MARKETING MATERIAL
This is one of the most important chapters in the text. The direct objectives are:
1. To understand what constitutes a market.
2. To understand how markets may be segmented to allow smaller brands to compete on equal terms.
3. To understand the importance of product/service/brand positioning, and to appreciate the main techniques involved.
4. To understand the importance of branding and of the techniques needed.
This chapter is very important. If the product positioning, based upon prior segmentation, is correct then it defines almost everything else: the product/service itself, how it should be delivered, how it should be promoted etc.
First, though, it is essential that the students adequately grasp exactly what is a market; and then what its segments might be.
Then the actual processes of segmentation and positioning can be explained; and their importance stressed, and stressed again - since few organizations are sufficiently aware of their current position let alone where it should be.
[Acetate 4.01]
The interface between the consumer and the supplier is the 'market'. The 'position' chosen in that market, by the supplier, for the product or service - against the 'map' of consumer needs - defines all the marketing actions thereafter. As such it is, whether decided formally or by default, at the heart of marketing.
The initial stage, though, may be to 'segment' the market itself; to choose a smaller segment, or part, of that market, on which to concentrate the organization's resources - to gain control over the competitive position. The segment, however, has to be viable; and sophisticated marketing research is needed, to optimize the 'segmentation' - against the most important needs and wants of consumers, as seen by them.
Positioning/targeting then places the product or service in the optimal position mapped against the competitors, on the 'dimensions' which are most critical to users.
The focus for this activity is often a 'brand', and the alternative branding policies are investigated. Branding, combined with positioning, usually offers the most sophisticated, and powerful, application of marketing principles.
WHAT IS A MARKET?
This may seem a simple question. After all, most suppliers should know where their products or services are sold. The problem is quite simply one of viewpoint. What the supplier sees (probably in terms of what is physically made) may be very different from what the customer sees (which will be the complete 'product package').
activity
A useful exercise at this time is to ask students to define some markets, an example might be a personal computer, from the viewpoint of the supplier and then the customer. Thus, the PC supplier may (and probably will) see it in terms of the chip which powers it (a 286, a 386, a 486, a Pentium etc.) and the disk drives (40 mB, 120 mb etc.. The user, on the other hand, will often see it in terms of its word-processing or spreadsheet capabilities (though the amount of money spent on promoting hardware means that these days he or she may also see it in terms of 386 or 486 or Pentium etc.).
[Acetate 4.02]
THE KEY FOR THE MARKETER IS THAT THE MARKET IS ALWAYS DEFINED IN TERMS DEFINED BY THE CUSTOMER. That point must be made to the student - since it is central to the marketing approach.
Philip Kotler draws the distinction that buyers constitute the market where sellers constitute the industry.
NON-PROFIT
Managers in the non-profit-making sectors often have considerable difficulty coming to terms with the 'market'. This is usually because the market is (led by economists' definitions) popularly seen in terms of prices and profit. Of course, in marketing terms it is much better defined in terms of the customers or clients; so this approach should not merely be acceptable to managers in these non-profit sectors but should be productive for them (where economics is irrelevant).
The best approach is to get any managers in these sectors to tell you who their customer groups (their markets) are.
WHO IS THE MARKET?
It is a basic philosophy of marketing that the customer will ultimately set the agenda in all markets. It has to be recognized, however, that the producers often set it in the short term - the customer can choose only between the products or services on offer (until, that is, a better one eventually comes along).
But, over the longer term, the customer will set the boundaries of each and every market. The only way to deal with this successfully is to adopt the consumer's viewpoint.
CHANNELS
A particularly important complication is that the market may be hidden from the producers by the channels through which they distribute to it. All they may see is their immediate customers (their distributors) and not their consumers who eventually decide their fate.
IBM (after the launch of its PC) fell into this trap, when it studiously courted dealers but failed to recognize the nature of its (unseen) relationship with end users.
