Brand Management and Product Development

Lesson 1 (07/01/2021)

Brands are Ubiquitous

• Services: building sales and profit for a dentist, a lawyer, or an airline.
• Places: attracting people to a particular location.
• Ideas: cultivating support for an idea.

• Organizations: building support for an organization (unions, universities).

• Events: building ticket sales for a concert or an art auction.
• People: stimulating an interest in a political candidate or a celebrity.

MARKETING = Marketing is a process by which companies create value for customers and
build strong customer relationships in order to capture value from customers in return.

Marketing Management Orientations

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• Production concept: Consumers will favor products that are available and highly
affordable.
• Product concept: Consumers favor products that offer the most quality, performance,
and features.
• Selling concept: Consumers will not buy enough of the firm’s products unless the firm
undertakes a large-scale selling and promotion effort.
• Marketing concept: Know the needs and wants of the target markets and deliver the
desired satisfactions better than competitors.
• Societal Marketing: The company’s marketing decisions should consider consumers’
wants, the company’s requirements, consumers’ long-run interests, and society’s long-
run interests.

COMPETITORS” and “MARKETING CAPABILITIES”

• These elements are critical.
o Without accounting for competitor activity, a strong customer orientation may not be
sufficient to guarantee success.
o Without accounting for one’s own capabilities, it is not possible to know which of the
customer’s requests can be accommodated.
o 5 C framework of Kenichi Ohmae (1982), “The Mind of The Strategist: The Art of
Japanese Business” is useful to appreciate what a “marketing orientation” is.
• Marketing Orientation means that your strategy accounts for all three of these
elements.

The 5 C-s of Marketing

- Customer
- Company
- Competitor
- Collaborator
- Context

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“Marketing strategy describes the direction the business will pursue within its chosen
environment and guides the allocation of resources and effort.”
• American Marketing Association, 2014.

Simple idea:
• Strategy is a theory of where to compete.
• Focus where you can be better or at least different.
• Define “location’” by differences in customers.

Brief History of Marketing Strategy

• Strategy arose from a military context: “The forces available must be employed with
such skill that even in the absence of absolute superiority, relative superiority is attained
at the decisive point” - Karl von Clausewitz, On War (1832).
• Management scholars added two elements to apply the strategy concept to business:
the need to make the differential advantage sustainable and the idea that the objective
of any business strategy is to enhance firm performance (60 and 70s).
• Marketers argue that it must be from the perspective of the customer (90s).
• Thus, five key elements are critical to marketing strategy:
1. Leads to a differential advantage over competitors.
2. Sustainability.
3. Ability to enhance firm performance.
4. Customer perspective.
5. Guides decisions and actions.

Customer-Centricity is Key to an Effective Marketing Strategy

• Customer ultimately determines strategy’s success or failure.
• The shift in focus from firm to customer by incorporating the customer’s perspective
represents a natural, long-term progression in strategy.

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• Economists tend to take an industry-level perspective, and management scholars adopt
a firm-centric perspective, but customer is an even smaller unit of analysis.
• Helps explain variation in firms’ performance by addressing smaller and smaller units of
analysis.

Marketing strategy consists of decisions and actions focused on building a sustainable

differential advantage, relative to competitors, in the minds of customers, to create value for
stakeholders.

Example: Philips (Netherlands)

• Netherlands-based technology company.
• Over past 125 years, Philips innovated its marketing strategy many times to remain
competitive.
• Company builds a strong presence in each market to understand the local market and
customer desires.
• Innovates continually; created “technology incubator” to develop new technologies.
• Customer-centric view → success.

Marketing Strategy Key to Long-Term Financial Performance

• Large amount of research documents its impact on financial performance, but many
people don’t realize the scope of influences on sales and profits.
o Grow market size (new products and services, lower prices).
o Grow share (better products and services than competition, higher loyalty to retain,
and/or steal customers with acquisition strategies).

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o Better prices and margins (improve loyalty, brand image, relationships, products,
targeting of high margin customers).
o Reduce costs (WOM, brand, relationships, retain with loyalty).

PRINCIPLES
1. Customers are different (heterogeneity).
2. Customer change (dynamics).
3. Competitors react (pressure & disruption).
4. Resources are limited (opportunity costs).

First Principle #1: All Customers Differ

• For most products and services customers vary widely on desires/needs.
o Over 9000 mutual fund options, Grocery stores carry 60,000+ SKUs.
o Even for “commodities” (e.g., coffee, water).

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• Thus, firms are targeting smaller & smaller segments.
o Mass marketing → niche marketing → 1-to-1 marketing.
o Competitive race as firms targets smaller segments.
o Fashion (H&M vs. Net-a-Porter).
• Why?
o Matches inherent customer desires (real, perceived).
o Faster response to customer trends and changes.
o Technology enabled (more economical to target/customize).
o Limited by tradeoff in efficiency (cost) vs. benefit of better match to need (solution)

Example: Godiva (Belgium)

• Addressed MP #1 by developing different products for different consumers.
• 3 reasons people buy chocolate.
1. To gift to others.
2. To share with a group.
3. To eat by themselves.
• Expanded product line to meet all these needs (individually wrapped candies for candy
dishes, fondue baskets for sharing with a group, packaged candy bars for people to eat
themselves).
• Sales have increased by more than 10% per year for many years.

Input-Output Framework for Managing Customer Heterogeneity

• Three key inputs to the framework are required to conduct segmentation, targeting, and
positioning of potential customers.
• The second and third inputs are similar, but one focuses on the focal company and the
other involves the company’s competitors.
• The inputs to managing customer heterogeneity entail the 3C’s of situation analysis:
Customers, Company, and Competitors.
• In turn, the framework generates outputs, which then provide the inputs for subsequent
First Principles.

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First Principle # 2: All Customers Change
• Customer’s desires/needs for most products and services change overtime or due to
specific events.
o Consumer needs change: cars, clothes, food, financial services, and healthcare as
consumers age.
o Trigger events: marriage, kids, job change, finances, move, graduation, acquisition,
new managers, legal changes.
o Industries/Markets change: experience curve, diffusion, competitive responses,
overproduction.
• Customer's needs vary not only due to inherent differences in people (heterogeneity)
but also as people and markets change (dynamics).
• Thus, segmentation and targeting needs to account for lifecycle changes/customer
dynamics.

Input-Output Framework for Managing Customer Dynamics

• Whereas MP#1 focuses on the market as a whole, MP#2 narrows the scope to the firm’s
existing customers, challenging the firm to understand how its customers change over
time.
• There are three categories of inputs for managing customer dynamics:
o Your customers
o Marketing programs
o Lost customers
• These inputs in turn produce three categories of outputs:
o Segmentation of Customers.
o Acquisition, expansion, retention (AER) Strategies.

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First Principle #3: All Competitors React
• Competitors are always copying successful strategies and innovating new ones.
o Only one firm remains from the original Dow 30 firms (GE).
o Given enough money and time most strategies can be copied.
• Thus, companies need to build a “barrier” to being copied, giving them time to adapt to
innovation by others.
• These barriers are termed sustainable competitive advantage (SCA) and are critical to
long-term superior financial performance.

Sources of Sustainable Competitive Advantage (SCA)

• Building brands and relationships.
o Awareness, image, status, meaning, reciprocity debts.
o Unconscious psychological barriers.
• SCAs must meet 3 conditions:
o Customers care.
o Company does “it” better than competitors.
o Hard to duplicate.

