of the ideal vector 8. 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. So you need to ask first your customers and then yourself. we can't feel them or touch them or show nice product pictures.proactive. Functional positions o Solve problems o Provide benefits to customers o Get favorable perception by investors (stock profile) and lenders 2. Symbolic positions o Self-image enhancement o Ego identification o Belongingness and social meaningfulness o Affective fulfillment . reactive or passive about the on-going process of evolving a position. watch their facial expressions and listen for their response. Collecting information from a sample of customers about their perceptions of each product on the relevant attributes 4. The process is similar for positioning your company's services. Defining the market in which the product or brand will compete (who the relevant buyers are) 2.that is.
3. Experiential positions o Provide sensory stimulation o Provide cognitive stimulation Measuring the positioning Positioning is facilitated by a graphical technique called perceptual mapping, various survey techniques, and statistical techniques like multi dimensional scaling, factor analysis, conjoint analysis, and logit analysis. Repositioning a company In volatile markets, it can be necessary - even urgent - to reposition an entire company, rather than just a product line or brand. Take, for example, when Goldman Sachs and Morgan Stanley suddenly shifted from investment to commercial banks. The expectations of investors, employees, clients and regulators all need to shift, and each company will need to influence how these perceptions change. Doing so involves repositioning the entire firm. This is especially true of small and medium-sized firms, many of which often lack strong brands for individual product lines. In a prolonged recession, business approaches that were effective during healthy economies often become ineffective and it becomes necessary to change a firm's positioning. Upscale restaurants, for example, which previously flourished on expense account dinners and corporate events, may for the first time need to stress value as a sale tool. Repositioning a company involves more than a marketing challenge. It involves making hard decisions about how a market is shifting and how a firm's competitors will react. 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.
Brand positioning As we have argued in our other revision notes on branding, it is the ³added value´ or augmented elements that determine a brand¶s positioning in the market place. 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. A perceptual map defines the market in terms of the way buyers perceive key characteristics of competing products.
The basic perceptual map that buyers use maps products in terms of their price and quality, as illustrated below:
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. The new product is called a spin-off. Organizations use this strategy to increase and leverage brand equity (definition: the net worth and long-term sustainability just from the renowned name). An example of a brand extension is Jellogelatin creating Jello pudding pops. It increases awareness of the brand name and increases profitability from offerings in more than one product category. A brand's "extendibility" depends on how strong consumer's associations are to the brand's values and goals. Ralph Lauren's Polo brand successfully extended from clothing to home furnishings such as bedding and towels. Both clothing and bedding are made of linen and fulfill a similar consumer function of comfort and hominess. Arm & Hammer leveraged its brand equity from basic baking soda into the oral care and laundry care categories. By emphasizing its key attributes, the cleaning and deodorizing properties of its core product, Arm & Hammer was able to leverage those attributes into new categories with success. Another example is Virgin Group, which was initially a record label that has extended its brand successfully many times; from transportation (aeroplanes, trains) to games stores and video stores such a Virgin Megastores.
is not only time consuming but also needs a big budget to create awareness and to promote a product's benefits. Poor choices for brand extension may dilute and deteriorate the core brand and damage the brand equity. there are many different way of extension such as "brand alliance". resulting in a diluted or severely damaged brand image. Following the Aaker and Keller¶s (1990) model.In 1990s. An example of a product extension is Coke vs. Where the brand-owner partners (sometimes . In spite of the positive impact of brand extension. At last. They use three dimensions to measure the fit of extension. etc. First of all. Some studies show that negative impact may dilute brand image and equity. Another form of brand extension. In practical cases. Tauber (1988) suggests seven strategies to identify extension cases such as product with parent brand¶s benefit. there can also be significant risks. the ³Transfer´ is the relationship between extension product and manufacturer which ³reflects the perceived ability of any firm operating in the first product class to make a product in the second class´. Secondly. 81% of new products used brand extension to introduce new brands and to create sales. The first two measures focus on the consumer¶s demand and the last one focuses on firm¶s ability. the ³Complement´ is that consumer takes two product (extension and parent brand product) classes as complement to satisfy their specific needs. negative association and wrong communication strategy do harm to the parent brand even brand family. the ³Substitute´ 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. however. From the line extension to brand extension. Most of the literature focuses on the consumer evaluation and positive impact on parent brand. Diet Coke in same product category of soft drinks. In his suggestion. extension of productrelated association and non-product related association. Launching a new product. same product with different price or quality.co-brandingor ³brand franchise extension´. is a licensed brand extension. the failures of brand extension are at higher rate than the successes. 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. Product extensions are versions of the same parent product that serve a segment of the target market and increase the variety of an offering. 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. they provide a sufficient depth and breadth proposition to examine consumer behaviour and conceptual framework. Types of product extension Brand extension research mainly focuses on the consumer evaluation of extension and attitude of the parent brand. it can be classified into two category 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. While there can be significant benefits in brand extension strategies.
In spite of Aaker and Keller¶s (1990) research reported that the prestige brand . ³Equity of an integrated oriented brand can be diluted significantly from both functional and non-functional attributes-base variables´. This process is not only related to consumer¶s experience and knowledge. a lack of similarity and familiarity and inconsistent IMC messages. the negative impact has no specific damage on general brand image and ³the dilution effect is greater on product brand image than on general brand image´. Loken and Roedder-John (1993) indicate that dilution effect do occur when the extension across inconsistency of product category and brand beliefs. The failure of extension may come from difficulty of connecting with parent brand. Theoretically speaking. consumer can perceive the fit among brand extension. consumer may maintain their belief about the attributes and feelings from parent brand. but also involvement and choice of brand. changing the beliefs and association in consumers¶ mind´. In consequence. which means dilution does occur across the brand extension to the parent brand. but also try to categorise the brand association or image with their existing memory. Marketer spends budget and time to create maximum exposure and awareness for the product. Conversely. 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. They suggest that if the brand name is strong enough as Nike or Sony. The early works of Aaker and Keller (1990) find no significant evidence that brand name can be diluted by unsuccessful brand extensions. In addition. They categorise new information into specific brand or product class label and store it. Brand extension failure Literature related to negative effect of brand extension is limited and the findings are revealed as incongruent. paying a royalty every time a product is sold. When two or more products exit in front of consumers. their study shows that ³brand extension dilutes the brand image. If the brand association is highly related to extension. they not only are initially confused and disorderly in mind. A consumer can judge or evaluate the extension by their category memory. Categorisation theory Researchers tend to use ³categorisation theory´ as their fundamental theory to explore the links about the brand extension. 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. The flagship product is a money-spinner to a firm. flagship product is usually had the top sales and highest awareness in its product category. they might reposition memories to frame a brand image and concept toward new introduction. 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. When consumers face thousands of products.with a competitor) who takes on the responsibility of manufacturer and sales of the new products.
But branding does not always follow a rational line. A successful brand message strategy relies on a congruent communication and a clear brand image. Although there are few works about the failure of extensions. Coca Cola were had to make considerable efforts to regain customers who had turned to Pepsi cola. literature still provides sufficient in depth research around this issue. it is necessary to build up a ³brand ladder´. BIC Pens tried to produce BIC pantyhose. The higher the similarity is the higher perception of fit. Consumer¶s knowledge and experience affect the evaluation before extension product trail. The more innovation of extension product is. Because a small message dissonance would cause great failure of brand extension. in this article may conclude some points about consumer evaluation of brand extension: 1.´ To establish a strong brand. In addition. and difficulty of making. But in some findings. Although initially accepted a backlash against ³New Coke´ soon emerged among consumers.do no harm from failure of extension. Evidence shows that the dilution effect has great and instant damage to the flagship product and brand family. Example. 2. Marketers may go behind the order and model created by Aaker and Keller which they are authorities on brand management. It should consider the damage of parent brand no matter what types of extension are used. Throughout the categorisation theory and associative network theory. Quality of core brand creates a strong position for brand and low the impact of fit in consumer evaluation. 4. consumer does have the ability to process information into useful knowledge for them. A classic extension failure example would be Coca Cola launching ³New Coke´ in 1985. On the other hand. fit in category. former experience and knowledge. One mistake can damage all brand equity. Consequently. 3. the flagship product would not be harmed. the greater positive fit can perceive. Not only did Coca Cola not succeed in developing a new brand but sales of the original flavour also decreased. Similarity between core brand and extension is the main concern of consumer perception of fit. The negative impact of brand extension would cause a great damage to . even overall parent belief is diluted. They would measure and compares the difference between core brand and extension product through quality of core brand. brand extension is also ³diminish consumer¶s feelings and beliefs about brand name. You can read some more here Brand equity Brand equity is defined as the main concern in brand management and IMC campaign. Studies also suggest that brand extension is a risky strategy to increase sales or brand equity. consumer has his psychology process in mind. 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.
