CHAPTER 12 Managing brands for competitive advantage o Brand plays a huge role in our liveswe try brands when

n friends recommend them, when we associate certain images with them, or because we remember their advertisements o We become loyal to certain brands for many reasons, including quality, price, and habit

Brand preference is the second level of brand loyalty

Buyers rely on previous experiences with the product when choosing it, if available, over competitors products Brand insistence

o A brand is a name, term, sign, symbol,

design, or some combination that identifies the products of one firm while differentiating these products from competitors offerings Building a brand is costly; a category manager is often responsible for an entire product line, nurturing new and existing brands Marketers recognize the powerful influence of brands on consumer behavior, and they work to create and protect strong identities for products and product lines Branding is the process of creating that identity In todays marketplace, we are aware of an almost unlimited numbers of brands including those we regularly use, those we have tried and rejected, and those we have never tried

Brand insistence is the ultimate stage in brand loyalty Consumers refuse alternatives and search extensively for the desired merchandise A product at this stage has achieved a monopoly position with its consumers Though many firms work toward it, few products achieve this ambitious goal Specialty or luxury goods and services are more likely to achieve this status than common products

o o

Brand loyalty

o Brands achieve widely varying consumer

o familiarity and acceptance, often weighed by the concept of brand loyalty Marketers measure brand loyalty in three stages: recognition, preference, and insistence Brand recognition

Types of brands o Companies that practice branding classify brands in several ways: private, manufacturers' or national, family, and individual brands. o Firms weigh the benefits and disadvantages of each type when making branding decisions

o Some firms make no effort toward branding;

selling generic products that are characterized by plain labels, little or no advertising, and no brand names Generic products are often seen in food and household staples Many were first sold in Europe at greatly reduced pricesthis strategy was introduced in the U.S. three decades ago Market share for generic products increase during economic downturns, but subside when the economy improves

o o

Brand recognition is a firms first objective for newly introduced products Marketers begin the promotion by trying to make items familiar to the public Advertising is one effective method for increasing consumer awareness Offering free samples or discount coupons also leads to greater awareness of a product Once people have used a product, seen it advertised, or noticed it in stores, it moves from the unknown to the known category

Manufacturers brands versus private brands

o A Manufacturers brand, or national brand,

refers to a brand name owned by a manufacturer or other producer They define the image that most people form when they think of a brand These include the well-known brands of large and established corporations that many people recognize

Moving into the known category increases the chance of it being purchased Brand preference

o Private brands are offered by wholesalers or

retailers

Most manufacturers regard the production of private-label goods as a way to reach additional market segments They expand the number of alternatives available to consumers and their growth has paralleled that of chain stores in the United States Manufacturers sell their well-known brands to stores, and also put the stores own label on similar products, thus increasing profits by marketing one product in two ways Worldwide, private brands account for nearly $1 trillion in retail sales and are especially popular in western European countries such as Germany and the United Kingdom

Brand equity o A brand can go a long way toward making or breaking a companys reputation o A strong brand identity backed by superior quality offers important strategic advantages for a firm It increases the likelihood that consumers will recognize the firms product or product line when they make purchase decisions It can contribute to buyers perceptions of product quality It can reinforce customer loyalty and repeat purchases

Brand equity refers to the added value that a certain brand name gives to a product in the marketplace Brands with high equity often command large market shares and consumers may pay little attention to differences in prices Brand equity contributes to higher profits and stock returns

Captive brands o Captive brands are national products that are sold exclusively by a retail chain o They are spin-offs to the private label idea o o They typically provide better profit margins than private labels They often feature exclusively offered lines of apparel, home dcor items, furniture, clothing, or small appliances

Family and individual brands o Family brands

Service companies also benefit from brand equity A brand with strong equity has the power to increase a companys sales and earnings In global operations, high brand equity often leads to expansion into new marketsa global brand is usually one that sells at least 20 percent outside of its home country Research shows that a firm builds brand equity sequentially on four dimensions of brand personality:

A family brand is a single brand name that identifies several related products It may be a full line of food, healthcare, beauty, or home appliance goods Promotional outlays benefit all items in the linetheir familiarity helps in introducing new products within the line

Differentiationa brands ability to stand apart from competitors Relevancea real and perceived appropriateness of the brand to a big consumer segment Esteema combination of perceived quality and consumer perceptions about the growing or declining popularity of a brand

Family brands should identify products of similar quality Individual brands

An individual brand is a unique identification for the product itself It is not promoted under the company or other umbrella name, but instead is given its own unique name Individual brands cost more than family brands to market, but they are very effective aids in implementing market segmentation strategies Individual brand names should distinguish dissimilar products o

Knowledgethe extent of customers awareness of the brand and understanding of the good or service Sometimes a brand needs a makeover, since even brands with high equity can lose their luster

The role of category and brand management

Traditionally, companies have assigned the task of managing a brands marketing strategies to a brand manager Today, because they sell about 80 percent of their products to national retail chains, many firms have adopted a strategy called category management, in which the responsibility assigned to a category manager Category managers maximize sales for the retailer by overseeing the entire product line They track sales history, data from retailers and the entire category (obtained from third-party vendors), and qualitative data such as results from customer surveys Unlike brand managers, they have profit responsibility and help retail buyers maximize sales for the whole category The shift to category management was initiated by large retailers who could benefit from the marketing muscle of giant producers of grocery and household goods

Brand names and brand marks

o A brand name, according to the American

Marketing Association, is the words or letters forming a name that identifies and distinguishes the firms offerings from those of its competitors It is the part of the brand that people can vocalize An effective brand name should be easy to pronounce, recognize, and remember A short name meets these requirements It should give buyers the correct connotation of the products image

It must qualify for legal protection, so it cant contain generally used words that describe types or categories When a class of products becomes generally known by the original brand name of a specific offering, the brand name may become a descriptive generic name If this happens, the original owner loses exclusive claim to the brand name Marketers must distinguish between brand names that have become legally generic terms and those that just seem generic in the eyes of consumers

In turn, these producers have begun to focus attention on in-store merchandising instead of massmarket advertising Some of the steps companies follow in the category management process: Define the category based on target markets needs Scoping out a consumers decision process when shopping the category Identifying consumer groups and the store clusters with the greatest sales potential Creating a marketing strategy and performance goal for each cluster and using a scorecard to measure progress Defining and executing the tactics Tracking progress

o A brand mark is a symbol or pictorial design

that distinguishes a product Trademarks o The high value of brand equity encourages firms to protect the resources they invest in their brands

o A trademark is a brand for which the owner

o claims exclusive legal protection It should not be confused with a trade name, which identifies a companyThe Coca Cola Company is a trade name, but Coke is a trademark of the companys product (though some trade names duplicate brand names) Protecting trademarks

Product identification o Almost every product that is distinguishable from another gives buyers some unique way of identifying it o Choosing how to identify a firms output represents a major strategic decision o Labeling products, including tricky goods such as produce, represents another way of identifying them

Trademark protection confers exclusive legal right to use a brand name, brand mark, and any slogan or product name abbreviation It designates the origin or source of a good or service Trademark protection can be obtained for words or phrases, abbreviations or nicknames for a

product, packaging elements, or even product features such as shape, design, or typeface U.S. law has fortified trademark protection in recent years The Federal Trademark Dilution Act of 1995 allows a trademark holder to sue for infringement even if the other products are not similar, if the infringing company is unaware of the issue, or if another party imitates its trademark

Cost effectiveness Protection against damage, spoilage, and pilferage The original objective of packaging was to offer physical protection for the merchandise Packages pass through many stages of handling Perishable products need protection against spoilage in transit and during storage Fears of product tampering have forced many firms to improve package designs Packages offer safeguards for retailers against pilferage with designs that discourage easy shoplifting

More trademark infringement cases are being seen as firms sue others who use similar online addresses Trade dress

Trade dress refers to the visual cues used in branding to create an overall look These cues may relate to color, size, package and label shapes, or a combination of visual cues Disputes over trade dress have led to courtroom battles but no apparent consensus, even from the Supreme Court o

Global marketers rely on packaging to protect against damage, spoilage, theftover long shipping periods, in harsh weather, and through climate changes Assistance in marketing the product The importance of packaging as a promotional tool has increased in recent years This is due in part to the vast array of new products, changes in consumer lifestyle and buying habits, and emphasis on targeting smaller segments Many firms are addressing environmental concerns by designing packages made of biodegradable and recyclable materials Packages capture the attention of buyers They establish a common identity for a group of items sold under the same brand name They evoke the products image and communicate its value They can enhance convenience for buyers They can actually induce change in user behavior

Developing global brand names and trademarks o Due to cultural and language variations, global firms face unique difficulties in selecting brand names and trademarks o Names and symbols that are effective in their home countries may not translate well in other cultures o A single brand name may be used for worldwide promotions, or altered versions may be created to adapt to cultures and languages of individual nations Packaging o A firms product strategy must address questions about packaging Like its brand name, a products package can powerfully influence buyers purchase decisions Firms use scientific methods and virtual simulations in making packaging decisions, creating threedimensional images with thousands of colors, shapes, and typefaces

They conduct marketing research to evaluate current packages and test new designs A package serves three major objectives: Protection against damage, spoilage, and pilferage Assistance in marketing the product

They can increase consumer utility for reuse, and certain types can even be considered decorative Cost-effective packaging Packaging must perform a number of functions but must do so at a reasonable cost

Simple design changes can often make packages both cheaper and better for the environment Labeling Labeling was once a separate element applied to a package today it is an integral part of package design A label carries an items brand name or symbol, name and address of the manufacturer or distributor, information about the products size and composition, and recommended uses The right label can attract consumer attention and encourage a purchase Vague or misleading descriptions on labeling led to the Fair Packaging and Labeling Act (1966)it requires that labels give adequate information and that package designs allow consumers to compare similar items The Nutrition Labeling and Education Act (1990) requires a uniform format for food labels, which must disclose nutrition information The Food and Drug Administration (FDA) has mandated design standards for nutrition labels and guidelines, also restricting use of certain loosely defined terms and requiring that amounts of certain ingredients are listed The Food Allergen Labeling and Consumer Protection Act requires that all major food allergens must be disclosed on labels Label regulations vary from country to country In 1974, the Universal Product Code (UPC) began acting as a costcutting factor and marketing research tool Radio frequency identification (RFID) tagselectronic chips with encoded product datamay someday replace the UPC, but the tracking feature has led to serious privacy concerns

o Brand extension is the strategy of attaching

a popular brand name to a new and unrelated product category It should not be confused with line extension, which refers to new sizes, styles, or related products Unlike a line extension, a brand extension carries over nothing but the brand name itself Marketers use it to gain from the strong equity of their established and successful brands

Brand licensing

o Brand licensing refers to a growing trend in

o which firms authorize other companies to use their brand names It expands a firms exposure in the marketplace, much as a brand extension does The brands owner receives an extra source of income in the form of royalties, usually 4 to 8 percent of wholesale revenues Brand licensing has its problems Brand names do not transfer well to all products A poor-quality or ethically incompatible item may hurt the reputation of the original brand Overextension by licensing a brand name to too many products can turn off consumers and hurt overall sales of all items carrying the overused brand

New-product planning o As its offerings enter maturity and decline stages of the product life cycle, a firm must add new items in order to continue to prosper o New products are the lifeblood of any businesssome reflect technological breakthroughs, others extend existing product lines

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In marketing terms, a new product is one that either the company or the customer has not handled before Only about 10 percent of new-product introductions bring truly new capabilities to consumers

Brand extensions o Some brands are so popular that firms decide to use them on unrelated products in an attempt to gain instant recognition

Product development strategies o A strategy for launching a new product is based on several elements: The existing product mix

The match between current offerings and the firms marketing objectives

o The consumer adoption process refers to

the steps consumers go throughfrom learning about the new product, to trying it, to deciding whether to buy it again or reject it Stages in the consumer adoption process: AwarenessIndividuals first learn about the new product InterestPotential buyers begin to look for information about the product EvaluationThey consider the likely benefits of the product TrialThey try it to determine its usefulness