MARKET BOUNDARIES
[Acetate 4.03]
The first three of these possible ways of defining the market are generally understood by producers - though they nearly always concentrate on the first (the product), which is their reason for existing.
The last category, though, is frequently the most important; and much of the rest of this chapter concentrates on this aspect of markets.
CUSTOMERS
[Acetates 4.04 and 4.05]
There is often confusion in students' minds as to who or what makes up the market. Thus, customers make up only a part of the overall market, but even that may be more complex than students may realize; when is a customer not a customer? Does this change to non-customer happen only when they switch to a new brand (and how do you know they have switched?).
In any case, as Andrew Ehrenberg's work shows, many consumers buy a 'portfolio' of brands. They are happily loyal to a number of brands, switching between them to meet specialized needs; or just to relieve boredom. The brand leader thus becomes the brand which is favoured most often by most purchasers - which is a rather different concept from that normally promoted!
USERS
Though many marketers confuse these with customers they may be different. It is even possible that the customer may not be a user - the mother buys nappies for her baby not for herself (though the distinction here may be trivial since the baby cannot typically influence the buying decision directly) and baked beans for her older children (here their vociferous comments may have a very direct impact on the buying decision).
Usually there are more users than customers. The classic example is that of newspapers and periodicals, where readership (the measure of those 'using') may be significantly higher than circulation (sales); which is important where the advertisers pay on the basis of the former.
The key lesson for the marketer is that users' needs must be met (and users must be communicated with) just as much as those of the customers; and the two may have rather different needs/profiles.
PROSPECTS
This terminology is most often used in selling; and indeed pursuit of prospects (new business) often tends to dominate selling (which is usually a mistake - but that will be addressed later, in chapter 11). But the concept is important across the board. These are the purchasers who buy other brands and might be persuaded to buy those of the supplier.
The market thus comprises both customers and prospects; with the latter typically far outweighing the former for most brands - but offering the hope (to optimistic marketers) of possible sales increases yet to be made.
Again there are practical complications. Should you, as brand manager for example, include purchasers of all other brands or only those who might realistically be convertible to your brand. This may be a pragmatic consideration for a niche brand. Should you also include those who do not currently buy any of the products, but who might be tempted to buy (to expand the overall market). This may be a very important consideration for a brand leader.
BRAND PENETRATION
The difference between the total number of purchasers available and the number who are buyers of a specific brand is called the penetration of that brand. It is a useful measure (particularly in terms of tracking trends) of where the brand stands in relation to the rest of the market. It is, though, often not as frequently considered as market share (which may be unwise since penetration conveys a rather different message).
BRAND (MARKET) SHARE
This is the most frequently consulted share figure; and, it has to be admitted, the most important. It is the measure of the sales of the brand as a (%) proportion of total sales to the market. It is often based on actual sales for the brand as a proportion of the market sales reported in government statistics. This is especially true of industrial goods; though the government figures can from time to time contain some less than useful statistics (such as imports of computers by weight ).
In consumer goods markets the brand shares are typically measured by (Nielsen) retail audits.
The important difference between this share figure and that of penetration is that it takes into account individual buying patterns; if you attract all the heavy users to your brand your market share may well be much higher than your penetration (and as it is often volume which counts you may be very happy with this position). Once more there are complications; but in this case only the decision as to whether you are measuring volume (which may favour the cut-price brands) or value (which will favour the more costly brands). Many would argue that the latter is the most important; though, once more, the former should not be ignored since it conveys different information.
Brand share is especially important since it measures the brand's position in the market (and any changes in this). Thus, it will detect if (in an expanding market) brand share is falling despite the fact that sales are increasing (which position may pose problems when the market turns down).
PARETO 80:20 EFFECT
This is an important concept, which is applicable across a wide range of situations. IT IS ONE WHICH STUDENTS NEED TO KNOW. What it says in terms of general principle is that where there is an unequal distribution of results (here usage; ranging down from heavy users to light users) the top half of the users will always use more than the bottom half. That is inevitably true.
The 80:20 Rule goes rather further to say that the skew is usually such that 80% of volume comes from just 20% of users. This might seem extreme, but there are many situations where this principle applies; and few (at least in terms of reports) where it doesn't.
Its importance in terms of marketing is to emphasize the principle that any organization would be very unwise not to put considerable effort into keeping its best customers happy. This is just as true of the consumer goods (FMCG) company which is disproportionately reliant on its heavy users as it is for the industrial goods provider whose key accounts represent the major part of the business. In all cases these key customers are very important - which, fortunately, most organizations recognize instinctively (so this is one aspect of marketing which is implemented in practice).
Yet, even so, not a few companies are inordinately proud of their ability to capture new customers, and willingly accept an attrition of their existing customer base - if this is the price that must be paid. These organizations are usually foolish, since (with some clear exceptions) most existing customers are already better sources of business than new ones.
This is the first of the two main topics of this chapter. It is explored in terms of practical segments to be observed in the PC market - because most students will be aware of this market and the segments are more obvious than most.
activity
Another market which is complex enough to show the requisite features, and can be segmented across a number of dimensions, is that of fashion (clothes). Restaurants are another possibility. You may be able to find an example which meets the needs of your students more closely - but check it out in some detail since you will need to segment it across several quite obviously different dimensions (and the car market, for example, is difficult to use as an example in this way).
The best approach, whatever your example, is to get the students themselves to suggest differences which might be used to split the market up (in other words to segment it). Having written enough of these on the blackboard the next stage is to get them to group these into categories - what do these sets have in common?
The usual pattern (for manufactured goods, though less evident for services) is that 'physical' characteristics will dominate the list. These are the things that most suppliers will tend to concentrate on - since, relating to the production processes, they are what preoccupy their time. The few which are customer-centred should, therefore, be easy to separate out - and emphasize.
The main message at this stage is the concept of establishing smaller groupings; the segments of the overall market. But an important caveat is that the important ones are those which matter to the customer, not those which come naturally to the supplier.
The suppliers' interest in segments comes about not because they are natural features of the consumer landscape (which they are), but because knowledge of these boundaries can allow resources to be concentrated to most effect. If you cannot dominate the overall market then see if you can dominate a segment of it - and in the process gain many of the benefits of being the brand (segment) leader.
[Acetate 4.06]
The left-hand list comprises those criteria which have traditionally been used to categorize consumers. Geographic is obvious when it is seen in terms of, say, television areas. It is less obvious when considered in terms of urban versus rural - but this may be an important split.
Of the demographic factors, after sex (which is often the major determinant of buying behaviour), age is probably the most important (though, of course, marital status may be as important in many markets).
Finally, the socio-economic category is another (less offensive) name for class - which has long been the major dimension (along with age) which advertisers have practically used to analyse their customer sets.
'Psychological' has a more chequered past; sometimes claimed as the answer to all advertising problems, but more often dismissed as intangible.
The right-hand list is that described by Philip Kotler. Its importance is not in the top part, which duplicates much of the traditional list, but in the lower one which looks at customer segmentation in terms of 'product-related responses'. The importance of these additions is that they start to focus on the most powerful types of segmentation; those which are specific to the product or service in question. It is much more important to be able to determine which groups of customers use the various brands for specific reasons, which the brand owners can then target in their attempts to attract these groups, than to cluster them in general groups related to their class or age. If a customer wants a garment which proclaims a sexual message it may be quite irrelevant whether that customer is a teenager or a senior citizen. Having said that, the younger customers are probably more likely to want sexy wear; and the traditional factors (of age and class) are better than nothing.