for example. sometimes referred to as the brand image. A brand is therefore one of the most valuable elements in an advertising theme. the type of metal working. Brands should be seen as more than the difference between the actual cost of a product and its selling price . Modern value-creation branding-andadvertising campaigns are highly successful at inducing consumers to pay. 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. for it is these people the company should wish to find and keep. the difference is incomparable. Failing to recognize these assets that a business. 50 dollars for a T-shirt that cost a mere 50 cents to make. One goal in . Every messages or brand extension can dilute the brand in nature. When brand recognition builds up to a point where a brand enjoys a critical mass of positive sentiment in the marketplace. There are many intangibles involved in business. A brand which is widely known in the marketplace acquires brand recognition. plus the cost of manufacture. Some people distinguish the psychological aspect of a brand from the experiential aspect. any business. 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.parent brand and brand family. rather than a more logical valuation that comprises an aggregate of the cost of raw materials. creating the impression that a brand associated with a product or service has certain qualities or characteristics that make it special or unique. can create and maintain will set an enterprise at a serious disadvantage. as it demonstrates what the brand owner is able to offer in the marketplace. intangibles left wholly from the income statement and balance sheet which determine how a business is perceived. plus the cost of distribution. or 5 dollars for a box of breakfast cereal that contains a few cents' worth of wheat. The psychological aspect. Careful brand management seeks to make the product or services relevant to the target audience. The art of creating and maintaining a brand is called brand management. 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. 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. From a manager and marketer¶s perspective. the type of stitch: all may be without an 'accounting cost' but for those who truly know the product. Because the effects of negative impact from brand extension are tremendous and permanently. Brand is the image of the product in the market. This concept. it is said to have achieved brand franchise. is a symbolic construct created within the minds of people and consists of all the information and expectations associated with a product or service. known as creating value. Orientation of the whole organization towards its brand is called brand orientation. People engaged in branding seek to develop or align the expectations behind the brand experience.
Consumers may look on branding as an important value added aspect of products or services. Also. is an emerging term encompassing the perceived value of the brand image. an increase in the salience of one brand can actually inhibit recall of other brands. or love of a brand. logo. . It helps the customers to understand to which product or service category the particular brand belongs to and what products and services are sold under the brand name.com. branded products or services also command higher prices. It also ensures that customers know which of their needs are satisfied by the brand through its products. Brand Awareness Brand awareness refers to customers' ability to recall and recognize the brand under different conditions and link to the brand name. 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. Salience refers not to what customers think about brands but to which ones they think about. and customers have a tendency to buy popular brands. Where two products resemble each other.(Keller) 'Brand love'. Becoming a Facebook fan of a particular brand is also a measurement of the level of 'brand love'. store-branded product). Disney has been successful at branding with their particular script font (originally created for Walt Disney's "signature" logo). including brands that otherwise would be candidates for purchase. From the perspective of brand owners. which it used in the logo for go.brand recognition is the identification of a brand without the name of the company present. 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. Brand Salience Brand salience measures the awareness of the brand. Advertising weight and brand salience are cues to customers indicating which brands are popular. jingles and so on to certain associations in memory. or tweets of a brand on sites such as Twitter. Brand love levels are measured through social media posts about a brand. as it often serves to denote a certain attractive quality or characteristic (see also brand promise). Brand salience is ³the 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. For example. but one of the products has no associated branding (such as a generic."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 ³brand salience´.
the following drives the increasing interest in taking brands global: y y y y economies of scale (production and distribution) lower marketing costs laying the groundwork for future extensions worldwide maintaining consistent brand imagery . 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. Benefits of Global Branding In addition to taking advantage of the outstanding growth opportunities. Global brands are brands which sold to international markets.Global brands transcend their origins and creates strong. These brands are used to sell the same product across multiple markets. They are laid down in a framework making some memories easier to access than others. Recall is the process by which an individual reconstructs the stimulus itself from memory. 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. Marlboro. Examples of global brands include Coca-Cola. Levi's etc. Memories are stored or filed via connections between new and existing memories in the different parts of the memory. not because it is more distinctive. and could be considered successful to the extent that the associated products are easily recognizable by the diverse set of consumers. removed from the physicality¶s of that reality. 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. enduring relationships with consumers across countries and cultures. We now know that all decisions made by humans involve memory processes to a greater or lesser extent.It is widely acknowledged that buyer¶s do not see their brand as being any different from other brands that are available. References Brand Salience: How do Buyers Remember? Article by Terry Reeves. They buy a particular brand because they are more aware of it..
media and advertising execution) These differences will depend upon: y y y y y y y y 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. pricing. etc.y y 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 y y Global Brand Variables The following elements may differ from country to country: y y y y y y corporate slogan products and services product names product features positionings marketing mixes (including pricing.) . distribution.
Types of brand names Brand names come in many styles. It may also be a brand that is developed for a specific national market. A local brand is a brand that can be found in only one country or region. Local Branding is usually done by the consumers rather than the producers. 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 . Brand name Relationship between trade marks and brand The brand name is quite often used interchangeably within "brand". In this context a "brand name" constitutes a type of trademark. Whipple of Charmin toilet tissue and Tony the Tiger of Kellogg's. if the brand name exclusively identifies the brand owner as the commercial source of products or services. A brand owner may seek to protect proprietary rights in relation to a brand name through trademark registration. although it is more correctly used to specifically denote written or spoken linguistic elements of any product. Mijerierna etc.Local Brand A brand that is sold and marketed (distributed and promoted) in a relatively small and restricted geographical area. for example: Mr. It may be called a regional brand if the area encompasses more than one metropolitan market. Examples of Local Brands in Sweden are Stomatol. however an interesting thing about local brand is that the local branding is mostly done by consumers then by the producers. Advertising spokespersons have also become part of some brands.
Furthermore. . such as Band-Aid or Kleenex. and station architecture to create a comprehensive consumer brand experience. or brand image are typically the attributes one associates with a brand. sustainable brand names are easy to remember. alphabet. A brandnomer is a brand name that has colloquially become a generic term for a product or service. Therefore. Most products have some kind of brand identity.real characteristics of the value and brand promise being provided and sustained by organisational and/or production characteristics. over time. gaining new attributes from consumer perspective but not necessarily from the marketing communications an owner percolates to targeted 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. how the brand owner wants the consumer to perceive the brand . brand associations become handy to check the consumer's perception of the brand. which are often used to describe any kind of adhesive bandage or any kind of facial tissue respectively. transcend trends and have positive connotations. However. color palette. Brand identity is fundamental to consumer recognition and symbolizes the brand's differentiation from competitors. a product's brand identity may acquire (evolve). Typically. The brand name should be conceptually on target with the product/service (what the company stands for). from common table salt to designer jeans. one of the first visual identities to integrate logotype. organization.and by extension the branded company. The brand owner will seek to bridge the gap between the brand image and the brand identity. the brand name should be on target with the brand demographic. Brand identity is what the owner wants to communicate to its potential consumers. Brand identity A product identity. product or service. Brand identity needs to focus on authentic qualities . Effective brand names build a connection between the brand personality as it is perceived by the target audience and the actual product/service. Visual Brand Identity The visual brand identity manual for Mobil Oil (developed by Chermayeff & Geismar). icon.
In this case a very strong brand name (or company name) is made the vehicle for a range of products (for example. Surf and Lynx are all owned by Unilever). the saying. "No one ever got fired for buying IBM"). Persil. whether it's the challenge to do your best in sports and fitness. such as Paul Rand.it adds a greater sense of purpose to the experience. In the United States. "A great brand raises the bar -. which is not necessarily connected with the product or consumption of the product at all. which may even compete against other brands from the same company (for example. colors. Mercedes-Benz or Black & Decker) or even a range of subsidiary brands (such as Cadbury Dairy Milk. Effective visual brand identity is achieved by the consistent use of particular visual elements to create distinction. Marketing labeled as attitude branding include that of Nike. and Apple Inc. or the affirmation that the .  Attitude branding and Iconic brands Attitude branding is the choice to represent a larger feeling. especially in the industrial sector. These principles can be observed in the work of the pioneers of the practice of visual brand identity design. The Body Shop. before the company's downgrading. Starbucks.  Individual branding Main article: Individual branding Each brand has a separate name (such as Seven-Up. and graphic elements. Kool-Aid or Nivea Sun (Beiersdorf)). it is just the company's name which is promoted (leading to one of the most powerful statements of "branding". A brand¶s visual identity is the overall look of its communications. At the core of every brand identity is a brand mark. Omo. Branding approaches Company name Often. Naomi Klein describes attitude branding as a "fetish strategy". Chermayeff & Geismar and Saul Bass. Cadbury Flake or Cadbury Fingers in the United States). such as specific fonts. Brand parity Brand parity is the perception of the customers that all brands are equivalent. In the 2000 book No Logo. 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 logo.. Safeway.The recognition and perception of a brand is highly influenced by its visual presentation.
