Product Management

PRODUCT AGEMENT s. A.

CHUNAWALLA

B.Com. (Hons.), D.Pharma, M.B.A. Communication Consultant, Benzer, Borivali (W), Mumbai - 400 103. [email protected]

I

Revised Edition: 2009

Hal Gflimalaya GpublishingGfIouse MUMBAI • NEW DELHI • NAGPUR • BANGALORE • HYDERABAD • CHENNAI • PUNE • LUCKNOW • AHMEDABAD • ERNAKULAM

© AUTHOR, 2009 No part of this book shall be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the publishers and author.

ISBN

: 978-81-83183-55-0

Revised Edition Published by

2009

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CONTENTS 1 - 17

I.

Product: Basic Concepts

2.

Marketing Environment for Product and Brand Management

18 - 29

3.

Product Planning

30 - 51

4.

Product Market Strategies for Leaders, Challengers, Followers

52 - 60

5.

Product Life Cycle and Market Evolution

61- 88

6.

New Products: Planning and Development

7.

The Creative Spark

125 - 140

8.

Designing the Offer

141- 156

9.

Pricing the Offer

157 - 167

10.

Concept and Product Testing

168 -178

1I.

Test Marketing

179 - 189

12.

Budgeting for Products

190 - 193

13.

Branding Decisions

194 - 200

14.

The Anatomy of a Brand

201- 204

15.

Brand Culture and Brand Retuals

205 - 208

16.

Leveraging Brands

209 - 211

17.

Brand Equity

212 - 229

18.

Brand Building

230 - 242

19.

Product and Brand Failures

243 - 250

20.

Marketing Organisation

251- 258

2l.

Packaging

259 - 265

22.

Consumer Protection

266 - 267

23.

Case Studies

268 - 338

Bibliography

339

89 - 124

"This page is Intentionally Left Blank"

PRODUCT: BASIC CONCEPTS What is a Product?

A product is any want-satisfying attribute a consumer receives in exchange. The product benefits could be physical as weI! as psychological. Formerly, products were whatthe factories made. These days products are what the consumer wants. The definition of product is constantly expanding. It includes more than a mere bundle of benefits. Let us consider one simple example. A consumer buys a CD player. Does he buy justa plastic box with an electronic circuitry? The answer is an emphatic 'no.' He is, in fact, buying a means to his recreation. Just a want satisfying attribute! There are other benefits our buyer is seeking from the CD player. • Special functions like access from any point on CD, auto-start, auto-stop, an FM radio, karaoke,

etc. • Brand name like Philips or Sony, and a retail outlet like Rhythm House or Akbqrallys. • Guaranteeandlorwarranty. • Salesman's explanation, installation service, acceptance of credit cards or tie-up with a financial institution for easy credit, say with Countrywide. • Image of the manufacturer and brand, reputation of the retailer.. • After-sale-service back-up. The amount of importance attached to the above aspects make a consumer view each product offering differently. Though the same product may be offered by an ordinary retailer and a reputed store like Akbarallys, the attributes of a product changes critically for the consumer. The following figure illustrates what a product is made up of:

Product Management

2

PHYSICAL ATTRIBUTES

ff ~

SPECIAL FEATURES

BRAND IMAGE

-----:

INTANGIBLE OR / PSYCHOLOGICAL BENEFITS

BRAND

GUARANTEElWARRANTY

tI ~

PRODUCT SERVICES AND AFTER-SALES-SERVICE SAFETY

Fig. 1.1 Components of a Product

The concept of the product becomes very simple to understand in terms of what the buyers buy. Perhaps there is a difference between what the marketers sell and what the buyers buy. The marketers are engineeringoriented and neglect the psychological benefits the product offers. One thing more. Products can both be goods and services, or any combination of the two. Services are intangible, and have no physical attributes, e.g., hair-dressing, solicitor's counselling, medical assistance. Need Satisfaction

There lived a king once who preferred carpets to walk on. Several employees just rolled and unrolled carpets wherever the king went walking. This was tedious as well as expensive. One day, a young gentleman walked into the palace with just two pieces of carpet, each measuring 10 x 4 inches. He requested the king to extend his leg. He tied one piece of carpetto each leg foot. Now the king had a carpet under his feet wherever he went. This bypassed the tedious and costly carpet laying activity followed earlier. This man was creative. He identified a need, and satisfied it by a suitable product. He thus invented shoes. Creative traits can be learnt by suitable training. Product Classification

Products are classified on the basis of consumer buying behaviour and their attitudes. Products are classified just like markets. Product marketing is facilitated when products are kept in homogeneous groups. One way to classify products is to group them based on ultimate users. We thus have consumer products purchased for use by households and the ultimate users. On the other hand, we have industrial products which help in producing other products or in rendering services. Office chair is a consumer product when you buy it for using at home. It is an industrial product when used in a cinema hall. Product classification help us in developing suitable marketing programmes. Each category is further classified, e.g., fast moving consumer goods (FMCG) and consumer durables. Classification of Consumer Products

Logically, classification of consumer products should be based upon their behaviour. However, all consumers do not behave the same way. For instance, one consumer needs instant lights to be used in emergencies of power failure. He immediately rushes to Akbarallys and gets one for him. There is another consumer who takes a long time to take this decision. He visits Crawford Market, Heera Panna, Asiatic, In Orbit mall and such other shopping areas to select the right product. He evaluates the available set of products, and then buys one which gives him the greatest value. Thus it is obvious that a product can be slotted' so easily on the basis of buyer behaviour. This makes it necessary to develop suitable marketing programmes for different segments of the market. Traditionally, consumer products are put into three categories - convenience products, s{lopping products and speciality products. Convenience products are bought with ease, and without consuming any

Product: Basic Concepts

3

time. A person purchasing instant lights immediately from Akbarallys is an example of convenience goods. Milk and vegetables are examples of convenience goods. Food products and newspapers also belong to this class. We put Coke and Pepsi and ice-creams in this category. The point is that we spend just a pittance to have these products. Therefore, no extensive shopping is needed. Besides, most of the consumers have high knowledge aboutthese products. Therefore, hunting for them is not necessary. Convenience goods are just commodities for the consumer, and he does not show a very high amount of brand loyalty. He substitutes one product for another, if the former is not available. Distribution is, therefore, the critical element in the marketing of convenience products. The product must be available locally whenever it is needed. Otherwise, the sale is lost. This means thatthese product need intensive distribution. We know Pepsi is available in India at paan shops. grocery shops, general stores, departmental stores, super-bazars, petrol pumps,.restaurants, hotels, stadium of sports, vending machines andjust at an unimaginable number of outlets everywhere. The onus of promoting convenience products lies on the manufacturer. The retailer carries so many competitive brands, and is not interested in pushing just a particular product. He is, in fact, indifferent to the brand the consumer buys.

Shoppingproducts are purchased only when the consumer considers factors like price, quality and style and visits several outlets before deciding to buy. The consumer seeks information because he does not know much about the product. These products are not purchased regularly. They are priced higher than the convenience products. Though visibility is high, there is minimum brand loyalty. Clothing, furniture, household appliances, motor-cars, home repair items are familiar examples of shopping goods. A consumer who moves around searching for instant lights is buying a shopping good. It is not necessary to have intensive distribution for shopping products. Here the consumer is prepared to move around. The only point is that the product'inust be available at one outlet out of several to be visited by the consumer. Promotion plays a vital role since the consumer seeks extensive information about the product. Price is critical specially for close competitive products. The consumer may substitute a higher-priced product with a lower-priced one if other things remain equal.

Speciality products are those products for which there are no reasonable substitutes. These have unique. characteristics or strong brand identification. Consumers take lot of pain to buy these products. Expensive music systems, expensive cameras, designer clothes, fashionable restaurants, prestigious cars are examples of speciality products. The brand loyalty is high. The consumers are willing to pay a high price. As consumers demand a product by brand name, distribution is less important than itis for convenience and shopping goods. The product is available ata few select outlets. Advertising informs the consumer about the availability of the product. The promotional budget is shared by the manufacturer and the retailer. Product Management: Meaning and Definition

Product, place, promotion and price are the four 'P's of marketing. Product management encompasses the whole range of activities pertaining to product planning and management. In product planning. we include the basic corporate plan and marketing plan from which the product plan emerges. In the product plan, we consider product strategies like product line length, product line depth, line stretching, both upwards and downwards. Product plan not only considers the existing products, but also considers the introduction of new products right from concept to commissioning. Product management also considers product life cycle, and strategies followed at each stage of the life cycle. Product plan is implemented through a marketing or product organisation, and is supported by a suitable budget. Product planning's new product management covers the entire spectrum of marketing management like pricing, promotion, distribution of new products. Slowly products are raised from the commodity status to brand status, which are then built over a period of time so as estabiish a bond with the consumer.

Product Management

4

Product management is thus that part ofmarketing management which concerns with product planning and development and is now extended to brand building and management. Objectives of Product Management

Products are the bed -rock of any organisation. Sales are realised through sales of the products. Thus the overall success of the organisation is dependent upon the planning and development of products. Product management thus tries to achieve the following objectives:

PRODUCT LIFE CYCLE

Fig. 1.2 Scope of Product Management

(i) To design product strategies with respect to customer, industry and competition analysis. (ii) To spot marketing opportunities, and to see whether they are exploitable. (iii) To seek growth through new product development. (iv) To plan strategies for each stage of product life cycle. (v) To generate new product ideas, and develop them further.

(vi) To consolidate existing product profile. To do portfolio analysis. To improve and modify existing products. To introduce brand extensions and line extensions. (vii) To identify the brand identity, build a brand image, position a brand, build a brand, to develop

brand equity and measure it. All the above objectives are made consistent with the overall marketing and corporate objectives of the organisation. Product Line and Product Mix

We use the term product line andproduct mix while describing the product offerings of an organisation. A product line is a group of closely related products offered by an organisation. Thus washing machines is a product line of Videocon. TVs form another product line for Videocon. Product mix consists of all the

Product: Basic Concepts

5

individual products available through the organisation. Product mix may have several product lines, and each product line several product models, styles, sizes. Breadth ofproduct mix is given by a number of product lines it markets. Some companies market just one or two product lines, and hence their product mix is narrow. A company like General Electric operates in diverse fields, and has broad product mix. Each product mix has a depth, which is given by models, colours, sizes available in each individual product lines. A pharmaceutical company has a product line of antibiotics. It has several dosage forms - capsules, dispersible tablets for children, vaginal suppositories, injections, ear drops, eye drops and syrups under the dosage form. It has several package sizes. The company has several brands of antibiotics, and each brand has several dosage forms and sizes. We can say that its product mix has depth. On the contrary, a few products, in one size only as one brand is an example of a shallow product depth.

The product lines offered are related to company's strategic plan and marketing plan. It considers the segmentation of the market and targeting. If an organisation wishes to target young children, it can add a whole new product line for it. New product lines are either a matter of internal development or can be acquired. Each product line also can be expanded. This has been discussed in the text thatfollows. The important idea is that the product line of a company reflects the objectives of the organisation, the targeting decided upon and the buyer behaviour in a given market. Modifying Existing Product Lines

We have a number of reasons to alter either an existing product or a product line. The reasons could be to support the marketing strategy, to improve sales, to improve profits, to expand market share. We can also consider what the product as such contributes to the product portfolio. We can modify a product line by altering either one or more than one of the following attributes: (1) Composition of the product line (2) Expansion or contraction of product line (3) Value addition process (4) Brand (5) Packaging (6) Physical characteristics (7) Positioning The first two attributes are relevant to a set of products in the product line. The rest are relevantto either individual products or product lines. Composition of the Product Line

We can change the composition by altering individual products in a product line. Individual products can be offered in different styles. The characteristics of the individual products can be changed. The accessories or options can be changed. The price may be revised. A garment manufacturer can change the composition of its product line by switching emphasis from the ethnic wear to western outfits. A car manufacturer can make certain features like auto operation of doors and AC optional instead of a standardised product for all. A trouser shop might alter the composition of its product line by emphasising Rs. 400 and Rs. 300 trousers, instead of Rs. 200 and Rs. 100 trousers. Expanding and Reducing the Product Line

There are many models of TV available. There is a large variety of radio sets from Philips. Lovable bras are available in a number of styles. Syrups and crushes are available in many flavours, e.g., Rasna concentrates and Mala's crushes. There are technical products with higher and lesser sophistication. We find many product categories where consumers prefer to have a great variety for their satisfaction.

