Module: I

What Is a Product?

Anything received in an exchange to satisfy a need or want is a product.

o A good, a service, or an idea received in an exchange

o 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

o Consumer:--Products purchased to satisfy personal and family needs

o Business:--Products bought used in an organization’s operations, to resell,
or to make other products (raw materials and components)

Types of Consumer Products

o Convenience—inexpensive, frequently purchased items; minimal

purchasing effort

o 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

o 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

o Installations--Facilities and non-portable major equipment

o Accessory Equipment--used in production or office activities
o Raw Materials--Basic natural materials Products
o Component Parts--become part of a
o 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 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.

• 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 open-
minded, 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.

Step 4. 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. Now in Step 4 the process
becomes very dependent on market research as efforts are made to analyze the
viability of the product ideas. (Note, in many cases the product has not been produced
and still remains only an idea.) The key objective at this stage is to obtain useful
forecasts of market size (e.g., overall demand), operational costs (e.g., production
costs) and financial projections (e.g., sales and profits). Additionally, the organization
must determine if the product will fit within the company’s overall mission and strategy.
Much effort is directed at both internal research, such as discussions with production
and purchasing personnel, and external marketing research, such as customer and
distributor surveys, secondary research, and competitor analysis.

Step 5. PRODUCT AND MARKETING MIX DEVELOPMENT

Ideas passing through business analysis are given serious consideration for
development. Companies direct their research and development teams to construct an
initial design or prototype of the idea. Marketers also begin to construct a marketing
plan for the product. Once the prototype is ready the marketer seeks customer input.
However, unlike the concept testing stage where customers were only exposed to the
idea, in this step the customer gets to experience the real product as well as other
aspects of the marketing mix, such as advertising, pricing, and distribution options (e.g.,
retail store, direct from company, etc.). 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. Reaction that is less favorable may suggest the need for
adjustments to elements of the marketing mix. Once these are made the marketer may
again have the customer test the product. In addition to gaining customer feedback, this
step is used to gauge the feasibility of large-scale, cost effective production for
manufactured products.

Step 6. MARKET TESTING

Products surviving to Step 6 are ready to be tested as real products. 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. But other companies may seek more
input from a larger group before moving to commercialization. The most common type
of market testing makes the product available to a selective small segment of the target
market (e.g., one city), which is exposed to the full marketing effort as they would be to
any product they could purchase. In some cases, especially with consumer products
sold at retail stores, 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. 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. Another form of market testing
found with consumer products is even more controlled with customers recruited to a
“laboratory” store where they are given shopping instructions. Product interest can then
be measured based on customer’s shopping response. Finally, there are several high-
tech approaches to market testing including virtual reality and computer simulations.
With virtual reality testing customers are exposed to a computer-projected environment,
such as a store, and are asked to locate and select products. With computer simulations
customers may not be directly involved at all. Instead certain variables are entered into
a sophisticated computer program and estimates of a target market’s response are
calculated.

Step 7. COMMERCIALIZATION

If market testing displays promising results the product is ready to be introduced to a

wider market. Some firms introduce or roll-out the product in waves with parts of the
market receiving the product on different schedules. 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. While commercialization may be the
last step in the new product development process it is just the beginning of managing
the product. Adjusting the product’s marketing strategy is required for many reasons
including:

• 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. Such efforts require the marketer to
develop and refine the product’s marketing plan on a regular basis. In fact, as we will
discuss in The PLC and Marketing Planning tutorial, marketing strategies change as a
product moves through time leading to the concept called the Product Life Cycle (PLC).
We will see that marketers make numerous revisions to their strategy as product move
through different stage of the PLC.
Module: II
Product life cycle (PLC)

Like human beings, products also have their own life-cycle. From birth to death human
beings pass through various stages e.g. birth, growth, maturity, decline and death. A
similar life-cycle is seen in the case of products. The product life cycle goes through
multiple phases, involves many professional disciplines, and requires many skills, tools
and processes. Product life cycle (PLC) has to do with the life of a product in the market
with respect to business/commercial costs and sales measures. To say that a product
has a life cycle is to assert four things:

• that products have a limited life,

 • product sales pass through distinct stages, each posing different challenges,
opportunities, and problems to the seller,
• profits rise and fall at different stages of product life cycle, and
• products require different marketing, financial, manufacturing, purchasing, and
human resource strategies in each life cycle stage.

There are four stages in product life cycle. These are:

Stage Characteristics

1. costs are high

2. slow sales volumes to start
1. Market 3. little or no competition
4. demand has to be created
introduction stage 5. customers have to be prompted to try the product

6. makes no money at this stage

1. costs reduced due to economies of scale
2. sales volume increases significantly
3. profitability begins to rise
2. Growth stage 4. public awareness increases
5. competition begins to increase with a few new players in
establishing market

6. increased competition leads to price decreases

1. costs are lowered as a result of production volumes
increasing and experience curve effects
2. sales volume peaks and market saturation is reached
3. increase in competitors entering the market
3. Maturity stage 4. prices tend to drop due to the proliferation of competing
products
5. brand differentiation and feature diversification is
emphasized to maintain or increase market share

6. Industrial profits go down

1. costs become counter-optimal
2. sales volume decline or stabilize
4. Saturation and 3. prices, profitability diminish
decline stage
4. profit becomes more a challenge of production/distribution
efficiency than increased sales
Marketing Strategies at Introduction Stage:

While launching a new product, marketing mix for each variable can be set at a high
or low level with different combinations of price and promotion.

• Rapid Skimming Strategy

• Slow Skimming Strategy
• Rapid Penetration Strategy
• Slow Penetration Strategy
Marketing Strategies at Growth Stage:

The overall objective is to sustain the growth rate.

• Product quality is improved.

• New models are introduced. Flanker products are introduced.
• New market segments are trapped.
• Brand building is resorted to.
• Prices may be lowered to lure the next layer of price-conscious buyers.

Marketing Strategies at Growth Stage:

• Market modification.
• Product modification.
o Quality improvement.
o Feature improvement.
o Style improvement.

• Marketing Mix Modification

o Advertising
o Sales promotion
o Personal selling
o Price
o Distribution
o Services
Marketing Strategies at Maturity Stage:

• Diversity of models, brands.

• Competitive parity.
• More intensive or broad based.
• Differentiating promotion.
• Budget increased.
• Emphasis on price.
Marketing Strategies at Decline Stage:

• Withdrawal of weak products in a phased manner.

• Prices are cut.
 • Selective unprofitable segments are left out.
• Minimum promotion.
• Specialist selling.
• Emphasis on special applications.

Portfolio Management
What is New Product Portfolio Management?

A vital question in the product innovation battleground is, "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.

Today's new product projects decide tomorrow's product/market profile of the firm. An
estimated 50% of a firm's current sales come from new products introduced in the
market within the previous five years. Much like stock market portfolio managers, senior
executives who optimize their R&D investments have a much better opportunity of
winning in the long run. 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. However, it is a problem
that every company addresses to produce and maintain leading edge products. Portfolio
management for new products is a dynamic decision process wherein the list of active
new products and R&D projects is constantly revised. In this process, new projects are
evaluated, selected, and prioritized. Existing projects may be accelerated, killed, or de-
prioritized and resources are allocated (or reallocated) to the active projects.

Portfolio Management - A Problem Area!

Recent years have witnessed a heightened interest in portfolio management, not only in
the technical community, but in the CEO's office as well. Despite its growing popularity,
recent benchmarking studies have identified portfolio management as the weakest area
in product innovation management. Executive teams confess that serious Go/Kill
decision points rarely exist and, more specifically, criteria for making the Go/Kill decision
are non-existent. As a result, 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, the common
denominator across firms are the goals executives are trying to achieve. According to
'best-practice' research by Dr. Cooper and Dr. Edgett, five main goals dominate the
thinking of successful firms:

1. Value Maximization
Allocate resources to maximize the value of the portfolio via a number of key objectives
such as profitability, ROI, and acceptable risk. A variety of methods are used to achieve
this maximization goal, ranging from financial methods to scoring models.

2. Balance
Achieve a desired balance of projects via a number of parameters: risk versus return;
short-term versus long-term; and across various markets, business arenas and
technologies. Typical methods used to reveal balance include bubble diagrams,
histograms and pie charts.

3. 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. The
three main approaches are: top-down (strategic buckets); bottom-up (effective
gatekeeping and decision criteria) and top-down and bottom-up (strategic check).

4. Pipeline Balance
Obtain the right number of projects to achieve the best balance between the pipeline
resource demands and the resources available. The goal is to avoid pipeline gridlock
(too many projects with too few resources) at any given time. A typical approach is to
use a rank ordered priority list or a resource supply and demand assessment.

5. Sufficiency
Ensure the revenue (or profit) goals set out in the product innovation strategy are
achievable given the projects currently underway. Typically this is conducted via a
financial analysis of the pipeline’s potential future value.

What are the benefits of Portfolio Management?

When implemented properly and conducted on a regular basis, Portfolio Management is

a high impact, high value activity:

• 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.

Why is it so important?

Companies without effective new product portfolio management and project selection
face a slippery road downhill. Many of the problems that plague new product
development initiatives in businesses can be directly traced to ineffective portfolio
management. According to benchmarking studies conducted by Dr. Cooper and Dr.
Edgett, some of the problems that arise when portfolio management is lacking are:

• 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:

• 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, and
• The pipeline has too many low value projects

Portfolio Management is about doing the right projects. If you pick the right projects, the
result is an enviable portfolio of high value projects: a portfolio that is properly balanced
and most importantly, supports your business strategy.

BCG matrix

The BCG matrix (aka B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix, Boston
Consulting Group analysis, portfolio diagram) is a chart that had been created by Bruce
Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing
their business units or product lines. This helps the company allocate resources and is
used as an analytical tool in brand marketing, product management, strategic
management, and portfolio analysis. [1]

Folio plot of example data set

Like Ansoff's matrix, the Boston Matrix is a well known tool for the marketing manager. It
was developed by the large US consulting group and is an approach to product portfolio
planning. It has two controlling aspect namely relative market share (meaning relative to
your competition) and market growth.

You would look at each individual product in your range (or portfolio) and place it onto
the matrix. You would do this for every product in the range. You can then plot the
products of your rivals to give relative market share.

This is simplistic in many ways and the matrix has some understandable limitations that
will be considered later. Each cell has its own name as follows.

Dogs. These are products with a low share of a low growth market. These are the
canine version of 'real turkeys!'. They do not generate cash for the company, they tend
to absorb it. Get rid of these products.

Cash Cows. These are products with a high share of a low growth market. Cash Cows
generate more than is invested in them. So keep them in your portfolio of products for
the time being.

Problem Children. These are products with a low share of a high growth market. They
consume resources and generate little in return. They absorb most money as you
attempt to increase market share.

Stars. These are products that are in high growth markets with a relatively high share of
that market. Stars tend to generate high amounts of income. Keep and build your stars.

Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash
Cows, Problem Children and Stars need to be kept in a kind of equilibrium. The funds
generated by your Cash Cows is used to turn problem children into Stars, which may
eventually become Cash Cows. Some of the Problem Children will become Dogs, and
this means that you will need a larger contribution from the successful products to
compensate for the failures.

Problems with The Boston Matrix. There is an assumption that higher rates of profit are
directly related to high rates of market share. This may not always be the case. When
Boeing launch a new jet, 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. For example, Ford own
Landrover in the UK. This is an SBU not a single product. There is another assumption
that SBUs will cooperate. This is not always the case. The main problem is that it
oversimplifies a complex set of decision. Be careful. Use the Matrix as a planning tool
and always rely on your gut feeling.

Practical use of the BCG Matrix

For each product or service, the 'area' of the circle represents the value of its sales. The
BCG Matrix thus offers a very useful 'map' of the organization's product (or service)
strengths and weaknesses, at least in terms of current profitability, as well as the likely
cashflows.

The need which prompted this idea was, indeed, that of managing cash-flow. It was
reasoned that one of the main indicators of cash generation was relative market share,
and one which pointed to cash usage was that of market growth rate.

Derivatives can also be used to create a 'product portfolio' analysis of services. So

Information System services can be treated accordingly.

Relative market share

This indicates likely cash generation, because the higher the share the more cash will
be generated. As a result of 'economies of scale' (a basic assumption of the BCG
Matrix), it is assumed that these earnings will grow faster the higher the share. The
exact measure is the brand's share relative to its largest competitor. Thus, if the brand
had a share of 20 percent, and the largest competitor had the same, the ratio would be
1:1. If the largest competitor had a share of 60 percent; however, the ratio would be 1:3,
implying that the organization's brand was in a relatively weak position. If the largest
competitor only had a share of 5 percent, the ratio would be 4:1, implying that the brand
owned was in a relatively strong position, which might be reflected in profits and cash
flows. If this technique is used in practice, this scale is logarithmic, not linear.

On the other hand, exactly what is a high relative share is a matter of some debate. 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. Brand leaders in this position tend to be very stable—and
profitable; the Rule of 123.

The reason for choosing relative market share, rather than just profits, is that it carries
more information than just cash flow. It shows where the brand is positioned against its
main competitors, and indicates where it might be likely to go in the future. It can also
show what type of marketing activities might be expected to be effective.
Market growth rate

Rapidly growing in rapidly growing markets, are what organizations strive for; but, as we
have seen, the penalty is that they are usually net cash users - they require investment.
The reason for this is often because the growth is being 'bought' by the high investment,
in the reasonable expectation that a high market share will eventually turn into a sound
investment in future profits. The theory behind the matrix assumes, therefore, that a
higher growth rate is indicative of accompanying demands on investment. The cut-off
point is usually chosen as 10 per cent per annum. Determining this cut-off point, 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; and one that, again, makes the use
of the BCG Matrix problematical in some product areas. What is more, the evidence
from FMCG markets at least, is that the most typical pattern is of very low growth, less
than 1 per cent per annum. This is outside the range normally considered in BCG Matrix
work, which may make application of this form of analysis unworkable in many markets.

Where it can be applied, however, the market growth rate says more about the brand
position than just its cash flow. It is a good indicator of that market's strength, of its
future potential (of its 'maturity' in terms of the market life-cycle), and also of its
attractiveness to future competitors. It can also be used in growth analysis.

Critical evaluation

The matrix ranks only market share and industry growth rate, and only implies actual
profitability, the purpose of any business. (It is certainly possible that a particular dog
can be profitable without cash infusions required, and therefore should be retained and
not sold.) The matrix also overlooks other elements of industry. With this or any other
such analytical tool, ranking business units has a subjective element involving
guesswork about the future, particularly with respect to growth rates. Unless the
rankings are approached with rigor and scepticism, optimistic evaluations can lead to a
dot com mentality in which even the most dubious businesses are classified as
"question marks" with good prospects; enthusiastic managers may claim that cash must
be thrown at these businesses immediately in order to turn them into stars, before
growth rates slow and it's too late. Poor definition of a business's market will lead to
some dogs being misclassified as cash bulls.

As originally practiced by the Boston Consulting Group the matrix was undoubtedly a
useful tool, in those few situations where it could be applied, for graphically illustrating
cashflows. If used with this degree of sophistication its use would still be valid. However,
later practitioners have tended to over-simplify its messages. In particular, the later
application of the names (problem children, stars, cash cows and dogs) has tended to
overshadow all else—and is often what most students, and practitioners, remember.

This is unfortunate, since such simplistic use contains at least two major problems:
'Minority applicability'. The cashflow techniques are only applicable to a very limited
number of markets (where growth is relatively high, and a definite pattern of product life-
cycles can be observed, such as that of ethical pharmaceuticals). In the majority of
markets, use may give misleading results.

'Milking cash bulls'. Perhaps the worst implication of the later developments is that the
(brand leader) cash bulls should be milked to fund new brands. This is not what
research into the FMCG markets has shown to be the case. The brand leader's position
is the one, above all, to be defended, not least since brands in this position will probably
outperform any number of newly launched brands. Such brand leaders will, of course,
generate large cash flows; but they should not be `milked' to such an extent that their
position is jeopardized. In any case, the chance of the new brands achieving similar
brand leadership may be slim—certainly far less than the popular perception of the
Boston Matrix would imply.

Perhaps the most important danger is, however, that the apparent implication of its four-
quadrant form is that there should be balance of products or services across all four
quadrants; and that is, indeed, the main message that it is intended to convey. Thus,
money must be diverted from `cash cows' to fund the `stars' of the future, since `cash
cows' will inevitably decline to become `dogs'. There is an almost mesmeric inevitability
about the whole process. It focuses attention, and funding, on to the `stars'. It
presumes, and almost demands, that `cash bulls' will turn into `dogs'.

The reality is that it is only the `cash bulls' that are really important—all the other
elements are supporting actors. It is a foolish vendor who diverts funds from a `cash
cow' when these are needed to extend the life of that `product'. 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. The vendor, who has most
of his (or her) products in the `cash cow' quadrant, should consider himself (or herself)
fortunate indeed, and an excellent marketer, although he or she might also consider
creating a few stars as an insurance policy against unexpected future developments
and, perhaps, to add some extra growth. There is also a common misconception that
'dogs' are a waste of resources. In many markets 'dogs' can be considered loss-leaders
that while not themselves profitable will lead to increased sales in other profitable areas.

Alternatives

As with most marketing techniques, 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 taught—and then probably 'not' used). The next most widely reported technique
is that developed by McKinsey and General Electric, which is a three-cell by three-cell
matrix—using the dimensions of `industry attractiveness' and `business strengths'. 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, or is at least less widely
taught). Perhaps the most practical approach is that of the Boston Consulting Group's
Advantage Matrix, which the consultancy reportedly used itself though it is little known
amongst the wider population.

ansoff's product / market matrix

Introduction
The Ansoff Growth matrix is a tool that helps businesses decide their product and
market growth 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.

The output from the Ansoff product/market matrix is a series of suggested growth
strategies that set the direction for the business strategy. 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.
Market penetration seeks to achieve four main objectives:
• Maintain or increase the market share of current products – this can be achieved by a
combination of competitive pricing strategies, advertising, sales promotion and perhaps
more resources dedicated to personal selling
• Secure dominance of growth markets
• Restructure a mature market by driving out competitors; this would require a much
more aggressive promotional campaign, 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 “business as usual”. The
business is focusing on markets and products it knows well. It is likely to have good
information on competitors and on customer needs. It is unlikely, therefore, that this
strategy will require much investment in new market research.
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, 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. This strategy may require the
development of new competencies and requires the business to develop modified
products which can appeal to existing markets.
Diversification
Diversification is the name given to the growth strategy where a business markets new
products in new markets.
This is an inherently more risk strategy because the business is moving into markets in
which it has little or no experience.
For a business to adopt a diversification strategy, therefore, it must have a clear idea
about what it expects to gain from the strategy and an honest assessment of the risks.

strategy - portfolio analysis - ge matrix

The business portfolio is the collection of businesses and products that make up the
company. The best business portfolio is one that fits the company's strengths and helps
exploit the most attractive opportunities.

The company must:

(1) Analyse its current business portfolio and decide which businesses should receive
more or less investment, and
(2) Develop growth strategies for adding new products and businesses to the portfolio,
whilst at the same time deciding when products and businesses should no longer be
retained.

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). In both methods, the first step is to identify the various Strategic Business Units
("SBU's") in a company portfolio. 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. An SBU can be a company division, a product line or even individual
brands - it all depends on how the company is organised.

The McKinsey / General Electric Matrix

The McKinsey/GE Matrix overcomes a number of the disadvantages of the BCG Box.
Firstly, market attractiveness replaces market growth as the dimension of industry
attractiveness, and includes a broader range of factors other than just the market
growth rate. Secondly, competitive strength replaces market share as the dimension
by which the competitive position of each SBU is assessed.

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, there are

several factors which can help determine attractiveness. These are listed below:
- Market Size
- Market growth
- Market profitability
- Pricing trends
- Competitive intensity / rivalry
- Overall risk of returns in the industry
- Opportunity to differentiate products and services
- Segmentation
- Distribution structure (e.g. retail, direct, wholesale

Factors that Affect Competitive Strength

Factors to consider include:

- Strength of assets and competencies

- Relative brand strength
- Market share
- Customer loyalty
- Relative cost position (cost structure compared with competitors)
- Distribution strength
- Record of technological or other innovation
- Access to financial and other investment resources
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, lining involves
offering several related products individually. A line can comprise related products of
various sizes, types, colors, qualities, or prices. Line depth refers to the number of
product variants in a line. Line consistency refers to how closely related the products
that make up the line are. Line vulnerability refers to the percentage of sales or profits
that are derived from only a few products in the line.

The number of different product lines sold by a company is referred to as width of

product mix. The total number of products sold in all lines is referred to as length of
product mix. If a line of products is sold with the same brand name, this is referred to
as family branding. When you add a new product to a line, it is referred to as a line
extension. When you add a line extension that is of better quality than the other
products in the line, this is referred to as trading up or brand leveraging. When you
add a line extension that is of lower quality than the other products of the line, this is
referred to as trading down. When you trade down, you will likely reduce your brand
equity. You are gaining short-term sales at the expense of long term sales.

Image anchors are highly promoted products within a line that define the image of the
whole line. Image anchors are usually from the higher end of the line's range. When you
add a new product within the current range of an incomplete line, this is referred to as
line filling.
Price lining is the use of a limited number of prices for all your product offerings. 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. It has the advantage of ease of
administering, but the disadvantage of inflexibility, particularly in times of inflation or
unstable prices.

There are many important decisions about product and service development and
marketing. In the process of product development and marketing we should focus on
strategic decisions about product attributes, product branding, product packaging,
product labeling and product support services. But product strategy also calls for
building a product line.

A product line extension is the use of an established product’s brand name for a new
item in the same product category.

Line Extensions occur when a company introduces additional items in the same product
category under the same brand name such as new flavors, forms, colors, added
ingredients, package sizes. This is as opposed to brand extension which is a new
product in a totally different product category.

Examples include

• Zen LXI, Zen VXI

• Surf, Surf Excel, Surf Excel Blue
• Splendour, Splendour Plus
• Coca-Cola, Diet Coke, Vanilla Coke
• Clinic All Clear, Clinic Plus
• Reese's Peanut Butter Cups, Reese's Pieces and Reese's Puff Cereal

Consumer and Industrial Goods

The classification of goods—physical products— is essential to business
because it provides a basis for determining the strategies needed to move them
through the marketing system. The two main forms of classifications are
consumer goods and industrial goods.

Consumer Goods

Consumer goods are goods that are bought from retail stores for personal,
family, or household use. They are grouped into three subcategories on the basis
of consumer buying habits: convenience goods, shopping goods, and specialty
goods.

Consumer goods can also be differentiated on the basis of durability. Durable

goods are products that have a long life, such as furniture and garden tools.
Nondurable goods are those that are quickly used up, or worn out, or that
become outdated, such as food, school supplies, and disposable cameras.

Convenience Goods Convenience goods are items that buyers want to buy with
the least amount of effort, that is, as conveniently as possible. Most are
nondurable goods of low value that are frequently purchased in small quantities.
These goods can be further divided into two subcategories: staple and impulse
items.

Staple convenience goods are basic items that buyers plan to buy before they
enter a store, and include milk, bread, and toilet paper. Impulse items are other
convenience goods that are purchased without prior planning, such as candy
bars, soft drinks, and tabloid newspapers.

Since convenience goods are not actually sought out by consumers, producers
attempt to get as wide a distribution as possible through wholesalers. To extend
the distribution, these items are also frequently made available through vending
machines in offices, factories, schools, and other settings. Within stores, they are
placed at checkout stands and other high-traffic areas.

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. These goods are usually of
higher value than convenience goods, bought infrequently, and are durable.
Price, quality, style, and color are typically factors in the buying decision.
Televisions, computers, lawnmowers, bedding, and camping equipment are all
examples of shopping goods.

Because customers are going to shop for these goods, a fundamental strategy in
establishing stores that specialize in them is to locate near similar stores in active
shopping areas. Ongoing strategies for marketing shopping goods include the
heavy use of advertising in local media, including newspapers, radio, and
television. Advertising for shopping goods is often done cooperatively with the
manufacturers of the goods.

Specialty Goods Specialty goods are items that are unique or unusual—at least
in the mind of the buyer. Buyers know exactly what they want and are willing to
exert considerable effort to obtain it. These goods are usually, but not
necessarily, of high value, and they may or may not be durable goods. They
differ from shopping goods primarily because price is not the chief consideration.
Often the attributes that make them unique are brand preference (e.g., a certain
make of automobile) or personal preference (e.g., a food dish prepared in a
specific way). Other items that fall into this category are wedding dresses,
antiques, fine jewelry, and golf clubs.
Producers and distributors of specialty goods prefer to place their goods only in
selected retail outlets. 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. Consistency of image between the product and the store is also a factor
in selecting outlets.

The distinction among convenience, shopping, and specialty goods is not always
clear. As noted earlier, these classifications are based on consumers' buying
habits. Consequently, a given item may be a convenience good for one person, a
shopping good for another, and a specialty good for a third. For example, for a
person who does not want to spend time shopping, buying a pair of shoes might
be a convenience purchase. In contrast, another person might buy shoes only
after considerable thought and comparison: in this instance, the shoes are a
shopping good. Still another individual who perhaps prefers a certain brand or
has an unusual size will buy individual shoes only from a specific retail location;
for this buyer, the shoes are a specialty good.

Industrial Goods

Industrial goods are products that companies purchase to make other products,
which they then sell. Some are used directly in the production of the products for
resale, and some are used indirectly. Unlike consumer goods, industrial goods
are classified on the basis of their use rather than customer buying habits. These
goods are divided into five subcategories: installations, accessory equipment,
raw materials, fabricated parts and materials, and industrial supplies.

Industrial goods also carry designations related to their durability. Durable

industrial goods that cost large sums of money are referred to as capital items.
Nondurable industrial goods that are used up within a year are called expense
items.

Installations Installations are major capital items that are typically used directly in
the production of goods. Some installations, such as conveyor systems, robotics
equipment, and machine tools, are designed and built for specialized situations.
Other installations, such as stamping machines, large commercial ovens, and
computerized axial tomography (CAT) scan machines, are built to a standard
design but can be modified to meet individual requirements.

The purchase of installations requires extensive research and careful decision

making on the part of the buyer. Manufacturers of installations can make their
availability known through advertising. However, actual sale of installations
requires the technical knowledge and assistance that can best be provided by
personal selling.

Accessory Equipment Goods that fall into the subcategory of accessory

equipment are capital items that are less expensive and have shorter lives than
installations. Examples include hand tools, computers, desk calculators, and
forklifts. While some types of accessory equipment, such as hand tools, are
involved directly in the production process, most are only indirectly involved.

The relatively low unit value of accessory equipment, combined with a market
made up of buyers from several different types of businesses, dictates a broad
marketing strategy. Sellers rely heavily on advertisements in trade publications
and mailings to purchasing agents and other business buyers. When personal
selling is needed, it is usually done by intermediaries, such as wholesalers.

Raw Materials Raw materials are products that are purchased in their raw state
for the purpose of processing them into consumer or industrial goods. Examples
are iron ore, crude oil, diamonds, copper, timber, wheat, and leather. Some (e.g.,
wheat) may be converted directly into another consumer product (cereal). Others
(e.g., timber) may be converted into an intermediate product (lumber) to be
resold for use in another industry (construction).

Most raw materials are graded according to quality so that there is some
assurance of consistency within each grade. There is, however, little difference
between offerings within a grade. Consequently, sales negotiations focus on
price, delivery, and credit terms. This negotiation plus the fact that raw materials
are ordinarily sold in large quantities make personal selling the principal
marketing approach for these goods.

