Product and Brand Management

Product and Brand Management
This book is a part of the course by Jaipur National University, Jaipur.

This book contains the course content for Product and Brand Management.
JNU, Jaipur
First Edition 2013
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JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the
content whenever the need arises, and to vary it at any time without prior notice.
Index
I. Content....................................................................... II
II. List of Figures...........................................................IX
III. List of Tables............................................................ X
IV. Case Study............................................................. 150
V. Bibliography........................................................... 155
VI. Self Assessment Answers...................................... 157
Book at a Glance
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Content
Chapter I........................................................................................................................................................ 1
Introduction to Product and Product Management.................................................................................. 1
Aim ................................................................................................................................................................ 1
Objectives....................................................................................................................................................... 1
Learning outcome........................................................................................................................................... 1
1.1 Introduction............................................................................................................................................... 2
1.2 Defining Product....................................................................................................................................... 2
1.3 Product Management................................................................................................................................ 2
1.4 Product Levels.......................................................................................................................................... 3
1.5 Product Mix.............................................................................................................................................. 4
1.6 Product Life Cycle.................................................................................................................................... 4
1.6.1 Introduction Phase.................................................................................................................... 5
1.6.2 Growth Phase............................................................................................................................ 6
1.6.3 Maturity Phase.......................................................................................................................... 6
1.6.4 Decline Phase............................................................................................................................ 6
1.7 Market Evolution...................................................................................................................................... 7
1.7.1 Emergence................................................................................................................................ 7
1.7.2 Growth...................................................................................................................................... 7
1.7.3 Maturity.................................................................................................................................... 7
1.7.4 Decline...................................................................................................................................... 8
1.8 Product Classification............................................................................................................................... 8
1.8.1 Durability and Tangibility......................................................................................................... 8
1.8.2 Consumer Goods Classification................................................................................................ 8
1.8.3 Industrial Goods Classification................................................................................................. 9
1.9 Product Portfolio Management............................................................................................................... 10
1.9.1 SBU’s characteristics ............................................................................................................. 10
1.9.2 The Boston Consulting Group (BCG) Model......................................................................... 10
1.9.3 The General Electric (GE) Model........................................................................................... 13
1.9.4 Adapting Products to Local Conditions.................................................................................. 14
1.9.5 Threats from Duplication........................................................................................................ 15
Summary...................................................................................................................................................... 16
References.................................................................................................................................................... 16
Recommended Reading.............................................................................................................................. 16
Self Assessment............................................................................................................................................ 17
Chapter II.................................................................................................................................................... 19
New Product Development Process........................................................................................................... 19
Aim............................................................................................................................................................... 19
Objectives..................................................................................................................................................... 19
Learning outcome......................................................................................................................................... 19
2.1 Introduction............................................................................................................................................. 20
2.2 New Product............................................................................................................................................ 20
2.3 Factors Contributing to New Product Development............................................................................... 20
2.4 New Product Development Process........................................................................................................ 20
2.4.1 Idea Generation....................................................................................................................... 21
2.4.2 Idea Screening......................................................................................................................... 21
2.4.3 Concept Development and Testing......................................................................................... 22
2.4.4 Marketing Strategy Development........................................................................................... 22
2.4.5 Business Analysis................................................................................................................... 22
2.4.6 Product Development............................................................................................................. 23
2.4.7 Market Testing........................................................................................................................ 23
2.4.8 Commercialisation.................................................................................................................. 23
2.5 Product Adoption.................................................................................................................................... 24
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2.6 Product Strategy...................................................................................................................................... 25
2.6.1 Elements of Product Strategy................................................................................................. 25
2.6.2 Setting Objectives................................................................................................................... 26
2.7 Strategic Alternatives.............................................................................................................................. 26
2.7.1 Increasing Sales/Market Share – Market Development Strategies......................................... 27
2.7.2 Market Penetration Strategies................................................................................................. 27
2.8 Increasing Profitability............................................................................................................................ 27
2.8.1 Decreasing Inputs................................................................................................................... 27
2.8.2 Increasing Outputs.................................................................................................................. 27
2.9 Positioning 28
2.9.1 Choice of Customer Targets.................................................................................................... 28
2.9.2 Choice of Competitor Targets................................................................................................. 28
2.9.3 Core Strategy.......................................................................................................................... 28
2.9.4 Cost/Price (Value) Strategy..................................................................................................... 28
2.9.5 Non-price Strategy.................................................................................................................. 29
Summary...................................................................................................................................................... 30
References.................................................................................................................................................... 30
Self Assessment............................................................................................................................................ 31
Chapter III................................................................................................................................................... 33
Marketing Management............................................................................................................................. 33
Aim............................................................................................................................................................... 33
Objectives..................................................................................................................................................... 33
3.1 Introduction............................................................................................................................................ 34
3.2 Marketing Organisation.......................................................................................................................... 34
3.2.1 Product Focused Organisation................................................................................................ 34
3.2.2 Market Focused Organisation................................................................................................. 35
3.2.3 Functionally Focused Organisation........................................................................................ 36
3.3 Marketing Channels................................................................................................................................ 36
3.3.1 Channel Selection................................................................................................................... 37
3.3.2 Indirect Channels.................................................................................................................... 38
3.3.3 Direct Channels....................................................................................................................... 38
3.3.4 Hybrid Channels..................................................................................................................... 39
3.3.5 Indirect Channel Management................................................................................................ 39
3.3.6 Channel Arrangements............................................................................................................ 40
3.3.7 Monitoring Profitability by Channel....................................................................................... 40
3.4 Market Planning...................................................................................................................................... 40
3.5 The Planning Process.............................................................................................................................. 41
3.6 Marketing Plan Outline........................................................................................................................... 41
3.6.1 Executive Summary................................................................................................................ 41
3.6.2 Situation Analysis................................................................................................................... 42
3.6.3 Objectives............................................................................................................................... 43
3.6.4 Product/Brand Strategy........................................................................................................... 43
3.6.5 Supporting Marketing Programs............................................................................................. 43
3.6.6 Financial Documents.............................................................................................................. 43
3.6.7 Monitors and Controls............................................................................................................ 44
3.6.8 Contingency Plans ................................................................................................................. 44
3.7 Marketing and Sales................................................................................................................................ 44
3.8 Market and Sales Potential...................................................................................................................... 44
3.9 Sales Forecasting.................................................................................................................................... 45
3.10 Methods of Estimating Market and Sales Potential.............................................................................. 45
3.10.1 Analysis Based Estimates..................................................................................................... 45
3.10.2 Judgement Based Methods................................................................................................... 46
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3.10.3 Customer Based Methods..................................................................................................... 46
Summary...................................................................................................................................................... 47
References.................................................................................................................................................... 47
Self Assessment............................................................................................................................................ 48
Chapter IV................................................................................................................................................... 50
Pricing Strategy, Advertising and Promotion.......................................................................................... 50
Aim............................................................................................................................................................... 50
Objectives..................................................................................................................................................... 50
4.1 Introduction............................................................................................................................................. 51
4.2 Setting the Price...................................................................................................................................... 51
4.3 The Role of Marketing Strategy in Pricing............................................................................................. 51
4.3.1 Measuring Perceived Value and Price..................................................................................... 52
4.3.2 The Economic Value Concept................................................................................................. 52
4.3.3 Using Price Thresholds........................................................................................................... 53
4.3.4 Using the Perceived Value Concept........................................................................................ 53
4.3.5 Psychological Aspects of Price............................................................................................... 53
4.3.6 Relationship between Price and Perceived Quality................................................................ 54
4.3.7 Odd Ending Prices.................................................................................................................. 54
4.3.8 Competition and Pricing......................................................................................................... 54
4.3.8.1 Competitors’ Costs................................................................................................... 54
4.3.8.2 Historical Pricing Behaviour.................................................................................... 54
4.3.9 Role of Cost to Company........................................................................................................ 55
4.4 Pricing Objectives................................................................................................................................... 55
4.4.1 Penetration Pricing.................................................................................................................. 55
4.4.2 Return on Sales/Investment Pricing........................................................................................ 56
4.4.3 Pricing for Stability................................................................................................................. 56
4.4.4 Skimming................................................................................................................................ 56
4.4.5 Competitive Pricing................................................................................................................ 56
4.4.6 Other Factors Affecting Price................................................................................................. 56
4.5 Pricing Tactics......................................................................................................................................... 56
4.6 Advertising . ............................................................................................................................................ 57
4.7 Developing Effective Communications.................................................................................................. 58
4.8 Factors in Setting the Marketing Communications Mix......................................................................... 59
4.9 Media Selection...................................................................................................................................... 59
4.10 Evaluating Advertising Effects............................................................................................................. 60
4.11 Promotions............................................................................................................................................ 60
4.11.1 Promotion Objectives............................................................................................................ 61
4.11.1.1 Final Customer Promotions.................................................................................... 61
4.11.1.2 Trade Promotions................................................................................................... 61
4.12 Promotion Budgeting............................................................................................................................ 61
4.12.1 The Total Advertising and Promotion Budget...................................................................... 62
4.12.2 Allocating Money between Advertising and Promotion....................................................... 62
4.12.3 Evaluating Customer Promotions......................................................................................... 62
4.12.4 Effects of Promotions .......................................................................................................... 63
Summary...................................................................................................................................................... 64
References.................................................................................................................................................... 64
Self Assessment............................................................................................................................................ 65
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Chapter V..................................................................................................................................................... 67
Financial Analysis and Services................................................................................................................. 67
Aim............................................................................................................................................................... 67
Objectives..................................................................................................................................................... 67
5.1 Introduction............................................................................................................................................ 68
5.2 Sales Analysis......................................................................................................................................... 68
5.3 Profitability Analysis.............................................................................................................................. 69
5.3.1 Cost Classification.................................................................................................................. 69
5.3.2 Using the Contribution Rate................................................................................................... 70
5.4 Framework for Control........................................................................................................................... 70
5.5 Capital Budgeting................................................................................................................................... 70
5.5.1 Average Rate of Return........................................................................................................... 71
5.5.2 Payback................................................................................................................................... 71
5.5.3 Internal Rate of Return (IRR)................................................................................................. 71
5.5.4 Present Value........................................................................................................................... 71
5.5.5 Economic Value Added (EVA)............................................................................................... 72
5.6 Services................................................................................................................................................... 72
5.6.1 Service Categories.................................................................................................................. 72
5.7 Marketing Strategies for Service Firms.................................................................................................. 72
5.7.1 Differentiation in Services...................................................................................................... 73
5.7.2 Managing Service Quality...................................................................................................... 73
5.7.3 Managing Productivity........................................................................................................... 74
5.8 Post-Sale Service Strategy...................................................................................................................... 74
5.9 Major Trends in Product Support Service............................................................................................... 74
5.10 Managing Product Support Services..................................................................................................... 75
Summary...................................................................................................................................................... 76
References.................................................................................................................................................... 76
Self Assessment............................................................................................................................................ 77
Chapter VI................................................................................................................................................... 79
Brand Management.................................................................................................................................... 79
Aim............................................................................................................................................................... 79
Objectives..................................................................................................................................................... 79
6.1 Introduction............................................................................................................................................. 80
6.2 Brand....................................................................................................................................................... 80
6.3 Brand Equity........................................................................................................................................... 80
6.4 Branding Challenges............................................................................................................................... 82
6.5 Brand-Sponsor........................................................................................................................................ 82
6.6 Brand Building Tools.............................................................................................................................. 82
6.7 Brand Strategy Decision......................................................................................................................... 83
6.8 Brand Asset Management....................................................................................................................... 83
6.9 Packaging and Labelling......................................................................................................................... 83
6.10 Laws of Branding.................................................................................................................................. 84
6.11 Myths about Branding........................................................................................................................... 84
6.12 Role and Significance of Branding....................................................................................................... 84
6.12.1 Significance of Brands from Consumers’ Point of View...................................................... 84
6.12.2 Significance of Brands from the Marketer’s Point of View................................................. 85
6.13 Brand Ranking...................................................................................................................................... 87
6.14 Brand Challenges.................................................................................................................................. 88
6.14.1 Brand or No Brand................................................................................................................ 88
6.14.2 Brand Sponsor Decision....................................................................................................... 88
6.14.3 Brand Name Decisions......................................................................................................... 89
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6.14.4 Brand Name Strategies......................................................................................................... 90
6.14.5 Brand Strategy Decisions...................................................................................................... 90
6.14.6 Brand Repositioning or No Repositioning............................................................................ 91
Summary...................................................................................................................................................... 92
References.................................................................................................................................................... 92
Self Assessment............................................................................................................................................ 93
Chapter VII................................................................................................................................................. 95
Brand Equity............................................................................................................................................... 95
Aim............................................................................................................................................................... 95
Objectives..................................................................................................................................................... 95
7.1 Introduction............................................................................................................................................. 96
7.2 Brand Equity........................................................................................................................................... 96
7.3 Cost Based Approach............................................................................................................................. 97
7.3.1 Historical Cost........................................................................................................................ 97
7.3.2 Replacement Cost Approach................................................................................................... 97
7.3.3 Market Value Approach.......................................................................................................... 98
7.3.4 Discounting the Cash Flow Approach.................................................................................... 98
7.3.5 Brand Contribution Approach................................................................................................. 98
7.3.6 Inter-brand Approach.............................................................................................................. 99
7.4 Price Based Approach............................................................................................................................. 99
7.4.1 Price Premium Approach........................................................................................................ 99
7.4.2 Market Share Equalisation Approach..................................................................................... 99
7.4.3 Price Premium at Indifference Approach.............................................................................. 100
7.5 Customer Based Approach.................................................................................................................... 101
7.5.1 Brand Knowledge Method.................................................................................................... 101
7.5.2 Attribute Oriented Method.................................................................................................... 102
7.6 Types of Brand Association.................................................................................................................. 103
7.6.1 Favourability of Brand Associations..................................................................................... 103
7.6.2 Strength of Brand Associations............................................................................................. 104
7.6.3 Blind Test Method................................................................................................................. 104
7.7 Latest Measures to Compute Brand Equity.......................................................................................... 105
7.7.1 Direct Measurement Methods............................................................................................... 105
7.7.2 Indirect Valuation Methods................................................................................................... 105
Summary.................................................................................................................................................... 106
References.................................................................................................................................................. 106
Recommended Reading............................................................................................................................ 106
Self Assessment.......................................................................................................................................... 107
Chapter VIII.............................................................................................................................................. 109

Brand Image, Brand Identity and Brand Valuation.............................................................................. 109
Aim............................................................................................................................................................. 109
Objectives................................................................................................................................................... 109
Learning outcome....................................................................................................................................... 109
8.1 Introduction............................................................................................................................................110
8.2 Brand Image...........................................................................................................................................110
8.3 Definitions of Brand Image...................................................................................................................110
8.3.1 Brand Image and Celebrity....................................................................................................112
8.3.2 Brand Personality and Brand Image......................................................................................112
8.4 Brand Identity........................................................................................................................................113
8.5 Brand Valuation.....................................................................................................................................115
8.5.1 Brand Loyalty........................................................................................................................115
8.5.2 Other Tangibles and Intangibles Valuation............................................................................116
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8.5.3 Intangible Assets....................................................................................................................117
8.6 Customer Retention and Brand Marketing............................................................................................118
8.6.1 Customer Retention...............................................................................................................118
8.6.2 Measurement of Customer Retention....................................................................................118
8.6.3 Benefits of Customer Retention.............................................................................................119
8.6.4 Strategies for Retaining Customers...................................................................................... 120
8.6.5 Beyond Customer Retention................................................................................................. 121
8.7 Ten Characteristics of the World’s Strongest Brands............................................................................ 122
8.7.1 Delivering the Benefits that Customers Truly Desire . ........................................................ 122
8.7.2 Relevance.............................................................................................................................. 123
8.7.3 Pricing Strategy based on Consumer’s Perceptions of Value............................................... 123
8.7.4 Properly Positioned............................................................................................................... 123
8.7.5 Consistency........................................................................................................................... 123
8.7.6 Sensible Brand Portfolio and Hierarchy............................................................................... 124
8.7.7 Perfect Use of Marketing Activities...................................................................................... 124
8.7.8 Understanding what Brand Means to Consumers................................................................. 124
8.7.9 Long Sustainable Support . .................................................................................................. 124
8.7.10 Monitors Sources of Brand Equity .................................................................................... 124
Summary.................................................................................................................................................... 126
References.................................................................................................................................................. 126
Self Assessment.......................................................................................................................................... 127
Chapter IX................................................................................................................................................. 129

Brands Over Time, Brand Positioning and Consumer Behaviour....................................................... 129
Aim............................................................................................................................................................. 129
Objectives................................................................................................................................................... 129
Learning outcome....................................................................................................................................... 129
9.1 Introduction........................................................................................................................................... 130
9.2 Managing Brands Over Time................................................................................................................ 130
9.3 Brand Life Cycle................................................................................................................................... 131
9.3.1 Investment, Profitability and Cash Flows and Brand Life Cycle......................................... 131
9.4 Brand Portfolio Management................................................................................................................ 132
9.4.1 Brand Portfolios are Running Amok.................................................................................... 132
9.5 Managing a Brand and Customer Value............................................................................................... 133
9.5.1 Label..................................................................................................................................... 133
9.5.2 Products - Labels - Brands.................................................................................................... 133
9.5.3 Effect of Communication on Labels and Brands.................................................................. 134
9.5.4 The Mental List..................................................................................................................... 134
9.5.5 The Acid Test........................................................................................................................ 135
9.6 Brand Positioning and Re-positioning.................................................................................................. 135
9.6.1 Success in Positioning.......................................................................................................... 135
9.6.2 Positioning Errors................................................................................................................. 135
9.6.3 Positioning Strategies as Per Philip Kotler........................................................................... 136
9.6.4 Brand Re-positioning............................................................................................................ 136
9.7 Brand Marketing and Consumer Behaviour......................................................................................... 136
9.7.1 Celebrity Endorsements as a Strategy.................................................................................. 137
9.7.2 Six Uses of Celebrity Endorsements.................................................................................... 137
9.7.3 Brand Marketing and Consumer Buying Behaviour............................................................ 137
9.8 Conceptual Implications of the Approaches to Loyalty........................................................................ 140
9.8.1 Customer Brand Acceptance (CBA)..................................................................................... 140
9.8.2 Customer Brand Commitment (CBC).................................................................................. 141
9.8.3 Customer Brand Buying (CBB)............................................................................................ 143
9.9 Difference between Trademark, Logo, Symbol and Mascot................................................................ 145
9.9.1 Logotypes.............................................................................................................................. 145
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9.9.2 Benefits of Logos.................................................................................................................. 146
9.9.3 Brand Mascot........................................................................................................................ 146
Summary.................................................................................................................................................... 147
References.................................................................................................................................................. 147
Self Assessment.......................................................................................................................................... 148
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List of Figures
Fig. 1.1 Product managers’ potential interactions........................................................................................... 3
Fig. 1.2 Five product levels............................................................................................................................. 4
Fig. 1.3 Product life-cycle sales and profit..................................................................................................... 5
Fig. 1.4 Consumer goods classification.......................................................................................................... 9
Fig. 1.5 The BCG growth-share matrix.........................................................................................................11
Fig. 1.6 The BCG matrix: cash position and strategy....................................................................................11
Fig. 1.7 The GE matrix................................................................................................................................. 14
Fig. 2.1 New product development process.................................................................................................. 21
Fig. 2.2 Product diffusion process................................................................................................................ 24
Fig. 2.3 Hierarchy of objectives.................................................................................................................... 26
Fig. 2.4 Strategic alternatives........................................................................................................................ 27
Fig. 3.1 Product-focused structure................................................................................................................ 34
Fig. 3.2 Market-focused structure................................................................................................................. 35
Fig. 3.3 Functionally-focused structure........................................................................................................ 36
Fig. 3.4 Indirect and direct marketing channels............................................................................................ 36
Fig. 3.5 The indirect channel........................................................................................................................ 38
Fig. 4.1 Gap between customer value and cost............................................................................................. 52
Fig. 4.2 Five M’s of advertising.................................................................................................................... 58
Fig. 5.1 Components of sales analysis.......................................................................................................... 68
Fig. 6.1 Brand equity.................................................................................................................................... 81
Fig. 7.1 Approaches to evaluate brand equity............................................................................................... 96
Fig. 7.2 Dimensions of brand knowledge................................................................................................... 101
Fig. 8.1 Brand image....................................................................................................................................110
Fig. 8.2 Dimensions of brand identity.........................................................................................................114
Fig. 8.3 Brand hexagon identity...................................................................................................................114
Fig. 8.4 Brand loyalty..................................................................................................................................116
Fig. 8.5 The customer retention/value mode.............................................................................................. 121
Fig. 8.6 The dimensions of loyalty............................................................................................................. 122
Fig. 9.1 Investment, profitability and cash flows and brand life cycle....................................................... 131
Fig. 9.2 Brand investment........................................................................................................................... 132
Fig. 9.3 Model 1 . ....................................................................................................................................... 138
Fig. 9.4 Loyalty mainly expressed in terms of revealed behaviour............................................................ 139
Fig. 9.5 Model 3.......................................................................................................................................... 140
Fig. 9.6 Customer brand commitment........................................................................................................ 141
Fig. 9.7 Different approaches to customer loyalty...................................................................................... 143
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List of Tables
Table 5.1 Cost classification......................................................................................................................... 70
Table 6.1 India’s top 20 brands..................................................................................................................... 88
Table 6.2 brand challenges............................................................................................................................ 88
Table 6.3 Licensed brands............................................................................................................................. 89
Table 6.4 Example of segment wise branding.............................................................................................. 90
Table 6.5 Brand re-positioning..................................................................................................................... 91
Table 7.1 Replacement cost/whirlpool washing machines........................................................................... 97
Table 7.2 Brand values.................................................................................................................................. 98
Table 7.3 Example of market equalisation approach.................................................................................... 99
Table 7.4 Example of price premium at indifference approach.................................................................. 100
Table 7.5 Example of attribute oriented method......................................................................................... 102
Table 7.6 Attribute oriented method for salt brands................................................................................... 102
Table 7.7 Example of blind test method..................................................................................................... 104
Table 8.1 Attributes of brand image.............................................................................................................111
Table 8.2 Celebrities and brand images.......................................................................................................112
Table 8.3 Comparison of brand personality with brand image....................................................................113
Table 8.4 Levels of brand loyalty................................................................................................................115
Table 8.5 Intangibles in company value......................................................................................................117
Table 8.6 Intangible asset transaction values...............................................................................................117
Table 8.7 Behaviour and attitudinal variables..............................................................................................119
Table 9.1 Brand life cycle........................................................................................................................... 131
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Chapter I
Introduction to Product and Product Management
Aim
The aim of this chapter is to:
• introduce the concept of product
• explain the concept of product life-cycle
• understand how products are classified
• elucidate the BCG growth-share matrix
Objectives
The objectives of this chapter are to:
• understand the product-mix concept
• enlist different product levels
• explain the various phases in a product-life cycle
Learning outcome
At end of this chapter, the students will be able to:
• understand the product management
• identify the role and responsibilities of product manager
• realise the product portfolio management
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1.1 Introduction
We are in the era of the new economy, which is based on the digital revolution and the management of information.
Marketing in this environment has to be carefully crafted to meet the challenges in the market place – knowledgeable
consumers with increasing buying power, greater variety of available goods and services, great amount of information,
ease in interacting and placing and receiving orders, ability to make comparisons of products and services, improved
logistics and technology. The Internet is the new channel for business.
1.2 Defining Product

• A product is a tangible (good) or intangible (service) information offering to meet the needs, wants, and demands
of the people.
• It is a value proposition, a set of benefits offered to customers to satisfy the needs. It is a bundle of satisfaction
that a customer buys.
• A product will be successful if it delivers value and satisfaction to the customer.
• A product is much more than its physical attributes. It is the total concept that a customer buys. The customer
judges the product offering by three basic elements; product features and quality services mix and quality and
price.
1.3 Product Management

• Product management as a discipline is about what the product should be. Product managers are advocates for
the customer’s needs and desires.
• A large product might have numerous product managers working towards its success at a variety of levels, all
the way from the junior product manager writing specifications about single feature sets to a product strategy
director who has overall responsibility to executive management for the product direction.
• A product manager’s responsibilities include the following:
defining and planning product lines and product enhancements
managing product contracts and sales
setting strategic direction based on customer needs and business goals
interpreting strategic goals into operational tasks
making proposals to senior management regarding implications of proposed plans
serving as a representative to internal and external clients
taking the lead in establishing tactical plans and objectives
developing and implementing administrative and operational matters ensuring achievement of objectives
evaluating risks and trade-offs
proposing contingency plans
analysing business processes and creating applications to improve or support those processes
branding
working with graphic designers to create look and feel
defining navigational flow and user experience
defining feature sets and scooping releases
• Product managers normally manage a product for only a short time and this leads to short time planning with
no long-term strengths, though there are differences in the way they are handled.
• Consumers-product managers typically manage fewer products and spend more time on advertising and sales
promotion. These are usually younger people with an MBA or alike.
• Industrial-product managers spend more time with customers and laboratory and engineering personnel, think
more about the technical aspects of their product and possible design improvements and work more closely
with the sales former and key buyers.
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• The product manager works on developing a cost-effective marketing mix for the product. He/she also reacts
more quickly to products in the market place. The product manager has to interact with practically all departments
of the company – Research & Development, manufacturing, purchasing, sales, market research, packaging,
advertising, media promotion, publicity, finance, legal and distribution.
Fig. 1.1 Product managers’ potential interactions
1.4 Product Levels

A product as a total concept may be perceived as having five layers.
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Fig. 1.2 Five product levels
• At the heart is “core or generic” part, the fundamental benefit or service that the customer is really buying, and
what marketers must see as a benefit providing. A hotel guest is buying “rest and sleep”, an airline traveller is
buying “fast transport” and the purchase of a drill is like buying “holes”.
• At the second level, the marketer turns the core benefit into a basic product. A hotel room includes a bed,
bathroom, towels, desk, dresser, and a closet.
• At the third level is the expected product, which is a set of attributes and conditions, buyers expect when they
buy a product. Hotel room should have a clean bed, fresh towels, working lamps, a telephone, a TV and this is
the minimum expected.
• At the fourth level, is the enlarged product that exceeds customer expectations. A wide variety of service and
facilities are added.
• At the fifth level is the potential product, which encompasses all the possible augmentations and transformations
the product may undergo in the future.
• Companies will look for new ways to satisfy customers and distinguish their offer. Delighting the customer will
be the key. It is to be noted that each level adds more customer value.
1.5 Product Mix

• A product-mix is the set of all products and items that a particular seller offers for sale. Firms deal with multi-
products to diffuse risk across different product groups. In addition, the firm appeals to a larger group of customers
or to different needs of the same customer.
• Examples of firms diversifying into different products are: Telco, Videocon, Hindustan Unilever, Hindustan
Machine Tools, Kodak, P&G, NEC (Japan), etc.
• Likewise, Bajaj Electricals has almost ninety products in its portfolio ranging from low value items like bulbs
to high priced consumer durables like mixers and luminaries and lighting projects.
• The number of products carried by a firm at a given point of time is called its product mix. This product mix
contains product lines and product items. In other words, it’s a composite of products offered for sale by a
firm.
1.6 Product Life Cycle

Each product goes though a life cycle, which signifies following points.
• Products have a limited life.
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• Products pass through four distinct stages – introduction, growth, maturity, and decline.
• Products rise and fall at different stages.
• Products require different marketing financial, manufacturing, purchasing and human resource strategy in each
life-cycle stage.
Fig. 1.3 Product life-cycle sales and profit
1.6.1 Introduction Phase

• The introduction phase of a product includes the product launch with a maximum impact at the moment of sale.
A good example of this is the launch of “Windows XP” by Microsoft Corporation.
• This period can be described as a money sinkhole compared to the maturity phase of a product. Large expenditure
on promotion and advertising is common and quick, but costly service requirements are introduced.
• A company must be prepared to spend a lot of money and get only a small proportion of that back. In this phase,
distribution arrangements are introduced. Having the product in every counter is very important and is regarded
as an impossible challenge.
• Some companies avoid this stress by hiring external contractors or outsourcing the entire distribution arrangement.
This has the benefit of testing an important marketing tool such as outsourcing.
• Pricing is something else for a company to consider during this phase. Product pricing usually follows one
or two well structured strategies. Early customers will pay a lot for something new and this will help a bit to
minimize that sinkhole.
• Later, the pricing policy should be more aggressive so that the product can become competitive. Another strategy
is that of a pre-set price believed to be the right one to maximize sales. This however demands a very good
knowledge of the market and of what a customer is willing to pay for a newly introduced product.
• A successful product introduction phase may also result from actions taken by the company prior to the
introduction of the product to the market. These actions are included in the formulation of the marketing strategy.
This is accomplished during product development with the use of market research.
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• Customer requirements on design, pricing, servicing and packaging are invaluable to the formation of a product
design. A customer can tell a company what features of the product are appealing and what are the unnecessary
characteristics that should not appear on the product.
1.6.2 Growth Phase

• Growth phase is called as a period of rapid market acceptance and substantial profit improvement.
• The growth phase offers the satisfaction of seeing the product take-off in the marketplace. This is the appropriate
timing to focus on increasing the market share. If the product has been introduced first into the market, then it is
in a position to gain market share relatively easily. A new growing market alerts the competition’s attention.
• The company must show all the products offerings and try to differentiate them from the competitors’. A frequent
modification process of the product is an effective policy to discourage competitors from gaining market share
by copying or offering similar products. Other barriers are licenses and copyrights, product complexity and low
availability of product components.
• Promotion and advertising continues, but not in the extent that was in the introductory phase and it is oriented
to the task of market leadership and not in raising product awareness. A good practice is the use of external
promotional contractors.
• This period is the time to develop efficiencies and improve product availability and service. Cost efficiency
and time-to-market and pricing and discount policy are major factors in gaining customer confidence. Good
coverage in all marketplaces is worthwhile goal throughout the growth phase.
• Managing the growth stage is essential. Companies sometimes are consuming much more effort into the
production process, overestimating their market position.
• Accurate estimations in forecasting customer needs will provide essential input into production planning
process. It is pointless to increase customer expectations and product demand without having arranged for
relative production capacity.
1.6.3 Maturity Phase

• Maturity phase is a period of a slow-down in sales, growth because the product has achieved acceptance by
most potential buyers. Profit stabilises or declines because of increased competition.
• When the market becomes saturated with variations of the basic product, and all competitors are represented in
terms of an alternative product, the maturity phase arrives. In this phase, market share growth is at the expense
of someone else’s business, rather than the growth of the market itself. This period is the period of the highest
returns from the product.
• A company that has achieved its market share goal enjoys the most profitable period, while a company that falls
behind its market share goal, must reconsider its marketing positioning into the marketplace.
• During this period new brands are introduced even when they compete with the company’s existing product and
model changes are more frequent (product, brand, and model). This is the time to extend the product’s life.
• Pricing and discount policies are often changed in relation to the competition policies i.e., pricing moves up
and down accordingly with the competitor’s and sales and coupons are introduced in the case of consumer
products. Promotion and advertising relocates from the scope of getting new customers, to the scope of product
differentiation in terms of quality and reliability.
• The battle of distribution continues using multi distribution channels. A successful product maturity phase is
extended beyond anyone’s timely expectations. A good example of this is “Tide” washing powder, which has
grown old, and it is still growing.
1.6.4 Decline Phase

• Decline phase is a period when sales show a downward drift and profits erode.
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• Multi distribution channel is one that offers back up distribution ways. A good example is the use of retail stores
and the use of Internet. The former requires a completely different distribution channel than the latter and a
product usually is distributed through the former one.
• The decision for withdrawing a product seems to be a complex task and there are many issues to be resolved
before it is decided to move it out of the market. Dilemmas such as maintenance, spare part availability, service
competitions reaction in filling the market gap are some issues that increase the complexity of the decision
process to withdraw a product from the market.
• Often companies retain a high price policy for the declining products that increase the profit margin and gradually
discourage the ‘few’ loyal remaining customers from buying it.
• Such an example is telegraph submission over facsimile or email. Dr. M. Avlonitis from the Economic University
of Athens has developed a methodology, rather complex one that takes under consideration all the attributes
and the subsequences of product withdrawal process.
• Sometimes it is difficult for a company to conceptualise the decline signals of a product. Usually a product
decline is accompanied with a decline of market sales. Its recognition is sometimes hard to be realised, since
marketing departments are usually too optimistic due to big product success coming from the maturity phase.
• This is the time to start withdrawing variations of the product from the market that are weak in their market
position. This must be done carefully since it is not often apparent which product variation brings in the
revenues.
• The prices must be kept competitive and promotion should be pulled back at a level that will make the product
presence visible and at the same time retain the ‘loyal’ customers. Distribution is narrowed.
• The basic channel should be kept efficient but alternative channels should be abandoned. For example, a 0800
telephone line with shipment by a reliable delivery company, paid by the customer is worth keeping.
1.7 Market Evolution

It must be remembered that not only product, but markets also evolve through four stages: emergence, growth,
maturity, and decline.
1.7.1 Emergence
• Before a market materialises, it exists as a latent market. E.g. faster means of calculations, satisfied through
abacuses, slide-rules, and large adding machines. Now electronic calculators, large ones and now hand-held,
including mathematical functions, the marketer recognizes the need and interviews potential buyers.
• There are different preferences given by different users, and the market is a diffused – preference market. An
optimal product has to be designed.
• The entrepreneur has 3 options:
Design to meet the performances of one of the corners of the market (a single niche market)
Two or more products can be designed to capture or more parts of the market (a multiple-niche strategy)
A new product for the middle of the market (a mass market strategy)
• For small firms, a simple niche market strategy makes sense – as they have fewer resources. A large firm may
go for mass market or connecting the product, the emergence state begins.
1.7.2 Growth
The new product sells well, now firms will enter the market ushering in a market-growth stage. The second firm
can enter one of the three markets mentioned above (simple-niche, multiple niche, and mass). It depends on the
size of the new competitor.
1.7.3 Maturity
• Eventually, the competitors cover and serve all the markets segments and the market sales the maturity stages.
In fact, they invade each others markets, reducing everyone’s profits. Market fragmentation takes place with
finer segments.
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• This is often followed by market consolidation caused by the emergences of a new attribute that has strong
appeal.
• For example, P&G’s Crest tooth-paste effectively retorted the tooth decay. Due to this, Crest won a lion’s share
of the market. But this also does not last long as competitors will also enter this market and cause splintering
again. Competition causes fragmentation and innovation causes consolidation.
1.7.4 Decline
• Eventually, demand for present products will begin to decrease which is the market decline stage. Either a
society’s total need level declines or a new technology replaces the old in which case the old technology
disappears, replaced by the new technology. For example, paper towel market, originally cotton and linen dish
cloth and towels in the kitchen.
• Spongy paper towels were developed and the firm increased its market share. Paper towels evolved from a
simple product and applications through innovation and conception.
• Customer’s expectations are progressive. One has to maintain the lead in introducing new attributes. The market
leader should learn to route the innovation process. Products have therefore to be developed to meet the market
requirements.
1.8 Product Classification

Product classification is based on certain characteristics: durability, tangibility and use (consumer or industrial).
Market success depends on a good marketing mix. This is the combination of price, product, promotion and place
often called ‘the four Ps’.
1.8.1 Durability and Tangibility

Products are classified into three groups
• Non-durable goods: These include tangible and consumed in one or a few uses like soft drinks, beer and soap.
These are ‘fast consumption’ goods and are purchased frequently; hence need to be made available in many
locations, at competitive prices (low margins) with heavy advertising.
• Durable goods: These include tangible goods that last long, like refrigerators, machine tools and television
sets. They normally require more personal selling and service, command a higher margin and require more
seller guarantees.
• Services: Theses include intangible, inseparable, variable and perishable products. They require more quality
control, supplier credibility and adaptability. Examples are repairs, hair-cuts and plumbing.
1.8.2 Consumer Goods Classification

These are goods that consumers buy and are classified on the basis of shopping habits: convenience, shopping,
speciality and unsought goods.
• Convenience goods: These are purchased frequently, immediately and with minimum effort. They are further
sub-divided into
Staples, which are purchased on a regular basis like soap, toothpaste, and biscuits.
Impulse goods, which are purchased without planning, on impulse, like chocolates, candy bars, ice cream,
and magazines.
Emergency goods which are purchased when there is urgent need, like umbrellas, and raincoats.
• Shopping goods: Shopping goods are those which customers select and purchase, based on comparisons of
suitability, quality, price and style, like clothes, furniture, major appliances.
• Speciality goods: These goods have unique characteristics or brand identification and customers make special
purchasing efforts like cars, music systems, photographic equipment, and cell phones.
• Unsought goods: Consumers don’t know these goods and do not think of buying these, like special books
(encyclopaedias), life insurance.
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Fig. 1.4 Consumer goods classification
1.8.3 Industrial Goods Classification

There are normally three groups: materials and parts, capital items and supplies, and business services.
Materials and Parts

These goods enter manufacturer’s product completely and fall into two classes: raw materials and manufactured
materials and parts.
• Raw materials fall into two major classes, which include farm and natural products.
Farm products are perishable and need special marketing practices. They are commodities and need relatively
little advertising and promotion. E.g. rice, wheat, cotton, fruits, livestock, vegetables.
Natural products are limited in supply. They have great bulk and low unit value. E.g. crude oil, fish, wood,
iron ore.
• Manufactured materials
These fall into two categories Component materials (iron, cement, wires, yarn, etc.) and component parts (motors,
tyres, castings, electrical goods).
Component materials are further converted into other products while component parts go directly into
finished product, with no further change.
Price and service are two major considerations, and branding and advertising tend to be less important.
Capital items
• Capital items are long lasting goods that help develop and manage finished products.
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• They fall into two groups: installations and equipments. Installations are like buildings, factory offices and
equipments consist of machines tools, generators, lifts, computers, etc.
• Supplies and business services are short lasting goods and services that facilitate developing or managing the
finished product. Again there are two types–maintenance and repair items like brooms, nails, paint, and operating
supplies like coal, lubricating oil, furnace oil, paper, pencils.
Business services
• These services include maintenance and repair services (office cleaning, copier repairs and business advisory
services include legal, financial, management consulting, advertising and so forth.
• All of these products have their unique features and need specific methods to handle them, from the supply and
purchase points of view.
1.9 Product Portfolio Management

• The collection of businesses (products) is called the business portfolio of the company. Most companies operate
several businesses in terms of “products”.
• A business can be defined in terms of three dimensions: customer groups, customer needs, and technology.
Large companies normally manage quite different businesses, each requiring its own strategy. They classify
their businesses as Strategic Business Units (SBUs). The best business portfolio is one that fits the company’s
strengths.
1.9.1 SBU’s characteristics

• SBU can be either an entire medium size company or a division of a large company, as long as it formulates its
own business level strategy and has separate objectives from the parent company.
It is a single business or collection of related businesses that can be planned separately from the rest of the
company.
It has its own set of competitors.
It has a manager who is responsible for strategic planning and profit performance and who controls most
of the factors affecting profit.
• Companies need to classify their businesses into SBUs to enable them to analyse their performance and develop
separate strategies for each SBU.
• Two of the best analytical tools available to classify their businesses by profit potential, are the Boston Consulting
Group model and the General Electric model.
1.9.2 The Boston Consulting Group (BCG) Model

• In the early 1970’s, the Boston Consulting Group (BCG) developed a model for managing a portfolio of different
strategic business units (SBUs) or major product lines. The BCG Growth-Share Matrix is a four-cell (2 by 2)
matrix used to perform business portfolio analysis as a step in the strategic planning process.
• The BCG Growth-Share Matrix positions the various SBUs/product lines based on Market Growth Rate and
Market Share relative to the most important competitor.
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Question
High Star Mark
(Problem
Market Child)
Growth 10%
Rate
Low Cash Cow Dog
High 1.0X Low
Relative Market Share

Fig. 1.5 The BCG growth-share matrix
Star Question Mark

Maintain (Problem Child)
Revenue Build/
Hold ++++ Revenue +
Expenses --- Withdraw
Expenses - - - -
Net +
Net ---
Market
Growth 10%
Rate
Cash Cow Dog
Harvest Revenue ++++++ Revenue ++ Kill/

Expenses -- Expenses - - - - - Divest
Net
++++
Net ---
High 1.0X Low

Relative Market Share
Fig. 1.6 The BCG matrix: cash position and strategy
• On the horizontal axis: The relative market share serves as a measure of SBU strength in the market.
• On the vertical axis: The market growth rate provides a measure of market attractiveness.
• Market attractiveness is measured by factors like market size, annual growth rate, competitive intensity, and
rate of technological development, government policy and influence of other interest groups.
• By dividing the matrix into four areas, SBUs can be distinguished as stars, cash cows, question mark and
dogs.
SBUs/Product Lines with a relative high market share in a high growth market are designated as Stars.
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SBUs/Product Lines with a relative high market share in a low growth market are designed as Cash
Cows.
SBUs/Product Lines with a relative low market share in a high growth market are designated as Question
Marks or Problem Children.
SBUs/Product Lines with a relative low market share in a low growth market are designated as Dogs.
Question Marks
• These are products or businesses which compete in high growth markets but where the market share is relatively
low.
• A new product launched into a high growth market and with an existing market leader would normally be
considered as a question mark. Because of the high growth environment, they can be a ‘cash sink’.
• Strategic options for question marks include:
market penetration
market development
product development
Stars
• Successful question marks become stars, i.e., market leaders in high growth industries. However, investment is
normally still required to maintain growth and to defend the leadership position.
• Stars are most of times only marginally profitable but as they reach a more mature status in their life cycle
and growth slows, returns become more attractive. The stars provide the basis for long term growth and
profitability.
• Strategic options for stars include:
integration – forward, backward and horizontal
market penetration
market development
product development
joint ventures
Cash Cows
• These are characterised by high relative market share in low growth industries. As the market matures, the need
for investment reduces.
• Cash cows are the most profitable products in the portfolio. The situation is frequently boosted by economies
of scale that may be present with market leaders. Cash cows may be used to fund the businesses in the other
three quadrants.
• It is desirable to maintain the strong position as long as possible and strategic options include:
product development
concentric diversification
• If the position weakens as a result of loss of market share or market contraction then other options would include
retrenchment (or even divestment).
Dogs
• These describe businesses that have low market shares in slow growth markets. They may well have been a cash
cow. Often they enjoy misguided loyalty from management although some dogs can be revitalised. Profitability
is, at best, marginal.
• Strategic options would include:
retrenchment (if it is believed that it could be revitalised)
liquidation
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divestment (if you can find someone to buy!)
• Successful products may well move from question mark though star to cash cow and finally to dog.
• Less successful products that never gain market position will move straight from question mark to dog.
The BCG is simple and useful technique for strategic analysis. It is convenient for multi-product or multi-divisional
companies. It focuses on cash flow and is useful for investment and marketing decisions.
One should not, however, ignore the limitations of the technique.
• Definition (qualitative and quantitative) of the market is sometimes difficult.
• It assumes that market share and profitability are directly related.
• The use of high and low to form four categories is too simplistic.
• Growth rate is only one aspect of industry attractiveness and high growth markets are not always the most
profitable.
• It considers the product or business in relation to the largest player only.
• It ignores the impact of small competitors whose market share is rising fast.
• Market share is only one aspect of overall competitive position.
• It ignores interdependence and synergy.
Companies will frequently search for a balanced portfolio, for reasons like:
• Too many stars may lead to a cash crisis.
• Too many cash cows put future profitability at risk.
• Too many question marks may affect current profitability.
1.9.3 The General Electric (GE) Model

• The General Electric (GE) Model is also called the GE multi-factoral portfolio analysis. This matrix is a technique
used in product management, brand marketing, to help a company decide what product(s) to add to its product
portfolio and which to divest.
• It is conceptually similar to the BCG model, but more complicated, as more factors are considered and many
of the assessments tend to be based on human judgements rather than cold quantitative facts.
• The two axes in this matrix as shown in figure below, which includes market attractiveness (on the Y axis) and
firm’s strengths or competitive position (on the X axis).
• Competitive position is assessed by factors like market share, annual growth in market share, customer loyalty or
brand loyalty, product quality, brand image, distribution network, productivity, R&D and financial position.
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Fig. 1.7 The GE matrix
• On examining the product portfolio of a firm, one may find that some SBUs may fall in the green segment, some
in the yellow and some in the red segment.
• SBUs in the green segment need to be developed and supported. The strategies are one of protecting strategic
position and investing in these SBUs to gain a higher strategic leverage in the marketplace.
• SBUs in the yellow segment require to be monitored carefully and wherever required, refocusing on selective
investing and building should be done.
• SBUs in the red segment are to be harvested or divested for obvious reasons of moderate to weak competitive
position in an unattractive market.
• There are a few other portfolio models. All models have helped managers to think more strategically, understand
the economics of their businesses better, improve the quality of their plans, improve communication between
the management, eliminate weaker businesses and strengthen their investment in promising businesses.
• However portfolio models must be used with caution, as they all have some inherent weaknesses.
1.9.4 Adapting Products to Local Conditions

• Products should meet local market conditions—one of the prerequisites in marketing strategies. The Indian
economy has opened up and is opening up further, and more and more collaborations with foreign companies
are being signed up.
• Many MNCs are entering or re-entering the market. There is a kind of rush among Indian firms to grab brands
and products. Without giving thought and conducting meaningful research, these firms have either launched or
are launching these products in the Indian market. But is the market ready to accept them?
• A range of breakfast cereals were launched in the 1990s and had to be withdrawn, as there were no takers. Even
cornflakes have not been successful. The same goes for oatmeal. The reasons are not far to see. Though the life
style is changing in India, with higher incomes etc., tradition and habits have a strong hold on the people.
• Nestle had learnt this lesson and had successfully adapted Maggi Noodles to Indian taste. The Chinese food that
is served in India has a distinctive Indian taste, quite different from what is served in China or in South Asia.
Adapting to customers’ tastes, value systems, life style and perceptions is important.
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• While this is true universally, the Indian market being culturally different from Europe and North America, and
also culturally heterogeneous, product planners have a greater challenge.
1.9.5 Threats from Duplication

• Counterfeits and duplicates are common in India and in Asia, too. Right from tooth pastes, wrist watches,
designer clothes, software, automobile parts, video and audio CDs, and a host of other items are all duplicated
or pirated and sold in these countries. Thailand, Taiwan, China and even ex-communist countries in Eastern
Europe have large scale pirating and duplication.
• To fight this threat, the product planner or the strategist has to examine how serious is the threat from duplicates and
strengths of the firm. The firm has to be strong in technology, finance and marketing to counter this threat.
• Some of the actions that a product manager can take are as follows :
customer education
strong relationship with distribution networks
maintaining adequate stocks with retailers
building brand loyalty
creating entry barriers
lobbying with the government for protection
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Summary
• A product is a tangible (good) or intangible (service) information offering to meet the needs, wants, and demands
of the people. It is a value proposition, a set of benefits offered to customers to satisfy the needs. It is a bundle
of satisfaction that a customer buys.
• Product managers normally manage a product for only a short time and this leads to short time planning with
no long-term strengths though there are differences in the way they are handled.
• A product-mix is the set of all products and items that a particular seller offers for sale. Firms deal with multi-
products to diffuse risk across different product groups. In addition, the firm appeals to a larger group of customers
or to different needs of the same customer. Examples of firms diversifying into different products are: Telco,
Videocon, Hindustan Unilever, Hindustan Machine Tools, Kodak, P&G, NEC (Japan), etc.
• The introduction phase of a product includes the product launch with its requirements to getting it launch in such
a way so that it will have maximum impact at the moment of sale. Growth phase is called as a period of rapid
market acceptance and substantial profit improvement. Maturity phase is a period of a slow-down in sales, growth
because the product has achieved acceptance by most potential buyers. Profit stabilises or declines because of
increased competition. Decline phase is a period when sales show a downward drift and profits erode.
• Product classification is based on certain characteristics: durability, tangibility and use (consumer or industrial).
The marketing mix (the four Ps) depends on the product type. Durability and Tangibility
• The collection of businesses (products) is called the business portfolio of the company. Most companies operate
several businesses, in terms of “products”.
• SBU can be either an entire medium size company or a division of a large company, as long as it formulates its
own business level strategy and has separate objectives from the parent company.
• The BCG Growth-Share Matrix is a four-cell (2 by 2) matrix used to perform business portfolio analysis as a
step in the strategic planning process
• The General Electric (GE) Model is also called the GE multi-factoral portfolio analysis. This matrix is a technique
used in product management, brand marketing, to help a company decide what product(s) to add to its product
portfolio and which to divest.
• Products should meet local market conditions—one of the prerequisites in marketing strategies. The Indian
economy has opened up and is opening up further, and more and more collaborations with foreign companies
are being signed up.
References
• Boston Consulting Group Matrix (BCG). Available at: < http://www.educationsupport.co.uk/downloads/rjh/
BOSTON_CONSULTING_GROUP_MATRIX.pdf > [Accessed 28th February 2011]
• Ioannis Komninos, (2002). Product Life Cycle Management, Urban and Regional Innovation Research Unit.
Available at :< http://www.ticamericas.net/Download/bootcamp/ProdManag.pdf > [Accessed 28th February
2011]
• Phillip J. Windley, The Discipline of Project Management, Available at : < http://www.windley.com/docs/
Product%20Management.pdf > [Accessed 28th February 2011]
Recommended Reading
• Donald R. Lehmann and Russell S. Winer, (2004). Product Management, McGraw Hill Higher Education, 4th
edition, 512 pages.
• Steve Johnson, The Strategic Role of Product Management, Pragmatic Marketing. Available at: <http://www.
pragmaticmarketing.com/strategic-role-of-product-management/Strategic_Role_Product_Management.pdf >
[Accessed 28th February 2011]
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Self Assessment
1. A ___________ is a tangible (good) or intangible (service) information offering to meet the needs, wants, and
demands of the people.
a. product
b. product-mix
c. product range
d. product life-cycle
2. What is called as the set of all products and items that a particular seller offers for sale?
a. Product life-cycle
b. Product mix
c. Product range
d. GE model
3. Which of the following statement is false?

a. Each product goes though a life cycle, which signifies that products have a limited life.
b. Each product goes though a life cycle, which signifies that products have an unlimited life.
c. Each product goes though a life cycle, which signifies that products prices rise and fall at different stages.
d. Each product goes though a life cycle, which signifies that products pass through four distinct stages –
introduction, growth, maturity, and decline.
4. _____________ is called as a period of rapid market acceptance and substantial profit improvement.
a. Introduction phase
b. Maturity phase
c. Decline phase
d. Growth phase
5. Which is the phase when sales show a downward drift and profits erode?
a. Introduction phase
b. Maturity phase
c. Decline phase
d. Growth phase
6. A product as a total concept may be perceived to have ________layers.

a. four
b. two
c. five
d. six
7. Which of the following statement is true?

a. Maturity phase is a period of a slow-down in sales, growth because the product has achieved acceptance
by most potential buyers.
b. Maturity phase is called as a period of rapid market acceptance and substantial profit improvement.
c. Maturity phase offers the satisfaction of seeing the product take-off in the marketplace.
d. Maturity phase is a period of a rise in sales, growth because the product has achieved acceptance by most
potential buyers.
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8. _____________are long lasting goods that help develop and manage finished products.
a. Raw materials
b. Capital items
c. Convenience goods
d. Farm products
9. Which goods are perishable and need special marketing practices?

a. Capital items
b. Shopping goods
c. Farm products
d. Natural products
10. Match the following:

1. Staples A. Purchased without planning
2. Impulse goods B. Purchased when there is urgent need
3. Emergency goods C. Purchased on a regular basis
4. Natural products D. Limited in supply

a. 1-A, 2-C, 3-D, 4-B
b. 1-C, 2-A, 3-B, 4-D
c. 1-B, 2-C, 3-D, 4-A
d. 1-D, 2-D, 3-C, 4-B
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Chapter II
New Product Development Process
Aim
• explain various factors contributing to new product development
• illustrate challenges in new product development
• investigate the various phases in new product development process
Objectives
• understand the price and non-price strategies
• explain ways to identify the right customers targets
• explore the product strategy concept
Learning outcome
• At end of this chapter, the students will be able to:
• understand about new product development and commercialisation
• state the different elements of product strategy and alternative strategies
• reproduce the main stages in product development
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2.1 Introduction
As Philip Kotler says, companies that fail to develop new products are putting themselves at great risk. Their existing
products are susceptible to changing customer needs and tastes, new technologies, shortened product life cycles and
increased domestic and foreign competition.
But, at the same time, new product development is risky. Companies have lost large amounts of money on new
products, as only about five to ten percent of new products are successful.
Introduction of new products has to be seen from the customer’s eyes rather than just from the point of corporate
objectives.
For countries like India, following key factors are clear from the activities of the last couple of decades in new
product development:
• Understand the local culture and adapt the product accordingly.
• Value for money is a good positioning slot in price sensitive markets.
• The key to success in these price sensitive markets is to make the product available in the lanes and by-lanes,
both in urban and rural areas.
• International brand helps to get entry.
• The key to successful product launching is segmentation.
• Markets leapfrog several decades of market development and become mature.
2.2 New Product

• The term ‘new product’ can suggest different meaning to different people.
• According to Booz and Allen, these are new to the world or really new products, e.g. Polaroid camera, Sony
walkman, Hewlett Packard’s laser printer, Xerox copier, Jet engine (about 10% of new products).
• A new product is perceived by the customer as being new. Research shows that in 70% cases, a new product
involves changes within the current product lines of a firm.
2.3 Factors Contributing to New Product Development

• While most factors are related to external environmental variables, the most important internal factor for new
product development is the surplus capacity of the firm at any given time. This is not the right approach, but
most companies do consider this. For example, Godrej launched a series of new brands of toilet soaps to fill its
surplus capacity after Pond’s walked out of Godrej’s manufacturing programme.
• The external environmental factors affecting are:
• Changing customer preferences due to changing lifestyles, changing roles of women, growth in the nuclear and
stand-alone families, increase in education and income levels, and manifold increase in the electronic media.
• Technological changes in industry and market e.g., colour TVs, satellites. Success of Maggi Noodles is credited
much to TV advertisings. Application of chip technology to the watch industry, which gave quartz watches.
• Government policies can encourage new product development, e.g., India’s broadest development of the TV
network to cover 70 % of the Indian population and launching of its own satellite INSAT 1B. Manufacturing
of compact cars by Maruti followed by new cars launched by Premier (118 NE), Hindustan Motors (Contessa)
and the flood of foreign carmakers, who entered India thereafter.
• Competition between companies to stay ahead results in development of more and more innovative and new
products.
2.4 New Product Development Process

The new product development process may vary from one firm to another, but generally has eight stages.
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Fig. 2.1 New product development process
2.4.1 Idea Generation

Kotler defines product idea as a possible product that the company might offer to the market. Idea generation means
to create a large pool of ideas. The sources for new product ideas are as follows:
• changing customer needs and trends in consumer markets
• competitors
• R&D scientists
• laboratories
• foreign markets and media
• employees
• trade channels
• top management
• the internet
2.4.2 Idea Screening

• The purpose of idea generation is to create a large number of ideas and the purpose of the succeeding stages
is to reduce that number. The first idea-reducing stage is idea screening, which helps spot good ideas and drop
poor ones.
• Product development costs rise greatly in later stages, so the company will want to go ahead only with the
product ideas that will turn into profitable products.
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• The object is to eliminate unsound concepts prior to devoting resources to them. Many companies require their
executives to write up new-product ideas on a standard form that can be reviewed by a new-product committee.
The write-up describes the product, the target market, and the competition. It makes some rough estimates of
market size, product price, development time and costs, manufacturing costs, and rate of return. The committee
then evaluates the idea against a set of general criteria.
• For example, at Kao Company, the large Japanese consumer-products company, the committee asks questions
such as these:
Is the product truly useful to consumer and society?
Is it good for our particular company?
Does it mesh well with the company’s objectives and strategies?
Do we have the people, skills, and resources to make it succeed?
Does it deliver more value to customers than do competing products?
Is it easy to advertise and distribute?
• Many companies have well-designed systems for rating and screening new-product ideas.
2.4.3 Concept Development and Testing

• An attractive idea must be developed into a product concept. It is important to distinguish between a product
idea, a product concept, and a product image. A product idea is for a possible product that the company can see
itself offering to the market.
• A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the
way consumers perceive an actual or potential product.
• A product concept, as defined by Kotler, is an elaborated version of the idea expressed in meaningful consumer
terms.
• For some concept test, a word or a picture may be sufficient; however, a physical presentation will increase
the reliability of the concept test. Consumers are asked to report to the concept by answering a set of questions
designed to help the firm decide which concept has the strongest appeal.
2.4.4 Marketing Strategy Development

The statement of the marketing strategy consists of three parts, which are as follows:
• description of the target market size structure, the planned product positioning and the sales, market share and
profit goals in the first few years
• outline of the planned price, distribution strategy and marketing budget for the first year
• description and details of the long run sales and profit goals and marketing mix strategy over time
2.4.5 Business Analysis

• Once the management develops the product concept and marketing strategy, it can evaluate the attractiveness
of the business proposal.
• Business analysis includes projections of sales, costs and profits to find out whether they satisfy company
objectives.
• If they do, the concept can move to the development stage. The business analysis can undergo revision as new
information comes in. The “break even” analysis is done and risk analysis is estimated.
• To estimate sales, the company might look at the sales history of similar products and conduct surveys of market
opinion. It can then estimate minimum and maximum sales to assess the range of risk.
• After preparing the sales forecast, management can estimate the expected costs and profits for the product
including marketing R&D operations accounting and finance costs. The company then uses the sales and costs
figures to analyse the new product’s financial attractiveness.
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2.4.6 Product Development
• In this stage, the product, which was only a description, or a drawing, or a prototype, is converted into a technically
and commercially feasible entity.
• The step involves a large leap in investment. R&D or engineering develops prototypes that will satisfy and
delight the customers and that can be produced quickly and at budgeted costs.
• Rigorous testing of the product is done, including functional tests under laboratory and field conditions to check
whether the product performs safely and effectively.
• An example of product development – Procter & Gamb1e (P&G) spends $150 million on 4,000 to 5000 studies
a year, to test everything from the ergonomics of picking up a shampoo bottle to how long women can keep their
hands in sudsy water. Last year, one elementary school raised $17000 by having students and parents take part
in P&G product tests Students tested toothpaste and shampoo and ate brownies while their mothers watched
advertising for Tempo tissue P&G’s paper wipes packaged to fit in a car.
2.4.7 Market Testing

• If the product passes the functional tests, it is dressed up with a brand name and packaging and put to a market
test. This yields valuable information about buyers, dealers, marketing programme effectiveness and market
potential.
• Not all companies undertake market testing, particularly if they have enough experience in the product line.
This also depends on the investment cost and the risk and the time pressure. Consumer products and business
products can benefit from market testing.
• The amount of market testing varies with the type of product. Costs can be enormous and it can allow competitors
to launch their products.
2.4.8 Commercialisation
• If the company goes ahead with commercialisation, it will have to begin manufacturing, marketing and promotion,
involving large costs.
• The company will have to decide when to launch the product, where to launch it, for whom and how to launch
it.
• Today, in view of the time pressure, many companies use network planning techniques, such as the critical path
scheduling, showing simultaneous and sequential activities needed to launch the product. The planner searches
for ways to reduce time along the critical path.
• Commercialisation is often confused with sales, marketing or business development. The Commercialisation
process has three key aspects:
The funnel. It is essential to look at many ideas to get one or two products or business that can be sustained
long-term
It is a stage-wise process and each stage has its own key goals and milestones
It is vital to involve key stakeholders early, including customers
• Commercialisation of a product will happen only if the following four questions can be answered
satisfactorily:
When?
− The company has to decide on the introduction timing. When facing the danger of cannibalising the
sales of the company’s other products, if the product can be improved further, or if the economy is
down, the launch should be delayed.
− Every single bank in Nigeria today has been commercialised. But it is sad enough to know that most
of these banks are not transparent in their various dealings with their clients/customers.
Where?
− The company has to decide where to launch its products. It can be in a single location, one or several
regions, a national or the international market. This decision will be strongly influenced by the com-
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pany’s resources, in terms of capital, managerial confidence and operational capacities.

− S maller companies usually launch in attractive cities or regions, while larger companies enter a na-
tional market at once.
− Global roll-outs are generally only undertaken by multinational conglomerates, since they have the
necessary size and make use of international distribution systems (e.g., Unilever, Procter & Gamble).
− Other multinationals use the “lead-country” strategy: introducing the new product in one country/
region at a time (e.g. Colgate-Palmolive).
For whom?
− The primary target consumer group will have been identified earlier by research and test marketing.
− These primary consumer groups should consist of innovators, early adopters, heavy users and/or
opinion leaders. This will ensure adoption by other buyers in the market place during the product
growth period.
How?
− The company has to decide on an action plan for introducing the product by implementing the above
decisions.
− It has to develop a viable marketing mix and create a respective marketing budget.
2.5 Product Adoption

The consumer adoption process focuses on the mental process through which an individual passes from first hearing
about an innovation (new product), to final adoption. The five stages of adoption are as follows:
• awareness
• interest
• evaluation
• trial
• adoption
Fig. 2.2 Product diffusion process
This also depends on the individual readiness to try new products. Based on a study made by Everett Rogers, people
can be classified into five categories -
• Innovators (2 ½%)
• Early adopters (13 ½%)
• Early majority (34%)
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• Late majority (34%)
• Laggards (16%)
Some marketers target lead users or innovators with their new products, who will then influence others and broaden
the market. Others disagree with this and contend that the most efficient and quickest route is to target the broader
or even mass-market directly.
2.6 Product Strategy

Product strategy is the action plan for the product to achieve the objectives of the company. Product strategy should
address three related questions which are as follows:
• Where are we headed? The focus is on basic objectives like growth versus profits.
• How will we get there? This is the core of product strategy and addresses issues such as whether to focus on
existing versus new customers. It is summarised in a Targeting and Positioning statement defining following
points:
• customer targets
• competitive targets
• the proposition (general offering) that will enable the firm to succeed
• What will we do? This addresses specific programmes or tactics to be employed in order to implement the
core strategy. Basically, it means working out the marketing mix (product, pricing, promotion, distribution,
service).
Benefits of strategy are as follows:

• It enhances coordination among functional areas of the organisation as well as within marketing. Different
departments of the organisation have different perspectives and hence the need for coordination.
• Defines how resources will be allocated – manufacturing, sales, service, finance
• It should lead to a superior market position. A good strategy takes cognisance of existing and potential competitors
and their strengths and weaknesses.
2.6.1 Elements of Product Strategy

• The elements constituting the product strategy are as follows:
• statement of the objective the product should attain
• selection of strategic alternatives
• selection of customer targets
• choice of competitor targets
• statement of the core strategy
• description of supporting marketing mix
• description of supporting functional programmes
• The first two elements establish the general direction of the strategy. The next three elements are the essence
of marketing strategy. Taken together, they are often referred to as “positioning”, that is, how the product is to
be differentiated from the competition in the minds of the target customers.
• The last two elements relate to the implementation of the strategy. There should be consistency between the
strategy and implementation.
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2.6.2 Setting Objectives
Fig. 2.3 Hierarchy of objectives
• An organisation has a variety of objectives, beginning with mission or vision and ranging from corporate to
product. Starting with corporate objectives and strategies through ‘divisional objectives’ and strategies to product/
brand objectives and strategies and finally programme objectives and tactics.
• We are mainly concerned with the product objectives and the two most commonly set for specific products are
growth in terms of sales revenues or market share–and profitability. A third objective could be cash flow.
• The first two objectives of growth and profit tend to work against each other and a trade-off between profits and
share of market is usually resorted to.
• The objective to be maximised might be called the primary objective and the objective acting as the constraint,
the secondary objective.
• Characteristics of good objectives are:
They should have quantified standards of performance.
They should be ambitious enough to be challenging, but not unrealistic.
They should have a time frame, within which objectives should be achieved.
2.7 Strategic Alternatives

The choice of strategic alternatives follows the selection of the primary objective. The diagram assumes the long
run objective to maximise long run profits (which in turn should maximise shareholder value). The options depend
on the objectives. If the objective is growth, the two main ways are market development and market penetration,
often by introduction of new products or extensions.
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Fig. 2.4 Strategic alternatives
2.7.1 Increasing Sales/Market Share – Market Development Strategies

• These are aimed at non-customers of the product. One approach is to pursue non-users in segments already
targeted, which is really to tap the remaining potential from those segments identified as prime prospects. In
short, old market, new customers.
• The second approach is to enter new markets, developing segments previously ignored by the product category.
In addition, of course, we have new products, old and new markets.
2.7.2 Market Penetration Strategies

• A company’s biggest asset is its customer base, and it should be leveraged as much as possible. Increase in sales
volume or market share can be done by increasing the usage rate of the brand’s existing customers. This can
be done by using larger package sizes, promoting more frequent use, or getting a larger share of the business if
the customer uses several vendors.
• Another route is to attract the competitor’s customers, i.e., customer acquisition by brand switching.
2.8 Increasing Profitability

Following are some ways to increase profitability:
2.8.1 Decreasing Inputs

• One way to increase profits is cost reduction, which usually means reduction of expenses on marketing such
as advertising, promotion, selling expenses, marketing research and so forth. But these cost reductions have
adverse, long run effects.
• Another way to decrease inputs is to improve the utilisation of the assets, by keeping down accounts receivable
and for a manufactured product, the costs of inventories, reducing wastage, and increasing efficiency.
2.8.2 Increasing Outputs

• The easiest way is to increase prices, reducing discounts and so forth. This can lead to drop in unit sales and
hence lost revenue. The competition may do likewise.
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• The other way is to improve the sales mix, by selling more of the profitable items (the 80/20 rule i.e., 20 percent
of the product variants produce 80 percent of the sales or profits).
• All that we have seen so far does not mean that the manager is limited to either growth or profits. Manager may
increase both to increase the consumption rate of current customers and to introduce product line extensions.
2.9 Positioning
2.9.1 Choice of Customer Targets
Choice of customer targets in selecting a customer target, three key considerations are critical:
• Size/growth of the segment: An important part of customer analysis focuses on which customer groups are
growing and how fast.
• Opportunities for obtaining competitive advantage: Competitor analysis assesses which market segments
competitors are pursuing and their claimed competitive advantages, the resources they can put into the market,
and their likely future marketing strategies.
• Resources available: This is specified in the self-analysis part of the assessment of competition.
2.9.2 Choice of Competitor Targets

• All strategic alternatives involve competition because positioning of the product is done against major
competitors.
• The strengths and weaknesses of competitors have to be assessed and then the product is positioned against a
weak company.
• Unfortunately, such easy targets are not always available. A strong second competitor might focus on offensive
warfare and target the leader.
2.9.3 Core Strategy

• The core strategy defines the differential advantage to be communicated to the target customers, often referred
to as ‘product positioning’, and made up of two basic categories. These include:
cost/price (economic) differential advantage
differentiation based on product offering or service features
• Differentiation can include psychological as well as functional benefits.
• The positioning decision has four steps:
Identify alternative positioning themes.
Screen the alternatives, whether each is meaningful to customers, feasible, given the firm and product resources
and customer perceptions, competitively sensible and helpful for meeting the product objective.
Select the position that best satisfies these criteria.
Implement programmes (e.g. advertising) consistent with the product position selected.
2.9.4 Cost/Price (Value) Strategy

• This focuses on price or “value” as opposed to product features or some other aspect of the product other than
price. Examples are Wal-Mart, NEC and others.
• Not all products can be low price leaders. You need size, capital and other resources. High volume, focused
production, efficient facilities and market share, attention to corporate overhead (size of staff, perks, fancy offices
and so on), cost in manufacturing products and delivering services, as well as advertising and promotion. Focus
should be on important activities in which their cost is high.
• This low price core strategy poses real risks. One is that customer tastes shift, and the large volume may no
longer be required. Secondly, technological advances can make it easier for competitors to match the costs or
make the product obsolete.
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• One advantage of this strategy is that, there is always some segment of customers, which is price sensitive. The
question is how large this price sensitive segment is.
2.9.5 Non-price Strategy

• A differential advantage that creates added value in the minds of customers enables the producer to obtain a
higher price than the pure competition case; customers focus on product benefits other than price.
• Typically five areas for differentiation exist:
Quality, with its many dimensions like improved performance, superior design, trouble-free performance,
reliability and durability, customer service
Status and image: Many consumer fashion brands such as Rolex watches and Polo clothing, use this
approach.
Branding: Brand names and their values communicated to customers, brand equity, serve as a point of
differentiation. IBM, McDonald’s, Nestle, Intel use this approach.
Convenience and service: Home shopping grocery services focus on convenience to get people with home
computers to change their buying habits and purchase from home.
Distribution: Differential advantage can be gained by reaching customers more efficiently and effectively
than competitors. For example, Federal Express, through its Powership terminals, allows its customers to
determine for themselves where their packages are in the system and to order the ‘product.’
• Non-price strategy requires continuous product improvements, may be in perception, to maintain differential
advantage.
• It also requires flexibility in both, production and management to keep up with changes in customer tastes and
competition.
• The risks involved are also considerable. The cost/price differential may become so great that customers are
willing to pay less to get less. The biggest problem is that the differential may disappear due to imitation.
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Summary
• As Philip Kotler says, companies that fail to develop new products are putting themselves at great risk. Their
existing products are susceptible to changing customer needs and tastes, new technologies, shortened product
life cycles and increased domestic and foreign competition
• The consumer adoption process focuses on the mental process through which an individual passes from first
hearing about an innovation (new product), to final adoption. The five stages of adoption are awareness, interest,
evaluation, trial, and adoption.
• The new product development process may vary from one firm to another, but generally has eight stages.
Idea generation is to create a large pool of ideas. The purpose of idea generation is to create a large number
of ideas. The purpose of the succeeding stages is to reduce that number. The first idea- reducing stage is idea
screening, which helps spot good ideas and drop poor ones as soon as possible. If the company goes ahead with
commercialisation, it will have to start manufacture, marketing and promotion, involving large costs.
• Statement of objectives, selection of strategic alternatives, and selection of customer and competitor targets,
core strategy, supporting marketing mix, and supporting functional programmes are essential elements of a
product strategy.
• The choice of strategic alternatives follows the selection of the primary objective. A company’s biggest asset
is its customer base, and it should be leveraged as much as possible. Increase in sales volume or market share
can be done by increasing the usage rate of the brand’s existing customers. This can be done by using larger
package sizes, promoting more frequent use, or getting a larger share of the business if the customer uses several
vendors.
• One way to increase profits is cost reduction, which usually means reduction of costs of marketing such as
advertising, promotion, selling expenses, marketing research and so forth. But these cost reductions have adverse
long run effects.
• Non-price strategy requires continuous product improvements, may be in perception, to maintain differential
advantage. It also requires flexibility in both, production and management to keep up with changes in customer
tastes and competition.
References
• Brand, M., 1998. New Product Development for Microfinance: Design, Testing and Launch, Microenterprise Best
Practices. Available at: < http://www.uncdf.org/mfdl/readings/NewProd2.pdf> [Accessed 2nd March, 2011]
• Hansen, E., Marketing and New Product Development, Available at: < http://www.forestprod.org/
smallwood04hansen.pdf > [Accessed 2nd March, 2011]
Recommended Reading
• Donald R. Lehmann and Russell S. W., 2004. Product Management, 4th edition, McGraw Hill Higher
Education.
• Hart, S., New Product Development, [Online]. Available at< http://www.download-it.org/free_files/filePages%20
from%20Chapter%2012.%20New%20product%20development.pdf> [Accessed 2nd March, 2011]
• Kotler, 2007. Framework for Marketing Management, 3rd edition, Pearson Education India.
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Self Assessment
1. The first idea-reducing stage is ______________, which helps spot good ideas and drop poor ones as soon as
possible.
a. idea screening
b. product development
c. market testing
d. commercialisation
2. In which stage the product, which was only a description, or a drawing, or a prototype, is converted into a
technically and commercially feasible entity?
a. Business analysis
b. Market testing
c. Idea generation
d. Product development
3. Which of the following statements is true?

a. Project strategy is the action plan for the product, to achieve the objectives of the company.
b. Market strategy is the action plan for the product, to achieve the objectives of the company.
c. Product strategy is the action plan for the product, to achieve the objectives of the company.
d. Product planning is the action plan for the product, to achieve the objectives of the market.
4. ____________ strategy requires continuous product improvements, may be in perception, to maintain differential
advantage.
a. Non-price
b. Marketing
c. Cost/price
d. Positioning core
5. Which of the following should have quantified standards of performance?

a. Product strategies
b. Good objectives
c. Core strategy
d. Idea screening
6. Which is a stage-wise process and each stage of it has its own key goals and milestones?
a. Idea screening
b. Product development
c. Business analysis
d. Commercialisation
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a. If the product passes the functional tests, it is dressed up with a brand name and packaging and put to a core
strategy test.
b. If the market passes the functional tests, it is dressed up with a brand name and packaging and put to a
product test.
c. If the product passes the functional tests, it is dressed up with a brand name and packaging and put to a
market test.
d. If the product passes the functional tests, it is dressed up with a brand name and put to a functional test.
8. Which of the following statements is false?

a. Commercialisation is often confused with sales, marketing or business development.
b. Commercialisation is vital to involve key stakeholders early, including customers.
c. Commercialisation a stage-wise process and each stage has its own key goals and milestones.
d. The purpose of commercialisation is to create a large number of ideas.
9. A _____________is a detailed version of the idea stated in meaningful consumer terms.

a. product concept
b. market concept
c. market testing
d. product testing
10. Increase in sales volume or ___________ can be done by increasing the usage rate of the brand’s existing
customers.
a. Product strategy
b. Product
c. Market share
d. Market strategy
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Chapter III
Marketing Management
Aim
• elaborate on marketing planning and sales forecast
• study different organisation structures for marketing
• examine different types of marketing channels
Objectives
• determine the steps involved in planning process
• understand the market potential, sales potential, and sales forecasting
• analyse the structure of product focused organisation
Learning outcome
• identify and understand the objectives of the marketing plan
• state the uses of sales forecasting
• give the outline of marketing plan
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3.1 Introduction
Marketing management is a process involving organising, planning, implementation and control of a firm’s marketing
activity. It is particularly important since marketers function in a dynamic environment. The marketing opportunities
facing organisations depend on the changing needs of society. Consumers are becoming more sophisticated and
more discerning in their expectations. Globalisation of the marketplace has not only created new possibilities but
also the challenge of new competition. Even within their home markets, environmental concerns and changing
demographics are presenting new challenges for marketers.
3.2 Marketing Organisation

We have seen the typical tasks of a product manager, but these vary quite widely from organisation to organisation,
depending on how marketing is organised. There are basically three organisational structures for marketing: organising
by product, organising by market, and organising by function.
3.2.1 Product Focused Organisation
Fig. 3.1 Product-focused structure
• Figure given above provides a general view of the classic ‘brand’ management structure of the marketing
organisation. The product manager acts as a ‘mini CEO’, with full responsibility of the brand.
• The weakness is the narrow focus on one product, which can lead to an inability to step back and ask more
fundamental questions about customer needs.
• When significant differences exist in regional tastes, this structure has weaknesses. The product managers tend
to become biased in their quest for short-term sales and market share goals. For industrial products especially,
this organisation results in several sales people representing different products from the same company calling
on the same customer.
• Advantages of this system are as follows:
There is only one person responsible for the success of the product.
The organisation can turn to this one person for information about the product.
Product managers’ training experience is invaluable as they are able to work with other departments of the
organisation and develop persuasion and communication skills.
The training and experience gained make them wanted by other companies.
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3.2.2 Market Focused Organisation
Fig. 3.2 Market-focused structure
• This type of structure defines marketing authority by market segment, like industry channel, regions of the
country or world or customer size.
• This structure is useful when there are significant differences in buyer’s behaviour among the market segments,
which lead to differences in the strategies and tactics used.
• For example banks and their corporate customers and consumer business, are quite different in nature.
• The advantages are as follows:
• The focus is on the customer and hence makes it easier to consider changes in customer tastes and modify or
eliminate, if necessary, some of the products.
• Useful when the product is a total bundle (like a project) with a number of products made by the company or
when the customer purchases a number of different products from the company.
• The product managers often have better knowledge of the company’s products than in a product focused
company.
• The drawback here is the conflict that may erupt with the product management structure that may lie beneath
it. In addition, some of the mini-CEO training and experience of traditional manager is lost.
• However, most of the skills procedures and activities, required to be a good product manager, are critical for
this structure also.
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3.2.3 Functionally Focused Organisation
Fig. 3.3 Functionally-focused structure
• In this structure, the focus is on marketing functions such as advertising and sales promotion. Sales and market-
research can be separate functions.
• However, no single person is responsible for the day-to-day health of a product. Marketing strategies are designed
and implemented through the coordinated activities.
• This structure works well when there are only one or two products.
• Coordination becomes difficult when there are more products. Secondly, there is no one single person responsible
for the product. The training also focuses on function rather than general management education.
• The advantages are as follows:
Administratively simple - the groups are designed to be parallel to normal marketing activities.
Functional training is better and the persons involved bring better skills to that area.
The marketing head does much of the planning because of his broader business perspective.
3.3 Marketing Channels
Fig. 3.4 Indirect and direct marketing channels
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• Marketing channels are parts of the ‘marketing network’, which consists of the company and its supporting stake holders
(customers, employees, suppliers, distributors, retailers, ad agencies, and others) with whom it has built mutually
profitable business relationships. Competition is not between companies but between marketing networks.
• Marketing channels are used to reach a target market. Marketing channels consists of following points:
Communication channels (which deliver and receive messages from target buyers and include newspaper,
radio, television, mail, billboards, posters, fliers, audio-video tapes and the Internet).
Distribution channels to display, sell, or deliver the physical product or service(s) to the buyer. They include
distributors, wholesalers, retailers and agents.
Service channels to carryout transactions with potential buyers. They include warehouses, transportation
companies, banks, and insurance that facilitate transaction.
• Choosing the best mix of these channels is the marketer’s job and needs to be done with great care.
• The product manager has to develop these channels and maintain good channel relations. Distribution channels
take some time to develop and are assets to be nurtured. They cannot be changed easily.
3.3.1 Channel Selection

• Most producers do not sell their goods directly to the final users. Between them stands a set of intermediaries
performing a variety of functions. They constitute a marketing channel (also called a trade channel or distribution
channel).
• There are direct and indirect channels and the product manager has to make a choice.
• Direct refers to a ‘zero level channel’ where the manufacturer sells directly to the end-user.
• Direct channel is better than the indirect when:
information needs (technical complexity) are high
product customisation is important
quality assurance matters
purchase orders are large
transportation and storage are complex
• Indirect refers to a two or multi-level channel with intermediaries or middlemen such as wholesaler, retailer,
jobber. Consumer marketing channels are different from industrial marketing channels.
• Indirect channel is better when:
one-stop shopping for many product is important
availability is vital
after sales service is important
• Middlemen or intermediaries specialise in buying and selling, storage, transportation, assembling, financing,
and marketing research and promotion. The producer performs all these functions.
• Another factor to consider between direct and indirect channels is the level of commitment from the potential
intermediaries. Channel members must be motivated to sell your product when they have multiple products to
sell.
• Higher margins are important, as well as, exclusive rights to distribute or sell the product in a particular geographic
area. Channel commitment can also be gained by providing sales training programmes promotions such as
cooperative advertising and ‘pull’ support through customer, providing target advertising.
• The channel members may some times compete with your products like store brands or private labels.
• Customer loyalty to channel member and not to the manufacturer is another factor that affects the decision of
direct and indirect channel.
• Advances in Information Technology have disrupted channel structures of many industries. Electronic shopping
services and telemarketing are now added to the channel mix, and existing channels are bypassed. For example,
Walmart’s deliveries come directly from manufacturers as the suppliers are tied-in directly into Walmart’s central
computers which track sales by item.
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3.3.2 Indirect Channels

The main members in this type of channels are representatives, wholesalers, and retailers. The distribution/value-
added chain is shown below.
Fig. 3.5 The indirect channel
Representatives
• Representatives are agents who sell the product or service but carry no inventory or merely refer orders back to the
manufacturers. Representatives are common for many industrial goods as well as insurance and real estate.
• They are low-cost way to reach the large number of intermediaries or final customer. Most often they work on
a non-exclusive basis (handle many products and/or clients) and the product manager’s control is limited.
• Wholesalers
• Wholesalers/distributors physically take possession of the product and then resell it to retailers.
• They provide an efficient way to reach multiple small retailers.
• Retailers
• Retailers take possession of the product and resell it to the final customers.
• They could be speciality stores, departmental stores, discount stores and such.
Channel members as value added intermediaries

• Each channel member adds value in the chain. They can survive in a free market only if they add value to the
product. They are compensated through margins based on the value of the services delivered.
• Following services are provided by channel members:
Marketing research: gathering information necessary for planning and facilitating interactions with
customers.
Communications: developing and executing communications about the product or service
Contact: seeking out and interacting with prospective customers.
Matching: it involves shaping and fitting (customising) the product or service to the customer’s
requirements.
Negotiation: reaching final agreement on price and other terms of the transaction.
Physical distribution: transporting and storing goods (inventory).
Financing: providing credit or funds to facilitate the transaction.
Risk taking: assuming risks associated with getting the product or service from firm to customer.
Service: developing and executing ongoing relationships with customers, including maintenance and
repair.
3.3.3 Direct Channels

Direct channels provide more control. The options available are:
• Own store, either wholly owned or franchised. Sufficient volumes are required to justify operation.
• Sales force is excellent in establishing personal relationship, but they are quite expensive.
• The Internet
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• The web has become a standard part of the direct channel. It is not the first new communication technology—
we have seen how the printing press, the radio, television, all revolutionised marketing. Mail, telegraph, and
telephone, railway and highway systems, and fax, all provide communication required and are still in use, in
spite of the Internet.
• For most products it is not an adequate channel, as Internet moves information, but not the products (except
music, software). Lastly, its ‘widespread availability’ is limited, even in the USA.
• The advantages of the Internet are :
It is interactive.
It is inexpensive.
It has broad scope (not limited geographically).
It is fast.
• The shortcomings are:
Cannot provide physical product (i.e., other channels are required for this).
Cannot provide human contact.
Trade shows
• This is also a direct channel, but often overlooked.
• It plays a key role in many categories. Trade shows generate publicity and sales leads, as also actual sales.
3.3.4 Hybrid Channels

These are a combination of channels. A common approach is to use direct sales to large accounts, and wholesaler
to small accounts.
Selection and use of all channels

All channels cannot be selected and used for two reasons:
• Cost: Each channel requires an additional fixed cost (establishing accounts hiring and providing benefits for
sales staff or building and maintaining a website.
• Channel incentives and conflict: A channel’s enthusiasm to support a product decreases when other channels
compete with the same market. Channel selection involves selecting a portfolio of approaches that is neither too
large (which makes it inefficient, gives little incentive to any channel member to promote the product and leads
to conflict among the channels) nor too small (leaving important customer segments or activities uncovered).
3.3.5 Indirect Channel Management

When the incentives and goals of the manufacturer and the channel are consistent, channel management becomes
easy. Manufacturers generally want to exert some control over the channel and this is generally done by contractual/
legal provisions, self-interest and human contact.
• Contractual/legal provisions: Some level of written agreement is often useful for setting expectations and
delineating roles, but this does not guarantee the wanted performance. It is difficult and expensive to monitor
behaviour and to enforce the agreement.
• Self-interest: All businesses act to maximise their profits and channels do the same. If the manufacturer is a large
company, it can have more control over a channel than a small manufacturer. The reverse is also true.
• Human contact: Regular contacts between company personnel and channel personnel are likely to encourage
desirable behaviour much beyond that driven by contracts and economic self-interest.
• Power: Generally, the party with the most power calls the shots and dominates the relationship. The factors that
affect the balance of power are as follows:
The channel’s volume of sales of the product relative to the company’s total product sales
The differentiation of the product compared to competitors’ products.
The switching costs for the channel to replace the product.
The threat of backward integration by the channel
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The level and quality of information available with the channel member compared to the product manager’s
information.
• Product managers can deal with ‘power retailers’ like Walmart in the following manner:
If customers come to the store and ask for the product by brand name, the retailer’s power is diluted.
Customise products and promotions, which mean treating each chain as a separate market segment and
developing a unique approach for each, such as separate brand names.
Innovate constantly.
Organise around the customers, i.e., retailers.
Invest in technology. Manage inventories and monitor sales performance using the latest technology available,
matching that with retailers.
Cut costs to keep prices down.
Support smaller retailers as well. They may grow and support you in the future.
3.3.6 Channel Arrangements

Channels perform many duties and are compensated for it, which is open to negotiation. The important areas of
arrangement are as follows:
• service
• delivery
• price
• returns and allowances policy
• support level given by the channel (e.g., display) and the channel by the company (e.g. advertising)
• degree of exclusivity afforded by the channel and product (should the dealer sell multiple brands?)
• compensation expected for a sale when direct company sales effort and a channel’s region and customers
overlap
• inventory – who holds it and who pays for it
3.3.7 Monitoring Profitability by Channel

• Many aspects of a channel need to be monitored – effort, specific support programme (e.g. advertising), quality
level (cleanliness, intelligence of personnel, etc.), and most important is profitability by channel with the implicit
objective of adding or deleting a channel.
• The product manager has to assess the profitability of channels carefully and not jump to hasty conclusions.
3.4 Market Planning

• The product manager’s key responsibility is developing a marketing plan. In fact, marketing planning has become
a major activity in most firms. The development of marketing plans, which are generally annual and focus on
a product or one or more product lines, is an important function for marketers, one that is believed to improve
both coordination and performance.
• A marketing plan is a written document containing the guidelines for the business centre’s marketing programs
and allocations over the planning period. The emphasis is on ‘written’ document, which calls for disciplined
thinking; on ‘business centre’ level i.e., the profit centre or SBU; and finally on ‘planning period’, which can
vary from product to product, with short periods for retailing and longer periods for consumer durables and
industrial goods. The plan could cover several years for automobiles with annual updates. The typical time
frame is annual.
• The marketing plan can be divided into two general parts: the situation analysis, which analyses the background
of the market for the product and the objectives, strategy, and programs that direct the product manager’s
actions.
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• It is worth noting that strategic planning and marketing planning are quite distinct. Strategic planning usually
takes place at a higher level in the organisation than marketing planning and happens at the corporate or group
level.
• At this level, the objectives are broad (e.g., return on investment or assets) and strategies are general. Marketing
planning takes place at the business centre level and has specific objectives (e.g., market share) and strategies
(e.g., pursuing the small–business segment). A second difference is that due to the long-term nature of strategic
plans, they usually have a longer time horizon than marketing plans; a period of three to five years or more is
normal.
• The objectives of a marketing plan are to:
define the current situation being faced in product development
define problems and opportunities faced in the business
establish objectives
define the strategies and programs necessary to achieve the objectives
pinpoint responsibility for achieving product objectives
encourage careful and disciplined thinking
establish a customer-competitor orientation
3.5 The Planning Process

• Two general approaches to planning have been developed. In top-down planning, the market plans are formulated
by senior or middle management with the aid of staff and product management and then implemented by the
latter.
• In the bottom-up planning, the lower ranks down to field salespeople are actively involved in the planning
process through collecting competitor and customer information and making forecasts.
• The information is subject to higher-level review, but lower management personnel play key roles in the process.
Bottom-up planning systems have better implementation than top-down approaches, since the people charged
with executing the plan are involved in its development.
• Steps in the planning process are as follows:
update the facts about the past
collect background data
analyse historical and background data
develop objectives, strategies, and action programs
develop pro forma financial statements
negotiate
measure progress
audit
The planning sequence is a logical flow of events leading from data collection and analysis to strategy formulation
to auditing the performance of the plan.
3.6 Marketing Plan Outline

Following are the main aspects considered while designing a marketing plan.
3.6.1 Executive Summary

It involves one to three page synopsis of the plan providing highlights of the current situation, objectives, strategies,
principal action programs, and financial expectations.
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3.6.2 Situation Analysis

Category analysis
• Aggregate market factors
category size
category growth
stage in the product life cycle
sales cycle
seasonality
profits
• Category factors
threat of new entrants/exits
bargaining power of buyers
bargaining power of suppliers
pressure from substitutes
category capacity
current category rivalry
• Environmental factors
technological
political
economic
regulatory
social
Company and competitor analysis
• product features matrix
• objectives
• strategies
• marketing mix
• profits
• value chain
Differential advantage/resource analysis

• ability to conceive and design new products
• ability to produce/manufacture or deliver the service
• ability to market
• ability to finance
• ability to manage
• will to succeed in this category
• expected future strategies
Customer analysis
• Who are the customers?
• What do they buy and how do they use it?
• Where do they buy?
• When do they buy?
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• How do they choose?
• Why they prefer a product?
• How they respond to marketing programs
• Will they buy it again?
• long-term value of customers
• segmentation
• Planning assumptions
market potential
category and product sales forecasts
other assumptions
3.6.3 Objectives
• corporate objectives (if appropriate)
• divisional objectives (if appropriate)
• marketing objective(s)
• volume and profit
• time frame
• secondary objectives (e.g., brand equity, customer, and new product)
• program (marketing mix)
3.6.4 Product/Brand Strategy

• customer target(s)
• competitor target(s)
• product/service features
• core strategy
• value proposition
• product positioning
3.6.5 Supporting Marketing Programs

• integrated marketing communication plan
• advertising
• promotion
• sales
• price
• channels
• customer management activities
• website
• marketing research
• partnerships/joint ventures
3.6.6 Financial Documents

• budgets
• pro forma statements
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3.6.7 Monitors and Controls

• marketing metrics
• secondary data
• primary data
3.6.8 Contingency Plans

• Also known as a disaster recovery plan, the contingency plan is simply a secondary or alternative course of
action that can be implemented in the event that the primary approach fails to function as it should.
3.7 Marketing and Sales

• One of the key elements in a product manager’s portfolio is ‘market and sales potential’. Based on this, the
manager ‘forecasts’ sales, taking into account the numerous factors that affect business.
Potential: The maximum sales reasonably attainable, under a given set of conditions within a specified
period of time (i.e., what you might or could achieve).
Forecast: The amount of sales expected to be achieved under a set of conditions within a specified period
of time (i.e., what you probably will achieve).
• Potential represents what ‘could’ happen while forecasts represent ‘expectations’ which (usually) fall far below
the potential in a market. Both potential and forecasts depend on a set of conditions which are as follows:
What customers do?
What the company does?
What competitors do?
What occurs in the economic and cultural environments?
• They are time dependent, that is what may not be possible in the short run, may be quite attainable in the long
run. Strategic plans depend on long term potential while annual plans focus mainly on short-term potential
forecasts.
3.8 Market and Sales Potential

• Market or sales potential changes depend on market factors such as average category price or general economic
conditions.
• It is quite difficult to estimate the upper limit or maximum of sales. It is also dynamic and changes over time.
Hence the term ‘under a set of conditions within a specified period of time’ is used.
• Sales potential is the first-level analogy to market potential. This can be obtained by multiplying the estimated
market potential by the market share of the firm. This share fixing should represent potential share, which the
firm could achieve under optimal conditions.
• Uses: There are five major uses of ‘potential’ which are as follows:
To make entry/exit decisions. Decisions of what markets to be in are taken based on these key
considerations
To make resource level decisions
To make location and other resource allocation decisions
To set objectives and evaluate performance
As an input to forecasts
• Information sources: The general approaches to assessing potential are:
Past sales data (not valid for production)
Government sources
Trade Associations
Private companies (to track and forecast sales for various industries)
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Financial and Industry Analysts
Popular press
The Internet
3.9 Sales Forecasting
• This deals with expectations in the future. The focus is on sales, market share, and profits. Resources used should
also be taken into account and forecast correctly. Cost is also an important factor to forecast.
• The other factors, to be forecast, include the rate of change of technology and general economic conditions.
Finally, in global businesses, currency exchange rates need to be forecast.
• The uses of forecasts are: as follows
To help set budgets and the resources required.
To provide a base for a monitoring system. Deviations from forecasts serve as warnings to product managers
to re-examine the market and their strategy in it and lead to a better understanding of the market and the
underlying causes.
To aid in production planning – accurate forecasting helps in just-in-time production and distribution systems
with low-level inventory.
By financial analysts to value a company
• A good forecast takes into account four major categories of variables:
customer behaviour
past and planned product strategies
competitor action
the environment (state of the economy, key industries, demographic changes in the population, costs of
basic resources)
• A forecast should not be a single number but rather a range of possible outcomes based on which strategies can
be worked out for the different likely numbers. Normally, the forecasts are limited to three - expected, benign
and hostile (or most likely, optimistic and pessimistic).
• The level of accuracy is a function of the time spent on forecasting, which means the cost. Hence, good
management judgement is required.
3.10 Methods of Estimating Market and Sales Potential

Following methods may be used to determine market and sales potential.
3.10.1 Analysis Based Estimates

• Determine the potential buyers or users of the product (buyers are customers who have the need), the resources
necessary to use the product, and the ability to pay. An alternative approach is to find out who cannot qualify
as a potential customer.
• Determine how many are in each potential group of buyers defined by step 1.
• Estimate the purchase or usage rate. This can be done by taking either the average purchasing rate determined
by surveys or other research. Market potential is then calculated by multiplying the number obtained from step
2 by the number from step 3.
• For example, take the consumption of ice cream. If the total population is 250 million, of these 20 million suffer
from diabetes (and hence cannot consume regular ice cream), and 30 million are lactose intolerant, leaving
200 million potential customers. On average, if the consumption per person is 28 litres per year, this means
potential is 200 x 28 million litres per year (5.6 million litres), which at Rs.100 per litre, translates into Rs.560
billion market.
• This method has to be used very carefully and proper judgement has to be applied to check if the estimate
makes sense.
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• The factors that are used to obtain a weighted index for a particular area or region depend on the area and the
product.
3.10.2 Judgement Based Methods

A large number of books have been written on methods for forecasting. The four basic approaches are judgement
based, customer based, sales extrapolation, and model based. The first method, judgement based relies solely on
judgement. The extrapolation method uses the last year sales level and adds a percent, the estimated percentage
change in sales. For example, sales of refrigerators could be forecast to be 6 percent more than last year’s.
Sales force composite

• Sales people are asked to make sales forecasts. Their forecasts can, then, be aggregated to create a sales forecast
for the product or product line.
• These forecasts should actually be quite accurate as the sales people are close to customers and thus are in an
excellent position to understand their purchasing plans.
• Unfortunately, they are either on the low side (if they are used to set quotas for the sales people) or on the high
side to impress the sales manager.
Delphi method
• The process begins by asking a number of individuals to independently produce a forecast. An outside person
collects the forecasts and calculates the average.
• Next, the person returns to each participant both the original forecast and the average and asks the participants
to reconsider their initial forecasts. Typically, the participants then change their forecasts to more nearly be
conventional to the average.
• If the process is repeated several times, consent is generally achieved. Delphi panels are often resorted to for
forecasting sales of new technologies for which historical data do not exist.
• Jury of expert opinion
• An extreme example of this method relies on a single expert’s opinions. This method, with all its flaws, does
help as a supplement to other methods.
3.10.3 Customer Based Methods

This set of methods relies on customer data.
• Market testing: This involves primary market research, including small intercept surveys, focus groups and
at-home or at-work situations in which potential customers are asked to respond to a product concept.
• Market surveys: Here again, there is a specific form of primary market research. Questionnaires are prepared
and given to potential customers for filling up. Extrapolation is then done to form demand forecasts. Purchasing
agents are often surveyed to determine demand for industrial products.
• Sales extrapolation methods: This third set of methods utilises historical sales data and several mathematical
time-series approaches, which are available, such as moving averages, exponential smoothing regression analysis,
etc. Details of these are found in books and articles have to be consulted.
• Model Based Methods: This is the fourth category of forecast methods, including regression analysis, loading
indicators, econometric models, details of which can be found in specialised books.
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Summary
• Marketing management is a process involving organising, planning, implementation and control of a firm’s
marketing activity.
• There are basically three organisational structures for marketing: Organising by product, by market, and by
function.
• Marketing channels are parts of the ‘marketing network’ which consists of the company and its supporting
stake holders (customers, employees, suppliers, distributors, retailers, ad agencies, and others) with whom it has
built mutually profitable business relationships. Competition is not between companies but between marketing
networks. Marketing channels are used to reach a target market. There are direct and indirect channels and the
product manager has to make a choice.
• Direct refers to a ‘zero level channel’ where the manufacturer sells directly to the end-user. Indirect refers to a
two or multi-level channel with intermediaries or middlemen such as wholesaler, retailer, jobber.
• Consumer marketing channels are different from industrial marketing channels. The main members in an indirect
type of channels are representatives, wholesalers, and retailers.
• A marketing plan is a written document containing the guidelines for the business centre’s marketing programs
and allocations over the planning period. The marketing plan can be divided into two general parts: the situation
analysis, which analyses the background of the market for the product and the objectives, strategy, and programs
that direct the product manager’s actions.
• The planning sequence is a logical flow of events leading from data collection and analysis to strategy formulation
to auditing the performance of the plan.
• Potential is the maximum sales reasonably attainable, under a given set of conditions within a specified period
of time (i.e., what you might or could achieve).
• Forecast is the amount of sales expected to be achieved under a set of conditions within a specified period of
time (i.e., what you probably will achieve).
• Sales potential is the first-level analogy to market potential. This can be obtained by multiplying the estimated
market potential by the market share of the firm. This share fixing should represent potential share, which the
firm could achieve under optimal conditions.
References
• Chandon.P., Marketing Management [Online] Available at < http://faculty.insead.edu/chandon/personal_page/
Documents/Teaching-EMBA_Syllabus.pdf > [Accessed 3rd March 2011].
• Kotler .P., 2001. Marketing Management, Millenium Edition [Online]. Available at: <http://www.saokim.com.
vn/files/download/marketing/marketing-management.pdf> [Accessed 3rd March 2011].
• Paul Christ, 2011, Knowthis.com [Online] (Update 7 March 2011). Available at: <http://www.knowthis.com/
principles-of-marketing-tutorials/marketing-planning-and-strategy/ > [Accessed 3rd March 2011].
Recommended Reading
• Loudon D.L., Stevens R.E., and Wrenn B., 2004. Marketing Management, The Haworth Press, NY, Routledge.
p.373.
• Peter J.P., Donnelley J.H., 2010. Marketing Management. 10th edition. Mc-Graw Hill Companies. p.848.
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Self Assessment
1. _______________ organisation is useful when there are significant differences in buyer’s behaviour among the
market segments, which lead to differences in the strategies and tactics used.
a. Market focused
b. Product focused
c. Functionally focused
d. Indirect channel
2. Which of the following statement is false with respect to advantages of product focused organisation?
a. There is only one person responsible for the success of the product.
b. The organisation can turn to one person for information about the product.
c. The training and experience gained make them wanted by other companies.
d. The product managers often have better knowledge of the company’s products than in a product focused
company.
3. Which of the following works well when there are only one or two products?
a. Product-focused structure
b. Functionally-focused structure
c. Market-focused structure
d. Marketing channels
4. _____________ are used to reach a target market.

a. Product-focused structure
b. Functionally-focused structure
c. Marketing channels
d. Market-focused structure
5. Which of the following is false?

a. Direct method is better than the indirect when quality assurance matters.
b. Direct method is better than the indirect when product customisation is important.
c. Direct method is better than the indirect when purchase orders are large.
d. Direct method is better than the indirect when after sales service is important.
6. _______________ take position of the product and resell it to the final customers.
a. Wholesalers
b. Retailers
c. Representatives
d. Channel members
7. Which of the following is false with respect to advantages of internet?

a. It is interactive.
b. It is fast.
c. It plays a key role in many categories.
d. It has broad scope (not limited geographically).
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8. Which process begins by asking a number of individuals to independently produce a forecast?
a. Delphi method
b. Market surveys
c. Sales forecasting
d. Analysis based estimates
9. The marketing plan can be divided into two general parts: the situation analysis and __________.
a. potential
b. programs
c. forecasts
d. sales
10. Which is the fourth category of forecast methods, including regression analysis, loading indicators, econometric
models, details of which can be found in specialised books?
a. Market survey
b. Market testing
c. Sales Extrapolation method
d. Model based method
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Chapter IV
Pricing Strategy, Advertising and Promotion
Aim
• analyse the steps involved in setting a price to meet the pricing objective
• investigate the relationship between price and perceived value
• explore the role of marketing strategy in pricing
Objectives
• understand the price and customer value
• determine the different pricing strategies and the pricing tactics available
• study the factors in setting the marketing communications mix
Learning outcome
At the end of this chapter, the students will be able to:
• learn about pricing strategy
• explain the concept of advertising and sales promotion
• illustrate the media planning and budgeting
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4.1 Introduction
Price, one of the key elements of the marketing mix, is what produces the revenue. The other elements produce costs.
Prices are easy to adjust and it takes very little time, compared to changing product features, channels and promotion.
Price is the value positioning of the company’s product or brand. Price has always been the major determinant of
buyer choice, more so in poorer nations and among poorer groups and with commodity-type products. Non-price
factors have become more important in the recent past, but price still remains one of the most important elements
determining market share and profitability.
Price goes by different names like rent, tuition-fee, doctor’s fee, airline, taxi and railway fares, bank interest, toll,
insurance premium, wage, commission and so on. With all the importance that pricing deserves, many firms do not
handle it well. Pricing is too cost-oriented and is set independent of the other elements of the marketing mix; it is
not revised often enough to capitalise on market changes and price is not varied enough for different product items,
market segments, distribution channels and purchase occasions.
4.2 Setting the Price

• No decision is more critical than the appropriate price to charge customers. It is a readily observable component
of the product that results in consumers purchasing or not purchasing it and also affects margin per unit sold.
With most of the products having similar features and quality, price becomes one of the key elements in a
customer’s buying decision.
• Cost-based pricing is the traditional way, because most of the time, accountants or financial analysts have fixed
the prices, or perhaps the top management.
• Costs do matter in setting price. But ‘customer value’ (what a product or service is worth to the customer in
rupees) is much more important. The company must set its price in relation to the value delivered and perceived
by the customer. If the price is higher than the value received, the firm will loose out on potential profits; if the
price is lower than the value received, the firm will fail to reap profits.
• The company has to consider many factors in setting its pricing policy. The six-step procedure by Kotler is
useful and effective is as follows:
selecting the pricing objective
determining demand
estimating costs
analysing competitor’s costs, prices and offers
selecting a pricing method
selecting final price
4.3 The Role of Marketing Strategy in Pricing

• Marketing strategy is first designed and then implemented with the marketing mix. The price must be consistent
with the marketing strategy that is developed, consisting of market segmentation and core strategy or product
positioning decisions. Strategy decisions do not lead to a specific price-setting rule; rather they give general
guidelines for whether a price should be low or high.
• The product manager needs to understand the price sensitivity of the different market segments and how much
price flexibility (i.e., the width of the price band) exists in the targeted segments. Price variations exist within
segments because of the following reasons:
Customers become brand loyal to certain products or suppliers. They tend to rate price relatively low
compared to other factors like reliability, speed of delivery, brand equity and so forth.
In some industries, the price charged is less visible than it is at super markets or other retailers, where the
price is marked on the item. For many industrial products, the list price is only a basis from which discounts
that vary among customers are given.
Competitive intensity can vary among segments; the larger the number of suppliers and the more intense
the competition, the narrower the price band.
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4.3.1 Measuring Perceived Value and Price

• We have already seen that the key to setting price and understanding why customers react the way they do to
prices is perceived values.
• Customers have some notion of what constitutes a good or a bad price. This notion is developed by comparing
the price to the perceived value or benefits that would be derived through purchasing. It can be also developed
by comparing price to a reference point, like the past price.
• We consider three possible relations among perceived value, price and variable cost.
Perceived value > price > variable cost
Price > perceived value > variable cost
Price > variable cost > perceived cost
Rs. Customer value

Price (A)
Price (B)
Cost
Fig. 4.1 Gap between customer value and cost
• We assume that the price is greater than variable cost in all the three situations. In the first case, the manufacturer
charges less than the customers’ true perceived value, thus, sacrificing profits. Customers think that they are
getting a bargain, but they do not tell this to the manufacturer.
• In the second scenario, the situation is unfortunate. The customers think that it is a ‘bad deal’ and do not buy
the product.
• In the third case, it is a total failure and the product has to be weeded out in the new-product development
process.
• In the above figure, the maximum price that can be charged is the customer value. Price A gives most of the value
to the producer, while price B gives most of the value to the customer, thus enhancing customer satisfaction
and building market share.
4.3.2 The Economic Value Concept

• For industrial products particularly, a useful way to estimate customer value is through a method called ‘value-
in-use’ (sometimes referred to as field value in-use). The total customer’s economics are estimated for a reference
product (which could be a competitor’s product). If the purchase price of the reference product is Rs.30, 000;
and if the start-up costs are Rs.20, 000 and the post purchase costs are Rs.50, 000 (e.g., for maintenance) the
total life cycle costs become Rs.1, 00, 000.
• Assuming the product manager’s product has less start-up and post purchase costs, say less Rs.10, 000 each
through some additional features and less consumption, then the customer should be willing to pay Rs. 30, 000
more for the product (Rs.20, 000 in reduced life cycle costs plus Rs.10, 000 extra value).
• If the variable cost of the product is Rs.30, 000, the product manager can even price his product at Rs.60, 000
bringing the life cycle costs to Rs.1,10, 000 (Rs.60, 000 for the purchase price and Rs.50, 000 for the start-up
and maintenance costs). He can even reduce the purchase price and give some inducement to the customer.
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4.3.3 Using Price Thresholds
• Another approach is by using price thresholds, which involves primary marketing research. One important
threshold is called the reservation price, which is the highest price a customer would pay for a product.
• The second threshold is the lowest price that a customer would pay for the product. Obviously, a customer
would pay as little as possible, but often they associate low price with low quality and hence there is the low
price threshold.
• These two thresholds are then used by the product manager to price his product, by identifying customers most
likely to buy the product and these respondents are then shown a card with a range of prices and asked questions
as to the maximum and minimum prices one would pay and the most acceptable price.
4.3.4 Using the Perceived Value Concept

• Consider a functional relationship among market share, perceived value and price: Market share is proportional
to ƒ
• This proportional relationship provides some useful insights into managerial behaviour. How can an observed
decline in market share of a product be reversed? The immediate response is usually a decrease in the denominator
i.e., a price cut, either through list price or a price promotion. The other way is to increase the numerator, that
means increase the perceived value of the product. This can be done by following ways:
improve the product itself (quality, offer better service, or a longer warranty period)
advertise to enhance the product’s image
institute value-added services, such as technical support or financing in the distribution channels
improve the sales effort by training the sales force to sell value rather than price
• Reducing price is a more common way to regain share losses, but the reduced profit margin requires a large
increase in unit volume of sales to offset it.
• It is, therefore, worth considering increasing the perceived value rather than immediately cutting price.
4.3.5 Psychological Aspects of Price

• Customers continually assess the prices charged for products based on price purchasing experience, formal
communications (e.g., advertising) and informal communications (e.g., friends and neighbours) and point of
purchase or web derived listings of prices and they use these assessments in the ultimate purchase decision.
• Two key concepts relating to the psychological aspects of pricing are reference prices and the price-perceived
value relationship. There are two kinds of reference prices: internal and external, sometimes referred to as
“temporal” and “contextual” respectively.
• Reference price is any standard of comparison against which an observed price is compared.
• External reference prices are usually observed prices that are typically posted at the point of purchase.
• Internal reference prices are mental prices used to assess an observed price and have a strong effect on buying
behaviour. These include following factors:
fair price or what the product ought to cost
price frequently charged
last price paid
upper amount (reservation price) someone would pay
lower threshold or lowest amount a customer would pay
price of the brand usually bought
average price charged for similar products
expected future price
typical discounted price
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• Many of these considerations contribute to the concept of ‘perceived’ price; the price the customer thinks is the
current actual price of the product.
• For example, customers will perceive promotion price as the actual price and when the brand comes off deal
and returns to the regular price, they may perceive this as an increase in price.
4.3.6 Relationship between Price and Perceived Quality

• Sometimes a higher price can lead to higher demand rather than lower demand. This occurs when price is used
as a signal for high quality. One reason is the feeling of exclusivity or prestige.
• Pricing a product high means fewer customers can afford it, for examples Rolex watches, Rolls Royce cars,
Mont Blanc Pens and so on.
• A second example is when the products are referred to as ‘experience’ goods, like perfume, wine and services
such as consulting and legal advice, which have to be actually tried to know how good they are. The ultimate
is life insurance; no matter what you pay, you will never use the product.
• Remember that price must be consistent with marketing strategy. Exotic vodka supported with highly creative
advertising stressing exclusivity and prestige cannot be priced at Rs.100 a bottle, without striking a discordant
feeling in the upscale consumer.
4.3.7 Odd Ending Prices

• These are ‘just below’ prices like Rs.99 (and not Rs.100) for a product. These have some psychological impact
on purchasing behaviour.
• There is no specific explanation for this.
4.3.8 Competition and Pricing

• This is the third critical element in pricing decisions. The competitor’s prices act as a reference point.
• Two factors, that are important to understand the role of competition in the pricing decision, are the competitor’s
costs and the historical pricing behaviour in the category.
4.3.8.1 Competitors’ Costs

• Assuming no brand would be priced below variable cost for an extended period, cost estimates provide the
product manager of how low some competitors can price. Cost estimates also give some idea of the margins
in the category.
• The best way to find out costs of manufactured products is to purchase competitors’ products and take them
apart, studying the costs of components and packaging.
• Another way is to use publicly available data on the competitors, like annual reports. Average margins can be
determined with help of these.
4.3.8.2 Historical Pricing Behaviour

• It is useful to examine historical behaviour to understand price changes.
• The product manager makes pricing decisions in this context. First, the decision can be proactive i.e., the product
manager is the first to either raise or lower price and he/she observes what the reaction is. Second, the decision
can be reactive, i.e., the product manager has to decide whether to match the price, keep it the same or reduce
the price more or less than the competition.
• In the first case, manager is the leader and in the second case, the manager is a follower. It is better to be
proactive, because that forces competitors to make difficult decisions at times and in circumstances not of their
own choosing.
• In other words, the product manager is setting the rules of the game. Competitor analysis gives clues to the
pricing behaviour in the product category. If the objective seems to be profit oriented, the brand will not be an
aggressive price cutter.
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• Alternatively, if the objective is to increase market share, lower price might be used as a weapon. Other factors
are financial health of the product or parent company and its capacity.
4.3.9 Role of Cost to Company

• Prices are often based on the costs to the company, i.e., variable costs plus some allocation for overheads plus
some margin. This method does not take into account the customer and the resulting price may be above or
below what the customer is willing to pay.
• The other problems are the development costs involved in bringing new products to market. These costs are
very high and have to be recovered. Hence, initially, the prices of products, particularly pharmaceuticals, are
very high, but get reduced when the drugs come off patent and generics enter the category.
• Overhead costs such as corporate office and staff salaries, CEO’s salary and his perquisites and so on have also
to be recovered. These are not associated with any one product and have to be recovered from all the company’s
products.
• The mechanism used to allocate these overhead costs is often random and bears no relationship to how individual
products utilise overhead.
• The third kind of costs is direct fixed, and includes the product manager’s salary, product advertising and
promotion and so on and is associated with individual products but do not vary with volume.
• Finally, there are variable costs, the per-unit costs of making the product or delivering the service. These, of
course, must be recovered with price.
• There are, therefore, several kinds of costs to be considered while setting the price of the product. This category
includes the costs of plant, inventory, receivables and the like, that are tied to the product.
• Many companies attempt to account for these by calculating the opportunity cost of the resources committed
to the product by multiplying the amount of resources by either the firm’s average cost of capital or return on
investment.
• By subtracting these from revenues, the so-called direct product profitability is calculated.
• A second problem with using costs to set price, particularly variable or unit costs, is that they may be a function
of volume and therefore, difficult to know in advance when developing marketing plans. Further, unit costs
may be related to the utilisation of capacity. It is advisable for product managers to simulate profits and sales
volumes using a number of possible prices and costs.
• Customers do not really care what the firm’s costs are; price increases by firms, due to increase in costs, are
not palatable to them. The price increase may stick, but only if there is value behind the product that justifies
the higher price.
4.4 Pricing Objectives

General pricing objectives are set after the three major background analyses category, customer, and competition
are performed and the marketing strategy is determined. The pricing objectives are penetration, skimming, customer
value, cost, return on investment and stability.
4.4.1 Penetration Pricing

• Penetration or market share pricing is employed when most of the value – cost gap is given to the customer and
the firm keeps a small margin. It is often used as an entry strategy for a new product and is useful to discourage
competitive entry.
• The objective is to build or keep market share. It is appropriate when scale effects lead to a volume-cost
relationship and is necessary for price-sensitive market segments.
• Penetration pricing generally should not be used with products or services subject to a price-perceived quality
relationship or when the product has a strong competitive advantage.
• Another limitation is that customers accept price reductions, while rejecting price increases.
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4.4.2 Return on Sales/Investment Pricing

• This objective has limited usefulness. The price is set for a rate of return demanded by the senior managers of
the company, ignoring customer value and competition.
• It is useful only when the product has a monopoly or near monopoly position. A good example of this is the
price of electricity or gas.
4.4.3 Pricing for Stability

• Sometimes customers for industrial products are more concerned about price stability than levels.
• Profit forecasts and long range plans cannot be made early when prices i.e., buyers’ costs fluctuate
dramatically.
4.4.4 Skimming
• This is opposite of penetration pricing and also called prestige pricing. Skimming returns more of the value to
the producer rather than the customer.
• If there is a strong price-perceived quality relationship (e.g., wine) and the core strategy is to position the product
at the high-end of the market, this makes sense.
• It is also done when competition is absent or is marginal. Skimming is a good objective when costs are not
related to volume.
4.4.5 Competitive Pricing

• The price is set at the category average or matching a particular competition. This is appropriate when customers
think that the products in the market are similar and view the market as a commodity category.
• It may also be necessary as a product category with high fixed costs.
4.4.6 Other Factors Affecting Price

• There are many other factors affecting pricing decisions. Those include stage of the product life cycle. Initially,
when little competition exists, focus is on the customer and value is stressed and no mention is made of either
variable or investment costs to be recovered.
• When competition enters, the focus is on both customers and competitors. Customer value is still important,
but competitor’s reaction is also addressed.
• In the late stages of the product category, the focus shifts towards competitors and costs to determine whether
remaining in the market makes economic sense. Here profitability analysis is the key.
• Other factors like threat of new entrants, power of buyers/suppliers, rivalry, pressure from substitutes, and
unused capacity also influence pricing decisions.
• While the first four factors do not need explanation, unused capacity is particularly important in a high-fixed-
cost, high-contribution-margin (price less variable cost) product category. This is seen in markets like airlines
where revenues are required to cover fixed costs.
• When economies of scale are important (e.g., automobile manufacturing), overcapacity leads to price wars
because the degree of capacity utilisation directly affects unit costs.
4.5 Pricing Tactics

Some specific pricing tactics are as follows:
• Price bundling: This include offering products in a package, priced lower than the sum of the individual
components, e.g., a stereo system comprising an amplifier, a tuner, a CD player and a DVD player in an attractive
case. Sometimes the package can be priced higher than the sum of the components.
• Complementary pricing: For example, razors are priced modestly while the blades give huge margins. A similar
pattern is seen in HP printers and printer cartridges. This can be done only when there is limited competition
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for the consumable component.
• Value pricing: Here, most of the value-cost difference is given to the customer i.e., ‘a good deal’. It is related
to customer expectations.
• Everyday low pricing: This is used mainly in retailing. It is adopted successfully by Wal-Mart, Home Depot
and others. They keep their prices low, permanently, instead of only during promotions.
• Hidden price increases: When it is difficult for firms to raise prices either due to competition or restricted
customer budgets during periods of recession, they raise prices without explicitly increasing the posted price.
They do this by reducing the quantity of goods in the package.
• Price discrimination: This includes giving special prices to certain categories of customers like senior citizens
or quantity discounts.
• Discounting: Periodic discounting is often done to get rid of stocks and on goods that are slow sellers.
• Auctions: These have become common due to the Internet and e-commerce, where customers specify the price
they wish to pay. E-bay is one of the main players in this type.
4.6 Advertising
Advertising is considered to be one of the five major modes of communication. The communication mix consists
of:
• Advertising: It is any form of non-personal presentation and promotion of ideas, goods and services by an
identified sponsor. It is difficult to make generalisations as there are many forms and uses of advertising. Yet
the following qualities can be noted:
Public presentation confers a kind of legitimacy on the product and suggests a standardised offering.
Pervasiveness – the message can be repeated many times and buyers can receive and compare the messages
of various competitors. Large scale advertising says something positive about the seller’s size, power and
success.
Amplified expressiveness – Through clever and artful use of print, sound and colour, the company and the
product can be channelized.
Impersonality – Advertising is a monologue in front of and not a dialogue with the audience. The audience
does not feel obligated to pay attention or respond to advertising.
Advertising builds a strong image for a product and a wide reach. Some forms are expensive, like TV and
some are not, like newspaper advertising.
• Sales promotion: It is a variety of short term incentives to encourage trial or purchase of a product or service.
Sales Promotion means tools used are coupons, contests, premiums, etc. The benefits are communication,
incentive and invitation. This is mostly done to draw a stronger and quicker buyer response, and used for short-
run effects as to dramatise product offers and boost sagging sales.
• Public relations and publicity: It is a variety of programmes designed to promote or protect a company’s image
or its individual products. It provides high credibility, ability to catch buyers’ off-guard and dramatisation.
• Personal Selling: It is face to face interaction with one on more prospective purchasers for the purpose of
making presentations, answering questions and procuring orders. It has qualities of personal confrontation,
cultivation and response.
• Direct and interactive marketing which includes use of mail, telephone, fax, e-mail on Internet to communicate
directly with or solicit response or dialogue from specific customers and prospects.
To develop an advertising programme, marketing managers must always start by identifying the
target market and buyer motives. They can then make the five major decisions known as ‘the five
M’s’ - Mission, Money, Message, Media, and Measurement.’
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Fig. 4.2 Five M’s of advertising
• Packaging and graphics could also be added and taken as the sixth element of the communication mix.
• A coherent communication mix is usually referred to as ‘integrated marketing communications.’ An integrated
approach is a combination of activities, which is considered better than one should be consistent rather than at
cross purposes.
• For example a point of purchase (POP) display might use the same display theme on a character used in a TV
ad. The whole mix must deliver a consistent message and strategic positioning.
4.7 Developing Effective Communications

This is an eight step process. The steps are listed below:
1. Identify the target audience: Potential buyers of the company’s products, current users, deciders or influencers,
individuals, groups, particular publics or the general public. The target and audience is a critical influence on the
communicator’s decisions on what to say, how to say it, when to say it, where to say it and to whom to say it.
2. Determine objectives: The marketer might want to put something into the consumer’s mind (Cognitive stage),
or change his attitude (Affective stage) or get him to act (Behaviour stage)
3. Design message: Develop an effective message, which ideally should gain attention, hold interest, arouse desire
and elicit action. In practice few messages take the consumer all the way from awareness through purchase, but
this framework suggests the desirable qualities of communication. Formulating the message includes: What to
say (message content), how to say it logically (message structure), how to say it symbolically (message format)
and who should say it (message source).
4. Select channels: They must be efficient to carry the message. There are personal channels (like sales people of
pharmaceutical company meeting physicians), face to face communication, person to audience, over the telephone
or through e-mail. Personal influence carries great weight, particularly in the case of expensive products suggests
something about the user’s status or taste. News conferences, grand openings, sports sponsorships are some of
the events used to achieve specific communication effects with a target audience.
5. Establish budget: One of the methods is the affordable method, which is self explanatory. The second method
is the percentage-of-sales method; say two percent of the total sales. The third is the competitive parity method
where the budget is matched to the competitor’s and therefore linked to the industry as a whole. The fourth
method is the objective-and-task method, where the marketers develop promotion budgets by defining specific
objectives, determining the tasks that must be performed to achieve theses objectives, and estimating the costs.
The sum of these costs is the proposed promotion budget. Finally, a cost-benefit analysis is done before taking
a final decision.
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6. Decide the media mix: This is a field in itself and is a specialty within advertising agencies. Therefore the
media plan is often left to ‘experts’. The different promotional tools are available, which have their own unique
characteristics and costs.
7. Measure results: The communicator must measure the impact of the plan on the target audience. It includes
awareness, trial and satisfaction.
8. Manage integrated marketing communications: This is a concept of marketing communications comprehensive
plan, which evaluates the strategic sales of a variety of communication disciplines like general advertising direct
response, sales promotion and public relations and combine these disciplines to provide clarity, consistency and
maximum impact through the integration of discrete messages.
4.8 Factors in Setting the Marketing Communications Mix

• The factors to be considered are type of product market, consumer or business, consumer readiness to make a
purchase and stage in the product life cycle.
• Another important factor is the company’s market rank-market leaders derive more benefit from advertising
than from sales promotion. Conversely, smaller competitors gain more by using sales promotion.
• Advertising plays an important role in both business and consumer markets. Corporate advertising builds up
the company’s reputation and helps the sales representatives.
• Advertising and publicity play a key role in the buyer-readiness stage; their role is awareness building. Customer
comprehension is affected by advertising and personal selling, and customer conviction is influenced mostly by
personal selling. Closing the sale, re-ordering is mostly influenced by personal selling and sales promotion.
• Thus promotional tools vary in cost-effectives at different stages of buyer readiness. They also vary in cost-
effectiveness at different stages of the product life cycle.
• In the introduction stage, advertising and publicity have the highest cost-effective uses, followed by personal
selling to gain distribution coverage and sales promotion to induce trial. In the growth stage, demand has its
own momentum through word of mouth.
• In the maturity stage, sales promotion advertising and personal selling all grow important, while in the decline
stage, sales promotion continues strong, advertising and publicity are reduced and sales people give minimum
attention to product.
4.9 Media Selection

Media planning is a specialised field and is normally left up to the ‘experts’. The media plan defines where (in which
media like TV, newspapers, radio, the internet, etc.) and when (time of year, day, etc.) advertising will appear.
Where
• The decision of where to advertise has three basic components as follows:
match to target audience
contextual fit
duplication and wear out
• Trying to match target and audiences typically leads to a comparison of vehicles in terms of efficiency in reaching
desirable audiences. “Cost per thousand” (CPM) is the yardstick for comparing vehicles. CPM measures how
much it costs the advertiser to reach 1000 customers by using a particular medium. Ratings and circulation data
(newspaper and magazine) are vital inputs to decisions.
• Another important aspect of a media plan is regional differentiation. Product usage varies by region and so also
features desired and cultural preferences.
• Therefore though regional vehicles may cost more in a CPM sense it is often desirable to focus on certain regions
and use somewhat different messages and media by region.
Contextual fit
• It is difficult to demonstrate operation of a machine on the radio on incorporate music or other sounds in print
media or provide detailed information that will be recalled in radio or TV ads. This is the contextual fit.
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• Product fit involves the interaction between the product image and the image of the vehicle. For example,
advertising imported crystal glass or fine wine, during wrestling matches on TV does not make sense.
• The interaction of ad image and its immediate context is also relevant. For example, a humorous ad may lose its
effect if placed in the context of a comedy show or a series of several humorous ads. When competitive products
in the same category are advertised close together, the effect is lost and many consumers cannot distinguish the
claims from one another.
Duplication and wear out

• Depending on the goal, duplication (multiple exposures to the same ad) may be either desirable (e.g., for a
complicated message or concept) or wasted (e.g., for a simple message).
• Customers also tire of exactly the same message fairly quickly, though less so for complex messages than
simple ones.
When
• The two issues of ‘when’ are seasonality and spending pattern. For example, advertising for rain-shoes and
raincoats, umbrellas should be done just before the rainy season sets in or cold remedies in the usual cold/flu
season.
• Spending pattern refers to the timing of the advertisements during the life cycle of the product. For example,
heavy spending on advertising is more effective early in the life cycle i.e., during the introduction and growth
stages.
• Many studies suggest that an uneven spending pattern (pulsing) is more effective than a level pattern i.e., spending
is bunched in a short span of time and not level or uniform throughout the relevant time period.
Other considerations
• Media experts get better rates for TV and other media for advertising and hence it is beneficial to leave it to
them to negotiate the media prices.
• Large advertisers of course get better rates than small advertisers.
4.10 Evaluating Advertising Effects

• Measuring the results or advertising and other communications is very important. The impact on the target
audience has to be measured by asking the members of the target audience whether they recognise or recall
the message, how many times they saw it, what points they recall, how they felt about the message and their
previous and current attitudes towards the product and company.
• The communication should also collect behavioural measures of audience response, such as how many people
bought the product, liked it and talked to others about it.
• Feedback measurement covers brand awareness, brand trial and satisfaction (e.g., 40% aware and 60% not
aware. 30% tried and 70% did not try. 80% satisfied 20% disappointed).
• This particular ad program needs to be the strengthened as only 40% are aware and of these only 30% tried,
though 80% of them were satisfied.
4.11 Promotions
• Sales promotion or simply promotion consists of a collection of devices aimed at generating active customer
response within a short period of time.
• Promotion aimed at distribution/retail channels are termed as trade promotions, while promotions aimed at
customers are termed as retail promotion. Companies spend large amount of money towards promotions.
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4.11.1 Promotion Objectives
• Promotion objectives may be either offensive or defensive. Offensive programs attempt to gain an advantage
through exclusivity: being the only company to offer a particular promotion or level of promotional support.
However, competitors quickly match (provide defensive) promotions (e.g., airline frequent flier programs).
• Further, in some areas, notably consumer packaged goods the channels (e.g., Wal-Mart) have become sufficiently
powerful to both demand and schedule promotions. This leads to companies promoting goods to match
competition and satisfy the channels though promotion may not be required.
4.11.1.1 Final Customer Promotions

• This is typically, a short-run objective, at least for existing or mature products. The operation objective is to
generate immediate response in the form of sales.
• The objectives range from generating awareness to increasing product understanding to improving attitude
towards purchase.
4.11.1.2 Trade Promotions

These objectives fall into three main categories, which are as follows:
• To get the trade to buy or stock the product in greater quantities by offering various financial incentives.
• To increase the level of trade support given to the product by means other than increasing their inventories. A
variety of allowances and direct incentives are given.
• To build relationship by giving an extra product to a channel with no explicit strings attached.
Reasons for conducting trade and consumer promotions

Trade promotions (in the order of rank 1 to 8)
1. introducing a new product
2. getting more retailer push
3. achieving sales/ contribution targets
4. maintaining shelf space
5. meeting competition
6. increasing consumer usage rate
7. motivating the sales force
8. reducing inventory
Customer promotions (in the order of rank 1 to 11)

1. introducing a new product
2. increasing sales
3. inducing brand switching
4. increasing consumer usage rate
5. achieving sales/contribution targets
6. lower price to more price sensitive consumers
7. retaining loyal customers
8. meeting competition
9. expanding category volume
10. increasing total shelf space
11. conducting market research
4.12 Promotion Budgeting

Deciding on a promotion budget is similar in approach as for advertising. The question to be asked is how much
money should be spent on the total advertising and promotion budget and out of this how much on promotion?
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4.12.1 The Total Advertising and Promotion Budget

Studies have shown that seven factors affect the total budget for advertising and sales promotion for manufactured
goods. Companies spend more on advertising and promotion relative to sales in following cases:
1. The product is relatively standardised.
2. There are many end users.
3. The typical purchase amount is small.
4. Sales are made through channel intermediaries rather than directly to end users.
5. The product is premium priced.
6. The product has a high contribution margin.
7. The product or service has a small market share.
4.12.2 Allocating Money between Advertising and Promotion

The three important factors which affect the money allocation decision are as follows:
• The total amount of budget resources is available. If the marketing budget is small, extensive media advertising
is usually not worthwhile unless the target market is local, because advertising needs a minimum or threshold
amount to have any impact. Below this threshold value, the money is virtually wasted. In such cases, spending
on sales promotion produces a greater impact than advertising.
• Customer factors like brand loyalty. Promotion money spent on a product or service having high levels of
loyalty mainly rewards existing customers. This may not be the best way to spend money though it may increase
customer retention. Promotions can attract not very loyal customers and brand switchers. Promotions also bring
in benefit if the product is not complex and buying decision is routine; adverting is more effective when the
product is complex and requires a fair amount of information processing.
• The unique ‘Consumer Franchise Building’ (CFB) factor, which is the set of all activities that build brand
equity, including advertising, sampling, comparing and product demonstrations, non-CFB activities focus on
price alone and include trade promotions, short-term price deals and so on. The product manager has to track
the following ratio:
CFB ratio =
One rule of thumb is that the CFB ratio should stay above 50 to 55 percent for a brand to remain healthy.
4.12.3 Evaluating Customer Promotions

• As with evaluating advertising effects, promotions also have to be evaluated, both short-term and long term.
Care has to be taken in interpreting the results.
• A price promotion that increases sales but fails to attract a substantial number of new customers may be a failure,
because it basically gave a discount to current customers who may have simply stocked up, thus depressing
future sales.
• To assess the value of a promotion, it is necessary to estimate both the source of additional sales (accelerated
or not, increased quantity or not, loyal buyers on non regular/captured buyers) and its overall magnitude. The
profit consequences of each also need to be considered.
• Manufacturer promotions have direct effects on customers, and indirect effect on channel (retailer) behaviour. The
retailers may increase stock of the good or run their own promotions in conjunction with the manufacturer.
• A major factor affecting the profitability of promotions is whether the good is easily stockpiled. Perishable
goods and services (e.g., seats on an airplane), cannot be stockpiled; whereas, soaps and paper-towels can be.
Hence, soap/ paper towel promotions tend to result in stockpiling and if competitors match the promotion,
lead to lower profits. On the other hand, promotion on underused services or perishable goods may produce
increased profits.
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4.12.4 Effects of Promotions
• Customer perceptions of the brand may change, as brands bought on promotion may be seen as lower in quality
and in the extreme, something it makes sense to buy only on deal. If there are regular promotions, customers
tend to wait for them and stockpile.
• After the promotion period, the return to the normal prices is seen by consumers as a price increase.
• Competitors’ reaction also has to be taken into consideration. When competitors match promotions, which leads
to a promotion spiral, customers will benefit and harm companies’ profits.
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Summary
• Price is one of the key elements of the marketing mix. It is what produces revenue. The other elements of the
marketing mix produce costs.
• The price objective and subsequent decisions can be only made with adequate analysis of the market and keeping
the marketing strategy in mind.
• Customers and their perceived value for the product and your brand, competitors and your company with the
costs and pricing actions, and the stage of the product line cycle, etc. all impact the selection of what price to
charge.
• Focus should be on how much customers are willing to pay. Product managers have to decide where the price
should be in the range between cost and the value that customers place on the product.
• The Internet will play an important role in the prices charged for a product or service. Auctions on the Internet
are gaining ground and product managers have more pricing options.
• Advertising is one of the elements of communication mix, the others being public relations, sales promotions,
direct marketing, and packaging and graphics.
• Developing effective communication is essential for the successful marketing of a good or service.
• Advertising is any paid form of non-personal presentation and promotion of ideas, goods or services by an
identified sponsor. Advertising includes not only business firms but also charitable, non-profit, and government
agencies that advertise to various publics.
• Developing an advertising programme consists of setting advertising objectives, establishing a budget,
choosing the advertising message, deciding on the media, and evaluating the communication and sales effects
of advertising.
• Sales promotion consists of a diverse collection of incentive tools, mostly short term, designed to stimulate
quicker or greater purchase of particular products or ser vices by consumers or the trade. Sales promotion, trade
promotion and business promotions are all parts of this drive.
• Public relations (PR) involve programmes designed to promote or protect a company’s image or its individual
products. The main tools of PR are publications, events, news, speeches, public-service activities and identity
media.
• Direct marketing is an interactive marketing system that uses one or more media to affect a measurable response
or transaction at any location. Electronic marketing is a part of this and is showing explosive growth.
• Integrated marketing communications is the buzz term for companies to establish the right overall communications
budget and the right allocation of the funds to each communication tool.
• Direct marketers must plan campaigns by deciding on objectives, target markets and prospects, offer and prices,
followed by listing the campaign.
References
• Carter McNamara, Advertising and Promotions [Online] Available at: < http://managementhelp.org/ad_prmot/
ad_prmot.htm> [Accessed 4th March 2011].
• Daryn Edlema, 1999-2011. What is Pricing Strategy?[Online] Available at: <http://www.ehow.com/
about_5079100_pricing-strategy.html> [Accessed 4th March 2011].
Recommended Reading
• Applegate E., Johnsen A., 2007. Cases in Advertising and Marketing Management: Real Situations for Tomorrow’s
Managers. United Kingdom, Rowman & Littlefield. p.217.
• Hackley C.E., 2005. Advertsisng and Promotion. SAGE Publications India Pvt. Ltd, , New Delhi, p.264.
• Jennifer Sable, 2010. How to Determine Pricing Startegy [Online] (Updated 10th December 2010) Available at:
< http://www.ehow.com/how_7474651_determine-pricing-strategy.html> [Accessed 4th March 2011].
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Self Assessment
1. ____________, one of the key elements of the marketing mix, is what produces the revenue.
a. Price
b. Advertising
c. Market
d. Promotion

a. External reference prices are mental prices used to assess an observed price and have a strong effect on
buying behaviour.
b. Internal reference prices are mental prices used to assess an observed price and have a strong effect on
product behaviour.
c. Internal reference prices are mental prices used to assess an observed price and have a strong effect on
market behaviour.
d. Internal reference prices are mental prices used to assess an observed price and have a strong effect on
buying behaviour.
3. Which of the following is used as an entry strategy for a new product and is useful to discourage competitive
entry?
a. Skimming
b. Penetration pricing
c. Competitive pricing
d. Investment pricing

a. Skimming is opposite of penetration pricing and also called prestige pricing.
b. Skimming is a good objective when costs are not related to volume.
c. In skimming, price is set at the category average or matching a particular competition.
d. Skimming returns more of the value to the producer rather than the customer.
5. ____________ is any form of non-personal presentation and promotion of ideas, goods and services by an
identified sponsor.
a. Sales promotion
b. Pricing strategy
c. Advertising
d. Personal selling
6. Which of the following provides high credibility, ability to catch buyers’ off-guard and dramatisation?
a. Personal selling
b. Public relations & publicity
c. Advertising
d. Pricing
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7. _______________consists of a collection of devices aimed at generating active customer response within a

short period of time.
a. Promotion
b. Advertising
c. Marketing mix
d. Personal selling

a. The competitor’s prices act as a reference point.
b. The completion and pricing is the third critical element in pricing decisions.
c. Cost estimates also give some idea of the margins in the category.
d. To understand price changes, it is useful to examine competitor’s price behaviour.
9. ____________ is useful only when the product has a monopoly or near monopoly position.
a. Penetration pricing
b. Skimming
c. Investment pricing
d. Competitive pricing
10. ______________ has qualities of personal confrontation, cultivation and response.

a. Public relations and publicity
b. Advertising
c. Sales promotion
d. Personal selling
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Chapter V
Financial Analysis and Services
Aim
The aim of the chapter is to:
• explore the meaning of sales analysis
• understand the marketing strategies for service firm
• illustrate the classification of cost
Objectives
The objectives of the chapter are to:
• examine the major trends in product support service
• determine how companies can improve their differentiation, quality, productivity and services
• enlist various methods of used to perform the proposal evaluation
Learning outcome
At the end of this chapter the students are expected to:
• discuss how services differ from goods
• explain the capital budgeting and the basics of evaluating different proposals for investment
• study the financial dimensions of the product manager’s job
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5.1 Introduction
Product managers need to be well-informed about the financial dimensions of their jobs as well as the marketing
part, since they are considered mini-CEOs in many companies and have complete responsibility for profit and
loss for their products. Apart from being familiar with human resources, operations management and the internal
and external market environment, they should have adequate knowledge of the financial aspects of the product’s
performance and the overall financial implications of their decisions.
Financial decision-making is closely related to product strategy. We have seen that the ultimate objective of product
managers is profitability, whether or not the short term objective in the marketing plan is oriented toward share or
profits. The product manager must, therefore, have a good understanding of how profits are computed and how
sales/financial analyses are made. Profitability needs to be reported in a marketing plan and analysis of the relative
sales performances of different product variants can lead to a new marketing strategy or the pruning of a product
line. These analyses are done before budgeting or ex-post, after the planning period and at specific intervals within
the planning period.
5.2 Sales Analysis

• Sales and profits by themselves are like the tip of an iceberg, with a large, hidden mass of real problems. Hence,
a product manager has to look deep below to see the real invisible problems and find solutions or take ruthless
decisions.
• Sales analysis is defined as, “the gathering, classifying, comparing and studying of company sales data.” All
companies gather data to measure the performance of their product but most companies do not study their sales
records systematically.
• Firstly, how are sales defined? They can be defined in terms of orders, shipments, or cash receipts. The definition
can matter a great deal, particularly for manufactured products. Some companies book sales when the product
is shipped before receiving payment for them.
Products
Customers
Historical
Markets
Current
Orders
Areas Predetermined
Organisational Units Average

Sales Shipments Dollars
Market
Share
Order Sizes
Cash
Receipts Units
Methods of Sale
Percentage Terms of Sale

of Total
Types of Selling
Strategies
Time Periods
Explana- Sales may Measured in Classified into And compared or

tion of be defined in these units these categories appraised according
framework these terms to these standards
Fig. 5.1 Components of sales analysis
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• Secondly, in what units can sales be analysed? Sales can be measured in terms of currency, units, or percentage
of company sales among other measures. Currency is useful, particularly when the product can be purchased in
a large number of sizes. However, increase in sales in currency terms hides price increases (units do not have
that problem).
• Thirdly, in what categories or classifications can the sales data be placed? They can be product size, geographical
area, product types, customer types, markets or channels, order sizes and time periods. Order size is a particularly
useful way to break down sales.
• Fourthly, what are the appropriate standards against which sales can be compared? Some of these standards are
historical results, current results from another category in the same time period, some predetermined standard
such as an objective or quota averages across the company or some other business unit, and sales relative to
market share.
• A good example of the value of sales analysis is Reebok’s experience in the late 1990s. The brand had fallen
from the success it had in the 1980s and an analysis of the sales by style found that out of the 1,200 existing
styles, 1,000 of them generated only 0.003 percent of Reebok’s volume. An immediate action was to reduce
the number of styles to the 600 generating most of the sales volume, which permitted a greater ability to focus
marketing dollars where they counted.
5.3 Profitability Analysis

• There are several approaches to computing profits. One approach called the ‘full-costing approach’ takes into
account all costs associated with the product or service. This is the most popular approach, provided that the
company has only one product.
• When the company has several products, the distribution of fixed costs becomes difficult and is often arbitrary.
The strength of this approach is that it ensures that all the costs of the company are covered by the products.
• A second approach is the ‘contribution oriented system’, in which the notion of profitability is called ‘contribution
margin’. This is basically, the amount of money left over after accounting for variable costs that goes towards
covering fixed costs.
5.3.1 Cost Classification

The two basic categories of cost are –
Operating expenses: It includes direct labour, direct supervision, materials, and operations overhead.
Non-operating expenses: It includes advertising and promotion, field sales, marketing, customer service,
administrative, and general expenses.
• Variable costs are those that vary directly with total volume of sales or production.
• Fixed costs do not vary in amount with the volume of sales or production.
• These statements are oversimplified, as all costs vary at some level of sales. Fixed costs tend to follow a step
pattern. They can increase with a large jump in sales, but remain level at this new plateau. Much of the non-
operating costs are fixed. Cost classification statement is shown below.
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Components
Category Total Cost (Rs.) Variable Fixed
Operating Expenses(Rs. 000)

Direct labour 2,500 2,500
Direct supervision 500 500
Social Security 255 255
Materials 5 5
Operations Overhead 840 200 640
Subtotal 4,100 3,460 640
Non operating expenses(Rs.000)

Advertising 700 700
Promotion 200 200
Field Sales 1,700 200 1,500
Product management 25 25
Marketing management 250 250
Marketing research 175 175
Customer service 1,500 240 1,260
Testing 300 300
General and administrative 1,000 440 1,000
Subtotal 6,000 440 5,560

Total 10,100 3,900 6,200
Table 5.1 Cost classification
5.3.2 Using the Contribution Rate

• Break-even: Product managers need to know their ‘break-even’ in both units and in currency. This is the extent
they have to sell to recover fixed costs. The formulae are:
Break-even in units = Fixed costs/variable margin per unit
Break-even in Rupees = Fixed costs/variable margin rate
• Safety factor: This is the amount over (or under) the break-even volume currently being sold.
Safety factor = (Current sales volume – Break-even volume)/Current volume
5.4 Framework for Control

• A specific kind of analysis, called ‘variance’ analysis is used for control only. A variance is a discrepancy between
a planned figure or objective and the actual outcome.
• Like the sales analysis presented earlier, the major benefit of variance analysis is identification of potential
problem areas, not diagnosing the causes of the problems.
• The market size variance, price-quantity variance, market share variance are some of the factors that have to
be investigated and the problem identified.
5.5 Capital Budgeting

• Product managers often have to weigh alternatives when making incremental changes in a product or deciding
whether or not to introduce a new variant.
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• Product managers also have to consider marketing mix expenditures, such as advertising, promotion, sales
force and so on.
• The resources available have to be rationed among a set of risky projects and the product managers have to be
able to do this.
• The basics of capital budgeting involves five discrete steps which are as follows:
generate investment proposals
estimate cash flows in the proposals
evaluate the cash flows
select projects based on an acceptance criterion
re-evaluate the projects after their acceptance
• Product managers must have some idea of investment proposals and generating cash flows. They develop sales
forecasts and get estimates of penetration rates over time, from market surveys and other research sources.
• They have to be quite skilled at evaluating the attractiveness of the different proposals, which could be new
products, refinements, or even investments in advertising.
The five major methods used to perform this evaluation are as follows:
5.5.1 Average Rate of Return

• This is the ratio of the average annual profits after taxes to the average investment in the project. A variant of
this method divides the average annual profits by the original investment rather than by the average.
• This method is simple, but it ignores the timing of the profits since it values the income from the last year as
much as income from the first year.
5.5.2 Payback
• This method calculates the number of years it will take to recover the initial investment in the project. It is the
ratio of the initial investment over the annual cash flows (not profits as in the average rate of return method).
• If the initial investment is Rs. 100,000 and the annual cash flow is Rs.20, 000; the payback period is 5 years. If
the annual cash flows are not equal, you can calculate the payback period by simply adding the yearly flows,
up to the point where the initial investment is recovered. The calculated payback period is then compared to a
threshold level; if it is less, it is accepted.
5.5.3 Internal Rate of Return (IRR)

• Most analysts use some kind of discounted cash flow analysis to evaluate projects. The key point is that an
equivalent amount of money in the future is not worth as much as it is today.
• This method and the present value methods take account, of both, the size and the timing of the cash flows
returned by a project.
• Let ‘r’ be a rate of interest. Assuming the initial investment in the project occurs at time ‘o’ and ‘n’ is the last period
when cash flows (A) can be expected, the internal rate of return is calculated from the following formula:
A0 = A1 / (1+ r) + A2 / (1 + r)2 + … +…+An / (1 + r)n
• Therefore, ‘r’ is the rate that discounts the future cash flows from the project to equal the initial investment.
As with other methods, ‘r’ must be compared to an internal hurdle rate or requirement set by management for
a project to be accepted. Obviously, this rate should be higher than what is called the risk free rate; the rate the
company could get by putting the money in the bank.
5.5.4 Present Value

The net present value of a proposal is:
NPV = At / (1 + k)t
Where ‘k’ is the rate of return the company requires. This is often referred to as the ‘discount rate’ or the firm’s
‘opportunity cost of capital’. When ‘t =0’, ‘A’ is the initial investment and is thus a large negative number. The
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present value method states that if NPV is greater than ‘0’, the project should be accepted; i.e. you should accept
the project if the present value of cash received from it is greater than the present value of cash spent.
5.5.5 Economic Value Added (EVA)

• EVA is a financial performance measure based on operating income after taxes, the investment in assets required
to generate that income, and the cost of the investments in those assets (cost of capital).
• The EVA formula is:
• EVA = After-tax operating income – (investment in assets x weighted average cost of capital)
• EVA is thus a monetary amount. If the amount is positive, the company has earned more after-tax operating
income than the cost of the assets employed to generate that income. In other words, the company has created
wealth.
• If EVA is negative, the company is consuming capital. If it is positive, the project is accepted.
5.6 Services
• There has been a phenomenal growth in recent years in the services sector. Service jobs account for over 60
percent of all jobs and gross domestic product.
• Service industries are quite varied. The government sector (military services, police and fire departments,
hospitals, post offices, railways, courts, employment services, schools and higher education, and so on), the private
non-profit sector (charities, education, hospitals, libraries, museums, and so on); business sector (airlines, hotels,
banks, insurance, law firms, management consulting, medical practice, accounting, repairs, and maintenance,
real estate, tourism, computer software, and so on). All these form part of the service industry.
• A ‘service’ is any act or performance that one party can offer to another; that is essentially intangible and does
not result in the ownership of anything. Its production may or may not be tied to a physical product.
5.6.1 Service Categories

• Product offerings are distinguished in following ways:
Pure tangible goods such as soap, rice, toothpaste, without any accompanying services.
Tangible goods with accompanying services such as cars, computers, machines, and equipment with their
display rooms, delivery, repairs and maintenance, application aids, training, installation, warranty.
Hybrid, consisting of equal parts of goods and services such as restaurants.
Major services with accompanying minor goods and services, e.g. airline passengers buy transportation
services, which include some tangibles like food and drinks, airline magazines.
Pure services such as haircuts, beauticians, massage, psychotherapy, courier, banking.
• Services have four major characteristics that affect the design of marketing programmes: intangibility,
inseparability, variability and perishability.
Intangibility: Services cannot be seen, felt, tasted, heard or smelled.
Inseparability: Services are typically produced and consumed simultaneously (whereas goods can be
produced and stored, consumed or eaten).
Variability: Services are highly variable, as they can be provided by different people, at different places
at different times.
Perishability: Services cannot be stored. When demand fluctuates, service firms have problems.
• Marketing programmes have, therefore, to be designed taking into account these four characteristics.
5.7 Marketing Strategies for Service Firms

• The well-known four P’s of the marketing mix are not adequate for services. Three additional P’s are needed
for service marketing: people, physical evidence, and process.
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• ‘People’ provide services, and hence the selection, training, and motivation play a vital role in giving customer
satisfaction. Employees should exhibit competence, caring attitude, responsiveness, initiative, problem-solving
ability and goodwill.
• Companies demonstrate their service ability through ‘physical evidence’ and ‘presentation’. Hotels will develop
a look and style of dealing with customers and achieve their intended customer value proposition like cleanliness,
speed or some other benefit.
• Service companies can choose among different processes to deliver their services, e.g. restaurants use different
processes like cafeteria style, buffet, fast food or candle light service.
• Service business is affected by several elements – the external environment which is seen by customers and
the internal environment, which is not visible to customers. Both of these have to be developed carefully to
provide customer satisfaction. ‘External marketing’ is the normal work to prepare price, distribute and promote
the service to customers.
• ‘Internal marketing’ is the work to motivate and train employees to serve customers well. In short, it is getting
everyone in the organisation to practice marketing.
• Services are generally high in experience and credence qualities; hence there is more risk in purchase. The
consequences are that service consumers generally rely on word of mouth rather than advertising. They rely
heavily on price, personal and physical cues to judge quality. They are highly loyal to service providers who
satisfy them.
5.7.1 Differentiation in Services

• Services can be differentiated. Price form the main element of differentiation. The alternatives to price
differentiation are: offering, delivery or image.
• The offering can include innovative features (i.e., apart from the primary service package, provide secondary
service feature) like airlines offering movies, music, free drink, frequent flier award and so on. Hotels offer
rooms to business/high tech travellers with facilities like computers, fax machines and e-mail. Banks offer extra
services like credit cards, mutual funds, auto and life insurance, payment of bills, car leasing plans and so on.
• Faster and better delivery systems can differentiate one service company from another. Reliability is a key factor
in on-time delivery, order completeness and order-cycle time. Resilience is another factor – handling emergencies,
product recalls and answering inquiries. Innovation is the third factor – finding ways to help customers.
• Image can differentiate the service companies by creating brands, like certain hospitals, banks or hotels.
5.7.2 Managing Service Quality

• Customers expect service from service companies and form opinions from past experience, word of mouth and
advertising. Customer expectations have to be catered to. Researchers have found five determinants of service
quality.
• These are, in the order of importance:
Reliability – performance of promised service dependably and accurately.
Responsiveness – Willingness to help customers promptly.
Assurance – Knowledge, courtesy and ability to convey trust and confidence.
Empathy – Provision of caring, individualised attention to customers.
Tangibles – Appearance of physical facilities, equipment, personnel and communication materials.
• Various studies have shown that well managed service companies have the following practices in common:
a strategic concept
a history of top management commitment to quality
high standards, self-service technologies
system for monitoring
an emphasis on employee satisfaction
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• All these practices are self-evident and need no explanation, except perhaps, Self-Service Technologies
(SSTS).
• These are services provided by machines and equipment like vending machines ATMs, self-pumping gas stations,
self-billing at super stores, self-ticket purchasing on the internet and so on. They make service transaction more
accurate, convenient and faster.
5.7.3 Managing Productivity

Service productivity can be improved in following ways:
• service providers working more skilfully with better selection and training
• increasing the quality of service by surrendering some quality, like doctors handling more patients and giving
less time to each patient (without sacrificing effectiveness)
• adopting a ‘manufacturing attitude’ towards producing services by adding equipment and standardizing procedures
(like McDonald’s Fast Food retailing)
• reducing or making obsolete the need for a service by inventing a product solution (like The Wash-and-Wear
shirt reduced the need for the commercial laundries)
• designing a more effective service
• presenting customers with incentives to substitute their own labour for company for company labour (e.g. ATMs,
Petrol pumps, self-service restaurants)
5.8 Post-Sale Service Strategy

• This is an important element of service and companies have different strategies. Some supply the parts and
services themselves, as they want to stay close to the equipment and know its problems.
• Some transfer the maintenance and repair service to authorised distributors and dealers as they are closer to the
customers and can offer quick service.
• Some leave it to independent service firms – their prices normally tend to be lower and their services faster.
5.9 Major Trends in Product Support Service

The following trends have been observed:
• Equipments are more reliable now and more easily fixable, due to the shift from electromechanical to electronic
equipment. They are modular and with more disposability to facilitate self-servicing.
• Customers are becoming more knowledgeable and more sophisticated about buying product support services.
They want separate prices for each service element and the right to select the elements they want, a sort of
‘services unbundling.’
• Third party service organisation now serves a greater range of equipment, so that customers have to deal with
only one service provider and not a multitude.
• Service contracts and (or extended warranties) may diminish their importance, as the products are becoming
more reliable for extended periods.
• Customer service choices are increasing rapidly and this is holding down prices and profits on service. Equipment
manufacturers have to constantly find out different means to make money and not only on service.
• Call centres and customer service representatives provide better service, more efficiently, mostly on the
telephone.
• Harnessing technology to give better service to customers and making service workers more productive (e.g.,
computerisation of the banks accounts and access on the internet, patients records in hospitals with access to
doctors on their miniature computers and such).
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5.10 Managing Product Support Services
• Many products need a service bundle, called Product Support Services. This is becoming a major battle-arena
for competitive advantage. Many companies make over 50 percent of their profit from these services.
• The three specific worries of customers have to be addressed:
reliability and failure frequency
downtime duration - the larger the downtime, higher the cost, the seller’s service dependability is at stake
out-of-pocket costs of maintenance and repair – amount that the customer have to spend on regular
maintenance and repair costs
• For expensive equipment, manufacturers offer facilitating services such as installation staff, training maintenance
and repair services and financing. They may add longer product warranties, quality audits, trade-in allowances
and the like.
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Summary
• Finance and marketing have to work closely to achieve the common objective of making profits for the company.
The product managers, who are the main responsible for generating a market, sales and profits, and investment,
need to have a good foundation in finance.
• For a product to have a value for customers and satisfy the customer needs, the offer has to be competitive. They
should have a good understanding of how profits are computed and how sales/financial analyses are made.
• Sales analysis, which is the gathering, classifying, comparing, and studying of company sales data, is done to
look deep below the surface and see the real invisible problems and find solutions or take ruthless decisions.
• There are several ways of defining sales – in terms of orders, shipments, cash receipts and can be classified or
categorised based on size, geographical area, product types, customer types, markets or channels, order sizes
and time periods. And lastly, how are they to be compared.
• Profitability analysis can be done using several methods – the full costing approach, the contribution approach.
Variable costs, fixed costs and their effects on profits have to be carefully examined.
• Capital budgeting is one more area where product managers need to be skilled and should take into account
strategic considerations. The five major methods used to evaluate the effectiveness of different investment
proposals are average rate of return, payback, internal rate of return, present value and economic value added.
• A service is any act or performance that one party can offer to another that is generally intangible and does not
result in the ownership of anything. It may or may not be tied to a physical product.
• Services are intangible, inseparable, variable, and perishable. Each characteristic has challenges and requires
certain strategies. Product managers must find ways to give tangibility to intangibles to increase the productivity
of service providers to increase and standardise the quality of service to match the supply of service during peak
and non-peak periods with market demand.
References
• Financial Analysis, [Online] Available at: < http://www.investopedia.com/terms/f/financial-analysis.asp>
[Accessed 9th March 2011].
• Prof. R. Madhumati, Capital Budgeting, [Online] Available at: <http://nptel.iitm.ac.in/courses/IIT-MADRAS/
Management_Science_II/Pdf/2_4.pdf > [Accessed 9th March 2011].
Recommended Reading
• Charles K. Fur, 2003. What is Profit Analysis, [Online] (Updated 2011). Available at: <http://www.wisegeek.
com/what-is-profit-analysis.htm> [Accessed 9th March 2011].
• Profitability Analysis (COPA), [Online], Available at: <http://help.sap.com/printdocu/core/print46c/en/data/pdf/
COPA/COPA.pdf > [Accessed 9th March 2011].
• 2002. Capital Budgeting, [Online](Updated 2010) Available at: <http://www.netmba.com/finance/capital/
budgeting/> [Accessed 9th March 2011].
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Self Assessment
1. _____________is defined as “the gathering, classifying, comparing and studying of company sales data.”
a. Sales analysis
b. Profitability analysis
c. Forecasting
d. Capital budgeting
2. Which of the following includes direct labour, direct supervision, materials, and operations overhead?
a. Non-operating expenses
b. Operating expenses
c. Safety factor
d. Break-even

a. Average rate of return is the amount over (or under) the break-even volume currently being sold.
b. Payback is the amount over (or under) the break-even volume currently being sold.
c. Safety factor is the amount over (or under) the capital currently being sold.
d. Safety factor is the amount over (or under) the break-even volume currently being sold.
4. Which method calculates the number of years a firm will take to recover the initial investment in the project?
a. Payback
b. Average rate of return
c. EVA
d. Present value
5. _____ is a monetary amount.

a. Payback
b. Average rate of return
c. EVA
d. Present value
6. Match the following
A. Services are typically produced and consumed

1. Intangibility
simultaneously.
2. Inseparability B. Services are highly variable.
3.Variability C. Services cannot be stored.
D. Services cannot be seen, felt, tasted, heard or
4. Perishability
smelled.
a. 1-A, 2-C, 3-B, 4-D
b. 1-C, 2-D, 3-A, 4-B
c. 1-D, 2-A, 3-B, 4-C
d. 1-B, 2-D, 3-C, 4-A
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7. __________ is the work to motivate and train employees to serve customers well.
a. Service
b. Internal marketing
c. Training
d. Etiquettes
8. Product managers need to know their ‘_____________’ in both units and in currency.
a. break-even
b. capital
c. variance
d. service
9. Which is the amount over (or under) the break-even volume currently being sold?
a. Operating expenses
b. Capital budgeting
c. Safety factor
d. Break-even
10. If EVA is ________, the company is consuming capital. If it is_________, the project is accepted.
a. positive, negative
b. positive, neutral
c. neutral, negative
d. negative, positive
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Chapter VI
Brand Management
Aim
• explore the laws of branding
• determine the role and significance of branding
• study the branding challenges
Objectives
• briefly view the meaning of brand
• understand the brand-asset management
• examine significance of brands from consumers’ point of view
Learning outcome
• identify brand building tools
• state the ranking of brands in India
• discuss five challenges in brand management
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6.1 Introduction
Brand management is so important that it will be treated as a separate, special discipline. However, the product
manager must have some basic knowledge of brands and brand management (a product manager is also called a
brand manager) and hence is included here. Managing a product’s reputation is one of the most important strategic
tasks facing the product manager. A brand name is an asset, and a valuable one at that.
Brands remain powerful and profitable. Brand names combat lower priced competitors. The big brands in India are
Colgate, Amul, Lux, Lifeboy, Zee TV, Rin, Dettol, Coca-Cola, Pepsi, ITC, Britannia and many others like Sony,
Toyota, Honda, etc. Brand is a major issue in product strategy.
6.2 Brand
• The American Marketing Association defines Brand as: A name, term, sign, symbol, or design, or a combination
of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them
from those of competitors.
• The brand identifies the seller or maker, and is exclusive, in infinity. It is a long-term asset. Companies need to
research the position their brand occupies in the customers’ minds.
• A brand can convey up to six levels of meaning:
• Attributes: Every brand brings to the consumer mind certain attributes and characteristics. For example, Akai
and Aiwa suggest low priced white goods. Honda vehicles suggest style, comfort and well-engineered product.
Mercedes brings to mind expensive, well built, well engineered, durable, high prestige automobiles.
• Benefits: The attributes must be translated into functional and emotional benefits. For example, ‘fuel efficient’
attribute must be translated into ‘savings’ benefit. Emotional benefit like ‘prestige’ must be translated through
lifestyle positioning. The attribute ‘durable’ could translate into the functional benefit and the attribute ‘expensive’
translates into the emotional benefit (status)
• Values: Sometimes brand conveys to consumers values in terms of social welfare. For example, TISCO’s mission
statement is ‘our first objective is social welfare and second to manufacture steel’. Hero Honda’s punch line is,
‘We care’. Mercedes stands for high performance, safety and prestige
• Culture: A brand may represent certain culture. For example, Sony Music and Sony exhibit a high quality
Japanese company. Siemens represent highly technical electrical engineering and electronics products of
German design, like mobile handsets, transformers, electric motors, etc. Mercedes represents German culture;
organised, efficient, high quality.
• Personality: A brand can project a certain personality. For example, scooters manufactured by Bajaj Auto
represent middle class personality. Mercedes may suggest a no-nonsense boss (person), a reigning lion (animal)
or an austere palace (object).
• User: This suggests the kind of consumer who buys or uses the product. A top executive behind the wheel of a
Mercedes and not a young secretary.
6.3 Brand Equity

• Brands vary in the amount of power and value they have in the marketplace. Customers will pay more for a
strong brand. Clearly, brand equity is an asset and results in customers showing a preference for one product over
another when these are basically identical. The extent to which they are willing to pay more for the particular
brand is a measure of brand equity.
• Brand equity is different from brand valuation, which is the total financial value of the brand. In 2001, the world’s
most valuable brands were: Coca-Cola, Microsoft, IBM, General Electric, Nokia, Intel, Disney, Ford, McDonalds
and AT&T. Coca-Cola brand value was $69 billion, Microsoft was $65 billion and IBM $53 billion.
• It is difficult to value a brand precisely. In India, in 2000, the Dabur brand was valued at Rs.5, 000 crores taking
into account market capitalisation, sales and goodwill. The Infosys brand was valued at Rs.1,727 crores. Lakme
was sold to HLL for Rs.110 crores.
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• According to Lehman and Weiner, “brand equity is described in terms of awareness association (image), attitude
(overall quality), attachment (loyalty) and activity (word of mouth).”
• David Aaker developed his version of brand equity and is shown below.
Reduced marketing
costs
Brand Trade leverage

loyalty Attracting new Provides value
customers to customer by
● Create awareness enhancing
● Reassurance customer’s
Time to respond to ● Interpretation
competitive threats processing of
information
Anchor to which ● Confidence in
other associates the purchase
can be attached decision
Brand
awareness Familiarity – liking ● Use satisfaction
Signal of
substance/
commitment
Brand Brand to be
equity Provides value
considered to firm by
enhancing:
Reason-to-buy ● Efficiency and
Differentiate/position effectiveness
Perceived of marketing
quality programs
Price
Channel member ● Brand loyalty
interest ● Price/margins
Extension ● Brand
extensions
Help process/
retrieve information ● Trade leverages
Brand
associations Reason-to-buy ● Competitive
advantage
Create positive
attitude/feelings
Extension
Other
proprietary Competitive
brand assets Advantage
Fig. 6.1 Brand equity
• It includes five categories which are as follows:

• Brand loyalty: customers go repeatedly for the product and are attached to the product. This insulates a brand
from competitive pressures, such as advertising and price promotion and leads to higher profits.
• Brand awareness: the simplest form of brand equity is familiarity. Customers prefer brands with which they
are familiar.
• Perceived quality: a known brand conveys an aura of quality.
• Brand associations: anything linked to the memory of a brand. They include subjective and emotional
associations.
• Other brand assets: such as patents, trademarks are clearly valuable.
• Brand equity creates value for both, customers and the firm.
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• High brand equity provides a number of competitive advantages, such as:

• The company will have more trade leverage in bargaining with distributors and retailers because customers
expect them to carry the brand.
• The company can charge a higher price than its competitors because the brand has higher perceived quality.
• The company can more easily launch extensions because the brand name carries high credibility.
• The brand offers the company some defence against price competition.
6.4 Branding Challenges

A vendor has to face several branding challenges:
• Branding decision: It includes decisions related to brand or not to brand. Branding is a very strong force today
and everything is branded, including commodities like salt, rice, fruits, nuts and bolts. Even bricks are branded.
We have already seen the advantages of branding.
• Brand-sponsor decision: It includes manufacturer brand, distributor (private) brand, licensed (brand).
• Brand-name decision: It includes individual names, blanket family name, separate family names, company
– individual names.
• Brand-strategy decision: line extensions, brand extensions, multi-brands, new brands, co-brands
• Brand-repositioning decision: repositioning, no repositioning
6.5 Brand-Sponsor
• A brand may be launched as a manufacturer’s brand (a National brand), a distributor brand (a private brand),
or a licensed brand name. Manufacturers’ brands dominate, but large retailers and distributors have been
developing their own brands. Retailers such as Benetton, GAP, and Marks and Spencer carry mostly own brand
merchandise.
• Private brands offer two advantages, which are as follows:
• They are more profitable.
• They develop exclusive store brands to differentiate themselves from competition.
• Manufacturers of national brands have to deal with the growing power of retailer brands. Consumers are also
changing their attitudes and have a set of acceptable brands, rather than one brand. They are also price sensitive.
The quality levels of all brands tend to be equivalent.
• Brand names – Four strategies are available, which are listed below:
• Individual names: Products have different brand names and failure of one product will not tarnish the reputation
of the company.
• Blanket family names: Same name is adopted, like General Electric, Heinz, Campbell. Development costs are
less and sales of the new product will be strong if the manufacturer’s name is good.
• Separate family names for all products: Sears has Kenmore for appliances, Craftsmen for tools and Homart
for home installations. Companies often invent different family names for different quality lines within the
same product class.
• Corporate name combined with individual family product names: Followed by Kellogg’s, GE, Honda and
Hewlett Packard. Their company name legitimises and the individual name individualises the new product (e.g.
Kellogg’s Rice Crispies, Kellogg’s Cornflakes).
• Selection of brand names has to be done carefully: Suggest benefits, product or service category, high imagery
qualities, easy to spell, pronounce, recognise and remember, distinctive and should not carry poor meanings
in other countries and languages.
6.6 Brand Building Tools

When televisions first appeared, audio-visual advertising was the most effective brand-building tool. Not any more,
though in poorer countries, televisions are still at the top. The other tools are:
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• public relations and press releases
• sponsorships
• clubs and consumer communities
• factory visits
• trade shows
• event marketing
• public facilities
• social cause marketing
• high value for money
• founders or a celebrity personality
• mobile phone marketing
6.7 Brand Strategy Decision

• This depends on whether the brand is a functional brand (like detergent soap, superior economy relying heavily
on ‘product’ and ‘price’ features), an image brand (like Armani suits, Cartier watches or Mont Blanc pens)
associating them with celebrity users, or an experiential brand (where consumers not only acquire the product,
but experience it, as in coffee shops, book stores, Disneyland, or a winery).
• A company can introduce line extensions (existing brand name extended to new sizes or flavours, in the existing
product category), brand extensions (brand names extended to new product categories), multi-brands (new brand
names introduced in the same product category), new brands (new brand name for a new category product) and
co-branding (combining two or more well-known brand names).
6.8 Brand Asset Management

• Print and media have played a large role in building strong brands. Other forces are now in play. Customers
come to know of a brand through personal observation and use, word of mouth, meeting company personnel,
telephone experience, accessing websites. These experiences can be positive or negative.
• Companies have to put in as much quality in these experiences as it does in producing its ads. Company personnel
must be well trained to handle customers, starting with telephone operators, sales staff, order takers, accountants
and so on. Likewise, companies’ distributors and dealers have to be trained to serve their customers well. Brands
have to be managed as assets and need long term strategy and inclusive team work.
• Brand managers with short term objectives are inadequate. Companies are establishing brand asset management
teams to manage their major brands, including handling unexpected negative publicity, as happened in the case
of Coca-Cola in India in 2005 (pesticides found in the product).
• Companies who specialise in brand-asset management have been in operation and focus on brand management
and nothing else.
6.9 Packaging and Labelling

Packaging
• Many marketers have called packaging the fifth P of the marketing mix. Most marketers, however, treat packaging
and labelling as an element of product strategy.
• Packaging has to be designed and tested. Further, attention has to be given to increasing environmental and
safety concerns about packaging, which can create major problems in solid waste disposal. Packaging also adds
to the cost of the product and in some cases may cost more than the product itself, like toothpaste.
Labelling
• Sellers have to label their products. Labels identify the product, grade them and sometimes describe the
product.
• Attractive labels promote the product. Labels eventually become outmoded and need freshening up.
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• Laws now require labels to indicate date of manufacture, expiry date, unit pricing, grade labelling, and
composition, apart from weight, and volume. Misleading and deceptive labels constitute unfair competition.
6.10 Laws of Branding

Ten Commandments of branding are as follows:
1. Brands are not about you. Brands are about them.
2. If the branding is wrong, so is everything else.
3. Advertising grabs their minds, branding gets their hearts.
4. Build the brand from your strengths.
5. If you cannot articulate it, neither can anyone else.
6. The success of brand varies directly with the ability to accept the mantle of leadership.
7. The stronger your brand, the less susceptible you are to pricing issues and competition.
8. The brand begins in the business plans.
9. Advertising is not branding.
10. There is no such thing as co-branding.
6.11 Myths about Branding

• Branding is advertising and advertising is branding.
• Branding is loyalty.
• Branding changes consumer behaviour.
• Because a company focuses on price, it is not branding.
• Because a brand fails, branding is bad or dead.
• The web makes branding more difficult.
• As customers can broadcast their experiences, web-based branding is more difficult.
6.12 Role and Significance of Branding

Described below is the significance of brands according to customers and marketers.
6.12.1 Significance of Brands from Consumers’ Point of View

Brands provide a tool of self expression
• Brands provide opportunities for consumers to express themselves in different ways. Brands help consumers
to express their psychological needs like personality, social status, aspiration, etc.
• Brands exist in consumers’ minds and sometimes speak more than words do. For example, owners of ‘Honda-
Activa’ express pride in owning a technically advanced vehicle.
Brands offer choice

• Since market segmentation has become the buzzword of the twenty-first century, marketers are providing
different choices to different consumer segments.
• Brands provide choices to consumers, allowing them to distinguish between the various company product
offerings.
• For example, HLL offers Lifebuoy for the low income segment, Breeze and Lux for medium income and Dove
and Pears for luxury class.
Brands simplify the decision making process

• Suppose a consumer enters a home appliances shop, he is offered goods in varieties ranging from cheap to high
priced.
• In case the consumer has not thought over what he/she wants to buy, he/she might get confused. In such cases,
if he knows any brand, the decision making is simplified.
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Brands assure minimum quality
• To the extent possible, consumers try to buy products/services which have certain quality.
• Since a brand is regularly advertised, consumers perceive a minimum quality from the product/service. For
example, inspite of low priced models offered by Akai and Aiwa for music systems, Philips today also maintains
a reasonable market share.
Less risk
• Buying a commodity at low price without knowing about the promoters is like jumping in the dark. As such,
consumers may not like to buy a product if they have doubts about the performance of a product.
• A positive experience of a brand provides consumers reassurance and comfort in purchasing a brand, even
though it is expensive. Trust or faith is one of the major factors why consumers buy certain products following
certain technology.
• For example, GSM technology is much advanced than CDMA technology, but the way RIM branded telecom
services presents the product, the perception is CDMA is the latest technology.
Brand emotional dimension

• For industrial products, rational appeal (promotion based on merits of the product) is always helpful, but in
case of consumer goods, if the marketer wants to stand out, he must try to build the brand around emotional
dimensions like pride, love, threat, humour, affection, etc.
• For example P&G’s Vicks talks about ‘mother’s touch’ rather than ‘pain-balm’, soft drink giants like Coca-Cola
and Pepsi also have used emotional dimensions in their product offerings.
• Brands add an emotional component to the customer relationship and become friends with the consumer.
6.12.2 Significance of Brands from the Marketer’s Point of View
A Brand can be built for anything

• It is possible to brand a service, a product, a company, as well as a country and a person. Since the brand building
steps remain unchanged irrespective of the object, anything can be branded.
• For example, Sanjeev Kapoor and Shiv Khera are brands in themselves in the form of personalities, US as a
country is a famous brand for computer technology. The only difference is the time span. The time required in
branding a person or a country is much more as compared to the time required for branding a product, service
or a company.
Brand building steps remain the same

• Brands can be created by using many models. The popular models are ‘master brand’ and ‘brand personality’.
• A brand can be generated by developing distinctive identity in the form of brand personality and then it could
be positioned across target consumers. Alternatively, the master brand could be developed first like Knorr,
Annapurna, Saffola, etc. and brand extensions could be addressed to different segments. Thus, the same model
could be used for branding a product as well as service. In any case, whatever promises a brand offer, if it cannot
maintain them, it would lose credibility.
• For example, RIM promised a handset at Rs.500/- during the Diwali festival of 2003 and it maintained the
same which reflected in sale of three lakhs handsets in one week’s time. Whereas, Wipro’s NetKracker could
not maintain the promise of offering net services at Rs.10/- and lost to Satyam.
Since a brand is created around differentiation, the marketer can avoid the commodity trap
• The branding process revolves around differentiation, due to which the marketer is able to create a unique image
and hence can command price premium. Consumers never pay price premiums for a commodity.
• For example, most food- grains are sold on commodity basis, only Satnam Overseas could develop the ‘Kohinoor’
brand for Basmati rice. Most MNC’s try to create a brand in the shortest possible time span. To brand the tyres,
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the Indian Company MRF took more than 10 years whereas MNC Bridgestone could generate the brand within
3-4 years.
Appropriate market positioning is the key success factor

• Understanding the core of the brand and accordingly designing an appropriate market positioning strategy will
determine the success of a brand.
• For example, R&C positioned ‘Dettol liquid’ on the ‘antiseptic’ attribute and for the last five decades it sounds
well. In between, it extended the brand from ‘liquid’ to ‘just 100% bath soap’ without talking about antiseptic
properties. The result - it failed. When the soap was re-positioned as antiseptic bath soap, it started moving to
consumers. Since market positioning is the set of strategies used to manage the perceptions of target customers,
it is the major part of the branding process.
• However, very few marketers understand the true positioning strategy. For example, BPL, Philips, Onida never
identified health with home appliances like washing machines, refrigerators, air conditioners, microwave ovens,
etc. LG electronics successfully linked health with fabric care for washing machine, healthy air for AC, healthy
food for microwave oven, etc. This strategy was so successful that within ten years LG could create a market
worth Rs.9, 000 crores, for which Videocon has taken 25 years.
Brand consumption experience

• The brand consumption experience should be good throughout the brand life. This consistency of experience
will be crucial in building the brand. Brands which last forever are designed and maintained by experienced
brand managers and hence customers can expect the same benefits year after year.
• For example, in audio systems, Philips is still the most preferred brand due to the brand consumption experience
by customers.
Brand and profitability

• By creating successful brands, a corporate can change its fortune. A loss making firm can turn out to be profitable
if the brand clicks in the marketplace. For example till 2002, Mangalore Refinery Pvt. Ltd. (MRPL) was in big
losses because it used to sell commodities.
• During 2003, when it branded the oil products, it entered into black and white from red. Intel Corporation, a
microchips manufacturer from US, was a loss making company till the mid 1980’s.
• It successfully developed the brand around; ‘Intel Inside’ i.e. ‘Reliability’ and it became the profitable company
of the 1990’s. Tata power is a thirty year old brand maintained around, uninterrupted power supply. Reliance is
also building the ‘Reliance Energy’ image on the same attributes to break even fast.
Brand and Internet

• Internet or E-Commerce is a powerful media to develop and build brands. Due to the ‘reach’ capacity of the
internet, the time required to build a brand can be squeezed. Moreover it is possible for the customer to have a
brand experience on internet screen.
• Since on the internet, the marketer can present his brand in an impressive manner, the customer can be motivated
quickly.
Modes of market segmentation are changing

• Till 2000 AD, marketers used to segment the market traditionally around demographics i.e., age, sex, income,
etc.
• Due to the emergence of e-commerce, new ways of segmentation like value segmenting, time segmenting and
lifestyle segmenting are becoming pre-requisites for brand success.
Brand and mass customisation

• Market segmentation means regrouping a bunch of consumers from a big market into a small, approachable
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group, who will respond similarly to a marketing mix programme. There could be many market segments and
the marketer may not have enough resources to tap each segment.
• Hence mass customisation, even though highly intended by marketers, was impracticable. Now software
technology can equip marketing strategy with technological revolution to customise the product/service offerings.
Thus, to treat every individual customer differently was a dream till 2000 AD, which is coming to reality in the
twenty-first century.
• By outsourcing the software from professionals, the marketer can limit cost and can reach every possible
segment.
Size of the marketer is less important

• Earlier it was thought that, to become a global brand, physical manufacturing assets at many locations and mass
distribution are essential. In the twenty-first century this is not required. Smaller companies can develop global
brands by using the BPO and internet intelligently.
• A new category of firms are taking birth, ‘Small Office, Home Office’ (SOHO). On the net, a company can create
really good looks without having a physical presence. Branding has the power to generate that image.
Brand loyalty is difficult to maintain

• Customer loyalty is significant from the sales turnover point of view. The answer could be CRM. However,
today the consumer is choosier, more demanding and more intelligent. He is likely to switch to the next brand
if it offers better value.
• Exactly that is why HLL experienced decline in its sales and profitability during the last two years. Hence the
marketer needs to adopt the marketing mix strategy very frequently to survive. Those, who fail to do so, may
die without any noise.
Financial power of brands

• The value of the brand and the actual investment done by the marketer does not match. Those brands are financially
powerful brands that have brand value two to three times the total investment. For example, during 1993, when
Parle sold its soft drink brands to Coca-Cola at Rs.180 crores, its total investment was only Rs.55 crores.
• Thus, a brand can create sustainable competitive advantage (SCA) in the form of financial asset to equity base
and ratio of sales to equity in the range of 5 to 20. For example Colgate, Lakme and Ponds have used the same
strategy to enhance the financial power of the brand.
6.13 Brand Ranking

India’s Top 20 Brands
Brand Rank by trust Rank by size

Colgate 1 10
Dettol 2 58
Pond’s 3 28
Lux 4 13
Pepsodent 5 34
Tata Salt 6 21
Britannia 7 6
Rin 8 19
Surf 9 29
Close-up 10 42
Lifebuoy 11 14
Fair & Lovely 12 18
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Vicks 13 62
Titan 14 NA
Rasna 15 NA
Philips 16 36
Bata 17 NA
Pepsi 18 2
Clinic Plus 19 33
Horlicks 20 20
Table 6.1 India’s top 20 brands
6.14 Brand Challenges

Marketers normally face the following five challenges in brand management.
1 2 3 4 5
Branding Brand-Sponsor Brand-name Deci- Brand Strategy Brand Repositioning

Decisions Decisions sions Decisions Decisions
To brand  Manufactur-  Individual product  Line Extension  Re-positioning
or not to er’s brand names  Brand extension  No re-positioning
brand  Private or  Blanket family  New brands
Distributor’s names Co-brands
brand  Separated family  Multi-brands
 Licensed names
brand  Company/indi-
vidual names
Table 6.2 brand challenges
6.14.1 Brand or No Brand

Brand as a marketing concept has become so common that we cannot think of buying a product which is not branded.
Now a days low priced food products and other products are also branded like, ‘Friendly wash’, ‘Dandi Namak’,
Livon’, etc. Branding offers the following benefits to marketers.
• To manufacturers: Distinctiveness, legal protection, systematic promotion, expands market reach, brand loyalty,
market segmentation.
• To distributors: Goodwill, quality-perceptions, higher turnover, ease of sale.
• To consumers: Identity of marketer, easy to shop, consistent quality, psychological satisfaction, uniform price,
status.
6.14.2 Brand Sponsor Decision

• Manufacturer’s brand: The manufacturer uses his corporate name as brand name throughout the value chain.
For example Godrej, Tata, Whirlpool, LG, Sony, etc.
• Private or distributor’s brand: The trend of branding the product / services by distributor is recent (especially
after 1995). The distributor, who distributes other manufacturers’ brands also creates his own brands and
distributes these through his network. Since the respective distributor is popular in that city or part of the city,
the product so branded by the distributor becomes acceptable to the masses. There are two ways of creating
distributor brands.
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Distributor does not manufacture, only sells the brand
• In this case, the distributor becomes the brand-personality because of his behaviour and skill. Whatever he says
to the customer becomes the decision for them and they blindly follow the distributor.
• For example, Chitale Milk receive milk from Bhilawadi. At Pune, M/s. B.G. Chitale pack the milk and distribute
to 1.70 lakh households. Due to quality maintenance and timely delivery, Chitale is the most successful brand
of Pune. Similarly, many sweets are not manufactured by ‘Chitale Sweets’, but whatever they sell, becomes
popular. Another example is Dass Electricals. Mr. Dass started his career in 1969 as a repair mechanic. Due to
his skill and honesty he became the brand. Today he has 8 showrooms in Pune.
• Mr. Dass, who has not even passed SSC, earns more than Rs.25 crores commission by distributing brands like
Philips, LG, Whirlpool, Sony, Samsung, etc. One more brand personality as distributor is Dorabji. Their outlet
sells all groceries as well as furniture etc. Dorabji’s third generation is now running the business and the faith
gained by the shop is surprising.
• Distributors manufacture their own brands and sell these along with other manufacturers’ brands (This is also
called private brands)
Licensed brand
• The manufacturer obtains the rights of using reputed companies brands for goods manufactured by him on
royalty payment basis.
• This strategy is used when the manufacturer is not confident about creating a successful brand on his own or he
does not want to take a risk with his career. Following are some examples of licensed brands.
Sr.No. Name of the Distributor Goods distributed Private Brands

1 Shopper’s Stop Garments, Jewellery Ready-mades
2 India Woolens Fabric Ready-mades
3 Jaihind Collection Fabric Ready-mades
4 Chitale Milk Milk Milk Products
Books on Computer,
Engineering and
5 Everest Distributor Engineering, Entrance Test,
Management books
Management
Management books
6 ICFAI Management Education
and Magazines
Licensor License Product Brand Name

Piaggio, S.P.A, Italy Bajaj Auto Scooters Vespa
Arrow Arvind Mills Shirts Arrow
Lee Arvind Mills Jeans LeeKawasaki Baja
Kawasaki Bajaj Auto Motorcycles
Table 6.3 Licensed brands
6.14.3 Brand Name Decisions

The characteristics of a good brand name are as follows:
• It should suggest the product’s benefits like Burnol, Drainex, Net Kracker, Fair & Lovely, etc.
• It should convey product quality like Robin Blue.
• The name must be catchy and easy to pronounce like Rin, B4U
• It should not have poor meaning in some other languages. For example the meaning of ‘Nova’ (a Kinetic scooter)
in Spanish language is ‘does not go’.
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6.14.4 Brand Name Strategies

Individual product names
• The marketer prefers to promote products by individual product names. For example, HLL’s strategy is to brand
individually like Lux, Lifebuoy, Surf, and Vim. In a similar way, Arvind Mills adopt individual product names
like Lee, Arrow, Excalibur, Ruff & Tuff, etc.
• The main advantage is anyone product failure does not reflect into the company’s brand equity. For example the
flop products of HLL are Surf liquid, Lifebuoy-liquid, Hima Peas, Lux Shampoo, etc. However these products
hardly affected the image of the company.
Blanket family names

• The marketer promotes all products by fixing the ‘company name’ before the product generic class. For example,
BPL Microwave oven, Videocon TV, and Whirlpool Washing Machine.
• The main advantage is low promotional expenditure in the initial stage. Moreover customer satisfaction in the
product leads to buying other products of the same marketer.
Separate family names

• The marketer prefers segment wise branding. Following are classic examples.
Reliance Industries Ltd. Raymonds

Brand name Products Brand name Products
 Vimal Textiles  Sarees,  Parx  Medium price
 Legacy  Shirting, suiting and  Park Avenue suiting and shirting
 Harmony dress material, as well
 Readymade curtains
Table 6.4 Example of segment wise branding
Company/individual names
• The marketer uses company’s trade name before or with individual product name. Companies use this policy
to legitimise their own name and to individualise the product.
• For example, Kellogg’s Wheat Flakes, Kellogg’s Corn Flakes, Kellogg’s Chocos, etc.
6.14.5 Brand Strategy Decisions

Line extensions
• These are additional items in the same product category under the same name. Colgate’s line extension was
Colgate Regular, Colgate Floriguard, and Colgate Gel (blue and red).
• The line extensions are the outcomes of the pressure from consumers to provide variety.
Brand extensions
• Using the same brand name before a newly launched variety with a different USP is called brand extension. It
can be done in two ways as follows:
• Related Brand Extension – Lifebuoy to Lifebuoy Plus and Lifebuoy Gold.
• Unrelated Brand Extension –Tata Steel, Tata Timken, Tata Motors and Cinthol to Cinthol Talc, Cinthol Deodorant.
Brand extensions are the decisions of marketers to encash brand equity.
Multi-Brands
• These are the additional brands in the same product category. Multi brands are introduced to ensure more
distribution shelf space.
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• For example in the Soft Drink market, Parle had four soft drinks for four segments like Thumps Up, Mazza,
Limca and Gold Spot.
Co-brands or cross promotion or dual branding

• Two brands work better as one. This statement seems to have paid off for cobranded credit cards. Out of 2.2
mm credit cards sold, 23% were co-branded. In case of co-branded cards, typically, card companies tie up with
a partner to offer unique value to their customers.
• The partners could be oil companies, telephone companies, air travel, media, departmental stores and
entertainment. For example, there is ICICI Bank – BPL Mobile credit card that gives free one-year mobile
insurance against loss, theft or damage.
• It also gives free voicemail roaming facility at no additional deposit. Jet Airways – Citibank Gold card gives free
membership to the frequent fliers’ club. During 2003 Petro and airline cards have become popular, accounting
for a major share of the co-branded card market.
• It was observed that consumer spending was higher (up-to 30%) on these cards than plain vanilla credit cards
of the same company. When somebody compares plain credit cards and co-branded credit cards, co-branded
cardholders are less likely to be enticed by short-term benefits from other issues.
• Also, customers are more likely to spend more and pay full fees. Typically co-brand reward programmes are
much more powerful than regular card reward programmes. Besides, customers get exclusive discounts and
services from a number of merchants.
It involves two or more well known brands to combine in an offer as follows:
Videocon Washing Machine with Surf
Vimal textiles with Ariel Detergent
Maruti cars with MRF tyres
BPL Microwave ovens with Borosil glass containers
6.14.6 Brand Repositioning or No Repositioning

Companies need to periodically audit their brands’ strengths and weaknesses, and re-position the brands when
required, to cater to changing customer preferences or new competitors. When a marketer launches a brand, spends
a few crores of rupees on brand management and after some time brand sale declines. What should the marketer
do in this situation? Answers are, either opt for re-positioning or allow the brand to die. Following are some of the
examples of brand repositioning.
Company Brand Earlier Positioning Re-positioning

Improved shampoo
Root nourishing by adding gluosil to
HLL Organic Shampoo
shampoo reduce hair breakage
by 50%
Cadbury’s Dairy Milk Chocolates For children All aged customers
Pioma Ind. Rasna For children Parents with kids
P&G Vicks For headache For colds
Paras Moov Waist ache Back and waist ache
HLL Close-up Young couples Individual youth
Table 6.5 Brand re-positioning
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Summary
• Brand management is so important that it will be treated as a special discipline separately. However, the product
manager must have some basic knowledge of Brands and Brand management (a product manager is also called
a brand manager) and hence is included here. Managing a product’s reputation is one of the most important
strategic tasks facing the product manager. A brand name is an asset, and a valuable one at that.
• Brand is a name, term, sign, symbol or design or combination of them, intended to identify the goods or services
of one marketer from those of competitors. Brands provide benefits to consumers and marketers. Major decisions
involved in brand management are branding decisions, brand sponsor decisions, brand name decisions, brand
strategy decisions and brand repositioning decisions.
• Brands vary in the amount of power and value they have in the marketplace. Customers will pay more for a
strong brand. Clearly, brand equity is an asset and results in customers showing a preference for one product over
another when these are basically identical. The extent to which they are willing to pay more for the particular
brand is a measure of brand equity.
• Private brands are more profitable and they develop exclusive store brands to differentiate themselves from
competition.
• Companies need to periodically audit their brands’ strengths and weaknesses, and re-position the brands when
required, to cater to changing customer preferences or new competitors.
• Packaging has to be designed and tested. Further, attention has to be given to increasing environmental and
safety concerns about packaging, which can create major problems in solid waste disposal. Packaging also adds
to the cost of the product and in some cases may cost more than the product itself, like toothpaste.
• Market segmentation means regrouping a bunch of consumers from a big market into a small, approachable
group, who will respond similarly to a marketing mix programme. There could be many market segments and
the marketer may not have enough resources to tap each segment.
• Brand as a marketing concept has become so common that we cannot think of buying a product which is not
branded. Now a days low priced food products and other products are also branded like, ‘Friendly wash’, ‘Dandi
Namak’, Livon’, etc. Branding offers the following benefits to marketers.
References
• Blackett T., 2004. Brands and Branding. Interbrand, pp.110.
• Verma H.V., 2006. Brand Management: Text and Cases. 2nd edition, Excel books, Anurag Jain. pp. 43–81.
Recommended Reading
• Haseeb Murtaza, Brand Management [Online] Available at: <http://www.scribd.com/doc/3979762/Brand-
Management> [Accessed 9th March 2011].
• Kotler. P., Pfoertsch W., Michi I., 2006. B2B Brand Management. Springer Berlin. Germany, Springer. p.357.
• Understanding Brand- What is a Brand? 2008.[Online] (Updated 2011) Available at: <http://www.
managementstudyguide.com/what-is-brand.htm> [Accessed 9th March 2011].
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Self Assessment
1. The __________ identifies the seller or maker, and is exclusive, in infinity.

a. product
b. brand
c. manager
d. market
2. Which of the following includes decisions related to brand or not to brand?

a. Branding decision
b. Brand-repositioning decision
c. Brand-name decision
d. Brand-strategy decision
3. _______________ are more profitable and they develop exclusive store brands to differentiate themselves from
competition.
a. Sponsors
b. Audits
c. Private brands
d. Brand extensions

a. Branding is advertising and advertising is branding.
b. Branding changes consumer behaviour.
c. Branding is loyalty.
d. The success of brand varies indirectly with the ability to accept the mantle of leadership.
5. The simplest form of _________ is familiarity.

a. brand loyalty
b. brand awareness
c. brand equity
d. brand assets
6. Which is a powerful media to develop and build brands?

a. Selling
b. Internet
c. Advertise
d. Packaging
7. Many marketers have called_________ as the fifth P of the Marketing Mix.

a. prosperity
b. packaging
c. perceived quality
d. personality
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8. What insulates a brand from competitive pressures, such as advertising and price promotion and leads to higher
profits?
a. brand loyalty
b. brand awareness
c. brand equity
d. brand assets
9. ____________identify the product, grade them and sometimes describe the product.
a. Packaging
b. Sellers
c. Sponsors
d. Labels
10. Which of the following includes line extensions, brand extensions, multi-brands, new brands, co-brands?
a. Branding decision
b. Brand-repositioning decision
c. Brand-name decision
d. Brand-strategy decision
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Chapter VII
Brand Equity
Aim
• understand the concept of brand equity
• explain the different approaches to brand equity
• examine the types of brand association
Objectives
• elucidate the term brand equity and its applications
• determine the latest measures to compute brand equity
• examine the cast based approach with examples
Learning outcome
• elucidate price based approach to brand equity
• discuss the customer based approach with examples
• understand the strength of brand associations
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7.1 Introduction
Creating a brand is a comparatively easy task, but maintaining a brand or sustaining the brand and growing across a
highly competitive market is a great job. The most successful brand of 1990’s, ‘Ceasefire’ from Real Value Appliances
became a BIFR case in November 2002. Ceasefire’s biggest problem was its inability to grow in the category after
its initial success. Sales declined; there was no added benefit that the brand offered in the marketplace. It also shared
the peculiar problem of being a one-time purchase, but being relatively low value as compared to other consumer
durables.
In such category creator brands, it requires a tremendous amount of sustenance to keep the category at the top of
the mind and sometimes the returns on base items may not even justify the cost.
Brand equity is brand worth. A marketer having a brand is worth much more than someone with no brands. To
understand the value or worth of the brand and its marginal benefits over other commodities is a complex task. It
calls for separating that part of the profits increased by the brand from those applicable to other assets. However
brand equity can be studied through three approaches like cost based, price based and consumer based.
7.2 Brand Equity

• “Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbols add to or subtract
from the value provided by a product or service to a firm and/or to that firm’s customers.”
• It is the combination of ad-awareness, ad-viewership, image or perceived quality and association of symbol in
the consumer’s mind.
• The brand in lifeline is the brand equity. If a brand generates a sharp and highly focused association in the
consumer’s mind, then it has got equities. The equity is not built just by advertising but a combination of ad,
product and distribution.
• Brand equity consists of differential attributes underpinning a brand which gives increased value to the firm’s
balance sheet. It can be measured by incremental cash flow from associating the brand with the product.
• It is the totality of the brand’s perception, including the relative quality of the products and services, financial
performance, customer loyalty, satisfaction and overall esteem towards the brand. Brand equity relates to how
the customers, employees and all the stakeholders feel about a brand.
• Brand equity can be studied under three approaches, like cost based, price based and consumer based. These
approaches are discussed below.
Brand Equity
Cost Based Price Based Consumer Based
• Historical cost
• Replacement cost • Price premium • Brand knowledge
• Market value • Equalisation • Attitude rating
• Discounted cash price • Blind test
flow • In different price
• Brand contribution
• Inter-brand
method
Fig. 7.1 Approaches to evaluate brand equity
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7.3 Cost Based Approach
Explained below are the approaches that are based on cost:
7.3.1 Historical Cost

• Historical cost is the money, which has been spent on the brand equity. Suppose Paras have spent Rs. 10 crores
on Livon and Rs. 20 crores on Moov as on 1.6.04, then the company expects back at least this amount if it wants
to sell the brand to another marketer.
• This approach sounds good from the brand-builder point of view. However, the company, who is acquiring the
brand, is interested in the future cash flows from the brand. The facts could be, after spending say Rs.10 crores
on acquiring Livon and Rs.20 crores on acquiring Moov, there may not be guarantee of realization of even ten
per cent of that amount in future sales.
• For example, Colgate could not get any benefit by acquiring Cibaca toothpaste, whereas, Coca-Cola could get
Rs. 1,700 crores sales on expenditure of Rs.45 crores on Thumps-Up, during the last 10 years
• Cost incurred in brands may not be the measure of the efficiency with which the money has been spent by the
marketer. The developmental expenditure of American Companies, say Ford, could be much more than an Indian
company, say Maruti and Japanese company say Suzuki and Honda. Yet many car models of GM and Ford are
successful in India, whereas every Honda and Toyota model became a successful brand. Look at consumer non-
durable giant HLL and its rival Cavin Kare. At one tenth of the cost of Fair & Lovely, Cavin Kare developed
Fairever. Hence, it is said that poorly spent finances hardly reflect into brand equity. Hence, the historical costs
may not be an adequate measure of a brand’s future cash flows when costs are adjusted to present worth.
7.3.2 Replacement Cost Approach

• The estimate of replacement of the brand after adding launching cost, production and administrative costs
cumulatively incurred upto date plus brand premium due to brand loyalty plus development expenses for
distribution network.
• Replacement cost approach calls for the exercise to estimate the cost of creating a brand with similar turnover,
profitability, distribution reach, brand loyalty, etc. The sum of all these costs is the brand’s equity.
• Some of the limitations of these methods are, even though it looks simpler, these are complex and time
consuming. If a company is manufacturing only one product, then production and marketing expenses can be
easily computed.
• But for a company like Whirlpool, which is manufacturing and marketing many brands, allocation of expenses
is a bit difficult. Though it is a better method than historical cost, it faces the same dilemma or setback – what
is the guarantee that if a brand is created by spending Rs.2, 455 crores, it will be able to generate 26% market
share, which whirlpool commands?
• Replacement cost of some of the brands is as follows.
National launch of brand in 1997 Rs. 5.0 crores

Production, administrative and marketing expenses from Rs. 1800 crores
1997-2004
Brand premium over Videocon /
BPL due to bran loyalty Rs. 450 crores
Developmental expenditure on dealer network Rs. 200 crores

Total Rs. 2455.0 crores
Replacement cost of Whirlpool Washing Machine
as on 1.6.04 is Rs. 2455.0 crores
Table 7.1 Replacement cost/whirlpool washing machines
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7.3.3 Market Value Approach

• The brand value for a particular brand is obtained by visualising the price, if the brand is acquired by another
marketer or comparing the marketer’s brand value that had been realised in recent part merger or acquisition
deal.
• This (M&A) figure could provide a reasonable estimate of the market value of the brand. Given below are some
of the acquisitions and the prices involved.
Replacement cost
Brand
in Rs. Crores
Surf 825
Ariel 110
Close-Up 300
Colgate-Gel 125
Tata Motors 2950
Maruti 7885
Dettol 235
Dabur 5100
Table 7.2 Brand values
This method can also be useful in computing the brand equity of the company which has acquired the brand.
Mathematically it can be expressed as follows:
Brand Equity of Acquirer = Price paid for acquisition *
Suppose, Electrolux’s sales turnover is 12 times the turnover of Kelvinator, then brand equity of Electrolux = 255
x 12 = Rs. 3,060.0 crores.
7.3.4 Discounting the Cash Flow Approach

This approach calls for estimating the cash flows which may accumulate to a brand in forthcoming years and then
converting these cash flows to present worth value suing the standard tables on time value of money.
Mathematically,
PV = CF1/(1+ R)1+ CF2/(1+R)2 + CF3/(1+R)3.........+ CFn/(1 + R)n
Where,
PV = Present value of the brand
CF = Cash flow from 1st year to nth year
R = Cash flow discounting rate. Usually R is assumed equivalent to commercial rate of interest
7.3.5 Brand Contribution Approach

This approach attempts to find out the value that is added by the brand ‘brand’ to the product. It compares the profits
earned by the brand with the profits earned by generic products of unbranded goods. The difference between the
two figures multiplied by an integer is the brand equity
Mathematically,
BE = IX {Profits from the brands – Profits for unbranded production in same category}
Where,
BE = Brand equity
I = Integer. The value of this integer is average of expenses incurred on brand management.
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7.3.6 Inter-brand Approach
This is the scientific method to evaluate brand equity. It has the following steps:
• Weightage average of the last three years’ profits of the brand is calculated.
• The answer is then multiplied with P/E of the industry in which the company operates.
• Both the above figures are multiplied by brand strength score.
7.4 Price Based Approach

This approach uses the retail price of the brand as basis for evaluation.
7.4.1 Price Premium Approach

• Price Premium is computed by comparing the difference between the retail price of the brand and the retail
price of an unbranded product in the same category. For example, Singer Food Processor’s retail price is Rs.5,
000/- and that of unbranded one is Rs.3,000/-, then brand equity of Singer = {5,000-3,000} = Rs.2,000.
• This is simple in case the company has a single product. But when the company is offering many variants of a
brand, this method cannot be used. This is because in the respective variety of the brand, unbranded products
may not be available.
• Moreover, the same variety under different brands will make the issue still difficult. For example, HLL offers
liquid cleaning medium under two brands viz., Surf liquid and Lifebuoy liquid. In this case, the brand equity
of Surf liquid will be always higher than Lifebuoy liquid, irrespective of the quantity sold under each category.
Some products are sold at bare minimum prices to attract the masses. For example Nirma, Dandi Namak, Babool
toothpaste, etc., in which the price brands have insignificant brand equity.
7.4.2 Market Share Equalisation Approach

This approach takes into account the market shares of key marketers and retail price of each brand for evaluating
brand equity. The following illustration clarifies the approach. The illustration highlights shampoo brands.
Sr. No. Shampoo Brand Retail Price Market Share

1. Sunsilk Rs. 52 40%
2. Clinic All Clear Rs. 50 30%
3. Vatika Rs. 48 20%
4. Rejoice Rs. 39 10%
Table 7.3 Example of market equalisation approach
• We assume that in the shampoo market, only four of the abovementioned brands are available.
• Now to calculate brand equity, we must identify the price at which the market share of each of the above player
/ brand is equal.
• It is seen that Sunsilk and Clinic All Clear are the most popular brands and unless some consumers from these
two brands (15% from Sun Silk and 5% from Clinic All Clear) switch to other brands, the market shares will
not be equal. Hence we have to identify the price points at which this changeover might happen. Given below
is a hypothetical situation of brand market share equalisation.
Now brand equity can be calculated by using a mathematical formula as follows.
Brand Equity = Price of the brand in paise/10

(To convert the price of brand in paise, we multiply by 100)
Hence the brand equity of the above brands is as follows:
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Sun Silk - 700

Clinic All Clear - 600
Vatika - 500
Rejoice - 40
In practice, to get an accurate measure of brand equity, the exercise is repeated for all pack sizes and the weighted
average is calculated.
7.4.3 Price Premium at Indifference Approach

• This approach tries to compare the free prices of the brand at the point of indifference.
• Let us study two brands, say Pepsodent 2 in 1 and Forhan’s. Let us repeat the exercise as described in the Market
Share Equalisation Approach. We assume that on an average, a customer switches from Pepsodent 2 in 1 to
Forhan’s at Rs. 60.
Market Share
Brand Retail Price per 150 ml tube
Pepsodent 2 in 1 Rs. 42 35%

Forhans Rs. 40 7%
Colgate Gel Rs. 55 30%
Close-up Rs. 50 28%
Table 7.4 Example of price premium at indifference approach
Then mathematically,
Brand Equity of Pepsodent 2 in 1 = * 100
= 60/40-1*100
= 50.0
Hence, Brand Equity of Pepsodent 2 in 1 is 50.
Assuming revised price for Colgate gel Rs.50 and Close Up is Rs.52, Brand Equity of Colgate Gel is 25.0, and
Brand Equity of Close Up is 30.0.
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Fig. 7.2 Dimensions of brand knowledge
From the above discussions, we can conclude that Pepsodent 2 in 1 has much more brand equity as compared to
Forhan’s, Colgate Gel and Close Up.
7.5 Customer Based Approach

This approach uses consumer’s knowledge about the brand to evaluate the brand equity.
7.5.1 Brand Knowledge Method

Brand knowledge may be expressed as a sum of brand awareness and brand image. Each dimension of the brand
can be measured on a scale ranging from 1 to 10. The weighted sum of these dimensions will be the measure of
brand equity.
Brand recall
• Suppose you draw a sample of 100 from metros 7 mini metros and ask them simple questions – which brand
comes to your mind when you think of detergent powder? If 60% of the respondents say Surf, then the conclusion
is, Surf is top of the mind awareness and hence could have higher brand equity. If the customer provides the
same after 2-3 hints, then the brand has lower awareness level and so low brand equity.
• The marketer may create a different category of goods based on price and may ask a question like – which
home appliance brand comes to your mind when you perceive low price? The instant answer could be Aiwa
or Akai.
• Thus, a scale could be formulated where high score (near 10) signifies high brand recall. In similar fashion, the
other parameters like brand recognition, favourability of brand association, uniqueness of brand associations
and strengths of brand associations can be measured. When these scores are summed up and averaged, the
marketer gets the value of brand equity.
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7.5.2 Attribute Oriented Method

The exercise is done as follows:
• For a particular brand all the attributes are listed. Respondents are asked to provide rating for each attribute
out of 10.
• Scores for all the attributes are added. The same exercise is done for all other brands in the list and then the
scores are calibrated out of 100, which is a measure for brand equity.
• Let us study the method for the Talcum Powder Industry. The scores out of 100 represent brand equity. We can
say that Glaxo’s Nycil has brand equity (82) followed by Ponds (80) and Dermicool (72).
Johnson Heaven’s Shower to Dermicool

Attribute Ponds Nycil
Baby Garden Shower
Freshness 8 7 6 8 6 6
Fragrance 9 8 6 8 6 7
Freedom from
7 6 6 9 8 8
sweat
Appearance 7 5 5 7 8 8
Desirability 9 5 5 9 6 7
Total out of 50 40 31 28 41 34 36
Total out of 100 80 62 56 82 68 72
Table 7.5 Example of attribute oriented method
If all dimensions are provided scores out 10 for a category of goods, it provides brand equity or brand knowledge
basis. Given below is the illustration for salt brands.
Key Brands in salt category

Dimensions of Brand Knowledge Scores out of 10
Tata Knorr
Nirma Shudh Dandi
Salt Annapurna
Brand Recall 9 6 7 5
Brand Recognition 8 6 5 5
Type of Brand Association 7 6 5 5
Favourability of Brand
7 6 6 6
Associations
Strength of Brand
7 6 7 6
Associations
Uniqueness of Brand
7 6 7 5
Associations
Attributes 7 6 8 6
Total Score/ Brand Equity 52 42 45 38
Table 7.6 Attribute oriented method for salt brands
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• This method suggests that brand equity may not lie in the price at which the brand is sold but how it is associated
in the consumer’s mind. However brand equity normally is much more than the attributes or brand knowledge
dimensions, which could be the main limitation of this method.
• Brand Associations: Brand associations are the informational nodes linked to the brand in memory and contain
the meaning of the brand for consumers. It means benefits, attributes, attitudes, personality, price, social class,
etc. to the brand in memory. The strength, favourability and uniqueness of brand associations play a major role
in determining the differential response that makes brand equity.
7.6 Types of Brand Association

Based on level of abstraction or the information to be developed around a brand, the associations can be classified
based on – Attributes, Benefits and Attitudes.
Attributes
• These are the descriptive features which characterise a product or service. This can further be divided into
product related attributes and non-product related attributes.
• Product related attributes refer to the product’s physical composition that determines the nature and level of
product performance. For example in a music system, the attributes could be presence of VCD, MP3, Wattage,
etc.
• Non-product related attributes are not directly linked with product performance but affect the purchase or
consumption process. For example colour of a car or two wheeler or package appearance of say a soft drink.
Some of the non-product related attributes are price, user category, usage occasions, quality of wash, high
percentage of dryness, etc.
Benefits
Benefits could further be classified as follows –
• Functional benefits (basic motivators)
• Symbolic benefits (social approval, self image)
• Experimental benefits (sensory pleasure, approval, and self image)
• Experimental benefits (sensory pleasure, variety and cognitive stimulation)
For Pantene Shampoo, the functional benefit is anti-dandruff and hair conditioning, symbolic benefit is beauty and
health of hair and experimental benefit is the feeling of beauty and cleanliness.
For HDFC, the function benefit is branding and financial services, symbolic benefit is, it acts as a friend and
experimental benefit is customer friendly, innovative and aggressive.
Attitudes
• These are the most abstract form of brand associations expressed in terms of consumers’ overall evaluation
of brand and meaning to them. Attitudes are important because it forms the basis for actions and behaviour of
consumers.
• There are three dimensions of attitude viz. Cognitive (knowledge base perception), affective (emotions and
feelings towards brand), conative Cintention to behave in a particular manner).
7.6.1 Favourability of Brand Associations

• Associations, which are developed because of the brand-meeting consumer needs and hence consumer-expressing
satisfaction, are termed favourability of brand associations.
• Creating a favourable association requires focusing on certain attributes that deliver value to customers, delivering
promises on time, etc.
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7.6.2 Strength of Brand Associations

• The strength of brand associations is the critical determinant of the kind of information recalled by the consumer
and thus affects brand-buying decisions. These associations are formed in three ways - on the basis of experience,
communication, some assumptions or inferences arrived at from some information.
• The factors, which influence strength of the brand associations, are the presence of brand information in consumer
memory, line between two consecutive exposures and number and type of external cues acting on consumers.
• This is the unique selling proposition, which compels consumers to buy a particular brand. These USPs
may be communicated explicitly by making direct comparison with competitors or may be hammered in
commercials.
• For example, Bajaj Boxer and Kinetic Velocity hammering feel efficiency. Thus, the overall success of a brand
largely depends on the strength of brand associations, favourability of its evaluation and uniqueness of those
associations.
7.6.3 Blind Test Method

• Brand equity, as per the blind test method, is defined as the difference between overall performance under
subjective criteria and objective criteria.
• The subjective score of a brand is calculated by asking open-ended question, like rate following brand out of
100 as per your preference of buying, whereas the objective performance of the brand is calculated by asking
the respondents to brand the various brands. Let us discuss select brands of the car industry.
Maruti
Indica V2 Fiat palio Matiz Santro Zing
Zen
Subjective Score (A) 80 82 45 40 75
Objective Score (Each Attribute out of 10)
Braking 7 8 7 6 7
Engine Performance 8 7 6 5 7
Gearing Performance 8 7 7 6 7
Steering Drivability 8 7 6 6 7
Overall Looks 9 7 8 6 8
Fuel Efficiency 8 7 6 5 7
Comfort 8 8 6 6 8
Safety 7 8 7 6 7
Objective score out of 80 63 59 53 46 58
Objective score out of 100 (B) 79 74 66 57 72
Brand Equity = (A) – (B) 1.0 8.0 -21 -17 3.0
Table 7.7 Example of blind test method
• The above illustration concludes that brand equity of the brand Indica V2 is the highest (8), followed by Santro
Xing (3) and Maruti Zen (1).
• The main disadvantage of this method is that accuracy with subjective and objective scores is not obtained.
For example, the attributes considered by one marketer for objective criteria may not be avertable to the other
marketer.
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• For the automobile industry, whether 2 wheeler, 3 wheeler, 4 wheeler or 6 wheeler, the attributes could be
standardised but for consumer products like shampoo, soap, toothpaste, and such standardisation may not be
possible.
7.7 Latest Measures to Compute Brand Equity

Following are some ways to compute brand equity:
7.7.1 Direct Measurement Methods

• The direct measurement method suggests adding all the brand’s communication investments, adjusted for
inflection. An additional adjustment is sometimes made to account for the opportunity cost of the money invested
in brand building.
• This adjustment is called the discount rate and it is used to compute the net present value of the successive
investments i.e., what they are worth today. This method is simple, but it overvalues brands. It also penalises
brands that do not advertise heavily.
Brand 2001 2002 2003 2004 2005 2006 2007

HLL’s Fair &
1.1 1.25 1.5 1.85 2.0 2.35 2.5
Lovely
Awareness valuation
• This method estimates the communication investment required to build the level of awareness due to which
current market share has been achieved.
• For example, a brand that is used by 5% of its target population, but was tried by 15% of them. The brand
has an awareness of 60%, which is due to communication investment of 800 GRPs. Assuming, Rs.1, 00,000
investment needed to create one GRP (Reference - Economic Times); the brand could be valued as Rs.8 crores.
The advantage of the method is that, it is easy to use and requires less research than any other method.
• It also reflects the current cost of re-creating the brand today independently of the way it was actually
created.
7.7.2 Indirect Valuation Methods

Excess earning method
• This method tries to assess the increase in profit or cash flow, attributable to the brand. Then it projects these
cash flows over the useful life of the brand (usually 10 years) and does a ‘discounted cash flow’ analysis, where
each year’s projected cash flow is discounted according to the assumed risk on the investment and how for it
will materialise.
• The sum of these cash flows plus the residual value of the brand at the end of the analysis gives the brand value
at the time of the analysis. The major difficulty with this analysis resides in estimating the incremental effect
of the brand on sales or profits.
Relief from royalty method

• The method argues that, if the company did not have the use of its brand name, it would need to license that
right in exchange for a royalty fee.
• Those royalty fees are usually based on percentage of sales (not profits). The valuation consists of first estimating
the fee as a percentage of sales and then projecting that fee over the useful life of the brand.
• The marketer then computes the ‘net present value’ of the sum of those fees over the expected life of the
brand.
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Summary
• Brand equity is the totality of the brand perception, including the relative quality of the product and services,
financial performance, customer loyalty, satisfaction and overall esteem towards the brand. There are three
approaches towards evaluating brand equity. The first one is cost based, second one is price based and third
one is consumer based.
• “Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbols add to or subtract
from the value provided by a product or service to a firm and/or to that firm’s customers.”
• Brand equity can be measured by incremental cash flow from associating the brand with the product.
• Brand equity can be studied under three approaches like cost based, price based and consumer based.
• Price premium is computed by comparing the difference between the retail price of the brand and the retail price
of an unbranded product in the same category.
• Market Share Equalisation Approach takes into account the market shares of key marketers and retail price of
each brand for evaluating brand equity.
• Brand knowledge may be expressed as a sum of brand awareness and brand image. Each dimension of the brand
can be measured on a scale ranging from 1 to 10. The weighted sum of these dimensions will be the measure
of brand equity.
• The direct measurement method suggests adding all the brand’s communication investments, adjusted for
inflection. An additional adjustment is sometimes made to account for the opportunity cost of the money invested
in brand building.
• Associations, which are developed because of the brand-meeting consumer needs and hence consumer-expressing
satisfaction, are termed favourability of brand association.
• The strength of brand associations is the critical determinant of the kind of information recalled by the
consumer and thus affects brand-buying decisions. These associations are formed in three ways - on the basis
of experience, on the basis of communication, on the basis of some assumptions or inferences arrived at from
some information.
References
• Brand Equity–Meaning and Measuring Brand Equity [Online] (Updated 2011) Available at: <http://www.
• Verma H.V., 2006. Brand Management: Text and Cases. 2nd edition, Excel books, Anurag Jain. pp.197–231.
Recommended Reading
• Brand & Customer Equity [Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/
what-is-brand.htm> [Accessed 10th March 2011].
• Haseeb Murtaza, Brand Management [Online]. Available at: <http://www.scribd.com/doc/3979762/Brand-
• Kotler. P., Pfoertsch W., Michi I., 2006. B2B Brand Management. Springer Berlin. Springer. p.357.
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Self Assessment
1. _______________ is the amount of funds spent on the brand equity.

a. Replacement cost
b. Historical cost
c. Market value
d. Price premium
2. Which approach attempts to find the value that is added by the brand to the product?
a. Brand contribution approach
b. Market value approach
c. Replacement cost Approach
d. Inter-brand Approach

a. Price premium approach uses the retail price of the brand as basis for evaluation.
b. Brand knowledge method uses the retail price of the brand as basis for evaluation.
c. Price based approach uses the retail price for branding.
d. Price based approach uses the retail price of the brand as basis for evaluation.
4. ______________ may be expressed as a sum of brand awareness and brand image.

a. Historical cost
b. Market value
c. Brand knowledge
d. Price premium

a. Brand contribution approach attempts to find out the value that is added by the brand ‘brand’ to the
product.
b. Brand Equity = Price of the brand in paise/10
c. Benefits are the descriptive features which characterise a product or service.
d. Customer based approach uses consumer’s knowledge about the brand to evaluate the brand equity.
6. _____________ are important because it forms the basis for actions and behaviour of consumers.
a. Attitudes
b. Benefits
c. Attributes
d. Brand recall
7. Which of the following compares the profits earned by the brand with the profits earned by generic products
of unbranded goods?
a. Inter-brand approach
b. Price-based approach
c. Price premium
d. Brand contribution approach
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8. Which method can also be useful in computing the brand equity of the company which has acquired the
brand?
a. Brand contribution approach
b. Market value approach
c. Replacement cost Approach
d. Inter-brand Approach

a. Brand Equity is the combination of ad-awareness, ad-viewership, image or perceived quality and association
of symbol in the consumer’s mind.
b. Brand equity can be measured by incremental cash flow from associating the brand with the product.
c. Brand equity can be studied under three approaches like market based, brand based and product based.
d. Brand equity can be studied under three approaches like cost based, price based and consumer based.
10. ___________ approach takes into account the market shares of key marketers and retail price of each brand
for evaluating brand equity.
a. Market share equalisation
b. Price premium
c. Consumer based
d. Price based
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Chapter VIII
Brand Image, Brand Identity and Brand Valuation
Aim
• explore the customer retention and brand marketing
• explain brand identity
• look into the relationship between brand image and celebrities
Objectives
The objectives of the chapter are to:
• determine the difference between brand personality and brand image
• understand the definitions of brand image
• examine the valuation of brand loyalty
Learning outcome
• understand about brand identity and brand image
• identify and enlist ten characteristics of the world’s strongest brands
• state and explain definition and benefits of customer retention
• discuss the strategies for retaining customers
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8.1 Introduction
Every marketer tries to create certain image of the brand, naturally for differentiation and profit generation. Many
experts call image an impression about the brand. Brand identity is the sum of the brand expressed as a product,
organisation, person and symbol. Brand valuation means measuring the value of brand loyalty, customer relations,
workforce, etc.
8.2 Brand Image

Philip Kolter suggests visualising a brand pyramid in constructing the image of a brand. At the lowest level are the
brand attributes; at the middle level are the brand’s beliefs and values. For example, HLL’s Pears and Dove soap
may talk about its attributes of cleansing cream, its benefit of softer skin and its value as attractive.
Marketers must decide at which level to anchor the brand’s identity. The attributes could be the least desirable
level. Buyers may be more interested in benefits. Competitors can easily copy attributes since current attributes
may become less desirable.
Fig. 8.1 Brand image
8.3 Definitions of Brand Image

• Brand image and brand personality is one and the same. It is the totality of the impressions about the brand. The
total impression includes physical, functional and psychological aspects of the brand.
• Brand image is the measurable aspect of the brand. Many researchers argue that the word brand image is
something much more intuitive and overarching than just attitude measure.
• An association and image, both represent perceptions which may or may not reflect objective reality, whereas
image of competence may be based upon the appearance of the product/service provider.
• Brand image is the opinion of the consumer on brand features, information, users, evaluation, product statements
and company statements.
• It can be understood very well that not all customers perceive brand image through brand thoughts. Many
customers may not evaluate the company or even the product. For example, when blind tests were conducted
for cigarettes and soft drinks, consumers could not differentiate brands when the name was masked. However,
certain attributes of brand image like brand information and brand features definitely affect brand image.
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Attributes of Brand Brand Thoughts
Image Paint Brand Hard Drink Brand Ice-Cream Brand
It is a powder as the It is colourful ice-
Brand Features It is a transparent
paint cream
Is it available in
Is it cheap and
Brand Information Is it genuine? family packs?
reliable?
Is it for rural or urban It is for lower and

Brand Users It is expert
consumers? middle class
Brand evaluation Grand Product The real taste Value for
It can be substituted This is the product
This is the ice-cream
Product statements for traditional painting which suits my
I was waiting for
material lifestyle
Nationally and Today it is regional
National and
Company statements Internationally brand but very soon it
International Brand
reputed company will be national
Table 8.1 Attributes of brand image
• Brand image has three components–product attributes, consumer benefits and brand personality. Brand image
is derived from three sources, which are provider driven image, product driven image and user driven image.
Provider driven image

• The image, which is derived from the company/brand can be called provider driven image. The presence of
the brand is due to the company or marketer. For example Godrej and Tata are 100-year-old brands and signify
the hallmark of quality. Even a salt branded as Tata-salt becomes successful due to reputation earned by the
name Tata.
• In similar fashion Umbrella brand, Surf, Amul, Lifebuoy, Dabur have also earned a good reputation. However
market research indicates that brand image is not significantly affected by the organisation’s name unless the
organisation’s name itself has been used consistently as the brand name. For example Lux is so popular that the
manufacturer’s name (HLL) is immaterial in brand image.
Product driven image

• The image derived from the performance of the product is product driven image. Thus, the image highly depends
on the ingredients.
• For example the Godrej Refrigerator image is very bright due to its durable compressor. Yamaha and Hero
Honda motorcycles’ images are derived from semi-urban and rural areas due to their sturdy image. LG and
Carrier Aircon emerged as the leading brands in the air conditioner business due to product offerings - Split Air
conditioners with remote control.
User driven image

• In this case, the brand image is derived from the lifestyle of the users. For example Manikchand Gutkha and
Kothari’s Pan Masala are driven by hi-fi consumer lifestyles.
• Similarly Wills Life Style Readymades are driven by high net worth customer lifestyles. Van Heusen and Louie
Phillip shirts are an expression of middle management executives. Nirma soap and detergent is mostly used by
rural families.
• In case of management education, high net worth students prefer Harvard or Kellogg’s of US or IIMs and ICFAI
in India.
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8.3.1 Brand Image and Celebrity

• Three factors influence consumer attitudes to a brand when it is endorsed by a celebrity personality. These factors
are attractiveness, trustworthiness and expertise. For example Aishwarya Rai and Maduri Dixit, if endorse beauty
creams, looks credible (Aishwarya already endorses Lux beauty soap).
• Similarly, recently the Chef, Mr. Sanjeev Kapoor endorsed, ‘oil free chicken frying machine’ which is trustworthy,
as well when he talks about Kenstar microwave oven, his knowledge highlights the expertise. Given below are
some of the examples of celebrities and brand images.
• In summary, to develop a brand image, the marketer must able to highlight something unique. For example
Friendly detergent highlighted skin friendliness, Red & White cigarettes exhibited the macho-man, etc.
Factors Image Celebrity Product
Elegant Sonali Bendre Nirma Beauty Soap

Attractiveness Beautiful Urmila Lux
Glossy Sachin Tendulkar Palio Car
Dependable Sanjeev Kapoor Microwave Kenstar

Trustworthiness
Reliable Sachin & Sehwag Boost
Knowledge Saurav Ganguly Tiger biscuits

Expertise Qualified Tarla Dala Food products
Skilled Shahrukh Pepsi
Table 8.2 Celebrities and brand images
8.3.2 Brand Personality and Brand Image

• Brand personality and brand image are two different dimensions of any brand. Brand image is how the brand
is perceived by the customers, whereas brand personality is the cause, while brand image is the effect. Brand
personality is the sum total of all the significant tangible and intangible assets that a brand possesses.
• The free flowing ability of the salt, distinctive logo and perfect communication with premium price are all
part of brand personality of Captain Cook salt. Knowledgeable selling in the OEM and replacement market of
tyres, effective communication and dealer promotion created the ‘reliable and trustworthy’ image of MRF and
Ceat.
• Brands could be functional or representational. Functional brands like Vim, Nirma detergent simply do the job
of price benefit associated with performance.
• Representational brand has to do with the aspirations, role models and lifestyles of the users. For example
IBM, Microsoft gets transformed from hardware/software manufacturer to technological manufacturer due to
the image about US - advanced country. Given below are comparisons of brand image and brand personality
for some selected brands.
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Brand Brand Personality Brand Image
Horlicks Marketing communication Energy
Reliable
Quality
Philips Music Technologically
leading electronics manufacturer
advanced
Gearless
Honda Activa Comfort
Button start
Marketing communication
Wipro Shikakai Traditional hygienic
Shikakai as a part of brand name
Puffed biscuits Novelty
Britannia Little Hearts Innovative packing Attractive
Heart shaped biscuits Romantic
Money for value Skin
Dove Soap Price Soft
care
Money for value
Bajaj Pulsar Price Button start
Comfort
Table 8.3 Comparison of brand personality with brand image
8.4 Brand Identity

• Philip Kolter says, “Building the brand identity requires decisions on the brand’s name, logo, colours, tag line,
and symbol. At the same time a brand name is much more than a name, logo, colours tag line and symbol. A
brand is essentially a marketer’s ability to stick to the promises to deliver a specific set of features, benefits and
services consistently to buyers.”
• David Aaker defines brand identity as the sum of the brand expressed as a product organisation, person and
symbol. For example, brand as product refers to the acceptance of the brand as a product. In detergent category,
if price is considered important, Ghari, Friendly Wash and Nirma are good brands as products.
• In the compact and executive car market segment, Santro Maruti Alto and Indigo are good products besides
good brands. Brand as organisations highlight that a brand is successful among other things because of the
organisational culture, values, mission, etc. Dabur India have brought out a series of successful products like
Vatika, Real, Coolers, Lal Dantmanjan, Baby-oil, Chyawanprash, etc.
• Dabur has achieved the momentum of launching successful brands at regular intervals due to its commitment
to technology and innovation. Marico Industries Ltd. (MIL) is another consumer non-durable giant, having a
lion’s share in hair oil (Parachute), edible oil (Saffola, Sweekar), starch (Revive), and Jam (Sil). The Sil brand
is manufactured at Pune in its subsidiary unit, Kanmoor Foods. Brand as a person refers to the question, “what
happens to this brand when it becomes a person,” if this is to be seen from brand’s marketing communication,
Spinz talc would be masculine, Head & Shoulders shampoo feminine and Thumbs Up young and vibrant.
• Brand as symbol refers to heritage and what the brand stands for. For example Gillete brand refers to the personal
care category and the symbol exhibits luxury. All the above dimensions are illustrated below.
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Fig. 8.2 Dimensions of brand identity
Fig. 8.3 Brand hexagon identity
• Mr. Kapferer, one more researcher on brand, argues that brand identity is six sides of a hexagon, named as
Physique, Personality, Culture, Relationship, Reflection and Self Image.
• Physique is the basis of the brand. For example physique of LG is technology and reliability while for Godrej,
MRF and Ceat it is the trust. Mr. Kapfere describes, ‘what happens to a brand when it becomes a person’ (Please
refer definition under point 2 for details of this point). Culture represents the organisation, its country of origin
and the value it stands for. For example, Japan is known for its hardworking and quality aspects, because of
which Japanese companies like Toyota, Suzukim, Sony have earned global reputation.
• Relationship is the link between the consumer and the organisation. For example relationship of consumer with
Tata’s Indica is ‘safety’ whereas with Videocon’s washing machine ‘dependability’.
• Reflection is the consumer’s perception of what the brand stands for. For example Coke’s Thumps-Up, Cola and
Pepsi Co’s Pepsi reflects youthful values. Self image is what the brand owner / user thinks of himself. A Sonata
car owner might perceive himself one of the elite and might be treating Sonata as the India’s best car.
• From above discussions (David Aaker’s definition and Kapfere’s definition), we may conclude that the brand
personality is the subset of the brand identity.
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8.5 Brand Valuation
Brand valuation can be seen from two angles – Tangibles valuation and Intangibles valuation. One of the major
ingredients of brand intangibles is brand loyalty.
Levels Characteristics
Non-loyal buyers, who do not attach any importance
1. Lowest level –Price sensitive buyers to the brand. . The buying is based on convenience
or price.
These buyers have no reason to change, but may
2. Second level buyers switch because of the stimulation from the competi-
tors.
This segment is little bit safe to marketer because
3. Third level buyers buyers would switch only when competitors are able
to overcome switching costs for them.
The buyers have positive attitude towards brand
which is due to associations, emotional attachment
4. Fourth level buyers
or a high perceived quality. Buyers consider brand as
a friend and have long term relationship.
Buyers continue the relationship in long the run with
5. Top level – Committed buyers same mutual thrust. Customers treat brand as the
vehicle of self-expression.
Table 8.4 Levels of brand loyalty
8.5.1 Brand Loyalty

• Loyalty is at the heart of equity and is one of the important brand assets. Brand loyalty is a conscious or
unconscious decision expressed through intention or behaviour to repurchase a brand continually.
• If the consumer prefers the brand even on the face of competitors with superior features and offers, then brand
is said to have high brand equity.
• Loyalty reflects the consumer’s attitude towards the brand, especially when there is a change, either in price or
product features. As the brand loyalty increases, the vulnerability of consumer base to competitive action gets
reduced.
Valuation of brand loyalty

• The factors used for loyalty measurement are different at each level mentioned as above in table 8.4. At the
lowest and second level, loyalty is not recognisable.
• Loyalty measurement of this level is in terms of sales turnover, product’s profit margins, price attractiveness
and price sensitivity. These are the main factors for purchase and repurchase behaviour of customers at these
levels.
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Fig. 8.4 Brand loyalty
• At third and fourth levels, loyalty is measured in terms of potential spending by customers, recalling level of
the brand, perceived attributes of product, number of other brands purchased during the same time and changed
attitude towards brand.
• At the top level, loyalty is measured through satisfaction level, total spending on brand, liking in terms of respect,
friendship, trust, etc. One more important measurement for customers’ commitment is their involvement in
reading, word of mouth and number of people to whom they refer the brand.
• The measurement tools are structured for which semantic differential scale, interval scale, rating and ranking
scales and in-depth interviews are used.
8.5.2 Other Tangibles and Intangibles Valuation

• In FMCGs and Pharmaceuticals, brands constitute significant intangible assets in acquisitions and mergers.
In many cases, corporate acquire only brands and not the business. The reasons for acquiring brands could be
many.
• For example, Coca-Cola bought Parle soft drink brands for immediate visibility and possession of a well-
established distribution network. Knoll Pharmaceuticals sold out Coldarin and Burnol brands because it wanted
to get out of the OTC segment and wanted to restrict itself to ethical drugs. Colgate’s acquisition of Cibaca brand
of toothpaste and toothbrushes was to kill competition and increase CP’s market share. In this context, the market
for brands has already become active and hence of underlying values is becoming relevant to the owners.
• Several methods for valuation exist, such as brand earnings multiple approach, relief from royalty approach,
profit split approach, etc. A few approaches are discussed below.
Relief from royalty approach

• The valuer estimates the amount of hypothetical royalty income that could be generated if the brand were leased
by an independent third party owner to the business that is currently using the intangible, in an arm’s length
transaction.
• The value of the brand is the present value of hypothetical royalty income that would be generated. Since the
approach often involves the analysis and selection of market driven royalty rates, this is a complex and time-
consuming approach.
Profit-split approach
• This approach also assumes that an independent third party owns a brand and licenses it for an associated profit.
The valuer has to estimate the amount of economic income that is generated after apportioning fixed cost over
other assets and the brand under consideration.
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• The method involves assessment of business income and fair returns expected on tangible assets in order to
arrive at the net profit or cash flows to be ascribed to all the intangibles.
• A number of factors form the basis for splitting this profit and apportioning to the brand including market share,
entry barriers, operating profit and the remaining useful life of the asset.
Customer relations valuations

• Marketers are dependent on their relationship with customers for revenue generation. If customer could be
retained and repeat business is sought, then the value of this intangible may be high, especially in service sectors
like the business of credit cards, consultation, telecom services, banking, etc.
• The valuation methodology, usually adopted for valuing customer relationship, is based on remaining useful
life analysis with reference to customer portfolio and its impact on future expected cash flows. The logic is that
current customer relationships are valuable intangibles but are expected to decay over the years.
Book Value of Assets % of Intangibles in

Indian Company
(Value in billion) Company Value
Infosys 21.4 95%
Pond’s India Ltd. 12.3 92%
Wipro 9.6 90%
HILL 9.5 89%
SKBC 9.2 89%
Tata InfoTech 8.6 88%
Hero Honda 5.7 82%
Colgate - Palmolive 5.2 81%
Table 8.5 Intangibles in company value
Over 80% of the market value of top ten of the fortune 500 companies are intangibles.
8.5.3 Intangible Assets

Typical intangible asset transaction values in key industries are as follows:
Industry Industrial Area

Airline Software for reservation system and route system
Automobile Model designs and manufacturing process
Broadcast TV/Radio Licenses, personality contracts, advertising contracts
Cable TV Franchise agreements, subscriber relationship
Banking Customer relationships, proprietary software
Computer
Manufacturing process, trademarks, Manufacturing patented products
Manufacturing
Fast Food Trademarks, product recipes
FDA approvals, trademarks, patents, physician relationships, relationship
Pharmaceuticals
with original patent holder
Retailing Trademarks, distribution system
Software, technology, customer
Telecommunications
relationships, licenses
Table 8.6 Intangible asset transaction values
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8.6 Customer Retention and Brand Marketing

• Customer retention is not given the attention by most firms. It has been found that customer retention has more
impact on profits than market share, economies of scale and other variables that are considered to provide
competitive advantage to a firm. In fact, it has been found that companies that reduced customer defections by
5 per cent could boost profits from 25 per cent to 85 per cent.
• Traditionally, marketing management has relied on variation and combination of the marketing mix elements
(product, price, place and promotion) to achieve market dominance through enhanced market share by acquiring
new customers.
• This approach considers the formation of homogeneous segments of relatively heterogeneous customers. It does
not take into account the history of association between the customer and the seller and hence does not reveal
the actual buying behaviour of the customer.
• Aggressive branding and promotions are other tactics used by sellers adopting the traditional marketing approach.
But brands with the highest market share are not always the most profitable. In some cases, they may even be
unprofitable.
• The relationship marketing approach on the other hand, focuses on customer retention, encouraging increased
spends and on long-term relationships with customers. Gronroos, a research scholar, has stated, “Marketing is
to establish, maintain and enhance relationships with customers and other parties at a profit so that objectives
of the parties involved are met. This is done by a mutual exchange and fulfilment of promises.”
• Customer retention should thus become a part of the strategic marketing planning process of any firm. It is
important to define customer retention and also to understand how it can be measured.
8.6.1 Customer Retention

• Since customer retention is of prime importance, it is essential to understand what any organisation should retain.
Both attitudinal and behavioural variables need to be understood when studying customer retention.
• Attitude variables act as experience in most cases of behavioural changes, so it is inappropriate to consider only
one variable as explaining customer retention. It is generally a resultant composite of multiple variables.
• The definition of customer retention should take into consideration its appropriateness to the business of the
firm. There are issues regarding whether the absolute number of customers or their relative purchases should
be considered for definition purposes.
• An associated concern is whether purchases should be in terms of volume or value. Research has also indicated
that the definition of customer retention that is in terms of percentage share of customer savings, borrowings,
spending, or purchases is more than just absolute numbers of customers.
• Hidden defections have also to be kept track of. An example of hidden defection is that the growth in sales to
a particular retained customer is slower than the growth of the market. Appropriateness of definition thus leads
us to the issue of measurement of customer retention.
8.6.2 Measurement of Customer Retention

• It is important to measure customer retention since this helps to set benchmarks and gauge performance against
this benchmark. Without measuring customer retention it cannot be managed.
• Studies have shown that a relatively small percentage increase in the customer retention rate can lead to a large
increase in the net present value of customers. Crude retention rate is the absolute percentage of customers that
are retained.
• For example, if the number of customers drops from 1000 to 900, the crude rate is 90 percent. A better measure
is the weighted retention rate in which the customers are weighted by the volume of purchases made by each of
them. The Life Time Value (LTV) is a useful concept in measuring customer retention. The LTV of a customer
depicts the customer’s net present value to the seller. In this kind of analysis the cost of acquiring a customer is
taken as a sunk cost. The only costs considered are the selling and servicing costs. By assuming the period of
future sustained relationship, the net value of cash flows and a suitable discount rate (this is taken after accounting
for the company’s cost of capital and risk), the LTV for a customer is arrived at.
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• LTV is a difficult concept to operation. There is no clarity about what the lifetime of a consumer is – it can be
age, working life, product life cycle, etc. Estimating the value through studying the past is also not precise.
Assuming purchase probabilities into the future is also not easy. Moreover, carrying out this exercise for each
and every individual customer is a long and tedious process.
• Hence, if carried out at aggregate group level, questions about who should actually be the constituents of the
group plays a significant role.
Behaviour Variables Attitudinal Variables

Number of customers (including Salience of brand
Salience of brand proposition and its components
proposition and its dormant)
Number of active customer Brand preference
Frequency of buying Psychological commitment/loyalty
Number of active customer Brand preference
Frequency of buying Psychological commitment/loyalty
Recency of buying Trust
Size of expenditure Empathy
Propensity to consider buying / use again / contribute
Share of expenditure
process
Extent of cross-sales Propensity to pay more / a premium
Adjust buying/usage procedures to fit supplier Likelihood to recommend / advocacy
Routinised re-ordering Top-of-mind awareness
Join club
Proven adequacy
Enquiries
Provide information when requested regarding
needs and/or characteristics
Notification of complaints and success
Give you more time than competitors/before
Pay attention to organisation’s announcement
Table 8.7 Behaviour and attitudinal variables
8.6.3 Benefits of Customer Retention

Customer retention affects both revenues and cost in the equation of profitability.
Profit = Revenue – Cost
Revenues are enhanced due to increased sales and costs are lowered due to lesser generation and marketing costs
of such revenues. Scholars have outlined six economic benefits of customer retention, which are as follows:
1. savings on customer acquisition or replacement costs
2. a guarantee of base profits as existing customers are likely to have minimum spend per period
3. growth in per customer revenue over time
4. a reduction in relative operating costs as firms can spread the cost over many customers and over a longer
period
5. free of charge referrals of new customers from existing customers
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6. price premiums as current customers usually do not wait for promotions or price reductions before they make
their purchases. Certain non-economic benefits from customer retention are increased customer trust, commitment
and cooperation.
8.6.4 Strategies for Retaining Customers

In service marketing, customer retention has been conceptualised as resulting from customer perceptions of service
quality and customer satisfaction. Scholars have advocated four steps as essential to retain customers:
1. define the market structure
2. segment the customer base and determine segment value
3. identify the segments’ service needs
4. implement a segmented service strategy
It is important to retain employees and investors in order to retain customers. Disloyal employees are not motivated
enough to build a base of loyal customers. Similarly, disloyal investors will not be interested in building long-term
relationships. The team of customers, employees and investors must hence share a common vision of a long-term
relationship.
It is important for the firm to understand the reasons that make customers switch. Some of the reasons could be price,
inconvenience; core service failure, ethical problems, involuntary factors, competitive issues and service encounter
failures. Understanding the causes of switching will help the firm develop barriers to prevent switching.
Interviewing former customers is another way to understand why they switched. This can provide information that
is specific and actionable. Studies have revealed six types of defectors, which are as follows:
1. price defectors, who switch to a low priced competitor
2. product defectors, who defect to a superior product offered by a competitor
3. service defectors, who leave due to poor service
4. market defectors, who are lost but not to any other business - they may go out of business or to another
market
5. technological defectors, who switch to products offered by companies outside the industry
6. organisational defectors, who switch due to internal or external politics
• Analysing complaint and service data is a good method to identify problems and understand why customers
defect. Analysis should be statistical and should be fairly detailed in order to understand the underlying patterns
of the problems.
• Strategic bundling is another way of erecting a barrier against defections that can lead to enhanced customer
retention. A bundle is a group of products or services offered as a single cost saving and convenient package.
A customer who opts for a bundle will not switch to a competitor even if he is offered a better deal on a single
item of the bundle.
• Usage analysis is a method that can be effectively used to help in customer retention. Segmenting markets by
consumption can provide valuable insights into the mix of customers. Heavy users are more valuable than the
medium or light ones and appropriate strategies have to be devised to retain them.
• Similarly, in the business context, we find the Pareto Principle or the 80/20 rule in operation. Key accounts that
comprise about 20 per cent of the business customers are responsible for about 80 per cent of the sales generated.
Such and heavy key users are prone to poaching by competitors.
• Hence, it is important to concentrate advertising, promotion, sales, and communication efforts on this segment.
Medium customers should be targeted with revenue enhancement strategies through phone calls and e-mails.
The light or unprofitable customers should be served in new ways to upgrade them.
• The strategies for retaining customers are a function of the nature of the product, the stage of the product life
cycle, and the buying behaviour of the customers.
• Customer value affects customer retention. Loyalty of the customer increases with customer satisfaction at an
increasing rate.
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• Segmentation of customers should be done by satisfaction levels, prior to the strategising of retention activities.
Given below is the customer value and retention model.
Fig. 8.5 The customer retention/value mode
8.6.5 Beyond Customer Retention

• It is not enough to just retain customers through prevention of defection. Positive changes in customer spending
can have ten times the impact of customer retention.
• It has been found that a lot more of customers decrease their spending than defect. Managing this download
migration in spends is a challenge. This is more important in industries where the customer deals with more
than one company for the same product or service.
• An example is the credit card industry where a customer can have credit cards of more than one company.
Managing this kind of migration effectively helps stop the downward spiral and brings about a reversal in
spends towards higher figures.
• Customer satisfaction, measured broadly, can indicate the likelihood of customers defecting. But it does not help
understand what makes customers loyal. Loyalty may be related to the difficulty of finding a replacement.
• Customer satisfaction measurement alone does not explain the tendencies of customers to change their spending
patterns. Spending patterns may change as a result of changes in lives, changes in what the company or its
competitors are offering. Thus, it is crucial to understand what factors actually drive loyalty.
• Researchers have combined the different degrees of loyalty exhibited with the spending patterns, into six
customer segments. Fig. 8.6 illustrates these in detail.
• Loyalists may be emotionally attached to their brands (emotive loyalists), don’t feel like taking the trouble
to switch (inertial loyalists) or rationally choose the best option (deliberative loyalists). The remaining three
segments are the downward migrators, who spend less. Downward migrators may do so since their lifestyles
have changed (lifestyle downward migrators), rationally reassess their options and needs (deliberative downward
migrators) or may be actively dissatisfied with the product or service (dissatisfied downward migrators).
• The emotive loyalists are least likely to defect. Inertial loyalists too are unlikely to switch easily. Thus, retention
activities aimed at the deliberative loyalists are the most rewarding.
• Loyalty profiling is influenced by factors such as the frequency of purchase, the frequency of interactions
such as service calls, the emotional or financial importance of a purchase, the degree of differentiation among
competitive offerings, and the case of switching.
• The loyalty profiles consisting of the six segments illustrated above help develop different tactics to address
different segments. When this is combined with customer - value analysis, the company can concentrate on
loyalty building by assessing the size of each opportunity. Downward migration has been reduced by 20 to 30
percent companies who have understood the many facets of customer retention and loyalty.
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• Customer retention and arresting downward migration thus hold the key to superior business performance.
Dimension of loyalty
Attitude, needs, • Rarely reassess

Behaviour satisfaction purchase decisions
• Strongly feel that
Emotive chosen brand is
loyalists
best for them
• Infrequently
Loyalists Inertial reassess purchase
loyalists
decisions
• Uninvolved: do not
Deliberative consider change or
Customer base loyalists feel it is not worth
effort
behaviour • Frequently
Lifestyle reassess purchase
downward decisions
migrators
• Choose new brand
Downward through rational
migration Deliberative criteria
downward • Actively dissatisfied
migrators • May be prompted to
re-evaluate because
Dissatisfied of specific
downward experience
migrators
Fig. 8.6 The dimensions of loyalty
8.7 Ten Characteristics of the World’s Strongest Brands

Following are the top ten qualities found in strongest brands in the world:
8.7.1 Delivering the Benefits that Customers Truly Desire

• The brand should focus relentlessly on maximising the customers’ product or service experiences. There should
also be a system whereby the customers’ comments reach the person who can effect the change.
• Starbucks was a small-town coffee retailer in the early 80s. Then, while on vacation in Italy, Howard Schultz,
the Chairman was inspired by the romance and the sense of community he felt in Italian coffee houses. “It
seemed so obvious,” Schultz says in the book ‘Pour your heart into it’. “Starbucks sold great coffee beans but
we didn’t serve coffee by the cup. We treated coffee as a product, something to be bagged and sent home along
with the groceries. We stayed one big step away from the heart and soul of what coffee has meant through the
centuries.” Subsequently, Starbucks began to focus its attempts on building a coffee-bar culture, opening coffee
houses like those in Italy. The extreme vertical integration paid off.
• Starbucks has successfully delivered superior benefits to customers by appealing to all the five senses - the enticing
aroma of the beans, the rich taste of the coffee, the product displays and attractive artwork adorning the walls,
the contemporary music playing in the background and even the cosy, clean feel of the tables and chairs.
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8.7.2 Relevance
• In strong brands, brand equity is tied both to the actual quality of the product or service and to various intangible
factors. Those intangibles includes ‘user imagery’ (the type of person who uses the brand); ‘usage imagery’ (the
type of situation in which the brand is used); and the type of personality the brand portrays (sincere, exciting,
competent, rugged); the feeling that the brand tries to elicit in customers (purposeful, warm); the type of
relationship it seeks to build with its customers (committed, casual, seasonal).
• Gillette pours millions of dollars into R&D to ensure that its razor blades are as technologically advanced as
possible, calling attention to major advances in sub-brands (Trac II, Atra, Sensor, Mach 3) and signalling minor
improvements with modifiers (Atra Plus, Sensor Excel).
• ‘Relevance’ has a deeper, broader meaning in today’s market. Increasingly, consumer perceptions of a company
as a whole and its role in society affect a brand’s strength as well.
• In the Indian context, the Tata Group’s commitment to social causes has created an indelible impression of a
kind, concerned company. There is a feel-good factor associated with the brand.
8.7.3 Pricing Strategy based on Consumer’s Perceptions of Value

• The right blend of product quality, design, features, costs and prices is very difficult to achieve, but well worth
the effort. Many managers are woefully unaware of how price can and should relate to what customers think
of a product, and therefore they charge too little or too much.
• Horlicks has been one of the most admired brands in the country and also one of the most trusted. It accounts
for 75 percent of the total revenues of GSK India that amounts to about Rs.800 crores. Gradual price hikes had
become a regular feature of the brand, but in 2002, the price crossed the psychological 100 rupee barrier. The
markets where the brand was really strong (the east and the south) being extremely price sensitive, showed
a sharp reaction to the price hike. Horlicks is in a position where it cannot command its price despite a near
monopoly. At above 100 rupees for a 500 gm. pack, the pricing crossed the consumer’s perception of value.
8.7.4 Properly Positioned

• Brands that are well positioned occupy particular niches in customer minds. They are similar to, and different
from, competing brands in certain reliably identifiable ways.
• The most successful brands in this regard keep up with competition by creating points of parity in those areas
where competitors are trying to find an advantage while at the same time creating points of difference to achieve
advantages over competitors in other areas.
• Perfetti, a $1.3 billion giant internationally, entered the Indian market with Alpenliebe. Today, the single brand
is worth Rs.160 crores in an Rs.1, 200 crore sugar confectionery market. The positioning has been perfect,
‘the family candy’. Advertisements have always featured the Indian joint family. Whether it is the poor old
grandmother who has lost most sense but is quick to spot the Alpenliebe, or the naughty little boy of the house,
the message has been clear. It has emerged the single largest brand in the sugar confectionery market today.
8.7.5 Consistency
• Maintaining a strong brand means striking the right balance between continuity in the marketing activities and
the kind of change needed to stay relevant.
• The brand’s image should never get muddled or lost by a cacophony of marketing efforts that confuse customers
by sending conflicting messages.
• Dettol fights germs in every Indian household. It ensures that children don’t fall ill and are able to record 100
per cent attendance in school. It kills germs accumulated in the marketplace, crowded public transport and
playing in the dirty mud. Dettol has been consistent with its image and its product and has almost become a
generic disinfectant.
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8.7.6 Sensible Brand Portfolio and Hierarchy

• Most companies do not have only one brand. They create and maintain different brands for different market
segments. Different brands within a company hold different powers. The corporate brand acts as an umbrella.
• Brands at each level of hierarchy contribute to the overall equity of the portfolio through their individual ability
to make consumers aware of the various, products and foster favourable associations with them.
• Hyundai Motors in India is a stellar example of this. They first introduced the Santro at the price of the Maruti.
Promising greater fuel efficiency, they entrenched themselves into the minds and pockets of the price-conscious
Indian customer. Then they came up with the Accent, which was priced slightly above the Esteem, but which
looks far superior and the guarantee of good performance already established by the Santro.
• Finally came the Sonata, modelled on the Jaguar and priced just right to justify the luxury tag. Hyundai Motors
has created three different sub-brands, each with a distinct image and its own source of equity.
8.7.7 Perfect Use of Marketing Activities

• At the basic level, a brand is made up of all the marketing elements that can be trademarked - logos, symbols,
slogans, packaging, signage and so on. Strong brands mix and match these elements to perform a number of
brand-related functions, such as enhancing or reinforcing consumer awareness of the brand or its image and
helping to protect the brand competitively and legally.
• Coca-Cola makes excellent use of many kinds of marketing activities. These include media advertising,
promotions and sponsorship. There is also direct response through the Coca-Cola catalogue which sells licensed
coke merchandise and interactive media, the company’s website which offers among other things, games,
a trading post for collectors of Coke memorabilia, and a virtual look at the world of Coca-Cola museum in
Atlanta. Through it all, the company reinforces its key values of ‘originality’, ‘classic refreshment’ and so on.
The brand is always the hero.
8.7.8 Understanding what Brand Means to Consumers

• Managers of strong brands appreciate the totality of their brand’s image - all the different perceptions, beliefs,
attitudes and behaviours customers associate with their brand, whether created intentionally by the company or
not. As a result, managers are able to take decisions about their company with confidence.
• In today’s age of global brands, a brand’s image may not be the same throughout the world. Honda means quality
and reliability in the US, but in Japan, where quality is given for most cars, Honda represents speed, youth and
energy. Coke’s ‘paanch’ campaign for the rural market with ‘thanda’ that signified a cold drink in rural lingo
was a clear winner because it understood what coke meant to its village customers.
8.7.9 Long Sustainable Support

• Brand equity must be carefully constructed. A firm foundation for brand equity requires that consumers have
the proper depth and breadth of awareness and strong favourable and unique associations with the brand in
their memory.
• In November 2002, all hope was extinguished at Real Value, the manufacturers of Cease Fire extinguishers.
Asked to wind up by BIFR, a brand that had good recall, a catchy name and had become the tenth fastest-growing
brand in the country was no more! Surely, something had gone inexplicably wrong. The brand was launched
with great fanfare, but the financial muscle to support it in the long run was simply not there.
8.7.10 Monitors Sources of Brand Equity

• Strong brands generally make good and frequent use of in-depth brand audits and on-going brand tracking
studies. A brand audit is an exercise designed to assess the health of a given brand.
• Typically, it consists of a detailed internal prescription of how exactly the brand has been marketed (brand
inventory) and a thorough external investigation through focus groups and consumer research of what it could
mean to consumers (brand exploratory).
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• In the late 1980s, Disney became concerned that some of its characters like Mickey Mouse and Donald Duck
were being used inappropriately and were overexposed. Disney launched its first major consumer research to
investigate how consumers felt about the Disney brand.
• Disney characters were associated with Tide detergent, where the connection was absolutely missing! Same
with the case of Johnson wax, diapers, cars and hamburgers! Consumers felt that not only did Disney add no
value to the associated product; it also involved children in a decision that they would have otherwise ignored.
Disney moved quickly to establish a brand equity team, to better manage the franchise and more selectively
evaluate licensing and third party promotions.
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Summary
• Brand identity is the sum of the brand expressed as a product, organisation, person and symbol. Brand valuation
means measuring the value of brand loyalty, customer relations, workforce, etc.
• Brand Image and brand personality is one and the same. Brand image is the totality of the impressions about the
brand. The total impression includes physical, functional and psychological aspects of the brand. Brand image
is the measurable aspect of the brand. Many researchers argue that the word brand image is something much
more intuitive and overarching than just attitude measure.
• Brand personality and brand image are two different dimensions of any brand. Brand image is how the brand
is perceived by the customers, whereas brand personality is the cause while brand image is the effect. Brand
personality is the sum total of all the significant tangible and intangible assets that a brand possesses.
• Philip Kolter says, “Building the brand identity requires decisions on the brand’s name, logo, colours, tag line,
and symbol. At the same time a brand name is much more than a name, logo, colours tag line and symbol. A
brand is essentially a marketer’s ability to stick to the promises to deliver a specific set of features, benefits and
services consistently to buyers.”
• Brand valuation can be seen from two angles – tangibles valuation and intangibles valuation. One of the major
ingredients of brand intangibles is brand loyalty.
• Loyalty is at the heart of equity and is one of the important brand assets. Brand loyalty is a conscious or
unconscious decision expressed through intention or behaviour to repurchase a brand continually.
• It is important to measure customer retention since this helps to set benchmarks and gauge performance against
this benchmark. Without measuring customer retention it cannot be managed.
• In service marketing, customer retention has been conceptualised as resulting from customer perceptions of
service quality and customer satisfaction.
References
• Brand Loyalty, [Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/what-is-brand.
htm> [Accessed 11th March 2011].
• Kapferer J.N., 2008. The New Strategic Brand Management, 4th edition, London, United Kingdom, Kogan
page Publishers. pp.171–180.
Recommended Reading
• Brand Image, [Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/brand-image.
• Kotler. P., Pfoertsch W., Michi I., 2006. B2B Brand Management. Springer Berlin. Heidelberg, Germany;
Springer. p.357.
• Verma H.V., 2006. Brand Management: Text and Cases. 2nd edition, Excel books, p.473.
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Self Assessment
1. _______________ is the sum of the brand expressed as a product, organisation, person and symbol.
a. Brand identity
b. Brand image
c. Brand valuation
d. Brand user
2. Which of the following means measuring the value of brand loyalty, customer relations, workforce, etc?
a. Brand image
b. Brand valuation
c. Brand features
d. Brand evaluation
3. Which of the following is true?

a. Brand feature has three components like product attributes, consumer benefits and brand personality.
b. Brand image has three components like consumer attributes, market benefits and brand personality.
c. Brand image has two components like product attributes and brand personality.
d. Brand image has three components like product attributes, consumer benefits and brand personality.
4. Which of the following is false

a. Retention of employees and investors has no relation with retention of customers.
b. Disloyal employees are not motivated enough to build a base of loyal customers.
c. It is important for the firm to understand the reasons that make customers switch.
d. Understanding the causes of switching will help the firm develop barriers to prevent switching.
5. ______________ is a conscious or unconscious decision expressed through intention or behaviour to repurchase

a brand continually.
a. Brand valuation
b. Brand image
c. Brand identity
d. Brand loyalty

a. Brand loyalty can be seen from two angles – Tangibles valuation and Intangibles valuation.
b. Brand valuation can be seen from two angles – Tangibles valuation and Intangibles valuation.
c. Brand valuation can be seen from two angles – Product valuation and Intangibles valuation.
d. Brand valuation can be seen from only Intangibles valuation.
7. The image, which is derived from the company/brand can be called_____________ driven image.
a. product
b. process
c. provider
d. buyer
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8. Which brand image is derived from the lifestyle of the users?

a. User driven image
b. Product driven image
c. Provider driven image
d. Company statement image
9. _______________is the sum total of all the significant tangible and intangible assets that a brand possesses.
a. Brand image
b. Brand personality
c. Brand valuation
d. Brand feature
10. _________________is the consumer’s perception of what the brand stands for.
a. Relationship
b. Physique
c. Reflection
d. Self image
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Chapter IX
Brands Over Time, Brand Positioning and Consumer Behaviour
Aim
• explore the brand life cycle
• study how to manage brands over time
• elucidate the positioning strategies by Philip Kotler
Objectives
• determine the brand positioning and repositioning
• understand the difference between trademark, loge, symbol, mascot and so on
• examine brand marketing and consumer buying behaviour
Learning outcome
• state and reproduce the six uses of celebrity endorsements
• reproduce investment, profitability and cash flows and brand life cycle
• discuss the relation between brand celebrity and consumer behaviour
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9.1 Introduction
Once a brand is created, to safeguard the investment, the marketer must review the brand at regular intervals, so
that the brand keeps pace with the changing needs of the consumers. For example, during 2004, P&G aggressively
reduced the prices of its detergent brands like Tide and Ariel. Though HLL’s Surf is strong or a power brand; HLL
understood new expectations and fulfilled these through Surf Excel Blue, it also reduced the price.
Brand positioning is the art of creating a distinct image in the minds and hearts of customers. For example, whenever
somebody thinks of antiseptic liquid, the first thing that comes to his/her mind is Dettol. During the brand managing
brands over time, brand positioning and consumer behaviour life cycle, the marketer may have to re-position the brand
many times to utilise the brand name for profitability. Many marketers have done re-positioning twice or thrice.
Consumer behaviour is strongly associated with brand logos, signs, mascots, celebrities, etc. Managing these tangibles
with the intangible image of the brand is the big challenge for any marketer.
9.2 Managing Brands Over Time

• Apart from advertising, customers know about brands through a range of contacts and touch points like personal
observation and use, word of mouth, meeting company personnel, telephone experience, seeing web pages, etc.
Any of these experiences could be positive or negative. The marketer must put in as much quality in managing
these experiences as it does in producing ads.
• The marketers must balance communication expenditure among the main communication media. These include
seven communication vehicles viz. advertising, public relations, trade and sales promotion, consumer promotions,
direct marketing, event marketing and internal employee communications.
• In the 21st century, marketers are increasingly moving their brand management budgets to public relations,
direct marketing, event marketing and employee training. For example, Reliance Ind. Ltd. does not leave any
event and spends Rs. 450 crores in employee training.
• One of the major influences on brand perception is the experienced customers have with the company’s personnel.
For example, in telecom services marketing, even a telephone operator is important person. Therefore marketers
need to train its employees regarding their products and services so that their enthusiasm will spill over to the
customer. For example AT & T, Videocon, LG, Tam, ICICI, Titan, BPL, ITC and Ashok Leyland have succeeded
in creating enthusiastic employees.
• Marketers must go one step ahead and train and encourage their distributors and dealers to serve their customers
well. Poorly trained dealers can ruin the best of efforts made by the company to build a strong brand image.
Nokia, Samsung are very aggressive in training dealers’ salesmen whereas BSNL, though a low price telecom
service provider, is not able to build a significant image due to the slow, unresponsive service provided by its
dealers.
• From the above discussions, we might say that managing a company’s brand can no longer be entrusted to
only brand managers. The brand manager may not have enough power and scope to do all the things that are
necessary to build and enhance the brand. Companies’ incentive systems may drive them to pursue short-term
results, whereas managing brands calls for longer-term strategy and more inclusive managing brands calls for
longer term strategy and more inclusive teamwork.
• Marketers have started establishing brand management teams to manage their Power Brands or Super Brands.
For example, in India, the pioneer was HLL and then immediately followed by Britannia, Amul, Cadbury’s, etc.
These marketers have appointed ‘brand equity managers’ to maintain and protect the brand image, association,
quality and to prevent short term tactical actions by overenthusiastic brand managers from hurting the brand.
• Brand Equity managers also have to handle unexpected negative publicity as happened with Cadbury’s in
1993 and 2003 and with Coca Cola during 2003. While negative information about a brand might drive some
consumers away, others remain loyal. How negative information affects buying decisions is determined by
consumers’ commitment to brand.
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9.3 Brand Life Cycle
Brand Life Cycle

Brand
Management Introduction Growth Maturity Decline
Strategies
Build more Go for selective & exclusive
Build selective Build intensive
Distribution intensive distribution phase out
distribution distribution
distribution unprofitable outlets
Build brand
Build
awareness Stress brand
awareness and Reduce advertising only to
Advertising across early difference &
interest in the retain loyal customers
adopters & benefits
mass market
dealers
Use heavy Increase sales
Motive dealers
sales promotion
to fulfil heavy
Sales promotion to to encourage Reduce to rock bottom
demand and
accelerate trial brand
boost the sales
use switching
Table 9.1 Brand life cycle
9.3.1 Investment, Profitability and Cash Flows and Brand Life Cycle
Fig. 9.1 Investment, profitability and cash flows and brand life cycle
• Introduction phase: Lot many investments (resources) are needed to build and grow a new brand. The consumer
and distributors’ acceptance grows, sales increase, and the brand moves to the growth phase.
• The rate of increase of brand sales is rapid. Satisfied consumers spread word of mouth and new customers as well
repeat sales grow. During this phase, the marketer needs to support the brand through reasonable investments
and support through distributors; the marketer might break even and gain a tiny profit.
• If a brand is maintained properly, it would enter into the maturity phase or every chance of direct entry to
decline is possible. During the maturity phase, the marketer is able to consolidate the market share and hence
experiences very good profitability.
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• If the brand is not supported with brand extensions and appropriate distribution support, it might perish and
hence incur negative profits. If the marketer wants to revive the brand, huge investment would be required.
Decline Maturity
Low
* High cash flow * Positive cash flow
Investment for revival
Introduction Growth
High
* High investment * High investment
* Negative cash flow * Zero cash flow
Low High
Fig. 9.2 Brand investment
9.4 Brand Portfolio Management

• Managing a portfolio of brands poses many challenges. Any laxity in managing them will not only have its
effect on marketing and create confusion for customers but will also affect corporate profitability.
• This is all the truer in during slowdown when under- performing brands in the portfolio are deficient to
divest.
• A portfolio of brands can be managed most effectively by gathering data about equity in each brand and a
particular brand’s economic contribution.
9.4.1 Brand Portfolios are Running Amok

• The 1990s have seen an increased activity in mergers and acquisitions. As a result, many corporate brand
portfolios have been subject to a shake-up with new brands coming into their fold and often companies have
found it difficult to manage proper allocation of resources among them.
• In the case of large corporate houses that thrive on master brands, placing the newly acquired brands under the
master brands has been a difficult task because of the inherent difficulty for the master brand to be relevant in
the new territory associated with the new brands that comes in. Senior executives in many companies often face
difficulty in determining the brand portfolio that maximises the return on investment.
• Some of the common uncertainties relating to this are whether they can remove the brand from the portfolio
without affecting the profitability of other brands in the portfolio, can the brand be successfully repositioned,
deciding which brand should be global and which brand should be local, should some brands in the portfolio
act as a firewall to the other brands.
When brands within a portfolio lose their differentiation, it has severe effects on the profits of a company. To
effectively manage the portfolio of brands, companies should follow four rules:
Align the brand portfolio with business design

• To be successful, branding decisions should be tied to the business designs. Managers should simultaneously
look at the usefulness of having business brands and the need to manage a complex portfolio of brands.
• anaging these conflicting activities is a complex task and depends on the set of customers being served and
M
the different channels of access.
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Consider Building the Pyramid:
• Many companies manage portfolio of brands as a set of unrelated brands. This leads to thinning differentiation
between brands. Companies can benefit by building a pyramid of brands, creating brands at different price points
or catering brands tailored to different segments.
• This approach requires companies to take care of the bottom of the pyramid, due to its susceptibility to attack
from low cost manufacturers who usually grab the market through aggressive pricing.
Grow winners and harvest losers

• New brands to the portfolio can spruce up market penetration, but in a slow economy, companies can benefit
from focusing on a few powerful brands that usually enjoy benefits like premium price, economies of scale and
efficient distribution.
• Unilever has aggressively pursued the strategy of cutting down the number of brands from 1600 to 400 power
brands. The unprofitable brands will be either sold, eliminated or will be brought under the related power brand
umbrella.
Play the cards you are dealt

• Companies having strong brands usually try to stretch their brands to unrelated areas.
• This often results in the existing brand equity. Starbucks realised this when they sold branded furniture. Instead
companies can be more effective when building a new brand or buying a new one.
Implications for skills and the organisation

• A company’s understanding of brand equity and its economic contribution to profitability will help in developing
a winning brand portfolio.
• The insights that are gained from this understanding should drive the organisation towards better management
of the portfolio of the brands; Companies that execute the portfolio approach will have reward systems in place
that for employees who further the cause of the entire portfolio and not individual brands.
• Dupont has realised that using different sales people and Managing Brands Over Time, Brand Positioning and
Consumer Behaviour channels to sell different brands to the same contractor may not be as effective as an
integrated sales approach.
• The marketing and brand building efforts have often been at cross-purposes. But for a better management of
the portfolio of brands, there should be coordination between the functions, leading to efficient functioning of
the organisation and benefit from the brands to drive growth.
9.5 Managing a Brand and Customer Value

9.5.1 Label
• “Brand” is one of the most indiscriminately used and therefore, abused words in the marketplace today.
• Many of them create an illusion of being a brand through their high profile campaigns, celebrity endorsements,
etc. The hype is short-lived and so is its existence in the market. Let us call such vanishing Brands - Labels.
9.5.2 Products - Labels - Brands

• Products: Factories manufacture products. Products conform to some specifications and comply with some quality
standards. All the product descriptors carry engineering or manufacturing terminology, which cannot be grasped
by the customer. The products have some features, which are not necessarily understood by the customer.
• Hence, the best of the products may not be noticed and appreciated by the customers.
• The feature needs to be translated into advantage to the customer, for him/her to notice it. The product features get
translated to Functional Value Propositions (FVP) for the customer. The superiority of the functional proposition
is the key to success in the market. It creates a rational reason or appeal for the customer. The customer can
compare the FVPs, think and take a conscious decision.
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• A superior product can redefine the market; dislodge the existing product in the market. It is however vulnerable
to any new product offering a better functional value Proposition. The better functional value proposition could
be also be offered by offering similar functionalities at lesser price. Thus, products offering just functional value
proposition are quite vulnerable.
• Brands: A better safeguard is to offer the customer an emotional reason to purchase over and above the functional
one. Let us call it Emotional Value Proposition (EVP). The emotional reason is difficult to be replicated by the
competitor; hence, even if the competitor matches the FVP, EVP creates the immunity. The customer starts
seeing a definite benefit in associating with it.Successful brands own the emotions in the customer’s mind. The
customers associate the feeling of safety with Volvo and trustworthiness with TATA.
• Labels: However, the EVP follows FVP in the value chain. Mere EVP in the absence of FVP does not lay any
foundation for long-term brand building. Thus, anything that offers either FVP or EVP is referred to as “Labels”.
Needless to say, Labels do not offer any self-expressive benefit to the customers.
9.5.3 Effect of Communication on Labels and Brands

• The difference in value propositions creates the distinction between Brands and Labels. However, effective
communication is quite capable of bridging this gap very easily.
• A Label with very effective, high decibel and high visibility communication can easily create an illusion of
being a brand. The communication may be very catchy with extremely high recall. The customer may cherish
the communication, be amused by it. But it may not lend itself effectively to build a brand.
• Emotional Labels are those, which offer just the emotional value and don’t back it up with a tangible value
proposition. The case of Home Trade is an ideal example. Home Trade connected extremely well with customers
emotionally almost instantly. The brand ambassadors, the storyboard and the screenplay of the ads created an
immediate positive feeling, which was never backed up by solid functional value. It perished as a result.
• On the other hand, there are quite a few examples of very effective communication about the product offering
the customer without generating favourable emotions. For instance, out of close to 50 Tea brands tracked in
NRS 2002, there is only one brand that has made to the Super brand status in India. Each brand offers a tangible
functional value proposition, the missing link is emotional connect. These can be termed as functional labels.
• Both types of Labels fail to lay the foundation of long-term brand building. Functional Labels may generate
trials in logical, left brained customers. But the customer’s loyalty is not guaranteed. The customer is always
evaluating and looking for better products/bargains. The Label has to take the same, if not better, amount of
efforts every time to win the same customer.
• Emotional Labels merely create a feel good factor. Any Brand experience that is created out of this feeling is
most likely to end up in customer dissonance due non-performance of the product on the required parameters.
9.5.4 The Mental List

• Customers have a finite memory. There are only a finite number of brand names, logos, value propositions that
can be stored there. The entire process of making a decision is simplified by creating a mental list of brands.
• A brand can win the prized place in the mental list once it proves itself on the hostile scrutiny of the credentials
by the customer. Such a list is created for all the categories, even for those, which are considered impulse
purchase categories.
• In a shop intercept study conducted by Vertebrand among 100 randomly selected customers in Bangalore, 89%
were pre-decided on the brand of potato chips they would have bought in case they decide to buy one. The list
is invoked at the time of the purchase decision.
• The brands in the mental list have a headstart. The other brands have to prove their mettle to win the purchase
decision in their favour. The list is updated all the times, while evaluating the brand, watching its ads, using
competitive brands, talking to friends, watching a movie, etc.
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9.5.5 The Acid Test
• Brands hold a long-term competitive edge over all the Labels. The emotional connect coupled with strong
functional value creates a long lasting relationship with the customer. Naturally, having a portfolio of successful
brands is the aim of any marketer. But they need to be very careful about their portfolio.
• They need to continuously scrutinise the portfolio to separate the Brands from the Labels. All the popular
parameters such as ad recall, repeat purchase rate, etc. fail to do it. Here is a small test to do this. Just ask the
customer, whether she “thinks” about your brand. Peep in his/her mind to know whether your Brand owns a
place in his/her mindscape. If your Brand does so, it indeed is a Brand; otherwise it is a poor Label!
9.6 Brand Positioning and Re-positioning

• Philip Kotler defines positioning as, “Positioning starts with a product, a piece of merchandise, a service, a
company, an institution, or even a person....... But positioning is not what you do to a product. Positioning is
what you do to the mind of a prospect. That is, you position the product in the mind of the prospect.”
• A competitor may have three strategic alternatives as follows:
Prepare perceptual map and strengthen current position in the consumer’s mind like R& C does for
Dettol.
To grab unoccupied position. For example Coke positioned ‘Slice’ soft drink as ‘snack food’.
To de-position or re-position the competition in the customer’s mind.
9.6.1 Success in Positioning

• Whatever may be the product/service and whatever may be the customer segment; each customer perceives
three value disciplines like technological frontier (product leadership), highly reliable performance (operational
excellence) and high end responsiveness in meeting their individual needs (customer intimacy).
• The marketer needs to adapt the following rules to ensure success while positioning the brand.
Become best at one of the three value disciplines as explained.
Achieve an adequate performance level in other two disciplines.
Keep improving one’s superior position in the chosen discipline so as not to lose out to a competitor.
Keep becoming more adequate in the other two disciplines, because competitors keep raising customer
expectations.
9.6.2 Positioning Errors

Marketers must try to avoid the following positioning errors:
• Under positioning
Since marketers do not research enough, the brand is seen as just another entry in an already crowded market
and hence customers have a vague idea of a brand.
For example ‘Blue-Pepsi’ and ‘Vanilla-Coke’, etc.
• Over positioning
Consumers may have too narrow an image of a brand and hence consumers might have an ill image on
price.
For example ‘Tanishq Jewellery’ and ‘Asmi Diamond’. Similarly contact lenses, initially had such an image,
which was wiped out by Bosch & Lamb.
• Confused positioning
If many benefits are claimed from one brand, the consumer is confused. For example, during 1998-2000, the
brand ‘Protek Soap’ was launched which claimed benefits like pimple remover, fairness of skin, deodorant,
etc.
Nobody believed in it and hence the brand has gone to the dogs.
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• Doubtful positioning
Buyers may find it hard to believe the brand claims in view of the product’s features, price or the reputation
of the manufacturer.
For example, Daewoo’s Cielo car was being sold at Rs.4.90 lakhs. Looking at the size of the car and reputation
of the company, it developed negative publicity and ultimately the production of the car was stopped.
9.6.3 Positioning Strategies as Per Philip Kotler

Philip Kolter suggests the following positioning strategies for a theme park:
• Attribute positioning: The marketer can position itself on any one or any attributes, such as size or number of
years in existence. For example Disneyland advertises itself as the largest theme park in the world.
• Benefit positioning: The product is positioned as the leader in a certain benefit, say like a theme park with
fantasy experience.
Use or application positioning

• Positioning is using the product at best for some use or in any application. For example, theme park which
entertains in the shortest possible time.
• User positioning - Positioning as best for some user group, say like a theme park is best for thrill seekers.
• Competitor positioning - The product claims to be better in some many than a named competitor, say like a
theme park with greater variety of animals than any other such park.
• Product category positioning – A product can be positioned as the leader in a certain product category, say like
theme park as a great educational institution.
• Quality or price positioning - The product is positioned as offering the best value, say like theme park visit as
value for money.
9.6.4 Brand Re-positioning

• Re-positioning or de-positioning is changing the positioning of a brand. With a particular positioning, a brand
may work say for 3-5 years and then sales start declining. In case of Cadbury’s one particular positioning ‘For
kids’ worked for 23 years (1970-1993).
• Similarly positioning like ‘Tandurusti Ki Raksha’ worked for Lifebuoy for 40 years (1960-2000AD). However
brands which were launched in the 1990s and 2000s, require re-positioning due to the changing needs of
consumers. If a marketer does not respond quickly to market needs, the brand may perish. A brand could be
re-positioned in the following ways.
increasing relevance to customer
highlighting more occasions for usage
identification of appropriate position
making the brand serious
to counter attack on falling sales
inducing or creating new customers
highlighting as a most contemporary brand
to sustain changed market conditions
9.7 Brand Marketing and Consumer Behaviour

The brand is a name, term, symbol, words, etc. used to differentiate the marketer’s products/services with the
competitor’s. Brands have added values of symbolism meanings and values over and above their physical
constituents.
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Consumers perceive brands in their own personal way and attach their own values to them and the symbolic
interpretation of each brand varies according to age, income, and sex education of the target audience. Hence the
brand’s symbolic meaning cannot be the same for all. How the target customer responds to brand celebrities, logos,
icons, etc. is very much essential in brand marketing. Let us study each one step by step.
9.7.1 Celebrity Endorsements as a Strategy

• Signing up stars for endorsements is a time-tested strategy and has been effectively used by some of the top
brands in the world including Nike and Pepsi. In India too, HLL has used Hindi film stars to endorse their beauty
soap Lux since the fifties. Vimal, Thumps Up, Gwalior and Dinesh are some of the other brands that used star
appeal in the early days of mass advertising. And who can forget Kapil ‘Palmolive’ Dev?
• Ask about the objective of using a celebrity in an ad and most admen will talk about making an impact on
the bottom-line. They believe that star endorsements have several benefits, key among them being building
credibility, fostering trust and drawing attention ... any or all of which can translate into higher brand sales. So
how does one decide whether to put a celebrity in an ad? Ideally, this should be dictated by the communication
idea. At times celebrity endorsement is used to build credibility to the brand offer.
• Most experts concur that, when used judiciously, celebrity endorsements can be an effective strategy. “Using
a celebrity by itself is not a bad idea provided it is done intelligently”. And there are many examples of good
and bad use of celebrities. Take Amitabh Bachchan who has been used by some companies like Parker Pens
and ICICI Home Loans remarkably well while some others have been unable to exploit his Big B status too
well. Shah Rukh Khan’s endorsement of Hyundai Santro too seems to have worked well. Cricketers like Rahul
Dravid for Castrol in an attempt to break out of the clutter, as well as to have an image rub off of ‘dependability’
onto the brand.
• Celebrity endorsements are capable of manifesting both favourable and adverse effects for the brand with which
they associate. Let’s analyse both.
9.7.2 Six Uses of Celebrity Endorsements

• Establishes Credibility: Approval of a brand by a star fosters a sense of trust for that brand among the target
audience. This is especially true in case of new products.
• Attracts Attention: Celebrities ensure attention of the target group by breaking the clutter of advertisements and
making the ad and the brand more noticeable.
• Associative Benefit: A celebrity’s preference for a brand gives out a persuasive message - because the celebrity
is benefiting from the brand, the consumer will also benefit.
• Psychographic Connect: Stars are loved and adored by their fans and advertisers use starts to capitalise on these
feelings to sway the fans towards their brand.
• Demographic Connect: Different stars appeal differently to various demographic segments (age, gender, class,
geography, etc.).
• Mass Appeal: Some stars have a universal appeal and therefore prove to be a good bet to generate interest
among the masses.
9.7.3 Brand Marketing and Consumer Buying Behaviour

Perspectives on customer loyalty
• Customer loyalty presents a paradox. Many see it as primarily an attitude based phenomenon that can be
influenced significantly by customer relationship management initiatives such as the increasingly popular
loyalty and affinity programmes.
• However, studies show that loyalty in competitive repeat purchase markets is shaped more by the passive
acceptance of brands than by strongly held attitudes about them.
• From this perspective, customer loyalty can be best explained as three distinct models as detailed below:
Model 1: Loyalty as primarily an attitude that sometimes leads to a relationship with the brand.
Model 2: Loyalty mainly expressed in terms of revealed behaviour (i.e. the pattern of purchases).
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Model 3: Buying moderated by the individual’s characteristics, circumstancesand / or the purchase

situation.
Model 1: Loyalty as primarily an attitude that sometimes leads to a relationship with the brand
• Many argue that there must be strong “attitudinal commitment” to a brand for true loyalty to exist. This is seen
as taking the form of consistently favourable set of beliefs towards the brand purchased.
• These attitudes may be measured by asking how much people say they like the brand, feel committed to it, will
recommend it to others, and have positive beliefs and feelings about it – relative to competing brands.
• The strength of these attitudes is the key predictor of a brand’s purchase and repeat patronage. Analyses of cases
such as Federal Express, Pizza Hut franchises and Cadillac dealerships reveal that attitudinally loyal customers
are much less susceptible to negative information about the brand.
• Moreover, the revenue stream from them becomes more predictable and can become considerable over time.
• An extension of the “attitudes define loyalty” perspective is to suggest that consumers form relationships with
some of their brands. So much so that loyalty becomes a committed and affect-laden partnership between
consumers and brands. It is a partnership that will be even stronger when supported by other members of a
household or a buying group, and where consumption is associated with community membership or identity.
• Examples in support of this argument include Skoal smokeless tobacco among some North American cowboys,
the Beanie Babies craze and the classic case of Harley Davidson bikers.
• Managerial measures:
• Strengthening emotional commitment of buyers through image-based or persuasive advertising and personal
service programmes
• Designing loyalty programmes for strengthening commitment and creating velvet handcuffs to bond the customer
to the brand
Fig. 9.3 Model 1 - Loyalty as primarily an attitude that sometimes leads to a relationship with the brand
Model 2: Loyalty mainly expressed in terms of revealed behaviour (i.e., the pattern of purchases)
• This is the most controversial, yet the best supported by data. The controversy comes about because loyalty
in this model is explained mainly with reference to the pattern of past purchases with only secondary regard
to underlying consumer motivations or commitment to the brand. Studies indicate that few consumers are
“monogamous” (100 percent loyal) or “promiscuous” (no loyalty to any brand). Rather most are “Polygamous”
(i.e. loyal to a portfolio of brands in a product category). From this perspective, loyalty may be explained as
“an ongoing propensity to buy the brand, usually as one of the several”.
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• In this case, researchers tend to adopt a market focus (e.g. key performance measures are brand shares, penetration,
average purchase frequencies, repeat buying for a defined period). Loyalty here is inferred to operate in the
following manner. Through trial and error, a brand that provides a satisfactory experience is chosen. Loyalty
to the brand (measured by repeat purchase) is the result of repeated satisfaction that in turn leads to a weak
commitment.
• The consumer buys the same brand again, not because of any strongly held prior attitude or deeply held
commitment, but because it is not worth the Managing Brands Over Time, Brand Positioning and Consumer
Behaviour time and trouble to search an alternative. If the usual brand is out of stock or unavailable for some
reasons, then another functionally similar (or substitutable) brand (from the portfolio) will be purchased.
• However, with the over repeated purchases, a weak commitment to the number of brands purchased in a product
category can be formed. Those who subscribe to the “attitude drive behaviour” and “relationship” approach rule
out the revealed behaviour as a dominant measure of loyalty.
Managerial measures
• Buyers are sceptic about ads and aloof towards loyalty schemes. Hence managers maintain their share of category
sales by matching competitor initiatives and by avoiding supply shortages.
• Loyalty programmes are launched to match competitors or only as publicity generating gestures.
• Growth is achieved via increased market penetration.
Fig. 9.4 Loyalty mainly expressed in terms of revealed behaviour
Model 3: Buying moderated by individual’s characteristics, circumstances and / or the purchase situations
• Components of Model 3, the contingency approach, argue that the best conceptualisation of loyalty is to allow
the relationship between attitude and behaviour to be moderated by contingency variables such as the individual’s
current circumstances, their characters and / or the purchase situation faced.
• That is, a strong attitude towards a brand may provide only a weak prediction of whether or not the brand will be
bought on the next purchase occasion because any number of factors may so determine which brand is deemed
to be desirable. Individual characteristics are reflected in the desire for variety, habit, the need to conform, the
tolerance for risk, etc. Purchase situation effects include product availability, promotions / deals, the particular
use of occasion (e.g. gift, personal use, family use), etc.
• A three factor model emerges based on antecedents (including weak prior attitudes and characteristics of the
consumer), contingency factors (including type of use of occasion and the purchase situation) and consequences
(up-dated attitudes, intentions and the actual purchase behaviour).
• The difference between this contingency perspective and the attitude perspective is that the contingency variable
is elevated from the status of loyalty inhibitors in Model 1 to loyalty co-determinants in Model 3. Attributes
of the individual and the purchase situation are conceptualised as “nuisance” variables that inhibit the natural
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evolution of customer loyalty whereas in the contingency model these variables are seen as playing a primary
and inescapable role in explaining the observed patterns of purchase behaviour.
• This is even more evident where attributes are weakly held. Here it is repeated satisfaction and weak commitment
that together with other relevant contingency variables co-determine future brand choices.
Managerial Measures
• Prosaic factors are emphasised on like, avoiding stock-outs, extending opening hours, offering the appropriate
assortment mix. Having 24 hour call centres, providing online access, etc.
• Price promotions, deals and special offers are used to attract the customers of competitor brands.
• Loyalty schemes may be used by those who operate in markets with very little product / service differentiation
– many of these can be seen as continuous promotional programmes.
• An image-building programme may also be run along with the above.
Fig. 9.5 Model 3- Buying moderated by individual’s characteristics, circumstances and/or the purchase
situations
9.8 Conceptual Implications of the Approaches to Loyalty

• The aforesaid three perspectives of loyalty can be related to a framework for understanding customer loyalty
that encompasses Customer Brand Acceptance (CBA), Customer Brand Commitment (CBC) and Customer
Brand Buying (CBB).
• All these loyalty patterns profile customers, not brands per se i.e. consumers are distributed across the curves
with respect to their loyalty to a brand. For instance, most customers may accept a number of airlines while a
few customers may be committed to one or two airlines and some others may buy purely on the price / route
combination. These people’s air travel schedules may result in them having quite a few brands in their portfolio.
The loyalty patterns are elaborated hereunder.
9.8.1 Customer Brand Acceptance (CBA)

• Brand distinctiveness affected
The concept of Customer Brand Acceptance (CBA) is the base case of customer loyalty in competitive
repeat purchase markets. It draws heavily on Model 2, but also brings together some elements of Model 1
and 3. The contribution of
Model 2 is that customers exhibit loyalty to a number of brands because there is little reason to develop
attitudinal loyalty to any one of the brands purchased. A prime reason for this is that a proliferation of brands
in most markets has destroyed one of the key reasons for exclusive loyalty, viz. Brand distinctiveness.
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• Need arousal is a trigger to the purchase process
The concept of CBA can be well elucidated in terms of the five-stage model of customer choice (See Box -
Customer Brand Acceptance). Need arousal is included as a trigger to the purchase process but this operates
mainly on product category decisions, not brand based ones. For instance for a desire to stay sober, the
need is for low alcohol beer, but not necessarily for any particular brand of low alcohol beer. Since this is
a model of ongoing CBA frequently purchased products, the (external) information search and evaluation
stages are assumed to have been completed after the initial one or two purchases in the category and so are
not explicitly included in the diagram.
Choice among the functionally equivalent alternative will reflect the accessibility, availability and
conspicuousness of the brand at the point of purchase. Most likely this will be seen as a set of acceptable
brands that are ordered as first favourite, second favourite, third favourite and so forth. Typically, the relative
likelihood of buying each brand will endure over successive purchase cycles, assuming the brands remain
functionally adequate and accessible. Satisfaction with past purchases and any consequential habit formation
explain most of a person’s ongoing propensity to buy one or a number of acceptable brands.
Unexpected purchase situation on sale may influence the actual brand chosen on a specific purchase occasion
(drawing on model 3). The introduction of new brands or the reformulation of current brands may alter the
purchase propensities although the aggregate impact on short to medium-term brand loyalty is likely to be
marginal.
• Similar attitudes reported for descriptive attribute beliefs
This is not to suggest that attitudes will not form towards these brands over time (model 1), but they will
be of secondary importance to the functional adequacy of the brand. Indeed, for the markets which are the
focus here, research shows that this belief may simply be a playback of the message content of the brand’s
advertising or publicity, i.e. simple learning.
This can be seen in the very similar attitudes reported for descriptive attribute beliefs (for example, “Volvos are
safe”, “United Airlines is friendly”, “Woolworths offers fresh food”) by both brand users and non-users.
9.8.2 Customer Brand Commitment (CBC)
Fig. 9.6 Customer brand commitment
• Brand component that drives choice and commitment

The first exception to Customer Brand Commitment (CBA) concerns those consumers who value
psychological and social value more than function. This is easiest to see when these consumers are buying
high-identity products (luxury goods, expensive cosmetics, etc.) and thinking of life choices (education,
sporting allegiances, etc.). Here, there may be a brand component that drives choice and commitment for
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a significant number of customers, especially the initial adoption of some distinctive brands such as the
Apple Mackintosh, the Sony Walkman and Harley Davidson motorbikes.
This is what CBC is all about. In this situation, attitudes, values and social norms are seen as having a
major influence and the consumer can develop a relationship with the brand – in keeping with Model 1.
These relationships defined in the consumer’s mind may help to differentiate one brand from another and
the buyers end up supporting a price premium for that brand.
• Allegiance, however, is never assured
The aforesaid commitment is, however, not guaranteed – especially when the focus is on frequently bought
brands. First, even for cases where the level of consumer involvement is high, differentiation among brands
may be relatively low (such as with most airlines and hotel chains) – resulting in the type of behaviour best
described by CBA
For example, frequent fliers tend to use a number of different airlines; research on international travellers
indicates that these people are typically members of multiple frequent-flier programmes and therefore show
multi-brand loyalty to both, the airlines and their programmes. It is mainly the infrequent flyers who are
loyal to a single frequent flier programme, but invariably, these are the less profitable customers.
In most markets, the socio-psychological elements of competing brands may, in fact, offer limited scope
for creating meaningful differentiation.
• Even loyalty leaders cannot be complacent
Even where a relationship develops, it may not be only one in particular product category. For instance,
customers who have “compartmentalised friendships” with different brands of coffee, say Starbucks in the
morning and Folgers in the afternoon.
Moreover, with CBC, while the non-functional sources of value may be strong, they will not eliminate the
need for the brand to “do the job”. Harley Davidson, one of the strongest personality-relationship brands,
was forced to instigate quality improvement programme to save the brand from Japanese competition.
• Profit boosting secrets of loyalty leaders
The companies that best understand cost savings and profit enhancement through loyalty take many deliberate steps,
some of which are:
• Modify customer-acquisition incentives
Reward your sales teams and marketing channels for acquiring customers that stick. Consider commission or bonus
reductions if customers defect before 18 months.
• Re-allocate marketing investments
Systematically rank all of your customer acquisition campaigns towards programmes that attract the richest mix of
loyal customers (many firms today are wasting half of their marketing expenses on disloyal customers who never
stick around long enough to pay back the acquisition investment).
• Identify ways to help under-performers
Develop annual relationship report cards on suppliers and dealers (and customers and employees) with as much
care as you give to annual reports for investors.
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Fig. 9.7 Different approaches to customer loyalty
9.8.3 Customer Brand Buying (CBB)
• The other exception to CBA concerns those consumers who exhibit very low levels of loyalty. Their choices
are shaped by considerations of immediate availability, price promotions, etc. and at most, weak attitudes (e.g.
users of an on-line travel agency may express liking for it because it obtains for them best price air fares). The
concept of EB is closely allied to Model 3, where contingencies are co-determinants of choice and not simply
nuisance factors.
• Thus CBC and CBB are the exceptions rather than the rule in most repeat purchase markets. One way to see this is
a sampling problem. Consider the example of car rental: If we were to draw from a large sample of the population,
most customers of Avis or Hertz would be characterised by CBA and only a few by CBC (committed to Hertz)
or CBB (renting from literally any car hire firm that happened to be discounted at the time of purchase).
• This above notion of a loyalty continuum with the three anchor points of customer brand acceptance, customer
brand commitment and customer brand buying provides the necessary basis for evaluating the aims and potential
commercial effectiveness of loyalty programmes in terms of customer related issues.
• Loyalty programmes and their implications
Loyalty programmes are schemes offering delayed, accumulating economic benefits to consumers who buy
the brand. Usually this takes the form of points that can be exchanged for gifts, free products or aspiration
rewards such as air-miles.
Airline frequent-flier programmes have been a prototype for many of the schemes. Affinity programmes are
a specific type of loyalty programmes as well, which are designed to enhance the emotional bond between
the customer and the brand. Mechanisms are set up to enhance two way communications for the customer
to get to know the brand better and for the company to learn more about the customer. Examples include
telephone helpline, club membership, alumni associations, newsletter, website “chat” groups, etc.
Hybrids also exist. For instance, where the focus is on enhancing the emotional bond between customer
and brand, and a third party (e.g. a charity) receives a financial benefit; or the establishment of a club,
where consumers pay for membership in return for access to special events and offers. This latter format
is prevalent in countries like Germany where trading laws prohibit incentive based schemes (for instance,
Volkswagen Club, Swatch the Club, Mercedes, Mastercard, etc.).
• Loyalty resembles habit
What gives poignancy to the concept of customer loyalty is the supposed justification it gives managers to
spend dollars on CRM programmes and the costly customer databases that support these. However, critics
argue that loyalty, both attitudinal and behavioural, for most customers is quite passive and resembles habit
rather than serious commitment. And also, they assert that there is little or no evidence that any changes in
customer behaviour justify the enormous expenditure on these programmes.
Supporters of loyalty programmes have in mind Model 1, where the programme is seen to reinforce CBC
– type outcomes or they envisage a combination of Models 3 and 1, where consumers with no loyalty
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(CBB – types) are converted into single-brand loyal (CBC – type) because of the customer benefits of the
programme. Critics favour the multi-brand divided loyalty model (Model 2) and assume that most of the
customers are CBA type who is not strongly swayed by the programme.
• Loyalty programmes from an individual’s perspective
It can be seen as a vehicle to increase single brand loyalty, decrease price sensitivity, induce greater consumer
resistance to counter offers or counter arguments, dampen the desire to consider alternative brands, attract
a larger pool of customers.
However, most of the customers are multi-brand loyal and loyalty schemes cannot turn them single brand
loyal overnight.
Most people buy only what they need and are not usually carried away by the schemes.
Loyalty programme is seen as a brand extension aid (e.g. Tesco attempts to expose its Clubcard members
to high margin wines, financial services and electrical goods as well as lower margin groceries).
• Loyalty programmes from a market perspective
At an aggregate level, repeat-purchase markets typically have a well defined structure – viz., most brands
exhibit a double jeopardy effect whereby small brands have fewer buyers who buy them less often than
bid brands.
Whatever Managing Brands Over Time, Brand Positioning and Consumer Behaviour their market shares, it
is to be expected that, for all brands, there will be some CBB and CBC buyer and a majority of CBA buyers.
This market structure gives rise to three strategies for enhancing the observed level of repeat purchase or
loyalty of a brand. A possible fourth strategy is also considered in this regard.
Strategy 1: Grow the size of the brand

• This can be achieved by making acceptable to a large number of potential customers in keeping with the focus
on CBA.
• Tactically, this means exposure at the point of purchase, offering greater perceived value, gaining wider
distribution, suggesting more usage occasions, etc.
• Loyalty schemes and the concept of value
There is an assumption that loyalty schemes provide benefits, which represent “value” to customers and it
is because of this that the loyalty schemes can encourage loyalty. However, the extent to which the loyalty
schemes offer value to customers is also questionable. Because value will represent different things to
different people and will be different in different contexts.
However, five elements can be identified that determine the value of a loyalty scheme. These include:
• Cash value – how much the reward represents as a proportion of spend
• Choice of redemption options – the range of rewards offered
• Aspirational value – how much the customer wants the reward
• Relevance – the extent to which rewards are achievable
• Convenience – Ease of participation in the scheme
Strategy 2: Create a niche brand

• This can be done by aiming to keep the number of buyers relatively low but at the same time increasing the
average bought by these buyers. This could be achieved by reducing the distribution coverage of the brand and
using the money saved to better support or promote the brand to current customers.
• This strategy implies a higher proportion of behaviourally loyal and committed buyers for the level of market
share than predicted by the DJ effect. In its early years, the Body Shop was a successful niche brand.
• Strategy 3: Become a “super-loyalty brand”
• Here a brand is expected to become a “super-loyalty brand”. These are brands that exhibit signs of strong
commitment and that have higher than expected repeat purchase (i.e. an above average number of CBCs at a
high level of market share).
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• During the early 1990s, icon status Nike appeared to be such a super loyalty brand.
• Strategy 4: Exploit the desire of customers for change-of-pace
• A fourth strategy implied by the DJ effects is to exploit the desire of customers for change-of-pace. There the
penetration is higher and the repeat purchase rate lower than predicted by the DJ effect. Some imported and
premium beer brands fall into this category, though the typical beer brand of this type is really very small.
• This is primarily a penetration effect and cannot be seen as loyalty building unless an organisation offers a
portfolio of these brands.
• Reasons behind this thrust on loyalty schemes
• In spite of all the negative reasons, the fact remains that more and more loyalty programmes are being introduced.
And the reason for so much momentum behind these programmes is as follows:
• Vehicles for maintaining customer loyalty
It is possible to see loyalty programmes as vehicles for maintaining customer loyalty (i.e. for keeping the
brand in the customer repertoire) or for maintaining brand share (where the programme works in combination
with other valued enhancements, including product and service improvements).
Here, rather than trying to induce single brand loyalty from customers who previously have exhibited divided
brand loyalty, a more realistic aim is to build on existing levels of CBA.
If the customers feel the need for affinity, or desire an explicit reward for their loyalty, they will join the
programmes of the brands they buy. The critical issue then is for the programme to reinforce the value
proposition of the parent brand – enhancing brand equity, not just building loyalty programme equity.
The critical task for the programme manager is to design a cost effective scheme to achieve this aim.
• Improves brand accessibility and market conspicuousness
Another role for loyalty programmes can be to improve levels of accessibility and market conspicuousness
for a brand. This can manifest itself as a more credible proposition to retailers in order to secure more shelf
space and benefit from “retail push”.
In other cases it may provide more opportunities to talk with customers and, perhaps, more opportunity
to sell brand extensions to customers. In their case, the aim of the programme is to get the brand into the
customer’s set of acceptable brands.
This, however, is not a substitute for the inherent functional, psychological and economic value designed
into the brand, but rather it simply makes the brand easier to consider. If, for some people the programme
provides additional emotional value, then this is a bonus.
9.9 Difference between Trademark, Logo, Symbol and Mascot

• The Greek word ‘logos’ means ‘word’ and ‘typos’ means ‘impression’. It has also been referred to as a trademark,
service mark, mark or marquee, but logo as a word seems to have entered the common parlance.
• While a trademark is often confused with just the name, unless it is a unique name, it cannot be patented. A
logo can be a piece of type, a symbol, a picture or a combination of any or all of these. A logo can usually be
trademark protected.
• A mascot may or may not be a part of the logo of a brand. For example, AirIndia’s logo.
• For the purpose of understanding the role of logos we will look into only into the elements (type or symbol or
both), which form the integral part of the brand’s signature identity.
9.9.1 Logotypes
• Textbooks classify logos as three broad types. The first class is logos with just strong word marks (and no
accompanying symbol separate from the name) and brands such as Coca Cola, Dunhill and Kit Kat have logos
that fall in this category. In India brands like Raymond, Usha and Indica have logos that only comprise of the
lettering.
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• The second class of logos is abstract symbol, Mercedes star, Rolex Crown, CBS Eye and possible the most
famous of this class is the Nike swooshes. In India brands like Wipro (Rainbow Flower) and Aditya Birla (Sun)
have logos that fall in this class.
• The third class of logos comprises all that is in between, where designers have strived to device a logo to reinforce
or embellish the brand naming. Some international logos like the Red Cross and Apple have visual renditions
of the brand names. Sometimes the logo can be pictorial symbol, like the Prudential Rock, Ralph Lauren’s Polo
and McDonald’s Golden Arches (which in fact started its life as a shop signage). In India too we have several
examples of this type Thermax ‘T’, LIC ‘hands’, UTI ‘Kalash’.
9.9.2 Benefits of Logos

• Logos, as the designers point out, is but ‘flypaper’ to which brand associations can get attached. With the right
inputs, they get instant recognition and recognition in turn leads to recall of associations. The three-pointed star
on ATP tournament nets is enough to remind the viewer of Mercedes and its class.
• A ‘swoosh’ on the side of a shoe is all that is needed to trigger a brand memory of Nike.
• A study by Cogito Consulting of FCB-Ulka Group has shown that visual cues are remembered much more
than just audio cues or slogans. This seems to hold true for both heavily advertised brands and not very heavily
advertised brands, as well as for younger (<5 years) brands and older brands.
• The difference in recall is the highest in the case of young, low advertising brand, with scores as much as twice
for visual cues, compared to slogans (76 percent v/s 38 per cent).
9.9.3 Brand Mascot

• The Air India Maharaja has been a mascot for Air India for many years clearly welcoming passengers all across
the world, symbolising a Maharaja like treatment to its travellers. In between, a few years ago there was an
attempt to change the logo and the styling of Air India. Has the consistent use of the Maharaja mascot been
useful to Air India for its business?
• These and many other questions come to the mind of a brand marketer while using or deciding to use mascots
in their brand strategy.
• Before putting forth a model for evaluating brand mascots, the real meaning of a mascot is ‘a person or animal
or thing that is supposed to bring luck to its users’. ‘Brand mascots’ do not work then it is ‘Brand Mass Costs’. It
means that effective ‘Brand Mascots’ increase awareness; sales and profits whereas ineffective ‘Brand mascots’
do not amass customers or wealth, yet incur “MASS COSTS”.
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Summary
• Brand positioning is the art of creating a distinct image in the minds and hearts of customers. Consumer
behaviour is strongly associated with brand logos, signs, mascots, celebrities, etc. Managing these tangibles
with the intangible image of the brand is the big challenge for any marketer.
• The marketers must balance communication expenditure among the main communication media. These include
seven communication vehicles viz. advertising, public relations, trade and sales promotion, consumer promotions,
direct marketing, event marketing and internal employee communications.
• Managing a portfolio of brands poses many challenges. Any laxity in managing them will not only have its
effect on marketing and create confusion for customers but will also affect corporate profitability.
• “Brand” is one of the most indiscriminately used and therefore, abused words in the marketplace today.
• Many of them create an illusion of being a brand through their high profile campaigns, celebrity endorsements,
etc. The hype is short-lived and so is its existence in the market. Let us call such vanishing Brands - Labels.
• Products: Factories manufacture products. Products conform to some specifications and comply with some quality
standards. All the product descriptors carry engineering or manufacturing terminology, which cannot be grasped
by the customer. The products have some features, which are not necessarily understood by the customer.
• Philip Kotler defines Positioning as follows, ‘Positioning starts with a product, a piece of merchandise, a service,
a company, an institution, or even a person....... But positioning is not what you do to a product. Positioning is
what you do to the mind of a prospect. That is, you position the product in the mind of the prospect.’
• Attribute positioning: The marketer can position itself on any one or any attributes, such as size or number of
years in existence. For example Disneyland advertises itself as the largest theme park in the world. Re-positioning
or de-positioning is changing the positioning of a brand.
• The brand is a name, term, symbol, words, etc. used to differentiate the marketer’s products/services with the
competitor’s. Brands have added values of symbolism meanings and values over and above their physical
constituents.
• Consumers perceive brands in their own personal way and attach their own values to them and the symbolic
interpretation of each brand varies according to age, income, and sex education of the target audience.
• The Greek word ‘logos’ means ‘word’ and ‘typos’ means ‘impression. It has also been referred to as a trademark,
service mark, mark or marquee, but logo as a word seems to have entered the common parlance.
References
• Verma H.V., 2006. Brand Management: text and cases. 2nd ed., Excel books, A-45, Nariana, Phase1, New Delhi
110 028; Anurag Jain. Pp.345–392.
• Brand Positioning – Definition and Concept [Online] (Updated 2011) Available at: <http://www.
Recommended Reading
Management> [Accessed 12th March 2011]
• Kapferer J.N., 2008. The New Strategic Brand Management, 4th edition, United Kingdom, Kogan page Publishers.
p.560.
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Self Assessment
1. _______________ is the art of creating a distinct image in the minds and hearts of customers.
a. Brand image
b. Brand positioning
c. Brand valuation
d. Brand mascot
2. Which of the following have added values of symbolism meanings and values over and above their physical
constituents?
a. Brands
b. Logos
c. Trademark
d. Labels

a. Product behaviour is strongly associated with brand logos, signs, mascots, celebrities, etc.
b. Market behaviour is strongly associated with brand logos, signs, mascots, celebrities, etc.
c. Consumer behaviour is strongly associated with brand logos, signs, mascots, celebrities, etc.
d. Consumer behaviour is strongly associated with brand logos, and products.
4. Anything that offers either FVP or EVP is referred to as ‘__________.’

a. Logos
b. Labels
c. Mascots
d. Products

a. During the introduction phase, the marketer is able to consolidate the market share and hence experiences
very good profitability.
b. During the maturity phase, the marketer is able to consolidate the market share and hence experiences very
bad profitability.
c. During the growth phase, the marketer is able to consolidate the market share and hence experiences very
good profitability.
d. During the maturity phase, the marketer is able to consolidate the market share and hence experiences very
good profitability.
6. The consumer and distributors’ acceptance grows, sales increase, and the brand moves to the_________
phase.
a. growth
b. maturity
c. introduction
d. decline
148/JNU OLE
7. The concept of ________________________ is the base case of customer loyalty in competitive repeat purchase
markets.
a. Customer Brand Commitment (CBC)
b. Customer Brand Acceptance (CBA)
c. Customer Brand Buying (CBB)
d. Brand image

a. A mascot can be a piece of type, a symbol, a picture or a combination of any or all of these.
b. A logo can usually be trademark protected.
c. Logos, as the designers point out, is but ‘flypaper’ to which brand associations can get attached
d. The Greek word ‘logos’ means ‘word’ and ‘typos’ means ‘impression’
9. __________or de-positioning is changing the positioning of a brand.

a. Branding
b. Logo
c. Trademark
d. Re-positioning

a. A Logo with very effective, high decibel and high visibility communication can easily create an illusion of
being a brand.
b. A Label with very effective, high decibel and high visibility communication can easily create an illusion
of being a product.
c. A Label with very effective, high decibel and high visibility communication can easily create an illusion
of being a brand.
d. A mascot with very effective, high decibel and high visibility communication can easily create an illusion
of being a brand.
149/JNU OLE
Case Study I
Pricing of Innovative Product
Sameer Malhotra completed his MBA after his graduation in commerce. He did MBA in Marketing from USA.
After he returned to India, he started Cool Cream Pvt. Ltd., a company recognized as the manufacturer of finest
ice-creams throughout the country.
Sameer used to love eating ice-creams. Once he had cough, and he still wanted to eat ice-cream. His sister poured
ginger juice on the ice-cream and forced him to eat it. Sameer really liked it, and thought of introducing a new ginger
ice-cream. Sameer instructed the R&D centre at Cool Cream to develop a ginger ice-cream. The product was named
as Adrak Ice-cream and was tested in the market. The marketing strategy was to emphasize on the benefits of the
ginger ice-cream. It will protect the throats and people can enjoy the ice-cream. The test marketing was carried out
and there was tremendous response by the old people and teenagers for this Adrak Ice-cream.
However, the pricing strategy was not yet decided by Sameer. So, Sameer called a conference of various departments’
to work out a pricing strategy of Adrak Ice-cream. The finance manager Raj Arora decided to keep a low introductory
price and increase it as the sales build up. Stabilize the price as sales growth levels off. Reintroduce low prices when
the sales decline till the product has to be withdrawn or cloned.
However, the cost of production was higher than the profits. That is why, other finance manager Ram Deshmukh
insisted on market skimming price at the time of launch. The price of Adrak ice-cream should be fixed or slightly
higher than the other ice –creams. Sameer selected the pricing strategy decided by Ram and earned huge profits.
Questions
1. Sameer has selected the pricing strategy decided by Ram. Was it a wise decision? What are the advantages of
the skimming price strategy?
Answer
Sameer has taken a wise decision. The advantages of skimming price strategy are as follows:
a. This pricing strategy will help the company to recover a majority of its initial development and launching
costs quickly. It should be planned so that these costs are recovered before competition materializes. This
strategy is also expected to maximize returns before competition can catch up.
b. A high price at the time of its launch would make the customers believe that Adrak ice-cream is a high
quality product developed after a lot of research.
c. Prices for skimming the market are likely to enhance returns from every ice-cream sold, thereby reducing
liabilities.
d. During the competition, when the price is lowered the competitors would have to match the lowered price
at the time when their own costs are higher. Thus, the competitors can be attacked when they are most
vulnerable, i.e. the introductory phase of their product launch.
2. Why did not Sameer select the pricing strategy decided by Raj?
Answer
Raj had decided to fix low price at the time of launching the item. Sameer did not select this pricing strategy
because of the following reasons:
a. This policy does not take into account the fact that the product can be easily copied.
b. Low price for a product like innovative ice-cream could create doubts about the quality of the product.
c. The strategy does not cater to the effects of competition.
d. It will take a long time to recover the expenses of initial R&D, production of the new product, etc. It is
possible that theses expenses may never be recovered.
150/JNU OLE
3. If you are in place of Sameer which pricing strategy will you select? Why?
Answer
If I was in place of Sameer, I would have selected the pricing strategy decided by Raj.
If the initial price of the Adrak Ice-cream is higher than the other ice-creams, it will attract the customers as it
should be of good quality. As the Adrak ice-cream involves more cost of production and preservation, the cost
should be recovered by setting the price higher at the time of launch. Liabilities due to product development,
setting up of the production lines, advertising expenses, uneconomical levels of production, etc are the maximum
in the initial stages of the product life cycle. Skimming price will help to get maximum returns, on every Adrak
ice-cream sold.
4. Why is pricing so important while introducing a new product in the market?

Answer
Pricing is one of the four P’s of marketing mix. The pricing strategy must be correlated to the product’s life
cycle. In this case, the price and promotion have close relationship with each other. Determining the best pricing
strategy for a product depends on the product itself, the place and the promotion. The pricing at the time of the
launch of the product is important from the point of growth or facing the competition at any point.
151/JNU OLE
Case Study II
Nestlé’s Brand Management Strategies
In the mid-1860s, Henri Nestle (Henri), a merchant, chemist, and innovator experimented with various combinations
of cow’s milk, wheat flour and sugar. The resulting product was meant to be a source of infant nutrition for mothers
who were unable to breast-feed their children. In 1867, his formula saved the life of a prematurely born infant. Later
that year, production of the formula, named Farine Lactee Nestle, began in Vevey, and the Nestle Company was
formed. Henri wanted to develop his own brands and decided to avoid the easier route of becoming a private label.
He also wanted to make his company a global company. Within a few months of establishing his company, Henri
began to sell his products in many European countries. In the initial years, Henri restructured the organization to
facilitate research, improve product quality, and develop new products. In 1875, Daniel Peter, Henri’s friend and
neighbour, developed milk chocolate.
In 1867, his formula saved the life of a prematurely born infant. Later that year, production of the formula, named
Farine Lactee Nestle, began in Vevey, and the Nestle Company was formed. Henri wanted to develop his own
brands and decided to avoid the easier route of becoming a private label. He also wanted to make his company a
global company. In mid-1988, Nestle SA (Nestle), the world’s largest consumer packaged foods company based
in Switzerland, acquired Rowntree Mackintosh PLC (Rowntree), in the largest ever acquisition deal of a British
company during that time. Rowntree was the world’s fourth largest manufacturer of chocolates and sweet products,
with well-known brands like Kit Kat, After Eight, Smarties and Rolo. The deal attracted considerable attention all
over the world since several bids to acquire Rowntree were rejected. Rowntree claimed that the bids were too low
for its valuable, well-recognized brands. In the end, Rowntree was acquired by Nestle for £2.5 billion, two and a
half times the pre-bid price and eight times the net asset value of the company. This acquisition made Nestle the
largest chocolate manufacturer in the world.
Nestlé’s Branding Strategy

The Nestle brand itself had played a key role in the company’s globalization efforts. In 1996, about 40% of the
total revenues were generated from products covered by the Nestle corporate brand. Nestlé’s logo was an important
part of the company’s corporate identity. The ‘nest’ was a graphic translation of Henri Nestlé’s name, which meant
“little nest.”
However, in the beginning there were many branding challenges faced like what will be the branding strategies and
brand-name decision.
The Kit-Kat Brand

When Nestle acquired Rowntree’s brands in 1988, the major challenge before the company was managing them.
Rowntree had a “one product, one brand” policy. The brands Kit Kat, After Eights, Smarties and Rolo were marketed
with no mention of Rowntree. Rowntree’s brands were not strongly managed European brands. Before the 1980s,
‘country managers’ outside the UK in several European countries managed Rowntree’s business. They were free
to run their units provided business objectives were met. The orientation at Rowntree was short-term just to meet
annual business objectives and country managers added nothing to the overall organization. Even though Kit Kat
was a leading brand in UK, it was ignored outside the country. In the early 1980s, Rowntree established Rowntree
Continental Europe, which handled business responsibilities outside the UK in Europe. However, this did not benefit
Kit Kat, which was launched in Europe by Rowntree Continental Europe as a multi-local brand.
Divesting Non-Strategic Brands

The success of the Kit Kat brand inspired Nestle to think and act ‘globally’ i.e. establishing global as well as local
brand identity. Nestle had taken a similar approach to several other acquired sub-brands. Moreover, Nestle introduced
the Kit Kat brand in several other countries across the globe. Nestlé’s brand management strategy included the
divestment of non-strategic brands. In February 1999, Nestle negotiated the sale of its Findus brand of frozen food
to EQT Scandinavia BV.
152/JNU OLE
Questions
1. How was Nestle emerged?
2. What were the Nestlé’s branding strategies?
3. What were branding challenges faced earlier for Nestle?
4. What was Nestlé’s logo? Why is logo important in branding?
153/JNU OLE
Case Study III

The Gillette Co. - The Best a Man can Get
Gillette is known world over for its razor blades. Its manufacturing operations are conducted in more than 50
locations in 26 countries and its products are distributed in over 200 countries. In 1901, King C. Gillette and
William Nickerson started the American Razor Company in Boston to produce Gillette razor sets. They could sell
only 51 razor sets in the first year. However, in the next year they sold 90,844 sets. Within four years, in 1905,
Gillette established its first overseas operations. It developed sales by distributing free razor blades and with boxes
of Wrigley’s chewing gum.
During 1960s and 1970s the company expanded its product range by introducing Right Guard (deodorant), Trace
2( twin blade razor), Cricket (disposable lighter), Good News (disposable razor), and Erase Mate ( Erasable pens).
It also acquired Braun (electric shavers and appliances). In 1984 it even branched into dental products.
The different marketing strategies adopted by the company are as follows:

a. Identifying a product for which there was need and developing from the beginning a high quality product
and convincing the customers to buy the products. This enabled the company to sell more expensive product
at a higher margin of profit.
b. They carried out market research, studied the needs of the customers and produced new products as demand
arose. The company always did considerable market research and design engineering. From the data obtained
after the research, it launched a new razor in 1990, known as ‘Sevor’. Researches have stated that this is the
most successful product launched in Gillette’s history and has helped it grab 9 per cent of the US market
share in the year it was launched.
c. They carried out test marketing and sales wave’s research.
d. After the research, they implemented pricing strategies that made huge profits.
e. They studied product lie cycle and carried out effective product planning.
Thus, Gillette has made remarkable profits and established as the most successful organisation.
Questions
1. What were the different marketing strategies carried out by Gillette Co.?
2. What are the stages of product life cycle?
3. What are the advantages of test marketing?
4. Customer behavior should be considered while deciding pricing strategies. Give reasons.
154/JNU OLE
Bibliography
References
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• Boston Consulting Group Matrix (BCG). Available at: < http://www.educationsupport.co.uk/downloads/rjh/
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ad_prmot.htm> [Accessed 4th March 2011].
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Documents/Teaching-EMBA_Syllabus.pdf > [Accessed 3rd March 2011].
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about_5079100_pricing-strategy.html> [Accessed 4th March 2011].
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2011]
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page Publishers. pp.171–180.
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principles-of-marketing-tutorials/marketing-planning-and-strategy/ > [Accessed 3rd March 2011].
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Product%20Management.pdf > [Accessed 28th February 2011]
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Management_Science_II/Pdf/2_4.pdf > [Accessed 9th March 2011].
• Verma H.V., 2006. Brand Management: text and cases. 2nd edition, Excel books.
Recommended Reading
• Capital Budgeting, [Online] (Updated 2010) Available at: <http://www.netmba.com/finance/capital/budgeting/>
• Applegate E., Johnsen A., 2007. Cases in Advertising and Marketing Management: Real Situations for
Tomorrow’s Managers. United Kingdom, Rowman & Littlefield. p.217.
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what-is-brand.htm> [Accessed 10th March 2011].
155/JNU OLE
• Brand Image, [Online] (Updated 2011) Available at: <http://www.managementstudyguide.com/brand-image.

• Charles K. Fur, 2003. What is Profit Analysis, [Online] (Updated 2011). Available at: <http://www.wisegeek.
com/what-is-profit-analysis.htm> [Accessed 9th March 2011].
• Donald R. Lehmann and Russell S. Winer, (2004). Product Management, McGraw Hill Higher Education, 4th
edition, 512 pages.
• Hackley C.E., 2005. Advertsisng and Promotion. SAGE Publications India Pvt. Ltd, , New Delhi, p.264.
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< http://www.ehow.com/how_7474651_determine-pricing-strategy.html> [Accessed 4th March 2011].
• Kapferer J.N., 2008. The New Strategic Brand Management, 4th edition, United Kingdom, Kogan page Publishers.
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• Verma H.V., 2006. Brand Management: Text and Cases. 2nd edition, Excel books, p.473.
156/JNU OLE
Self Assessment Answers
Chapter I
1. a
2. b
3. b
4. d
5. c
6. c
7. a
8. b
9. c
10. b
Chapter II
1. a
2. d
3. c
4. a
5. b
6. d
7. c
8. d
9. a
10. c
Chapter III
1. a
2. d
3. b
4. c
5. d
6. b
7. c
8. a
9. b
10. d
Chapter IV
1. a
2. d
3. b
4. c
5. c
6. b
7. a
8. d
9. c
10. d
157/JNU OLE
Chapter V
1. a
2. b
3. d
4. a
5. c
6. c
7. b
8. a
9. c
10. d
Chapter VI
1. b
2. a
3. c
4. d
5. c
6. b
7. b
8. a
9. d
10. d
Chapter VII
1. b
2. a
3. d
4. c
5. c
6. a
7. d
8. b
9. c
10. a
Chapter VIII
1. a
2. b
3. d
4. a
5. d
6. b
7. c
8. a
9. b
10. c
158/JNU OLE
Chapter IX
1. b
2. a
3. c
4. b
5. d
6. a
7. b
8. a
9. d
10. c
159/JNU OLE

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This book is a part of the course by Jaipur National University, Jaipur.

The content in the book is copyright of JNU. All rights reserved.

II. List of Figures...........................................................IX

III. List of Tables............................................................ X

IV. Case Study............................................................. 150

VI. Self Assessment Answers...................................... 157

Chapter VIII.............................................................................................................................................. 109

Chapter IX................................................................................................................................................. 129

• introduce the concept of product

• explain the concept of product life-cycle

• understand how products are classified

• elucidate the BCG growth-share matrix

• understand the product-mix concept

• enlist different product levels

• explain the various phases in a product-life cycle

• understand the product management

• identify the role and responsibilities of product manager

• realise the product portfolio management

1.2 Defining Product

1.3 Product Management

Fig. 1.1 Product managers’ potential interactions

1.4 Product Levels

Fig. 1.2 Five product levels

1.5 Product Mix

1.6 Product Life Cycle

Fig. 1.3 Product life-cycle sales and profit

1.6.1 Introduction Phase

1.6.2 Growth Phase

1.6.3 Maturity Phase

1.6.4 Decline Phase

1.7 Market Evolution

1.8 Product Classification

1.8.1 Durability and Tangibility

1.8.2 Consumer Goods Classification

1.8.3 Industrial Goods Classification

Materials and Parts

1.9 Product Portfolio Management

1.9.1 SBU’s characteristics

1.9.2 The Boston Consulting Group (BCG) Model

Low Cash Cow Dog

High 1.0X Low

Relative Market Share

Star Question Mark

Harvest Revenue ++++++ Revenue ++ Kill/

High 1.0X Low

Fig. 1.6 The BCG matrix: cash position and strategy

1.9.3 The General Electric (GE) Model

Fig. 1.7 The GE matrix

1.9.4 Adapting Products to Local Conditions

1.9.5 Threats from Duplication

3. Which of the following statement is false?

6. A product as a total concept may be perceived to have ________layers.

7. Which of the following statement is true?

9. Which goods are perishable and need special marketing practices?

10. Match the following:

2. Impulse goods B. Purchased when there is urgent need

3. Emergency goods C. Purchased on a regular basis

4. Natural products D. Limited in supply

• explain various factors contributing to new product development

• illustrate challenges in new product development

• investigate the various phases in new product development process

• understand the price and non-price strategies

• explain ways to identify the right customers targets