Marketing - Lesson 9

What is a brand?

A brand is a name, term, sign, symbol or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.

A brand is essentially a seller’s promise to deliver a specific set of features, benefits and services.

A brand conveys up to 6 levels of meanings:-

·         Attributes

·         Benefits

·         Values

·         Culture

·         Personality

·         User

Brand Equity

The amount power and value the brand has in the market place is called the Brand Equity. Other aspects are brand awareness, brand acceptability, and brand loyalty. The competitive advantages of having higher brand equity are

·         Reduced marketing costs

·         More trade leverage in bargaining with distributors

·         Can charge a premium price over its competitors

·         Launch extensions will be easy under a brand name

Brand-Name Decision

Four strategies are available:

·         Individual names: The advantage is that the company does not tie its reputation to the product.

·         Blanket Family Names: Development cost is less since there is no need to spend heavily on advertising to cause brand awareness.

·         Separate family names for all products: Companies often invent different family names for different quality lines within the same product class.

·         Company trade name combined with individual product names: Some manufacturers tie their company name to an individual brand name for each product. The company name legitimizes and the individual name individualizes the new product.

Brand Strategy Decision

Brand Strategy Decision involves five key choices.

Line Extension

This means existing brands extended to new sizes, flavours, forms, colours in the existing product category. Some companies also introduce branded variants that are specific brand lines supplied to specific retailers or distribution channels. Line extensions involve risks and have provoked heated debate among marketing professionals. But line extensions have a better chance of survival than brand-new products. It is also fuelled by fierce competition in some cases.

Brand Extension

This means brand names extended to a new product category. Brand extension strategy offers some of the same benefits like line extensions. But brand extension can bring with it disadvantages too. The new product may fail and damage the image of the old products. Brand dilution may occur if the brand loses its specific positioning in the minds of the customers. But some brand extensions like that of Virgin have been very successful.

Multibrands

New brands introduced in the same product category. This happens sometimes when the company wants to establish different features or appeal to different buying motives. A multibranding strategy also enables the company to lock up more distributor shelf space and to protect its major brand by creating flanker brands. But cannibalization can be a major pitfall.

New Brand

New brand name adopted for a new category product.

Co brands

This means brands bearing two or more well-known names. It is also called dual branding. Now co branding can take variety of forms. One is ingredient co branding, as when Betty Crocker’s brownie mix includes Hershey’s chocolate syrup. Another form is same-company co branding; Nestle advertises Magi noodles and tomato ketchup together. Still another form is joint venture co branding, as in Maruti Zen with Kenwood stereos. Finally there is multiple-sponsor co branding, as in Toshiba laptops with Intel Pentium III processors.

Brand Repositioning

Brand repositioning is specially required when the brand and the product associated with it reaches the decline stage. It is also sometimes needed when the initial positioning was wrong.

Packaging and Labelling:

Packaging includes activities of designing and producing the container for a product Container is called package,

Primary package – Bottle of Old Spice

Secondary – Cardboard box

Shipping package – Corrugated box

Factors affecting the increasing importance of packaging

1. Self Service – Packaging becomes an “impulse purchase” stimulus

2. Consumer affluence – People are willing to pay more for attractive packaging

3. Co. and brand image – contribute to brand recognition

4. Innovation opportunity – Scope for innovation

Labelling:

·         May be a simple tag, or designed graphic.

·         May contain only brand name, or loads of info.

·         May perform any of the four Functions: Identifies the product, grades the product, describes the product, and promotes the product.

Legal issues become important in labelling, wherein

·         Open dating – to describe product freshness

·         Unit pricing – product cost in std measurement units

·         Grade labelling – rate the quality level

·         Percentage labelling – percentage of each important ingredient

are being demanded by consumer groups.

Designing and Managing Services

A service is any act or performance that one party can offer to another that is essentially intangible and does not result in ownership of anything. Its production may or may not be tied to a physical product.

Categories of Service Mix

A company’s offerings to the marketplace can be classified as:

1. Pure tangible good: The offering consists primarily of a tangible good such as soap, toothpaste. No services accompany the product.