[Acetate 4.07]
CROSS-ELASTICITY
This is a very theoretical approach to defining segments. It is almost pure economics. If it works it should be very powerful, since it is definitive. The problem is that, attractive as it is in theory, practice has been very limited. The car industry has been one of those where success has been claimed; and there undoubtedly are a vast array of statistics which may be used to this effect. On the other hand, there has been little evidence of any use of genuinely customer-based (as opposed to product-based) segments in this industry - indeed its use of marketing has often been noticeably less creati6e than other industries. A nice idea, therefore, but usually totally impractical.
SEGMENTATION BY BENEFIT
Thus, the chapter returns to the idea started with Kotler's list. In particular, it suggests the use of a consumption profile (characterized by purchases of key products - and reading/viewing of key media) as a means of segmentation. This requires the use of very detailed marketing research data such as that provided by TGI; Target Group Index - Market Research Bureau's offering.
[Acetate 4.08]
The first question to be asked is whether the segment under investigation is viable. Will the segment offer sufficient returns to recoup any investment?
SIZE
The most obvious criterion is size. One thing which is rarely explained is that segments are artificial constructs - the supplier simply decides how many segments a market should be broken into and, depending upon that number, the clusters are then created and the boundaries defined. It might thus be possible to go on creating ever smaller segments - but at some stage this would obviously reduce the size to an unprofitable level. The first check then must be on size: is it big enough to support the business?
Clearly, it is most profitable to choose the smallest number of segments, consistent with the basic need to be able to dominate the chosen one.
IDENTITY
The segment must also be 'meaningful' in practice. It must be clearly differentiated from other segments, so that the supplier can target it separately. This means that the supplier should be able to obtain clearly defined research data on the consumers in the segment.
RELEVANCE
The segment should be relevant to what the product or service can offer. There is no point in finding a segment which the product cannot address; or in which it cannot gain a competitive advantage over the other brands.
ACCESS
Finally, it must be possible to make use of the segment. This is possibly the most difficult aspect of segmentation. Having found the part of the market where your brand has a clear advantage, you may find that there are no economies which can be made in addressing this segment alone. Unfortunately, many segments are inconveniently buried in larger markets, with their consumers spread evenly throughout the population. Even then, though, there may still be advantages to be gained by focusing at least some of the promotional messages on this target group.
activity
Get your students to consider some examples of FMCG products, to see what the viability of their segements is like. It is best to use real examples, taken from the local supermarket, but failing that some artificial ones might be:
Baked beans, suitable for diabetics, to be sold though supermarkets
A domestic refrigerator with a special storage compartment for films, so that amateur photographers can keep these in good condition
A frozen hamburger specially formulated to appeal to children
A car which can be designer painted, but low priced to appeal to the price conscious.
[Acetate 4.09]
MARKET RESEARCH
Segmentation, and positioning (which we will meet in the next section), are intimately bound up with marketing research. All the important stages - apart from the crucial ones of taking the decisions - revolve around research.
BACKGROUND
The more the marketer understands about the market the more likely is he or she to be able to suggest suitable dimensions for segmentation. On the other hand, he or she must not become too attached to these; in case they prove less attractive to the consumers - and segments are only valid in their terms not yours.
QUALITATIVE
This stage of the research is probably the most important of all, more so even than in normal research. It is here that the dimensions which are genuinely important to the consumers emerge. In particular, the language used to describe them is determined here. The resource poured into this level of research (using focus groups and/or repertory grids) may be significant - and will often need to be if the results are to be meaningful (and it is arguable that every dollar spent productively at this stage is worth ten later).
QUANTITATIVE
The positions against the chosen dimensions must then be quantified. This will typically show the position of the brand against its competitors.
It may also show the position of the consumer's 'ideal'. Many researchers have reservations about any measurement of 'ideals'. They would argue that consumers cannot be relied upon to judge hypothetical situations; and will therefore only play back what they know about existing products - and in particular report much the same results as they report for their normal brand. Even so, for whatever reason, judging other positions by use of the 'ideal' often seems to work in practice.