Building brands and relationships

• Brand Connect: The benefits or values a brand promises to deliver to customers to
satisfy their needs.
• How well these brands are conveying their value
o BMW promises “the ultimate driving machine”.
o New Balance’s Minimus shoes are “like barefoot only better.”
o Facebook helps you “connect and share with the people in your life”
o YouTube “provides a place for people to connect, inform, and inspire others across
the globe.”

Example: General Electric (US)

• History shows few firms can maintain a leadership position forever.
• Of the original Dow 30 companies, only one remains: General Electric (GE).
• GE has repositioned itself during multiple drastic, companywide initiatives to stay
competitive.
• From 1929-2013, the Dow Jones top firms were replaced 56 times due to their failure to
respond to market changes and competitive threats.

First Principle #4: All Resources Are Limited

• Most marketing decisions require tradeoffs across multiple objectives where resources
are constrained and often interdependent.
o Advertising vs. salespeople vs. discounts vs. channel co-ops vs. R&D vs. online.

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 o Many “messages” are mutually exclusive (high status and low price) or (high
performance and economical).
o Short-term vs. long-term tradeoffs.
• Thus, need to balance marketing resources across:
o Customers (STP)
o Acquisition, Expansion, and Retention stages (AER)
o Brand, Offering, Relationships (BOR)
o Marketing mix elements (4 Ps)

Lesson 2 (17/01/2021)

BRANDING BASICS
Brand: Name, symbol, or design used to identify the products and differentiate them from
competitive offerings.
→ Brand = anything that help us identify a product in the marketplace.

• Marketers talk about branding and spend a of money on promoting brand.

• Branding websites, branding content, branding product, branding events. The list goes
on and on.
• What we brand, how we brand it, and why we brand it has changed. But branding in the
twenty-first century is still about taking ownership, and not just products. It’s about
owning what your company values and represents and earning customer trust and
loyalty through your words, your actions, and your stories.

• Philip Kotler/Gary Armstrong (principles of marketing):

o “A brand is defined as a “name, term, sign symbol (or a combination of these) that
identifies the maker or seller of the product”.

• The American Marketing Association defines a brand as:

o A name, term, design, symbol, or any other feature that identifies one seller’s good
or service as distinct from those of other sellers. The legal term for brand is
trademark. A brand may identify one item, a family of items, or all items of that
seller. If used for the firm as a whole, the preferred term is trade name.”
• A name that has the status of a trademark.

Evolution of Brands
• Times change. People change. And the identities of some organizations - although not all
- change right along with them.
• Brand identities reflect and evolve with customer needs.

Ex. Logo changes (IBM, Apple, Mercedes) → Slides 7-8.

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- What are the product categories without any brand?
- What is the difference between a brand and a product?

Benefits of Branding
- Customer Recognition
- Customer Loyalty
- Credibility
- Gives Confidence
- Consistency
- Brand Equity
- Attracts Talent
- Allows Shared Values

Limitations of Branding
- Cost: Maintaining a strong brand presence is expensive.
- Negative Image if brand fails in the market.
- Switching costs for consumers.

Importance of Branding to Companies

1. Brands provide peace of mind
2. Brands create differentiation
3. Brands provide safety
4. Brands give consumers a reason to share
5. Brands add value
6. Brands express who we are
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Brand Identity
• Brand identity is the visible elements of a brand, such as color, design, and logo, that
identify and distinguish the brand in consumers' minds.
• Brand identity is distinct from brand image. Brand identity corresponds to the intent
behind the branding and the way a company cultivates a certain image in consumers'
minds.

Brand Identity – Name

• Brand name is one of the brand elements which helps the customers to identify and
differentiate one product from another. It should be chosen very carefully as it captures
the key theme of a product in an efficient and economical manner. It can easily be
noticed and its meaning can be stored and triggered in the memory instantly.
• Brand names are not necessarily associated with the product. For instance, brand names
can be based on places (Air India, British Airways), animals or birds (Dove soap, Puma),
people ( Calvin Klein, Ralph Lauren). In some instances, the company name is used for all
products (General Electric, IBM, Nestle).

• Interesting brand names:

o Amazon: Jeff Bezos founded Amazon.com to be the “everything store.” He selected the
name “Amazon” because it was a place that was perceived as exotic and different. The
Amazon River is the largest river in the world, and Bezos planned to make his store the
biggest in the world.
o Caterpillar: It immediately differentiates the line of heavy equipment. And customers
affectionately refer to the brand simply as “Cat.” The brand name was chosen in 1925. A
company photographer noticed the tractor’s tracks resembled a caterpillar moving along
the ground. The name stuck.
o Google: Google is an invented word. The name was originally “googol”, which is the
equivalent of ten raised to the power of a hundred. The name was proposed to reflect
the company’s mission to organize the immense amount of information available online.
The name “Google” happened by accident. Googol was misspelled when the domain
name was registered, but Larry Page liked how it looked. Google stuck.

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Brand Identity – Symbol
• Symbol help customers memorize organization’s products and services.
• Symbol are easier to memorize than the brand names as they are visual images.
• These can include logos, people, geometric shapes, cartoon images, anything.
- For instance, Marlboro has its famous cowboy,
- Duracell has its bunny rabbit,
- Mc Donald has Ronald,
- Fed Ex has an arrow.

Brand Identity – Logo

• A logo is a unique graphic or symbol that represents a company, product, service.
• It represents an organization very well and make the customers with the company.
• It is due to logo that customers form an image for the product/service in mind.
• Adidas’s “Three Stripes” is a famous brand identified by it’s corporate logo.

• It should be simple
• It should be distinguished/unique.
• It should be memorable
• It should be easily identifiable in full colors, or in black & white
• It should be a perfect representation of the organization
• It should not loose it’s integrity when transferred on fabric or any other material

Brand Identity – Color

1. Color marketing is a strong promotion and communication tools to build brand
recognition and reputation.
2. A brand may be recognized by name, logo, or product type but the first thing to catch a
consumer’s eye is often its COLOR.
3. According to The Institute of Color Research, 90% of the product assessment is based on
color alone.
4. Color helps people recognize your brand by up 04 to 80%.

Mixing Branding and Colors

The JAL (Japan Air Lines) image has several components: The bird symbolises flight and the
colour red communicates power. Red also symbolises good luck in Asia. The circle and the
color red reference the flag of Japan. Therefore, the brand image communicates powerful
air transportation from a Japanese company — and good luck with the journey.

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Brand Identity – Sound
• Called audio branding, sonic branding, sound branding
• Cognitive studies show that relevant sounds and musical cues can truly influence people
in ways marketers want
o Create A Distinctive and Memorable Brand Identity. If a company plays their tag
alongside advertisements or content that match their brand’s positioning, eventually
that audio tag by itself will conjure up the intended feelings around that brand.
o Amplify Your Brand Values. Audio branding requires a system of sounds based on a
proprietary audio DNA that expresses your brand’s values and personality–and it
becomes an identifier across all your touchpoints.
o Impact Your Customer’s Mood. The right background music can have a calming effect on
customers, easing their stress and leading to larger purchases.

• The SNCF case: They launched an audio branding initiative in 2005

o Already in competition with airlines, they were beginning to compete with German and
Italian railroads.
o Second, consumers, associated SNCF with “strikes and delays.”
• They started their initiative by conducting a study of the all the audio in their
competitive set, revealing a lack of distinctiveness.

