Chapter 12: Creating and managing brands and brand equity
Perhaps the most distinctive skill of marketers is their ability to create, maintain, enhance and protect brands through their use of all the marketing mix variables. Building a brand is a very expensive and long-term development for companies and must be managed with great expertise.
Brand: A name that is given to a particular product or service or range of products or services. It distinguishes a particular product or service from its competitors. A brand is the embodiment of customer goodwill accumulated during the lifetime of a service or product. A brand is a name, symbol, logo, design or image, or any combination of these, which is designed to identify the product or service. A successful brand is an identified product, service, person or place, augmented in such a way that the buyer or user perceives relevant unique, sustained added value that matches their needs most closely. A brand is a product, but one that adds other dimensions that differentiate it in some way from other products designed to satisfy the same need. The differences between a product and a brand can be rational and tangible or symbolic, emotional and intangible.
Branding: A means to distinguish the products or services of one company from those of another.
Brand values: A set of abstract associations (attributes and benefits) that characterize the five to ten most important aspects or dimensions of a brand.
Two views on brands are:
- Brand identity: The way a company aims to identify or position itself or its product or service;
- Brand image: The visual or verbal expressions of a brand which leads to the psychological or emotional associations that the brand aspires to maintain in the minds of the consumer. Brand image is the way the consumer actually perceives this aim.
Marketers need to compare brand identity and brand image.
Brand promise: The marketer’s vision of what the brand must be and do for customers.
Brand knowledge: All the different things (thoughts, feelings, images, experiences, beliefs) that become linked to the brand in the minds of consumers and is the foundation of brand equity.
- Transfer of secondary knowledge: Consumers have secondary associations to other entities (parent company, events, country of origin) to which the brand is linked, associations may be transferred to the brand. Some sources to leverage secondary brand knowledge are licensing; celebrity endorsement; sport, cultural or other events; third party sources.
Emotional branding: Engaging the customer on the level of senses and emotions; forging a deep, lasting, intimate emotional connection to the brand that transcends material satisfaction; it involves creating a holistic experience that delivers an emotional fulfillment so that the customer develops a special bond with and unique trust in the brand. Emotions play a powerful role in the customer’s selection, satisfaction and loyalty towards brands.
There are two perspectives to the role of branding:
- Consumer perspective: Brands perform many valuable roles for consumers;
o Brands signal a certain level of quality;
o Brands assure expected levels of satisfaction;
o Brands facilitate purchase;
o Brands reduce the perceived risk in the purchase situation;
o Brands identify the source of the product;
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- Channel members’ perspective: Brands perform many valuable roles for companies:
o A brand offers legal protection for unique features or aspects of the product or service;
o Brands create greater customer loyalty;
o Brands are hard to copy;
o Branding can be a powerful means to secure a competitive advantage;
o Brands attract higher-quality employees;
o Brands elicit stronger support from channel and supply chain partners;
o Brands create growth opportunities through brand extensions and licensing;
o Brands help companies segment their markets;
o Brands signal a certain level of product quality.
Strategic brand management: To develop a brand vision (clear and constant), to operationalize brand visions through long term and short term marketing endeavors, and to provide a clear direction to all employees about brand value. There are four processes in strategic brand management:
1. Identify and establish brand positioning and values;
2. Plan and implement brand marketing programs;
3. Measure and interpret brand performance;
4. Grow and sustain brand equity.
There are three main challenges to creating and managing brand identities:
- The initial choices for the brand elements or identities making up the brand, including brand names, logos, symbols etc. Brand elements are those trademarkable devices that identify and differentiate the brand.
- All accompanying marketing activities must support the brand;
- Other associations indirectly transferred to the brand by linking it to some other entity (a person, place or thing).
Many brands create brand equity by linking the brand to other information in memory, which conveys meaning to consumers.
Co-branding/ Dual branding/ Brand bundling: Two or more well-known brands are combined into a joint market offering or marketed together in some fashion. Forms of co-branding are same-company co-branding, joint-venture co-branding, multiple-sponsor co-branding, retail co-branding.
The main advantage of co-branding is that a market offering/product service may be convincingly positioned by virtue of the multiple brands. The potential disadvantages of co-branding are the risks and lack of control in becoming aligned with another brand in the minds of consumers. For co-branding to succeed, the two brands must separately have brand equity.
Ingredient branding is a special case of co-branding. It creates brand equity for materials, components or parts that are necessarily contained within other branded products.
There are six main criteria for choosing brand names. In general brand names should be short and simple, easy to spell and pronounce, pronounceable in only one way and one language and easy to recognize and remember. The main criteria are:
- ‘Brand building’ criteria:
o Memorable; meaningful; and likeable.
- ‘Defensive’ criteria:
o Transferable; adaptable; and protectable.
The first branding strategy decision is whether to develop a brand name for a product or service. A brand element should provide a positive contribution to brand equity. Four general strategies are often used:
- Individual names: This creates a house of brands;
- Blanket corporate, family or house names: This creates a branded house;
- Separate family or house names for all products and services: This lies in between a house of brands and a branded house;
- Corporate name combined with individual product names: This lies in between a house of brands and a branded house.
When a company introduces a new product or service marketers have three main choices:
- They can develop new brand elements for the new product or service;
- They can apply some of their existing brand elements;
- They can use a combination of new and existing brand elements.
Family brand: If the parent brand is already associated with multiple products through brand extensions. Brand extensions fall into two categories:
- Line extension: The parent brand covers a new product or service within a product or service category it currently serves;
- Category extension: The parent brand is used to enter a different product or service category from the one it currently serves.
Advantages of brand extensions are:
- Extensions can avoid the difficulty and expense of coming up with a new name;
- Brand extensions can ensure positive expectations as extensions can reduce risk;
- Business-to-business (B2B) companies can use brand extensions as a powerful way to enter consumer markets.
Disadvantages of brand extensions are:
- Line-extension trap: line extensions may cause the brand name to be less strongly identified with any one product;
- Brand dilution: consumer no longer associate a brand with a specific or highly similar products or services and start thinking less of the brand;
- Inappropriate extensions;
- Extensions might lead customers to switch to a competing brand instead of the line extension had not been introduced.
Brand line: All products or service, original as well as line and category extensions, sold under a particular brand.
Brand mix: The set of all available brand lines from a company.
Branded variants: Specific brand lines supplied exclusively to specific retailers or distribution channels.
Licensed product or service: A brand name which has been licensed to others.
Brand portfolio: The set of all brands and brand lines a particular company offers for sale in a particular category or market segment. Marketers often need multiple brands in order to pursue multiple segments. The basic principle in designing a brand portfolio is to maximize market coverage, so that no potential customers are being ignored, but to minimize brand overlap, so company brands are not competing for customer approval. Brands can also play a number of specific roles as part of a portfolio:
- Flankers: These are positioned with respect to competitors’ brands so that more important (and more profitable) flagship brands can retain their desired positioning;
- Cash cows: Some brands may be kept around despite dwindling sales because they still manage to hold on to enough customers and maintain their profitability with virtually no marketing support;
- Low-end entry level: The role of a relatively low-priced brand in the portfolio may often be to attract customers to the brand franchise;
- High-end prestige: The role of a relatively high-priced brand is often to add prestige and credibility to the entire portfolio.
Brand equity is reinforced by marketing actions that consistently convey the meaning of the brand in terms of: what products and service the brand represents, what core benefits it supplies and what needs it satisfied; how the brand makes service or products superior to others and which strong, favorable and unique brand associations should exist in the minds of consumers.
Changes in consumer tastes and preferences, the emergence of new competitors or new technology, or any new development in the marketing environment can affect the fortunes of a brand. Often the first thing to do in revitalizing a brand is to understand what the sources of brand equity are to begin with.
Brand equity is the added value given to products and services. Brand equity and value is reflected in how consumers think, feel and act with respect to the brand, as well as the prices, market share and profitability that the brand commands for the company. Brands play a major role in enhancing the financial value of companies.
Managing brand equity consists of:
- Reinforcing brands;
- Revitalizing brands;
- Adjustment to brand portfolio.
A brand audit is a consumer-focused procedure to assess the health of the brand, uncover its sources of brand equity and suggest ways to improve and leverage its equity.
Brand value chain is a structured approach to assessing the sources and outcomes of brand equity and the manner in which marketing activities create brand value. See the following figure:
Brand tracking studies collect quantitative data from consumer on a routine basis over time to provide marketers with consistent, baseline information about how their brands and marketing programs are performing on key dimensions.
Marketing managers need a model to link brand equity and brand performance. Four major stages in this model are:
- What companies/ marketing managers do;
- What customers think and feel;
- What customers do;
- How financial markets react.
Consumer-based brand equity (CBBE) is the differential effect that brand knowledge has on consumer response to the marketing of that brand. Customer-based approaches view the brand from the perspective of the consumer, either individual or an organization. The premise of customer-based brand equity models is that the power of a brand lies in what customers have seen, read, heard, learned, thought and felt about the brand over time. Customer-level brand equity can be characterized in terms of awareness, association, attitudes and activity. A brand has a positive CBBE when consumers react more favorably to a product or service and the way it is marketed when the brand is identified, than when it is not identified. A brand has a negative CBBE if consumers react less favorably to marketing activity for the brand under the same circumstances.
Another model to measure brand equity is the brand asset valuator (BAV): This provides comparative measures of the brand equity of thousands of brands across hundreds of different categories. There are five key pillars of brand equity, according to BAV:
- Energized brand strength:
o Differentiation: Measures the degree to which a brand is seen as different from others;
o Energy: Measures the brand’s sense of momentum;
o Relevance: Measures the breadth of a brand’s appeal.
- Brand stature:
o Esteem: Measures how well the brand is regarded and respected;
o Knowledge: Measures how familiar and intimate consumers are with the brand.
Managing a service brand means focusing on four aspects, these are: service, staff behavior, brand positioning, environment.
A major aspect of both products and services has been the move to co-creation, customization or personalization in the branding field.
Brand contact: Any information-bearing experience, whether positive or negative, which a customer has with the brand.
Chapter 14: Designing, developing and managing market offerings
The product life cycle usually has four stages, these stages are:
- Introduction:
- Growth;
- Maturity;
- Decline.
| Stage in the PLC | Introduction |
| Characteristics: Sales Costs Profits Customers Competitors | Low sales High cost per consumer Negative Innovators Few |
| Marketing objectives | Create product awareness and trial |
| Strategies: Product Price Distribution Advertising Sales promotion | Offer a basic product Charge cost-plus Build selective distribution Build product awareness among early adopters and dealers Use heavy sales promotion to entice trial |
Companies that plan to introduce a new market offering must decide when to enter the market. To be first can be rewarding, but risky and expensive. To come in later makes sense if the firm can bring superior technology, quality or brand strength. Speeding up innovation time is essential in an age of shortening product life cycles.
What are the sources of pioneer’s advantage?
- Early users will recall the pioneer’s brand name if the product satisfies them;
- The pioneer’s brand also establishes the attributes the product class should possess;
- The pioneer’s brand normally aims at the middle of the market and so captures more users;
- Customer inertia and producer advantages;
- Pioneers can benefit from effective marketing communications and enjoy higher rates of consumer repeat purchases.
The first mover advantage states that the first company entering a certain market will gain massive market share and thanks to the competitive advantage developed, it will also be able to defend its leadership position from new entrants.
Golder and Tellis raise further doubts about the pioneer advantage. They distinguish between an inventor, first to develop patents in a new product category; a product pioneer, first to develop a working model; and a market pioneer, first to sell in the new product category. They conclude that although pioneers may still have an advantage, a larger number of market pioneers fail than has been reported, and a larger number of early market leaders (though not pioneers) succeed.
| Stage in the PLC | Growth |
| Characteristics: Sales Costs Profits Customers Competitors | Rapidly rising sales Average cost per customer Rising profits Early adopters Growing number |
| Marketing objectives: | Maximize market share |
| Strategies: Product Price Distribution Advertising Sales promotion | Offer product extensions, service, warranty Price to penetrate market Build intensive distribution Build awareness and interest in the mass market Reduce to take advantage of heavy consumer demand |
During the growth stage, the firm uses several strategies to sustain rapid market growth:
- It improves product quality and adds new product features and improved styling;
- It adds new models, accessory items and personalizing options;
- It enters new market segments;
- It increases its distribution coverage and enters new distribution channels;
- It shifts from product-awareness advertising to product-preference advertising;
- It lowers prices to attract the next layer of price-sensitive buyers.
A firm in the growth stage faces a trade-off between high market share and high current profit.
| Stage in the PLC | Maturity |
| Characteristics: Sales Costs Profits Customers Competitors | Peak sales Low cost per customer High profits Middle majority Stable number beginning to decline |
| Marketing objectives: | Maximize profit while defending market share |
| Strategies: Product Price Distribution Advertising Sales promotion | Diversify brands and items models Price to match or best competitors’ Build more intensive distribution Stress brand differences and benefits Increase to encourage brand switching |
Dominating the industry are a few giant firms that serve the whole market and make their profits mainly through high volume and lower costs. Surrounding these dominant firms is a multitude of market nichers, including market specialists, product specialists and customizing firms.
Three potentially useful ways to change the course for a brand are:
- Market modification: Try to increase sales volume through: expanding the number of brand users by converting non-users, entering new market segments, or attracting competitors’ customers; or by increasing the usage rates among users: have consumers use the product n more occasions; have consumers use more of the product on each occasion; have consumers use the product in new ways.
- Product modification: Managers also try to stimulate sales by modifying the product characteristics through:
o Quality improvement: This aims at increasing functional performance;
o Feature improvement: This aims at adding new features such as size, weight, materials, additives, and accessories that expand the product use performance, versatility, safety or convenience;
o Style improvement: This aims at increasing aesthetic appeal.
