Principles of Marketing Name______________________
Chapter
Twelve, Assignment 12
Fall 2009 Due
Date __________________
CATEGORY AND BRAND MANAGEMENT, PRODUCT
IDENTIFICATION, AND NEW-PRODUCT DEVELOPMENT
LEARNING MODULES CHAPTER TWELVE
Brands play a huge role in our
lives. We try certain brands for
all kinds of reasons: on
recommendations from friends, because we want to associate ourselves with the
images possessed by certain brands, or because we remember colorful
advertisements. We develop loyalty
to certain brands and product lines for varying reasons as well—quality of a
product, price, and habit are a few examples.
This chapter examines the way companies
make decisions about developing and managing the products and product lines
that they hope will become consumer necessities. Developing and marketing a product and product line and building
a desired brand image are costly propositions.
This chapter focuses on two critical elements of product planning
and strategy. First, it looks at
how firms build and maintain identity and competitive advantage for their
products through branding. Second,
it focuses on the new-product planning and development process. That’s where we are headed, let’s get
started.
MANAGING BRANDS FOR COMPETITIVE
ADVANTAGE Module 12.1
Think of the last time you went
shopping for groceries. As you moved
through the store, chances are your recognition of various brand names
influenced many of your purchasing decisions.
Perhaps you chose Colgate toothpaste over other brands or loaded Heinz
ketchup into your cart instead of the store brand. Walking through the snack food aisle, you
might have reached for Orville Redenbacher's Gourmet Popping Corn or Lay’s potato chips without
much thought.
Products and product lines have a powerful influence on customer
behavior, and they work to create strong identities for their products
and protect them.
Branding— is
the entire process of creating that identity.
The entire process involves the creation of a unique name and image of a product in the
consumers’ mind, through an advertising campaign
with a consistent theme. Branding aims
to establish a significant and differentiated presence in the market that
attracts and retains loyal customers. Satisfied
buyers respond to branding by making repeat purchases of the same
product because they identify the item with the name of its producer. One buyer might derive satisfaction from an
ice cream bar with the brand name Dove; another might derive the same satisfaction from one with
the name Ben & Jerry’s.
Brand— is a name, term, sign, symbol, design, or
some combination that identifies the products of one firm while differentiating
these products from competitors’ offerings.
The designer Tommy
Hilfiger has built an instantly recognizable brand around his own
name.
Product
identification— branding
is an area of discussion that has a mighty list of related concepts, as you can
see below, using the word “brand” and related words. When we work our way through them, defining
and illustrating them, you will begin to understand the importance of branding.
Brand name: The part of a brand that can be spoken, including
words, letters, and numbers. A brand name distinguishes a firm’s
offerings from those of its competitors.
It is the name of a product (or could be service) of the trade named
company. In our example of KFC below, they have a food product called
"Popcorn Chicken"
this is a brand name. It's one of their brands. Also, McDonald’s “Big Mac” or the Burger King “Whopper”, or USC Stevens Institute for Innovation.
Brand
mark: Includes symbols, figures, or
a design is the part of the brand that can’t be spoken. For example, the Nike swish, McDonalds golden arches, and
Braums ice cream cone. Or, Saturn is the brand name, and the red and blue logo design
featured say on a Lands’ End gift tote bag is the brand mark.
The brand name and brand mark provide the product
identification and distinction.
Effective brand names— 1) are easy to pronounce, recognize, and remember. Short names, such as Nike, Ford, and
Bounty, meet these requirements.
2) should also give buyers the correct connotation of
the product’s image. The name Lunchables for Oscar
Mayer’s prepackaged lunches suggest a convenient meal that can be eaten
anywhere. Discover suggests a credit card that allows
treasure hunting. Chevy’s Trail Blazer
represents adventure and ruggedness.
3) must also qualify for legal protection. The Lanham Act
of 1946 states that registered trademarks must not contain words or
phrases in general use, such as automobile or suntan lotion. These generic words actually describe particular
types of products, and no company can claim exclusive rights to them.
TRADEMARKS Module 12.2
Businesses invest considerable
resources in developing and promoting brands and brand identities. The high value of brand equity encourages firms
to take steps in protecting the expenditures they invest in their
brands.
A trademark (or trade character) is a brand for which the owner
claims exclusive legal protection. A
trademark should not be confused with a trade name, which identifies a company.
Trade
name: is the name under which a
business operates. For
example Kentucky Fried Chicken is a trade name, but KFC is
owned by Pepsi (which is another trade name).
·
The Coca-Cola Company
is a trade name, but Coke is a trademark
(i.e., has exclusive legal protection) of the company’s product.
·
The Stride Rite Corporation is a trade
name, and Stride rite is the trademark
for the children’s shoe brand name.
·
Kelloggs is the trade name,
and Tony the Tiger is the trade mark
(or trade character) for its cereal.
·
The Pillsbury Company is the trade
name, Pillsbury is the trade mark
and Pillsbury Doughboy the trade
character for its cookie and biscuit products.
·
The Morton Salt Company is the trade
name, and
Morton Salt Girl (girl with umbrella) is
the trade mark with a trade character.
Trademark protection— confers the exclusive legal
right to use a brand name, brand mark, and any slogan or product name
abbreviation.
The character of Mr. Clean is a trademarked symbol or character. Frequently, trademark protection is applied
to words or phrases, such as Bud for Budweiser or the Met for the New York Metropolitan
Opera.
Firms can also receive trademark protection for packaging
elements and product features such as shape, design, and typeface. The Federal
Trademark Dilution Act of 1995 gives a trademark holder the right
to sue for trademark infringement even if other products using its brand
are not particularly similar or easily confused in the minds of consumers. The act also gives a trademark holder the right
to sue if another party imitates its trademark.
The Internet may be
the next battlefield for trademark infringement cases. Some companies are attempting to
protect their trademarks by filing infringement cases against companies
using similar Internet addresses.
Trade dress— consists of visual cues
used in branding to create an overall look. These visual components may be related to color selections,
sizes, package and label shapes, and similar factors. For example,
McDonald’s golden
arches, Merrill Lynch’s bull, and the yellow of Shell’s seashell are all part of these
products’ trade dress. Owens Corning
has registered the color
pink to distinguish its insulation from the competition. A combination of visual cues may also
constitute trade dress. Consider a Mexican
food product that uses the colors of the Mexican flag: green, white, and red.
Trade dress disputes have led to numerous courtroom
battles. In one widely publicized
case, Kendall-Jackson vineyards
and Winery sued Ernest & Julio Gallo Winery Inc., claiming that
the bottle design used for Gallo’s Turning Leaf Chardonnay was too
similar to its Kendall’s Vintner’s Reserve Chardonnay bottle. Kendall-Jackson lost in court, but this case
suggests the importance that firms assign to trade dress.
Brand
loyalty— Brands
achieve widely varying consumer familiarity and acceptance. A snowboarder might insist on a Burton snowboard, but the same consumer might show little loyalty to particular brands in
another product category such as tissue paper. Marketers measure brand loyalty
in three stages: brand
recognition, brand preference, and brand insistence.
1)
Brand recognition: is a company’s first objective for
newly introduced products. It is a
stage of brand acceptance at which the consumer is aware of the existence of a
brand, but does not prefer it to competing brands. Marketers begin the promotion of new items by trying to make
these items familiar to the public. Advertising offers one effective way to do this. Glad, for instance, is a familiar brand in U.S. kitchens, and
it drew on customers’ recognition of its popular sandwich bags and plastic
wraps when it recently introduced a new plastic food wrap that seals
around items with just the press of a finger.
Other tactics for creating brand recognition include
offering free samples or discount coupons for purchases. Once
consumers have used a product, seen it advertised, or noticed it in stores, it
moves from the unknown to the known category, which increases the probability
that some of those consumers will purchase it.
2)
Brand preference: is the second level of brand
loyalty, where buyers rely on previous experiences with the product when
choosing it over competitors’ products.
You may prefer Steve
Madden shoes or Sean
John clothes to other brands and buy their new lines as soon as they
are offered. If so, those products have
established brand preference—consumers choose them based on past
experiences.
3)
Brand insistence: is the ultimate stage of brand loyalty,
in which the consumer will accept no alternatives and will search
extensively for the desired merchandise.
Although many firms try to establish brand insistence with all
consumers, few achieve this ambitious goal.
Companies that offer specialty or luxury goods and services, such
as Tiffany diamonds, Rolex watches, Lexus automobiles, or LeBron James Ferrari F430 Spiderare (click
on the following link to view LeBron James Ferrari: http://sports.yahoo.com/nba/blog/ball_dont_lie/post/Admiring-LeBron-James-Ferrari-F430-Spider;_ylt=ApdR4b899Wwf4G9jXfJoHoO8vLYF?urn=nba,179513
) are more apt to achieve this status than those that offer mass marketed goods
and services, like Coca Cola, Sony HD televisions or Blue Bell ice cream. See the Continuum below for Brand
Familiarity.
One problem facing many brand names is the persistence of counterfeiting. This is especially true in foreign countries
like China. Companies invest a lot of
money in trying to prevent counterfeiting of their brands. Should companies continue to invest large
sums of money to fight counterfeiting?
It is a good question.
A Continuum of Brand Familiarity
Brand Brand Brand Brand Brand Brand
Nonrecognition
Recognition
Rejection Acceptance Preference Insistence
Consumer Reaction
“I’ve
never heard “I’ve heard
of “I wouldn’t “I’d buy “I’d like Brand A “I’d always buy
of Brand
A.” Brand A.” buy Brand A.” better than any Brand A.”
Brand A.” other brand.”
Types
of Brands— can be
classified in many ways: manufacturer’s or national, private, family, and
individual brands. In making branding decisions, firms weigh the benefits
and disadvantages of each type of brand.
1) Generic
products— are characterized by plain labels,
little or no advertising, and no brand names. Common categories of generic products include food and household
staples. These no-name products were
first sold in Europe at prices as much as 30 percent below those of branded
products. This product strategy was
introduced in the U.S. a quarter century ago.
The market shares for generic products increase during economic
downturns but subside when the economy improves. However, many consumers do request generic substitutions
for certain brand-name prescriptions at the pharmacy when they are available.
2)
Manufacturers’ brands (or national brands)— define the image that most people form
when they think of a brand. It refers
to a brand name owned by a manufacturer or other producer. For example,
well-known manufacturers’ brands include Hewlett-Packard, Kodak, Pepsi Cola,
Dell, and Heinz.
3)
Private brands (or private labels)— consist of brands offered by wholesalers and retailers. Many large wholesalers and retailers place
their own brands on the merchandise they market. Although some manufacturers refuse to produce private label
goods, most regard such production as a way to reach additional market
segments. Wal-Mart offers many
private label products at its stores, including its Sam’s Choice cola, Best
Value, and Old Roy dog food. Costco has its Kirtland Signature,and JC
Penney sells its own brand of jeans and sportswear under the Arizona brand name. Private labels, one source tells us, consist
of 25 percent of products sold in the U.S., as they expand the number of
alternatives available to consumers.