6

Product Management

Marketers adopt here a strategy of adding new versions with new specifications , while retaining the old versions for the less sophisticated consumers. Sometimes this addition of new products to existing line is done to include complementary products, e.g., a tooth-paste marketer may add toothbrushes to the product line. Camel may introduce paint-brushes which go well with its water-colours. Sometimes, there are occasions to delete a product/products from the line. A product which shows decline in terms of sales may be abandoned. Non-contributing products may be eliminated. While doing so, it should be seen that other products in the product line are not affected. Value Addition

An organisation converts raw materials into finished products, and this conversion process is a process of adding value to the products. A food processor who sells simply flour may start selling a ready-mix of idlis and dhoklas. It is an instance of value addition. Bombay Dyeing starts ready-to-wear shirts instead of plain textiles. Many companies make their products more convenient to use. They thus add value forme consumer. A phone manufacturer starts with corded phone, adds cordless phones to its line, and finally puts cellular phones in the market. Mere sales promotion is not helpful in retaining customers. What is needed is the addition of value on a continuous basis. Subroto Sengupta, lIM, Calcutta recognises four routes to value addition. The first is to add functional value, for example, photo cards, picture cards, and global cards have added functional value to StanChart's credit card business. Secondly, we have to reward the frequent users. Thus Amex has membership rewards programme and Shoppers' Stop gives FCC points to its regular customers. Even gifts of buckets to regular Surf users is a reward. The third route to value addition is personalised marketing through database information. Lastly, service can be added to the brand. Itpersonalises the brand for the customer. Human touch is an important element of any service. Brand

A company puts its products under a specific brand name, say Bata. While putting the same products through retail network not owned by it, it puts another brand name BSC. Similarly, we have Carona shoes and CSC shoes. Packaging

Package can be changed functionally, e.g., Pepsi is now available in cans and PET bottles. Packaging communication can be changed. Red Hit and Black Hit packages are meant for different insects, are for cockroaches and for flies and other insects. Sachets have revolutionized shampoo marketing. They are convenient single-dose products available at low prices. Detergents are now available in sachets. Physical Characteristics

Hair oils which are greasy generally can be made non-greasy like Hair & Care. Surf has moved forward by introduCing Surf Ultra with enzymes and Surf Excel. Fashion designers introduce their fall (autumm) collection and summer collection. Positioning

This is an important way to change a product line. Here the positioning of one or more products forming that product line is changed. Marlboro cigarettes is a classic example. It was an effeminate product but was converted into a macho product. Baby shampoo can be positioned for adults too. Copper deo-spray from Baccarose is positioned for men. Cadbury chocolates are not just for kids. They have been positioned for grown-ups too. A change in positioning is brought about mostly by a change in communication strategy. Sometimes distribution too is changed, but real positioning means change in the product and its packaging too.

Product: Basic Concepts

7

Product Line Length

What should be the optimum length of a product line? A line is too long if after eliminating a product, it results into increased profits. A line is too' short when any addition to it results into increased profits. Company's overall objectives do affect the length ofits product line. For instance, a company may have the objective of expanding its market share. It will then have a longer product line. Contribution of individual products to profits may be ignored. However, a company whose objective is to have larger profits will have a shorter product line consisting of those items which contribute to profits substantially. Product lines have a tendency to lengthen over a period of time. Many a time, a firm may have extra capacity which is used for developing new items. Sales people and trade put pressure on management to keep on . Market skimming is relevant when the following conditions prevail: (1) Substantial high current demand. (2) Small volume is economically viable for production. (3) The high initial price will not attract more competitors. (4) The high price supports the image of a superior product.

165

Pricing the Offer

Penetration ofthe Market

Here, a low initial price is set on the new product, hoping to attract a large number of buyers, and win a large market share. Texas Instruments (TI) in the States has successfully followed this strategy. It sets up large plants. It charges the lowest possible prices and gains a large market share. The costs start falling; and with that it reduces the price even further. This strategy is relevant under the following conditions: (1) There is a price-sensitive market. Lower prices are an incentive to the buyers for market growth. (2) Production and distribution costs decline when this experience accumulates. (3) Low price is a disincentive for competition. Price of Telco's New Car At Delhi's Auto Exposition, 1998, Telco chairman Ratan Tata unveiled his company's latest offering - the small car powered by a 1400 cc engine at a price of Rs. 2.5 lacs. Recently, Telco has branded this small car as Indica, which was the name given to this car when it was conceptualized. Indica is derived from India car. This incredible low price is possible because of its relatively cheap development costs. Telco has established engineering skills and in-house tooling and die-making. This helped it to develop the car by spending Rs. 260 crore. Internationally, the cost of developing a new car is estimated to be around Rs. 1500 crore. Besides, the total investment of Rs. 1700 crore on this car project will be spread over not only the new car but on other models like Safari, and other mid-sized car in the pipe-line. Telco can also subsidize the small car, as it is a multi-product automobile company. It can use margins it earns on Sumo, for instance, to subsidise the new car. Telco hopes to penetrate the market by entering it with a low price, and may raise it after attaining a critical mass. Maruti can meet Telco's strategy by subsidizing the price of Zen from the margins it earns on Maruti 800. As it offers more than the other cars, it makes sense to price it below the Santro and above the Maruti 800.

Pricing an Imitative New Product

Initially new product is not a technological breakthrough. Here, mostly it is a question of product positioning. The product is to be positioned here on two attributes - quality and price. Price High

Medium

Low

High

1. Premium strategy

2. Penetration strategy

3. Superb value strategy

Medium

4. Over charging strategy

5. Average strategy

6. Good-value strategy

Low

7. Rip-off strategy

8. Borax strategy

9. Cheap-value strategy

Fig. 9.2

In the above figure, we've shown nine possible price/quality strategies. The newcomer may produce a premium quality product and charge a high price for it (Cell I).

If there is a market leader already doing this then other strategies can be adopted. (1) Design a high quality product and charge a medium price (Cell 2). (2) Design an average quality product and set an average price (CellS) and so on.

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The newcomer has to take into account (1) The size and growth rate of each market in each cell. (2) The competitors for a particular strategy. Value Proposition

An essential part of brand's identity is to provide a value proposition which is a statement combining rational, emotional, and personality concept benefits delivered by the brand, and which provide value to the customer. An effective value proposition establishes a bond between a customer and a brand and provokes purchase decisions. r-------~----------_r----------_r-

Emotional Benefits

Personality Concept

Value Proposition

The brand's price is set in relation to the values it delivers. If the price is higher than the values provided, it undermines a brand. An over-priced brand as perceived by the customers fails to appeal to them in spite of the clear benefit package being offered. But this is not as simplistic as this. Higher price itself can indicate higher quality. Price can be used to denote different levels of quality as we have studied already - high or moderate or inferior. Thus price changes the value proposition. The question, therefore, is what is the driving force of the value proposition - the benefits or the price? If price is an important consideration, we have to tie up the benefits to elements other than price. There are occasions of pricing a superior product at lower price. The price is then seen in the context of the competitive scene. Cost Analysis

Fixed costs are costs which do not change no matter what output is produced. Rent, amortization charges, executives salaries, property taxes and insurance are examples of fixed costs. Average fixed cost is fixed cost per unit. Variable costs vary with production. These include direct materials and direct labour charges. Total cost is the sum of the fixed and variable costs. Marginal cost is the change in the total cost of producing one additional unit. It is also the change in variable cost with one additional unit of volume. When variable costs are very high with respect to prices, we should go in for a price rise, trying to keep variable costs in control. Low variable costs give us two options - increase the price and consequently profits, the choice depending upon the ease with which either can be done.

It is also necessary to be conversant with break-even analysis, and to get atleast a break-even volume with the price change. The fluctuations in unit sales do affect profits substantially when the fixed costs are high and variable costs are low. Higher fixed costs put pressure on management to reduce prices so as to either maintain a volume or increase it. The volumes are, however, offset by the corresponding price changes effected by the competitors. Fixed costs are related to economies of scale. Average fixed costs decline when economies of scale generate larger volumes. Design is closely related to costs, and any change in the design leads to a change in total costs. Design may be used to save costs, but while doing so the desirability of the product must not be reduced. Cost savings with the help of design may increase the contribution margin. An organisation might source the whole product or its parts from outside; and the readers are advised to go through a 'make or buy' chapter in any good materials or production management book. When things are bought, the entire cost is variable cost.

As the volume of the product increases, per unit cost decreases. The contribution to fixed costs is by more number of units. People learn to do jobs much more efficiently over a period of time.

Pricing the Offer

167

Technology also brings down costs. Economies of scale also tend to reduce the costs. Though learning and economies of scale are incidental to some extent, most of the times cost reduction is by conscious managerial actions, e.g., value analysis, product re-design. Along with cost reduction, in several product categories, product performance improves on a continuous basis. Performance data indicate the direction of price changes. Substitution of inferior products by superior products also affects sales and prices. Push strategy means better margins to resellers while pull strategy means comparatively lesser margins to resellers. All price changes are likely to initiate competitive response. Competitorresponds forcefully when our lower priced product weans away customers from his mainstay product. When overhead fixed costs are high as compared to variable costs, it encourages a competitor to match a price cut. Pricing action is not always responded in terms of counter pricing action. There are non-price responses too. Some products have a cost advantage - an initial low cost on account of a number of reasons. Estimating the Market Size .

Conventionally, income and price-sensitivity data is used for market estimation. Together with these, other demand driving factors are considered. This method, however, is not sufficient to estimate demand for a new product concept. Cross-country data may be used by adapting it to local conditions, but such adaptation is far from satisfactory considering the differences in the development aspects of different countries. Sometimes, the product is developed for only the local market, and may not have cross-country data. Insuch cases, efforts are made to correlate the new product with an existing one, and create a surrogate for the income and price sensitivities. A.T. Kearney, a global consulting firm advocates rethinking on this subject. It is necessary to understand the product first and identify features that create value for the customer. Then a surrogate is chosen, and it is normalised for consumer and industry differences. Lastly, a demand curve is plotted for sales potential at different price points. The crucial part is to understand the product as a potential bundle of utilities or 'values' a product can deliver, and price that a consumer might attach to them. The utilities can be tangible or intangible, and when quantified in money, it gives a price-value proposition. The whole process is based on qualitative and quantitative market research. The surrogate bench mark product must be chosen carefully, e.g., for car market it could be Maruti 800. We also have to find a pair of products which are analogous and mimic the cost-functionality relationship, e.g., for car market these could be mopeds and scooters where large historical data exists .

•••

CONCEPT AND PRODUCT TESTING

Sales and Market Forecasting

Forecasting is a basic technique for all kinds of planning. It anticipates a kind of future environment which plans are to be implemented and assumes certain known and unknown conditions in future which may affect these plans. Forecasting also includes predicting the specific outcome. Demand forecasting takes place at a number of levels. Market potential for a product indicates its maximum possible sales to a targeted audience in a given time frame. Market potential considers the sales of all the sellers in the market. As against this, we have sales potential which is maximum possible sales of one company's product to a targeted audience in a given time frame and environment. Sales forecast is the expected level of sales of a company's product in a given time frame, under a specific marketing plan and assumed environment. The overall sales can be considered into two parts - trials or the first purchases and repeat or replacement purchases. Let us first consider the model for estimating the total number of triers. The following terms need explanation: Target Market (TM)

Segment to which our market plan is directed.

Product Class Buyers (PCB)

Are expected to buy our product or substitute products.

Potential Triers (PT)

They make a trial purchase. They are familiar with the product, and know about the availability. PT = P x PCB where P is that percentage of PCB who will try the product if they are aware and know about its availability.

Concept and Product Testing

Cumulative Trial Rate (CTRt)

169

It is that percentage in PCB who have tried our product atthe end of time period t. CTR t depends upon awareness and distribution. CTRt = p x f(APt) where At gives awareness percentage and Dt distribution coverage. These have tried the product and may repeat their purchases Tt = CTRt x PCB

Maximum Number of Triers (Trna) Negative Trial Purchase

The largest number of those who have tried the product This can happen due to forgetting, deaths and drastic changes in the product preference.

Trial rate in terms of percentage of people who have tried the product is given by CRTt and number of people by Tt' and both are related as follows: T t = PCB x CTRt In either predicting the trial rate in each period or just the total number of people trying the product, we have to make a forecast of CRTt, which is arrived as follows: CTRt = P x At x Dt where P indicates people preferring the product At indicates the percentage of people who can be made aware of the product. Dt indicates the percentage of people who can find it. The above relationship can be put in a more general form. CTR t = p x f(APt) The above equation considers CRTs a function of the product's preference, awareness and distribution. It recognises that it does not have a natural scale, and Dt is volume-weighed. The forecast of percentage of PCB that would ever try the product is given by CTRmax =PxAmax xD max Awareness results from promotional efforts. Distribution coverage results from personal selling, trade promotion and offer's appeal. A product manager has to generate trial for the product by having suitable support programmes. Initial Growth of a New Brand: John Philips John

A new brand is purchased by a consumer, say under the influence of promotion. This is called the first trial. Later, the consumer experiences the functioning of this brand. He may like the functioning or may not. In case he does, he decides to repurchase the brand. The first repurchase is not done thus by all the consumers. Some people continue their loyalty to their existing brands. The sales of a new brand are generated mostly by the growth in distribution. After distribution level is fully reached, the growth in sales comes from the increased level of sales atan individual retail outlet. Adoption process increases the distribution often rapidly; in some cases to the extent of 70 per cent almost in the first eight months of introduction; but not always. There is a relationship between sales and distribution of predictive value. Let us consider a brand's sale and its weighted distribution. This ratio gives us sales volume per percentage point of weighted distribution.

If one brand sells 30000 units and has weighted distribution of 30 per cent, the ratio is 30000 : 30 or 1000 units per cent point of weighted distribution. This is expressed as 1.00 thousand units per distribution

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point. The brand shows growth. The sales and distribution also grow. We keep on calculating this ratio for different periods. There is a steady growth in this ratio. Itmeansoursalesare improving more than the number of outlets stocking our brand. This is due to more sales per outlet as the acceptance of the brand improves. The ratio may progress as 1.00, 1.S, 1.7,2.0,2.2, 2.S. As we compute further, the rate of increase slows down. Let us see the ratio for the second year; corresponding to the periods of the first year. Second Year Period 1

2.7

(170 per cent than a year before)

Period 2

2.3

(S3.00 per cent more than a year before)

Period 3

2.S

(47.00 per cent more than a year before)

Period 4

2.9

(4S.00 percent more than a year before)

PeriodS

3.00 (36.S per cent more than a year before)

Period 6

3.3

(32 per cent more than a year before)

The above data can be used to make predictions. The future ratios are predictable on the basis of decreasing rate of growth, projecting forward the trend in increase over the preceding year. Distribution growth can be separately forecast or targeted. By projecting ratio to the targeted distribution, a forecast of sales can be made. It is a very valuable tool for the brand manager. Bass Model to Estimate First Time Sales

Frank M. Bass (1969) has developed epidemic or contagion model to estimate sales of appliances introduced for the first time. In this model, probability of purchase at time T is

P(T)

= p + q [y(T)/m]

where coefficient of imitation

m

= = =

Y(T)

=

the number of adoption purchases by T, and

Y(T)/m

=

the fraction of potential adopters who have purchased.

p q

probability of first purchase total number of potential adopters

According to Bass, an innovator is an early adopter and an imitator is a late adopter. Imitator's purchasing decision is influenced by those who are early buyers and users. The number of early adopters is S(T)

= pm +

(q-p) Y(T) - (q/m)[Y(T)]2

At T+ the maximum number of adoptions will occur. T+

= (p+q)/m (q/p) and

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171

Fourt and Woodlock Model for First Time Sales

This model forfirst time sales has been developed by Fourt and Woodlock (1960) fornew consumer non-durable products. According to them, the cumulative sales approached a limiting penetration level of less than hundred per cent of all households and the successive increases of gain decline. The equation is qt

=

rq (1 - r)t-1

qt

=

percentage of households expected to try the product in period t

where, r = rate of penetration of untapped potential q = percentage of totai households expected to finally try the new product t = time period. Suppose our estimate is that 60 per cent of total households will finally try a new product or q = 0.6. Also suppose during each time period, 40 per cent of the remaining untapped potential is penetrated or r = 0.4. Therefore, the percentage of households trying the new product in the first four periods a~e: q1 = rq(1-r)1-1 = (0.4) (0.6) (0.6)° = 0.240 q2 = rq(1_r)2-1 = (0.4) (0.6) (0.6)1 = 0.144 q3 = rq(1-r)3-1 = (0.4) (0.6) (0.6)2 = 0.086 q4 = rq(1_r)4-1 = (0.4) (0.6) (0.6)3 = 0.053

As we move on in time, the incremental trial purchase percentage moves towards zero. To estimate sales in rupees from new buyers in any period, the estimated trial rate for any period qt is multiplied by total number of households times the expected first purchase expenditure per household of the product. Estimating Repeat Sales

It is necessary to consider both the first time sale and repeat sales for a frequently purchased new product. Long-run sales depend on repeat purchases. Repeat buying also denotes satisfied buyers. Buyers buy the product once, twice, thrice, four times and so on. When repeat purchases are important, long-run retention rate (LRR) is considered. This is the market stage in the long-run of the brand amongst triers of the product. When the consumption pattern is average, a steady state market share of a frequently purchased product is: MS

= CTR

max

x LRR

If the triers repeat the same brand MS would equal the number of triers (TRmax ). However, some ofthose who try switch over to other brands, and hence some of them will not purchase the same brand ever again. The current market share is thus a fraction of the percentage of people who try it. LRR is estimated by arriving at repeat ratios. It is observed that purchases are not repeated by all, and there is a progressive decay amongst the buyers. Just a fraction of people who make repeat purchases do so again. Let us denote repeat purchase as i. Then R(l) denotes the repeat ratio. It is proportion that takes i-I repeat purchases and who will also do i repeat purchases. R(l) is the first repeat ratio. It is the percentage of people who tried the product and will buy it again.

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Depth of Repeat class

Ri - the ith repeat ratio

where 53%

Percentage of people who tried and will make repurchases

1

70%

70%

2

75%

53%

3

80%

42%

4

95%

40%

5

100%

40%

= 70% x

75% and 42%

= 53% x 80%.

Thus RI < R(i+ 1) < R(oo):5: 1.0 The more a person buys again, the more likely he is to buy again. In our example 40 per cent people who tried our product made three or more purchases. Our brand share to begin with, is relatively high and tapers off slowly to stabilize at the lower level. This pattern is observed in the case of a frequently purchased product; and not in the case of durables. LRR: Long Run Retention Rate can also be estimated by using the formula. LRR = SBR/(l+SBR-RR) Where SBR

=

Switch back rate (pecentage of triers who purchased some other brand last time but will switch back to our brand next time)

RR

=

Repeat purchase rate (percentage of people who purchased our brand previously and will purchase it again next time)

Estimating Replacement Sales

This is a useful estimate for durables like a car, AC, washing machine, scooter. We have to consider the product's life of survival age. The first replacement sales can then be easily estimated. However, the time of replacement depends upon the customer's socio-economic criteria, promotion of the product, and its price. Replacement sales are difficult to estimate unless the product is actually in use. Marketers, therefore, like estimate of first time sales while launching a new product. Akai TV and Replacement Demand

Baron International formerly marketing Bush lV set up its Akai operations in 1994. It has reached a sales turnover of close to Rs. 400 crore in a couple of years, with profit after tax of Rs. 28 crore. Akai targeted the new entrants in the lV market by offering them gifts in kind, and created a huge replacement demand with a series of new-for-old schemes. Most Indian lV sets were obsolete in the nineties, as they were with limited-channel sets with poor audio and video quality. The replacement market was waiting to be picked up. Akai pushed the replacement cycle forward by taking back the old lV. The lethargy of the Indian consumer was broken by innovative sales promotion schemes. The key problem was to remove the feeling of guilt in disposing of a durable that works. The old CTVs went to the rural and semi-urban market for being passed off at a price of Rs. 2000 - Rs. 4000 a piece. Akai buys its CKD at lower prices by assuming volumes, assembles them at lower prices, puts more emphasis on pulling the consumer rather than dealer push, and successfully markets volumes. Baron has built a system that handles huge volumes at low costs.

Sales Forecasting Methods

Causal forces like product, price, distribution, competition lead to forecasting behaviour such as awareness, trial and repeat purchase. Sales are then forecast through projections. Causal factors can be the basis for judgemental forecasts also, where the judgement is that of experts, users, managers or sales force.

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173

Forecasting by Awareness- Trial-Repeat Purchase Route

Suppose a market consists of 15 lac customers who purchase 10 units a year. The following data are obtained from a controlled sales test. Awareness Trial

= 40% of customers

= 30% of those who are aware

Repeat purchase

= 60% of those who tried.

Awareness, trial and repeat purchase data is multiplied by the total number of customers to obtain sales forecast. 15 lacs x 40% x 30% x 60%

= 1,08,000 customers who are repeat buyers 1,08,000 x 10 units Therefore

= 10,80,000 unit sales per year

10,80,000 x 100 15,00,000

= 72% market share

The computations are based on several assumptions. Sales have not yet materialised over the new product, and the awareness, trial and repeat purchase data are partly true. Judgement Forecasting Route

There are many methods of forecasting sales like time series analysis and regression analysis. But for a new product, we do not have historical data. We, therefore, use judgemental forecasting methods for new products. The most common judgement is that of executives. They use a bit of mathematics, and a lot of opinions, information, parallels to arrive at the judgment. Another judgement we make use of is that of sales force. Here the forecast is based upon the judgement of sales representatives, sales managers or dealers. The method is extremely useful when the new product is close to the current line or is put into the existing channels.

Mathematical Modelling Route of Forecasting

These models use intentto buy, rank order preference, and test market sales figures to forecast the sales. It is better to consult experts while using them. In the chapter of new product development process, we have already seen how a product idea is converted into a product concept. Product concept is generally an expression of the product idea as a statement. Product concept conveys the benefits and strengths of the proposed product. According to Holbert, it is an expression of offer. Concept statements have two dimensions core ideas and positioning. Core ideas describe a product functionally, and persuade a customer to buy the product. Core idea may be supplemented by a visual. Positioning concept statements listthe main and secondary benefits and distinguish a productfrom the other competitive products by taking a positioning stance. These statements may also be supplemented by visuals. Concept statements when ready are tested. Concept statements should be meaningful and clear. The statements are tested with focus groups or on asample. The respondents are shown the concept statement and are asked to respond to it. The points being tested are: Is the statement clear?

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174

Is it believable? What are the benefits? Are they important? Are they relevant? What are the pros and cons? How likely is the consumer to buy it? Based on consumer responses, the concept statement can be improved upon. Concept Testing

A product class is chosen, and concept statements for different new products are presented before the respondents. This is done to screen the concepts. Screening the concepts reduce a large number of product ideas. Concept statements are rated on buying intentions or on significance credibility or uniqueness of the major benefit. Buying intentions sort out the C0ncepts most favoured and other criteria sort out the most favoured concepts so that a choice can be made from the most promising concepts. Data is collected by personal interview method. Sample sizes vary from a small number of say 40-50 to a large number of 300500. When respondents rate only a small group of concepts out of a total large group a larger sample is necessary. The analysis could be univariate or multi-variate. Concept testing by screening still is a difficult exercise when there are a large number of concepts. When each respondent is asked to rate one concept and is expected to answer a few questions about it, the testing is called monodic. In competitive tests, the existing leading brands are presented as concept statements and choices are made by putting chips on the basis of previous purchasing patterns, buying intentions and preferences. Later, the new concept is presented, and the respondent is expected to redistribute the chips. Monodic tests have been used succe5sfuJly by many organisations. It is a realistic method inasmuch as it does not ask the consumers to judge the other brands. Those who advocate competitive tests, however, feel that they are more realistic. They are useful for testing durables. Monodic tests are okay for frequently purchased products. Concept testing can also be done by using a focus group. Though personal interview either at home or place of work is the most widely used method for concept testing, there are instances when telephone interviews and mail-interviews have been used. Concept Testing Questions Buying Intention Questions

A new product concept is presented and the respondent is asked.

What is the likelihood ofyour buying the product described ijit were made available to you? Definite to buy it

CJ

Probably would buy it

0

Mayor may not buy it

CJ

Probably would not buy it

CJ

Definitely would not buy it

CJ

Buying Scale

A buying scale between 0-10 points can be constructed, and respondent may be asked to rate his likelihood of purchase by points, 10 indicating definite intention and 0, not buying at all.

Concept and Product Testing

0 1 2 3 4 5 6 7 8 9 10

c:::J c:::J c:::J c:::J c:::J c:::J

175

Definitely would not buy it

c:::J c:::J c:::J c:::J c:::J

Definite to buy it

MR and Buying Intentions Though MR is of some help, it still has a long way to go. Purchase intentions are highly fallible. It is difficult to predict consumer behaviour. Their actual actions may run contrary to what the MR findings are. There may be some bravado on the part of consumers when they are questioned by the investigators who are strangers about their buying intentions. Competitive Selection We have presented before you the concepts ofthefollowing brands. While buying these brands during next 10 purchases. how would you assign these ten chips.

Branda BrandP BrandQ BrandR Other Main Idea

This is a probe-type question.

You have read the product description. What is the major benefit that is being conveyed through this? ......................... . This is followed by a question on the importance of this idea.

How important is this main idea? Very important Somewhat important Somewhat unimportant Very unimportant

c:J c:J c:J c:J

Uniqueness

We can test how the concept is different from other concepts.

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Product Management

Very different Somewhat different Slightly different Not different at all Relevance

Relevance can be rated on a five point scale.

Tick the box that best describes the relevance of the product to your needs.

CJ CJ CJ CJ CJ

Relevant

Not relevant Credibility

We can test the credibility of the concept by asking a probing question.

Is the concept difficult to believe? If so, which part of it is difficult to believe . ....... . Likes and Dislikes

This is also tested by putting an open-ended question.

What do you not like about this product concept? Attribute Testing

Concept can be tested on a number of attributes. Bi-polar questions can be framed. A milk-additive can be tested on Easy to make Pleasant taste Nutritive Health drink

1 1 1 1

2

Not easy to make

4

5 5 5

4

5

Not a health drink

2

3 3

4 4

2

3

2

3

Unpleasant taste Not nutritive

The respondents are expected to encircle the number that best describes the product concept in question. Later, each attribute can be tested on importance. Comprehension

We can test a concept's clarity by asking questions. We can test whether a concept is understood properly by asking specific questions. Classification Questions

Each questionnaire, apart from seeking reactions of the respondents to the product concept, includes questions about the respondents themselves to understand their profile. They are asked demographic and socio-economic questions. Their current brands and how they fare with the product concept can also be examined.

Concept and Product Testing

177

Analysis of Data

Buying intention can be compared with the norm set by studying the previous data of concept tests. It can also be used to predict the percentage of people who will buy a product. The trial at the end of the first year is

Ptrl = Top Box Score (TBS) Where P tr TBS

=

X

AWl x Of

I

trial at the end of first year Top box score percentage for the concept

Awareness level during this year AWI Of = Fraction of distribution coverage estimated at the end of this year I When P trl , is multiplied by product class buyers, we can estimate the number of trial purchases. Al spends generate a particular level of awareness and this is the basis of AW. Distribution coverage fraction Dfl is estimated by past experience. Instead of the top box score, some researchers recommend the total percentage of positive responses or the score of the first two top boxes. Probability of purchases can be assigned weightage to find a weighted average, e.g., 10 points are assigned a weight of 1 and 9 points a weight of 0.9. Graphically, we can plot the data of rating on probability score by taking it on x-axis and actual purchase proportions on y-axis. In competitive analysis, the chips given to a brand are taken as probabilities of purchasing. Uniqueness, relevance, main-idea, credibility attribute rating data are analyzed by tabulation and crosstabulation. Classification data of respondents can be cross tabulated with the data of buying intentions. ProductTesting (Pre-testing)

A product concept when found suitable is developed into a prototype product. The feasibility of doing this is a matter of technical evaluation. The prototype of the product is tested (pre-testing). Here the customers are allowed to use the product. Then testing is done, e.g., how the tea tastes is tested after a consumer takes a cup of tea. Product testing and concept testing are sometimes done simultaneously to know whether a product meets the expectations generated by its concept. Product testing has several objectives (i) to assess how far the product fares on the product concept.

(ii) to assess the chance of improving the product. (iii) to know what is liked and disliked in a product.

(iv) to know preference after extended usage. Even a reformulated product can be tested to know how far it compares with the previous products, and whether the consumers are able to perceive a difference. Apart from testing the physical product, product pre-testing has three more dimensions - brand testing, package testing and positioning. Some products and services need to be experienced before they achieve market acceptance. Xerox plain-paper copier tested poorly because subjects felt it was too expensive. Once they used it, however, the price became acceptable. Blind Tests us Identified Tests

Imagine a consumer does not know the name of the brand or the name of the corporate organisation which made the product which is being tested. Here, he was just to respond to the physical product. This is a blind test. It is used to compare different physical products. Suppose sales ofthe brand are on the decline. Is it due to some inherent problem with the formulation of the brand or the brand image, which has become

178

Product Management

negative? If the physical composition ofthe brand is causing this problem, the blind testis a great help. Blind tests are used to test the physical characteristics of the brand. Identified test presents to the respondent the product as it appears in the marketplace. Thus identified test can assess the physical characteristics as well as the bias on account ofthe brand name, image, corporate image, packaging etc. These are used to know how well the product will do in the market place. It assesses the reaction to the entire offer rather than to the physical entity alone. Product tests are designed on three major types of test design - monodic, simultaneous and sequential. Monodic product tests offer a single product to the consumer for testing. Simultaneous product tests offer two products to the consumerfor testing, e.g., Coke and Pepsi. In sequential product testing, there are two products, of which one is used first, and then the other is used after some time. In sequential monodic test, a consumer rates one product to begin with and then uses another product and rates it. While doing so, there is no comparison. In sequential monodic with paired comparison, first sequential monodic test is carried out, and then comparison is made. In sequential paired comparison, both producers are tried without rating. Then they are compared. Monodic methods approximate to real life use of the products - one at a time. They are useful when there are no benchmark products. However, they are expensive. Though simultaneous tests are sensitive, they are least realistic. Sequential tests fall between the monodic and simultaneous tests. They are relatively realistic. We have to select a test design on the basis of sensitivity expected, e.g., a comparison between new and old formulation requires sensitivity. Simultaneous testing makes sense when the new product and the competition are not substantially different. Sensitivity and realism are exact opposites. In several situations, we, therefore, have to use the monodic and sequential tests. The questions posed in product testing are more or less similar to those used in concept testing. The only difference is now there is a physical product before the respondent rather than a verbal description of it. Branding policy can be tested by association tests - images a brand evokes, memory tests - to assess memorisability of the brand name, preference tests - to know which brand name is preferred to othernames and why. In package testing, the physicalcharacteristics consumers expect in a pack are assessed, e.g., size, colour, design and style. Consumers are shown a package, and theirreactions are studied. Positioning studies decide where a product stands in relation to competitive products. Importance of Concept and Product Testing

Before committing large resources to the product by undertaking further stages of development, we can assess consumer appeal by concept and product testing. It also guides us to sharply define our target market, depending upon which segment of population finds the product appealing. We can refine a product concept by testing it. The testing also enables us to predict the trial rate for the new product, given that they are aware of it and can get it at a place near to them. It also facilitates extension decisions and positioning decisions .

•••

® TEST MARKETING Once the product's marketing programme is developed, we can think of test marketing. The frequently purchased consumer products, even durables and industrial products can also be test marketed equally well. What is a test marketing? It is the limited introduction of a product and its marketing programme under controlled conditions basically to determine how well the product will generate sales volume, market share and profits. Thus it is an opportunity to see how well the product will perform in the actual marketplace. In other words, test marketing reduces the risk of marketing a product nationally that may fail under normal marketing conditions. Test marketing has another logic. It allows us to test some elements of marketing mix. We can use variations in promotion in different markets, e.g., advertising and sales promotion in one market and advertising alone in the second market. Similarly, test variations in the product can also be compared, e.g., alternative names. Depending, upon the results of the test market the product can be introduced nationally or withdrawn. It can also be sent back to the development stage for modifications, either in the product or its marketing programme. Test marketing is the only time when the entire marketing mix is tested. It makes us learn how to market the new product most effectively. Broadly speaking, test marketing is a rehearsal. It makes us learn not only marketing and selling but also the making and designing. Test marketing is a costly and time-consuming affair. The length of time for which a product is test marketed creates a risk that the competition learns as much about the product as the organisation test marketing it. They may imitate the product quickly, and may enter the market before we do. Sometimes, they may just follow our introduction. Some organisations, therefore, skip the test market stage, and go national directly. The chances to do so are more if there is spare capacity, the new product is just an extension, the investment involved is not much and the organisation is quite sure about its marketing experience. However, ifthe product takes the company into a new business and also expects the buyers to change their

180

Product Management

behaviour, the chances of opting for the test market are more. It is also necessary to consider the opportunity cost. The time consumed in test market can well be the earning time, had the product been introduced. Simulated test market conducted in a store-like laboratory instead of a full test market can be a compromise. Research shows thatproperiy conducted concept and product tests; along with simulated test market, ensure a success rate of more than 65 per cent. Test marketing is not meant to assess those who will try the product, and those who won't repurchase. Such questions should better be answered prior to test marketing stage. Test marketing is not used to test just the acceptability of the new product. Only those products which have found acceptance are put to test marketing. Test Market Design

It is necessary to develop a test market plan. A proper plan helps in developing the proper test design, and exercise necessary control. The first basic question is whether to have test cities all over the nation or just a few cities having proximity to the company headquarters. The number of cities, the time length for test market, the type of data to be collected and the action to be taken are some of the decisions in test marketing. Choice of Test Market Cities

In India, generally metropolitan cities or emerging metropolitan cities are selected for test marketing. These cities are considered representative for most of the products. Besides, the costs of conducting the test are also reasonable. Representatives of a test centre make the results projectable to the whole market. Small organisations choose a few centres in the limited geographical region whereas larger organisations select several centres all over the country. The products which are consumed even by rural folks should have both urban and rural test centres. A test centre ideally should be media isolated. A city which gets media from other centres is influenced by 'spill in' effect. A spill in should not exceed a certain percentage. A 'spill out' means advertiSing in the test centre goes beyond its boundaries. It is thus sheer wastage, since the product is not yet available outside the test city. Some organisations may prefer a test centre which is not traditionally chosen. A frequent test centre gets immunized to the new products. A test centre chosen must provide good trade channel support. Length of the Test Market

The test may run anywhere from a few months to some years. Generally it runs for 10-12 months. Tests are run for average repurchase period. It should not get so prolonged that competitors take advantage of the situation. Tests are run for at least 2-3 repurchase cycles. Tests are closed prematurely only when it is obvious that the new product will not measure upto the expectations. A longer test costs more. Seasonality is also a factor to be taken in account. Controlled Test Market

As traditional test marketing is costly, some additional means of test marketing have been developed recently. A forced distribution test or a sell-in test consists of a test programme managed by a research firm which guarantees distribution of the test product in stores in the test market cities. This is also called 'minimarket' test. They warehouse the product, put it into the trade channel and get it displayed on the shelves. The sales are monitored on regular basis. Results flow in quickly because of guaranteed distribution which makes it possible to promote the product two weeks after the start of the test. In a traditional test market, distribution itself takes several months. Even then we are not sure of distribution coverage. Controlled test marketing is thus a quick method which can be completed in six months, at a fraction of the cost of a fullblown test market. A drawback of this method, however, is the low quality of data about trade reaction,

