Marca - Kotler

CREATING BRAND EQUITY CHAPTER 9 275
MARKETING MEMO THE BRAND REPORT CARD
The world's strongest brands share 10 attributes: the portfolio? Do you have a brand hierarchy that is well thought
out and well understood?
1. The brand excels at delivering the benefits consumers truly
7. The brand makes use of and coordinates a full repertoire of
desire. Do you focus relentlessly on maximizing customers'
marketing activities to build equity. Have you capitalized on the
product and service experiences?
unique capabilities of each communication option while ensuring
2. The brand stays relevant. Are you in touch with your cus- that the meaning of the brand is consistently represented?
tomers' tastes, current market conditions, and trends?
8. The brand's managers understand what the brand means
3. The pricing strategy is based on consumer perceptions of to consumers. Do you know what customers like and do not
value. Have you optimized price, cost, and quality to meet or like about your brand? Have you created detailed, research-dri-
exceed customer expectations? ven portraits of your target customers?
4. The brand is properly positioned. Have you established nec- 9. The brand is given proper, sustained support. Are the suc-
essary and competitive points of parity with competitors? Have cesses or failures of marketing programs fully understood before
you established desirable and deliverable points of difference? they are changed? Is the brand given sufficient R&D support?
5. The brand is consistent. Are you sure that your marketing pro- 10. The company monitors sources of brand equity. Have you
grams are not sending conflicting messages? created a brand charter that defines the meaning and equity of
6. The brand portfolio and hierarchy makes sense. Can the the brand and how it should be treated? Have you assigned
corporate brand create a seamless umbrella for all the brands in explicit responsibility for monitoring and preserving brand equity?
Source: Adapted from Kevin Lane Keller, "The Brand Report Card," Harvard Business Review (January 1, 2000): 147-157
Brands can signal a certain level of quality so that satisfied buyers can easily choose the
product again.6 Brand loyalty provides predictability and security of demand for the firm
and creates barriers to entry that make it difficult for other firms to enter the market. Loyalty
also can translate into a willingness to pay a higher price—often 20 to 25 percent more.7
Although competitors may easily duplicate manufacturing processes and product designs,
they cannot easily match lasting impressions in the minds of individuals and organizations
from years of marketing activity and product experience. In this sense, branding can be seen
as a powerful means to secure a competitive advantage.8
To firms, brands thus represent enormously valuable pieces of legal property that can
influence consumer behavior, be bought and sold, and provide the security of sustained
future revenues to their owner.9 Large earning multiples have been paid for brands in
mergers or acquisitions, starting with the boom years of the mid-1980s. The price pre-
mium is often justified on the basis of assumptions of the extra profits that could be
extracted and sustained from the brands, as well as the tremendous difficulty and
expense of creating similar brands from scratch. Wall Street believes that strong brands
result in better earnings and profit performance for firms, which, in turn, creates greater
value for shareholders. Much of the recent interest in brands by senior management has
been a result of these bottom-line financial considerations. "Marketing Memo: The Brand
Report Card" lists 10 key characteristics based on a review of the world's strongest
brands.10
The Scope of Branding

How then do you "brand" a product? Although firms provide the impetus to brand creation
through marketing programs and other activities, ultimately a brand is something that
resides in the minds of consumers. A brand is a perceptual entity that is rooted in reality but
reflects the perceptions and perhaps even the idiosyncrasies of consumers.
Branding is endowing products and services with the power of a brand. Branding is all
about creating differences. To brand a product, it is necessary to teach consumers "who"
the product is—by giving it a name and using other brand elements to help identify it—as
well as "what" the product does and "why" consumers should care. Branding involves cre-
ating mental structures and helping consumers organize their knowledge about products
276 PART 4 BUILDING STRONG BRANDS
and services in a way that clarifies their decision making and, in the process, provides
value to the firm.
For branding strategies to be successful and brand value to be created, consumers must
be convinced that there are meaningful differences among brands in the product or service
category. The key to branding is that consumers must not think that all brands in the cate-
gory are the same.
Brand differences often are related to attributes or benefits of the product itself.
Gillette, Merck, Sony, 3M, and others have been leaders in their product categories for
decades due, in part, to continual innovation. Other brands create competitive advan-
tages through non-product-related means. Coca-Cola, Calvin Klein, Gucci, Tommy
Hilfiger, Marlboro, and others have become leaders in their product categories by under-
standing consumer motivations and desires and creating relevant and appealing images
around their products.
Branding can be applied virtually anywhere a consumer has a choice. It is possible to
brand a physical good (Campbell's soup, Pantene shampoo, or Ford Mustang automo-
biles), a service (Singapore Airlines, Bank of America, or BlueCross/BlueShield medical
insurance), a store (Nordstrom department store, Foot Locker specialty store, or Safeway
supermarket), a person (Tom Clancy, Britney Spears, or Andre Agassi), a place (the city of
Sydney, state of Texas, or country of Spain), an organization (UNICEF, American
Automobile Association, or The Rolling Stones), or an idea (abortion rights, free trade, or
freedom of speech).
Defining Brand Equity

Brand equity is the added value endowed to products and services. This value may be
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 firm. Brand equity is
an important intangible asset that has psychological and financial value to the firm.
Marketers and researchers use various perspectives to study brand equity 11 Customer-
based approaches view brand equity from the perspective of the consumer—either an
individual or an organization.12 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. In other words, the power of a brand lies in the minds
of existing or potential customers and what they have experienced directly and indirectly
about the brand. 13
Branding a place: ad for Australia tourism

focusing on the city of Sydney with its
signature opera house.
Customer-based brand equity can be defined as the differential effect that brand knowl-
edge has on consumer response to the marketing of that brand.14 A brand is said to have
positive customer-based brand equity when consumers react more favorably to a product
and the way it is marketed when the brand is identified as compared to when it is not. A
brand is said to have negative customer-based brand equity if consumers react less favor-
ably to marketing activity for the brand under the same circumstances.
There are three key ingredients to this definition. First, brand equity arises from differ-
ences in consumer response. If no differences occur, then the brand name product can
essentially be classified as a commodity or generic version of the product. Competition
would then probably be based on price.
Second, these differences in response are a result of consumer's knowledge about the
brand. Brand knowledge consists of all the thoughts, feelings, images, experiences, beliefs,
and so on that become associated with the brand. In particular, brands must create strong,
favorable, and unique brand associations with customers, as has been the case with Volvo
(safety), Hallmark {caring), and Harley-Davidson {adventure). Third, the differential response
by consumers that makes up the brand equity is reflected in perceptions, preferences, and
behavior related to all aspects of the marketing of a brand. Table 9.1 summarizes some of
these key benefits of brand equity.
The challenge for marketers in building a strong brand is therefore ensuring that cus-
tomers have the right type of experiences with products and services and their marketing
programs to create the desired brand knowledge structures for the brand.
APPLE COMPUTER
Apple Computer is recognized as a master at building a strong brand that resonates with customers across gen-
erations and national boundaries. Named "2003 Marketer of the Year" by Advertising Age magazine, Apple
achieves incredible brand loyalty largely by delivering on its mission as defined by CEO Steven Jobs: "To create
great things that change people's lives." It has created an army of Apple evangelists not just because of its great
advertising but also because it focuses on the consumer in everything it does. Some of its biggest buzz cam-
paigns don't even originate with the company: In a trendy club in Manhattan's meatpacking district, two DJs host
Tuesday night "Open iPod DJ Parties." Yet, the company doesn't rely on customers to do its marketing. Apple
spent $293 million to create 73 retail stores to fuel excitement for the brand, including a store in New York's
SoHo that drew over 14 million visitors in 2003. The rationale behind the move to retail is that the more people
can see and touch Apple products—and see what Apple can do for them—the more likely Apple is to increase
its market share, which is still a tiny slice of the PC market.15
Consumer knowledge is what drives the differences that manifest themselves in brand
equity. In an abstract sense, brand equity can be seen as providing marketers with a vital
strategic "bridge" from their past to their future.
TABLE 9.1
Improved Perceptions of Product Performance Marketing Advantages of Strong Brands

Greater Loyalty
Less Vulnerability to Competitive Marketing Actions
Less Vulnerability to Marketing Crises
Larger Margins
More Inelastic Consumer Response to Price Increases
More Elastic Consumer Response to Price Decreases
Greater Trade Cooperation and Support
Increased Marketing Communications Effectiveness
Possible Licensing Opportunities
Additional Brand Extension Opportunities
Brand Equity as a Bridge

From the perspective of brand equity, all the marketing dollars spent each year on products
and services should be thought of as investments in consumer brand knowledge. The quality
of the investment in brand building is the critical factor, not necessarily the quantity, beyond
some minimal threshold amount.
It is actually possible to "overspend" on brand building if money is not spent wisely. In the
beverage category, brands such as Michelob, Miller Lite, and 7Up saw sales decline in the
1990s despite sizable marketing support, arguably because of poorly targeted and delivered
marketing campaigns. And there are numerous examples of brands that amass a great deal
of brand equity by spending on marketing activities that create valuable, enduring memory
traces in the consumers' minds. Despite being outspcnt by such beverage brand giants as
Coca-Cola, Pepsi, and Budweiser, the California Milk Processor Board was able to reverse a
decades-long decline in consumption of milk in California partly through its well-designed
and executed "Got Milk?" campaign.
At the same time, the brand knowledge created by these marketing investments dictates
appropriate future directions for the brand. Consumers will decide, based on what they
think and feel about the brand, where (and how) they believe the brand should go and grant
permission (or not) to any marketing action or program. New products such as Crystal Pepsi,
Levi's Tailored Classic suits, Fruit of the Loom laundry detergent, and Cracker lack cereal
failed because consumers found them inappropriate.
A brand is essentially a marketer's promise to deliver predictable product or service per-
formance. A brand promise is the marketer's vision of what the brand must be and do for
consumers. At the end of the day, the true value and future prospects of a brand rest with
consumers, their knowledge about the brand, and their likely response to marketing activity
as a result of this knowledge. Understanding consumer brand knowledge—all the different
things that become linked to the brand in the minds of consumers—is thus of paramount
importance because it is the foundation of brand equity.
Virgin, the brainchild of England's flamboyant Richard Branson, vividly illustrates the
power enjoyed and responsibility assumed by a strong brand."'
VIRGIN
Starting with Virgin Music, Branson's Virgin Group Ltd., now spans three continents and 200 businesses,
including Virgin Atlantic Airways, Virgin Mobile (cell phones), Virgin Energy, Virgin Rail, Virgin Direct (insurance,
mortgages, and investment funds), and Virgin Hotels. Clearly, Branson can create interest in almost any busi-
ness he wants by simply attaching the name "Virgin" to it. Virgin Mobile exemplifies this strategy. Branson
supplies the brand, a small initial investment, and takes a majority control while big-name partners come up
with the cash. Some marketing and financial critics point out that he is diluting the brand, that it covers too
many businesses. Branson has had some fumbles: Virgin Cola, Virgin Cosmetics, and Virgin Vodka have all but
disappeared. But Branson replies: "We have a strategy of using the credibility of our brand to challenge the
dominant players in a range of industries where we believe the consumer is not getting value for money....
If the consumer benefits, I see no reason why we should be frightened about launching new products." One
of Branson's newest ventures: He's jumping into the fiercely competitive discount airline business in the
United States with Virgin USA in 2005.
Brand Equity Models

Although there is agreement about basic principles, a number of models of brand equity
offer some different perspectives. Here we briefly highlight four of the more established ones.
R Advertising agency Young and Rubicam (Y&R) developed a model

of brand equity called Brand Asset Valuator (BAV). Based on research with almost 200,000 con-
sumers in 40 countries, BAV provides comparative measures of the brand equity of thousands
of brands across hundreds of different categories. There are four key components—or pillars—
of brand equity, according to BAV:
r Differentiation measures the degree to which a brand is seen as different from others,
s Relevance measures the breadth of a brand's appeal.
Brand Stature
(Esteem and knowledge)
FIG. 9.1
BAV Power Grid

Esteem measures how well the brand is regarded and respected.
Knowledge measures how familiar and intimate consumers are with the brand.
Differentiation and Relevance combine to determine Brand Strength. These two pillars point
to the brand's future value, rather than just reflecting its past. Esteem and Knowledge
together create Brand Stature, which is more of a "report card" on past performance.
Examining the relationships among these four dimensions—a brand's "pillar
pattern"—reveals much about its current and future status. Brand Strength and Brand
Stature can be combined to form a Power Grid that depicts the stages in the cycle of
brand development—each with its characteristic pillar patterns—in successive quad-
rants (see Figure 9.1). New brands, just after they are launched, show low levels on all
four pillars. Strong new brands tend to show higher levels of Differentiation than
Relevance, while both Esteem and Knowledge are lower still. Leadership brands show
high levels on all four pillars. Finally, declining brands show high Knowledge—evidence
of past performance—relative to a lower level of Esteem, and even lower Relevance and
Differentiation.
AAKER MODEL Former UC-Berkeley marketing professor David Aaker views brand equity
as a set of five categories of brand assets and liabilities linked to a brand that add to or sub-
tract from the value provided by a product or service to a firm and/or to that firm's cus-
tomers. These categories of brand assets are: (1) brand loyalty, (2) brand awareness, (3) per-
ceived quality, (4) brand associations, and (5) other proprietary assets such as patents,
trademarks, and channel relationships.
According to Aaker, a particularly important concept for building brand equity is brand
identity—the unique set of brand associations that represent what the brand stands for and
promises to customers.17 Aaker sees brand identity as consisting of 12 dimensions organized
around 4 perspectives: brand-as-product (product scope, product attributes, quality/value,
uses, users, country of origin); brand-as-organization (organizational attributes, local versus
global); brand-as-person (brand personality, brand-customer relationships); and brand-as-
symbol (visual imagery/metaphors and brand heritage).
Aaker also conceptualizes brand identity as including a core and an extended identity.
The core identity—the central, timeless essence of the brand—is most likely to remain
constant as the brand travels to new markets and products. The extended identity
includes various brand identity elements, organized into cohesive and meaningful
groups. If we apply this approach to Saturn, the newest General Motors car division might
yield the following: 18
o Core Identity. A world-class car with employees who treat customers with respect and as
friends.
a Extended Identity. U.S. subcompact with Spring Hill, Tennessee, plant; no pressure, no
haggling, informative retail experience; thoughtful, friendly, down-to-earth, youthful and
lively personality; committed employees and loyal users.
Z Marketing research consultants Millward Brown and WPP have developed the
BRANDZ model of brand strength, at the heart of which is the BrandDynamics pyramid.
According to this model, brand building involves a sequential series of steps, where each
step is contingent upon successfully accomplishing the previous step. The objectives at each
step, in ascending order, are as follows:
• Presence. Do I know about it?

a Relevance. Does it offer me something?
: Performance. Can it deliver?
• Advantage. Does it offer something better than others?
• Bonding. Nothing else beats it.
Research has shown that bonded consumers, those at the top level of the pyramid, build
stronger relationships with the brand and spend more of their category expenditures on the
brand than those at lower levels of the pyramid. More consumers, however, will be found at
the lower levels. The challenge for marketers is to develop activities and programs that help
consumers move up the pyramid.
i The brand resonance model also views brand building as an

ascending, sequential series of steps, from bottom to top: (1) ensuring identification of
the brand with customers and an association of the brand in customers' minds with a
specific product class or customer need; (2) firmly establishing the totality of brand
meaning in the minds of customers by strategically linking a host of tangible and intangi-
ble brand associations; (3) eliciting the proper customer responses in terms of brand-
related judgment and feelings; and (4) converting brand response to create an intense,
active loyalty relationship between customers and the brand. According to this model,
enacting the four steps involves establishing six "brand building blocks" with customers.
These brand building blocks can be assembled in terms of a brand pyramid, as illustrated
in Figure 9.2. The model emphasizes the duality of brands—the rational route to brand
building is the left-hand side of the pyramid, whereas the emotional route is the right-
hand side. 19
MasterCard is an example of a brand with duality, as it emphasizes both the rational
advantage to the credit card, through its acceptance at establishments worldwide, and the
emotional advantage through its award-winning "priceless" advertising campaign, which
shows people buying items to reach a certain goal. The goal itself—a feeling, an accomplish-
ment, or other intangible—is "priceless" ("There are some things money can't buy, for every-
thing else, there's MasterCard.").
The creation of significant brand equity involves reaching the top or pinnacle of the brand
pyramid, and will occur only if the right building blocks are put into place.
• Brand salience relates to how often and easily the brand is evoked under various pur-
chase or consumption situations.
• Brand performance relates to how the product or service meets customers' functional
needs.
: Brand imagery deals with the extrinsic properties of the product or service, including the
ways in which the brand attempts to meet customers' psychological or social needs.
n Brand judgments focus on customers' own personal opinions and evaluations.
• Brand feelings are customers' emotional responses and reactions with respect to the brand.
• Brand resonance refers to the nature of the relationship that customers have with the
brand and the extent to which customers feel that they are "in sync" with the brand.
FIG. 9.2 Brand Resonance Pyramid
Resonance is characterized in terms of the intensity or depth of the psychological bond

customers have with the brand, as well as the level of activity engendered by this loyalty.
Examples of brands with high resonance include Harley-Davidson, Apple, and eBay.
',','. Building Brand Equity

Marketers build brand equity by creating the right brand knowledge structures with
the right consumers. This process depends on all brand-related contacts—whether
marketer-initiated or not. From a marketing management perspective, however, there are
three main sets of brand equity drivers:
1. The initial choices for the brand elements or identities making up the brand (e.g.,
brand names, URLs, logos, symbols, characters, spokespeople, slogans, jingles, pack-
ages, and signage). Old Spice uses bright-red packaging and its familiar ocean schooner
to reinforce its nautical theme while also launching deodorant and antiperspirant exten-
sions adding the High Endurance and Red Zone brand names.20
2. The product and service and all accompanying marketing activities and supporting
marketing programs. Joe Boxer made its name selling colorful underwear with its signa-
ture yellow smiley face, Mr. Licky, in a hip, fun way. The company spent almost zero on
advertising; clever stunts and events garnered publicity and word of mouth. An exclusive
deal with Kmart has generated strong retail support.21
3. Other associations indirectly transferred to the brand by linking it to some other entity
(e.g., a person, place, or thing). Subaru used the rugged Australian Outback and actor
Paul Hogan of Crocodile Dundee movie fame in ads to help craft the brand image of the
Subaru Outback line of sports utility wagons.
Choosing Brand Elements

Brand elements are those trademarkable devices that serve to identify and differentiate the
brand. Most strong brands employ multiple brand elements. Nike has the distinctive
"swoosh" logo, the empowering "Just Do It" slogan, and the mythological "Nike" name based
on the winged goddess of victory.
Brand elements can be chosen to build as much brand equity as possible. The test of
the brand-building ability of these elements is what consumers would think or feel about
the product if they only knew about the brand element. A brand element that provides a
BUILDING STRONG BRANDS
positive contribution to brand equity, for example, would be one where consumers
assumed or inferred certain valued associations or responses. Based on its name alone, a
consumer might expect ColorStay lipsticks to be long-lasting and SnackWell to be health-
ful snack foods.
RIA There are six criteria in choosing brand elements

(as well as more specific choice considerations in each case). The first three (memorable,
meaningful, and likable) can be characterized as "brand building" in terms of how brand
equity can be built through the judicious choice of a brand element. The latter three (pro-
tectable, adaptable, and transferable) are more "defensive" and are concerned with how the
brand equity contained in a brand element can be leveraged and preserved in the face of dif-
ferent opportunities and constraints.
1. Memorable. I low easily is the brand element recalled? I low easily recognized? Is this true
at both purchase and consumption? Short brand names such as Tide, Crest, and Puffs
can help.
2. Meaningful. To what extent is the brand element credible and suggestive of the corre-
sponding category? Does it suggest something about a product ingredient or the type of
person who might use the brand? Consider the inherent meaning in names such as
DieHard auto batteries, Mop & Glo floor wax, and Lean Cuisine low-calorie frozen
entrees.
3. Likeability. How aesthetically appealing do consumers find the brand element? Is it
inherently likable visually, verbally, and in other ways? Concrete brand names such as
Sunkist, Spic and Span, and Firebird evoke much imagery.
4. Transferable. Can the brand element be used to introduce new products in the same or
different categories? To what extent does the brand element add to brand equity across
geographic boundaries and market segments? Volkswagen chose to name'its new SUV,
Touareg, after a tribe of colorful Saharan nomads. Unfortunately, historically they were
also notorious slave owners, which created a negative press backlash in the United
States. 22
5. Adaptable. How adaptable and updatable is the brand element? Betty Crocker has
received over eight makeovers through the years—although she is over 75 years old, she
doesn't look a day over 35!
6. Proleclible. How legally protectible is the brand element? How competitively pro-
tectible? Can it be easily copied? It is important that names that become synonymous
with product categories—such as Kleenex, Kitty Litter, Jell-O, Scotch Tape, Xerox, and
Fiberglass—retain their trademark rights and not become generic.
DEVELOPING BRAND ELEMENTS In creating a brand, marketers have many choices of

brand elements to identify their products. Before, companies chose brand names by gen-
erating a list of possible names, debating their merits, eliminating all but a few, testing
them with target consumers, and making a final choice. 2 3 Today, many companies hire a
marketing research firm to develop and test names. These companies use h u m a n brain-
storming sessions and vast computer databases, cataloged by association, sounds, and
other qualities. Name-research procedures include association tests (What images come
to mind?), learning tests (How easily is the name pronounced?), memory tests (How well is
the n a m e remembered?), and preference tests (Which n a m e s are preferred?). Of course,
the firm must also conduct searches to make sure the chosen name has not already been
registered.
Brand elements can play a number of brand-building roles. If consumers do not exam-
ine much information in making their product decisions, brand elements should be eas-
ily recognized and recalled and inherently descriptive and persuasive. Memorable or
meaningful brand elements can reduce the burden on marketing c o m m u n i c a t i o n s to
build awareness and link brand associations. The different associations that arise from
the likeability and appeal of brand elements may also play a critical role in the equity of
a brand. The Keebler elves reinforce home-style baking quality and a sense of magic and
fun for their line of cookies. Ads featuring the Buddy Lee doll character for Lee's Jeans
helped to make the brand popular with a younger audience that had not yet connected to
the brand.
Brand names are not the only important brand element. Often, the less concrete brand
benefits are, the more important it is that brand elements capture the brand's intangible
Building a brand with elements that

capture the brand's intangible
characteristics: An Allstate ad, with the
graphic symbol of cupped hands and the
tagline, "You're in good hands."
characteristics. Many insurance firms use symbols of strength (the Rock of Gibraltar for
Prudential and the stag for Hartford), security (the "good hands" of Allstate, Traveller's
umbrella, and the hard hat of Fireman's Fund), or some combination of the two (the castle
for Fortis).
A powerful—but sometimes overlooked—brand element is slogans. Like brand names,
slogans are an extremely efficient means to build brand equity. Slogans can function as use-
ful "hooks" or "handles" to help consumers grasp what the brand is and what makes it spe-
cial. They are an indispensable means of summarizing and translating the intent of a mar-
keting program. Think of the inherent brand meaning in slogans such as, "Like a Good
Neighbor, State Farm is There," "Nothing Runs Like a Deere," and "Flelp is Just Around the
Corner. Tru Value Hardware."
AVIS GROUP HOLDINGS INC.
A classic case of a company using a slogan to build brand equity is that of Avis's 41-year-old "We Try Harder"
ad campaign. In 1963, when the campaign was developed, Avis was losing money and widely considered the
number-two car rental company next to market leader Hertz. When account executives from DDB ad agency met
with Avis managers, they asked: "What can you do that we can say you do better than your competitors?" An
Avis manager replied, "We try harder because we have to." Someone at DDB wrote this down and it became the
heart of the campaign. Avis was hesitant to air the campaign because of its blunt, break-the-rules honesty, but
also because the company had to deliver on that promise. Yet, by creating buy-in on "We Try Harder" from all
Avis employees, especially its front-line employees at the rental desks, the company was able to create a com-
pany culture and brand image from an advertising slogan.24
Designing Holistic M a r k e t i n g Activities

Although the judicious choice of brand elements and secondary associations can make
important contributions to building brand equity, the primary input comes from the prod-
uct or service and supporting marketing activities.
Brands are not built by advertising alone. Customers come to know a brand through a
range of contacts and touch points: personal observation and use, word of mouth, inter-
actions with company personnel, online or telephone experiences, and payment transac-
tions. A brand contact can be defined as any information-bearing experience a customer
or prospect has with the brand, the product category, or the market that relates to the
marketer's product or service.25 Any of these experiences can be positive or negative. The
company must put as much effort into managing these experiences as it does in produc-
ing its ads. 26
The strategy and tactics behind marketing programs have changed dramatically in recent
years.27 Marketers are creating brand contacts and building brand equity through many
avenues, such as clubs and consumer communities, trade shows, event marketing, sponsor-
ship, factory visits, public relations and press releases, and social cause marketing. To mar-
ket its cereals, General Mills supplemented traditional advertising and promotion with,
among other things, a family-themed, entertainment-based retail destination, Cereal
Adventure, inside Minneapolis's Mall of America, the world's largest shopping mall.28 Chupa
Chups has developed an extensive marketing program.
CHUPA CHUPS
Who says lollipops are just for kids? Not Spanish Chupa Chups, the world's largest maker of lollipops. In
order to extend the Chupa Chups brand beyond children, Chupa Chups is taking a truly holistic approach,
which includes savvy—and totally free—product placement, fresh marketing ideas, and even its own line of
retail boutiques. An internal task force, dubbed 4C for Chupa Chups Corporate Communications, is charged
with raising brand awareness among fashion-conscious and media-saturated teens and youth. One exam-
ple: When he learned that the coach of Barcelona's soccer team was struggling to quit smoking, a 4C sports
fan sent him a complimentary box of Chupa Chups. For the rest of the season, the coach was rarely seen on
the sidelines without a lollipop in his mouth. Chupa Chups sales in soccer-crazed Catalonia doubled that
year. The company also gains visibility at high-profile awards ceremonies. When A-list stars come out at
such events as the Venice Film Festival or the Grammys, a scantily clad "Chupa Chick" in a lollipop-studded
bra top is there to greet them. So far Chupa's "celebrity suckers"—those caught on camera sucking a
Chupa Chups—include Jerry Seinfeld, Elton John, Georgio Armani, Sheryl Crow, and Magic Johnson. Once
Chupa Chups has caught teens' attention via these "nonendorser endorsers," they can point them to Chupa
Chups packed in makeup kits or to clothing, eyewear, motorcycle helmets, and other items bearing the
brand name.29
Regardless of the particular tools or approaches they choose, holistic marketers empha-
size three important new themes in designing brand-building marketing programs: person-
alization, integration, and internalization.
DNALIZATION The rapid expansion of the Internet has created opportunities to per-
sonalize marketing.30 Marketers are increasingly abandoning the mass-market practices
that built brand powerhouses in the 1950s, 1960s, and 1970s for new approaches that are in
fact a throwback to marketing practices from a century ago, when merchants literally knew
their customers by name. To adapt to the increased consumer desire for personalization,
marketers have embraced concepts such as experiential marketing, one-to-one marketing,
and permission marketing. Chapter 5 summarized some of these concepts; "Marketing
Insight: Applying Permission Marketing" highlights key principles with that particular
approach.
From a branding point of view, these concepts are about getting consumers more
actively involved with a brand by creating an intense, active relationship. Personalizing
marketing is about making sure that the brand and its marketing are as relevant as pos-
sible to as many customers as possible—a challenge, given that no two customers are
identical.
— JONES SODA
Peter van Stolk founded Jones Soda on the premise that Gen Y consumers would be more accepting of a new
soft-drink brand if they felt they discovered it themselves. Jones Soda initially was sold only in shops that sell
surfboards, snowboards, and skateboards. The Jones Soda Web site encourages fans to send in personal pho-
tos for possible use on Jones Soda labels. Although only maybe 40 or so are picked annually from the tens of
a thousands of entries, the approach helps to create relevance and an emotional connection.31
INTEGRATION One implication of these new marketing approaches is that the traditional
"marketing-mix" concept and the notion of the "4 Ps" may not adequately describe modern
marketing programs. Integrating marketing is about mixing and matching marketing activ-
ities to maximize their individual and collective effects.32 As part of integrated marketing,
marketers need a variety of different marketing activities that reinforce the brand promise.
The Olive Garden has become the second-largest casual dining restaurant chain in the
United States, with $2 billion in sales and over 500 restaurants, in part through a fully inte-
grated marketing program.
TH E O L I V E GARDEN
The Olive Garden brand promise is "the idealized Italian family meal" characterized by "fresh, simple deli-
cious Italian food," "complimented by a great glass of wine," "welcomed by people who treat you like fam-
ily," "in a comfortable home-like setting." To live up to that brand promise, The Olive Garden sends select
managers and servers on cultural immersion trips to Italy; launched the Culinary Institute of Tuscany in Italy
to inspire new dishes; conducts wine training workshops for employees and in-restaurant wine sampling for
customers; and remodeled restaurants to give them a Tuscan farmhouse look. Communications include in-
store, employee, and mass-media messages that all reinforce the brand promise and ad slogan, "When
You're Here, You're Family."33
MARKETING INSIGHT APPLYING PERMISSION MARKETING
Permission marketing, the practice of marketing to consumers only 2. Offer the interested prospect a curriculum over time that teaches
after gaining their express permission, is a tool companies can use to the consumer about the product or service.
break through clutter and build customer loyalty. With the help of 3. Reinforce the incentive to guarantee that the prospect maintains
large databases and advanced software, companies can store giga- the permission.
bytes of customer data and send targeted, personalized marketing
messages to customers. 4. Offer additional incentives to get more permission from the
consumer.
Seth Godin, a pioneer in the technique, estimates that each
American receives about 3,000 marketing messages daily. He main- 5. Over time, leverage the permission to change consumer behav-
tains that marketers can no longer use "interruption marketing" via ior toward profits.
mass-media campaigns. Marketers can develop stronger consumer
relationships by respecting consumers' wishes and sending mes- Permission marketing does have drawbacks. One is that it pre-
sages only when they express a willingness to become more involved sumes consumers to some extent "know what they want." But in
with the brand. According to Godin, effective permission marketing many cases, consumers have undefined, ambiguous, or conflicting
works because it is "anticipated, personal, and relevant." preferences. In applying permission marketing, consumers may need
to be given assistance in forming and conveying their preferences.
Godin identifies five steps to effective permission marketing:
"Participatory marketing" may be a more appropriate concept
1. Offer the prospect an incentive to volunteer (e.g., free sample, because marketers and consumers need to work together to find out
sales promotion, or contest). how the firm can best satisfy consumers.
Sources: Seth Godin, Permission Marketing: Turning Strangers into Friends, and Friends into Customers (New York: Simon & Schuster, 1999); Susan
Fournier, Susan Dobscha, and David Mick, "Preventing the Premature Death of Relationship Marketing," Harvard Business Review (January-February,
1998): 42-51.
Integration is especially critical with mar-

keting communications. From the perspec-
tive of brand building, all communication
options should be evaluated in terms of abil-
ity to affect brand equity. Each communica-
tion option can be judged in terms of the
effectiveness and efficiency with which it
affects brand awareness and with which it
creates, maintains, or strengthens brand
image. Brand awareness is consumers' ability
to identify the brand under different condi-
tions, as reflected by their brand recognition
or recall performance. Brand image is the
perceptions and beliefs held by consumers, as
reflected in the associations held in consumer
memory.
As we discuss in Chapter 17, different com-
munication options have different strengths
and can accomplish different objectives. It is
important to employ a mix of different com-
munication options, each of which plays a
The Olive Garden's integrated marketing program includes sending managers and servers to Italy
specific role in building or maintaining brand
on cultural immersion trips. Part of the trip is training classes at the Olive Garden's Culinary Institute equity. Although Michelin may invest in R&D
of Tuscany. In this photo, they are learning about pasta. and engage in advertising, promotions, and
other communications to reinforce the tires'
"safety" association, it may also choose to sponsor events to make sure Michelin is seen as
contemporary and up-to-date. The marketing communication program should be put
together so that the whole is greater than the sum of the parts. In other words, as much as
possible, there should be a match among certain communication options so that the effects
of any one option are enhanced by the presence of another.
DN Marketers must now "walk the walk" to deliver the brand promise.
They must adopt an internal perspective to consider what steps to take to be sure employ-
ees and marketing partners appreciate and understand basic branding notions, and how
they can help—or hurt—brand equity.34 Internal branding is activities and processes
that help to inform and inspire employees.35 It is critical for service companies and retail-
ers that all employees have an up-to-date, deep understanding of the brand and its
promise.
Brand bonding occurs when customers experience the company as delivering on its
brand promise. All of the customers' contacts with company employees and company com-
munications must be positive. The brand promise will not be delivered unless everyone in the
company lives the brand. One of the most potent influences on brand perception is the expe-
rience customers have with company personnel.
r- ELI LILLY
In 2000, Eli Lilly launched a new brand-building initiative with the slogan, "Answers that Matter." The aim
was to establish Eli Lilly as a pharmaceutical firm that could give doctors, patients, hospitals, HMOs, and
government trustworthy answers to questions of concern to them. To make sure that everyone at Eli Lilly
had the knowledge to be able to deliver the right answers, Lilly developed a comprehensive Brand-to-Action
training program.36
Companies need to engage in continual open dialogue with employees. Some firms have
pushed "B2E" (business-to-employee) programs through corporate intranets and other
means. Disney is so successful at internal branding and having employees support its brand
that it even holds seminars at the Disney Institute on the "Disney Style" for employees from
other companies.
Holistic marketers must go even further and train and encourage distributors and dealers
to serve their customers well. Poorly trained dealers can ruin the best efforts to build a strong
brand image.
Leveraging Secondary Associations

The third and final way to build brand equity is, in effect, to "borrow" it. That is, brand
associations may themselves be linked to other entities that have their own associations,
creating "secondary" brand associations. In other words, brand equity may be created by
linking the brand to other information in memory that conveys meaning to consumers
(see Figure 9.3).
The brand may be linked to certain source factors, such as the company (through brand-
ing strategies), countries or other geographical regions (through identification of product
origin), and channels of distribution (through channel strategy); as well as to other brands
(through ingredient or co-branding), characters (through licensing), spokespeople (through
endorsements), sporting or cultural events (through sponsorship), or some other third-party
sources (through awards or reviews).
For example, assume Burton—makers of snowboards as well as ski boots, bindings, cloth-
ing, and outerwear—decided to introduce a new surfboard called "The Dominator." Burton
has gained over a third of the snowboard market by closely aligning itself with top profes-
sional riders and creating a strong amateur snowboarder community around the country. In
creating the marketing program to support the new Dominator surfboard, Burton could
attempt to leverage secondary brand knowledge in a number of different ways:
• Burton could leverage associations to the corporate brand by "sub-branding" the prod-
uct, calling it "Dominator by Burton." Consumers' evaluations of the new product would be
influenced by how they felt about Burton and how they felt that such knowledge predicted
the quality of a Burton surfboard.
n Burton could try to rely on its rural New England origins, but such a geographical location
would seem to have little relevance to surfing.
Ingredients Company J FIG. 9.3 I

Alliances Extensions Secondary Sources of Brand Knowledge
288 PART 4 BUILDING STRONG BRANDS <
• Burton could also try to sell through popular surf shops in a hope that its credibility
would "rub off" on the Dominator brand.
a Burton could attempt to co-brand by identifying a strong ingredient brand for its foam or
fiberglass materials (as Wilson did by incorporating Goodyear tire rubber on the soles of its
ProStaff Classic tennis shoes).
B Burton could attempt to find one or more top professional surfers to endorse the surf-
board or choose to become a sponsor of a surfing competition or even the entire Association
of Surfing Professionals (ASP) World Tour.
a Burton could attempt to secure and publicize favorable ratings from third-party sources
like Surfer or Surfing magazine.
Thus, independent of the associations created by the surfboard itself, its brand name, or any
other aspects of the marketing program, Burton may be able to build equity by linking the
brand to these other entities.
Ill Measuring Brand Equity