ANALYSIS AND IMPLEMENTATION
Analysis is the stage at which, despite its name, the decisions are taken. Analysis in this context is not independent of the decision taker or of the implementation (for the process tends to be iterative). The subjective input from that manager, and in particular the constraints which are applied, have considerable impact on the outcomes. The role of the decision-maker is, therefore, crucial. He or she must understand what is happening; and not least appreciate his or her own direct involvement.
The implementation may not seem too difficult where the dimensions are familiar to the manager, especially where they parallel those used in 'production'; though the danger here is that the familiarity of the terms may seduce the manager into ignoring the consumer's rather different usage of the terms.
There may be more obvious difficulty in implementation where sophisticated research comes up with dimensions which are aggregated from a range of apparently conflicting components. A dark pack may be combined with a warm personality with a low price with availability in drug stores, and so on. It can be remarkably difficult to decide what this means - and by default the researcher is left to put a name to it (which then often colours further use, as has happened with the general lifestyle categories such as VALS). Even so, the task - which is rather like trying to envisage the fourth dimension - is necessary if the manager is to handle the decision-making task effectively (and without undue bias).
SEGMENTATION/POSITIONING
The output of the analysis/implementation stages tends to be a series of maps, which are described later in the chapter.
THIS IS WHERE THE MAIN DECISIONS A MARKETER TAKES EMERGE. Two comments need to be made. The first is that, as stated above, the decision may well become implicit during the analysis stage; and will almost certainly be clear cut by the time the implementation phase is complete. By the time the final decision is to be taken the picture presented by the analysis/implementation will often allow few options.
The second is that, if the segmentation and positioning are comprehensive, they will then spell out all subsequent decisions (from product specification to media mix and promotional message). IT IS CRUCIAL THEREFORE THAT THE NECESSARY INTELLECTUAL EFFORT IS APPLIED AT THIS STAGE. It may seem like a theoretical exercise but the outcomes should be intensely practical.
Indeed, the process of 'positioning' is the most important in the whole of marketing; if carried out meaningfully - which it has to be admitted it rarely is (since, despite its importance, very few managers have any appreciation of what is involved).
[Acetate 4.11]
Students often confuse segmentation and positioning, because many of the research processes overlap, and are often shared. The best way to combat this confusion is to make certain that students appreciate that segmentation should be applied to customers (to the market) and positioning to the product/service (which is offered to that market). Segmentation must therefore come before positioning.
On the other hand, it is quite possible to position a brand without segmentation; after all, that is what the market leaders often do - they can afford to ignore separate segments since they already dominate the overall market. It is not possible, however, to segment without positioning (to benefit from being positioned to dominate that segment) though many managers may do this by default without realizing the process they are undertaking!
There is also confusion between positioning and differentiation. The latter is in essence giving the brand a unique position, a USP, so that it is seen as different from its competitors. This may, though, be carried out without the information and processes which are involved in positioning. Most often, in fact, differentiation (usually only described as creating the USP) is concerned simply about being different, without a great deal of research. Positioning in theory need not imply differentiation (for the position chosen could be the same as a competitor) but in practice it should almost always result in optimal differentiation (if carried out correctly).
HOMOGENEOUS - DIFFUSED - CLUSTERED
[Acetate 4.12]
The point of these splits is to explain to students why some markets (such as commodities) cannot be segmented (or products within them differentiated). Only clustered markets are susceptible - though fortunately these represent the majority of markets. In the terminology of the earlier section, these markets have clusters (segments) which have definite identities.
One subtle point dropped into the text at this point which may be important for some organizations is the idea of positioning between clusters - to be attractive to a number of these; hence addressing a number of segments which might not be viable on their own. The caveat is worth noting, though. If a competitor responds by positioning its product directly on one of those clusters then the business from that cluster may well then be lost to that (more attractive) competitor.
MAPPING
The practical key to positioning is usually to represent this graphically, since this makes the position(s) most obvious. This mapping is not complex. The graph is the simplest possible, normally using only points for the brands and circles (representing the size) for the segments. It is conventionally represented with the origin at the centre (so that there are four quadrants). This form is chosen because most of the measures (dimensions) represent a range from one extreme to the other (high quality to low quality in the example).