- Marketing program modification: Marketing managers might also try to stimulate sales by modifying other marketing program elements, by questioning:
o Price;
o Distribution;
o Advertising;
o Sales promotion;
o Personal selling;
o Services.
| Stage in the PLC | Decline |
| Characteristics: Sales Costs Profits Customers Competitors | Declining sales Low cost per customer Declining profits Laggards Declining number |
| Marketing objectives: | Reduce the expenditure and milk the brand |
| Strategies: Product Price Distribution Advertising Sales promotion | Phase out weak products Cut price Go selective: phase out unprofitable outlets Reduce the level needed to retain hard-core loyals Reduce to minimal level |
Unless strong reasons for retention exist, carrying a weak product is very costly to the firm, and not just by the amount of uncovered overhead and profit. In handling ageing products, a company faces a number of tasks and decisions. The appropriate strategy also depends on the industry’s relative attractiveness and the company’s competitive strength in that industry. Harvesting calls for gradually reducing a product or business’s costs while trying to maintain sales.
We all know the bell-shaped product life cycle (PLC), however there are alternative patterns:
- Growth-slump-maturity pattern: Sales grow rapidly when the item is first introduced and then fall to a residual level that is sustained by late adopters buying for the first time and early adopters replacing t;
- Cycle-recycle pattern: First the product is promoted aggressively which produces the first cycle. Later, sales start declining and the company gives the product another promotion push, which produces a second cycle (usually of smaller magnitude and duration);
- Scalloped PLC: Sales pass through a succession of life cycles based on the discovery of new product/ market offering characteristics, uses or users.
Three special categories of product life cycles can also be distinguished:
- Style: A basic and distinctive mode of expression. Styles appear in homes, clothing and art;
- Fashion: A currently accepted or popular style in a given field. Fashions pass through four stages: distinctiveness, emulation, mass fashion and decline.
- Fads: Fashions that come quickly into public view, are adopted with great zeal, peak early, and decline very fast.
Critiques of the product life cycles are:
- The life cycle patterns are too variable in shape and duration to be generalized;
- Marketers can seldom tell what stage their product is in;
- The PLC is the self-fulfilling result of marketing strategies, and that skilful marketing can in fact lead to continued growth.
Firms need to visualize a market’s evolutionary path as it is affected by new needs, competitors, technology, channels and other development. Markets evolve through four stages:
- Emergence: Before a market materializes, it exist as a latent market. Once a pioneer firm has launched the product, the emergence stage begins;
o Diffused-preference market: A type of market, in which buyer preferences scatter evenly.
- Growth: If the new product sells well, new firms will enter the market, ushering in a market-growth stage;
- Maturity: The competitors cover and serve all the major segments and the market enters into the maturity stage. As market growth slows down, the market splits into finer segments and high market fragmentation occurs. Market fragmentation is often followed by a market consolidation, caused by the emergence of a new customer-perceived value attribute that has strong appeal. Mature markets swing between fragmentation brought about by competition, and consolidation brought about by innovation.
- Decline: Eventually, demand for the current products will begin to decrease, and the market will enter the decline stage.
Product: Anything that can be offered to a market to satisfy a want or need and consists of a set of attributes, including physical goods, services, experiences, events, persons, places, properties, organizations, information and ideas.
In planning its customer offering, the marketer needs to address five Customer Perceived Value (CPV) benefit levels. Each level adds more customer-perceived value that results in the appropriate market offering:
- The fundamental level is the core benefit: The benefit the customer is really buying;
- At the second level, the marketer must turn the core benefit into a basic product;
- At the third level, the marketer prepares an expected product, a set of attributes and conditions buyers normally expect when they purchase this product;
- At the fourth level, the marketer prepares an augmented product that exceeds customer expectations;
- At the fifth level stands the potential product, which encompasses all the possible augmentations and transformations the product or offering might undergo in the future.
Consumption system: The way the end customer obtains and uses CPV offerings.
The product hierarchy knows six levels: need family, product family, product class, product line, product type and item.
Product system: A group of diverse but related items that function in a compatible manner.
Product mix/ Product assortment: The complete set of all products and items that a company brings to the market place. A company’s product mix has a certain width: how many different product lines the company carries; length: the total number of items in the mix; depth: how many variants there are in the market offering/product mix portfolio; and consistency: how closely related the various lines are in end use, production requirements, distribution channels, or in some other way.
A company can classify its products into four types that yield different gross margins, depending on sales volume and promotion:
- Core product offerings;
- Staples;
- Specialities;
- Convenience items.
Product map: This shows which competitors’ items are competing against company X’s items.
Company objectives influence marketing offering/ product line length. Product lines tend to lengthen over time. A company lengthens its product line in two ways:
- Line stretching occurs when a company lengthens its line beyond its current range. The company can stretch its line down market, up market, or both ways;
- Line filling: A firm can also lengthen its product line by adding more items within the present range. Motives for line filling are reaching for incremental profits, trying to satisfy dealers who complain about lost sales because of missing items in the line, trying to utilize excess capacity, trying to be the leading full-line company, and trying to plug holes to keep out competitors.
There are several types of market offerings:
- Durability and tangibility: Marketers classify products or CPV offerings into three categories on the basis of durability and tangibility: non-durable goods; durable goods; services;
- Consumer goods classification: This can be classified on the basis of shopping habits.
o Consumers usually purchase convenience goods frequently, immediately, and with a minimum of effort, several convenience goods are:
§ Staples: Goods consumers purchase on a regular basis;
§ Impulse goods: Goods purchased without any planning or search effort;
§ Emergency goods: Goods purchased when a need is urgent.
o Shopping goods are goods that consumers characteristically evaluate on such criteria as suitability, quality, price and style.
§ Homogeneous shopping goods are similar in quality but different enough in price to justify shopping comparisons;
§ Heterogeneous shopping goods differ by offering high customer-perceived value and a strong brand association.
o Specialty products have unique characteristics or brand identification for which a sufficient number of buyers are willing to make a special purchasing effort;
o Unsought goods are those the customer does not know about or does not normally think of buying.
- Industrial goods classification: These can be classified in terms of their relative cost and how they enter the production process:
o Materials and parts are goods that become part of a complete manufacturer’s product offering:
§ Raw materials: Farm products and natural products;
§ Manufactured materials and parts: Component materials and component parts.
o Capital items are long-lasting goods that facilitate developing or managing the finished CPV offering:
§ Installations: Building and heavy equipment;
§ Equipment includes portable factory equipment and tools and office equipment.
- Supplies and business services are short-term goods that facilitate developing or managing the finished product.
o Supplies:
§ Maintenance and repair items;
§ Operating supplies.
o Business services:
§ Maintenance and repair services;
§ Business advisory services.
There are several types of differentiation:
- Product differentiation:
o Form: The size, shape or physical structure of an offering;
o Features;
o Customization: This features mass customization: the ability of a company to meet the each customer’s requirements – to prepare on a mass basis individually designed products, services, programs and communications;
o Performance quality: This features performance value: the level at which the market offering’s primary characteristics attributes operate
o Conformance quality: Buyers expect products to have a high conformance quality, which is the degree to which all the produced units are identical and meet the promised specifications;
o Durability: A measure of the market offering’s expected operating life under natural or stressful conditions, is a key attribute in some markets;
o Reliability: A measure of the probability that a key benefit or valued attribute will not malfunction or fail within a specified time period;
o Repairability: A measure of the ease of putting right a market offering when it malfunctions or fails;
o Style: The market offering’s look and feel to the buyer.
