Identifying Market Segments and Targets, Week 3 BLSC (C) Case Marketing Report, marketing homework help

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  • Chapter 6: Identifying Market Segments and Targets
  • Chapter 7: Crafting the Brand Positioning
  • Chapter 8: Creating Brand Equity and Driving Growth


If you have not already done so, read the BLSC (C) case.


As you read the case, do the following tasks:

  1. Develop a marketing strategy for Safe Appliance to address the potential entry of Walmart to the Appliance Insurance Market.
  2. Using the Brightland population and income statistics provided in Case A, develop a segmentation and target marketing strategy for MM.

In addressing these items you should consider the lessons from Chapters 6-8. We will be using these in future discussions.


All written submissions should conform to the following format:

  • Written explanation limited to one page, single-spaced.
  • Typed, Times New Roman 12 point font, 1-inch margin on all four sides.
  • Page numbers at the bottom of the page.
  • Cover page with student name and class number on each page.
  • No spellings or grammatical errors.
  • Reference material properly cited.
  • No late submissions accepted.


  • You will be graded not on the quantity of your work but the quality.
  • You will be marked down if your work is not relevant to the question being discussed. Sometimes it might be appropriate to refer back to a statement made earlier, which is fine as long as you are not unduly rehashing a point that has already been made.
  • Remember, we have all read the case/article, so excessively reciting facts that are given in the case will reflect negatively on your grade.
  • Looking at the problem from a strategic point of view will positively reflect on your grade.
  • If you believe a diagram you created will help your discussion, feel free to include it in your post.
  • Although you do not need to respond to every question, responding to only one question is not sufficient for earning high marks. You must show that you understand the entire problem at hand through your well-thought-out answers.
  • Your work should reflect the cumulative knowledge you have gained from previous chapters.

Part 3: Building Strong Brands Chapter 6 Identifying Market Segments and Targets In this chapter, we will address the following questions: 1. In what ways can a company divide a consumer or business market into segments? (Page 93) 2. How should a company choose the most attractive target markets? (Page 100) 3. What are the different levels of market segmentation? (Page 101) Marketing Management at LinkedIn LinkedIn began operations in 2003, targeting a different audience than most other social networks, with a vision “…to create economic opportunity for every professional in the world.” Also separating LinkedIn from other social networks is the fact that it has diverse revenue streams, driven by three customer segments: job seekers who buy premium subscriptions for access to special services; advertisers who rely on its marketing solutions unit; and corporate recruiters who buy special search tools from its talent solutions unit. Today, LinkedIn has more than 300 million users worldwide—including 5 million in China, one of its newer markets—and sees much growth from its mobile users, who in 2013 accounted for more than 30 percent of unique visits to the site. Now LinkedIn’s well-targeted and positioned brand faces competition from other online giants, such as Facebook, and from established professional network services overseas, such as Viadeo SA in Europe and elsewhere.1 T o compete more effectively, many companies are now embracing target marketing. Effective target marketing requires that marketers (1) identify and profile distinct groups of buyers who differ in their needs and wants (market segmentation), (2) select one or more market segments to enter (market targeting), and (3) establish, communicate, and deliver the right benefit(s) to each target segment (market positioning). This chapter focuses on the first two steps; Chapter 7 discusses the third step. 92 Chapter 6 Identifying Market Segments and Targets Bases for Segmenting Consumer Markets Market segmentation divides a market into well-defined slices. A market segment consists of a group of customers who share a similar set of needs and wants. The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target. We use two broad groups of variables to segment consumer markets. Some researchers define segments by looking at descriptive characteristics—geographic, demographic, and psychographic— and asking whether these segments exhibit different needs or product responses. Other researchers define segments by looking at behavioral considerations, such as consumer responses to benefits, usage occasions, or brands, then seeing whether different characteristics are associated with each consumer-response segment. Regardless of which type of segmentation scheme we use, the key is adjusting the marketing program to recognize customer differences. The major segmentation variables—geographic, demographic, psychographic, and behavioral segmentation—are summarized in Table 6.1. Geographic Segmentation Geographic segmentation divides the market into geographical units such as nations, states, regions, counties, cities, or neighborhoods. The company can operate in one or a few areas, or it can operate in all but pay attention to local variations. In that way it can tailor marketing programs to the needs and wants of local customer groups in trading areas, neighborhoods, even individual stores. In a growing trend called grassroots marketing, marketers concentrate on making such activities as personally relevant to individual customers as possible. More and more, regional marketing means marketing right down to a specific zip code. Some approaches combine geographic data with demographic data to yield even richer descriptions of consumers and neighborhoods. Nielsen Claritas has developed a geoclustering approach called PRIZM (Potential Rating Index by Zip Markets) NE that classifies more than half a million U.S. residential neighborhoods into 14 distinct groups and 66 distinct lifestyle segments called PRIZM Clusters.2 The groupings take into consideration 39 factors in five broad categories: (1) education and affluence, (2) family life cycle, (3) urbanization, (4) race and ethnicity, and (5) mobility. The clusters have descriptive titles such as Blue Blood Estates, Winner’s Circle, Hometown Retired, and Back Country Folks. The inhabitants in a cluster tend to lead similar lives, drive similar cars, have similar jobs, and read similar magazines. Marketing to microsegments has become possible even for small organizations as database costs decline, software becomes easier to use, and data integration increases. Those who favor such localized marketing see national advertising as wasteful because it is too “arm’s length” and fails to address local needs. Those opposed argue that it drives up costs by reducing economies of scale and magnifying logistical problems. A brand’s overall image might be diluted if the product and message are too different in different localities. Demographic Segmentation One reason demographic variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class are so popular with marketers is that they’re often associated with consumer needs and wants. Another is that they’re easy to measure. Even when we describe the target market in nondemographic terms (say, by personality type), we may need the link back to demographic characteristics in order to estimate the size of the market and the media we should use to reach it efficiently. Here’s how marketers have used certain demographic variables to segment markets. 93 94 Part 3 TABLE 6.1 Building Strong Brands Major Segmentation Variables for Consumer Markets Geographic region Pacific Mountain, West North Central, West South Central, East North Central, East South Central, South Atlantic, Middle Atlantic, New England City or metro size Under 5,000; 5,000–20,000; 20,000–50,000; 50,000–100,000; 100,000–250,000; 250,000–500,000; 500,000– 1,000,000; 1,000,000–4,000,000; 4,000,000+ Density Urban, suburban, rural Climate Northern, southern Demographic age Under 6, 6–11, 12–17, 18–34, 35–49, 50–64, 65+ Family size 1–2, 3–4, 5+ Family life cycle Young, single; young, married, no children; young, married, youngest child under 6; young; married, youngest child 6 or older; older, married, with children; older, married, no children under 18; older, single; other Gender Male, female Income Under $10,000; $10,000–$15,000; $15,000–$20,000; $20,000–$30,000; $30,000–$50,000; $50,000–$100,000; $100,000+ Occupation Professional and technical; managers, officials, and proprietors; clerical sales; craftspeople; forepersons; operatives; farmers; retired; students; homemakers; unemployed Education Grade school or less; some high school; high school graduate; some college; college graduate; post college Religion Catholic, Protestant, Jewish, Muslim, Hindu, other Race White, Black, Asian, Hispanic, Other Generation Silent Generation, Baby Boomers, Gen X, Millennials (Gen Y) Nationality North American, Latin American, British, French, German, Italian, Chinese, Indian, Japanese Social class Lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers Psychographic lifestyle Culture-oriented, sports-oriented, outdoor-oriented Personality Compulsive, gregarious, authoritarian, ambitious Behavioral occasions Regular occasion, special occasion Benefits Quality, service, economy, speed User status Nonuser, ex-user, potential user, first-time user, regular user Usage rate Light user, medium user, heavy user Loyalty status None, medium, strong, absolute Readiness stage Unaware, aware, informed, interested, desirous, intending to buy Attitude toward product Enthusiastic, positive, indifferent, negative, hostile Age and Life-Cycle Stage Consumer wants and abilities change with age. Toothpaste brands such as Crest offer three main lines of products to target kids, adults, and older consumers. Age segmentation can be even more refined. Pampers divides its market into prenatal, new baby (0–5 months), baby (6–12 months), toddler (13–23 months), and preschooler (24 months+). However, age and life cycle can be tricky variables. The target market for some products may be the psychologically young. Life Stage People in the same part of the life cycle may still differ in their life stage. Life stage defines a person’s major concern, such as going through a divorce, going into a second marriage, Chapter 6 Identifying Market Segments and Targets taking care of an older parent, buying a home, and so on. These life stages present opportunities for marketers who can help people cope with the accompanying decisions. But not everyone goes through that life stage at a certain time—or at all, for that matter. More than a quarter of all U.S. households now consist of only one person—a record high. It’s no surprise this $1.9 trillion market is attracting interest from marketers such as Lowe’s and DeBeers. Gender Men and women have different attitudes and behave differently, based partly on genetic makeup and partly on socialization.3 A research study of shopping found that men often need to be invited to touch a product, whereas women are likely to pick it up without prompting. Men often like to read product information; women may relate to a product on a more personal level. Gender differences are shrinking in some areas as men and women expand their roles. One survey found that more than half of men identified themselves as the primary grocery shoppers in their households, which is why Procter & Gamble now designs some ads with men in mind. Income Income segmentation is a long-standing practice in such categories as automobiles, clothing, cosmetics, financial services, and travel. However, income does not always predict the best customers for a given product. Many marketers are deliberately going after lower-income groups, in some cases discovering fewer competitive pressures or greater consumer loyalty. Increasingly, companies are finding their markets are hourglass-shaped, as middle-market U.S. consumers migrate toward both discount and premium products. Recognizing that its channel strategy emphasized retailers selling primarily to the middle class, Levi-Strauss introduced premium lines such as Levi’s Made & Crafted to upscale retailers and the less-expensive Signature line to mass market retailers. Generation Each generation or cohort is profoundly influenced by the times in which it grows up—the music, movies, politics, and defining events of that period. The four main U.S. generation cohorts, from youngest to oldest, are Millennials (Gen Y), Gen X, Baby Boomers, and the Silent Generation.4 Members of each cohort share the same major cultural, political, and economic experiences and often have similar outlooks and values. Marketers may choose to advertise to a cohort by using the icons and images prominent in its experiences. They can also try to develop products and services that uniquely meet the particular interests or needs of a generational target. t Millennials (or Gen Y). Born from 1977 through 1994, the 78 million Millennials are also known as Gen Y or Echo Boomers. Members of this cohort have been wired almost from birth. They may have a sense of entitlement and abundance from growing up during the economic boom, but they are also often socially conscious and concerned about the environment. This cohort may be turned off by overt marketing practices. t Generation X. Born from 1964 through 1978, the 50 million Gen Xers were raised during a period when social diversity and racial diversity were more widely accepted and technology changed the way people lived and worked. This cohort has raised standards in educational achievement, but its members were also the first generation to find surpassing their parents’ standard of living a serious challenge. They are pragmatic and individualist, prize selfsufficiency, and view technology as an enabler, not a barrier. t Baby Boomers. Born from 1946 through 1964, the 76 million members of this cohort are interested in products that turn back the hands of time. One study of boomers ages 55 to 64 found a significant number are willing to change brands, spend on technology, use social networking sites, and purchase online.5 95 96 Part 3 Building Strong Brands t Silent Generation. Born from 1925 through 1945, the 42 million members of this cohort are defying their advancing age and leading very active lives. Strategies emphasizing seniors’ roles as grandparents are well received. They are demanding customers but are also more willing than younger cohorts to pay full price for offerings they value. Race and Culture Multicultural marketing is an approach recognizing that different ethnic and cultural segments have sufficiently different needs and wants to require targeted marketing activities and that a mass market approach is not refined enough for the diversity of the marketplace. Consider that McDonald’s now does 40 percent of its U.S. business with ethnic minorities. Its highly successful “I’m Lovin’ It” campaign was rooted in hip-hop culture, but its appeal transcended race and ethnicity.6 Marketers need to factor the norms, language nuances, buying habits, and business practices of multicultural markets into the initial formulation of their marketing strategy. Diversity also has implications for planning and conducting marketing research. Psychographic Segmentation Psychographics is the science of using psychology and demographics to better understand consumers. In psychographic segmentation, buyers are divided into groups on the basis of psychological/ personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychographic profiles. One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insight’s (SBI) VALS™ framework. VALS is based on psychological traits for people and classifies U.S. adults into eight primary groups based on responses to a questionnaire featuring four demographic and 35 attitudinal questions. The VALS system is continually updated with new data from more than 80,000 surveys per year (see Figure 6.1).7 The main dimensions of the VALS segmentation framework are consumer motivation (the horizontal dimension) and consumer resources (the vertical dimension). Consumers are inspired by one of three primary motivations: ideals, achievement, and self-expression. Different levels of resources enhance or constrain a person’s expression of his or her primary motivation. Behavioral Segmentation In behavioral segmentation, marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. Behavior variables can include needs or benefits, decision roles, and user and usage. Needs and Benefits Not everyone who buys a product has the same needs or wants the same benefits from it. Needs-based or benefit-based segmentation identifies distinct market segments with clear marketing implications. Decision Roles People can play five roles in a buying decision: Initiator, Influencer, Decider, Buyer, and User. For example, assume a wife initiates a purchase by requesting a new treadmill for her birthday. The husband may seek information from many sources, including a friend who has a treadmill and is a key influencer in what models to consider. After presenting the alternative choices to his wife, he purchases her preferred model, which ends up being used by the entire family. Different people are playing different roles, but all are crucial in the decision process and ultimate consumer satisfaction. Chapter 6 Identifying Market Segments and Targets FIGURE 6.1 The VALS Segmentation System: An Eight-Part Typology US VALS Framework Innovators High Resources High Innovation Primary Motivation Ideals Achievement Self-Expression Thinkers Achievers Experiencers Believers Strivers Makers Low Resources Low Innovation Survivors Source: vals © 2014 by Strategic Business Insights. All rights reserved. User and Usage-Related Variables Many marketers believe variables related to users or their usage—occasions, user status, usage rate, buyer-readiness stage, and loyalty status—are good starting points for constructing market segments. t Occasions. Occasions mark a time of day, week, month, year, or other well-defined temporal aspects of a consumer’s life. We can distinguish buyers according to the occasions when they develop a need, purchase a product, or use a product. For example, air travel is triggered by occasions related to business, vacation, or family. Occasion segmentation can help expand product usage. t User status. Every product has its nonusers, ex-users, potential users, first-time users, and regular users. The key to attracting potential users, or even possibly nonusers, is understanding the reasons they are not using. Do they have deeply held attitudes, beliefs, or behaviors or just lack knowledge of the product or benefits? Included in the potential-user group are consumers who will become users in connection with some life stage or event. Market-share leaders tend to focus on attracting potential users because they have the most to gain from them. Smaller firms focus on trying to attract current users away from the market leader. 97 98 Part 3 Building Strong Brands t Usage rate. We can segment markets into light, medium, and heavy product users. Heavy users are often a small slice but account for a high percentage of total consumption. Marketers would rather attract one heavy user than several light users. A potential problem is that heavy users are often either extremely loyal to one brand or never loyal to any brand and always looking for the lowest price. t Buyer-readiness stage. Some people are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy. Recall from Chapter 4 that marketers can employ a marketing funnel to break the market into buyer-readiness stages. Figure 6.2 displays a funnel for two hypothetical brands. Compared with Brand B, Brand A performs poorly at converting one-time users to more recent users (only 46 percent convert for Brand A compared with 61 percent for Brand B). A marketing campaign could introduce more relevant products, find more accessible retail outlets, or dispel rumors or incorrect brand beliefs. t Loyalty status. Marketers usually envision four groups based on brand loyalty status: hard-core loyals (always buy one brand), split loyals (loyal to two or three brands), shifting loyals (shift from one brand to another), and switchers (not loyal to any brand).8 A company can study hard-core loyals to help identify the products’ strengths; study split loyals to see which brands are most competitive with its own; and study shifting loyals and switchers to identify marketing weaknesses that can be corrected. One caution: What appear to be brand-loyal purchase patterns may reflect habit, indifference, a low price, a high switching cost, or the unavailability of other brands. t Attitude. Five consumer attitudes about products are enthusiastic, positive, indifferent, negative, and hostile. Workers in a political campaign use attitude to determine how much time and effort to spend with each voter. They thank enthusiastic voters and remind them to vote, reinforce those who are positively disposed, try to win the votes of indifferent voters, and spend no time trying to change the attitudes of negative and hostile voters. FIGURE 6.2 Example of Marketing Funnel Brand A 96 65% Aware Brand B 97 Aware 29 Ever Tried 76% 74 Ever Tried 67% 62% 46% 63 Recent Trial 61% 50% 18 12 Occasional User Regular User 62% 75% 71% 45 32 Recent Trial Occasional User 6 Most Often Used 24 15 Regular User Most Often Used Chapter 6 Identifying Market Segments and Targets Bases for Segmenting Business Markets We can segment business markets with some of the same variables we use in consumer markets, such as geography, benefits sought, and usage rate, but business marketers also use other variables (see Table 6.2). The demographic variables are the most important, followed by the operating variables—down to the personal characteristics of the buyer. Within a chosen target industry, a business market can further segment by company size and set up separate operations for selling to large and small customers. A company can segment further by purchase criteria. Business marketers generally identify segments through a sequential process. Consider an aluminum company: The company first undertook macrosegmentation. It looked at which end-use market to serve: automobile, residential, or beverage containers. It chose the residential market, and it needed to determine the most attractive product application: semifinished material, building components, or aluminum mobile homes. Deciding to focus on building components, it considered the best customer size and chose large. The second stage consisted of microsegmentation. The company distinguished among customers buying on price, service, and quality. Because it had a high-service profile, the firm decided to concentrate on the service-motivated segment of the market. Business-to-business marketing experts James C. Anderson and James A. Narus have urged marketers to present flexible market offerings to all members of a segment.9 A flexible market TABLE 6.2 Major Segmentation Variables for Business Markets Demographic 1. Industry: Which industries should we serve? 2. Company size: What size companies should we serve? 3. Location: What geographical areas should we serve? Operating Variables 4. Technology: What customer technologies should we focus on? 5. User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers? 6. Customer capabilities: Should we serve customers needing many or few services? Purchasing Approaches 7. Purchasing-function organization: Should we serve companies with a highly centralized or decentralized purchasing organization? 8. Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on? 9. Nature of existing relationship: Should we serve companies with which we have strong relationships or simply go after the most desirable companies? 10. General purchasing policies: Should we serve companies that prefer leasing? Service contract? Systems purchases? Sealed bidding? 11. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price? Situational Factors 12. Urgency: Should we serve companies that need quick and sudden delivery or service? 13. Specific application: Should we focus on a certain application of our product rather than all applications? 14. Size or order: Should we focus on large or small orders? Personal Characteristics 15. Buyer-seller similarity: Should we serve companies whose people and values are similar to ours? 16. Attitude toward risk: Should we serve risk-taking or risk-avoiding customers? 17. Loyalty: Should we serve companies that show high loyalty to their suppliers? Source: Adapted from Thomas V. Bonoma and Benson P. Shapiro, Segmenting the Industrial Market (Lexington, MA: Lexington Books, 1983). 99 100 Part 3 Building Strong Brands offering consists of two parts: a naked solution containing the product and service elements that all segment members value and discretionary options that some segment members value. Each option might carry an additional charge. Market Targeting There are many statistical techniques for developing market segments.10 Once the firm has identified its market-segment opportunities, it must decide how many and which ones to target. Marketers are increasingly combining several variables in an effort to identify smaller, betterdefined target groups. Thus, a bank may not only identify a group of wealthy retired adults but within that group distinguish several segments depending on current income, assets, savings, and risk preferences. This has led some market researchers to advocate a needs-based market segmentation approach. Roger Best proposed the seven-step approach shown in Table 6.3. Effective Segmentation Criteria Not all segmentation schemes are useful. We could divide buyers of table salt into blond and brunette customers, but hair color is irrelevant to the purchase of salt. Furthermore, if all salt buyers buy the same amount of salt each month, believe all salt is the same, and would pay only one price for salt, this market is minimally segmentable from a marketing point of view. Rating Segments To be useful, market segments must rate favorably on five key criteria: t Measurable. The size, purchasing power, and characteristics of the segments can be measured. t Substantial. The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program. TABLE 6.3 Steps in the Segmentation Process Description 1. Needs-Based Segmentation Group customers into segments based on similar needs and benefits sought by customers in solving a particular consumption problem. 2. Segment Identification For each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable). 3. Segment Attractiveness Using predetermined segment attractiveness criteria (such as market growth, competitive intensity, and market access), determine the overall attractiveness of each segment. 4. Segment Profitability Determine segment profitability. 5. Segment Positioning For each segment, create a “value proposition” and product-price positioning strategy based on that segment’s unique customer needs and characteristics. 6. Segment “Acid Test” Create “segment storyboard” to test the attractiveness of each segment’s positioning strategy. 7. Marketing-Mix Strategy Expand segment positioning strategy to include all aspects of the marketing mix: product, price, promotion, and place. Source: Adapted from Roger J. Best, Market-Based Management, 6th ed. (Upper Saddle River NJ: Prentice Hall, 2013). ©2013. Printed and electronically reproduced by permission of Pearson Education, Inc. Upper Saddle River, New Jersey. Chapter 6 Identifying Market Segments and Targets t Accessible. The segments can be effectively reached and served. t Differentiable. The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs. If married and single women respond similarly to a sale on perfume, they do not constitute separate segments. t Actionable. Effective programs can be formulated for attracting and serving the segments. Long-Term Segment Attractiveness Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a market or market segment: industry competitors, potential entrants, substitutes, buyers, and suppliers.11 The first is the threat of intense segment rivalry. A segment is unattractive if it already contains numerous, strong, or aggressive competitors. It’s even more unattractive if it’s stable or declining, if plant capacity must be added in large increments, if fixed costs or exit barriers are high, or if competitors have high stakes in staying in the segment. The second is the threat of potential entrants. The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter the industry, and poorly performing firms can easily exit. When entry and exit barriers are high, profit potential is high, but firms face more risk because poorer-performing firms stay in and fight it out. When entry and exit barriers are low, firms easily enter and leave the industry, and returns are stable but low. The worst case occurs when entry barriers are low and exit barriers are high: Firms enter during good times but find it hard to leave during bad times. The third is the threat of substitutes. A segment is unattractive when there are actual or potential substitutes for the product. Substitutes place a limit on prices and on profits. If technology advances or competition increases in these substitute industries, prices and profits are likely to fall. The fourth is the threat of buyers’ growing bargaining power. A segment is unattractive if buyers possess strong or growing bargaining power. Buyers’ bargaining power grows when they become more concentrated or organized, when the product represents a significant fraction of their costs, when the product is undifferentiated, when buyers’ switching costs are low, or when they can integrate upstream. To protect themselves, sellers might select buyers who have the least power to negotiate or switch suppliers. A better defense is developing superior offers that strong buyers cannot refuse. The fifth force is the threat of suppliers’ growing bargaining power. A segment is unattractive if suppliers are able to raise prices or reduce quantity supplied. Suppliers tend to be powerful when they are concentrated or organized, when they can integrate downstream, when there are few substitutes, when the supplied product is an important input, and when the costs of switching suppliers are high. The best defenses are to build win-win relationships with suppliers or use multiple supply sources. Evaluating and Selecting Market Segments In evaluating market segments, the firm must look at two factors: the segment’s overall attractiveness and the company’s objectives and resources. How well does a potential segment score on the five criteria? Does it have characteristics that make it generally attractive, such as size, growth, profitability, scale economies, and low risk? Does investing in it make sense given the firm’s objectives, competencies, and resources? Some attractive segments may not mesh with the company’s long-run objectives, or the company may lack one or more competencies necessary to offer superior value. Marketers have a range or continuum of possible levels of segmentation that can guide their target market decisions. At one extreme is a mass market of essentially one segment; at the other extreme are individuals or segments of one person each. In between are multiple segments and single segments. We describe approaches to each of the four levels next. 101 102 Part 3 Building Strong Brands Full Market Coverage Here a firm attempts to serve all customer groups with all the products they might need. Only very large firms such as Microsoft (software market) and Coca-Cola (nonalcoholic beverage market) can undertake a full market coverage strategy, through either differentiated or undifferentiated marketing. In undifferentiated or mass marketing, the firm ignores segment differences and goes after the whole market with one offer. It designs a marketing program for a product with a superior image that can be sold to the broadest number of buyers via mass distribution and mass communications. Undifferentiated marketing is appropriate when all consumers have roughly the same preferences and the market shows no natural segments. The narrow product line keeps down the costs of research and development, production, inventory, transportation, marketing communication, and product management. However, many critics point to the increasing splintering of the market and the proliferation of marketing channels and communication, which make it difficult and increasingly expensive to reach a mass audience. In differentiated marketing, the firm sells different products to all the different segments of the market. Differentiated marketing typically creates more total sales than undifferentiated marketing. However, it also increases the costs of doing business. Because differentiated marketing leads to both higher sales and higher costs, no generalizations about its profitability are valid. Multiple Segment Specialization With selective specialization, a firm selects a subset of all the possible segments, each objectively attractive and appropriate. There may be little or no synergy among the segments, but each promises to be a moneymaker. The multisegment strategy also has the advantage of diversifying the firm’s risk. Keeping synergies in mind, companies can try to operate in supersegments rather than in isolated segments. A supersegment is a set of segments sharing some exploitable similarity. A firm can also attempt to achieve some synergy with product or market specialization. t With product specialization, the firm sells a certain product to several different market segments. A microscope manufacturer, for instance, sells to university, government, and commercial laboratories, making different instruments for each and building a strong reputation in the specific product area. The risk is that the product may be supplanted by an entirely new technology. t With market specialization, the firm concentrates on serving many needs of a particular customer group, such as by selling an assortment of products only to university laboratories. The firm gains a strong reputation among this customer group and becomes a channel for additional products its members can use. The risk is that the customer group may suffer budget cuts or shrink in size. Single-Segment Concentration With single-segment concentration, the firm markets to only one particular segment. Through concentrated marketing, the firm gains deep knowledge of the segment’s needs and achieves a strong market presence. It also enjoys operating economies by specializing its production, distribution, and promotion. If it captures segment leadership, the firm can earn a high return on its investment. A niche is a more narrowly defined customer group seeking a distinctive mix of benefits within a segment. Marketers usually identify niches by dividing a segment into subsegments. What does an attractive niche look like? Niche customers have a distinct set of needs; they will pay a premium to the firm that best satisfies them; the niche is fairly small but has size, profit, and growth potential and is unlikely to attract many competitors; and it gains certain economies through specialization. As marketing efficiency increases, niches that seemed too small may become more profitable. See “Marketing Insight: Chasing the Long Tail.” Chapter 6 Identifying Market Segments and Targets 103 marketing insight Chasing the Long Tail he advent of online commerce, made possible by technology and epitomized by Amazon. com, eBay, iTunes, and Netflix, has led to a shift in consumer buying patterns, according to Chris Anderson, author of The Long Tail. In most markets, the distribution of product sales conforms to a curve weighted heavily to one side—the “head”— where the bulk of sales are generated by a few products. The curve falls rapidly toward zero and hovers just above it far along the X-axis—the “long tail”— where the vast majority of products generate very little sales. The mass market traditionally focused on generating “hit” products that occupy the head. Anderson says the Internet is shifting demand “down the tail, from hits to niches” in a number of product categories including music, books, clothing, and movies. His theory is based on three premises: (1) Lower distribution costs make it economically easier to sell products without precise demand predictions; (2) the more products available for sale, the greater the likelihood of tapping into latent demand for niche tastes unreachable through T traditional retail channels; and (3) if enough niche tastes are aggregated, a big new market can result. Although some research supports this theory, other research finds very low share products may be so obscure that they disappear before they can be purchased frequently enough to justify their existence. For companies selling physical products, inventory, stocking, and handling costs can outweigh any financial benefits of such products. Sources: Chris Anderson, The Long Tail (New York: Hyperion, 2006); “Reading the Tail,” interview with Chris Anderson, Wired, July 8, 2006, p. 30; “Wag the Dog: What the Long Tail Will Do,” The Economist, July 8, 2006, p. 77; John Cassidy, “Going Long,” New Yorker, July 10, 2006; Erik Brynjolfsson, Yu “Jeffrey” Hu, and Michael D. Smith, “From Niches to Riches: Anatomy of a Long Tail,” MIT Sloan Management Review (Summer 2006), p. 67; Anita Elberse, “Should You Invest in the Long Tail,” Harvard Business Review, July–August 2008, pp. 88–96 (with online commentary); Lee Gomes, “Study Refutes Niche Theory Spawned by Web,” Wall Street Journal, July 2, 2008; Erick Schonfeld, “Poking Holes in the Long Tail Theory,”, July 2, 2008; “Rethinking the Long Tail Theory: How to Define ‘Hits’ and ‘Niches,’” Knowledge@Wharton, September 16, 2009. Individual Marketing The ultimate level of segmentation leads to “segments of one,” “customized marketing,” or “one-to-one marketing.”12 As companies have grown proficient at gathering information about individual customers and business partners and as their factories are being designed more flexibly, they have increased their ability to individualize market offerings, messages, and media. Mass customization is the ability of a company to meet each customer’s requirements—to prepare on a mass basis individually designed products, services, programs, and communications.13 One-to-one marketing is not for every company. It works best for firms that normally collect a great deal of individual customer information and carry a lot of products that can be cross-sold, need periodic replacement or upgrading, and offer high value. For others, the required investment in information collection, hardware, and software may exceed the payout. The cost of goods is raised beyond what the customer is willing to pay. Legal and Ethical Issues with Market Targets Marketers must target carefully to avoid consumer backlash. Some consumers resist being labeled.14 Market targeting also can generate public controversy when marketers take unfair advantage of vulnerable groups (such as children) or disadvantaged groups (such as inner-city residents) or when they promote potentially harmful products. A key area of concern for many consumer protection advocates today is the millions of kids who are online. 104 Part 3 Building Strong Brands Not all attempts to target children, minorities, or other special segments draw criticism. Colgate-Palmolive’s Colgate Junior toothpaste has special features designed to get children to brush longer and more often. Thus, the issue is not who is targeted, but how and for what purpose. Socially responsible marketing calls for targeting that serves not only the company’s interests but also the interests of those targeted. Executive Summary Target marketing includes three activities: market segmentation, market targeting, and market positioning. Market segments are large, identifiable, distinct groups within a market who share a similar set of needs and wants. The major segmentation variables for consumer markets are geographic, demographic, psychographic, and behavioral, used singly or in combination. Business marketers use all these variables along with operating variables, purchasing approaches, and situational factors. To be useful, market segments must be measurable, substantial, accessible, differentiable, and actionable. We can target markets at four main levels: mass, multiple segments, single (or niche) segment, and individuals. A mass market approach, with full market coverage, is adopted only by the biggest firms. A niche is a more narrowly defined group within a segment. More companies now practice individual and mass customization. In evaluating market segments, the firm must look at two factors: the segment’s overall attractiveness and the company’s objectives and resources. Finally, marketers must choose target markets in a legal and ethical manner. Notes 1. E. B. Boyd, “After LinkedIn’s IPO, What Will It Have to Do to Earn Its $4.3 Billion Valuation,” Fast Company, May 19, 2011; Evelyn M. Rusli, “LinkedIn Earnings: Profit Soars, but Shares Fall on Weak Outlook,” Wall Street Journal, May 2, 2013; Alexandra Chang, “LinkedIn Revamps Mobile Apps to Focus on Stories, Updates,” Wired, April 18, 2013; Russell Flannery, “LinkedIn Members in China Surpass Five Million,”, May 26, 2014. 2. By visiting the company’s sponsored site,, you can enter in a zip code and discover the top five clusters for that area. Note that another leading supplier of geodemographic data is ClusterPlus (Strategic Mapping). 3. For some consumer behavior findings on gender, see Kristina M. Durante, Vladas Griskevicius, Sarah E. Hill, Carin Perilloux, and Norman P. Li, “Ovulation, Female Competition, and Product Choice: Hormonal Influences on Consumer Behavior,” Journal of Consumer Research 37 (April 2011), pp. 921–34; Valentyna Melnyk, Stijn M. J. van Osselaer, and Tammo H. A. Bijmolt, “Are Women More Loyal Customers than Men? Gender Differences in Loyalty to Firms and Individual Service Providers,” Journal of Marketing 73 (July 2009), pp. 82–96; Jane Cunningham and 4. 5. 6. 7. 8. Philippa Roberts, “What Woman Want,” Brand Strategy, December 2006–January 2007, pp. 40–41; Robert J. Fisher and Laurette Dube, “Gender Differences in Responses to Emotional Advertising,” Journal of Consumer Research 31 (March 2005), pp. 850–58. Charles D. Schewe and Geoffrey Meredith, “Segmenting Global Markets by Generational Cohort: Determining Motivations by Age,” Journal of Consumer Behavior 4 (October 2004), pp. 51–63; Geoffrey E. Meredith and Charles D. Schewe, Managing by Defining Moments: America’s 7 Generational Cohorts, Their Workplace Values, and Why Managers Should Care (New York: Hungry Minds, 2002); Geoffrey E. Meredith, Charles D. Schewe, and Janice Karlovich, Defining Markets, Defining Moments (New York: Hungry Minds, 2001). Amy Chozick, “Television’s Senior Moment,” Wall Street Journal, March 9, 2011. Marissa Miley, “Don’t Bypass African-Americans,” Advertising Age, February 2, 2009. shtml, accessed May 20, 2014. This classification was adapted from George H. Brown, “Brand Loyalty: Fact or Fiction?,” Advertising Age, June 1952–January 1953, a series. See also Peter E. Rossi, Chapter 6 9. 10. 11. 12. Robert E. McCulloch, and Greg M. Allenby, “The Value of Purchase History Data in Target Marketing,” Marketing Science 15 (Fall 1996), pp. 321–40. James C. Anderson and James A. Narus, “Capturing the Value of Supplementary Services,” Harvard Business Review, January–February 1995, pp. 75–83. But also see Frank V. Cespedes, James P. Dougherty, and Ben S. Skinner III, “How to Identify the Best Customers for Your Business,” MIT Sloan Management Review, Winter 2013, pp. 53–59. For a review of methodological issues in developing segmentation schemes, see William R. Dillon and Soumen Mukherjee, “A Guide to the Design and Execution of Segmentation Studies,” Rajiv Grover and Marco Vriens, eds., Handbook of Marketing Research (Thousand Oaks, CA: Sage, 2006). Michael E. Porter, Competitive Strategy (New York: Free Press, 1980), pp. 22–23. Don Peppers and Martha Rogers, One-to-One B2B: Customer Development Strategies for the Identifying Market Segments and Targets 105 Business-to-Business World (New York: Doubleday, 2001); Jerry Wind and Arvind Rangaswamy, “Customerization: The Next Revolution in Mass Customization,” Journal of Interactive Marketing 15 (Winter 2001), pp. 13–32; Itamar Simonson, “Determinants of Customers’ Responses to Customized Offers: Conceptual Framework and Research Propositions,” Journal of Marketing 69 (January 2005), pp. 32–45. 13. James H. Gilmore and B. Joseph Pine II, Markets of One: Creating Customer-Unique Value through Mass Customization (Boston: Harvard Business School Press, 2000); B. Joseph Pine II, “Beyond Mass Customization,” Harvard Business Review, May 2, 2011. 