Chapter 4-Market-Focused Program Development

Chapter 4 : Market-Focused Program Development

Prepared & Taught by:Mr. SAING Sokhsophal, MBAMarketing LecturerHuman Resources University

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Chapter Content

I. Strategic Brand Management

II. Distribution Channel StrategyIII.Pricing StrategyIV.Promotion Strategy

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I. Strategic Brand Management

Many organizations offer a number of brands across a variety of markets. If these brands are managed separately and independently or on an ad hoc basis, overall resource allocation among the brands may be less than optimal. We will consider the importance and measurement of brand equity, followed by a discussion of brand identification strategy. Next, we examine possible brand leveraging strategies and, finally, we will look at the issues and processes for managing systems of brands.

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I. Strategic Brand Mgt1.1. Brand Equity

A strong brand image offers an organization several important advantages. The brand name distinguishes and helps to position the product relative to competitors’ products. A powerful brand identity creates a major distinctive capability. A brand that is recognized by buyers encourages repeat purchases. “A brand is a distinguishing name and/or symbol (e.g., a logo, trademark, or package design) intended to identify the goods or services of either one seller or group of sellers, and to differentiate those goods or services from those of competitors.

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I. Strategic Brand Mgt1.1. Brand Equity (Cont’d)

“Brand equity is a set of brand assets and liabilities linked to a brand, its name, and symbol, that add to or subtract from the value provided by a product or service to a firm and/or to that firm’s customers.” The assets and liabilities that impact brand equity include brand loyalty, name awareness, perceived quality, brand associations (e.g., Nike’s association with athletes), and proprietary brand assets (e.g., patents).

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I. Strategic Brand Mgt1.2. Brand Identification Strategy

One of several brand identification options may be appropriate for a company. We look at the features of each. The major identification alternatives are Specific product, Product line, Company name, Combination basis, and Private branding. Branding applies to services as well as physical products. The Strategy Feature describes how this was done.

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1.2.1. Specific Product BrandingThe strategy of assigning a brand name to a specific product is used by various producers of frequently purchased items, such as Procter & Gamble’s Crest toothpaste, Pampers diapers, and Ivory soap. The brand name on a product gives it a unique identification in the marketplace. A successful brand develops a strong customer loyalty over time.

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1.2.2. Product-Line BrandingThis strategy places a brand name on a line of related products. Hartmarx, a men’ apparel producer, has several brands of men’ suits and related apparel, such as Austin Reed. Product-line branding provides focus and offers cost advantages by promoting the entire line rather than each product. This strategy is effective when a firm has one or more lines, each of which contains an interrelated offering of product items. One advantage of product-line branding is that additional items can be introduced utilizing the established brand name.

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1.2.3. Corporate BrandingThis strategy builds brand identity by using the corporate name to identify the entire product offering. Examples include IBM in computers, AT&T in telecommunication, and Detroit Diesel in truck engines. Corporate branding has the advantage of using one advertising and sales promotion program to support all of a firm’s products. It also facilitates the promotion of new products. The shortcomings of corporate branding include a lack of focus on specific products and possible adverse effects on the product portfolio if the company encounters negative publicity for one of its products.

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1.2.4. Combination BrandingA company may use a combination of the branding strategies. Sears, for example, employs both product-line and corporate branding (e.g., Kenmore appliances and Craftsman tool lines). Combination branding benefits from the buyer’s association of the corporate name with the product or line brand name. However, corporate advertising may not be cost-effective for inexpensive, frequently purchased consumer brands. For example, companies like Procter & Gamble and Chesebrough-Ponds do not actively promote the corporate identity.

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1.2.5. Private BrandingRetailers with established brand names, such as The Limited, Target, and Wal-Mart Stores, contract with producers to manufacture and place the retailer’s brand name on products sold by the retailer. Called private branding, the major advantage to the producer is eliminating the costs of marketing to end-users, although a private-label arrangement makes the manufacturer dependent on the firm using the private brand.

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I. Strategic Brand Mgt1.3. Brand Leveraging Strategy

Established brand names may be useful to introduce other products by linking the new product to an existing brand name. The primary advantage is immediate name recognition for the new product. Methods of capitalizing on an existing brand name include line extension, stretching the brand vertically, brand extension, co-branding, and licensing.