The growth of private brands has paralleled that of chain
stores in the U.S. Manufacturers not
only sell their will-known brands to stores but also put the store’s own label
on similar products.
One arena in which private label branding is gaining new
ground is personal computers. After watching
sales of big-name PCs stumble, retailers such as Best Buy and RadioShack have begun stocking their
shelves with their own private label computers. Best Buy started by selling a line of PCs designed for
teenagers who mostly play games. The
PCs come in fluorescent colors instead of black or silver, and kids are
attracted to them. In addition, Best Buy now sells hundreds of electronic products under an umbrella
of five house brands that includes Insignia and Dynex televisions,
Rocketfish video cables, Geek Squad flash drives and Init electronics cases and
accessories.
4)
Family brand: is a single brand name that
identifies several related products.
For example, KitchenAid
markets a complete line of appliances under the KitchenAid name, and Johnson & Johnson
offers a line of baby powder, lotions, plastic pants, and baby shampoo under
its name. All Pepperidge Farm products,
from bread to rolls to cookies, carry the Pepperidge Farm brand. These are examples of multi-product strategy.
A promotional outlay for a family brand can benefit all
items in the line. For example, products
like motorcycles, lawn mowers, snow blowers, and all-terrain vehicles gain
immediate recognition as part of the well-known Honda family brand. Family brands also help marketers introduce
new products to both customers and retailers.
Since supermarkets stock thousands of items, they hesitate to add
new products unless they are confident they will be in demand.
Family brands should identify products of similar quality,
or the firm risks harming its overall product image. If Rolls-Royce
marketers were to place the Rolls name on a low-end car or a line of discounted
clothing, they would severely tarnish the image of the luxury car line. Conversely, Lexus, Infiniti, and Mercedes-Benz
put their names on luxury sports-utility vehicles to capitalize on their
reputations and to enhance the acceptance of the new models in a competitive
market.
5)
Individual brand: is giving an item in a
product line its own brand name rather than identifying it by a family
brand name. Lever Brothers,
for example, markets Aim, Close-Up, and Pepsodent toothpastes; All and Wisk
laundry detergents; Imperial margarine; Caress, Dove, Lifebuoy, and Lux bath
soaps; and Shield and Lever 2000 deodorant soaps—individual brands belonging to
Lever Brothers. PepsiCo’s Quaker Oats
unit markets Aunt Jemima breakfast products, Gatorade beverages, and
Celeste Pizza. These are examples of multi-branding strategy.
Individual brands cost more than family brands to
market because the firm must develop a new promotional campaign to introduce
each new product to its target market. Distinctive brands are extremely
effective aids in implementing market segmentation strategies, however.
Individual brand names should distinguish dissimilar
products. Pepsico’s Quaker Oats division
markets dog food under the Ken-L Ration brand name but uses Puss ‘n Boots for
its cat food items. Kimberly-Clark markets
two different types of diapers under its Huggies and Pull-Ups names. Procter & Gamble offers fruit drinks under its
Sunny Delight name; laundry detergent under Cheer, Tide, and other
brands; and dishwasher detergent under Cascade.
These five types of brands, just discussed,
now become the marketers branding strategy. Since there are five types of brands, there
are five branding strategies. For a
review of these different types of brands and branding strategy,
click on the link: brandingstrategy.doc
Brand Equity— is the
added value that a respected, well-known brand name gives to a product in the
marketplace (to accounting students it is called good will). As individuals, we often like to say that
our strongest asset is our reputation.
The same is true of organizations.
A brand can go a long way toward making or breaking a company’s
reputation. A strong brand identity
backed by superior quality offers important strategic advantages for a
firm. First, it increases the likelihood that consumers will recognize the
firm’s product or product line when they make purchase decisions. Second, a
strong brand identity can contribute to buyers’ perceptions of product
quality. Finally, branding can also reinforce customer loyalty and repeat
purchases. A consumer who tries a brand
and likes it will probably look for that brand on future store visits. All of these benefits contribute to a
valuable form of competitive advantage called brand equity.
Brands
with high equity confer financial advantages
on a firm because they often command comparatively large market shares and
consumers may pay little attention to differences in prices. Studies have also linked brand equity
to high profits and stock returns.
Here is a ranking of the top 100 brands and their brand equity
values. Click
on the link below and see what the brand value is for your favorite
brand(s) and their rank. These
brand equity values may surprise you. Coca
Cola is number one with a brand value of
$67,000,000 (million)—the most valuable and most recognized brand
in the world. The majority of the
global brands in the top 100 are from what country? No surprise, right?
Top 100
Global Brands Scoreboard for 2007
http://bwnt.businessweek.com/interactive_reports/top_brands/
In global operations, high brand
equity often facilitates expansion into new markets. Similarly, Disney’s brand equity ($29,210,000,
rank 9) allows it to market its goods and services in Europe and Japan, and now
China. A global brand is generally
defined as one that sells at least 20 percent outside its home country,
as Coca Cola does (at 60 percent).