Fabricated Parts and Materials Fabricated parts are items that are purchased to
be placed in the final product without further processing. Fabricated materials, on
the other hand, require additional processing before being placed in the end
product. Many industries, including the auto industry, rely heavily on fabricated
parts. Automakers use such fabricated parts as batteries, sun roofs, windshields,
and spark plugs. They also use several fabricated materials, including steel and
upholstery fabric. As a matter of fact, many industries actually buy more
fabricated items than raw materials.

Buyers of fabricated parts and materials have well-defined specifications for their
needs. They may work closely with a company in designing the components or
materials they require, or they may invite bids from several companies. In either
case, in order to be in a position to get the business, personal contact must be
maintained with the buyers over time. Here again, personal selling is a key
component in the marketing strategy.

Industrial Supplies Industrial supplies are frequently purchased expense items.

They contribute indirectly to the production of final products or to the
administration of the production process. Supplies include computer paper, light
bulbs, lubrication oil, cleaning supplies, and office supplies.

Buyers of industrial supplies do not spend a great deal of time on their

purchasing decisions unless they are ordering large quantities. As a result,
companies marketing supplies place their emphasis on advertising—particularly
in the form of catalogues—to business buyers. When large orders are at stake,
sales representatives may be used.

It is not always clear whether a product is a consumer good or an industrial good.

The key to differentiating them is to identify the use the buyer intends to make of
the good. Goods that are in their final form, are ready to be consumed, and are
bought to be resold to the final consumer are classified as consumer goods. On
the other hand, if they are bought by a business for its own use, they are
considered industrial goods. Some items, such as flour and pick-up trucks, can
fall into either classification, depending on how they are used. Flour purchased
by a supermarket for resale would be classified as a consumer good, but flour
purchased by a bakery to make pastries would be classified as an industrial
good. A pickup truck bought for personal use is a consumer good; if purchased to
transport lawnmowers for a lawn service, it is an industrial good.
Module: III

Branding

Brand management is the application of marketing techniques to a specific product,

product line, or brand. It seeks to increase the product's perceived value to the
customer and thereby increase brand franchise and brand equity. 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. This may increase sales
by making a comparison with competing products more favorable. It may also enable
the manufacturer to charge more for the product. The value of the brand is determined
by the amount of profit it generates for the manufacturer. This can result from a
combination of increased sales and increased price, and/or reduced COGS (cost of
goods sold), and/or reduced or more efficient marketing investment. All of these
enhancements may improve the profitability of a brand, and thus, "Brand Managers"
often carry line-management accountability for a brand's P&L (Profit and Loss)
profitability, in contrast to marketing staff manager roles, which are allocated budgets
from above, to manage and execute. In this regard, Brand Management is often viewed
in organizations as a broader and more strategic role than Marketing alone.

The annual list of the world’s most valuable brands, published by Interbrand and
Business Week, indicates that the market value of companies often consists largely of
brand equity. Research by McKinsey & Company, a global consulting firm, in 2000
suggested that strong, well-leveraged brands produce higher returns to shareholders
than weaker, narrower brands. Taken together, this means that brands seriously impact
shareholder value, which ultimately makes branding a CEO responsibility.

The discipline of brand management was started at Procter & Gamble PLC as a result
of a famous memo by Neil H. McElroy

Principles of brand management

A good brand name should:

• be protected (or at least protectable) under trademark law.

• be easy to pronounce.
• be easy to remember.
• be easy to recognize.
• be easy to translate into all languages in the markets where the brand will be
used.
• attract attention.
• suggest product benefits (e.g.: Easy-Off) or suggest usage (note the tradeoff with
strong trademark protection.)
• suggest the company or product image.
• distinguish the product's positioning relative to the competition.
• be attractive.
 • stand out among a group of other brands.

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, Assignment of responsibility to product maker, Risk

reducer, Search cost reducer, Symbolic device, Signal of quality.

(For Manufacture)

Means of identification to simplify handling or tracing, Means of legally protecting unique

features, Signal of quality level to satisfied customers, Means of endowing products with
unique associations, Source of competitive advantage, Source of financial returns.
("Strategic Brand Management" 3rd edition,Kevin Lane Keller)

Brand architecture

The different brands owned by a company are related to each other via brand
architecture. In "product brand architecture", 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. Procter & Gamble, considered by many
to have created product branding, is a choice example with its many unrelated
consumer brands such as Tide, Pampers, Abunda, Ivory and Pantene.

With "endorsed brand architecture", a mother brand is tied to product brands, such as
The Courtyard Hotels (product brand name) by Marriott (mother brand name). 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 mother brand is used and all products carry this name and all advertising
speaks with the same voice. A good example of this brand architecture is the UK-based
conglomerate Virgin. Virgin brands all its businesses with its name

Techniques

Companies sometimes want to reduce the number of brands that they market. This
process is known as "Brand rationalization." Some companies tend to create more
brands and product variations within a brand than economies of scale would indicate.
Sometimes, they will create a specific service or product brand for each market that
they target. In the case of product branding, this may be to gain retail shelf space (and
reduce the amount of shelf space allocated to competing brands). A company may
decide to rationalize their portfolio of brands from time to time to gain production and
marketing efficiency, or to rationalize a brand portfolio as part of corporate restructuring.

A recurring challenge for brand managers is to build a consistent brand while keeping
its message fresh and relevant. An older brand identity may be misaligned to a
redefined target market, a restated corporate vision statement, revisited mission
statement or values of a company. Brand identities may also lose resonance with their
target market through demographic evolution. Repositioning a brand (sometimes called
rebranding), may cost some brand equity, and can confuse the target market, but
ideally, a brand can be repositioned while retaining existing brand equity for leverage.

Brand orientation is a deliberate approach to working with brands, both internally and
externally. The most important driving force behind this increased interest in strong
brands is the accelerating pace of globalization. This has resulted in an ever-tougher
competitive situation on many markets. A product’s superiority is in itself no longer
sufficient to guarantee its success. The fast pace of technological development and the
increased speed with which imitations turn up on the market have dramatically
shortened product lifecycles. The consequence is that product-related competitive
advantages soon risk being transformed into competitive prerequisites. For this reason,
increasing numbers of companies are looking for other, more enduring, competitive
tools – such as brands. Brand Orientation refers to "the degree to which the
organization values brands and its practices are oriented towards building brand
capabilities” (Bridson & Evans, 2004).

Challenges

There are several challenges associated with setting objectives for a category.

• Brand managers sometimes limit themselves to setting financial and market

performance objectives. They may not question strategic objectives if they feel
this is the responsibility of senior management.
• Most product level or brand managers limit themselves to setting short-term
objectives because their compensation packages are designed to reward short-
term behavior. Short-term objectives should be seen as milestones towards long-
term objectives.
 • Often product level managers are not given enough information to construct
strategic objectives.
• It is sometimes difficult to translate corporate level objectives into brand- or
product-level category.
• In a diversified company, the objectives of some brands may conflict with those
of other brands. Or worse, corporate objectives may conflict with the specific
needs of your brand. This is particularly true in regard to the trade-off between
stability and riskiness. Corporate objectives must be broad enough that brands
with high-risk products are not constrained by objectives set with cash cows in
mind (see B.C.G. Analysis). The brand manager also needs to know senior
management's harvesting strategy.
• Brand managers sometimes set objectives that optimize the performance of their
unit rather than optimize overall corporate performance. This is particularly true
where compensation is based primarily on unit performance. Managers tend to
ignore potential synergies and inter-unit joint processes.
• Overall organisation alignment behind the brand to achieve Integrated Marketing
is complex.
• Brands are sometimes criticized within social media web sites and this must be
monitored and managed.
• Also because of the development of such social technologies, 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. Online brand reputation protection can mean monitoring for
the misappropriation of a brand trademark by fraudsters intent on confusing consumers
for monetary gain. It can also mean monitoring for less malicious, although perhaps
equally damaging, infractions, 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. 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.

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. And, at the root of these marketing effects is consumers' knowledge. In
other words, consumers' knowledge about a brand makes manufacturers/advertisers
respond differently or adopt appropriately adept measures for the marketing of the
brand . 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. Brand equity is one of the factors which can increase the financial value
of a brand to the brand owner, although not the only one.
Measurement

There are many ways to measure a brand. Some measurements approaches are
at the firm level, some at the product level, and still others are at the consumer
level.

Firm Level: Firm level approaches measure the brand as a financial asset. In short, a
calculation is made regarding how much the brand is worth as an intangible asset. For
example, if you were to take the value of the firm, as derived by its market capitalization
- and then subtract tangible assets and "measurable" intangible assets- the residual
would be the brand equity.[ One high profile firm level approach is by the consulting firm
Interbrand. To do its calculation, Interbrand estimates brand value on the basis of
projected profits discounted to a present value. The discount rate is a subjective rate
determined by Interbrand and Wall Street equity specialists and reflects the risk profile,
market leadership, 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. The
difference in price, assuming all things equal, is due to the brand. More recently a
revenue premium approach has been advocated.

Consumer Level: This approach seeks to map the mind of the consumer to find out
what associations with the brand the consumer has. This approach seeks to measure
the awareness (recall and recognition) and brand image (the overall associations that
the brand has). Free association tests and projective techniques are commonly used to
uncover the tangible and intangible attributes, attitudes, and intentions about a brand.
Brands with high levels of awareness and strong, favorable and unique associations are
high equity brands.

All of these calculations are, at best, approximations. A more complete understanding of

the brand can occur if multiple measures are used.

Positive brand equity vs. 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.

There are two schools of thought regarding the existence of negative brand equity. One
perspective states brand equity cannot be negative, hypothesizing only positive brand
equity is created by marketing activities such as advertising, PR, and promotion. A
second perspective is that negative equity can exist, due to catastrophic events to the
brand, such as a wide product recall or continued negative press attention (Blackwater
or Halliburton, for example).
Colloquially, 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 “brand liability”, compared with “brand equity” [11].

Family branding vs. individual branding strategies

The greater a company's brand equity, the greater the probability that the company will
use a family branding strategy rather than an individual branding strategy. This is
because family branding allows them to leverage the equity accumulated in the core
brand. Aspects of brand equity includes: brand loyalty, awareness, association, and
perception of quality .

Examples

In the early 2000s in North America, the Ford Motor Company made a strategic decision
to brand all new or redesigned cars with names starting with "F". This aligned with the
previous tradition of naming all sport utility vehicles since the Ford Explorer with the
letter "E". 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, while a marketing manager believed that a name change would highlight
the new redesign. The aging Taurus, which became one of the most significant cars in
American auto history, would be abandoned in favor of three entirely new names, all
starting with "F", the Five Hundred, Freestar and Fusion. By 2007, the Freestar was
discontinued without a replacement. 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. "Five Hundred" was recognized by less than half of most people, but an
overwhelming majority was familiar with the "Ford Taurus".

Brand Positioning

Definitions

Although there are different definitions of Positioning, probably the most common is:
identifying a market niche for a brand, product or service utilizing traditional marketing
placement strategies (i.e. price, promotion, distribution, packaging, and competition).

Positioning is a concept in marketing which was first popularized by Al Ries and Jack
Trout in their bestseller book "Positioning - The Battle for Your Mind."

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, in which the case is made that the typical
consumer is overwhelmed with unwanted advertising, and has a natural tendency to
discard all information that does not immediately find a comfortable (and empty) slot in
the consumers mind. It was then expanded into their ground-breaking first book,
"Positioning: The Battle for Your Mind," in which they define Positioning as "an
organized system for finding a window in the mind. It is based on the concept that
communication can only take place at the right time and under the right circumstances"
(p. 19 of 2001 paperback edition).

What most will agree on is that Positioning is something (perception) that happens in
the minds of the target market. It is the aggregate perception the market has of a
particular company, product or service in relation to their perceptions of the competitors
in the same category. It will happen whether or not a company's management is
proactive, reactive or passive about the on-going process of evolving a position. But a
company can positively influence the perceptions through enlightened strategic actions.

Product positioning process

Generally, the product positioning process involves:

1. Defining the market in which the product or brand will compete (who the relevant
buyers are)
2. Identifying the attributes (also called dimensions) that define the product 'space'
3. Collecting information from a sample of customers about their perceptions of
each product on the relevant attributes
4. Determine each product's share of mind
5. Determine each product's current location in the product space
6. Determine the target market's preferred combination of attributes (referred to as
an ideal vector)
7. Examine the fit between:
o The position of your product
o The position of the ideal vector
8. Position.

The process is similar for positioning your company's services. Services, however, don't
have the physical attributes of products - that is, we can't feel them or touch them or
show nice product pictures. So you need to ask first your customers and then yourself,
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. Test it on people who don't really know what you do or
what you sell, watch their facial expressions and listen for their response. When they
want to know more because you've piqued their interest and started a conversation,
you'll know you're on the right track.

Positioning concepts

More generally, there are three types of positioning concepts:

 1. Functional positions
o Solve problems
o Provide benefits to customers
o Get favorable perception by investors (stock profile) and lenders
2. Symbolic positions
o Self-image enhancement
o Ego identification
o Belongingness and social meaningfulness
o Affective fulfillment
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 “added 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 Extensions

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 Jello-
gelatin 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.
In 1990s, 81% of new products used brand extension to introduce new brands and to
create sales. Launching a new product, is not only time consuming but also needs a big
budget to create awareness and to promote a product's benefits. Brand extension is one
of the new product development strategies which can reduce financial risk by using the
parent brand name to enhance consumers' perception due to the core brand equity.

While there can be significant benefits in brand extension strategies, there can also be
significant risks, resulting in a diluted or severely damaged brand image. Poor choices
for brand extension may dilute and deteriorate the core brand and damage the brand
equity. Most of the literature focuses on the consumer evaluation and positive impact on
parent brand. In practical cases, the failures of brand extension are at higher rate than
the successes. Some studies show that negative impact may dilute brand image and
equity. In spite of the positive impact of brand extension, negative association and
wrong communication strategy do harm to the parent brand even brand family. Product
extensions are versions of the same parent product that serve a segment of the target
market and increase the variety of an offering. An example of a product extension is
Coke vs. Diet Coke in same product category of soft drinks. 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. 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.