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1.3.1. Line extensionThis leveraging strategy consists of offering additional items in the same product class or category as the core brand. Extensions may include new flavors, forms, colors, and package sizes. The same name may be used (e.g., BMW300, 500, 700) or the brand name may be linked less directly. Many new products are line extensions, such as Colgate Total toothpaste.

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1.3.2. Stretching the Brand VerticallyThis strategy may include moving up or down in price/quality from the core brand. It may involve subbrands that vary in price and features. The core name may be linked to the extension (e.g., different types of Kodak film) or different names may be used. The advantages of this strategy include expanded market opportunities, shared costs, and leveraging distinctive capabilities. The primary limitation is damage to the core brand (e.g., lower price/quality versions of a premium brand).

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1.3.3. Brand ExtensionThis approach benefits from buyers’ familiarity with an existing brand name in a product class to launch a new product line in another product class. The new line may or may not be closely related to the brand from which it is being extended. Examples of related extensions include Ivory shampoo and conditioner, Nike apparel, and Swiss Army watches. Critics of both brand and line extensions indicate that they often do not succeed and may damage the core brand.

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1.3.4. Co-brandingThis strategy consists of two well-known brands working together to promote their products. The brand names are used in various promotional efforts. Examples include airlines’ co-branding with credit card companies. Delta Airlines’ co-branding alliance with American Express through the Sky Miles credit card is illustrative. The advantage is leveraging the customer bases of the two brands. An effective co-branding arrangement is a strong competitive strategy.

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1.3.5. LicensingAnother popular method of using the core brand name is licensing. The sale of a firm’s brand name to another company for use on a noncompeting product is a major business activity. The firm granting the license obtains additional revenue with only limited costs. It also gains free publicity for the core brand name. The main limitation is that the licensee may create an unfavorable image for the brand. Licensing may be used for corporate, product-line, or specific brands. Anheuser-Busch Companies, Inc. (Budweiser beer) is one of the largest corporate licensors.

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I. Strategic Brand Mgt1.4. Managing Brand Systems

Companies that have several different brands and products should manage them as a system rather than pursuing independent brand strategies. The objectives should be to:

Leverage commonalities to generate synergy. Reduce brand identity damage. Obtain clarity of product offerings. Enable change and adaptation. Guide resource allocations among brands.

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A key concept that guides the management of the brand system is that specific brands play different roles in the system. For example, one brand may play a lead or driver role whereas other brands in the system may play supportive roles.

An important issue in managing brand systems is deciding how many brands should comprise the system. Aaker points to four questions in deciding whether to introduce a new brand name:

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1. Is the brand sufficiently different to merit a new name?

2. Will a new name really add value?3. Will the existing brand be placed at risk if it

is used on a new product?4. Will the business support a new brand name?

As an illustration, Levi’s very successful Dockers brand has a strong positive score on all 4 questions.

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II. Channel of Distribution Strategy

We will now consider the decisions that are necessary in developing a channel of distribution strategy. They include (1) determining the type of channel arrangement, (2) deciding the intensity of distribution, and (3) selecting the channel configuration.

Management may seek to achieve one or more objectives using the channel of distribution strategy. While the primary objective is to gain access to end-user buyers, related objectives may also be important. These include providing promotional and personal selling support, offering customer service, obtaining market info, and gaining favorable revenue/cost performance.

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II. Channel of Distribution S.2.1. Types of Distribution Channels

The major types of channels are conventional channels and vertical marketing systems (VMS). The conven-tional channel of distribution is a group of vertically linked independent organizations, each trying to look out for itself, with limited concern for the total performance of the channel. The relationships between the conventional channel participants are rather informal and the members are not closely coordinated. The focus of the channel organizations is on buyer-seller transaction rather than close collaboration throughout the distribution channel.

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II. Channel of Distribution S.2.1. Types of Distribution Channels The second types of distribution channel is the vertical

marketing system (VMS). Marketing executives in an increasing number of firms realize the advantages to be gained by managing the channel as a coordinated or programmed system of participating organizations. These vertical marketing systems dominate the retailing sector and significant factors in the business and industrial products and services sectors. Three types of VMSs may be used: ownership, contractual, and administered. During the last decade, a 4th form of VMS has developed in which the channel organizations form collaborative relationships.

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2.1.1. Ownership VMSOwnership of distribution channels from source of supply to end-user involves a substantial capital investment by the channel coordinator. This kind of VMS is also less adaptable to change compared with other VMS forms. For these reasons, a more popular alternative may be to develop collaborative relationships with channel members (e.g., supplier/manufacture alliances). Such arrangements tend to reduce the coordinator’s control over the channel but overcome the disadvantages of control through ownership.