[Acetate 4.13]
Inevitably, real-life positioning is more complex. In particular there will normally be a number of dimensions to be taken into account; though more than six or seven is usually thought to be too confusing for managers to handle - in any case the most important two or three dimensions are usually are the focus for attention.
activity
The best way of teaching this very important technique is for students to do it themselves, based on a market they know (it doesn't have to be a segment). Consolidation of this can be reviewed in class. Alternatively, you can conduct a class session on a market they know. A favourite is the car market - but try to avoid the manufacturers' own categories, which tend to be rather glib (ask the students to consider dimensions such as male/female and first/second car). For these exercises you and the students can choose your own dimensions, without the benefit of research results to tell you what consumers actually want. Of course the process is much more informative if such research is available. But, as these exercises should show, even without such research the process is a very powerful way of gaining an insight into the market and the position of the competing brands within it. TIME SPENT ON THIS TECHNIQUE IS A SOUND INVESTMENT OF STUDENT TIME.
One final example: the technique was used to reposition Condor pipe tobacco (the example used a number of times in the text). In this case the original positions showed Condor and its main competitor, St Bruno, on exactly opposite sides of the main cluster/segment (which in fact contained most of the overall market). Both were, in fact, some distance away from the centre of it. Condor was repositioned not at the centre, as you might have expected, but between the centre and St Bruno (thus requiring a more substantial move than would otherwise have been the case). On the other hand, this meant that Condor was better placed than St Bruno for the great majority of smokers; with the result that it gained the brand leadership.
If the research is carried out regularly, which is an expensive and ongoing commitment that very few organizations choose to afford, the trends developing over time can be even more informative than the static position. The important position of all the players is not the current one but that in the future; and this can best be gauged by observing the historical trends. Failure to detect adverse trends can be catastrophic, so the investment may not be too high after all.
[Acetate 4.14]
This section looks at some of the ways that positioning over time may vary. Following the developments illustrated in the student text (and on the acetates) is the simplest approach to teaching these. The objective should be to persuade students to actively monitor what is happening and - above all - to avoid self-inflicted wounds!
[Acetate 4.16]
So far the theory in the text has looked at what happens where a single segment is targeted, this being the simplest example - and the most usual one (since it is the one which offers the best leverage for smaller brands).
CUSTOMIZED MARKETING
The targeting of very small segments (and large numbers of these - well beyond the six or seven suggested above) has recently emerged as a result of improvements in production processes developed by Japanese corporations (especially Toyota). The most important is flexible manufacturing, which was developed as a response to customers' demand for a greater variety of products (in our terms these could be described as segments). This is changing the rules of the segmentation game so that it can be played only by those who can afford the investment in flexible manufacturing (which may be very substantial in industries such as car manufacturing).
MULTIPLE SEGMENTS
Where there are clear, separate segments to a market even the owner of the brand leader may not be able to position that brand across all of them (or even afford to enter all of them), but may need to position specific products or services (under the main brand name or as separate brands) to meet the needs of each segment. This is the approach often needed in the large consumer goods markets (as adopted by Nestlé, Unilever etc.). It may also be used as a step-by-step approach (gradually adding extra segments) to overall leadership - where a supplier cannot afford the investment needed to gain overall leadership.
FULL COVERAGE
This is the strategy employed by those leaders with the necessary resources. The brand targets all segments in an undifferentiated way, and overpowers them all - usually on the basis of the resources at its disposal. This is an undifferentiated approach. In the case of a differentiated approach there is a single brand name, but individual products/services within a range are targeted on the specific segments.
CROSS-SEGMENT
This is the default option, adopted by most suppliers. They simply do not understand segmentation; and so just sell their product or service without regard to any segments which may exist.
Occasionally, where an organization has skills which are so unique and well respected that they are welcome in any of the segments into which it stumbles, this may succeed - but more often it receives the poor response it deserves.
activity
Again, taking some examples from the FMCG market (the one which most clearly shows these features), ask the students to discuss the segmentation policies pursued. For obvious reasons (especially because you can identify which brand belongs to whom) it is best to pick a well-known supplier like Nestlé (with its coffees), Heinz or P & G. Some organizations, such as Unilever, complicate matters by trading under the names of different companies.
This is merely a convention adopted in some industrial markets - it says little about the techniques used (though it reflects important strategic choices for these vendors).
Taking the segment down to the smallest possible size (one which is barely viable) is one way that a supplier can be certain of dominating it; for no other sane supplier can then afford to enter it. The risk, as many niche players have found to their cost, is that major players in adjoining segments can still encroach on the particular segment and thus reduce the business available to the niche player to a non-viable level.
activity
Because students seem to be able to identify with these smaller organizations (often retailers, such as Body Shop, Tie Shop or, as a warning, Sock Shop) this topic can lead to a useful debate about the whole subject of segmentation and viability.
This simply reverses the process of segmentation, combining a number of separate segments to create a larger one in which the supplier can use economies of scale to gain advantage over the players still restricting themselves to the (smaller) individual niches. It is rarely formally used, though it often is by default (where suppliers fail to notice the smaller segments), but it can give an edge when all else fails!
We have already seen why differentiation is needed. The main device used for this is branding.
DESPITE THE RELATIVE SHORTNESS OF THIS SECTION - which results from the fact that branding is a simple concept - IT IS AN IMPORTANT TOPIC FOR STUDENTS,since branding is a very powerful technique and is almost universally applicable.
The brand is the 'name' of the product or service. The terminology is literally derived from the brand burned into the hide of cattle to identify them as the property of their owner; on a can of baked beans the Heinz logo directly serves the same purpose.
The concept of the brand is, however, much richer than just being a mark of ownership (though many, perhaps most, suppliers still limit it to that role). The brand name has become the focus of the whole product/service offering. As much of the impact of the offering is likely to revolve around its image elements, the identity or character (or, taking the human analogy even further, its personality) which the supplier builds for the product/service, the brand thus becomes the anchor to which this ephemeral image is attached.
activity
A useful exercise here is to ask the students to name a few brands; which you can then write on the blackboard - the resulting list should give a flavour for the strength of brands.
The likelihood is that most of these brands will have very positive images; so ask the students to suggest some which have negative images. It is likely that they will find difficulty in naming more than a few - largely because failed brands are (almost by definition) not memorable - and these will probably be negative only in terms of political impact (McDonald's offending vegetarians or Nesté deluding mothers of Third World babies). Even these negative examples should show the power of the brand.
The power of the brand is perhaps best illustrated now by governments' willingness to spend millions of dollars creating new logos and house styles for departments which provide a simple service to the community - and which have a monopoly of such provision!
Brand managers are, and should be, the bane of economists' lives; for the brand manager's task is so to differentiate the product or service (usually by image developments linked to the brand name) that it in effect becomes the only brand in its own segment. This generates a monopoly, or at least very imperfect competition; which economists cannot adequately deal with - perhaps one reason those economists tend to ignore marketing (though one branch of economics, driven by economists in the larger corporations, is now following this route). It also limits competition, and allows higher prices and thus higher profits - which is why brand managers love it!
It is normally achieved by promotional means (for which the most important legal protection is that of the trade mark), but in some contexts (such as ethical pharmaceuticals) this can be based on patents, or intellectual property (copyright).
[Acetate 4.17]
COMPANY NAME
This is the most widely used form of branding, and includes the names of organizations in the non-profit sector. In the UK the government Department of Trade and Industry heavily promoted itself as the DTI. Yet many companies do not realize the value of the name - though they frequently protect it since it is also their family name.
All the comments which apply to branding in general apply just as strongly to branding of the company name - company names such as IBM, McDonald's, Kodak and Boeing are amongst the most powerful global brands.
In recent years an extra dimension has been added by the need for a strong company name to keep share prices up and predators away.
FAMILY BRANDING AND INDIVIDUAL BRANDING
These are variations on a theme. Family brands are just individual brands spread across a number of products or services to make better use of the investment in the name.
An interesting field to examine for comparisons is that of confectionery. Cadbury and Nestlé have generally used family branding (Cadbury's Dairy Milk); though both have now started to emphasize the individual product element as well (Wispa). On the other hand, Mars and Rowntree (now owned by Nestlé) have used individual brands (Kit Kat, Smarties, Milky Way etc.); though one of the greatest marketing successes of early 1990s was Mars's extension of its own brand name to ice cream!
BRAND EXTENSIONS
Indeed, in recent years the trend appears to have been to brand extension, capitalizing on the existing brand investment by launching more and more products under this banner.
Leo Burnett[1] report this as a trend, illustrating it with the following figures from US markets:
MEGA-BRAND MICRO-VARIETIES
Summary of 25 brands handled by Leo Burnett in the US;
Total number of micro-varieties = 1,682
(Average number per brand = 67)
TREND OVER TIME (subsample of five brands)
1983 1988 %Change
---- ---- -------
Olds Cutlass
11 19 +73%
Cocktails for Two
32 42 +31%
Maytag
72 93 +29%
Glad Food Service
13 28 +115%
Mrs Smith's Pies
41 45 +10%
--- --- -----
TOTAL
169 227 +34%
They note, for instance, that the 54 varieties of Glad Food Service Products included:
30 count Large Garbage Bags
15 count Large Trash Bags
30 count Deodorant Bags
Glad Microwave Wrap
40 count gallon Family Pack
Within reason, such extensions make sense. They are much the same as making the best use of the capital locked up in a factory by running a number of product ranges through it.
There are dangers though. There may be damage to the brand name if it is used to badge weak products or, worst of all, inappropriate ones. Mars had the correct, complementary image for ice cream (and was very successful as a result - though this was possibly due in part to the complacency of the sitting tenants); but it would perhaps have been unwise to use it, say, for children's confectionery.
MULTIBRANDS
The opposite approach is to launch a number of competing individual brands into the same market (or even the same segment). One justification for this may be that this can allow each to be targeted more precisely on key segments. A more general justification may be that another brand gives an extra share of the market. If this is launched early enough it may even be possible to take first and second places (and taking 70-80% of the market with the two brands rather than 40-50% with one.
CANNIBALISM
The problem is cannibalism. This is especially true when the market is already saturated with brands. Many of the sales of a further brand may be at the expense of the existing one. The equation as to whether any marginal increase in sales (taken from competitors' brands) is profitable is difficult one to predict; and many examples in the past have shown undue optimism on the part of the vendors.
OWN BRANDS
In theory, at least, these are no different from any other form of brand. In practice they enjoy a number of special advantages. These suppliers are in complete control of their distribution chain - and hence of the final presentation (and product quality) offered to the consumer. These advantages, which not least mean that the own brander is able to control the competition from other brands, are well recognized - and are why many experts have predicted the coming domination by own brands.
The disadvantage, which has been less well recognized, is that own brands are strictly limited to distribution in a minor part of the market (usually just one chain of retail outlets). This means that they are inevitably limited (individually) to no better than third place in most markets; though they do achieve this place in a significant number of markets - which gives them considerable power overall.
activity
This debate, own brands versus brand leaders, is an interesting one to bring to the students; since it surfaces many of the hidden (incorrect) assumptions they may be holding about brands.
GENERICS
These appeared at about the same time as consumerism, making a virtue of the fact that they were non-brands; though, of course, they had to be branded to achieve this!
[1] Leo Burnett Inc (1988) Mega-Brand, Micro-Varieties Research Department, Leo Burnett USA
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