Test Marketing

181

because the distribution is obtained by the research firm at a price and company's sales force is not involved. Asell-in variant ofthis test involves the manufacturer' ssales force in distribution. Forced distribution however, is not realistic. They can be used just like simulated test marketing. They are used when the risk is not very high. Marketing Mix Variables to be Tested

We can gather data about buyers, trade channel attitudes, retail distribution. At the same time, we can test sales promotion atthe level of consumers and trade, advertising expenditure and price. These elements can be tested at their high and low levels, e.g., high ad spend or low ad spend and high price and low price. In case of sales promotion, we can test its presence or absence. Thus when two variables are being tested in terms of high, low and present, absent we have to select 8 test centres. We can use four cities for testing two variables as follows: Present

o

P

Absent

Q

R

High

Low

Advertising

o has both high ad spend and SP. P has both low ad spend and SP. Q has high ad spend, but no SP. R has both low ad spend and no SP. Thus we can compare OQ to assess the effect of advertising. When PR is compared we know the effect of SP. We can add one more city to each ofthese cells to guard against error in measurement, but that will make testing expensive. Data Collection

Data are collected by conducting store audits to measure retail sales and by conducting audit of marketing support such as ads and SP. Consumer surveys can be conducted to assess trial rates and repurchase rates. When both the trial rate and repurchase rate are high, we can commercialize the product. When trial rate is high, but the repurchase rate is low, we either redesign the product or drop it. When there is a low trial rate, but a high repurchase rate, we have to increase advertising and sales promotion. When both the rates are low, we can think of dropping the product. We can collect data by maintaining a panel who record their pur~hases in a diary. Data Analysis

Retail audits can enable us to calculate market share directly. Marketshare can be calculated indirectly on the basis of trial and repeat purchase rates. Simulated Test Marketing (STM)

Test marketing using computer software models is being increasingly practised. Some popular test marketing models are Microtest (Research International), A.c. Neilson's American model, Designer and Vista model from France, Novaction (ORG-MARG), Tesi (GFK-MODE). Computer simulated test marketing came on the scene in the seventies to overcome the problems of actual test marketing. Hindustran Lever in India uses a model developed by itself to do STM. STM costs less than actual test marketing. The testing can start even when the product is at conceptual stage.

182

Product Management

The model asks the consumers to react to the product concept, price and communication package. In the next stage, the actual product is handed over to the consumers to try out. They are then asked about their buying intention. In some models, consumers are given to buy products just as do in normal shopping situation. It is a mock shop. The models are, however, not so alive to distribution and structure of the market. The companies should provide data on distribution, ad spend, promotions planned, competitive strategies and special considerations like seasonality. The information about the market and the consumer is run through the computer model. It is called black box stage. The model assigns weights to the elements of the marketing mix. The purchase pattern curve is then plotted based on this data. STM is preferred to actual test marketing because the marketer does not want to alert the competition. Besides, STM is cost-effective. It costs around Rs. 5 lacs at one centre. There are four broad models of STM -assessor, bases, litmus and designer. A client must give a lot of information on distribution and awareness levels that he will sustain after the launch. Unless he volunteers this information, STM cannot be successful. Limitations

Test marketing is not a sure-shot technique which ensures success. It merely reduces the risk. It helps us to tune in our offering to the needs of the target audience. Sometimes test marketing exercise is not done properly. All its assumptions may not be true; e.g., a particular level of distribution. Many a time, marketers ignore the sensitivity of repeat purchase to product price. Even innovative products may fail to generate repeat purchases on account of price. PRE-TEST MARKET MODELS (PTM MODELS)

Since mid-eighties, pre-test marketing (PTM) modelling has been practised to convert the readily obtainable marketing information into forecasts of market share or sales volume and recommend improvements in the product, its pricing and promotion while introducing new products. The data is collected usually through simulated test markets, the proposed marketing plan, past experience with the product category, and the judgements of the executives. SIMULATED TEST MARKETS (STMS)

These are also called laboratory test markets (LTMs). They have been developed in the 60s. They helped marketers in the 60s. They help marketers in predicting the success of new products. These models have been drawn from the work of Pessemier who established the utility of lab data in predicting price elasticities and demand. STM aims at measuring in a controlled way the trial and repurchase intentions of a target market toward a new product as a result of the proposed marketing plans. STM's venue is either a permanent or a travelling lab. These labs are located in shopping centres, or are in-home. Respondents are intercepted at the shopping centres. Their attitudes and usage behaviour toward the product category are surveyed. They are exposed to the concept boards or commercials for the new product. They can buy a new product in either a real or mock store, if they are interested. Non-buyers or those who are not itnerested may be given a sample of the new product as a gift. After they try the product at home, say for a few weeks, they are contacted and their attitudes, use and intention to repurchase are surveyed. Sometimes sales wave is conducted % repeat the offer to sell and deliver more of the product to those who have tried it. STMs provide: (a) estimates of percentage of aware consumers who will buy the product (b) percentage of triers who will re-purchase These percentages are adjusted downwards to rectify the upward bias of a lab technique.

183

Test Marketing

There is a relationship between STM results and product performance in subsequent test market and commercialisation. PTMModeis When rightly used, STM enables us to decide whether further development of the new product is warranted by giving us a fairly accurate prediction of the market share. PTM models are further refinements of STM models which convert the STM data into accurate market share predictions and to simulate effects on share and profits of the different elements of marketing mix. Though not exactly scientific, they make use of a conceptual framework, historical data and managerial judgement. Burke Marketing Services in 1984 developed BASES II. In 1985, ASSESSOR and ASSESSOR IT were developed by Information Resources. In 1983, LITMUS II came on the scene. In 1982, we had NEWS/ PLANNER .. Other related models also TRACKER and SRINTER by Mahajan (1984). BASES, ASSESSOR, LITMUS and NEWS are the representative models, very extensively used. Importance Products successful in PTM have about an 80 per cent chance of succeeding in test market. This is illustrated in Fig. 11.1. The left curve is proposed to describe the relationship between the market share attained in PTM and the probability of succeeding in test market. The curve indicates an 80 per cent chance of succeeding in test market when PTM achieves its goal % indicated by 0 per cent difference on the horizontal axis. z I-

w

1.0

ex: « :E

0.9

I-

0.8

0 i=

~

CJ)

w

I...J

()

::::> Cl

0

ex:

l-

~

0.7

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-100% - 80% 60% - 40% - 20% 0+ 20% + 40% + 60% + 80% + 100% PERCENTAGE DIFFERENCE IN PTM SHARE FROM THAT REQUIRED FOR A NATIONAL SUCCESS Fig. 11.1 Proposed Relationship between PTM and Probabflftles of Test Market Success and Introduction Success without Test Market

The right curve in Fig. 11.1 relates pre-test results to the probability of succeeding nationally without a subsequent test market. In cases where PTM forecast exceeds the required share, say by 30 per cent or more, we may skip test market, ifwe have a lot of experience with the new brand's category. This, however does not take into account the competitive reaction.

184

Product Management

Advantages of PTM It is a cost reduction device in developing and introducing new products. It provides more timely data, and corrective measures can be taken to improve the concept product and or its marketing plan. It guards the company against competitors, who do not come to know about corrections. It has the potential to optimize certain aspects of the marketing mix. As it provides a conceptual framework, it improves the managerial understanding of the new product intorduction process. Disadvantages of PTM

These models do not address the problems in implementing the marketing decision e.g., sales force acceptance, delays in production and delivery, trade acceptance or support. It does not consider the competitive reactions and changes in economic environment. Managerialjudgements used in certain models may be not valid. STMs are unrealistic and unrepresentative. These models are not suitable for new-to-theworld products orfads or minor line extensions. They are not suitable for products sold in outlets other than supermarkets or drug stores. BASES

It is a model used to make sales predictions at several stages ofthe new product development process e.g., business analysis, test marketing and commercialisation. At earlier stages, past data are used for extension based on managerial judgement. At later stages, instead of previous averages, specific product or brand-centric data are used. e.g., we replace product concept by the actual product and package or concept tests by actual product usage. BASES I

Consumers are intercepted shopping mall to do concept test.

BASES II

In-home test of a physical product. A good forecasting accuracy is claimed.

BASES III

It measures the effect of retaling ambience e.g., shelf placement, presence of competitive brands, packaging and merchandising materials. This test is not used frequently.

BASES II

It uses a new product prototype. It also uses a finished concept board or commercial; with a package photograph, product description and key selling points. Consumers are interviewed in-store to identify high potential triers. They are provided with the product for in-home trial. A subsequent survey collects after-usage data. It also assesses buying intentions and frequency of purchase. Price-value assessment is also elicited. The data read with other marketing assumptions, are used to forecast first year trial rate, first-repeat rate, average time between purchases, average trial and repeat purchase volume, and year-end sales volume. BASES III

A finished test product is put in a retail environment after pricing it. 6-12 outlets are chosen across the geographical spread for this exercise. A sample of 1200 - 3000 shoppers is interviewed individually. TV commercials or print ads of the test product are shown. A off-coupon is given for the product. Coupon redemptions indicate trial volume. Coding permits identification of triers and non-triers. Subsequently also triers are surveyed to assess repurchase intentions and other reactions.

Product Category Concept

Marketing Plan Inputs

CD

Consumer Reaction

~

Awareness Model

Concept Tables

(2)

@ Coupon Redemption Model

t t

Trial Model After Use Tables

®

Repeat Model

@) ~

-

Promotion Adjustment Model

®

..

Volume Model

Fig. 11.2 Bases Volume Forecasts Flowchart (Adapted after Burke Marketing Services)

186

Product Management

In Fig. 11.2 we have given the flow-chart of the BASES forecasting model. It considers media and promotion plans, distribution, seasonability and brand and cateogry development indices. It generates first year trial estimate. Celibrated Trial Estimate =

Bying Incentive Score

(Distribution) 1 SI (Seasonal index)

x

(Awareness) 1 CD! (Ctegory development index)

where calibration of buying intentions is based on the past data of a dozen years, and adjusts overstatement of buying intentions. Calibration considers the cultural background of the respondent, his nationality, the product category and unit price level. Repeat rate estimates are dependent upon three afteruse measures % buying intentions, like -dislike score average, average price-value . After-use buying intentions are also calibrated just like the trial measures. They are then combined with the two other measures. We then ' obtain a refined first-repeat rate. The average purchase cycle is estimated on the basis of after-use intended purchase frequency adjusted for overstatement. Long-term repeat-rate decay is calculated using like-dislike scores and price-value measures for the test product. Average purchase units at trial and repeat are estimated from potential buyer's statement of proposed buying quantities adjusted from overstatement.

All above are used to produce sales estimates using the following model:

= where St = Tt = I\ = St

Tt + Rt

(1)

total sales volume up to time t trial volume up to time t repeat volume up to time t

and

Tt

=

(TM)PPo

(2)

where

= = Uo =

TM Pt and

target market size (number of households in the target market area) cumulative trial rate upto week t. average units purchased at trial.

~ (N. I\ = i=l

1 tY t U· ) 1 I

1-,

(3)

where

N j.1, t

=

cumulative number of customers repeating at least (i - 1) times by week t where

Yjt

=

(No,t = (TM) Pt) conditional cumulative i th repeat rate at week t given that (i - 1) repeat purchases were made upto week t.

UI

=

average units purchased at repeat level i.

Test Marketing

187

BASE I and II do not use an STM and make greater use of product category norms.

ASSESSOR The following Fig. 11.3 depicts the basic ASSESSOR model. Consumer Research

Management Input Marketing Plan and Positioning Strategy

Input Lab and after use measures

~·---o

------

_ _ _J

~~

I I I I I I

t

Fig. 11.3 ASSESSOR model

It consists of two components % a preference model and a trial and repeat model. STM provides data for both these followed by tele talks. The two estimates should be similar. If not, the convergence is achieved through data reconciliation. It is a dual approach. Prefemece model is judgemental. Trial repeat model is based on (choice) behaviour in the STM. Prior to being exposed to commercials in the STM, respondents are asked to list their consideration set or evoked set of brands from among those being tested. They are then asked to allocate a fixed number of points among the evoked set. It gives relative prefemece rating for each product. A follow up telephone call is made. The respondents are again asked to allocate points among the brands, but a new product is included this time. A market share can be estimated from the relative preference for the new product, and its draw from competitors product can be determined from the change in relative preferences. In the trial repeat model, long-run steady-state market share (S) achieved by a new brand is given by product of long-run levels of trial and repeat purchasing

S= where T =

TRB long-run cumulative trial run (the proportion of all buyers in the target group who ever try the product)

188

Product Management

R=

long-run repeat purchase rate (new brand's share of subsequent purchases in the product category made by previous triers)

B=

the index to adjust the users of buyers of the new brand relative to other buyers in the category.

ASSESSOR estimates T by assuming that trial follows the use by initial purchasing or receipt of samples. First purchase is a result of awareness levels due to product availability and its promotion. T is given by

T= where F = K=

F* K* 0

+ C* U - (F* K* 0) (C* U)

long-run probability of trial of the new brand given 100% awareness and availability. long-run probability of awareness of a consumer in the target market.

0=

long-run probability of the new brand being distributed.

C=

probability of a consumer receiving sample of a new brand in t,he target market.

u=

probability of using a sample by its receprient.

F is obtained from the lab test market. It is the corrected proportion of respondents who buy the new brand in the mock store. U is obtained by asking respondents who received sample whethere they used it. It is the proportion of people who used it. Kis given by advertising budget specified in the marketing. The marketing plan also indicatres the level of distribution (0) and sampling penetration (C). ASSESSOR estimates R as the equilibrium rate share of a first-order, two-state Markov process. We have to obtain probability of brand switch to the new brand of a previous purchaser of any of the estimated brands and probabity of new brand repeat ofthe last purchaser. Both these are obtained through STM data. ASSESSOR - IT is supposedly the successor to ASSESSOR. However, it is quite different, and not wei! documented. LITMUS and NEWS

As both these are structurally similar, they are described together. Their basic structure is given in Fig. 1 1.4 below.

Test Marketing

189

Consumer Market Couponing and Sampling

Media and Promotional Impact

Brand Awareness

Product Concept Ad Persuasion Packaging

Distribution Price Brand TrialFirst Purchase

Product Quality

III

Repeat Buys Trial and Repeat Purchase Volume Sales in Units Price Sales in Rs. Fig. 11.4 LITMUS Model of New Product Introduction

Both lJtmus and News are a decision process or hierarchy-of-effects models. Awareness is built by promotion. Awareness to trial is influenced by ad persuasion, product concept, packaging, price and distribution. Trials to repeat are affected by price and product quality. There are periodic forecasts of awareness, trial, share, and sales and even profitability. While NEWS uses consumer survey data, LITMUS uses STM data to estimate trial and repeat probability to make consumers travel from awareness to trial and from tiral to repeat, whereas NEWS allows just two. LITMUS also calculates profitability estimate .

•••

BUDGETING FOR PRODUCTS We have already seen that product planning and development is integrated to the marketing planning. Budgeting in essence means resource allocation for marketing. Product budgeting is resource allocation for products. Budgeting has been traditionally considered just a spending exercise to predetermined goals. Budgeting is unpalatable for organisations because there are hassle factors like attending meetings and bargaining for larger allocations, reluctance to provide funds for product management, conflid between finance and marketing/product executives. Marketing and product expenditure does not fall into the jurisdiction of one department. In recessions, when sales are affected, the first axe falls on marketing/product budgets whereas in reality the expenditure must increase precisely at such times.

It is necessary to explain to the top management that all their goals of sales, market share and profits are attainable at a specific cost. If you want goals to be realised, you must be ready to pay for them. If you pay less, to that extent your results will be affected. There is a direct linkage between the goals set and the objectives accomplishment. Marketing and product planning do not happen without spending. Mostly, management indulges in such wishful thinking. Budgeting is just not an account's job. It has strategic significance. What is Marketing and Product Budget?

Ideally, it is the budget for all direct and overhead costs associated with marketing and product functions in a company. Accountants find it difficult to apply marketing costs to products anyway. They treat marketing expenditure as an overhead. Generally, marketers should not be held responsible for things they do not control, e.g., order processing, transport, selling costs, distribution commission. In practice, many companies hold marketing

Budgeting for Products

191

responsible for commissions paid to distributors and order processing costs. If these items accountfor a large chunk of allocated marketing budget, there are no funds left for legitimate marketing activity like promotional campaigns. Companies spending large sums on advertising and marketing in fast moving consumer items sector have their budgetary control decided atthe Board level. Marketing executives have little control over the size and allocation of spread.

It should be appreciated that budgeting is not just a quantitative monetary exercise. Our resource requirements include people, space, IT, training and so on. No proof can be provided that a particular marketing expenditure has led to particular result. It is a 'black-box.' Inputs like advertising, personal selling time, promotion and discounts can be measured. Outputs like market share , profits, cash flows can be measured. But we are notsure which inputs create what ~utputs. Complex mathematical models do not really help in practice. Marketing/product budgets have three dimensions - analytical, behavioural and organisation. The major emphasis traditionally is, however, on analytic techniques. Approaches to Market Budgeting

The following approaches are used to set marketing/product budgets. Economic Analysis

It is based 0)1 marginal analysis. We keep on spending till the incremental or marginal income from the marginal unit of expenditure is equal to its cost. Till this point, income generated is more than the cost. It is a way to maximise profits. Management Science Models

These are quantitative models which decide the optimum marketing and ad spends. These sophisticated models are not used much in practice, and whenever used, they are used for wrong reasons. Corporate Budgeting Approaches

Here, an attempt is made to remove some uncertainty regarding the response of sales to marketing efforts. Programme budgeting, output budgeting and objective and task models are designed to work in this direction. They organise the things logically to illustrate, objective and task approach. (i) translates corporate goals into marketing goals. For instance, the corporate goal of 8 per cent rise in product sales may need 45 per cent increase in consumer awareness, 15 percent growth in trial of the product, and 2 per cent growth in distribution coverage. (ii) breaks down marketing goals into tasks to be achieved. For instance , awareness is created by media exposure, trial is increased by sampling, and distribution coverage is increased by trade promotion. (iii) calculates the costs for each of these tasks - advertising, sampling, promotion etc. needed and their costs.

(iv) sums up these costs to give the marketing budget for the product. (v) repeats this for each product and market in the marketing plan to get the total marketing budget. Many companies just adopt the budgeting methods of their competitors. The approach is judgemental. All these approaches can be combined to play safe. All these methods, however, do not overcome the blackbox uncertainty. In an organisational setting, methods are adopted without actual participation in the budgetary process.

192

Product Management

Precedent is followed to predict the next year's figures. Many a time incrementalism is followed. Rulesof-thumb like percentage-to-sales, affordability, parity with industry and objective-task approach are some other factors followed while making the budget. In experimental budgeting, something is tried to see what happens. In negotiations, the budgets are set on the basis of bargaining and negotiations. Budgeting in Practice

Who actually runs budgeting in an organisation? There are two practices - bottom-up budgeting and top-down budgeting. At product management level, the process of bottom-up budgeting starts. Resource demands are pushed up the organisational hierarchy. In its pure form, this is not followed in many organisations. Ratherwe have bottom-up/top-down budgeting, which involves more negotiations/bargaining. However, it is also initiated at product level. Top-downlbottom-up budgeting combination provides more control to the top management over marketing/product budgets. It also shifts the focus of negotiations. Lastly, in top-down budgeting, there is no scope for negotiations as the man at top dictates what is to be spent. The practice is influenced by whose initiative it works in resource allocation, the negotiations involved and the participants involved. Marketing/product budgets are influenced by the position enjoyed by this department in the organisational set-up, the strategic significance of product planning and budgeting and corporate culture. Budgeting for New or Modified Products

The most important thing for such products is to generate trials which are function of product preference, product awareness and prod uct distribution. It is necessary to track awareness at regular intervals, as also the distribution level, keeping product preference constant. Regression is used to predict cumulative trial rate. It is necessary to examine how cumulative trial rate is influenced by different yearly expenditures out of total marketing budget allocated to push and pull activities. Pull expenditure is linked to awareness and push expenditure to distribution. In the planning period, all purchases are trial purchases. As the rate of trial grows, we consider the long-term-retention rate (LRR). It gives the rate at which last-time buyers buy back the product (RR) and the rate at which former triers who were lasttime buyers of competing products switch over to our products (SBR). LRR also computes the long-term market share amongstthose who have tried the product. Product's health profile is given by changes in LRR, RR and SBR over a period of time. After attaining a substantial level of travel, a new product finds repurchase behaviour has become increasingly important. The more often people buy a product, and the higher the brand switching phenomenon, the stronger the effect will be. Managers have to decide how the total marketing budget will be spent on retention of existing customers and luring the new buyers. In niche marketing, there is a constraint on the number of triers. However, these triers are faithful as they have not many choices to fall back upon. It takes little effort therefore, to retain them. It also means a focused marketing programme to retain this specialised segment, as there is no possibility of getting the brand switchers. A computer programme called NEWSTRAT has been developed for this types of budgeting. Marketing Budget for Established Products

As we have already seen, several companies adopt goals down, plans up approach. The plan is made for a year. Its main aim is to implement the strategy decided by the top team. Strategy, therefore, is the key variable. Management must have strategic plan for product or product line. The offer, its positioning, promotion, and pricing, though do affect the demand and sales, they are not direct marketing expenditures. The direct marketing expenditure is attributed to the marketing support activities like competitive analysis, cost ~nalysis, spending on marketing activities, forecasting. The nature of the offer however, has a direct bearing on these support activities and their budgeting.

Budgeting for Products

193

MARMlX model captures the above philosophy. It points out the total budget required for marketing and its allocation to the expense categories (or mix elements). It is integrated to LRP -long range strategic planning; from which we derive the annual marketing plan or budget. The decisions to be taken pertain to both the offer and the marketing support activities. Performance feedback forms an essential input in the annual marketing budget, which in turn affects the strategic plan. The MARMlX model has been developed by Pessemier in 1982. Another model is called BRANDAID and is developed Little by in 1970.

BRANDING DECISIONS Modern Business has to take a crucial decision -branding a product. Once a business opts for branding, it starts building up that brand by appropriate brand strategies, advertising, promotion, pricing, distribution and packaging. Brand building activity is an investment, and is a long-term process. Some manufacturers are content to remain just the producers, and hand over the entire marketing and branding exercise to another firm. There are thus firms who just market a brand name, and keep no manufacturing base at all. Brands • ultimately command customer loyalty. What is a Brand?

This word brand is comprehensive, and covers several other narrower terms. A brand is defined as "a name, term, sign, symbol or special design or some combination of these elements that is intended to identify the goods or services of one seller or a group of sellers. A brand differentiates these products from those of competitors" (American Marketing Association, Chicago). A brand in short is an identifier of the seller or the maker. A brand name consists of words, letters, and/or numbers that can be vocalised. A brand mark is the visual representation of the brand like a symbol, design, distinctive colouring or lettering. Mercedes Benz is a brand name and the star with it is a brand mark. A trade mark is a brand that is legally protected. All trade marks are brands and include both the brand name and the pictorial design. Exclusive rights to use the brand in perpetuity are granted by the trade mark law, whereas the Patents and Copyright Laws have expiry dates. Essentially, a brand is a promise of the seller to deliver a specific set of benefits or attributes or services to the buyer. Each brand represents a level of quality. Irrespective of the fact from whom the brand is purchased, this level of quality can be expected of the brand. A brand is much more complex. Apart from attributes and benefits, it also reflects the following.

Values: The values which govern a producer are reflected by the brand, thus Tata stands for quality, fair price and so on.

Branding Decisions

195

Culture: A brand represents a certain culture, e.g., Coke is an icon of American culture, while Shilpa Bindis are typically Indian. Personality: A brand projects a personality. Had the brand been an animal or an object or a person, what would come to our mind? Videocon suggests a lion, MRF suggests a muscle man and Rin suggests a lighting flash. Sometimes a brand may take on the personality of an actual person, e.g., Charlie Chaplin and Cherry Blossom. User: The brand suggests its own target audience. We know what a Garden Woman is. We know that Sunny is for teenagers. We expect a Mercedes to be driven by an executive or a top-class businessman. These users correspond to the values, culture and personality of the brand. Because of the imagery associated with the brands, they actually have the power to enhance or limit a consumer's perceived image or self-image. The above discussion makes one thing very clear- a brand is a complexsymbo1.lt is not just a name. Branding, therefore, involves developing deeper meanings for the brand. The lesser the dimensions a brand possesses, the shallower it is. The more the dimensions, the deeper it is. A brand cannot be just a bundle of physical attributes. Attributes are very easy to copy. Besides, attributes valued today may not be valued tomorrow. Even benefit-oriented brands are not on firm grounds. Maruti's fuel economy can be attained by other brands. Maybe, the benefit valued today may not be valued tomorrow. A brand becomes enduring by its values, culture and personality. These constitute the essence of the brand. Mercedes stands for prestige, success and high technology. Actually, this should become the building blocks of its brand strategy. We just cannot think of a Mercedes being offered at the price of a Maruti. Perhaps, this will dilute the values associated with Mercedes. And remember, it takes years to build these values. Branding Decisions

Branding is interwoven with religion. Mankind built branded environments, places to go and practise religion. The chants and bells were to bring people into these places, which is very much like advertising. The concepts and ideas have been there forever, and as SOCiety developed, brands proliferated to differentiate and generate business. Historically, most products were unbranded. Producers sold goods or commodities to fulfil our core or basic needs like taste, hunger or energy. These products did not have any identification mark on them. The first step towards branding a commodity is to package it, e.g., rice, papad, salt. Water, for example, used to be sold as a commodity. Today, most mineral waters are sold as brands. The company enhances the value of the commodity functionally. Branding started formally when craftsmen put trade marks on their products to protect them against inferior quality. Painters started signing their art works. Pharmaceutical companies were the first to put brand names on their products. Today hardly anything is unbranded. Products from unorganised markets like vegetables, salt, fruits etc. are unbranded. But now we have branded salts and atta too. Venky's and Godrej have branded chicken successfully. In spite of a brand movement, products have been demanded in generic, unbranded form in pharmaceutical and staple consumer goods sector. Al Ries feels a commodity, is a good category to launch a new brand because one becomes the first in the category. When commodities are branded, they have to counter the retailer resistance, who get greater pricing freedom when they are unbranded. Along with this, there is consumerresistance - a housewife loves to select foodgrains, clean them, get them ground into flour. A readymade Captain Cook or Trupti atta deprives her of all these sentimental actions. However, if we are successful in lessening the consumerresistance there arises a demand. The pull effect compels the retailer to stock the brand and his resistance also comes down. Consumers want a good value for money from a branded commodity. Functional products and commodities take less to branding than aspirational products. Manufactured products are branded easily, whereas it is not so for agricultural ones. Of course, a commodity can evolve

196

Product Management

into a brand in stages. Branding evolves through stages - a commodity, a functional brand, a high value added brand and a premium product. Pads were used as sanitary napkins. The next improvement was belted napkins. It was followed by beltless napkins. We now have dry-weave napkins. The consumers are expected to adopt each ofthese product versions one by one, as they come in the evolution of brand. However, it may so happen that the aspiring middle-class with high disposable income leap frogs into the high end brands like "Whisper" and "Ariel." While branding the products, an attempt is made to go beyond mere functionality. Brand equity is to be built up by advertising appropriately to reduce the initial consumer resistance. The low involvement product can be made a high involvement product by emphasing certain situations, e.g., Cease Fire demonstrated how a family's bliss can be shattered by a sudden fire. Sometimes, non-functional elements like fun are emphasised, e.g., Captain Cook salt. Textiles are sold on imagery and not on functional appeals. The brand becomes aspirational. Later, textiles are associated with values like machoism, friendship and growing up. Benetton ads do just this. The brand then becomes an icon - it stands for something. However, all brands cannot become icons. The core need of clothing is satisfied by a set of product classes - jeans, shirts, dhotis. If we consider two-legged garments only, we have a choice between trousers and jeans. Jeans are denim blue material, with rugged cuts, metal zippers and buttons and is a tough piece of clothing. This product is augmented by giving fancy pockets, double stitching, wider range and designs, and is associated with youth and machoism. The augmented product takes the brand name of FM jeans. Brands thus help to make a personality statement. FM Jeans declare your anti-traditional intentions and your desire do find a cause in your life. The onlooker may like this attitude and shares it. Evolution of Brands

Brands start off as products made out of certain ingredients. Over a period of time, brands are built through marketing activities and communications. They keep on acquiring attributes, core values and extended values. EXTENDED VALUE CORE VALUE ATTRIBUTE

CATEGORY ASSOCIATION

PRODUCTS

INGREDIENTS TIME Fig. 13.1

Despite the branding, consumers may treat a certain product as a commodity, e.g., cement, since the price is the same for all the brands and all of them have established the same identity. To begin with, just a little value addition like packaging makes a commodity a brand but when all competitors do the same thing, there is the danger of the brand again switching back to its commodity status. Many consumers prefer lower

Branding Decisions

197

priced generics which are sufficiently satisfying. Generic products are a challenge to high-priced brands and weaker brands. Some companies cut their prices to compete with generics. It is desirable, however, to fight them on the basis of quality - offering greater quality than generics at competitive price.

As we have already observed, branding makes it easierfor consumers to identify products and services. Brands ensure a comparable quality when products are repurchased. Brands simplify a cansumer' s shopping. Choosing i'l commodity is far more complex than choosing a brand. Commodity selection is based on rational left-brain logic. Brands have emotive associations. They can be chosen on a more holistic basis involving parallel left and right brain processing. The firms find that brands can be advertised. The firms also get the advantage of recognition when brands are on the shelves of the retailers. There is no confusion between branded products amongst consumers. Branding makes price comparisons difficult. Good brands help build a corporate image. Branding gives added prestige to the marketer. Branding also gives legal protection to the seller. Brand loyalty protects a firm against competition. Branding enables a seller to segment the market. The distributors prefer branding as an identification tool for vendors, as a convenient tool to handle the products, and as a guarantee of certain production standard. These are some of the factors which encourage sellers to brand their products though branding is a costly proposition, involving the costs of packaging, labelling, advertising and legal protections. The firms have to carry out two onerous tasks once they decide to brand - promoting the brand and maintaining a constant quality. If these two requirements cannot be met, products are better left unbranded. Branding decision is related to the nature of the product and the trade channel is involved. The sophistication of the distribution channels is conducive to branding. The opening up of a vast national market also augurs well for branding. Brand development and personal disposable income have a positive correlationship. Onate, brand-driven businesses are doing well, while commodity-driven business are faring poorly. The market is handsomely valuing brand-driven companies that have tailor-made their strategies for the Indian market. It is considered more sensible to acquire rival brands than investments in fixed assets per se.

Brand Names The company has to choose its brand name strategy. Each product can have a separate brand name, or one family name can be extended to all the products. Philips follow the family brand name strategy. Hindustan Lever brands the individual products. Let us consider the pros: Family Brand (a) It is cost effective in as much as it reduces product launch costs and also the promotional expenses

incurred on a continuing basis. The success of one brand when well-promoted gives a push to the entire product line. Management of trade channel also is easier. In tyre marketing this approach is highly successful. (b) For products of uneven quality, this approach is a dicey proposition. Even in markets showing

variations in consumer profiles, this approach is not useful. (c) Each product is denied a special identity which can go a long way to make it click. Nokia is a corporate or family brand. There is no sub-branding and the individual products are merely defined by numeric descriptors such as 5110, and even these do not appear on the product itself. Yet, the brand has leap frogged most of its competitors like Motorola and Ericsson. Even in technology-based businesses, a company can have a brand strategy. The biggest technology brand is Microsoft. Individual Brand (a) Individual brand invokes associations and imageries. These psychological factors influence the buying decision.

1':18

Product Management (b) Even if the product fails. the effects are restricted to that product only. They are not transferred

to the whole product line. (c) Costlier strategy. (d) No benefit to the brand of the organisation's reputation.

Modified Strategy

These days companies tend to brand the products individually, but also give prominence to the company's name or logo in all promotional efforts and product packaging. For instance, ATATA PRODUCT is a legend that goes with every individual brand name of Tata Oil Mills Co. (TOMCO). Some companies adopt brand extension strategy, by introducing similar or dissimilar products, e.g., Nirma toilet soaps. Some organisations decide several brand names ofthe same product where each brand has its own following. The brands compete amongst themselves. Soap manufacturers follow this strategy. AI Ries and Jack Trout are against brand extensions. In their opinion, brands are not dying - the companies are killing them through mindless line extensions. When a company line extends, it weakens itself. Product categories can be given extensions, e.g., gel pastes, detergent ultras, puri-gerators. Telephone directory reclassified becomes Yellow Pages. It is more than mere positioning. It is creating a new prod uct category with just an extra push. Tinker in the iab and let the brand or product plus emerge, e.g., gel, cologne soap, microsystem, germicheck etc. The choice of an individual brand name is the next important decision. The choice is not so easy. There are really few good brand names. As a wit has aptly remarked, "Searching for a brand name is like sear:::h for a wife - there are lots of choices, but the best ones have already been taken." Sometimes, brand names are based on a person's name, e.g., Honda, Estee Lauder, Khaitan. Brand names can be based on locations, e.g., Indian Airlines, Kentucky Fried Chicken. Brand names can suggest an important product attribute, e.g., Duracell. There are brand names which suggest a life style, e.g., Fleet Footers. EXXON and Kodak have an interesting history behind them. When ESSO found it necessary to change its name, the computer was fed with various vowels and consonantial combinations, and 44,990 four-letter and 500,000 five-letter combinations came out. EXXON was finally chosen because it is distinctive and has graphic design possibilities. Kodak was coined by George Eastman in 1888 because he liked the letter 'K' and wanted a name which could not be misspelt. Characteristics of a Good Brand Name

A good brand name should possess as many of the following characteristics as possible: (i) It should be distinctive: The market is filled with over-worked names and over-used symbols. A unique and distinctive symbol is not only easy to remember but is also a distinguishing feature. "Northstar" shoes have a distinct name. Oi) Itshould be suggestive: A well-chosen name orsymbol should be suggestive,of quality, ormay be associated with superiority or a great personality. The name VIP Classicfortravelwares is suggestive of a superior quality for a distinct class of people. Promise is suggestive of an assurance of tooth health. (iii) It should be appropriate: Many products are surrounded by a certain mystique in the minds ofthe

consumers. Carefree is an appropriate brand name of a sanitary towel. (iv) It should be easy to remember: It should be easy to read, pronounce and spell. Tide, Surf, Gold Spot are examples of such brand names.

(v) It should be adaptable to new products: Videocon is a good brand name for TVs and VCRs but when it is extended to refrigerators and washing machines, some of the sales appeal is lost. Hotline was a good name for gas stoves, but is definitely not a suitable name for TVs. (vi) It should be registrable under the Indian laws of Trade Marks and Copyrights.

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199

Mostly a company develops several names for a product and makes a choice later after debate and discussion.