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2.1.2. Contractual VMSThe contractual form of the VMS may include various formal arrangements between channel participants, including franchising and voluntary chains of independent retailers. Franchising is popular in fast foods, lodging, and many other retail lines. Automobile dealerships are another example of a contractual VMS. Wholesaler-sponsored retail chains are used by food and drug wholesalers to establish networks of independent retailers. Contractual programs may be initiated by manufacturers, wholesalers, and retailers.

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2.1.3. Administered VMSThe administered VMS exists because one of the channel members has the capacity to influence channel members. This influence may be the result of financial strengths, brand image, specialized skills (e.g., marketing, product innovation), and assistance and support to channel members.

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2.1.4. Relationship VMSThis channel form shares certain characteristics of the administered VMS, but different from it because a single firm does not exert substantial control over other channel members. Instead, the relationship involves close collaboration and sharing of information. The relationship VMS may be more logical in channels with only two or three levels. An example is the relationship between Radio Shack and compaq (computers) and Sprint (telephone services).

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II. Channel of Distribution S.2.2. Distribution Intensity

Step 2 in channel strategy is selecting distribution intensity. Distribution intensity is best examined in reference to how many retail stores (or industrial product dealers) carry a particular brand in a geographical area. If a company decides to distribute its products in many of the retail outlets in a trading area that might normally carry such a product, it is using an intensive distribution approach. A trading area may be a portion of a city, the entire metropolitan area, or a larger geographical area. If…

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II. Channel of Distribution S.2.2. Distribution Intensity (Cont’d)

… one retailer or dealer in the trading area distributes the product, then management is following an exclusive distribution strategy. Examples include Lexus automobiles and Caterpillar industrial equipment. Different degrees of distribution intensity can be implemented. Selective distribution falls between the two extremes. Rolex watches and Coach leather goods are distributed on a selective basis.

Choosing the right distribution intensity depends on management’s targeting and positioning strategies and product and market characteristics.

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II. Channel of Distribution S.2.3. Channel Configuration

The third step in selecting the distribution strategy is deciding how many levels of organizations to include in the vertical channel and the specific kinds of intermediaries to be selected at each level. The type of channel (conventional or VMS) and the distribution intensity selected help in deciding how many channel levels to use and what types of intermediaries to select. We discuss several factors that may influence the choice of one of the channel configuration.

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II. Channel of Distribution S. 2.3. Channel Configuration

2.3.1. End-User ConsiderationsIt is important to know where the targeted end-users might expect to purchase the products of interest. The intermediaries that are selected should provide an avenue to the market segments targeted by the producer. Analysis of buyer characteristics and preferences provides important information for selecting firms patronized by end-users. In turn this guides decisions concerning additional channel levels, such as the middlemen selling to the retailers that contact the market target customers.

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2.3.2. Product CharacteristicsThe complexity of the product, special application requirements, and servicing needs are useful in guiding the choice of intermediaries. Looking at how competing products are distributed may suggest possible types of intermediaries. The breadth and depth of the products to be distributed are also important considerations because intermediaries may want full lines of products.

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2.3.3. Manufacturer’s Capabilities and ResourcesLarge producers with extensive capabilities and resources have a lot of flexibility in choosing intermediaries. These producers also have a great deal of bargaining power with the middlemen, and the producer may be able (and willing) to perform certain of the distribution functions. Such options are more limited for small producers with capability and resource constraints.

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2.3.4. Required FunctionsThe functions that need to be performed in moving products from producer to end-user include various channel activities such as storage, servicing, and transportation. Studying these functions is useful in choosing the type of intermediaries that appropriate for a particular product or service. For example, if the producer needs only the direct-selling function, then independent manufacturers’ agents may be the right middlemen to use. Alternatively, if inventory stocking and after-sales service are needed, then a full-service wholesaler may be essential.

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III. Pricing StrategyThe pricing strategy depends on how management decides to position the product relative to compet-ing products, and whether price performs an active or passive role in the marketing program. The use of price as an active or passive factor refers to how much price is discussed in advertising, personal selling, and promotional efforts. Many firms choose neutral pricing strategies (at or near the price of key competitors), emphasizing nonpricing factors in their marketing strategies. We’ll examine each of the following strategies.