- Design differentiation: The mix of features that affect how a market offering looks, feels and functions in terms of customer requirements;
- Service differentiation:
o Ordering ease: How easy it is for the customer to place an order with the company;
o Delivery: How well the market offering is brought to the customer;
o Installation: The work done to make a product operational in its planned location;
o Customer training: Training the customer’s employees to use the vendor’s equipment properly and efficiently;
o Customer consulting: Data, information system and advice services that sellers offer buyers;
o Maintenance and repair: The service program for helping customers keep purchased market offerings in good working order;
o Returns:
§ Controllable returns: Returns that could have been eliminated with proper strategies;
§ Uncontrollable returns: Returns that could not have been eliminated with proper strategies.
Market offering/ product mix pricing: The firm searches for a set of prices that maximizes profits on the total mix. Six situations calling for market offering/ product-mix pricing can be categorized:
- Product-line pricing: Companies normally develop product lines rather than single products, and introduce price steps;
- Optional feature pricing: Many companies offer optional products, features and services along with their main product;
- Captive product pricing: Some products restore the use of ancillary products, or captive products;
- Two part pricing: Firms in service sectors engage in two-part pricing, consisting of a fixed fee plus a variable usage fee;
- By-product pricing: If the by-products have value to a customer group, they should be priced to reflect customer-perceived value;
- Product-bundling pricing: Pure bundling occurs when a firm offers its product only as a bundle. Mixed bundling occurs when a firm offers goods both individually and in bundles.
Packaging is traditionally defined as all the activities of designing and producing the container for a product or market offering. Packages might include up to three levels of material – primary, secondary and shipping packages. Packaging can also be used as a marketing tool because of:
- Self-service in supermarkets;
- Consumer affluence;
- Company and brand image;
- Innovation opportunity.
After the company designs its packaging, it must test it. Engineering tests ensure that the package stands up under normal conditions; visual tests, that the script is legible and the colors harmonious; dealer tests, that dealers find the packages attractive and easy to handle, and consumer tests, that buyers will respond favorably.
The overuse of plastic materials is stimulating passionate debate as they are not easily biodegraded. Cardboard packaging is more ecologically friendly.
The label may be a simple tag attached to the item or an elaborately designed graphic that is part of the package. It might carry only the brand name, or a great deal of information. Labels perform several functions:
- The label identifies the product or brand;
- The label might also grade the item;
- The label might describe the item;
- The labels on food items increasingly carry messages about healthy eating;
- The label might promote the product through attractive graphics.
Warranties are formal statements of expected product/ market offering performance by the manufacturer. Warranties and guarantees reduce the buyer’s perceived risk.
Chapter 15: Introducing new market offerings
A company can add new products through acquisition or by innovative development. The acquisition route can take three forms. The company can buy other companies, it can acquire patents from other companies, or it can buy a license or franchise from another company.
New product development is the development of: original products; product improvements; product modifications; new brands, through the firm’s own R&D efforts.
Continuous innovation to improve customer satisfaction can force competitors to retaliate. New products introductions have accelerated in recent years.
In strong buyers’ markets many products fall into decline – as a result of technological developments, severe competition, changing market and societal factors and customer purchase experiences – making innovation a necessity. Highly innovative firms are able to identify and quickly seize new market opportunities, and strive to create a radical innovation.
New product development (NPD) can be risky, failure can result for many reasons, analogously success can also result for these reasons:
- No unique or superior product;
- Poor marketing strategy;
- Quality problems;
- Competitive reactions;
- Bad timing.
Some factors that hinder new product development are: shortage of important ideas in certain areas; fragmented markets; cost of development; capital shortages; shorter product life cycles.
Companies handle the organizational aspect of NPD in several ways, some are:
- Many assign responsibility for new ideas to product managers;
- Some companies have a high-level management committee charged with reviewing and approving proposals;
- Large companies often establish a NPD department headed by an executive who has direct access to top management;
- Venture teams: Cross-functional groups charged with developing a specific product or business. Cross-functional teams can collaborate and use concurrent new offering development to push new offerings to market;
- Stage-gate system: This system manages the innovation process. The system enables companies to strike a considered balance between entrepreneurial creativity and business acumen.
The new product development decision process looks like this:
Introducing a new product to the marketplace requires a firm to manage three process activities:
1. Managing idea generation and screening;
2. Managing activities as selected ideas develop from concepts to strategy;
3. Managing the introduction of new product to the marketplace/ development to commercialization.
The make or buy decision is depended on legislation; profitability, risk and know-how. For now, we assume a make-decision.
Managing idea generation and screening
Idea generation
Invention: The idea for a new product to develop.
Innovation: The first practical application of a new mode of thought that can generate a better solution to an existing need. Types of innovation are:
Many companies use customer-driven engineering to design new market offerings. The traditional company-centric approach to innovation is giving way to a world in which companies co-create products with customers. A company can motivate its employees to submit new ideas to an idea manager whose name and phone number are widely circulated or by means of the traditional suggestion box.
The following list is a sampling of techniques for stimulating creativity in individuals and groups:
- Attribute listing: List the attributes of an object;
- Forced relationships: List several ideas and consider each in relation to each other one;
- Morphological analysis;
- Reverse assumption analysis;
- New contexts;
- Mind mapping.
Idea screening
In screening ideas the company must avoid two types of error:
- Drop-error: This occurs when the company dismisses a good idea;
- Go-error: This occurs when the company permits a poor idea to move into development and commercialization.
An absolute product failure loses money; its sales do not cover variable costs. A partial product failure loses money, but its sales cover all its variable costs and some of its fixed costs. A relative product failure yields a profit lower than the company’s target rate of return. The purpose of screening is to drop poor ideas as early as possible.
Managing activities as selected ideas develop from concepts to strategy
An idea is a possible product the company might introduce to the market. A product concept is a elaborated version of the idea expressed in customer terms.
Concept development
In this stage we need to ask ourselves: who, what, when, and how will the people use the product.
Brand-positioning map: A perceptual map showing the current positions of existing brands as seen by consumers. It can also be useful to overlay consumer preferences on to the map in terms of their current or desired preferences.
Concept testing (iterative process) means presenting the product idea concept, symbolically or physically, to target consumers and getting their reactions. Researchers measure product dimensions by getting customers to respond to the following types of questions: communicability and believability; need level; gap level; perceived value; purchase intention; user targets.
Conjoint analysis is a scaling technique method for deriving the use of benefit values that consumers attach to varying levels of a product’s value attributes.
Marketing strategy development
Following a successful concept test, the firm will develop a preliminary three-part strategy plan for introducing the new product to the market. The first part describes the target market’s size, structure and behavior; the planned positioning; and the sales, market share and profit goals sought in the first few years. The second part outlines the planned price, distribution strategy and marketing budget for the first year. The third part of the marketing strategy plan describes the long-run sales and profit goals and marketing mix strategy over time.