Types of product extension

Brand extension research mainly focuses on the consumer evaluation of extension and
attitude of the parent brand. Following the Aaker and Keller’s (1990) model, they
provide a sufficient depth and breadth proposition to examine consumer behaviour and
conceptual framework. They use three dimensions to measure the fit of extension. First
of all, the “Complement” is that consumer takes two product (extension and parent
brand product) classes as complement to satisfy their specific needs. Secondly, the
“Substitute” 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. At
last, the “Transfer” is the relationship between extension product and manufacturer
which “reflects the perceived ability of any firm operating in the first product class to
make a product in the second class”. The first two measures focus on the consumer’s
demand and the last one focuses on firm’s ability.

From the line extension to brand extension, however, there are many different way of
extension such as "brand alliance",co-brandingor “brand franchise extension”. Tauber
(1988) suggests seven strategies to identify extension cases such as product with
parent brand’s benefit, same product with different price or quality, etc. In his
suggestion, it can be classified into two category of extension; extension of product-
related association and non-product related association. Another form of brand
extension, is a licensed brand extension. Where the brand-owner partners (sometimes
with a competitor) who takes on the responsibility of manufacturer and sales of the new
products, paying a royalty every time a product is sold.

Categorisation theory

Researchers tend to use “categorisation theory” as their fundamental theory to explore

the links about the brand extension. When consumers face thousands of products, they
not only are initially confused and disorderly in mind, but also try to categorise the brand
association or image with their existing memory. When two or more products exit in
front of consumers, they might reposition memories to frame a brand image and
concept toward new introduction. A consumer can judge or evaluate the extension by
their category memory. They categorise new information into specific brand or product
class label and store it. This process is not only related to consumer’s experience and
knowledge, but also involvement and choice of brand. If the brand association is highly
related to extension, consumer can perceive the fit among brand extension. 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.

Brand extension failure

Literature related to negative effect of brand extension is limited and the findings are
revealed as incongruent. The early works of Aaker and Keller (1990) find no significant
evidence that brand name can be diluted by unsuccessful brand extensions.
Conversely, 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, a lack of similarity
and familiarity and inconsistent IMC messages.

“Equity of an integrated oriented brand can be diluted significantly from both functional
and non-functional attributes-base variables”, which means dilution does occur across
the brand extension to the parent brand. 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. In addition, Martinez and
de Chernatony (2004) classify the brand image in two types: the general brand image
and the product brand image. They suggest that if the brand name is strong enough as
Nike or Sony, the negative impact has no specific damage on general brand image and
“the dilution effect is greater on product brand image than on general brand image”. In
consequence, consumer may maintain their belief about the attributes and feelings from
parent brand. On the other hand, their study shows that “brand extension dilutes the
brand image, changing the beliefs and association in consumers’ mind”.

The flagship product is a money-spinner to a firm. Marketer spends budget and time to
create maximum exposure and awareness for the product. Theoretically speaking,
flagship product is usually had the top sales and highest awareness in its product
category. In spite of Aaker and Keller’s (1990) research reported that the prestige brand
do no harm from failure of extension. Evidence shows that the dilution effect has great
and instant damage to the flagship product and brand family. But in some findings, even
overall parent belief is diluted; the flagship product would not be harmed. In addition,
brand extension is also “diminish consumer’s feelings and beliefs about brand name.”
To establish a strong brand, it is necessary to build up a “brand ladder”. Marketers may
go behind the order and model created by Aaker and Keller which they are authorities
on brand management. But branding does not always follow a rational line. One mistake
can damage all brand equity. A classic extension failure example would be Coca Cola
launching “New Coke” in 1985. Although initially accepted a backlash against “New
Coke” soon emerged among consumers. Not only did Coca Cola not succeed in
developing a new brand but sales of the original flavour also decreased. Coca Cola
were had to make considerable efforts to regain customers who had turned to Pepsi
cola.

Although there are few works about the failure of extensions, literature still provides
sufficient in depth research around this issue. Studies also suggest that brand extension
is a risky strategy to increase sales or brand equity. It should consider the damage of
parent brand no matter what types of extension are used. Example. BIC Pens tried to
produce BIC pantyhose. You can read some more here

Brand equity

Brand equity is defined as the main concern in brand management and IMC campaign.
Every marketer should pursue the long term equity and pay attention to every strategy
in detail. Because a small message dissonance would cause great failure of brand
extension. On the other hand, consumer has his psychology process in mind. The
moderating variable is a useful indication to evaluate consumer evaluation of brand
extension.

Throughout the categorisation theory and associative network theory, consumer does
have the ability to process information into useful knowledge for them. They would
measure and compares the difference between core brand and extension product
through quality of core brand, fit in category, former experience and knowledge, and
difficulty of making. Consequently, in this article may conclude some points about
consumer evaluation of brand extension:

1. Quality of core brand creates a strong position for brand and low the impact of fit
in consumer evaluation.
2. 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.
3. Consumer’s knowledge and experience affect the evaluation before extension
product trail.
4. The more innovation of extension product is, the greater positive fit can perceive.

A successful brand message strategy relies on a congruent communication and a clear

brand image. The negative impact of brand extension would cause a great damage to
parent brand and brand family. From a manager and marketer’s perspective, an
operation of branding should maintain brand messages and associations within a
consistency and continuum in the long way. Because the effects of negative impact
from brand extension are tremendous and permanently. Every messages or brand
extension can dilute the brand in nature.

Brand is the image of the product in the market. Some people distinguish the
psychological aspect of a brand from the experiential aspect. The experiential aspect
consists of the sum of all points of contact with the brand and is known as the brand
experience. The psychological aspect, sometimes referred to as the brand image, is a
symbolic construct created within the minds of people and consists of all the information
and expectations associated with a product or service.

People engaged in branding seek to develop or align the expectations behind the brand
experience, creating the impression that a brand associated with a product or service
has certain qualities or characteristics that make it special or unique. A brand is
therefore one of the most valuable elements in an advertising theme, as it demonstrates
what the brand owner is able to offer in the marketplace. The art of creating and
maintaining a brand is called brand management. Orientation of the whole organization
towards its brand is called brand orientation.

Careful brand management seeks to make the product or services relevant to the target
audience. 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. This concept, known as creating value, 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, rather than a more
logical valuation that comprises an aggregate of the cost of raw materials, plus the cost
of manufacture, plus the cost of distribution. Modern value-creation branding-and-
advertising campaigns are highly successful at inducing consumers to pay, for example,
50 dollars for a T-shirt that cost a mere 50 cents to make, or 5 dollars for a box of
breakfast cereal that contains a few cents' worth of wheat.

Brands should be seen as more than the difference between the actual cost of a
product and its selling price - they represent the sum of all valuable qualities of a
product to the consumer. There are many intangibles involved in business, intangibles
left wholly from the income statement and balance sheet which determine how a
business is perceived. The learned skill of a knowledge worker, the type of metal
working, the type of stitch: all may be without an 'accounting cost' but for those who truly
know the product, for it is these people the company should wish to find and keep, the
difference is incomparable. Failing to recognize these assets that a business, any
business, can create and maintain will set an enterprise at a serious disadvantage.

A brand which is widely known in the marketplace acquires brand recognition. When
brand recognition builds up to a point where a brand enjoys a critical mass of positive
sentiment in the marketplace, it is said to have achieved brand franchise. One goal in
brand recognition is the identification of a brand without the name of the company
present. For example, Disney has been successful at branding with their particular
script font (originally created for Walt Disney's "signature" logo), which it used in the
logo for go.com.

Consumers may look on branding as an important value added aspect of products or

services, as it often serves to denote a certain attractive quality or characteristic (see
also brand promise). From the perspective of brand owners, branded products or
services also command higher prices. Where two products resemble each other, but
one of the products has no associated branding (such as a generic, store-branded
product), people may often select the more expensive branded product on the basis of
the quality of the brand or the reputation of the brand owner.

Brand Awareness

Brand awareness refers to customers' ability to recall and recognize the brand under
different conditions and link to the brand name, logo, jingles and so on to certain
associations in memory. 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. It also ensures that customers know which of their needs
are satisfied by the brand through its products.(Keller) 'Brand love', or love of a brand, is
an emerging term encompassing the perceived value of the brand image. Brand love
levels are measured through social media posts about a brand, or tweets of a brand on
sites such as Twitter. Becoming a Facebook fan of a particular brand is also a
measurement of the level of 'brand love'.

Brand Salience

Brand salience measures the awareness of the brand."To what extent is the brand top-
of-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 “brand

salience”. Brand salience is “the 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. Salience refers not to what customers think about
brands but to which ones they think about.

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.
Advertising weight and brand salience are cues to customers indicating which brands
are popular, and customers have a tendency to buy popular brands. Also, an increase
in the salience of one brand can actually inhibit recall of other brands, including brands
that otherwise would be candidates for purchase.
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, not because it is more distinctive, or has a point of difference. 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.

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. Memories are stored or filed via connections between new and existing
memories in the different parts of the memory. They are laid down in a framework
making some memories easier to access than others. Recall is the process by which an
individual reconstructs the stimulus itself from memory, removed from the physicality’s
of that reality.

References

Brand Salience: How do Buyers Remember? Article by Terry Reeves, 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.Global brands transcend their origins and creates strong, enduring relationships
with consumers across countries and cultures.

Global brands are brands which sold to international markets. Examples of global
brands include Coca-Cola, McDonald's, Marlboro, Levi's etc.. These brands are used to
sell the same product across multiple markets, and could be considered successful to
the extent that the associated products are easily recognizable by the diverse set of
consumers.

Benefits of Global Branding

In addition to taking advantage of the outstanding growth opportunities, the following

drives the increasing interest in taking brands global:

• economies of scale (production and distribution)

• lower marketing costs

• laying the groundwork for future extensions worldwide

• maintaining consistent brand imagery

 • 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

Global Brand Variables

The following elements may differ from country to country:

• corporate slogan

• products and services

• product names

• product features

• positionings

• marketing mixes (including pricing, distribution, media and advertising execution)

These differences will depend upon:

• 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, pricing, distribution, etc.)

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. It may be called a regional brand if the area encompasses more than
one metropolitan market. It may also be a brand that is developed for a specific national
market, however an interesting thing about local brand is that the local branding is
mostly done by consumers then by the producers. Examples of Local Brands in Sweden
are Stomatol, Mijerierna etc.

Brand name

Relationship between trade marks and brand

The brand name is quite often used interchangeably within "brand", although it is more
correctly used to specifically denote written or spoken linguistic elements of any
product. In this context a "brand name" constitutes a type of trademark, if the brand
name exclusively identifies the brand owner as the commercial source of products or
services. A brand owner may seek to protect proprietary rights in relation to a brand
name through trademark registration. Advertising spokespersons have also become
part of some brands, for example: Mr. Whipple of Charmin toilet tissue and Tony the
Tiger of Kellogg's. Local Branding is usually done by the consumers rather than the
producers.

Types of brand names

Brand names come in many styles. 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
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.
Most products have some kind of brand identity, from common table salt to designer
jeans. A brandnomer is a brand name that has colloquially become a generic term for a
product or service, such as Band-Aid or Kleenex, which are often used to describe any
kind of adhesive bandage or any kind of facial tissue respectively.

Brand identity

A product identity, or brand image are typically the attributes one associates with a
brand, how the brand owner wants the consumer to perceive the brand - and by
extension the branded company, organization, product or service. The brand owner will
seek to bridge the gap between the brand image and the brand identity. 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). Furthermore, the brand
name should be on target with the brand demographic. Typically, sustainable brand
names are easy to remember, transcend trends and have positive connotations. Brand
identity is fundamental to consumer recognition and symbolizes the brand's
differentiation from competitors.

Brand identity is what the owner wants to communicate to its potential consumers.
However, over time, a product's brand identity may acquire (evolve), gaining new
attributes from consumer perspective but not necessarily from the marketing
communications an owner percolates to targeted consumers. Therefore, brand
associations become handy to check the consumer's perception of the brand. Brand
identity needs to focus on authentic qualities - real characteristics of the value and
brand promise being provided and sustained by organisational and/or production
characteristics.

Visual Brand Identity

The visual brand identity manual for Mobil Oil (developed by Chermayeff & Geismar),
one of the first visual identities to integrate logotype, icon, alphabet, color palette, and
station architecture to create a comprehensive consumer brand experience.
The recognition and perception of a brand is highly influenced by its visual presentation.
A brand’s visual identity is the overall look of its communications. Effective visual brand
identity is achieved by the consistent use of particular visual elements to create
distinction, such as specific fonts, colors, and graphic elements. At the core of every
brand identity is a brand mark, or logo. In the United States, 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. These principles can be observed in the work of the
pioneers of the practice of visual brand identity design, such as Paul Rand, Chermayeff
& Geismar and Saul Bass.

Brand parity

Brand parity is the perception of the customers that all brands are equivalent.[11]

Branding approaches

Company name

Often, especially in the industrial sector, it is just the company's name which is
promoted (leading to one of the most powerful statements of "branding"; the saying,
before the company's downgrading, "No one ever got fired for buying IBM").

In this case a very strong brand name (or company name) is made the vehicle for a
range of products (for example, Mercedes-Benz or Black & Decker) or even a range of
subsidiary brands (such as Cadbury Dairy Milk, Cadbury Flake or Cadbury Fingers in
the United States).

[edit] Individual branding

Main article: Individual branding

Each brand has a separate name (such as Seven-Up, Kool-Aid or Nivea Sun
(Beiersdorf)), which may even compete against other brands from the same company
(for example, Persil, Omo, Surf and Lynx are all owned by Unilever).

[edit] Attitude branding and Iconic brands

Attitude branding is the choice to represent a larger feeling, which is not necessarily
connected with the product or consumption of the product at all. Marketing labeled as
attitude branding include that of Nike, Starbucks, The Body Shop, Safeway, and Apple
Inc.. In the 2000 book No Logo, Naomi Klein describes attitude branding as a "fetish
strategy".

"A great brand raises the bar -- it adds a greater sense of purpose to the experience,
whether it's the challenge to do your best in sports and fitness, or the affirmation that the
cup of coffee you're drinking really matters." - Howard Schultz (president, CEO, and
chairman of Starbucks)

The color, 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.

Iconic brands are defined as having aspects that contribute to consumer's self-
expression and personal identity. Brands whose value to consumers comes primarily
from having identity value comes are said to be "identity brands". Some of these brands
have such a strong identity that they become more or less "cultural icons" which makes
them iconic brands. Examples of iconic brands are: Apple Inc., Nike and Harley
Davidson. Many iconic brands include almost ritual-like behaviour when buying and
consuming the products.

There are four key elements to creating iconic brands (Holt 2004):

1. "Necessary conditions" - The performance of the product must at least be ok

preferably with a reputation of having good quality.
2. "Myth-making" - A meaningful story-telling fabricated by cultural "insiders". These
must be seen as legitimate and respected by consumers for stories to be
accepted.
3. "Cultural contradictions" - Some kind of mismatch between prevailing ideology
and emergent undercurrents in society. In other words a difference with the way
consumers are and how they some times wish they were.
4. "The cultural brand management process" - Actively engaging in the myth-
making process making sure the brand maintains its position as an icon.

"No-brand" branding

Recently a number of companies have successfully pursued "No-Brand" strategies by

creating packaging that imitates generic brand simplicity. Examples include the
Japanese company Muji, which means "No label" in English (from 無印良品 – "Mujirushi
Ryohin" – literally, "No brand quality goods"), and the Florida company No-Ad
Sunscreen. Although there is a distinct Muji brand, Muji products are not branded. This
no-brand strategy means that little is spent on advertisement or classical marketing and
Muji's success is attributed to the word-of-mouth, a simple shopping experience and the
anti-brand movement. "No brand" branding may be construed as a type of branding as
the product is made conspicuous through the absence of a brand name.

Derived brands

In this case the supplier of a key component, used by a number of suppliers of the end-
product, may wish to guarantee its own position by promoting that component as a
brand in its own right. The most frequently quoted example is Intel, which secures its
position in the PC market with the slogan "Intel Inside".

Brand extension

The existing strong brand name can be used as a vehicle for new or modified products;
for example, many fashion and designer companies extended brands into fragrances,
shoes and accessories, home textile, home decor, luggage, (sun-) glasses, furniture,
hotels, etc.

Mars extended its brand to ice cream, Caterpillar to shoes and watches, Michelin to a
restaurant guide, Adidas and Puma to personal hygiene. Dunlop extended its brand
from tires to other rubber products such as shoes, golf balls, tennis racquets and
adhesives.

There is a difference between brand extension and line extension. A line extension is
when a current brand name is used to enter a new market segment in the existing
product class, with new varieties or flavors or sizes. When Coca-Cola launched "Diet
Coke" and "Cherry Coke" they stayed within the originating product category: non-
alcoholic carbonated beverages. 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, dish washing detergents.

Multi-brands

Alternatively, 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); 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). In its most extreme manifestation, 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, in order to pre-empt others entering the
market.
Individual brand names naturally allow greater flexibility by permitting a variety of
different products, of differing quality, to be sold without confusing the consumer's
perception of what business the company is in or diluting higher quality products.

Once again, Procter & Gamble is a leading exponent of this philosophy, running as
many as ten detergent brands in the US market. This also increases the total number of
"facings" it receives on supermarket shelves. Sara Lee, on the other hand, uses it to
keep the very different parts of the business separate — from Sara Lee cakes through
Kiwi polishes to L'Eggs pantyhose. In the hotel business, 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, in which the new

brand takes business away from an established one which the organization also owns.
This may be acceptable (indeed to be expected) if there is a net gain overall.
Alternatively, it may be the price the organization is willing to pay for shifting its position
in the market; the new product being one stage in this process.

Private labels

With the emergence of strong retailers, private label brands, also called own brands, or
store brands, also emerged as a major factor in the marketplace. 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, and
may outperform those products that are not otherwise strongly branded.

Individual and Organizational Brands

There are kinds of branding that treat individuals and organizations as the "products" to
be branded. Personal branding treats persons and their careers as brands. The term is
thought to have been first used in a 1997 article by Tom Peters.[16] Faith branding treats
religious figures and organizations as brands. Religious media expert Phil Cooke has
written that faith branding handles the question of how to express faith in a media-
dominated culture. Nation branding works with the perception and reputation of
countries as brands.

History

The word "brand" is derived from the Old Norse brandr, meaning "to burn." It refers to
the practice of producers burning their mark (or brand) onto their products.[18]

Although connected with the history of trademarks[19] and including earlier examples
which could be deemed "protobrands" (such as the marketing puns of the "Vesuvinum"
wine jars found at Pompeii),[20] brands in the field of mass-marketing originated in the
19th century with the advent of packaged goods. Industrialization moved the production
of many household items, such as soap, from local communities to centralized factories.
When shipping their items, the factories would literally brand their logo or insignia on the
barrels used, extending the meaning of "brand" to that of trademark.

Bass & Company, the British brewery, claims their red triangle brand was the world's
first trademark. Lyle’s Golden Syrup makes a similar claim, having been named as
Britain's oldest brand, with its green and gold packaging having remained almost
unchanged since 1885. Another example comes from Antiche Fornaci Giorgi in Italy,
whose bricks are stamped or carved with the same proto-logo since 1731, as found in
Saint Peter's Basilica in Vatican City.

Cattle were branded long before this; the term "maverick", originally meaning an
unbranded calf, comes from Texas rancher Samuel Augustus Maverick who, following
the American Civil War, decided that since all other cattle were branded, his would be
identified by having no markings at all. Even the signatures on paintings of famous
artists like Leonardo Da Vinci can be viewed as an early branding tool.

Factories established during the Industrial Revolution introduced mass-produced goods

and needed to sell their products to a wider market, to customers previously familiar
only with locally-produced goods. It quickly became apparent that a generic package of
soap had difficulty competing with familiar, local products. The packaged goods
manufacturers needed to convince the market that the public could place just as much
trust in the non-local product. Campbell soup, Coca-Cola, Juicy Fruit gum, Aunt
Jemima, and Quaker Oats were among the first products to be 'branded', in an effort to
increase the consumer's familiarity with their products. Many brands of that era, such as
Uncle Ben's rice and Kellogg's breakfast cereal furnish illustrations of the problem.

Around 1900, James Walter Thompson published a house ad explaining trademark

advertising. This was an early commercial explanation of what we now know as
branding. Companies soon adopted slogans, mascots, and jingles that began to appear
on radio and early television. By the 1940s, manufacturers began to recognize the way
in which consumers were developing relationships with their brands in a
social/psychological/anthropological sense.

From there, manufacturers quickly learned to build their brand's identity and personality
(see brand identity and brand personality), such as youthfulness, fun or luxury. This
began the practice we now know as "branding" today, where the consumers buy "the
brand" instead of the product. This trend continued to the 1980s, and is now quantified
in concepts such as brand value and brand equity. Naomi Klein has described this
development as "brand equity mania". In 1988, for example, Philip Morris purchased
Kraft for six times what the company was worth on paper; it was felt that what they
really purchased was its brand name.

Marlboro Friday: April 2, 1993 - marked by some as the death of the brand- the day
Philip Morris declared that they were to cut the price of Marlboro cigarettes by 20%, in
order to compete with bargain cigarettes. Marlboro cigarettes were notorious at the time
for their heavy advertising campaigns, and well-nuanced brand image. In response to
the announcement Wall street stocks nose-dived for a large number of 'branded'
companies: Heinz, Coca Cola, Quaker Oats, PepsiCo. Many thought the event signalled
the beginning of a trend towards "brand blindness" (Klein 13), questioning the power of
"brand value".

Brand Hierarchy
Module: IV
WHAT ARE BRANDS

Brands are those non-physical elements of a business, which have potential future
earnings. They are separately identifiable, intangible assets that one capable of being
reliably measured.
Difference between Brand and Goodwill: Goodwill is defined as the difference between
the net assets of a company and the price paid by its purchaser.
EMERGENCE OF BRANDS
THE BACKGROUND:
The debate of the brands came to the force in the late 1980’s with the activities of a
number of food companies. In early 1988, Nestle (UK) made a bid for Rowntree,
with more than twice the Company’s market capitalization at that time. Mc Dougall
started capitalizing the brands that they owned or acquired, implying that these
brands possessed hidden values. The service sector companies like The Daily
Telegraph Ltd, Lonhro plc etc have valued their brands and showed them in
balance sheets. Thus began the hottest debate on brands in Balance Sheet.

THE PRESENT SITUATION

In UK – It had a divergent treatment for goodwill and brands. If brands can be shown as
separable assets, they need not be written off, as goodwill should be. Brands should be
fully amortised over their useful economic life of upto 20 years except in special
circumstances. Homegrown brands are not allowed to be shown in the balance sheet,
as it is very difficult to identify the cost of the brand developed. Many companies have
incorporated brand values in their balance sheets. Wide Technical Report 780 UK had
removed the differential treatment of brands. Now there is a distinction between brands
and goodwill in UK practice. This means like Goodwill, brands should be written off
immediately upon acquisition.
WHY BRANDS SHOULD BE INCLUDED IN BALANCE SHEET
TRADITIONAL VIEW BLURRED: The traditional view is that any valuation figure, other
than one supported by a specific purchase price on change of ownership is too arbitrary
at all to be credible. Also the traditional view is that the balance sheet is not intended as
a statement of corporate worth and that subsequently, inclusion of values of brands in
fixed assets would mislead the figures in the balance sheet.
The flaw: First of all the view that only those assets which have substance or spatial
dimension should be properly considered as a ‘valuable asset’ for accounting purposes
is questionable. Any value fixed on a given brand is dubious, but many of the fixed
assets that are shown in balance sheets have similar contestable figures- like land etc.
Eg. Assets like ‘Hero Honda’ (two wheeler) after being used for 8 years are being
offered for sale at Rs. 17,000 as against the cost of Rs.12, 000.
UNFAIR VIEW: The effect of the above is that in the failure to recognize brands and in
the systematic undervaluation of assets (at historic costs) acknowledged to exist,
companies maintain substantial unrevealed reserves. Such a practice can not be
justified as fair in the interests of shareholders or investors. The shareholder has the
right to be appraised of the totality of assets that are available with the company.
Besides understatement of intangible assets like brands, when the company is using
them to earn profits is not useful to the shareholders in judging the efficiency of
management. We do value real estate on the basis of the future income. Similarly
brands should be valued based on their future earnings potential. Adventurous bankers,
(in UK), have started to talk about issuing backed securities and/ or using brand
collateral as security for debt issues.
HOW DOES BRAND VALUATION EFFECT STOCK MARKET:
It is argued that the net worth of a company is readily calculable by the market price of
the company. This price is reflective of the present and prospective returns there on.
Then the difference between the above net worth of the company and as proclaimed by
the company is of great importance to the shareholders and investors. Since the market
prices are volatile, the shareholders, investors would rather prefer to look at the Balance
sheet that includes future earnings potential of the company, than depending on the
stock market prices. Brands in balance sheet would at least reduce his apprehensions
since the inclusion lead to a fair picture of the rate of return. Further, the management’s
efficiency is reflected in the ROI that is achieved by the company.
Ex. the ratio, PAT / Fixed assets + Net current assets, without brand value, this would
show a much higher value. The ROI thus becomes a better indicator if brand value is
included.
THE ADVANTAGES:
1. The inclusion of brand value in balance sheet gives a better picture of the company
as having good assets and good brand value.
2. At the same time apparent return on assets (without inclusion of brands) will be
brought down to more realistic figures.
3. In many of the takeovers, goodwill element in the price of the net assets has been
increasing. Sometimes the price paid for goodwill is greater than the acquiring
company’s net worth with the result that the consolidated accounts show negative
shareholders equity. This looks preposterous. Some of the companies have
reassessed the assets acquired in take overs and reclassified the goodwill as
brands.
4. Company’s brand management will certainly be sharpened up (e.g. brand P&L
accounts)
5. The Company’s debt equity ratio is improved i.e. it reduces the gearing ratio and so
increases the Company’s borrowing capacity.
6. It particularly helps service sector companies where there are low assets levels, but
strong cash flow and customer bases.
7. The company is more expensive to acquire which may deter hostile bids.
8. The asset value does not come down as long as it is maintained by proper
promotional and advertising efforts. There is no depreciation and thus no impact on
P&L.
9. The goodwill arising from an acquisition can be reduced.
10. Recognising the value of brands separately at the time of acquisition reduces the
amount of goodwill that must be written off either directly to reserves or by
amortisation over a number of years. Immediate write off has detrimental effect on
consolidated reserves and confuses the real value of acquisition of the business
whereas amortisation has a continuous adverse and unrealistic effect on future
profits.
11. It helps better comparison between companies operating in similar markets, or
between companies with varying mixes of acquired and homegrown brands.
12. Many creditors have found in an insolvency situation that some current assets such
as inventory are relatively worthless even though classified as current asset. Also,
we cannot recover goodwill but brands can be transferred and can be converted into
cash.
13. For the businessmen brands are often the most important competitive advantage. It
is the success or failure of brands that so often determines the manager’s success
or failure. This concept will be translated into reality if brands are included in the
balance sheet.
SHOULD BRAND BE AMORTISED?
The amortisation period is the period during which benefits are expected to arise. The
life is deemed to be finite (prudence principle) but not fixed. Most of the businessmen
find it easier to write off immediately against reserves and weaken the balance sheet
than to touch the EPS by amortising brands. Most of the companies are inclined to
amortise it. But the guidelines prescribed by the Accounting bodies are against it.
“DOUBLE COUNTING”:
The acquisition of the brand is reflected in the balance sheet at cost. The companies
spend significantly on marketing support of brands which is charged through P&L
account. If the brands are depreciated, this would lead to double counting.
SHOULD HOMEGROWN BRANDS BE VALUED AND AMORTISED?
In disallowing the capitalisation of homegrown brands, a degree of comparability
between competing company is lost. Whether acquired or home grown, brands require
considerable expenditure, generate substantial income and add substantial value to the
company. Allowing home grown brands to be capitalised would eliminate this
inconsistency.
Companies know more about homegrown brands. Thus it is easier to value them. If a
business builds its own factory instead of buying one, we capitalize it; why should
brands be treated differently?
If accounting laws force companies not to value home grown brands they could easily
find a way out by selling the brands to another company and again buy back from them.
Clearly this is the best evidence to show that homegrown brands have a value too.
IN USA: It is a standard practice to capitalise and amortise goodwill. No asset
revaluation is permitted. All purchased intangibles must be treated in the same way as
goodwill. Maintenance costs of goodwill and all other intangibles must be written off to
expenses. Thus there is no incentive for US companies to distinguish brands from
goodwill, as the resulting treatment would be identical.
IN AUSTRALIA: Acquired goodwill has to be amortised though the P&L account for a
maximum period of 20 years. But unlike in UK and US, Australian has a modified
historical cost accounting system, so that fixed assets may be revalued at market price
every 3 to 5 years. Intangible assets like brands may be carried at market value.
Acquired brands must initially be recorded at their cost of acquisitions. All brand names
may be revalued with either upwardly or downwardly adjustments.
ELSEWHERE: In most countries the acquired brands are capitalised and then
amortised through the P&L, the depreciation period varies considerably. Five years is
the maximum in Japan, forty years in France, and the brands expected life in Germany.
The argument in favour of capitalising brand names is related to the old adage – out of
sight (if it is written off) out of mind. If brands are capitalised, management is more likely
to continue a process of maintaining the values.
A court appeal made a distinction between ‘CAT’ goodwill which is loyal to the business
and stays with the buyer if it is sold and a ‘DOG’ goodwill which is loyal to the owner
and thus is lost to the business in case of a sale. Hence ‘dog’ goodwill must be written
off while ‘cat’ goodwill need to be.