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III. Pricing Strategy 3.1. High-Active Strategy

The underlying logic of emphasizing the high price in promotional activities is to convey to the buyer that because the brand is expensive it offers superior value. While not widely used, this pricing strategy has been employed to symbolically position products such as high-end alcoholic beverages. When the buyer cannot easily evaluate the quality of a product, price can serve as a signal of value. Also, high prices may be essential …

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III. Pricing Strategy 3.1. High-Active Strategy (Cont’d)

… to gain the margins necessary to serve small target markets, produce high-quality products, or pay for the development of new products. Making price visible and active can appeal to the buyer’s perceptions of quality, image, and dependability of products and services. A firm using a high-price strategy is also less subject to retaliation by competitors, particularly if its products are differentiated from other brands.

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III. Pricing Strategy 3.2. High-Passive Strategy

Relatively high-priced brands are often marketed by featuring non-price factors rather than using high-active strategies. Product features and performance can be stressed when the people in the target market are concerned with product quality and performance. BMW and Mercedes have successfully followed this strategy for many years. Nonetheless, the realities of competing against Japanese luxury automobiles required improving the value offerings of European brands in the late 1990s.

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III. Pricing Strategy 3.3. Low-Active Strategy

AGCO uses this pricing strategy for its agricultural products, as do several retailers, including Dollar General Stores (apparel), Office Depot (office supplies), and Pic ‘N Pay Shoes Stores (family shoes). When price is an important factor in decision making for a large segment of buyers, a low-active price strategy is very effective, as indicated by the rapid growth of these retailers. However, this strategy may start a price war. It is a more attractive option when the competition for the market target is not heavy or when a company has cost advantages and a strong position in the product-market.

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III. Pricing Strategy 3.4. Low-Passive Strategy

This strategy may be used by small manufacturers whose products have lower-cost features than other suppliers. By not emphasizing a low price, the firm runs less danger that potential buyers will assume the product quality is inferior to other brands. Some firms participating in conventional distribution channels may not spend much on marketing their products and thus can offer low prices because of lower costs. Other firms that have actual cost advantages for comparable competing products may decide to stress value rather than price even though they are offering prices lower than competing brands.

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IV. Promotion StrategyPromotion strategy consists of planning, implementing, and controlling communications from an organization to its customers and other target audiences. The function of promotion in the marketing program is to achieve various communications objectives with each audience. An important marketing responsibility is to plan and coordinate an integrated promotion strategy and to select the specific strategies for the promotion components. It is important to recognize that word-of-mouth communications among buyers and the communications of other organizations may also influence the firm’s target audience(s).

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IV. Promotion Strategy Developing Promotion Strategy

Market targets and positioning strategy guide promotion decisions. Several decisions are involved in designing the promotion strategy, including (1) setting communication objectives, (2) deciding the role of the components that make up the promotion mix, (3) determining the promotion budget, and (4) selecting a strategy for each mix component. Strategies need to be determined for advertising, personal selling, sales promotion, direct marketing, and public relations.

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IV. Promotion Strategy 4.1. Communications Objectives

The objectives of the promotion-mix components are interrelated. An illustration will show how these objectives are linked closely together. Suppose that a health care product, Brand A, is perceived by buyers in a target segment as gentle to use but less effective than competing Brand B. In fact, A matches B in effectiveness. Therefore, an important positioning objective is to convince buyers in the target segment that Brand A is both effective and gentle. Examples of promotion objectives include:

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- Creating or increasing buyer awareness of a product or brand.

- Influencing buyer attitudes toward a company, product, or brand.

- Increasing the level of brand preference of buyers in a targeted segment.

- Achieving increases in sales and market share for specific customer or prospect targets.

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- Generating repeat purchases of a brand.- Encouraging trial of a new product.- Attracting new customers.- Encouraging long-term relationships.- Encouraging intermediaries to stock more

products.

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4.2. Deciding the Roles of the Promotion-Mix Components

Promotion objectives guide the specific roles of each components in the promotion mix. For example, the role of the sales force may be to obtain sales or to inform channel of distribution organizations about product features and applications. Advertising may be used to generate repeat purchases of a brand. Sales promotion (e.g., trade shows) may be used to achieve various objectives in the promotion mix. Direct marketing may play a major role in certain companies.

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4.2. Deciding the Roles of the Promotion-Mix Components (Cont)

It is necessary to decide which communications objective(s) will be the responsibility of each component. For example, advertising may be responsible for creating awareness of a new product. Sales promotion (e.g., coupons and samples) may encourage trial of the new product. Personal selling may be assigned responsibility for getting retailers to stock the new product. It is also important to decide how large the contribution of each promotion component will be, which will help to determine the promotion budget.

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IV. Promotion Strategy 4.3. Budget Approaches

Achieving an optimal budget for promotion expenditures is difficult because factors other than promotion also influence sales. Isolating the effects of promotion may not be feasible because of lags in the impact of promotion on sales, effects of other marketing mix components, and the influences of uncontrollable factors (e.g., competition, economic conditions). Instead, budgeting in practice is likely to emphasize improving promotion effectiveness compared to past results. Because of this, more practical budgeting techniques are normally used.

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IV. Promotion Strategy 4.3. Budget Approaches (Cont’d)

These methods include (1) objective and task, (2) percent of sales, (3) competitive parity, and (4) all you can afford. These same approaches are used to determine advertising and sales promotion budgets. The personal selling budget is determined by the number of people in the sales force and their qualifications. Direct marketing budget are determined by the unit costs of customer contact such as cost per catalog mailed.

The four budgeting methods are as follows:

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4.3.1. Objective and TaskThis logical and cost-effective method is probably the most widely used budgeting approach. Management sets communications objectives, determines the tasks necessary to achieve the objectives, and adds up costs. This method also establishes the mix of promotion components by selecting the component(s) appropriate for attaining each objective. The effectiveness of the objective and task method depends on the judgment and experience of the marketing team.

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4.3.2. Percent of SalesUsing this method, the budget is calculated as a percent of sales and is therefore quite arbitrary. The percentage figure is often based on past expenditure patterns. The method fails to recognize that promotion efforts and results are related. For example, a promotion budget of 10 percent of sales may be too much or not enough to achieve forecasted sales. Budgeting by percent of sales can lead to too much spending on promotion when sales are high and too little when sales are low.

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4.3.3. Competitive ParityPromotion expenditures for this budgeting method are guided by how much competitors spend. A major shortcoming of the method are that differences in marketing strategy between competing firms may require different promotion strategies. Revlon uses an intensive distribution strategy while Estée Lauder targets buyers by distributing its products through selected department stores. A comparison of promotional strategies of these firms is not very meaningful because their market targets, promotion objectives, and use of promotion components are different.

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4.3.4. All You Can AffordSince budget limits are a reality in most companies, this method is likely to influence all budget decisions. Top management may specify how much can be spent on promotion. For example, the guideline may be to reduce the budget to 75 percent of last year’s actual promotion expenditures. The objective and task method can be combined with the “all you can afford” method by setting task priorities and allocating the budget to the higher priority tasks.

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4.4. Integrating the Promotion Strategy Components

Several factors may affect a firm’s promotion mix. Advertising, publicity, personal selling, direct marketing, and sales promotion strategies may be fragmented when responsibility is assigned to more than one department. There are differences in priorities, and evaluating the productivity of the promotion components is complex. For example, coordination between selling and advertising is difficult in firms that market to industrial buyers. These firms tend to follow promotion strategies driven by personal selling. The same separation of selling and advertising strategies prevails in a variety of consumer product firms. An important …

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4.4. Integrating the Promotion Strategy Components (Cont’d)

… marketing management issue is how to integrate the promotion strategy components.

Integrated marketing communications (IMC) strategies are replacing fragmented advertising, publicity, and sales programs. IMC strategies in retailing differ from traditional promotion strategies in several ways as described by the following characteristics:

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1. IMC programs are comprehensive. Advertising, personal selling, retail atmospherics, behavioral modification programs, public relations, investor relations programs, employee communications, and other forms are all considered in the planning of an IMC.

2. IMC programs are unified. The messages delivered by all media, including such diverse influences as employee recruiting and the atmospherics of retailers upon which the marketer primarily relies, are the same or supportive of a unified theme.

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3. IMC programs are targeted. The public relations program, advertising programs, and dealer/ distributor program all have the same or related target markets.

4. IMC programs have coordinated execution of all the communications components of the organization.

5. IMC programs emphasize productivity in reaching the designated targets when selecting communication channels and allocating resources to marketing media.

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Documents

Chapter 4-Market-Focused Program Development