CEO.Some kind of mismatch between prevailing ideology and emergent undercurrents in society. and the Florida company No-Ad Sunscreen. "No brand quality goods").cup of coffee you're drinking really matters. "Cultural contradictions" . This no-brand strategy means that little is spent on advertisement or classical marketing and . which means "No label" in English (from ± "Mujirushi Ryohin" ± literally. "Necessary conditions" . "Myth-making" . Muji products are not branded. Brands whose value to consumers comes primarily from having identity value comes are said to be "identity brands". Some of these brands have such a strong identity that they become more or less "cultural icons" which makes them iconic brands. Examples include the Japanese company Muji. 4. and chairman of Starbucks) The color. Examples of iconic brands are: Apple Inc.Actively engaging in the mythmaking process making sure the brand maintains its position as an icon.The performance of the product must at least be ok preferably with a reputation of having good quality. Although there is a distinct Muji brand. 2. These must be seen as legitimate and respected by consumers for stories to be accepted. There are four key elements to creating iconic brands (Holt 2004): 1. 3. 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. Many iconic brands include almost ritual-like behaviour when buying and consuming the products. "The cultural brand management process" . "No-brand" branding Recently a number of companies have successfully pursued "No-Brand" strategies by creating packaging that imitates generic brand simplicity. Iconic brands are defined as having aspects that contribute to consumer's selfexpression and personal identity.. Nike and Harley Davidson." .A meaningful story-telling fabricated by cultural "insiders". In other words a difference with the way consumers are and how they some times wish they were.Howard Schultz (president.
Michelin to a restaurant guide. In its most extreme manifestation. dish washing detergents. may wish to guarantee its own position by promoting that component as a brand in its own right. for example. shoes and accessories. luggage. Multi-brands Alternatively. Dunlop extended its brand from tires to other rubber products such as shoes. 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). home decor. many fashion and designer companies extended brands into fragrances. 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. Mars extended its brand to ice cream. furniture. . 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).Muji's success is attributed to the word-of-mouth. in order to pre-empt others entering the market. When Coca-Cola launched "Diet Coke" and "Cherry Coke" they stayed within the originating product category: nonalcoholic carbonated beverages. "No brand" branding may be construed as a type of branding as the product is made conspicuous through the absence of a brand name. Adidas and Puma to personal hygiene. Caterpillar to shoes and watches. etc. Derived brands In this case the supplier of a key component. a simple shopping experience and the anti-brand movement. simply to soak up some of the share of the market which will in any case go to minor brands. which secures its position in the PC market with the slogan "Intel Inside". A line extension is when a current brand name is used to enter a new market segment in the existing product class. Brand extension The existing strong brand name can be used as a vehicle for new or modified products. (sun-) glasses. 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. used by a number of suppliers of the endproduct. tennis racquets and adhesives. There is a difference between brand extension and line extension. with new varieties or flavors or sizes. The most frequently quoted example is Intel. golf balls. hotels. home textile.
also emerged as a major factor in the marketplace. Religious media expert Phil Cooke has written that faith branding handles the question of how to express faith in a mediadominated culture. 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. Procter & Gamble is a leading exponent of this philosophy. This may be acceptable (indeed to be expected) if there is a net gain overall. . of differing quality. uses it to keep the very different parts of the business separate ² from Sara Lee cakes through Kiwi polishes to L'Eggs pantyhose. Alternatively. Personal branding treats persons and their careers as brands." It refers to the practice of producers burning their mark (or brand) onto their products. Once again. or store brands. Nation branding works with the perception and reputation of countries as brands. Marriott uses the name Fairfield Inns for its budget chain (and Ramada uses Rodeway for its own cheaper hotels). in which the new brand takes business away from an established one which the organization also owns. Sara Lee. brands in the field of mass-marketing originated in the 19th century with the advent of packaged goods. Cannibalization is a particular problem of a "multibrand" approach. private label brands. This also increases the total number of "facings" it receives on supermarket shelves. In the hotel business. on the other hand. it may be the price the organization is willing to pay for shifting its position in the market. The term is thought to have been first used in a 1997 article by Tom Peters.Individual brand names naturally allow greater flexibility by permitting a variety of different products. Industrialization moved the production of many household items. to be sold without confusing the consumer's perception of what business the company is in or diluting higher quality products. the new product being one stage in this process. also called own brands. such as soap. History The word "brand" is derived from the Old Norse brandr. running as many as ten detergent brands in the US market. Private labels With the emergence of strong retailers. 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). meaning "to burn. from local communities to centralized factories. Faith branding treats religious figures and organizations as brands. and may outperform those products that are not otherwise strongly branded. Individual and Organizational Brands There are kinds of branding that treat individuals and organizations as the "products" to be branded.
Companies soon adopted slogans. By the 1940s. with its green and gold packaging having remained almost unchanged since 1885. mascots.marked by some as the death of the brand. comes from Texas rancher Samuel Augustus Maverick who. Around 1900. 1993 . manufacturers began to recognize the way in which consumers were developing relationships with their brands in a social/psychological/anthropological sense. as found in Saint Peter's Basilica in Vatican City. having been named as Britain's oldest brand. Bass & Company. such as youthfulness. Lyle¶s Golden Syrup makes a similar claim. the factories would literally brand their logo or insignia on the barrels used. This was an early commercial explanation of what we now know as branding. following the American Civil War. and Quaker Oats were among the first products to be 'branded'. Aunt Jemima.the day Philip Morris declared that they were to cut the price of Marlboro cigarettes by 20%. decided that since all other cattle were branded. Campbell soup. Philip Morris purchased Kraft for six times what the company was worth on paper. Cattle were branded long before this. Marlboro Friday: April 2. Many brands of that era. local products. claims their red triangle brand was the world's first trademark. In 1988. to customers previously familiar only with locally-produced goods. such as Uncle Ben's rice and Kellogg's breakfast cereal furnish illustrations of the problem. Juicy Fruit gum. Coca-Cola. Marlboro cigarettes were notorious at the time for their heavy advertising campaigns. originally meaning an unbranded calf. in an effort to increase the consumer's familiarity with their products. his would be identified by having no markings at all. where the consumers buy "the brand" instead of the product. in order to compete with bargain cigarettes. Another example comes from Antiche Fornaci Giorgi in Italy. In response to . Even the signatures on paintings of famous artists like Leonardo Da Vinci can be viewed as an early branding tool. the British brewery. extending the meaning of "brand" to that of trademark. manufacturers quickly learned to build their brand's identity and personality (see brand identity and brand personality). it was felt that what they really purchased was its brand name. Naomi Klein has described this development as "brand equity mania". whose bricks are stamped or carved with the same proto-logo since 1731. Factories established during the Industrial Revolution introduced mass-produced goods and needed to sell their products to a wider market. fun or luxury. The packaged goods manufacturers needed to convince the market that the public could place just as much trust in the non-local product. This began the practice we now know as "branding" today.When shipping their items. and jingles that began to appear on radio and early television. and is now quantified in concepts such as brand value and brand equity. James Walter Thompson published a house ad explaining trademark advertising. This trend continued to the 1980s. From there. It quickly became apparent that a generic package of soap had difficulty competing with familiar. and well-nuanced brand image. for example. the term "maverick".
Brand Hierarchy . Many thought the event signalled the beginning of a trend towards "brand blindness" (Klein 13).the announcement Wall street stocks nose-dived for a large number of 'branded' companies: Heinz. Quaker Oats. questioning the power of "brand value". PepsiCo. Coca Cola.