IN INDIA: According to AS – 10, Accounting for Fixed Assets, issued by the Institute of
Chartered Accountants, goodwill in general, should be recorded in the books only when
some consideration in money or money’s worth has been paid for it. As a matter of
financial prudence goodwill is written off over a period. However this is not mandatory.
No guidelines has been issued by ICAI on brand valuation, as it is a relatively new
concept in India. Major MNC’s like Unilever group, Proctor and Gamble, Nestle and
reputed Indian companies like Tatas, Reliance could benefit a great deal by valuing
brands and including them in the balance sheet. Now that AS - 26 is applicable, the
brands can be valued if and only if they are purchased and not self generated.
VALUATION OF BRANDS:
One of the most important reasons why a valuable asset like brands is not shown on the
balance sheet is because of the complexity involved in its valuation. However if the
company can show that it is the beneficial owner of a valuable asset then the seemingly
serious difficulty of putting a firm price (value) on brand cannot be accepted as a reason
( by any accounting principle) for refusing to record the value of brands in balance
sheet. There are various methods of valuation but each has its own draw backs. They
are briefly discussed below:
METHODS OF VALUATION

01. Valuation based on the aggregate cost of all marketing, advertising and research
and development expenditure devoted to the brand over a stipulated period.
02. Valuation based on premium pricing of a branded product over a non branded
product.
03. Valuation at market price
04. Valuation based on customer related factors such as esteem, recognition or
awareness.
05. Valuation based on potential future earnings discounted to present day values.

DRAWBACKS IN EACH OF THEM

01. Brand value is not always a function of the cost of its development. If it were so
failed brands may well be attributed high values.
02. The major benefits of branded products to manufacturers often relate to the
security and stability of future demand rather than to premium pricing. Further many
branded products have no generic equivalents.
03.Brands are not developed with the purpose of trading in them. Moreover the use of
market value for balance sheet purposes is prohibited by the companies act.
04. A brand valuation based solely on consumer esteem or awareness factors would
bear no relationship to commercial reality. Not may of those who are aware would
actually buy it.
05. Discount values of future potential earnings of the brands seems to be an
appropriate one. But the determination of reliable forecast cash flows is fraught with
difficulty.
Considering the drawbacks of the existing methods of valuation INTERBRAND
GROUP, the leading international branding consultancy came up with an earnings
multiple system for valuing brands. Conceptually the system is sound as it is based on
hard, proven data. In this system to determine brand value certain key factors need to
be considered:
• Brand earnings ( or cash flows)
• Brand strength ( which sets the multiple or discount rate)
• The range of multiples ( or discount rates) to be applied to brand earnings
BRAND EARNINGS:
A vital factor in determining the value of a brand is its potential profitability over time.
Not all of the profitability of a brand can necessarily be applied to the valuation of that
brand. A brand may be essentially a commodity product or may gain much of its
profitability from its distribution system. The elements of profitability which do not result
from the brands identity must therefore be excluded. Also there is a possibility of the
valuation getting affected by an unrepresentative years profit. For this reason, a
smoothing element is introduced viz. a three year weighted average of historical profits.
BRAND STRENGTH:
Brand strength is a composite of seven weighted factors: Leadership, stability, market,
internationality, trend, support and protection. The brand is scored for each of the above
factors according to the weights attributed to them and the resultant total known as the “
brand strength score” is expressed as a percentage.
THE RANGE OF THE MULTIPLES:
From the brand strength score the multiple to apply to the brand related profits is
determined.
Stronger the brand, greater the multiple. The relationship between brand strength and
multiple applied is represented by a ‘S’ curve

BRAND STRENGTH
The shape of the ‘S’ curve is because of the following reasons:
1. As brand strength increases from virtually zero ( an unknown or new brand) to a
position as number 3 or 4 in a market, the value increases gradually.
2. As the brand moves into the number 2 or particularly the no.1 position in its market
there is an accelerated increase in its value
3. Once a brand has become a powerful world brand the growth in value no longer
increases at the same rate.
Once the multiple is determined it is multiplied by the brand earnings to arrive at the
brand value. This method is explained with the help of a problem in the exhibit.
CONCLUSION:
Valuation of brands is till in its infancy. With a plethora of brands flooding the market,
established brand names are going to be a major asset and its importance will be
increasingly in the future.

Other Theories in Meausuring the financial value of a brand

The first approach aims to calculate the brand’s value on the basis of its historic costs.
These are the aggregated investment costs, such as marketing, advertising and R&D
expenditure, devoted to the brand since its birth. However, an assumption is being
made that none of these costs were ineffective. By virtue of little more than its heritage,
a 100-year-old brand is more likely to have had more investment than a 20-year-old
brand. The management team need to agree how the historical costs should be
adjusted for past inflation. Since several years have to pass before it is evident whether
the brand is successful, when should a company start to include the brand value in its
balance Sheet? Another drawback of this method is that it ignores qualitative factors
such as the creativity of advertising support. The value of a brand also depends on
unquantifiable elements, such as management’s expertise and the firm’s culture. Finally
there is also a question of financially accounting for the many failed brands that had
substantial sums spent on them, out of which experience the successful brand arose.
Overall this approach to brand valuation raises many questions and without well-
grounded assumptions could be problematic.
Another approach is that of comparing the premium price of a branded product over a
non-branded product: the difference the two prices multiplied by the volume of sale of a
branded product represents the brand value. However it is sometimes difficult to find a
comparable generic product. For example, what is the unbranded counterpart of a
Mars-Bar? This method also assumes that all brands pursue a price-premium strategy.
It is clear that the brand value of Swatch or Daewoo for example could not be assessed
on this basis when equivalent competitive brands are sold at a higher price.
The valuation of a brand based on its market value assumes the existence of a market
in which brands, like horses, are frequently sold and can be compared. However, since
such a market does not yet exist there is no means of estimating a market price other
than putting the brand up for sale on the market. Moreover, while the price of a house is
usually set by the seller, the price other than putting the brand up for sale on the market.
Moreover, while the price of a house is usually set by the seller, the price actually paid
for a brand is determined by the strategy of the buyer, who may plan for the brand to
play a very different role from its existing one. For example, Unilever paid 70 million
pounds for Boursin just to gain shelf-space for its expansion plans for other parts of its
brand portfolio.
Some have proposed valuing brands on the basis of various customer-related factors,
such as recognition, esteem and awareness. These are all important elements of
brands and high scores on these are indicative of strong brands. However, it is vary
difficult to derive a relationship from an amalgam of these factors to arrive at an
objective valuation. For example, most consumers are aware that Rolls-Royce is a
famous brand, but what value should be placed on it? Worst of all, however, is the fact
that there are many famous brands, such as Co-op, with very little attached to them.
Yet another way of valuing a brand is to assess its future earnings discounted to
present-day values. The problem, however, with this method is that it assumes buoyant
historical earnings levels, even though the brand may be being ‘milked’ by its owners.
One of the most widely-accepted ways of assessing the brand value is provided by
Interbrand (Birkin 1994). In order to determine brand value, a company must calculate
the benefits of future ownership, i.e. current and future cash flows of the brand and
discount them to take inflation and risk into account. The Interbrand approach is based
on the assumption that the discount rate is given by a ‘Brand multiple’, representative of
the brand strength. For example, a high multiple characterises a brand in which the firm
is confident of continuing stream of future earnings and consequently represents low
risk for the company. This also translates into a low discount rate.
The interbrand method is similar to deriving a company’s market value through its
price/earnings (P/E) ratio. This provides a link between a share capital and the
company’s net profits and thus the brand multiple can be applied to a single brand
within the company to calculate its value. Just as the P/E ratio equals the market value
of the company divided by its after tax profits, likewise the brand multiple equals the
value of the brand divided by the gross profit generated by this brand, i.e.
P/E = Market value of equity Brand Multiple = Brand equity
Profit Brand Profit
To calculate the brand value, we multiply the Brand profit by the Brand multiple:
Brand profit x Brand multiple = Brand Equity
When calculating the brand profit several issues need to be considered. A historical
statement of the brands profit is first required since as a good approximation tomorrow’s
profits are likely to be similar to today’s, provided there is no change in brands strategy.
The brand profit should be the post-tax profit after deducting central overhead costs.
There may be instances where the same production line is used for both the
manufacturer’s brand and several own labels. Where this is the case, any profits arising
from shade own label production need to be subtracted.
The next stage in arriving at a realistic assessment of the brand’s profit is to deduct the
earning that do not relate to brand strength. For example, a firm may market two brands
of bread. One competes through major grocery stores against other branded breads,
and the other may be sold to a few distributors who sell this with related products
through door-to-door delivery. Both brands may show similar brand profits, yet the profit
of the first brand is heavily influenced by the strength of branding, while the profit of the
second brand is much more dependent on the few distributors with the distribution
systems. To eliminate the earning which do not relate to branding the most common
approach is charging the capital tied up in the production of the brand with the return
expected from producing a generic equivalent.
When looking at historical profits, to reduce the effect from any unusual year’s
performance in previous three years profits are averaged. Following the logic of other
forecasting systems, the more recent profits are likely to be more indicative of future
profits. Therefore, a three-year weighted average is used, applying a weighting of three
to the current year, two to the previous year and one to the year before that. These
aggregated profits are then divided by the sum of the weighting factors, that is six in this
case. If though a change in strategy for the brand is envisaged these weightings need to
be reconsidered. Finally each year’s profit should be adjusted for inflation.
Having calculated the brand’s profit, the brand multiple then needs to be calculated.
This is found through evaluating the brands strength since this determines the reliability
of the brand’s future earnings. Interbrand argue that a brand’s strength can be found
from evaluating the brand against seven factors:
Ø Leadership : There is well-documented evidence showing a strong link between
market share and profitability, thus leadership brands are more valuable than followers.
A brand leader can strongly influence the market, set prices and command distribution,
thus this criteria must be met to score well on leadership.
Ø Stability : Well-established brand’s, which have a notable historical presence, are
strong assets.
Ø Market : Marketers with brands in non-volatile markets, for example foods, are
better able to anticipate future trends in therefore confidently devise brand strategies
than marketers operating in markets subject to technological or fashion changes.
Thus part of the brand’s strength comes from the markets it operates in.
Ø Internationality : Brands which have been developed to appeal to consumers
internationally are more valuable than national or regional brands because of there
greater volumes of sales and the investment to make them less susceptible to
competitive attacks.
Ø Trend : The overall long-term trend of the brand shows its ability to remain
contemporary and relevant to consumers, and therefore is an indication of its value.
Ø Support : The amount, as well as the quality, of consistent investments and
support are indicators of strong brands.
Ø Protection : Registered trademark protects the brand from competition and any
activities to protect the brand against imitators augers well for the future of the
brand.