Building
brand equity— the
global advertising agency Young & Rubicam (Y&R) developed another brand
equity system called the Brand Asset Valuator. Y&R interviewed more than 90,000 consumers in 30 countries
and collected information on over 13,000 brands to help create this measurement
system. According to Y&R, a
firm builds brand equity sequentially on four dimensions of brand
personality. These four dimensions are differentiation, relevance, esteem, and knowledge:
1) Differentiation-- refers
to a brand’s ability to stand apart from competitors. Brands
like Porsche and Victoria’s Secret
stand out in consumers’ minds as symbols of unique product characteristics.
2) Relevance— refers
to the real and perceived appropriateness of the brand to a big consumer
segment. A large number of consumers
must feel a need for the benefits offered by the brand. Brands with high relevance include AT&T and Hallmark.
3) Esteem— is a combination of perceived quality and consumer perceptions
about the growing or declining popularity of a brand. A rise in perceived quality or in public opinion about a brand
enhances a brand’s esteem. But negative
impressions reduce esteem. Brands with
high esteem include Starbucks and Honda.
4) Knowledge— refers
to the extent of customers’ awareness of the brand and understanding
of what a good or service stands for.
Knowledge implies that customers feel an intimate relationship with a
brand. Examples include Jell-O and Band-Aid.
Brands with high
equity can lose their luster for a variety of reasons:
1) Due to perceived or real defects in a product that become
public knowledge, as in the case of the Bridgestone/Firestone tires installed on Ford’s Explorer SUVs.
2) Or it may be because a court battle, as in the case of Microsoft’s antitrust struggles or Marlboro’s legal
battles.
3) Starbuck’s, the
fastest growing brand on Business Week/Interbrand’s annual list of top
100 brands, has enjoyed double-digit growth in the U.S. but lags overseas,
where competition and start-up costs are high and where consumers are
less interested in the “Starbucks experience.”
Other
branding concepts—
Brand
Alliance: Alliances and
relationships with other firms represent a competitive advantage. Many of these relationships center around
branding strategies. For example, cobranding is
the use of two or more brands on one product.
Dell computers carry
three brands on the cover: Dell, Intel,
and Microsoft Windows. Cobranding is
common in processed foods and credit cards.
Betty Crocker chocolate
cake mixes use Hershey’s cocoa or chocolate syrup to distance the
product from competitors like Duncan Hines.
Credit card companies like Visa
and MasterCard offer cobranded versions of their cards emblazoned with the
logos of sports teams, universities, professions, or other firms like American
Airlines, AT&T, or Disney World. Or
Nextell and Sprint.
National brand: is a
brand that crosses borders nationally. For example, Frosted Flakes is not a local brand
only available in one particular geographic area, but is recognized and sold
nationally. McDonalds is an international brand. Johns Diner is a local brand
(only one restaurant in one city).
The
role of category and brand management— because of the tangible and
intangible value associated with strong brand equity, marketing organizations invest
considerable resources and effort in developing and maintaining these
dimensions of brand personality.
Traditionally, companies assigned the task of managing a brand’s
marketing strategies to a brand manager.
Recently, companies have been reevaluating
the effectiveness of brand management and changing the system in a variety
of ways. General Motors has decided to eliminate brand managers in favor of marketing director
positions, largely because of duplication.
Today, major consumer goods
companies have adopted a strategy called category management,
in which a category manager, with profit and loss responsibility—oversees an
entire product line. These managers are assisted by associates usually called “analysts.”
As a result, producers began to
focus their attention on in-store merchandising instead of mass-market
advertising. A few years ago, Kraft reorganized its sales force so that each representative was responsible for a retailer’s needs instead of pushing a single
brand. Kraft now has a “customer manager” for each major grocery chain in a city or region.
PACKAGING
Module 12.3
A firm’s
product strategy must also address questions about packaging. Like its brand name, a product’s package can
powerfully influence buyers’ purchase decisions.
Marketers are
increasingly involved with designers working on special computer graphics that
create three-dimensional images of packages in thousands of colors,
shapes and typefaces. Another
software program helps marketers design effective packaging by simulating
the displays shoppers see when they walk down supermarket aisles. Companies conduct marketing research
to evaluate current packages and to test alternative package designs. Kellogg, for example, tested its Nutri-Grain
cereal package—as well as the product itself—before launching the product
into the market.
A package
serves three major objectives: 1) protection against damage, spoilage, and
pilferage;
2) assistance in
marketing the product; and 3) cost effectiveness.
1) Protection
against damage, spoilage, and pilferage— Products typically pass
through several stages of handling between manufacturing and customer
purchases, and a package must protect its contents from damage, for
instance, egg cartons. Also, packages of perishable products must protect the
contents against spoilage in transit and in storage until purchase by the
consumer. The American Plastics Council,
for example, developed in advertising campaign to promote the benefits
of using plastics in food packaging, asserting that plastic bottles, wraps, and
containers reduce the chance of good contamination and that tamper-resistant
plastic seals provide product safety assurance.
Fears of product
tampering have forced many firms to improve package designs. Over-the-counter medicines are
sold in tamper-resistant packages covered with warning s informing consumers
not to purchase merchandise without protective seals intact. Many grocery items and light-sensitive
products are packaged in tamper-resistant containers as well. Products in glass jars, like
spaghetti sauce and jams, often come with vacuum-depressed buttons in the lids
that pop up the first time the lids are opened.
Likewise, many packages offer important safeguards for retailers against
pilferage. Shoplifting and employee
theft cost retailers several billion dollars each year. To limit this activity, many packages
feature oversized cardboard backings too large to fit into a shoplifter’s
pocket or purse.
2)
Assistance in marketing the product— the proliferation of new products,
changes in consumer lifestyles and buying habits, and marketers’ emphasis on
targeting smaller market segments have increased the importance of packaging
as a promotional tool.
For example, companies
are addressing consumer concerns about protecting the environment by designing
packages made of biodegradable and recyclable materials. P&G, Coors, McDonald’s BP Chemical,
and other firms have created ads that describe their efforts in developing
environmentally sound packaging.
In the grocery store where
thousands of different items compete for notice, a product must capture the
shopper’s attention. Marketers combine
colors, sizes, shapes, graphics, and typefaces to establish distinctive trade dress that sets
their products apart from the products of competitors. Like the brand name, a package should evoke
the product’s image and communicate its value.
Packages can also enhance
convenience for the buyers. Pump dispensers, for example, facilitate the use of products
ranging from mustard to insect repellent. Squeezable
bottles of honey and ketchup make the products easier to use and
store. Packaging provides key benefits for convenience foods such as
meals and snacks packaged in microwavable containers, juice drinks in aseptic
packages, and frozen entrees and vegetables packaged in single-serving
portions.
Some firms increase consumer utility with packages designed for reuse. Empty peanut butter jars and jelly jars have long doubled as drinking
glasses. Parents can buy bubble
bath in animal-shaped plastic bottles suitable for bathtub play. Packaging is a major component in Avon’s
overall marketing strategy. The firm’s
decorative, reusable bottles have even become collectibles.
3)
Cost-effective packaging— although packaging must perform
a number of functions for the producer, marketers, and consumers, it
must do so at a reasonable cost.
Sometimes changes in the packaging can make packages both cheaper and
better for the environment. Compact
disc manufacturers, for instance, once packaged music CDs in two containers,
a disc-sized plastic box inside a long,
cardboard box that fit into the record bins in stores. Consumers protested against the waste of the
long boxes, and the recording industry finally agreed to eliminate the
cardboard outer packaging altogether.
Now CDs come in just the plastic cases,
and stores display them in reusable plastic holders to discourage theft.
Labeling—
Labels were once a separate element that was applied to a
package; today, they are an integral part of a typical package. Labels perform both promotional and informational
functions. A product
label carries an item’s brand name or symbol, the name and
address of the manufacturer or distributor, information about the product’s
composition and size, and recommended uses.
The right label can play an important role in attracting consumer attention
and encouraging purchases.
Consumer confusion and dissatisfaction over such
descriptions as giant economy size, king size, and family size led to the
passage of the Fair Packaging and
Labeling Act in 1966. The act
requires that a label offer adequate information concerning the package
contents, and that a package design facilitate value comparisons among
competing products.
The Nutrition Labeling
and Education Act of 1990 imposes a uniform format in which food
manufacturers must disclose nutritional information about their products. In addition, the Food and Drug
Administration (FDA) has mandated design standards for nutritional
labels that provide the guidelines to consumers about food products. The FDA has also tightened definitions
for lossely used terms like light, fat free, lean, and extra lean, and it mandates
that labels list the amounts of fat, sodium, dietary fiber, calcium,
vitamins, and other components in typical servings. The latest ruling requires food manufacturers to include
on nutritional labels the total amount of trans
fats—hydrogenated oils that improve texture and freshness but contribute to
high levels of cholesterol—in each product.
The Universal Product
Code (UPC) designation is another important aspect of a label or
package. Introduced in 1974, as a
method for cutting expenses in the supermarket industry, UPCs are numerical bar
codes printed on packages. Optical
scanner systems read these codes, and computer systems recognize
items and print their prices on cash register receipts. The UPC is also a major asset for marketing research. However, many consumers feel frustrated
when only a UPC is placed on a package without an additional price tag because
they want to know what the cost of the good is. As a final note, UPC bar codes will probably go the way of the dinosaur
with advancing new technology such as radio frequency ID tags—electronic chips
which carry encoded product identification.
BRAND EXTENSIONS Module 12.4
Some brands
become so popular that marketers may decide to use them on unrelated products
in pursuit of instant recognition for the new offerings. A brand extension is the strategy of attaching a popular
brand name to a new product in an unrelated product category. The practice should not be confused with line
extensions, which refers to new
sizes, styles, or related products. A brand
extension, in contrast,
carries over from on product nothing but the brand name. Brand extensions allow marketers to gain
access to new customers and markets by building on the equity already
established in their existing brands.
For
example, fashion designer Giorgio Armani has branched out from his original line of designer clothing into
Armani perfumers, cosmetics, eyewear, watches, accessories, chocolates,
flowers, and even furniture. He also
recently extended the Armani brand to include restaurants and cafés in Paris,
London, Milan, and New York; and even luxury hotels and resorts to be built
over the next several years. There is
even an Armani nightclub. For example, Diet Coke, Coke Zero, Cherry Coke, etc. are brand extensions. Fanta, on the other hand, is a Coke brand
but it is not an extension in that it's its own separate brand. Basically, the
brand extension is literally an extension of an existing brand.
BRAND LICENSING Module 12.5
A growing number of firms have authorized other companies to use their brand names; even colleges have licensed their logos and trademarks. Brand licensing allows another firm to use a brand name for a fee. It expands a firm’s exposure in the marketplace, much as a brand extension does. The brand owner receives an extra source of income in the form of royalties from licensees, typically 4 to 8 percent of wholesale revenues.
For example, the Pittsburgh Steelers is a branded football team. If you
want to design and sell T-shirts or caps with their name, you will have to acquire
a brand license from the owners and the NFL to do so. It's why you will see
tags on sport clothing stating "licensed by the NFL", etc.
