Professional Documents
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Product extensions are versions of the same parent product that serve a segment of the target
market and increase the variety of an offering. An example of a product extension
is Coke vs. Diet Coke in the same product category of soft drinks. This tactic is undertaken due
to the brand loyalty and brand awareness associated with an existing product. Consumers are
more likely to buy a new product that has a reputable brand name on it than buy a similar
product from a competitor without a reputable brand name. Consumers receive a product from a
brand they trust, and the company offering the product can increase its product portfolio and
potentially gain a larger share in the market in which it competes.
Brand equity, in marketing, is the worth of a brand in and of itself – i.e., the social value of a
well-known brand name. The owner of a well-known brand name can generate more revenue
simply from brand recognition, as consumers perceive the products of well-known brands as
better than those of lesser-known brands.[1][2][3][4]
In the research literature, brand equity has been studied from two different
perspectives: cognitive psychology and information economics. According to cognitive
psychology, brand equity lies in consumer's awareness of brand features and associations, which
drive attribute perceptions. According to information economics, a strong brand name works as a
credible signal of product quality for imperfectly informed buyers and generates price premiums
as a form of return to branding investments. It has been empirically demonstrated that brand
equity plays an important role in the determination of price structure and, in particular, firms are
able to charge price premiums that derive from brand equity after controlling for observed
product differentiation
Brand dilution, also known as excessive brand extension, is when a brand diminishes its value,
usually after releasing a product that doesn't align with the company's original mission. For
example, you might consider a chocolate bar brand suddenly releasing a line of tennis shoes to
be brand dilution. When releasing new products and lines, brands are often trying to attract a new
market segment to their business. Some brands also release multiple items before finding the
right market for their success. Brand dilution can also include companies launching multiple
products that diminish their overall product quality.
Brand dilution can reduce both consumer loyalty and the value of past products that aren't
directly affected by brand dilution. For businesses to keep their customers happy and confident
in their brand, it's essential that they keep their brand's reputation positive. Companies can use
the data from previous brand dilutions to alter future product launches and encourage a more
positive public reaction.
A value chain is a progression of activities that a firm operating in a specific industry performs
in order to deliver a valuable product (i.e., good and/or service) to the end customer. The concept
comes through business management and was first described by Michael Porter in his 1985 best-
seller, Competitive Advantage: Creating and Sustaining Superior Performance
The idea of the value chain is based on the process view of organisations, the idea of seeing a manufacturing
(or service) organisation as a system, made up of subsystems each with inputs, transformation processes and
outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources -
money, labour, materials, equipment, buildings, land, administration and management. How value chain
activities are carried out determines costs and affects profits.
Most organisations engage in hundreds, even thousands, of activities in the process of converting inputs to
outputs. These activities can be classified generally as either primary or support activities that all businesses
must undertake in some form.
According to Porter (1985), the primary activities are:
1. Inbound Logistics - involve relationships with suppliers and include all the activities required to receive,
store, and disseminate inputs.
2. Operations - are all the activities required to transform inputs into outputs (products and services).
3. Outbound Logistics - include all the activities required to collect, store, and distribute the output.
4. Marketing and Sales - activities inform buyers about products and services, induce buyers to purchase
them, and facilitate their purchase.
5. Service - includes all the activities required to keep the product or service working effectively for the
buyer after it is sold and delivered.
Secondary activities are:
1. Procurement - is the acquisition of inputs, or resources, for the firm.
2. Human Resource management - consists of all activities involved in recruiting, hiring, training,
developing, compensating and (if necessary) dismissing or laying off personnel.
3. Technological Development - pertains to the equipment, hardware, software, procedures and technical
knowledge brought to bear in the firm's transformation of inputs into outputs.
4. Infrastructure - serves the company's needs and ties its various parts together, it consists of functions
or departments such as accounting, legal, finance, planning, public affairs, government relations, quality
assurance and general management.