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• Station messages considered travelers’ anxiety. For those, the music was calm and
reassuring.
• So, what does it sound like: SNCF Sound Identity Program.
• The audio brand has turned into a significant asset for SNCF.
o Correctly identified in testing by 92% of the listeners.
o 71% of them now see the brand as being “attractive”.
o 18% increase in the perception of leadership.

Brand Identity – Tagline

• Tagline appears at the bottom of an ad and sums up the essence of the brand/company.
o A tagline is a short, powerful phrase that is associated with a company’s name. It
represents the tone and feeling company wants to communicate. In many cases
the tagline becomes so well known that it is instantly recognizable.

Key elements of a good tagline

o Keep it short and on point
o Set yourself apart
o Highlight a key benefit
o Explain your commitment
o Evokes an emotional response
o No negative connotations
o Use the right resources

Memorable taglines
• Nike – “Just Do it”
• Apple – “Think Different”
• L’Oreal – “Because you’re worth it”
• KFC – “It’s finger licking’ good”
• Coca-Cola – “Open Happiness”
• McDonald’s – “I’m lovin’ it”
• MasterCard: "There are some things money can't buy. For everything else, there's
MasterCard."
• M&M: "Melts in Your Mouth, Not in Your Hands"

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Lesson 3 (28/01/2021)

Value of Brand
“The whole purpose of branding is to differentiate your product in the marketplace and to
get consumers to identify it as different, better, and special.”
- Sergio Zyman, former Chief Marketing Officer, the Coca-Cola Company

Brand Equity
• ‘Brand equity’ is used to access value of a brand.
• It’s based on the idea that owner of a well-known brand name can generate more
revenue simply from brand recognition.
• In marketing literature, brand equity has been studied from two different perspectives:
information economics and cognitive psychology.
• As per information economics: a strong brand name works as a signal of product quality
for imperfectly informed buyers (information asymmetry), thereby generating price
premium as a return on brand investments.
• As per: cognitive psychology, brand equity lies in consumer’s awareness of brand
features and associations.

Financial Measure
• Firm level approaches measure the brand as a financial asset. A calculation is made
regarding how much the brand is worth as an intangible asset.
• Income Split: estimates the present value of firm’s income attributable to brand; but
uses reported earnings, which can be manipulated.
• For example, if you were to take the value of the firm, as derived by its market
capitalization - and then subtract tangible assets and "measurable" intangible assets- the
residual would be the brand equity.

• Price Premium: compares branded vs. unbranded products to determine increases (or
decreases) in customer willingness to pay.
• 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.
• The difference in price, assuming all things equal, is due to the brand. More recently a
revenue premium approach has been advocated practiced worldwide.

• Brand Equity of products - The added value to the firm, the channel, or the consumer
with which a brand endows a product.
• Brands with high brand equity have a high degree of preference and insistence.

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Consumer Mindset Measure
• Consumer Level: This approach seeks to map the mind of the consumer to find out their
associations with the brand.
• This approach seeks to measure the awareness (recall and recognition) and brand image
(the overall associations that the brand has.
• Brands with high levels of awareness and strong, favorable, and unique associations are
considered as high equity brands.

• Associative Network Memory Model of Brand Equity: This leading psychological model
describes how brands work.
• The associative network memory model argues that the human mind is a network of
nodes and connecting links.
o The key characteristics of a brand, which influence its brand equity, are captured as
nodes and linkages.
o Brand awareness, which reflects the customer’s ability to identify a brand, is
indicated by the size or strength of the node for that memory.
o Brand image, or customers’ perceptions and associations with the brand, are
represented by the links of the brand name node to other informational nodes in the
model.
• In the network memory model, brand strategy involves first building awareness to
provide an anchor point, then building linkages to positive, unique memory nodes to
establish an identity that matches target customers’ needs in a cost-efficient manner

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Customer-Based Brand Equity
• Basic premise: Power of a brand resides in the minds of customers.
• Challenge is to ensure customers have the right types of experiences with products &
services and their marketing programs to create the right brand knowledge structures:
- Thoughts
- Feelings
- Images
- Perceptions
- Attitudes

• Building a strong brand involves a series of steps as part of a “branding ladder”.

• A strong brand is also characterized by a logically constructed set of brands “building
blocks.”
o Identifies areas of strength and weakness.
o Provides guidance to marketing activities.

A) Brand – Salience
• Depth of brand awareness
o Ease of recognition & recall.
o Strength & clarity of category membership.
• Breadth of brand awareness
o Purchase consideration.
o Consumption consideration.
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B) Brand – Performance
• Primary characteristics & supplementary features
• Product reliability, durability, and serviceability
• Service effectiveness, efficiency, and empathy
• Style and design
• Price
→ Product Related = Ingredient Based.
→ Non-Product Related = Price, Packaging.

C) Brand – Imagery
• User Imagery
o Who is using the product
- Demographic & psychographic characteristics
- Actual or aspirational
- Group perceptions -- popularity
• Usage Imagery
o Where the product is being used
- Usage situations
- Time (day, week, month, year, etc.), location, and context of usage
• Personality & values
• History, heritage, & experiences
- Nostalgia
- Memories

D) Brand – Judgement
• Brand quality
o Value
o Satisfaction
• Brand credibility
o Expertise
o Trustworthiness
o Likability
• Brand consideration
o Relevance
• Brand superiority
o Differentiation
→ Rational Assessment

E) Brand – Feelings
• Warmth
• Fun
• Excitement
• Security
• Social approval
• Self-respect
→ Emotional Assessment

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F) Brand – Resonance
• Behavioral loyalty
o Frequency and amount of repeat purchases
• Attitudinal attachment
o Love brand (favorite possessions; “a little pleasure”)
o Proud of brand
• Sense of community
o Kinship
o Affiliation
• Active engagement
o Seek information
o Join club
o Visit web site, chat rooms

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 Building Brand Equity

• Building a high level of awareness among the customers – which then provides an
anchor point for linking the brand name to the elements.
• Linking the brand name to the brand’s points of parity and difference, helps define the
brand’s relative advantage – this step defines how the brand is positioned against its
competition.
• Building a deep emotional connection between the brand and customers – moving
beyond functional differentiation implies a true, emotional connection.

• Integrated marketing communications (IMC) = the process of designing and delivering

marketing messages to customers that are relevant and consistent over time + channels.
• A firm typically uses multiple marketing communication formats, each of which has
different strengths and weaknesses that define when each will be most effective, as well
as the optimal combination of different formats.
• Some of the most commonly used marketing communication formats are:
o Advertising
o Sales promotion
o Public relations (PR)
o Events and experiential marketing
o Direct and interactive marketing
o Word-of-mouth (WOM)
o Personal selling

• Persuasion Process using IMC – this is most effective for brands in large consumer
markets, such as soft drinks, beer, fashion, or automobiles.
• It’s important to analyze how consumers process info + persuaded to change behavior
• The model can be broken down into six steps that customers must pass through to be
persuaded by the different communication formats:
o The customer must be exposed to the communication message.
o The message needs to capture customers’ attention.
o The customer must understand the desired marketing message.
o The customer needs to develop favorable attitudes toward the message.
o The customer must generate intentions to act based on the information.
o The person then must actually behave in the desired way.
• This six-step process called as the “think → feel → act” model.
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→ IMC example
• Turkish Airlines has been investing in sponsorship agreements and advertisements in
order to expand its brand visibility and global reach.
• Its advertisement titled “Kobe vs. Messi: The Selfie Shootout” has been viewed more
than 100 million times on YouTube and was named the advertisement of the decade.

Benefits from Brand Equity

• Brands can change customers’ actual experiences; they can change the taste of food or
drink, the excitement of driving a car, the comfort felt in a coffee shop, and the visual
appeal of diamond jewelry.
• Benefits from strong brands are associated with three general areas:
o Sales growth – sales benefit from strong brands, because brands make it easier to
acquire new customers, who perceive less risk, higher quality, and better
performance of a brand with strong equity.
o Profit enhancement – the benefits that drive sales growth also can enhance a firm’s
profitability by reducing costs or allowing the firm to charge higher prices for its
products.
o Loyalty effects – a strong brand makes customers more loyal, which often provides
the largest barrier to competitive entry.

Lesson 4 (31/01/2021)

• Brand positioning is defined as the conceptual place you want to own in the target
consumer’s mind - the benefits you want them to think of when they think of your brand
• Key components of a positioning
o Category frame of reference: What is the competitive context? With which product
category should the brand be associated?
o Definition of target market(s): Who is the brand being built for (i.e., the center of the
targeting bullseye)
o Statement of the key point of difference: What benefits should the brand stand for
and deliver on?
o Reason(s) to believe: What proof points need to be demonstrated?

Positioning
• Process of improving your relative advantage in the minds of your targeted customers:
o Changing both your actual (e.g., innovation) and perceived offering (e.g., branding,
relationships).
o Uses all three “Cs” as inputs: customer, company, competitors.
• Nearly everything you do impacts your positioning:
o Channel (place): Samsung dropping Kmart.
o Price: No discounts at Tiffany.
o Promotion: Tiger Woods at Nike, Starbucks.
o Product: Bose, Apple.

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• Perceptual maps: analysis tool to aid in positioning decisions.
• Repositioning: process by which a firm shifts its target market.

Positioning is a strategic process that marketers use to determine the place or “niche” an
offering should occupy in a given market, relative to other customer alternatives. When you
position a product or service, you answer these questions: Place, Rank, Attitude, Outcomes.

Differentiation is the process companies use to make a product or service stand out from its
competitors in ways that provide unique value to the customer. Differentiation identifies a
set of characteristics and benefits that make a product different and better for a target
audience. Ideally these qualities are things that 1) customers value when they are evaluating
choices in a purchasing decision, and 2) competitors cannot easily copy. When both
conditions exist, the offering is more attractive to target customers.

Perceptual Map = Analysis Tool for Positioning

Perceptual Map (BrandPRO Example)

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Positioning Statement Must Address Three Key Questions
1. Who are the customers?
2. What is the set of needs that the product or service fulfills?
3. Why is this product/service the best option to satisfy your needs? (Relative to
competition or substitute; support for why)?
• This statement is the roadmap for a plethora of implementation decisions involved in
marketing a product (both inside and outside the company).

→ For [target segment] the [product/concept] provides [benefit], which [compelling

reasons for buying versus competition].

Evaluating a Positioning Statement

JC Penney: For [Modern Spenders and Starting-outs in mid-income levels who shop for
apparel, accessories, and home furnishings] we offer [private-label, supplier exclusive, and
national brands] that [deliver greater value than that of our competitors] because of [our
unique combination of quality, selection, fashion, service, price, and shopping experience].

Kellogg’s: For [For people on the go who want to eat healthy] we offer [Nutri-Grain is the
cereal bar ] that [is a healthy snack you can eat on the run] because [Nutri-Grain is made
with real fruit and more of the whole grains your body needs and comes in individually
wrapped packages that you can eat anywhere].

• Positioning based on the competitive context

o Duracell “lasts longer” than Eveready
o Mercedes vs Jaguar
o Avis was struggling to keep up with the No. 1 brand in the car rental category, Hertz.
Its advertising agency created a campaign that allowed Avis to not compete with
Hertz, but embrace its secondplace status.

• Key objectives of brand positioning

o Relevance : Customers must find the positioning relevant to product category. If not,
the brand won’t make it into the consideration set.
o Differentiation: The brand must be unique vs. competitive offerings.
o Credible and attainable: If you cannot credibly provide the offering, the customer is
left with an empty promise.

Example of positioning of the following three airlines:

- Singapore Airlines: Singapore Girl, what a great way to fly.
- Cathay Pacific: Arrive in better shape.
- Swissair: Time is everything.

- Singapore Airlines: same campaign for more than 30 years.

o Emotional campaign.
o Cannot be measured.
o Intangible.

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- Cathay Pacific had to change campaigns
o With Arrive in Better Shape.
• Better than competitors or better than when you boarded the plane?
• Any competitor becomes a benchmark.
• External pressure from customers; Internal pressure from employees.
o New campaign “Heart of Asia” (mid 1990’s).
• Warmth.
• We are a hub.
• Asia is dynamic and successful.

- Swissair’s “Time is everything” had to change.

o Being on time is a fantastic benefit.
o You don’t control it.
o If you don’t deliver, customer won’t believe anything you say.

Brand Personality
• Brand personality refers to the set of human characteristics or traits that can be
associated with a brand. It is the personification of the brand.
• Brand personality is a set of human characteristics that can be associated with the brand
like gender, age and personality traits like warmth, honesty, integrity etc.
• Brand personality gives consumers something with which they can relate to which
effectively increases brand awareness, popularity, and brand loyalty.

• By establishing a brand personality, businesses can form emotional bonds with their
consumers.
• The physical aspects of a product can be copied but it is very difficult to copy the
personality of a brand. Thus, brand personality helps in building a sustainable
competitive advantage
• Celebrity endorsements help in creating a brand personality as they help consumers to
understand the brand in context of the celebrity.
• Author Jennifer Aaker classified brand personality on 5 dimensions

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Brand Personality – Starbucks
• Sincerity: Down to earth, honest, wholesome, cheerful.
• Excitement: Daring, spirited, imaginative, up-todate.

• The brand mantra of Starbucks Coffee was to create a "rich, rewarding coffee
experience.” Starbucks demonstrates a "persona" that goes far beyond their functional
benefits.
• Starbucks also demonstrates a ‘persona’ through their packaging, store atmosphere or
ambience, their store décor, product offerings, service interactions, in-store music and
corporate culture.
• Starbucks states that they ‘believe a coffeehouse should be a welcoming, inviting and
familiar place for people to connect’. Starbucks has designed their stores to reflect these
unique characteristic.

o Green is associated with health, security, growth, tranquility and nature. Green is also
associated with money and wealthy people or brands.
o White is associated with goodness, purity, balance, calm and sophistication.
o Relaxing Using green promotes a sense of relaxation, inviting customers to take a break
and de-stress.
o Mermaid The use of a mermaid logo stimulates the customers associations with nature.
o Warmth Brown or Mocha colors are used to create a warm, inviting feeling.

• When a consumer views Starbucks brand personality as having strong degrees of

favorability, originality and clarity, they are more likely to purchase from their brand.
• Starbucks sincere and exciting personality enables Starbucks company to easily remind
consumers that what they offer is more than just coffee, it is a lifestyle.
• Starbucks not only offers coffee but they it also offers that small break during the day in
a setting that appeals to all sorts of people.
• Starbucks has created a relationship with their customers that is unique and personable.

Brand Identity Prism

• The Brand Identity Prism, developed by Jean-Noel Kapferer, is a framework for defining
a company’s brand identity. Brand identity is grouped into six dimensions that can be
represented by the six faces of the ‘hexagonal prism’. The six facets are broadly
categorized under two perspectives – internal and external.

25
• The six elements are:
o Physique
o Personality
o Culture
o Relationship
o Reflection
o Self-image
• Expressing the brand consistently across all six elements creates brand coherence, which
strengthens the connection between the brand and the consumer.

• Physique: These are the fundamental physical and tangible aspects that differentiate
your company’s products, such as their functional characteristics, colors, logo, and
packaging. Being able to quickly identify a brand based on these elements is a good sign
that it has a strong identity.
o A good example of a brand with distinctive physical characteristics is iPhone. Some
ideas that come to mind when we think of iPhone include modern, sleek, and
minimalistic.
• Personality: the traits of the brand in the eyes of the consumer. One way of
understanding this concept would be to imagine your favorite brand as a living thing.
What kind of living thing is it? How does it behave?
o For example, Coca-Cola uses its iconic typeface and the color red to communicate
happiness and the moments of joy the brand personifies.

• Relationship: is about the nature of the relationship between the brand and its
consumers, including both abstract aspects of the relationship as well as more tangible
aspects, like what specific services are offered. How a brand connects with its audience
and the type of relationship it wants to build is entirely up to that brand.
o Amazon trying to build a fun, casual, chatty relationship with its customer.

• Culture: Tying the brand to a specific culture or geography, whether it is national or

local, can help encourage loyalty and pride in the brand. This will include the culture and
values of the brand’s country of origin or place of birth
o Ferrari is associated with luxury and the Italian tradition of sports cars.
o Toyota used culture to establish a set of guiding principles known as “The Toyota
Way.” These principles incorporate Japanese cultural concepts.

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• Self-image: Associating with a brand through the purchasing of its products can
reinforce one’s desired self-image as well as convey how one wants to be perceived by
others. Self-image is like a mirror the target group holds up to itself — by associating
themselves with certain brands, they see themselves differently.
o For example, BMW India launched a campaign for people who see themselves
driving a BMW, now or in the future. The campaign was “Don’t Postpone Joy.”

• Reflection: The stereotypical user of the brand. Reflection is a set of stereotypical beliefs
or attributes of a brand’s target market, which is often highlighted in ads and other
communications.
• While the terms sound similar, Self-image and Reflection differ in a noteworthy way:
Self-image refers to the customers’ ideas of themselves, whereas Reflection refers to
how a brand portrays its target audience.
o Apple, for example, associates its products with cool, creative, smart, irrespective of
age, race.
o For example, Fanta many depict their consumer base as fun, friendly teenagers,
because doing so creates a desired impression of the soft-drink brand.

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Lesson 5 (24/02)

Brand Architecture, Rebranding and Extensions

Brand Architecture
• Brand Architecture is a system that organizes brands, products, and services to help an
audience access and relate to a brand.
• A successful Brand Architecture enables consumers to form opinions and preferences
for an entire family of brands by interacting or learning about only one brand in that
family: aka Brand DNA
• An established Brand Architecture is an important guide for brand extensions, sub-
brands, and development of new products.
• It will also provide a road map for Brand Identity development and design and remind
consumers of the value proposition for the entire brand family.

• The brand architecture ensures the smooth running of an organization.

• Brand architecture helps a company to determine which products to keep and which
ones to withdrawn
• One of the main usages of the brand architecture is to maintain a balance between the
main brand and its sub brands.
• It is the brand architecture which determines when and where to launch new products
so that the consumers readily accept it.

Brand Architecture - House of Brands

• A house of brands has many varied products and offerings, but they are marketed under
separate brands, which have their own identities.
• A house of brands structure is recommended when an organization targets different
audiences with the same product categories (for example three shampoo brands for
three different target groups) but wants to build different propositions and new
associations for different each of them.
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Benefits
• Reach – a greater ability to define unique target audiences and create products that
broaden a brand’s demographic reach.
• Safety Net – companies can take more risks with new offerings, knowing they have
strong, tested brands to fall back on if necessary.
• Shield – in the case of bad press, the individual brand can take the heat while keeping
the company’s reputation secure.

Limitations
• Maintaining a brand isn’t easy. Maintaining many of them can seem nearly impossible.
There are many considerations to be made when constructing a House of Brands.
• Overwhelming – creating and implementing multiple marketing strategies and operating
many individual service lines is difficult and costly.
• Image – significant confusion over the parent company can occur (do they represent the
brands, or do the brands represent the company?)

o Honda launched Acura to target the luxury automotive market.

o Needed to give the cars a new, distinct brand identity to match customers’ desires for
status and exclusivity, rather than the economy and reliability linked to the Honda brand
o Similarly, Proctor and Gamble (P&G) maintains a full set of brand identities for all its
products.
o In some grocery stores, P&G laundry detergents take up more than half of the shelf
space for the category with Tide, Cheer, and All.

Brand Architecture - Endorsed Brands

• Endorsed brands are closer to the house of brands architecture.
• As with a house of brands, endorsed brands see many products and offerings under
separate brands, but they are supported by the parent brand.
• It has a separate identity and uses the parent-brand’s endorsement as a quality stamp.
• It helps the endorsed brand build awareness and trust.
• Ex. Marriott hotels uses an endorsed brand strategy for the Courtyard Marriott chain. It
suggests the approval and imprimatur of the Marriott brand but also makes it clear to
customers that Courtyard hotels stand on their own and offer something different from
typical Marriott hotels.

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Strengths:
• An endorser brand can work as assurance of quality for the product brand, it can
increase consumer’s perception and confidence.
• Marketing activities advertise both the product brand and the endorser.
• The connection between product brands can facilitate cross-selling.

Weaknessess:
• If a brand goes through a crisis it is hard to control the damage because the crisis can
extend to the parent brand and also to the other brands.
• There will be creative, legal, and time-to-market costs for every endorsed brand.

Brand Architecture - Sub Brands

• A sub-brand is a brand within a brand.
• Sub-brand uses a unique name for a product and service that can develop its own brand.
Sub-brands have their own customer expectations and personalities that are different
from the parent brand.
• The sub-brands architecture is closer to a branded house strategy, in that the parent-
brand most often acts as a key driver.
• In some cases both the parent-brand and sub-brands are considered codrivers, but the
sub-brand is never stronger than the parent-brand.

• Ex. Sony instead uses a sub-branding strategy when it assigns some major product
categories, such as PCs, the Viao brand name. Branding a laptop as a Sony Viao means
that it enjoys spillover benefits from Sony (awareness and linkages) but also
differentiates the Viao name so that it can establish linkages unique to PCs.

Strengths:
• You can target many different customers because the sub-brands have different names,
logos, different promises, positions and personality traits – you can address conflicting
audiences.

Weaknessess:
• Legal and creative / marketing costs of creating new sub-brands.

Brand Architecture - Branded House

• A company with a branded house architecture has many products and offerings under
one parent-brand (also called umbrella brand). Its products don’t have separate
identities and all contribute to the strength of the parent-brand.
• A branded house architecture works when a company targets a similar audience with
different products, and wants to build the same proposition and the same associations
for different offerings.
• It’s also a suitable solution when an organization has a limited marketing budget, as it’s
understandably cheaper to build awareness of just one brand as opposed to several.