14. Woo Jin Choi and Karen Page Winterich, “Can Brands Move In from the Outside? How Moral Identity Enhances Out-Group Brand Attitudes,” Journal of Marketing 77 (March 2013), pp. 96–111; Jennifer E. Escales and James R. Bettman, “Self-Construal, Reference Groups, and Brand Meaning,” Journal of Consumer Research 32 (December 2005), pp. 378–89. Chapter 7 Crafting the Brand Positioning and Competing Effectively In this chapter, we will address the following questions: 1. How can a firm develop and establish an effective positioning? (Page 107) 2. How are brands successfully differentiated? (Page 111) 3. How do marketers identify and analyze competition? (Page 112) 4. How can market leaders, challengers, followers, and nichers compete effectively? (Page 116) Marketing Management at DirecTV The direct-broadcast satellite service provider DirecTV faces competition from classic cable companies (Comcast), from other direct broadcast satellite service providers (Dish), and from providers of alternate ways to watch television digitally (Hulu, Netflix, and Amazon). DirecTV’s positioning reflects its combination of features not easily matched by any competitor. Three pillars of that positioning are captured by its claims to “state-of-the-art technology, unmatched programming, and industry leading customer service.” The company puts much emphasis on its sports packages, its wide array of HD channels, and its broadcast platform for enabling customers to access programming on home TVs, laptops, tablets, and cell phones. DirecTV has made a strategic targeting shift to focus on “high quality” subscribers: loyal customers who purchase premium services, pay their bills on time, and rarely call to complain.1 C reating a compelling, well-differentiated brand position, as DirecTV has done, requires a keen understanding of consumer needs and wants, company capabilities, and competitive actions. In this chapter, we outline a process by which marketers can uncover the most powerful 106 Chapter 7 Crafting the Brand Positioning and Competing Effectively brand positioning. We also examine the role of competition and how to manage brands based on market position. Developing and Establishing a Brand Positioning All marketing strategy is built on segmentation, targeting, and positioning. A company discovers different needs and groups of consumers in the marketplace, targets those it can satisfy in a superior way, and then positions its offerings so the target market recognizes its distinctive offerings. By building customer advantages, companies can deliver high customer value and satisfaction, which lead to high repeat purchases and ultimately to high company profitability. Understanding Positioning and Value Propositions Positioning is the act of designing a company’s offering and image to occupy a distinctive place in the minds of the target market.2 The goal is to locate the brand in the minds of consumers to maximize the potential benefit to the firm. A good brand positioning helps guide marketing strategy by clarifying the brand’s essence, identifying the goals it helps consumers achieve, and showing how it does so in a unique way. One result of positioning is the successful creation of a customer-focused value proposition, a cogent reason why the target market should buy a product or service. Table 7.1 shows how three companies have defined their value proposition through the years with their target customers.3 Deciding on a positioning requires: (1) choosing a frame of reference by identifying the target market and relevant competition, (2) identifying the optimal points-of-parity and points-ofdifference brand associations given that frame of reference, including emotional branding, and (3) creating a brand mantra summarizing the brand’s positioning and essence. Choosing a Competitive Frame of Reference The competitive frame of reference defines which other brands a brand competes with and which should thus be the focus of competitive analysis. A good starting point in defining a competitive frame of reference for brand positioning is category membership, the products or sets of products with which a brand competes and that function as close substitutes. It would seem a simple task for a company to identify its competitors. PepsiCo knows Coca-Cola’s Dasani is a major bottled-water competitor for its Aquafina brand; Wells Fargo knows Bank of America is a major banking competitor. The range of a company’s actual and potential competitors, however, can be much broader. To enter new markets, a brand with growth intentions may need a broader or more aspirational TABLE 7.1 Examples of Value Propositions Company and Product Target Customers Value Proposition Hertz (car rental) Busy professionals Fast, convenient way to rent the right type of car at an airport Volvo (station wagon) Safety-conscious upscale families The safest, most durable wagon in which your family can ride Domino’s (pizza) Convenience-minded pizza lovers A delicious hot pizza, delivered promptly to your door 107 108 Part 3 Building Strong Brands competitive frame. And it may be more likely to be hurt by emerging competitors or new technologies than by current competitors. We can examine competition from both an industry and a market point of view.4 An industry is a group of firms offering a product or class of products that are close substitutes for one another. Using the market approach, we define competitors as companies that satisfy the same customer need. For example, a customer who buys word-processing software really wants “writing ability”—a need that can also be satisfied by pencils, pens, or, in the past, typewriters. Marketers must overcome “marketing myopia” and stop defining competition in traditional category and industry terms.5 Once a company has identified its main competitors, and their strengths and weaknesses, it must ask: What is each competitor seeking in the marketplace? What drives each competitor’s behavior? Many factors shape a competitor’s objectives, including size, history, current management, and financial situation. If the competitor is part of a larger company, it’s important to know whether the parent company is running it for growth or for profits or milking it. Based on all this analysis, marketers formally define the competitive frame of reference to guide positioning. In stable markets where little short-term change is likely, it may be fairly easy to define one, two, or perhaps three key competitors. In dynamic categories where competition may exist or arise in different forms, multiple frames of reference may be present. Marketers should monitor these three variables when analyzing competitors: 1. 2. Share of market—The competitor’s share of the target market. Share of mind—The percentage of customers who named the competitor in responding to the 3. statement “Name the first company that comes to mind in this industry.” Share of heart—The percentage of customers who named the competitor in responding to the statement “Name the company from which you would prefer to buy the product.” In general, companies that make steady gains in mind share and heart share will inevitably make gains in market share and profitability. Firms such as Timberland, Jordan’s Furniture, and Wegmans are all reaping the benefits of providing emotional, experiential, social, and financial value to satisfy customers and all their constituents.6 Identifying Potential Points-of-Difference and Points-of-Parity Once marketers have fixed the competitive frame of reference for positioning by defining the customer target market and the nature of the competition, they can define the appropriate pointsof-difference and points-of-parity associations.7 Points-of-difference (PODs) are attributes or benefits that consumers strongly associate with a brand, positively evaluate, and believe they could not find to the same extent with a competitive brand. Strong brands often have multiple pointsof-difference. Two examples are Nike (performance, innovative technology, and winning) and Southwest Airlines (value, reliability, and fun personality). Three criteria determine whether a brand association can truly function as a point-ofdifference: desirability, deliverability, and differentiability. 1. Desirable to consumer. Consumers must see the brand association as personally relevant to them. 2. 3. Deliverable by the company. The company must have the resources and commitment to feasibly and profitably create and maintain the brand association in the minds of consumers. The ideal brand association is preemptive, defensible, and difficult to attack. Differentiating from competitors. Consumers must see the brand association as distinctive and superior to relevant competitors. Chapter 7 Crafting the Brand Positioning and Competing Effectively Points-of-parity (POPs) are attribute or benefit associations that are not necessarily unique to the brand but may in fact be shared with other brands.8 These types of associations come in three basic forms: category, correlational, and competitive. Category points-of-parity are attributes or benefits that consumers view as essential to a legitimate and credible offering within a certain category, although not necessarily sufficient conditions for brand choice. Category points-of-parity may change over time due to technological advances, legal developments, or consumer trends. Correlational points-of-parity are potentially negative associations that arise from the existence of positive associations for the brand. One challenge for marketers is that many attributes or benefits that make up their POPs or PODs are inversely related. In other words, if your brand is good at one thing, such as being inexpensive, consumers can’t see it as also good at something else, like being “of the highest quality.” Competitive points-of-parity are associations designed to overcome perceived weaknesses of the brand in light of competitors’ points-of-difference. One good way to uncover key competitive points-of-parity is to role-play competitors’ positioning and infer their intended points-ofdifference. Competitor’s PODs will, in turn, suggest the brand’s POPs. For an offering to achieve a point-of-parity on a particular attribute or benefit, a sufficient number of consumers must believe the brand is “good enough” on that dimension. It is not uncommon for a brand to identify more than one actual or potential competitive frame of reference, if competition widens or the firm plans to expand into new categories. There are two main options with multiple frames of reference. One is to first develop the best possible positioning for each type or class of competitors and then create one combined positioning robust enough to effectively address all. If competition is too diverse, however, it may be necessary to prioritize competitors and choose the most important set as the competitive frame. Try not to be all things to all people—that leads to lowest-common-denominator positioning, which is typically ineffective. Occasionally, a company will be able to straddle two frames of reference with one set of points-of-difference and points-of-parity. Here the points-of-difference for one category become points-of-parity for the other and vice versa. Subway restaurants are positioned as offering healthy, good-tasting sandwiches. This positioning allows the brand to create a POP on taste and a POD on health with respect to quick-serve restaurants such as McDonald’s and Burger King and, at the same time, a POP on health and a POD on taste with respect to health food restaurants and cafés. Straddle positions allow brands to expand their market coverage and potential customer base. If the points-of-parity and points-of-difference are not credible, however, the brand may not be viewed as a legitimate player in either category. Choosing Specific POPs and PODs To build a strong brand and avoid the commodity trap, marketers must start with the belief that you can differentiate anything. Michael Porter urged companies to build a sustainable competitive advantage.9 Competitive advantage is a company’s ability to perform in one or more ways that competitors cannot or will not match. Marketers typically focus on brand benefits in choosing the points-of-parity and pointsof-difference that make up their brand positioning. Brand attributes generally play more of a supporting role by providing “reasons to believe” or “proof points” as to why a brand can credibly claim it offers certain benefits. Multiple attributes may support a certain benefit, and they may change over time. The obvious, and often the most compelling, means of differentiation for consumers are benefits related to performance. To identify possible means of 109 110 Part 3 Building Strong Brands differentiation, marketers have to match consumers’ desire for a benefit with their company’s ability to deliver it. For choosing specific benefits as POPs and PODs to position a brand, perceptual maps may be useful. Perceptual maps are visual representations of consumer perceptions and preferences. They provide quantitative pictures of market situations and the way consumers view different products, services, and brands along various dimensions. By overlaying consumer preferences with brand perceptions, marketers can reveal “openings” that suggest unmet consumer needs and marketing opportunities.10 For example, Figure 7.1 shows a hypothetical perceptual map for a beverage category. The four brands—A, B, C, and D—vary in terms of how consumers view their taste profile (light versus strong) and personality and imagery (contemporary versus traditional). Also displayed on the map are ideal point “configurations” for three market segments (1, 2, and 3). The ideal points represent each segment’s most preferred (“ideal”) combination of taste and imagery. Brand A is seen as more balanced in terms of both taste and imagery. On Figure 7.1 are two possible repositioning strategies for Brand A. By making its image more contemporary, Brand A could move to A' to target consumers in Segment 1 and achieve a point-of-parity on imagery and maintain its point-of-difference on taste profile with respect to Brand B. By changing its taste profile to make it lighter, Brand A could move to A" to target consumers in Segment 2 and achieve a point-of-parity on taste profile and maintain its point-ofdifference on imagery with respect to Brand C. Deciding which repositioning is most promising, A' or A", would require detailed consumer and competitive analysis. FIGURE 7.1 Hypothetical Beverage Perceptual Map Strong Flavor Brands: A, B, C, & D Customer Segments Ideal Points: 1, 2, & 3 D B 3 1 Traditional Image Contemporary Image A 2 C A'' Light Flavor A’ Chapter 7 Crafting the Brand Positioning and Competing Effectively Emotional Branding Many marketing experts believe a brand positioning should have both rational and emotional components. In other words, it should contain points-of-difference and points-of-parity that appeal to both the head and the heart.11 A person’s emotional response to a brand and its marketing will depend on many factors. An increasingly important one is the brand’s authenticity.12 Brands such as Hershey’s, Kraft, Crayola, Kellogg’s, and Johnson & Johnson that are seen as authentic and genuine can evoke trust, affection, and strong loyalty.13 Authenticity also has functional value. Welch’s, owned by 1,150 grape farmers, is seen by consumers as “wholesome, authentic, and real.” The brand reinforces those credentials by focusing on its local sourcing of ingredients, increasingly important for consumers who want to know where their foods come from.14 Brand Mantras To further focus brand positioning and guide the way their marketers help consumers think about the brand, firms can define a brand mantra.15 A brand mantra is a three- to five-word articulation of the brand’s heart and soul, closely related to other branding concepts like “brand essence” and “core brand promise.” Brand mantras must economically communicate what the brand is and what it is not. What makes a good brand mantra? McDonald’s “Food, Folks, and Fun” captures its brand essence and core brand promise. A good brand mantra should communicate the category and clarify what is unique about the brand. It should also be vivid and memorable and stake out ground that is personally meaningful and relevant. For brands anticipating rapid growth, it is helpful to define the product or benefit space in which the brand would like to compete, as Nike did with “athletic performance” and Disney with “family entertainment.” But for it to be effective, no other brand should singularly excel on all dimensions. Establishing a Brand Positioning Often a good positioning will have several PODs and POPs. Of those, often two or three really define the competitive battlefield and should be analyzed and developed carefully. The typical approach to positioning is to inform consumers of a brand’s membership before stating its point-of-difference. Presumably, consumers need to know what a product is and what function it serves before deciding whether it is superior to the brands against which it competes. For new products, initial advertising often concentrates on creating brand awareness, and subsequent advertising attempts to create the brand image. There are three main ways to convey a brand’s category membership: 1. 2. 3. Announcing category benefits—To reassure consumers that a brand will deliver on the fundamental reason for using a category, marketers frequently use benefits to announce category membership. Thus, industrial tools might claim to have durability. Comparing to exemplars—Well-known, noteworthy brands in a category can also help a brand specify its category membership. When Tommy Hilfiger was an unknown, advertising announced his status as a great U.S. designer by associating him with recognized category members like Calvin Klein. Relying on the product descriptor—The product descriptor that follows the brand name is often a concise means of conveying category origin. One common challenge in positioning, as noted above, is that many of the benefits that make up points-of-parity and points-of-difference are negatively correlated. Moreover, 111 112 Part 3 Building Strong Brands individual attributes and benefits often have positive and negative aspects. Consider a long-lived brand such as Burberry. The brand’s heritage could suggest experience, wisdom, and expertise as well as authenticity, or it could suggest being old-fashioned. Unfortunately, consumers typically want to maximize both the negatively correlated attributes or benefits. The best approach clearly is to develop a product or service that performs well on both dimensions. To address attribute or benefit trade-offs, marketers can: launch two different marketing campaigns, each devoted to a different brand attribute or benefit; link the brand to a person, place, or thing that possesses the right kind of equity to establish an attribute or benefit as a POP or POD; or convince consumers that the negative relationship between attributes and benefits, if they consider it differently, is in fact positive. Clearly defined POPs and PODs are particularly important to small businesses. See “Marketing Insight: Positioning and Branding for a Small Business” for more on positioning and branding for a small business. Alternative Approaches to Positioning Some marketers have proposed other, less-structured approaches in recent years that offer provocative ideas on how to position a brand. These include brand narratives, storytelling, and cultural branding. Brand Narratives and Storytelling Rather than outlining specific attributes or benefits, some marketing experts describe positioning a brand as telling a narrative or story. Companies like the richness and imagination they can derive from thinking of the story behind a product or service. Randall Ringer and Michael Thibodeau see narrative branding as based on deep metaphors that connect to people’s memories, associations, and stories.16 They identify five elements of narrative branding: (1) the brand story in terms of words and metaphors, (2) the consumer journey or the way consumers engage with the brand over time and touch points where they come into contact with it, (3) the visual language or expression for the brand, (4) the manner in which the narrative is expressed experientially or the brand engages the senses, and (5) the role the brand plays in the lives of consumers. Patrick Hanlon developed the related concept of “primal branding” that views brands as complex belief systems. According to Hanlon, diverse brands such as Google, MINI Cooper, the U.S. Marine Corps, Starbucks, Apple, UPS, and Aveda all have a “primal code” that resonates with their customers and generates their passion and fervor. Seven assets make up this belief system or primal code: a creation story, creed, icon, rituals, sacred words, a way of dealing with nonbelievers, and a good leader.17 Cultural Branding Douglas Holt believes that for companies to build iconic, leadership brands, they must assemble cultural knowledge, strategize according to cultural branding principles, and hire and train cultural experts.18 The University of Wisconsin’s Craig Thompson views brands as sociocultural templates, citing research investigating brands as cultural resources. For example, American Girl dolls tap into mother–daughter relationships and the cross-generational transfer of femininity.19 Experts who see consumers actively cocreating brand meaning and positioning refer to this as “Brand Wikification,” given that wikis are written by contributors from all walks of life and points of view.20 Competitive Strategies for Market Leaders Suppose a market is occupied by the firms shown in Figure 7.2 (on page 114). Forty percent is in the hands of a market leader, another 30 percent belongs to a market challenger, and 20 percent is Chapter 7 Crafting the Brand Positioning and Competing Effectively 113 marketing insight Positioning and Branding for a Small Business ere are some branding guidelines for small businesses with limited resources. H t Find a compelling performance advantage. Meaningful differences in product or service performance can be the key to success. The online storage firm carved out a strong competitive position at the start, partly by virtue of its single-folder approach to accommodate a user’s multiple devices. t Focus on building one or two strong brands based on one or two key associations. Small businesses often rely on one or two brands and key associations as points-of-difference, to be reinforced across the marketing program and over time. For example, Volcom has successfully adopted a “Youth Against Establishment” credo to market its music, athletic apparel, and jewelry. t Encourage trial in any way possible. Use sampling, demonstrations, or other methods to engage consumers and encourage trial. See’s Candies allows in-store customers to sample the candy of their choice. As one senior executive noted, “That’s the best marketing we have, if people try it, they love it.” t Develop a digital strategy to make the brand “bigger and better.” The Internet and mobile marketing allow small firms to have a big profile. Sales for Rider Shack surf shop in Los Angeles increased when the firm began using Facebook’s special features to keep the brand in front of people. t Create buzz and a loyal brand community. Word of mouth is important, as are costeffective public relations, social networking, promotions, and sponsorships. Evernote has several dozen “power users” who spread the word about the brand. t Employ a well-integrated set of brand elements. Small businesses should develop a distinctive, well-integrated set of brand elements—brand names, logos, packaging— that enhances both awareness and image. t Leverage secondary associations. Secondary associations—any persons, places, or things with potentially relevant associations—are often a cost-effective, shortcut means to build brand equity. t Creatively conduct marketing research. A variety of low-cost marketing research methods can help small businesses connect with customers and study competitors, such as working with students and professors at local colleges and universities. Sources: Ashlee Vance, “It’s a Doc in a Box,” Bloomberg Businessweek, May 7, 2012, pp. 45–47; Victoria Barret, “Software’s Boy Wonder,” Forbes, March 4, 2013; Daniel Roberts, “The Secrets of See’s Candies,” Fortune, September 3, 2012, pp. 67–72; Jefferson Graham, “How to Ride Facebook’s Giant Wave,” USA Today, May 30, 2013, p. 5B; Rob Walker, “The Cult of Evernote,” Bloomberg Businessweek, February 28, 2013. claimed by a market follower willing to maintain its share and not rock the boat. Market nichers, serving small segments larger firms don’t reach, hold the remaining 10 percent. A market leader such as McDonald’s has the largest market share and usually leads in price changes, new-product introductions, distribution coverage, and promotional intensity. Although marketers assume well-known brands are distinctive in consumers’ minds, unless a dominant firm enjoys a legal monopoly, it must maintain constant vigilance. A powerful product innovation may come along, a competitor might find a fresh marketing angle or commit to a major marketing investment, or the leader’s cost structure might spiral upward. 114 Part 3 Building Strong Brands FIGURE 7.2 Hypothetical Market Structure 40% Market leader 30% Market challenger 20% Market follower 10% Market nichers To stay number one, the firm must find ways to expand total market demand, protect its current share through good defensive and offensive actions, and increase market share, even if market size remains constant. Expanding Total Market Demand When the total market expands, the dominant firm usually gains the most. If Heinz can convince more people to use ketchup, or to use ketchup with more meals, or to use more ketchup on each occasion, the firm will benefit considerably because it already sells almost two-thirds of the country’s ketchup. In general, the market leader should look for new customers or more usage from existing customers. A company can search for new users among three groups: those who might use it but do not (market-penetration strategy), those who have never used it (new-market segment strategy), or those who live elsewhere (geographical-expansion strategy). Marketers can try to increase the amount, level, or frequency of consumption. They can sometimes boost the amount through packaging or product redesign. Larger package sizes increase the amount of product consumers use at one time.21 Consumers use more of impulse products such as soft drinks and snacks when the product is made more available. Ironically, some food firms such as Hershey’s have developed smaller packaging sizes that have actually increased sales volume through more frequent usage.22 In general, increasing frequency of consumption requires either (1) identifying additional opportunities to use the brand in the same basic way or (2) identifying completely new and different ways to use the brand. Protecting Market Share While trying to expand total market size, the dominant firm must actively defend its current business: Boeing against Airbus, and Google against Microsoft.23 How can the leader do so? The most constructive response is continuous innovation. The front-runner should lead the Chapter 7 Crafting the Brand Positioning and Competing Effectively industry in developing new products and customer services, distribution effectiveness, and cost cutting. Comprehensive solutions increase competitive strength and value to customers so they feel appreciative or even privileged to be a customer as opposed to feeling trapped or taken advantage of.24 Proactive Marketing In satisfying customer needs, we can draw a distinction between responsive marketing, anticipative marketing, and creative marketing. A responsive marketer finds a stated need and fills it. An anticipative marketer looks ahead to needs customers may have in the near future. A creative marketer discovers solutions customers did not ask for but to which they enthusiastically respond. Creative marketers are proactive market-driving firms, not just market-driven ones.25 A company needs two proactive skills: (1) responsive anticipation to see the writing on the wall, as when IBM changed from a hardware producer to a service business, and (2) creative anticipation to devise innovative solutions. Note that responsive anticipation is performed before a given change, while reactive response happens after the change takes place. Accenture maintains that 10 consumer trends covering areas like e-commerce, social media, and a desire to express individuality will yield market opportunities worth more than $2 trillion between 2013 and 2016.26 Defensive Marketing Even when it does not launch offensives, the market leader must not leave any major flanks exposed. The aim of defensive strategy is to reduce the probability of attack, divert attacks to less-threatened areas, and lessen their intensity. A leading firm can use one of six defense strategies. t Position defense. This means occupying the most desirable position in consumers’ minds, making the brand almost impregnable. Procter & Gamble “owns” the key functional benefit in many product categories, such as Pampers diapers for dryness. t Flank defense. The market leader should erect outposts to protect a weak front or support a possible counterattack. Procter & Gamble brands such as Gain and Cheer laundry detergent have played strategic offensive and defensive roles in support of Tide. t Preemptive defense. A more aggressive maneuver is to attack first, perhaps with guerrilla action across the market—hitting one competitor here, another there—to keep everyone off balance. Another is to achieve broad market envelopment that signals competitors not to attack.27 Yet another preemptive defense is to introduce a stream of new products and announce them in advance. t Counteroffensive defense. The market leader can meet the attacker frontally so the rival will have to pull back to defend itself. Another form of counteroffensive is the exercise of economic or political clout. The leader may try to crush a competitor by subsidizing lower prices for a vulnerable product with revenue from its more profitable products, or it may lobby legislators to take political action to inhibit the competition. t Mobile defense. Here the leader stretches its domain over new territories through market broadening and market diversification. Market broadening shifts the company’s focus from the current product to the underlying generic need, the way “petroleum” companies recast themselves as “energy” companies. Market diversification shifts the company’s focus into unrelated industries. t Contraction defense. Sometimes large companies can no longer defend all their territory. In planned contraction (also called strategic withdrawal), they give up weaker markets and reassign resources to stronger ones. P&G sold Pringles to Kellogg for almost $2.7 billion when it decided to focus on its core household and consumer products.28 115 Part 3 Building Strong Brands Increasing Market Share In some markets, one share point can be worth tens of millions of dollars, which is why competition is so fierce. Because the cost of buying higher market share through acquisition may far exceed its revenue value, a company should consider four factors first: 1. 2. 3. 4. The possibility of provoking antitrust action. Frustrated competitors are likely to cry “monopoly” and seek legal action if a dominant firm makes further inroads. Microsoft and Intel have had to fend off numerous lawsuits and legal challenges around the world as a result of what some feel are inappropriate or illegal business practices and abuse of market power. Economic cost. Figure 7.3 shows that profitability might fall with market share gains after some level. In the illustration, the firm’s optimal market share is 50 percent. The cost of gaining further market share might exceed the value if holdout customers dislike the firm, are loyal to competitors, have unique needs, or prefer dealing with smaller firms. Pushing for higher share is less justifiable when there are unattractive market segments, buyers who want multiple sources of supply, high exit barriers, and few economies of scale. Pursuing the wrong marketing activities. Companies successfully gaining share typically outperform competitors in three areas: new-product activity, relative product quality, and marketing expenditures.29 Companies that attempt to increase market share by cutting prices more deeply than competitors typically don’t achieve significant gains because rivals meet the price cuts or offer other values so buyers don’t switch. The effect of increased market share on actual and perceived quality. Too many customers can put a strain on the firm’s resources, hurting product value and service delivery. Other Competitive Strategies Firms that are not industry leaders are often called runner-up or trailing firms. Some, such as PepsiCo and Ford, are quite large in their own right. These firms can either attack the leader and other competitors in an aggressive bid for further market share as market challengers, or they can choose to not “rock the boat” as market followers. Market-Challenger Strategies Many market challengers have gained ground or even overtaken the leader. A challenger must first determine a strategic objective (such as to increase market share) and then decide whom to attack. Attacking the market leader is a high-risk but potentially high-payoff strategy if the leader is not serving the market well. The challenger can attack firms its own size that are FIGURE 7.3 The Concept of Optimal Market Share Optimal Market Share Profitability 116 0 25 50 75 100 Market Share (%) Chapter 7 Crafting the Brand Positioning and Competing Effectively underperforming and underfinanced, have aging products, are charging excessive prices, or are not satisfying customers in other ways. Another option is to attack small local and regional firms. Or a challenger might attack an industry as a whole or a pervasive way of thinking that doesn’t adequately address customer needs. Given clear opponents and objectives, five attack strategies for challengers are: 1. 2. 3. 4. 5. Frontal attack. The attacker matches its opponent’s product, advertising, price, and distribution. A modified frontal attack, such as cutting price, can work if the market leader doesn’t retaliate and if the competitor convinces the market its product is equal to the leader’s. Flank attack. A flanking strategy is another name for identifying shifts that cause gaps to develop in the market, then rushing to fill the gaps. Flanking is particularly attractive to a challenger with fewer resources and can be more likely to succeed than frontal attacks. With a geographic attack, the challenger spots areas where the opponent is underperforming. Another idea is to serve uncovered market needs. Encirclement attack. Encirclement attempts to capture a wide slice of territory by launching a grand offensive on several fronts. It makes sense when the challenger commands superior resources. Bypass attack. Bypassing the enemy to attack easier markets offers three lines of approach: diversifying into unrelated products, diversifying into new geographical markets, and leapfrogging into new technologies. In technological leapfrogging, the challenger patiently researches and develops the next technology, shifting the battleground to its own territory where it has an advantage. Guerrilla attack. Guerrilla attacks consist of small, intermittent attacks, conventional and unconventional, including selective price cuts, intense promotional blitzes, and occasional legal action, to harass the opponent and eventually secure permanent footholds. A guerrilla campaign can be expensive and typically must be backed by a stronger attack to beat the opponent. Market-Follower Strategies Theodore Levitt argues that a strategy of product imitation might be as profitable as a strategy of product innovation.30 The innovator bears the expense of developing the new product, getting it into distribution, and informing and educating the market. The reward for all this work and risk is normally market leadership. However, another firm can come along and copy or improve on the new product. Although it may not overtake the leader, the follower can achieve high profits because it did not bear any of the innovation expense. Many companies prefer to follow rather than challenge the market leader, especially in capital-intensive, homogeneous-product industries such as steel, fertilizers, and chemicals. The opportunities for product differentiation and image differentiation are low, service quality is comparable, and price sensitivity runs high. Short-run grabs for market share only provoke retaliation in such situations, so most firms present similar offers to buyers, usually by copying the leader, which keeps market shares stable. Some followers are cloners, emulating the leader’s products, name, and packaging with slight variations. Some are imitators, copying a few things from the leader but differentiating themselves on packaging, advertising, pricing, or location. The leader doesn’t mind as long as the imitator doesn’t attack aggressively. Some followers become adapters, taking the leader’s products and adapting or improving them, perhaps selling them to different markets. Note that these three follower strategies are very different from the illegal and unethical follower strategy of counterfeiting. Counterfeiters duplicate the leader’s product and packages and sell them on the black market or through disreputable dealers. What does a follower earn? Normally, less than the leader. Some follower firms have found success, but in another industry. 117 118 Part 3 Building Strong Brands TABLE 7.2 Niche Specialist Roles t End-user specialist. The firm specializes in one type of end-use customer. t Vertical-level specialist. The firm specializes at some vertical level of the production-distribution value chain. t Customer-size specialist. The firm concentrates on either small, medium-sized, or large customers. t Specific-customer specialist. t Geographic specialist. The firm limits its selling to one or a few customers. The firm sells only in a certain locality, region, or area of the world. t Product or product line specialist. t Product-feature specialist. t Job-shop specialist. t Channel specialist. The firm specializes in a certain type of product or product feature. The firm customizes its products for individual customers. t Quality-price specialist. t Service specialist. The firm carries or produces only one product line or product. The firm operates at the low- or high-quality end of the market. The firm offers one or more services not available from other firms. The firm specializes in serving only one channel of distribution. Market-Nicher Strategies An alternative to being a follower in a large market is to be a leader in a small market, or niche. Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms. Over time, those markets can sometimes end up being sizable in their own right. The nicher achieves high margin, whereas the mass marketer achieves high volume. The risk is that the niche might dry up or be attacked, so nichers must seek to create new niches, expand existing niches, and protect their niches. Multiple niching can be preferable to single niching because strength in two or more niches increases the chances for survival. Table 7.2 shows the specialist roles open to nichers. Executive Summary To develop an effective positioning, a company must study competitors as well as actual and potential customers. Developing a positioning requires identifying a frame of reference—by locating the target market and the nature of the competition—and the optimal points-ofparity and points-of-difference brand associations. Industry- and market-based analyses both help uncover competitors and latent competitors. Points-of-difference are those associations unique to the brand that are also strongly held and favorably evaluated by consumers. Points-of-parity are associations not necessarily unique to the brand but perhaps shared with other brands. Several approaches exist to position a product or service. Less structured, more qualitative approaches are based on concepts such as brand narratives, storytelling, and cultural branding. Market leaders stay number one by expanding total market demand, protecting current share, and increasing market share, even if market size remains constant. Firms that are not leaders can be challengers by attacking the leader and other competitors, or they can be market followers. An alternative to being a follower in a large market is to be a leader in a small market or niche. Chapter 7 Crafting the Brand Positioning and Competing Effectively 119 Notes 1. Noel Murray, “DirecTV’s Ad Campaign Wants to Make You Hate Cable as Much as It Does,”, February 26, 2013; Shalini Ramachandran and Ben Fox Rubin, “DirecTV Profit Rises on Latin America Growth,” Wall Street Journal, February 14, 2013; Alex Sherman, “DirecTV Profit Lags Estimates after First U.S. Customer Loss,” Bloomberg BusinessWeek, August 2, 2012. 2. Al Ries and Jack Trout, Positioning: The Battle for Your Mind, 20th Anniversary Edition (New York: McGrawHill, 2000). 3. Michael J. Lanning and Lynn W. Phillips, “Building Market-Focused Organizations,” Gemini Consulting White Paper, 1991. 4. Allan D. Shocker, “Determining the Structure of Product-Markets: Practices, Issues, and Suggestions,” Barton A. Weitz and Robin Wensley, eds., Handbook of Marketing (London: Sage, 2002), pp. 106–25. See also Bruce H. Clark and David B. Montgomery, “Managerial Identification of Competitors,” Journal of Marketing 63 (July 1999), pp. 67–83. 5. “What Business Are You In? Classic Advice from Theodore Levitt,” Harvard Business Review, October 2006, pp. 127–37. See also Theodore Levitt’s seminal article, “Marketing Myopia,” Harvard Business Review, July–August 1960, pp. 45–56. 6. Rajendra S. Sisodia, David B. Wolfe, and Jagdish N. Sheth, Firms of Endearment: How World-Class Companies Benefit Profit from Passion & Purpose (Upper Saddle River, NJ: Wharton School Publishing, 2007). 7. Kevin Lane Keller, Brian Sternthal, and Alice Tybout, “Three Questions You Need to Ask about Your Brand,” Harvard Business Review, September 2002, pp. 80–89. 8. Thomas A. Brunner and Michaela Wänke, “The Reduced and Enhanced Impact of Shared Features on Individual Brand Evaluations,” Journal of Consumer Psychology 16 (April 2006), pp. 101–11. 9. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980). 10. For a classic analysis of perceptual maps, see John R. Hauser and Frank S. Koppelman, “Alternative Perceptual Mapping Techniques: Relative Accuracy and Usefulness,” Journal of Marketing Research 16 (November 1979), pp. 495–506. For some contemporary perspectives on measurement techniques for positioning, see Sanjay K. Rao, “DataBased Differentiation,” Marketing Insights, Spring 2013, pp. 26–32. 11. Brian Sheehan, Loveworks: How the World’s Top Marketers Make Emotional Connections to Win in the Marketplace (Brooklyn, NY: powerHouse, 2013). 12. James H. Gilmore and B. Joseph Pine II, Authenticity: What Consumers Really Want (Cambridge, MA: Harvard Business School Press, 2007); Lynn B. Upshaw, Truth: The New Rules for Marketing in a Skeptical World (New York: AMACOM, 2007). 13. Owen Jenkins, “Gimme Some Lovin’,” Marketing News, May 15, 2009, p. 19. 14. Jack Neff, “Welch’s Local-Sourcing Story Core to Outreach,” Advertising Age, January 24, 2011. 15. Scott Bedbury, A New Brand World (New York: Viking Press, 2002). 16. Randall Ringer and Michael Thibodeau, “A Breakthrough Approach to Brand Creation,” Verse, The Narrative Branding Company,, accessed March 7, 2014. 17. Patrick Hanlon, Primal Branding: Create Zealots for Your Brand, Your Company, and Your Future (New York: Free Press, 2006); ThinkTopia, www.thinktopia .com, accessed May 26, 2014. 18. Douglas Holt, How Brands Become Icons: The Principle of Cultural Branding (Cambridge, MA: Harvard Business School Press, 2004); Douglas Holt, “Branding as Cultural Activism,”; Douglas Holt, “What Becomes an Icon Most,” Harvard Business Review, March 2003, pp. 43–49; See also Grant McKracken, Culture and Consumption II: Markets, Meaning, and Brand Management (Bloomington, IN: Indiana University Press, 2005). 19. Craig Thompson, “Brands as Culturally Embedded Resources,” 43rd AMA Sheth Foundation Doctoral Consortium, University of Missouri, June 6, 2008. See also research by John Sherry and Robert Kozinets, including John F. Sherry Jr., Robert V. Kozinets, Adam Duhachek, Benét DeBerry-Spence, Krittinee Nuttavuthisit and Diana Storm, “Gendered Behavior in a Male Preserve: Role Playing at ESPN Zone Chicago,” Journal of Consumer Psychology 14, nos. 1 & 2 (2004), pp. 151–58; Stephen Brown, Robert V. Kozinets, and John F. Sherry Jr., “Teaching Old Brands New Tricks: Retro Branding and the Revival of Brand Meaning,” Journal of Marketing 67 (July 2003), pp. 19–33. 20. Nick Wreden, Fusion Branding (Atlanta: Accountability Press, 2002); Fusion Branding, www.fusionbranding .com, accessed May 26, 2014. 21. Priya Raghubir and Eric A. Greenleaf, “Ratios in Proportion: What Should the Shape of the Package Be?,” Journal of Marketing 70 (April 2006), pp. 95–107; 120 22. 23. 24. 25. Part 3 Building Strong Brands and Valerie Folkes and Shashi Matta, “The Effect of Package Shape on Consumers’ Judgments of Product Volume: Attention as a Mental Contaminant,” Journal of Consumer Research 31 (September 2004), pp. 390–401. Sarah Nassaur, “The Psychology of Small Packages,” Wall Street Journal, April 15, 2013. George Stalk Jr. and Rob Lachanauer, “Hardball: Five Killer Strategies for Trouncing the Competition,” Harvard Business Review, April 2004, pp. 62–71; Richard D’Aveni, “The Empire Strikes Back: Counterrevolutionary Strategies for Industry Leaders,” Harvard Business Review, November 2002, pp. 66–74. Kyle B. Murray and Gerald Häubl, “Why Dominant Companies Are Vulnerable,” MIT Sloan Management Review, Winter 2012, pp. 12–14. Nirmalya Kumar, Lisa Sheer, and Philip Kotler, “From Market Driven to Market Driving,” European Management Journal 18 (April 2000), pp. 129–42. 26. “New Trends Worth $4.5tr,”, January 25, 2013. 27. Michael E. Porter, Market Signals, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1998), pp. 75–87; Jaideep Prabhu and David W. Stewart, “Signaling Strategies in Competitive Interaction,” Journal of Marketing Research 38 (February 2001), pp. 62–72. 28. “P&G Completes Sale of Pringles to Kellogg,” Business Wire, May 31, 2012. 29. Robert D. Buzzell and Frederick D. Wiersema, “Successful Share-Building Strategies,” Harvard Business Review, January–February 1981, pp. 135–44. 30. Theodore Levitt, “Innovative Imitation,” Harvard Business Review, September–October 1966, p. 63. Also see Steven P. Schnaars, Managing Imitation Strategies: How Later Entrants Seize Markets from Pioneers (New York: Free Press, 1994). Chapter 8 Creating Brand Equity and Driving Growth In this chapter, we will address the following questions: 1. What is a brand, and how does branding work? (Page 122) 2. What is brand equity, and how is it built, measured, and managed? (Page 123) 3. What are the important decisions in developing a branding strategy? (Page 129) 4. Why is it important for companies to grow the core of their business? (Page 133) Marketing Management at Gatorade Gatorade was first developed by researchers at the University of Florida to help the school’s athletes cope with the hot, humid climate. Its success in pioneering the sports drink category led PepsiCo to acquire its parent company in 2001 and invest in further growth. But when sales declined by $1 billion from 2007 to 2010, PepsiCo decided a change was needed. Gatorade’s marketers returned the brand to its roots to focus more on athletes. They repackaged and reformulated three product lines for pre-, during-, and post-workout consumption, targeting three different markets. The G Series line aimed at “performance” athletes active in school or recreational sports; the G Series Fit line targeted 18- to 34-year-olds who exercised three to four times a week; and the G Series Pro line targeted professional athletes. Gatorade’s advertising tagline, “Win From Within,” reflected the new brand strategy, and the communication budget included a 30 percent digital component.1 S trategic brand management combines the design and implementation of marketing activities and programs to build, measure, and manage brands to maximize their value. It has four main steps: (1) identifying and establishing brand positioning, (2) planning and implementing brand marketing, (3) measuring and interpreting brand performance, and (4) growing and 121 122 Part 3 Building Strong Brands sustaining brand value.2 In this chapter, we discuss branding, brand equity, brand strategy, and growing the core business. How Does Branding Work? The American Marketing Association defines a brand as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.” A brand is thus a product or service whose dimensions differentiate it in some way from other offerings designed to satisfy the same need. These differences may be functional, rational, or tangible—related to product performance of the brand. They may also be more symbolic, emotional, or intangible—related to what the brand represents in a more abstract sense. The Role of Brands A brand identifies the maker of a product and allows consumers to assign responsibility for its performance to that maker or distributor. Consumers may evaluate the identical product differently depending on how it is branded.3 They learn about brands through past experiences with the product and its marketing, finding out which brands satisfy their needs and which do not. As consumers’ lives become more rushed and complicated, a brand’s ability to simplify decision making and reduce risk becomes invaluable.4 Brands can also take on personal meaning to consumers and become an important part of their identity.5 For some consumers, brands can even take on human-like characteristics.6 Brands also perform valuable functions for firms.7 First, they simplify product handling by helping organize inventory and accounting records. In addition, a brand allows the firm legal protection for unique product features.8 The brand name can be protected through registered trademarks, manufacturing processes can be protected through patents, and packaging can be protected through copyrights and proprietary designs. These intellectual property rights ensure that the firm can safely invest in the brand and reap the benefits. In fact, brands represent enormously valuable pieces of legal property that can influence consumer behavior, be bought and sold, and yield sustained future revenues.9 Brand loyalty provides predictability and security of demand for the firm, and it creates barriers to entry that make it difficult for other firms to enter the market. Loyalty also can translate into customer willingness to pay a higher price—often even 20 percent to 25 percent more than competing brands.10 Although competitors may duplicate manufacturing processes and product designs, they cannot easily match lasting impressions left in the minds of customers by years of favorable product