Given that the power of a brand resides in the minds of consumers and how it changes
their response to marketing, there are two basic approaches to measuring brand equity.
An indirect approach assesses potential sources of brand equity by identifying and track-
ing consumer brand knowledge structures. A direct approach assesses the actual impact
of brand knowledge on consumer response to different aspects of the marketing.
"Marketing Insight: The Brand Value Chain" shows how the two measurement approaches
can be linked.
MARKETING INSIGHT THE BRAND VALUE CHAIN
The brand value chain is a structured approach to assessing the The model also assumes that a number of linking factors inter-
sources and outcomes of brand equity and the manner in which mar- vene between these stages and determine the extent to which value
keting activities create brand value. The brand value chain is based created at one stage transfers to the next stage. Three sets of multi-
on several basic premises. pliers moderate the transfer between the marketing program and the
subsequent three value stages—the program multiplier, the cus-
The brand value creation process begins when the firm invests in a
tomer multiplier, and the market multiplier. The program multiplier
marketing program targeting actual or potential customers. Any market-
ing program investment that can be attributed to brand value develop-determines the ability of the marketing program to affect the cus-
ment, either intentional or not, falls into this category—product tomer mind-set and is a function of the quality of the program
research, development, and design; trade or intermediary support; andinvestment. The customer multiplier determines the extent to which
marketing communications. value created in the minds of customers affects market performance.
The marketing activity associated with the program affects the This result depends on contextual factors external to the customer.
customer "mind-set" with respect to the brand. The issue is, in what Three such factors are competitive superiority (how effective is the
ways have customers been changed as a result of the marketing pro- quantity and quality of the marketing investment of other competing
gram? This mind-set, across a broad group of customers, then results brands), channel and other intermediary support (how much brand
in certain outcomes for the brand in terms of how it performs in the reinforcement and selling effort is being put forth by various market-
marketplace. This is the collective impact of individual customer ing partners), and customer size and profile (how many and what
actions regarding how much and when they purchase, the price that types of customers, profitable or not, are attracted to the brand). The
they pay, and so on. Finally, the investment community considers market multiplier determines the extent to which the value shown by
market performance and other factors such as replacement cost and the market performance of a brand is manifested in shareholder
purchase price in acquisitions to arrive at an assessment of share- value. It depends, in part, on the actions of financial analysts and
holder value in general and the value of a brand in particular. investors.
Sources: Kevin Lane Keller and Don Lehmann, "How Do Brands Create Value," Marketing Management (May/'June 2003): 27-31. See also,
Rajendra K. Srivastava, Tasadduq A. Shervani, and Liam Fahey, "Market-Based Assets and Shareholder Value." Journal of Marketing 62, no. 1
(1998): 2-18, and M. J. Epstein and R. A. Westbrook, "Linking Actions to Profits in Strategic Decision Making," MIT Sloan Management Review
(Spring 2001): 39-49. In terms of related empirical insights, see Manoj K. Agrawal and Vithala Rao "An Empirical Comparison of Consumer-Based
Measures of Brand Equity," Marketing Letters 7, no. 3 (1996): 237-247, and Walfried Lassar, Banwari Mittal, and Arun Sharma, "Measuring
Customer-Based Brand Equity," Journal of Consumer Marketing 12, no. 4 (1995): 11-19.
The two general approaches are complementary, and marketers can employ both. In
other words, for brand equity to perform a useful strategic function and guide marketing
decisions, it is important for marketers to (1) fully understand the sources of brand equity
and how they affect outcomes of interest, as well as (2) how these sources and outcomes
change, if at all, over time. Brand audits are important for the former; brand tracking is
important for the latter.
Brand Audits
To better understand their brands, marketers often need to conduct brand audits. A brand
audit is a consumer-focused exercise that involves a series of procedures to assess the health
of the brand, uncover its sources of brand equity, and suggest ways to improve and leverage
its equity.
The brand audit can be used to set strategic direction for the brand. Are the current
sources of brand equity satisfactory? Do certain brand associations need to be strength-
ened? Does the brand lack uniqueness? What brand opportunities exist and what potential
challenges exist for brand equity? As a result of this strategic analysis, the marketer can
develop a marketing program to maximize long-term brand equity.
Marketers should conduct a brand audit whenever they consider important shifts in
strategic direction. With newspapers experiencing declining circulation as more people rely
on radio, TV, and the Internet for their news, some publishers are now commissioning brand
audits and attempting to redesign newspapers to be contemporary, relevant, and interesting
to readers. Conducting brand audits on a regular basis (e.g., annually) allows marketers to
keep their fingers on the pulse of their brands so that they can manage them more proac-
tively and responsively. Audits are particularly useful background for managers as they set
up their marketing plans.
Brand audits can have profound implications for strategic direction and brands' resulting
performance.37
POLAROID
The results of a brand audit in Western Europe led Polaroid to decide to try to change its conventional photography
image there to emphasize the "fun side" of its cameras. Polaroid gave one group of consumers 35 mm cameras
and another group Polaroid cameras. Both groups went to a wedding and were told to shoot a roll of film. The
35 mm photos were typical wedding fare—posed and proper. The Polaroid photos were completely different—
spontaneous and spirited. Those consumers with the Polaroids began to tell stories of the amusing antics that hap-
pened when the camera appeared. Polaroid learned from this research that its cameras could be a social stimulant
and catalyst, bringing fun into people's lives, a theme that was picked up in advertising and that suggested new dis-
tribution strategies.
A brand audit requires the understanding of sources of brand equity from the perspective
of both the firm and the consumer.38 From the perspective of the firm, it is necessary to
understand exactly what products and services are currently being offered to consumers
and how they are being marketed and branded. From the perspective of the consumer, it is
necessary to uncover the true meaning of brands and products to the consumer. Brand
audits consist of two steps: the brand inventory and the brand exploratory.
BRAND INVENTORY The purpose of the brand inventory is to provide a current, compre-
hensive profile of how all the products and services sold by a company are marketed and
branded. Profiling each product or service requires identifying all associated brand ele-
ments as well as the supporting marketing program. This information should be accurate,
comprehensive, and timely, and summarized in both visual and verbal form. As part of the
brand inventory, it is also advisable to profile competitive brands, in as much detail as pos-
sible, in terms of their branding and marketing efforts.
The brand inventory helps to suggest what consumers' current perceptions may be based
on. Although the brand inventory is primarily a descriptive exercise, some useful analysis
can be conducted too. For example, marketers can assess the consistency of all the different
products or services sharing a brand name. Are the different brand elements used in a con-
sistent way or are there many different variations and versions—perhaps for no obvious
reason—depending on geographical market, market segment, and so on? Similarly, are the
supporting marketing programs logical and consistent across related brands?
290 PART 4 BUILDING STRONG BRANDS «
' The brand exploratory is research activity conducted to under-

stand what consumers think and feel about the brand and its corresponding product cate-
gory to identify sources of brand equity.
Several preliminary activities are useful for the brand exploratory. A number of prior
research studies may be relevant. It is also useful to interview company personnel to gain an
understanding of their beliefs about consumer perceptions. The diversity of opinion that
typically emerges from these internal interviews serves several functions: It increases the
likelihood that useful insights or ideas will be generated; it also points out any internal
inconsistencies or misconceptions
Although these preliminary activities may yield useful findings and suggest certain
hypotheses, they are often incomplete. Additional research may be required to better under-
stand how customers shop for and use products and services and what they think of various
brands. To allow a broad range of issues to be covered and to permit certain issues to be pur-
sued in greater depth, the brand exploratory often employs qualitative research techniques,
such as word associations, projective techniques, visualization, brand personification, and
laddering (see Chapter 4).
Many firms are now using ethnography to supplement traditional focus groups. They
study consumers in their everyday habitats at home, at work, at play, or shopping. Based
on ethnographic research, Duracell, for example, learned that people had trouble remov-
ing a tab from its hearing aid batteries. The result was the introduction of a new product,
Easy Tab. Whirlpool learned that people didn't want to wait for their dishwashers to fill
up before running the machine, so its Kitchen Aid unit introduced a smaller version
called Briva.
E ! NETWORK
E! Network's sister station, The Style Network, has recently undergone a metamorphosis as a result of a brand
audit. The Style Network was once known for its emphasis on haute couture, but a brand audit revealed that
Style viewers wanted to watch shows that were more applicable to their lives. In response, Style phased in
makeover shows with new twists. For instance, in "Guess Who's Coming to Decorate?" the contestant chooses
between, say, his mother, a friend, or a designer for an interior overhaul. To tout Style's own "makeover," there's
a $10 million ad campaign with the tagline "Where life gets a new look."39
Brand Tracking
Tracking studies collect information from consumers on a routine basis over time. Tracking
studies typically employ quantitative measures to provide marketers with current informa-
tion as to how their brands and marketing programs are performing on the basis of a num-
ber of key dimensions. Tracking studies are a means of understanding where, how much,
and in what ways brand value is being created.
These studies perform an important function for managers by providing consistent base-
line information to facilitate day-to-day decision making. As more varied marketing activity
surrounds the brand, it becomes difficult and expensive to research each individual market-
ing action. Tracking studies provide valuable diagnostic insights into the collective effects of
a host of marketing activities. Regardless of how few or many changes are made in the mar-
keting program over time, it is important to monitor the health of the brand and its equity so
that proper adjustments can be made.
Brand Valuation
Brand equity needs to be distinguished from brand valuation, which is the job of estimating
the total financial value of the brand. Certain companies base their growth on acquiring and
building rich brand portfolios. Nestle has acquired Rowntree (U.K.), Carnation (U.S.),
Stouffer (U.S.), Buitoni-Perugina (Italy), and Perrier (France), making it the world's largest
food company.
Table 9.2 displays the world's most valuable brands in 2004 according to one ranking.40
With these well-known companies, brand value is typically over one-half of the total com-
pany market capitalization. John Stuart, co-founder of Quaker Oats, said: "If this business
were split up, I would give you the land and bricks and mortar, and I would take the brands
2004 Brand Value j TABLE 9.2 |

Rank Brand (B llions)
The World's 10 Most Valuable Brands
1 Coca-Cola $67.39
2 Microsoft $61.37
3 IBM $53.79
4 GE $44.11
5 Intel $33.50
6 Disney $27.11
7 McDonald's $25.00
8 Nokia $24.04
9 Toyota $22.67
10 Marlboro $22.13
and trade marks, and I would fare better than you." U.S. companies do not list brand equity
on their balance sheets because of the arbitrariness of the estimate. However, brand equity
is given a value by some companies in the United Kingdom, Hong Kong, and Australia.
"Marketing Insight: What Is a Brand Worth?" reviews one popular valuation approach, based
in part on the price premium the brand commands times the extra volume it moves over an
average brand.41
• • • Managing Brand Equity

•••
Effective brand management requires a long-term view of marketing decisions. Because
consumer responses to marketing activity depend on what they know and remember about
a brand, short-term marketing actions, by changing brand knowledge, necessarily increase
or decrease the success of future marketing actions. Additionally, a long-term view results in
proactive strategies designed to maintain and enhance customer-based brand equity over
time in the face of external changes in the marketing environment and internal changes in a
firm's marketing goals and programs.
Brand Reinforcement
As a company's major enduring asset, a brand needs to be carefully managed so that its
value does not depreciate. Many brand leaders of 70 years ago are still today's brand leaders:
Kodak, Wrigley's, Coca-Cola, Heinz, and Campbell Soup, but only by constantly striving to
improve their products, services, and marketing. "Marketing Memo: Twenty-First-Century
Branding" offers some contemporary perspectives on enduring brand leadership.
Brand equity is reinforced by marketing actions that consistently convey the meaning of
the brand to consumers in terms of: (1) What products the brand represents; what core ben-
efits it supplies; and what needs it satisfies; as well as (2) how the brand makes those prod-
ucts superior and which strong, favorable, and unique brand associations should exist in the
minds of consumers. Nivea, one of Europe's strongest brands, has expanded its scope from
a skin-cream brand to a skin-care and personal-care brand through carefully designed and
implemented brand extensions reinforcing the Nivea brand promise of "mild," "gentle," and
"caring" in a broader arena.
Reinforcing brand equity requires innovation and relevance throughout the marketing
program. Marketers must introduce new products and conduct new marketing activities
that truly satisfy their target markets. The brand must always be moving forward—but
moving forward in the right direction. Marketing must always find new and compelling
offerings and ways to market them. Brands that fail to do so—such as Kmart, Levi Strauss,
Montgomery Ward, Oldsmobile, and Polaroid—find that their market leadership dwindles
or even disappears.
MARKETING INSIGHT WHAT IS A BRAND WORTH?
According to top brand valuation firm Interbrand, brand valuation is strength score of 100 would have a discount rate of 5 percent (1 over
based on an assessment of what the value is today of the earnings or 20), which would be the typical return on a fairly low risk investment;
cash flow the brand can be expected to generate in the future. To a weaker brand with a lower multiplier would have a higher discount
estimate brand value, it is necessary to: (1) identify the true earnings rate to reflect the greater risk.
that can be attributed strictly to the brand and (2) capitalize the earn-
ings by applying a multiple to historic earnings as a discount rate to Interbrand Brand Strength Formula (Weights in Parentheses)
future cash flow. 1. Leadership (25%)—The brand's ability to influence its market
Brand earnings. Interbrand maintains that not all of a brand's and be a dominant force with a strong market share such that it
profitability can necessarily be applied to the valuation of that brand. can set price points, command distribution, and resist competitive
A brand may essentially be a commodity or derive much of its prof- invasions. A brand that leads its market or market sector is a more
itability from non-brand-related considerations (like its distribution stable and valuable property than a brand lower down the order.
system). Elements of profitability that do not result from the brand's 2. Stability (15%)—The ability of the brand to survive over a long
identity must therefore be excluded. Because the valuation may be period of time based on consumer loyalty and past history. Long-
adversely affected by using a single year's profit, Interbrand uses a established brands that have become part of the "fabric" of their
three-year weighted average of historical profit. markets are particularly valuable.
Brand earnings are calculated by subtracting a number of items 3. Market (10%)—The brand's trading environment in terms of
from brand sales: (1) costs of brand sales, (2) marketing costs, growth prospects, volatility, and barriers to entry. Brands in mar-
(3) variable and fixed overheads including depreciation and central kets such as foods, drinks, and publishing are intrinsically more
overhead allocation, (4) remuneration of capital charge (a 5%-10% valuable than brands in, for example, high-tech or clothing areas,
rental charge on the replacement value of the capital employed in the as the latter markets are more vulnerable to technological or fash-
line of production), and (5) taxation. ion changes.
Brand strength. To adjust these earnings, Interbrand conducts 4. Geographic Spread (25%)—The ability of the brand to cross
an in-depth assessment of brand strength. The assessment involves geographic and cultural borders. Brands that are international are
a detailed review of the brand, its positioning, the market in which it inherently more valuable than national or regional brands, due in
operates, competition, past performance, future plans, and risks to part to their economies of scale.
the brand. Interbrand administers a detailed questionnaire to collect 5. Trend (10%)—The ongoing direction and ability of the brand to
the information from managers and customers. It also examines remain contemporary and relevant to consumers.
annual reports and other printed materials, and even conducts 6. Support (10%)—The amount and consistency of marketing and
inspection visits to distributors and retail outlets. communication activity. Those brand names that have received
Brand strength is a composite of seven weighted factors, each of consistent investment and focused support must be regarded as
which is scored according to established guidelines (see below). The more valuable than those that have not. While the amount spent
resulting total, known as the brand strength score, is expressed as a in supporting a brand is important, the quality of this support is
percentage. This score is converted to an earnings multiple to be equally significant.
used against the brand-related profits. Certain adjustments are made 7. Protection (5%)—The brand owner's legal titles. A registered
to create a weighted average of post-tax brand profitability against trademark is a statutory monopoly in a name, device, or in a com-
which the brand multiplier is applied. Interbrand makes the compari- bination of these two. Other protection may exist in common law,
son between the reciprocal of these multipliers and typical discount at least in certain countries. The strength and breadth of the
rates (or interest rates): A so-called perfect brand with a brand brand's protection is critical in assessing its worth.
Sources: Michael Birkin, "Assessing Brand Value," in Brand Power, edited by Paul Sobart (New York: Macmillan); Simon Mottram, "The Power of the Brand," ARF
Brand Equity Conference, February 15-16,1994; John Murphy, Brand Valuation (London: Hutchinson Business Books, 1989); Jean-Noel Kapferer, Strategic
Brand Management (London: Kogan Page Limited, 1992); Noel Penrose and Martin Moorhouse, "The Valuation of Brands," Trademark World,
no. 17 (February 1989); Tom Blackett, "The Role of Brand Valuation in Marketing Strategy," Marketing Research Today M, no. 4 (November 1989): 245-248.
KELLOGG
After experiencing falling market share and profits through the 1990s, Kellogg was able to reestablish market
leadership in the cereal business by getting consumers to pay more for their high-profit brands. The secret?
Adding new features to old favorites such as Special K Red Berries cereal with freeze-dried berries, priced at
nearly double the price of Raisin Bran cereal, or putting toys and computer CDs inside boxes of kids' cereals.42
An important consideration in reinforcing brands is the consistency of the marketing

support the brand receives, in terms of both amount and kind. Consistency does not mean
uniformity and no changes: Many tactical changes may be necessary to maintain the strate-
Campbell's Soup continually updates its

marketing and its ads: This ad for its new
"Soup at Hand" product features Bucky
Lasek, a top pro skateboarder.
gic thrust and direction of the brand. Unless there is some change in the marketing environ-
ment, however, there is little need to deviate from a successful positioning. In such cases,
sources of brand equity should be vigorously preserved and defended.
VOLVO
In an attempt to woo a different audience, Volvo drifted away from its heritage of safety in the late 1990s to push
driving fun, speed, and performance. Purchased by Ford in 1999, the company dropped its ReVOLVOIution-
themed ad campaign for the brand and went back to its roots in an attempt to revive sagging sales. Volvo's posi-
tioning was updated, however, to convey "active safety" to-transcend the brand's boxy, sturdy "passive safety"
image. With product introductions that maximized safety but that still encompassed style, performance, and lux-
ury, Volvo's sales set records in 2003.43
In managing brand equity, it is important to recognize the trade-offs between those

marketing activities that fortify the brand and reinforce its meaning and those that
attempt to leverage or borrow from existing brand equity to reap some financial benefit.44
At some point, failure to reinforce the brand will diminish brand awareness and weaken
brand image.
THE HOME DEPOT
Since The Home Depot opened its first store in 1978 in Atlanta, the company has emphasized exemplary cus-
tomer service. Its sales staff is trained to offer on-the-spot lessons in laying tile, electrical installations, and other
MARKETING MEMO TWENTY-FIRST-CENTURY BRANDING
One of the most successful marketers of the last fifteen years, Scott 4. Great brands establish enduring customer relationships—
Bedbury played a key role in the rise of both Nike and Starbucks. In They have more to do with emotions and trust than with footwear
his insightful book, A New Brand World, he offers the following brand- cushioning or the way a coffee bean is roasted.
ing principles: 5. Everything matters—Even your restroom.
1. Relying on brand awareness has become marketing fool's 6. All brands need good parents—Unfortunately, most brands
gold— Smart brands are more concerned with brand relevance come from troubled homes.
and brand resonance. 7. Big is no excuse for being bad—Truly great brands use their
2. You have to know it before you can grow it—Most brands don't superhuman powers for good and place people and principles
know who they are, where they've been, and where they're going. before profits.
3. Always remember the Spandex rule of brand expansion- 8. Relevance, simplicity, and humanity—Rather than technology—
Just because you can doesn't mean you should. will distinguish brands in the future.
Source: Scott Bedbury, A New Brand World (New York: Viking Press, 2002).
projects; they are experienced tradespersons—plumbers, electricians, and carpenters. In recent years, however,
there were customer complaints about clutter in the aisles and salespeople stocking items instead of providing
service. Starting in 2001, The Home Depot gave its stores a makeover called Service Performance Improvement
(SPI). SPI limits restocking to off-peak hours and prohibits forklifts in store aisles during the day. The program
resulted in up to a 70 percent increase in employee interactions with customers. Before SPI was introduced,
employees spent as little as 40 percent of their time with customers.
Brand Revitalization
Changes in consumer tastes and preferences, the emergence of new competitors or new
technology, or any new development in the marketing environment could potentially
affect the fortunes of a brand. In virtually every product category, there are examples of
once p r o m i n e n t and admired brands—such as Smith Corona, Zenith, and TWA—that
have fallen on hard times or, in some cases, disappeared.' 1 5 Nevertheless, a n u m b e r of
these brands have managed to make impressive comebacks in recent years, as marketers
have breathed new life into their c ust om e r franchises. Brands such as Breck,
Dr. Scholl's and Fanta have all seen their brand fortunes successfully turned around to
varying degrees.
Reversing a fading brand's fortunes requires either that it "returns to its roots" and lost
sources of brand equity are restored, or that new sources of brand equity are established.
Regardless of which approach is taken, brands on the comeback trail have to make more
"revolutionary" changes than the "evolutionary" changes.
Often, the first thing to do in turning around the fortunes of a brand is to understand
what the sources of brand equity were to begin with. Are positive associations losing their
strength or uniqueness? Have negative associations become linked to the brand? Decisions
must then be made as to whether to retain the same positioning or create a new positioning,
and, if so, which positioning to adopt. Sometimes the positioning is still appropriate; it's the
actual marketing program that is the source of the problem because it is failing to deliver on
the brand promise. In those instances, a "back to basics" strategy may make sense, as was
the case with Harley-Davidson.
HARLEY-DAVI DSON
Founded in 1903 in Milwaukee, Wl, Harley-Davidson has twice narrowly escaped bankruptcy but is today
one of the most-recognized motor vehicle brands in the world. In dire financial straits in the 1980s, it des-
perately licensed its name for such ill-advised ventures as Harley-Davidson cigarettes and wine coolers.
Although consumers loved the brand, sales were depressed by product quality problems. Harley's return to
greatness was begun by improving manufacturing processes. Harley also developed a strong brand com-
munity in the form of an owners' club, called the Harley Owners Group (HOG), which sponsors bike rallies,
charity rides, and other motorcycle events. Harley-Davidson has continued to promote its brand with grass-
roots marketing efforts and finds itself in the enviable position of having consumer demand exceed what it
H can supply.
In other cases, however, the old positioning is just no longer viable and a "reinvention"
strategy is necessary. Mountain Dew completely overhauled its brand image to become a
soft-drink powerhouse. As its history reveals, it is often easiest to revive a brand that is
around, but has just more or less been forgotten.
[- MOUNTAI N DEW
Pepsi initially introduced Mountain Dew in 1969 and marketed it with the countrified tagline "Yahoo Mountain
Dew! It'll Tickle Your Innards." By the 1990s, the brand was languishing on store shelves despite an attempt to
evolve the image with outdoor action scenes. To turn the brand around, Mountain Dew updated the packaging
and launched ads featuring a group of anonymous young males—the "Dew Dudes"—participating in extreme
sports such as bungee jumping, skydiving, and snowboarding while consuming Mountain Dew. The brand slo-
gan became "Do the Dew." The brand's successful pursuit of young soda drinkers led to Mountain Dew chal-
• lenging Diet Coke to become the number-three selling soft drink in terms of market share by 2000.
There is obviously a continuum involved with revitalization strategies, with pure "back to
basics" at one end and pure "reinvention" at the other end. Many revitalizations combine
elements of both strategies. To refresh old sources of brand equity or create new sources, two
main approaches are possible:
1. Expand the depth and/or breadth of brand awareness by improving consumer recall and
recognition of the brand during purchase or consumption settings.
2. Improve the strength, favorability, and uniqueness of brand associations making up the
brand image. This approach may involve programs directed at existing or new brand
associations.
Brand revitalizations of almost any kind start with the product. General Motors' turnaround
with its fading Cadillac brand was fueled by new model designs that redefined the Cadillac
look and styling, such as with the CTS sedan, XLR roadster, and ESV sport utility vehicle.46
Brand Crisis
Marketing managers must assume that at some point in time, some kind of brand crisis will
arise. Diverse brands such as Jack in the Box restaurants, Firestone tires, Exxon oil, Suzuki
Samurai sport utility vehicles, and Martha Stewart have all experienced a serious, potentially
crippling brand crisis. In general, the more that brand equity and a strong corporate image has
been established—especially with respect to corporate credibility and trustworthiness—the
more likely it is that the firm can weather the storm. Careful preparation and a well-managed
crisis management program, however, are also critical. As Johnson & Johnson's nearly flawless
handling of the Tylenol product-tampering incident suggests, the key to managing a crisis is
that consumers see the response by the firm as both swift and sincere.
In terms of swiftness, the longer it takes a firm to respond to a marketing crisis, the more
likely it is that consumers can form negative impressions as a result of unfavorable media
coverage or word of mouth. Perhaps even worse, consumers may find out that they do not
really like the brand that much after all and permanently switch to alternative brands or
products.
i- PERRIER
Perrier was forced to halt production worldwide and recall all of its existing bottles in February 1994, when
traces of benzene, a known carcinogen, were found in excessive quantities in the bottled water. Over the course
of the next few weeks, several explanations were offered as to how the contamination occurred, creating con-
fusion and skepticism. Perhaps even more damaging, the product itself was off the shelves until May 1994.
Despite an expensive relaunch featuring ads and promotions, the brand struggled to regain lost market share,
and a full year later found sales less than half of what they once had been. Part of the problem was that during
the time the product was unavailable, consumers and retailers found satisfactory substitutes. With its key
"purity" association tarnished—the brand had been advertised as the "Earth's First Soft Drink" and "It's Perfect.
It's Perrier."—the brand had no other compelling points-of-difference over these competitors.47 Eventually, the
company was taken over by Nestle SA.
Second, swift actions must also come across as sincere. The more sincere the response by
the firm—in terms of public acknowledgment of the severity of the impact on consumers
and a willingness of the firm to take whatever steps are necessary and feasible to solve the
crisis—the less likely it is that consumers will form negative attributions.
GERBER
Although Gerber had established a strong image of trust with consumers, baby food is a product category char-
acterized by an extremely high level of involvement and need for reassurance. When consumers reported find-
ing shards of glass in some jars of its baby food, Gerber tried to reassure the public that there were no problems
in its manufacturing plants. But the company adamantly refused to have its baby food withdrawn from food
stores. Some consumers clearly found Gerber's response unsatisfactory: Its market share slumped from 66 per-
cent to 52 percent within a couple of months. As one company official admits, "Not pulling our baby food off the
shelf gave the appearance that we aren't a caring company."48
: : : Devising a Branding Strategy

The branding strategy for a firm reflects the number and nature of common and distinctive
brand elements applied to the different products sold by the firm. In other words, devising a
branding strategy involves deciding the nature of new and existing brand elements to be
applied to new and existing products.
The decision as to how to brand new products is especially critical. When a firm intro-
duces a new product, it has three main choices:
1. It can develop new brand elements for the new product.
2. It can apply some of its existing brand elements.
3. It can use a combination of new and existing brand elements.
When a firm uses an established brand to introduce a new product, it is called a brand exten-
sion. When a new brand is combined with an existing brand, the brand extension can also be
called a sub-brand, as with Hershey Kisses candy, Adobe Acrobat software, Toyota Camry
automobiles, and American Express Blue cards. An existing brand that gives birth to a brand
extension is referred to as the parent brand. If the parent brand is already associated with
multiple products through brand extensions, then it may also be called a family brand.
Brand extensions can be broadly classified into two general categories:49 In a line exten-
sion, the parent brand is used to brand a new product that targets a new market segment
within a product category currently served by the parent brand, such as through new flavors,
forms, colors, added ingredients, and package sizes. Dannon has introduced several types of
Dannon yogurt line extensions through the years—Fruit on the Bottom, Natural Flavors,
Fruit Blends, and Whipped. In a category extension, the parent brand is used to enter a dif-
ferent product category from that currently served by the parent brand, such as Swiss Army
watches. Honda has used its company name to cover such different products as automo-
biles, motorcycles, snowblowers, lawnmowers, marine engines, and snowmobiles. This
allows Honda to advertise that it can fit "six Hondas in a two-car garage."
A brand line consists of all products—original as well as line and category extensions—
sold under a particular brand. A brand mix (or brand assortment) is the set of all brand lines
that a particular seller makes available to buyers. Many companies are now introducing
branded variants, which are specific brand lines supplied to specific retailers or distribution
channels. They result from the pressure retailers put on manufacturers to provide distinctive
offerings. A camera company may supply its low-end cameras to mass merchandisers while
limiting its higher-priced items to specialty camera shops. Valentino may design and supply
different lines of suits and jackets to different department stores.50
> CREATING BRAND EQUITY CHAPTER 9 297
A licensed product is one whose brand name has been licensed to other manufacturers
who actually make the product. Corporations have seized on licensing to push the company
name and image across a wide range of products—from bedding to shoes—making it a $35
billion business.51 Jeep's licensing program added up to $400 million in global sales in 2002
and included everything from strollers (built for a father's longer arms) to apparel (with
teflon in the denim)—as long they fit the brand's positioning of "Life Without Limits."52
Branding Decision: To Brand or N o t t o Brand?

The first branding strategy decision is whether to develop a brand name for a product. Today,
branding is such a strong force that hardly anything goes unbranded. So-called commodi-
ties do not have to remain commodities. A commodity is a product presumably so basic that
it cannot be physically differentiated in the minds of consumers. Over the years, a number
of products that at one time were seen as essentially commodities have become highly dif-
ferentiated as strong brands have emerged in the category.53 Some notable examples (with
brand pioneers in parentheses) are: coffee (Maxwell House), bath soap (Ivory), flour (Gold
Medal), beer (Budweiser), oatmeal (Quaker), pickles (Vlasic), bananas (Chiquita), pineap-
ples (Dole), and even salt (Morton).
Assuming a firm decides to brand its products or services, it must then choose which
brand names to use. Four general strategies are often used:
n Individual names. This policy is followed by General Mills (Bisquick, Gold Medal flour,
Nature Valley granola bars, Old El Paso Mexican foods, Pop Secret popcorn, Wheaties cereal,
and Yoplait yogurt). A major advantage of an individual-names strategy' is that the company
does not tie its reputation to the product's. If the product fails or appears to have low qual-
ity, the company's name or image is not hurt. Companies often use different brand names
for different quality lines within the same product class. Delta branded its low-fare air car-
rier Song in part to protect the equity of its Delta Airlines brand.54
n Blanket family names. This policy is followed by Heinz and General Electric. A blanket
family name also has advantages. Development cost is less because there is no need for
"name" research or heavy advertising expenditures to create brand-name recognition.
Furthermore, sales of the new product are likely to be strong if the manufacturer's name is
good. Campbell's introduces new soups under its brand name with extreme simplicity and
achieves instant recognition.
a Separate family names for all products. This policy is followed by Sears (Kenmore for
appliances, Craftsman for tools, and Homart for major home installations). If a company
produces quite different products, it is not desirable to use one blanket family name. Swift
and Company developed separate family names for its hams (Premium) and fertilizers
(Vigoro).
ES Corporate name combined with individual product names. This sub-branding policy is
followed by Kellogg (Kellogg's Rice Krispies, Kellogg's Raisin Bran, and Kellogg's Corn Flakes),
as well as Honda, Sony, and Hewlett-Packard. The company name legitimizes, and the indi-
vidual name individualizes, the new product.
The first two strategies are sometimes referred to as a "house of brands" and a "branded
house," respectively, and can be seen as representing two ends of a brand relationship con-
tinuum, with the latter two strategies as being in between and combinations of the two.
Although firms rarely adopt a pure example of any of the four strategies, deciding which gen-
eral strategy to emphasize depends on several factors, as evidenced by Table 9.3.
Two key components of virtually any branding strategy are brand extensions and brand
portfolios.
Brand Extensions
Recognizing that one of their most valuable assets is their brands, many firms have decided
to leverage that asset by introducing a host of new products under some of their strongest
brand names. Most new products are in fact line extensions—typically 80 to 90% in any
one year. Moreover, many of the most successful new products, as rated by various sources,
are extensions (e.g., Microsoft Xbox video game system, Apple iPod digital music player,
and Nokia 6800 cell phone). Nevertheless, many new products are introduced each year as
new brands (e.g., Zyprexa mood stabilizer drug, TiVo digital video recorders, and Mini
automobile).
TABLE 9.3 | Toward a Branded House Toward a House of Brands
Selecting a Brand Relationship Does the parent brand contribute to the Is there a compelling need for a separate brand
Spectrum Position offering by adding: because it will:

—Associations enhancing the value proposition? —Create and own an association?
—Credibility through organizational associations? —Represent a new, different offering?
—Visibility? —Retain/capture customer/brand bond?
—Communication efficiencies? —Deal with channel conflict?
Will the master brand be strengthened by Will the business support a new brand name?
associating with the new offering?
Source: Adapted from David A. Aaker and Erich Joachimsthaler. Brand Leadership (New York: Free Press, 2000), Figure 4-6,
p. 120.
XTENSIONS Two main advantages of brand extensions are

that they can facilitate new-product acceptance, as well as provide positive feedback to the
parent brand and company.
New-Product S u c c e s s Brand extensions improve the odds of new-product
success in a number of ways. With a brand extension, consumers can make inferences and
form expectations as to the likely composition and performance of a new product based on
what they already know about the parent brand itself and the extent to which they feel this
information is relevant to the new product. 5 5 For example, when Sony introduced a new
personal computer tailored for multimedia applications, Vaio, consumers may have been
more likely to feel comfortable with its anticipated performance because of their experience
with and knowledge of other Sony products.
By setting up positive expectations, extensions reduce risk. 56 Because of the potentially
increased consumer demand resulting from introducing a new product as an extension, it
also may be easier to convince retailers to stock and promote a brand extension. From a
marketing communications perspective, an introductory campaign for an extension does
not have to create awareness of both the brand and the new product but instead can con-
centrate on the new product itself.57
Extensions can thus result in reduced costs of the introductory launch campaign, impor-
tant given that establishing a new brand name in the U.S. marketplace for a mass-consumer-
packaged good can cost $100 million! They also can avoid the difficulty—and expense—of
coming up with a new name. Extensions allow for packaging and labeling efficiencies.
Similar or virtually identical packages and labels for extensions can result in lower produc-
tion costs and, if coordinated properly, more prominence in the retail store by creating a
"billboard" effect. For example, Stouffers offers a variety of frozen entrees with identical
orange packaging that increases their visibility when they are stocked together in the freezer.
By offering consumers a portfolio of brand variants within a product category, consumers
who need a change—because of boredom, satiation, or whatever—can switch to a different
product type without having to leave the brand family.
SUAVE
The low-priced family brand, Suave, sold by Helene-Curtis, includes a variety of personal-care products such as
shampoo and conditioners, baby products, skin lotions, antiperspirants and deodorants, and so on. Given the amount
of brand switching and the large number of personal care product brands kept by consumers in general—and of
shampoos in particular—the ability of Suave to offer a full product line is a competitive advantage. By continually line
extending, Suave keeps up with any new market trend or shift in consumer demand.58
Positive Feedback E f f e c t s Besides facilitating acceptance of new prod-

ucts, brand extensions can also provide feedback benefits. 59 They can help to clarify the
meaning of a brand and its core brand values or improve consumer perceptions of the cred-
ibility of the company behind the extension. Thus, through brand extensions, Crayola means
Brand extensions allow for packaging

and labeling efficiency: Stouffer's
distinctive orange packaging lets
consumers switch to a different product
without leaving the brand.
"colorful crafts for kids," Aunt Jemima means "breakfast foods," and Weight Watchers means
"weight loss and maintenance."
Line extensions can renew interest and liking for the brand and benefit the parent brand by
expanding market coverage. Kimberly-Clark's Kleenex unit has a goal of having facial tissue in
every room of the home. This philosophy has led to a wide variety of Kleenex facial tissues and
packaging, including scented, ultra-soft and lotion-impregnated tissues; boxes with drawings
of dinosaurs and dogs for children's rooms, or colorful, stylish designs to match room decor;
and a "man-sized" box with tissues 50 percent larger than regular Kleenex. One benefit of a
successful extension is that it may also serve as the basis for subsequent extensions. During
the 1970s and 1980s, Billabong established its brand credibility with the young surfing com-
munity as a designer and producer of quality surf apparel. This success permitted it to extend
into other youth-oriented areas, such as snowboarding and skateboarding.
DISADVANTAGES OF BRAND I XTENSIONS On the downside, line extensions may cause

the brand name to not be as strongly identified with any one product.60 Ries and Trout call
this the "line-extension trap."f>1 By linking its brand to mainstream food products such as
mashed potatoes, powdered milk, soups, and beverages, Cadbury ran the risk of losing its
more specific meaning as a chocolates and candy brand.62 Brand dilution occurs when con-
sumers no longer associate a brand with a specific product or highly similar products and
start thinking less of the brand.
If a firm launches extensions consumers deem inappropriate, they may question the
integrity and competence of the brand. Different varieties of line extensions may confuse
and perhaps even frustrate consumers: Which version of the product is the "right one" for
them? As a result, they may reject new extensions for "tried-and-true" favorites or all-
purpose versions. Retailers have to reject many new products and brands because they do
not have the shelf or display space for them.
The worst possible scenario with an extension is that not only does it fail, but it harms the
parent brand image in the process. Fortunately, such events are rare. "Marketing failures,"
where insufficient consumers were attracted to a brand, are typically much less damaging
than "product failures," where the brand fundamentally fails to live up to its promise. Even
then, product failures dilute brand equity only when the extension is seen as very similar to
the parent brand. The Audi 5000 car suffered from a tidal wave of negative publicity and
word of mouth in the mid-1980s when it was alleged to have a "sudden acceleration" prob-
lem. The adverse publicity also spilled over to the 4000 model. But the Quattro was relatively
more insulated from negative repercussions, because it was distanced from the 5000 by its
more distinct branding and advertising strategy.63
Even if sales of a brand extension are high and meet targets, it is possible that this reveYiue
may have resulted from consumers switching to the extension from existing product offer-
ings of the parent brand—in effect cannibalizingThe parent brand. Intrabrand shifts in sales
may not necessarily be so undesirable, as they can be thought of as a form of preemptive
cannibalization. In other words, consumers might have switched to a competing brand
instead of the line extension if it had not been introduced into the category. Tide laundry
detergent maintains the same market share now compared as it did 50 years ago because of
the sales contributions of the various line extensions (scented and unscented powder, tablet,
liquid, and other forms).
Crest White Strips leverages the strong

reputation of Crest in dental care.
One easily overlooked disadvantage to brand extensions is that by introducing a new

product as a brand extension, the firm forgoes the chance to create a new brand with its own
unique image and equity. Consider the advantages to Disney of having introduced more
adult-oriented Touchstone films; to Levi's of having introduced casual Dockers pants; and to
Black and Decker of having introduced high-end Dewalt power tools.
S A potential new-product extension for a brand must be

judged by how effectively it leverages existing brand equity from the parent brand to the new
product, as well as how effectively the extension, in turn, contributes to the equity of the
parent brand.64 Crest White Strips leveraged the strong reputation of Crest and dental care to
provide reassurance in the teeth-whitening arena, while also reinforcing its dental authority
image. The most important consideration with extensions is that there is "fit" in the mind of
the consumer. Consumers may see a basis of fit for an extension in many ways—common
physical attributes, usage situations, or user types.
One major mistake in evaluating extension opportunities is failing to take all of con-
sumers' brand knowledge structures into account. Often marketers mistakenly focus on one
or perhaps a few brand associations as a potential basis of fit and ignore other, possibly
more important, associations in the process.
i- BIC
The French company Societe Bic, by emphasizing inexpensive, disposable products, was able to create mar-
kets for nonrefillable ball-point pens in the late 1950s; disposable cigarette lighters in the early 1970s; and dis-
posable razors in the early 1980s. It unsuccessfully tried the same strategy in marketing Bic perfumes in the
United States and Europe in 1989. The perfumes—two for women ("Nuit" and "Jour") and two for men ("Bic
for Men" and "Bic Sport for Men")—were packaged in quarter-ounce glass spray bottles that looked like fat
cigarette lighters and sold for $5 each. The products were displayed on racks at checkout counters throughout
Bic's extensive distribution channels. At the time, a Bic spokeswoman described the new products as exten-
sions of the Bic heritage—"high quality at affordable prices, convenient to purchase, and convenient to use."
The brand extension was launched with a $20 million advertising and promotion campaign containing images
of stylish people enjoying themselves with the perfume and using the tagline "Paris In Your Pocket."
Nevertheless, Bic was unable to overcome its lack of cachet and negative image associations, and the exten-
sion was a failure. 65
"Marketing Memo: Research Insights on Brand Extensions" outlines a number of academic

research findings on brand extensions.
Brand Portfolios
All brands have boundaries—a brand can only be stretched so far. Multiple brands are often
necessary to pursue multiple market segments. Any one brand is not viewed equally favor-
ably by all the different market segments that the firm would like to target. Some other rea-
sons for introducing multiple brands in a category include:66
1. To increase shelf presence and retailer dependence in the store;