The current market positions of its products Four alternative development strategies can be used: market penetration, market development, product development, and product diversification Market penetration strategyexisting products for existing markets Seeks to increase sales of existing products in existing markets Firms may modify products, improve quality, or promote new uses A big part of this strategy is product positioningconsumers perceptions of a products attributes, uses, quality, and advantages and disadvantages relative to competing brands

Market development strategynew markets for existing products Concentrates on finding new markets for existing products Market segmentation provides useful support for such an effort

Adoption/rejectionIf the trial purchase produces satisfactory results, they decide to use the product regularly (or adopt it) Marketers must understand the adoption process to move potential customers to the adoption stage Once they see a large number of consumers at the interest stage, they guide them through the evaluation and trial stages

Adopter categories

o Consumer innovators, or first buyers,

welcome innovations and rush to buy new products almost as soon as they hit the market Later adopters wait for more information or rely on experiences of early buyers before trying a product Research has identified five categories of purchasers based on relative times of adoption: consumer innovators, early adopters, early majority, late majority, and laggards and the steps they take in deciding whether to try and continue to buy a new product

Product development strategynew products for existing markets Refers to the introduction of new products into identifiable or established markets Flanker brands are new products launched into markets in which a firm already has an established position, with the goal of increasing overall market share o

Product diversification strategynew products for new markets Focuses on developing entirely new products for new markets Some firms look for new markets that complement their existing ones, others look in completely new directions A concern when choosing any newproduct strategy is cannibalization a new product that adversely affects profits from existing items, or takes sales away from offerings in the same line

o The adoption process focuses on individuals o The diffusion process focuses on all
members of the community or social system and the speed at which the group as a whole accepts or rejects a new product It normally follows a pattern of having a few early purchasers, increasing adopters as the products value becomes known, and losing adopters as the number of potential buyers drops

The consumer adoption process

Identifying early adopters o Identifying consumers or organizations that are most likely to try a new product is vital to a products success o By reaching them early on, marketers treat these adopters as part of a test market,

allowing them to evaluate the product and discover suggestions for modifications Early purchasers are often opinion leaders their attitudes quickly spread, their feedback helps forecast ultimate rejection or success Characteristics of first adopters compared to other consumers: Are younger Are better educated Have higher incomes Are more mobile Change jobs and addresses more often Rely more heavily on impersonal information sources o

Members may spend more time reviewing ideas of others than conceiving and developing their own innovations

Their approval is important, but committees in large firms are often slow to reach decisions, maintain conservative views, and may compromise to return to regular tasks New-product departments

Many firms establish separate, formally organized new-product departments to generate and refine new-product ideas This structure has less limitations than the committee system and encourages innovation as a full-time activity

Rate of adoption determinants o Products move from the introduction stage to market maturity at different rates o Five characteristics of a product innovation that tend to influence (and increase) the speed of its adoption rate:

Relative advantageif it appears far superior to previous ideas Compatibilityif it is consistent with values and experiences of potential buyers Complexityif it is relatively easy to understand Possibility of trial useif it involves little risk of financial or social loss

The head of the department wields substantial authority, often reporting to the chief executive officer, chief operating officer, or a top marketing executive Product managers

Product managers (another term for brand managers) support the marketing strategies of an individual product or product line They set prices, develop advertising and sales promotion programs, and work with sales representatives They create new-product ideas, suggest improvements on existing products, and lead development initiatives

Observablesif it can be seen as superior in a tangible form Marketers who want to accelerate the rate of adoption can manipulate these five characteristics

Organizing for new-product development o Firms need to be organized in such a way that their personnel can stimulate and coordinate new-product development o Besides hiring outside contractors, firms organize by assigning product-innovation functions to new-product committees, newproduct departments, product managers, or venture teams o New-product committees

The trend has been to modify or do away with the product manager role in favor of a category management structure which includes profit and loss responsibility Venture teams

A venture team gathers specialists from different areas of an organization to develop new products The team must meet criteria for return on investment, uniqueness of product, serving a well-defined need, compatibility of the product with existing technology, and strength of patent protection Often set up initially as a temporary entity, the team may become semipermanent

New-product committees are the most common organizational arrangement These groups bring together experts from many areas including marketing, finance, engineering, manufacturing, research, and accounting

Unlike a committee, it does not disband after every meeting, continues to accept new assignments, and has authority to plan and implement a course of action It reports to top management but functions as a separate entity from the basic organization A new-product task force is similar, assembling an interdisciplinary group to work on temporary assignments, coordinating and integrating input of various departments

Accelerated development features teams of experts from various areas Staff from design, manufacturing, marketing and sales handle projects from idea generation to commercialization This cuts development time because team members work on the six steps concurrently rather than in sequence

The new-product development process o Once a firm is organized, it can start moving new-product ideas to the marketplace o Developing a new-product can be timeconsuming, risky, and expensive o Dozens of new-product ideas are often needed to produce even one successful product o Firms have to expect some failuresin fact the overall failure rate for new products is about 80 percent o Nearly half of total resources devoted to product innovation go toward commercial failures o A new product may fail for a number of reasons: o Inadequate market assessments Lack of market orientation Poor screening and project evaluation Product defects

Proven methods include the U.S. Navys program evaluation and review technique (PERT) and critical path method (CPM), which map out steps and show time allotments for each task

The six phases of the new product development process: o Idea generation Ideas can come from many sources customers, sales force, R&D specialists, competitors, suppliers, retailers, and independent inventors

Employees at all levels may be encouraged to share their thoughts, producing a constant flow of newproduct ideas Screening Ideas with commercial potential are separated from those that cannot meet company objectives Screening may take place through a checklist of standardsincluding uniqueness, raw material availability, compatibility with current line, existing facilities, and present capabilities

Inadequate launch efforts Many firms follow six steps: idea generation, screening, business analysis, development, test marketing, and commercialization Traditionally, new products go through phased development, which follows the steps in an orderly sequence Responsibility for each phase passes from product planners, to designers and engineers, to manufacturers, to marketers This may work for firms that dominate mature markets and can develop variations on existing products But rapid changes in technology and markets have increased pressure to speed up the development process

Open discussion from various parts of the firm may be encouraged at this stage Business analysis The new products potential market, growth rate, competitive strengths, and compatibility with company resources are assessed Concept testing subjects the product idea to additional study prior to its actual development This testing measures consumer attitudes and perceptions about the idea, often through focus groups or in-store polling The screening and business analysis stages are worth the expense, because they define the proposed products target market and customers needs and wants,

and they determine its financial and technical requirements Development Financial outlays increase substantially as a firm converts an idea into a physical product This is a joint responsibility of its engineerswho turn the concept into an actual productand its marketerswho provide consumer feedback on the product and its design, package, color, and other physical features

automobiles, and a few regulated by other federal agencies This agency has the authority to ban products, order recalls or redesigns, and inspect production facilities It can charge negligent companies with criminal offenses It is especially watchful of products aimed at babies and young children

o The Food and Drug Administration (FDA)

o must approve all food, medications, and health-related devices Product liability lawsuits filed against firms have risen sharply in recent years, and the potential for legal action in overseas markets has also increased Firms have responded by stepping up efforts to ensure product safety, with warnings prominently on labels Changes in product design have reduced hazards Product liability insurance has become essential to many firms, at great expense Regulatory activities and the increase in liability claims have prompted companies to sponsor voluntary improvements in safety standards

Computer-aided design may streamline this stage by allowing many variations in mock-ups Test marketing The new product is often test marketed to gauge consumer reactions or to verify that it will perform well in a real-life environment If the product does well, the firm can proceed to commercialization If not, the firm can fine tune certain features or abandon the whole project entirely

But even doing well in test marketing does not guarantee automatic and instant success in the real world Commercialization The product is ready for full-scale marketing Substantial expenses are required for marketing strategies and production facilities, plus getting sales staff, intermediaries, and potential customers acquainted with the new item

Product safety and liability o A product can fulfill its mission of satisfying consumer needs only if it ensures safe operation

o Product liability refers to the responsibility of

manufacturers and marketers for injuries and damages caused by their products (see chapter 3 for consumer protection regulations) Who regulates product safety? o Federal and state legislation play a major role in regulating product safety

o The Consumer Products Safety Commission

(CPSC) has jurisdiction over every consumer product category except food,