experiences and marketing activity. Thus, branding can be a powerful means to secure a competitive advantage.11 The Scope of Branding Branding is the process of endowing products and services with the power of a brand. It’s all about creating differences between products. Marketers need to teach consumers “who” the product is—by giving it a name and other brand elements to identify it—as well as what the product does and why consumers should care. Branding creates mental structures that help consumers organize their knowledge about offerings in a way that clarifies their decision making and, in the process, provides value to the firm. For branding strategies to be successful and brand value to be created, consumers must be convinced there are meaningful differences among brands in the category. Successful brands are Chapter 8 Creating Brand Equity and Driving Growth seen as genuine, real, and authentic in what they sell as well as who they are. It’s possible to brand a physical good (Ford Focus automobile), a service (Singapore Airlines), a store (Dick’s Sporting Goods), a person (actress Angelina Jolie), a place (the country of Iceland), an organization (American Automobile Association), or an idea (free trade).12 Defining Brand Equity Brand equity is the added value endowed to products and services with consumers. It may be reflected in the way consumers think, feel, and act with respect to the brand as well as in the prices, market share, and profitability it commands. Marketers and researchers use various perspectives to study brand equity.13 Customer-based approaches recognize that the power of a brand lies in what customers have seen, read, heard, learned, thought, and felt about the brand over time.14 Customer-Based Brand Equity Customer-based brand equity is the differential effect brand knowledge has on consumer response to the marketing of that brand.15 A brand has positive customer-based brand equity when consumers react more favorably to a product and the way it is marketed when the brand is identified than when it is not identified. A brand has negative customer-based brand equity if consumers react less favorably to marketing activity for the brand under the same circumstances. There are three key ingredients of customer-based brand equity. First, brand equity arises from differences in consumer response. If no differences occur, the brand-name product is essentially a commodity, and competition will probably be based on price. Second, differences in response are a result of consumers’ brand knowledge, all the thoughts, feelings, images, experiences, and beliefs associated with the brand. Brands must create strong, favorable, and unique brand associations with customers. Third, brand equity is reflected in perceptions, preferences, and behavior related to all aspects of the brand’s marketing. Stronger brands earn greater revenue.16 Table 8.1 summarizes some key benefits of brand equity. Customers’ brand knowledge dictates appropriate future directions for the brand. Consumers will decide, based on what they think and feel about the brand, where (and how) they believe the brand should go and grant permission (or not) to any marketing action. Newproduct ventures such as Cracker Jack cereal failed because consumers found them inappropriate brand extensions. A brand promise is the marketer’s vision of what the brand must be and do for consumers. TABLE 8.1 Marketing Advantages of Strong Brands Improved perceptions of product performance Greater trade cooperation and support Greater loyalty Increased marketing communications effectiveness Less vulnerability to competitive marketing actions Possible licensing opportunities Less vulnerability to marketing crises Additional brand extension opportunities Larger margins Improved employee recruiting and retention More inelastic consumer response to price increases Greater financial market returns More elastic consumer response to price decreases 123 124 Part 3 Building Strong Brands Brand Equity Models Models of brand equity offer some differing perspectives on branding. Here we highlight three more established ones. t BrandAsset Valuator. Advertising agency Young and Rubicam (Y&R)’s model of brand equity, the BrandAsset® Valuator (BAV), covers four pillars of brand equity (see Figure 8.1). Strong new brands show higher levels of energized differentiation and energy than relevance, whereas both esteem and knowledge are lower still. Leadership brands show high levels on all pillars, with strength greater than stature. Declining brands show high knowledge, a lower level of esteem, and even lower relevance and energized differentiation. t BrandZ and BrandDynamics™. Marketing research consultants Millward Brown and WPP have developed the BrandZ model of brand strength, at the heart of which is the BrandDynamics model (see Figure 8.2). This model is based on a system of brand associations—meaningful, different, and salient—that builds customer predisposition to buy a brand. The associations have three important outcome measures: power (a prediction of brand volume share), premium (ability to command a price premium), and potential (the probability that a brand will grow value share). t Brand Resonance Model. The brand resonance model views brand building as an ascending series of steps. Enacting these four steps means establishing a pyramid of six “brand building blocks” as illustrated in Figure 8.3. The model emphasizes the duality of brands—the rational route to brand building is on the left side of the pyramid, and the emotional route is on the right side.17 FIGURE 8.1 BrandAsset® Valuator Model ENERGIZED DIFFERENTIATION The brand’s point of difference Relates to margins and cultural currency RELEVANCE How appropriate the brand is to you Relates to consideration and trial BRAND STRENGTH Leading Indicator Future Growth Value Source: Courtesy of BrandAsset® Consulting, a division of Young & Rubicam. ESTEEM How you regard the brand Relates to perceptions of quality and loyalty KNOWLEDGE An intimate understanding of the brand Relates to awareness and consumer experience BRAND STATURE Current Indicator Current Operating Value Chapter 8 125 Creating Brand Equity and Driving Growth FIGURE 8.2 BrandDynamics™ Model Meaningful Power Different Premium ¥ £ € $ Brand Associations Salient Brand Predisposition Potential In-Market Source: BrandDynamics™ Model. Reprinted with permission of Millward Brown. Building Brand Equity Marketers build brand equity by creating the right brand knowledge structures with the right consumers. The success of this process depends on all brand-related contacts—whether marketerinitiated or not.18 From a marketing management perspective, however, there are three main sets of brand equity drivers: 1. The initial choices for the brand elements or identities making up the brand (brand names, URLs, logos, symbols, characters, spokespeople, slogans, jingles, packages, and signage)— Microsoft chose the name Bing for its new search engine because it felt it unambiguously conveyed search and the “aha” moment of finding what you are looking for. It is also short, appealing, memorable, active, and effective multiculturally.19 FIGURE 8.3 Brand Resonance Pyramid Stages of Brand Development Brand Building Blocks 4. Relationships = What about you and me? Branding Objective at Each Stage Intense, active loyalty Resonance 3. Response = What about you? 2. Meaning = What are you? 1. Identity = Who are you? Judgments Feelings Performance Salience Imagery Positive, accessible reactions Points-of-parity & difference Deep, broad brand awareness 126 Part 3 Building Strong Brands 2. 3. The product and service and all accompanying marketing activities and supporting programs—General Mills is employing a number of new marketing activities to sell cereals, cake mixes, and yogurt. The company is exploring how to best use smart phones with consumers via QR codes, apps, and augmented reality, developing new packaging strategies in the process.20 Other associations indirectly transferred to the brand by linking it to some other entity (a person, place, or thing)—The brand name of New Zealand vodka 42BELOW refers to both a latitude that runs through New Zealand and the percentage of the drink’s alcohol content. The packaging and other visual cues are designed to leverage the perceived purity of the country to communicate the brand’s positioning.21 Choosing Brand Elements Brand elements are trademarkable devices that identify and differentiate the brand. Nike has the distinctive “swoosh” logo, the empowering “Just Do It” slogan, and the “Nike” name from the Greek winged goddess of victory. The test of brand building is what consumers would think or feel about the product if the brand element were all they knew. Based on its name alone, for instance, a consumer might expect Panasonic Toughbook laptops to be durable and reliable. As shown in Table 8.2, there are six criteria for choosing brand elements. The first three— memorable, meaningful, and likable—are brand building. The latter three—transferable, adaptable, and protectable—are defensive and help leverage and preserve brand equity against challenges. Brand elements can play a number of brand-building roles.22 If consumers don’t examine much information in making product decisions, brand elements should be easy to recall and inherently descriptive and persuasive. The likability of brand elements can increase awareness and associations.23 Often, the less concrete brand benefits are, the more important that brand elements capture intangible characteristics. Many insurance firms use symbols of strength for their brands (the Rock of Gibraltar for Prudential). Like brand names, slogans are an extremely efficient means to build brand equity.24 They can help consumers grasp what the brand is and what makes it special, as in “Like a Good Neighbor, State Farm Is There.” Designing Holistic Marketing Activities Customers come to know a brand through a range of contacts and touch points: personal observation and use, word of mouth, interactions with company personnel, online or telephone experiences, and payment transactions. A brand contact is any information-bearing experience, whether positive or negative, a customer or prospect has with the brand, its product category, TABLE 8.2 Criteria for Choosing Brand Elements For Building the Brand For Defending the Brand Memorable: Is the element easily recalled and recognized at purchase and consumption? Example: Tide Transferable: Can the element introduce new products in the same or different categories? Does it add to brand equity across geographic boundaries and market segments? Example: Meaningful: Is the element credible and suggestive of the category? Does it suggest something about a product ingredient or a brand user? Example: DieHard Adaptable: Can the element be adapted and updated? Example: Shell logo Likable: Is the element appealing or playful? Example: Pinterest Protectable: Is the element legally and competitively protectable? Can the firm retain trademark rights? Example: Yahoo! Chapter 8 Creating Brand Equity and Driving Growth or its market.25 The company must put as much effort into managing these experiences as into producing its ads because any brand contact can affect consumers’ brand knowledge and the way they think, feel, or act toward the brand. Integrated marketing is about mixing and matching marketing activities to maximize their individual and collective effects.26 Marketers need a variety of different marketing activities that consistently reinforce the brand promise, working singularly and in combination. We can evaluate integrated marketing activities in terms of the effectiveness and efficiency with which they affect brand awareness and create, maintain, or strengthen brand associations and image. Leveraging Secondary Associations The third and final way to build brand equity is to “borrow” it by linking the brand to other information in memory that conveys meaning to consumers (see Figure 8.4). These “secondary” brand associations can link to sources such as the company itself, countries or other geographical regions, and channels of distribution as well as to other brands, characters (through licensing), spokespeople (through endorsements), sporting or cultural events (through sponsorship), or other third-party sources (through awards or reviews). Leveraging secondary associations can be an efficient and effective way to strengthen a brand. But linking a brand to someone or FIGURE 8.4 Secondary Sources of Brand Knowledge Ingredients Company Alliances Extensions Other Brands Employees People BRAND Country of origin Places Endorsers Channels Things Third-party endorsements Events Causes 127 128 Part 3 Building Strong Brands something else can be risky because anything bad that happens to that other entity (such as scandal involving an endorser) can also be linked to the brand. Internal Branding Marketers must adopt an internal perspective to be sure employees and marketing partners appreciate and understand basic branding notions and how they can help—or hurt—brand equity.27 Internal branding consists of activities and processes that help inform and inspire employees about brands.28 Holistic marketers go even further and train and encourage distributors and dealers to serve their customers well. Measuring and Managing Brand Equity How do we measure brand equity? An indirect approach assesses potential sources of brand equity by identifying and tracking consumer brand knowledge structures.29 A direct approach assesses the actual impact of brand knowledge on consumer response to different aspects of the marketing. For brand equity to guide strategy and decisions, marketers need to fully understand (1) the sources of brand equity and how they affect outcomes of interest and (2) how these sources and outcomes change, if at all, over time. Brand audits are important for the former; brand tracking for the latter. Brand Audits and Brand Tracking A brand audit is a focused series of procedures to assess the health of the brand, uncover its sources of brand equity, and suggest ways to improve and leverage its equity. Conducting brand audits on a regular basis allows marketers to manage brands more proactively and responsively. A good brand audit provides keen insights into consumers, brands, and the relationship between the two. Brand-tracking studies use the brand audit as input to collect quantitative data from consumers over time, providing consistent, baseline information about how brands and marketing programs are performing. Tracking studies help us understand where, how much, and in what ways brand value is being created to facilitate day-to-day decision making Brand Valuation Marketers should distinguish brand equity from brand valuation, which is the job of estimating the total financial value of the brand. In some well-known companies, brand value is typically more than half the total company market capitalization. Top brand-management firm Interbrand has developed a five-step model to estimate the dollar value of a brand and help firms maximize return on brand investment.30 The first step is market segmentation to determine variations among the brand’s different customer groups. The second step is financial analysis to assess purchase price, volume, and frequency and help calculate accurate forecasts of future brand sales and revenues. This step also requires deducting all associated operating costs to derive earnings before interest and tax (EBIT) and deducting taxes and a charge for the capital employed to operate the underlying business. The result is Economic Earnings, the earnings attributed to the branded business. The third step is market research to assess the role of branding and calculate the percentage of Economic Earnings generated by the brand, which yields Brand Earnings. The fourth step is to assess the brand’s strength and determine the likelihood that the forecasted Brand Earnings will be realized. For each segment, Interbrand determines a risk premium for the brand and adds it to the risk-free rate, represented by the yield on government bonds. The Brand Discount Rate, applied to the forecasted Brand Earnings forecast, yields the net present value of the Brand Earnings. The final step is to calculate Brand Value, the net present value (NPV) of the forecasted Brand Earnings, discounted by the Brand Discount Rate.31 Chapter 8 Creating Brand Equity and Driving Growth Managing Brand Equity Because consumer responses to marketing activity depend on what they know and remember about a brand, short-term marketing actions, by changing brand knowledge, necessarily increase or decrease the long-term success of future marketing actions. Brand Reinforcement Marketers can reinforce brand equity by consistently conveying the brand’s meaning in terms of (1) what products it represents, what core benefits it supplies, and what needs it satisfies; and (2) how the brand makes products superior and which strong, favorable, and unique brand associations should exist in consumers’ minds. Reinforcing brand equity requires that the brand always be moving forward—in the right direction and with new and compelling offerings and ways to market them. While there is little need to deviate from a successful position, many tactical changes may be necessary to maintain the strategic thrust and direction of the brand. When change is necessary, marketers should vigorously preserve and defend sources of brand equity. Brand Revitalization Any new development in the marketing environment can affect a brand’s fortunes. Nevertheless, a number of brands have managed to make impressive comebacks in recent years.32 After some hard times in the automotive market, Cadillac, Fiat, and Volkswagen have all turned their brand fortunes around to varying degrees. The first step is to understand what the sources of brand equity were to begin with. Are positive associations losing their strength or uniqueness? Have negative associations become linked to the brand? Then decide whether to retain the same positioning or create a new one and, if so, which new one.33 Sometimes the actual marketing program is the source of the problem because it fails to deliver on the brand promise. Then a “back to basics” strategy may make sense. In other cases, the old positioning is just no longer viable and a reinvention strategy is necessary. There is obviously a continuum of revitalization strategies, with pure “back to basics” at one end, pure “reinvention” at the other, and many combinations in between. The challenge is to change enough to attract some new customers, but not enough to alienate old customers. Brand revitalization of almost any kind starts with the product.34 Devising a Branding Strategy A firm’s branding strategy—often called its brand architecture—reflects the number and nature of both common and distinctive brand elements. Deciding how to brand new products is especially critical. A firm has three main choices: (1) develop new brand elements for the new product, (2) apply some existing brand elements, or (3) use a combination of new and existing brand elements (see definitions in Table 8.3). Branding Decisions Today, hardly anything goes unbranded. Assuming a firm decides to brand its products or services, it must choose which brand names to use. Three general strategies are popular: t Individual or separate family brand names. Companies often use different brand names for different quality lines within the same product class. A major advantage is that if a product fails or appears low quality, the company has not tied its reputation to it.35 t Corporate umbrella or company brand name. Many firms, such as GE, use their corporate brand as an umbrella brand across their entire range of products.36 Development costs are lower, and sales of the new product are likely to be strong if the manufacturer’s name is good. Corporate-image associations of innovativeness, expertise, and trustworthiness have been shown to directly influence consumer evaluations.37 129 130 Part 3 Building Strong Brands TABLE 8.3 Branding New Products Concept Definition Brand extension Using an established brand to launch a new product Sub-brand Combining a new brand with an existing brand Parent brand An existing brand that gives birth to a brand extension or sub-brand Master (or family) brand A parent brand that is already associated with multiple products through brand extensions Line extension Using a parent brand on a new product within a category it currently serves (such as new flavors or colors) Category extension Using a parent brand on a new product to enter a new category, different from the one it currently serves Brand line All the products (including line and category extensions) sold under a particular brand Brand mix The set of all brand lines sold by a particular seller Branded variants Specific brand lines supplied to specific retailers or distribution channels Licensed product Using the brand name licensed from one firm on a product made by another firm t Sub-brand name. Sub-brands combine two or more of the corporate brand, family brand, or individual product brand names. Kellogg does this by combining the corporate brand with individual product brands as with Kellogg’s Rice Krispies. The company name legitimizes, and the individual name individualizes, the new product. The use of individual or separate family brand names has been referred to as a “house of brands” strategy, whereas the use of an umbrella corporate or company brand name has been referred to as a “branded house” strategy. These represent two ends of a brand relationship continuum, with the sub-brand strategy falling somewhere between. With a branded house strategy, it is often useful to have a well-defined flagship product, one that best represents or embodies the brand as a whole to consumers. It often is the first product by which the brand gained fame, a widely accepted best-seller, or a highly admired or award-winning product.38 Brand Portfolios The brand portfolio is the set of all brands and brand lines a particular firm offers for sale in a particular category or market segment. The basic principle is to maximize market coverage so no potential customers are being ignored, but minimize brand overlap so brands are not competing for customer approval. Each brand should be clearly differentiated and appealing to a sizable enough marketing segment to justify its marketing and production costs. Marketers carefully monitor brand portfolios over time to identify weak brands and kill unprofitable ones.39 Brands can also play a number of specific roles as part of a portfolio. t Flankers. Flanker or fighter brands are positioned with respect to competitors’ brands so that more important (and more profitable) flagship brands can retain their desired positioning. Fighter brands must be neither so attractive that they take sales away from their higher-priced comparison brands nor designed so cheaply that they reflect poorly on them. Chapter 8 Creating Brand Equity and Driving Growth t Cash cows. Some brands may be kept around despite dwindling sales because they manage to maintain their profitability with virtually no marketing support. Companies can effectively milk these “cash cow” brands by capitalizing on their reservoir of brand equity. t Low-end entry level. The role of a relatively low-priced brand in the portfolio often may be to attract customers to the brand franchise. Retailers like to feature these “traffic builders” because they are able to trade up customers to a higher-priced brand. t High-end prestige. The role of a relatively high-priced brand often is to add prestige and credibility to the entire portfolio. Brand Extensions Many firms leverage their most valuable asset by introducing a host of new products under their strongest brand names. Most new products are in fact brand extensions—typically 80 percent to 90 percent in any one year. Moreover, many of the most successful new products, as rated by various sources, are brand extensions. Advantages of Brand Extensions Two main advantages of brand extensions are that they can facilitate new-product