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o GE uses a branded house architecture.
o When GE launches a new product, it immediately enjoys the positive associations of the
GE parent-brand.
o Product launch and brand building costs decrease, accelerates product diffusion
throughout the marketplace.
o Each new GE product starts with high overall brand awareness and meaningful linkages
to the high-quality manufacturer of electrical products, which lowers consumers’
perceptions of product adoption risk.
o However, these linkages must be credible. If GE were to launch a new line of perfume,
many of its brand linkages would be inconsistent with the desired attributes for this new
product, undermining the perfume’s brand image.

Ex. Harley Davidson and IBM.

Brand Architecture - Branded House

Strengths:
• It is easier for consumers to recognize the products and to understand them because of
the descriptor.
• It increases brand awareness.
• Efficiency – one marketing strategy and one brand code covers every offering.
• Ease – confusion + competition are avoided by keeping every offering under same brand
• Evolution – a strong brand can lead to greater success for future offerings/new products,
as consumers are more willing to accept change from brands they already trust.

Weaknessess:
• Though Branded House strategies make sense for many businesses, there are still a
number of potential issues to consider.
• Reputation – products and services are tied to your brand’s public perception, leading
some consumers to take an “all or nothing” approach.
• Limitations – a great product doesn’t mean great success if the parent brand is weak or
underperforming.
• Ambiguity – confusion over what your brand does (e.g. Apple: Is it a computer
company? A music store? A phone manufacturer?)

Rebranding
• Rebranding is a marketing strategy in which a new name, term, symbol, design, concept
or combination thereof is created for an established brand with the intention of
developing a new, differentiated identity in the minds of consumers, investors,
competitors, and other stakeholders.
• It could be done for different reasons such as:

1) Rebranding – Merger
• Rebranding is required when a company merges with another brand
• A merger is when two companies unite forces and become one. Both arrive to the mix
with their own branding and logo so a new identity needs to be created. This involves a
complete rebrand that showcases the best qualities of each company. → Ex. PwC
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2)Rebranding – Acquisition
• When one company buys another, it is called an acquisition.
• Name changes depend on the power of each company involved, like with mergers.
o Recent acquisitions is Facebook buying Instagram.
o When Facebook bought the photo-sharing application, it changed a lot; not only the way
the app works but also how it looks
o Although Facebook bought the photo-editing and sharing app in 2012, it wasn’t until last
year that Instagram finally underwent a full rebrand. The original logo, a representation
of an analog polaroid camera, was replaced with a digital version in pink and orange.

3) Rebranding – Repositioning
• Rebranding is required when one brand has acquired the wrong image
• Almost everyone can recognize the checkered fabric of a Burberry scarf.
• Burberry's image was affected by poor marketing choices. In the 1990s, the high-end,
luxury brand decided to expand and reach more people by lowering prices.
• The company decided to create a rebranding strategy. Their facelift went much further
than changing just their logo; in fact, the logo hardly changed at all.

4) Rebranding – Business Growth

• Rebranding is required when the business grow out of the initial mission
• Airbnb started off as an app to help budget travelers find an affordable alternative
• The app and service took off to unexpected heights quite quickly.
• The Airbnb rebrand in 2014 was a big undertaking and is one of the most memorable of
recent years. The process was long, but successful.

o Rebranding is required when your brand needs to catch up with the market
o Staying relevant is important for any brand. Some brands renew their image and logo
constantly, while others change them every decade in a minimal but memorable way.
o Some famous brands that have stayed relevant over the years are Starbucks and Apple.
o These brands have been around for a long time and they always know how to stay
ahead of the game, or at least never fall behind. Their logos have changed over time to
represent the brand perfectly. They know how to keep their loyal customers happy and
coming back for more.

Brand Extensions
• Pertain to the approach the firm uses to launch new offerings by leveraging an existing
brand, whether through line or category extensions
• Brand line extensions (often called simply line extensions), the new offering is in the
same product category but targets a different segment of customers, usually with a
slightly different set of attributes
• Brand category extensions, the new offering instead moves to a completely different
product category
• The key benefits that brand extensions offer a firm are:
o Accelerates new product acceptance by reducing customers’ perceived risk.
o Lowers the cost of new product launches by building on the established brand.
o Reduces the time needed to build the new product’s brand by leveraging existing
brand characteristics.
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 o Increases the probability of gaining channel access by reducing perceived risk.
o Helps enhance the image of the parent brand by linking it to newer and/or emerging
product features.
o Expands the size of the market that the firm can access, by serving additional
subsegments with new offerings.

Line Versus Brand Extensions

• Some brands are success with both line extensions and category extension… since their
the core brand promise is relevant across all the extensions.
• Crest's Line Extension to 12 different types of toothpaste.
• Crest's Brand Extension to floss, mouthwash, and whitening strips.

Brand Extensions
• Not all brand extensions achieve all these benefits.
• The many examples of unsuccessful brand extensions (e.g., Kleenex diapers, BenGay
aspirin, Smucker’s ketchup) highlight the limits on a firm’s ability to stretch its brand into
new segments and categories.
• Over time, researchers have developed some guidelines for improving the chances of
success for brand extensions:
o There must be perceived fit between the parent brand’s image and the extension on
a dimension that is relevant to the customer.
o Brand extensions can be stretched farther if done incrementally.
o Higher quality brands generally can be extended further.
• Vertical extensions of brands to lower priced markets often undermine the image of the
parent brands.

Example: McDonald’s (US)

• McPizza a pizza extension under the McDonald’s brand name failed due to the lack of
credibility McDonald’s had for making pizza, compared with established rivals like
Dominos or Pizza Hut
• In contrast, McCafe, McDonald’s attempt to brand its coffee and compete with
Starbucks, succeeded as a brand extension. Customers had experience buying coffee
from McDonald’s, so expanding their purchases to include flavored and espresso coffee
options resonated with them → But why Kleenex failed to extend the brand to diapers?

Guidelines For Optimizing Brand/Line/Vertical Extensions

• Consumers should perceive fit between parent and extension, fit can be on many
dimensions:
o Product attributes and benefits
o User types and situations
o Manufacturing
• High-quality brands stretch farther.
• Brands seen as prototypical are difficult to stretch (Bayer, Clorox soap).
• Concrete associations are more difficult to extend (Shredded Wheat, LaZ-Boy).
• Brands can be extended farther if done in incremental steps.
Most successful advertising for extensions are based on information about extension and
not about parent brands.
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 BRIDGE EXTENSION

Lesson 7 (07/03)

Innovation = Critical
• Today, innovation is the number one strategic priority at 40% of companies
versus 19% in 2005 (BCG).
• 86% of senior managers believe that “innovation is more important than cost
reduction for long-term success” (Bain).
• However: short-term business pressures often undermines innovation
o CEOs want returns from marketing in 6-12 months
o Resources taken from long-term initiatives to hit short-term targets
o Accounting practices for market-based assets impact decisions

• Innovative new offerings build and maintain barriers to the competitive attacks that
arise as competitors continually react to a firm’s success.
• Offering is a purposely broad term that captures both tangible products and intangible
services provided by firms.
• Most offerings must link to brands and relationships to ensure the firm’s competitive
edge, because it generally is relatively easy for competitors to copy offerings, given
enough time and money.
• Intel still spends nearly $3 billion each quarter on R&D, to maintain its leading
performance in the semiconductor industry.