Strength Maximum Score

Factor
Leadership 25
Stability 15
Market 10
Internationality 25
Trend 10
Support 10
Protection 5
Total Score 100
The higher brand strength score the greater its multiple score. Interbrand argue
that there is an S-curve relationship between the multiple and the brand strength
score, as shown in the graph below. Thus having calculated, for example, a brand
strength score of 71, from graph below this gives a multiple of 16, i.e. the brand’s value
is 16 times its three-year weighted average profit.
Several questions have been raised about the interbrand method. Although
interbrand has derived the data for the S-curve from the multiples involved in actual
brand negotiations, market multiples may not necessarily be a correct indicator of the
brand strength. All these multiples have been derived from the final transaction figures
and may be inflated because market prices for brand acquisition often include an
element of overbid. As the S-curve ignores this additional factor, the brand equity
resulting from such a multiple might be overvalued.
A slight variation in the multiple can modify the value of the brand significantly. For
Example, in the case of Reckitt & Colman a one-point variation in the multiple
corresponds to 54 million pounds difference in brand value.
Interbrand argues that a new brand grows slowly in the early stages then it increases
exponentially as it moves from national to international recognition and then slows down
as it progresses to global brand status. However experimental analysis shows that the
development of the brand is susceptible to threshold effects. It gradually acquires
strength with consumers and retailers in different stages, but beyond a certain point its
rate of growth is much greater. Research has found that brands achieve respectable
spontaneous awareness scores only after a high level of prompted awareness has been
achieved. Therefore the relationship between the brand strength and brand multiple
may be better represented by a less regular pattern.
Despite these limitations, the interbrand method is a popular method amongst firms
valuing there brands and is been adopted by more companies as a practical way to
determine the value of their brands. Further more, firms having growing historical brand
valuation databases enabling mangers to access which strategies are particularly
effective at growing their brands.
In Search of Brand Value in the New Economy

The dynamics of the new world economy, particularly globalisation, outsourcing and e-
business, are fundamentally changing the way business is conducted.
The growth in recent years in global companies (primarily through cross-border mergers
and e-business) has led to an explosion in the number of goods and services, and
suppliers thereof, for consumers to choose from. With this increased choice, consumers
have also been provided with greater information to make informed decisions, including
ease of price comparison through the internet, the introduction of the European single
currency, government regulation and increased advertising spend.
How valuable is Intellectual Property?
The change in the nature of competition and the dynamics of the new world economy
have resulted in a change in the key value drivers for a company from tangible assets
(such as plant and machinery) to intangible assets (such as brands, patents, copyright
and know how). In particular, companies have taken advantage of more open trade
opportunities by using the competitive advantage provided by brands and technology to
access distant markets. This is reflected in the growth in the ratio of market capitalised
value to book value of listed companies. In the US, this ratio has increased from 1:1 to
5:1 over the last twenty years.
In the UK, the ratio is similar, with less than 30% of the capitalised value of FTSE 350
companies appearing on the balance sheet. We would argue that the remaining 70% of
unallocated value resides largely in intellectual property and certainly in intellectual
assets. Noticeably, the sectors with the highest ratio of market capitalisation to book
value are heavily reliant on copyright (such as the media sector), patents (such as
technology and pharmaceutical) and brands (such as pharmaceutical, food and drink,
media and financial services).
Brands clearly have significant value. Businesses, such as Nike, Unilever and Coca
Cola spend billions each year supporting their brands. In the UK, the growth in
trademark registrations has also demonstrated the increased focus on brand
importance:

Year Number of trademark registrations

1998 25,169
1994 28,828
1990 28,389
1986 17,089
1982 13,134
1978 10,643
1974 10,626

We should stress that owning a trademark does not, in itself, provide ownership
of value. The value in a trademark is the protection it provides to a brand that
generates cash flow. Many companies spend millions of pounds protecting trademarks
that are of no, or very limited, value to the company.

If it is valuable, then why isn't it accounted for?

It is often asked why this value does not reside on the balance sheet. Essentially, it
is because balance sheets are a record of historic cost whereas value is a reflection of
the market's expectation of a company's future cash flows and the risks inherent in
those projected cash flows being achieved. In other words, accounting and value should
not be confused.

Attempts have been made to account for IP. The first attempt was in 1988 when Nestle
acquired Rowntree for £5 billion, a price representing five times the recorded net assets
of the target company. Such an acquisition can lead to some distinctly funny looking
accounting results. As you can imagine, if a collection of assets is acquired for, say,
£500 million and the recorded assets are only £100 million then the remaining £400
million gets written off through the profit and loss account. This results in a balance
sheet substantially less healthy than prior to the acquisition.

The current position is that internally generated intangible assets cannot be capitalised
unless they have a "readily ascertainable market value". As no such market exists for
brands, clearly it is not possible to capitalise such internally generated assets. On the
other hand, acquired brands can be capitalised but only where it can be shown that they
are separable from goodwill.

Intellectual property is more often created internally than acquired, with the
associated expenses (such as research and development or advertising costs) being
expensed through the profit and loss account rather than being capitalised on the
balance sheet. As a result, some IP that is acquired goes on the balance sheet (as
there is a point in time opportunity to place a cost on it) but most does not. Many
balance sheets are therefore inherently inconsistent, showing some brands but not
others.

The issue is not whether brands are accounted for but whether and how they are
actively managed to enhance the company's value. The problem that arises from not
accounting for brands is that it removes a key metric by which brand management might
be measured.

Some companies now make an effort to report on the importance of their IP, if not
its value. This recognition of value in IP is, not surprisingly, led by organisations with
leading brands. Indeed, it is difficult to identify leading companies that do not have
strong brands. One reason for this is that companies compete either through price or
product differentiation, with the latter being preferable as it helps to maintain profit
margins. However, in the new global economy there are an increasing number of
suppliers of similar products, making product differentiation very difficult. Accordingly,
companies often try to differentiate their products not through physical characteristics or
product specifications but through emotive characteristics contained and developed in
their brands.

The key strength of brands is in their ability to maintain customer loyalty.

Accordingly, companies selling branded products have a more stable level of sales than
non-branded companies. This certainty of future cash flows is of great benefit to
companies and would be reflected in a higher valuation than an equivalent company
with greater uncertainty over future cash flows.

Do Brands have value on the internet?

The focus on brand development is not limited solely to traditional companies but is also
key for internet companies and companies investing in e-businesses.

However, internet companies face intense competition, as there are few barriers to
entry. New companies have quickly entered the market, and have the ability to offer
exactly the same products and services. A good idea on the internet can be imitated
almost immediately. If a consumer has 100 internet book stores to choose from, what
will make it use any particular store? Clearly, internet companies have to establish
brands very quickly in order to develop and maintain their subscriber base. This is
supported by data on UK advertising spend which shows that advertising by .com
companies in 1999 is forecast to exceed £100 million compared to £35 million in 1998.
In the US the growth in advertising for .com companies is even more dramatic, a trend
which is likely to be followed in the UK.

It remains to be seen whether these large investments in internet branding will yield
long term results. Everybody has heard of Amazon.com but it hasn't yet made a profit.
Some questions remain: Will Amazon.com benefit in the long term from the subscriber
base it is building in the short term? Will its customers remain loyal or will they move to
lower price options later?

Why value brands?

We find it surprising that, despite brands being so critical in the New Economy, few
companies use metrics of any sort to monitor the growth or otherwise in their brand
values, their return on brand investment or brand contribution to shareholder value.
Certainly such measures are rarely reported publicly. For companies whose primary
assets are their brands, surely such measures would be worth considering when
making investment and other management decisions.
The importance to a business of its brands and underlying trademarks is
unquestionable. Once it is accepted that brands do have value then there is a need to
understand and protect that value. We have set out below the more common
circumstances in which brands either are or should be valued.
Management
The regular valuation of brands would allow a company to monitor the effect thereon of
its strategy. Has the implementation of management strategy resulted in brand value
creation or brand value destruction? Would more value be achieved with a different
strategy? Should investment dollars be diverted to other brands? A policy may well
increase sales and even profits in the short term but may reduce the value of the brands
and ultimately the company in the longer term.
The monitoring of brand value is also a useful tool in determining the success or failure
of advertising campaigns and the efficiency of marketing spend. Marketing spend which
does not increase the value of the brand may be misdirected. It was recently reported,
for example, that Proctor and Gamble have changed the way they pay for advertising
fees. Previously they paid a fixed fee for an advertising campaign. In future, they will
pay the advertisers a fee, in part determined by the level of additional sales derived
from the campaign. Ultimately, perhaps, the fees might be linked to measures of
customer loyalty or brand value.

Strategic management is ultimately focused on creating shareholder value. For many

consumer goods companies, the value of their brands significantly exceeds the value of
their plant and machinery. For these companies to maximise shareholder value it is
essential to maximise the value of their brands.

Transactions
Brands are often valued in connection with proposed or completed transactions.
Although the price will ultimately be a matter for negotiation, each party to the
transaction will be better placed to negotiate if they have valued the brand(s) in
advance. This theory applies equally well regardless of whether the transaction is a
sale, joint venture or strategic alliance.

Reporting
As noted above, current accounting standards and practice do not require intellectual
property to be accounted for on a balance sheet, indeed they make it difficult to do so.
Nevertheless, once brands have been capitalised, it is necessary to ensure that their
value does not fall below the value shown in the balance sheet. This necessarily
requires a valuation to be performed.

Reporting is not only a reference to financial statements. Management that do not report
to shareholders may nevertheless want regular valuations done to enable them to
assess over time whether the value of a brand has been enhanced or whether it has
greater value if used differently.

Litigation
IP damages arising from litigation is all about IP value. Although IP damages typically
manifests itself in a claim for lost profit, that profit is underpinned at the very least by a
reasonable royalty rate. That royalty rate, in turn, represents the amount a willing third
party licensee would pay to use the IP. As our brief commentary on valuation
methodologies below shows, the royalty approach is a common form of IP valuation. In
addition, there are disputes which actually require the IP to be valued.

Taxation and transfer pricing

The ownership, and methods of charging for the use of IP are key factors in the location
of a multi-national group's profits. Identifying the optimum framework for ownership,
licensing and use of IP across a world-wide business can save a multinational group
millions of pounds in tax. It is important when considering such arrangements to
understand, inter alia, the value of the IP.

Can brands be valued?

For an asset to be valued, it needs three key properties:

(1) it needs to be separable from the other assets of the business - i.e. can be sold
without selling a business of the entity. Whether brands are separable from the
underlying business is often debated and needs to be considered in each case. This
is a bigger problem for corporate brands than product brands;

(2) it needs to have legal title which can be transferred - enter the trademarks; and

(3) it needs to be able to generate cashflows in its own right. This manifests itself in the
practical problem of separating the cash flows attributable to the brand from cash flows
attributable to other factors. All methodologies attempt to identify that part of earnings or
price which can be attributed purely to the brand. However, it is often very difficult to
separate the value of the brand from other intangible assets, particularly goodwill.
Accordingly, care must be taken to separate out goodwill from any brand valuation to
avoid over valuing a brand.

Brand valuation methodologies

Having established that brands are valuable and should be valued the question arises
as to how to value them. This area is complex and, like business and property
valuations, subjective. However, certain robust methodologies have been developed,
some of which are summarised below. Due to the judgmental elements, we recommend
the use of more than one methodology in each case, with the results cross-checked to
ensure a reasonable result. We also recommend consistency of use over time so as to
reduce the comparative effect of judgement wherever possible.
The basic premise underlying the value of any asset is that its current value equals the
future economic benefits derived from its use, at today's prices. If an asset has no future
economic benefit then it has no value. The difficulty is in (1) forecasting future cash
flows (2) estimating what proportion of those future cash flows can be attributed to the
brand, and (3) determining an appropriate discount rate to put those cash flows in
present day terms. The following methods attempt to answer these questions.

Premium profits
The underlying principle supporting the premium profits method is that a value can be
determined by capitalising the additional profits generated by the intangible asset. This
approach is often used for brands on the theory that a branded product can be sold for
more than an unbranded product. For instance Coca Cola may be able to charge 50p
for a Coke whereas an unbranded cola may only sell for 35p per can. The price
difference of 15p can be described as the value of the brand, per can. To value the
brand it would be necessary to forecast the number of annual sales of the branded
product and multiply this by the price premium (i.e. the 15p). The sum of the discounted
annual price premium would be the estimated value of the brand.

It may be that the branded product can not sell at a higher price than the non-branded
product but instead can sell greater volume. The same valuation technique still applies.
The future economic benefits will thus be the profits attributable to the additional volume
generated by the brand. In many cases, branded products will be able to charge a price
premium as well as sell greater volumes than the non-branded competitors.

There are problems with the premium pricing method. Firstly, it is difficult to find a non-
branded competitor to compare prices with. Secondly, prices charged for each product
will vary between regions, and will change throughout the year, given promotions etc. In
addition it is very difficult and subjective to establish how much of the pricing differential
can be attributed to the brand and how much relates to other factors.

The relief from royalty method

This method is based upon the amount a hypothetical third party would pay for use of a
trademark, alternatively the amount the owner is relieved from paying by virtue of being
the owner rather than the licensee. The estimate of how much a hypothetical third party
would pay to be able to use, for example, the name Gucci on their products, provides an
estimate of the value of the brand name Gucci. This estimate is based on either actual
license agreements, comparable market data or financial analysis. For example, Gucci
may actually be charging licensees a royalty for use of the name; if they are not, then
names comparable to Gucci may be used to derive benchmarks for reasonable royalty
rates. For valuation purposes, the royalty rate is usually expressed as a percentage of
sales.

Once a royalty rate has been estimated it is necessary to estimate the life of the brand
and the level of annual sales. By multiplying the level of annual sales by the royalty rate
and summing all years gives you an estimate of the future economic benefit of the
brand. The final step is to bring these projected future cash flows back to today's prices
by discounting for the time value of money and the risks associated with achieving
those cash fows.

This is the most simplistic and, in our experience, most commonly used method for
valuing intellectual property. One difficulty with it is the lack of actual, comparable
agreements on which to base the hypothetical royalty rate. We seek to resolve this
problem either by reference to our own confidential database of royalty rates or by
analysing the profitability of the products in question in order to estimate the royalty that
a hypothetical third party would be prepared to pay in order to generate those profits.

Earnings basis
This method focuses on the maintainable profitability attributable to the intangible asset.
The profitability of the product that can be attributed to all other factors, such as tangible
assets and working capital, is deducted from the total forecast profitability. The profit
remaining, by matter of deduction, can then be attributed to intangible assets. For
example, if Gucci had expected future profitability of £100 million and the profit
attributed to other factors was estimated at £80 million, then the profit attributed to
intangible assets is £20 million. This would then be divided between the company's
various intangible assets.

To calculate the value of the brand a multiple is applied to the portion of the £20 million
profit attributed to the brand. Therefore if a multiple of 10 was considered appropriate
and, for simplicity, the profit attributed to the brand is the full £20 million, then the value
of the brand would be £200 million (20 x 10). The multiple could be determined by the
companies P/E ratios, comparable rates used for other companies, or calculated from
scratch, possibly based on factors relating to the strength of the brand.