Brand experts note several potential
problems with licensing, however. Brand names do
not transfer well to all products.
In addition, if a licensee produces a poor-quality product or an item
ethically incompatible with the original brand, the arrangement could damage
the reputation of the brand.
Even highly successful brands can run into
licensing problems.
A 13-year-old licensing lawsuit that could have cost Walt Disney Co. as
much as $1 billion was recently thrown out of court. The suit was brought by Stephen Slesinger Inc., a
family-owned company that controls some Winnie the Pooh merchandising rights
it licenses to the entertainment giant.
Slesinger has received more than $80 million from the license with
Disney in the last 20 years—Winnie the Pooh merchandise outsells Mickey
Mouse items, generating billions for Disney—but the company claimed that
Disney had underpaid royalties during that period.
NEW PRODUCT PLANNING Module 12.6
As its offerings enter the maturity and decline stages of the product
life cycle, a firm must add new items to continue to prosper. Regular additions of new products to the
firm’s line help to protect it from product obsolescence.
New products are the lifeblood of any business, and survival depends on a
steady flow of new entries. Some new product
may implement major technological breakthroughs. Other new products simply extend existing product lines. In this module, we identify four alternative
development strategies as shown in Figure
12.7.
Figure 12.7 Alternative
Product Development Strategies
Old Product New Product
Old Market Market Product
Penetration Development
New Market Market Product
Development Diversification
Market
Penetration
·
Old product and Old market
·
Try to increase sales of a firm’s
present products in its present markets
·
Use a more aggressive marketing
mix
·
Strengthen its relationship with
customers to increase their rate of use or repeat purchases, or try to attract
competitors’ customers or current nonusers
·
For example, Visa
increased its advertising to encourage customers to use its care when they
travel—and to switch from using American Express
·
New promotion appeals alone may
not be effective. A firm may need to
add more stores in present areas for greater convenience.
·
Short-term price cuts or coupon
offers may help. Example, MCI increased advertising and offered special discounts to encourage
consumers to choose MCI over AT&T—and to urge the “friends and family” that
they call to do the same.
·
Markets need to know the buying
habits and motivations of their customers—to buy more or change brands.
Market
Development
·
Old
products in New markets—trying to increase sales by selling old products in
new markets
·
Advertising in different media to reach new target
customers.
·
Or they may add channels of distribution or new stores in
new areas, including overseas.
·
For Example, McDonald’s opens outlets in airports, office buildings, zoos,
casinos, hospitals, military bases, shopping malls, and super stores
·
Rapidly expanding into international
markets with outlets in places like Russia, Brazil, Hong Kong, Mexico, and
Australia.
·
Market development may also involve searching for new
uses for a product, as when Lipton
provides recipes showing how to use its dry soup mixes for chip dip—what’s the
new market?
Product
Development
·
New
products in Old markets—offering new or improved products for old markets
·
Marketers may see ways to add or modify product features,
create several quality levels, or add more types or sizes to better satisfy
customers.
·
Computer
software firms (Microsoft) boost sales by introducing new versions of
popular programs. It now sells computer
books (some in the new CD-ROM format) and even computer hardware.
·
Many ski resorts
have developed trails for hiking and mountain bikes, to bring in their ski
customers back in the summer when the snow is gone and the lodge would be
otherwise empty.
· Blockbuster is expanding the ways that it can appeal to its home entertainment customers by selling audio CDs and cassettes in addition to renting videotapes and laserdiscs.
Diversification
·
New
products and New Markets—moving into totally different lines of
business—perhaps entirely unfamiliar products, markets or even levels in the
production-marketing system.
·
The Coleman name
has been synonymous with lanterns and other camping gear. Coleman has added a line of air compressors
that are used to drive power tools ranging from paint sprayers
to nail drivers—for building contractors and trades-people rather than the
outdoor enthusiasts market—new product and new market.
·
Diversification presents the most challenging
opportunities—new products and markets.
·
Opportunities very different from a firm’s current
experiences involve higher risks.
Example, Holiday Corporation
learned fast that making mattresses (like the ones used in it s Holiday Inn
motels) was not one of its strengths.
· Usually firms find attractive opportunities fairly close to markets they already know.
Cannibalization— when a product takes sales from
another offering in the same product line it is said to cannibalize that line. Marketers
should keep in mind this potential problem in selecting a new-product strategy.
A company can accept some loss of sales from existing products if the new
offering will generate sufficient additional sales to warrant its investment in
its development and market introduction.
In
sum,
·
Many firms are finding that the
easiest way to increase profits is to do a better job of hanging onto the
customers that they’ve already won—relationship marketing, one-to-one
marketing—meeting their needs so well that they won’t switch.
·
Most firms think firms of greater market penetration increase profits where they already have experience and strengths.
·
Marketers who understand their present markets well may also see
opportunities in product
development—especially if they already have a
relationship with their present customers, and a way to reach them.
· But a firm that already has as big a share as it can get in its present markets should consider market development—finding new markets for its present products—including expanding regionally, nationally, or internationally.
Exercise: Can you match the
following examples with the appropriate opportunity strategy from Figure 12.7?
__________________ Campbell Soup adds low-sodium soups, microwavable soups, and children’s soups.
__________________ finding new uses for existing or slightly modified products. Campbell “cooking soups,”cream of broccoli and mushroom.
__________________ expansion into other countries or geographical expansion.
__________________ Campbell increases its advertising budget for its chicken noodle and tomato soup.
___________________ a glass manufacturer in pursuit of growth might emphasize an array of glass products to serve different users in a single basic market.
_________________ Campbell’s Soup goes into frozen dinners (LeMenu and Swanson brand), cookies (Pepperridge Farm), pickles (Vlasic label). Diversifying into a variety of markets.
THE CONSUMER ADOPTION PROCESS Module
12.7
In the adoption process, consumers go through a series of
stages from first learning about the new product to trying it and deciding whether
to purchase it regularly or to reject it.
These stages in the consumer adoption process can be classified as
follows:
1.
Awareness. Individuals
first learn of the new product, but they lack full information about it.
2.
Interest. Potential buyers
begin to seek information about it.
3.
Evaluation. They
consider the likely benefits of the product.
4. Trial. They make trial purchases to determine its
usefulness.
5. Adoption/Rejection. If the trial purchase produces satisfactory results, they decide to use the product regularly.
Marketers must understand the adoption process to move
potential consumers to the adoption stage.
Once marketers recognize a large number of consumers at the interest
state, they can take steps to stimulate sales by moving these buyers through
the evaluation and trial stages. Johnson & Johnson
enhanced the evaluation and trial of its disposable contact lenses by offering
free trial pairs to consumers. Time Warner’s America Online
mails its Internet-access software and offers a free one-month membership to
computer owners who are not AOL members.
From time to time, you may receive free samples of breakfast cereals, snack foods,
cosmetics, or shampoos in the mail.
These companies are encouraging you to try their products in the hope
that you will eventually adopt them.
The free samples can take consumers through all five stages.
The Adopter Categories— is an
extension of the adoption process. The adopter categories
(also known as the Diffusion of Innovation)
is more than forty years old. It was first described by Bourne (1959), so it
has stood the test of time and remained an important marketing tool ever since.
It describes the behavior of consumers as
they purchase new products and services. The individual
adopter categories of innovator, early
adoptor, early majority, late
majority and laggards are described below in Figure 12.8.
While the adoption process focuses on individuals and the steps
they go through in making the ultimate decision of whether to become repeat
purchasers of the new product or to reject it as a failure to satisfy their
needs, the diffusion process focuses on
all members of a community or social system.
The focus here is on the speed at which an innovatiive product is
accepted or rejected by all members of the community, and on the number of
people in each group and their influence on others.
Figure
12.8
Innovators— are the first to adopt and display behavior that demonstrates that they will likely want to be ahead, and to be the first to own new products, well before the average consumer. They are often not taken seriously by their peers. They often buy products that do not make it through the early stages of the Product Life Cycle (PLC).
Early adoptors— are also quick to buy new products and services, and so are key opinion leaders with their neighbours and friends as they tend to be amongst the first to get hold of items or services.
Early majority— look to the innovators and early majority to see if a new product or idea works and begins to stand the test of time. They stand back and watch the experiences of others. Then there is a surge of mass purchases.
Late majority— tends to purchase the product later than the average person. They are slower to catch on to the popularity of new products, services, ideas, or solutions. There is still mass consumption, but it begins to end.
Laggards— tend to be very late to purchase new products and include those that never actually adopt at all. Here there is little to be made from these consumers.
There are a number of examples of products that have gone through the adoption process. They include Ipods or DVD players or even video players and digital watches. Initially, only a small group of younger or informed, well-off people bought into these products. Opinion leaders, or the early adoptors then buy the product and tend to be a target for marketing companies wishing to gain an early foot hold. The early majority are slightly ahead of the average, and follow. Then the late majority buy into the product, followed by any laggards. New adoption process or curves begin all the time. Who knows what will happen with solid-state technology or Internet purchases of media?
Identifying early adopters— It’s no surprise that identifying
consumers or organizations that are most likely to try a new product can be
vital to a product’s success. By
reaching these buyers early in the product’s development or introduction,
marketers can treat these adopters as a test market, evaluating the
product and discovering suggestions for modifications. Since early
purchasers often act as opinion
leaders from whom others seek advice, their attitudes toward new
products quickly spread to others.
Acceptance or rejection of the innovation by these purchasers can help
forecast its expected success.
Several auto companies, including Honda and Ford, have developed
gasoline-electric vehicles for the consumer market. These hybrid vehicles use a combination of gasoline and electric
batteries to get superior gas mileage and send fewer exhaust emissions into the
air. But although Honda and Ford got
their vehicles to market first, Toyota tried an entirely different marketing
approach in attempting to gain a competitive edge. While Honda and Ford targeted environmentalists and consumers who
are concerned about clean air, Toyota aimed its first promotional efforts at consumer
innovators and early adopters. The ads
for its new Prius mentioned
its environmentally friendly features, but they focused on consumers who
wanted to be the first on their block to have on e of these unique cars.
A large number of studies have established the general characteristics of first adopters. These pioneers tend to be younger,
have higher social status, are better educated, and enjoy higher
incomes than other consumers. They
are more mobile than later adopters and change both their jobs and
addresses more often. They also
rely more heavily than later adopters on impersonal information sources;
more hesitant buyers depend primarily on company-generated promotional
information and word-of-mouth communications.
Rate of adoption determinants— Five characteristics of a product
innovation influence its adoption rate:
1.
Relative advantage. An innovation that appears far superior to
previous ideas offers a greater relative advantage—reflected in terms of lower
price, physical improvements, or ease of use—and increases the product’s
adoption rate.
2.
Compatibility. An innovation consistent with the values
and experiences of potential adopters attracts new buyers at a relatively
rapid rate. Investors who are already comfortable with making transactions
online would probably be attracted to Lycos’s LiveCharts, which offers live, real-time
streaming charts showing the activity of stocks.
3.
Complexity. The relative difficulty of understanding the
innovation influences the speed of acceptance.
The U.S. Department of Agriculture tried for 13 years to convince corn
farmers to use hybrid seed
corn—an innovation capable of doubling crop yields—but farmers’ were
cautious to accept hybrid seed corn. Frisbees, on the other
hand, progressed from the product introduction stage to the market maturity
stage in a period of six months.
4.
Possibility of trial use. An initial free or discounted trial
of a good or service means that adopters can reduce their risk of financial or
social loss when they try the product.
A coupon for a free item or a free night’s stay at a hotel can
accelerate the rate of adoption.
5.
Observability. If potential buyers can observe an
innovation’s superiority in a tangible form, the adoption rate increase. In-store demonstrations or even
advertisements that focus on the superiority of a product can encourage
buyers to adopt a product. The
demonstration of a superior kitchen knife at Sam’s Warehouse that can
actually cut through metal without losing its ability to cut meat, fruits and
vegetables will increase the adoption rate.
Organizing for new-product development— a firm needs to be organized in such a way that its
personnel can stimulate and coordinate new-product development. Many companies assign product-innovation
functions to one or more of the following entities, which you should at least
be familiar with.
1. New-Product Committees— is the most common organizational
arrangement for this purpose. This
group typically brings together experts in such areas as marketing, finance,
manufacturing, engineering, research, and accounting. They are primarily interested in reviewing and approving
new-product plans that arise elsewhere in the organization.
2. New-Product Departments— Many companies establish separate,
formally organized departments to generate and refine new-product ideas. The new-product department is responsible
for all phases of a development project within the firm.
3. Product Managers— is another term for a brand
manager, a function mentioned earlier in the chapter. This marketer supports the marketing
strategies of an individual product or product line. Procter &
Gamble, for instance, assigned its first product manager in 1927,
when it made one person responsible for Camay soap. Product managers set prices, develop advertising and sales
promotion programs, and work with sales representatives in the field. However, as mentioned earlier in the
chapter, the product manager structure is being modified or done away with
altogether in favor of a category
management structure—profit and loss responsibility.
4. Venture Teams— gathers a group of specialists from
different areas of an organization to work together in developing new
products. The venture team must meet
criteria for return on investment, uniqueness of product, serving a
well-defined need, compatibility of the product with existing technology, and
strength of patent protection. Its flexible
life span may extend over a number of years. To stimulate product innovation, the venture team typically
communicates directly with top management, but it functions as an entity
separate from the basic organization.
The New-Product
Development Process— Once a firm is organized for new-product
development, it can establish procedures for moving new-product ideas to the
marketplace. Developing a new product
is often time-consuming, risky, and expensive.
Usually, firms must generate dozens of new-product ideas to produce even
one successful product. In fact, the
failure rate of new products averages 80 percent. Products fail for a
number of reasons, including inadequate market assessments, lack of market
orientation, poor screening and project evaluation, product defects, and
inadequate launch efforts.
A new product is more likely to
become successful if the firm follows a six-step development process
shown in Figure 12.9. (Note:
see pages 401-403 of your textbook for more discussion of this process.)
Figure 12.9 Steps
in the New-Product Development Process
Idea Screening Business Development Test
Commercialization
Generation
Analysis Marketing
We conclude Chapter
12 with a list of advantages of branding. Several levels of advantages are given depending on the nature of
the brand you sell (name brand or store brand). Become familiar with this Exhibit.
EXHIBIT 12.4
Advantages of Branding
Overall
Advantages of Branding
|
|
|
Product identification Comparison Shopping Shopping Efficiency Risk Reduction Product Acceptance Enhanced Self-Image Enhanced Product Loyalty |
·
Customers can easily identify the brands they like. ·
Assists customers in comparing and evaluating
competing products. ·
Speeds up the buying process and makes repeat
purchases easier by
reducing search time and effort. ·
Allows customers to buy a known quantity, thereby
reducing the risk of purchase. ·
New products under a known brand name are accepted
and adopted more easily. ·
Brands convey status, image, or prestige. ·
Branding increases psychosocial identification with
the product. |
Unique
Advantages of Selling Manufacturer (Name) Brands
|
|
|
Reduced costs Built-In-Loyalty Enhanced Image Lower Inventory Less Risk |
·
Heavy promotion by the manufacturer reduces the marketing
costs of the merchant who carries the brand. ·
Manufacturer brands come with their own cadre of
loyal customers. ·
The image and prestige of the merchant is enhanced. ·
Manufacturers are capable of time-certain delivery
which allows the merchant to carry less inventory and reduce inventory costs. ·
Poor quality or product failures become attributed
to the manufacturer rather than the merchant. |
Unique
Advantages of Selling Private-Label (Store) Brands
|
|
|
Increased Profit Less Competition Total Control Merchant Loyalty |
·
The merchant maintains a higher margin on its own
brands and faces less pressure to cut prices to match the competition. ·
Where manufacturer brands are carried by many
different merchants, private
label brands are exclusive to the merchant that sells them. ·
The merchant has total control over the
development, pricing, distribution, and promotion of the brand. ·
Customers who are loyal to a private-label brand
are automatically loyal to the merchant. |
THE END