Nestle (UK) made a bid for Rowntree. Such a practi not be justified as fair in the interests of shareholders or investors. ERGENCE OF BRANDS E BACKGROUND: The debate of the brands came to the force in the late 1980¶s with the activities of a number d companies. with more than twice the Company¶s mark italisation at that time. Eg. b ny of the fixed assets that are shown in balance sheets have similar contestable figures. If brands can be shown as separable assets.odule: IV AT ARE BRANDS nds are those non-physical elements of a business. 000. The service sector companies like The Daily Telegraph Ltd. Mc Dougall started capitalising the brands that they owned or acquired. implying that the nds possessed hidden values. as goodwill should be. other than one supported by a speci chase price on change of ownership is too arbitrary at all to be credible. Thus began the hottest debate on brands in Balance Sheet. 17. E PRESENT SITUATION UK ± It had a divergent treatment for goodwill and brands. companies maintain substantial unrevealed reserves. They are separate ntifiable. In early 1988. The shareholder has the right to be appraised totality of assets that are available with the company. flaw: First of all the view that only those assets which have substance or spatial dimension should be prope sidered as a µvaluable asset¶ for accounting purposes is questionable. Besides understatement of intangible assets like brands. Adventurous bankers. W value real estate on the basis of the future income. brands should be written off immediately up uisition. Wide Technical Report 780 UK had removed the differential treatment of brands. have started to talk about issuing backed securities and/ or using brand collate . inclusion of values of brands in fix ets would mislead the figures in the balance sheet. which have potential future earnings. Brands should be fully amortised over their useful economic life of upto 20 yea ept in special circumstances. wh company is using them to earn profits is not useful to the shareholders in judging the efficiency of management. Now there is a distincti ween brands and goodwill in UK practice. Similarly brands should be valued based on their future earnin ential. This means like Goodwill. Homegrown brands are not allowed to be shown in the balance sheet. as it is ve cult to identify the cost of the brand developed. they need n written off. FAIR VIEW: The effect of the above is that in the failure to recognize brands and in the systematic undervaluation ets (at historic costs) acknowledged to exist. erence between Brand and Goodwill: Goodwill is defined as the difference between the net assets of a company a price paid by its purchaser. Any value fixed on a given brand is dubious. Y BRANDS SHOULD BE INCLUDED IN BALANCE SHEET ADITIONAL VIEW BLURRED: The traditional view is that any valuation figure. (in UK).000 as against the cost 12. Lonhro plc etc have valu r brands and showed them in balance sheets. Also the traditional view is that the balan et is not intended as a statement of corporate worth and that subsequently. intangible assets that one capable of being reliably measured. Many companies have incorporated brand values in their balan ets. Assets li ro Honda¶ (two wheeler) after being used for 8 years are being offered for sale at Rs.like land etc.
this would show a much higher value. The company is more expensive to acquire which may deter hostile bids.e. Company¶s brand management will certainly be sharpened up (e. It helps better comparison between companies operating in similar markets. investors would rather prefer to look at the Balance sheet that includes futu nings potential of the company.security for debt issues. OW DOES BRAND VALUATION EFFECT STOCK MARKET: s argued that the net worth of a company is readily calculable by the market price of the company. Many creditors have found in an insolvency situation that some current assets such as inventory are relative worthless even though classified as current asset. Then the difference between the above net worth of t mpany and as proclaimed by the company is of great importance to the shareholders and investors. Immediate write off has detrimen effect on consolidated reserves and confuses the real value of acquisition of the business whereas amortisation has continuous adverse and unrealistic effect on future profits. Some of the companies have reassessed the assets acquir n take overs and reclassified the goodwill as brands. This price ective of the present and prospective returns there on. than depending on the stock market prices. the ratio. Brands in balance sheet would at lea uce his apprehensions since the inclusion lead to a fair picture of the rate of return. Also. or between companies with varying mix of acquired and homegrown brands. Further. The asset value does not come down as long as it is maintained by proper promotional and advertising efforts. E ADVANTAGES: The inclusion of brand value in balance sheet gives a better picture of the company as having good assets and go brand value. T I thus becomes a better indicator if brand value is included. the managemen ciency is reflected in the ROI that is achieved by the company. but strong cash flow and custom bases. Since the mark es are volatile. Sometimes the price pa for goodwill is greater than the acquiring company¶s net worth with the result that the consolidated accounts sho negative shareholders equity. the shareholders. At the same time apparent return on assets (without inclusion of brands) will be brought down to more realistic figure n many of the takeovers. The s no depreciation and thus no impact on P&L. it reduces the gearing ratio and so increases the Company borrowing capacity. For the businessmen brands are often the most important competitive advantage. goodwill element in the price of the net assets has been increasing. PAT / Fixed assets + Net current assets. Recognising the value of brands separately at the time of acquisition reduces the amount of goodwill that must written off either directly to reserves or by amortisation over a number of years. brand P&L accounts) The Company¶s debt equity ratio is improved i. The goodwill arising from an acquisition can be reduced. This looks preposterous. . without brand value. This concept will be translated into reality if brands a ncluded in the balance sheet. It is the success or failure of bran that so often determines the manager¶s success or failure. It particularly helps service sector companies where there are low assets levels.g. we cannot recover goodwill but brands can be transferred a can be converted into cash.
generate substantial income and a stantial value to the company. Clearly this is the best evidence to show that homegrown bran e a value too.OULD BRAND BE AMORTISED? amortisation period is the period during which benefits are expected to arise. Intangible assets like brands may be carried at market value. brands require considerable expenditure. goodwill eral. issued by the Institute of Chartered Accountants. Hence µdo dwill must be written off while µcat¶ goodwill need to be. All purchas ngibles must be treated in the same way as goodwill. Five years is the maximum in Japan. Most of the companies are inclined to amortise it. so that fixed assets may be revalued ket price every 3 to 5 years. argument in favour of capitalising brand names is related to the old adage ± out of sight (if it is written off) out of min ands are capitalised. Australian has a modified historical cost accounting system. ourt appeal made a distinction between µCAT¶ goodwill which is loyal to the business and stays with the buyer if it d and a µDOG¶ goodwill which is loyal to the owner and thus is lost to the business in case of a sale. Accounting for Fixed Assets. Most of the businessmen find it easier to write off immediately against reserves and weaken t ance sheet than to touch the EPS by amortising brands. and the bran ected life in Germany. AUSTRALIA: Acquired goodwill has to be amortised though the P&L account for a maximum period of 20 years. guidelines has been issued by ICAI on brand valuation. should be recorded in the books only when some consideration in money or money¶s worth has been paid for a matter of financial prudence goodwill is written off over a period. this would lead to doub nting. mpanies know more about homegrown brands. The life is deemed to be finite (pruden ciple) but not fixed. as it is a relatively new concept in India. OULD HOMEGROWN BRANDS BE VALUED AND AMORTISED? disallowing the capitalisation of homegrown brands. Acquired brands mu ally be recorded at their cost of acquisitions. a degree of comparability between competing company is lo ether acquired or home grown. Allowing home grown brands to be capitalised would eliminate this inconsistency. management is more likely to continue a process of maintaining the values. All brand names may be revalued with either upwardly or downward ustments. No asset revaluation is permitted. Thus there is no incentive for US companies to distinguish brands from goodwill. However this is not mandatory. t reciation period varies considerably. why should brands be treated differently? ccounting laws force companies not to value home grown brands they could easily find a way out by selling the bran another company and again buy back from them. forty years in France. Thus it is easier to value them. Major MNC¶s li . If the brands are depreciated. USA: It is a standard practice to capitalise and amortise goodwill. SEWHERE: In most countries the acquired brands are capitalised and then amortised through the P&L. The companies spend significantly on marketi port of brands which is charged through P&L account. NDIA: According to AS ± 10. Maintenance costs of goodwill and all other intangibles must ten off to expenses. B ke in UK and US. OUBLE COUNTING´: acquisition of the brand is reflected in the balance sheet at cost. as the resulti tment would be identical. If a business builds its own facto ead of buying one. we capitalize it. But t delines prescribed by the Accounting bodies are against it.
There are various methods of valuati each has its own draw backs. Reliance could benefit a great de valuing brands and including them in the balance sheet. proven data. 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 AND EARNINGS: ital factor in determining the value of a brand is its potential profitability over time. Valuation at market price Valuation based on customer related factors such as esteem. the brands can be valued only if they are purchased and not self generated. Nestle and reputed Indian companies like Tatas.ever group. Further many branded products have no generic equivalents. Not all of the profitability of a bra necessarily be applied to the valuation of that brand. But the determination able forecast cash flows is fraught with difficulty.26 is applicable. The major benefits of branded products to manufacturers often relate to the security and stability of futu mand rather than to premium pricing. Brands are not developed with the purpose of trading in them. Proctor and Gamble. Conceptually the system is sound based on hard. Valuation based on premium pricing of a branded product over a non branded product. recognition or awareness. Now that AS . Discount values of future potential earnings of the brands seems to be an appropriate one. AWBACKS IN EACH OF THEM Brand value is not always a function of the cost of its development. However if the company can show that it is the beneficial owner of a valuable ass n the seemingly serious difficulty of putting a firm price (value) on brand cannot be accepted as a reason ( by a ounting principle) for refusing to record the value of brands in balance sheet. They are briefly discussed below: ETHODS OF VALUATION Valuation based on the aggregate cost of all marketing. A brand valuation based solely on consumer esteem or awareness factors would bear no relationship to commerc ity. nsidering the drawbacks of the existing methods of valuation INTERBRAND GROUP. A brand may be essentially a commodity product or may ga ch of its profitability from its distribution system. the leading internation nding consultancy came up with an earnings multiple system for valuing brands. If it were so failed brands may well be attribut h values. Not may of those who are aware would actually buy it. The elements of profitability which do not result from the bran . LUATION OF BRANDS: e of the most important reasons why a valuable asset like brands is not shown on the balance sheet is because of t mplexity involved in its valuation. Moreover the use of market value for balance she poses is prohibited by the companies act. advertising and research and development expenditu devoted to the brand over a stipulated period. Valuation based on potential future earnings discounted to present day values.
trend. stability. However. a three year weighted average of historical profits. support a ection. onger the brand. For this reason. a 100-yea brand is more likely to have had more investment than a 20-year-old brand. AND STRENGTH: and strength is a composite of seven weighted factors: Leadership. Overall this approach to brand valuation raises many questions and without we unded assumptions could be problematic. when should a company start to include the brand value in its balance Sheet? Anoth wback of this method is that it ignores qualitative factors such as the creativity of advertising support. a smoothing element is introduced viz. The value o nd also depends on unquantifiable elements. However it metimes difficult to find a comparable generic product.1 position in its market there is an accelerated increase value Once a brand has become a powerful world brand the growth in value no longer increases at the same rate. Since several years have to pass before it is evide ether the brand is successful. . It is clear that the brand value of Swatch ewoo for example could not be assessed on this basis when equivalent competitive brands are sold at a higher price. ce the multiple is determined it is multiplied by the brand earnings to arrive at the brand value. Also there is a possibility of the valuation getting affected by an unrepresentati rs profit. With a plethora of brands flooding the market. The relationship between brand strength and multiple applied is represented by curve AND STRENGTH e shape of the µS¶ curve is because of the following reasons: As brand strength increases from virtually zero ( an unknown or new brand) to a position as number 3 or 4 in a mark value increases gradually. established brand names are goi e a major asset and its importance will be increasingly in the future. greater the multiple. market. such as marketing. As the brand moves into the number 2 or particularly the no. The brand is scored for each of the above factors according to the weights attributed to them and the resulta ULTIPLE l known as the ³ brand strength score´ is expressed as a percentage. what is the unbranded counterpart of a Mars-Ba s method also assumes that all brands pursue a price-premium strategy.ntity must therefore be excluded. For example. devoted to the brand since its birth. advertising and R&D expenditure. other approach is that of comparing the premium price of a branded product over a non-branded product: t erence the two prices multiplied by the volume of sale of a branded product represents the brand value. umption is being made that none of these costs were ineffective. This method lained with the help of a problem in the exhibit. E RANGE OF THE MULTIPLES: m the brand strength score the multiple to apply to the brand related profits is determined. By virtue of little more than its heritage. ONCLUSION: uation of brands is till in its infancy. internationality. The management team need to agr w the historical costs should be adjusted for past inflation. out of whi erience the successful brand arose. er Theories in Meausuring the financial value of a brand e first approach aims to calculate the brand¶s value on the basis of its historic costs. such as management¶s expertise and the firm¶s culture. Finally there o a question of financially accounting for the many failed brands that had substantial sums spent on them. These are the aggregat estment costs.
e interbrand method is similar to deriving a company¶s market value through its price/earnings (P/E) ratio. For example.e. i. yet the profit of the first brand is heavily influenced by t ngth of branding.e valuation of a brand based on its market value assumes the existence of a market in which brands. any profits arising from shade own label production need to be subtracted. another way of valuing a brand is to assess its future earnings discounted to present-day values. while the price of a house is usually set seller. we multiply the Brand profit by the Brand multiple: and profit x Brand multiple = Brand Equity hen calculating the brand profit several issues need to be considered. it is vary difficult to derive a relationship from an amalgam of these factors to arrive at an objective valuatio example. The Interbrand approach ed on the assumption that the discount rate is given by a µBrand multiple¶. Where this case. who may plan for the bra play a very different role from its existing one. representative of the brand strength. To eliminate the earning which do not relate to branding the most common approach is charging t ital tied up in the production of the brand with the return expected from producing a generic equivalent. with very little attached to them. with this method is that it assumes buoyant historical earnings levels. en looking at historical profits. Following the logic of other forecasting systems. like horses. Moreover.e. two . Just as the P/E ratio equals the market value of the compa ded by its after tax profits. For example. This also translates into a low discount rate. There may ances where the same production line is used for both the manufacturer¶s brand and several own labels. These are all important elements of brands and high scores on these are indicative of strong brand wever. Unilever paid 70 million pounds for Boursin just to ga lf-space for its expansion plans for other parts of its brand portfolio. provided there is no chan rands strategy. curre future cash flows of the brand and discount them to take inflation and risk into account. the price other than putting the brand up for sale on the market. and the other may be sold to a few distributors who sell this with related products through doorr delivery. even though the brand may be bei ked¶ by its owners. One competes through major grocery stores again er branded breads. F mple. while the price of a house is usua by the seller. Therefore. a three-year weighted average is used. i. most consumers are aware that Rolls-Royce is a famous brand. The brand profit should be the post-tax profit after deducting central overhead costs. while the profit of the second brand is much more dependent on the few distributors with t ribution systems. Moreover. However. E = Market value of equity Brand Multiple = Brand equity Profit Brand Profit calculate the brand value. In order to determine brand value. the price actually paid for a brand is determined by the strategy of the buyer. a company must calculate the benefits of future ownership. such as Co-op. e next stage in arriving at a realistic assessment of the brand¶s profit is to deduct the earning that do not relate nd strength. likewise the brand multiple equals the value of the brand divided by the gross pro erated by this brand. a firm may market two brands of bread. Both brands may show similar brand profits. Th vides a link between a share capital and the company¶s net profits and thus the brand multiple can be applied to gle brand within the company to calculate its value. A historical statement of the brands profit is fi uired since as a good approximation tomorrow¶s profits are likely to be similar to today¶s. however. is the fact that there are many famous brands. esteem a areness. applying a weighting of three to the current year. to reduce the effect from any unusual year¶s performance in previous three years prof averaged. The proble wever. but what value should be placed on rst of all. the more recent profits are likely to be more indicative re profits. since such a market does not yet exist there is no means of estimating ket price other than putting the brand up for sale on the market. a high multiple characterises a brand in which the firm is confident of continuing stream of future earnings a sequently represents low risk for the company. a uently sold and can be compared. One of the most widely-accepted ways of assessing the brand value is provided by Interbra kin 1994). me have proposed valuing brands on the basis of various customer-related factors. such as recognition.
Market : Marketers with brands in non-volatile markets.e. These aggregated profits are then divided by the sum of the weighti ors. Thus having calculated. for example foods. Stability : Well-established brand¶s. i. as shown in the graph below. as well as the quality. a brand strength score of 71. of consistent investments and support are indicators of strong brand Protection : Registered trademark protects the brand from competition and any activities to protect the bra against imitators augers well for the future of the brand. Finally each year¶s profit should be adjusted for inflation. the brand multiple then needs to be calculated. thus this criteria must be met to score well on leadership. that is six in this case. and therefore is an indication of its value. mple. which have a notable historical presence. are better able to anticipate futu trends in therefore confidently devise brand strategies than marketers operating in markets subject to technological fashion changes. set prices a mmand distribution.previous year and one to the year before that. If though a change in strategy for the brand is envisaged these weightings need to onsidered. are strong assets. This is found through evaluating t nds strength since this determines the reliability of the brand¶s future earnings. Trend : The overall long-term trend of the brand shows its ability to remain contemporary and relevant consumers. ving calculated the brand¶s profit. Support : The amount. Strength Factor Leadership Stability Market Internationality Trend Support Protection Total Score Maximum Score 25 15 10 25 10 10 5 100 The higher brand strength score the greater its multiple score. from graph below this gives a multiple of 16. Interbrand argue that there is an S-cur tionship between the multiple and the brand strength score. Thus part of the brand¶s strength comes from the markets it operates in. A brand leader can strongly influence the market. Interbrand argue that a brand¶s streng be found from evaluating the brand against seven factors: Leadership : There is well-documented evidence showing a strong link between market share and profitabili s leadership brands are more valuable than followers. Internationality : Brands which have been developed to appeal to consumers internationally are more valuab than national or regional brands because of there greater volumes of sales and the investment to make them le susceptible to competitive attacks. the brand¶s value is 16 times .
