MKT 450 Final

What Is a Brand?

\
a portfolio of qualities associated with a name

immediately invoke certain images

have value beyond the benefits of the product

Marketers control some brand associations like:

Product shape & packaging \n Logos, symbols & colors \n Jingles & slogans \n Spokespeople, etc.

Marketers do not control all associations:

Personal memories about brands, etc.

A brand starts with a name

Some names immediately convey information (Geek Squad)

Some names suggest their benefits (Optical4less)

Some names are those of their founder (Trump)

Marketers should choose brand names \n that

convey brand information

Brand name meaning is

built over time through communications with customers

Brand names and logos are

a shorthand way to communicate with customers

Brand colors and fonts:

visually engage customers

Customer Benefits of Branding

Brands identify company ownership

Brands allow for predictable quality; thus, decreasing risk

Brands make customer decision making easier

Brands serve as status symbols

Company Benefits of Branding

Brands induce loyalty - increasing repeat purchasing

Brands allow for premium prices

Brands allow a single firm to pursue multiple targets

Hierarchy of Brand Associations

1\. Concrete product attributes: 40 mpg \n 2. Abstract product benefits: Save money \n 3. Abstract emotional benefits: Feel good

Attributes are

easy to communicate and easy for competitors to copy

Benefits are

abstract; harder to create and communicate, but more meaningful

Brands Serve Social Functions

Brands helps customers achieve their ideal self

Brands become the focal point of bonding through brand communities

Brand Association Network

Depiction of brand association connections

When brand name is activated, associations are triggered

Unlinked nodes have no or weak connection; strong links are bold

Nodes closest to the brand are retrieved first

Networks may be simple or complex

Brand Personalities capture:

1\. Specific information about the brand \n 2. Holistic perceptions about the brand

Consumers experience brands

Affectively, intellectually and behaviorally

Brand communities

Customers who connect with like-minded customers

They have extreme attachments to brand

Marketers should try to build & capitalize on these communities

Umbrella approach

Attaching the same brand name to products \n • Subsequent product introductions are easier for the customer to understand and accept \n • Higher initial awareness levels \n • Builds stronger brand associations \n • Stronger financial outcomes \n Ex: Disney movies, parks, clothing, etc.

House of brands approach

Introducing a new brand name for every product line \n • Any problems with one brand should not influence the other brands \n • Brand images do not need to be consistent which allows for targeting multiple segments \n • Requires more advertising expense \n Ex: Procter & Gamble had 80 major brands

Brand extensions

Leverages the brand’s good name to get customers to buy something new \n • Line extensions \n • Increase depth - new product within a line \n Ex: Dannon regular, low cal, vanilla, etc. \n • Product category extensions \n • Increase breadth - new product line \n Ex: Arm & Hammer toothpaste, deodorant, kitty litter, etc.

Co-branding

Two companies form a joint venture to create a product from both companies

Ingredient branding

Form of co-branding in which one company adds value to a host product \n • One company dominates over the other \n Ex: Brembo brakes are in Aston Martins

Co-branding works well when

a company is introducing a new product attribute \n Ex: Adding cough medicine to candy

Self-branding

Branding own ingredient to differentiate its quality from competitors \n • Works better when tweaking a minor attribute \n Ex: Tide’s “EverFresh” scent

Global brand has

30% of the revenues from other countries

Glocalization

Different names in different countries

“Manufacturer globally, brand locally”

Private label brands

Good for price sensitive markets \n • Can be more of a “me-too” product offering \n • Or can be premium private label \n Ex: Costco’s “Kirkland Signature” \n • Retailer can offer decent quality for lower prices due to reduced advertising costs \n • Manufacturers are launching 2nd labels to compete with store brands

Brand Equity =

the worth of a brand

Measurement approaches

Determining the price premium of brand \n • “How much are you willing to pay for gas at Shell?” vs. \n • “How much are you willing to pay at a local station?”

Comparing branded and unbranded \n • “How much do you like this $799 Sony flat screen with screen-within-a-screen?” vs. \n • “How much do you like this $799 unknown brand flat screen sharing the same features?”

Interbrand: assess the value of a firm, subtract its physical and financial assets \n • Brand contribution index varies by product category: high for cologne, lower for retailers

Brands can command higher prices because

they offset risk

Top Down (inside-out) Approach to Developing New Products

1\. Idea generation \n 2. Design and development \n 3. Commercialization \n • Customer feedback is sought later in the process; marketing supports product launch \n • Works well in industries where internal R&D teams have expertise end-customers lack

Bottom Up (outside-in or co-creation) Approach to Developing New Products

Customer & company co-create products

The NPD process is not entirely linear

It is important to continually revisit prior decisions and change when necessary \n • A “good” decision in stage 2 may not be a “good” decision in later stages

Idea generation

“No idea’s a bad idea; let’s get everything up on the white board”

Firms may allocate time for employees to work on pet projects

In-house winnowing & refinement

Screen ideas for plausibility using \n • Internal experts’ knowledge \n • Marketers’ target knowledge \n • Management’s firm knowledge

Feasibility assessments & business analyses are somewhat fuzzy at this stage

Consider the following: \n • Who is the target segment & what is size? \n • Who are competitors? \n • Which of our products might we cannibalize? \n • Do we have channels already in place? \n • Does the product fit the firm?

Obtain feedback on plausible ideas

Use marketing research to \n • Save a company from a bad idea \n • Yield information to tweak idea \n • Encourage pursuit of good idea \n • Research may include focus groups, online surveys, etc. \n • Conjoint analysis may also be used to determine trade-offs

Focus groups

2-3 groups (per segment) of 8-10 customers

Usually last 1.5 - 2 hours

Participants give feedback on product concepts (verbal descriptions & visual cues)

Conjoint procedure

Different combinations of attributes are put together and compared

Customer says which is best, next best, etc.

Use in focus groups, online studies, etc.

Allows marketers to see what attributes are most attractive

The results of the research is utilized to develop a prototype

Usually only one prototype is developed at a time-not multiple

If the prototype is not successful, another prototype is developed

A beta version

Made available for trial

Ideal to simulate a real-world purchase

Used to help forecast sales

Customer reactions are also examined \n Ex: Ad copy, price points, distribution, etc.

Clarifies image of product to customer

Allows firm to get feedback

Try product in market on

a small scale before an expensive full-scale roll-out

Area test markets:

Product is made available and ads are run in a few randomly selected metropolitan areas \n • Sales are observed and compared to sales in control markets

Electronic test markets are

more valid than area test markets

• Households within a sample of metropolitan areas are selected: some are designated “test” and some are “control” \n • Electronic (cable) transmissions are sent to test households not in control \n • Differences between purchasing are evaluated

Simulated test markets

• Customers are recruited and given play money to shop in a simulated environment \n • They have an opportunity to buy the new product and competitors’ products \n • Advertising materials are available with competitors’ advertising \n • Marketers record “purchases” \n • Customers complete a survey \n • Data is used as input to forecast sales

Forecasts are important to

Accounting and finance for budgeting

Sales for setting sales goals

Product and logistics for planning equipment, storage, transportation, etc.

Forecasting goals:

1\. Determine market potential (MP)

2\. Estimate the purchase intention (PI)

3\. Determine the price (Pr)

Determine market potential (MP)

How many units might be sold \n – Start with secondary data \n Ex: census, sales for similar products, etc.

Estimate the purchase intention (PI)

Likelihood target will buy the product \n • Use recent marketing research \n Ex: Assume research suggests PI = 0.7 \n • Note: Customers usually overstate PI; estimate ¾ downward P = ¾ (.7)= .525

Determine the price (Pr)

Remember economics; PI may increase as Pr decreases

Forecasting equation (Maximum Sales =)

$SP = MP x PI x Pr

Launch Timing

Process of developing new products can be relatively quick or slow \n Ex: New pharmaceuticals take years \n Causes of delay \n • Internal \n • External \n Ex: Patents, copyrights, regulatory approvals, etc.

Product Lifecycle - Market introduction

Heavy promotional spending on awareness \n Pricing strategies \n – Penetration: low price; discourages future \n competition \n – Skimming: high price; encourages future \n competition; recoup R&D costs \n Limited distribution

Product Lifecycle - Market growth

Sales & profits increase and competitors enter and kill each other off or specialize \n • Product needs competitive advantage \n • Promotion focuses on product’s superiority \n • Distribution coverage is greater \n • Price may be increased

Product Lifecycle - Market maturity

Industry sales are strong but begin to level off; competition is fierce with weaker firms leaving; profits decline \n • Promotion focuses on product’s superiority and as a reminder to buy \n • Product line may be extended and new benefits may be added \n • Price usually falls due to competition

Product Lifecycle - Market decline

Sales and profit decline; new products replace older generations \n • Product may be \n – Divested: sell - do early to get best price \n – Harvested: reduce support \n – Rejuvenate: refurbish with new benefits

Diffusion of Innovation

A normal curve is utilized to partition customers into groups to show how new products spread through the marketplace

Diffusion of Innovation - Innovators

first 3-5%; Like to try new products; willing to take risks

Diffusion of Innovation - Early adopters

next 10-15% after innovators; Even more influential as opinion leaders; Not considered zealots

Diffusion of Innovation - Early majority

next 34% after early adopters; More risk averse; Waiting to hear about favorable experiences

Diffusion of Innovation - Late majority

next 34% after early majority; Even more cautious; Often older and more conservative; Rely on consistent messages received via word of mouth

Diffusion of Innovation - Laggards or non-adopters

next 5-15% after late majority; Most risk averse; Skeptical of new products; Stereotypically lower in income