2. To attract consumers seeking variety who may otherwise have switched to another brand;
3. To increase internal competition within the firm; and
4. To yield economies of scale in advertising, sales, merchandising, and physical distribution.
The brand portfolio is the set of all brands and brand lines a particular firm offers for sale
to buyers in a particular category. Different brands may be designed and marketed to appeal
to different market segments.
MARKETING MEMO RESEARCH INSIGHTS O N BRAND EXTENSIONS
Academics have studied brand extensions closely. Here is a summary Consumers may transfer associations that are positive in the
of some of their key research findings. original product class but become negative in the extension
context.
• Successful brand extensions occur when the parent brand is seen
as having favorable associations and there is a perception of fit Consumers may infer negative associations about an extension,
between the parent brand and the extension product. perhaps even based on other inferred positive associations.
• There are many bases of fit: product-related attributes and bene- It can be difficult to extend into a product class that is seen as
fits, as well as non-product-related attributes and benefits related easy to make.
to common usage situations or user types. A successful extension can not only contribute to the parent
H Depending on consumer knowledge of the categories, percep- brand image but also enable a brand to be extended even farther.
tions of fit may be based on technical or manufacturing com- An unsuccessful extension hurts the parent brand only when
monalties or more surface considerations such as necessary or there is a strong basis of fit between the two.
situational complementarity. An unsuccessful extension does not prevent a firm from "back-
a High-quality brands stretch farther than average-quality brands, tracking" and introducing a more similar extension.
although both types of brands have boundaries. Vertical extensions can be difficult and often require sub-branding
• A brand that is seen as prototypical of a product category can be strategies.
difficult to extend outside the category. The most effective advertising strategy for an extension empha-
i Concrete attribute associations tend to be more difficult to extend sizes information about the extension (rather than reminders
than abstract benefit associations. about the parent brand).
Source: Kevin Lane Keller, Strategic Brand Management, 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 2003).
GAP
Founded in 1969 and named after the "generation gap," retail clothing manufacturer GAP grew by selling color-
ful GAP-branded clothing positioned as casual, functional, and "basic with attitude." GAP expanded beyond its
flagship stores though acquisitions and extensions. GAPKids is a highly successful extension that was introduced
in 1986. GAP bought Banana Republic and its unique travel and safari-themed stores and catalogs in 1983, and
reformulated the clothing to reflect more urban tastes. In March 1994, GAP introduced Old Navy clothing stores
to sell GAP-like men's, women's, and children's apparel at lower prices in large, warehouse-style outlets.
A brand portfolio must be judged by its ability to maximize brand equity. The optimal
brand portfolio is one where each brand maximizes equity in combination with all other
brands in the portfolio. In designing the optimal brand portfolio, marketers generally need
to trade off market coverage and these other considerations with costs and profitability. If
profits can be increased by dropping brands a portfolio is too big; if profits can be increased
by adding brands, a portfolio is not big enough. In general, 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 brands are not competing to gain customer
approval. Each brand should be clearly differentiated and appealing to a sizable enough
marketing segment to justify its marketing and production costs. 67
Brand portfolios need to be carefully monitored over time to identify weak brands and kill
unprofitable ones. 68
E LECTROLUX
In the late 1990s, consumer durables manufacturer Electrolux offered a range of professional food service equip-
ment in Western Europe. By 1996, the company had 15 brands in the professional food service equipment mar-
ket, but only one, Zanussi, was sold in more than one country in Europe. By moving from a segmentation scheme
based on price—low, medium, and high—to one based on consumer needs—from basic solutions to prestige
gourmet—Electrolux was able to go from 15 local brands to having four pan-European brands. The resulting
economies of scale and scope helped turn Electrolux's fortunes around, so even though it deleted many brands,
its professional kitchenware division's sales never dwindled and it was finally able to turn a profit in 2001.
Brand lines with poorly differentiated brands arc likely to be characterized by much can-
nibalization and require pruning. 69 Kellogg's Hggo waffles come in 16 flavors. Investors can
choose among 8,000 mutual funds. Students can choose among hundreds of business
schools. For the seller, this may spell hypercompetition. For the buyer, this may spell too
much choice.
Besides these considerations, there are a number of specific roles brands can play as part
of a brand portfolio.
5 Flanker or "fighter" brands are positioned with respect to competitors' brands

so that more important (and more profitable) flagship brands can retain their desired posi-
tioning. Procter & Gamble markets Luvs diapers in a way that flanks the more premium posi-
tioned Pampers. In designing these fighter brands, marketers must walk a fine line. Fighter
brands must not be so attractive that they take sales away from their higher-priced compar-
ison brands or referents. At the same time, if fighter brands are seen as connected to other
brands in the portfolio in any way (e.g., by virtue of a c o m m o n branding strategy), then
fighter brands must not be designed so cheaply that they reflect poorly on these other
brands.
OWS Some brands may be kept around despite dwindling sales because they
still manage to hold on to a sufficient n u m b e r of customers and maintain their prof-
itability with virtually no marketing support. These "cash cow" brands can be effectively
"milked" by capitalizing on their reservoir of existing brand equity. For example, despite
the fact that technological advances have moved m u c h of its market to the newer
Mach III brand of razors, Gillette still sells the older Trac II, Atra, and Sensor brands.
Because withdrawing these brands may not necessarily result in customers switching to
another Gillette brand, it may be more profitable for Gillette to keep them in its brand
portfolio for razor blades.
LOW-END ENTRY-LEVEL The role of a relatively low-priced brand in the brand portfolio
often may be to attract customers to the brand franchise. Retailers like to feature these "traf-
fic builders" because they are able to "trade up" customers to a higher-priced brand. For
example, BMW introduced certain models into its 3-series automobiles in part as a means of
bringing new customers into the brand franchise with the hope of later "moving them up" to
higher-priced models when they later decided to trade in their cars.
HIGH-END PRESTIGE The role of a relatively high-priced brand in the brand family often is
to add prestige and credibility to the entire portfolio. For example, one analyst argued that
the real value of its Corvette high performance sports car to Chevrolet was in "its ability to
lure curious customers into showrooms and at the same time help improve the image of
other Chevrolet cars. It does not mean a hell of a lot for GM profitability, but there is no
question that it is a traffic builder."70 Corvette's technological image and prestige were meant
to cast a halo over the entire Chevrolet line.
SUMMARY : : :
1. A brand is a name, term, sign, symbol, or design, or some 5. Brand equity needs to be measured in order to be man-
combination of these elements, intended to identify the aged well. Brand audits are in-depth examinations of the
goods and services of one seller or group of sellers and to health of a brand and can be used to set strategic direc-
differentiate them from those of competitors. The different tion for the brand. Tracking studies involve information
components of a brand—brand names, logos, symbols, collected from consumers on a routine basis over time
package designs, and so on—are brand elements. and provide valuable tactical insights into the short-term
2. Brands offer a number of benefits to customers and effectiveness of marketing programs and activities. Brand
firms. Brands are valuable intangible assets that need to audits measure "where the brand has been," and tracking
be managed carefully. The key to branding is that con- studies measure "where the brand is now" and whether
sumers perceive differences among brands in a product marketing programs are having the intended effects.
category. 6. A branding strategy for a firm identifies which brand ele-
3. Brand equity should be defined in terms of marketing ments a firm chooses to apply across the various products
effects uniquely attributable to a brand. That is, brand it sells. In a brand extension, a firm uses an established
equity relates to the fact that different outcomes result in brand name to introduce a new product. Potential exten-
the marketing of a product or service because of its brand, sions must be judged by how effectively they leverage
as compared to the results if that same product or service existing brand equity to a new product, as well as how
was not identified by that brand. effectively the extension, in turn, contributes to the equity
of the existing parent brand.
4. Building brand equity depends on three main factors: (1)
The initial choices for the brand elements or identities 7. Brands can play a number of different roles within the brand
making up the brand; (2) the way the brand is integrated portfolio. Brands may expand coverage, provide protection,
into the supporting marketing program; and (3) the associ- extend an image, or fulfill a variety of other roles for the Firm.
ations indirectly transferred to the brand by linking the Each brand name product must have a well-defined posi-
brand to some other entity (e.g., the company, country of tioning. In that way, brands can maximize coverage and
origin, channel of distribution, or another brand). minimize overlap and thus optimize the portfolio.
APPLICATIONS : : :
Marketing D e b a t e Are Brand Extensions Good or Bad?

Some critics vigorously denounce the practice of brand exten- Take a position: Brand extensions can endanger brands ver-
sions, as they feel that too often companies lose focus and sus brand extensions are an important brand-growth strategy.
consumers become confused. Other experts maintain that
brand extensions are a critical growth strategy and source of
revenue for the firm.
Marketing D i s c u s s i o n
How can you relate the different models of brand equity pre- ferent? Can you construct a brand equity model that incorpo-
sented in this chapter? How are they similar? How are they dif- rates the best aspects of each model?
MARKETING SPOTLIGHT PROCTER & GAMBLE
Procter & Gamble (P&G) is one of the most skilled marketers of consumer pack- strong consumer awareness and preference, P&G is now taking a leading
aged goods. It markets the leading brand in 19 of the 39 categories in which it role in building its brand on the Web.
competes. Its average market share is close to 25 percent. Its market leader-
Aggressive sales force: In 1998, P&G's sales force was named one of the
ship rests on several principles:
top 25 sales forces by Sales & Marketing Management magazine. A key to
Customer knowledge: P&G studies its customers—both final consumers P&G's success is the close ties its sales force forms with retailers, notably
and the trade—through continuous marketing research and intelligence Wal-Mart. The 150-person team that serves the retail giant works closely
gathering. It prints its toll-free 800 number on every product. with Wal-Mart to improve both the products that go to the stores and the
Long-term outlook: P&G takes the time to analyze each opportunity care- process by which they get there.
fully and prepare the best product, then commits itself to making this prod- • Effective sales promotion: P&G's sales promotion department counsels its
uct a success. It struggled with Pringles potato chips for almost a decade brand managers on the most effective promotions to achieve particular objec-
before achieving market success. tives. The department develops an expert sense of these deals' effectiveness
Product innovation: P&G is an active product innovator, devoting $1.7 bil- under varying circumstances. At the same time, P&G tries to minimize the use
lion (4 percent of sales) to research and development, an impressively high of sales promotion and move toward "everyday low prices."
amount for a packaged-goods company. Part of its innovation process is Competitive toughness: P&G carries a big stick when it comes to aggres-
developing brands that offer new consumer benefits. Recent examples sors. It is willing to spend large sums of money to outpromote new com-
include Febreze, an odor-eliminating fabric spray; Dryel, a product that petitive brands and prevent them from gaining a foothold.
allows consumers to clean and freshen "dry clean only" clothes at home;
• Manufacturing efficiency and cost cutting: P&G's reputation as a great
and Swifter, a new cleaning system that more effectively removes dust,
marketing company is matched by its excellence as a manufacturing com-
dirt, and hair from floors and other hard surfaces.
pany. P&G spends large sums developing and improving production oper-
Quality strategy: P&G designs products of above-average quality and ations to keep its costs among the lowest in the industry; and P&G has
continuously improves them. When P&G announces "new and recently begun slashing its costs even further, allowing it to reduce the pre-
improved," it means it. Recent examples include Tide and Ariel compact mium prices at which some of its goods sell.
detergents that remove stains and sanitize laundry while protecting orig-
Brand-management system: P&G originated the brand-management
inal fabric colors; and Pampers Rash Guard, the only diaper designed to
system, in which one executive is responsible for each brand. The system
treat and prevent diaper rash.
has been copied by many competitors but frequently without P&G's suc-
Line-extension strategy: P&G produces its brands in several sizes and cess. Recently, P&G modified its general management structure so that
forms. This strategy gains more shelf space and prevents competitors from each brand category is now run by a category manager with volume and
moving in to satisfy unmet market needs. profit responsibility. Although this new organization does not replace the
Category-extension strategy: P&G often uses its strong brand names brand-management system, it helps to sharpen strategic focus on key
to launch new products. The Ivory brand has been extended from a soap consumer needs and competition in the category.
to include a liquid soap, a dishwashing detergent, and a shampoo. Old Thus P&G's market leadership is not based on doing one thing well, but on
Spice was successfully extended from men's fragrances to deodorant. the successful orchestration of myriad factors that contribute to market
Launching a new product under a strong existing brand name gives the leadership.
new brand instant recognition and credibility with much less advertising
outlay. Discussion Questions
Multibrand strategy: P&G markets several brands in the same product 1. What have been the key success factors for Procter & Gamble?
category. Each brand meets a different consumer want and competes 2. Where is Procter & Gamble vulnerable? What should it watch out for?
against specific competitors' brands. Each brand manager competes for
3. What recommendations would you make to senior marketing executives
company resources. More recently, P&G has begun to reduce its vast array
going forward? What should they be sure to do with its marketing?
of products, sizes, flavors, and varieties to bring down costs.
Sources: Melanie Wells, "Kid Nabbing" Forbes, February 2, 2004, p. 84; P&G Fact Sheet,
i Heavy advertising and media pioneer: P&G is the nation's second- August 2003; "Chairman's Address," Annual Shareholder Meeting, October 14, 2003; Ed
largest consumer-packaged-goods advertiser, spending over $3 billion a Tazzia. "What's Entertaining?" Brandweek, November 17,2003, p. 40; Noreen O'Leary, "The
year on advertising. A pioneer in using the power of television to create New and Improved P&G." Brandweek, November 17, 2003, p. 44; <www.pg.com>.
NOTES : : :
1. Jefferson Graham, "Googley-eyed Over Success," USA Today, 2. Interbrand Group, World's Greatest Brands: An International
August 27, 2001; "How Good Is Google?" The Economist, Review (NewYork: John Wiley, 1992).
November 21, 2003, pp. 57-58; Fred Vogelstein, "Can Google Grow 3. Jacob Jacoby, Jerry C. Olson, and Rafael Haddock, "Price, Brand
UP?" Fortune, December 8, 2003, pp. 102-111. Name, and Product Composition Characteristics as Determinants
of Perceived Quality," Journal of Consumer Research 3, no. 4 16. Melanie Wells, "Red Baron," Forbes, July 3, 2000, pp. 151-60; Kerry
(1971): 209-216; Jacob Jacoby, George Syzbillo, and Jacqueline Capell with Wendy Zellner, "Richard Branson's Next Big
Busato-Sehach, "Information Acquisition Behavior in Brand Adventure," BusinessWeek, March 8, 2004, pp. 44-45; Kerry Capell,
Choice Situations," journal of Marketing Research (1977): 63-69. "Virgin Takes E-wing," BusinessWeek e.biz, January 22, 2001,
4. Leslie de Chernatony and Gil McWilliam, "The Varying Nature of pp. EB30-34; Capell with Zellner, "Richard Branson's Next Big
Brands as Assets," International Journal of Advertisings, no. 4, Adventure," pp. 44-45.
(1989): 339-349. 17. Aaker, Building Strong Brands.
5. Constance E. Bagley, Managers and the Legal Environment: 18. Aaker, Building Strong Brands.
Strategies for the 21st Century, 2nd ed. (Cincinnati, OH West 19. Kevin Lane Keller, "Building Customer-Based Brand Equity: A
Publishing, 1995). Blueprint for Creating Strong Brands," Marketing Management 10
6. Tulin Erdem, "Brand Equity as a Signaling Phenomenon," Journal (July/ August 2001): 15-19.
of Consumer Psychology!, no. 2 (1998): 131-157. 20. Christine Bittar, "Old Spice Does New Tricks," Brandweek, June 2,
7. Scott Davis, Brand Asset Management: Driving Profitable Growth 2003, pp. 17-18.
Through Your Brands, (San Francisco: Jossey-Bass, 2000); 21. Paul Keegan, "The Rise and Fall (and Rise Again) of Joe Boxer,
D. C. Bello and M. B. Holbrook, "Does an Absence of Brand Business 2.0, December 2002/January 2003, pp. 76-82.
Equity Generalize Across Product Classes?" Journal of Business
22. Alex Taylor III, "VW Learns What's in a Name: Trouble," Fortune,
Research 34 (1996): 125-131; Mary W. Sullivan, "How Brand
August 11,2003, p. 40.
Names Affect the Demand for Twin Automobiles," Journal of
Marketing Research 35 (1998): 154-165; Adrian J. Slywotzky and 23. Kim Robertson, "Strategically Desirable Brand Name
Benson P. Shapiro, "Leveraging to Beat the Odds: The New Characteristics," Journal of Consumer Marketing (Fall 1989):
Marketing Mindset," Harvard Business Review 61-70; C. Kohli and D. W. LaBahn, "Creating Effective Brand
(September-October 1993): 97-107. Names: A Study of the Naming Process," Journal of Advertising
Research (January/February 1997): 67-75.
8. The power of branding is not without its critics, however, some of
24. Robert Salerno, "We Try Harder: An Ad Creates a Brand,"
whom reject the commercialism associated with branding activi-
Brandweek, September 8, 2003, pp. 32, 33.
ties. See Naomi Klein, No Logo: Taking Aim at the Brand Bullies
(Picador, New York, NY 2000). 25. Don E. Schultz, Stanley I. Tannenbaum, and Robert E Lauterborn,
Integrated Marketing Communications (Lincolnwood IL: NTC
9. Charles Bymer, "Valuing Your Brands: Lessons from Wall Street
Business Books, 1993).
and the Impact on Marketers," ARE Third Annual Advertising and
Promotion Workshop, February 5-6, 1991. 26. Mohanbir Sawhney, "Don't Harmonize, Synchronize," Harvard
Business Review (July-August 2001): 101-108.
10. Kevin Lane Keller, "The Brand Report Card," Harvard Business
Review (January-February 2000): 147-157. 27. David C. Court, John E. Forsyth, Greg C. Kelly, and Mark A. Loch,
"The New Rules of Branding: Building Strong Brands Faster,"
11. Other approaches are based on economic principles of signaling
McKinsey Marketing Practice 13; Scott Bedbury, A New Brand
(e.g., Tulin Erdem, "Brand Equity as a Signaling Phenomenon,"
Journal of Consumer Psychology!, no. 2, (1998): 131-157; or more World, (New York: Viking Press, 2002).
of a sociological, anthropological, or biological perspective (e.g., 28. Sonia Reyes, "Cheerios: The Ride," Brandweek, September 23,
Grant McCracken, "Culture and Consumption: A Theoretical 2002, pp. 14-16.
Account of the Structure and Movement of the Cultural Meaning 29. Ian Wylie, "These Lollies Are About to Go Pop," Fast Company,
of Consumer Goods," Journal of Consumer Research 13 (1986): December 2002, pp. 52-54.
71-83; or Susan Fournier, "Consumers and Their Brands: 30. Christopher Locke, Rick Levine, Doc Searls, and David
Developing Relationship Theory in Consumer Research," Journal Weinberger, The Cluetrain Manifesto: The End of Business as Usual
of Consumer Research 24, no. 3 (1998). 343-373. (Cambridge MA: Perseus Press, 2000).
12. David A. Aaker, Managing Brand Equity (New York: Free Press, 31. Bruce Horovitz, "Gen Y: A Tough Crowd to Sell," USA Today,
1991); David A. Aaker, Building Strong Brands (New York: Free April 22, 2002, p. Bl.
Press, 1996); David A. Aaker and Erich Joachimsthaler, Brand 32. Dawn Iacobucci and Bobby Calder, eds., Kellogg on Integrated
Leadership (New York: Free Press 2000); Kevin Lane Keller, Marketing (New York: John Wiley & Sons, 2003).
Strategic Brand Management, 2nd ed. (Upper Saddle River, NJ:
33. Drew Madsen, "Olive Garden: Creating Value Through an
Prentice Hall, 2003).
Integrated Brand Experience," presentation at Marketing Science
13. Jean-Noel Kapferer, Strategic Brand Management: New Institute Conference, Brand Orchestration, Orlando, Florida,
Approaches to Creating and Evaluating Brand Equity (London: December 4, 2003.
Kogan Page, 1992), p. 38; Jennifer L. Aaker, "Dimensions of Brand
34. Scott Davis and Michael Dunn, Building the Brand Driven
Personality," Journal of Marketing Research (August 1997): 347-56;
Business (New York: John Wiley & Sons, 2002); Colin Mitchell,
Davis, Brand Asset Management: Driving Profitable Growth
"Selling the Brand Inside," Harvard Business Review (January
Through Your Brands. For an overview of academic research on
2002): 99-105.
branding, see Kevin Lane Keller, "Branding and Brand Equity," in
Handbook of Marketing, edited by Bart Weitz and Robin Wensley 35. Stan Maklan and Simon Knox, Competing On Value (Upper Saddle
(Sage Publications, 2002), pp. 151-178. River, NJ: Financial Times, Prentice Hall, 2000).
14. London, UK Keller, Strategic Brand Management. 36. Sherrie Bossung and Mark Pocharski, "Building a Communication
Strategy: Marketing the Brand to Employees," presentation at
15. Alice Z. Cuneo, "Apple Transcends as Lifestyle Brand," Advertising
Marketing Science Institute Conference, Brand Orchestration,
Age, June 15, 2003 pp. S2, S6.
Orlando, Florida, December 4, 2003.
37. Laurel Wentz, "Brand Audits Reshaping Images," Ad Age 56. Kevin Lane Keller and David A. Aaker, "The Effects of Sequential
International, September 1996, pp. 38-41. Introduction of Brand Extensions," Journal of Marketing Research
38. Keller, Strategic Brand Management;7od<i Wasscrman, 29 (February 1992): 35-50; John Milewicz and Paul Herbig,
"Sharpening the Focus," Brandweek, November 3, 2003, pp. 28-32. "Evaluating the Brand Extension Decision Using a Model of
Reputation Building," Journal of Product & Brand Managements,
39. Becky Ebenkamp, "Style Counsels with New Ads; Alize Knows its
no. 1 (1994): 39-47.
Place(ment)," Brandweek, December 15, 2003, p. 8.
40. Gerry Khermouch and Diane Brady, "Brands in an Age of Anti- 57. Mary W. Sullivan, "Brand Extensions: When to Use Them,"
Americanism," BusinessWeek, August 4, 2003, pp. 69-78. The arti- Management Science 38, no. 6 (June 1992): 793-806; Daniel C.
cle ranks the 100 best global brands using the valuation method Smith, "Brand Extension and Advertising Efficiency: What Can
developed by Interbrand. See also "Marked by the Market," The and Cannot Be Expected," Journal of Advertising Research
Economist, December 1, 2001, pp. 59-60 for an illustration of (November/December 1992): 11-20. See also, Daniel C. Smith and
Stern Stewart's Wealth Added Index. C. Whan Park, "The Effects of Brand Extensions on Market Share
and Advertising Efficiency," Journal of Marketing Research 29
41. Aaker, Building Strong Brands. Also see Patrick Barwise et al., (August 1992): 296-313.
Accounting for Brands (London: Institute of Chartered
Accountants in England and Wales, 1990); Peter H. Farquhar, 58. Laurie Freeman, "Helene Curtis Relies on Finesse," Advertising
Julia Y. Han, and Yuji Ijiri, "Brands on the Balance Sheet," Age, July 14, 1986, p. 2.
Marketing Management (Winter 1992): 16-22. 59. Subramanian Balachandcr and Sanjoy Ghose, "Reciprocal
42. Joann Muller, "Honey, I Shrank the Box," Forbes, November 10, Spillover Effects: A Strategic Benefit of Brand Extensions," Journal
2003, pp. 82-86. of Marketing67, no. 1 (January 2003): 4-13
60. John A. Quelch and David Kenny, "Extend Profits, Not Product
43. David Kiley, "To Boost Sales, Volvo Returns to Its Roots: Safety,"
Lines," Harvard Business Review (September-October 1994):
USA Today, August 26, 2002, p. 6B.
153-160; Perspectives from the Editors, "The Logic of Product-
44. Natalie Mizik and Robert Jacobson, "Trading Off Between Value
Line Extensions," Harvard Business Review (November-December
Creation and Value Appropriation: The Financial Implications of
1994): 53-62; J. Andrews and G. S. Low, "New but Not Improved:
Shifts in Strategic Emphasis," Journal ofMarketing67 (January
Factors That Affect the Development of Meaningful Line
2003): 63-76.
Extensions," Working Paper Report No. 98-124 (Cambridge, MA:
45. Mark Speece, "Marketer's Malady: Fear of Change," Brandweek, Marketing Science Institute, November 1998); Maureen Morrin,
August 19, 2002, p. 34. "The Impact of Brand Extensions on Parent Brand Memory
46. Keith Naughton, "Fixing Cadillac," Newsweek, May 28, 2001, Structures and Retrieval Processes," Journal of Marketing
pp. 36-37. Research 36, no. 4 (1999): 517-525.
47. Norman Klein and Stephen A. Greyser, "The Perricr Recall: A 61. Al Ries and Jack Trout, Positioning: The Battle for Your Mind (New
Source of Trouble," Harvard Business School Case #9-590-104; and York: McGraw-Hill, 1981).
"The Perrier Relaunch," Harvard Business School Case #9-590-130. 62. David A. Aaker, Brand Portfolio Strategy: Creating Relevance,
48. Ronald Alsop, "Enduring Brands Flold Their Allure by Sticking Differentiation, Energy, Leverage, and Clarity (NewYork: Free
Close to Their Roots," Wall Street journal Centennial Edition, 1989. Press, 2004).
49. Peter Farquhar, "Managing Brand Equity," Marketing Research 1 63. Mary W. Sullivan, Measuring Image Spillovers in Umbrella-
(September 1989): 24-33. branded Products, Journal of Business 63, no. 3 (1990): 309-329.
50. Steven M. Shugan, "Branded Variants," 1989 AMA Educators' 64. Barbara Loken and Deborah Roedder John, "Diluting Brand
Proceedings (Chicago: American Marketing Association, 1989), Beliefs: When Do Brand Extensions I lave a Negative Impact?"
pp. 33-38; also M. Bergen, S. Dutta, and S. M. Shugan, "Branded journal of Marketing (July 1993): 71-84; Deborah Roedder John,
Variants: A Retail Perspective," Journal of Marketing Research 33 Barbara Loken, and Christopher Joiner, "The Negative Impact of
(February 1996): 9-21. Extensions: Can Flagship Products Be Diluted," Journal of
51. Constance L. Hays, "No More Brand X: Licensing of Names Adds Marketing (January 1998): 19-32; Susan M. Broniarcyzk and
to Image and Profit," NewYork Times, June 12, 1998, p. Dl; Joseph W Alba, "The Importance of the Brand in Brand
Carleen Hawn, "What's in a Name? Whatever You Make It," Extension," journal of Marketing Research (May 1994): 214-228
Forbes, July 27, 1998, pp. 84-88; Carl Quintanilla, "Advertising: (this entire issue of JMR is devoted to brands and brand equity).
Caterpillar, Deere Break Ground in Consumer-Product Territory," See also, R. Ahluwalia and Z. Gurhan-Canli, "The Effects of
Wall Street Journal, June 20, 1996, p. B2. Also see Aaker, Building Extensions on the Family Brand Name: An Accessibility-
Strong Brands. Diagnosticity Perspective," Journal of Consumer Research 27
(December 2000): 371-381; Z. Gurhan-Canli and M. Durairaj,
52. Becky Ebenkamp, "The Creative License," Brandweek, June 9,
"The Effects of Extensions on Brand Name Dilution and
2003, pp. 36-40.
Enhancement," Journal of Marketing Research 35 (1998): 464-473;
53. Theodore Levitt, "Marketing Success Through Differentiation— S. J. Milberg, C. W. Park, and M. S. McCarthy, "Managing Negative
of Anything," Harvard Business Review (January-February Feedback Effects Associated with Brand Extensions: The Impact
1980): 83-91. of Alternative Branding Strategies," Journal of Consumer
54. Dan Reed, "Low-fare Rivals Keep a Close Eye on Song," USA Psychology?, (1997): 119-140.
Today, November 25, 2003, p. 6B.
(if). Andrea Rothman, "France's Bic Bets U.S. Consumers Will Go for
55. Byung-Do Kim and Mary W. Sullivan, "The Effect of Parent Brand Perfume on the Cheap," Wall Street Journal, January 12, 1989, p. B6.
Experience on Line Extension Trial and Repeat Purchase,"
66. Philip Kotler, Marketing Management, 11th ed., (Upper Saddle
Marketing Letters9 (April 1998): 181-193.
River, NJ: Prentice Hall, 2003); Patrick Barwise and Thomas
Robertson, "Brand Portfolios," European Management Journal 10, 69. For a methodological approach for assessing the extent and
no. 3 (September 1992): 277-285. nature of cannibalization, see Charlotte H. Mason and George
67. Jack Trout, Differentiate or Die: Survival in Our Era of Killer R. Milne, "An Approach for Identifying Cannibalization within
Competition (New York: John Wiley, 2000). Product Line Extensions and Multi-Brand Strategies," Journal of
Business Research 31 (1994): 163-170.
68. Nirmalya Kumar, "Kill a Brand, Keep a Customer," Harvard
Business Review (December 2003): 87-95. 70. Paul W. Farris, "The Chevrolet Corvette," Case UVA-M-320, The
Darden Graduate Business School Foundation, University of
Virginia, Charlottesville, Virginia.
IN THIS CHAPTER, WE WILL
ADDRESS THE FOLLOWING
QUESTIONS:
1. How can a firm choose and

communicate an effective
positioning in the market?
2. How are brands differentiated';
3. What marketing strategies are
appropriate at each stage of the
product life cycle?
4. What are the implications of
market evolution for marketi
strategies?
CHAPTER 10 CRAFTING THE BRAND
POSITIONING
No company can win if its products and offerings resemble every

other product and offering. Companies must pursue relevant posi-
tioning and differentiation. As part of the strategic brand manage-
ment process, each company and offering must represent a distinc-
tive big idea in the mind of the target market.
he Public Broadcasting Service finds its brand in a difficult position.

The average nightly prime-time ratings for public television's 349
stations declined 23 percent from 1993 to 2002. During that same
period, cable networks such as Discovery Channel, History Channel, A&E,
and Fox News siphoned off PBS viewers and experienced a 122 percent
growth. PBS's loyal audience is aging—the average age of a prime-time PBS
I
viewer is the mid-fifties. The challenge is to attract new, younger viewers
while still maintaining the quality programming that is its mission. PBS's iden-
tity crisis caused CEO Pat Mitchell to proclaim in 2002: "For public broad-
casting to be vital and viable, we are going to have to embrace some
1
changes."'
A recent PBS fund drive on New York's

Channel Thirteen. Channel Thirteen is
adjusting its programming to attract a
more diverse audience.
309
As the plight of PBS demonstrates, even when a company succeeds in distin-

guishing itself, differences can be short-lived. Companies normally reformulate
their marketing strategies and offerings several times. Economic conditions
change, competitors launch new assaults, and products pass through new
stages of buyer interest and requirements. Marketers must develop strategies
for each stage in the product's life cycle. The goal is to extend the product's life
and profitability, keeping in mind that products do not last forever. This chap-
ter explores specific ways a company can effectively position and differentiate
its offerings t o achieve a competitive advantage throughout the life cycle of a
product or an offering.
Ill Developing and Communicating

a Positioning Strategy
All marketing strategy is built on STP—Segmentation, Targeting, and Positioning. A com-
pany discovers different needs and groups in the marketplace, targets those needs and
groups that it can satisfy in a superior way, and then positions its offering so that the target
market recognizes the company's distinctive offering and image. If a company does a poor
job of positioning, the market will be confused. This happened when National Car Company
and Alamo Rent-a-Car were combined by their former parent, ANC Rental Corp., following
its Chapter 11 bankruptcy court filing in 2001.
NATIONAL CAR RENTAL AND ALAMO RENT-A-CAR
Premium brand National traditionally catered to business travelers, whereas Alamo Rent-a-Car has been getting
90 percent of its business from leisure travelers. After the two merged, the dual Alamo/National logos were plas-
tered on everything from airport shuttle buses to workers' polo shirts. Customers of both Alamo and National had
problems distinguishing between the brands, even though National's cars typically rent for 10 to 20 percent
more than Alamo's. After all, the customers had to stand in the same line behind the same airport counter,
receive service from the same rental agents, ride the same shuttle buses, and drive cars from the same fleet.
National was most hurt by the lack of differentiation at these key touchpoints, and its market share fell 5 to 10
percent. Interestingly, after consolidation of the brands, shuttle bus frequency improved 38 percent and business
travelers were given even more options to bypass the rental counter entirely. Still, in surveys, National renters
perceived the buses to be slower, the lines longer, and customer service poorer. The clear implication was that
in order for the two brands to maintain their integrity and their positioning with their respective market seg-
ments, they had to be separated.2
If a company does an excellent job of positioning, then it can work out the rest of its mar-
keting planning and differentiation from its positioning strategy. We define positioning as
follows: Positioning is the act of designing the company's offering and image to occupy a
distinctive place in the mind of the target market. The goal is to locate the brand in the
minds of consumers to maximize the potential benefit to the firm. A good brand positioning
helps guide marketing strategy by clarifying the brand's essence, what goals it helps the con-
sumer achieve, and how it does so in a unique way. The result of positioning is the success-
ful creation of a customer-focused value proposition, a cogent reason why the target market
should buy the product. Table 10.1 shows how three companies—Perdue, Volvo, and
Domino's—defined their value proposition given their target customers, benefits, and prices.
The word "positioning" was popularized by two advertising executives, Al Ries and jack
Trout. They see positioning as a creative exercise done with an existing product:
CRAFTING THE BRAND POSITIONING CHAPTER 10 311
TABLE 10.1 Examples of Value Propositions Demand States and Marketing Tasks
Company Target Value

and Product Customers Benefits Price Proposition
Perdue Quality-conscious Tenderness 10% premium More tender golden chicken at a

(chicken) consumers of chicken moderate premium price
Volvo Safety-conscious Durability and safety 20% premium The safest, most durable wagon in
(station wagon) "upscale" families which your family can ride
Domino's Convenience-minded Delivery speed and 15% premium A good hot pizza, delivered to
(pizza) pizza lovers good quality your door within 30 minutes of ordering, at a
moderate price
Positioning starts with a product. A piece of merchandise, a service, a company, an

institution, or even a person.... But positioning is not what you do to a product.
Positioning is what you do to the mind of the prospect. That is, you position the
product in the mind of the prospect.3
"Marketing Insight: Value Disciplines Positioning" offers another point of view about posi-
tioning. According to virtually all approaches, positioning requires that similarities and differ-
ences between brands be defined and communicated. Specifically, deciding on a positioning
requires determining a frame of reference by identifying the target market and the competi-
tion, and identifying the ideal points-of-parity and points-of-difference brand associations.
C o m p e t i t i v e Frame of Reference
A starting point in defining a competitive frame of reference for a brand positioning is to deter-
mine category membership—the products or sets of products with which a brand competes
and which function as close substitutes. As we discuss in Chapter 11, competitive analysis will
consider a whole host of factors—including the resources, capabilities, and likely intentions of
various other firms—in choosing those markets where consumers can be profitably serviced.
Target market decisions are often a key determinant of the competitive frame of refer-
ence. Deciding to target a certain type of consumer can define the nature of competition
because certain firms have decided to target that segment in the past (or plan to do so in the
MARKETING INSIGHT VALUE DISCIPLINES POSITIONING
Two consultants, Michael Treacy and Fred Wiersema, proposed a rupt the smooth functioning of normal operations. Even within a large
positioning framework called value disciplines. Within its industry, a company, such as GE, each division might follow a different value
firm could aspire to be the product leader, the operationally excellent discipline: GE's major appliance division pursues operational excel-
firm, or the customer-intimate firm. This framework is based on the lence, its engineered plastics division pursues customer intimacy,
notion that in every market there is a mix of three types of customers. and its jet engine division pursues product leadership.
Some customers favor the firm that is on the technological frontier Treacy and Wiersema propose that a business should follow four
(product leadership); other customers want highly reliable perfor- rules for success:
mance (operational excellence); and still others want high respon-
siveness in meeting their individual needs (customer intimacy). 1. Become best at one of the three value disciplines.
A firm cannot normally be best in all three ways, or even in two
2. Achieve an adequate performance level in the other two disciplines.
ways. Each value discipline requires different managerial mind-sets
and investments that often conflict. Thus McDonald's excels at oper- 3. Keep improving one's superior position in the chosen discipline
ational excellence, but could not afford to slow down its service to so as not to lose out to a competitor.
prepare hamburgers differently for each customer. Nor could 4. Keep becoming more adequate in the other two disciplines,
McDonald's lead in new products because each addition would dis- because competitors keep raising customers' expectations.
Source: Michael Treacy and Fred Wiersema, The Disciplines of Market Leaders (Reading, MA: Addison-Wesley, 1994).
"It's not delivery, it's DiGiomo." DiGiomo

print ad that carries through on the
delivered pizza positioning, which helped
make it the frozen pizza leader.
future), or consumers in that segment already may look to certain brands in their purchase
decisions. Determining the proper competitive frame of reference requires understanding
consumer behavior and the consideration sets consumers use in making brand choices. In
the United Kingdom, for example, the Automobile Association has positioned itself as the
fourth "emergency service"—along with police, fire, and ambulance—to convey greater
credibility and urgency. And look at how DiGiorno's positioned itself:
r DIGIORNO'S PIZZA
DiGiorno's is a frozen pizza whose crust rises when the pizza is heated. Instead of putting it in the frozen pizza
category, the marketers positioned it in the delivered pizza category. One of their ads shows party guests asking
which pizza delivery service the host used. Then he says: "It's not delivery, its DiGiomo!" This helped highlight
DiGiorno's fresh quality and superior taste. Through this clever positioning, DiGiorno's sales went from essentially
nothing in 1995 to $382 million in 2002, making it the frozen pizza leader.4
Points-of-Parity and Points-of-Difference

Once the competitive frame of reference for positioning has been fixed by defining the cus-
tomer target market and nature of competition, marketers can define the appropriate
points-of-difference and points-of-parity associations.5
= Points-of-difference (PODs) are attributes or benefits consumers

strongly associate with a brand, positively evaluate, and believe that they could not find to the
same extent with a competitive brand. Strong, favorable, and unique brand associations that
make up points-of-difference may be based on virtually any type of attribute or benefit.

Examples are FedEx {guaranteed overnight delivery), Nike {performance), and Lexus {quality).
Creating strong, favorable, and unique associations as points-of-difference is a real chal-
lenge, but essential in terms of competitive brand positioning. Consider the success of IKEA.
IKEA
Swedish retailer IKEA took a luxury product—home furnishings and furniture—and made it a reasonably priced
alternative for the mass market. IKEA supports its low prices by having customers self-serve, deliver, and
assemble the products themselves. IKEA also gains a point-of-difference through its product offerings. As one
commentator noted, "IKEA built its reputation on the notion that Sweden produces good, safe, well-built things
for the masses. It has some of the most innovative designs at the lowest cost out there." It also operates an
excellent restaurant in each store (rare among furniture stores); offers child-care services while the parents
shop; offers a membership program entitling members to special discounts on their purchases beyond the nor-
mal low price; and mails out millions of catalogs featuring the latest furniture.6
OF-PARITY Points-of-parity (POPs), on the other hand, are associations that are
not necessarily unique to the brand but may in fact be shared with other brands. These types
of associations come in two basic forms: category and competitive.
Category points-of-parity are associations consumers view as essential to be a legitimate
and credible offering within a certain product or service category. In other words, they rep-
resent necessary—but not necessarily sufficient—conditions for brand choice. Consumers
might not consider a travel agency truly a travel agency unless it is able to make air and hotel
reservations, provide advice about leisure packages, and offer various ticket payment and
delivery options. Category points-of-parity may change over time due to technological
advances, legal developments, or consumer trends, but they are the "greens fees" to play the
marketing game.
Competitive points-of-parity are associations designed to negate competitors' points-of-
difference. If, in the eyes of consumers, the brand association designed to be the competitor's
point-of-difference is as strong for a brand as for competitors and the brand is able to estab-
lish another association as strong, favorable, and unique as part of its point-of-difference,
then the brand should be in a superior competitive position. In other words, if a brand can
"break even" in those areas where the competitors are trying to find an advantage and can
achieve advantages in other areas, the brand should be in a strong—and perhaps unbeat-
able—competitive position. While other luxury-goods makers slumped in 2000, Coach saw its
sales zoom ahead by adding style and fashion to its legendary rugged bags and briefcases.7 As
another example, consider the introduction of Miller Lite beer.8
MILLER LITE
The initial advertising strategy for Miller Lite beer had two goals—assuring parity with key competitors in
the category by stating that it "tastes great," while at the same time creating a point-of-difference: It con-
tained one-third less calories and was thus "less filling" than regular, full-strength beers. As is often the
case, the point-of-parity and point-of-difference were somewhat conflicting, as consumers tend to equate
taste with calories. To overcome potential resistance, Miller employed credible spokespeople, primarily pop-
ular former professional athletes, who would presumably not drink a beer unless it tasted good. These ex-
jocks humorously debated which of the two product benefits—"tastes great" or "less filling"—was more
descriptive of the beer. The ads ended with the clever tagline "Everything You've Always Wanted In a Beer
. . . And Less."
POINTS-OF-PARITY VERSUS POINTS-OF-DIFFERENCE To achieve a point-of-parity

(POP) on a particular attribute or benefit, a sufficient number of consumers must believe
that the brand is "good enough" on that dimension. There is a "zone" or "range of tolerance
or acceptance" with points-of-parity. The brand does not literally have to be seen as equal to
competitors, but consumers must feel that the brand does well enough on that particular
attribute or benefit. If consumers feel that way, they may be willing to base their evaluations
and decisions on other factors potentially more favorable to the brand. A light beer presum-
ably would never taste as good as a full-strength beer, but it would have to taste close enough
to be able to effectively compete. With points-of-difference, however, the brand must
demonstrate clear superiority. Consumers must be convinced that Louis Vuitton has the
most stylish handbags, Energizer is the longest-lasting battery, and Merrill Lynch offers the
best financial advice and planning.
Often, the key to positioning is not so much in achieving a point-of-difference (POD) as
in achieving points-of-parity!
r- VISA VERSUS AMERICAN EXPRESS
Visa's POD in the credit card category is that it is the most widely available card, which underscores the cat-
egory's main benefit of convenience. American Express, on the other hand, has built the equity of its brand by
highlighting the prestige associated with the use of its card. Having established their PODs, Visa and American
Express now compete by attempting to blunt each others' advantage to create POPs. Visa offers gold and plat-
inum cards to enhance the prestige of its brand and advertises, "It's Everywhere You Want to Be" in settings
that reinforce exclusivity and acceptability. American Express has substantially increased the number of ven-
• dors that accept its cards and created other value enhancements through its "Make Life Rewarding" program.
Establishing Category Membership

Target customers are aware that Maybelline is a leading brand of cosmetics, Cheerios is a
leading brand of cereal, Accenture is a leading consulting firm, and so on. Often, however,
marketers must inform consumers of a brand's category membership. Perhaps the most
obvious situation is the introduction of new products, especially when the category mem-
bership is not apparent. This uncertainty can be a special problem for high-tech products.
There are also situations where consumers know a brand's category membership, but may
not be convinced that the brand is a valid member of the category. For example, consumers
may be aware that Hewlett-Packard produces digital cameras, but they may not be certain
whether Hewlett-Packard cameras are in the same class as Sony, Olympus, Kodak, and
Nikon. In this instance, HP might find it useful to reinforce category membership.
Brands are sometimes affiliated with categories in which they do not hold member-
ship. This approach is one way to highlight a brand's point-of-difference, providing that
consumers know the brand's actual membership. With this approach, however, it is impor-
tant that consumers understand what the brand stands for, and not just what it is not. It is
important to not be trapped between categories. The Konica e-mini M digital camera and
MP3 player was marketed as the "four-in-one entertainment solution," but suffered from
functional deficiencies in each of its product applications and languished in the market-
place.9
The preferred approach to positioning is to inform consumers of a brand's membership
before stating its point-of-difference. Presumably, consumers need to know what a product
is and what function it serves before deciding whether it dominates the brands against
which it competes. For new products, initial advertising often concentrates on creating
brand awareness and subsequent advertising attempts to craft the brand image.
Occasionally, a company will try to straddle two frames of reference:
r- BMW
When BMW first made a strong competitive push into the U.S. market in the early 1980s, it positioned the brand
as being the only automobile that offered both luxury and performance. At that time, American luxury cars were
seen by many as lacking performance, and American performance cars were seen as lacking luxury. By relying
on the design of its cars, its German heritage, and other aspects of a well-conceived marketing program, BMW
was able to simultaneously achieve: (1) a point-of-difference on luxury and a point-of-parity on performance
with respect to performance cars and (2) a point-of-difference on performance and a point-of-parity on luxury
with respect to luxury cars. The clever slogan "The Ultimate Driving Machine" effectively captured the newly cre-
s ated umbrella category—luxury performance cars.
While a straddle positioning often is attractive as a means of reconciling potentially

conflicting consumer goals, it also carries an extra burden. If the points-of-parity and
points-of-difference with respect to both categories are not credible, the brand may not
be viewed as a legitimate player in either category. Many early PDAs that unsuccessfully
tried to straddle categories ranging from pagers to laptop computers provide a vivid illus-
tration of this risk.
There are three main ways to convey a brand's category membership:

1. Announcing category benefits. To reassure consumers that a brand will deliver on the
fundamental reason for using a category, benefits are frequently used to announce cate-
gory membership. Thus, industrial tools might claim to have durability and antacids
might announce their efficacy. A brownie mix might attain membership in the baked
desserts category by claiming the benefit of great taste and support this benefit claim by
possessing high-quality ingredients (performance) or by showing users delighting in its
consumption (imagery).
2. Comparing to exemplars. Well-known, noteworthy brands in a category can also be
used to specify category membership. When Tommy Hilfiger was an unknown, advertis-
ing announced his membership as a great American designer by associating him with
Geoffrey Beene, Stanley Blacker, Calvin Klein, and Perry Ellis, who were recognized
members of that category.
3. Relying on the product descriptor. The product descriptor that follows the brand name
is often a concise means of conveying category origin. Ford Motor Co., invested more
than $1 billion on a radical new 2004 model called the X-Trainer, which combines the
attributes of an SUV, a minivan, and a station wagon. To communicate its unique posi-
tion—and to avoid association with its Explorer and Country Squire models—the vehicle
is designated a "sports wagon."10
Choosing POPs and PODs

Points-of-parity are driven by the needs of category membership (to create category POPs)
and the necessity of negating competitors' PODs (to create competitive POPs). In choosing
points-of-difference, two important considerations are that consumers find the POD desir-
able and that the firm has the capabilities to deliver on the POD.
There are three key consumer desirability criteria for PODs.
1. Relevance. Target consumers must find the POD personally relevant and important. The
Westin Stamford hotel in Singapore advertised that it was the world's tallest hotel, but a
hotel's height is not important to many tourists.
2. Distinctiveness. Target consumers must find the POD distinctive and superior. When
entering a category where there are established brands, the challenge is to find a viable
basis for differentiation. Splenda sugar substitute overtook Equal and Sweet 'n Low to
become the leader in its category in 2003 by differentiating itself on its authenticity as a
product derived from sugar, without any of the associated drawbacks.11
3. Believability. Target consumers must find the POD believable and credible. A brand
must offer a compelling reason for choosing it over the other options. Mountain Dew
may argue that it is more energizing than other soft drinks and support this claim by not-
ing that it has a higher level of caffeine. Chanel No. 5 perfume may claim to be the quin-
tessential elegant French perfume and support this claim by noting the long association
between Chanel and haute couture.
There are three key deliverability criteria.
1. Feasibility. The firm must be able to actually create the POD. The product design and
marketing offering must support the desired association. Does communicating the
desired association involve real changes to the product itself, or just perceptual ones as
to how the consumer thinks of the product or brand? It is obviously easier to convince
consumers of some fact about the brand that they were unaware of and may have over-
looked than to make changes in the product and convince consumers of these changes.
General Motors has had to work to overcome public perceptions that Cadillac is not a
youthful, contemporary brand.
2. Communicability. It is very difficult to create an association that is not consistent with
existing consumer knowledge or that consumers, for whatever reason, have trouble
believing. Consumers must be given a compelling reason and understandable rationale
as to why the brand can deliver the desired benefit. What factual, verifiable evidence or
"proof points" can be given as support so that consumers will actually believe in the
brand and its desired associations? Substantiators often come in the form of patented,
branded ingredients, such as Nivea Wrinkle Control Creme with Q10 co-enzyme or
Herbal Essences hair conditioner with Hawafena.
316 PART 4 BUILDING STRONG BRANDS «
3. Sustaiiiability. Is the positioning preemptive, defensible, and difficult to attack? Can the
favorability of a brand association be reinforced and strengthened over time? If yes, the
positioning is likely to be enduring. Sustainability will depend on internal commitment
and use of resources as well as external market forces. It is generally easier for market
leaders such as Gillette, Intel, and Microsoft, whose positioning is based in part on
demonstrable product performance, to sustain their positioning than for market leaders
such as Gucci, Prada, and Hermes, whose positioning is based on fashion and is thus
subject to the whims of a more fickle market.
Marketers must decide at which Ievel(s) to anchor the brand's points-of-differences. At
the lowest level are the brand attributes, at the next level are the brand's benefits, and at the
top are the brand's values. Thus marketers of Dove soap can talk about its attribute of one-
quarter cleansing cream; or its benefit of softer skin; or its value, being more attractive.
Attributes are typically the least desirable level to position. First, the buyer is more interested
in benefits. Second, competitors can easily copy attributes. Third, the current attributes may
become less desirable.
Research has shown, however, that brands can sometimes be successfully differenti-
ated on seemingly irrelevant attributes //"consumers infer the proper benefit.12 Procter &
Gamble differentiates its Folger's instant coffee by its "flaked coffee crystals," created
through a "unique patented process." In reality, the shape of the coffee particles is irrele-
vant because the crystals immediately dissolve in the hot water. Saying that a brand of
coffee is "mountain grown" is irrelevant because most coffee is mountain grown.
"Marketing Memo: Writing a Positioning Statement" outlines how positioning can be
expressed formally.
Creating POPs and P O D s

One common difficulty in creating a strong, competitive brand positioning is that many
of the attributes or benefits that make up the points-of-parity and points-of-difference
are negatively correlated. If consumers rate the brand highly on one particular attribute
or benefit, they also rate it poorly on another important attribute. For example, it might
be difficult to position a brand as "inexpensive" and at the same time assert that it is "of
the highest quality." Table 10.2 displays some other examples of negatively correlated
attributes and benefits. Moreover, individual attributes and benefits often have positive
and negative aspects. For example, consider a long-lived brand that is seen as having a
great deal of heritage. Heritage could suggest experience, wisdom, and expertise. On the
other hand, it could also easily be seen as a negative: It might imply being old-fashioned
and not up-to-date.
MARKETING MEMO WRITING A POSITIONING STATEMENT
To communicate a company or brand positioning, marketing plans the highest level of caffeine. With Mountain Dew, you can stay
often include a positioning statement. The statement should follow alert and keep going even when you haven't been able to get
the form: To (target group and need) our (Brand) is (concept) that a good night's sleep.
(point-of-difference). For example: "To busy professionals who need
Note that the positioning first states the product's membership in a
to stay organized, Palm Pilot is an electronic organizer that allows
category (e.g., Mountain Dew is a soft drink) and then shows its
you to back up files on your PC more easily and reliably than com-
point-of-difference from other members of the group (e.g., has more
petitive products." Sometimes the positioning statement is more
caffeine). The product's membership in the category suggests the
detailed:
points-of-parity that it might have with other products in the category,
Mountain Dew: To young, active soft-drink consumers who but the case for the product rests on its points-of-difference.
have little time for sleep, Mountain Dew is the soft drink that Sometimes the marketer will put the product in a surprisingly differ-
gives you more energy than any other brand because it has ent category before indicating the points of difference.
Sources: Bobby J. Calder and Steven J. Reagan, "Brand Design," in Kellogg on Marketing, edited by Dawn lacobucci (New York: John Wiley & Sons, 2001), p. 61;
Alice M. Tybout and Brian Sternthal, "Brand Positioning," in Kellogg on Marketing, edited by Dawn lacobucci (New York: John Wiley & Sons, 2001), p. 54.
> CRAFTING THE BRAND POSITIONING CHAPTER 10 317
TABLE 10.2
• 1
Low Price vs. High Quality Powerful vs. Safe Examples of Negatively Correlated
Taste vs. Low Calories Strong vs. Refined Attributes and Benefits
Nutritious vs. Good Tasting Ubiquitous vs. Exclusive
Efficacious vs. Mild Varied vs. Simple
BROOKS B R O T H ERS
In the late 1990s, Brooks Brothers found its heritage to be a deficit rather than a plus. The American
retailer's starched shirts and pinstriped suits seemed an anachronism in a world of jeans, khakis, polo tops,
and casual Fridays. The company tried to downplay its heritage by stocking trendier sweaters and slacks.
The move both alienated loyal customers and failed to attract new ones, and the company lost share. In
2001, Italian-born Claudio Del Vecchio bought the company for $225 million, and began using the Brooks
Brothers heritage as a positive point-of-difference. The look is more sophisticated, quality is back, and
prices are higher. For now, Brooks Brothers is focused on wooing its traditional customers. The store has
published a book chronicling its history. It is inviting select customers to a series of 185th anniversary
events and reintroducing pieces from its past, including the Shetland sweater introduced in 1904 and the
sack suit JFK loved. As a sign that the beleaguered company must be doing something right, other stores
are copying it by mining their own heritage: Coach is bringing back its bucket-shaped "feed bag" purse,
Eddie Bauer is reintroducing the 1936 quilted Skyliner jacket, and J. Crew is making its classic tweed jacket
and roll-neck sweater again.13
Unfortunately, consumers typically want to maximize botli attributes and benefits. Much
of the art and science of marketing is dealing with trade-offs, and positioning is no different.
The best approach clearly is to develop a product or service that performs well on both
dimensions. BMW was able to establish its "luxury and performance" straddle positioning
due in large part to product design and the fact that the car was seen as both luxurious and
high performance. Gore-Tex was able to overcome the seemingly conflicting product image
of "breathable" and "waterproof" through technological advances. There are additional ways
to address the problem of negatively correlated POPs and PODs.
>ENT SEPARATELY An expensive but sometimes effective approach to addressing neg-

atively correlated attributes and benefits is to launch two different marketing campaigns,
each one devoted to a different brand attribute or benefit. These campaigns may run
together at one point in time or sequentially over time. Head & Shoulders shampoo met suc-
cess in Europe with a dual campaign where one campaign emphasized its dandruff removal
efficacy while another emphasized the appearance and beauty of hair after its use. The hope
is that consumers will be less critical when judging the POP and POD benefits in isolation.
The downside with such an approach is that you need two strong campaigns. Moreover, if
marketers do not address the negative correlation head-on, consumers may not develop the
desired positive associations.
TY In the Miller Lite example above, the brand

"borrowed" or leveraged the equity of well-known and well-liked celebrities to lend credi-
bility to a negatively correlated benefit. Brands can potentially link themselves to any kind
of entity that possesses the right kind of equity as a means to establish an attribute or ben-
efit as a POP or POD. Branded ingredients may also lend some credibility to a questionable
attribute in consumers' minds. Borrowing equity, however, is not riskless. Personal com-
puter manufacturers such as IBM and Compaq found that the Intel Inside co-op advertising
program, which gave Intel exposure in the PC makers' ad, resulted in consumers seeking
Intel-based computers.
P Another potentially powerful but often difficult way to

address the negative relationship between attributes and benefits is to convince consumers
that in fact the relationship is positive. This redefinition can be accomplished by providing
consumers with a different perspective and suggesting that they may be overlooking or
ignoring certain considerations.
APPLE COMPUTERS
When Apple Computers launched Macintosh, its key point-of-difference was "user friendly." Many consumers
valued ease of use, especially those who bought personal computers for the home. One drawback with a
"user-friendly" association was that customers who bought personal computers for business applications
thought that if a personal computer was easy to use, then it must not be very powerful. Recognizing this poten-
tial problem, Apple ran a clever ad campaign with the tag line "The Power to Be Your Best." The strategy
behind the ads was that because Apple was easy to use, people in fact did just that—they used it!—a simple
but important indication of "power." In other words, the most powerful computers were ones people actually
used.
• • • Differentiation Strategies
•••
To avoid the commodity trap, marketers must start with the belief that you can differentiate
anything. (See "Marketing Memo: How to Derive Fresh Consumer Insights to Differentiate
Products and Services.") Brands can be differentiated on the basis of many variables.
Southwest Airlines has differentiated itself in several different ways.
r SOUTHWEST AIRLINES
The Dallas-based airline carved its niche in short-haul flights with low prices, reliable service, and a healthy
sense of humor. Southwest keeps costs low by offering only basic in-flight service (no meals, no movies) and
rapid turnaround at the gates to keep the planes in the air. Southwest knew that it could not differentiate on price
alone because competitors could try to muscle into the market with their own cheaper versions. The airline has
also distinguished itself as a "fun" airline, noted for humorous in-flight commentary from pilots and cabin crew
members. Another popular feature of Southwest flights is the first-come, first-served open seating: Passengers
are given numbered cards based on when they arrive at the gate. Southwest is now the nation's sixth-largest
airline in revenue, and holds the distinction of being the only low-fare airline to achieve long-term success.14
HOW TO DERIVE FRESH CONSUMER INSIGHTS TO

MARKETING MEMO DIFFERENTIATE PRODUCTS A N D SERVICES
In "Discovering New Points of Differentiation," Ian C. MacMillan and i What happens when your product or service is delivered?
Rita Gunther McGrath argue that if companies examine customers' • How is your product installed?
entire experience with a product or service—the consumption 3
How is your product or service paid for?
chain—they can uncover opportunities to position their offerings in
ways that neither they nor their competitors thought possible. • How is your product stored?
MacMillan and McGrath list a set of questions marketers can use to • How is your product moved around?
help them identify new, consumer-based points of differentiation.
What is the consumer really using your product for?
3
* How do people become aware of their need for your product and What do consumers need help with when they use your product?
service? • What about returns or exchanges?
' How do consumers find your offering? i How is your product repaired or serviced?
i How do consumers make their final selection? ' What happens when your product is disposed of or no longer
' How do consumers order and purchase your product or service? used?
Source: Ian C. MacMillan and Rita Gunther McGrath, "Discovering New Points of Differentiation," Harvard Business Review (July-August 1997): 133-145.
The obvious means of differentiation, and often most compelling ones to consumers,
relate to aspects of the product and service. Swatch offers colorful, fashionable watches.
Subway differentiates itself in terms of healthy sandwiches as an alternative to fast food.
Method built a $10 million business in a year by creating a line of nontoxic household clean-
ing products with bright colors and sleek designs totally unique to the category.15 In com-
petitive markets, however, firms may need to go beyond these. Among the other dimensions
a company can use to differentiate its market offering are personnel, channel, and image.
This section highlights these four different differentiation strategies.
Product Differentiation
As Chapter 12 describes, brands can be differentiated on the basis of a number of different
product or service dimensions: product form, features, performance, conformance, durability,
reliability, repairability, style, and design, as well as such service dimensions as ordering ease,
delivery, installation, customer training, customer consulting, and maintenance and repair.
Besides these specific concerns, one more general positioning for brands is as "best
quality." How important is a high-quality product positioning? The Strategic Planning
Institute studied the impact of higher relative product quality and found a significantly
positive correlation between relative produci quality and return on investment (ROI).16
High-quality business units earned more because premium quality allowed them to charge
a premium price; they benefited from more repeat purchase, consumer loyalty, and posi-
tive word of mouth; and the costs of delivering more quality were not much higher than for
business units producing low quality.
Quality will depend on actual product performance, but it is also communicated by
choosing physical signs and cues. Here are some examples:
B A lawnmower manufacturer that claims its lawnmower is "powerful" has given it a noisy
motor because buyers think noisy lawnmowers are more powerful.
• A truck manufacturer undercoats the chassis not because it needs undercoating but
because undercoating suggests concern for quality.
a A car manufacturer makes sure its car doors make a solid sound
when they slam shut because many buyers slam the doors in the
showroom to test how well the car is built.
H Ritz Carlton hotels signal high quality by training employees to
answer calls within three rings, to answer with a genuine "smile"
in their voices, and to be extremely knowledgeable about all hotel
services.
Quality is also communicated through other marketing ele-

ments. A high price usually signals premium quality. Quality image
is also affected by packaging, distribution, advertising, and promo-
tion. Here are some cases where a brand's quality image was hurt:
B A well-known frozen-food brand lost its prestige image by being
on sale too often.
EJ A premium beer's image was hurt when it switched from bottles
to cans.
Q A highly regarded television receiver lost its quality image when
mass-merchandise outlets began to carry it.
A manufacturer's reputation also contributes to the perception
of quality. Certain companies are sticklers for quality; consumers
expect Nestle and IBM products to be well made. Smart companies
communicate quality to buyers and guarantee "customer satisfac-
tion or your money back."
Personnel Differentiation Becoming a Singapore Airlines flight attendant is not easy: company
requirements are strict. But Singapore Airlines has a worldwide
Companies can gain a strong competitive advantage through
having better-trained people. Singapore Airlines enjoys an excel- reputation for excellent service, built largely on the customer relations
lent reputation in large part because of its flight attendants. skills of its flight attendants.
McDonald's people are courteous, IBM people are professional, and Disney people are
upbeat. The sales forces of such companies as General Electric, Cisco, Frito-Lay,
Northwestern Mutual Life, and Pfizer enjoy an excellent reputation. 17 Better-trained per-
sonnel exhibit six characteristics: Competence: They possess the required skill and knowl-
edge; courtesy. They are friendly, respectful, and considerate; credibility. They are trust-
worthy; reliability. They perform the service consistently and accurately; responsiveness:
They respond quickly to customers' requests and problems; and communication: They
make an effort to understand the customer and communicate clearly.18 Retailers, in par-
ticular, are likely to use their front-line employees as a means of differentiating and posi-
tioning their brand. This is certainly true of large chain bookstores like Barnes & Noble
and Borders:19
BARNES & NOBLE AND BORDERS
Barnes & Noble and Borders superstores certainly look eerily similar: large comfy chairs, mahogany book-
shelves, tasteful decor, and the scent of fresh-brewed coffee. However, the stores have very different busi-
ness philosophies and both use their employees as "missionaries" for widely different inventory and busi-
ness models. Borders, which has 32,000 employees and 445 U.S. superstores, focuses on offering the
widest assortment of titles and tailoring its inventory to each store's location. Barnes & Noble, which has
40,000 employees in 800 U.S. stores, attracts customers with low prices and the most popular books. While
both companies say that "passion" is the most important quality in their booksellers, that passion is
expressed in different ways. Barnes & Noble hires people with a passion for customer service and a general
love of books. They are clean cut and wear collared shirts. Putting the book in the customer's hand and fast
cashiering are their mandates. Borders employees are likely to be tattooed or have multiple body piercings.
The company prides itself on the diversity of its employees and hires people who radiate excitement about
particular books and music, relying on them to suggest topics and titles rather than simply find a book for a
customer.
Channel Differentiation
Companies can achieve competitive advantage through the way they design their distrib-
ution channels' coverage, expertise, and performance. Caterpillar's success in the construction-
equipment industry is based partly on superior channel development. Its dealers are
found in more locations than competitors' dealers, and they are typically better trained
and perform more reliably. Dell in computers and Avon in cosmetics distinguish them-
selves by developing and managing high-quality direct-marketing channels. Back in 1946,
pet food was cheap, not too nutritious, and sold exclusively in supermarkets and the occa-
sional feed store: Dayton, Ohio-based lams found success selling premium pet food
through regional veterinarians, breeders, and pet stores.
• APOLLO GROUP INC.
Apollo Group Inc., has turned conventional higher education on its head by launching an online university geared
toward the neglected market of working adults. University of Phoenix Online is one of Apollo's most successful
ventures, with 50,000 students, and in the past year UOP's enrollment surged by 70 percent. In addition to dif-
ferentiating based on delivering education through a different channel—online classes—Apollo charges only
$10,000 for yearly tuition, 55 percent of what a typical private college charges.20
Image Differentiation
Buyers respond differently to company and brand images. The primary way to account for
Marlboro's extraordinary worldwide market share (around 30 percent) is that Marlboro's
"macho cowboy" image has struck a responsive chord with much of the cigarette-smoking
public. Wine and liquor companies also work hard to develop distinctive images for their
brands.
Image differentiation: The world-famous

"Marlboro Man" image is instantly
recognizable on billboards and in print
ads.
Identity and image need to be distinguished. Identity is the way a company aims to
identify or position itself or its product. Image is the way the public perceives the company
or its products. An effective identity does three things: It establishes the product's charac-
ter and value proposition. It conveys this character in a distinctive way. It delivers emo-
tional power beyond a mental image. For the identity to work, it must be conveyed through
every available communication vehicle and brand contact. It should be diffused in ads,
annual reports, brochures, catalogs, packaging, company stationery, and business cards. If
"IBM means service," this message must be expressed in symbols, colors and slogans,
atmosphere, events, and employee behavior.
Even a seller's physical space can be a powerful image generator. Hyatt Regency hotels
developed a distinctive image through its atrium lobbies. Companies can create a strong
image by inviting prospects and customers to visit their headquarters and factories. Boeing,
Ben & Jerry's, Hershey's, Saturn, and Crayola all sponsor excellent company tours that draw
millions of visitors a year.21 Companies such as Hallmark and Kohler have built corporate
museums at their headquarters that display their history and the drama of producing and
marketing their products.
"Marketing Memo: Exceeding Customer Expectations" describes one systematic
approach to developing a differentiated, customer-oriented offering.
Ill Product Life-Cycle Marketing Strategies

A company's positioning and differentiation strategy must change as the product, market,
and competitors change over the product life cycle (PLC). To say that a product has a life
cycle is to assert four things:
1. Products have a limited life.
2. Product sales pass through distinct stages, each posing different challenges, opportuni-
ties, and problems to the seller.
MARKETING MEMO EXCEEDING CUSTOMER EXPECTATIONS
Crego and Schiffrin have proposed that customer-centered organiza- i Expected: There is good china and tableware, a linen table-
tions should study what customers value and then prepare an offer- cloth and napkin, flowers, discreet service, and well-
ing that exceeds their expectations. They see this as a three-step prepared food. (These factors make the offering acceptable,
process: but not exceptional.)
1. Defining the customer value model: The company first lists all i Desired: The restaurant is pleasant and quiet, and the food
the product and service factors that might influence the target is especially good and interesting.
customers' perception of value. Unanticipated: The restaurant serves a complimentary sor-
2. Building the customer value hierarchy: The company now bet between the courses and places candy on the table after
assigns each factor to one of four groups: basic, expected, desired, the last course is served.
and unanticipated. Consider the set of factors at a fine restaurant: 3. Deciding on the customer value package: Now the company
Basic:The food is edible and delivered in a timely fashion. (If chooses that combination of tangible and intangible items, expe-
this is all the restaurant does right, the customer would nor- riences, and outcomes designed to outperform competitors and
mally not be satisfied.) win the customers' delight and loyalty.
Sources: Edwin T. Crego Jr. and Peter D. Schiffrin, Customer Centered Reengineering (Homewood, IL: Irwin, 1995).
3. Profits rise and fall at different stages of the product life cycle.
4. Products require different marketing, financial, manufacturing, purchasing, and human
resource strategies in each life-cycle stage.
Product Life Cycles

Most product life-cycle curves are portrayed as bell-shaped (see Figure 10.1). This curve is
typically divided into four stages: introduction, growth, maturity, and decline.22
1. Introduction -A period of slow sales growth as the product is introduced in the market.
Profits are nonexistent because of the heavy expenses of product introduction.
2. Growth -A period of rapid market acceptance and substantial profit improvement.
3. Maturity-A slowdown in sales growth because the product has achieved acceptance by
most potential buyers. Profits stabilize or decline because of increased competition.
4. Decline - Sales show a downward drift and profits erode.
The PLC concept can be used to analyze a product category (liquor), a product form
(white liquor), a product (vodka), or a brand (Smirnoff). Not all products exhibit a bell-
shaped PLC.23 Three common alternate patterns are shown in Figure 10.2.
FIG. 1 0 . 1
Sales and Profit Life Cycles

(a) Growth-Slump-Maturity Pattern (b) Cycle-Recycle Pattern (c) Scalloped Pattern
Time Time Time
F I G . 1 0 . 2 I Common Product Life-Cycle Patterns
Figure 10.2(a) shows a growth-slump-maturity pattern, often characteristic of small

kitchen appliances such as handheld mixers and bread makers. Sales grow rapidly when the
product is first introduced and then fall to a "petrified" level that is sustained by late adopters
buying the product for the first time and early adopters replacing the product.
The cycle-recycle pattern in Figure 10.2(b) often describes the sales of new drugs. The
pharmaceutical company aggressively promotes its new drug, and this produces the first
cycle. Later, sales start declining and the company gives the drug another promotion push,
which produces a second cycle (usually of smaller magnitude and duration).24
Another common pattern is the scallopedPLCin Figure 10.2(c). Here sales pass through a
succession of life cycles based on the discovery of new-product characteristics, uses, or
users. The sales of nylon, for example, show a scalloped pattern because of the many new
uses—parachutes, hosiery, shirts, carpeting, boat sails, automobile tires—that continue to
be discovered over time.2-"5
Style, Fashion, and Fad Life Cycles

We need to distinguish three special categories of product life cycles—styles, fashions,
and fads (Figure 10.3). A style is a basic and distinctive mode of expression appearing in
a field of human endeavor. Styles appear in homes (colonial, ranch, Cape Cod); clothing
(formal, casual, funky); and art (realistic, surrealistic, abstract). A style can last for gener-
ations, and go in and out of vogue. A fashion is a currently accepted or popular style in a
given field. Fashions pass through four stages: distinctiveness, emulation, mass fashion,
and decline.26
The length of a fashion cycle is hard to predict. One point of view is that fashions end
because they represent a purchase compromise, and consumers start looking for missing
attributes.27 For example, as automobiles become smaller, they become less comfortable,
and then a growing number of buyers start wanting larger cars. Furthermore, too many con-
sumers adopt the fashion, thus turning others away. Another observation is that the length
of a particular fashion cycle depends on the extent to which the fashion meets a genuine
Style Fashion
FIG. 1 0 . 3 |
Style, Fashion, and Fad Life Cycles
Time Time Time

need, is consistent with other trends in the society, satisfies societal norms and values, and
does not exceed technological limits as it develops.28
Fads are fashions that come quickly into public view, are adopted with great zeal, peak
early, and decline very fast. Their acceptance cycle is short, and they tend to attract only a
limited following of those who are searching for excitement or want to distinguish them-
selves from others. Fads do not survive because they do not normally satisfy a strong need.
The marketing winners are those who recognize fads early and leverage them into prod-
ucts with staying power. Here is a success story of a company that managed to extend a
fad's life span:
TRIVIAL PURSUIT
Since its debut at the International Toy Fair in 1982, Trivial Pursuit has sold 65 million copies in 18 languages in
32 countries, and it remains one of the best-selling adult games. Parker Brothers has kept the product's popu-
larity going by making a new game with updated questions every year. It also keeps creating offshoots—travel
packs, a children's version, Trivial Pursuit Genus IV, and an interactive CD-ROM from Virgin Entertainment
Interactive. The game has its own Web site (www.trivialpursuit.com), which received 100,000 visitors in its ini-
tial two-month test period. If you are having trouble making dinner conversation on a date—no problem: NTN
Entertainment Network has put Trivial Pursuit in about 3,000 restaurants.29
Marketing Strategies: Introduction Stage

and the Pioneer Advantage
Because it takes time to roll out a new product, work out the technical problems, fill dealer
pipelines, and gain consumer acceptance, sales growth tends to be slow at this stage.30 Sales
of expensive new products such as high-definition TV are slowed by additional factors such
as product complexity and fewer potential buyers.
Profits are negative or low in the introduction stage. Promotional expenditures are at
their highest ratio to sales because of the need to (1) inform potential consumers, (2) induce
product trial, and (3) secure distribution in retail outlets.31 Firms focus on those buyers
who are the most ready to buy, usually higher-income groups. Prices tend to be high
because costs are high.
Companies that plan to introduce a new product 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. Being
early can pay off. One study found that products that came out six months late—but on bud-
get—earned an average of 33 percent less profit in their first five years; products that came
out on time but 50 percent over budget cut their profits by only 4 percent.
Most studies indicate that the market pioneer gains the most advantage. Companies like
Campbell, Coca-Cola, Hallmark, and Amazon.com developed sustained market domi-
nance. 32 Carpenter and Nakamoto found that 19 out of 25 companies who were market
leaders in 1923 were still the market leaders in 1983, 60 years later.33 Robinson and Min
found that in a sample of industrial-goods businesses, 66 percent of pioneers survived at
least 10 years, versus 48 percent of the early followers.34
What are the sources of the pioneer's advantage?35 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 also plays a role; and there are pro-
ducer advantages: economies of scale, technological leadership, patents, ownership of
scarce assets, and other barriers to entry. Pioneers can have more effective marketing spend-
ing and enjoy higher rates of consumer repeat purchases. An alert pioneer can maintain its
leadership indefinitely by pursuing various strategies.36
The pioneer advantage, however, is not inevitable.37 Look at the fate of Bowmar (hand
calculators), Apple's Newton (personal digital assistant), Netscape (Web browser),
Reynolds (ballpoint pens), and Osborne (portable computers), market pioneers who
were overtaken by later entrants. Steven Schnaars studied 28 industries where the imita-
tors surpassed the innovators. 38 He found several weaknesses among the failing pio-
neers, including new products that were too crude, were improperly positioned, or
appeared before there was strong demand; product-development costs that exhausted
the innovator's resources; a lack of resources to compete against entering larger firms;
and managerial incompetence or unhealthy complacency. Successful imitators thrived
by offering lower prices, improving the product more continuously, or using brute mar-
ket power to overtake the pioneer. None of the companies that now dominate in the
manufacture of personal computers—including Dell, Gateway, and Compaq—were first
movers.39
Golder and Tellis raise further doubts about the pioneer advantage.40 They distinguish
between an inventor (fast 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 cat-
egory). They also include nonsurviving pioneers in their sample. They conclude that FIG. 10.4 I
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) suc- Long-Range Product Market Expansion
ceed. Examples of later entrants overtaking market pioneers are IBM over Sperry in main- Strategy (P, = product i; M: = Market j)
frame computers, Matsushita over Sony in VCRs, and GE over EMI in CAT scan equipment.
In a more recent study, Tellis and Golder identify the following five factors as underpinning
long-term market leadership: vision of a mass market, persistence, relentless innovation,
financial commitment, and asset leverage.41
The pioneer should visualize the various product marketsMt could initially enter, knowing
that it cannot enter all of them at once. Suppose market-segmentation analysis reveals the
product market segments shown in Figure 10.4. The pioneer should analyze the profit poten-
tial of each product market singly and in combination and decide on a market expansion
path. Thus the pioneer in Figure 10.4 plans first to enter product market PjMj, then move
the product into a second market (P,M2), then surprise the competition by developing a sec-
ond product for the second market (P2M2), then take the second product back into the first
market (P2M,), and then launch a third product for the first market (P3M,). If this game plan
works, the pioneer firm will own a good part of the first two segments and serve them with
two or three products.
M a r k e t i n g Strategies: G r o w t h Stage
The growth stage is marked by a rapid climb in sales. Early adopters like the product, and
additional consumers start buying it. New competitors enter, attracted by the opportunities.
They introduce new product features and expand distribution.
Prices remain where they are or fall slightly, depending on how fast demand increases.
Companies maintain their promotional expenditures at the same or at a slightly increased
level to meet competition and to continue to educate the market. Sales rise much faster than
promotional expenditures, causing a welcome decline in the promotion-sales ratio. Profits
increase during this stage as promotion costs are spread over a larger volume and unit man-
ufacturing costs fall faster than price declines owing to the producer learning effect. Firms
have to watch for a change from an accelerating to a decelerating rate of growth in order to
prepare new strategies.
During this stage, the firm uses several strategies to sustain rapid market growth:
s It improves product quality and adds new product features and improved styling.
a It adds new models and flanker products (i.e., products of different sizes, flavors, and so
forth that protect the main product).
s It enters new market segments.
• It increases its distribution coverage and enters new distribution channels.
a It shifts from product-awareness advertising to product-preference advertising.
B It lowers prices to attract the next layer of price-sensitive buyers.
These market expansion strategies strengthen the firm's competitive position. Consider
how Yahoo! has fueled growth.
YAHOO!
Founded in 1994 by Web-surfing Stanford University grad students, Yahoo! has become the number-one
place to be on the Web, averaging 120 million visitors in a month. The company grew into more than just a
search engine; it became a portal, offering a full-blown package of information and services, from e-mail to
online shopping malls. Yahool's revenues, which exceeded $1.3 billion in 2003, come from a number of
sources—banner ads, paid search, subscriptions for services such as personals, and a broadband partner-
ship with SBC Communications. Yahool's $1.6 billion acquisition of Overture Services, a key paid search
competitor of Google, helped strengthen its claim as a one-stop shop for advertisers. Yahoo! also continued
to grow globally with strong emphasis on Europe and Asia.42
A firm in the growth stage faces a trade-off between high market share and high current
profit. By spending money on product improvement, promotion, and distribution, it can
capture a dominant position. It forgoes maximum current profit in the hope of making even
greater profits in the next stage.
M a r k e t i n g Strategies: M a t u r i t y S t a g e
At some point, the rate of sales growth will slow, and the product will enter a stage of relative
maturity. This stage normally lasts longer than the previous stages and poses big challenges
to marketing management. Most products are in the maturity stage of the life cycle, and most
marketing managers cope with the problem of marketing the mature product.
The maturity stage divides into three phases: growth, stable, and decaying maturity.
In the first phase, the sales growth rate starts to decline. There are no new distribution
channels to fill. In the second phase, sales flatten on a per capita basis because of mar-
ket saturation. Most potential consumers have tried the product, and future sales are
governed by population growth and replacement demand. In the third phase, decaying
maturity, the absolute level of sales starts to decline, and customers begin switching to
other products.
The sales slowdown creates overcapacity in the industry, which leads to intensified compe-
tition. Competitors scramble to find niches. They engage in frequent markdowns. They
increase advertising and trade and consumer promotion. They increase R&D budgets to
develop product improvements and line extensions. They make deals to supply private brands.
A shakeout begins, and weaker competitors withdraw. The industry eventually consists of well-
entrenched competitors whose basic drive is to
gain or maintain market share.
Dominating the industry are a few giant
firms—perhaps a quality leader, a service
leader, and a cost leader—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. The issue
facing a firm in a mature market is whether to
struggle to become one of the "big three" and
achieve profits through high volume and low
cost or to pursue a niching strategy and
achieve profits through low volume and a high
margin.
Some companies abandon weaker products
and concentrate on more profitable products and
on new products. Yet they may be ignoring the
high potential many mature markets and old
products still have. Industries widely thought
to be mature—autos, motorcycles, television,
watches, cameras—were proved otherwise by the
Sustaining rapid market growth by adding new models and flanker products: the Snapple Japanese, who found ways to offer new value to
product line. customers. Seemingly moribund brands like
CRAFTING THE BRAND POSITIONING
RCA, Jell-O, and Ovaltine have achieved sales revivals through the exercise of marketing imagi-
nation.43 The resurgence in Hush Puppies' popularity in the footwear category is a case study in
reviving an old, nearly forgotten brand.
HUSH PUPPIES
Hush Puppies' suede shoes, symbolized by the cuddly, rumpled, droopy-eyed dog, were a kid's favorite in the
1950s and 1960s. Changes in fashion trends and a series of marketing mishaps eventually resulted in an out-of-
date image and diminished sales. Wolverine World Wide, makers of Hush Puppies, made a number of marketing
changes in the early 1990s to reverse the sales slide. New product designs and numerous offbeat color combi-
nations, such as powder blue, lime green, and electric orange, enhanced the brand's fashion appeal. Popular
designers began to use the shoes in their fashion shows. Wolverine also jacked the price up from $40 to $70, and
showered free shoes on Hollywood celebrities. Once the shoes had garnered enough buzz, the company made
them more widely available by distributing them to better department stores. Hush Puppies sales rose from
30,000 pairs in 1994 to more than 1.7 million pairs in 1996. When fashions shifted a few years later, Hush
Puppies expanded into sandals and walking shoes, and new international markets, and experienced an all-time
sales high in 2002.44
MARKET MODIFICATION A company might try to expand the market for its mature brand
by working with the two factors that make up sales volume:
Volume = number of brand users x usage rate per user
It can try to expand the number of brand users by converting nonusers. The key to the growth
of air freight service is the constant search for new users to whom air carriers can demon-
strate the benefits of using air freight rather than ground transportation.
DENTAL FLOSS
Despite the fact that the Academy of General Dentistry touts brushing and flossing as the best methods for fight-
ing tooth decay, only 24 percent of households use floss. Several oral care marketers see this as a golden oppor-
tunity to convert the floss-averse. Aquafresh, owned by GlaxoSmithKline, has created Aquafresh Floss 'N' Cap
which combines toothpaste and floss with a cap that doubles as a built-in floss dispenser. Johnson & Johnson,
the market leader in this category, has developed a special handheld flosser called the Reach Access Daily
Flosser. Glide, newly acquired by Procter & Gamble and the most recommended brand by dentists, perhaps has
the easiest job convincing people to floss; the company got a boost when hygiene-obsessed Jerry Seinfeld used
Glide on his hugely popular TV show.45
It can also try to expand the number of brand users by entering new market segments. When
Goodyear decided to sell its tires via Wal-Mart, Sears, and Discount Tire, it boosted market
share from 14 to 16 percent in the first year.46 In recent years AARP has tried the tack of
reaching out to new market segments:47
AARP
AARP, the American Association for Retired Persons, is a mature brand in more ways than one. The $625 million, 35-
million-member organization serves people age 50 and over by offering advocacy efforts, products, services, and
benefits. Yet, the organization has been dogged by the perception that it is only for elderly people living in retirement
communities. With the boomer population expected to double in the next 30 years, AARP is repositioning itself to
appeal to people in their late fifties who still have an active lifestyle. AARP's goal is to recruit 50 percent of people age
50 and over by 2003 and to that end it is hosting a number of activities. These include triathlons in several cities to
promote fitness, a touring exhibit of Grandma Moses' art to inspire creativity, and an education campaign to prevent
predatory mortgage lending and home improvement fraud. The challenge for AARP, however, is creating a single
brand that not only attracts new members but also continues to appeal to those in the age 65 and over segment. As
part of that effort, AARP is publishing several editions of its newly titled AARP: The Magazine (formerly called Modern
MaturiM: one for 50 to 59-year-old boomers, an edition for 60 to 69-year-olds, and one for those 70 and older.
A third way to expand the number of brand users is winning com-

petitors' customers. Examples of this approach abound. Marketers of
Puffs facial tissues are always wooing Kleenex customers. Volume can
also be increased by convincing current users to increase their brand
usage: (1) Use the product on more occasions. Serve Campbell's soup for
a snack. Use Heinz vinegar to clean windows. Take Kodak pictures of
your pets. (2) Use more of the product on each occasion. Drink a larger
glass of orange juice. (3) Use the product in new ways. Use Turns antacid
as a calcium supplement. 48
PRODUCT MODIFICATION Managers also try to stimulate sales by mod-

ifying the product's characteristics through quality improvement, feature
improvement, or style improvement.
Quality improvement aims at increasing the product's functional per-
formance. A manufacturer can often overtake its competition by
launching a "new and improved" product. Grocery manufacturers call
this a "plus launch" and promote a new additive or advertise something
as "stronger," "bigger," or "better." This strategy is effective to the extent
that the quality is improved, buyers accept the claim of improved qual-
ity, and a sufficient number of buyers will pay for higher quality. In the
case of the canned coffee industry, manufacturers are using "freshness"
to better position their brands in the face of fierce competition from
premium rivals, such as store brands where customers grind their own
Feature improvement: Vlasic Hamburger Stackers. beans in the store. Kraft's Maxwell House will tout coffee sold in its new
Fresh Seal packaging and P&G's Folger's ads will show how its AromaSeal
canisters—plastic, peel-top, resealable and easy-grip packages—will make its ground
beans fresher.49
However, customers are not always willing to accept an "improved" product, as the clas-
sic tale of New Coke illustrates.
COCA-COLA
Battered by competition from the sweeter Pepsi-Cola, Coca-Cola decided in 1985 to replace its old formula
with a sweeter variation, dubbed the New Coke. Coca-Cola spent $4 million on market research. Blind taste
tests showed that Coke drinkers preferred the new, sweeter formula, but the launch of New Coke provoked
a national uproar. Market researchers had measured the taste but had failed to measure the emotional
attachment consumers had to Coca-Cola. There were angry letters, formal protests, and even lawsuit
threats, to force the retention of "The Real Thing." Ten weeks later, the company withdrew New Coke and
reintroduced its century-old formula as "Classic Coke," giving the old formula even stronger status in the
marketplace.
Feature improvement aims at adding new features (for example, size, weight, materials,
additives, accessories) that expand the product's performance, versatility, safety, or con-
venience. In 1998, after years of research and development, Vlasic created a cucumber
10 times larger than the traditional pickle cucumber. The chips, sold as "Hamburger
Stackers," are large enough to cover the entire surface of a hamburger and are stacked a
dozen high in jars.50
Pfizer also embarked on feature improvement for its Listerine brand.
PFIZER INC.
"Obviously it's very difficult for people to walk down the street with a bottle of Listerine, take a swig and spit
it out," says Dermot Boden, vice president for global oral care at Pfizer Inc., which owns the Listerine brand.
This is the rationale behind Cool Mint Listerine's PocketPak, oral care strips which dissolve instantly in the
mouth, allowing for oral care on the go. Six years in the making, this new, convenient form of Listerine not
only enabled the brand to reach younger consumers, but it also generated a hefty $120 million in less than
I
a year after its release.51
This strategy has several advantages. New features build the company's image as an
innovator and win the loyalty of market segments that value these features. They provide
an opportunity for free publicity and they generate sales force and distributor enthusi-
asm. The chief disadvantage is that feature improvements are easily imitated; unless
there is a permanent gain from being first, the feature improvement might not pay off in
the long run.52
Style improvement aims at increasing the product's esthetic appeal. The periodic intro-
duction of new car models is largely about style competition, as is the introduction of new
packaging for consumer products. A style strategy might give the product a unique market
identity. Yet style competition has problems. First, it is difficult to predict whether people—
and which people—will like a new style. Second, a style change usually requires discontinu-
ing the old style, and the company risks losing customers.
MARKETING PROGRAM MODIFICATION Product managers might also try to stimulate

sales by modifying other marketing program elements. They should ask the following
questions:
• Prices. Would a price cut attract new buyers? If so, should the list price be lowered, or
should prices be lowered through price specials, volume or early purchase discounts, freight
cost absorption, or easier credit terms? Or would it be better to raise the price to signal
higher quality?
• Distribution. Can the company obtain more product support and display in existing out-
lets? Can more outlets be penetrated? Can the company introduce the product into new dis-
tribution channels?
• Advertising. Should advertising expenditures be increased? Should the message or copy
be changed? Should the media mix be changed? Should the timing, frequency, or size of ads
be changed?
• Sales promotion. Should the company step up sales promotion—trade deals, cents-off
coupons, rebates, warranties, gifts, and contests?
• Personal selling. Should the number or quality of salespeople be increased? Should the
basis for sales force specialization be changed? Should sales territories be revised? Should
sales force incentives be revised? Can sales-call planning be improved?
m Services. Can the company speed up delivery? Can it extend more technical assistance to
customers? Can it extend more credit?
Marketers often debate which tools are most effective in the mature stage. For example,
would the company gain more by increasing its advertising or its sales promotion budget?
Sales promotion has more impact at this stage because consumers have reached an equilib-
rium in their buying habits and preferences, and psychological persuasion (advertising) is
not as effective as financial persuasion (sales promotion deals). Many consumer-packaged-
goods companies now spend over 60 percent of their total promotion budget on sales pro-
motion to support mature products. Other marketers argue that brands should be managed
as capital assets and supported by advertising. Advertising expenditures should be treated
as a capital investment. Brand managers use sales promotion because its effects are quicker
and more visible to their superiors; but excessive sales promotion activity can hurt the
brand's image and long-run profit performance.
Marketing Strategies: Decline Stage

Sales decline for a number of reasons, including technological advances, shifts in consumer
tastes, and increased domestic and foreign competition. All lead to overcapacity, increased
price-cutting, and profit erosion. The decline might be slow, as in the case of sewing
machines; or rapid, as in the case of the 5.25 floppy disks. Sales may plunge to zero, or they
may petrify at a low level.
As sales and profits decline, some firms withdraw from the market. Those remaining
may reduce the number of products they offer. They may withdraw from smaller market
segments and weaker trade channels, and they may cut their promotion budgets and
reduce prices further. Unfortunately, most companies have not developed a policy for
handling aging products.
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: There are many hid-
den costs. Weak products often consume a disproportionate amount of management's
time; require frequent price and inventory adjustments; generally involve short produc-
tion runs in spite of expensive setup times; require both advertising and sales force atten-
tion that might be better used to make the healthy products more profitable; and can cast
a shadow on the company's image. The biggest cost might well lie in the future. Failing to
eliminate weak products delays the aggressive search for replacement products. The weak
products create a lopsided product mix, long on yesterday's breadwinners and short on
tomorrow's.
In handling aging products, a company faces a number of tasks and decisions. The first task
is to establish a system for identifying weak products. Many companies appoint a product-
review committee with representatives from marketing, R&D, manufacturing, and finance.
The controller's office supplies data for each product showing trends in market size, market
share, prices, costs, and profits. A computer program then analyzes this information. The
managers responsible for dubious products fill out rating forms showing where they think
sales and profits will go, with and without any changes in marketing strategy. The product-
review committee makes a recommendation for each product—leave it alone, modify its mar-
keting strategy, or drop it.53
Some firms abandon declining markets earlier than others. Much depends on the pres-
ence and height of exit barriers in the industry.54 The lower the exit barriers, the easier it is
for firms to leave the industry, and the more tempting it is for the remaining firms to stay
and attract the withdrawing firms' customers. For example, Procter & Gamble stayed in the
declining liquid-soap business and improved its profits as others withdrew.
According to one study of company strategies in declining industries, five strategies are
available to the firm:
1. Increasing the firm's investment (to dominate the market or strengthen its competitive
position).
2. Maintaining the firm's investment level until the uncertainties about the industry are
resolved.
3. Decreasing the firm's investment level selectively, by dropping unprofitable customer
groups, while simultaneously strengthening the firm's investment in lucrative niches.
4. Harvesting ("milking") the firm's investment to recover cash quickly.
5. Divesting the business quickly by disposing of its assets as advantageously as possible.53
The appropriate strategy depends on the industry's relative attractiveness and the com-
pany's competitive strength in that industry. A company that is in an unattractive industry
but possesses competitive strength should consider shrinking selectively. A company that is
in an attractive industry and has competitive strength should consider strengthening its
investment. Look what Quaker Oats has done with oatmeal.
- QUAKER OATS
After being banished to the cupboard for years, instant oatmeal has staged a comeback with campaigns empha-
sizing health (for all) and fun (for kids) as oatmeal sales shot up in the late 1990s. The category turnaround
began in January 1997 when the FDA permitted manufacturers to state that "diets low in saturated fat and cho-
lesterol that include soluble fiber from oatmeal may reduce the risk of heart disease." Quaker Oats, which owns
almost two-thirds of the category, capitalized on the opportunity to target kids by infusing fun with nutrition
through new oatmeal products such as Sea Adventures and Dinosaur Eggs.56
If the company were choosing between harvesting and divesting, its strategies would be
quite different. Harvesting calls for gradually reducing a product or business's costs while
trying to maintain sales. The first step is to cut R&D costs and plant and equipment invest-
ment. The company might also reduce product quality, sales force size, marginal services,
and advertising expenditures. It would try to cut these costs without letting customers, com-
petitors, and employees know what is happening. Harvesting is difficult to execute. Yet many
mature products warrant this strategy. Harvesting can substantially increase the company's
current cash flow.57
Companies that successfully restage or rejuvenate a mature product often do so by

adding value to the original product. Consider the experience of Pitney Bowes, the domi-
nant producer of postage meters.
PITNEY BOWES
In 1996, critics, and even Pitney Bowes insiders, predicted that faxes would kill regular mail, on which
Pitney's business relies. Then they predicted that e-mail would kill faxes and that all these technological
advances combined would kill Pitney's profits. As it happens, the surge in direct mail and Internet-related
bills has generated more mail, not less, but the Internet also enabled new companies such as e-Stamps and
stamps.com to enter Pitney's territory by offering a way to download stamps over the Internet. Pitney recast
itself as a messaging company—its slogan became "Engineering the Flow of Communication." It developed
software products that let customers track incoming materials and outgoing products, convert bills and print
files to fax or e-mail, and track when a document has been acted upon. Pitney also provides electronic billing
services for e-commerce companies and even added an electronic-stamp business to compete with the
stamp start-ups. Pitney's view: The Internet is not the enemy; rather, it is a vehicle for becoming a broad-
based messaging company.58
When a company decides to drop a product, it faces further decisions. If the product
has strong distribution and residual goodwill, the company can probably sell it to another
firm. If the company can't find any buyers, it must decide whether to liquidate the brand
quickly or slowly. It must also decide on how much inventory and service to maintain for
past customers.
The Product Life-Cycle Concept: Critique

The PLC concept helps marketers interpret product and market dynamics. It can be used
for planning and control, although it is useful as a forecasting tool. PLC theory has its
share of critics. They claim that life-cycle patterns are too variable in shape and duration.
Critics charge that marketers can seldom tell what stage the product is in. A product may
appear to be mature when actually it has reached a plateau prior to another upsurge. They
charge that the PLC pattern is the result of marketing strategies rather than an inevitable
course that sales must follow:
Suppose a brand is acceptable to consumers but has a few bad years because of
other factors—for instance, poor advertising, delisting by a major chain, or entry of
a "me-too" competitive product backed by massive sampling. Instead of thinking in
terms of corrective measures, management begins to feel that its brand has entered
a declining stage. It therefore withdraws funds from the promotion budget to
finance R&D on new items. The next year the brand does even worse, panic
increases.... Clearly, the PLC is a dependent variable which is determined by mar-
keting actions; it is not an independent variable to which companies should adapt
their marketing programs.59
Table 10.3 summarizes the characteristics, marketing objectives, and marketing strate-
gies of the four stages of the PLC.
: : : Market Evolution
Because the PLC focuses on what is happening to a particular product or brand rather than
on what is happening to the overall market, it yields a product-oriented picture rather than
a market-oriented picture. Firms need to visualize a market's evolutionary path as it is
affected by new needs, competitors, technology, channels, and other developments.60
In the course of a product's or brand's existence, its positioning must change to keep pace
with market developments. Consider the case of Lego.
TABLE 10.3 Summary of Product Life-Cycle Characteristics, Objectives, and Strategies
Introduction Growth Maturity Decline
Characteristics
Sales Low sales Rapidly rising sales Peak sales Declining sales
Costs High cost per customer Average cost per Low cost per customer Low cost per customer
customer
Profits Negative Rising profits High profits Declining profits
Customers Innovators Early adopters Middle majority Laggards
Competitors Few Growing number Stable number beginning Declining number
to decline
Marketing Objectives
Create product Maximize market share Maximize profit while Reduce expenditure
awareness and trial defending market share and milk the brand
Strategies
Product Offer a basic product Offer product extensions, Diversify brands and Phase out weak
service, warranty items models
Price Charge cost-plus Price to penetrate Price to match or best Cut price
market competitors'
Distribution Build selective Build intensive Build more intensive Go selective: phase out
distribution distribution distribution unprofitable outlets
Advertising Build product awareness Build awareness and Stress brand differences Reduce to level needed
among early adopters interest in the mass and benefits to retain hard-core
and dealers market loyals
Sales Promotion Use heavy sales Reduce to take Increase to encourage Reduce to minimal
promotion to entice trial advantage of heavy brand switching level
consumer demand
Sources: Chester R. Wasson, Dynamic Competitive Strategy and Product Life Cycles (Austin, TX: Austin Press, 1978); John A. Weber, "Planning Corporate Growth with
Inverted Product Life Cycles," Long Range Planning (October 1976): 12-29; Peter Doyle, "The Realities of the Product Life Cycle," Quarterly Review of Marketing
(Summer 1976).
LEGO GROUP
LEGO Group, the Danish toy company, enjoyed a 72 percent global market share of the construction-toy
market; but children were spending more of their spare time with video games, computers, and television
and less time with traditional toys. Lego recognized the need to change or expand its market space. It rede-
fined its market space as "family edutainment," which included toys, education, interactive technology, soft-
ware, computers, and consumer electronics. All involved exercising the mind and having fun. Part of LEGO
Group's plan is to capture an increasing share of customer spending as children become young adults and
then parents.
Like products, markets evolve through four stages: emergence, growth, maturity, and
decline.
EMERGENCE Before a market materializes, it exists as a latent market. For example, for
centuries people have wanted faster means of calculation. The market satisfied this need
with abacuses, slide rules, and large adding machines. Suppose an entrepreneur recognizes
An ad to the trade for the LEGO 2004

product line. LEGO is redefining its
market space as "family edutainment,"
not just children's construction toys.
this need and imagines a technological solution in the form of a small, handheld electronic
calculator. He now has to determine the product attributes, including physical size and
number of mathematical functions. Because he is market-oriented, he interviews potential
buyers and finds that target customers vary greatly in their preferences. Some want a four-
function calculator (adding, subtracting, multiplying, and dividing) and others want more
functions (calculating percentages, square roots, and logs). Some want a small hand calcu-
lator and others want a large one. This type of market, in which buyer preferences scatter
evenly, is called a diffused-preference market.
The entrepreneur's problem is to design an optimal product for this market. He or she has
three options:
1. The new product can be designed to meet the preferences of one of the corners of the
market {a single-niche strategy).
2. Two or more products can be simultaneously launched to capture two or more parts of
the market (a multiple-niche strategy).
3. The new product can be designed for the middle of the market {a mass-market strategy).
For small firms, a single-niche market strategy makes the most sense. A small firm does not
have the resources for capturing and holding the mass market. A large firm might go after the
mass market by designing a product that is medium in size and number of functions. Assume
that the pioneer firm is large and designs its product for the mass market. On launching the
product, the emergence stage begins.61
(a) Market-fragmentation GROWTH If the new product sells well, new firms will enter the market, ushering in a
Stage market-growth stage. Where will a second firm enter the market, assuming that the first firm
established itself in the center? If the second firm is small, it is likely to avoid head-on com-
petition with the pioneer and to launch its brand in one of the market corners. If the second
firm is large, it might launch its brand in the center against the pioneer. The two firms can
easily end up sharing the mass market. Or a large second firm can implement a multiple-
niche strategy and surround and box in the pioneer.
MATURITY Eventually, the competitors cover and serve all the major market segments
and the market enters the maturity stage. In fact, they go further and invade each others'
(b) Market-consolidation segments, reducing everyone's profits in the process. As market growth slows down, the
Stage market splits into finer segments and high market fragmentation occurs. This situation is
illustrated in Figure 10.5(a) where the letters represent different companies supplying
various segments. Note that two segments are unserved because they are too small to
yield a profit.
Market fragmentation is often followed by a market consolidation caused by the emer-
gence of a new attribute that has strong appeal. This situation is illustrated in Figure 10.5(b)
and the expansive size of the X territory.
"Marketing Insight: Dynamics of Attribute Competition" discusses how new attributes
emerge in a market. However, even a consolidated market condition will not last. Other
companies will copy a successful brand, and the market will eventually splinter again.
FIG. 10.5 I Mature markets swing between fragmentation and consolidation. The fragmentation is
brought about by competition, and the consolidation is brought about by innovation.
Market-Fragmentation and Market-
Consider the evolution of the paper towel market.
Consolidation Strategies
MARKETING INSIGHT DYNAMICS OF ATTRIBUTE COMPETITION
Competition produces a continuous round of new product attributes. If a clothing, over time became fashionable and more expensive.
new attribute succeeds, several competitors soon offer it. To the extent This unidirectional movement, however, contains the seeds of its
that oil companies all offer credit card payment at gas station pumps, own destruction. Eventually, the price falls again or some manu-
payment methods are no longer a basis for choosing a gas station. facturer introduces another cheap material for pants.
Customer expectations are progressive. This fact underlines the strate- 4. A needs-hierarchy process: (See Maslow's theory in Chapter
gic importance of maintaining the lead in introducing new attributes. 6.) We would predict that the first automobiles would provide
Each new attribute, if successful, creates a competitive advantage for basic transportation and be designed for safety. Later, automo-
the firm, leading to temporarily higher-than-average market share and biles would start appealing to social acceptance and status
profits. The market leader must learn to routinize the innovation process. needs. Still later, automobiles would be designed to help people
Can a firm look ahead and anticipate the succession of attributes "fulfill" themselves. The innovator's task is to assess when the
that are likely to win favor and be technologically feasible? How can market is ready to satisfy a higher-order need.
the firm discover new attributes? There are four approaches.
The actual unfolding of new attributes in a market is more com-
1. A customer-survey process: The company asks consumers plex than simple theories suggest. We should not underestimate the
what benefits they would like added to the product and their role of technology and societal processes. For example, the strong
desire level for each. The firm also examines the cost of devel- consumer wish for portable computers remained unmet until minia-
oping each new attribute and likely competitive responses. turization technology was sufficiently developed. Developments such
2. An intuitive process: Entrepreneurs get hunches and under- as inflation, shortages, environmentalism, consumerism, and new
take product development without much marketing research. lifestyles lead consumers to reevaluate product attributes. Inflation
Natural selection determines winners and losers. If a manufac- increases the desire for a smaller car, and a desire for car safety
turer has intuited an attribute that the market wants, that manu- increases the desire for a heavier car. The innovator must use mar-
facturer is considered smart or lucky. keting research to gauge the strength of different attributes to deter-
mine the company's best move.
3. A dialectical process: Innovators should not march with the
crowd. Thus blue jeans, which began as an inexpensive article of
Source: Marnik G. Dekimpe and Dominique M. Hanssens, "Empirical Generalizations about Market Evolution and Stationarity," Marketing Science 1'
no. 3, pt. 1 (1995): G109-121.
> CRAFTING THE BRAND POSITIONING CHAPTER 10 335
PAPER TOWELS
Originally, homemakers used cotton and linen dishcloths and towels in their kitchens. A paper company, looking
for new markets, developed paper towels. This development crystallized a latent market. Other manufacturers
entered the market. The number of brands grew and created market fragmentation. Industry overcapacity led
manufacturers to search for new features. One manufacturer, hearing consumers complain that paper towels
were not absorbent, introduced "absorbent" towels and increased its market share. This market consolidation
did not last long because competitors came out with their own versions of absorbent paper towels. The market
fragmented again. Then another manufacturer introduced a "superstrength" towel. It was soon copied. Another
manufacturer introduced a "lint-free" paper towel, which was subsequently copied. Thus paper towels evolved
from a single product to one with various absorbencies, strengths, and applications. Market evolution was dri-
ven by the forces of innovation and competition.
DECLINE Eventually, demand for the present products will begin to decrease, and the mar-
ket will enter the decline stage. Either society's total need level declines or a new technology
replaces the old. For example, shifts in tradition and a trend toward cremation have caused
casket makers and funeral homes to reconsider how to conduct their business.62
SUMMARY : : :
1. Deciding on positioning requires the determination of a miscellaneous services); personnel, channel, or image
frame of reference—by identifying the target market and (symbols, media, atmosphere, and events).
the nature of the competition—and the ideal points-of- 4. Because economic conditions change and competitive
parity and points-of-difference brand associations. To activity varies, companies normally find it necessary to
determine the proper competitive frame of reference, one reformulate their marketing strategy several times during
must understand consumer behavior and the considera- a product's life cycle. Technologies, product forms, and
tions consumers use in making brand choices. brands also exhibit life cycles with distinct stages. The gen-
2. Points-of-difference are those associations unique to the eral sequence of stages in any life cycle is introduction,
brand that are also strongly held and favorably evaluated growth, maturity, and decline. The majority of products
by consumers. Points-of-parity are those associations not today are in the maturity stage.
necessarily unique to the brand but perhaps shared with 5. Each stage of the product life cycle calls for different mar-
other brands. Category point-of-parity associations are keting strategies. The introduction stage is marked by
associations consumers view as being necessary to a slow growth and minimal profits. If successful, the prod-
legitimate and credible product offering within a certain uct enters a growth stage marked by rapid sales growth
category. Competitive point-of-parity associations are and increasing profits. There follows a maturity stage in
those associations designed to negate competitors' which sales growth slows and profits stabilize. Finally, the
points-of-difference. product enters a decline stage. The company's task is to
3. The key to competitive advantage is product differentiation. identify the truly weak products; develop a strategy for
A market offering can be differentiated along five dimen- each one; and phase out weak products in a way that
sions: product (form, features, performance quality, confor- minimizes the hardship to company profits, employees,
mance quality, durability, reliability, repairability, style, and customers.
design); services (order ease, delivery, installation, customer 6. Like products, markets evolve through four stages: emer-
training, customer consulting, maintenance and repair, gence, growth, maturity, and decline.
APPLICATIONS : : :
Marketing D e b a t e Do Brands Have Finite Lives?

Often, after a brand begins to slip in the marketplace or disap- their long-term success depends on the skill and insight of the
pears altogether, commentators observe, "all brands have their marketers involved.
day." Their rationale is that all brands, in some sense, have a
finite life and cannot be expected to be leaders forever. Other Take a position: Brands cannot be expected to last forever ver-
experts contend, however, that brands can live forever, and sus There is no reason for a brand to ever become obsolete.
336 PART 4 • BUILDING STRONG BRANDS <
Marketing Discussion
Identify other negatively correlated attributes and benefits not position themselves on the basis of pairs of attributes and
included in Table 10.2. What strategies do firms use to try to benefits?
MARKETING SPOTLIGHT KRISPY KREME
Krispy Kreme makes 2.7 billion donuts a year. But it took more than fresh, hot Doughnut Theater is a bit of show business that draws customers into the
donuts to earn Krispy Kreme the title of "hottest brand in America" in 2003. baking experience and makes them feel like they are a part of the process.
Krispy Kreme's stock price quadrupled in the three years following its IPO in Another aspect of show business is product placements on hit shows like The
2000, and the entire chain now generates a billion dollars in annual revenues Sopranos and WHI& Grace and movies like Bruce Almighty. Finally, international
across more than 300 outlets. expansion is fueled by celebrities like Dick Clark, Hank Aaron, and Jimmy Buffet,
How did Krispy Kreme turn donuts into dollars? Careful brand positioning who clamored for Krispy Kreme franchises of their own. Krispy Kreme doesn't
and local marketing tell the story. "We have a humble brand and product," says just grant franchise rights to anyone.
Krispy Kreme CEO Scott Livengood. "It's not flashy." The company is not new— Krispy Kreme makes 65 percent of its revenue selling donuts directly to the
it was founded in 1937—and part of its brand image is an old-fashioned feel. public through its 106 company-owned stores. Another 31 percent comes from
The plain red, green, and white colors and retro graphics evoke the squeaky- selling flour mix, donut-making machines, and donut supplies to its 186 fran-
clean Happy Days of the 1950s, as do the Formica-filled, kid-friendly shops. chised stores. The final 4 percent of revenue comes from franchisee licenses
"We want every customer experience to be associated with good times and and fees.
warm memories," Livengood says. Krispy Kreme is now expanding and selling donuts through convenience
The company's brand image also rests on its fresh, hot donuts—a fresh- stores. Will this hurt the brand? Stan Parker, Krispy Kreme's senior vice presi-
ness that's measured in hours. In a world of processed, prepackaged food, dent of marketing, says it won't because the company continues to emphasize
nothing beats a fresh, hot donut. The company's marketing is grassroots local. freshness. It replenishes the packaged donuts daily from the local Krispy Kreme
Krispy Kreme has no traditional media advertising budget. Rather, local "com- store and removes any unsold packages. The donuts' presence in convenience
munity marketing managers" enlist the aid of local groups and charities. For stores will help remind people of the taste of a fresh, hot Krispy Kreme donut,
example, the company helps charities raise money by selling them donuts at and that brings them back into a Krispy Kreme shop.
half price which they can re-sell at full price. Local bake sales become a pro- The success of Krispy Kreme has been a wake-up call for competitor
motional tool for Krispy Kreme. Dunkin' Donuts, which had become complacent. The one-two punch of Krispy
Another tactic is giving away free donuts to TV, newspapers, and radio sta- Kreme in donuts and Starbucks in coffee led Dunkin' Donuts to revamp its
tions before entering a market. Krispy Kreme scored a publicity coup in 1996 menu and its stores, neither of which had changed in years. Rather than inno-
when it opened its first store in New York City. The company delivered boxes of vate, Dunkin' Donuts looked at what customers were already eating elsewhere.
donuts to the Today Show, garnering millions of dollars worth of national expo- It brought in basic products like bagels, low-fat muffins, and breakfast sand-
sure for the price of a few donuts. Even the day of the IPO relied on the buzz wiches. Dunkin Donuts still dwarfs Krispy Kreme in size, with 2003 revenues of
from free Krispy Kreme donuts on the floor of the stock exchange. $3 billion, but it must work to find new ways of creating excitement that builds
Each local outlet is an emissary for the brand, and Krispy Kreme's signa- customer pride, because one thing is sure: Krispy Kreme refuses to be dull.
ture Doughnut Theater defines the brand image. A multisensory experience,
Doughnut Theater occurs several times a day at each shop. When the store Discussion Questions
flicks on its "Hot Doughnuts Now" sign, the performance is about to begin. A 1. What have been the key success factors for Krispy Kreme?
large plate glass wall lets customers watch the whole process.
2. Where is Krispy Kreme vulnerable? What should it watch out for?
The Doughnut Theater experience works on three levels. On a direct level,
the performance entertains customers and draws them into the donut-making 3. What recommendations would you make to senior marketing executives
experience. On an indirect level, it shows that the products are freshly made in going forward? What should they be sure to do with its marketing?
a clean environment. On a subliminal level, as CEO Livengood describes it, "The Sources: Andy Serwer, "The Hole Story: How Krispy Kreme Became the Hottest Brand in
movement of the products on the conveyor through our proofbox has this relax- America," Fortune, July 7, 2003, pp. 52-62; "Create 'Spontaneous' Media Events,"
Business 2.0, December 2003; Barbara Grondin Francella, "Krispy Kreme Is Sweet on
ing, almost mesmerizing effect. The only other thing like it is standing on the
C-Stores," Convenience Store News, October 12, 2003, p. 70; "Profile: Ethical
oceanfront and watching the tide come in. It has that same consistent, relaxing
Sweetener—Charlotte Taylor, Community Marketing Manager, Krispy Kreme,"
motion that is really positive to people." People flock to the store to see wave Marketing, September 11, 2003, p. 18; Dan Malovany, "Kreme de la Kreme," Snack
after wave of donuts emerge hot and deliciously fresh. They happily stand in long Food & Wholesale Bakery, February 2002; Kirk Kazanjian and Amy Joyner, Making
lines around newly opened outlets to get the aroma of the donuts being made, Dough: The 12 Secret Ingredients of Krispy Kreme's Sweet Success (New York: John
the sight of the vanilla glaze waterfall, and the warmth of the hot donut that "just Wiley & Sons, 2003); Daniel McGinn, "Oh, Sweet Revenge: Dunkin' Donuts Faces Two
melts in your mouth and tastes so good," Livengood says. High-End Rivals," Newsweek, September 29, 2003, p. 34; <www.krispykreme.com>.
NOTES : : :
1. Joseph Weber, "Public TV's Identity Crisis," BusinessWeek, 20. William C. Symonds, "Working for Working Adults," BusinessWeek,
September 30, 2002, pp. 65-66; Joe Flint, "PBS Takes Tack of June 9, 2003, p. 86.
Commercial Peers: Think Young," Wall Street Journal, March 27, 21. Karen Axelrod and Bruce Brumberg, Watch It Made in the U.S.A.
2002, pp. Bl, B4. (Santa Fe: John Muir Publications, 1997).
2. Kortney Stringer, "Hard Lesson Learned: Premium and No-Frills 22. Some authors distinguished additional stages. Wasson suggested
Don't Mix," Wall Street Journal, November 3, 2003, p. Bl. a stage of competitive turbulence between growth and maturity.
3. Al Ries and Jack Trout, Positioning: The Bat tie for Your Mind (New See Chester R. Wasson, Dynamic Competitive Strategy and
York: Warner Books, 1982). Product Life Cycles (Austin, TX: Austin Press, 1978). Maturity
4. Alice M. Tybout and Brian Stcrnthal, "Brand Positioning," in describes a stage of sales growth slowdown and saturation, a stage
Kellogg o)i Marketing, edited by Dawn Iacobucci (New York: John of flat sales after sales have peaked.
Wiley & Sons, 2001), p. 35; Theresa Howard, "DiGiorno's 23. John E. Swan and David R. Rink, "Fitting Market Strategy to
Campaign Delivers Major Sales," USA Today, April 1, 2002. Varying Product Life Cycles," Business Horizons (January-
5. Kevin Lane Keller, Brian Stenthal, and Alice Tybout (2002), "Three February 1982): 72-76; Gerald J. Tellis and C. Merle Crawford, "An
Questions You Need to Ask About Your Brand," Harvard Business Evolutionary Approach to Product Growth Theory," Journal of
Review, 80 (September), pp. 80-89. Marketing (Fall 1981): 125-134.
6. Richard Heller, "Folk Fortune," Forbes, September 4, 2000, 24. William E. Cox Jr., "Product Life Cycles as Marketing Models,"
pp. 66-69. journal of Business (October 1967): 375-384.
7. Julia Boorstin, "How Coach Got Hot," Fortune, October 28, 2002, 25. Jordan P Yale, "The Strategy of Nylon's Growth," Modern 'Textiles
pp. 132-134. Magazine, February 1964, p. 32. Also see Theodore Levitt, "Exploit
the Product Life Cycle," Harvard Business Review (November-
8. Professor Brian Sternthal, "Miller Lite Case," Kellogg Graduate
December 1965): 81-94.
School of Management, Northwestern University.
9. Jim Hopkins, "When the Devil Is in the Design, USA Today, 26. Chester R. Wasson, "How Predictable Are Fashion and Other
December 31, 2001, p. 3B. Product Life Cycles?" Journal of Marketing (July 1968): 36-43.
27. Wasson, "How Predictable Are Fashion and Other Product Life
10. Keith Naughton, "Ford's 'Perfect Storm'," Newsweek, September
Cycles?" pp. 36-43.
17, 2001, pp. 48-50.
28. William FI. Reynolds, "Cars and Clothing: Understanding Fashion
11. Dale Buss, "Sweet Success," Brandweek, May 12, 2003, pp. 22-23.
Trends," Journal of Marketing (July 1968): 44-49.
12. Gregory S. Carpenter, Rashi Glazer, and Kent Nakamoto,
"Meaningful Brands from Meaningless Differentiation: The 29. Patrick Butters, "What Biggest Selling Adult Game Still Cranks
Dependence on Irrevelant Attributes," Journal of Marketing Out Vexing Questions?" Insight on the News, January 26, 1998,
Research, August 1994: 339-50. p. 39.
30. Robert D. Buzzell, "Competitive Behavior and Product Life
13. Naomi Aoki, "An Alteration at Brooks Brothers Derailed by Casual
Era Retailer Returns to Its Roots," Boston Globe, November 12, Cycles," in New Ideas for Successful Marketing, edited by
2003, p. El. John S. Wright and Jack Goldstucker (Chicago: American
Marketing Association, 1956), p. 51.
14. Katrina Brooker, "The Chairman of the Board Looks Back,"
Fortune, May 28, 2001. 31. Rajesh J. Chandy, Gerard J. Tellis, Deborah J. Maclnnis, and
Pattana Thaivanich, "What to Say When: Advertising Appeals in
15. Bridget Finn, "Selling Cool in a Bottle—of Dish Soap," Business
Evolving Markets," Journal of Marketing Research 38 (November):
2.0, December 2003, pp. 72-73.
399-414.
16. Robert D. Buzzell and Bradley T. Gale, ThePIMS Principles:
32. William T. Robinson and Claes Fornell, "Sources of Market
Linking Strategy to Performance (New York: Free Press, 1987).
Pioneer Advantages in Consumer Goods Industries," Journal of
17. "The 25 Best Sales Forces," Sales & Marketing Management (July Marketing Research (August 1985): 305-317; Glen L. Urban et al.,
1998): 32-50. "Market Share Rewards to Pioneering Brands: An Empirical
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Marketing Services: Competing Through Qualit)' (New York: The 1986): 645-659.
Free Press, 1991), p. 16. 33. Gregory S. Carpenter and Kent Nakamoto, "Consumer Preference
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January 2004, pp. 51-53. Research (August 1989): 285-298.
34. William T. Robinson and Sungwook Min, "Is the First to Market Step on My Blue Suede Hush Puppies," BusinessWeek, September
the First to Fail? Empirical Evidence for Industrial Goods 11, 1995, pp. 84-86; Cyndee Miller, "Hush Puppies: All of a Sudden
Businesses," Journal of Marketing Research 39 (February 2002): They're Cool," Marketing News, February 12, 1996, p. 10; Denise
120-128. Gellene, "An Old Dog's New Tricks: Hush Puppies' Return in the
35. Frank R. Kardes, Gurumurthy Kalyanaram, Murali '90s Is No Small Feet," Los Angeles Times, August 30, 1997, p. Dl;
Chankdrashekaran, and Ronald J. Dornoff, "Brand Retrieval, Malcolm Gladwell, "How to Start an Epidemic," The Guardian,
Consideration Set Composition, Consumer Choice, and the April 22, 2000.
Pioneering Advantage," Journal of Consumer Research (June 45. Sarah Ellison, "P&G to Buy Glide Dental Floss, A Popular Brand,"
1993): 62-75. See also, Frank H. Alpert and Michael A. Kamins, Wall Street Journal, September 17, 2003, p. A19; Anonymous,
"Pioneer Brand Advantage and Consumer Behavior: A Conceptual "What's Flot: Promoting Dental Floss," Drug Store News,
Framework and Prepositional Inventory," Journal of the Academy September 8, 2003, p. 23.
of Marketing Science (Summer 1994): 244-253. 46. Allen J. McGrath, "Growth Strategies with a '90s Twist," Across the
36. Thomas S. Robertson and Hubert Gatignon, "How Innovators Board, March 1995, pp. 43-46.
Thwart New Entrants into Their Market," Planning Review 47. Jane Eisinger Rooney, "Brand New Day," Association Management,
(September-October 1991): 4-11, 48; Douglas Bowman and February 2003, pp. 46-51.
Hubert Gatignon, "Order of Entry as a Moderator of the Effect of
48. Brian Wansink and Michael L. Ray, "Advertising Strategies to
Marketing Mix on Market Share," Marketing Science 15, no. 3,
Increase Usage Frequency," Journal of Marketing (January 1996):
(1996): 222-242.
31-46. Also see Brian Wansink, "Expansion Advertising," in blow
37. Venkatesh Shankar, Gregory S. Carpenter, and Lakshman Advertising Works, edited by John Philip Jones (Thousand Oaks,
Krishnamurthi, "bate Mover Advantage: How Innovative Late CA: Sage Publications), pp. 95-103.
Entrants Outsell Pioneers," Journal of Marketing Research 35
49. Stephanie Thompson, "Coffee Brands Think Outside of the Can,"
(February 1998): 54-70.
Advertising Age, July 28, 2003, p. 26.
38. Steven P. Schnaars, Managing Imitation Strategies (New York: The 50. Vanessa O'Connell, "Food: After Years of Trial and Error, a Pickle
Free Press, 1994). See also, Jin K. Han, Namwoon Kim, and Hony- Slice That Stays Put," Wall Street Journal, October 6,1998, p. Bl;
Bom Kin, "Entry Barriers: A Dull-, One-, or Two-Edged Sword for "Vlasic's Hamburger-Size Pickles," Wall Street Journal, October 5,
Incumbents? Unraveling the Paradox from a Contingency 1998, p. A26, <www.vlasic.com>.
Perspective," Journal of Marketing (January 2001): 1-14.
51. Kathryn Shattuck, "Mouthwash Without the Bottle," New York
39. Victor Kegan, "Second Sight: Second Movers Take All," The Times, July 7, 2002, p. 32; Michael Beirne and Aaron Baar, "Altoids
Guardian, October 10, 2002. Takes Offense in Breath Strips War," Brandweek, December 9,
40. Peter N. Golder and Gerald J. Tellis, "Pioneer Advantage: 2002, p. 4.
Marketing Logic or Marketing Legend?" Journal of Marketing 52. Stephen M. Nowlis and Itamar Simonson, "The Effect of New
Research (May 1992): 34-46; Shi Zhang and Arthur B. Markman,
Product Features on Brand Choice," Journal of Marketing
"Overcoming the Early Advantage: The Role of Alignable and
Research (February 1996): 36-46.
Nanalignable Differences," Journal of Marketing Research
(November 1998): 1-15. 53. Philip Kotler, "Phasing Out Weak Products," Harvard Business
Review (March-April 1965): 107-118; Richard T. Hise,
41. Gerald Tellis and Peter Golder, Will and Vision: How Latecomers A. Parasuraman, and R. Viswanathan, "Product Elimination: The
Can Grow to Dominate Markets (New York: McGraw-Hill, 2001); Neglected Management Responsibility," Journal of Business
Rajesh K. Chandy and Gerald J. Tellis, "The Incumbent's Curse? Strategy (Spring 1984): 56-63; George J. Avlonitis, "Product
Incumbency, Size, and Radical Product Innovation," Journal of Elimination Decision Making: Does Formality Matter," Journal of
Marketing Research (July 2000): 1-17. Marketing (Winter 1985): 41-52.
42. Linda Himelstein, "Yahoo! The Company, the Strategy, the Stock," 54. Kathryn Rudie Harrigan, "The Effect of Exit Barriers upon
BusinessWeek, September 7, 1998, pp. 66-76; Marc Gunther, "The Strategic Flexibility," Strategic Management Journal 1 (1980):
Cheering Fades for Yahoo!," Fortune, November 12, 2001; Ben 165-176.
Elgin, "Inside Yahoo! The Untold Story of How Arrogance,
55. Kathryn Rudie Harrigan, "Strategies for Declining Industries,"
Infighting, and Management Missteps Derailed One of the Hottest
Journal of Business Strategy (Fall 1980): 27.
Companies on the Web," BusinessWeek, May 21, 2001, p. 114; Ben
Elgin, "The Search War Is About to Get Bloody," BusinessWeek, July 56. "Hot Cereal is One Hot Commodity," Prepared Poods, January 2000.
28, 2003, pp. 72-73. 57. Philip Kotler, "Harvesting Strategies for Weak Products," Business
43. Himelstein, "Yahoo! The Company, the Strategy, the Stock," Horizons (August 1978): 15-22; Laurence R Feldman and Albert
pp. 66-76; Gunther, "The Cheering Fades for Yahoo!"; Elgin, L. Page, "I Iarvesting: The Misunderstood Market Exit Strategy,"
"Inside Yahoo! The Untold Story of I low Arrogance, Infighting, Journal of Business Strategy (Spring 1985): 79-85.
and Management Missteps Derailed One of the Hottest 58. Claudia II. Deutsch, "Pitney Bowes Survives Faxes, E-Mail and
Companies on the Web," p. 114; Elgin, "The Search War Is About the Internet," New York Times, August 18, 1998, p. Dl;
to Get Bloody," pp. 72-73. Matthew Lubanko, "Pitney Bowes Faces E-Foes Despite
44. Oscar Suris, "Ads Aim to Sell Hush Puppies to New Yuppies," Wall Lion's Share of the Market," Hartford Courant, March 18, 2000,
Street Journal, July 28, 1993, pp. Bl, B6; Keith Naughton, "Don't p. El.
> CRAFTING THE BRAND POSITIONING « CHAPTER 10 339
59. Nariman K. Dhalla and Sonia Yuspeh, "Forget the Product Life 61. For a discussion of the evolution of the minivan market between
Cycle Concept!" Harvard Business Review (January-February 1982 and 1998, see Jose Antonio Rosa, Joseph F. Porac, Jelena
1976): 105. Runser-Spanjol, and Michael S. Saxon, "Sociocognitive Dynamics
60. Robert D. Buzzell, "Market Functions and Market Evolution," in a Product Market," Journal of Marketing 63 (Special Issue
Journal of Marketings (Special Issue 1999): 61-63. 1999): 64-77.
62. Daniel Fisher, "Six Feet Under," Forbes, July 7, 2003, pp. 66-68.
IN THIS CHAPTER, WE WILL
QUESTIONS:
1. How do marketers identify

primary competitors?
2. How should we analyze
competitors' strategies,
objectives, strengths, and
weaknesses?
3. How can market leaders expand
the total market and defend
market share?
4. How should market challengers
attack market leaders?
5. How can market followers or
nichers compete effectively?
CHAPTER 11 DEALING WITH
COMPETITION
Building strong brands requires a keen understanding o f c o m p e t i -

t i o n , and c o m p e t i t i o n grows more intense every year. N e w compe-
t i t i o n is coming f r o m all directions—from global compe t it ors eager
t o g r o w sales in new m a r k e t s ; f r o m online c o m p e t i t o r s seeking
cost-efficient ways t o expand d i s t r i b u t i o n ; f r o m private label and
store brands designed t o provide low-price alternatives; a n d f r o m
brand extensions from strong megabrands leveraging their
strengths t o move into new categories. Consider h o w c o m p e t i t i o n
has intensified in t h e jeans market.
evi Strauss has seen its sales plummet from a peak of $7.1 billion
in 1996 to about $4 billion in 2003 in part because of fierce com-
petition. Its jeans brands, exemplified by the classic 501, are being
Pbit from all sides: above, from trendy, high-end designer lines such as Calvin
Klein, Tommy Hilfiger, and GAP; below, from popular, lower-priced private
labels such as JC Penney's Arizona and Sears' Canyon River Blues; from one
side by traditional, entrenched brands such as the western Wranglers and
urban Lee's; and from another other side by hip, youthful lines such as
American Eagle, Bugle Boy, JNCO, Lucky, and Diesel. Levi's is being hit from
so many directions, it is hard for the company to know in which direction to
turn! To better compete, it recently introduced the Signature line to be sold
at discount stores such as Wal-Mart and the more expensive Premium Red
Levi's competition: Some of the many brands and styles of jeans.
341
342 PART 4 BUILDING STRONG BRANDS -
Tab line to be sold at upscale department stores such as Nordstrom and Neiman
Marcus. Many marketing pundits wondered, however, whether it was too little too
late, and if the brand could ever reclaim its lofty position.^
To effectively devise and implement the best possible brand positioning strate-
gies, companies must pay keen attention to their competitors. 2 Markets have
become t o o competitive t o just focus on the consumer alone. This chapter
examines the role competition plays and how marketers can best manage their
brands/ depending on their market position.
Competitive Forces
Michael Porter has identified five forces that determine the intrinsic long-run attractiveness
of a market or market segment: industry competitors, potential entrants, substitutes, buyers,
and suppliers. His model is shown in Figure 11.1. The threats these forces pose are as follows:
1. Threat of intense segment rivalry - A segment is unattractive if it already contains
numerous, strong, or aggressive competitors. It is even more unattractive if it is stable or
declining, if plant capacity additions are done in large increments, if fixed costs are high,
if exit barriers are high, or if competitors have high stakes in staying in the segment.
These conditions will lead to frequent price wars, advertising battles, and new-product
introductions, and will make it expensive to compete. The cellular phone market has
seen fierce competition due to segment rivalry.
2. Threat of new entrants - A segment's attractiveness varies with the height of its entry
and exit barriers.3 The most attractive segment is one in which entry barriers are high
and exit barriers are low. Few new firms can enter the industry, and poor-performing
firms can easily exit. When both entry and exit barriers are high, profit potential is high,
but firms face more risk because poorer-performing firms stay in and fight it out. When
both entry and exit barriers are low, firms easily enter and leave the industry, and the
returns are stable and low. The worst case is when entry barriers are low and exit barriers
are high: Here firms enter during good times but find it hard to leave during bad times.
FIG. 1 1 . 1 Potential entrants

(Threat of
mobility)
Five Forces Determining Segment
Structural Attractiveness I
Source: Reprinted with the permission of the Industry
Free Press, an imprint of Simon & Schuster, Suppliers competitors Buyers
from Michael E. Porter, Competitive (Supplier ^ (Segment rivalry) ^ (Buyer
Advantage: Creating and Sustaining power) power)
Superior Performance. Copyright 1985 by
Michael E. Porter.
I
Substitutes
(Threat of
substitutes)
DEALING WITH COMPETITION CHAPTER 11 343
The result is chronic overcapacity and depressed earnings for all. The airline industry
has low entry barriers but high exit barriers, leaving all the companies struggling during
economic downturns.
3. Threat of substitute products -A segment is unattractive when there are actual or poten-
tial substitutes for the product. Substitutes place a limit on prices and on profits. The
company has to monitor price trends closely. If technology advances or competition
increases in these substitute industries, prices and profits in the segment are likely to
fall. Greyhound buses and Amtrak trains have seen profitability threatened by the rise of
air travel.
4. Threat of buyers' growing bargaining power - A segment is unattractive if buyers pos-
sess strong or growing bargaining power. The rise of retail giants such as Wal-Mart has
led some analysts to conclude that the potential profitability of packaged-goods compa-
nies will become curtailed. Buyers' bargaining power grows when they become more
concentrated or organized, when the product represents a significant fraction of the
buyers' costs, when the product is undifferentiated, when the buyers' switching costs are
low, when buyers are price sensitive because of low profits, or when buyers can integrate
upstream. To protect themselves, sellers might select buyers who have the least power to
negotiate or switch suppliers. A better defense consists of developing superior offers that
strong buyers cannot refuse.
5. Threat of suppliers' growing bargaining power - A segment is unattractive if the com-
pany's suppliers are able to raise prices or reduce quantity supplied. Oil companies such
as ExxonMobil, Shell, BP, and Chevron-Texaco are at the mercy of the amount of oil
reserves and the actions of oil supplying cartels like OPEC. Suppliers tend to be powerful
when they are concentrated or organized, when there are few substitutes, when the sup-
plied product is an important input, when the costs of switching suppliers are high, and
when the suppliers can integrate downstream. The best defenses are to build win-win
relations with suppliers or use multiple supply sources.
Ill Identifying Competitors

It would seem a simple task for a company to identify its competitors. PepsiCo knows that
Coca-Cola's Dasani is the major bottled water competitor for its Aquafina brand; Citigroup
knows that Bank of America is a major banking competitor; and PetSmart.com knows that
its major online competitor for pet food and supplies is Petco.com. However, the range of a
company's actual and potential competitors can be much broader. And a company is more
likely to be hurt by emerging competitors or new technologies than by current competitors.
This certainly has been true for Toys "R" Us and other major toy retailers:
TOYS "R" US A N D KB TOYS
Pricing pressure from discounters Wal-Mart, Target, and even electronics vendors such as Best Buy and Circuit
City has pummeled the toy chains and sent some of them into bankruptcy. During the 2004 holiday season, Wal-
Mart made its most aggressive move yet into the toy business, drastically reducing prices and undercutting Toys
"R" Us and KB Toys by 20 percent. At Wal-Mart, one of the season's hottest toys, Hokey-Pokey Elmo, sold for
S19.46, whereas at KB Toys it cost $24.99. With their bare bones prices, the discounters have higher sales, more
locations, and the flexibility, if necessary, to break even or even lose money in areas such as toys while falling
back on other product revenue. In response, some chains, such as venerable FAO Schwartz, have filed for bank-
ruptcy, while others, such as Toys "R" Us, are contracting. The company closed 182 freestanding Kids "R" Us
stores as well as its Imaginarium chain. KB Toys may try specializing in order to survive and become a niche
provider.4
Many businesses failed to look to the Internet for their most formidable competitors.
Web sites that offer jobs, real estate listings, and automobiles online threaten newspapers,
which derive a huge portion of their revenue from classified ads. The businesses with the
most to fear from Internet technology are the world's middlemen. A few years back, Barnes
& Noble and Borders bookstore chains were competing to see who could build the most
megastores, where book browsers could sink into comfortable couches and sip cappuc-
cino. While they were deciding which products to stock, Jeffrey Bezos was building an
online empire called Amazon.com. Bezos's cyber-bookstore had the advantage of offering
an almost unlimited selection of books without the expense of stocking inventory. Now
both Barnes & Noble and Borders are playing catch-up in building their own online stores.
"Competitor myopia"—a focus on current competitors rather than latent ones—has ren-
dered some businesses extinct:5
ENCYCLOPAEDIA BRITANNICA
In 1996, 230-year-old Encyclopaedia Britannica dismissed its entire home sales force after the arrival of its $5-
per-month subscription Internet site made the idea of owning a 32-volume set of books for $1,250 less appeal-
ing to parents. Britannica decided to create an online site after realizing that computer-savvy kids most often
sought information online or on CD-ROMs such as Microsoft's Encarta, which sold for $50. What really smarts is
that Britannica had the opportunity to partner with Microsoft in providing content for Encarta but refused.
Britannica now sells print sets and offers online access to premium subscribers on its Web site.6
We can examine competition from both an industry and a marketing point of view.7
Industry Concept o f C o m p e t i t i o n
What exactly is an industry? An industry is a group of firms that offer a product or class
of products that are close substitutes for one another. Industries are classified according
to number of sellers; degree of product differentiation; presence or absence of entry,
mobility, and exit barriers; cost structure; degree of vertical integration; and degree of
globalization.
NUMBER OF SELLERS AND DEGREE OF DIFFERENTIATION The starting point for

describing an industry is to specify the number of sellers and whether the product is
homogeneous or highly differentiated. These characteristics give rise to four industry
structure types:
1. Pure monopoly - Only one firm provides a certain product or service in a certain coun-
try or area (a local water or cable company). An unregulated monopolist might charge a
high price, do little or no advertising, and offer minimal service. If partial substitutes are
available and there is some danger of competition, the monopolist might invest in more
service and technology. A regulated monopolist is required to charge a lower price and
provide more service as a matter of public interest.
2. Oligopoly - A small number of (usually) large firms produce products that range from
highly differentiated to standardized. Pure oligopoly consists of a few companies pro-
ducing essentially the same commodity (oil, steel). Such companies would find it hard to
charge anything more than the going price. If competitors match on price and services,
the only way to gain a competitive advantage is through lower costs. Differentiated oli-
gopoly consists of a few companies producing products (autos, cameras) partially differ-
entiated along lines of quality, features, styling, or services. Each competitor may seek
leadership in one of these major attributes, attract the customers favoring that attribute,
and charge a price premium for that attribute.
3. Monopolistic competition - Many competitors are able to differentiate their offers in
whole or in part (restaurants, beauty shops). Competitors focus on market segments
where they can meet customer needs in a superior way and command a price premium.
4. Pure competition - Many competitors offer the same product and service (stock market,
commodity market). Because there is no basis for differentiation, competitors' prices
will be the same. No competitor will advertise unless advertising can create psychologi-
cal differentiation (cigarettes, beer), in which case it would be more proper to describe
the industry as monopolistically competitive.
An industry's competitive structure can change over time. For instance, the media indus-
try has continued to consolidate, turning from monopolistic into a differentiated oligopoly:
MEDIA INDUSTRY
For more than a decade, the media business has been steadily consolidating to the point that four media empires
can now vertically integrate content with distribution: Rupert Murdoch's $30 billion News Corp., Time Warner at
$39.9 billion, $26.6 billion Viacom and, the smallest, $6.9 billion NBC. Combining the studios that produce pro-
Shell Oil is a vertically integrated firm

that is also today becoming an
environmentally friendly firm. This ad is
one of a series in a campaign to spotlight
Shell's sustainable development
program.
gramming with cable and broadcasting units that distribute content saves money and benefits shareholders.
However, consumers are concerned by the effects of dwindling competition. With fewer people deciding on pro-
gramming, quality and variety could suffer, and less competition may mean higher prices for cable and satellite
subscribers. Also, most important, if a few media giants control content and distribution, smaller, more innova-
tive programs could be squeezed out.8
ENTRY, MOBILITY, AND EXIT BARRIERS Industries differ greatly in ease of entry. It is easy
to open a new restaurant but difficult to enter the aircraft industry. Major entry barriers
include high capital requirements; economies of scale; patents and licensing requirements;
scarce locations, raw materials, or distributors; and reputation requirements. Even after a
firm enters an industry, it might face mobility barriers when it tries to enter more attractive
market segments.
Firms often face exit barriers, such as legal or moral obligations to customers, creditors, and
employees; government restrictions; low asset-salvage value due to overspecialization or obso-
lescence; lack of alternative opportunities; high vertical integration; and emotional barriers.9
Many firms stay in an industry as long as they cover their variable costs and some or all of their
fixed costs. Their continued presence, however, dampens profits for everyone. Even if some
firms do not want to exit the industry, they might decrease their size. Companies can try to
reduce shrinkage barriers to help ailing competitors get smaller gracefully.10
COST STRUCTURE Each industry has a certain cost burden that shapes much of its strate-
gic conduct. For example, steelmaking involves heavy manufacturing and raw material
costs; toy manufacturing involves heavy distribution and marketing costs. Firms strive to
reduce their largest costs. The integrated steel company with the most cost-efficient plant
will have a great advantage over other integrated steel companies; but even it has higher
costs than the new steel mini-mills.
DEGREE OF VERTICAL INTEGRATION Companies find it advantageous to integrate

backward or forward (vertical integration). Major oil producers carry on oil exploration,
oil drilling, oil refining, chemical manufacture, and service-station operation. Vertical
integration often lowers costs, and the company gains a larger share of the value-added
stream. In addition, vertically integrated firms can manipulate prices and costs in differ-
ent parts of the value chain to earn profits where taxes are lowest. There can be disadvan-
tages, such as high costs in certain parts of the value chain and a lack of flexibility.
Companies are increasingly questioning how vertical they should be. Many are outsourc-
ing more activities, especially those that can be done better and more cheaply by special-
ist firms.
DEGREE OF GLOBALIZATION Some industries are highly local (such as lawn care); others
are global (such as oil, aircraft engines, cameras). Companies in global industries need to
compete on a global basis if they are to achieve economies of scale and keep up with the lat-
est advances in technology.1l
Market Concept of Competition

Using the market approach, competitors are companies that satisfy the same customer
need. For example, a customer who buys a word-processing package really wants "writing
ability"—a need that can also be satisfied by pencils, pens, or typewriters. Marketers must
overcome "marketing myopia" and stop defining competition in traditional category
terms.12 Coca-Cola, focused on its soft-drink business, missed seeing the market for coffee
bars and fresh-fruit-juice bars that eventually impinged on its soft-drink business.
The market concept of competition reveals a broader set of actual and potential com-
petitors. Rayport and Jaworski suggest profiling a company's direct and indirect competi-
tors by mapping the buyer's steps in obtaining and using the product. Figure 11.2 illus-
trates their competitor map of Eastman Kodak in the film business. In the center is a
listing of consumer activities: buying a camera, buying film, taking pictures, and so on.
The first outer ring lists Kodak's main competitors with respect to each consumer activity:
FIG. 1 1 . 2 |
Competitor Map—Eastman Kodak
Source: Jeffrey F. Rayport and Bernard

J. Jaworski, e-Commerce (New York:
McGraw-Hill, 2001), p. 53.
Olympus for buying a camera, Fuji for purchasing film, and so on. The second outer ring
lists indirect competitors—IIP, Intel, cameravvorks.com—who in Kodak's case are increas-
ingly becoming direct competitors. This type of analysis highlights both the opportuni-
ties and the challenges a company faces.13
: : : Analyzing Competitors
Once a company identifies its primary competitors, it must ascertain their strategies, objec-
tives, strengths, and weaknesses.
Strategies
A group of firms following the same strategy in a given target market is called a strategic
group.11 Suppose a company wants to enter the major appliance industry. What is its strate-
gic group? It develops the chart shown in Figure 11.3 and discovers four strategic groups
based on product quality and level of vertical integration. Group A has one competitor
(Maytag); group B has three (General Electric, Whirlpool, and Sears); group C has four; and
group D has two. Important insights emerge from this exercise. First, the height of the entry
barriers differs for each group. Second, if the company successfully enters a group, the mem-
bers of that group become its key competitors.
Objectives
Once a company has identified its main competitors and their strategies, it must ask: What
is each competitor seeking in the marketplace? What drives each competitor's behavior?
Many factors shape a competitor's objectives, including size, history, current management,
and financial situation. If the competitor is a division of a larger company, it is important to
High Low
know whether the parent company is running it for growth, profits, or milking it.15
Vertical Integration
One useful initial assumption is that competitors strive to maximize profits. However,
companies differ in the emphasis they put on short-term versus long-term profits. Many
U.S. firms have been criticized for operating on a short-run model, largely because current FIG. 1 1 . 3 |
performance is judged by stockholders who might lose confidence, sell their stock, and
cause the company's cost of capital to rise. Japanese firms operate largely on a market-share-
maximization model. They receive much of their funds from banks at a lower interest rate Strategic Groups in the Major Appliance
and in the past have readily accepted lower profits. An alternative assumption is that each Industry
competitor pursues some mix of objectives: current profitability, market share growth, cash
flow, technological leadership, or service leadership.
Finally, a company must monitor competitors' expansion plans. Figure 11.4 shows a
product-market battlefield map for the personal computer industry. Dell, which started out
as a strong force in selling personal computers to individual users, is now a major force in
the commercial and industrial market. Other incumbents may try to set up mobility barriers
to Dell's further expansion.
Strengths and Weaknesses

A company needs to gather information on each competitor's strengths and weaknesses.
Table 11.1 shows the results of a company survey that asked customers to rate its three com-
petitors, A, B, and C, on five attributes. Competitor A turns out to be well known and
Individual Commercial and Educational

Users Industrial FIG. 1 1 . 4 [
DELL
Personal
A Competitor's Expansion Plans
Computers
Hardware
Accessories
Software
TABLE 1 1 . 1 Customer Product Product Technical Selling

Awareness Quality Availability Assistance Staff
Customers' Ratings of Competitors
Competitor A
on Key Success Factors
Competitor B
Competitor C
Note: E = excellent, G = good, F = fair, P = poor.
respected for producing high-qualily products sold by a good sales force. Competitor A is
poor at providing product availability and technical assistance. Competitor B is good across
the board and excellent in product availability and sales force. Competitor C rates poor to
fair on most attributes. This suggests that the company could attack Competitor A on prod-
uct availability and technical assistance and Competitor C on almost anything, but should
not attack B, which has no glaring weaknesses.
In general, a company should monitor three variables when analyzing competitors:
1. Share of market - The competitor's share of the target market.
2. Share of mind-The percentage of customers who named the competitor in responding
to the statement, "Name the first company that comes to mind in this industry."
3. Share of heart - The percentage of customers who named the competitor in responding
to the statement, "Name the company from which you would prefer to buy the product."
There is an interesting relationship among these three measures. Table 11.2 shows the
numbers for these three measures for the three competitors listed in Table 11.1.
Competitor A enjoys the highest market share but is slipping. Its mind share and heart
share are also slipping, probably because it is not providing good product availability and
technical assistance. Competitor B is steadily gaining market share, probably due to strate-
gies that are increasing its mind share and heart share. Competitor C seems to be stuck at
a low level of market share, mind share, and heart share, probably because of its poor
product and marketing attributes. We could generalize as follows: Companies that make
steady gams in mind share and heart share will inevitably make gains in market share and
profitability.
To improve market share, many companies benchmark their most successful competi-
tors, as well as world-class performers. The technique and its benefits are described in
"Marketing Memo: Benchmarking To Improve Competitive Performance."
Selecting C o m p e t i t o r s
After the company has conducted customer value analysis and examined competitors care-
fully, it can focus its attack on one of the following classes of competitors: strong versus
weak, close versus distant, and "good" versus "bad."
a Strong versus Weak. Most companies aim their shots at weak competitors, because this
requires fewer resources per share point gained. Yet, the firm should also compete with
strong competitors to keep up with the best. Even strong competitors have some weaknesses.
S3 Close versus Distant. Most companies compete with competitors who resemble them
the most. Chevrolet competes with Ford, not with Ferrari. Yet companies should also recog-
nize distant competitors. Coca-Cola states that its number-one competitor is tap water, not
TABLE 1 1 . 2 Market Sha re M nd Share Heart Share

2000 2001 2002 2000 2001 2002 2000 2001 2002
Market Share, Mind Share,
Competitor A 50% 47% 44% 60% 58% 54% 45% 42% 39%
and Heart Share
Competitor B 30 34 37 30 31 35 44 47 53
Competitor C 20 19 19 10 11 11 11 11 8
Pepsi. U.S. Steel worries more about plastic and aluminum than about Bethlehem Steel;
museums now worry about theme parks and malls.
• "Good" versus "Bad". Every industry contains "good" and "bad" competitors.16 A com- Market
pany should support its good competitors and attack its bad competitors. Good competitors 40% leader
play by the industry's rules; they make realistic assumptions about the industry's growth
potential; they set prices in reasonable relation to costs; they favor a healthy industry; they
limit themselves to a portion or segment of the industry; they motivate others to lower costs
or improve differentiation; and they accept the general level of their share and profits. Bad
competitors try to buy share rather than earn it; they take large risks; they invest in overca-
pacity; and they upset industrial equilibrium. Market
30% challenger
Ill Competitive Strategies for Market Leaders

Market
We can gain further insight by classifying firms by the roles they play in the target market: 20% follower
leader, challenger, follower, or nicher. Suppose a market is occupied by the firms shown in
Figure 11.5. Forty percent of the market is in the hands of a market leader; another 30 per- Market
10%
cent is in the hands of a market challenger; another 20 percent is in the hands of a market nichers
follower, a firm that is willing to maintain its market share and not rock the boat. The remain-
ing 10 percent is in the hands of market nichers, firms that serve small market segments not
being served by larger firms. FIG. 11.5 j
Many industries contain one firm that is the acknowledged market leader. This firm
has the largest market share in the relevant product market, and usually leads the other Hypothetical Market Structure
firms in price changes, new-product introductions, distribution coverage, and promo-
tional intensity. Some well-known market leaders are Microsoft (computer software),
Intel (microprocessors), Gatorade (sports drinks), Best Buy (retail electronics),
McDonald's (fast food), Gillette (razor blades), UnitedHealth (health insurance), and Visa
(credit cards).
Ries and Trout argue that well-known products generally hold a distinctive position in
consumers' minds. Nevertheless, unless a dominant firm enjoys a legal monopoly, its life is
not altogether easy. It must maintain constant vigilance. A product innovation may come
along and hurt the leader (Nokia's and Ericsson's digital cell phones took over from
Motorola's analog models). The leader might spend conservatively whereas a challenger
spends liberally (Montgomery Ward's lost its retail dominance to Sears after World War II).
The leader might misjudge its competition and find itself left behind (as Sears did when it
underestimated Kmart and later Wal-Mart). The dominant firm might look old-fashioned
against new and peppier rivals (Pepsi has attempted to take share from Coke by portraying
itself as the more youthful brand). The dominant firm's costs might rise excessively and
A 1 ^Arwr-riM,- **r-*nr^ BENCHMARKING TO IMPROVE COMPETITIVE

|4 MARKETING MEMO PERFORMANCE
_. Benchmarking is the art of learning from companies that perform 3. Identify the best-in-class companies;
certain tasks better than other companies. There can be as much as as 4 M e a s u r e performance of best-in-class companies;
a tenfold difference between the quality, speed, and cost perfor- _ ,,
mance of, a world-class
. , , company andJan average company. The TUaim • 5. Measure the company s performance;
K 3 v
mance
of of a world-class
benchmarking company
is to copy and an on
or improve average
"best company. The
practices," aim
either
of benchmarking is to copy or improve on "best practices," either 6. Specify programs and actions to close the gap; and
within an
within industry or
an industry or across
across industries.
industries. Benchmarking
Benchmarking involves
involves seven
seven 7. Implement and monitor results.
steps:
steps:
How can companies identify best-practice companies? A good
1.
1. Determine
Determine which
which functions
functions to benchmark;
to benchmark; s t a r t i n g p o i n t j s a s k i n g cus tomers,
suppliers, and distributors whom
2. Identify the key performance variables to measure; they rate as doing the best job.
Sources: Robert C. Camp, Benchmarking: The Search for Industry-Best Practices that Lead to Superior Performance (While Plains, NY: Quality Resources,
1989); Michael J. Spendolini, The Benchmarking Book (New York: Amacom, 1992); Stanley Brown, "Don't Innovate—Imitate!" Sales & Marketing
Management (January 1995): 24-25; Tom Stemerg, "Spies Like Us," Inc. (August 1998): 45-49. See also, <www.benchmarking.org>; Michael Hope,
"Contrast and Compare," Marketing, August 28,1997, pp. 11-13; Robert Hiebeler, Thomas B. Kelly, and Charles Ketteman, Best Practices: Building Your
Business with Customer-Focused Solutions (New York: Arthur Andersen/Simon & Schuster, 1998).
350 PART 4 ' BUILDING STRONG BRANDS *
hurt its profits, or a discount competitor can undercut prices. "Marketing Insight: When
Your Competitor Delivers More for Less" describes how leaders can respond to an aggres-
sive competitive price discounter.
Consider how hard Hershey is working to maintain its leadership position in the U.S.
chocolate candy market.17
- HERSHEY
Under constant pressure from fast-growing snack makers of all kinds, Hershey Foods Corp., has found that dom-
ination of the U.S. chocolate candy business is not enough. Increasingly, consumers are passing up Hershey's
candies for chips, sports bars, cereal bars, or granola bars. To maintain profit targets, Hershey has cut costs,
dropped weak product lines such as Luden's throat lozenges, cut hundreds of slow-selling package sizes,
improved distribution by increasing high-margin convenience store presence, and introduced extensions of its
strongest brands such as Reese's Inside Out Cups. To more broadly compete and sustain growth, however,
Hershey's is even considering other new snack products.
Remaining number one calls for action on three fronts. First, the firm must find ways to
expand total market demand. Second, the firm must protect its current market share
through good defensive and offensive actions. Third, the firm can try to increase its market
share, even if market size remains constant.
Expanding t h e Total M a r k e t
The dominant firm normally gains the most when the total market expands. If Americans
increase their consumption of ketchup, Heinz stands to gain the most because it sells almost
two-thirds of the country's ketchup. If Heinz can convince more Americans to use ketchup,
or to use ketchup with more meals, or to use more ketchup on each occasion, Heinz will
benefit considerably. In general, the market leader should look for new customers or more
usage from existing customers.
NEW CUSTOMERS Every product class has the potential of attracting buyers who are
unaware of the product or who are resisting it because of price or lack of certain features. A
company can search for new users among three groups: those who might use it but do not
(market-penetration strategy), those who have never used it (new-market segment strategy),
or those who live elsewhere (geographical-expansion strategy).
Starbucks Coffee is one of the best-known brands in the world. Starbucks is able to
sell a cup of coffee for $3 while the store next door can only get $1. And if you want the
popular cafe latte, it's $4. Starbucks has more than 7,200 locations throughout North
America, the Pacific Rim, Europe, and the Middle East, and its annual revenue for 2002
topped $3.3 billion. Its corporate Web site gives a peek into its multipronged approach to
growth.18
Starbucks purchases and roasts high-quality whole bean coffees and sells them
along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries
and confections, and coffee-related accessories and equipment—primarily
through its company-operated retail stores. In addition, Starbucks sells whole
bean coffees through a specialty sales group and supermarkets. Additionally,
Starbucks produces and sells bottled Frappuccino® coffee drinks and a line of pre-
mium ice creams through its joint venture partnerships and offers a line of inno-
vative premium teas produced by its wholly owned subsidiary, Tazo Tea Company.
The company's objective is to establish Starbucks as the most recognized and
respected brand in the world. To achieve this goal, the company plans to continue
to rapidly expand its retail operations, grow its specialty sales and other opera-
tions, and selectively pursue opportunities to leverage the Starbucks brand
through the introduction of new products and the development of new distribu-
tion channels.
MORE USAGE Usage can be increased by increasing the level or quantity of consumption
or increasing the frequency of consumption.
. DEALING WITH C O M P E T I T I O N CHAPTER 11 351
MARKETING INSIGHT W H E N YOUR COMPETITOR DELIVERS MORE FOR LESS
Companies offering the powerful combination of low prices and high Differentiation
quality are capturing the hearts and wallets of consumers in Europe To counter value-based players, it will be necessary to focus on areas
and the United States, where more than half of the population now where their business models give other companies room to maneuver.
shops weekly at mass merchants like Wal-Mart and Target, up from Instead of trying to compete with Wal-Mart and other value retailers on
25 percent in 1996. These and similar value players, such as Aldi, price, for example, Walgreens emphasizes convenience across all ele-
ASDA, Dell, E'TRADE Financial, JetBlue Airways, Ryanair, and ments of its business. It has expanded rapidly to make its stores ubiqui-
Southwest Airlines, are transforming the way consumers of nearly tous, meanwhile ensuring that most of them are on corner locations with
every age and income purchase groceries, apparel, airline tickets, easy parking. In addition, Walgreens has overhauled its in-store layouts
financial services, and computers. to speed consumers in and out, placing key categories such as conve-
The market share gains of value-based players give their higher- nience foods and one-hour photo services near the front. To protect
priced rivals definite cause for alarm. After years of near-exclusive pharmacy sales, the company has implemented a simple telephone and
sway over all but the most discount-minded consumers, many main- online preordering system, made it easy to transfer prescriptions between
stream companies now face steep cost disadvantages and lack the locations around the country, and installed drive-through windows at
product and service superiority that once set them apart from low- most freestanding stores. These steps helped Walgreens double its rev-
priced competitors. Today, as value-driven companies in a growing enue from 1998 to 2002—to over $32 billion, from S15 billion.
number of industries move from competing solely on price to catch-
ing up on attributes such as quality, service, and convenience, tradi- Execution
tional players are right to feel threatened. Value-based markets also place a premium on execution, particularly in
To compete with value-based rivals, mainstream companies prices and costs. Kmart's disastrous experience in trying to compete
must reconsider the perennial routes to business success: keeping head-on with Wal-Mart highlights the difficulty of challenging value
costs in line, finding sources of differentiation, and managing prices leaders on their own terms. Matching or even beating a value player's
effectively. To succeed in value-based markets, companies are prices—as Kmart briefly did—won't necessarily win the battle of con-
required to infuse these timeless strategies with greater intensity sumer perceptions against companies with reputations for the lowest
and focus and then execute them flawlessly. Differentiation, for prices. Value players tend to price frequently purchased, easy-to-
example, becomes less about the abstract goal of rising above com- compare products and services aggressively and to make up for lost
petitive clutter and more about identifying opportunities left open by margins by charging more for higher-end offerings. Focused advertis-
the value players' business models. Effective pricing means waging ing to showcase "special buys" and the use of simple, prominent sig-
a transaction-by-transaction perception battle to win over those nage enable retailers to get credit for the value they offer and will prob-
consumers who are predisposed to believe that value-oriented com- ably become an ever-more-visible feature of the competitive landscape.
petitors are always cheaper. Ultimately, of course, the ability to offer even selectively competitive
Competitive outcomes will be determined, as always, on the prices depends on keeping costs in line. Continual improvement is nec-
ground—in product aisles, merchandising displays, process rethinks, essary, suggesting an increasing role, in a variety of industries, for
and pricing stickers. When it comes to value-based competition, tra- Toyota's lean-manufacturing methods, which aim to reduce costs and
ditional players can't afford to drop a stitch. Value-driven competitors improve quality constantly and simultaneously. In financial services, for
have changed the expectations of consumers about the trade-off example, banks have used lean techniques to speed check processing
between quality and price. This shift is gathering momentum, placing and mortgage approvals and to improve call-center performance. Lean
a new premium on—and adding new twists to—the old imperatives operations will probably emerge in more industries. Companies have
of differentiation and execution. no choice—those that fail to constantly take out costs may perish.
Source: Adapted from Robert J. Frank, Jeffrey P. George, and Laxman Narasimhan, "When Your Competitor Delivers More for Less," McKinsey Quarterly
(Winter 2004): 48-59.
The amount of consumption can sometimes be increased through packaging or product

design. Larger package sizes have been shown to increase the amount of product that con-
sumers use at one time.19 The usage of "impulse" consumption products such as soft drinks
and snacks increases when the product is made more available.
Increasing frequency of use, on the other hand, involves identifying additional opportu-
nities to use the brand in the same basic way or identifying completely new and different
ways to use the brand. In some cases, the product may be seen as useful only in certain
places and at certain times, especially if it has strong brand associations to particular usage
situations or user types.
To generate additional usage opportunities, a marketing program can communicate
the appropriateness and advantages of using the brand more frequently in new or existing
situations and/or remind consumers to actually use the brand as close as possible to those
situations. The wine industry launched a number of initiatives in the late 1990s to attract
Gen-Xers and convince them wine was a "casual, every day libation to be drunk like bot-
tled water, beer or soda."20
Another potential opportunity to increase frequency of use is when consumers' percep-
tions of their usage differs from the reality of their usage. For many products with relatively
short life spans, consumers may fail to replace the product when they should because of a
tendency to overestimate the length of productive usage.21 One strategy to speed up product
replacement is to tie the act of replacing the product to a certain holiday, event, or time of
year. Another strategy might be to provide consumers with better information as to either:
(1) when the product was first used or would need to be replaced or (2) the current level of
product performance. Each Gillette Mach3 cartridge features a blue stripe that slowly fades
with repeated use. After about a dozen shaves, it fades away, signaling the user to move on
to the next cartridge.
The second approach is to identify completely new and different applications. For exam-
ple, food product companies have long advertised new recipes that use their branded prod-
ucts in entirely different ways. Given that the average American eats dry breakfast cereal
three mornings a week, cereal manufacturers would gain if they could promote cereal eating
on other occasions—perhaps as a snack.
- ARM & HAMMER
After discovering that consumers used Arm & Hammer baking soda brand as a refrigerator deodorant, a heavy
promotion campaign was launched focusing on this single use. After succeeding in getting half of the homes in
America to place an open box of baking soda in the refrigerator, the brand was then extended into a variety of
new product categories, such as toothpaste, antiperspirant, and laundry detergent.
Product development can spur new uses. Chewing gum manufacturers are exploring
ways to make "nutracuetical" products as a cheap, effective delivery mechanism for
medicine. The majority of Adam's chewing gums (number two in the world) claim health
benefits. Aquafresh and Arm & Hammer are two dental gums that both achieved some
success.22
D e f e n d i n g M a r k e t Share
While trying to expand total market size, the dominant firm must continuously defend its
current business. The leader is like a large elephant being attacked by a swarm of bees.
Tropicana must constantly guard against Minute Maid orange juice; Duracell against
Energizer batteries; Hertz against Avis rental cars; Kodak against Fuji film.23 Sometimes the
competitor is domestic; sometimes it is foreign.
What can the market leader do to defend its terrain? The most constructive response is
continuous innovation. The leader leads the industry in developing new product and cus-
tomer services, distribution effectiveness, and cost cutting. It keeps increasing its competi-
tive strength and value to customers.
Consider how Caterpillar has become dominant in the construction-equipment industry
despite charging a premium price and being challenged by a number of able competitors,
including John Deere, J. I. Case, Komatsu, and Hitachi. Several policies combine to explain
Caterpillar's success:24
m Premium performance. Caterpillar produces high-quality equipment known for its

reliability and durability—key buyer considerations in the choice of heavy industrial
equipment.
s Extensive and efficient dealership system. Caterpillar maintains the largest number of
independent construction-equipment dealers in the industry, all of whom carry a complete
line of Caterpillar equipment.
D Superior service. Caterpillar has built a worldwide parts and service system second to
none in the industry.
m Full-line strategy. Caterpillar produces a full

line of construction equipment to enable cus-
tomers to do one-stop buying.
a Good financing. Caterpillar provides a wide
range of financial terms for customers who buy
its equipment.
In satisfying customer needs, a distinction

can be drawn between responsive marketing,
anticipative marketing, and creative market-
ing. A responsive marketer finds a stated need
and fills it. An anticipative marketer looks
ahead into what needs customers may have in
the near future. A creative marketer discovers
and produces solutions customers did
not ask for but to which they enthusiastically
respond.
Sony exemplifies creative marketing. It has
introduced many successful new products that
customers never asked for or even thought were
possible: Walkmans, VCRs, videocameras, CDs.
Sony is a market-driving firm, not just a mar- Akio Morita and an early Walkman. Morita refused to abandon his idea for a portable cassette
ket-driven firm. Akio Morita, its founder, once player, saying Sony doesn't serve markets, Sony creates markets. And he was certainly right:
proclaimed that Sony doesn't serve markets;
Sony creates markets.25 The Walkman is a clas- by the twentieth anniversary of the Walkman, Sony had sold over 250 million units.
sic example: In the late 1970s, Akio Morita was
working on a pet project that would revolutionize the way people listened to music: a
portable cassette player he called the Walkman. Engineers at the company insisted there
was little demand for such a product, but Morita refused to part with his vision. By the
twentieth anniversary of the Walkman, Sony had sold over 250 million in nearly 100 dif-
ferent models.26
Even when it does not launch offensives, the market leader must not leave any
major flanks exposed. It must consider carefully which terrains are important to
defend, even at a loss, and which can be surrendered. 27 The aim of defensive strategy
is to reduce the probability of attack, divert attacks to less threatening areas, and
lessen their intensity. The defender's speed of response can make an important differ-
ence in the profit consequences. A dominant firm can use the six defense strategies
summarized in Figure 11.6.28
POSITION DEFENSE Position defense involves occupying the most desirable market space
in the minds of the consumers, making the brand almost impregnable, like Tide laundry
detergent with cleaning; Crest toothpaste with cavity prevention; and Pampers diapers with
dryness.
FIG. 1 1 . 6 |
Six Types of Defense Strategies

FLANK DEFENSE Although position defense is important, the market leader should also
erect outposts to protect a weak front or possibly serve as an invasion base for counterat-
tack. When Heublein's brand Smirnoff, which had 23 percent of the U.S. vodka market, was
attacked by low-priced competitor Wolfschmidt, Heublein actually raised the price and
put the increased revenue into advertising. At the same time, Heublein introduced another
brand, Kelska, to compete with Wolfschmidt and still another, Popov, to sell for less than
Wolfschmidt. This strategy effectively bracketed Wolfschmidt and protected Smirnoff's
flanks.
PREEMPTIVE DEFENSE A more aggressive maneuver is to attack before the enemy

starts its offense. A company can launch a preemptive defense in several ways. It can
wage guerrilla action across the market—hitting one competitor here, another there—
and keep everyone off balance; or it can try to achieve a grand market envelopment.
Bank of America's 13,000 ATMs and 4,500 branches nationwide now provide steep com-
petition to local and regional banks. It can send out market signals to dissuade competi-
tors from attacking.29 It can introduce a stream of new products, making sure to precede
them with preannouncements—deliberate communications regarding future actions.30
Preannouncements can signal to competitors that they will have to fight to gain market
share. 31 If Microsoft announces plans for a new-product development, smaller firms
may choose to concentrate their development efforts in other directions to avoid head-
to-head competition. Some high-tech firms have even been accused of engaging in
"vaporware"—preannouncing products that miss delivery dates or are not even ever
introduced. 32
COUNTEROFFENSIVE DEFENSE When attacked, most market leaders will respond with
a counterattack. Counterattacks can take many forms. In a counteroffensive, the leader can
meet the attacker frontally or hit its flank or launch a pincer movement. An effective coun-
terattack is to invade the attacker's main territory so that it will have to pull back to defend
the territory. After FedEx watched UPS successfully invade its airborne delivery system,
FedEx invested heavily in ground delivery service through a series of acquisitions to chal-
lenge UPS on its home turf.33 Another common form of counteroffensive is the exercise of
economic or political clout. The leader may try to crush a competitor by subsidizing lower
prices for the vulnerable product with revenue from its more profitable products; or the
leader may prematurely announce that a product upgrade will be available, to prevent cus-
tomers from buying the competitor's product; or the leader may lobby legislators to take
political action to inhibit the competition.
MOBILE DEFENSE In mobile defense, the leader stretches its domain over new territories
that can serve as future centers for defense and offense through market broadening and
market diversification. Market broadening involves shifting focus from the current prod-
uct to the underlying generic need. The company gets involved in R&D across the whole
range of technology associated with that need. Thus "petroleum" companies sought to
recast themselves into "energy" companies. Implicitly, this change demanded that they
dip their research fingers into the oil, coal, nuclear, hydroelectric, and chemical industries.
Market diversification involves shifting into unrelated industries. When U.S. tobacco com-
panies like Reynolds and Philip Morris acknowledged the growing curbs on cigarette
smoking, they were not content with position defense or even with looking for cigarette
substitutes. Instead they moved quickly into new industries, such as beer, liquor, soft
drinks, and frozen foods.
CONTRACTION DEFENSE Large companies sometimes recognize that they can no longer
defend all of their territory. The best course of action then appears to be planned contraction
(also called strategic withdrawal): giving up weaker territories and reassigning resources to
stronger territories. Diageo acquired most of Seagram's brands in 2001 and spun off Pillsbury
and Burger King so it could concentrate on powerhouse alcoholic beverage brands such as
Smirnoff vodka, J&B scotch, and Tanqueray gin.34
. DEALING WITH COMPETITION CHAPTER 11 355
Expanding M a r k e t Share
Market leaders can improve their profitability by increasing their market share. In many
markets, one share point is worth tens of millions of dollars. A one-share-point gain in cof-
fee is worth $48 million; and in soft drinks, $120 million! No wonder normal competition has
turned into marketing warfare.
Gaining increased share in the served market, however, does not automatically produce
higher profits—especially for labor-intensive service companies that may not experience
25 50 75 100
many economies of scale. Much depends on the company's strategy.
Market Share (%)
Because the cost of buying higher market share may far exceed its revenue value, a com-
pany should consider four factors before pursuing increased market share:
FIG. 1 1 . 7 |
B The possibility of provoking antitrust action, such as recently occurred with investiga-
tions of Microsoft and Intel. Jealous competitors are likely to cry "monopoly" if a dominant The Concept of Optimal Market Share
firm makes further inroads. This rise in risk would diminish the attractiveness of pushing
market share gains too far.
0 Economic cost. Figure 11.7 shows that profitability might fall with further market share
gains after some level. In the illustration, the firm's optimal market share is 50 percent. The
cost of gaining further market share might exceed the value. The "holdout" customers may
dislike the company, be loyal to competitive suppliers, have unique needs, or prefer dealing
with smaller suppliers. The cost of legal work, public relations, and lobbying rises with mar-
ket share. Pushing for higher market share is less justified when there are few scale or expe-
rience economies, unattractive market segments exist, buyers want multiple sources of sup-
ply, and exit barriers are high. Some market leaders have even increased profitability by
selectively decreasing market share in weaker areas.35
m Pursuing the wrong marketing-mix strategy. Miller Brewing spent $1.5 billion on mea-
sured advertising during the 1990s but still managed to lose market share. Its ad campaigns
were highly distinctive but, unfortunately, also largely irrelevant to its targeted customer
base.36 When it was acquired by SAB in 2002, new management overhauled marketing oper-
ations.37 Companies successfully gaining share typically outperform competitors in three
areas: new-product activity, relative product quality, and marketing expenditures. 38
Companies that cut prices more deeply than competitors typically do not achieve significant
gains, as enough rivals meet the price cuts and others offer other values so that buyers do
not switch. Competitive rivalry and price cutting have been shown to be most intense in
industries with high fixed costs, high inventory costs, and stagnant primary demand, such
as steel, auto, paper, and chemicals.39
n The effect of increased market share on actual and perceived quality.40 Too many cus-
tomers can put a strain on the firm's resources, hurting product value and service delivery.
America Online experienced growing pains when its customer base expanded, resulting in
system outages and access problems. Consumers may also infer that "bigger is not better"
and assume that growth will lead to a deterioration of quality. If "exclusivity" is a key brand
benefit, existing customers may resent additional new customers.
III Other Competitive Strategies

Firms that occupy second, third, and lower ranks in an industry are often called runner-up,
or trailing firms. Some, such as Colgate, Ford, Avis, and PepsiCo, are quite large in their own
right. These firms can adopt one of two postures. They can attack the leader and other com-
petitors in an aggressive bid for further market share (market challengers), or they can play
ball and not "rock the boat" (market followers).
Market-Challenger Strategies
Many market challengers have gained ground or even overtaken the leader. Toyota today
produces more cars than General Motors and British Airways flies more international pas-
sengers than the former leader, Pan Am, did in its heyday. Airbus delivers more aircraft
than Boeing.
- BOEING AND AIRBUS
When it closed the books on December 31, 2003, Airbus, the company that began in 1970 as an unwieldy
confederation of European aerospace firms, had replaced 89-year-old Boeing as the world's largest manu-
facturer of commercial aircraft. Airbus was on course to deliver 300 new airplanes in 2003 versus 280 from
Boeing—just five years earlier in 1998 Boeing delivered twice as many as Airbus. What happened? Challenger
Airbus began with a clean slate. It created an innovative new product line equipped with modern features—
the massive A380 designed to carry 555 passengers at only 2.5 cents per seat mile. In contrast, Boeing had
an arcane production system developed in World War II, and it couldn't match Airbus's advances without
redesigning aircraft at prohibitive costs. Once the manufacturing marvel of the world, Boeing fell behind in
both technology and manufacturing efficiency during the 1990s. "A new player that's aggressive and focused
will almost always gain ground on an established player," says Dean Headley, co-author of a national airline
quality report. And in the aircraft business, when it can take nearly a decade to go from design to launch, lost
ground can be incredibly difficult to regain.41
Challengers like Airbus set high aspirations, leveraging their resources while the market
leader often runs the business as usual. That's why the CEO of Airbus, Noel Foregard, vows
to keep what he calls the "mentality of a challenger." Now let's examine the competitive
attack strategies available to market challengers.
DEFINING THE STRATEGIC OBJECTIVE AND OPPONENT(S) A market challenger must

first define its strategic objective. Most aim to increase market share. The challenger must
decide whom to attack:
a It can attack the market leader. This is a high-risk but potentially high-payoff strategy
and makes good sense if the leader is not serving the market well. The alternative strategy is
to out-innovate the leader across the whole segment. Xerox wrested the copy market from
3M by developing a better copying process. Later, Canon grabbed a large chunk of Xerox's
market by introducing desk copiers.
B It can attack firms of its own size that are not doing the job and are underfinanced.
These firms have aging products, are charging excessive prices, or are not satisfying cus-
tomers in other ways.
Q It can attack small local and regional firms. Several major banks grew to their present
size by gobbling up smaller regional banks, or "guppies."
If the attacking company goes after the market leader, its objective might be to gain a cer-
tain share. Miller Brewing is under no illusion that it can topple Anheuser-Busch's Budweiser
in the domestic premium beer market—it is simply seeking a larger share. If the attacking
company goes after a small local company, its objective might be to drive that company out
of existence.
CHOOSING A GENERAL ATTACK STRATEGY Given clear opponents and objectives, what
attack options are available? We can distinguish among five attack strategies: frontal, flank,
encirclement, bypass, and guerilla attacks.
F r o n t a l A t t a c k In a pure frontal attack, the attacker matches its opponent's prod-
uct, advertising, price, and distribution. The principle of force says that the side with the
greater manpower (resources) will win. A modified frontal attack, such as cutting price vis-
a-vis the opponent's, can work if the market leader does not retaliate and if the competitor
convinces the market that its product is equal to the leader's. Helene Curtis is a master at
convincing the market that its brands—such as Suave and Finesse—are equal in quality but
a better value than higher-priced brands.
F l a n k A t t a c k An enemy's weak spots are natural targets. A flank attack can be
directed along two strategic dimensions—geographic and segmental. In a geographic attack,
the challenger spots areas where the opponent is underperforming. For example, some of
IBM's former mainframe rivals, such as Honeywell, chose to set up strong sales branches in
medium- and smaller-sized cities that were relatively neglected by IBM. The other flanking
strategy is to serve uncovered market needs, as Japanese automakers did when they devel-
oped more fuel-efficient cars.
DEALING WITH COMPETITION 1 CHAPTER 11 357
Aflankingstrategy is another name for identifying shifts in market segments that are caus-
ing gaps to develop, then rushing in to fill the gaps and develop them into strong segments.
LEAPFROG ENTERPRISES INC.
Based in Emeryille, California, this small "David" of a toy company succeeded in using a flank attack against
"Goliath" Mattel. In 1999, when the educational toy category couldn't have been drearier, LeapFrog unleashed a
product it touted as "a toy in its shape, but an educational product in its soul." LeapFrog's toy, the LeapPad, is a
laptop-like device that teaches children age 4 to 8 reading, math, spelling, and geography in a fun way. Parents
happily paid $50 for the LeapPad consoles and $15 for content cartridges. In December 2000, the product raced
past Razor scooter to become the top-selling toy—the first time in at least 15 years that an educational toy was
number one. In 2001, LeapPad was the number-one selling toy in the nation, and so far the company has sold
more than 8.6 million systems. Of course, its success has spurred Mattel to compete head-on by launching its
own version of LeapPad, an easy-to-use Power Touch Learning System.42
Flanking is in the best tradition of modern marketing, which holds that the purpose of mar-
keting is to discover needs and satisfy them. Flank attacks are particularly attractive to a
challenger with fewer resources than its opponent and are much more likely to be success-
ful than frontal attacks.
E n c i r c l e m e n t A t t a c k The encirclement maneuver is an attempt to capture a
wide slice of the enemy's territory through a "blitz." It involves launching a grand offensive
on several fronts. Encirclement makes sense when the challenger commands superior
resources and believes a swift encirclement will break the opponent's will. In making a stand
against arch rival Microsoft, Sun Microsystems licensed its Java software to hundreds of
companies and millions of software developers for all sorts of consumer devices. As con-
sumer electronics products began to go digital, Java started appearing in a wide range of
gadgets.
B y p a s s A t t a c k The most indirect assault strategy is the bypass. It means bypass-
ing the enemy and attacking easier markets to broaden one's resource base. This strategy
offers three lines of approach: diversifying into unrelated products, diversifying into new
geographical markets, and leapfrogging into new technologies to supplant existing prod-
ucts. Pepsi used a bypass strategy against Coke by purchasing: (1) orange juice giant
Tropicana for S3.3 billion in 1998, which owned almost twice the market share of Coca-Cola's
Minute Maid, and (2) The Quaker Oats Company for $14 billion in 2000. (The Quaker Oats
Company owns Gatorade Thirst Quenchers, which boasts a huge market share lead over the
Coca-Cola Company's Powerade.)43
Technological leapfrogging is a bypass strategy practiced in high-tech industries. The
challenger patiently researches and develops the next technology and launches an attack,
shifting the battleground to its territory, where it has an advantage. Nintendo's successful
attack in the video-game market was precisely about wresting market share by introducing
a superior technology and redefining the "competitive space." Then Sega/Genesis did the
same with more advanced technology, and now Sony's PlayStation has grabbed the techno-
logical lead to gain almost 60 percent of the video-game market.44 Challenger Google used
technological leapfrogging to overtake Yahoo! and become the market leader in search. Now
another company is using the same tactic to try to become the "Google" of e-mail:
STATA LABS
If Raymie Stata, co-founder of San Mateo-based Stata Labs, has his way you will "bloomba" your e-mail in the
same way that you "google" a company name or product on the Internet. He created his Bloomba e-mail man-
agement system in response to flaws in Microsoft's Outlook, which is used by 50 percent of office workers. Stata
feels that people waste precious time adapting to what he sees as a counterintuitive e-mail management sys-
tem. Rather than using folders or other complicated filing systems, Bloomba features a powerful search function
that indexes all of your messages—even attachments—and lets you search for them in seconds. While it has
yet to overtake Microsoft's Outlook, business journalists are hailing Bloomba's technology as the wave of the
future for serious e-mail communicators.45
A Gatoracle ad with the soccer star Mia

Hamm. In a bypass strategy against
Coca-Cola, Pepsi bought The Quaker
Oats Company, owner of Gatoracle Thirst
Quenchers, which has a much larger
share of the sports drink market than
Coca-Cola's Powerade.
G u e r r i l l a W a r f a r e Guerrilla warfare consists of waging small, intermittent

attacks to harass and demoralize the opponent and eventually secure permanent footholds.
The guerrilla challenger uses both conventional and unconventional means of attack. These
include selective price cuts, intense promotional blitzes, and occasional legal action.
Princeton Review successfully challenged Kaplan Educational Centers, the largest test-
preparation business in the United States, through e-mail horror stories about Kaplan and
brash ads—"Stanley's a wimp," or "Friends don't let friends take Kaplan"—while always tout-
ing the Princeton Review's smaller, livelier classes.
Normally, guerrilla warfare is practiced by a smaller firm against a larger one. The
smaller firm launches a barrage of attacks in random corners of the larger opponent's
market in a manner calculated to weaken the opponent's market power. Military dogma
holds that a continual stream of minor attacks usually creates more cumulative impact,
disorganization, and confusion in the enemy than a few major attacks. A guerrilla cam-
paign can be expensive, although admittedly less expensive than a frontal, encirclement,
or flank attack. Guerrilla warfare is more a preparation for war than a war itself.
Ultimately, it must be backed by a stronger attack if the challenger hopes to beat the
opponent.
CHOOSING A SPECIFIC ATTACK STRATEGY The challenger must go beyond the five
broad strategies and develop more specific strategies:
m Price discount. The challenger can offer a comparable product at a lower price. This is
the strategy of discount retailers. Three conditions must be fulfilled. First, the challenger
must convince buyers that its product and service are comparable to the leader's. Second,
buyers must be price sensitive. Third, the market leader must refuse to cut its price in spite
of the competitor's attack.
E3 Lower price goods. The challenger can offer an average- or lower-quality product at a
much lower price. Little Debbie Snack Cakes were priced lower than Drake's and outsold
Drake's by 20 to 1. Firms that establish themselves through a lower-price strategy, however,
can be attacked by firms whose prices are even lower.
• Value-priced goods and services. In recent years companies ranging from retailers such
as Target and airlines such as Southwest are combining low prices and high quality to snag
market share from market leaders. In the United Kingdom, premium retailers like Boots and
Sainsbury are now scrambling to meet intensifying price—and quality—competition from
ASDA and Tesco.46
• Prestige goods. A market challenger can launch a higher-quality product and charge a
higher price than the leader. Mercedes gained on Cadillac in the U.S. market by offering a
car of higher quality at a higher price.
s Product proliferation. The challenger can attack the leader by launching a larger product
variety, thus giving buyers more choice. Baskin-Robbins achieved its growth in the ice cream
business by promoting more flavors—31—than its larger competitors.
• Product innovation. The challenger can pursue product innovation. 3M typically enters
new markets by introducing a product improvement or breakthrough.
m Improved services. The challenger can offer new or better services to customers. Avis's
famous attack on Hertz, "We're only second. We try harder," was based on promising and
delivering cleaner cars and faster service than Hertz.
B Distribution innovation. A challenger might develop a new channel of distribution. Avon
became a major cosmetics company by perfecting door-to-door selling instead of battling
other cosmetic firms in conventional stores.
o Manufacturing-cost reduction. The challenger might achieve lower manufacturing costs
than its competitors through more efficient purchasing, lower labor costs, and more modern
production equipment.
a Intensive advertising promotion. Some challengers attack the leader by increasing
expenditures on advertising and promotion. Substantial promotional spending, however, is
usually not a sensible strategy unless the challenger's product or advertising message is
superior.
A challenger's success depends on combining several strategies to improve its position
over time.
SAMSUNG
Korean consumer electronics giant Samsung has used many of the challenger strategies to take on Japanese
manufacturers and begin outselling them across a wide range of products. Like many other Asian companies,
Samsung used to stress volume and market domination rather than profitability. Yet during the Asian financial
crisis of the late 1990s, when other Korean chaobols collapsed beneath a mountain of debt, Samsung took a dif-
ferent tack. It cut costs and placed new emphasis on manufacturing flexibility, which allows its consumer elec-
tronics goods to go from project phase to store shelves within six months. It also began a serious focus on inno-
vation, using technological leapfrogging to produce state-of-the-art mobile telephone handsets that are big
sellers not only across Asia but also in Europe and the United States.47
"Marketing Memo: Making Smaller Better" provides some additional tips for challenger
brands.
M a r k e t - F o l l o w e r Strategies
Some years ago, Theodore Levitt wrote an article entitled "Innovative Imitation," in which
he argued that a strategy of product imitation might be as profitable as a strategy of
product innovation.48 The innovator bears the expense of developing the new product,
getting it into distribution, and informing and educating the market. The reward for all
this work and risk is normally market leadership. However, another firm can come along
and copy or improve on the new product. Although it probably will not overtake the
leader, the follower can achieve high profits because it did not bear any of the innovation
expense.
S&S CYCLE
S&S Cycle is the biggest supplier of complete engines and major motor parts to more than 15 companies that
build several thousand Harley-like cruiser bikes each year. These doners charge as much as $30,000 for their
customized creations. S&S has built its name by improving on Harley-Davidson's handiwork. Its customers are
often would-be Harley buyers frustrated by long waiting lines at the dealers. Other customers simply want the
incredibly powerful S&S engines. S&S stays abreast of its evolving market by ordering a new Harley bike every
year and taking apart the engine to see what it can improve upon.49
Many companies prefer to follow rather than challenge the market leader. Patterns of
"conscious parallelism" are common in capital-intensive, homogeneous-product industries,
such as steel, fertilizers, and chemicals. The opportunities for product differentiation and
image differentiation are low; service quality is often comparable; and price sensitivity runs
high. The mood in these industries is against short-run grabs for market share because that
strategy only provokes retaliation. Most firms decide against stealing one anothers' cus-
tomers. Instead, they present similar offers to buyers, usually by copying the leader. Market
shares show high stability.
This is not to say that market followers lack strategies. A market follower must know how
to hold current customers and win a fair share of new customers. Each follower tries to bring
distinctive advantages to its target market—location, services, financing. Because the fol-
lower is often a major target of attack by challengers, it must keep its manufacturing costs
low and its product quality and services high. It must also enter new markets as they open
up. The follower has to define a growth path, but one that does not invite competitive retal-
iation. Four broad strategies can be distinguished:
1. Counterfeiter -The counterfeiter duplicates the leader's product and package and sells it
on the black market or through disreputable dealers. Music record firms, Apple Computer,
and Rolex have been plagued with the counterfeiter problem, especially in Asia,
MARKETING MEMO M A K I N G SMALLER BETTER
Adam Morgan offers eight suggestions on how small brands can bet- 5. Sacrifice—focus your target, message, reach and frequency,
ter compete: distribution, and line extensions and recognize that less can be
more.
1. Break with your immediate pash-Don 't be afraid to ask "dumb"
questions to challenge convention and view your brand differently. 6. Overcommit—Although you may do fewer things, do "big"
things when you do them.
2. Build a "lighthouse identity"— Establish values and commu-
7. Use publicity and advertising to enter popular culture—
nicate who and why you are (e.g., Apple).
Unconventional communications can get people talking.
3. Assume thought leadership of the category—Break convention
in terms of representation (what you say about yourself), where you 8. Be idea-centered, not consumer-centered—Sustain chal-
say it (medium), and experience (what you do beyond talk). lenger momentum by not losing sight of what the brand is about
and can be, and redefine marketing support and the center of
4. Create symbols of reevaluation—A rocket uses half of its fuel the company to reflect this vision.
in the first mile to break loose from the gravitational pull—you
may need to polarize people.
Source: Adam Morgan, Eating the Big Fish: How Challenger Brands Can Compete Against Brand Leaders (New York: John Wiley & Sons, 1999).
Market follower strategies: S&S Cycle

supplies engines and parts to companies
that build Harley-Davidson clones. S&S
has a reputation for building powerful
engines that improve on the Harley
product.
2. doner-The doner emulates the leader's products, name, and packaging, with slight
variations. For example, Ralcorp Holding Inc., sells imitations of name-brand cereals in
lookalike boxes. Its Tasteeos, Fruit Rings, and Corn Flakes sell for nearly $1 a box less
than the leading name brands.
3. Imitator -The imitator copies some things from the leader but maintains differentiation
in terms of packaging, advertising, pricing, or location. The leader does not mind the
imitator as long as the imitator does not attack the leader aggressively. Fernandez Pujals
grew up in Fort Lauderdale, Florida, and took Domino's home delivery idea to Spain,
where he borrowed $80,000 to open his first store in Madrid. His TelePizza chain now
operates almost 1,000 stores in Europe and Latin America.
4. Adapter - The adapter takes the leader's products and adapts or improves them. The
adapter may choose to sell to different markets, but often the adapter grows into the
future challenger, as many Japanese firms have done after adapting and improving prod-
ucts developed elsewhere.
What does a follower earn? Normally, less than the leader. For example, a study of food-
processing companies showed the largest firm averaging a 16 percent return on investment;
the number-two firm, 6 percent; the number-three firm, - 1 percent, and the number-four
firm, - 6 percent. In this case, only the top two firms have profits. No wonder lack Welch, for-
mer CEO of GE, told his business units that each must reach the number-one or -two posi-
tion in its market or else! Followership is often not a rewarding path.
M a r k e t - N i c h e r Strategies
An alternative to being a follower in a large market is to be a leader in a small market, or
niche. Smaller firms normally avoid competing with larger firms by targeting small markets
of little or no interest to the larger firms. Here is an example.
LOGITECH INTERNATIONAL
Logitech has become a $1.3 billion global success story by making every variation of computer mouse imag-
inable. The company turns out mice for left- and right-handed people, cordless mice that use radio waves,
mice shaped like real mice for children, and 3-D mice that let the user appear to move behind screen objects.
It sells to OEMs as well as via its own brand at retail. Its global dominance in the mouse category enabled the
company to expand into other computer peripherals, such as PC headsets, PC gaming peripherals, and
Webcams.50
Even large, profitable firms use niching strategies for some of their business units or
companies.
ITW
Illinois Tool Works (ITW) manufactures thousands of products, including nails, screws, plastic six-pack holders
for soda cans, bicycle helmets, backpacks, plastic buckles for pet collars, resealable food packages, and
more. Since the late 1980s, the company has made between 30 and 40 acquisitions each year, which added
new products to the product line. ITW has more than 500 highly autonomous and decentralized business
units. When one division commercializes a new product, the product and personnel are spun off into a new
entity.51
Firms with low shares of the total market can be highly profitable through smart niching.
A. T. Cross niched itself in the high-price writing instruments market with its famous gold
and silver items. Family-run Tire Rack sells 2 million specialty tires a year through the
Internet, telephone, and mail, from its South Bend, Indiana, location.52 Such companies
tend to offer high value, charge a premium price, achieve lower manufacturing costs, and
shape a strong corporate culture and vision. New Balance is a classic example of a small
company that has successfully used market-nicher strategies to establish a strong market
position.
- NEW BALANCE
Despite the fact that it has no celebrity endorsers and does comparatively little advertising, New Balance
has achieved more customer loyalty than any other athletic shoe brand. Its secret? A truly distinctive prod-
uct. New Balance offers customers athletic shoes of varying widths. It targets the relatively neglected older
market segment of fairly serious athletes age 25 to 45. Its low-key advertising appears in niche magazines
like Outside, New England Runner, and Prevention, and on cable TV channels such as CNN, Golf Channel,
and A&E. Consistency and focus have paid dividends. With only 3.7 percent of the market in 1999, sales
grew to almost a billion dollars by 2002, making the brand the number-three player in the category.53
In a study of hundreds of business units, the Strategic Planning Institute found that the
return on investment averaged 27 percent in smaller markets, but only 11 percent in
larger markets.54 Why is niching so profitable? The main reason is that the market nicher
ends up knowing the target customers so well that it meets their needs better than other
firms selling to this niche casually. As a result, the nicher can charge a substantial price
over costs. The nicher achieves high margin, whereas the mass marketer achieves high
volume.
Nichers have three tasks: creating niches, expanding niches, and protecting niches.
Niching carries a major risk in that the market niche might dry up or be attacked. The com-
pany is then stuck with highly specialized resources that may not have high-value alterna-
tive uses.
Market nicher strategies: A.T. Cross's

famous gold and silver pens are in the
high-priced writing instruments niche.
ZIPPO
With smoking on a steady decline, Bradford, Pennsylvania-based Zippo Manufacturing is finding the market for
its iconic metal cigarette lighter drying up. Zippo marketers now find themselves needing to diversify and to
broaden their focus to "selling flame." With a goal of reducing reliance on tobacco-related products to 50 per-
cent of revenue by 2010, the company introduced a long, slender multipurpose lighter for candles, grills, and
fireplaces in 2001; has explored licensing arrangements with suppliers of flame-related outdoor products; and
• has acquired Case Cutlery, a knifemaker.55
Because niches can weaken, the firm must continually create new ones. "Marketing
Memo: Niche Specialist Roles" outlines some options. The firm should "stick to its nich-
ing" but not necessarily to its niche. That is why multiple niching is preferable to single
niching. By developing strength in two or more niches, the company increases its chances
for survival.
Firms entering a market should aim at a niche initially rather than the whole market. (See
"Marketing Memo: Strategies for Entering Markets Held by Incumbent Firms.") The cell
phone industry has experienced phenomenal growth but is now facing fierce competition as
the number of new potential users dwindles. Through innovative marketing, Boost Mobile
and Virgin have successfully tapped into one of the few remaining high-growth segments:
Generation Y customers entering the market.50
364 PART 4 > BUILDING STRONG BRANDS
VIRGIN GROUP LTD.
While Virgin is a big player in music, air travel, and other industries, it is the new kid on the block in the wireless
business. Yet, rather than launch a frontal attack on AT&T Wireless, Cingular, or Verizon, Virgin Mobile is target-
ing young phone users and was the first wireless company to expressly target this group. Virgin Mobile offers
one of the simplest prepaid plans around with no contracts and no hidden fees. The company touts cool features
such as a "rescue ring" to escape a boring date or the voice of Isaac Hayes or Grandpa Munster for the greet-
MARKETING MEMO NICHE SPECIALIST ROLES
The key idea in successful nichemanship is specialization. Here are Product or product-line specialist: The firm carries or pro-
some possible niche roles: duces only one product line or product. A firm may produce only
lenses for microscopes. A retailer may carry only ties.
i End-user specialist: The firm specializes in serving one type of
end-use customer. For example, a value-added reseller (VAR) Product-feature specialist: Ihe firm specializes in producing a
customizes the computer hardware and software for specific cus- certain type of product or product feature. Rent-a-Wreck, for exam-
tomer segments and earns a price premium in the process. ple, is a California car-rental agency that rents only "beat-up" cars.
Vertical-level specialist: The firm specializes at some vertical i Job-shop specialist: The firm customizes its products for indi-
level of the production-distribution value chain. A copper firm may vidual customers.
concentrate on producing raw copper, copper components, or fin- Quality-price specialist: The firm operates at the low- or high-
ished copper products. quality ends of the market. Hewlett-Packard specializes in the
Customer-size specialist: The firm concentrates on selling to high-quality, high-price end of the hand-calculator market.
either small, medium-sized, or large customers. Many nichers Service specialist: The firm offers one or more services not
specialize in serving small customers who are neglected by the available from other firms. An example would be a bank that takes
majors. loan requests over the phone and hand-delivers the money to the
Specific-customer specialist: The firm limits its selling to one customer.
or a few customers. Many firms sell their entire output to a single Channel specialist: The firm specializes in serving only one
company, such as Sears or General Motors. channel of distribution. For example, a soft-drink company
Geographic specialist: The firm sells only in a certain locality, decides to make a very large-sized soft drink available only at gas
region, or area of the world. stations.
STRATEGIES FOR ENTERING MARKETS

MARKETING MEMO HELD BY INCUMBENT FIRMS
Carpenter and Nakamoto examined strategies for launching a new lenge the dominant brand as the category standard. Example:
product into a market dominated by one brand, such as Jell-0 or Pepsi competing against Coke.
FedEx. (These brands, which include many market pioneers, are par- Niche: Positioning away from the dominant brand with a high
ticularly difficult to attack because many are the standard against price and a low advertising budget to exploit a profitable niche.
which others are judged.) They identified four strategies that have Example: Tom's of Maine all-natural toothpaste competing
good profit potential in this situation: against Crest.
1. Differentiation: Positioning away from the dominant brand with Premium: Positioning near the dominant brand with little
a comparable or premium price and heavy advertising spending advertising spending but a premium price to move "up market"
to establish the new brand as a credible alternative. Example: relative to the dominant brand. Examples: Godiva chocolate
Honda's motorcycle challenges Harley-Davidson. and Haagen-Dazs ice cream competing against standard
brands.
2. Challenger: Positioning close to the dominant brand with heavy
advertising spending and comparable or premium price to chal-
Sources: Gregory S. Carpenter and Kent Nakamoto, "Competitive Strategies for Late Entry into a Market with a Dominant Brand," Management Science
(October 1990): 1268-1278; Gregory S. Carpenter and Kent Nakamoto, "The Impact of Consumer Preference Formation on Marketing Objectives and
Competitive Second Mover Strategies," Journal of Consumer Psychology 5, no. 4 (1996): 325-358; Venkatesh Shankar, Gregory Carpenter, and Lakshman
Krishnamurthi, "Late Mover Advantage: How Innovative Late Entrants Outsell Pioneers," Journal of Marketing Research 35 (February 1998): 54-70.
ing. And, to emphasize that the phone plan has "nothing to hide," Virgin runs provocative ads featuring nude
actors. Branson himself even showed up half-naked in New York's Times Square to kick off the company's
50-50 joint venture with Sprint PCS Group. The niching strategy seems to be working; in a very short period of
• time, Virgin Mobile gained more than 1 million users.57
Ill Balancing Customer and Competitor Orientations

We have stressed the importance of a company's positioning itself competitively as a market
leader, challenger, follower, or nicher. Yet a company must not spend all its time focusing on
competitors.
C o m p e t i t o r - C e n t e r e d Companies
A competitor-centered company sets its course as follows:
Situation
s Competitor W is going all out to crush us in Miami.
m Competitor X is improving its distribution coverage in Houston and hurting our sales.
ess Competitor Y has cut its price in Denver, and we lost three share points.
E Competitor Z has introduced a new service feature in New Orleans, and we are losing sales.
Reactions
m We will withdraw from the Miami market because we cannot afford to fight this battle.
a We will increase our advertising expenditure in Houston.
s We will meet competitor Y's price cut in Denver.
s We will increase our sales promotion budget in New Orleans.
This kind of planning has some pluses and minuses. On the positive side, the company
develops a fighter orientation. It trains its marketers to be on constant alert, to watch for
weaknesses in its competitors' and its own position. On the negative side, the company is
too reactive. Rather than formulating and executing a consistent, customer-oriented strat-
egy, it determines its moves based on its competitors' moves. It does not move toward its
own goals. It does not know where it will end up, because so much depends on what its com-
petitors do.
Customer-Centered Companies
A customer-centered company focuses more on customer developments in formulating its
strategies.
Situation
• The total market is growing at 4 percent annually.
• The quality-sensitive segment is growing at 8 percent annually.
H The deal-prone customer segment is also growing fast, but these customers do not stay
with any supplier very long.
• A growing number of customers have expressed an interest in a 24-hour hot line, which
no one in the industry offers.
Reactions
a We will focus more effort on reaching and satisfying the quality segment of the market.
We will buy better components, improve quality control, and shift our advertising theme to
quality.
a We will avoid cutting prices and making deals because we do not want the kind of cus-
tomer that buys this way.
s We will install a 24-hour hot line if it looks promising.
Clearly, the customer-centered company is in a better position to identify new opportunities

and set a course that promises to deliver long-run profits. By monitoring customer needs, it
can decide which customer groups and emerging needs are the most important to serve,
366 PART 4 > BUILDING STRONG BRANDS
given its resources and objectives. Jeff Bezos, founder ofAmazon.com, strongly favors a cus-
tomer-centered orientation: "Amazon.com's mantra has been that we were going to obsess
over our customers and not our competitors. We watch our competitors, learn from them,
see the things that they [were doing for customers] and copy those things as much as we can.
But we were never going to obsess over them."58
SUMMARY : : :
To prepare an effective marketing strategy, a company 4. A market challenger attacks the market leader and other
must study competitors as well as actual and potential cus- competitors in an aggressive bid for more market share.
tomers. Companies need to identify competitors' strate- Challengers can choose from five types of general attack;
gies, objectives, strengths, and weaknesses. challengers must also choose specific attack strategies.
A company's closest competitors are those seeking to sat- 5. A market follower is a runner-up firm that is willing to main-
isfy the same customers and needs and making similar tain its market share and not rock the boat. A follower can
offers. A company should also pay attention to latent com- play the role of counterfeiter, doner, imitator, or adapter.
petitors, who may offer new or other ways to satisfy the 6. A market nicher serves small market segments not being
same needs. A company should identify competitors by served by larger firms. The key to nichemanship is special-
using both industry and market-based analyses. ization. Nichers develop offerings to fully meet a certain
A market leader has the largest market share in the rele- group of customers' needs, commanding a premium price
vant product market. To remain dominant, the leader looks in the process.
for ways to expand total market demand, attempts to pro- 7. As important as a competitive orientation is in today's
tect its current market share, and perhaps tries to increase global markets, companies should not overdo the empha-
its market share. sis on competitors. They should maintain a good balance
of consumer and competitor monitoring.
APPLICATIONS : : :
Marketing D e b a t e H o w D o You Attack a Category Leader?

Attacking a leader is always difficult. Some strategists recom- Take a position: The best way to challenge a leader is to attack
mend attacking a leader "head-on" by targeting its strengths. its strengths versus The best way to attack a leader is to avoid
Other strategists disagree and recommend flanking and a head-on assault and to adopt a flanking strategy.
attempting to avoid the leader's strengths.
Marketing D i s c u s s i o n
Pick an industry. Classify firms according to the four different How would you characterize the nature of competition? Do
roles they might play: leader, challenger, follower, and nicher. the firms follow the principles described in this chapter?
MARKETING SPOTLIGHT ACCENTURE
Accenture started life as the consulting arm of accounting firm Arthur against its IT services competitors. At the time, Andersen Consulting was
Andersen. Over the years, the consultants progressively changed their name to already doing $1 billion a year in business, but it wasn't known in the informa-
build their brand image. They started as the Administrative Accounting Group tion technology world and was mistakenly associated with accounting. The new
and then became the Management Information Consulting Division. In 1989, spinoff needed to promote its name as an innovator in IT consulting and sepa-
Andersen Consulting separated from Arthur Andersen in order to position itself rate itself from its accounting heritage.
The IT consulting marketplace was crowded with competitors ranging from vide both transformational consulting and outsourcing capability, you're not
nuts-and-bolts hardware/software providers like IBM to leading strategy firms going to win. Clients expect both. That's why we've grown our outsourcing
like McKinsey and the Boston Consulting Group. To make a name for itself, capabilities, and that's why companies like IBM and EDS are trying to get
Andersen Consulting launched the first large-scale advertising campaign in the transformational capabilities." IBM did exactly that, purchasing
professional services area. By the end of the decade, it was the world's largest PriceWaterhouseCooper's consulting arm, thereby becoming a much more
management and technology consulting organization. formidable competitor to Accenture.
In 2000, following arbitration against its former parent, Andersen Consulting Accenture surveyed senior executives from different industries and coun-
was granted its full independence from Arthur Andersen—but at the price of tries and confirmed that executives saw the inability to execute and deliver on
giving up the Andersen name. Andersen Consulting had three months to find, ideas as the number-one barrier to success. With its "Innovation Delivered"
implement, and introduce the world to a new corporate name. This effort would campaign, Accenture positioned itself as the firm that would bring results and
become one of the largest and most successful re-branding campaigns in cor- put plans into action: "From innovation to execution, Accenture helps acceler-
porate history. ate your vision." The award-winning campaign delivered a high return on
A consultant from the Oslo office coined the Accenture name because it investment. For example, the firm estimates its ROI for U.K. marketing activi-
rhymed with "adventure" and connoted an "accent on the future." The name ties was 215 percent.
emerged as the winner because it was catchy and distinctive and embodied bold In 2002, the climate changed. After the dot-com crash and the economic
growth and innovation. It retained the "Ac" of the original Andersen Consulting downturn, innovation was no longer enough. Executives wanted bottom-line
name (echoing the Ac.com Web site), which would help the firm retain some of results. Accenture launched its "High Performance Delivered" campaign with
the brand equity held in its original name. The Accenture name campaign of 2001 Tiger Woods as the spokesperson. Accenture's continued success is demon-
delivered results. It built awareness of the firm's breadth and depth of services. strated in its revenues ($11.8 billion in 2003) and its number-52 ranking on
The effect of the advertising campaign was to increase by 350 percent the num- BusinessWeek Top 100 brands.
ber of firms considering purchasing Accenture's services.
In 2002, Accenture launched the "Innovation Delivered" campaign to dis-
tinguish itself from the competition. Competitors in the IT arena, such as IBM Discussion Questions
and EDS, lacked broader business consulting expertise and weren't seen as 1. What have been the key success factors for Accenture?
knowledgeable in business strategy and processes. They tended to approach 2. Where is Accenture vulnerable? What should it watch out for?
firms from the IT level, not the C-level (CEO, CFO, CIO). Competitors in the
3. What recommendations would you make to senior marketing executives going
business consulting arena like McKinsey, in contrast, had brand strength
forward? What should the company be sure to do with its marketing?
associated with strategic thinking. They were seen as thought leaders, but not
as collaborative partners who would roll up their shirtsleeves and implement Sources: "Lessons Learned from Top Firms' Marketing Blunders," Management
Consultant International, December 2003, p. 1; Sean Callahan, "Tiger Tees Off in New
the ideas they suggested.
Accenture Campaign," B to B, October 13, 2003, p. 3; "Inside Accenture's Biggest UK
Accenture saw its differentiator as the ability to provide both innovative Client," Management Consultant International, October 2003, pp. 1-3; "Accenture Re-
ideas—ideas grounded in business processes as well as IT—and the ability Branding Wins UK Plaudits," Management Consultant International, October 2002, p.
to execute those innovative ideas. Ian Watmore, Accenture's U.K. chief, 5(1); "Accenture's Results Highlight Weakness of Consulting Market," Management
explained the need to have both strategy and execution: "Unless you can pro- Consultant International, October 2003, pp. 8-10; <www.accenture.com>.
NOTES : : :
1. Wendy Zellner, "Lessons from a Faded Levi Strauss," 6. Jonathan Gaw, "Britannica Gives in and Gets Online," Los Angeles
BusinessWeek, December 15, 2003, p. 44. Times, October 19, 2000, p. Al.
2. Leonard M. Fuld, The New Competitor Intelligence: The Complete 7. Allan D. Shocker, "Determining the Structure of Product-Markets:
Resource for Finding, Analyzing, and Using Information about Practices, Issues, and Suggestions," in Handbook of Marketing,
Your Competitors (New York: John Wiley, 1995); John A. Czepiel, edited by Barton A. Weitz and Robin Wensley (London, UK: Sage
Competitive Marketing Strategy (Upper Saddle River, NJ: Prentice Publications, 2002), pp. 106-125. See also, Bruce H. Clark and
Hall, 1992). David B. Montgomery, "Managerial Identification of
3. Michael E. Porter, Competitive Strategy (New York: The Free Press, Competitors," Journal of Marketing 63 (July 1999): 67-83.
1980), pp. 22-23. 8. Tom Lowry, Ronald Grover, and Catherine Yang with Steve
4. Michael Barbero, "Tougher Toy Game Takes Its Toll on KB," Rosenbush and Peter Burrows, "Mega Media Mergers: How
Washington Post, January 15, 2004, p. E01; Constance L. Hays, Dangerous?" BusinessWeek, February 23, 2004, pp. 34-42.
"Toy Retailers Find Prices at Wal-Mart Tough to Beat," New York 9. Kathryn Rudie Harrigan, "The Effect of Exit Barriers upon
Times, December 23, 2003, p. CI. Strategic Flexibility," Strategic Management Journal 1 (1980):
5. Michael Krantz, "Click Till You Drop," Time, July 20, 1998, 165-176.
pp. 34-39; Michael Krauss, "The Web Is Taking Your Customers for 10. Michael E. Porter, Competitive Advantage (New York: The Free
Itself," Marketing News, June 8, 1998, p. 8. Press, 1985), pp. 225, 485.
11. Porter, Competitive Strategy, ch. 13. Communication-Based Antecedents of a Firm's Propensity to
12. Theodore Levitt's classic article, "Marketing Myopia," Harvard Preannounce," JournalofMarketingM (January 2000): 17-30.
Business Review (July-August 1960): 45-56. 31. Thomas S. Robertson, Jehoshua Eliashberg, andTalia Rymon,
13. Jeffrey F. Rayport and Bernard J. Jaworski, e-Commerce (New York: "New Product Announcement Signals and Incumbent Reactions,"
McGraw-Hill, 2001), p. 53. Journal of Marketing59 (July 1995): 1-15.
14. Porter, Competitive Strateg)', ch. 7. 32. Barry L. Bayus, Sanjay Jain, and Ambar G. Rao, "Truth or
Consequences: An Analysis of Vaporware and New Product
15. William E. Rothschild, How to Gain (and Maintain) the
Announcements, Journal of Marketing Research 38 (February
Competitive Advantage (New York: McGraw-Hill, 1989), ch. 5.
2001): 3-13.
16. Michael E. Porter, Competitive Strateg)' (New York: The Free Press,
33. Charles Haddad, "FedEx: Gaining on Ground," BusinessWeek,
1980), ch. 7.
December 16, 2002, pp. 126-128; Kevin Kelleher, "Why FedEx
17. Amy Barrett, "Hershey: Candy is Dandy, B u t . . . ", BusinessWeek,
is Gaining Ground," Business 2.0, October 2003, pp. 56-57.
Septemher 29, 2003, pp. 68-69.
34. Gerry Kermouch, "Spiking the Booze Business," BusinessWeek,
18. <http://wvvw.starbucks.com/aboutus/overview.asp>.
May 19, 2003, pp. 77-78.
19. Brian Wansink, "Can Package Size Accelerate Usage Volume?"
35. Philip Kotler and Paul N. Bloom, "Strategics for High Market-
Journal of Marketing60 (July 1996): 1-14.
Share Companies," Harvard Business Review
20. Elizabeth Jensen, "Wine Gets a Makeover: A Complex Zinfandel (November-December 1975): 63-72. Also see Porter, Competitive
Becomes a Power'Zin'," Wall Street Journal, October 14, 1997, Advantage, pp. 221-226.
pp. Al, A6.
36. Ira Teinowitz, "New Miller CEO Gives Agencies a Chance: Fallon,
21. John D. Cripps, "Heuristics and Biases in Timing the Replacement Wieden Get Opportunity to Drive Brands," Advertising Age, April
of Durable Products," Journal of Consumer Research 21 12, 1999.
(September 1994): 304-318.
37. Thomas V. Bonoma and Bruce H. Clark, Marketing Performance
22. "Business Bubbles," The Economist, October 12, 2002. Assessment (Boston: Harvard Business School Press, 1988); Robert
23. Carla Rapoport, "You Can Make Money in Japan," Fortune, Shaw, Measuring and Valuing Customer Relationships (London:
February 12,1990, pp. 85-92; Keith H. Hammonds, "A Moment Business Intelligence, 1999).
Kodak Wants to Capture," BusinessWeek, August 27, 1990, 38. Robert D. Buzzell and Frederick D. Wiersema, "Successful Share-
pp. 52-53; Alison Fahey, "Polaroid, Kodak, Fuji Get Clicking," Building Strategies," Harvard Business Review (January-February
Advertising Age, May 20, 1991, p. 18; Peter Nulty, "The New Look 1981): 135-144.
of Photography," Fortune, July 1, 1991, pp. 36-41.
39. Robert J. Dolan, "Models of Competition: A Review of Theory and
24. Bruce Upbin, "Sharpening the Claws," Forbes, July 26, 1999, Empirical Evidence," in Review of Marketing, edited by Ben M.
pp. 102-105. Enis and Kenneth J. Roering (Chicago: American Marketing
25. Akio Morita, Made in Japan (New York: Dutton, 1986), ch. 1. Association, 1981), pp. 224-234.
26. Jonathan Glancey, "The Private World of the Walkman," The 40. Linda Hellofs and Robert Jacobson, "Market Share and Customer's
Guardian, October 11, 1999. Perceptions of Quality: When Can Firms Grow Their Way to
27. The intensified competition that takes place worldwide has Higher Versus Lower Quality?" Journal of Marketing 63 (January
sparked management interest in models of military warfare; see 1999): pp. 16-25.
SunTsu, The Art of War {London: Oxford University Press, 1963); 41. Alex Taylor III, "Lord of the Air," Fortune, November 10, 2003,
Miyamoto Mushashi, A Book of Five Rings (Woodstock, NY: pp. 144-152.
Overlook Press, 1974); Carl von Clausewitz, On War (London: 42. Bill Breen, "LeapFrog's Great Leap," Fast Company, June 2003,
Routledge & Kegan Paul, 1908); B. H. Liddell-Hart, Strategy (New pp. 88-96.
York: Praeger, 1967).
43. Holman W Jenkins Jr., "Business World: On a Happier Note,
28. These six defense strategies, as well as the five attack strategics, Orange Juice," Wall Street Journal, September 23, 1998, p. A23;
are taken from Philip Kotler and Ravi Singh, "Marketing Warfare in Robert J. OTIarrow Jr., "PepsiCo to Acquire Quaker for $14
the 1980s," Journal of Business Strategy (Winter 1981): 30-41. For Billion," Washington Post, December 5, 2000, p. E01.
additional reading, see Gerald A. Michaelson, Winning the
44. Eryn Brown, "Sony's Big Bazooka," Fortune, December 30, 2002,
Marketing War: A Field Manual for Business Leaders (Lanham,
pp. 111-114.
MD: Abt Books, 1987); AL Ries and Jack Trout, Marketing Warfare
(New York: New American Library, 1986); Jay Conrad Levinson, 45. Alison Overholt, "The Google of Email?" Fast Company, March
Guerrilla Marketing (Boston: Houghton-Mifflin Co., 1984); 2004, p. 36; Michael Bazeley, "New Software Product Is Called the
Barrie G. James, Business Wargames (Harmondsworth, England: Google of Email," Knight-Ridder Tribune Business News, April 14,
Penguin Books, 1984). 2004, p. 1.
29. Porter, Competitive Strategy, ch. 4. Jaideep Prabhu and David 46. "Boots Counts the Cost of Not Counting Pennies," Marketing
W Stewart, "Signaling Strategies in Competitive Interaction: Week, February 5, 2004, pp. 30-31.
Building Reputations and Hiding the Truth," Journal of Marketing 47. Henny Sender, "World Business (A Special Report) Back from the
Research 38 (February 2001): 62-72. Brink: Samsung Electronics Got into Trouble by Being Like Many
Asian Firms; It Survived by Being Different," Wall Street Journal,
30. Jehoshua Eliashberg and Thomas S. Robertson, "New Product
September 22, 2003, p. R5.
Preannouncing Behavior: A Market Signaling Study," Journal
of Marketing Research 25 (August 1988): 282-292; Roger J. 48. Theodore Levitt, "Innovative Imitation," Harvard Business Review
Calantone and Kim E. Schatzel, "Strategic Foretelling: (September-October 1966): 63. Also see Steven P. Schnaars,
Managing Imitation Strategies: How Later Entrants Seize Markets 53. John Gaffney, "Shoe Fetish," Business 2.0, March 2002, pp. 98-99.
from Pioneers (New York: The Free Press, 1994). 54. Reported in F. R. Linneman and L. J. Stanton, Making Niche
49. Stuart F. Brown, "The Company that Out-Harleys Harley," Fortune, MarketingWork(NewYork: McGraw-Hill, 1991).
September 28, 1998, pp. 56-57. 55. Thomas A. Fogarty, "Keeping Zippo's Flame Eternal," USA Today,
50. Allen J. McGrath, "Growth Strategies with a '90s Twist," Across the June 24, 2003, p. 3B.
Board (March 1995): 43-46; Antonio Ligi, "The Bottom Line: 56. Matthew Maier, "Hooking Up with Gen Y," Business 2.0, October
Logitech Plots Its Escape from Mouse Trap," Dow Jones Newswire, 2003, pp. 49-52.
February 20,2001.
57. Gerry Khermouch, "Richard Branson: Winning Virgin Territory,"
51. Melita Marie Garza, "Illinois Tool Works Stock Continues to Suffer BusinessWeek, December 22, 2003, p. 45.
Since Acquisition of Firm," Chicago Tribune, November 16, 2000.
58. Robert Spector, Amazon.com: Get Big Fast (New York:
52. Jaync O'Donnell, "Family Rolling to Success on Tire Rack," USA HarperBusiness, 2000), p. 151.
Today, December 8, 2003, p. 3B.
SHAPING THE MARKET OFFERINGS
I N THIS CHAPTER, W E WILL

QUESTIONS:
1. What are t h e characteristics of

products and how can they be
classified?
2. How can companies differentiate
products?
3. How can a company build and
manage its product mix and
product lines?
4. How can companies combine
products t o create strong co-
brands or ingredient brands?
5. How can companies use
packaging, labeling, warranties,
and guarantees as marketing
CHAPTER 12 SETTING PRODUCT
STRATEGY
At the heart of a great brand is a great product. Product is a key

element in the market offering. Market leaders generally offer
products and services of superior quality.
erhaps no other high-end product combines the skilled crafts-

manship, market dominance, and longevity of Steinway pianos.
One-hundred-fifty years o l d , the family-run company retains many
of the same manufacturing processes from its humble origins in New York
City. Although mass-produced pianos take roughly 20 days to build, build-
ing a Steinway takes nine months t o a year. A Steinway piano requires
12,000 parts, most of them handcrafted, and relies on 120 technical patents
and innovations. Despite the fact that it can produce only a few thousand
pianos a year and has only 2 percent of all keyboard unit sales in the United
States, Steinway commands 25 percent of the sales dollars and 35 percent
of the profits. Not surprisingly, Steinway owns the market in concert halls
(where it has a market share over 95 percent) and with composers and
musicians.^
A Steinway concert grand: the great product at the

heart of a great brand.
371
372 PART 5 SHAPING THE MARKET OFFERINGS
Marketing planning begins with formulating an offering t o meet target cus-

tomers' needs or wants. The customer will judge the offering by three basic ele-
ments: product features and quality, services mix and quality, and price (see
Figure 12.1). In this chapter, we examine product; in Chapter 13, services; and
in Chapter 14, prices. All three elements must be meshed into a competitively
attractive offering.
Value-based prices • • • Product Characteristics and Classifications

• ••
Many people think that a product is a tangible offering, but a product can be more than that.
A product is anything that can be offered to a market to satisfy a want or need. Products that
are marketed include physical goods, services, experiences, events, persons, places, proper-
ties, organizations, information, and ideas.
Product Levels: T h e Customer Value Hierarchy

In planning its market offering, the marketer needs to address five product levels (see Figure
12.2).2 Each level adds more customer value, and the five constitute a customer value hier-
archy. The fundamental level is the core benefit: the service or benefit the customer is really
| FIG. 12.1 buying. A hotel guest is buying "rest and sleep." The purchaser of a drill is buying "holes."
Marketers must see themselves as benefit providers.
Components of the Market Ottering At the second level, the marketer has to turn the core benefit into a basic product. Thus a
hotel room includes a bed, bathroom, towels, desk, dresser, and closet.
At the third level, the marketer prepares an expected product, a set of attributes and con-
ditions buyers normally expect when they purchase this product. Hotel guests expect a clean
bed, fresh towels, working lamps, and a relative degree of quiet. Because most hotels can
meet this minimum expectation, the traveler normally will settle for whichever hotel is most
convenient or least expensive.
At the fourth level, the marketer prepares an augmented product that exceeds customer
expectations. In developed countries, brand positioning and competition take place at this
level. In developing countries and emerging markets such as China and India, however,
competition takes place mostly at the expected product level.
Differentiation arises on the basis of product augmentation. Product augmentation
also leads the marketer to look at the user's total consumption system: the way the user
performs the tasks of getting and using products and related services.3 As Levitt observed
long ago:
FIG. 1 2 . 2 |
Five Product Levels

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CREATING BRAND EQUITY CHAPTER 9 275

MARKETING MEMO THE BRAND REPORT CARD

The Scope of Branding

Defining Brand Equity

Branding a place: ad for Australia tourism

Improved Perceptions of Product Performance Marketing Advantages of Strong Brands

Brand Equity as a Bridge

Brand Equity Models

R Advertising agency Young and Rubicam (Y&R) developed a model

BAV Power Grid

• Presence. Do I know about it?

i The brand resonance model also views brand building as an

FIG. 9.2 Brand Resonance Pyramid

Resonance is characterized in terms of the intensity or depth of the psychological bond

',','. Building Brand Equity

Choosing Brand Elements

RIA There are six criteria in choosing brand elements

DEVELOPING BRAND ELEMENTS In creating a brand, marketers have many choices of

Building a brand with elements that

AVIS GROUP HOLDINGS INC.

Designing Holistic M a r k e t i n g Activities

MARKETING INSIGHT APPLYING PERMISSION MARKETING

Integration is especially critical with mar-

Leveraging Secondary Associations

Ingredients Company J FIG. 9.3 I

Ill Measuring Brand Equity

MARKETING INSIGHT THE BRAND VALUE CHAIN

' The brand exploratory is research activity conducted to under-

2004 Brand Value j TABLE 9.2 |

• • • Managing Brand Equity

MARKETING INSIGHT WHAT IS A BRAND WORTH?

An important consideration in reinforcing brands is the consistency of the marketing

Campbell's Soup continually updates its

In managing brand equity, it is important to recognize the trade-offs between those

THE HOME DEPOT

MARKETING MEMO TWENTY-FIRST-CENTURY BRANDING

: : : Devising a Branding Strategy

Branding Decision: To Brand or N o t t o Brand?

TABLE 9.3 | Toward a Branded House Toward a House of Brands

Spectrum Position offering by adding: because it will:

XTENSIONS Two main advantages of brand extensions are

Positive Feedback E f f e c t s Besides facilitating acceptance of new prod-

Brand extensions allow for packaging

DISADVANTAGES OF BRAND I XTENSIONS On the downside, line extensions may cause

Crest White Strips leverages the strong

One easily overlooked disadvantage to brand extensions is that by introducing a new

S A potential new-product extension for a brand must be

"Marketing Memo: Research Insights on Brand Extensions" outlines a number of academic

1. To increase shelf presence and retailer dependence in the store;

MARKETING MEMO RESEARCH INSIGHTS O N BRAND EXTENSIONS

5 Flanker or "fighter" brands are positioned with respect to competitors' brands

Marketing D e b a t e Are Brand Extensions Good or Bad?

MARKETING SPOTLIGHT PROCTER & GAMBLE

1. How can a firm choose and

No company can win if its products and offerings resemble every

he Public Broadcasting Service finds its brand in a difficult position.

A recent PBS fund drive on New York's

As the plight of PBS demonstrates, even when a company succeeds in distin-