media and financial services). As the S-curve ignores this addition or. Although interbrand has derived the data for t urve from the multiples involved in actual brand negotiations. All these multiples have been derived from the final transaction figures and may be inflat ause market prices for brand acquisition often include an element of overbid. and suppliers thereof. It gradually acquires strength w sumers and retailers in different stages. such as Nike. are fundamenta nging the way business is conducted. In particular. Further more. the sectors with the highest ratio of market capitalisation to book value a vily reliant on copyright (such as the media sector). particularly globalisation. Businesses. government regulation and increas ertising spend. Search of Brand Value in the New Economy dynamics of the new world economy. firms having growi orical brand valuation databases enabling mangers to access which strategies are particularly effective at growi r brands. consumers have also been provided with greater information to make informed decisions. terbrand argues that a new brand grows slowly in the early stages then it increases exponentially as it moves fro onal to international recognition and then slows down as it progresses to global brand status. food and drink. Noticeably. spite these limitations. copyright and know how). for consumers to choose from. patents (such as technology and pharmaceutical) and bran ch as pharmaceutical. in the case ckitt & Colman a one-point variation in the multiple corresponds to 54 million pounds difference in brand value. Research h nd that brands achieve respectable spontaneous awareness scores only after a high level of prompted awareness h n achieved. In the UK. Unilever and Coca Cola spend billions each ye porting their brands. We would argue that the remaining 70% of unallocated value resides largely in intellectual property a ainly in intellectual assets. However experimen lysis shows that the development of the brand is susceptible to threshold effects. A slight variation in the multiple can modify the value of the brand significantly. including ease of pri mparison through the internet. the brand equity resulting from such a multiple might be overvalued. growth in recent years in global companies (primarily through cross-border mergers and e-business) has led to losion in the number of goods and services. the growth in trademark registrations has also demonstrated the increased focus . outsourcing and e-business. Therefore the relationship between the brand strength and brand multiple may be better represented by s regular pattern. the interbrand method is a popular method amongst firms valuing there brands and is be pted by more companies as a practical way to determine the value of their brands. with less than 30% of the capitalised value of FTSE 350 companies appearing on t ance sheet. the ratio is similar.e-year weighted average profit. w valuable is Intellectual Property? e change in the nature of competition and the dynamics of the new world economy have resulted in a change in t value drivers for a company from tangible assets (such as plant and machinery) to intangible assets (such as brand ents. Several questions have been raised about the interbrand method. ands clearly have significant value. companies have taken advantage of more open trade opportunities ng the competitive advantage provided by brands and technology to access distant markets. In the US. but beyond a certain point its rate of growth is much greater. With this increas ice. the UK. For Example. market multiples may not necessarily be a corre cator of the brand strength. this ratio has increased fro to 5:1 over the last twenty years. This is reflected in t wth in the ratio of market capitalised value to book value of listed companies. the introduction of the European single currency.
643 10.828 28.169 28.089 13.389 17.134 10.nd importance: ar 8 4 0 6 2 8 4 Number of trademark registrations 25.626 .
Many balance sheets are therefore inherently inconsistent. £500 milli the recorded assets are only £100 million then the remaining £400 million gets written off through the profit and lo ount. On the other hand. In other words. The first attempt was in 1988 when Nestle acquired Rowntree for £5 billion e representing five times the recorded net assets of the target company. provide ownership of value. it is difficult to identify leading compani do not have strong brands. e key strength of brands is in their ability to maintain customer loyalty. The problem that arises from not accounting for brands is that it removes a key metric by which bra nagement might be measured. clearly it is not possible to capitalise such interna erated assets. This results in a balance sheet substantially less healthy than prior to the acquisition. As no such market exists for brands. with the associated expenses (such as resear development or advertising costs) being expensed through the profit and loss account rather than being capitalis the balance sheet.should stress that owning a trademark does not. showi me brands but not others. issue is not whether brands are accounted for but whether and how they are actively managed to enhance t mpany's value. led by organisations with leading brands. acquired brands can be capitalised but only where it can be shown that they a arable from goodwill. value to the company. making product differentiation very difficult. Accordingly. Such an acquisition can lead to som inctly funny looking accounting results. This recognition ue in IP is. As a result. This certainty of future cash flows is of gre . companies selling brand ducts have a more stable level of sales than non-branded companies. accounting and value should not be confuse empts have been made to account for IP. with the latter being preferable as it helps to maintain profit margins. According mpanies often try to differentiate their products not through physical characteristics or product specifications b ugh emotive characteristics contained and developed in their brands. However. in itself. Many companies spend millions of pounds protecti emarks that are of no. Indeed. Essentially. As you can imagine. me companies now make an effort to report on the importance of their IP. or very limited. current position is that internally generated intangible assets cannot be capitalised unless they have a "read ertainable market value". if not its value. if a collection of assets is acquired for. it is because balance sheets are ord of historic cost whereas value is a reflection of the market's expectation of a company's future cash flows and t s inherent in those projected cash flows being achieved. some IP that is acquired goes on the balance sheet (as there is a point in tim ortunity to place a cost on it) but most does not. not surprisingly. ellectual property is more often created internally than acquired. in the new global econom e are an increasing number of suppliers of similar products. say. then why isn't it accounted for? s often asked why this value does not reside on the balance sheet. is valuable. The value in a tradema he protection it provides to a brand that generates cash flow. One reason for this is that companies compete either through price or produ erentiation.
com companies 9 is forecast to exceed £100 million compared to £35 million in 1998. wever. in p . their return on brand investment or brand contribution reholder value. few companies use metrics of any sort nitor the growth or otherwise in their brand values. they will pay the advertisers a fee. internet companies face intense competition. and have the ability to offer exactly the same products and services. Some questions remain: Will Amazon.co mpanies is even more dramatic. recently reported. what will make it use a icular store? Clearly. This is supported by data on UK advertising spend which shows that advertising by . If a consumer has 100 internet book stores to choose from. as there are few barriers to entry. despite brands being so critical in the New Economy. internet companies have to establish brands very quickly in order to develop and maintain th scriber base.com but it hasn't yet made a profit. a trend which is likely to be followed in the UK. Marketing spend which does not increase the value of the brand may be misdirected. for example. nagement regular valuation of brands would allow a company to monitor the effect thereon of its strategy. that Proctor and Gamble have changed the way they pay for advertising fee viously they paid a fixed fee for an advertising campaign. Has t lementation of management strategy resulted in brand value creation or brand value destruction? Would more val achieved with a different strategy? Should investment dollars be diverted to other brands? A policy may well increa es and even profits in the short term but may reduce the value of the brands and ultimately the company in the long m.com benefit in the long te m the subscriber base it is building in the short term? Will its customers remain loyal or will they move to lower pri ons later? y value brands? e find it surprising that. New companies have quick ered the market. We have set out below the more comm umstances in which brands either are or should be valued. e importance to a business of its brands and underlying trademarks is unquestionable. Brands have value on the internet? focus on brand development is not limited solely to traditional companies but is also key for internet companies a mpanies investing in e-businesses. surely such measures would be worth considering when making investment and other management decisions. monitoring of brand value is also a useful tool in determining the success or failure of advertising campaigns and t ciency of marketing spend. emains to be seen whether these large investments in internet branding will yield long term results. In the US the growth in advertising for . For companies whose primary assets are th nds. Everybody h rd of Amazon. A good idea on the internet c mitated almost immediately. In future.efit to companies and would be reflected in a higher valuation than an equivalent company with greater uncertain r future cash flows. Certainly such measures are rarely reported publicly. Once it is accepted that bran have value then there is a need to understand and protect that value.
Ultimately. In addition. indeed they make it difficult to do so. gation damages arising from litigation is all about IP value. ategic management is ultimately focused on creating shareholder value. nsactions nds are often valued in connection with proposed or completed transactions. That royalty rate. perhaps. Although IP damages typically manifests itself in a claim for lo it. porting noted above. and methods of charging for the use of IP are key factors in the location of a multi-national group's profi ntifying the optimum framework for ownership. Although the price will ultimately be ter for negotiation. ation and transfer pricing ownership. n brands be valued? . t ue of their brands significantly exceeds the value of their plant and machinery. in turn. represents t ount a willing third party licensee would pay to use the IP. Nevertheless.ermined by the level of additional sales derived from the campaign. each party to the transaction will be better placed to negotiate if they have valued the brand(s) ance. licensing and use of IP across a world-wide business can save tinational group millions of pounds in tax. there are disputes which actually require the e valued. the royalty approach is a common form of IP valuation. that profit is underpinned at the very least by a reasonable royalty rate. the fees might be linked asures of customer loyalty or brand value. It is important when considering such arrangements to understand. For these companies to maximi reholder value it is essential to maximise the value of their brands. porting is not only a reference to financial statements. Management that do not report to shareholders m ertheless want regular valuations done to enable them to assess over time whether the value of a brand has be anced or whether it has greater value if used differently. This necessarily requires a valuation performed. once brands have been capitalised. joint venture or strateg ance. it is necessary ure that their value does not fall below the value shown in the balance sheet. For many consumer goods companies. inter al value of the IP. As our brief commentary on valuation methodologies belo ws. current accounting standards and practice do not require intellectual property to be accounted for on ance sheet. This theory applies equally well regardless of whether the transaction is a sale.
it is often very difficult to separate t ue of the brand from other intangible assets.i. some of which are summarised below. The sum of the discounted annual price premium would estimated value of the brand. Whether brands are separable from the underlying business is often debated and needs to be considered each case. per can. can be sold without selling a business of t entity. To value the brand it would be necessary to forecast the number of annual sales of the brand duct and multiply this by the price premium (i. The price difference of 15p can be described as the value brand. This approach is often used for brands on the theory that a brand duct can be sold for more than an unbranded product. If an asset has no future economic benefit then it has no value. Due to the judgmental elements.an asset to be valued. it needs three key properties: it needs to be separable from the other assets of the business . particularly goodwill. certain robust methodologies have be eloped. The following methods attem nswer these questions. the 15p). at today's prices.e. This is a bigger problem for corporate brands than product brands. . For instance Coca Cola may be able to charge 50p for a Co ereas an unbranded cola may only sell for 35p per can. The difficulty is in ( casting future cash flows (2) estimating what proportion of those future cash flows can be attributed to the brand. t needs to have legal title which can be transferred . However.e. nd valuation methodologies ving established that brands are valuable and should be valued the question arises as to how to value them. a determining an appropriate discount rate to put those cash flows in present day terms. care must be taken to separate o dwill from any brand valuation to avoid over valuing a brand. We also recomme sistency of use over time so as to reduce the comparative effect of judgement wherever possible. This ar omplex and. All methodologies attempt to ident part of earnings or price which can be attributed purely to the brand. mium profits underlying principle supporting the premium profits method is that a value can be determined by capitalising t itional profits generated by the intangible asset. we recommend the use of more th methodology in each case. However. like business and property valuations. with the results cross-checked to ensure a reasonable result. and it needs to be able to generate cashflows in its own right. basic premise underlying the value of any asset is that its current value equals the future economic benefits deriv m its use. Accordingly. subjective.enter the trademarks. This manifests itself in the practical problem of separati cash flows attributable to the brand from cash flows attributable to other factors.
in our experience. The future economic benefits will thus be the profits attributable to t itional volume generated by the brand. provides mate of the value of the brand name Gucci. The same valuation technique still applies. such as tangible assets and working capital. In many cases. s is the most simplistic and. most commonly used method for valuing intellectual property. re are problems with the premium pricing method. e relief from royalty method s method is based upon the amount a hypothetical third party would pay for use of a trademark. This estimate is based on either actual license agreements. Gucci may actually be charging licensees a royalty for use of the name y are not. it is difficult to find a non-branded competitor to compa es with. The profitability of the produ can be attributed to all other factors. tiplying the level of annual sales by the royalty rate and summing all years gives you an estimate of the futu nomic benefit of the brand. for example. F uation purposes. Secondly. by matter of deduction. the name Gucci on their products. is deducted from the total foreca itability. . In addition it is very difficult and subjective to establish how much of the pricing differential can buted to the brand and how much relates to other factors. can then be attributed to intangible assets. the royalty rate is usually expressed as a percentage of sales. ce a royalty rate has been estimated it is necessary to estimate the life of the brand and the level of annual sales. alternatively t ount the owner is relieved from paying by virtue of being the owner rather than the licensee. and will change throughout the ye en promotions etc.ay be that the branded product can not sell at a higher price than the non-branded product but instead can sell great ume. For example. comparab ket data or financial analysis. The final step is to bring these projected future cash flows back to today's prices counting for the time value of money and the risks associated with achieving those cash fows. O culty with it is the lack of actual. We seek olve this problem either by reference to our own confidential database of royalty rates or by analysing the profitability products in question in order to estimate the royalty that a hypothetical third party would be prepared to pay in order erate those profits. The estimate of how mu ypothetical third party would pay to be able to use. prices charged for each product will vary between regions. The profit remaining. branded products will be able to charge a price premium as sell greater volumes than the non-branded competitors. th profit attributed to intangible assets is £20 million. then names comparable to Gucci may be used to derive benchmarks for reasonable royalty rates. if Guc expected future profitability of £100 million and the profit attributed to other factors was estimated at £80 million. Firstly. nings basis s method focuses on the maintainable profitability attributable to the intangible asset. comparable agreements on which to base the hypothetical royalty rate. For example. This would then be divided between the company's vario ngible assets.
the profit attributed to the brand is the full £ on. We could. subcontract all of the production. By analysing the acquisition price as a multiple of current or forecast sales it would be possible to estimate t ue of another brand in the same sector. These brand disposals can be used as a bench mark by which to value the brands of other products same industry. owing to the dynamics of the new wo nomy and the increased power of the consumer. but also in terms of building shareholder value. they do not guarantee earnings stability. brands should be managed as the key business asset that they are. sales a vice functions and. or calculated from scratch. All aspects of t nd mix will need to be actively managed to ensure that the brand remains continually relevant and desirable sumers. For example. not only at the protection and enforceme el. then the value of the brand would be £200 million (20 x 10). distribution. ough brands are key to the success of many companies. of which we would argue valuation is a key management tool. possibly based on factors relating strength of the brand. keting transaction comparatives companies restructure to successfully compete in the New Economy there are an increasing number of brand sales ain industries. comparable rates used for other companies. . mmary nds have never been as important or as valuable as they are at present. e shortcoming of this approach is that it is difficult to objectively attribute a profit element to all of the other factors. ands are the core of our business. if we so wished. creating or destroying its value. provided that we retained ownership of our brands. It is mainly because of this need to actively manage all aspects of the brand that regular valuations a ential to determine whether the company strategy and tactics are maintaining. Thirdly. Their importance was summarised by Sir Allen Sheppard (then t airman of Grand Metropolitan plc). for simplicity. in 1998 Diageo sold its Bombay Gin and Dewar's Scotch whisky to Bacardi for US$1 on." such. The multiple could be determined by the compani ratios. the profit attributed to the brand will depend on how certain costs are allocated. we would continue to be successful a itable. This level of management requires the development of appropria rics for measuring brand management performance.calculate the value of the brand a multiple is applied to the portion of the £20 million profit attributed to the bran refore if a multiple of 10 was considered appropriate and. su angible assets. Secondly. It is our brands that provide the profits of today and guarantee the profits of the future. t culation of a multiple is highly subjective.
Once the basic strengths of the brand have been identified. where brands must either do or die. There is a need to communicate the brand strengths and val ring to the target masse above process of building strong brands surely seems to be a time-consuming. it¶s the strength on mind that is put to test and not the strength of musc How does all of this translate into marketing? The fact remains that in marketing to brands must not only be strong physically but they need to be strong intellectual Thus building strong brands is more a function of creating sound strategy than simp the function of the market share of the brand. they must either be strong enough to wres mpetition or be prepared to lose to the others and perish for good. brands must consciously cultivate those strengths that make them stand out in the marketplac wever. count on the external opportunities for strength. There could be other factors that may be contributing commercial success. one cann efore. The strength of a brand must come from within and must not fused with windfall opportunities in the marketplac interesting motive for building strong brands is that brand strengths are unique for each brand. there may be some brands which may not have any exceptional strength his scenario. There needs to be a clear-cut distinction between the brand's intrinsic strengths and extern ortunities. It may so happen that most of these factors will be external to the brand and may not ha thing to do with the brand. and brand equity would not be complete without cussion of brand points of parity. points of singular distinction. while contributing to the success of the brand are not unique and other players in the marketpla also avail of them. it is the player's strategy and technique that gets him to win. 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 ay with dependence on providenc other aspect of building strong brands is that the strengths of the brand must be cultivated and communicated to t et audience. W see it everyday. Marketpla ortunities however. as in the case of wrestling. both of which may be contributing to the brand's succes difference between the two however. is that while brand strengths are inherent. external opportunities will be fleeti may follow the axiom of easy come easy go. it does not imply that it is a strong brand. nts of Parity discussion of strategic awareness. the key is to understand how more value c delivered using those strengths. Building strong brands requires brands-even the market leaders. in the gam of wrestling. . Brands wrestle each other in the arena we call the marketplac Moreover.Building Strong Brands-Because Might is Not Always Righ Do brands really need to be strong? The answer to this question is yes and obvious to most of us. building of a strong brand does not stop at that. the winner does not win simply by might. to introspect and reali r inner potential. tricky and complex one. If one is looking forward to building a strong brand. This means that just because a brand ng well commercially. Ve often. Nonetheles he arena called the marketplace. However. Thus.
unless I have fully consider my brand¶s points of parity with other products in the category. Alas. be able to operate on existing roads and highways. adjusting speed for traffic conditions. nsumers might expect that at minimum my automobile have four wheels with rubber. and the perceived quality attributed to the product independe s physical features. Your brand must also measure up well against the competition on expected criteria so as to tralize those attributes. re things to know about brands mentioned earlier. ther words. a brand is more than just a word or symbol used to identify products and companies. if you create what you consider to be a wonderful point of differentiation and position. inflatable tires. What a strong position and uniqu ng proposition! wever. ce you have met the points of parity requirement and then you provide a unique selling proposition and hold a strong ensible position. the intangible value associated with the duct that can not be accounted for by price or features. I might produce a wonderful new automobile that uses advanced global positioning and sensor hnologies that render a driver obsolete by automatically routing the car. lesson here is that differentiation and singular distinction are necessary for strong brands. they might not be ugh if consumers do not view your product or service as measuring up on ³minimum product expectations´.nts of parity are those associations that are often shared by competing brands. an example. seat at least people comfortably with luggage. Without brand equity. I¶ve invented the first car with functional auto-pilot. or the holistic value of the brand to its ner as a corporate asset. . then it ht be too different and might not be seen as a viable choice or a strong brand. you simply have a mmodity product. nd Equity nd Equity is the sum total of all the different values people attach to the brand. Points o ty are necessary for your brand but are not sufficient conditions for brand choice. Consumers view these associations a ng necessary to be considered a legitimate product offering within a given category. be street legal. then you have the makings of a very strong brand. ru a widely-available fuel source. nd equity can include: the monetary value or the amount of additional income expected from a branded product over above what might be expected from an identical. and delivering passengers and cargo to the proper destination without the d for operator intervention. ognizing and complying with all traffic laws. and provide a fair level of sonal safely to occupants. be able to operate during both night and day in most weather conditions. I probably will not et with success. rand is nearly worthless unless it enjoys some equity in the marketplace. If my automobile does not possess these points of parity with competing brands. but unbranded product. but they do not solely ke for a strong brand.
You might even understand that brand nagement is all about shaping and managing perceptions. perceptions. Branding will help you "fence off" your customers from the competition and protect your market share while buildi . or perceptions people experience when they think of a compan roduct. A brand represents all the tangible and intangible qualities and aspects of a product or service. image. and feelings often hard to grasp and clearly describe. lifestyle. and status. The issue then is not whether you have a brand.not necessarily just for logical or intellectua reasons. Branding is all about perception. This attachment then causes your market to make decisions based. Intangible qualities. In this way. Branding creates trust and an emotional attachment to your product or company. You may still be asking yourself. A strong brand can command a premium price and maximize the number of units that can be sold at that premium Branding helps make purchasing decisions easier. In a commodity market where features and benefits are virtually indistinguishable. emotions. nd Management brand is not effectively managed then a perception can be created in the mind of your market that you do not essarily desire. the issu ow well your brand is managed. A brand resents a collection of feelings and perceptions about quality. at least in part.rand also stands for the immediate image. in fact. your personal brand. branding delivers a very important benefit. Your name and who are is. nds create a perception in the mind of the customer that there is no other product or service on the market that is qui yours. A brand promises to deliver value upon which consumers and prospective purchasers can rely to be consiste r long periods of time. It is precisely because nds represent intangible qualities that the term is often hard to define. upon emotion-. however. e benefits of a strong brand e are just a few benefits you will enjoy when you create a strong brand: y y y y y A strong brand influences the buying decision and shapes the ownership experience. uldn't it be nice to have people perceive you the way you would like them to perceive you? That is what branding and nd management are all about. u already have at least one brand t of all. The brand called "you". 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. nd management recognizes that your market's perceptions may be different from what you desire while it attempts to pe those perceptions and adjust the branding strategy to ensure the market's perceptions are exactly what you inten you may now have a better understanding of what a brand is and why awareness about your brand does not essarily mean your brand enjoys high brand equity in the marketplace. you must understand that you already have a brand. why you should e about branding in the first place. Everyone has at least one brand.
A strong brand can make actual product features virtually insignificant. For example . Google. companies are striving hard to beat customer expectations . . This article builds on the theory of stomer relationship management & sales. not just sell product.one with high brand value. A brand impresses your firm's identity upon potential customers. Similarly.marketers are at work ing the right level of expectations and shaping the customer experience. ositive brand value is created if customer experience exceeds his expectations. e Steps to Build a Strong Brand oday¶s highly competitive world. but the company brand is the strongest. A strong brand signals that you want to build customer loyalty. Intel. let's talk about how you go about building a strong brand. A strong branding campaign will also signal that you are serious about marketing and that you intend to be around for a while. Once you have mind share. are the classic examples of w companies built a strong brand through customer experience. Branding builds name recognition for your company or product. you customers will automatically think of you first when they think of you product category. his article.y y y y mind share. E-bay. I want to highlight the five steps needed to create a strong brand. now that you understand some of the reasons why you should want to build a strong brand. A solid branding strategy communicates a strong. purchase decisions are made the same way²first instinctively and impulsively and then se decisions are rationalized. mpanies mentioned above started small but built a solid reputation with the customer along the way and in the proces name of the company evolved into a strong brands as well. A brand will help you articulate your company's values and explain why you are competing in your market. but customers ember the company brand more than the product brand. Wal-Mart etc. consistent message about the value of your company. you may want to read the earlier article on Levels of Customer Relationship ore reading further. ople do not purchase based upon features and benefits ople do not make rational decisions. Over a period of time companies can d a strong brand . not necessarily to capture an immediate sale but rather t build a lasting impression of you and your products. A strong brand helps you sell value and the intangibles that surround your products. Cisco. Cisco¶s Catalyst Router etc. Note that these companies sell several products .Intel¶s Pentium cessor.. these products are market leaders in their respective segments.and ny of these products are also branded. They attach to a brand the same way they attach to each other: first emotionally then logically..
To create a holistic brand experience. Clearly articulate your brand identity Brand Identity means what the brand means to the customer. to them Starbucks means excellent coffee served in a warm. 3. There may be an understanding gap between what the customer wanted and what the marketer understood. This statement sets the customer expectation. Establish a customer value proposition Customer value proposition is the natural outcome of the brand identity. For example. Another classic example is µStarbucks¶ . you need to create a consistent and compelling experience at each of these touch points. Brand identity sets the customer expectations.then they will be able to deliver an excellent cup of coffee in a warm. It is what the customers think of your brand. Take an outside-in perspective when aligning each department with your customer value proposition and brand identity. The key is to clearly articulate the brand identity. marketer must see if he/she is getting the kind of coffee at Starbucks in the right environment as expected by the customer. relaxing and pleasing environment. For example. A classic example is from Wal-Mart¶s "Everyday Low prices".Starbuck coffee has a special meaning to its customers. A clear brand identity sets right level of expectations by the customer. Then that message must be to them. Identify all contact points where customers interact with your company. customers think of Wal-Mart as place to get great bargains. For example. and that will help you define how customers interpret it. communicated to the entire organization so that each department and each individual understands what it means For example only if all employees of Starbucks understand the customer value proposition . 2. Customers expect bargain prices at Wal-Mart. The actions of each department will then be aligned with the customer value proposition. . Note that the marketer can only test the level of customer experience based on his/her understanding of customer¶s expectations. relaxing and pleasing environment.1. marketer must work as a mystery shopper and see if the customer experience is consistent with the customer value proposition and brand identity. Define the optimal customer experience.
The marketing team of Intel is always listening to customer to learn what features are needed in the future products . the first time customer starts at a low level of relationship 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. Customers of starbucks are so loyal that they are even promoting These ideas were given to Starbucks by their customers. through series of positive interactions with the brand/company. loyal customers into customer champions. ethical purchasing etc. you will see that mpany promoting that brand has succeeded in building a strong relationship with its customers. If you observe any popular brand today.thu Here again a classic example will be Starbucks. Improving the levels of relationship with customer means enhancing customer experience .This is a popular phrase in marketing. To build a strong brand one needs strong customer relationships.by promoting organic farming. As a result Intel enjoys the highest levels of relationships with its customers . customers buy relationships . Another very good example is Intel. organizations must work on enhancing customer experiences and that results in a higher level of customer tionship. the company release new products with enhanced features/performance as per its pre-announced product roadmap. To begin with. starbucks to others. Companies need to respond positively to customer feedback and that will turn casual customers into loyal customers. .4. the leve sing thoughts stomers don't buy products. This will have a direct correlation with the brand value. Never assume anything about what the customer thinks of your company. Intel sells microprocessors to computer manufacturers. To build a strong nd.so that the new products will have the feature required by the custome to invest and co-develop new products.In my earlier article I have written in detail about the levels of relationship a firm can enj gaining brand value & customer loyalty. All this will eventually result in a strong brand. with the customer.that information is passed on the R&D teams . Strengthen your brand over time Enhancing the level of customer-brand relationship will have a direct impact on the brand. Cultivate relationships with customers Relationship with customers must be treated carefully. It pays to be an active listener to learn and respond to the customer needs. I call it level-1 ) and over a period of time. Starbucks has also responded in kind .a level at which customers are willin 5.
. in light of esses achieved by competitors with similar developments. See Go Error op-error nition: cision to drop a PRODUCT from the line. in hindsight.a mistake made by a company in deciding to abandon a new product idea that. might have been successfu eloped. or to discontinue development of a new product which subsequently proves to have been a premature decision.p Error . The converse of GO-ERROR.
This action might not be possible to undo. Are you sure you want to continue?