Copyright 2013 Pearson Education CHAPTER 5: DESIGNING MARKETING PROGRAMS TO BUILD BRAND EQUITY

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1 Copyright 2013 Pearson Education CHAPTER 5: DESIGNING MARKETING PROGRAMS TO BUILD BRAND EQUITY

2 Learning Objectives Identify some of the new perspectives and developments in marketing Describe how marketers enhance product experience Explain the rationale for value pricing List some of the direct and indirect channel options Summarize the reasons for the growth in private labels

3 New Perspectives on Marketing As firms are dealing with enormous shifts in their external marketing environments: The marketing strategies and tactics have changed dramatically Traditional categories and industries are rethinking their practices and not doing business as usual Marketers are increasingly abandoning the massmarket strategies

4 New Approaches Embraced by Marketers Rapid technological developments Greater customer empowerment Fragmentation of traditional media Growth of interactive and mobile marketing options Channel transformation and disintermediation Increased competition and industry convergence Globalization and growth of developing markets Heightened environmental, community, and social concerns Severe economic recession

5 Figure The New Capabilities of the New Economy

6 Integrating Marketing Brand Association awareness, strength, favorability, and uniqueness Personalizing Marketing Reconciling the Different Marketing Approaches

7 Personalizing marketing The rapid expansion of the Internet and continued fragmentation of mass media have brought the need for personalized marketing into sharp focus. Modern economy celebrates the power of the individual consumer. To adapt to the increased consumer desire for personalization, marketers have embraced concepts such as experiential marketing and relationship marketing.

8 Personalizing Marketing Experiential Marketing Relationship Marketing

9 Experiential Marketing Promotes a product by communicating a product s features and benefits and connecting it with unique and interesting consumer experiences. The idea is not to sell something, but to demonstrate how a brand can enrich a customer s life. If you charge for stuff, then you are in the commodity business; If you charge for tangible things, then you are in the goods business; If you charge for the activities you perform, then you are in the service business; If you charge for the time customers spend with you, then and only then are you in the experience business.

10 Experiential Marketing These are the five traditionally recognized human senses: Sight (vision) Hearing (audition) Taste (gustation) Smell (olfaction) Touch (somatosensation)

11 Experiential Marketing Sense Marketing: consumers sense (sight, touch, sound, taste and smell) Feel Marketing: consumers inner feelings and emotions Think Marketing: to deliver cognitive and problem-solving experiences that engage consumers creatively Act Marketing: targets physical behaviors, lifestyles, and interactions Relate Marketing: create marketing by taking into account individuals desires to be part of a social context Customers want to be entertained, stimulated, emotionally affected and creatively challenged. Examples: LEGO, Victoria s Secret and iphone.

12 Figure Brand Experience Scale The idea is not to sell something, but to demonstrate how a brand can enrich a customer s life.

13 Relationship Marketing Acquiring new customers can cost 5 times as much as satisfying and retaining current customers; The average company loses 10% of its customers each year; A 5% reduction in the customer defection rate can increase profits by 25% to 85% depending on the industry; The customer profit rate tends to increase over the life of the retained customer.

14 Relationship Marketing Mass Customization One-to-One Marketing Permission Marketing

15 Mass customization Making products to fit the customer s exact specifications. The advent of digital-age technology enables companies to offer customized products on a previously unheard-of scale. Examples: NikeID customers can make a customized shoe by selecting the size, width, and color scheme and affixing an eight-character personal ID to their creation Sony Vaio Laptops customers can engrave their names on it.

16 One-to-one marketing Consumers help add value by providing information to marketers. Marketers add value by taking that information and generating rewarding experiences for consumers. To devote more marketing effort to the most valuable consumers. Focus on individual consumers through consumer databases We single out consumers Respond to consumer dialogue via interactivity The consumer talk to us Customize products and services We make something unique for him Examples: Ritz-Carlton Hotel, Hilton Hotel and TESCO in UK (members receive a variety of purchase benefits across a wide range of products and services beyond what is sold in their stores).

17 Permission marketing The practice of marketing to consumers only after gaining their express permission (see Permission Marketing by Seth Godin). An influential perspective on how companies can break through the clutter and build customer loyalty. It is a way of developing the customer dialogue. Marketers first need to get the permission of his/her customer with some kind of inducement component of one-to-one marketing in more detail. Examples: Amazon, Android and IOS Apps

18 Reconciling the Different Marketing Approaches Mass customization and permission marketing might be particularly effective at creating greater relevance, stronger behavioral loyalty, and attitudinal attachment. Experiential marketing would seem to be particularly effective at establishing brand imagery and tapping into a variety of different feelings as well as helping build brand communities.

19 To Sum Up.. Implication of the new approaches: The traditional marketing mix concept and the notion of the 4 Ps of marketing may not fully describe modern marketing programs Firms must still devise product, pricing, and distribution strategies as part of their marketing programs

20 Product Strategy Perceived Quality Customers perception of the overall quality or superiority of a product or service compared to alternatives and with respect to its intended purpose. Aftermarketing To achieve the desired brand image, product strategies should focus on both purchase and consumption. The second moment of truth. Marketing activities that occur after customer purchase.

21 Perceived Quality Product quality depends not only on functional product performance but on broader performance considerations as well, like speed, accuracy, and care of product delivery and installation; the promptness, courtesy, and helpfulness of customer service and training; and the quality of repair service. Brand attitudes may also depend on more abstract product imagery, such as the symbolism or personality reflected in the brand.

22 Perceived Quality Opinions about quality differ from customer to customer. The evaluation is subjective. How can I measure quality? Service Quality: SERVQUAL (Parasuraman, Zeithaml, and Berry 1986, 1988) Service Quality of Retail Stores (Dabholkar, Thorpe, and Rentz 1996) Electronic Service Quality: E-S-QUAL (Parasuraman, Zeithaml, and Malhotra 2005) Service Convenience: SERVCON (Seiders et al. 2007) Service Quality: Physical Distribution Service Quality (Bienstock, Mentzer, and Bird 1997)

23 Aftermarketing Much marketing activity is devoted to finding ways to encourage trial and repeat purchases by consumers. First moment of truth occurs at purchase versus Second moment of truth occurs at the result from actual product experience, after consumption.

24 Aftermarketing User manuals - An afterthought, put together by engineers who use overly technical terms and convoluted language. Customer service programs - Aftermarketing is more than the design and communication of product instructions. 2 in 3 customers switched companies in the past year due to poor customer services. Loyalty programs (frequency programs) - Purpose is identifying, maintaining, and increasing the yield from a firm s best customers through long-term, interactive, value-added relationships.

25 To Sum Up.. The product is at the heart of brand equity Product strategy entails choosing: Tangible and intangible benefits the product will embody Marketing activities that consumers desire and the marketing program can deliver Learn how to know the audience, listen (the best) customers and engage them

26 Pricing Strategy Consumer Price Perceptions Setting Prices to Build Brand Equity

27 Consumer Price Perceptions The pricing strategy can dictate: How consumers categorize the price of the brand. How firm or how flexible they think the price is, based on how deeply or how frequently it is discounted. Consumers rank brands according to price tiers in a category. Price bands: Range of acceptable prices that indicate the flexibility and breadth marketers can adopt in pricing their brands within a tier. Value-based pricing strategies: Attempting to sell the right product at the right price to better meet consumer wishes.

28 Figure Price Tiers in the Ice Cream Market

29 Figure 5.4 Phillips Van-Heusen Brand Price Tiers

30 Pricing Strategies Pricing anchoring Williams-Sonoma and the bread maker USD and the USD Expensive Restaurants Sundaes USD versus cheesecake for USD25.00 Pizza Hut Personal USD4.79, Medium USD11.99, Large USD14.99 Nonlinear pricing One soap for USD2.50. You need 2, but there is a bundle of soap (5 soaps) for USD10.00 Credit cards people spend 18% more Menu pricing wine menu

31 Setting Prices to Build Brand Equity A method for setting current prices. A policy for choosing the depth and duration of promotions and discounts Value Pricing Price Segmentation Everyday Low Pricing

32 Value Pricing Sets prices primarily, but not exclusively, according to the perceived or estimated value of a product or service to the customer. Objective is to uncover the right blend of product quality, product costs, and product prices that fully satisfies the needs and wants of consumers and the profit targets of the firm. It should strike the proper balance among three key components: (1) Product design and delivery, (2) Product costs, and (3) Product prices Communicating value - Marketers may need to engage in marketing communications to help consumers better recognize the value.

33 Price Segmentation Sets and adjusts prices for appropriate market segments. Because of wide adoption of the Internet, firms are increasingly employing yield management principles or dynamic pricing to vary their prices for different market segments according to their different demand and value perceptions.

34 Everyday Low Price Has received increased attention as a means of determining price discounts and promotions over time.

35 Channel Strategy Channel Design Indirect Channels Direct Channels Online Strategies

36 Channel Strategy Channel design Classified into direct and indirect channels. Direct channels sell through personal contacts from the company to prospective customers by mail, phone, electronic means, and in-person visits. Indirect channels sell through third-party intermediaries such as agents or broker representatives, wholesalers or distributors, and retailers or dealers. Nike Branded Niketown stores, NikeStore.com, Outlet stores, Retail, Catalog retailers and Specialty stores.

37 Channel Strategy Indirect channels Retailers - Can have a profound influence on the equity of the brands they sell, in terms of the brandrelated services they can support or help create. Pull strategy - Consumers use their buying power and influence on retailers to pull the product through the channel. Push strategy - The manufacturer is attempting to reach the consumer by pushing the product through each step of the distribution chain.

38 Channel Strategy Direct channels Company-owned stores - To gain control over the selling process and build stronger relationships with customers: Other Means - Sell directly to consumers via phone, mail, or electronic means. Online strategies Multichannel retailers were able to acquire customers at half the cost of Internet-only retailers, citing a number of advantages : They have market clout with suppliers. They have established distribution and fulfillment systems.

39 Figure Services Provided by Channel Members

40 To Sum Up.. Channel members should be thought of and treated as valuable customers whose image and actions can hurt or enhance brand equity

41 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright 2013 Pearson Education