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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.
retail store.g. such as advertising.Step 4. in many cases the product has not been produced and still remains only an idea. secondary research. such as customer and distributor surveys. Once the prototype is ready the marketer seeks customer input. (Note. Additionally.) The key objective at this stage is to obtain useful forecasts of market size (e.. cost effective production for manufactured products. But other companies may seek more input from a larger group before moving to commercialization.. 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. 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. direct from company. Marketers also begin to construct a marketing plan for the 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. Step 5. 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. this step is used to gauge the feasibility of large-scale.. such as discussions with production and purchasing personnel. MARKET TESTING Products surviving to Step 6 are ready to be tested as real products.g. in this step the customer gets to experience the real product as well as other aspects of the marketing mix. Companies direct their research and development teams to construct an initial design or prototype of the idea. 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. unlike the concept testing stage where customers were only exposed to the idea. production costs) and financial projections (e. Reaction that is less favorable may suggest the need for adjustments to elements of the marketing mix. Step 6. etc. one city). Much effort is directed at both internal research. In some cases. However.. operational costs (e.g. and competitor analysis. sales and profits). Another form of market testing found with consumer products is even more controlled with customers recruited to a . which is exposed to the full marketing effort as they would be to any product they could purchase.. Now in Step 4 the process becomes very dependent on market research as efforts are made to analyze the viability of the product ideas. Once these are made the marketer may again have the customer test the product. and external marketing research. the organization must determine if the product will fit within the company¶s overall mission and strategy. In addition to gaining customer feedback. and distribution options (e. overall demand).g. pricing. The most common type of market testing makes the product available to a selective small segment of the target market (e.g.). especially with consumer products sold at retail stores. PRODUCT AND MARKETING MIX DEVELOPMENT Ideas passing through business analysis are given serious consideration for development.
³laboratory´ store where they are given shopping instructions. Such efforts require the marketer to develop and refine the product¶s marketing plan on a regular basis. With computer simulations customers may not be directly involved at all. 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. . marketing strategies change as a product moves through time leading to the concept called the Product Life Cycle (PLC). In fact. and are asked to locate and select products. such as a store. 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. Managing Existing Products Marketing strategies developed for initial product introduction almost certainly need to be revised as the product settles into the market. there are several hightech approaches to market testing including virtual reality and computer simulations. COMMERCIALIZATION If market testing displays promising results the product is ready to be introduced to a wider market. Product interest can then be measured based on customer¶s shopping response. Finally. While commercialization may be the last step in the new product development process it is just the beginning of managing the product. Some firms introduce or roll-out the product in waves with parts of the market receiving the product on different schedules. We will see that marketers make numerous revisions to their strategy as product move through different stage of the PLC. Instead certain variables are entered into a sophisticated computer program and estimates of a target market¶s response are calculated. With virtual reality testing customers are exposed to a computer-projected environment. as we will discuss in The PLC and Marketing Planning tutorial. Step 7.
maturity.Module: II Product life cycle (PLC) Like human beings. Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures. decline and death. involves many professional disciplines. A similar life-cycle is seen in the case of products. tools and processes.g. birth. . products also have their own life-cycle. From birth to death human beings pass through various stages e. growth. To say that a product has a life cycle is to assert four things: y that products have a limited life. and requires many skills. The product life cycle goes through multiple phases.
and problems to the seller. increase in competitors entering the market 4. 2. 3. each posing different challenges. prices tend to drop due to the proliferation of competing products 5. costs are lowered as a result of production volumes increasing and experience curve effects 2. manufacturing. financial. and human resource strategies in each life cycle stage. 6. 3. opportunities. 1. There are four stages in product life cycle. 3. These are: Stage 1. and products require different marketing. sales volume peaks and market saturation is reached 3. 2. 5. increased competition leads to price decreases 1. costs become counter-optimal sales volume decline or stabilize prices. 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. 4. 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. Saturation and decline stage .y y y product sales pass through distinct stages. 4. Industrial profits go down 1. brand differentiation and feature diversification is emphasized to maintain or increase market share 6. purchasing. 5. profits rise and fall at different stages of product life cycle. 4. Maturity stage 4. Market introduction stage 2. 2. profitability diminish profit becomes more a challenge of production/distribution efficiency than increased sales 3.
y More intensive or broad based. Flanker products are introduced. Brand building is resorted to. y Emphasis on price. 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. o Feature improvement. brands.Marketing Strategies at Introduction Stage: While launching a new product. Marketing Mix Modification o Advertising o Sales promotion o Personal selling o Price o Distribution o Services Marketing Strategies at Maturity Stage: y y Diversity of models. y Differentiating promotion. marketing mix for each variable can be set at a high or low level with different combinations of price and promotion. Product modification. New models are introduced. y Competitive parity. Marketing Strategies at Decline Stage: y y Withdrawal of weak products in a phased manner. o Style improvement. y Budget increased. Marketing Strategies at Growth Stage: y y Market modification. y y y y y Product quality is improved. o Quality improvement. Prices may be lowered to lure the next layer of price-conscious buyers. . New market segments are trapped. Prices are cut.
Portfolio Management What is New Product Portfolio Management? A vital question in the product innovation battleground is. or deprioritized and resources are allocated (or reallocated) to the active projects. 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. Value Maximization Allocate resources to maximize the value of the portfolio via a number of key objectives . but in the CEO's office as well. Minimum promotion. more specifically. five main goals dominate the thinking of successful firms: 1. Specialist selling. Much like stock market portfolio managers. not only in the technical community. killed. recent benchmarking studies have identified portfolio management as the weakest area in product innovation management. Edgett.A Problem Area! Recent years have witnessed a heightened interest in portfolio management. Despite its growing popularity. Existing projects may be accelerated. it is a problem that every company addresses to produce and maintain leading edge products. 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. "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. senior executives who optimize their R&D investments have a much better opportunity of winning in the long run. Executive teams confess that serious Go/Kill decision points rarely exist and. Emphasis on special applications.y y y y Selective unprofitable segments are left out. criteria for making the Go/Kill decision are non-existent. An estimated 50% of a firm's current sales come from new products introduced in the market within the previous five years. According to 'best-practice' research by Dr. However. In this process. As a result. new projects are evaluated. Cooper and Dr. Today's new product projects decide tomorrow's product/market profile of the firm. the common denominator across firms are the goals executives are trying to achieve. Portfolio Management . and prioritized. Portfolio management for new products is a dynamic decision process wherein the list of active new products and R&D projects is constantly revised. selected.
Sufficiency Ensure the revenue (or profit) goals set out in the product innovation strategy are achievable given the projects currently underway. business arenas and technologies. What are the benefits of Portfolio Management? When implemented properly and conducted on a regular basis. ROI. A variety of methods are used to achieve this maximization goal. Balance Achieve a desired balance of projects via a number of parameters: risk versus return. short-term versus long-term. Portfolio Management is a high impact. The goal is to avoid pipeline gridlock (too many projects with too few resources) at any given time. Why is it so important? Companies without effective new product portfolio management and project selection face a slippery road downhill. and acceptable risk. Many of the problems that plague new product . bottom-up (effective gatekeeping and decision criteria) and top-down and bottom-up (strategic check). 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. Typical methods used to reveal balance include bubble diagrams. and across various markets. histograms and pie charts. 3. A typical approach is to use a rank ordered priority list or a resource supply and demand assessment.such as profitability. Typically this is conducted via a financial analysis of the pipeline¶s potential future value. 2. ranging from financial methods to scoring models. 4. 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. The three main approaches are: top-down (strategic buckets). 5.
If you pick the right projects. supports your business strategy. Edgett. According to benchmarking studies conducted by Dr.G. Boston Matrix. BCG matrix The BCG matrix (aka B. Boston Box. Cooper and Dr. analysis. 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. BCG-matrix. Boston Consulting Group analysis.development initiatives in businesses can be directly traced to ineffective portfolio management.C. 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. the result is an enviable portfolio of high value projects: a portfolio that is properly balanced and most importantly.
Problems with The Boston Matrix. 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). These are areas of the business rather than products. Stars tend to generate high amounts of income. Try not to have any Dogs. These are products with a high share of a low growth market. There is an assumption that higher rates of profit are directly related to high rates of market share. The funds generated by your Cash Cows is used to turn problem children into Stars. Problem Children and Stars need to be kept in a kind of equilibrium. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth. This may not always be the case. They do not generate cash for the company. Keep and build your stars. This is an SBU not a single product. Look for some kind of balance within your portfolio. Dogs.  Folio plot of example data set Like Ansoff's matrix. When Boeing launch a new jet. product management. It was developed by the large US consulting group and is an approach to product portfolio planning. For example. So keep them in your portfolio of products for the time being. They absorb most money as you attempt to increase market share. which may eventually become Cash Cows. These are products that are in high growth markets with a relatively high share of that market. Problem Children. and portfolio analysis. and this means that you will need a larger contribution from the successful products to compensate for the failures. strategic management. These are products with a low share of a low growth market. This helps the company allocate resources and is used as an analytical tool in brand marketing. You would do this for every product in the range. Stars. Cash Cows. the Boston Matrix is a well known tool for the marketing manager. Some of the Problem Children will become Dogs. Cash Cows. These are products with a low share of a high growth market. They consume resources and generate little in return. These are the canine version of 'real turkeys!'. Get rid of these products. This is simplistic in many ways and the matrix has some understandable limitations that will be considered later. they tend to absorb it. Ford own Landrover in the UK. You can then plot the products of your rivals to give relative market share. Each cell has its own name as follows. You would look at each individual product in your range (or portfolio) and place it onto the matrix.their business units or product lines. Cash Cows generate more than is invested in them. There is another assumption .
implying that the organization's brand was in a relatively weak position. which might be reflected in profits and cash flows. If the largest competitor had a share of 60 percent. Be careful. rather than just profits. and indicates where it might be likely to go in the future. If this technique is used in practice.that SBUs will cooperate. It was reasoned that one of the main indicators of cash generation was relative market share. . however. The exact measure is the brand's share relative to its largest competitor. the ratio would be 4:1. Derivatives can also be used to create a 'product portfolio' analysis of services. Thus. Practical use of the BCG Matrix For each product or service. It shows where the brand is positioned against its main competitors. This is not always the case. The reason for choosing relative market share. if the brand had a share of 20 percent. because the higher the share the more cash will be generated. The BCG Matrix thus offers a very useful 'map' of the organization's product (or service) strengths and weaknesses. exactly what is a high relative share is a matter of some debate. Brand leaders in this position tend to be very stable²and profitable. the ratio would be 1:3. this scale is logarithmic. It can also show what type of marketing activities might be expected to be effective. it is assumed that these earnings will grow faster the higher the share. If the largest competitor only had a share of 5 percent. The need which prompted this idea was. and the largest competitor had the same. So Information System services can be treated accordingly. 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. and triple that of the third. the 'area' of the circle represents the value of its sales. that of managing cash-flow. at least in terms of current profitability. Use the Matrix as a planning tool and always rely on your gut feeling. implying that the brand owned was in a relatively strong position. indeed. the ratio would be 1:1. Relative market share This indicates likely cash generation. As a result of 'economies of scale' (a basic assumption of the BCG Matrix). The main problem is that it oversimplifies a complex set of decision. as well as the likely cashflows. not linear. is that it carries more information than just cash flow. the Rule of 123. and one which pointed to cash usage was that of market growth rate. On the other hand.
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. again. and also of its attractiveness to future competitors. that a higher growth rate is indicative of accompanying demands on investment. the purpose of any business. In particular. however. As originally practiced by the Boston Consulting Group the matrix was undoubtedly a useful tool. The theory behind the matrix assumes. for graphically illustrating cashflows. It is a good indicator of that market's strength.) The matrix also overlooks other elements of industry. the evidence from FMCG markets at least. ranking business units has a subjective element involving guesswork about the future. and one that. therefore. less than 1 per cent per annum. The cut-off point is usually chosen as 10 per cent per annum. This is outside the range normally considered in BCG Matrix work. stars. This is unfortunate.they require investment. makes the use of the BCG Matrix problematical in some product areas. enthusiastic managers may claim that cash must be thrown at these businesses immediately in order to turn them into stars. is that the most typical pattern is of very low growth. Poor definition of a business's market will lead to some dogs being misclassified as cash bulls. in the reasonable expectation that a high market share will eventually turn into a sound investment in future profits. before growth rates slow and it's too late. later practitioners have tended to over-simplify its messages. (It is certainly possible that a particular dog can be profitable without cash infusions required. optimistic evaluations can lead to a dot com mentality in which even the most dubious businesses are classified as "question marks" with good prospects. remember. Where it can be applied. the later application of the names (problem children. the market growth rate says more about the brand position than just its cash flow. However. cash cows and dogs) has tended to overshadow all else²and is often what most students. With this or any other such analytical tool. since such simplistic use contains at least two major problems: . particularly with respect to growth rates. and therefore should be retained and not sold. are what organizations strive for. as we have seen. but. It can also be used in growth analysis. If used with this degree of sophistication its use would still be valid. in those few situations where it could be applied.Market growth rate Rapidly growing in rapidly growing markets. Unless the rankings are approached with rigor and scepticism. of its future potential (of its 'maturity' in terms of the market life-cycle). and only implies actual profitability. and practitioners. the penalty is that they are usually net cash users . The reason for this is often because the growth is being 'bought' by the high investment. Critical evaluation The matrix ranks only market share and industry growth rate. Determining this cut-off point. What is more. which may make application of this form of analysis unworkable in many markets.
to add some extra growth. above all. and a definite pattern of product lifecycles can be observed. Such brand leaders will. should consider himself (or herself) fortunate indeed. and an excellent marketer. but they should not be `milked' to such an extent that their position is jeopardized. and funding. and almost demands. money must be diverted from `cash cows' to fund the `stars' of the future. since `cash cows' will inevitably decline to become `dogs'. Thus. which is a three-cell by three-cell matrix²using the dimensions of `industry attractiveness' and `business strengths'. who has most of his (or her) products in the `cash cow' quadrant. The brand leader's position is the one. indeed. on to the `stars'.'Minority applicability'. perhaps. generate large cash flows. Although it is necessary to recognize a `dog' when it appears (at least before it bites you) it would be foolish in the extreme to create one in order to balance up the picture. use may give misleading results. that the apparent implication of its fourquadrant form is that there should be balance of products or services across all four quadrants. 'Milking cash bulls'. In any case. Perhaps the most important danger is. 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. that `cash bulls' will turn into `dogs'. the main message that it is intended to convey. Alternatives As with most marketing techniques. or is at least less widely taught). Perhaps the most practical approach is that of the Boston Consulting Group's . The next most widely reported technique is that developed by McKinsey and General Electric. not least since brands in this position will probably outperform any number of newly launched brands. although he or she might also consider creating a few stars as an insurance policy against unexpected future developments and. It presumes. This is not what research into the FMCG markets has shown to be the case. There is also a common misconception that 'dogs' are a waste of resources. It focuses attention. however. The reality is that it is only the `cash bulls' that are really important²all the other elements are supporting actors. The vendor. 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). Perhaps the worst implication of the later developments is that the (brand leader) cash bulls should be milked to fund new brands. In many markets 'dogs' can be considered loss-leaders that while not themselves profitable will lead to increased sales in other profitable areas. to be defended. The cashflow techniques are only applicable to a very limited number of markets (where growth is relatively high. In the majority of markets. of course. and that is. It is a foolish vendor who diverts funds from a `cash cow' when these are needed to extend the life of that `product'. 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. such as that of ethical pharmaceuticals). There is an almost mesmeric inevitability about the whole process.
The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategy. 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. 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. Market penetration seeks to achieve four main objectives: . ansoff's product / market matrix Introduction The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy.
The business is focusing on markets and products it knows well. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities. sales promotion and perhaps more resources dedicated to personal selling Secure dominance of growth markets Restructure a mature market by driving out competitors. Market development Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets. There are many possible ways of approaching this strategy. For a business to adopt a diversification strategy. Maintain or increase the market share of current products ± this can be achieved by a combination of competitive pricing strategies. that this strategy will require much investment in new market research. therefore. and . This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets. It is unlikely. This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. advertising. including: New geographical markets. 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. Diversification Diversification is the name given to the growth strategy where a business markets new products in new markets. therefore.portfolio analysis . strategy . The company must: (1) Analyse its current business portfolio and decide which businesses should receive more or less investment.ge matrix The business portfolio is the collection of businesses and products that make up the company. this would require a much more aggressive promotional campaign. It is likely to have good information on competitors and on customer needs. 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´.
In both methods.(2) Develop growth strategies for adding new products and businesses to the portfolio.it all depends on how the company is organised. Secondly. Firstly. 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. the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. The two best-known portfolio planning methods are the Boston Consulting Group Portfolio Matrix and the McKinsey / General Electric Matrix (discussed in this revision note). there are several factors which can help determine attractiveness. a product line or even individual brands . and includes a broader range of factors other than just the market growth rate. The McKinsey / General Electric Matrix The McKinsey/GE Matrix overcomes a number of the disadvantages of the BCG Box. competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. whilst at the same time deciding when products and businesses should no longer be retained. These are listed below: . 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.
Strength of assets and competencies .Market profitability .Access to financial and other investment resources .Overall risk of returns in the industry .Distribution structure (e.Opportunity to differentiate products and services .Record of technological or other innovation .Relative brand strength ..Market Size .Pricing trends .g.Customer loyalty .Market growth .Segmentation . direct.Distribution strength .Market share . wholesale Factors that Affect Competitive Strength Factors to consider include: . retail.Competitive intensity / rivalry .Relative cost position (cost structure compared with competitors) .
colors. You are gaining short-term sales at the expense of long term sales. you will likely reduce your brand equity. The number of different product lines sold by a company is referred to as width of product mix. or prices. this is referred to as family branding. When you trade down.Product Line Product lining is the marketing strategy of offering for sale several related products. . Unlike product bundling. where several products are combined into one. Image anchors are usually from the higher end of the line's range. If a line of products is sold with the same brand name. Image anchors are highly promoted products within a line that define the image of the whole line. it is referred to as a line extension. A line can comprise related products of various sizes. 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 better quality than the other products in the line. this is referred to as trading down. lining involves offering several related products individually. this is referred to as line filling. this is referred to as trading up or brand leveraging. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line. Line consistency refers to how closely related the products that make up the line are. Line depth refers to the number of product variants in a line. When you add a new product to a line. When you add a new product within the current range of an incomplete line. qualities. types. When you add a line extension that is of lower quality than the other products of the line.
This is a tradition started in the old five and dime stores in which everything cost either 5 or 10 cents. Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers. and specialty goods. In the process of product development and marketing we should focus on strategic decisions about product attributes. This is as opposed to brand extension which is a new product in a totally different product category. There are many important decisions about product and service development and marketing. product labeling and product support services. They are grouped into three subcategories on the basis of consumer buying habits: convenience goods. or household use. forms. Diet Coke. product packaging. The two main forms of classifications are consumer goods and industrial goods.Price lining is the use of a limited number of prices for all your product offerings. added ingredients. but the disadvantage of inflexibility. Vanilla Coke Clinic All Clear. But product strategy also calls for building a product line. Zen VXI Surf. Splendour Plus Coca-Cola. product branding. shopping goods. particularly in times of inflation or unstable prices. Durable . Surf Excel. Examples include y y y y y y Zen LXI. family. Consumer goods can also be differentiated on the basis of durability. Clinic Plus Reese's Peanut Butter Cups. It has the advantage of ease of administering. colors. Line Extensions occur when a company introduces additional items in the same product category under the same brand name such as new flavors. 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. Surf Excel Blue Splendour. Consumer Goods Consumer goods are goods that are bought from retail stores for personal. A product line extension is the use of an established product¶s brand name for a new item in the same product category. package sizes.
Often the attributes that make them unique are brand preference (e. Since convenience goods are not actually sought out by consumers. bread. such as food. Nondurable goods are those that are quickly used up. and color are typically factors in the buying decision. Other items that fall into this category are wedding dresses. and golf clubs. a fundamental strategy in establishing stores that specialize in them is to locate near similar stores in active shopping areas. or that become outdated. factories. including newspapers. Ongoing strategies for marketing shopping goods include the heavy use of advertising in local media. as conveniently as possible. Because customers are going to shop for these goods. and toilet paper. and other settings. These goods are usually. . producers attempt to get as wide a distribution as possible through wholesalers. school supplies..g. a certain make of automobile) or personal preference (e. that is. To extend the distribution. Within stores. and are durable. Staple convenience goods are basic items that buyers plan to buy before they enter a store. Specialty Goods Specialty goods are items that are unique or unusual²at least in the mind of the buyer. Buyers know exactly what they want and are willing to exert considerable effort to obtain it. computers. such as candy bars. or worn out. such as furniture and garden tools. and disposable cameras. antiques. schools. lawnmowers. but not necessarily. Price. These goods are usually of higher value than convenience goods. these items are also frequently made available through vending machines in offices. Impulse items are other convenience goods that are purchased without prior planning. soft drinks. of high value. quality. and tabloid newspapers. Televisions. and they may or may not be durable goods. they are placed at checkout stands and other high-traffic areas.goods are products that have a long life. They differ from shopping goods primarily because price is not the chief consideration. Convenience Goods Convenience goods are items that buyers want to buy with the least amount of effort. bedding. Most are nondurable goods of low value that are frequently purchased in small quantities. a food dish prepared in a specific way). Shopping Goods Shopping goods are purchased only after the buyer compares the products of more than one store or looks at more than one assortment of goods before making a deliberate buying decision. and include milk.g. bought infrequently. style. and camping equipment are all examples of shopping goods.. and television. fine jewelry. These goods can be further divided into two subcategories: staple and impulse items. radio. Advertising for shopping goods is often done cooperatively with the manufacturers of the goods.
Consistency of image between the product and the store is also a factor in selecting outlets. In contrast. industrial goods are classified on the basis of their use rather than customer buying habits. Unlike consumer goods. and computerized axial tomography (CAT) scan machines. raw materials. are built to a standard design but can be modified to meet individual requirements. the shoes are a specialty good. Durable industrial goods that cost large sums of money are referred to as capital items. Some installations.Producers and distributors of specialty goods prefer to place their goods only in selected retail outlets. Industrial goods also carry designations related to their durability. Manufacturers of installations can make their availability known through advertising. accessory equipment. shopping. Other installations. As noted earlier. and some are used indirectly. actual sale of installations requires the technical knowledge and assistance that can best be provided by personal selling. a shopping good for another. the shoes are a shopping good. a given item may be a convenience good for one person. Industrial Goods Industrial goods are products that companies purchase to make other products. which they then sell. such as stamping machines. However. are designed and built for specialized situations. robotics equipment. Consequently. these classifications are based on consumers' buying habits. Installations Installations are major capital items that are typically used directly in the production of goods. for this buyer. Still another individual who perhaps prefers a certain brand or has an unusual size will buy individual shoes only from a specific retail location. and specialty goods is not always clear. for a person who does not want to spend time shopping. another person might buy shoes only after considerable thought and comparison: in this instance. 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. Accessory Equipment Goods that fall into the subcategory of accessory equipment are capital items that are less expensive and have shorter lives than . These goods are divided into five subcategories: installations. buying a pair of shoes might be a convenience purchase. The distinction among convenience. such as conveyor systems. and industrial supplies. large commercial ovens. Some are used directly in the production of the products for resale. and a specialty good for a third. fabricated parts and materials. The purchase of installations requires extensive research and careful decision making on the part of the buyer. and machine tools. For example. Nondurable industrial goods that are used up within a year are called expense items.
g. Examples include hand tools. wheat. Many industries. and leather. personal selling is a key component in the marketing strategy. computers.g. In either case. Raw Materials Raw materials are products that are purchased in their raw state for the purpose of processing them into consumer or industrial goods. sun roofs. The relatively low unit value of accessory equipment. Fabricated Parts and Materials Fabricated parts are items that are purchased to be placed in the final product without further processing. little difference between offerings within a grade. on the other hand. rely heavily on fabricated parts. While some types of accessory equipment. 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. dictates a broad marketing strategy. There is. timber) may be converted into an intermediate product (lumber) to be resold for use in another industry (construction).installations. sales negotiations focus on price. wheat) may be converted directly into another consumer product (cereal). personal contact must be maintained with the buyers over time. and spark plugs. Sellers rely heavily on advertisements in trade publications and mailings to purchasing agents and other business buyers. are involved directly in the production process. Industrial Supplies Industrial supplies are frequently purchased expense items. When personal selling is needed. Most raw materials are graded according to quality so that there is some assurance of consistency within each grade. Automakers use such fabricated parts as batteries. however. desk calculators. including steel and upholstery fabric. timber. Buyers of industrial supplies do not spend a great deal of time on their .. crude oil. light bulbs. Examples are iron ore. They also use several fabricated materials. such as wholesalers. many industries actually buy more fabricated items than raw materials. Buyers of fabricated parts and materials have well-defined specifications for their needs. Consequently. Here again. such as hand tools. windshields. including the auto industry. delivery. and credit terms. Fabricated materials. it is usually done by intermediaries. combined with a market made up of buyers from several different types of businesses. copper. and office supplies. As a matter of fact. or they may invite bids from several companies. Supplies include computer paper. They contribute indirectly to the production of final products or to the administration of the production process. Others (e. cleaning supplies. and forklifts. require additional processing before being placed in the end product. in order to be in a position to get the business. lubrication oil.. diamonds. most are only indirectly involved. They may work closely with a company in designing the components or materials they require.
are ready to be consumed. On the other hand. depending on how they are used. but flour purchased by a bakery to make pastries would be classified as an industrial good. Flour purchased by a supermarket for resale would be classified as a consumer good. they are considered industrial goods. if they are bought by a business for its own use. can fall into either classification. such as flour and pick-up trucks. It is not always clear whether a product is a consumer good or an industrial good. A pickup truck bought for personal use is a consumer good. When large orders are at stake.purchasing decisions unless they are ordering large quantities. . and are bought to be resold to the final consumer are classified as consumer goods. Goods that are in their final form. sales representatives may be used. it is an industrial good. Some items. companies marketing supplies place their emphasis on advertising²particularly in the form of catalogues²to business buyers. The key to differentiating them is to identify the use the buyer intends to make of the good. As a result. if purchased to transport lawnmowers for a lawn service.
a global consulting firm. well-leveraged brands produce higher returns to shareholders than weaker. Taken together.: Easy-Off) or suggest usage (note the tradeoff with strong trademark protection. published by Interbrand and Business Week. It may also enable the manufacturer to charge more for the product. which are allocated budgets from above. . be easy to remember. this means that brands seriously impact shareholder value. 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. narrower brands. Research by McKinsey & Company. 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. to manage and execute. and/or reduced or more efficient marketing investment. The discipline of brand management was started at Procter & Gamble PLC as a result of a famous memo by Neil H. in contrast to marketing staff manager roles. and thus. In this regard. distinguish the product's positioning relative to the competition. attract attention.) suggest the company or product image. be attractive. be easy to pronounce. which ultimately makes branding a CEO responsibility. be easy to recognize. "Brand Managers" often carry line-management accountability for a brand's P&L (Profit and Loss) profitability. be easy to translate into all languages in the markets where the brand will be used. or brand. The annual list of the world¶s most valuable brands. indicates that the market value of companies often consists largely of brand equity. and/or reduced COGS (cost of goods sold). Brand Management is often viewed in organizations as a broader and more strategic role than Marketing alone. All of these enhancements may improve the profitability of a brand. This can result from a combination of increased sales and increased price.g. This may increase sales by making a comparison with competing products more favorable. in 2000 suggested that strong. It seeks to increase the product's perceived value to the customer and thereby increase brand franchise and brand equity. The value of the brand is determined by the amount of profit it generates for the manufacturer.Module: III Branding Brand management is the application of marketing techniques to a specific product. product line. suggest product benefits (e.
Ivory and Pantene. considered by many to have created product branding. Symbolic device. this may be to gain retail shelf space (and ." Some companies tend to create more brands and product variations within a brand than economies of scale would indicate. Source of competitive advantage. Source of financial returns. is a choice example with its many unrelated consumer brands such as Tide. Risk reducer. A good example of this brand architecture is the UK-based conglomerate Virgin. Procter & Gamble. Pampers. a mother brand is tied to product brands. Search cost reducer. such as The Courtyard Hotels (product brand name) by Marriott (mother brand name). Means of legally protecting unique features. Sometimes. 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. The third model of brand architecture is most commonly referred to as "corporate branding". the company supports many different product brands with each having its own name and style of expression while the company itself remains invisible to consumers. With "endorsed brand architecture". In the case of product branding.Kevin Lane Keller) Brand architecture The different brands owned by a company are related to each other via brand architecture.y stand out among a group of other brands. Signal of quality level to satisfied customers. Assignment of responsibility to product maker. In "product brand architecture". they will create a specific service or product brand for each market that they target. Signal of quality. ("Strategic Brand Management" 3rd edition. 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. (For Manufacture) Means of identification to simplify handling or tracing. Abunda. Virgin brands all its businesses with its name Techniques Companies sometimes want to reduce the number of brands that they market. Means of endowing products with unique associations. This process is known as "Brand rationalization. The mother brand is used and all products carry this name and all advertising speaks with the same voice.
a brand can be repositioned while retaining existing brand equity for leverage. A company may decide to rationalize their portfolio of brands from time to time to gain production and marketing efficiency. both internally and externally. increasing numbers of companies are looking for other.or product-level category. a restated corporate vision statement. Brand orientation is a deliberate approach to working with brands. Brand identities may also lose resonance with their target market through demographic evolution. This is particularly true in regard to the trade-off between stability and riskiness. y y y y y Brand managers sometimes limit themselves to setting financial and market performance objectives.reduce the amount of shelf space allocated to competing brands). or to rationalize a brand portfolio as part of corporate restructuring. Corporate objectives must be broad enough that brands with high-risk products are not constrained by objectives set with cash cows in . A product¶s superiority is in itself no longer sufficient to guarantee its success. revisited mission statement or values of a company. Challenges There are several challenges associated with setting objectives for a category. but ideally. This has resulted in an ever-tougher competitive situation on many markets. corporate objectives may conflict with the specific needs of your brand. may cost some brand equity. They may not question strategic objectives if they feel this is the responsibility of senior management. more enduring. A recurring challenge for brand managers is to build a consistent brand while keeping its message fresh and relevant. competitive tools ± such as brands. It is sometimes difficult to translate corporate level objectives into brand. and can confuse the target market. In a diversified company. An older brand identity may be misaligned to a redefined target market. 2004). Repositioning a brand (sometimes called rebranding). Often product level managers are not given enough information to construct strategic objectives. The fast pace of technological development and the increased speed with which imitations turn up on the market have dramatically shortened product lifecycles. Brand Orientation refers to "the degree to which the organization values brands and its practices are oriented towards building brand capabilities´ (Bridson & Evans. Short-term objectives should be seen as milestones towards longterm objectives. Most product level or brand managers limit themselves to setting short-term objectives because their compensation packages are designed to reward shortterm behavior. Or worse. The consequence is that product-related competitive advantages soon risk being transformed into competitive prerequisites. The most important driving force behind this increased interest in strong brands is the accelerating pace of globalization. the objectives of some brands may conflict with those of other brands. For this reason.
It can also mean monitoring for less malicious. Some measurements approaches are at the firm level. although perhaps equally damaging. as derived by its market capitalization . if you were to take the value of the firm. This is particularly true where compensation is based primarily on unit performance. Measurement There are many ways to measure a brand. Firm Level: Firm level approaches measure the brand as a financial asset. Online brand reputation protection can mean monitoring for the misappropriation of a brand trademark by fraudsters intent on confusing consumers for monetary gain. The brand manager also needs to know senior management's harvesting strategy.C. Analysis).G. Managers tend to ignore potential synergies and inter-unit joint processes. consumers' knowledge about a brand makes manufacturers/advertisers respond differently or adopt appropriately adept measures for the marketing of the brand . Brand equity is one of the factors which can increase the financial value of a brand to the brand owner. Also because of the development of such social technologies. In other words. 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. 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. at the root of these marketing effects is consumers' knowledge. For example. some at the product level. Brand managers sometimes set objectives that optimize the performance of their unit rather than optimize overall corporate performance. And. 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. Brands are sometimes criticized within social media web sites and this must be monitored and managed.y y y y mind (see B. Overall organisation alignment behind the brand to achieve Integrated Marketing is complex. although not the only one. 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. infractions. In short. and still others are at the consumer level. a calculation is made regarding how much the brand is worth as an intangible asset. 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.
and promotion. A second perspective is that negative equity can exist. There are two schools of thought regarding the existence of negative brand equity. attitudes. market leadership. The discount rate is a subjective rate determined by Interbrand and Wall Street equity specialists and reflects the risk profile. Family branding vs. PR. To do its calculation. compared with ³brand equity´ ..and then subtract tangible assets and "measurable" intangible assets. approximations. assuming all things equal. Colloquially. for example). All of these calculations are. A more complete understanding of the brand can occur if multiple measures are used. Consumer Level: This approach seeks to map the mind of the consumer to find out what associations with the brand the consumer has. The difference in price. stability and global reach of the brand[. 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. such as a wide product recall or continued negative press attention (Blackwater or Halliburton.the residual would be the brand equity. at best.[ One high profile firm level approach is by the consulting firm Interbrand. One perspective states brand equity cannot be negative. due to catastrophic events to the brand. the greater the probability that the company will use a family branding strategy rather than an individual branding strategy. 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. The brand-related negative intangible assets are called ³brand liability´. and intentions about a brand. Positive brand equity vs. More recently a revenue premium approach has been advocated. favorable and unique associations are high equity brands. This approach seeks to measure the awareness (recall and recognition) and brand image (the overall associations that the brand has). is due to the brand. Interbrand estimates brand value on the basis of projected profits discounted to a present value. This is because family branding allows them to leverage the equity accumulated in the core . hypothesizing only positive brand equity is created by marketing activities such as advertising. Free association tests and projective techniques are commonly used to uncover the tangible and intangible attributes. 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. individual branding strategies The greater a company's brand equity. Brands with high levels of awareness and strong.
This aligned with the previous tradition of naming all sport utility vehicles since the Ford Explorer with the letter "E"." in which they define Positioning as "an organized system for finding a window in the mind.brand. which became one of the most significant cars in American auto history. the Five Hundred. would be abandoned in favor of three entirely new names. Aspects of brand equity includes: brand loyalty. It was then expanded into their ground-breaking first book. Freestar and Fusion.e. product or service utilizing traditional marketing placement strategies (i. awareness. but an overwhelming majority was familiar with the "Ford Taurus". distribution. the Freestar was discontinued without a replacement. "Five Hundred" was recognized by less than half of most people. 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. Positioning is a concept in marketing which was first popularized by Al Ries and Jack Trout in their bestseller book "Positioning . 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." 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. By 2007. price. 19 of 2001 paperback edition). probably the most common is: identifying a market niche for a brand. and perception of quality . "Positioning: The Battle for Your Mind. It will happen whether or not a company's management is . 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. Brand Positioning Definitions Although there are different definitions of Positioning. Examples In the early 2000s in North America. It is the aggregate perception the market has of a particular company. the Ford Motor Company made a strategic decision to brand all new or redesigned cars with names starting with "F". What most will agree on is that Positioning is something (perception) that happens in the minds of the target market. The aging Taurus. while a marketing manager believed that a name change would highlight the new redesign. in which the case is made that the typical consumer is overwhelmed with unwanted advertising. all starting with "F". promotion. and competition). product or service in relation to their perceptions of the competitors in the same category. association.The Battle for Your Mind.
proactive. Positioning concepts More generally. Position. Symbolic positions o Self-image enhancement o Ego identification o Belongingness and social meaningfulness o Affective fulfillment . Functional positions o Solve problems o Provide benefits to customers o Get favorable perception by investors (stock profile) and lenders 2. Defining the market in which the product or brand will compete (who the relevant buyers are) 2. Test it on people who don't really know what you do or what you sell. Collecting information from a sample of customers about their perceptions of each product on the relevant attributes 4. the product positioning process involves: 1. Determine each product's share of mind 5. Determine the target market's preferred combination of attributes (referred to as an ideal vector) 7. don't have the physical attributes of products . Services. When they want to know more because you've piqued their interest and started a conversation. Product positioning process Generally. however. watch their facial expressions and listen for their response.that is. So you need to ask first your customers and then yourself. reactive or passive about the on-going process of evolving a position. Examine the fit between: o The position of your product o The position of the ideal vector 8. you'll know you're on the right track. there are three types of positioning concepts: 1. we can't feel them or touch them or show nice product pictures. Identifying the attributes (also called dimensions) that define the product 'space' 3. 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. The process is similar for positioning your company's services. But a company can positively influence the perceptions through enlightened strategic actions. Determine each product's current location in the product space 6.
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.
Tauber (1988) suggests seven strategies to identify extension cases such as product with parent brand¶s benefit. 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. extension of productrelated association and non-product related association. 81% of new products used brand extension to introduce new brands and to create sales. Poor choices for brand extension may dilute and deteriorate the core brand and damage the brand equity.In 1990s. etc.co-brandingor ³brand franchise extension´. 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. they provide a sufficient depth and breadth proposition to examine consumer behaviour and conceptual framework. 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. Where the brand-owner partners (sometimes . First of all. Secondly. is not only time consuming but also needs a big budget to create awareness and to promote a product's benefits. the ³Complement´ is that consumer takes two product (extension and parent brand product) classes as complement to satisfy their specific needs. resulting in a diluted or severely damaged brand image. While there can be significant benefits in brand extension strategies. 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. 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´. it can be classified into two category of extension. An example of a product extension is Coke vs. same product with different price or quality. Types of product extension Brand extension research mainly focuses on the consumer evaluation of extension and attitude of the parent brand. Another form of brand extension. They use three dimensions to measure the fit of extension. there can also be significant risks. Following the Aaker and Keller¶s (1990) model. negative association and wrong communication strategy do harm to the parent brand even brand family. Most of the literature focuses on the consumer evaluation and positive impact on parent brand. Launching a new product. there are many different way of extension such as "brand alliance". however. is a licensed brand extension. In practical cases. At last. From the line extension to brand extension. Some studies show that negative impact may dilute brand image and equity. In spite of the positive impact of brand extension. The first two measures focus on the consumer¶s demand and the last one focuses on firm¶s ability. Product extensions are versions of the same parent product that serve a segment of the target market and increase the variety of an offering. In his suggestion. Diet Coke in same product category of soft drinks. the failures of brand extension are at higher rate than the successes.
Martinez and de Chernatony (2004) classify the brand image in two types: the general brand image and the product brand image. A consumer can judge or evaluate the extension by their category memory. ³Equity of an integrated oriented brand can be diluted significantly from both functional and non-functional attributes-base variables´. but also try to categorise the brand association or image with their existing memory. The flagship product is a money-spinner to a firm. but also involvement and choice of brand. When two or more products exit in front of consumers. Theoretically speaking. In spite of Aaker and Keller¶s (1990) research reported that the prestige brand . They categorise new information into specific brand or product class label and store it. On the other hand. 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´. Brand extension failure Literature related to negative effect of brand extension is limited and the findings are revealed as incongruent. Marketer spends budget and time to create maximum exposure and awareness for the product. paying a royalty every time a product is sold. which means dilution does occur across the brand extension to the parent brand. consumer can perceive the fit among brand extension. They suggest that if the brand name is strong enough as Nike or Sony. This process is not only related to consumer¶s experience and knowledge. If the brand association is highly related to extension. consumer may maintain their belief about the attributes and feelings from parent brand. a lack of similarity and familiarity and inconsistent IMC messages.with a competitor) who takes on the responsibility of manufacturer and sales of the new products. 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. 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. Categorisation theory Researchers tend to use ³categorisation theory´ as their fundamental theory to explore the links about the brand extension. they might reposition memories to frame a brand image and concept toward new introduction. flagship product is usually had the top sales and highest awareness in its product category. When consumers face thousands of products. 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 not only are initially confused and disorderly in mind. their study shows that ³brand extension dilutes the brand image. In addition. The early works of Aaker and Keller (1990) find no significant evidence that brand name can be diluted by unsuccessful brand extensions. In consequence. changing the beliefs and association in consumers¶ mind´.
Although initially accepted a backlash against ³New Coke´ soon emerged among consumers. They would measure and compares the difference between core brand and extension product through quality of core brand. The negative impact of brand extension would cause a great damage to . On the other hand. Quality of core brand creates a strong position for brand and low the impact of fit in consumer evaluation. even overall parent belief is diluted. A classic extension failure example would be Coca Cola launching ³New Coke´ in 1985. The more innovation of extension product is. In addition. Not only did Coca Cola not succeed in developing a new brand but sales of the original flavour also decreased.do no harm from failure of extension. Every marketer should pursue the long term equity and pay attention to every strategy in detail.´ To establish a strong brand. One mistake can damage all brand equity. BIC Pens tried to produce BIC pantyhose. literature still provides sufficient in depth research around this issue. Consequently. 4. the flagship product would not be harmed. Evidence shows that the dilution effect has great and instant damage to the flagship product and brand family. in this article may conclude some points about consumer evaluation of brand extension: 1. Example. Consumer¶s knowledge and experience affect the evaluation before extension product trail. Throughout the categorisation theory and associative network theory. brand extension is also ³diminish consumer¶s feelings and beliefs about brand name. Studies also suggest that brand extension is a risky strategy to increase sales or brand equity. former experience and knowledge. A successful brand message strategy relies on a congruent communication and a clear brand image. But branding does not always follow a rational line. consumer has his psychology process in mind. consumer does have the ability to process information into useful knowledge for them. 3. It should consider the damage of parent brand no matter what types of extension are used. The moderating variable is a useful indication to evaluate consumer evaluation of brand extension. and difficulty of making. Because a small message dissonance would cause great failure of brand extension. 2. You can read some more here Brand equity Brand equity is defined as the main concern in brand management and IMC campaign. the greater positive fit can perceive. fit in category. Coca Cola were had to make considerable efforts to regain customers who had turned to Pepsi cola. But in some findings. it is necessary to build up a ³brand ladder´. Marketers may go behind the order and model created by Aaker and Keller which they are authorities on brand management. Although there are few works about the failure of extensions. Similarity between core brand and extension is the main concern of consumer perception of fit. The higher the similarity is the higher perception of fit.
an operation of branding should maintain brand messages and associations within a consistency and continuum in the long way. the difference is incomparable. Some people distinguish the psychological aspect of a brand from the experiential aspect. for example. Careful brand management seeks to make the product or services relevant to the target audience. sometimes referred to as the brand image. Failing to recognize these assets that a business. People engaged in branding seek to develop or align the expectations behind the brand experience. plus the cost of manufacture.they represent the sum of all valuable qualities of a product to the consumer. 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. creating the impression that a brand associated with a product or service has certain qualities or characteristics that make it special or unique. Orientation of the whole organization towards its brand is called brand orientation. as it demonstrates what the brand owner is able to offer in the marketplace. Brands should be seen as more than the difference between the actual cost of a product and its selling price . plus the cost of distribution. The psychological aspect. for it is these people the company should wish to find and keep. This concept. the type of metal working. known as creating value. or 5 dollars for a box of breakfast cereal that contains a few cents' worth of wheat. the type of stitch: all may be without an 'accounting cost' but for those who truly know the product. 50 dollars for a T-shirt that cost a mere 50 cents to make. From a manager and marketer¶s perspective. The experiential aspect consists of the sum of all points of contact with the brand and is known as the brand experience. Modern value-creation branding-andadvertising campaigns are highly successful at inducing consumers to pay. The art of creating and maintaining a brand is called brand management. Every messages or brand extension can dilute the brand in nature. is a symbolic construct created within the minds of people and consists of all the information and expectations associated with a product or service. 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.parent brand and brand family. intangibles left wholly from the income statement and balance sheet which determine how a business is perceived. can create and maintain will set an enterprise at a serious disadvantage. any business. When brand recognition builds up to a point where a brand enjoys a critical mass of positive sentiment in the marketplace. rather than a more logical valuation that comprises an aggregate of the cost of raw materials. One goal in . There are many intangibles involved in business. The learned skill of a knowledge worker. Brand is the image of the product in the market. A brand which is widely known in the marketplace acquires brand recognition. Because the effects of negative impact from brand extension are tremendous and permanently. A brand is therefore one of the most valuable elements in an advertising theme. it is said to have achieved brand franchise.
is an emerging term encompassing the perceived value of the brand image. It also ensures that customers know which of their needs are satisfied by the brand through its products. Brands which come to mind on an unaided basis are likely to be the brands in a customer¶s consideration set and thus have a higher probability of being purchased. Brand Awareness Brand awareness refers to customers' ability to recall and recognize the brand under different conditions and link to the brand name. Becoming a Facebook fan of a particular brand is also a measurement of the level of 'brand love'. 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. or tweets of a brand on sites such as Twitter."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´. Brand Salience Brand salience measures the awareness of the brand. Also. For example.(Keller) 'Brand love'. 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. jingles and so on to certain associations in memory. as it often serves to denote a certain attractive quality or characteristic (see also brand promise). Consumers may look on branding as an important value added aspect of products or services.com. branded products or services also command higher prices. Brand love levels are measured through social media posts about a brand.brand recognition is the identification of a brand without the name of the company present. which it used in the logo for go. an increase in the salience of one brand can actually inhibit recall of other brands. store-branded product). . Advertising weight and brand salience are cues to customers indicating which brands are popular. or love of a brand. Where two products resemble each other. 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. Disney has been successful at branding with their particular script font (originally created for Walt Disney's "signature" logo). Salience refers not to what customers think about brands but to which ones they think about. including brands that otherwise would be candidates for purchase. logo. From the perspective of brand owners. and customers have a tendency to buy popular brands. but one of the products has no associated branding (such as a generic.
McDonald's. 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. and could be considered successful to the extent that the associated products are easily recognizable by the diverse set of consumers. enduring relationships with consumers across countries and cultures. not because it is more distinctive.Global brands transcend their origins and creates strong. 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 . We now know that all decisions made by humans involve memory processes to a greater or lesser extent. Incoming information from the external environment travels by the sensory memory into the short-term (or working) memory (STM) but if it is not acted upon in a very short time the brain simply discards it. They are laid down in a framework making some memories easier to access than others. Marlboro. Memories are stored or filed via connections between new and existing memories in the different parts of the memory. or has a point of difference. Examples of global brands include Coca-Cola.. Recall is the process by which an individual reconstructs the stimulus itself from memory. These brands are used to sell the same product across multiple markets. Global brands are brands which sold to international markets.It is widely acknowledged that buyer¶s do not see their brand as being any different from other brands that are available. They buy a particular brand because they are more aware of it. 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. removed from the physicality¶s of that reality. Levi's etc. Benefits of Global Branding In addition to taking advantage of the outstanding growth opportunities. References Brand Salience: How do Buyers Remember? Article by Terry Reeves.
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. distribution. 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. pricing.) .
Brand name Relationship between trade marks and brand The brand name is quite often used interchangeably within "brand". It may also be a brand that is developed for a specific national market. Mijerierna etc. however an interesting thing about local brand is that the local branding is mostly done by consumers then by the producers. for example: Mr. Types of brand names Brand names come in many styles. although it is more correctly used to specifically denote written or spoken linguistic elements of any product.Local Brand A brand that is sold and marketed (distributed and promoted) in a relatively small and restricted geographical area. A local brand is a brand that can be found in only one country or region. if the brand name exclusively identifies the brand owner as the commercial source of products or services. In this context a "brand name" constitutes a type of trademark. A brand owner may seek to protect proprietary rights in relation to a brand name through trademark registration. Examples of Local Brands in Sweden are Stomatol. It may be called a regional brand if the area encompasses more than one metropolitan market. Local Branding is usually done by the consumers rather than the producers. Whipple of Charmin toilet tissue and Tony the Tiger of Kellogg's. A few include: Acronym: A name made of initials such as UPS or IBM Descriptive: Names that describe a product benefit or function like Whole Foods or Airbus . Advertising spokespersons have also become part of some brands.
transcend trends and have positive connotations. from common table salt to designer jeans. However. product or service. Brand identity is fundamental to consumer recognition and symbolizes the brand's differentiation from competitors. a product's brand identity may acquire (evolve). organization. Furthermore. the brand name should be on target with the brand demographic. Brand identity is what the owner wants to communicate to its potential consumers. color palette. gaining new attributes from consumer perspective but not necessarily from the marketing communications an owner percolates to targeted consumers. Typically. which are often used to describe any kind of adhesive bandage or any kind of facial tissue respectively. The brand owner will seek to bridge the gap between the brand image and the brand identity. how the brand owner wants the consumer to perceive the brand . sustainable brand names are easy to remember. Effective brand names build a connection between the brand personality as it is perceived by the target audience and the actual product/service. The brand name should be conceptually on target with the product/service (what the company stands for). brand associations become handy to check the consumer's perception of the brand. Therefore. icon.and by extension the branded company. such as Band-Aid or Kleenex. one of the first visual identities to integrate logotype. 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. . Brand identity A product identity. Brand identity needs to focus on authentic qualities . or brand image are typically the attributes one associates with a brand. alphabet. over time. A brandnomer is a brand name that has colloquially become a generic term for a product or service. Visual Brand Identity The visual brand identity manual for Mobil Oil (developed by Chermayeff & Geismar). and station architecture to create a comprehensive consumer brand experience.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.
which may even compete against other brands from the same company (for example. Persil. In the United States. the saying. "A great brand raises the bar -. Chermayeff & Geismar and Saul Bass. before the company's downgrading. such as Paul Rand. Starbucks. especially in the industrial sector.it adds a greater sense of purpose to the experience. Omo. Safeway. Branding approaches Company name Often. A brand¶s visual identity is the overall look of its communications. At the core of every brand identity is a brand mark. Kool-Aid or Nivea Sun (Beiersdorf)). 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. Mercedes-Benz or Black & Decker) or even a range of subsidiary brands (such as Cadbury Dairy Milk.. Marketing labeled as attitude branding include that of Nike. The Body Shop. 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. Surf and Lynx are all owned by Unilever). In the 2000 book No Logo. In this case a very strong brand name (or company name) is made the vehicle for a range of products (for example. or the affirmation that the . These principles can be observed in the work of the pioneers of the practice of visual brand identity design. and graphic elements. "No one ever got fired for buying IBM").  Attitude branding and Iconic brands Attitude branding is the choice to represent a larger feeling. colors. Naomi Klein describes attitude branding as a "fetish strategy". which is not necessarily connected with the product or consumption of the product at all. Effective visual brand identity is achieved by the consistent use of particular visual elements to create distinction. or logo. and Apple Inc. it is just the company's name which is promoted (leading to one of the most powerful statements of "branding".The recognition and perception of a brand is highly influenced by its visual presentation.  Individual branding Main article: Individual branding Each brand has a separate name (such as Seven-Up. whether it's the challenge to do your best in sports and fitness.
Examples of iconic brands are: Apple Inc. Some of these brands have such a strong identity that they become more or less "cultural icons" which makes them iconic brands. This no-brand strategy means that little is spent on advertisement or classical marketing and .Some kind of mismatch between prevailing ideology and emergent undercurrents in society. Many iconic brands include almost ritual-like behaviour when buying and consuming the products. Nike and Harley Davidson. which means "No label" in English (from ± "Mujirushi Ryohin" ± literally.Actively engaging in the mythmaking process making sure the brand maintains its position as an icon. "Cultural contradictions" . "The cultural brand management process" . These must be seen as legitimate and respected by consumers for stories to be accepted. 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.Howard Schultz (president. Brands whose value to consumers comes primarily from having identity value comes are said to be "identity brands". CEO.The performance of the product must at least be ok preferably with a reputation of having good quality. "No brand quality goods"). and chairman of Starbucks) The color. "Myth-making" . 4.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. and the Florida company No-Ad Sunscreen. 3. There are four key elements to creating iconic brands (Holt 2004): 1." . "Necessary conditions" . 2.. "No-brand" branding Recently a number of companies have successfully pursued "No-Brand" strategies by creating packaging that imitates generic brand simplicity. Muji products are not branded.cup of coffee you're drinking really matters. Although there is a distinct Muji brand. Iconic brands are defined as having aspects that contribute to consumer's selfexpression and personal identity. Examples include the Japanese company Muji.
Dunlop extended its brand from tires to other rubber products such as shoes. . furniture. luggage. 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). 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. many fashion and designer companies extended brands into fragrances. Caterpillar to shoes and watches. with new varieties or flavors or sizes. Brand extension The existing strong brand name can be used as a vehicle for new or modified products. may wish to guarantee its own position by promoting that component as a brand in its own right. dish washing detergents. tennis racquets and adhesives. hotels. (sun-) glasses. Derived brands In this case the supplier of a key component. The most frequently quoted example is Intel. which secures its position in the PC market with the slogan "Intel Inside". Multi-brands Alternatively.Muji's success is attributed to the word-of-mouth. 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. A line extension is when a current brand name is used to enter a new market segment in the existing product class. simply to soak up some of the share of the market which will in any case go to minor brands. 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). home textile. In its most extreme manifestation. golf balls. a simple shopping experience and the anti-brand movement. shoes and accessories. in order to pre-empt others entering the market. etc. Adidas and Puma to personal hygiene. home decor. There is a difference between brand extension and line extension. for example. 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. Michelin to a restaurant guide. Mars extended its brand to ice cream. used by a number of suppliers of the endproduct.
In the hotel business. in which the new brand takes business away from an established one which the organization also owns. also emerged as a major factor in the marketplace. Industrialization moved the production of many household items. 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. or store brands. . Faith branding treats religious figures and organizations as brands. This also increases the total number of "facings" it receives on supermarket shelves. to be sold without confusing the consumer's perception of what business the company is in or diluting higher quality products. uses it to keep the very different parts of the business separate ² from Sara Lee cakes through Kiwi polishes to L'Eggs pantyhose. Religious media expert Phil Cooke has written that faith branding handles the question of how to express faith in a mediadominated culture. it may be the price the organization is willing to pay for shifting its position in the market. from local communities to centralized factories. running as many as ten detergent brands in the US market. private label brands. and may outperform those products that are not otherwise strongly branded. on the other hand. Once again. Procter & Gamble is a leading exponent of this philosophy. Nation branding works with the perception and reputation of countries as brands. Alternatively. such as soap. The term is thought to have been first used in a 1997 article by Tom Peters." It refers to the practice of producers burning their mark (or brand) onto their products. of differing quality. meaning "to burn. Private labels With the emergence of strong retailers. This may be acceptable (indeed to be expected) if there is a net gain overall. Marriott uses the name Fairfield Inns for its budget chain (and Ramada uses Rodeway for its own cheaper hotels). Cannibalization is a particular problem of a "multibrand" approach. also called own brands. the new product being one stage in this process. History The word "brand" is derived from the Old Norse brandr.Individual brand names naturally allow greater flexibility by permitting a variety of different products. Individual and Organizational Brands There are kinds of branding that treat individuals and organizations as the "products" to be branded. 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). Personal branding treats persons and their careers as brands. brands in the field of mass-marketing originated in the 19th century with the advent of packaged goods. Sara Lee.
the term "maverick". and Quaker Oats were among the first products to be 'branded'. Cattle were branded long before this. manufacturers quickly learned to build their brand's identity and personality (see brand identity and brand personality). as found in Saint Peter's Basilica in Vatican City. In response to . it was felt that what they really purchased was its brand name. Coca-Cola. From there. Many brands of that era. the British brewery. such as Uncle Ben's rice and Kellogg's breakfast cereal furnish illustrations of the problem. the factories would literally brand their logo or insignia on the barrels used. The packaged goods manufacturers needed to convince the market that the public could place just as much trust in the non-local product. claims their red triangle brand was the world's first trademark. Juicy Fruit gum. Bass & Company.the day Philip Morris declared that they were to cut the price of Marlboro cigarettes by 20%. extending the meaning of "brand" to that of trademark. following the American Civil War. in order to compete with bargain cigarettes. This began the practice we now know as "branding" today. with its green and gold packaging having remained almost unchanged since 1885. such as youthfulness. Marlboro Friday: April 2. Aunt Jemima. Marlboro cigarettes were notorious at the time for their heavy advertising campaigns. It quickly became apparent that a generic package of soap had difficulty competing with familiar. originally meaning an unbranded calf. manufacturers began to recognize the way in which consumers were developing relationships with their brands in a social/psychological/anthropological sense.marked by some as the death of the brand. his would be identified by having no markings at all. Campbell soup. where the consumers buy "the brand" instead of the product. and well-nuanced brand image. Even the signatures on paintings of famous artists like Leonardo Da Vinci can be viewed as an early branding tool. having been named as Britain's oldest brand. mascots. fun or luxury. This trend continued to the 1980s. and jingles that began to appear on radio and early television. 1993 . Another example comes from Antiche Fornaci Giorgi in Italy. whose bricks are stamped or carved with the same proto-logo since 1731. By the 1940s. Factories established during the Industrial Revolution introduced mass-produced goods and needed to sell their products to a wider market. and is now quantified in concepts such as brand value and brand equity. Philip Morris purchased Kraft for six times what the company was worth on paper. local products. in an effort to increase the consumer's familiarity with their products. comes from Texas rancher Samuel Augustus Maverick who. In 1988. to customers previously familiar only with locally-produced goods. decided that since all other cattle were branded. Companies soon adopted slogans.When shipping their items. Lyle¶s Golden Syrup makes a similar claim. James Walter Thompson published a house ad explaining trademark advertising. This was an early commercial explanation of what we now know as branding. Naomi Klein has described this development as "brand equity mania". for example. Around 1900.
questioning the power of "brand value". Many thought the event signalled the beginning of a trend towards "brand blindness" (Klein 13). Quaker Oats. Coca Cola. PepsiCo. Brand Hierarchy .the announcement Wall street stocks nose-dived for a large number of 'branded' companies: Heinz.
The service sector companies like The Daily Telegraph Ltd. Adventurous bankers. wh company is using them to earn profits is not useful to the shareholders in judging the efficiency of management. Any value fixed on a given brand is dubious. erence between Brand and Goodwill: Goodwill is defined as the difference between the net assets of a company a price paid by its purchaser.odule: IV AT ARE BRANDS nds are those non-physical elements of a business. Assets li ro Honda¶ (two wheeler) after being used for 8 years are being offered for sale at Rs. W value real estate on the basis of the future income. Many companies have incorporated brand values in their balan ets. Similarly brands should be valued based on their future earnin ential. Such a practi not be justified as fair in the interests of shareholders or investors. This means like Goodwill. Now there is a distincti ween brands and goodwill in UK practice. (in UK). as goodwill should be. with more than twice the Company¶s mark italisation at that time. 17. inclusion of values of brands in fix ets would mislead the figures in the balance sheet. which have potential future earnings. implying that the nds possessed hidden values.000 as against the cost 12.like land etc. Thus began the hottest debate on brands in Balance Sheet. 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. as it is ve cult to identify the cost of the brand developed. Nestle (UK) made a bid for Rowntree. intangible assets that one capable of being reliably measured. E PRESENT SITUATION UK ± It had a divergent treatment for goodwill and brands. Also the traditional view is that the balan et is not intended as a statement of corporate worth and that subsequently. they need n written off. The shareholder has the right to be appraised totality of assets that are available with the company. 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. Besides understatement of intangible assets like brands. In early 1988. have started to talk about issuing backed securities and/ or using brand collate . companies maintain substantial unrevealed reserves. They are separate ntifiable. b ny of the fixed assets that are shown in balance sheets have similar contestable figures. Mc Dougall started capitalising the brands that they owned or acquired. Homegrown brands are not allowed to be shown in the balance sheet. Wide Technical Report 780 UK had removed the differential treatment of brands. brands should be written off immediately up uisition. 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. 000. Y BRANDS SHOULD BE INCLUDED IN BALANCE SHEET ADITIONAL VIEW BLURRED: The traditional view is that any valuation figure. If brands can be shown as separable assets. Eg. other than one supported by a speci chase price on change of ownership is too arbitrary at all to be credible. Brands should be fully amortised over their useful economic life of upto 20 yea ept in special circumstances. Lonhro plc etc have valu r brands and showed them in balance sheets.
brand P&L accounts) The Company¶s debt equity ratio is improved i. The s no depreciation and thus no impact on P&L. but strong cash flow and custom bases. 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. 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. T I thus becomes a better indicator if brand value is included. 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. goodwill element in the price of the net assets has been increasing.e. It is the success or failure of bran that so often determines the manager¶s success or failure. Also. The goodwill arising from an acquisition can be reduced. For the businessmen brands are often the most important competitive advantage. it reduces the gearing ratio and so increases the Company borrowing capacity. . 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.security for debt issues. The asset value does not come down as long as it is maintained by proper promotional and advertising efforts. The company is more expensive to acquire which may deter hostile bids. Further. Many creditors have found in an insolvency situation that some current assets such as inventory are relative worthless even though classified as current asset. this would show a much higher value. Since the mark es are volatile. the shareholders. This price ective of the present and prospective returns there on. Some of the companies have reassessed the assets acquir n take overs and reclassified the goodwill as brands. the managemen ciency is reflected in the ROI that is achieved by the company. without brand value. or between companies with varying mix of acquired and homegrown brands. It helps better comparison between companies operating in similar markets. the ratio. 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. This concept will be translated into reality if brands a ncluded in the balance sheet. It particularly helps service sector companies where there are low assets levels. investors would rather prefer to look at the Balance sheet that includes futu nings potential of the company. 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. than depending on the stock market prices. 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. Brands in balance sheet would at lea uce his apprehensions since the inclusion lead to a fair picture of the rate of return. PAT / Fixed assets + Net current assets. we cannot recover goodwill but brands can be transferred a can be converted into cash. This looks preposterous. Company¶s brand management will certainly be sharpened up (e.g.
Accounting for Fixed Assets. 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. NDIA: According to AS ± 10. Australian has a modified historical cost accounting system. OUBLE COUNTING´: acquisition of the brand is reflected in the balance sheet at cost. Maintenance costs of goodwill and all other intangibles must ten off to expenses. Thus it is easier to value them. Clearly this is the best evidence to show that homegrown bran e a value too. But t delines prescribed by the Accounting bodies are against it. generate substantial income and a stantial value to the company. management is more likely to continue a process of maintaining the values. The life is deemed to be finite (pruden ciple) but not fixed. issued by the Institute of Chartered Accountants. If a business builds its own facto ead of buying one. guidelines has been issued by ICAI on brand valuation. Allowing home grown brands to be capitalised would eliminate this inconsistency. forty years in France. brands require considerable expenditure.OULD BRAND BE AMORTISED? amortisation period is the period during which benefits are expected to arise. The companies spend significantly on marketi port of brands which is charged through P&L account. AUSTRALIA: Acquired goodwill has to be amortised though the P&L account for a maximum period of 20 years. as the resulti tment would be identical. SEWHERE: In most countries the acquired brands are capitalised and then amortised through the P&L. as it is a relatively new concept in India. we capitalize it. All brand names may be revalued with either upwardly or downward ustments. so that fixed assets may be revalued ket price every 3 to 5 years. However this is not mandatory. If the brands are depreciated. OULD HOMEGROWN BRANDS BE VALUED AND AMORTISED? disallowing the capitalisation of homegrown brands. 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. this would lead to doub nting. Most of the companies are inclined to amortise it. goodwill eral. Major MNC¶s li . Hence µdo dwill must be written off while µcat¶ goodwill need to be. Intangible assets like brands may be carried at market value. Thus there is no incentive for US companies to distinguish brands from goodwill. and the bran ected life in Germany. All purchas ngibles must be treated in the same way as goodwill. a degree of comparability between competing company is lo ether acquired or home grown. 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. mpanies know more about homegrown brands. USA: It is a standard practice to capitalise and amortise goodwill. 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. Acquired brands mu ally be recorded at their cost of acquisitions. 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. No asset revaluation is permitted. t reciation period varies considerably. Five years is the maximum in Japan. B ke in UK and US.
Not all of the profitability of a bra necessarily be applied to the valuation of that brand.ever group. Conceptually the system is sound based on hard. Nestle and reputed Indian companies like Tatas. A brand valuation based solely on consumer esteem or awareness factors would bear no relationship to commerc ity. Valuation at market price Valuation based on customer related factors such as esteem. 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. Not may of those who are aware would actually buy it. Brands are not developed with the purpose of trading in them. If it were so failed brands may well be attribut h values. recognition or awareness. the leading internation nding consultancy came up with an earnings multiple system for valuing brands.26 is applicable. AWBACKS IN EACH OF THEM Brand value is not always a function of the cost of its development. advertising and research and development expenditu devoted to the brand over a stipulated period. nsidering the drawbacks of the existing methods of valuation INTERBRAND GROUP. 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. There are various methods of valuati each has its own draw backs. The elements of profitability which do not result from the bran . proven data. 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. Proctor and Gamble. Further many branded products have no generic equivalents. But the determination able forecast cash flows is fraught with difficulty. Discount values of future potential earnings of the brands seems to be an appropriate one. Moreover the use of market value for balance she poses is prohibited by the companies act. Valuation based on potential future earnings discounted to present day values. Reliance could benefit a great de valuing brands and including them in the balance sheet. Valuation based on premium pricing of a branded product over a non branded product. They are briefly discussed below: ETHODS OF VALUATION Valuation based on the aggregate cost of all marketing. Now that AS . the brands can be valued only if they are purchased and not self generated. The major benefits of branded products to manufacturers often relate to the security and stability of futu mand rather than to premium pricing. A brand may be essentially a commodity product or may ga ch of its profitability from its distribution system.
AND STRENGTH: and strength is a composite of seven weighted factors: Leadership. 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.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. . 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. By virtue of little more than its heritage. The management team need to agr w the historical costs should be adjusted for past inflation. For this reason. Overall this approach to brand valuation raises many questions and without we unded assumptions could be problematic. Finally there o a question of financially accounting for the many failed brands that had substantial sums spent on them. 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. 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. This method lained with the help of a problem in the exhibit.ntity must therefore be excluded. onger the brand. These are the aggregat estment costs. stability. established brand names are goi e a major asset and its importance will be increasingly in the future. trend. 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. support a ection. a smoothing element is introduced viz. However. such as management¶s expertise and the firm¶s culture. E RANGE OF THE MULTIPLES: m the brand strength score the multiple to apply to the brand related profits is determined. devoted to the brand since its birth. umption is being made that none of these costs were ineffective. out of whi erience the successful brand arose. such as marketing. a three year weighted average of historical profits. greater the multiple. what is the unbranded counterpart of a Mars-Ba s method also assumes that all brands pursue a price-premium strategy. 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. ONCLUSION: uation of brands is till in its infancy. internationality. For example. The value o nd also depends on unquantifiable elements. Since several years have to pass before it is evide ether the brand is successful. advertising and R&D expenditure. However it metimes difficult to find a comparable generic product. With a plethora of brands flooding the market. ce the multiple is determined it is multiplied by the brand earnings to arrive at the brand value. As the brand moves into the number 2 or particularly the no. Also there is a possibility of the valuation getting affected by an unrepresentati rs profit. a 100-yea brand is more likely to have had more investment than a 20-year-old brand.
e. One competes through major grocery stores again er branded breads. such as Co-op. Moreover. is the fact that there are many famous brands. a firm may market two brands of bread. en looking at historical profits. Just as the P/E ratio equals the market value of the compa ded by its after tax profits. a uently sold and can be compared. 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.e valuation of a brand based on its market value assumes the existence of a market in which brands. One of the most widely-accepted ways of assessing the brand value is provided by Interbra kin 1994). while the price of a house is usually set seller. it is vary difficult to derive a relationship from an amalgam of these factors to arrive at an objective valuatio example. like horses. while the price of a house is usua by the seller. These are all important elements of brands and high scores on these are indicative of strong brand wever. esteem a areness. two . to reduce the effect from any unusual year¶s performance in previous three years prof averaged. In order to determine brand value. For example. F mple. any profits arising from shade own label production need to be subtracted. who may plan for the bra play a very different role from its existing one. The proble wever. Moreover. however. likewise the brand multiple equals the value of the brand divided by the gross pro erated by this brand. while the profit of the second brand is much more dependent on the few distributors with t ribution systems. curre future cash flows of the brand and discount them to take inflation and risk into account. 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. Therefore. applying a weighting of three to the current year. the more recent profits are likely to be more indicative re profits. Both brands may show similar brand profits. Following the logic of other forecasting systems. provided there is no chan rands strategy. e interbrand method is similar to deriving a company¶s market value through its price/earnings (P/E) ratio. and the other may be sold to a few distributors who sell this with related products through doorr delivery. but what value should be placed on rst of all.e. the price actually paid for a brand is determined by the strategy of the buyer. with this method is that it assumes buoyant historical earnings levels. The Interbrand approach ed on the assumption that the discount rate is given by a µBrand multiple¶. most consumers are aware that Rolls-Royce is a famous brand. Where this case. representative of the brand strength. such as recognition. However. Unilever paid 70 million pounds for Boursin just to ga lf-space for its expansion plans for other parts of its brand portfolio. 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. There may ances where the same production line is used for both the manufacturer¶s brand and several own labels. 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. another way of valuing a brand is to assess its future earnings discounted to present-day values. E = Market value of equity Brand Multiple = Brand equity Profit Brand Profit calculate the brand value. For example. yet the profit of the first brand is heavily influenced by t ngth of branding. a three-year weighted average is used. with very little attached to them. 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. me have proposed valuing brands on the basis of various customer-related factors. even though the brand may be bei ked¶ by its owners. 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. the price other than putting the brand up for sale on the market. The brand profit should be the post-tax profit after deducting central overhead costs. 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. i. This also translates into a low discount rate. a company must calculate the benefits of future ownership. i.
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. as well as the quality. 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. Thus having calculated. mple. Interbrand argue that there is an S-cur tionship between the multiple and the brand strength score. Market : Marketers with brands in non-volatile markets. from graph below this gives a multiple of 16. thus this criteria must be met to score well on leadership. the brand multiple then needs to be calculated. i. This is found through evaluating t nds strength since this determines the reliability of the brand¶s future earnings. for example foods. These aggregated profits are then divided by the sum of the weighti ors. set prices a mmand distribution. 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. Trend : The overall long-term trend of the brand shows its ability to remain contemporary and relevant consumers. Finally each year¶s profit should be adjusted for inflation. the brand¶s value is 16 times . Stability : Well-established brand¶s. A brand leader can strongly influence the market. Support : The amount. are better able to anticipate futu trends in therefore confidently devise brand strategies than marketers operating in markets subject to technological fashion changes. which have a notable historical presence. ving calculated the brand¶s profit.e. a brand strength score of 71. that is six in this case. 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. as shown in the graph below.previous year and one to the year before that. are strong assets. If though a change in strategy for the brand is envisaged these weightings need to onsidered. Thus part of the brand¶s strength comes from the markets it operates in. and therefore is an indication of its value.
It gradually acquires strength w sumers and retailers in different stages. Businesses. 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. such as Nike. with less than 30% of the capitalised value of FTSE 350 companies appearing on t ance sheet. the introduction of the European single currency. media and financial services). This is reflected in t wth in the ratio of market capitalised value to book value of listed companies. patents (such as technology and pharmaceutical) and bran ch as pharmaceutical. 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 sectors with the highest ratio of market capitalisation to book value a vily reliant on copyright (such as the media sector). the brand equity resulting from such a multiple might be overvalued. outsourcing and e-business. A slight variation in the multiple can modify the value of the brand significantly. and suppliers thereof. 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. We would argue that the remaining 70% of unallocated value resides largely in intellectual property a ainly in intellectual assets. in the case ckitt & Colman a one-point variation in the multiple corresponds to 54 million pounds difference in brand value. In particular. particularly globalisation. As the S-curve ignores this addition or. firms having growi orical brand valuation databases enabling mangers to access which strategies are particularly effective at growi r brands. the ratio is similar. However experimen lysis shows that the development of the brand is susceptible to threshold effects. 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. consumers have also been provided with greater information to make informed decisions. companies have taken advantage of more open trade opportunities ng the competitive advantage provided by brands and technology to access distant markets. Although interbrand has derived the data for t urve from the multiples involved in actual brand negotiations. Several questions have been raised about the interbrand method. including ease of pri mparison through the internet. For Example. In the US. 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. ands clearly have significant value. the growth in trademark registrations has also demonstrated the increased focus . the UK. Further more. With this increas ice. are fundamenta nging the way business is conducted.e-year weighted average profit. food and drink. but beyond a certain point its rate of growth is much greater. spite these limitations. market multiples may not necessarily be a corre cator of the brand strength. In the UK. government regulation and increas ertising spend. this ratio has increased fro to 5:1 over the last twenty years. Noticeably. copyright and know how). Search of Brand Value in the New Economy dynamics of the new world economy. for consumers to choose from. Therefore the relationship between the brand strength and brand multiple may be better represented by s regular pattern. Research h nd that brands achieve respectable spontaneous awareness scores only after a high level of prompted awareness h n achieved. Unilever and Coca Cola spend billions each ye porting their brands.
169 28.643 10.389 17.134 10.089 13.828 28.nd importance: ar 8 4 0 6 2 8 4 Number of trademark registrations 25.626 .
value to the company.should stress that owning a trademark does not. 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. or very limited. However. 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. As a result. if a collection of assets is acquired for. in itself. making product differentiation very difficult. showi me brands but not others. 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. it is difficult to identify leading compani do not have strong brands. clearly it is not possible to capitalise such interna erated assets. me companies now make an effort to report on the importance of their IP. Many companies spend millions of pounds protecti emarks that are of no. e key strength of brands is in their ability to maintain customer loyalty. current position is that internally generated intangible assets cannot be capitalised unless they have a "read ertainable market value". Accordingly. if not its value. Such an acquisition can lead to som inctly funny looking accounting results. provide ownership of value. £500 milli the recorded assets are only £100 million then the remaining £400 million gets written off through the profit and lo ount. As you can imagine. led by organisations with leading brands. Essentially. One reason for this is that companies compete either through price or produ erentiation. is valuable. acquired brands can be capitalised but only where it can be shown that they a arable from goodwill. 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. As no such market exists for brands. In other words. This recognition ue in IP is. companies selling brand ducts have a more stable level of sales than non-branded companies. in the new global econom e are an increasing number of suppliers of similar products. The problem that arises from not accounting for brands is that it removes a key metric by which bra nagement might be measured. Many balance sheets are therefore inherently inconsistent. with the latter being preferable as it helps to maintain profit margins. ellectual property is more often created internally than acquired. say. The value in a tradema he protection it provides to a brand that generates cash flow. Indeed. issue is not whether brands are accounted for but whether and how they are actively managed to enhance t mpany's value. On the other hand. then why isn't it accounted for? s often asked why this value does not reside on the balance sheet. This certainty of future cash flows is of gre . 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. accounting and value should not be confuse empts have been made to account for IP. not surprisingly. This results in a balance sheet substantially less healthy than prior to the acquisition.
Some questions remain: Will Amazon. In the US the growth in advertising for . 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. Once it is accepted that bran have value then there is a need to understand and protect that value. Certainly such measures are rarely reported publicly. for example. If a consumer has 100 internet book stores to choose from. as there are few barriers to entry. New companies have quick ered the market. a trend which is likely to be followed in the UK.co mpanies is even more dramatic. and have the ability to offer exactly the same products and services. monitoring of brand value is also a useful tool in determining the success or failure of advertising campaigns and t ciency of marketing spend. despite brands being so critical in the New Economy. internet companies face intense competition. In future. 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. internet companies have to establish brands very quickly in order to develop and maintain th scriber base. recently reported.com companies 9 is forecast to exceed £100 million compared to £35 million in 1998. nagement regular valuation of brands would allow a company to monitor the effect thereon of its strategy. e importance to a business of its brands and underlying trademarks is unquestionable.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. they will pay the advertisers a fee. A good idea on the internet c mitated almost immediately. Everybody h rd of Amazon. few companies use metrics of any sort nitor the growth or otherwise in their brand values.efit to companies and would be reflected in a higher valuation than an equivalent company with greater uncertain r future cash flows. wever. We have set out below the more comm umstances in which brands either are or should be valued. For companies whose primary assets are th nds. emains to be seen whether these large investments in internet branding will yield long term results. Marketing spend which does not increase the value of the brand may be misdirected. in p . what will make it use a icular store? Clearly.com but it hasn't yet made a profit. This is supported by data on UK advertising spend which shows that advertising by . their return on brand investment or brand contribution reholder value. that Proctor and Gamble have changed the way they pay for advertising fee viously they paid a fixed fee for an advertising campaign.
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. the fees might be linked asures of customer loyalty or brand value. inter al value of the IP. In addition. indeed they make it difficult to do so. that profit is underpinned at the very least by a reasonable royalty rate. porting is not only a reference to financial statements. nsactions nds are often valued in connection with proposed or completed transactions. This necessarily requires a valuation performed. gation damages arising from litigation is all about IP value. the royalty approach is a common form of IP valuation. Nevertheless. there are disputes which actually require the e valued. For these companies to maximi reholder value it is essential to maximise the value of their brands. joint venture or strateg ance.ermined by the level of additional sales derived from the campaign. That royalty rate. once brands have been capitalised. ategic management is ultimately focused on creating shareholder value. This theory applies equally well regardless of whether the transaction is a sale. in turn. represents t ount a willing third party licensee would pay to use the IP. Although IP damages typically manifests itself in a claim for lo it. 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. It is important when considering such arrangements to understand. Although the price will ultimately be ter for negotiation. As our brief commentary on valuation methodologies belo ws. Ultimately. porting noted above. n brands be valued? . For many consumer goods companies. t ue of their brands significantly exceeds the value of their plant and machinery. licensing and use of IP across a world-wide business can save tinational group millions of pounds in tax. it is necessary ure that their value does not fall below the value shown in the balance sheet. each party to the transaction will be better placed to negotiate if they have valued the brand(s) ance. current accounting standards and practice do not require intellectual property to be accounted for on ance sheet. ation and transfer pricing ownership. perhaps.
the 15p). and it needs to be able to generate cashflows in its own right. some of which are summarised below. However.enter the trademarks.e. The difficulty is in ( casting future cash flows (2) estimating what proportion of those future cash flows can be attributed to the brand. it needs three key properties: it needs to be separable from the other assets of the business . care must be taken to separate o dwill from any brand valuation to avoid over valuing a brand.an asset to be valued. per can. like business and property valuations. The sum of the discounted annual price premium would estimated value of the brand. The price difference of 15p can be described as the value brand. at today's prices. it is often very difficult to separate t ue of the brand from other intangible assets. 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. a determining an appropriate discount rate to put those cash flows in present day terms. We also recomme sistency of use over time so as to reduce the comparative effect of judgement wherever possible. particularly goodwill. This approach is often used for brands on the theory that a brand duct can be sold for more than an unbranded product. . Due to the judgmental elements. If an asset has no future economic benefit then it has no value. 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. For instance Coca Cola may be able to charge 50p for a Co ereas an unbranded cola may only sell for 35p per can. This ar omplex and. subjective. However. certain robust methodologies have be eloped. t needs to have legal title which can be transferred .i. This manifests itself in the practical problem of separati cash flows attributable to the brand from cash flows attributable to other factors. This is a bigger problem for corporate brands than product brands. The following methods attem nswer these questions. nd valuation methodologies ving established that brands are valuable and should be valued the question arises as to how to value them. Whether brands are separable from the underlying business is often debated and needs to be considered each case.e. basic premise underlying the value of any asset is that its current value equals the future economic benefits deriv m its use. with the results cross-checked to ensure a reasonable result. can be sold without selling a business of t entity. we recommend the use of more th methodology in each case. All methodologies attempt to ident part of earnings or price which can be attributed purely to the brand. Accordingly.
can then be attributed to intangible assets. Firstly. for example. In many cases. most commonly used method for valuing intellectual property. 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. provides mate of the value of the brand name Gucci. . 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. nings basis s method focuses on the maintainable profitability attributable to the intangible asset. This estimate is based on either actual license agreements. comparab ket data or financial analysis. and will change throughout the ye en promotions etc. O culty with it is the lack of actual. 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. prices charged for each product will vary between regions. by matter of deduction. is deducted from the total foreca itability. s is the most simplistic and. then names comparable to Gucci may be used to derive benchmarks for reasonable royalty rates. re are problems with the premium pricing method. such as tangible assets and working capital. The same valuation technique still applies. alternatively t ount the owner is relieved from paying by virtue of being the owner rather than the licensee. This would then be divided between the company's vario ngible assets. The profitability of the produ can be attributed to all other factors. it is difficult to find a non-branded competitor to compa es with. Secondly. Gucci may actually be charging licensees a royalty for use of the name y are not. The profit remaining.ay be that the branded product can not sell at a higher price than the non-branded product but instead can sell great ume. The future economic benefits will thus be the profits attributable to t itional volume generated by the brand. comparable agreements on which to base the hypothetical royalty rate. F uation purposes. the royalty rate is usually expressed as a percentage of sales. in our experience. ce a royalty rate has been estimated it is necessary to estimate the life of the brand and the level of annual sales. if Guc expected future profitability of £100 million and the profit attributed to other factors was estimated at £80 million. For example. e relief from royalty method s method is based upon the amount a hypothetical third party would pay for use of a trademark. the name Gucci on their products. branded products will be able to charge a price premium as sell greater volumes than the non-branded competitors. 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. For example. th profit attributed to intangible assets is £20 million.
It is our brands that provide the profits of today and guarantee the profits of the future. e shortcoming of this approach is that it is difficult to objectively attribute a profit element to all of the other factors. if we so wished. sales a vice functions and. of which we would argue valuation is a key management tool. we would continue to be successful a itable. not only at the protection and enforceme el. distribution. ands are the core of our business. This level of management requires the development of appropria rics for measuring brand management performance. provided that we retained ownership of our brands. comparable rates used for other companies. ough brands are key to the success of many companies. 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. creating or destroying its value. Their importance was summarised by Sir Allen Sheppard (then t airman of Grand Metropolitan plc). For example. Thirdly. 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. t culation of a multiple is highly subjective. The multiple could be determined by the compani ratios. in 1998 Diageo sold its Bombay Gin and Dewar's Scotch whisky to Bacardi for US$1 on. but also in terms of building shareholder value.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. All aspects of t nd mix will need to be actively managed to ensure that the brand remains continually relevant and desirable sumers. subcontract all of the production. mmary nds have never been as important or as valuable as they are at present. possibly based on factors relating strength of the brand. the profit attributed to the brand is the full £ on. then the value of the brand would be £200 million (20 x 10). su angible assets. owing to the dynamics of the new wo nomy and the increased power of the consumer. for simplicity. the profit attributed to the brand will depend on how certain costs are allocated. Secondly." such. they do not guarantee earnings stability. . keting transaction comparatives companies restructure to successfully compete in the New Economy there are an increasing number of brand sales ain industries. These brand disposals can be used as a bench mark by which to value the brands of other products same industry. or calculated from scratch. We could. brands should be managed as the key business asset that they are.
one cann efore. However. This means that just because a brand ng well commercially. both of which may be contributing to the brand's succes difference between the two however. The reason though quite apparent often goes unnoticed. . If one is looking forward to building a strong brand. Brands wrestle each other in the arena we call the marketplac Moreover. There could be other factors that may be contributing commercial success.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. There needs to be a clear-cut distinction between the brand's intrinsic strengths and extern ortunities. Once the basic strengths of the brand have been identified. building of a strong brand does not stop at that. Ve often. to introspect and reali r inner potential. there may be some brands which may not have any exceptional strength his scenario. as in the case of wrestling. in the gam of wrestling. the winner does not win simply by might. brands must consciously cultivate those strengths that make them stand out in the marketplac wever. and brand equity would not be complete without cussion of brand points of parity. is that while brand strengths are inherent. Thus. 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. Nonetheles he arena called the marketplace. it does not imply that it is a strong brand. 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. Marketpla ortunities however. while contributing to the success of the brand are not unique and other players in the marketpla also avail of them. they must either be strong enough to wres mpetition or be prepared to lose to the others and perish for good. where brands must either do or die. W see it everyday. tricky and complex one. count on the external opportunities for strength. It may so happen that most of these factors will be external to the brand and may not ha thing to do with the brand. Building strong brands requires brands-even the market leaders. points of singular distinction. external opportunities will be fleeti may follow the axiom of easy come easy go. the key is to understand how more value c delivered using those strengths. 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. it is the player's strategy and technique that gets him to win. 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. nts of Parity discussion of strategic awareness.
Alas. lesson here is that differentiation and singular distinction are necessary for strong brands. and the perceived quality attributed to the product independe s physical features. be able to operate during both night and day in most weather conditions. you simply have a mmodity product. rand is nearly worthless unless it enjoys some equity in the marketplace. adjusting speed for traffic conditions. Your brand must also measure up well against the competition on expected criteria so as to tralize those attributes. If my automobile does not possess these points of parity with competing brands. then you have the makings of a very strong brand. re things to know about brands mentioned earlier. and delivering passengers and cargo to the proper destination without the d for operator intervention. What a strong position and uniqu ng proposition! wever. be able to operate on existing roads and highways. or the holistic value of the brand to its ner as a corporate asset. be street legal. and provide a fair level of sonal safely to occupants. ognizing and complying with all traffic laws. Points o ty are necessary for your brand but are not sufficient conditions for brand choice. a brand is more than just a word or symbol used to identify products and companies. I¶ve invented the first car with functional auto-pilot. but unbranded product. ther words. the intangible value associated with the duct that can not be accounted for by price or features. 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. . seat at least people comfortably with luggage. inflatable tires. they might not be ugh if consumers do not view your product or service as measuring up on ³minimum product expectations´. Consumers view these associations a ng necessary to be considered a legitimate product offering within a given category.nts of parity are those associations that are often shared by competing brands. if you create what you consider to be a wonderful point of differentiation and position. but they do not solely ke for a strong brand. nd Equity nd Equity is the sum total of all the different values people attach to the brand. then it ht be too different and might not be seen as a viable choice or a strong brand. ru a widely-available fuel source. ce you have met the points of parity requirement and then you provide a unique selling proposition and hold a strong ensible position. I probably will not et with success. 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. unless I have fully consider my brand¶s points of parity with other products in the category. nsumers might expect that at minimum my automobile have four wheels with rubber. Without brand equity. an example.
and status. u already have at least one brand t of all.not necessarily just for logical or intellectua reasons. at least in part. 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. perceptions. 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. in fact. branding delivers a very important benefit. 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. It is precisely because nds represent intangible qualities that the term is often hard to define. In a commodity market where features and benefits are virtually indistinguishable. upon emotion-. In this way. Intangible qualities. 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. emotions. Branding creates trust and an emotional attachment to your product or company. however. why you should e about branding in the first place. Branding is all about perception. Your name and who are is. the issu ow well your brand is managed. Branding will help you "fence off" your customers from the competition and protect your market share while buildi . This attachment then causes your market to make decisions based. 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. You might even understand that brand nagement is all about shaping and managing perceptions. lifestyle. The brand called "you". A brand resents a collection of feelings and perceptions about quality. A brand promises to deliver value upon which consumers and prospective purchasers can rely to be consiste r long periods of time.rand also stands for the immediate image. 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. The issue then is not whether you have a brand. you must understand that you already have a brand. your personal brand. image. You may still be asking yourself. 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. and feelings often hard to grasp and clearly describe. Everyone has at least one brand. 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.
one with high brand value. not necessarily to capture an immediate sale but rather t build a lasting impression of you and your products. Wal-Mart etc. A strong branding campaign will also signal that you are serious about marketing and that you intend to be around for a while. Note that these companies sell several products . companies are striving hard to beat customer expectations . A solid branding strategy communicates a strong. I want to highlight the five steps needed to create a strong brand. This article builds on the theory of stomer relationship management & sales. They attach to a brand the same way they attach to each other: first emotionally then logically. are the classic examples of w companies built a strong brand through customer experience.marketers are at work ing the right level of expectations and shaping the customer experience. Cisco¶s Catalyst Router etc. E-bay. A strong brand signals that you want to build customer loyalty.Intel¶s Pentium cessor. A brand will help you articulate your company's values and explain why you are competing in your market. A strong brand helps you sell value and the intangibles that surround your products. ositive brand value is created if customer experience exceeds his expectations. Cisco. but customers ember the company brand more than the product brand. A strong brand can make actual product features virtually insignificant. Over a period of time companies can d a strong brand . you may want to read the earlier article on Levels of Customer Relationship ore reading further...y y y y mind share.and ny of these products are also branded. . not just sell product. Intel. Branding builds name recognition for your company or product. 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. For example . his article. you customers will automatically think of you first when they think of you product category. A brand impresses your firm's identity upon potential customers. let's talk about how you go about building a strong brand. Once you have mind share. ople do not purchase based upon features and benefits ople do not make rational decisions. Similarly. these products are market leaders in their respective segments. Google. e Steps to Build a Strong Brand oday¶s highly competitive world. now that you understand some of the reasons why you should want to build a strong brand. but the company brand is the strongest. consistent message about the value of your company.
Brand identity sets the customer expectations. Customers expect bargain prices at Wal-Mart. Define the optimal customer experience. 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 . There may be an understanding gap between what the customer wanted and what the marketer understood. The key is to clearly articulate the brand identity. Take an outside-in perspective when aligning each department with your customer value proposition and brand identity. relaxing and pleasing environment. Another classic example is µStarbucks¶ . relaxing and pleasing environment. Establish a customer value proposition Customer value proposition is the natural outcome of the brand identity. you need to create a consistent and compelling experience at each of these touch points. This statement sets the customer expectation. For example. For example. . Note that the marketer can only test the level of customer experience based on his/her understanding of customer¶s expectations. marketer must work as a mystery shopper and see if the customer experience is consistent with the customer value proposition and brand identity. A classic example is from Wal-Mart¶s "Everyday Low prices". to them Starbucks means excellent coffee served in a warm. The actions of each department will then be aligned with the customer value proposition.Starbuck coffee has a special meaning to its customers. Identify all contact points where customers interact with your company. 2.then they will be able to deliver an excellent cup of coffee in a warm. It is what the customers think of your brand. Clearly articulate your brand identity Brand Identity means what the brand means to the customer.1. and that will help you define how customers interpret it. A clear brand identity sets right level of expectations by the customer. 3. Then that message must be to them. marketer must see if he/she is getting the kind of coffee at Starbucks in the right environment as expected by the customer. For example. To create a holistic brand experience. customers think of Wal-Mart as place to get great bargains.
with the customer. Improving the levels of relationship with customer means enhancing customer experience . customers buy relationships . 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. Never assume anything about what the customer thinks of your company.In my earlier article I have written in detail about the levels of relationship a firm can enj gaining brand value & customer loyalty. If you observe any popular brand today.4. you will see that mpany promoting that brand has succeeded in building a strong relationship with its customers. I call it level-1 ) and over a period of time. The marketing team of Intel is always listening to customer to learn what features are needed in the future products .This is a popular phrase in marketing. ethical purchasing etc. Companies need to respond positively to customer feedback and that will turn casual customers into loyal customers. Another very good example is Intel.thu Here again a classic example will be Starbucks.by promoting organic farming. All this will eventually result in a strong brand. through series of positive interactions with the brand/company. To build a strong brand one needs strong customer relationships.a level at which customers are willin 5. loyal customers into customer champions. 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. This will have a direct correlation with the brand value. starbucks to others. . To begin with. Customers of starbucks are so loyal that they are even promoting These ideas were given to Starbucks by their customers. Intel sells microprocessors to computer manufacturers. It pays to be an active listener to learn and respond to the customer needs. Starbucks has also responded in kind . Cultivate relationships with customers Relationship with customers must be treated carefully. As a result Intel enjoys the highest levels of relationships with its customers .that information is passed on the R&D teams . To build a strong nd. the leve sing thoughts stomers don't buy products. Strengthen your brand over time Enhancing the level of customer-brand relationship will have a direct impact on the brand.so that the new products will have the feature required by the custome to invest and co-develop new products.
or to discontinue development of a new product which subsequently proves to have been a premature decision. might have been successfu eloped. in light of esses achieved by competitors with similar developments. in hindsight.p Error . See Go Error op-error nition: cision to drop a PRODUCT from the line. . The converse of GO-ERROR.a mistake made by a company in deciding to abandon a new product idea that.