Innovation Radar
• Innovation Radar: helps define the innovation space according to what, who, how, and
where aspects
o Change what the firm offers, in line with a traditional view of new product or service
innovation
o Changing who the customer is represents another route that involves innovations
related to customers, experiences, and value capture
o Changing how you sell to customers pertains to the processes, organizations, and
supply chains that a firm uses
o Changing where to sell to customers comprises presence, networking, and brand
innovations

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Innovation Strategies
• Most firms rely on a stage-gate development process to increase the speed of their
offering development and enhance their likelihood of success, while also reducing
development costs
• A stage-gate model divides the development process into a series of steps or stages
• Each project is evaluated, on many dimensions, by independent evaluators in all stages
• This method thus helps ensure effective development approaches through elements.

35
Idea Generation
• Idea generation is the systematic search for new product ideas.
• Sources of new product ideas
o Internal
o External

Design Thinking
• Empathy — Understanding the needs of those you’re designing for
• Ideation — Generating a lot of ideas. Brainstorming is one technique.
• Experimentation — Testing those ideas with prototyping
• Lead user: Lead Users are people who deal intensively with a problem for which there is
no suitable solution existing on the market. A Lead User is not necessarily a single
person, but can be a group of a variety of users.

Ex. 3M uses the Lead User workshop methodology to innovate many of their products.
Thus, the lead user method represents an cooperative product development process of a
company with its “customers”.

Re-launching Strategy
• An innovative offering can result from dramatically repositioning an existing offering,
such as removing some features or adding others, so that the total offering appeals to a
different customer segment with a “new” value proposition.
• The advantage of this strategy is that it generally does not require a new technology or
invention, and marketers thus can take the lead in these efforts.
• Red Ocean markets—thus named to reflect the metaphor of blood in the water—are
very competitive and populated by “sharks” fighting over the same customers.
• To pursue more disruptive repositioning strategies, firms instead can seek out Blue
Ocean markets, a metaphor reflecting markets with no competition.

• Classic STP focuses on red ocean strategies and incremental innovation

o Known market space, competitive rules, and industry boundaries (lifecycle mindset)
o Product mature and become commodities
o Can be managed, tested, and analyzed
• Disruptive positioning focuses on the blue ocean
o Market space does not exist (unknown boundaries)
o Demand is created rather than fought over (often no direct competition)
o Hard to test, more of an art, often requires intuition, high risk

Defining Characteristics of Blue Ocean Initiatives

• Don’t use competitors as the benchmark
• Rejects tradeoff of value versus cost
• Redefines value proposition
o Example: Cirque du Soleil
- Reduced cost-animals and stars
- Added value-theater like production with theme, original musical
• Often first mover develops barrier to imitation

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 o Economies of scale (Wal-Mart)
o Brand (Cirque du Soleil)
o Express delivery (Fed Ex)
o Coffee bars (Starbucks)

New Technology – Based Innovation Strategies

• A technological innovation can undermine a firm’s leadership position in a market, even
if that firm is doing everything else well
• To describe the process and ultimate outcomes of innovative technologies, Clayton
Christensen has offered the framework, which highlights two main categories of these
technologies
o Sustaining technologies are well understood and typically exploited by market leaders,
which produce continuous, incremental improvements over time.
o Disruptive technologies accordingly present highly different price and performance
characteristics or value propositions.

Sustaining Versus Disruptive “Technological” Innovation

• Companies doing everything well can lose their leadership position due to failing to
manage disruptive innovations (Polaroid, Xerox, DEC)
• Disruptive technologies result in “worse” product performance, at least in the near term
o Brings to market a different value proposition than available previously
o Underperforms established products in mainstream markets
o Typically cheaper, simpler, smaller, or more convenient to use
o Small off-road motorcycles and transistor radios
o Eventually are good enough (servers vs. mainframes)

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o Incumbents Usually Win the Battles of Sustaining Innovation
o New Entrants Usually Win the Battles of Disruptive Innovations

Disruptive Innovations
o Vanguard’s index mutual funds
o Dell’s direct-to-customer business model
o eBay online marketplace
But why market leader fails to respond??
o Walmart to Amazon
o BlackBerry to Apple

• Companies find it difficult to invest in disruptive innovations – lower-margin

opportunities that their customers don’t want
• Growth targets bias firms toward larger markets
• Markets for disruptive innovations cannot be quantified, which biases decision making
• Competition leads to oversupplying performance relative to what customers want
• Solution: set up an autonomous organization tasked with building an independent
business around the disruptive innovations (e.g., H&R Block Tax Cut Software in
response to Turbo Tax)

Disruptive Innovations
• Must Manage Portfolio of Red Ocean/Sustaining and Blue Ocean/Disruptive Innovations
• Ensure business is conducting classical STP and stage-gate innovation
o Constant flow of new products (incremental)
o Need uncompromised customer/competitive input
• Develop a forum/process to enable/manage radical and disruptive innovation
o Challenge managers to change the game
- Radical changes to offering and new markets
- Disgruntled customers (lost customers)
• Offsite scenarios
• Outsource, partners, alliances, acquisitions
• Hire outsiders from different industries
• Track potentially disruptive technologies, use internal “startups”

Some Relevant Consumer Psychology on Persuasion

• Social proof: looking at others is a way we determine what to do (customer
testimonials)
• More people → larger belief it is correct
• More similar people → larger impact on behavior
• Authority: we have a deep-seated sense of respect for authority and status
• Scarcity: things seem more valuable when their availability is limited
• Prospect theory: describes person’s perceived value for an objective gain or lost

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• Adoption is often very slow
o Especially, if consumer has to give something up (endowment effect)→ Electric car
• Developers’ curse
o Developers often overweight their innovations relevant benefits by a factor of
between three or more
o Results in a 9x difference in perceived value of feature
• Some examples launch strategies
o Eliminate the old
o 10x improvement to make the benefit overwhelming
o Seek out new to category customers (not endowed with existing features), Kodak
10$ camera

• Another long stream of research, starting with Everett Rogers, shows that specific
product characteristics can capture 40–80 percent of the variation in the speed
with which offerings diffuse
• Changing each of the five factors can alter the product diffusion, all else being equal
1. Relative advantage
2. Compatibility
3. Complexity
4. Trialability
5. Observability

A) Relative Advantage: degree to which an offering is perceived as being better than the
ideas it supersedes
o Economic: cost, price
o Status, prestige, etc.
o Necessary but not sufficient (i.e., new keyboard)
B) Compatibility: degree to which an offering is perceived as consistent with existing values
and experiences
o Often must break habits, perceptions, beliefs
o Plastic wine corks
C) Complexity: degree to which an offering is perceived as relatively difficult to
understand/use

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 o Education is key (online banking)
o Speed of Google
D) Trialability: degree to which an offering may be experimented with on a limited
basis
o Free samples, demo, test drive
o Especially salient for high cost, time, risky products
E) Observability: degree to which the results of an offering are visible to others
o Especially salient for status products
o Can be negative (parking by a “men’s club”)

STP/BOR Strategies Should be Adapted Based on 3Ps (Psych, People, Product)

• Segmenting and Targeting Strategies
o Focus on vertical markets, intra-segment communication, large relative advantage
o Low end and/or new markets for disruptive innovations
o Select segments where “5 factors” are best
• Positioning Strategies
o Make offering compatible to existing offering
o Education and simplicity are key to messaging
o Free samples, reduce risk, use warranty, and trial periods
o Enhance visibility of users, testimonials
• Migration Strategies (Visionaries to Pragmatists)
o How to persuade gate keepers
o Building references and testimonials

But Remember That Being First is Not a Guarantee of Success

• 65-year historical study on impact of market entry
o Failure rate of pioneers is 47%
o Pioneers are ultimate leaders in only 11% of categories (10 years later)
• First mover advantage is trumped by followers who are better. Best beats first.
• Being a pioneer without the basis for sustainable competitive advantage is a trap!

1) Offering: Develop new products or new services (IPOD)

2) Platform: Design modular platforms and strategic control points (Nissan)
3) Solution: Solve end-to-end customer problems (John Deere)
4) Customer: Discover unmet customer needs or underserved segments (DIY)
5) Experience: Rethink how customers interface with you (IKEA)
6) Value Capture: Redefine how you get paid (Google)
7) Processes: Innovate in your core operating processes (Progressive)
8) Organization: Change form, function, or scope (IBM, Arrow)
9) Supply chain: Rethink sources (Dell)
10) Presence: Innovative points of presences (Starbucks at airport)
11) Networking: Integrated offering, leverage others (Otis elevator)
12) Brand: Leverage the brand into new domains (Virgin)

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Lesson 8 (22/03)

75% of Products Launched End Up Failing to Meet Objectives

• Failure to provide large enough perceived benefit (poor development)
• No differential advantage (BenGay Aspirin)
• Price versus performance (Apple Newton)
• Poor product launch (slow diffusion)
• Poor targeting of new product (Earring Ken)
• Poor positioning of new product (Breakfast Mates, with warm milk and spoon)
• Competitive response (Betamax and VHS)

Launching and Diffusing Innovative Offerings

• To understand new offerings’ diffusion rates, it is informative to classify consumers into
groups, according to their propensity to adopt new products
• The adoption lifecycle of an innovative offering suggests five groups of potential users:
o Innovators are the first to adopt often before the new offering even is officially launched
o Early adopters see the benefits of the new technology and are willing to adopt it after
just a few references
o The early majority consists of much more pragmatic consumers, who need to be
convinced that the new product really works
o Both of the last two groups, late majority, and laggards, also want more evidence, but
they are especially hard to persuade

Product Diffusion
• Who are the first people to buy?
• Real world characteristics of Innovators
o Very knowledgeable about the category (expertise)
o Heavy users of related products
o Buyers that are up-to-date with latest developments
o Receptive to new ideas
o Less risk averse, venturesome
o Don’t follow “industry conventions”

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Failing to “Cross the Chasm” is Common Barrier to Success
• Firm takes on more visionaries than it can handle.
• Cannot take on more custom projects, but no pragmatists ready to buy.
• Early market becomes saturated, and revenue growth tapers off or declines.
o Key personnel become disillusioned.
o Venture capital well begins to run dry.
• Marketing strategies that lead to success in selling to visionaries actually hinder success
in selling to pragmatists.

1) The Bowling Alley:

• New product gains acceptance from niches Each niche requires expertise in that vertical
market
• Market coverage propagates to neighbors and extends references
2) The Tornado:
• Period of mass-market
• Driven by application that provides compelling benefits to mass market
• Requires strong operational excellence to keep up with demand
3) Main Street:
• Market growth stabilizes
• Focus on cross-selling and upgrading to existing customers

Estimating the Parameters of the Bass Model

• Use historical data
• Use analogous products
Introduction to CLV
• The final and perennial issue facing managers is that all resources are limited and often
interdependent
o Managing resources optimally is critical, because marketing resources provide the
primary action levers that firms can use to grow their business
o Specifically, we need to balance marketing resources across:
- Lifecycle stages: acquisition, expansion, and retention (AER)
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• Invest more of your marketing dollars in customers that
o are more profitable
o prefer to buy from you
o cost less to serve
o recommend your services
o thereby helping to reduce new customer acquisition costs.

Customer Lifetime Value (CLV) is a Key Analysis Tool for Making AER Decisions
• How do you know best customers to acquire/expand/retain?
o In many banking initiatives only 1 in 3 “customers” remain after incentive ends
o Are all customers worth acquiring or retaining?
• CLV approach: evaluates a firm’s profit as the sum of each customer’s lifetime
discounted cash flows
• Approach captures “true” contribution of each customer at any stage by accounting for:
o Customer heterogeneity and dynamic effects (individual level, uses transition
expectations, and discounts future profits)
o Tradeoffs among AER strategies (e.g., how acquisition may affect retention)

Ex. CLV Approach (Australia and New Zealand CMO Survey)

• Survey conducted on 255 CMOs and marketing directors in Australia and New Zealand.
• Those who “always measure the lifetime value of each customer” achieved a 16%
average increase in their annual marketing budget as compared to 0% for those who do
not measure it.
• 75% of the marketers are engaged in some level of CLV effort within the organization.

CLV Accounts for Varying Profits Across Customers

• Beyond 80/20 rule: firms earn 150% of their profits from 30% of their customers
• CLV captures this difference in your existing customers so you can acquire, expand, and
retain the “best customers”

CLV Accounts for the Time Varying Profits of Your Customers

• On average, annual earnings typically increase over a customer's life due to cross/up-
selling.
• But some customers are more costly to acquire or retain (lowering prices, high service
levels).

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Simplified Customer Lifetime Value Analysis
• Several simplifications make CLV calculations even more straightforward
• Assuming that T → infinity and that the contribution margin and marketing costs (weak)
do not vary over time
• Assuming that the contribution margin and marketing costs do not vary over time, the
CLV in dollars for the ith customer reduces to just five inputs:
1. Mi = margin for ith customer in $ (sales $ and margin as %)
2. Ci = annual marketing cost for ith customer in $
3. ri = retention rate for ith customer as a %
4. d = discount rate as a %
5. AC = acquisition cost for ith customer in $

Conjoint Study
• Research technique developed in early 70s. Marketer’s catchphrase: “CONsidered
JOINTly”
• The objective is to determine what combination of attributes is most influential in
consumers’ decision making
o Product superiority drives financial success
- Largest predictor of new product success
- Good designs are 5 times more likely to succeed than poor designs
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• It is used frequently in testing customer acceptance of new product designs. By
analyzing how they make preferences between these products, the implicit valuation of
the attributes making up the product or service can be determined

Conjoint Analysis Process

1) Design study
o Select attributes and levels (range and #)
o Develop bundles (< 16 optimal)
2) Collect data from respondents
o Design data collection instrument
o Calculate partworths
3) Evaluate product design options
o Evaluate market simulations
o Evaluate different choice rules

The Underlying Model

• A Product is a “bundle” of attributes
• Consumers evaluate the alternatives in the marketplace by examining how much they
offer on the various attributes and how critical each attribute is to them
• Total Value of product = sum of sub-values (partworths) of its attribute levels to the
individual
• A consumer prefers the product that delivers the greatest Total Value to him/her
• Decompose the product into the value of each sub-part in order to determine
preference for the composed product/service

Example: A Consumer’s Value System for a car

V(car) = v (brand) + v (engine type) + v (body type) + v (price)

Stages in Conjoint Analysis

1. Identify a set of relevant product attributes (based on discussions with GM)
2. Define reasonable levels for these attributes
3. Create product profiles
4. Obtain consumer preferences for profiles
5. Analyze the Data

• For ratings data, simple regression can be used to compute the partworths for the
attribute levels
• Create a “baseline” profile
- Partworths for these levels set to 0
- Partworths of other levels = deviations from this baseline profile
- Total Value of baseline profile captured by the intercept

How Important is Each Attribute?

• For each attribute:
• Range of an attribute = max partworth – min partworth
• Importance of an attribute = Range / (sum of ranges across all attributes)

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