acceptance and provide positive feedback to the parent brand and company. Consumers form expectations about a new product based on what they know about the parent brand and the extent to which they feel this information is relevant. By setting up positive expectations, extensions reduce risk. It also may be easier to convince retailers to stock and promote a brand extension because of anticipated increased customer demand. An introductory campaign for an extension doesn’t need to create awareness of both the brand and the new product; it can concentrate on the new product itself.40 Extensions can reduce launch costs, important given that establishing a major new brand name for a consumer packaged good in the U.S. marketplace can cost more than $100 million! Extensions also can avoid the difficulty—and expense—of coming up with a new name and allow for packaging and labeling efficiencies. With a portfolio of brand variants within a product category, consumers who want a change can switch to a different product type without having to leave the brand family. A second advantage is that brand extensions can provide feedback benefits.41 They can help to clarify the meaning of a brand and its core values or improve consumer loyalty to the company behind the extension.42 Also, they can renew interest and liking for the brand and benefit the parent brand by expanding market coverage. In fact, a successful category extension may not only reinforce the parent brand and open up a new market but also facilitate even more new category extensions.43 Disadvantages of Brand Extensions On the downside, line extensions may cause the brand name to be less strongly identified with any one product. Brand dilution occurs when consumers no longer associate a brand with a specific or highly similar set of products and start thinking less of the brand. If a firm launches extensions consumers deem inappropriate, they may question the integrity of the brand or become confused or even frustrated: Which version of the product is the “right one” for them? Do they know the brand as well as they thought they did? Retailers reject many new products and brands because they don’t have the shelf or display space for them. And the firm itself may become overwhelmed. One more disadvantage is that the firm forgoes the chance to create a new brand with its own unique image and equity. The worst possible scenario is for an extension not only to fail, but to harm the parent brand in the process. Fortunately, such events are rare. “Marketing failures,” in which too few consumers are attracted to a brand, are typically much less damaging than “product failures,” in which the brand fundamentally fails to live up to its promise. Product failures dilute brand equity only when the extension is seen as very similar to the parent brand. Even if sales of a 131 132 Part 3 Building Strong Brands brand extension meet high targets, the revenue may be coming from consumers switching from existing parent-brand offerings—in effect cannibalizing the parent brand. Yet intrabrand shifts in sales may not be undesirable if they’re a form of preemptive cannibalization. Success Characteristics Marketers must judge each potential brand extension by how effectively it leverages existing brand equity from the parent brand as well as how effectively, in turn, it contributes to the parent brand’s equity. One major mistake in evaluating extension opportunities is failing to take all consumers’ brand knowledge structures into account and focusing instead on one or a few brand associations as a potential basis of fit.44 Customer Equity We can relate brand equity to one other important marketing concept: customer equity. The aim of customer relationship management (CRM) is to produce high customer equity.45 Although we can calculate it in different ways, one definition is “the sum of lifetime values of all customers.”46 Customer lifetime value is affected by revenue and by the costs of customer acquisition, retention, and cross-selling.47 The brand equity and customer equity perspectives share many common themes.48 Both emphasize the importance of customer loyalty and the notion that we create value by having as many customers as possible pay as high a price as possible. The customer equity perspective focuses on bottom-line financial value. Its clear benefit is its quantifiable measures of financial performance. But it offers limited guidance for go-to-market strategies and ignores some of the important advantages of creating a strong brand. Also, it does not always fully account for competitive moves and countermoves or for social network effects, word of mouth, and customer-to-customer recommendations. Brand equity, on the other hand, emphasizes strategic issues in managing brands and creating and leveraging brand awareness and image, providing practical guidance for marketing activities. With a focus on brands, however, managers don’t always develop detailed customer analyses in terms of the brand equity they achieve or the resulting long-term profitability they create.49 Brand equity approaches could benefit from sharper segmentation schemes afforded by customer-level analyses and more consideration of how to develop personalized, customized marketing programs. Nevertheless, both brand equity and customer equity matter. Brands serve as the “bait” that retailers and other channel intermediaries use to attract customers from whom they extract value. Customers are the tangible profit engine for brands to monetize their brand value. Driving Growth An important function of marketing is to drive sales and revenue growth. Marketing is especially adept at doing so for a new product with many competitive advantages and much potential. Good marketing can encourage trial and promote word of mouth and diffusion. Marketing in more mature markets can be more challenging. Growth Strategies Phil and Milton Kotler stress the following eight growth strategies.50 Companies can grow by (1) building market share, (2) developing committed customers and stakeholders, (3) building a powerful brand, (4) innovating new offerings and experiences, (5) expanding internationally, (6)  arranging acquisitions, mergers, and alliances, (7) building an outstanding reputation for social responsibility, and (8) partnering with government and nongovernmental organizations. Chapter 8 Creating Brand Equity and Driving Growth 133 Growing the Core Some of the best opportunities come from growing the core—focusing on the most successful existing products and markets. Growing the core can be a less risky alternative than expansion into new product categories. It strengthens a brand’s credentials as a source of authority and credibility and can yield economies of scale. Through improved revenues and lower costs, growing the core can also lead to greater profits. UK marketing guru David Taylor advocates three main strategies for growing the core, citing these examples:51 1. 2. 3. Make the core of the brand as distinctive as possible. Galaxy chocolate has successfully competed with Cadbury by positioning itself as “your partner in chocolate indulgence” and featuring more refined taste and sleeker packaging, Drive distribution through both existing and new channels. Costa Coffee, the number-one UK coffee shop chain, has found new distribution routes using drive-through outlets, vending machines, and in-school locations. Offer the core product in new formats or versions. WD40 offers a Smart Straw version of its popular multipurpose lubricant with a built-in straw that pops up for use. A focus on core businesses does not mean foregoing new market opportunities, especially if the core business is not expandable. However, marketers must avoid overestimating the upside of new ventures that stretch the company into uncharted territory. “Marketing Insight: Understanding Double Jeopardy” describes how market leaders can benefit from brand loyalty due to their size. marketing insight Understanding Double Jeopardy ouble jeopardy was popularized in marketing by the British academic Andrew Ehrenberg. It boils down to the fact that a small-share brand is penalized twice—it has fewer buyers than a large-share brand, and they buy less frequently. As a consequence, most of a brand’s market share is explained by its market penetration and the size of its customer base, rather than by customers’ repeat purchases. Implicit is the assumption that brands are substitutable and have target segments in common. It is, in fact, most often observed with weakly differentiated brands targeting the same group of people. Exceptions are highly differentiated niche brands that thrive on small shares and high loyalty and seasonal brands that offer unique value and tally cluster purchases in short periods of time. D One implication drawn by double jeopardy proponents is that marketers seeking growth should focus on increasing the size of the customer base rather than on deepening the loyalty of existing customers. Critics of double jeopardy question how inevitable it is and see other implications for marketers. For example, they view new or established brands with a new positioning or message as differentiated enough to avoid double jeopardy’s predicted results. Sources: John Scriven and Gerald Goodhardt, “The Ehrenberg Legacy,” Journal of Advertising Research, June 2012, pp. 198–202; Byron Sharp, How Brands Grow: What Marketers Don’t Know (Melbourne, Australia: Oxford University Press, 2010); Nigel Hollis, “The Jeopardy in Double Jeopardy,”, September 2, 2009; Andrew Ehrenberg and Gerald Goodhardt, “Double Jeopardy Revisited, Again,” Marketing Research, 2002. See also Andrew Ehrenberg: A Tribute (1926– 2010), Special Section, Journal of Advertising Research 52 (June 2012). 134 Part 3 Building Strong Brands Executive Summary A brand is a name, term, sign, symbol, or design, or some combination of these elements, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors. Brands are valuable intangible assets that offer a number of benefits to customers and firms. Brand equity should be defined in terms of marketing effects uniquely attributable to a brand. Building brand equity depends on three main factors: (1) The initial choices for the brand elements or identities making up the brand; (2) the way the brand is integrated into the supporting marketing program; and (3) the associations indirectly transferred to the brand by links to some other entity. Brand audits measure “where the brand has been,” and tracking studies measure “where the brand is now.” A branding strategy identifies which brand elements a firm chooses to apply across its various products. In a brand extension, a firm uses an established brand name to introduce a new product. Potential extensions must be judged by how effectively they leverage existing brand equity as well as how effectively they contribute to the equity of the parent brand. Each brand-name product must have a well-defined positioning to maximize coverage, minimize overlap, and thus optimize the portfolio. Customer equity is a concept that is complementary to brand equity and reflects the sum of lifetime values of all customers for a brand. Growing the core—focusing on opportunities with existing products and markets—is often a prudent way to increase sales and profits, less risky than expansion into new product categories. Notes 1. Jennifer Haderspeck, “Sports and Protein Drinks Share the Glory,” Beverage Industry, May 2013; Natalie Zmuda, “Why Gatorade Held Big Play for Second Quarter and Print Is Key to New Push,” Advertising Age, March 25, 2013; Jason Feifer, “How Gatorade Redefined Its Audience and a Flagging Brand,” Fast Company, June 2012; Duane Stanford, “Gatorade Goes Back to the Lab,” Bloomberg Businessweek, November 28, 2010; Kate MacArthur, “Gatorade Execs Focus on Sales Gains as Powerade Gulps More of Sports Drink Market,” Chicago Business, May 30, 2011; Natalie Zmuda, “Morgan Flatley Named CMO of Gatorade, Propel,” Advertising Age, June 5, 2014. 2. Kevin Lane Keller, Strategic Brand Management, 4th ed. (Upper Saddle River, NJ: Pearson, 2013). For other foundational work on branding, see Jean-Noel Kapferer, The New Strategic Brand Management, 5th ed. (London, UK: Kogan Page, 2012); Leslie de Chernatony, From Brand Vision to Brand Evaluation: The Strategic Process of Growing and Strengthening Brands, 3rd ed. (Oxford, UK: Butterworth-Heinemann, 2010); David A. Aaker and Erich Joachimsthaler, Brand Leadership (New York: Free Press, 2000). 3. JoAndrea Hoegg and Joseph W. Alba, “Taste Perception: More than Meets the Tongue,” Journal of Consumer Research 33 (March 2007), pp. 490–98. 4. Rajneesh Suri and Kent B. Monroe, “The Effects of Time Pressure on Consumers’ Judgments of Prices and Products,” Journal of Consumer Research 30 (June 2003), pp. 92–104. 5. Rosellina Ferraro, Amna Kirmani, and Ted Matherly, “Look at Me! Look at Me! Conspicuous Brand Usage, Self-Brand Connection, and Dilution,” Journal of Marketing Research 50 (August 2013), pp. 477–88; Alexander Chernev, Ryan Hamilton, and David Gal, “Competing for Consumer Identity: Limits to SelfExpression and the Perils of Lifestyle Branding,” Journal of Marketing 75 (May 2011). 6. Pankaj Aggrawal and Ann L. McGill, “When Brands Seem Human, Do Humans Act Like Brands? Automatic Behavioral Priming Effects of Brand Anthropomorphism,” Journal of Consumer Research 39 (August 2012), pp. 307–23. For some related research, see Nicolas Kervyn, Susan T. Fiske, and Chris Malone, “Brands as Intentional Agents Framework: How Perceived Intentions and Ability Can Map Brand Perception,” Journal of Consumer Psychology 22 (2012), pp. 166–76, as well as commentaries on that article published in that issue. 7. Tilde Heding, Charlotte F. Knudtzen, and Mogens Bjerre, Brand Management: Research, Theory & Practice (New York: Routledge, 2009); Rita Clifton and John Chapter 8 8. 9. 10. 11. 12. 13. 14. Simmons, eds., The Economist on Branding (New York: Bloomberg Press, 2004); Rik Riezebos, Brand Management (Essex, UK: Pearson Education, 2003); and Paul Temporal, Advanced Brand Management: From Vision to Valuation (Singapore: John Wiley & Sons, 2002). Constance E. Bagley, Managers and the Legal Environment: Strategies for the 21st Century, 3rd ed. (Cincinnati, OH: South-Western College/West Publishing, 2005); for a marketing academic point of view of some important legal issues, see Judith Zaichkowsky, The Psychology behind Trademark Infringement and Counterfeiting (Mahwah, NJ: LEA Publishing, 2006) and Maureen Morrin, Jonathan Lee, and Greg M. Allenby, “Determinants of Trademark Dilution,” Journal of Consumer Research 33 (September 2006), pp. 248–57. Xueming Luo, Sascha Raithel, and Michael A. Wiles, “The Impact of Brand Rating Dispersion on Firm Value,” Journal of Marketing Research 50 (June 2013), pp. 399–415. Scott Davis, Brand Asset Management: Driving Profitable Growth through Your Brands (San Francisco: Jossey-Bass, 2000); Mary W. Sullivan, “How Brand Names Affect the Demand for Twin Automobiles,” Journal of Marketing Research 35 (May 1998), pp. 154–65. The power of branding is not without its critics, however, some of whom reject the commercialism associated with branding activities. See Naomi Klein, No Logo: Taking Aim at the Brand Bullies (New York: Picador, 2000). For an academic discussion of how consumers become so strongly attached to people as brands, see Matthew Thomson, “Human Brands: Investigating Antecedents to Consumers’ Stronger Attachments to Celebrities,” Journal of Marketing 70 (July 2006), pp. 104–19. Other approaches are based on economic principles of signaling (e.g., Tulin Erdem, “Brand Equity as a Signaling Phenomenon,” Journal of Consumer Psychology 7 [1998], pp. 131–57) or more of a sociological, anthropological, or biological perspective (e.g., Grant McCracken, Culture and Consumption II: Markets, Meaning, and Brand Management (Bloomington: Indiana University Press, 2005)). For a broad view of consumer psychology perspectives on branding, see Bernd Schmitt, “The Consumer Psychology of Brands,” Journal of Consumer Psychology 22 (2012), pp. 7–17. For an overview of academic research on branding, see Kevin Lane Keller, “Branding and Brand Equity,” Bart Weitz and Robin Wensley, eds., Handbook Creating Brand Equity and Driving Growth 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 135 of Marketing (London: Sage Publications, 2002), pp. 151–78; Kevin Lane Keller and Don Lehmann, “Brands and Branding: Research Findings and Future Priorities,” Marketing Science 25 (November– December 2006), pp. 740–59. Keller, Strategic Brand Management. Kusum Ailawadi, Donald R. Lehmann, and Scott Neslin, “Revenue Premium as an Outcome Measure of Brand Equity,” Journal of Marketing 67 (October 2003), pp. 1–17. Kevin Lane Keller, “Building Customer-Based Brand Equity: A Blueprint for Creating Strong Brands,” Marketing Management 10 (July–August 2001), pp. 15–19. M. Berk Ataman, Carl F. Mela, and Harald J. van Heerde, “Building Brands,” Marketing Science 27 (November–December 2008), pp. 1036–54. Todd Wasserman, “Why Microsoft Chose the Name ‘Bing,’” Brandweek, June 1, 2009, p. 33. Jefferson Graham, “General Mills Spoons Up Digital Fun on Cereal Boxes,” USA Today, January 31, 2013. “No Matter How You ‘Like’ It, 42BELOW Vodka Encourages Everyone to Celebrate National Coming Out Day,” PR Newswire, October 7, 2011. Alina Wheeler, Designing Brand Identity (Hoboken, NJ: John Wiley & Sons, 2003). Eric A. Yorkston and Geeta Menon, “A Sound Idea: Phonetic Effects of Brand Names on Consumer Judgments,” Journal of Consumer Research 31 (June 2004), pp. 43–51; Tina M. Lowery and L. J. Shrum, “Phonetic Symbolism and Brand Name Preference,” Journal of Consumer Research 34 (October 2007), pp. 406–14. For interesting theoretical perspectives, see Claudiu V. Dimofte and Richard F. Yalch, “Consumer Response to Polysemous Brand Slogans,” Journal of Consumer Research 33 (March 2007), pp. 515–22. Don Schultz and Heidi Schultz, IMC: The Next Generation (New York: McGraw-Hill, 2003). Dawn Iacobucci and Bobby Calder, eds., Kellogg on Integrated Marketing (New York: John Wiley & Sons, 2003). Scott Davis and Michael Dunn, Building the BrandDriven Business (New York: John Wiley & Sons, 2002). For an interesting application of branding to internal projects, see Karen A. Brown, Richard E. Ettenson, and Nancy Lea Hyer, “Why Every Project Needs a Brand (and How to Create One),” MIT Sloan Management Review, Summer 2011, pp. 61–68. Deborah Roedder John, Barbara Loken, KyeongHeui Kim, and Alokparna Basu Monga, “Brand Concept Maps: A Methodology for Identifying Brand 136 30. 31. 32. 33. 34. 35. 36. 37. Part 3 Building Strong Brands Association Networks,” Journal of Marketing Research 43 (November 2006), pp. 549–63. “The Best Global Brands,” Bloomberg BusinessWeek, October 2, 2012. For an academic discussion, see V. Srinivasan, Chan Su Park, and Dae Ryun Chang, “An Approach to the Measurement, Analysis, and Prediction of Brand Equity and Its Sources,” Management Science 51 (September 2005), pp. 1433– 48. For a comparison of the Interbrand valuation to a consumer-based brand equity measure, see Johny K. Johansson, Claudiu V. Dimofte, and Sanal K. Mazvancheryl, “The Performance of Global Brands in the 2008 Financial Crisis: A Test of Two Brand Value Measures,” International Journal of Research in Marketing 29 (September 2012), pp. 235–45. Interbrand, the Interbrand Brand Glossary, and Interbrand’s Nik Stucky and Rita Clifton, January 2009. For an alternative brand valuation method, see Millward Brown’s BrandZ brand valuation methodology: /Top_100_Global_Brands/Methodology.aspx. Larry Light and Joan Kiddon, Six Rules for Brand Revitalization: Learn How Companies Like McDonald’s Can Re-Energize Their Brands (Wharton School Publishing, 2009). Jonathan R. Copulsky, Brand Resilience: Managing Risk and Recovery in a High Speed World (New York: Palgrave Macmillan, 2011). Rebecca J. Slotegraaf and Koen Pauwels, “The Impact of Brand Equity and Innovation on the Long-Term Effectiveness of Promotions,” Journal of Marketing Research 45 (June 2008), pp. 293–306. Jing Lei, Niraj Dawar, and Jos Lemmink, “Negative Spillover in Brand Portfolios: Exploring the Antecedents of Asymmetric Effects,” Journal of Marketing 72 (May 2008), pp. 111–23. For comprehensive corporate branding guidelines, see James R. Gregory, The Best of Branding: Best Practices in Corporate Branding (New York: McGraw-Hill, 2004). For some B-to-B applications, see Atlee Valentine Pope and Ralph Oliva, “Building Blocks: Ten Key Roles of B-to-B Corporate Marketing,” Marketing Management, Winter 2012, pp. 23–28. Guido Berens, Cees B. M. van Riel, and Gerrit H. van Bruggen, “Corporate Associations and Consumer Product Responses: The Moderating Role of Corporate Brand Dominance,” Journal of Marketing 69 (July 2005), pp. 35–48; Zeynep Gürhan-Canli and Rajeev Batra, “When Corporate Image Affects Product Evaluations: The Moderating Role of Perceived Risk,” Journal of Marketing Research 41 (May 2004), 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. pp. 197–205; Gabriel J. Biehal and Daniel A. Sheinin, “The Influence of Corporate Messages on the Product Portfolio,” Journal of Marketing 71 (April 2007), pp. 12–25. Deborah Roedder John, Barbara Loken, and Christopher Joiner, “The Negative Impact of Extensions: Can Flagship Products Be Diluted?”, Journal of Marketing 62 (January 1998), pp. 19–32. Nirmalya Kumar, “Kill a Brand, Keep a Customer,” Harvard Business Review, December 2003, pp. 87–95. Valarie A. Taylor and William O. Bearden, “Ad Spending on Brand Extensions: Does Similarity Matter?,” Journal of Brand Management 11 (September 2003), pp. 63–74; Sheri Bridges, Kevin Lane Keller, and Sanjay Sood, “Communication Strategies for Brand Extensions: Enhancing Perceived Fit by Establishing Explanatory Links,” Journal of Advertising 29 (Winter 2000), pp. 1–11. Subramanian Balachander and Sanjoy Ghose, “Reciprocal Spillover Effects: A Strategic Benefit of Brand Extensions,” Journal of Marketing 67 (January 2003), pp. 4–13. Bharat N. Anand and Ron Shachar, “Brands as Beacons: A New Source of Loyalty to Multiproduct Firms,” Journal of Marketing Research 41 (May 2004), pp. 135–50. For consumer processing implications, see Huifung Mao and H. Shanker Krishnan, “Effects of Prototype and Exemplar Fit on Brand Extension Evaluations,” Journal of Consumer Research 33 (June 2006), pp. 41–49; Byung Chul Shine, Jongwon Park, and Robert S. Wyer Jr., “Brand Synergy Effects in Multiple Brand Extensions,” Journal of Marketing Research 44 (November 2007), pp. 663–70. Pierre Berthon, Morris B. Holbrook, James M. Hulbert, and Leyland F. Pitt, “Viewing Brands in Multiple Dimensions,” MIT Sloan Management Review (Winter 2007), pp. 37–43. Roland T. Rust, Valerie A. Zeithaml, and Katherine A. Lemon, “Measuring Customer Equity and Calculating Marketing ROI,” Rajiv Grover and Marco Vriens, eds., Handbook of Marketing Research (Thousand Oaks, CA: Sage Publications, 2006), pp. 588–601. Robert C. Blattberg and John Deighton, “Manage Marketing by the Customer Equity Test,” Harvard Business Review, July–August 1996, pp. 136–44. Robert C. Blattberg, Gary Getz, and Jacquelyn S. Thomas, Customer Equity: Building and Managing Relationships as Valuable Assets (Boston: Harvard Business School Press, 2001). Chapter 8 48. Much of this section is based on Robert Leone, Vithala Rao, Kevin Lane Keller, Man Luo, Leigh McAlister, and Rajendra Srivatstava, “Linking Brand Equity to Customer Equity,” Journal of Service Research 9 (November 2006), pp. 125–38. 49. Niraj Dawar, “What Are Brands Good For?,” MIT Sloan Management Review (Fall 2004), pp. 31–37. See also Florian Stahl, Mark Heitmann, Donald R. Lehmann, and Scott A. Neslin, “The Impact of Brand Creating Brand Equity and Driving Growth 137 Equity on Customer Acquisition, Retention, and Profit Margin,” Journal of Marketing 76 (July 2012), pp. 44–63. 50. Philip Kotler and Milton Kotler, Market Your Way to Growth: 8 Ways to Win (Hoboken, NJ: John Wiley & Sons, 2013). 51. David Taylor, Grow the Core: How to Focus on Your Core Business for Brand Success (West Sussex, UK: John Wiley & Sons, 2012).