One shortcoming of this approach is that it is difficult to objectively attribute a profit

element to all of the other factors, such as tangible assets. Secondly, the profit
attributed to the brand will depend on how certain costs are allocated. Thirdly, the
calculation of a multiple is highly subjective.
Marketing transaction comparatives
As companies restructure to successfully compete in the New Economy there are an
increasing number of brand sales in certain industries. These brand disposals can be
used as a bench mark by which to value the brands of other products in the same
industry. For example, in 1998 Diageo sold its Bombay Gin and Dewar's Scotch whisky
to Bacardi for US$1.9 billion. By analysing the acquisition price as a multiple of current
or forecast sales it would be possible to estimate the value of another brand in the same
sector.

Summary

Brands have never been as important or as valuable as they are at present, owing to
the dynamics of the new world economy and the increased power of the consumer.
Their importance was summarised by Sir Allen Sheppard (then the Chairman of Grand
Metropolitan plc).

"Brands are the core of our business. We could, if we so wished, subcontract all of the
production, distribution, sales and service functions and, provided that we retained
ownership of our brands, we would continue to be successful and profitable. It is our
brands that provide the profits of today and guarantee the profits of the future."

As such, brands should be managed as the key business asset that they are; not only at
the protection and enforcement level, but also in terms of building shareholder value.
This level of management requires the development of appropriate metrics for
measuring brand management performance, of which we would argue valuation is a key
management tool.

Although brands are key to the success of many companies, they do not guarantee
earnings stability. All aspects of the brand mix will need to be actively managed to
ensure that the brand remains continually relevant and desirable to consumers. It is
mainly because of this need to actively manage all aspects of the brand that regular
valuations are essential to determine whether the company strategy and tactics are
maintaining, creating or destroying
Building Strong Brands-Because Might is Not Always Right
Do brands really need to be strong? The answer to
this question is yes and is obvious to most of us.
The reason though quite apparent often goes
unnoticed. We see it everyday. Brands wrestle each
other in the arena we call the marketplace.
Moreover, as in the case of wrestling, the winner
does not win simply by might. Very often, it is the
player's strategy and technique that gets him to win.
Thus, in the game of wrestling, it’s the strength on
mind that is put to test and not the strength of
muscle.

How does all of this translate into marketing? The fact remains that in marketing too,
brands must not only be strong physically but they need to be strong intellectually. Thus
building strong brands is more a function of creating sound strategy than simply the
function of the market share of the brand. This means that just because a brand is doing
well commercially, it does not imply that it is a strong brand. There could be other
factors that may be contributing to its commercial success. It may so happen that most
of these factors will be external to the brand and may not have anything to do with the
brand. Building strong brands requires brands-even the market leaders, to introspect
and realize their inner potential. There needs to be a clear-cut distinction between the
brand's intrinsic strengths and external opportunities, both of which may be contributing
to the brand's success.

The difference between the two however, is that while brand strengths are inherent,
external opportunities will be fleeting and may follow the axiom of easy come easy go. If
one is looking forward to building a strong brand, one cannot therefore, count on the
external opportunities for strength. The strength of a brand must come from within and
must not be confused with windfall opportunities in the marketplace.

An interesting motive for building strong brands is that brand strengths are unique for
each brand. Marketplace opportunities however, while contributing to the success of the
brand are not unique and other players in the marketplace can also avail of them. Thus
while building strong brands the motto must be for the brand to achieve self-reliance
and do away with dependence on providence.

Another aspect of building strong brands is that the strengths of the brand must be
cultivated and communicated to the target audience. Once the basic strengths of the
brand have been identified, the key is to understand how more value can be delivered
using those strengths. However, there may be some brands which may not have any
exceptional strengths. In this scenario, brands must consciously cultivate those
strengths that make them stand out in the marketplace. However, building of a strong
brand does not stop at that. There is a need to communicate the brand strengths and
value offering to the target masses.
The above process of building strong brands surely seems to be a time-consuming,
tricky and complex one. Nonetheless, in the arena called the marketplace, where
brands must either do or die, they must either be strong enough to wrestle competition
or be prepared to lose to the others and perish for good.

Points of Parity

My discussion of strategic awareness, points of singular distinction, and brand equity

would not be complete without discussion of brand points of parity.

Points of parity are those associations that are often shared by competing brands.
Consumers view these associations as being necessary to be considered a legitimate
product offering within a given category.

In other words, if you create what you consider to be a wonderful point of differentiation
and position, they might not be enough if consumers do not view your product or service
as measuring up on “minimum product expectations”. Points of parity are necessary for
your brand but are not sufficient conditions for brand choice.

As an example, I might produce a wonderful new automobile that uses advanced global
positioning and sensor technologies that render a driver obsolete by automatically
routing the car, adjusting speed for traffic conditions, recognizing and complying with all
traffic laws, and delivering passengers and cargo to the proper destination without the
need for operator intervention. Alas, I’ve invented the first car with functional auto-pilot.
What a strong position and unique selling proposition!

However, unless I have fully consider my brand’s points of parity with other products in
the category, I probably will not meet with success.

Consumers might expect that at minimum my automobile have four wheels with rubber,
inflatable tires, be street legal, run on a widely-available fuel source, be able to operate
during both night and day in most weather conditions, seat at least two people
comfortably with luggage, be able to operate on existing roads and highways, and
provide a fair level of personal safely to occupants. If my automobile does not possess
these points of parity with competing brands, then it might be too different and might not
be seen as a viable choice or a strong brand.

The lesson here is that differentiation and singular distinction are necessary for strong
brands, but they do not solely make for a strong brand. Your brand must also measure
up well against the competition on expected criteria so as to neutralize those attributes.

Once you have met the points of parity requirement and then you provide a unique
selling proposition and hold a strong, defensible position, then you have the makings of
a very strong brand.

Brand Equity
Brand Equity is the sum total of all the different values people attach to the brand, or the
holistic value of the brand to its owner as a corporate asset.

Brand equity can include: the monetary value or the amount of additional income
expected from a branded product over and above what might be expected from an
identical, but unbranded product; the intangible value associated with the product that
can not be accounted for by price or features; and the perceived quality attributed to the
product independent of its physical features.

A brand is nearly worthless unless it enjoys some equity in the marketplace. Without
brand equity, you simply have a commodity product.

More things to know about brands

As I mentioned earlier, a brand is more than just a word or symbol used to identify
products and companies.

A brand also stands for the immediate image, emotions, or perceptions people
experience when they think of a company or product. A brand represents all the tangible
and intangible qualities and aspects of a product or service. A brand represents a
collection of feelings and perceptions about quality, image, lifestyle, and status. It is
precisely because brands represent intangible qualities that the term is often hard to
define. Intangible qualities, perceptions, and feelings are often hard to grasp and clearly
describe.

Brands create a perception in the mind of the customer that there is no other product or
service on the market that is quite like yours. A brand promises to deliver value upon
which consumers and prospective purchasers can rely to be consistent over long
periods of time.

You already have at least one brand

First of all, you must understand that you already have a brand. Everyone has at least
one brand. Your name and who you are is, in fact, your personal brand. The brand
called "you". The issue then is not whether you have a brand, the issue is how well your
brand is managed.

Brand Management

If a brand is not effectively managed then a perception can be created in the mind of
your market that you do not necessarily desire. Branding is all about perception.

Wouldn't it be nice to have people perceive you the way you would like them to perceive
you? That is what branding and brand management are all about.
Brand management recognizes that your market's perceptions may be different from
what you desire while it attempts to shape those perceptions and adjust the branding
strategy to ensure the market's perceptions are exactly what you intend.

So you may now have a better understanding of what a brand is and why awareness
about your brand does not necessarily mean your brand enjoys high brand equity in the
marketplace. You might even understand that brand management is all about shaping
and managing perceptions. You may still be asking yourself, however, why you should
care about branding in the first place.

The benefits of a strong brand

Here are just a few benefits you will enjoy when you create a strong brand:

• A strong brand influences the buying decision and shapes the ownership
experience.
• Branding creates trust and an emotional attachment to your product or company.
This attachment then causes your market to make decisions based, at least in
part, upon emotion-- not necessarily just for logical or intellectual reasons.
• A strong brand can command a premium price and maximize the number of units
that can be sold at that premium.
• Branding helps make purchasing decisions easier. In this way, branding delivers
a very important benefit. In a commodity market where features and benefits are
virtually indistinguishable, 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.
• Branding will help you "fence off" your customers from the competition and
protect your market share while building mind share. Once you have mind share,
you customers will automatically think of you first when they think of your product
category.
• A strong brand can make actual product features virtually insignificant. A solid
branding strategy communicates a strong, consistent message about the value of
your company. A strong brand helps you sell value and the intangibles that
surround your products.
• A strong brand signals that you want to build customer loyalty, not just sell
product. A strong branding campaign will also signal that you are serious about
marketing and that you intend to be around for a while. A brand impresses your
firm's identity upon potential customers, not necessarily to capture an immediate
sale but rather to build a lasting impression of you and your products.
• Branding builds name recognition for your company or product.
• A brand will help you articulate your company's values and explain why you are
competing in your market.

People do not purchase based upon features and benefits

People do not make rational decisions. They attach to a brand the same way they
attach to each other: first emotionally and then logically. Similarly, purchase decisions
are made the same way—first instinctively and impulsively and then those decisions are
rationalized.

So now that you understand some of the reasons why you should want to build a strong
brand, let's talk about how you will go about building a strong brand.

Five Steps to Build a Strong Brand

In today’s highly competitive world, companies are striving hard to beat customer
expectations - marketers are at work setting the right level of expectations and shaping
the customer experience.

A positive brand value is created if customer experience exceeds his expectations. Over
a period of time companies can build a strong brand - one with high brand value. Intel,
Cisco, Google, E-bay, Wal-Mart etc., are the classic examples of how companies built a
strong brand through customer experience.

Companies mentioned above started small but built a solid reputation with the customer
along the way and in the process the name of the company evolved into a strong
brands as well. Note that these companies sell several products - and many of these
products are also branded, but the company brand is the strongest. For example -
Intel’s Pentium processor, Cisco’s Catalyst Router etc., these products are market
leaders in their respective segments, but customers remember the company brand
more than the product brand.

In this article, I want to highlight the five steps needed to create a strong brand. This
article builds on the theory of Customer relationship management & sales, you may
want to read the earlier article on Levels of Customer Relationship before reading
further.

1. Clearly articulate your brand identity

Brand Identity means what the brand means to the customer. Brand identity sets
 the customer expectations. A classic example is from Wal-Mart’s "Everyday Low
prices".
This statement sets the customer expectation. Customers expect bargain prices
at Wal-Mart. Another classic example is ‘Starbucks’ - Starbuck coffee has a
special meaning to its customers; to them Starbucks means excellent coffee
served in a warm, relaxing and pleasing environment.

The key is to clearly articulate the brand identity, and that will help you define
how customers interpret it. A clear brand identity sets right level of expectations
by the customer.

2. Establish a customer value proposition

Customer value proposition is the natural outcome of the brand identity. It is what
the customers think of your brand. For example, customers think of Wal-Mart as
place to get great bargains. Then that message must be communicated to the
entire organization so that each department and each individual understands
what it means to them. The actions of each department will then be aligned with
the customer value proposition.

For example only if all employees of Starbucks understand the customer value
proposition - then they will be able to deliver an excellent cup of coffee in a warm,
relaxing and pleasing environment.

3. Define the optimal customer experience.

Identify all contact points where customers interact with your company. To create
a holistic brand experience, you need to create a consistent and compelling
experience at each of these touch points.

For example, marketer must work as a mystery shopper and see if the customer
experience is consistent with the customer value proposition and brand identity.
For example, marketer must see if he/she is getting the kind of coffee at
Starbucks in the right environment as expected by the customer. Take an
 outside-in perspective when aligning each department with your customer value
proposition and brand identity.

Note that the marketer can only test the level of customer experience based on
his/her understanding of customer’s expectations. There may be an
understanding gap between what the customer wanted and what the marketer
understood.
4. Cultivate relationships with customers

Relationship with customers must be treated carefully. Never assume anything

about what the customer thinks of your company. It pays to be an active listener
to learn and respond to the customer needs. Companies need to respond
positively to customer feedback and that will turn casual customers into loyal
customers, loyal customers into customer champions.In my earlier article I have
written in detail about the levels of relationship a firm can enjoy with the
customer. Improving the levels of relationship with customer means enhancing
customer experience - thus gaining brand value & customer loyalty.

Here again a classic example will be Starbucks. Customers of starbucks are so

loyal that they are even promoting starbucks to others. Starbucks has also
responded in kind - by promoting organic farming, ethical purchasing etc. These
ideas were given to Starbucks by their customers.

Another very good example is Intel. Intel sells microprocessors to computer

manufacturers, the company releases new products with enhanced
features/performance as per its pre-announced product roadmap. The marketing
team of Intel is always listening to customer to learn what features are needed in
the future products - that information is passed on the R&D teams - so that the
new products will have the feature required by the customer. As a result Intel
enjoys the highest levels of relationships with its customers - a level at which
customers are willing to invest and co-develop new products.

5. Strengthen your brand over time

 Enhancing the level of customer-brand relationship will have a direct impact on
the brand. To build a strong brand, one needs strong customer relationships. To
begin with, the first time customer starts at a low level of relationship( I call it
level-1 ) and over a period of time, through series of positive interactions with the
brand/company, the level 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. This will have a
direct correlation with the brand value.

Closing thoughts
Customers don't buy products, customers buy relationships - This is a popular phrase in
marketing. To build a strong brand, organizations must work on enhancing customer
experiences and that results in a higher level of customer relationship. All this will
eventually result in a strong brand. If you observe any popular brand today, you will see
that company promoting that brand has succeeded in building a strong relationship with
its customers.

Drop Error - a mistake made by a company in deciding to abandon a new product idea that, in hindsight,
might have been successful if developed. See Go Error

drop-error
Definition:
A decision to drop a PRODUCT from the line, or to discontinue development of a new product which subsequently proves to
have been a premature decision, in light of successes achieved by competitors with similar developments. The converse of
GO-ERROR.