Business analysis
After management develops the product concept and marketing strategy, it can evaluate the proposal’s business attractiveness, by estimating total sales, total costs and profits.
Companies use other financial measures to evaluate the merit of a new product proposal. The simplest is the breakeven analysis, another is the risk analysis(optimistic, pessimistic, most likely).
Managing the introduction of new product from development to commercialization.
Product and market development
The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD). The methodology takes the list of desired customer attributes (CAs) generated by market research and turns them into a list of engineering attributes (EEs) that engineers can use. The R&D department will develop one or more versions of the core offer product concept in the form of , for example, a prototype.
When the prototypes are ready, they must be tested. This can be done in two ways:
- Alpha testing is the testing the product within the firm to see how it performs in different applications.
- Beta testing with customers. Consumer testing can take several forms, from bringing consumers into a laboratory to giving them samples to use in their homes.
Market testing
Consumer products tests seek to estimate four variables: trial, first repeat, adoption and purchase frequency. Some major methods of consumer good market testing are:
- Sales-wave research: Consumer are reoffered the product, at a slightly reduced price;
- Simulated test marketing: Qualified shoppers are questioned about brand familiarity;
- Controlled test marketing: A panel of stores will carry new products for a fee;
- Test markets: To create full-scale test markets in which we must address the variables: trial, first repeat, adoption and purchase frequency in questions.
Business goods can also benefit from market testing. The company will ask test customer to express their purchase intention and other reactions after the test. Companies can also introduce the new product at trade shows.
Commercialization and new product launch
The company faces three choices when timing is considered:
- First entry: Firm enjoys first mover advantages, but first entry can backfire;
- Parallel entry: Entry coincides with a competitor’s entry;
- Late entry: Delay entry after competitors have entered.
The company must also: decide where to launch a product; adopt a CRM approach; and develop an action plan for introducing the new product. To coordinate the many activities involved in launching a new product, management can use network-planning techniques such as critical path scheduling.
Adoption is an individual’s decision to become a regular user of a product. The consumer adoption process is followed by the consumer loyalty process, which is the concern of the established producer.
Consumer adoption process: The mental process through which an individual passes from first learning about an innovation to final adoption. Adopters of new products move through five stages:
- Awareness;
- Interest;
- Evaluation;
- Trial;
- Adoption.
Factors influencing the adoption process are:
- Readiness to try new products and personal influence: the five adopter groups differ in their value orientations and their motives for adopting or resisting the new product:
o Innovators: technology enthusiasts, risk takers;
o Early adopters: opinion leaders, social acceptance;
o Early majority: deliberate pragmatists, deliberate;
o Late majority: skeptical conservatives;
o Laggards: tradition bound.
Personal influence: The effect one person has on another’s attitude or purchase probability.
- Characteristics of the innovation: Five characteristics influence the rate of adoption of an innovation:
o Relative advantage: The degree to which the innovation appears superior;
o Compatibility: The degree to which the innovation matches the values and experiences of the individual;
o Complexity/Simplicity: The degree to which the innovation is difficult to understand or use;
o Divisibility/ Triability: The degree to which the innovation can be tried on a limited basis;
o Communicability/ Observability: The degree to which the benefits of use are observable or describable to others.
- Organizations’ readiness to adopt innovations.
Chapter 16: Developing and managing pricing strategies
Price is not just a number on a tag. Traditionally, price has operated as one of the major determinants of buyer choice. The pricing environment has changed with the Internet, both buyers and sellers have more options to compare and buy online. This has made pricing a challenging process for many companies.
In small companies, prices are often set by the boss, in large companies, pricing is handled by division and product line managers. In industries where pricing is a key factor companies will often establish a pricing department. Common mistakes with pricing include: not varying price enough for different products, market segments, distribution channels and purchase occasions.
There are many ways to find out how much customers value a company’s offerings. Some ways are:
- Discrete choice analysis: Customers view different products with different features and judge the varying prices researches attach to them;
- Ask customers directly;
- Ask company employees.
Purchase decisions are based on how consumers perceive prices and what they consider the current actual price to be - not the marketer’s stated price. Understanding how consumers arrive at their perceptions of prices is an important marketing priority. We consider three key topics:
- Reference prices: Comparing an observed price to an internal reference price they remember or to an external frame of reference. Possible prices are: fair price, typical price, last price paid, upper-bound price, lower-bound price, competitor prices, expected future price, usual discounted price;
- Price-quality inferences: Many consumers use price as an indicator of quality. When alternative information about true quality is available, price becomes a less significant indicator of quality. When this information is not available, price acts as a signal of quality;
- Price endings: Many sellers believe prices should end in an odd number. Price encoding is important if there is a mental price break at the higher, rounded price.
A firm must consider many factors in setting its pricing policy. This policy holds six steps:
- Selecting the price objective:
o Survival: Company plagued with overcapacity or intense competition;
o Maximize current profit: Estimate demand and costs, and try to maximize profit;
o Maximize market share: Try to increase sales volume à economies of scale.
§ Market penetration: Set the lowest price, assuming a price sensitive market.
o Maximize market skimming: Start with high prices and slowly drop over time;
o Product-quality leader: Create ‘affordable luxuries’ with high perceived value;
o Other objectives such as partial cost recovery or full cost recovery.
- Determining demand:
o Price sensitivity: Factors leading to price sensitivity are: distinctive product; low awareness of substitutes; hard to compare quality; low-cost products; product cannot be stored, etc. A seller can charge a higher price than competitors and still get the business if it can convince the customer that is offers the lowest cost of ownership (TCO).
o Estimate demand curves through surveys, price experiments, and statistical analysis;
o Price elasticity of demand: If demand hardly changes, with a small change in price we say the demand is inelastic. If demand changes considerably, demand is elastic.
- Estimating costs:
o Types of costs and levels of production: Variable costs, total costs, average costs
§ Activity-based cost (ABC) accounting: This tries to identify the real costs associated with serving each customer.
o Accumulated production: This leads to a experience curve or learning curve: a decline in the average cost with accumulated production experience;
o Target costing: Market research establishes a new product’s desired functions and the price at which the product will sell, given its appeal and competitors’ prices.
- Analyzing competitors’ costs, prices and offers: Within the range of possible prices determined by market demand and company costs, the firm must take competitors’ costs, prices and possible price reactions into account.
- Selecting a pricing method:
o Mark-up pricing: Adding a standard mark-up to the product’s cost;
o Target-return pricing: The firm determines the price that would yield its target rate of return on investment (ROI);
o Perceived-value pricing: An increasing number of companies now base their prices on the customer’s perceived value;
o Value pricing: Companies win loyal customers by charging a fairly low price for a high-quality offering.
§ Everyday low pricing (EDLP) and high-low pricing
o Going-rate pricing: The firm bases its price largely on competitors’ prices, charging the same, more, or less than major competitor’s.
o Auction type pricing: Types of auctions are:
§ English auctions (ascending bids);
§ Dutch auctions (descending bids);
§ Sealed-bid auctions.
- Selecting the final price: Pricing methods narrow the range from which the company must select its final price. In selecting that price, the company must consider additional factors:
o Impact of other marketing activities: The final price must take into account the brand’s quality and advertising relative to the competition;
o Company pricing policies: The price must be consistent with company pricing policies
o Gain-and-risk-sharing pricing: Buyers may resist accepting a seller’s proposal because of a high perceived level of risk. The seller has the option of offering to absorb part or all the risk if it does not deliver the full promised value;
o Impact of price on other parties: Management must also consider the reactions of other parties to the contemplated price.
In geographical pricing, the company decides how to price its product to different customers in different locations and countries. Many buyers want to offer other items in payments: countertrade. There are several forms of countertrade:
- Barter: The buyer and seller directly exchange goods;
- Compensation deal: The seller receives some cash and the rest in products;
- Buyback arrangement: The seller sells assets but promises to receive some inventory back;
- Offset: The seller receives full payment in cash but agrees to spend a substantial amount of the money in that country within a stated time period.
Most companies will adjust their list price and give discounts and allowances for early payment, volume purchases and off-season buying. These discounts are called: cash discount, quantity discount, functional discount, seasonal discount, and allowance.
Companies can use several pricing techniques to stimulate early purchases, this promotional pricing types are:
- Loss-leader pricing: Companies drop the price on well-known brands to stimulate sales;
- Special-event pricing: Sellers will establish special prices in certain seasons to stimulate sales;
- Cash rebates;
- Low-interest financing;
- Longer payment terms;
- Warranties and service contracts;
- Psychological discounting: This strategy sets an artificially high price and then offers the product at substantial savings.
Price discrimination occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs. In first-degree price discrimination, the seller charges a separate price to each customer depending on the intensity of his or her demand. In second-degree price discrimination, the seller charges less to buyers who buy a larger volume. In third-degree price discrimination, the seller charges different amounts to different classes of buyers, such as: customer-segment pricing; product-form pricing; image pricing; channel pricing; location pricing; time pricing.
Yield pricing: Companies offer discounted but limited early purchases, higher-priced late purchases, and the lowest rates on unsold inventory just before it expires.
Several circumstances might lead a firm to cut prices. Some are excess plant capacity; a drive to dominate the market through lower costs. A price-cutting strategy can lead to possible traps, such as: low-quality trap; fragile market-share trap; shallow-pockets trap; price-war trap.
A major circumstance provoking price increases is cost inflation or overdemand. Companies often raise their prices by more than the cost increase, in anticipation of further inflation or government price controls, in a practice called anticipatory pricing. The price can be increased in the following ways, each of which has a different impact on buyers:
- Delayed quotation pricing: The company does not set a final price until the product is finished or delivered;
- Escalator clauses: The company requires the customer to pay today’s price and all or part of any inflation increase that takes place before delivery;
- Unbundling: The company maintains its price but removes or prices separately one or more elements that were part of the former offer;
- Reduction of discounts: The company instructs its sales force not to offer its normal cash and quantity discounts.
Product customization and differentiation and communications that clarify differences are critical.
Alternative approaches that will allow companies to avoid increasing prices are:
- Shrinking the amount of product instead of raising the price;
- Substituting less expensive materials or ingredients;
- Reducing or removing product features;
- Removing or reducing product services;
- Using less expensive packaging material or larger package sizes;
- Reducing the number of sizes and models offered;
- Creating new economy brands.
In general, the best response to competitors’ price changes varies with the situation. The company must consider the product’s stage in the life cycle, its importance in the company’s portfolio, the competitor’s intentions and resources, the market’s price and quality sensitivity, the behavior of costs with volume, and the company’s alternative opportunities. The first approach to competing against cut-price players is to differentiate the product or service through various means: Design ‘cool’ products; continually innovate; offer unique product mix; brand a community; sell experiences.
Kumar cautions that three conditions will determine the success of a differentiation response:
- Companies must not use differentiation tactics in isolation;
- Companies must be able to persuade consumer to pay for added benefits;
- Companies must first bring costs and benefits in line.
Kumar cautions that unless sizeable numbers of consumers demand additional benefits companies may need to yield some markets to price warriors. Another approach that many companies have tried in responding to low-cost competitors is to introduce a low-cost venture themselves. Kumar asserts that companies should set up low-cost operations only if:
- The traditional operation will become more competitive as a result;
- The new business will derive some advantages that it would not have gained as an independent entity.
A dual strategy succeeds only if companies can generate synergies between the existing businesses and the new ventures.
A morphological analysis consists of:
- Start with a problem;
- Identify and define the parameters;
- Assign each parameter;
- List all the possible combinations: Each combination marks out a particular state or configuration of the problem; many new solutions can be created.
Chapter 17: Designing and managing supply networks
Marketers must manage a network of relationships often called value networks. Suppliers, manufacturing sites, distributors and transport companies all over the world have to be managed to ensure a perfect product every time for the consumer. The leading supply network managers are applying new technology, new innovations and process thinking with a customer focus.
Supply chain/ supply network: A set of three of more entities (organizations or individuals) directly involved in the upstream or downstream flows of product, service, finances and/or information from a source to a customer.
Logistics usually focuses on products and is the flow of products from point of origin to end user, it is heavily influenced by operations research, optimization and modeling and a focus on improving efficiency and speed.
Distribution channels are sets of intermediaries that are usually interdependent organizations involved in the process of making a product or service available for use or consumption.
Value chain/ value network: A system of partnerships and alliances that a firm creates to source, augment and deliver its offerings, consists of primary and support activities.
Supply chain management (SCM) encompasses the planning and management of all activities involved in buying, making, providing and distributing. It also includes coordination and collaboration with channel partners. In essence, SCM integrates supply and demand management within and across companies. A SCM philosophy has the following characteristics:
- A systems approach;
- A strategic orientation;
- A customer focus.
A network consists of nodes and relationships with which interaction takes place. It can accommodate movements in any direction and change shapes. Its nodes include people, organizations, machines, events and activities. Network effectiveness is determined by the three As:
- Agility: Supply networks need to be agile to react rapidly, reliably and cost effectively;
- Adaptability: When conditions change the supply network strategy needs to be re-examined;
- Alignment: Marketers need to create and manage relationships and align their partners’ incentives with their own interests to maximize the chain’s overall performance.
During the 20th century companies used a push-driven supply network. During the 21st century it has become a demand-driven supply network à Figure 17.8.
Balanced centricity is the challenge to balance the interests of so many players in the supply or demand network – a customer and a profit focus.
Demand-driven value networks: Marketers should first think of the target market and then design the supply network backwards from that point. There are 3 steps in moving to a demand-driven philosophy:
- Transform forecast-based, push-driven supply chains into demand-driven networks;
- ‘Outside-in’ translation of priorities from the point of product or service consumption;
- Transform supply chains into end-to-end, process-oriented value networks.
There are eight key processes that form the core of supply chain management: customer relationship management; customer service management process; demand management; order fulfillment; manufacturing or service process flow management; supplier/distributor/intermediary relationship management; product or service development and commercialization; returns.
A direct channel, or a zero-level channel, consists of a manufacturer or a service provider going directly to the final customer using their own distribution, sales force or other method.
A one-level channel has one intermediary, such as a retailer or a distributor. This analogously counts for second-level and third-level channels as well.
Multichannel marketing occurs when a company uses two or more marketing channels to reach one or more customer segments.
Multiple channels strategy simply provides multiple-channels for the consumer while a multichannel strategy has cross-channel benefits based on the management of the multiple channels.
Consumer may choose the channels they prefer based on a number of factors: the price, the product or service assortment, the convenience of a channel option, as well as their own particular needs and wants.
Researchers Nunes and Cespedes argue that in many markets, buyers fall into one of four categories: habitual shoppers; high-value deal seekers; variety-loving shoppers; high-involvement shoppers. In supermarkets mostly service/quality customers, price/value customers, or affinity customers exist.
With the increase in offline and online, customers expect channel integration.
Members of the marketing channel perform a number of key functions such as gathering information, assuming risks, providing for storage, providing for buyers’ payment of their bills à Table 17.3
Designing a marketing channel requires:
- Analyzing customers’ needs: Five service level need to be studied from the customer perspective;
o Quantity of purchase;
o Waiting/delivery time;
o Convenience;
o Product variety;
o Service backup.
- Establishing channel objectives and constraints:
o Product characteristics;
o Company characteristics;
o Characteristics of the intermediary;
o Competitors’ channel;
o Environmental factors.
- Deciding on the number of intermediaries: Marketing managers have to decide on the number of intermediaries to use at each channel level, three strategies are available:
o Exclusive distribution: Severely limiting the number of intermediaries;
o Selective distribution: Reliance on more than a few but less than all of the intermediaries willing to carry a particular product or service;
o Intensive distribution: The company places the product in as many outlets as possible.
- Assign terms and responsibilities of channel members: The main elements in the management of channel members are:
o Price policy;
o Conditions of sale;
o Distributors’ territorial rights;
o Mutual services and responsibilities.
- Identify and evaluate major channel alternatives: Marketers need to consider:
o Financial/ economic criteria;
o Control criteria;
o Adaptive criteria.
After a marketing manager has chosen a channel system he or she must select, train, motivate, and evaluate individual intermediaries for each channel:
- Training and motivating;
- Gaining cooperation:
o Channel power: The ability to alter channel members’ behavior so that they take actions they would not have taken otherwise;
o Reward power: Extra benefits offered;
o Coercive power: Threaten to withdraw resources;
o Legitimate power: Contract states a higher position;
o Expert power: Expertise knowledge;
o Referent power: Highly respected.
- Evaluating channel members;
- Modifying channel design and arrangements.
As the internet, mobile phones and other technologies advance, service industries are operating through new channels. With the internet buyers have easy access to a great deal of information. They can get information from: supplier websites; infomediaries; market makers; or customer communities. Along with an internal focus for managing the supply network, there are many self-service options that have arisen through advances in technology. Many customer now opt to use technology-based systems to interact with the company and particularly for distribution.
Disintermediation is the elimination of channel intermediaries by product or service providers.
Chapter 19: Designing and managing marketing communications
Marketing communications are the means by which firms attempt to inform, persuade, and remind customers – directly or indirectly – about the brands they market. Although marketing communications can play a number of crucial roles, they must do so in an increasingly difficult environment.
The marketing communications mix consists of eight major modes of communication: advertising, sales promotion; events and experiences; public relations and publicity; direct marketing; interactive marketing; word-of-mouth marketing; personal selling.
Marketers need to assess which experiences and impressions will have the most influence at each stage of the buying process. Anything that causes the consumer to notice and pay attention to the brand can increase brand awareness, at least in terms of brand recognition.
Marketers should understand the fundamental elements of effective communications. Two models are useful: a macro- and a micromodel.
Effective communications should accomplish four things: establish a connection, promise a reward, inspire action and stick in the memory. The eight key steps in developing effective communications are:
- Identifying the target audience;
- Determining the communications objectives;
- Designing the communications;
- Selecting the communication channels;
- Establishing the budget;
- Deciding on the media mix;
- Measuring the results;
- Managing integrated marketing communications.
Determining the communications objectives
Marketers can set marketing communications objectives at any level of the hierarchy-of-effects model. Rossiter and Percy identify four possible objectives, as follows:
o Category need: Establishing a product or service category as necessary to remove or satisfy a perceived discrepancy between a current motivational state and a desired emotional state;
o Brand awareness: Ability to identify the brand in sufficient detail to make a purchase;
o Brand attitude: Evaluating the brand with respect to its perceived ability to meet a currently relevant need;
o Brand purchase intention: Self-instructions to purchase the brand or to take purchase-related action.
Designing the communications
Formulating the communications to achieve the desired response will require solving three problems:
- Message strategy: What to say;
- Creative strategy: How to say it;
o Informational appeal elaborates on market offering quality and payment attributes or benefits;
o Transformational appeal elaborates on a non-market offering-related benefit or image.
- Message source: Who should say it.
If a person has a positive attitude towards a source and a message or a negative attitude towards both, a state of congruity is said to exist. Osgood and Tannenbaum argue that attitude change will take place in the direction of increasing the amount of congruity between the two evaluations. The principle of congruity implies that communicators can use their good image to reduce some negative feelings towards a brand but in the process might lose some esteem with the audience.
Multinational companies wrestle with a number of challenges (product, market segment, style, local or global) in developing global communications programs.
Selecting the communications channels
Selecting efficient means to carry the message becomes more difficult as channels of communication become more fragmented and cluttered. Communications channels may be personal and non-personal and in each category there are many sub channels:
- Personal communication channels let two or more persons communicate face-to-face, person-to-audience, over the telephone or through mail. Some forms of personal communication are:
o Advocate channels consists of company people contacting buyers in the target market;
o Expert channels consists of independent experts making statements to target buyers;
o Social channels consist of family members, and associates etc. talking to target buyers.
- Non-personal communication channels are communications directed to more than one person and include media, sales promotions, events and experiences and public relations.
- Interpersonal communication channels are a mix of both personal and non-personal channels:
o Word-of-mouth (WOM) has been defined as an interpersonal communication of products and services where the receiver regards the communicator as impartial. Types of word of mouth are:
§ Buzz marketing generates excitement, creates publicity and conveys new relevant brand-related information through unexpected or even outrageous means with help of guerilla marketing: creating a buzz with a small budget;
§ Viral marketing encourages consumers to pass on company-developed impressions of company offers to other online;
§ Opinion leaders: Cliques are small groups whose members interact frequently. Liaisons connect two or more cliques without belonging to either, and bridges are people who belong to one clique and are linked to another.
§ Blogs.
The objective-and-task method of setting the promotion budget, which calls upon marketers to develop their budgets by defining specific objectives, is the most desireable.
Establishing the total marketing communications budget
One of the most difficult marketing decisions is determining how much to spend on promotion. The most common methods to decide on this problem are:
- Affordable method;
- Percentage-of-sales method;
- Competitive parity method;
- Objective-and-task method;
- Modeling;
- Payback period;
- Profit optimization.
Deciding on the marketing communications mix
Each communication tool has its own unique characteristics and costs:
- Advertising: Benefits are pervasiveness, amplified expressiveness, and impersonality;
- `Sales promotion: Benefits are communication, incentives, and invitation;
- Public relations and publicity: Benefits are high credibility, ability to catch buyers off guard, and dramatization;
- Events and experiences: Benefits are relevance, involvement, and implicitness;
- Direct and interactive marketing: Benefits are customized, up to date, and interactive;
- Word-of-mouth marketing: Benefits are credibility, personal, timely;
- Personal selling: Benefits are personal interaction, cultivation, and response.
Companies must consider several factors in developing their communications mix: type of market offering, consumer readiness to make a purchase, and stage in the traditional product life cycle. Also important is the company’s market ranking.
An effectively trained company sales force can make four important contributions: increased stock position, enthusiasm building, missionary selling, and key account management.
Measuring communication results
Senior managers want to know the outcomes and revenues resulting from their communications investments. Too often, however, their communications directors supply only outputs and expenses.
Managing the integrated marketing communications process
Integrated marketing communications (IMC) is a concept of marketing communications planning that recognizes the added value of a comprehensive plan which evaluates the strategic roles of a variety of communications disciplines and combines these disciplines to provide clarity, consistency, and maximum impact through the seamless integration of discrete messages.
Media coordination can occur across and within media types, but marketers should combine personal and non-personal communications channels to achieve maximum impact.
Marketing communication:
- Traditional communication, such as mass media, non-interactive, and low cost per contact;
- Non-traditional communication, such as the need to break through the advertising clutter, interaction with target group with help of social/interactive media.
Appeals in advertising are either rational or emotional: humor, erotic, warm, musical, fear.
The fear-drive model postulates a pattern of fear and then relief, with three steps: threat, bad behavior, bad behavior removed by appropriate response.
Chapter 20: Managing mass and personal communications
Advertising is any paid form of non-personal presentation and communication of products by an identified sponsor. In developing an advertising program marketing managers must always start by identifying the target market and buyer motives. The five M’s should then be considered: mission, money, message, media, and measurement.
An advertising goal is a communication targeted at a preselected audience at a specific time to stimulate increased sales, such as informative advertising, persuasive advertising, reminder advertising, and reinforcement advertising.
There are five specific factors to considers when setting the advertising budget:
- Stage in the product life cycle;
- Market share and consumer base;
- Competition and clutter;
- Advertising frequency;
- Product substitutability
Advertisers typically take three steps: message generation and evaluation; creative development and execution; and social-responsibility review.
Media selection is finding the most cost-effective media to deliver the desired number and type of exposures to the target audience. The effect of exposures on audience awareness depends on the exposures’ reach, frequency and impact.
Total number of exposures = Reach x frequency
Weighted number of exposures = Reach x frequency x impact
Media planners make their choices by considering the following variables: target audience media habits; product characteristics; message characteristics; cost.
Place advertising/ Out-of-home advertising is a broad category including many creative and unexpected forms to capture consumers’ attention, such as billboards; public spaces or ambient advertising.
Advertorials are print advertisements that offer editorial content reflecting favorably on the brand and are difficult to distinguish from newspaper or magazine content.
Point of purchase (P-O-P) focuses on the purchases of consumers in the shop itself.
Two notable forms of W-O-M marketing are buzz marketing and viral marketing.
Audience size has several possible measures: circulation, audience, effective audience, and effective advertising-exposed audience.
In launching a new market offering, the advertiser must choose among continuity, concentration, flighting and pulsing.
Advertisements can be judged on their effectiveness with help of:
- Communication-effect research, called copy testing, seeks to determine whether an advertisement is communicating effectively. There are three major methods of pre-testing: consumer feedback method; portfolio tests; laboratory tests;
- Sales-effect research: A company’s share of advertising expenditure produces a share of voice, that earns a share of the consumers mind and heart and finally a share of market.
Sales promotion is a key ingredient in the marketing communications mix. Whereas advertising offers a reason to buy, sales promotion offers an incentive to buy. Sales promotion includes tools for consumer promotion, trade promotion, and business and sales force promotion. During the last decade, the advertising to sales promotion ratio increased.
In using sales promotion a company must establish its objectives; select the tools; develop the program; pre-test, implement and control it; and evaluate the results.
Marketers report a number of reasons to sponsor events: to identify with a particular target market or lifestyle; to increase awareness of company or product name; to create or reinforce perceptions of key brand image associations; to enhance corporate image; to create experiences and evoke feelings; to express commitment to the community, green or social issues; to entertain key clients or reward key employees; to permit merchandising or promotional opportunities.
Successful sponsorships require choosing the appropriate events, designing the optimal sponsorship program, and measuring the effects of sponsorship (with help of direct tracking of sponsorship-related promotions, qualitative research, and quantitative analysis).
Public relations (PR) includes a variety of programs to promote or protect a company’s image or individual products. The public relationships department perform five functions: press relations, goods/market offering publicity, corporate communications; lobbying; and counseling.
Many companies are turning to marketing public relations (MPR) to support corporate or market offering/ product promotion and image making. Important roles of MPR are: launching new products, repositioning a mature product, building interest in a product category, influencing specific target groups, defending products that have encountered public problems; building the corporate image in a way that reflects favorably on its brand offerings.
In considering when and how to use MPR, management must establish the marketing objectives, choose the PR messages and vehicles, implement the plan carefully and evaluate the results.
Direct marketing is an interactive marketing system that uses media to effect a measureable response at any location. (Online) direct marketing has grown explosively.
Direct marketers plan campaigns by deciding on objectives, target markets and prospects, offers and prices. This is followed by testing and establishing measures to determine the campaign’s success.
Major channels for direct marketing include face-to-face selling, direct mail, catalogue marketing, telemarketing, interactive TV, kiosks, websites and mobile devices.
Places where companies can market online are:
- Websites;
- Microsites: A limited area on the Web managed and paid for by an external advertiser/company;
- Search advertisements, such as paid-search or pay-per-click advertisements;
- Display advertisements: Small, rectangular boxes containing text and perhaps a picture that companies pay to place on relevant websites;
- Interstitials: Advertisements, often with video or animation that pop up between changes on a website;
- Internet-specific advertisements and videos;
- Sponsorships, alliances, online, communities, email, mobile.
Interactive marketing provides marketers with opportunities for much greater interaction and individualization through well-designed websites, as well as online advertisements and promotions and other approaches.
Sales personnel serve as a company’s link to its customers. The term sales representative covers six positions, ranging from the least to the most creative type: deliverer, order taker, missionary, technician, demand creator, and solution vendor. Sales representatives will have to perform one of these tasks: prospecting, targeting, communicating, selling, servicing, information gathering, allocating.
A direct (company) sales force consists of full- or part-time paid employees who work exclusively for the company. A contractual sales force consists of manufacturers’ representatives, sales agents and brokers, who earn a commission based on sales.