Version: 5.20.2014 Bright Lights and Services Co. (C) Alec Smith is looking for opportunities to salvage his reputation and future of the firm. He wanted to increase revenues and net income. He has tasked his strategic planning group to analyze business opportunities as well as ways to increase business/revenue for the existing businesses in his portfolio. His business development group identified home appliance guarantee as a potential profit-making operation. Appliance insurance was becoming popular on BigBright as new homes were being constructed to address the housing shortage. In addition, the BEIGO program of replacing the old appliances with new energy-efficient appliances is also generating business for appliance insurance companies. There are three major providers of appliance insurance in Big Bright. Bright Home Shield (BHS) is a subsidiary of a large national chain providing appliance warranties that covered appliances against breakdowns due to normal wear and tear. Like most other insurance providers, they have arrangements with local contractors. Their standard plan’s monthly premium costs $69 for single family homes and $59 for condominium units and cover appliances in a typical home such as washer/dryer, dishwasher, and air conditioning systems. Their Super Standard plan provides coverage for large homes with swimming pools and spas and is customized for individual homes. The lowest monthly premium for Super Standard is $120. BHS charges $75 per service call. Bears Protection Services (BPS) is another major national firm providing coverage similar to BHS but with unlimited, free service calls and a monthly premium of $99. BPS charged the same rate for single family homes and condo owners and they also used local contractors. Safe Appliance (SA) is a local firm started by a local entrepreneur, Jack Boulet, who built a very profitable business using low cost labor. Boulet started as a contractor providing service to BHS and BPS and found that he can run a profitable business by providing a lower-cost service directly to customers. He made special arrangements with appliance distributors, which provide him leads for a small fee. Jack is regarded as a local boy who has done well leveraging his island roots and contacts. Jack prices his service about 25% below BHS and charged $49 for condo units and $59 for single family homes. Safe Appliance limits its coverage to home appliances, whereas other companies included other systems such as garage doors, air conditioners, etc. His understanding of the local living style (very few people used A/C in the islands because of the temperate climate), low cost labor, and local roots helped him build a strong business. By 2008, Safe Appliance had a market share of 32% primarily with condominium customers and some 1 smaller single family homes. Jack’s business got a boost with the BIEGO conservation program as consumers started replacing their old appliances with new energy-efficient appliances using rebates provided by BIEGO. New appliances come with one-year limited warranties, and Jack provided complete coverage with labor and parts for a fixed fee per month. Jack is open to the idea of being acquired and indicates a price tag in the range of $50 million. It is rumored that Walmart is planning to enter the market with a low-cost appliance warranty program. Alec Smith believes that as an electricity provider and as a major bank to the islands, BLSC subsidiary should have the edge. Plus, the conservation programs supported by BIEGO are encouraging customers to install new energy-efficient appliances and creating a market for the appliance warranty businesses. However, his decision to invest has to be weighed against $65 million required for conversion to gas-based production that would save operating costs. It would also help BIEGO’s reputation by lowering pollution and maintaining the island’s image as an environmentally friendly place. In considering the acquisition of Safe Appliance, Smith has to consider several options. One important consideration is whether to run it as a subsidiary of BLSC or as a subsidiary of BIEGO. He feels that running it as a BIEGO subsidiary will enable him to tap into the database of customers getting rebates from BIEGO and leverage the BIEGO firm. On the other hand, BIEGO labor rates are very high and may not be suitable for the low-cost business model pioneered by Boulet. There were also concerns about associating another insurance business with BIEGO. It was clear that Safe Appliance may have to come up with a different business model. Smith feels that Safe Appliance should be positioned as a high-quality, high-price service and differentiates itself from BHS and the others. He expects Walmart to compete on price and is worried about a price war. Smith is also considering adding services, such as home security systems to package with appliance insurance and selling it as a value bundle. A small branch office of a national security company provided home security systems on the islands but has not made much headway. Most of the island residents believe that they know each other and do not see the need for home security. However, Smith and his strategic plan team believe that this sentiment of “island community” is most likely to change in the near future. If the Chamber’s efforts to increase tourism and attract new business were successful, the island population mix would change with the new influx of people from the U.S. mainland. The changed composition of the population may provide opportunity for home security business. Smith felt that with strong promotion, Safe Appliance’s security and appliance guarantee bundle could garner enough market share and can be a profitable venture. Alec Smith wanted to present his recommendations to the board. He asked his vice president of strategic planning for recommendations. 2 Appendix1. Basic Home Appliance Insurance Plan Bright Home Bears Protection Safe Appliance Refrigerators X X X Dishwashers X X X Clothes Dryers X X X Clothes Washers X X X Water Heaters X X X Garbage Disposals X X Smoke Detectors X X Air Conditioning, including ductwork X Electrical X Plumbing X Optional: • • • • Pool and Spa Water Softener Well Pump Septic Pumping 3 Income Statement 2011 2010 2009 2008 220 63 16 299 210 55 16 281 188 52 15 9 264 175 45 14 7 241 190 42 16 169 43 12 248 224 160 41 12 7 220 149 35 11 5 201 30 21 0 41 12 4 Interest expenses Income B4 tax 51 (15) 36 57 (12) 45 28 11 3 2 44 (11) 33 26 10 3 2 41 (11) 30 Income tax (10) (13) (10) (9) 26 32 23 22 (3) (18) 0 0 Net Income 23 14 23 22 Capital Expenditures BEIGO MoneyMaker Boats PICO 53 1 1 - 47 1 1 36 1 3 33 1 1 Revenue BIEGO MoneyMaker Boats PICO Expenses BIEGO MoneyMaker BOATS PICO Operating Income BIEGO MoneyMaker Boats PICO Income after tax Loss from discontinued operations 4 Balance Sheet 2011 2010 (million $) Assets Cash Accounts receivable Inventories Marketable securities Other investments Land Other investment Plant and equipment Accumulated depreciation Assets from discontinued operations Total Assets Liabilities Accounts payable Deposit liabilities Short-term borrowings Securities sold Advances from Federal Home Loan Bank Long-term debt, net Deferred income taxes Unamortized tax credits Total Liabilities Shareholder Equity Preferred Stock from Brightland Shareholder equity Retained earnings Total Shareholder Equity Total Liabilities and Shareholder Equity 2009 2008 29 44 14 366 26 11 491 39 39 13 233 26 11 378 39 32 11 283 26 13 298 22 37 15 288 17 13 345 880 -62 0 780 -52 35 658 -42 0 650 40 0 1799 1502 1318 1427 32 710 112 41 29 697 13 1 29 610 8 0 60 623 5 0 205 156 110 145 239 67 65 1471 232 57 55 1240 202 57 35 1051 204 45 36 1118 3 302 23 328 2 249 11 262 2 249 16 267 2 282 25 309 1799 1502 1318 1427 5
Version: 3.27.2014 Bright Lights and Services Co. (BLSC) BLSC is a holding company and runs diverse businesses, such as banking operations, electric utility, insurance and shipping operations in Brightland. On September 22, 2012, Alec Smith was driving to his office along the picturesque road skirting the ocean, but his mind was on the upcoming meeting with his strategic planning group. Alec Smith had called a meeting with his strategic planning/business development group to examine the current situation and look for alternatives to grow the business/increase income stream. Smith was hired in 2005 and was tasked with growing the company revenues, and the results to date have been mixed. In the last five years of Smith’s tenure, the firm had pursued three new areas and only one was successful. The Board of Directors of BSLC has asked Smith to provide an outline of the strategy for the next five years. Smith wanted his strategic planning group to develop an executive summary to outline: 1. 2. 3. 4. Current situation SWOT Analysis Identification of businesses to pursue An action plan for business growth Bright Lights and Services Co. (A) Bright Lights and Services Co. (BLSC) conducts business in Brightland about 2,500 miles southeast of Boston. Brightland is a two-island (BigBright and SmallBright) chain separated by 20 miles of ocean between them, and is administered by the United States as a territory. Brightland residents are U.S. citizens but are not represented in the Congress. Brightland’s location and pristine sandy beaches have made it a major tourist destination for New Englanders wanting to escape harsh winters. The island economy with a population of 300,000 is dependent upon tourism and agriculture. Most of the supplies including food, consumer goods, commodities, fuel, and appliances are all imported from the U.S. mainland. 1 Figure 1: Brightland Population (Age Groups represented in thousands). 30 42 69 66 under 18 18- 35 36-50 93 50-65 Over 65 Brightland’s economy provides employment for a big portion of the island population. Other major employers are the Government, BSLC, local banks, supermarkets, department stores, Brightland University, and a military base. The median salary in the islands is about $60 K and many work in professional jobs in the tourism-related industries, local banks, and businesses. The island population of about 300,000 was distributed among 93,000 housing units with an average person per household of 3.2, reflecting the tendency of young, unmarried sons and daughters who stay with their parents due to a housing shortage and high housing prices. A little over half the island population is between the ages of 18 and 50 years, about 30% were over 50 years and the rest under 18 years. About 11% of the households are vacation homes and belong to individuals from New England who spent their winters in Brightland. To address the housing shortage and high housing prices, the local government is encouraging builders to build affordable housing and was designating large areas of the island for new residential construction. Figure 2: Income Levels 21.2% 2.8% 23.9% Under 25 K 25-50K 24.8% 27.3% 50-75K 75-150 over 150 K The government officials and businesses are aware of island’s dependency on tourism from the U.S. and Europe and is looking at ways to diversify the economy to reduce this dependence. The 2 Brightland Chamber of Commerce is spearheading the efforts to position the islands as a premier tourist destination. In addition to the traditional United States and European markets, the newly emerging markets and rich Middle Eastern countries are seen as potential target markets, particularly during the off season months of April, May, and June. In addition, the Chamber of Commerce is spearheading the efforts to attract businesses to locate in the islands. Lately, Brightland has been attracting software developers who like the island lifestyle and are opening small operations on BigBright. While BigBright has an international airport and several hotel chains catering to tourists, SmallBright has only two major hotels and shops. The two hotels employ about 1,000 workers, the majority of whom commute daily from BigBright. SmallBright is deliberately left in pristine condition and depends completely on tourism. It does not have an airport or public transportation. Tourists fly to BigBright and take the ferry to SmallBright. All the supplies and hotel employees who live on BigBright use ferries to reach SmallBright. SmallBright hotels have positioned themselves as exclusive resorts and cater to the very rich who are willing to pay the premium prices. Ordinary tourists who stay on BigBright take the ferry to see the historic sights on SmallBright. History of the Brightlands The Brightland chain was settled in during 1600s by pirates who are rumored to have buried their treasures here. In 1901, the U.S. acquisitioned the islands and has been administering them as a United States territory. Soon after the acquisition, several Christian missionaries from Boston travelled to spread the religion and convert the islanders who believed in Ashitoa, a God worshipped by the pirates. The islanders are a very close-knit community with a chief believed to be a descendent of the pirate, Captain Morgan. Boston missionaries were able to convert the islanders and systematically took over the land and business by trading, coercion, and often by marrying the chief’s relatives. Thus, most of the agricultural land and businesses are owned by the families of missionaries. When the United States acquired the islands, they abolished the chief’s position and provided the chief (and his descendants) a yearly pension as an acknowledgement of their historical claim to the islands. There are several forts and remnants of settlements from earlier days on both islands. However, BigBright is more modern with some light manufacturing and commerce that provides employment, even though most of the employment is related to the tourism industry. The local Brightland University offers undergraduate degrees and is planning to offer graduate degrees in several disciplines. Brightland University’s undergraduate degree in marine science is wellregarded and is beginning to attract students from the New England area. In recent years, many baby boomers have been buying properties on BigBright. A large portion of these homes are vacation homes and investment properties. Vacation home owners are “snow birds” from the New England area spending their winter months on the warm islands. The major advances in communication technology in the last decade has made it very conducive to 3 conducting business from the island, and hence increased interest in acquiring homes on the island. Reflecting this in-migration, property values are rising and there is a boom in the construction business. New homes and higher population have increased business opportunities for businesses on BigBright, including BSLC and its subsidiaries. While BigBright has modern buildings and highways, SmallBright is kept in pristine condition with no vehicular traffic. Horses and buggies are used to take tourists around the island. The two hotels owned by the chief’s family were designed to give the impression of an old castle but are equipped with all the amenities of a 5-star hotel. The rooms match Ritz Carlton in their décor, and all amenities such as air conditioning, pool, sauna, bars, and restaurants are available. Most of the SmallBright residents are employed as tour guides, hotel staff, and cooks, while most of the managerial staff come from BigBright and from Boston. The hotel restaurants serve only island food from piracy days, but there is one McDonald’s and one Burger King on SmallBright. Passenger boats start at 5:30 a.m. and run every hour until 9 a.m., and then run in two-hour intervals from 10 a.m. to 3 p.m. and one-hour intervals from 4-9 p.m. to take tourists from BigBright hotels to SmallBright on day tours. BOATS is one of the two companies that provide the shipping and transport service. They own one large supply ship and three passenger ferry boats. Its competitor owns two supply ships and five ferry boats to provide passenger service. Both companies charge $20 per round trip for economy class and $100 for the luxurious upper deck. The island residents are allowed to buy a monthly pass for $100. Tourists come in droves from New England as well as from Europe, attracted by the blue waters, hiking trails, horse riding, castle ruins, and its pristine condition. A visit to the ancient Ashitoa Temple is a must for all the tourists who hike the trail to the temple and are treated with a sumptuous lunch with goat meat and rum. The peak tourist season runs year round – from November to March – for visitors from New England and the U.S. East Coast, and April to September for European tourists. Bright Lights and Services Co. (BLSC) BLSC was formed as a diversified company and evolved out of BIEGO, established in 1915 to provide electricity to Brightland residents. BIEGO is a regulated monopoly with rights to supply the electricity needs of both islands. Electricity is generated on BigBright and is transmitted by undersea cable to SmallBright. BIEGO generators use imported low sulfur fuel oil for power generation. The fuel oil comes from Venezuela, the only source of low sulfur fuel oil in the western hemisphere. The only other source for this low sulfur oil is Iran, which is expensive because of shipping costs. In addition, the trade embargo in place for the last few years prohibits Iranian imports. Like many other power generators, BIEGO is exploring the possibility of switching from fuel oil to gas as a fuel. Gas is a cleaner fuel to burn and has lower pollution compared to fuel oil. 4 Brightland politicians and population have been concerned about the damage caused by the emissions from power plants to the pristine environment of the islands. The local newspaper has been publishing articles urging BIEGO to be sensitive to the future of the islands and its responsibility as a corporate citizen. BIEGO believed switching to gas would be welcomed by the islanders. In addition, abundant availability of shale gas in the United States through fracking has lowered the cost of gas for power generation. A report by McKinsey Consultants showed the cost of producing power using gas was about 20% less compared to fuel oil. This is after factoring in the higher cost of shipping liquefied natural gas (LNG) from ports on the East Coast to Brightland. To convert the plant from fuel oil to gas feed requires a capital investment of $65 million for installing new advanced technology gas turbines. BIEGO has secured the necessary approval (as a regulated utility, rate changes need approval from local government administrators) to increase the electricity rate by 5% to recover capital expenses. Brightland customers pay one of the highest rates in the United States, and price increases are not going to be received well. BIEGO is worried about customer resentment influencing the local administrators who are up for reelection in two years. Since 1990, there has been increased pressure by the administrators for BIEGO to encourage conservation programs to reduce electricity bills by reducing consumption. Providing rebates to consumers for installing new energy-efficient appliances has been found to be a successful conservation program elsewhere in the country. Bowing to the pressure, BIEGO started implementing an energy conservation program in 2004 and started providing rebates to consumers who buy high-efficient appliances. Rebates are necessary because energy-efficient appliances are priced higher than regular appliances. When fully implemented, this program is expected to reduce energy consumption by about by 20% over a 10-year period. Alec Smith was appointed as CEO in 2005 and was recruited from NSTAR, in the state of Massachusetts, one of the leading providers of gas and electricity in New England where he was an Executive Vice President. He was aware that BIEGO revenue is dependent on tourism business that drives the economic activity on the islands. Between 2005 and 2010, electric revenues increased by about 4% because of the rate (price) increase, but net income stayed flat in spite of price increases. A steep drop in tourism in the years following the 2007–2008 financial crisis has impacted the economy and hence the consumption of electricity. In addition, the energy conservation program started in 2004 and new efficient appliances have also been reducing the consumption, and hence, electricity sales. While the electricity sales and revenue were declining, operating costs were increasing due to fuel costs as well as employee costs. BIEGO is a union shop and employees are able to negotiate a good salary and benefit package. As a result, BIEGO employees are among the best-paid employees with good benefits such as all-paid medical insurance, discounted electricity, etc. The only way to increase revenue and net income is to increase the price for electricity and/or by increasing electricity sales. Smith was hoping that the population increase (partly by in bound migration), higher economic activity, and new businesses may increase electricity sales, thus 5 offsetting revenue loss by conservation programs. But he is aware that while BEIGO provided the bulk of income, opportunities to increase net income just by electricity sales were minimal. Smith wanted to diversify the company portfolio and thus diversify risk by investing in industries that provided a regular income stream and provided avenues for income growth. He realized that the diversification efforts should focus on businesses that are essential parts of the island economy with growth prospects. A holding company BLSC was formed in 2005 with BIEGO as a major subsidiary. Between 2007 and 2010, BLSC acquired three new businesses. First was BOATS Inc., one of the two shipping companies that carry products from the United States’ East Coast. In addition, BOATS transports food, supplies, and products from BigBright to SmallBright. BOATS also operates a ferry that takes residents and tourists between BigBright and SmallBright. Boston Ships, a well-established maritime company located in Boston, is the only competition to BOATS Inc. Boston Ships has the lion’s share of the shipping business between mainland U.S. and Brightland as well as business between the two islands. BLSC also added a property insurance company (PICO) that offers property insurance. PICO has very tough competition from national insurance providers but manages to hold onto a small share of the insurance market using its local roots as an advantage. PICO’s business is limited to home insurances and has to keep insurance premiums low to be able compete with national firms. Unlike PICO, national firms are able to diversify their risk by offering insurance to a number of different market segments as well as different markets in the United States. They also reinsure their risky product portfolios with Lloyds of London to minimize exposure. The low margin and smaller business volume of PICO insurance business make it difficult for PICO to buy reinsurance without hurting profitability. In view of this, PICO thought it could wait until business volume justified the reinsurance premium, thus taking on the risk itself. PICO is hoping that they could expand into life and business insurance and grow the business volume. The last acquisition was a bank, MoneyMaker (MM) Inc., which has been operating on the islands for the last 50 years. It is the smallest of the three local banks in terms of revenues and offers traditional savings/checking and mortgage business. It has branches all over BigBright and two branches on SmallBright. MM has a 54% market share of the home mortgage market, which accounts for a bulk of MM’s net income. MM places a lot of importance on qualifying mortgage loans and carefully targeted middle-income families and professionals. MM’s bad loan to total loan ratio is one of the lowest on the islands and was one of the major factors for its successful operation. MM realizes the need to strengthen its non-mortgage part of the business to grow. It wants to target young professionals with soft loans, credit cards, and CDs. Lately, many national banks such as Bank of America and Wells Fargo are entering the market and are planning to offer full services including mortgages and investment products. These banks realized that the property market in BigBright is heating up and see a large market opportunity. 6 Fearing the tough competition, local banks including MM are lobbying the government to prevent/delay entry of these national banks. National Banks in turn are working with the Chamber of Commerce to outline the benefits to the local economy in terms of increased employment, competitive mortgage market, and their ability to draw investment business from European customers based on their international reputation. Industry reports indicate that these national banks are likely to start operations within the next two years and aggressively pursue market share. 7 In 2008, when all of the acquisitions were in place, the BLSC portfolio of companies looked as follows: Company Revenue Operating Market Income Growth Competition BIEGO 71% 72% Regulated monopoly Market share of Big Island Customers 100% Intense Two companies Intense 54%* 25% 5% Flat or declining Growing Growing Growing MM 20% 18% BOATS 5% 6% PICO 4% 4% BLSC 100% 100% * Represents share of the home mortgage market. 8 Income Statement 2011 2010 2009 2008 220 63 16 299 210 55 16 281 188 52 15 9 264 175 45 14 7 241 190 42 16 169 43 12 248 224 160 41 12 7 220 149 35 11 5 200 30 21 0 41 12 4 Interest expenses Income B4 tax 51 (15) 36 57 (12) 45 28 11 3 2 44 (11) 33 26 10 3 2 41 (11) 30 Income tax (10) (13) (10) (9) 26 32 23 22 (3) (18) 0 0 Net Income 23 14 23 22 Capital Expenditures BEIGO MoneyMaker Boats PICO 53 1 1 - 47 1 1 36 1 3 33 1 1 Revenue BIEGO MoneyMaker BOATS PICO Expenses BIEGO MoneyMaker BOATS PICO Operating Income BIEGO MoneyMaker BOATS PICO Income after tax Loss from discontinued operations 9 Balance Sheet 2011 2010 ( million $) Assets Cash Accounts receivable Inventories Marketable securities Other investments Land Other investment Plant and equipment Accumulated depreciation Assets from discontinued operations Total Assets Liabilities Accounts payable Deposit liabilities Short-term borrowings Securities sold Advances from Federal Home Loan Bank Long-term debt, net Deferred income taxes Unamortized tax credits Total Liabilities Shareholder Equity Preferred Stock from Brightland Shareholder equity Retained earnings Total Shareholder Equity Total Liabilities and Shareholder Equity 2009 2008 29 44 14 366 26 11 491 39 39 13 233 26 11 378 39 32 11 283 26 13 298 22 37 15 288 17 13 345 880 -62 0 780 -52 35 658 -42 0 650 40 0 1799 1502 1318 1427 32 710 112 41 29 697 13 1 29 610 8 0 60 623 5 0 205 156 110 145 239 67 65 1471 232 57 55 1240 202 57 35 1051 204 45 36 1118 3 302 23 328 2 249 11 262 2 249 16 267 2 282 25 309 1799 1502 1318 1427 10