Cumulative Diffusion

Diffusion curve is recast to show cumulative sales \n • Tipping point: point at which sales rate increases rapidly

Mathematical Model of Diffusion

Used to forecast sales by:

1\. Observing current sales data, fitting the model, and predicting future sales \n 2. Plugging in past results on similar products and predicting future sales

Model of Diffusion

Marketers are interested in coefficient of \n • Innovation (P) & Imitation (Q)

Innovation (P)

Likelihood of adoption due to promotion \n Increase P by decreasing price earlier

Imitation (Q)

Likelihood of adoption due to word-of-mouth \n – Q is usually bigger than P (10:1) \n Increase Q by decreasing price later and having opinion leaders activate networks

Acceptance of new products tends to be \n higher when:

• New product’s relative advantage is clear \n • New product is compatible with customers’ lifestyles \n • New product is not overly complex \n • New product is easily tried or sampled

Market penetration

Sell same products to current markets \n New ways to use, better pricing, etc. \n Ex: Convince your salad dressing users to start putting salad dressing on sandwiches

Market development

• Sell existing products to new markets \n • Move global, pursue older segment, etc. \n • May need to change image, channels, etc.

Product development

• Sell new products to current markets \n • Introduce extensions or new variation

Diversification

• Pursue new markets with new products \n • More difficult to pursue due to lack of experience in product and market

Pricing…

• Is influenced by company cost, competitive pricing and customers’ willingness to pay \n • Usually can be easily tweaked \n • May vary across segments & lifecycle \n • Sends signals to the market \n • Influences your profitability

Demand tends to decrease as

price increases

Profit (π)

= (price x demand) – (fixed costs) – (variable costs x demand)

= \[(price – variable costs)\] x demand – (fixed costs)

Profit increases as

price increases

Elasticity

How much does demand (units sold) increase (or decrease) with a price change?

The proportion change in quantity compared \n to the proportion change in price

Inelastic: demand barely changes

Elastic: demand changes

Demand increases if

• Customer’s desire for the brand increases \n • Perceptions of product’s benefits and brand images increase \n • Competitive products are poor or priced higher \n • There are few good substitutes

Price-sensitivity is greater when

Customers \n – Don’t care much about the purchase \n – Don’t have strong preferences \n – Don’t have strong brand loyalty \n – Have limited income \n The item is a luxury rather than a necessity \n There are many substitutes \n The purchase is large relative to income \n It is easy to compare prices

Cost-plus pricing

(unit cost) / (1-X%)

X% is the intended return

If fixed costs are high relative to variable:

maximize volume

If variable costs are high relative to variable:

maximize per unit margins

Breakeven

Number of units to sell to cover costs

(fixed costs) / \[(price – variable costs)\]

Scanner data methods

1\. Run experiments by manipulating prices in randomly selected stores and comparing sales to control groups

2\. Use regression analysis on previous sales

Conduct a survey to assess willingness to \n pay (WTP)

• $25.00 definitely would not buy 1 2 3 4 5 6 7 definitely would buy \n • $35.00 definitely would not buy 1 2 3 4 5 6 7 definitely would buy

Conduct price studies

Surveys are identical except pricing \n • A may have higher price than B, B than C, etc.

Each customer fills out his assigned survey

Show product combinations with price; \n ask “Which do you most prefer?” “Next?”

Profit =

revenue – expense

Revenue =

price x quantity sold

To maximize profits:

find a price where any further increase in price would lead \n to a large falloff in quantity sold

Profit Maximization:

marginal revenue equals marginal cost

Marginal revenue

marginal cost at $1.00

No pricing model is perfect

• Every model has error \n • There are systematic biases in pricing

Price serves as a quality cue

higher price may be more appealing

Absolute vs. relative numbers

Absolute: $15 off of a $199 item and $15 off of a $49 item is the same in absolute terms \n Relative: $15 of $199 is 8% while $15 of $49 is 31%

Framing

A $499 trip is the same as a $599 trip with a $100 discount at booking \n • However, the $599 trip seems like a better deal because of the higher starting price

Price discount and mood

Temporary price discounts make customers think they are smart shoppers \n • They experience feelings of happiness, pride, optimism, confidence, etc.

Prices ending in 99

Prices like $4.99 or $49.99 tend to be more attractive than $5 or $50 \n • People read right to left; thus, the 4 is processed first and leaves an impression

Mental accounting

People categorize & budget purchases \n • People pay less attention to future \n Ex: Vacation money is “different than” food money

Compromise effect

The inner/middle choice between two extremes is attractive \n • People assume that if a company charges more, it must be providing more

Referent pricing

People compare price to some referent, either an externally available price or an internally stored price \n • External \n – “MSRP is $49.99, now available for $35.99!” \n – “Our price $34.99, compare at $45.00!” \n • Internal \n – Relevant memory \n – Inferences about store, etc.