Chapter 12 - Developing Pricing Strategies and Programs

Summary

Price is the only element that produces revenue; the others produce costs.  In setting pricing a company follows six steps – the pricing objective, determine demand, estimate costs, analyze competitors’ costs, prices and offers, select a pricing method and select the final price.  Companies will sometimes need to lower prices to encourage sells, offer special discounts or promotional pricing to increase customer traffic, or raise prices to cover increased production costs or in response to a competitor’s price changes.

A.    Understanding Pricing

1.      The price element of the marketing mix produces revenue and all the others produce cost.  Pricing can be changed quickly, but the other elements take more time. Pricing comes in many forms and serves many functions, i.e. rent, tuition, fees, fares or tolls.

2.      Tiffany’s is a high-end jewelry icon that has long been known for high quality and high prices.  When they tried to create a line of cheaper silver jewelry, they were in danger of losing their image of high status and had to work hard to restore it.

3.      The pricing environment is changing.  The recent recession has caused people to reevaluate their spending habits and to take measures to spend less, sometimes even cutting out or severely limiting recreation and hobbies.  The Internet has also allowed consumers to compare and research products and sellers of products.  How to set price is different in companies, often depending on the size of the company.  In a small company the boss may set the price and in a large company there may be an entire department devoted to setting prices.  This can lead to big mistakes if the firm does not stay current on market changes.  Effective pricing also requires understanding the psychology of the consumer and how it affects pricing.  Purchase decisions are often based on how consumers perceive prices and what they consider the current actual price to be and not what the market says the price is.  There are three key topics for understanding how consumers arrive at their perceptions of prices: 1) reference prices – comparing a price to an internal reference price they remember from a past purchase, 2) price-quality inferences – using price as an inference of quality, 3) price endings – seeing prices as being in a lower range because of reading the numbers from left to right rather than rounding up. Some firms try to lure customers in to purchase products by giving them free items.

B.     Setting the Price

1.      A firm must set the price on a new product or when it introduces a new product to a new distribution channel or geographic area or when it enters bids on new contract work.

2.      A manufacturing company such as Texas Instruments will set the price of calculators to cover the cost of producing the instruments. This can include raw materials used and overhead.

3.      There is a six-step procedure for setting pricing: 1) selecting the pricing objective – survival, maximum current profit, maximum market share, maximum market skimming, and product-quality leadership, 2) determining demand – different levels of demand at different price levels, the inverse relationship between price and demand is captured on a demand curve, 3) estimating costs – a company wants to charge a price that will cover the cost of producing, distributing and selling the product.  4) analyzing competitors’ costs, prices and offers – the firm must take competitors’ costs, prices, and possible price reactions into account, 5) selecting a pricing method – a cost floor based on costs, competitor pricing, and customers’ assessments of unique features sets the price ceiling, 6) selecting the final price – consider factors such as the impact of other marketing activities, company pricing policies, gain-and-risk-sharing pricing, and the impact of price on other parties.

C.     Adapting the Price

1.      Rather than setting a single price for a product firms will develop a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, order levels, delivery frequency, guarantees, service contracts and other factors.

2.      One company that carries different prices is Coca-Cola,  the price may differ depending on whether you are buying it in a restaurant, vending machine or a fast-food restaurant.

3.      There are several price adaptation strategies marketers may adopt.  In geographical pricing a company decides how to price its products to different customers in different locations and countries.  In other countries, pricing can be affected by exchange rates and payment methods.  Many firms will want to give discounts and allowances for early payment, volume purchasing and off-season buying. Some firms will offer special promotional pricing to get customers into the stores.  Promotional pricing can include loss-leader pricing, special event pricing, special customer pricing, cash rebates, low-interest financing, longer payment terms, warranties and service contracts and psychological discounting. Differentiated pricing occurs when a firm adjusts the basic price to accommodate differences in customers, products and locations.  Price discrimination occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs.

D.    Initiating and Responding to Price Changes

1.      Companies often need to cut or raise prices in certain situations.

2.      Car manufacturers will sometimes build up an excess inventory if cars are not selling well.  They will offer discounts or special promotional pricing to sell more cars in order to make room for a new year model or will offer discounts to get rid of the old model after a redesigned model comes on the market.

3.      Sometimes circumstances will necessitate a firm cutting its pricing.  They may have excess plant capacity or they may cut prices to dominate the market through lower costs.  Price cutting can lead to traps: 1) of consumers thinking that quality is low, 2) a low price buys market share but not market loyalty because customers will shift to lower-priced firms, 3) higher priced competitors match the lower prices but have longer staying power because of deeper cash reserves, and 4) a price war may be triggered. At times a firm may want to initiate a price increase.  This can help to raise profits but it can also help offset cost inflation.  Some companies will raise prices by more than the increased cost in anticipation of further cost inflation.  Customers prefer small, regular price increases to sudden, sharp increases and they can turn against companies they think are price gougers. When responding to a competitor’s price cut or price increase, a firm should research the product life cycle and also determine why the competitor changed its pricing and if it would be beneficial to make price changes also.

Chapter 11 - Designing and Managing Services

Summary

Service is an act or performance that one party can offer to another that is essentially intangible.  Service may be the product or it may be offered with a product or after the product is sold. Services are intangible, inseparable, variable, and perishable, and each characteristic poses marketing challenges.  There’s customer empowerment, coproduction and the need to satisfy employee so they will want to offer great customer service.  Many firms also offer postsale service in the form of service departments for routine maintenance and equipment repairs.

A.    The Nature of Services

1.      A service is any act or performance one party can offer to another that is essentially intangible and does not result in the ownership of anything.

2.      There are many examples of services – hotels, medical centers, banks, airlines, consulting, plumbing and real estate.  These are only a few in the vast service industry.

3.      Service industries are everywhere and the production of service may or may not be tied to a physical product.  Service can be the product or just be a part of the overall product package.  Five categories of offerings are: 1) pure tangible good - with only the product, 2) tangible good with accompanying services - with the product and service that goes along with it, 3) hybrid – equal parts goods and services, 4) major service with accompanying minor goods and services – air travel with service and drink, 5) pure service – primarily intangible service.  Customers cannot always judge the technical quality of some services.  Search qualities are characteristics the buyer can evaluate before purchase and cadence qualities are characteristics the buyer finds hard to evaluate after purchase. Services have four distinct characteristics: 1) intangibility – cannot be seen, tasted, felt, heard or smelled, 2) inseparability – produced and consumed simultaneously, 3) variability – quality depends on who provides the service, 4) perishability – services can’t be stored when demand fluctuates.

B.      The New Services Realities

1.      Service firms are now among the most skilled marketers yet customer service satisfaction is low and declining in many service areas.

2.      Airlines, banks, stores and hotels are all areas where customer satisfaction levels are dropping.

3.      The relationship between service providers and their customers is shifting and savvy service marketers must recognize three new service realities: 1) customer empowerment – through internet use, customers have many means to complain or praise a company’s service or product, 2) customer coproduction – customers play an active role in its delivery, 3) satisfying employees as well as customers – positive employee attitudes will promote stronger customer loyalty. Marketing requires excellence in three broad areas: external marketing – the normal work of preparing, pricing, distributing, and promoting service to customers, internal – training and motivating employees to serve customers well, and interactive marketing – employees’ skill at service the customer. Differentiating service offerings can be done in many ways.  What the customer expects is called the primary service package and what the provider adds on top of that is called the secondary service features.

C.     Managing Service Quality

1.      The factors that cause customers to switch services fall into eight categories: pricing, inconvenience, core service failure, service encounter failures, response to service failure, competition, ethical problems, and involuntary switching.

2.      One example of customer service not meeting expectations is given by the merged Sprint Nextel.  After the merger, their call centers were treated like cost centers and more attention and focus was on getting calls completed quickly instead of fulfilling customer needs.  As a result, customer service quality went down and customers left.

3.      Customers compare the perceived service with the expected service and are disappointed when the perceived service falls short of the expected service.  There are five gaps that can cause unsuccessful service delivery: 1) the gap between consumer expectation and management perception, 2) gap between management exception and service-quality specification, 3) gap between service-quality specifications and service delivery, 4) gap between service delivery and external communications, and 5) gap between perceived service and expected service. There is also a zone of tolerance, which is a range in which customers are willing to accept the quality of service they are getting.  Finally, many person-to-person service interactions are being replaced by automated self-service technologies.  Customers can use an ATM, pump their own gas, use the self-service line at the store or process their own returns online.  A successful self-service technology can save the company a huge amount of money.

D.    Managing Product-Support Services

1.      Equipment manufacturers must offer service support for their equipment.  This is a large percentage of profits for some companies and competition is high, so firms must be responsive to customer needs. 

2.      John Deere and Caterpillar are two equipment manufacturers that realize huge profits from the service side of their business

3.      Firms should seek to identify and satisfy customer needs.  Customers usually have three worries about product service: 1) reliability and failure frequency, 2) downtime, and 3) out-of-pocket costs.  Sometimes the service may be training on how to use a piece of equipment or technical advice. Some companies will offer service through extended warranties or service agreements on their equipment for a stated price.  Product companies must understand their strategic intent and competitive advantage when developing services. Some firms run their own postsale service strategy by offering parts and service departments of their own. Just about every new car dealership has a service department in which customers can get regular and routine maintenance on their new cars and repairs to their older cars.

Chapter 10 - Setting Product Strategy and Marketing Through the Life Cycle

Summary

A product is anything that can be offered to a consumer market and satisfy a need.  There are five levels of the product: core benefit, basic product, expected product, augmented product and potential product.  Three classifications of products are durability, tangibility and use.  To be branded, products must be differentiated. Physical products are packaged, labeled, have well designed packages, come with a warranty or guarantee.  Companies must be consistent in new product innovation.  The innovation process is the idea generation, idea screening, concept development and testing, marketing strategy development, business analysis, product development, market testing and commercialization.  All products advance through a product life cycle consisting of the introduction stage, growth stage, maturity stage and finally, the decline stage.

A.     Product Characteristics and Classifications

1.      A product is anything that can be offered to a market to satisfy a want or a need.

2.      Examples of products are physical goods, services, experiences, events, persons, places, properties, organizations, information and ideas.

3.      A marketer of products needs to address five product levels, each one adding more customer value: 1) core value, 2) basic product, 3) expected product, 4) augmented product, and 5) potential product.  Marketers classify products based on durability, tangibility and use.  Each type has a marketing mix strategy.  Durability and tangibility – nondurable goods are tangible goods that are consumed in just a few uses and repurchased frequently.  Durable goods are tangible goods that survive many uses, such as appliances. Services are intangible. Consumer-goods classification – classified according to shopping habits such as convenience, shopping, specialty and unsought goods.  Industrial goods classification – materials and parts that enter a product completely and may be raw materials or manufactured materials. Capital items are long-lasting goods that are used to make the finished products.

B.      Product and Services Differentiation

1.      To be branded products must be differentiated.  Some only offer a minimal amount of differentiation and others are capable of high differentiation.

2.      Low differentiated products are chickens, aspirin and steel.  Examples of high differentiated products are furniture and automobiles.

3.      Marketers have many possibilities for differentiation including form, features, customization, performance quality, conformance quality, durability, reliability, repairability and style. Service differentiation is important when a product cannot be easily differentiated.  Among service differentiation are ordering ease, delivery, installation, customer training, customer consulting, and maintenance and repair. Design – how a product looks and feels and functions to a consumer – is another way to differentiate and position a product.

C.     Product and Brand Relationships

1.      Products can be related to other products to ensure the firm is offering an optimal set of products.  There can be a product system – related items that are compatible, a product mix – a set of all the products a firm offers for sell, and a product line – a group of products within a product class.

2.      An iPod with all its accessories is a good example of a product system.  These are different products that work together and are used with the iPod.

3.      Some products are designed to work together in a product system but many products are part of a product line.  Companies develop a basic platforms and modules that can be added to meet customer requirements. Marketers use a product map to see which competitor items are competing against their items.  This identifies market segments and shows how well the company is competing and is positioned.  Longer product lines help companies achieve high market share and market growth.  A company lengthens its product line by line stretching and line filling. Line stretching occurs when a company lengthens its product line beyond its current range and line filling occurs with a company adds more items within the product’s present range.  Companies also modernize and improve their product lines and prune off weak items.  Many multi-brand companies concentrate on their biggest and most established brands. Firms must search for a set of prices that maximizes profits on the total mix.  Six situations are: 1) product line pricing, 2) Optional-feature pricing, 3) captive-product pricing, 4) two-part pricing, 5) by-product pricing and 6) product –bundling pricing. Firms often combine their products with products from other companies – called co-branding – and market them together. Co-branding can have the advantage of higher sales but a disadvantage can be when one product or the combined product doesn’t do well, it hurts both firms.

D.    Packaging, Labeling, Warranties, and Guarantees

1.      Packaging includes all the activities of designing and producing the container for a product. Sometimes, there are packages within packages, especially if there was shipping involved.

2.      A good example of this is when you purchase a computer that is shipped to your address.  There can be one big package and within that there are multiple little packages, including plastic bags that contain various components of the computer.  The outside package usually contains the name of the company or manufacturer you purchased the computer from.

3.      Packaging and labeling are treated as elements of the production strategy by many marketers; however, some have referred to it as the fifth P, along with price, product, place, and promotion. Packaging must achieve a number of objectives – identify the brand, convey descriptive and persuasive information, facilitate product transportation and protection, assist at-home storage, and aid product consumption.  A label attached to a package can serve many purposes.  It will identify the product or brand, and also may offer grade, safety or nutritional information about the product. Most products come with a warranty or a guarantee that allows a consumer to return a defective product. 

E.      Managing New Products

1.      New products can be added by buying another firm, patents, licenses or franchises from other firms.  They can also be added by innovation and development.

2.      Many firms get ideas for new products by using social media sites such as LinkedIn (Philips), Facebook (Coca-Cola) and Twitter (Starbucks).

3.      Many new products fail because of various reasons.  The firm may not have researched the target market closely enough or may have overestimated the interest in the products.  They may not have advertised and promoted the product enough. But in an environment that changes rapidly companies must create new products in order to be successful.  Companies can focus on incremental innovation, which means they enter a new market by tweaking products for new customers, introducing variations on a core product and creating interim solutions for industry-wide problems. They can also focus on creating disruptive technologies that are cheaper and more likely to alter the competitive space.  The stages in new product development are 1) Idea generation, 2) idea screening, 3) concept development and testing, 4) marketing strategy development, 5) business analysis, 6) product development, 7) market testing and 8) commercialization.  New product launches often take longer and cost more than expected, so it’s important for a firm to allocate sufficient time and resources to the new product.

F.      The Consumer – Adoption Process

1.      Adoption is an individual’s decision to become a regular user of a product.  It is followed by the consumer-loyalty process.

2.      The iPod is an example of a great innovation.  People no longer need to carry a portable cd player around in order to listen to music.  The iPod is lightweight and consumers are not limited to how many cd’s they can carry with it.  They can download hundreds of songs and plug in their earphones and go.  You see them being used almost everywhere you go.

3.      An innovation is a good, service or idea that consumers think is new, even if it’s actually been around for a long time.  Innovation diffusion process is the spread of the new idea from its creation until it is actually in the hands of consumers. There are five stages in the consumer adoption process – awareness, interest, evaluation, trial and adoption.  Innovators are the first to adopt something new and laggards are the last.  One person’s attitude or purchase probability can be affected by another person’s influence.  There are five characteristics that influence adoption of a new product: 1) relative advantage – how superior is the products to others, 2) compatibility – how does the innovation match the values and experiences of the individual, 3) complexity – how difficult or easy is the innovation to understand and use, 4) divisibility – the degree to which the innovation can be tried on a limited basis, and 5) communicability – the degree to which the benefits of use are observable or descriptive to others.  Adoption of a new innovation can also be affected by the organization’s environment.

G.    Marketing Through the Product Life Cycle

1.      Products have a life cycle, some longer or shorter than others.  This means that 1) products have a limited life, 2) product sales pass through distinct stages, 3) profits rise and fall at different stages, and products require different marketing, financial, manufacturing, purchasing, and human resource strategies at each stage.

2.       The portable CD players are a great example of a product life cycle, They were introduced and became big sellers, but after just a few years they were replaced by the iPod and quickly dropped out of consumers’ awareness.

3.      Product life cycles are portrayed in a bell-shaped curve featuring four stages – introduction, growth, maturity and decline. During the introduction stage, sales tend to be slow, profits low or non-existent and promotional costs high. Next is the growth stage with a rapid climb in sales.  New competitors introduce new features and expand distribution and prices stabilize or fall. Profits increase in the growth stage.  Sooner or later, the product reaches maturity in the market and growth slows. Firms might try to expand the market by introducing it to new users or modifying the product to make it interesting to new users.  Eventually the product will move into the decline stage, where there is little consumer interest and profits decline.  At some point the marketer must decide to remove a weak product from the market altogether.  The product life cycle concept helps marketers to interpret product and market dynamics, conduct planning and control, and do forecasting. However, critics say that product life cycles are too generalized and that marketers really can’t determine what stage the product is in.

Chapter 9 - Crafting the Brand Positioning and Competing Effectively

Summary

Companies must study competitors as well as customers if it wants to have effective positioning.  Developing a position in the market requires determining a frame of reference by identifying the target market and the resulting nature of the competition, and the optimal points-of-parity and points-of difference brand associations.  Firms seek competitive advantage by relevant brand differentiation.  Emotional branding seeks to touch customers’ minds and hearts.  Market leaders want to stay number one by expanding market demand and challenging competitors.  Some firms choose not to be leaders, but follow instead, which can still be profitable.

A.     Developing and Establishing a Brand Position

1.      Positioning is the act of designing a company’s offering and image to occupy a distinctive place in the minds of the target market.

2.      An example is the Volvo station wagon.  Volvo has positioned the automobile in the minds of consumers to be a safe, family friendly car with durability.

3.      Once a company has established its place in the minds of consumers by positioning, it hopes the successful result is a customer-focused value proposition, a reason why the target market should buy the product. Deciding on a position requires: 1) determining a frame of reference, 2) identifying the optimal points-of-parity and points-of-difference brand associations, and 3) creating a brand mantra to summarize the positioning.  A company also needs to determine its competition and where to focus the competitive analysis.  This can be done by the competitive frame of reference and category membership. Marketers must determine what other products in the market could act as substitutes to their products. After the competitive frame of reference is fixed, the marketers can define the Points-of-difference (PODs) and Points-of-parity (POPs) associations.  PODs are the strong, favorable attributes that consumers believe they couldn’t find in another product. POPs are attribute associations that are not unique to a brand but may be shared with other brands. POPs and PODs help marketers prove their claims that their products offer certain benefits.  A brand mantra is an articulation of the brand essence and promise and should communicate category and clarify the brand’s uniqueness.  Establishing the brand positioning requires that consumers understand what the brand offers and what makes it a superior competitive choice. Some marketers will place their products in a category membership.  Three ways to convey category membership are announcing category benefits, comparing to exemplars, and relying on product descriptor.

B.     Differentiation Strategies

1.      Differentiation strategy is the approach a firm takes to make unique products for different customer segments.

2.      Microsoft Office is a product that derived from the Microsoft operating system.

3.      A successful company must have competitive advantage over its main competitors. Customers ultimately choose a product because of the customer advantage they get from having that product.  It’s only valuable to them if they value that attribute of the product.  There are other dimensions to differentiation such as employee differentiation – better customer service, channel differentiation – coverage, expertise, performance, image differentiation – images that appeal to social and psychological needs, and services differentiation – delivering more effective and efficient solutions.  Many marketing experts believe a brand position should appeal to the mind and the heart of the consumer. A brand seen as authentic to consumers can evoke trust, loyalty and affection.

C.     Competitive Strategies for Market Leaders

1.         Companies cannot expect to lead the market share without being diligent about keeping up with what the competing markets are doing.  To stay number one the market leader must find ways to expand the total market demand.

2.         McDonald’s is a market leader that must pay close attention to what their competitors are offering that could easily take away the market share.

3.         To maintain market lead, firms should look for new customers or increase use of their product among current customers.  The most constructive response to protecting market share is continuous innovation.  They must lead the industry in developing new products and getting those products into the hands of the consumers. There are six defense strategies a leading firm can use: position defense – occupying the most desirable market space in consumer’s minds, flank defense – erect outposts to protect a weak front, preemptive defense – attack first to keep competitors off balance, counteroffensive defense – attack frontally so the rival will have to defend itself, mobile defense – leader moves into new territories, and contraction defense – give up weaker markets and reassign resources to stronger ones.  When striving to increase market share the cost can sometimes outweigh the value.  Four factors should be considered: 1) the possibility of provoking anti-trust action, 2) economic cost, 3) pursuing the wrong marketing activities and 4) the effect of increased market share on actual and perceived quality.

D.    Other Competitive Strategies

1.      Some marketers try to increase market share by challenging the current market leader or by challenging comparable firms that are under performing or attacking local and regional firms.

2.      Ford is a company that is quite large and has a very profitable market share, even though it is normally outdone by another firm.

3.      Many firms have been able to overtake the market leader by various forms of attack, given clear opponents and objectives.  Challengers may use one of these five attack strategies: 1) frontal attack – matches the opponents product, advertising, price and distribution, 2) flank attack – identifying shifts that are causing gaps then filling the gaps, 3) encirclement attack – launching a grand offensive on several fronts, 4) bypass attack – bypassing the enemy to attack easier targets, and 5) guerrilla attack – small, intermittent attacks, both conventional and unconventional.  Any aspect can serve as an aspect of attack – lower prices, discounts, new or improved products, larger variety and distribution.  Many firms prefer not to be the market leader, but to follow the market leader instead.   This way, the leader bears the cost of researching and developing new products and putting them out on the market through advertising and distribution.  The follower can still make huge profits by offering similar products. Some even copy the leader’s products and offer them illegally on the black market. Some followers adapt or improve the leader’s products and sell them in different markets.  A final strategy is to be a leader in a much smaller, niche market. Niche markets can dry up or be attacked so niche market leaders must create new niches and expand.

Chapter 8 - Creating Brand Equity

Summary

Strategic brand management combines the design and implementation of marketing activities and programs to build, measure, and manage brands to maximize their value and strengthen brand loyalty.  Marketers want consumers to recognize and be loyal to their brands.  To help this process they choose trade marketable brand elements to apply to their products and on a brand extension, a firm puts an established brand on a new product. This may or not work and should be judged by how well they leverage existing brand equity.

A.    What is Brand Equity?

1.      Brand equity is the added value endowed on products and services by the brand. The brand is the name, term, sign, symbol or design that identifies a product.

2.      A brand can be a good (Bic razor), a service (American Airlines), a store (Target), a person (singer Toby Keith), a place (the city of New York) an organization (United Way), or an idea (free trade).

3.      Brands identify the source or maker of a product and allow consumers to assign responsibility for its performance to a particular manufacturer or distributor.  They perform valuable functions for a company by allowing them to organize according to brands. A credible brand signals a level of quality to consumers so they will choose a particular brand again. Branding a product teaches consumers about the product by giving it features to identify it and to care about its brand equity. Three key ingredients of customer-based brand equity are: 1) brand equity arises from differences in consumer response; 2) differences in response are a result of consumer’s brand knowledge; 3) brand equity is reflected in perceptions, preferences, and behavior related to all aspects of the brand’s marketing.  A brand promise is the marketer’s vision of what the brand must be and do for consumers.

B.     Building Brand Equity

1.      Marketers build brand equity by creating the right brand knowledge structures with the right consumers by using the right brand equity driver.

2.      An example of this is the name Bing for Microsoft’s search engine which is supposed to convey the “aha” moment of finding something you’ve been searching for.

3.      There are three brand equity drivers – Choosing brand elements, designing holistic marketing activities, and leveraging secondary associations. Marketers want to choose brand elements to identify and differentiate their products, such as the Nike “Swoosh” logo. This allows the consumer associate how they think or feel with the product. Marketers should use these six criteria when choosing their brand elements: memorable, meaningful, likable, transferable, adaptable, and protectable.  Customers get to know and recognize a brand through brand contact.  This is any experience with the brand, either positive or negative. A company must put a lot of effort into managing these contacts.  The final way to build brand equity is to link the brand to other information in memory that conveys meaning to consumers.  Marketers must also adopt an internal perspective to ensure employees are aware of how they can help, or hurt, brand equity.  Some companies collaborate with consumers to create value through communities built around brands. Three characteristics identify brand communities: 1) a sense of connection to the brand, 2) shared rituals, stories, traditions, and 3) shared responsibility or duty.

C.     Measuring and Measuring Brand Equity

1.      Brand equity can be measured indirectly by assessing potential sources of brand equity by identifying and tracing consumer brand knowledge structures, or directly by assessing the actual impact of brand knowledge on consumer response to different marketing aspects.

2.      The brand-management firm, Interbrand, has developed a model to estimate the dollar value of a brand.

3.      Companies will want to measure brand equity, either directly or indirectly. Brand audits are good for helping marketers understand the sources of brand equity and how they affect outcomes of interest, and brand tracking is will help marketers understand how these sources and outcomes change over time. Brand equity should not be confused with brand valuation, which is the job of estimating the total financial value of the brand. Marketers can reinforce brand equity by constantly conveying the brands meaning to consumers. Old and tired brands that consumers have started to overlook can be revitalized by understanding the original sources of brand equity.  Should the same sources be used again or new ones?

D.    Devising a Brand Strategy

1.      A branding strategy reflects the number and nature of both common and distinctive brand elements.

2.      General Mills uses the strategy of naming its brands by using individual names for its product brands, such as Nature Valley or Wheaties.

3.      A firm has three main choices when deciding how to brand new products: 1) develop new brand elements, 2) apply some of its existing brand elements, or 3) use a combination of new and existing brand elements.  When a firm must choose which brand names to use, it can use the strategies to use individual or family brand names, to use a corporate umbrella or company brand name, or to use a sub-brand name.  A brand portfolio is all the brands and brand lines a particular firm offers for sell in a category or market segment. Brands can play roles in a portfolio such as flanker (or fighter) brands, cash cows, low-end entry level or high-end prestige. Many new products are introduced as brand extensions under their strongest brand names, up to 80 or 90 percent per year.  Consumers will form expectations based on what they know about the old brand. Extensions increase the ease of getting retailers to stock the new product, be less expensive to launch and they can provide feedback benefits.  A disadvantage of extensions is brand dilutions – when consumers no longer associate a brand with a specific product.

E.     Customer Equity

1.      Customer equity is the sum of lifetime values of all customers.

2.      Customer equity focuses on bottom-line financial value unlike brand equity, which emphasizes strategic issues in managing brands and brand awareness.  They are both important to use in attracting customers to products.