MKTG 6200: Creating and Sustaining Customer Markets Note: This is the text -only version of this week’s lecture. All media (i.e. videos, flash presentations, and PowerPoints) and learning activities (i.e. assigned readings, assignments, and discussions) are accessible only through the online course. Week 3: Targeting Your Product/Service Log in to the course to view video and alternative version. Click the link below to access a transcript of the video. Video Transcript Week 3 Learning Activities The following table summarizes all the learning activities for Week 3. You are required to complete all the activities listed here. The points for the assignments are included in the table below. Discussion participation makes up 30% of your overall grade. You are welcome to ask your instructor at any time about your performance in the Discussions. Learning Activity Reading 1 Description Due Date Points Complete by end of Day 1 ~ Complete by end of Day 1 ~ Complete prior to Week 3 Assignment 1 ~ Chapter 6: Identifying Market Segments and Targets Chapter 7: Crafting the Brand Positioning Bright Lights and Services Co. (C) ProctorU Scheduling Week 3 Activity 1 Schedule exam time with ProctorU at least 72 hours before the exam. BLSC Interactive 1 MKTG 6200: Creating and Sustaining Customer Markets Reading 2 Final Project Status Report #1 Week 3 Case Report Chapter 8: Creating Brand Equity and Driving Growth Complete by end of Day 3 ~ Complete Section 2.0 (optional) Complete by end of Day 4 ~ Submit Report through Turnitin by the end of Day 4 30 BLSC (C) Post by end of Day 5 Week 3 Case Discussion Week 3 Assignment 1 Week 3 Study Quiz BLSC (C) Respond by end of Day 6 Segmentation, Target Marketing and Perceptual Gap Map Complete by end of Day 7 30 ~ ~ Exam opens on Day 5 Complete by the end of Day 6 100 Optional Weekly Quiz 20 ProctorU is required to take this exam. Midterm Chapters 1-8 Complete the 25 multiple choice (50 points) and two essay questions (50 points) All assignments are to be submitted through the Assignments area of the course. Similarly, all discussions can be accessed in the Discussions area. MKTG 6200 Discussion Board If you have a general question for your classmates, feel free to post them to the Discussion Board and the instructor will post a response. You can also use this discussion board to post your insights with regards to the questions posed by the course. Start your post by introducing the question you will be discussing. 2 MKTG 6200: Creating and Sustaining Customer Markets Lesson 1: Market Segmentation, Targeting, and Positioning Lesson 1 Learning Objectives After completing this lesson, you should be able to:     Understand how to segment a market. Understand the bases used to segment consumer and business markets. Know how to evaluate and select segments for targeting of marketing programs. Understand four different positioning strategies. Reading 1 (Complete by end of Day 1)   Chapter 6: Identifying Market Segments and Targets Chapter 7: Crafting the Brand Positioning Course Pack  Bright Lights and Services Co. (C) The PowerPoint slides for these chapters can be found in the presentations below and will be used to discuss the text material. The PowerPoint slides are not intended to cover all the materials in the textbook. It is very critical that you read the chapters completely and be familiar with the key issues from the chapters. Notes explaining the information on the slides are provided in the notes section of each slide. You can also listen to a voiceover narrating the text. A downloadable copy of the presentation slides used is available below each of the presentations. Chapter 6 Presentation Log in to the course to view presentation and alternative version. Alternate Version Chapter 7 Presentation Log in to the course to view presentation and alternative version. Alternate Version Week 3 Activity 1: BLSC Interactive (Complete prior to Week 3 Assignment 1) Using your experiences from the previous week's interactive activity, as well as your knowledge from the BLSC case studies, complete the activity below. Log in to the course to access interactive course content and alternative version. Alternative Version 3 MKTG 6200: Creating and Sustaining Customer Markets Accessing Grademark Commentary for Individual Turnitin Assignments     Select the View/Complete link in the assignment drop box, or select your grade in the My Grades area. Next, select the title of the assignment in the Turnitin Assignment and Portfolio Inbox. Once the document view loads, select the GradeMark button, located at the top left of the screen. To view individual comments, hover the mouse over the blue comment bubbles. Lesson 1: Market Segmentation, Targeting & Positioning Key Words List #1 Behavioral Segmentation - Dividing the market into groups based on product usage characteristics of consumers. Buyer-Readiness Stage - The buyer's stage regarding readiness to buy a certain product or service. At any time, people are in different stages: unaware, aware, informed, interested, predisposed to buying, and intending to buy. Concentrated Marketing - Firms recognize market segments but design only one marketing program for all the different segments. Customer-focused value proposition - The major reason why a consumer should buy a product; the value provided to the customer from the purchase. Customerization - Combines operationally driven mass customization with customized marketing in a way that empowers consumers to design the product and service offering of their choice. Demographic Segmentation - The market is divided into groups on the basis of age and other variables. One reason this is the most popular segmentation method is that consumer wants, preferences, and usage rates are often associated with demographic variables. Another reason is that demographic variables are easy to measure. Differentiated Marketing - Firms operate in several market segments and design different marketing programs for each segment. Differentiation Strategy - Products can be differentiated through product differentiation, services differentiation, image differentiation, personnel differentiation, and channel differentiation. Geographic Segmentation - Dividing the market into groups based on geographic regions. Local Marketing - Consists of marketing tailored to the needs and wants of local customer groups (trading areas, neighborhoods, individual stores). 4 MKTG 6200: Creating and Sustaining Customer Markets Market-Challenger Strategy - A market strategy must first define its strategic objective; most challengers aim to increase market share. Then the challenger must decide whom to attack. Five general market-challenger attack options are: 1) Frontal attack, 2) Flank attack, 3) Encirclement attack, 4) Bypass attack, and 5) Guerilla warfare. Market-Follower Strategy - Sometimes product imitation might be as profitable as a strategy of product innovation. The innovator bears the expense of developing the new product, getting it into distribution, and educating the market. Market-Niche Strategy - Another alternative to being a follower in a large market is to be a leader in a small market, or niche. Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms. Market Segment - Consists of a group of customers who share a similar set of wants. Mass Customization - Producing in volume, but at the same time giving each individual customer something different according to his or her unique needs. With mass production everybody receives the same thing regardless of individual needs. Mass Marketing - The mass production, distribution, and promotion of one product for all buyers. Micromarketing - The practice of tailoring products and marketing programs to suit the taste of specific individuals and locations. It has four levels which include: segments, niches, local areas, and individuals. Niche Marketing - A narrowly defined customer group seeking a distinctive mix of benefits. Perceptual Gap Map - Visual display of the perceptions of customers or potential customers based on product features/attributes or company characteristics. Points-of-Parity (POP) - Associations that are not necessarily unique to the brand but may, in fact, be shared with other brands. Two basic forms are category and competitive points-ofparity. 1. Category points-of-parity are associations consumers view as necessary to be a legitimate and credible offering within a certain category, although perhaps not sufficient for brand choice; and 2. Competitive points-of-parity may change over time due to technological advances, legal developments, or consumer trends. Points of Difference (POD) - Attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe that they could not find to the same extent with a competitive brand. Positioning - The act of designing the company's offering and image to occupy a distinctive place in the mind of the target market compared to competitors. 5 MKTG 6200: Creating and Sustaining Customer Markets Psychographic Segmentation - Buyers are divided into different groups on the basis of psychological/personality traits, lifestyles, or values. People within the same demographic group can exhibit very different psychographicprofiles. Segment Marketing - Slicing the market by segments where different products are offered to one or more segments. Snake Plot - Customer perceptions plotted as attributes, so-called because each product "snakes" across the page. The data are often obtained via questionnaires in which each respondents rate each product on each attribute. Average ratings are plotted on a vertical map. Target Market - The part of the qualified available market the company decides to pursue. Undifferentiated Marketing - Firms that ignore segment differences and go after the whole market with one market offering and one marketing program. User Status - Frequency with which a customer uses a product. For example, families would use laundry detergent more frequently than would a college student. 6 MKTG 6200: Creating and Sustaining Customer Markets Lesson 2: Creating Brand Equity Lesson 2 Learning Objectives After completing this lesson, you should be able to:      Know what branding means and the concepts of brand equity. Understand different branding strategies. Know the advantages and disadvantages of brand extensions. Know the different roles of a brand in a portfolio. Understand how the brand portfolio impacts the positioning strategy of Safe Appliance in the BLSC (C) case. Reading 2 (Complete by end of Day 3)  Chapter 8: Creating Brand Equity and Driving Growth Course Pack:  Bright Lights and Services Co. (C) Chapter 8 Presentation PowerPoint slides for this chapter can be found in the presentation below and will be used to discuss the text material. The PowerPoint slides are not intended to cover all the materials in the textbook. It is very critical that you read the chapter completely and be familiar with the key issues from the chapter. Notes explaining the information on the slides are provided in the notes section of each slide. You can also listen to a voiceover narrating the text. A downloadable copy of the PowerPoint slides used is available below the presentation. Log in to the course to view presentation and alternative version. Alternate Version 7 MKTG 6200: Creating and Sustaining Customer Markets Week 3 Case Report Submit by the end of Day 4 Value: 30 points Introduction If you have not already done so, read the BLSC (C) case. Instructions As you read the case, do the following tasks: 1. Develop a marketing strategy for Safe Appliance to address the potential entry of Walmart to the Appliance Insurance Market. 2. Using the Brightland population and income statistics provided in Case A, develop a segmentation and target marketing strategy for MM. In addressing these items you should consider the lessons from Chapters 6-8. We will be using these in future discussions. Formatting All written submissions should conform to the following format:        Written explanation limited to one page, single-spaced. Typed, Times New Roman 12 point font, 1-inch margin on all four sides. Page numbers at the bottom of the page. Cover page with student name and class number on each page. No spellings or grammatical errors. Reference material properly cited. No late submissions accepted. Guidelines        You will be graded not on the quantity of your work but the quality. You will be marked down if your work is not relevant to the question being discussed. Sometimes it might be appropriate to refer back to a statement made earlier, which is fine as long as you are not unduly rehashing a point that has already been made. Remember, we have all read the case/article, so excessively reciting facts that are given in the case will reflect negatively on your grade. Looking at the problem from a strategic point of view will positively reflect on your grade. If you believe a diagram you created will help your discussion, feel free to include it in your post. Although you do not need to respond to every question, responding to only one question is not sufficient for earning high marks. You must show that you understand the entire problem at hand through your well-thought-out answers. Your work should reflect the cumulative knowledge you have gained from previous chapters. 8 MKTG 6200: Creating and Sustaining Customer Markets Instructions for Uploading a File: Upload your file using the Turnitin drop box located in the Assignments area of the course by the end of Day 4. Status Report #1 (Complete by end of Day 4) (non-graded, optional) By the end of Week 3 you should have completed Section 2.0 of your Marketing Plan. To make sure you are on the right track, you may want to complete the optional assignment below. This assignment is not mandatory so it will not be graded, but will benefit you in the long run with mid-project feedback. Instructions   Click on the following link to see the checklist of items that should be completed. Final Project Status Report #1 Checklist E-mail your completed checklist to your instructor for feedback. Guidelines    Keep your written explanation to 1/2 page, single-spaced. Remember to properly cite any reference material you have used. No late submissions accepted. If you have any questions regarding your project specifically, email your instructor. If you would like your instructor to address an item regarding your project, insert your comments/questions as comments within your document. If you have a general question for your classmates, feel free to post it on the MKTG 6200 Discussion board and the instructor will post a response. You can also check the MKTG 6200 Discussion board for other students' questions to see if your question was already answered. 9 MKTG 6200: Creating and Sustaining Customer Markets Week 3 Case Discussion Introduction If you have not already done so, read the BLSC (C) case. Instructions Build upon the BSLC (C) case report by addressing at least one of the following items in your discussion: 1. Mr. Smith is worried about the customer satisfaction ratings that may impact his expansion plans with the legislators and regulators. What are some of the things Mr. Smith can do to address the lower satisfaction ratings? 2. Develop a recommendation for the future of BOATS. 3. What are some of the concerns expressed by residents in the Interactive session about BSLC’s intention to pursue Appliance Insurance business? Share your responses in a post to this case's discussion board.   Post your response to at least one of the above prompts in the Week 3 Case Discussions area, in the thread titled "BLSC (C)" by the end of Day 5. Post your response to your classmates' posts by the end of Day 6. Guidelines        You will be graded not on the quantity of your posts but the quality. You will be marked down if your post is not relevant to the question being discussed. Sometimes it might be appropriate to refer back to a statement made earlier, which is fine as long as you are not unduly rehashing a point that has already been made. Remember, we have all read the case, so excessively reciting facts that are given in the case will reflect negatively on your grade. Looking at the problem from a strategic point of view will positively reflect on your grade. If you believe a diagram you created will help your discussion, feel free to include it in your post. Although you do not need to respond to every question, responding to only one question is not sufficient for earning high marks. You must show that you understand the entire problem at hand through your well-thought-out answers. Your posts should reflect the cumulative knowledge you have gained from previous chapters. Submission Post your response to the Week 3 Case Discussions area, in the thread titled "BLSC (C)" by the end of Day 5. Respond to your classmates' posts by the end of Day 6. 10 MKTG 6200: Creating and Sustaining Customer Markets Accessing Grademark Commentary for Individual Turnitin Assignments     Select the View/Complete link in the assignment drop box, or select your grade in the My Grades area. Next, select the title of the assignment in the Turnitin Assignment and Portfolio Inbox. Once the document view loads, select the GradeMark button, located at the top left of the screen. To view individual comments, hover the mouse over the blue comment bubbles. Week 3 Assignment 1: Segmentation, Target Marketing and Perceptual Gap Map Submit by the end of Day 7 Value: 30 points Introduction Based on the BLSC (C) case, complete this assignment according to the instructions below. Instructions As you read the case, do the following tasks: 1. Conduct a SWOT analysis for Safe Appliance (under Boulay before acquisition). Develop and discuss 4Ps for Safe Appliance. 2. Discuss positioning strategy for Safe Appliance. 3. Develop positioning map for Safe Appliance based on Smith’s plan for the acquired company. For example, you could take "Level of Service" and "Price" as your two attributes. On one end of the x-axis would be "Lean Service" and on the other end would be "Full Service." For the y-axis you would have “Low Price” on one end and "High Price" on the other end. 4. Answer the questions. 1. What are the strengths and weaknesses of this positioning? 2. Should SafeAppliance target multiple segments? Formatting All written submissions should conform to the following format:        Keep your written explanation to one page, single-spaced. Typed, Times New Roman 12 point font, 1-inch margin on all four sides. Page numbers at the bottom of the page. Cover page with student name and class number on each page. No spellings or grammatical errors. Reference material properly cited. No late submissions accepted. Instructions for Uploading a File: Upload your file using the Turnitin drop box located in the Assignments area of the course by the end of Day 7. 11 MKTG 6200: Creating and Sustaining Customer Markets Key Words List #2 Brand - Name, term, sign, symbol, design, or any combination of these, intended to identify the goods or services of one seller or group of sellers. Brand Audits - A consumer-focused exercise that involves a series of procedures used to assess the health of the brand, uncover its sources of brand equity, and suggest ways to improve and leverage its equity. Brand Dilution - When consumers no longer associate a brand with a specific product or highly similar products and start thinking less of the brand. Brand Equity - The added value endowed to products and services, reflected in how consumers think, feel, and act with respect to the brand, as well as the prices, market share, and profitability that the brand commands for the firm. Brand Extension - When a firm uses an established brand to introduce a new product. Can be broadly classified into two general categories: Line Extension and Category Extension. Brand Salience - The propensity of a brand to come to mind in buying situations. Brand salience reflects the quantity and quality of the network of memory structures consumers hold about the brand.1 Brand Tracking - Employing quantitative measures to provide marketers with current information as how their brands and marketing programs are performing on a basis of a number of key dimensions. Breadth of brand awareness - The range of purchase and usage situations in which the brand element comes to mind. Cash Cows - Some brands may be retained despite dwindling sales because they still appeal to a sufficient number of customers and remain profitable with virtually no marketing support. Firms can "milk" these "cash cow" brands by capitalizing on the existing brand equity. Co-Branding (Dual Branding/Brand Bundling) - Two or more well-known existing brands are combined into a joint product and/or marketed together in some fashion. Depth of brand awareness - The likelihood and ease that a brand element causes brand associations to come to mind. Flanker - Flanker or "fighter" brands are positioned with respect to competitors' brands so that more important (and more profitable) flagship brands retain their desired positioning. Fighter brands must not be so attractive that they take sales away from their higher-priced comparison brands or referents. High-End Prestige - A relatively high-priced brand is often used to add prestige and credibility to the entire portfolio. 12 MKTG 6200: Creating and Sustaining Customer Markets Ingredient-Branding - A special case of co-branding that involves creating brand equity for materials, components, or parts that are necessarily contained within other branded products. Internal branding - Activities and processes that inform and inspire a company's employees. Logo - Unique symbol or design that represents a company. Also called a trademark. Low-End Entry Level - The role of a relatively low-priced brand in the portfolio used to attract customers to the brand franchise. Retailers feature these "traffic builders" because they can "trade up" customers to a higher-priced brand. Permission Marketing - When a company obtains permission from customers to send them information about their product or company. Information usually comes via email. Personalized Marketing - Personalizing the marketing message to an individual consumer. 1Jenni Romaniuk and Byron Sharp, "Conceptualizing and measuring brand salience" Marketing Theory, Vol. 4, No. 4, 327-342 (2004). Week 3 Study Quiz (Chapters 6-8) At the end of each week you have an opportunity to test yourself on your understanding of the key concepts learnedduring the week. This exercise should also help you to become familiar with the type of multiple choice questions you will see in your Exams. Please note that these quizzes are completely OPTIONAL and you will NOT be graded. These are intended to provide you some practice for your multiple choice questions in the exams. IMPORTANT: Quiz/Exam Advisory If you are using the Microsoft Internet Explorer 8 browser, you will need to change your browser settings to "Compatibility View" before taking your exam/quiz. Click the link below for instructions on how to change compatibility view. Compatibility View Alternatively, you can use the Mozilla Firefox browser to take your exam/quiz. Click the link below to download Mozilla Firefox. If you require further assistance, please contact the Help Desk: 1-866-291-8058 13 MKTG 6200: Creating and Sustaining Customer Markets Midterm Exam Value: 100 Points Due Date: Opens Day 5, Closes end of Day 6 Length: 75 minutes Format: 25 multiple-choice questions and 2 essay questions ProctorU The exam is password protected and can only be unlocked by ProctorU. Please be certain to schedule your exam time at least 72 hours before taking the exam. You will need to know your course's CRN number when registering in order to register for the correct section. The CRN number can be found in the top left corner of Blackboard and is usually a five digit number following the course code. Also, it is crucial that you check all of the technical requirements for ProctorU prior to the time of your exam and verify that your computer system meets ProctorU Technical Requirements. You can do this by clicking the link below. Here you will also see 'Click Here to Test Your Equipment', click this area so the system can run a check on your computer. There is also a 'Connect to a live person' from this page where you can have further testing done on your system by a live ProctorU representative. This is required to ensure you will be able to complete your exam without issue. ProctorU Technical Requirements. Preparation Please review the materials we have covered during the first three weeks of this course in preparation for the mid-term exam. Directions This examination assesses the degree to which you comprehend the whole of the course content. The exam consists of 25 multiple choice questions worth 2 points each and 2 essay questions worth 25 points each. The exam will open at 12:00 a.m. E.T. on Day 5 and will close at the end of Day 6. You will have only one attempt. Once you begin the exam, you will have 75 minutes to complete it. A timer begins running as soon as you commence the multiple-choice question set, and it does not stop until it reaches 75 minutes (Note: The timer continues running even if you navigate away from the page.). This exam is closed book/notes. Please adhere to academic integrity when taking this exam. Choose the best answer. NOTE: You must log completely out of Blackboard before logging out of the ProctorU system. Good luck. 14 MKTG 6200: Creating and Sustaining Customer Markets Week 3 Summary Log in to the course to view video and alternative version. Transcript 15

Tutor Answer

School: Rice University


Case Marketing Report
Institutional Affiliation




A marketing strategy refers to a model or process that allows an organization to
maximize its limited resources so as to increase its sales hence achieves a competitive advantage.
An organization’s strategy entails including all of its marketing objectives into a single broad
plan. An effective marketing strategy should be based on the market research and focus on
targeting, segmentation and positioning. Safe Appliance can apply various marketing strategy in
an attempt to address the potential entry of Walmart into the appliance insurance market (Kotler,
Keller, Manceau, & Hémonnet-Goujot, 2015). If Walmart plan of entering into the appl...

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