2. Tangible good with accompanying services: The offering consists of a tangible good accompanied by one or more services. E.g.: more technologically sophisticated goods (cars and computers) are more dependent for its sales on quality and availability of its accompanying customer services

3. Hybrid: The offering consists of equal parts of goods and services. E.g. Restaurants are recognized for both goods and services

4. Major Service with accompanying minor goods and services: The offering consists of a major service along with additional services or supporting goods. E.g. Airline passengers buy transportation service and also get food, drinks etc.

5. Pure Service: The offering consists primarily of a service. Examples include massage, baby sitting etc.

Service Quality Dimensions

·         Reliability: Ability to perform the promised service dependably and accurately.

·         Responsiveness: Willingness to help customers, solves problems and provide prompt service, be flexible.

·         Assurance: Employees knowledge and courtesy and their ability to inspire trust and confidence.

·         Empathy: Caring individualized attention given to customers.

·         Tangibles: Appearance of physical facilities, equipment, personnel and written materials.

Sometimes customers will use all of the dimensions to determine service quality perceptions, at other times not. For example, in a remote encounter such as an encounter with an ATM, empathy is not likely to be a relevant dimension.

Pricing

Marketers need to know how responsive or elastic demand would be to a change in price. If demand hardly changes with a small change in price, we say the demand is inelastic. If demand changes considerably, demand is elastic. Demand is likely to be less elastic under the following conditions

·         There are few or no substitutes or competitors

·         buyers do not readily notice the highest price

·         buyers are slow to change their buying habits and search for lower prices

·         buyers think that the higher prices are justified by quality differences, normal inflation, and so on

If demand is elastic sellers will consider lowering the price. A lower price will produce more total revenue. This makes sense as long as the cost of producing and selling more units does not increase disproportionately. Price elasticity depends on the magnitude and direction of the contemplated price change. It may be negligible with a small price change and substantial with a large price change. It may differ for a price cut versus a price increase. Finally, long run price elasticity may differ from short run price elasticity. Buyers may continue to buy from their current supplier after a price increase, because they do not notice the price increase or the increase is small or they are distracted by other concerns or they find choosing a new supplier takes time. But they eventually switch suppliers. Here demand is more elastic in the long run than in the short run. Or the reverse may happen. Buyers drop a supplier after being notified of a price increase but return later. The distinction between short run and long run elasticity means that sellers will not know the total effect of a price change until the time passes.

ESTIMATING COSTS

Demand sets a ceiling on the price the company can charge for its product. Costs set the floor. The company wants to charge a price that covers its cost of producing, distributing and selling the product including a fair return for its efforts and risk.

Types of Costs and Levels of Production

A company’s costs tale two forms, Fixed and Variable, Fixed costs are costs that do not vary with production or sales revenue. A company must pay bills every month for rent, heat, interest, salaries and so on regardless of output. Variable costs vary directly with the level of production. For example each hand calculator involves a cost of plastic, micro processing chips, packaging and the like. These costs tend to be constant per unit produced they are called variable because their total varies with the number of units produced. Total costs consist of the sum of fixed and variable costs for any given level of production. Average cost is the cost per unit at that level of production: it is equal to the total costs divided by production. Management wants to charge a price that will at least cover the total production costs at a given level of production.

6 MAJOR PRICING OBJECTIVES

·         SURVIVAL

·         MAXIMUM CURRENT PROFIT

·         MAXIMUM CURRENT REVENUE

·         MAXIMUM MARKET SHARE(penetration  pricing)

·         MAXIMUM MARKET SKIMMIMG

·         PRODUCT QUALITY LEADERSHIP

·         ANY OTHER - SOCIAL OBLIGATIONS ETC

Selecting the Pricing Method

·         Markup pricing

·         Target return pricing

·         Perceived value pricing

·         Value pricing

·         Going rate pricing

·         Sealed bid pricing

Premium Pricing

Use a high price where there is uniqueness about the product or service. This approach is used where a substantial competitive advantage exists.

Penetration Pricing

The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom and Sky TV.

Economy Pricing

This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.

Price Skimming

Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.

Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. They form the bases for the exercise. However there are other important approaches to pricing.

Psychological Pricing

This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example: price point perspective' 99 cents not one dollar.

Product Line Pricing

Where there is a range of product or services the pricing reflect the benefits of parts of the range.

Optional Product Pricing

Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other.

Captive Product Pricing

Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.

Product Bundle Pricing

Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach.

Promotional Pricing

Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).

Geographical Pricing

Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.

Value Pricing

This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales.