Chapter 8 - Branding

Value
 According to Kotler and Armstrong value to marketing is very important because:
o ‘Overall process of building and maintaining profitable customer relationships by
delivering superior customer value and satisfaction.’
o According to them, developing relationships requires certain building blocks and
these are identified as customer value and customer satisfaction.

 Figure 8.1 shows how product, place and promotion can be used to deliver value to
customers and how marketers can extract profit from the last ‘p’ of the Four P model; price.
 Value is very important because it takes into account the benefits of the product, the money
that the customer needs to spend and also the non-money costs such as time and effort to
buy the product.
 Value is the difference between the total costs of making a purchase and the total benefits
received.
 This will help marketers know how the can offer more value to customers.
 This can be done by adding new features to a product that the consumers desire so that the
product will have more benefits.
 If the increase in value is considerably more than that offered by competitors, the marketer
may be able to charge a higher price and thereby improve profit margins.
 A key distinction between value and satisfaction is that satisfaction is not dependent on
price whilst the value is determined on the price paid.
 It is similarly possible to distinguish between quality and value.
 Quality is argued to be a single stimulus (all positive), whereas value has a negative
component as well (in terms of benefits less costs). Quality is a major ‘get’ component of
value, (namely, it is what the customer gets in return for the money that they have paid).

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  There are other ways to look at value. Kyoung-Nan and Schumann (2001) distinguish
between acquisition and transaction value.
o Acquisition value is the difference between the price the customer pays and what
they would be prepared to pay.
o Transaction value is when the customer feels that s/he has received a bargain
(regardless of quality). The total value that customers receive is the sum of
acquisition and transaction value.
 When marketers run sales and promotions they are emphasising transaction
value. On the other hand when marketers run advertising that emphasises
the benefits of what is being sold, that would be classified as acquisition
value.
 According to Chitturi, Raghunathan and Mahajan, utilitarian benefits are functional and
practical, whereas hedonic benefits are aesthetic and emotional.
o For example: In the case of cell phones the length of the battery life is a utilitarian
benefit; the shape and colour are more likely to be hedonic benefits.
 Two points of view regarding these benefits are that customers attach more weight to
hedonic benefits, but only after a certain minimum amount of utilitarian benefits have been
delivered.
 Another view is that customers attach more weight to utilitarian benefits, unless they feel
that they have earned the right to enjoy the hedonic benefits.

Co-creation and value

 Co-creation is a strategy that focuses on the customer experience and interactive
relationships. It allows and encourages a more active involvement from the customer to
create a value rich experience.
 For Example: Coca-Cola allow customers to customize their drinking experience by mixing a
different number of flavours together through the dispenser. Through this co-creation Coca-
Cola is able to better deliver on customer needs, at lower product development costs and
risks.
 Another important concept in this approach is that of ‘value-in-use’ instead of ‘value-in-
exchange’ (that is, customers acquire value as they use products rather than only at the
point of exchange with marketer/the purchase)
 In addition, it is not just the customer who is involved in the value-co-creating process.
Other parties can include: members of the customers’ and suppliers’ networks.
 For example, Through the Coca-Cola freestyle app people can share their co-created mixed
flavoured soda with their friends.
 According to Tynan, McKechnie and Chhuon this emphasis on the value derived from use, in
their study of co-creation by luxury brands. They state that “‘It is all about providing the
customer with an experience. Customers no longer define themselves by what they own
or what they buy because their wealth means they can acquire almost any assets but they
define (themselves) more by experiences, whether it’s a trip to South Pole or it’s a balloon
flying over the Andes or it’s to talk to the designer of the Brand X.’”

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Quality in Marketing
 The importance of quality in marketing is directly related to expectations and satisfaction
which enables marketers to develop long-term relationships with customers.
 Quality is about meeting the customer expectations and for that reason marketers need to
make sure that their products meet those expectations and thereby develop relationships
with customers.
 Perceived product quality is defined as the customers’ perceived quality of a product that
provide satisfaction relative to competing brands.
 Perceived quality depends on, for example, personal factors such as involvement, prior
knowledge and the individual’s level of education.
 This means that two different people may perceive different levels of quality for the same
product.
 The reason for the difference could be their ‘prior knowledge’, which could include such
factors as the extent to which they had been exposed to competing products in the past.

 Figure 8.2 (opposite) shows the relationships between quality, expectations and satisfaction
(considered in more detail in Chapter 7 of the subject guide). Here we will look at the links
between expectations, satisfaction and quality.

Expectations, satisfaction and quality

 Prior to making a purchase, customers have expectations about what they are going to buy.
 These expectations will depend on, among other factors:
1. The marketers’ advertising,
2. Competitors advertising,
3. The customer’s previous experience of making that purchase.
 If the purchase meets expectations, the customer will be satisfied
 Satisfaction is important because it can lead to customers trusting the brand that they have
just bought and being encouraged to buy it on future occasions.
 If the purchase does not meet expectations, then the customer will be dissatisfied and may
buy another brand next time.
 This concept is also important in terms of the implications for marketers – they need to
ensure that their products and services meet the promises.
 According to Higgs et al., expectations are important because they form the idea by which
people will make judgments about whether or not they are satisfied.

 Expectations have been studied from two different perspectives:

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 o The consumer satisfaction perspective, which deals with satisfaction for both
products and services, and
o The services marketing perspective, which focuses specifically on services.
 In the consumer satisfaction perspective there has been an emphasis on forecast or
normative definitions (namely, those dealing with expectations at the brand level).
 In the customer satisfaction perspective four categories of expectations have been
identified:
o Forecast expectations (expected) - refer to consumers’ beliefs about what will occur
in a specific forthcoming transaction.
o Normative expectations - refer to what the customer should expect (namely, in
terms of what is feasible).
 Normative expectations and forecast expectations are said to be ‘brand-
cued’ – people form these expectations in relation to the forthcoming
purchase of a specific brand.
o Ideal expectations - refer to the standard that represents the highest level of
performance attainable by a premier service provider in that product category.
o Minimum tolerable expectations - Minimum tolerable expectations refer to the
baseline performance for any provider in the product category.
 Ideal and minimum tolerable expectations function at the level of the
product class, since they focus on comparisons between different
marketers.
 According to Gallarza, Gil-Saura and Holbrook distinguish between service quality and customer
satisfaction in the following way:
1. Firstly, service quality does not depend on experience, whereas customer
satisfaction does.
2. Secondly, service quality is based on various specific (mainly cognitive) dimensions;
in contrast customer satisfaction dimensions are broader, since they can be affective
as well as cognitive
 Viswanathan, Rosa and Ruth give the example of an Indian flower-seller (hawker) whose
garlands are used for religious practice. In her marketing communications (talking to her
customers), she is upfront about the quality of the offering, and tells customers when she
has left gaps between flowers, due to the high price of flowers from her suppliers. She offers
this explanation instead of raising her own prices. This approach may even win her some
sympathy from her regular customers, since she is promising to return to her usual practice
of tight bundles of flowers as soon as the wholesale prices allow her to do so.

Service quality literature perspective of satisfaction

 Parasuraman et al. developed a model on service quality.
 Here expectations refer to what customers feel the service provider should offer, rather
than what they would offer (that is, it has a normative role).
 This model measures the difference between perceptions and expectations as a measure of
service quality.
 SERVQUAL measures perceived importance and performance along key service dimensions:
reliability, responsiveness, assurance and empathy. These are assessed using a 22-item
scale.

o SERVQUAL > Five dimensions customers use when evaluating service quality:

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  TANGIBLES - Appearance of physical facilities, equipment, personnel, and
communication materials
 RELIABILITY - Ability to perform the promised service dependably and
accurately
 RESPONSIVENESS - Willingness to help customers and provide prompt
service
 ASSURANCE - Knowledge and courtesy of employees and their ability to
convey trust and confidence
 EMPATHY - Caring, individualized attention the firm provides its customers
 Examples of specific items are as follows: Reliability is assessed in terms of, for example,
service delivered when promised and service being ‘right first time’. Responsiveness is
measured in terms of staff willingness to help and convenient operating hours, for example.

Expectations and quality claims

 One of the factors that can influence customers’ expectations are marketers’ advertising
claims.
 These can be ‘overstated’, where the marketer promises more than can be delivered, and
they can be ‘understated’, where the promises are less than what can be offered.
 According to Kopalle and Lehmann, the situations when marketers should understate
quality are when the value of future sales is high, customers weight advertising heavily,
customers are more sensitive to the difference between actual and expected quality,
customers do not discount the advertised quality (as with the case of well-known firms) and
customers have a low base level of satisfaction.
 On the other hand, overstating quality may be effective where: customers are slow to
update their expectations (when the base level of satisfaction is high).
 Marketing approaches towards quality:
o Perceived
 This approach is based on a view of quality as innate excellence. Quality is
‘something that you know when you see it’. So a Rolls Royce can be
recognised as a quality car. Similarly, Wedgwood is perceived to be quality
pottery, and a Rolex is a quality watch. Such superior quality can be
identified by its look, its touch, its feel and so on. Where a service is
involved, judging quality may rely on even more ethereal criteria, like the
atmosphere in a restaurant.
o Product-based
 This approach views quality in terms of superior product attributes that can
be designed and precisely measured. Quality is seen as a measurable set of
characteristics. Thus the quality of a car can be determined by its
performance as measured by its top speed, its acceleration, its fuel
consumption and so on.
o User-based
 This approach sees quality as fitness for use from the customer’s
perspective. Thus this is based on a marketing view that customers
ultimately decide what quality means. However, particularly in mass
markets there can be a danger that an individual customer’s view may run
counter to any collective view obtained by aggregating all customer views.
o Operations-based

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  This approach sees quality in terms of conforming to a specification of a
product or service. In this way, quality is achieved if all activities are carried
out right first time and error-free. Thus any product can be considered to be
a quality product if it conforms to its specification.

o Value-based
 This approach modifies the user-based approach by introducing the notion
of cost or price into the consideration of quality. Quality is thus considered
to be the best value for money for a given purpose. Different customers may
be prepared to accept a product offering with a lower specification if the
price is low.
 The success of budget airlines, like easyJet or Ryanair, stems from the fact
that many travellers are quite happy to forgo the higher levels of service
provided by traditional airlines. Being able to afford to travel to their desired
destinations is far more important to them than complimentary food and
drink, in-flight entertainment, executive lounges and so on.

Intrinsic and extrinsic cues

 Consumers assess the levels of quality in different products and services.
 How does a customer tell whether they have bought a ‘quality’ product?
 Physical product characteristics are referred to as intrinsic cues; they cannot be changed
without changing the physical product itself.
 Non-physical product characteristics are referred to as extrinsic cues (for example, price
and warranties, brand name, country of origin, store name).
 Extrinsic cues are particularly important when a product’s intrinsic cues have low confidence
and predictive values (that is, in the case of intangible products/services where customers
cannot tell how the product/service will perform, they will tend to depend on
price/warranty and other cues (Olson, 1972)).
 For utilitarian products (everyday items which are not bought for image or fashion purposes)
intrinsic cues are more important; for image products, extrinsic cues are more important. So
for fashionwear stores, their image plays an important role.
 An extrinsic cue available to marketers is warranties. Warranties can help reduce customers’
perception of risk by offering them the possibility of redress when the product/service does
not perform to expectations. This may be particularly important where the inherent risk is
great (Shimp and Bearden) (fibit activity tracker). However, it has been said that warranties
can lead to expectations of greater product/service quality, increased value and enhanced
post-purchase service (Halstead et al., 1993).
 Information Asymmetry describes a situation when one party has more information in a
transaction knows more than the other. In information deficient person might have taken a
different decision if he knew the information that is being with held.
o With increased advancements in technology, asymmetric information has been on
the decline as a result of more and more people being able to easily access all types
of information.
 Lack of information can be considered in terms of adverse selection and moral hazard
 In order to make buying decisions, customers need information before and after their
purchases, which can relate to the price and the quality of the offering, for example.

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  However, gathering such information about services is difficult, because of their intangibility
and also because their consumption takes place simultaneously with their production and
also because of their variability from one person to another.
 Kirmani and Rao say that customers can face information asymmetry in two situations:
o Where there is adverse selection
 Customers face adverse selection problems when they cannot observe the
sellers’ characteristics (are they really competent?) and also the situation
facing the seller (did the customer really need the services that were
provided?)
o Where there is moral hazard.
 Moral hazard arises because the buyer cannot observe the actions of the
seller and as a result cannot tell if the sellers’ actions are in line with what
was being promised. In the case of services, quality can be hard to judge.
o Where there is adverse selection the problem with information asymmetry can be
addressed by providing customers with information; the quality of the offering will
not change from one sale to the next.
o So high-quality sellers will gain from encouraging buyers to see and try their
product. High-quality sellers will show how good their offerings are and firms selling
low-quality offerings won’t provide signals, because it is not profitable for them to
do so.
o Quality does not stop once the company sold the product but it should assess
quality over a period of time after the purchase.
o For example, through exposure to marketing communications, word of mouth
messages and seeing other people experience the service.
o Lemke, Clark and Wilson, thus define the customer experience as: ‘the customer’s
subjective response to the holistic direct and indirect encounter with the firm,
including but not necessarily limited to the communication encounter, the service
encounter and the consumption encounter’.

Branding
 There are a number of different ways in which brands can be identified, from a name to a
symbol.
 Branding is used to enable the marketer to differentiate their product from the competition.
 To understand the role of branding first we need to understand the difference between
unbranded and branded products
o Unbranded products there are no means of knowing who made it, and if you want
to buy the product again you do not know who you could go back to
o Branded products enables promises to be made by the marketer, for those promises
to be fulfilled, and for trust/loyalty to be established.
 Keller defined brand equity as ‘the differential effect that brand knowledge has on
consumer response to the marketing of that brand’.
 So brand equity is based on the associations that people attach to a particular brand. These
can vary in terms of number, valence (attractions or aversion felt by an individual) and
uniqueness.
 Brands with higher levels of brand equity will have more and unique associations and more
net positive (Krishnan).

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 So branding is the foundation for relationship marketing. As part of the differentiation of its
brand from those of competitors, marketers can make use of the fact that brands can
communicate values and personality to the customer.

 Value
o As part of the differentiation of its brand from those of competitors, marketers make
use of the fact that brands can communicate values and personality to the
customer.
o According to Rokeach:
 We have values for ourselves and values for society. These values may be
the same or they may differ. For example, you may believe that you should
be forgiving of others, but that society should be less concerned with being
forgiving.
 'Enduring beliefs' means that values are generally stable, although they can
change as people continue to make decisions that involve putting one value
ahead of another.
 He also makes a difference between values that are modes of conduct and
values that are end-states of existence.
 Modes of conduct – are the methods of behaviour (personal
characteristics) such as honesty, being ambitious, being polite and
so forth.
 End-states of existence – the goals that we would like to achieve
during our lifetime.
o For marketers it is important to understand the values of their customers.
o For Example: In societies where the values emphasise the importance of education,
the marketing of educational services and products will be relatively more successful
than in societies where such values are held less highly.
o Brand values are guiding principles (namely, what the brand believes in), but they
will only distinguish a brand from competitors if they are unique.
o For example: Apple brand believes in style and quality products
o Therefore the organisation needs to make sure that their values are in line with
those of the society in which they are being sold
o Brand values reflect consumers’ own and personal values.
o According to Durgee et al., ‘Marketers are interested in values because they are
thought to influence behaviour.’
o Recent approaches by researchers have sought to ask consumers about important
product attributes and then consumers are probed until the researcher finds out the
values the consumer associates with the product
 Added values augment an offering from a commodity to a brand and differentiate the brand
from competitors.
 For example,
o British aircraft engine manufacturer Rolls Royce brand values are ‘reliability,
integrity and innovation’.
o Added values can be emotional and/or functional.
o Rolls Royce’s added values are ’24 hour service’ (which is a functional value) and the
confidence that it inspires in customers (which is an emotional value).

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 Values also need to be sustainable.
 It is very difficult to sustain the uniqueness of a brand’s functional added values for an
amount of time because other companies will follow suite
 For example: when the iPhone was released other companies followed suite.
 For example: an airline starts providing TV entertainment and the other airlines will follow
suite.
 However, copying a brand’s emotional added values is difficult.
 For Example: It is very difficult to copy the emotional added values of ‘Cambridge University
and ‘Oxford University’ as this is partly because of their long history and consistent
reputation over time.

 An organisation can have a core and peripheral values.

 The former remain constant while peripheral values are susceptible to change, depending on
changes in the marketing environment.
 For example Hewlett Packard’s core value of providing customers with products and services
‘of the highest quality’ has remained unchanged, whereas its peripheral value of sharing
success with its staff had to adapt when the organisation moved into the computer market
and needed to recruit specialist staff externally rather than promoting from within.

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Brand Decisions

 A company has four choices when it comes to developing brands. It can introduce line
extensions, brand extensions, multi-brands and new brands.
 Line extension
o Line extensions occur when a company extends existing brand names to new forms,
colours, sizes, ingredients, or flavours of an existing product category
o For Example: Coca-cola line of soda is line plus, Zero, Cherry, Orange, and so forth
o The Line extension option is argued to be relatively less risky than others because:
 The firm knows what customer reaction is to the brand name;
 It knows the amount of trust the brand enjoys; and also
 How competitors reach to it.
o One of the objectives behind line extensions is to help an organisation develop a
portfolio of brands that can enable it to gain greater market share.
o Line extension provides quick profit growth since the customers are already familiar
with the brand name
o Line extension adds variety to its existing product for the sake of reaching a more
diverse customer base and enticing existing customers with new options.
o An overextended brand name might cause consumer confusion or lose some of its
specific meaning.
o Nijssen points out that, ‘many line extensions differentiate supply rather than
address new needs and generate new sales
o For example: Doritos Tortilla Chips have 22 different flavours. This made the original
Doritos chips to seem like just another flavour.
o A line extension works best when it takes sales away from competing brands, not
when it “cannibalizes” the company’s other items.
o Through line extension resource allocation by the organisation may be improved,
increases its competitiveness,
 Brand extensions
o A brand extension extends current brand name to new or modified products in a
new category
o A brand extension is when a company uses its leverage to launch a new product in a
different category.
o For example: Snickers Ice Cream Bars are a brand extension of the Snickers Candy
Bars.

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 o For example: Harley-Davidson has launched a variety of products including
motorcycles, clothing, wedding and animal accessories
o A brand extension gives a new product instant recognition and faster acceptance. It
also saves the high advertising costs usually required to build a new brand name.
o For Example: Toyota entered in a new category of luxury cars under the brand name
Lexus.
o Success depends on relevance of the new product to the marketplace image of the
brand name. If the primary product is similar to the brand extension the bigger the
possibility there will be positive feedback.
o If a brand extensions fails, it may harm consumer attitudes towards other products
carrying the same brand name.
o Marketers must research how well the product fits the brand’s associations.
o This option is argued to be relatively less risky than the others for the following
reasons:
 The firm knows how the customer will react to the brand name;
 It knows the amount of trust the brand name enjoys;
 How competitors react to it.
o In short:
 the firm has a lot of information about how the brand name ‘works’ in the
marketplace;
 the firm knows the product category into which the new product is to be
launched;
 it knows the customers and competitors;
 and it knows how to manage the elements of the marketing mix.
o According to Nelson there are two difference types of qualities:
 Search qualities - those which can be determined by inspection before
purchase
 Experience qualities - which cannot be determined before purchase
o According to Jain and Posavac for new experience goods consumers will use a
known brand name. This means that brand extensions will be more valuable for
experience goods. Where it is not possible to use brands in this way, marketers may
resort to using other cues, such as price and warranties.
 Multi-brands
o Companies often market many different brands in a given product category. Each
brand includes a long list of sub-brands.
o For example PepsiCo markets at least five brands of soft drinks, four brands of sport
and energy drinks, five brands of bottled teas and coffees etc.…
o Multi-branding offers a way to establish different features that appeal to different
customer segments, lock up more reseller shelf space, and capture a larger market
share.
o A major drawback of multi-branding is that each brand might obtain only a small
market share, and none may be very profitable. The company may end up spreading
its resources over many brands instead of building a few brands to a highly
profitable level.
o For Example: This happened to GM, which in recent years has cut numerous brands
from its portfolio, including Saturn, Oldsmobile, Pontiac, Hummer and Saab.

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 New Brands
o A company might believe that the power of its existing brand name is waning, so a
new brand name is needed. Or it may create a new brand name when it enters a
new product category for which none of its current brand names are appropriate.
For example, Toyota created the separate Lexus brand aimed at luxury car
consumers and the Scion brand, targeted toward Millenial consumers.
o Thus, P&G, PepsiCo, Kraft and other large consumer-product marketers are now
pursuing megabrand strategies – weeding out weaker or slower-growing brands and
focusing their marketing dollars on brands that can achieve the number one or
number two market share positions with good growth prospects in their category.
 Ansoff Matrix
o Ansoff matrix is here used to help us emphasise the importance of considering
risk, trust and information when considering strategies for growth.

o It highlights four distinct strategic alternatives:

o Selling existing products in existing markets
o Extending existing products to new markets
o Developing new products for existing markets
o Developing new products for new markets
o This model shows that a firm can grow by either innovating its product and/or
the markets that it serves.
o Market penetration has relatively low risk as the company focuses on what it
knows. It simply tries to get more share in the market.
o Diversification is relatively high risk because both options (product and market)
are new and the firm may not have experience in either of them.
o Of course, with both models what greatly influences the riskiness of each option
is the marketing environment.
o For example, if there are strong competitors entering an industry, a strategy of
innovating may be less risky than one where nothing at all is done.

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Organisational adoption of innovation
 The perceived characteristics of the innovation and organisational adopter characteristics
drive the adoption process and are influenced by external variables (namely, the potential
adopter’s environment and social network, and the supplier of the innovation).
 The perceived innovation characteristics can be considered as beliefs towards the
innovation.
 The perceptions of an innovation by members of an organisation’s decision-making unit
(DMU) affect their evaluation of, and propensity, to adopt a new product. These include the
fact that the economic incentives of adopting the innovation should exceed that of
alternatives.
 Other innovation characteristics that influence the adoption decision include:
o perceived compatibility,
o complexity,
o observability and
o trial ability as well as
o Perceived uncertainty.
 Organisational characteristics that influence the adoption decision:
o Organisation size,
o Organisation structure and
o Organisational innovativeness also
 Size is positively related to innovation adoption. It is argued, is because larger organisations
feel a greater need to adopt innovations in order to support and improve their performance.
On the other hand, it is argued also that smaller organisations are more flexible and
innovative.
 These apparently contrary relations and results may be largely attributable to the correlation
of organisation size with other variables, such as:
o structure,
o strategy and
o Culture.
 More formalised and centralised organisations (often larger firms) are less likely to initiate
innovation adoption decisions, but are better equipped to implement an innovation.
 Supplier marketing activity
o Supplier marketing activity can significantly influence the probability that an
innovation will be adopted by organisations (Frambach et al., 2002).
o An important role is played by the launch strategy and launch tactics that is applied
by the supplier
o Three main factors that significantly affect adaptation probability:
 the targeting of the innovation,
 its communication and
 The activities the supplier undertakes to reduce the perceived risk of the
potential customer.
 Targeting

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 o By targeting potential adopters such as innovative companies, individuals and heavy
users of the previous technology, the possibility of acceptance will be greater.

 Communication
o Since innovation adoption is based on information-processing activity, supplier
communication activities will not only create awareness, they also influence
potential customers’ perceptions. Through this marketing communication potential
adopters will be more inclined to the innovation
 Risk reduction
o By reducing the implementation (use) risk, financial risk and operation risk, the
adoption of an innovation can be stimulated.
o The innovation may be offered on trial for a certain period of time or the supplier
may offer the innovation at lower price.
o In high technology markets, this may even be necessary to gain market acceptance.
o For example: When Google launched Gmail, they started off with a beta version and
it can only be used on invite only basis.
 Social network
o The interaction, in terms of frequency and richness, between members of a social
network can also enhance the speed and rate of innovation adoption. Information
about the new product can be easily spread which may influence the probability of
adoption of something new.
o For Example: A game developer house share videos of the upcoming game in order
to increase the hype through social media.
o The degree to which organisations share information with others is referred to as
their degree of interconnectedness. The higher the degree of (informal) information
sharing, the more likely organisations are exposed to new ideas and products.
 Environmental influences
o In addition to social influences, the business environment affects adoption
behaviour in different ways.
o First, a potential adopter may derive an intrinsic benefit from the fact that business
partners within their network have previously adopted the innovation Also,
competitive pressures may promote adoption.
o Network externalities
 Organisations may adopt an innovation based on other organisations in their
market environment that have already adopted the innovation. These
external contingencies have been referred to as network externalities or
critical mass.
 The theory is that the innovation adoption probability, is determined by the
number of other users.
 In the case of organisational adoption, positive network externalities exist
when a firm’s suppliers, customers, competitors, or other organisations (for
example, government) also use the innovation.
 For example, information systems investments (for example, extranets or
EDI) may generate greater value and gain importance once a sufficient
number of business partners use these systems.

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 o Competitive pressures
 In highly competitive markets, innovation adoption may be necessary to
maintain one’s market position.
 If the organisation does not adopt innovation, it might risk that other
organisations will adopt it and it will result in competitive disadvantage
 This depends on the strategic importance of the innovation and its potential
implications for the effectiveness and efficiency of the firm’s activities.

Common design by users

 Traditionally firms employed designers to design products. However ‘common design by
users’ is being seen as attractive to marketers (Schreier, Fuchs and Dahl, 2012).
 This is where a firm empowers its community of users to generate ideas for new products.
This can be considered to be an application of the co-creation concept.
 This is in contrast to mass customisation where consumers may customise the marketer’s
offerings, but only for their own personal use. For example: McDonald’s lets the consumer
to create his or her own burger.
 Common design by users’ example: Starbucks has created a community where customers
can share their ideas, perspectives and opinions which eventually influence the company’s
product strategy.
 This common design is a success because the company can create a product that already
knows that it will be consumed by a large group of consumers.
 However, Bennett and Cooper observed that consumers may not be able to come up with
innovations that are beyond their immediate experience (an argument that can be used to
criticise the marketing orientation).
 Having said that new products that are designed by the consumers does not mean that it will
affect negatively the consumers perception of the organisation due to lack of innovation, but
rather it increases it because they feel that they are being heard.
 Examples of commercial user innovation include open source software and Threadless, a
fashion company that mass markets user-designed T-shirts.
 There are four defining characteristics underlying successful customer design:
1. The number of consumers. People perceive that there are more people involved in
firms that use common design by users, compared to firms that use company
designers.
2. The diversity of their background. Consumers may perceive a community of users to
be more diverse than a group of designers and diversity may influence perspectives
and ideas.
3. Consumer designers use the designed product. Consumers may associate common
design users with higher innovation ability and thus are able to understand
customers’ needs and wants.
4. Lack of company constraints. Users may be less constrained by organisation factors
in their ability to be innovative.
 In their study Schreier et al. found that there were two important boundary variables:
o Firstly, the innovation effect of user design depends on consumers’ familiarity with
user innovation;
 For example, whether or not the consumer themselves have ideas for
modifying existing products.

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 o Common design by users may not be very effective when the design of the product
is very complicated.

Introduction to services marketing

Characteristics of services
The differences between products and services: real or imagined?
 Tangible goods
o Tangible purchases can be seen, felt, even tried before purchase, ought to have
limited outcome risk. For example: piece of furniture, a computer, and so forth. It is
anything that is considered as a physical object where the consumer can take
ownership.
o With tangible products/services therefore, there is little need for there to be trust
between seller and buyer. The purchaser of a tangible good is not placing herself in
any position of vulnerability to the seller.
 Intangible goods
o Intangible purchases, is where the customers do not know what they will get until
they have made the purchase; consequently, the degree of outcome risk is high.
o Guseman found that consumers that have high risk use risk relievers
o Example of risk relievers: Brand loyalty and having a scheme that that gives money-
back guarantee.
o With intangibles, the customer is vulnerable to the quality of promises made by the
seller and so trust does need to exist to facilitate exchange.

 Products vs services
o Davis discusses other factors which distinguish services and products and which
force customers to rely on personal sources of information.
o For instance, there is no transfer of ownership in the sale of a service; the buyer is
dependent on the participation of the seller for consumption to take place.
o A product is anything that can be offered to the market for attention, acquisition,
use, or consumption and that might satisfy a need or a want.
o Services are a form of product that consists of activities, benefits, or satisfactions
offered for sale that are essentially intangible and don’t result in the ownership of
anything. Examples: hotel, banking, repair services.
o Rathmell (1966) stated that a good is a thing, a service is an act or performance.
o It is possible to derive a risk continuum from tangible to intangible (McDougall,
1990). At the tangible end one finds products like salt, with a progression towards
the more intangible: from soft drinks to clothes to bank loans to teaching, and
medical diagnosis (see Figure 8.7).
o However, this tangibility scale provides some interesting comparisons. A fast-food
lunch (service) is perceived to be more tangible than buying a used car (product).

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 o Eggert has made an additional
observation that the
implication of intangibility
is that customers are not able to
perceive the characteristics of
what will be offered before the
service is performed.

 The greater the client’s dependency on the marketer to make decisions on their behalf, the
greater the intangibility of the offering will be.

Service dominant logic

 Traditionally, marketers compete with rivals by creating goods with more benefits and value
for customers based on the exchange of “goods” (goods centred)
 The ‘service centred’ view on the other hand emphasises on intangible resources, the co-
creation of value, and relationships. Organisations need to become involved in ‘developing
customised, and competitively propositions to meet specific needs’
 According to Vargo and Lusch, service is the dominant logic for marketing, because it is the
major category of economic activity in developed countries around the world. Their reason
is that service is an interactive process of “doing something for someone” that is valued.
 There are various implications arising from this, among them are:
o Tangible goods are appliances for service provision, rather than ends in themselves;
o For example, [Link] has taken the view that some people only need a car on
occasional basis, so the company offers drivers access to cars locally which they can
use for a fixed annual fee and an hourly charge.
o The customer is an operant resource (non-physical) – a collaborative partner who
co-creates value. This is in contrast to the goods dominant logic, where the
customer is seen as an operand resource (physical), something that could be acted
upon, using the elements of the marketing mix.
o The role of the 4Ps changes (Vargo and Lusch, 2004):
 Products become service flows – where products provide services.

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  Promotion may need to move from being one-way to becoming a dialogue,
where questions are asked and answered.
 Price becomes a value proposition created by both sides of the exchange.
 Place is replaced by value networks and processes.
 Vargo and Lusch stress out that when they refer to ‘service dominant logic’, they are talking
about the application of specialised competencies (knowledge and skills) for the benefit of
another entity or the entity itself.
 They mention a specific example of how Cargill responded to a customer request for
healthier bread by developing a recipe that met this need. So the agricultural commodity
becomes a vehicle for service provision.
 In general terms they represent a worldview that sees consumers as being integral to value
creation and which sees various orthodox marketing concepts as being anachronistic.

Branding strategy: building strong brands

Brand Equity
 Brands are a key element in the company’s relationships with consumers.
 Brands represents consumers perceptions and feelings about a product – everything that the
product or service means to consumers.
 Brands only exists in the heads of consumers.
 Brand equity is the differential effect that knowing the brand name has on customer
response to the product or its marketing.
 “The CEO of McDonald’s once said that if every asset they they own is destroyed they will be
able to recover quickly because of the value of the brand”
 “A brand is what people say about you when you’re not in the room.” – CEO of Hulu
 A powerful brand has high brand equity. It’s a measure of the brand’s ability to capture
consumer preference and loyalty.
 For Example: Apple has the highest brand equity at present. It is considered as the most
valuable brand in the market. Facebook, Wikipedia, Disney and so forth create consumer
excitement, quality and loyalty. They succeed because they forge deep connections with
customer.
 How is brand equity measured?
o For Example: Ad agency Young & Rubicam’s BrandAsset Valuator measures brand
strength along four consumer perception dimensions:
 Differentiation (what makes the brand stand out);
 Relevance (how consumers feel it meets their needs),
 Knowledge (how much consumers know about the brand), and
 Esteem (how highly consumers regard and respect the brand). Brands with
strong brand equity rate high on all four dimensions.
 Before consumers will respond to the brand they must first know about and understand it.
This will lead them to a strong and positive consumer-brand connection.
 Strong brands are built around an ideal of improving consumers’ lives in some relevant way.
 Brand Valuation is the process of estimating the total financial value of a brand.
 For example: Apple $182 billion, Microsoft $93.3 Billion, Coca-Cola S23.1 Billion
 High brand equity provides a company with many competitive advantages.
 A powerful brand enjoys a high level of consumer brand awareness and loyalty.

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  Because consumers expect stores to carry the particular brand, the company has more
leverage in bargaining with resellers.
 Because a brand name carries high credibility, the company can more easily launch line and
brand extensions. A powerful brand also offer the company some defence against fierce
price competition.
 A powerful brand forms the basis for building strong and profitable customer relationships.
The fundamental asset underlying brand equity is customer equity. A powerful brand is
important, but what it really represent is a profitable set of loyal customer.

Managing Brands
 First, the brand’s positioning must be continuously communicated to customers.
 Major brand marketers often spend huge amounts on advertising to create brand awareness
and build preference and loyalty. For example, AT&T spends more than 2 billion annually to
advertise its brand.
 Such advertising campaigns can help create name recognition, brand knowledge and
perhaps even some brand preference.
 Customers get to know about these brands through word of mouth, social networks,
magazines, TV ads, and many others.
 “Managing each customer’s experience is perhaps the most important ingredient in building
(brand) loyalty,” states one branding expert.
 The company needs to train its people to be customer centred to ensure that everyone lives
up to the brand
 Even better, the company should carry on internal brand building to help employees
understand and be enthusiastic about the brand promise.
 Many companies go even further by training and encouraging their distributors and dealers
to serve their customers well.
 Finally, companies needs to periodically audit their brands’ strengths and weaknesses. They
should ask: Does our brand excel at delivering benefits that customers truly value?
 For Example: During the last few months Apple was monitoring the working conditions of
the workers at Foxconn due to high suicide rates it was hurting their brand.
 The brand audit may turn up brands that need: more support, brands that need to be
dropped, or Brands that must be rebranded or prepositioned because of changing customer
preferences or new competitors.

The New-product Development Process

 To create successfully new products, a company must understand its consumers, markets,
and competitors and develop products that deliver superior value to customers.
 The company nee a structured road-map that gives the business a clear path to follow.
 This can be done by using the 8 stages of the New Product Development process for finding
and growing new products.
 The 8 stages of new product development (NPD) for new ideas:
o

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 1. Idea generation
2. Screening
3. Concept development and testing
4. Marketing strategy
5. Business analysis
6. Product development
7. Market testing
8. Commercialization

Idea generation
 NPD starts with idea generation – the systematic search for new product ideas.
 There are two sources for new product ideas, the internal (R&D) and external sources such
as customers, competitors, distributors, suppliers and others.
o Internal sources
 Internal sources refer to the company’s own formal research and
development, management and staff, and intrapreneurial programs
 For example: Twitter hosts an annual “Hack Week: Let’s hack together”
event, which actively promises internal innovation through experimentation
round the company.
o External sources
 External sources refer to sources outside the company such as customers,
competitors, distributors, suppliers, and outside design firms
 Companies must watch its competitor’s ads to stay informed about new
products
 Other idea sources include trade magazines, shows, Web sites, and seminars
etc…
 Customers are still the most important source. The company should take
into consideration the questions and complaints of the customers to find
new products that solve consumer problems.
 For example: LEGO gets information from users for new-product ideas and
input.
o Crowdsourcing
 Through crowdsourcing the company invites communities of people—
customers, employees, independent scientists and researchers, and even
the public at large—into the new-product innovation process.
 For example, P&G developed its Connect + Develop crowdsourcing process
which allows it to know new innovations from scientists, engineers etc…
 Crowdsourcing can be outsourced through third parties such as,
InnoCentive, TopCoder, Hypios, and Jovoto.
 For example: PayPal recently posted a challenge to the TopCoder
community seeking the development of an innovative Android or iPhone
app that would successfully and securely run its check-out process.

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 o Truly innovative companies don’t rely only on one source or another for new-
product ideas. Instead, they develop extensive innovation networks that capture
ideas and inspiration from every possible source, from employees and customers to
outside innovators and multiple points beyond.

Idea Screening
 Once ideas have been generated, they need to be reduced through the idea screening stage.
 It helps spot good ideas and discard the unsuitable ideas.
 The company’s objective is to consider only those ideas which are practical and can be
turned into profitable products.
 R-W-Wnew-product screening framework that asks three questions.
1. First, Is it real? Is there a real need and desire for the product and will customers
buy it? Is there a clear product concept and will such a product satisfy the market?
2. Second, Can we win? Does the new product satisfy the market and does it offer
competitive advantage?
3. Finally, Is it worth doing? Does the product fit the company’s overall growth
strategy? Does if offer sufficient profit potential?
 There are two types of errors that firms can make at this stage:
o Drop error which involve dropping a good idea
o Go error which means that a poor idea is supported
 Normally a new-product committee is set up to evaluate the ideas against a set of general
criteria.

Concept development and Testing

 An attractive idea must then be developed into a product concept. It is important to
distinguish between a product idea, a product concept and a product image.
o A product idea is an idea for a possible product that the company can see itself
offering to the market.
o A product concept is a detailed version of the idea stated in meaningful consumer
terms.
o A product image is the way consumers perceive an actual or potential product.
 Concept Development
o Product concept provides detailed versions of a new product ideas.
o At this stage the marketers expands and group the new product ideas into various
concepts.
o Groups of such concepts are referred to as category concepts – the idea is
positioned within a category. It is the category which defines the competitors of a
product.
o A product positioning map can then be used to show the relationship between the
new product and the competition.
 Concept Testing
o Once concepts have been developed they can be tested with target groups of
customers.
o The testing can be done with descriptions or images.
o The more concrete or realistic the image, the more reliable the results will be.
o Respondents are then asked about their opinions.
o The answers will help the company decide which concept has the strongest appeal.

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Marketing Strategy Development
 The next step is designing an initial marketing strategy
 The marketing strategy statement consists of three parts.
 Part 1 describes the size, structure and behaviour of the target market, the planned product
positioning, sales and market share.
o For Example; The Company will aim to sell 100,000 cars in the first year, at a loss of
not more than $15 million. In the second year, the company will aim for sales of
120,000 cars and a profit of$25 million.
 Part 2 outlines the product’s planned price, distribution strategy and marketing budget.
(value proposition)
o Dealers who sell more than 10 cars per month will get an additional discount of 5%
on each car sold that month.
o An advertising budget of $50 million will be split 50-50 between national media
campaign and local advertising.
 Part 3 describes the long-run sales, profit goals and marketing mix strategy.
o DaimlerChrysler intends to capture a 3% long-run share of the total auto market and
realize an after-tax return on investment of 15%.

Business Analysis
 The management needs to do Business analysis involves a review of the sales, costs, and
profit projections to find out whether they satisfy the company’s objectives
 If sales and profits satisfy the company’s objectives, the product can move to the product
development stage.

Product Development
 Product development involves the actual creation and testing of one or more physical
versions by the R&D or engineering departments
 At this stage a huge jump in investment would be needed. It will show whether the product
idea can be turned into a workable product.
 Often, products undergo rigorous tests to make sure that they perform safely and
effectively, or that consumers will find value in them.
 Testing can also include customers.
 For example: New Balance’s Weartest program engages consumers to analyse the fit,
function, durability of their assigned test shoes.

Test marketing
 Market testing differs from product testing, it is the stage at which the product and its
proposed marketing program are introduced into realistic market settings.
 Test marketing gives the marketer experience with marketing a product before going to the
great expense of full introduction.
 It lets the company test the product and its entire marketing program – targeting and
positioning strategy, advertising, distribution, pricing, branding and packing, and budget
levels.
 Different types of test marketing:
o Standard test markets –

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  The company finds a small number of representative test cities, conducts a
full marketing campaign in these cities, and use store audits, consumer and
distributor surveys, and other measures to gauge product performance.
 The results are used to forecast national sales and profits, discover potential
product problems, and fine-tune the marketing program.
o Controlled test markets –
 Several research firms keep controlled panels of stores that have agreed to
carry new products for a fee.
 These tests usually cost less than standard test markets.
 Also, because retail distribution is “forced” in the first week of the test,
controlled test markets can be completed much more quickly than standard
test markets.

o Simulated test markets –

 Companies can test new products in a simulated shopping environment. The
company or research firm shows ads and promotions for a variety of
products, including the new product being tested.
 This simulation provides a measure of trial and the commercial’s
effectiveness against competing commercials.
 Simulated test markets overcome some of the disadvantages of standard
and controlled test markets. They usually cost less, faster and restrict access
by competitors.
 However, because of the small sample, marketers do not think that it is as
accurate or reliable as larger, real-world tests.

Commercialization
 Test marketing gives management the information needed to make a final decision about
whether to launch the new product or not into the marketplace
 If the company goes ahead with the launch of the product it will face initial high costs such
as build or rent a manufacturing facility, spend millions of dollars for advertising, sales
promotion, and other marketing efforts in the first year.
 For instance, to introduce its McCafé coffee in the United States, McDonald’s spent $100
million on an advertising. Similarly, Nokia spent $100 million on a campaign to launch its Ace
smartphone in the highly competitive U.S. mobile market
 There are four key decisions to be made when products are commercialized;
o When to launch the product? This decision is based on several factors:
 If the new product will eat into the sales of other company products, the
introduction may be delayed.
 If the product can be improved further, or if the economy is down, the
company may wait until the following year to launch it.
 However, if competitors are ready to introduce their own competing
products, the company may push to introduce its new product sooner.
o Where to launch the product? – Through a market rollout plan the company will
plan where to launch its product, in a single location, a region, the national market,
or the international market?

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  For example: General Motors did this with its global car, the new Malibu,
which will be sold in 100 countries on six continents.
 For Example: Netflix has been available for certain countries for years. It was
only in 2016 that it was available globally.
o To whom – Which market will the company target? For Example; teenagers?
Families? Professionals? Children? For example: McDonalds offer the Happy meal
for children which automatically leads their parents to such restaurants.
o How – the promotion mix to be used

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