Generic Usage of Brand Names Sometimes, a brand name becomes so succ~ssful that it comes to be associated with a particular product category, e.g., frigidaire is brand name used for any refrigerator, Dalda is a brand name commonly used for anyvanaspati ghee. The brand names then do not remain distinct and become generic. Cellophane, nylon, fiberglass, celluloid, Kerosene, Vaseline and aspirin have thus become generic. Xerox and Band Aid are not yetlegally generic, but they have been so well promoted that many people just use them generically. Though each firm strives to have a popular and preferred brand names, it does not like them becoming generic. It is a tight-rope walk. To protect against such generic use, a brand name can be combined with a company's name, e.g., Eastman Kodak. A brand name can be combined with a generic name, e.g., Dacron polyester, Dabur Chyavanprash. The public can be given a notice about the copyright of the brand name. Some companies assume the name of the brands, e.g., Sony. Generic Brand A brand that becomes generic becomes a product category, and no longer remains a brand. Frigidaire is GE's brand. But now we call any refrigerator a 'fridge.' So it has become generic. Other well-positioned brands have overtaken Frigidaire, and it is no longer a market-leader. Dalda Vanaspati has become generic. It is now again trying to lose its generic label. Though consumer asks a product by the generic name, he ends up buying a brand that offers attractive benefits. The generic brand sits on the shelf.

Brand Strategy Decisions A company has four choices in respect of its brand strategy. (i) Line extensions: Extend the existing brand name in the existing product category.

(ii) Brand extensions: Extend the brand name to new product category. (iii) Multiple brands: Have new brand names in the same product category. (iv) New brands: Invent a new brand name for a new product category.

The following diagram illustrates these four choices: PRODUCT CATEGORY

EXISTING

EXISTING

NEW

LINE

BRAND

EXTENSION

EXTENSION

MULTIPLE

NEW

BRANDS

BRANDS

BRAND NAME NEW

Fig. 13.2 Brand Strategy Choices

Most of the new products in the day-to-day use and grocery products are line extensions. A few are brand extensions. A few new brand names appear in both multiple brand strategy and new brand strategy.

Line Extensions: Here the company introduces additional items in the same product category, keeping the brand name same. The additional items may be of a different size (say a 150 gm cake of Palmolive Soap). There may be a new form, say Liquid Lifebuoy Soap. The additional item can be of different colour, say, a lilac soap instead of a white soap. The package may be different, say a satchet of a shampoo. Some additional flavours can be introduced, say Brown & Polson Custard Powder is now available in chocolate

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and with elaichi flavour. There may be added ingredients, say, Lifebuoy Gold. Lux ;s available in three skin types, say for normal skin. dry skin and oily skin, making it "your kind of soap for your kind of skin." Line extensions can be innovative, or "me-too" or may be void-filling. Most of the new product activity is of line extension type. Line extensions offer a variety to the customers. An advantage can be taken of consumer's latent need. Or eise, a competitor is to be matched in terms of its offer. Line extensions also allow a company to command more shelf-space at the retail level. Line extensions can be made available through a specific mix of trade channels, e.g., lower end products are available at general stores and higher end products at a few specialised outlets. Line extension, though very popular, is not without its drawbacks. The specific meaning of a brand might be lost by heavy extensions. Ries and Trout are against line extensions. Today, Coke in India means a 300 ml bottle vf the real thing. Say, an extension brings a 500 ml and 1 litre bottle. Again, a can may be introduced. Perhaps, there may be a diet Coke later. All this may become confusing. Besides, what is the guarantee that all these extensions will have sales sufficient to cover the costs? Even additional sales may be at the cost of other items ir. the line. Line extensions work only if the sales are taken away from the competitors. Mostly, they eat up the sales of our own brands. Brand Extensions

An existing brand name is extended to a product being launched in a new product category. Honda is a brand in the field of motorbikes. The same brand name is given to products in the field of lawn mowers, and marine engines. Brand extension works well for rubbing off the success of established brand names to new products. Th8 flew product, therefore, finds easy acceptance. However, if the new product is not satisfactory in pelformance. it might affect the reputation of the company's other products. Most of the time, hrClnd name n la9 nOl be appropriate for the new product category. While brand extending, if it advisable to SCI? how the as~.oc;ations of the parent brand are consistent with the extended brand.

® THE ANATOMY OF A BRAND A brand consists of several important aspects, each of which constitutes its anatomy. The first concept is that of the brand image. Brand image approach was developed by Ogilvy. According to him, what advertising does is to provide the brand a first-class ticket through life. A brand is invested with a set of associations, favourable connotations and psychological overtones. These may not be an intrinsic part of the brand, but just add-ons. This is the brand image chemistry at work. Marlboro cigarettes evoke the image of the maverick cow-boys. They remind us of freedom, machoism and the mystical West. These perceptions have been woven around the brand. Most of these are extrinsic, though some of these could be related to the intrinsic characteristics of the product. According to Oglivy, brand's market share is a function of how the marketer shapes the image of his brand. We have broadly understood the concept of the brand image. As we know now, the brand image is evocative. It evokes a set of associations. According to Aaker, there are several types of associations -product attributes, life-style, personality, intangibles, customer benefits, relative price, user or application, celebrity/ person, product class, competitors and country or geographic area. Brand managers study these associations and their relevance. When a brand is positioned on these associations, it is called a brand belief. Brand beliefs, taken collectively, make up the brand image. A brand image is also affected by the organisation that markets it. There is a link between the corproate image and a brand image. Some companies build their brand advantage on the basis of their corproate image. Corproate brands generally provide credibility to the product brand. Corporate image generally provides a strong unassociable brand image. The unique selling proposition (USP) and brand image are related. The USP is more focussed on a single benefit. The brand image is diffused and open-textured. These two are different in the degree of complexity only.

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Brand Identity

Every individual in society has an identity. An individual stands for some values. He has certain aspirations. He wants to project a certain image. His overall personality distinguishes him. He establishes relationship with others. Brands like individuals, too have identity. It consists of brand associations created by the brand manager. Brand identity has two dimensions % an inner core identitty and extended identity. Brand Identity: Strategic Slant

Brand identity is not just the brand image. It is also not just positioning. It is also not just the physical attributes of the product. It is also not just the outsider's percpetion. Brand identity is a comprehensive cOT\cept. Brand image is the current perception. Brand identity is the goal which the brand manager wishes to reach. It is proposed that one will travel from the current image to a future perception. Brand position is a small part of brand identity chosen for communication with a target audience. Core Identity

It is the essence of the brand. Core identity is the soul of the brand. Core identity is generally reduced to a few words, say Lux is a beauty soap. But this may not always represent the entire core identity. Extended Identity

Core identity is not enough to describe a brand. Elements of extended identity makes for complete description. Close Up toothpaste has oral freshness as its core identity. It allows young people to come closer to one another. It is not just a paste, but a mouth wash too. This is its extended identity. Nycil powder for prickly heat takes our care in the scorching summer. This is its core identity. But it is also a sweat fighter. This is its extended identity. A brand can have multiple identities. Citi is considered to be a middle-class bank all over the world. But here il1india, it is elitist. Citi is also perceived as a foreign bank. Global brand identities need adaptation to the local conditions. Multiple identities have overlapping common set of associations, which reflect partly the core identity. COMMON ASSOCIATIONS

IDENTITY A

IDENTITY B

Fig. 14.1 Multiple Identities

Brand identity is now considered to be a platform to build brands. Brand identity has six key elements -brands physique, brand personality, brand relationship, image of the target audience, self-image and brand culture. Brand Personality

Human beings have a personality which is summation of several chracteristics or traits. A brand too similarly has a set of characteristics which are human in nature. Some of these characteristics are

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203

demographic (sex, or genre, age, income-class). Some are considreed to be old laid-back brands e.g., Weston, whereas some are considered to be mod and latest brands e.g., Samsung and LG. Mopeds are feminine whereas motorbikes are masculine. Surf Excel is upper-class, whereas Nirma is a down-market brand. Raymond makes you a complete man. Poonam saris are commonplace. AmEx is a prestigeous card, but there are other cards from nationalised banks which are down-to-earth. People like to interact with brands. Many amongst us would like to whisper a thing or two to our house, bike or car. Many have a lotto say to their garments. They may refer to their products as if they were human. Brands like humans have certain abilities and skills. They have certain associations and attitudes. They thus appeal to our senses, reason and emotions. A consumer must be comfortable with the brand personality. Brand personaltiy must be consistent over a period of time. Jenifer Aaker has developed a brand presonality scale by identifying five brand personality factors such as sincerity, excitement, competence, sophistication and ruggedness. There can be several sub-traits under each of these e.g., we can include honesty, wholesomeness, cheerfulness and down-to-earth quality under sincerity. The scale is also used to measure attitude towards the brand. Some factors generate positive attitudes, whereas some others generate both positive and negative attitudes. Several factors contribute towards the shaping of a brand personality % both product-related and nonproduct related factors. User imagery is a non-product related factor. Sponsorship also is a non-product related factor. Symbols like Air India's Maharaja contribute a great deal to the personality. Brand personality provides an added insight into the brand. It helps to differentiate a brand. It has expressional value. Brands speak for people. A person can have a relationship with a brand. The brand personality and product attributes should complement each other. Brand Positioning

Brand positioning is an act of occupying the mindspace of the consumer. The more distinct and valued this is, the better it is. Positioning makes us stand out in consumer's mind against the products of our competitors. Aaker considers the brand proposition as 'a part of brand identity and value proposition that is to be actively communicated to the target audience, and that demonstrates an advantage over competing brands'. Ogilvy was an advocate for positioning in 70s. AI Ries and Jack Trout, the then ad executives in Madison Avenue and now consutiants, wrote on positioning in the late 60s. Their book Positioning: The Battle for the Mind (McGraw Hill, 1980) is a mile-stone. According to Ries and Trout, positioning is a creative exercise that starts with a product. But positioning is not what you do to a product. Positioning is what you do to the mind of the prospect. The shortest route to heart is through the mind. Product positioning is both % tinkering with the product, and the mind. We have to search a hole or a niche in the consumer's mind not occupied by someone else. Communication helps a great deal to achieve positioning. But it goes beyond communication. Positioning statement is a concise statement culled from the brand identity and value propositon. While developing the positioning statement, we have to assess where our brand stands and where do the competitive brands stand. This is called market exploration. Then we look up for the marketsegmenets we have in mind. The essence of the brand or its core identity is identified. We have to understand the value proposition of our brand. We have to assess which critieria potential buyers use to prefer one product to another. We have to see how our brand is perceived against the competitive brands. Ultimately, we choose the best position. If that position is already occupied, we may decide to bypass it and choose some other position. But if we are strong, we can assault an already occupied position.

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Positioning statements are useful in product development, in promotion, in training and other marketing activities. Brand positioning just like brand identity tends to be aspirational. Positioning can be application-oriented (longest lasting batteries) , target-market -oriented (complete food for children), exclusivity-oriented (a rub for colds for children), benefit-oriented (toughens you up from within), functionality-oriented (soap with a moisturizer). Sacrifice is the sessence of positioning. For effective positioning, a brand has to stand outfor one quality or benefit in the mind of the consumers, instead of being all things to all people. This involves sacrifice of opportunity to diffemet market segments. Positioning is really, to quote Prof. Sen Gupta, a crusade against the slothful marketing philosophy of offering me-too products. A brand position may change over a perid of time. Sometimes, it is changed deliberately. It is called repositioning. Positioning Statement

It tells us what the brand is all about. Since there is a time constraint, positioning statement is succinct and articulates in a couple of sentences the essentials of the company, what its products stand for, its main benefits or USPs, the target audience, markets and relevant corproate relationships. POSitioning statement states facts and evokes feelings. A good positioning statement quickly introduces us to the company and its product and their relevance to us. A positioning statement can both be general or specific-audience-directed. The most elementary structure of a positioning statement is: V (company or product) is W (definition) that offers X (benefit) to Y (target audience) in Z markets. The nextsetence can spell out USP and/or proprietory technology which provides new benefits. A (USP and/or proprietory technology) provides B (new benefits) and C (new benefit) .

•••

BRAND CULTURE AND BRAND RITUALS As we have already observed, brand culture is a key element of the overall brand identity. It influences and penetrates a brand. Mercedes Benz has German values. Coca-Cola is all American. Some brands promote individuality and some collectivism. Brand culture provides an internal spirit to the brand. Culture comes over a period of time. The founders provide the first feeding of cultural values to the brand. The brand owner indoctrinates the brand with his own culture, and invests it with his own value system. Many brands weave a culture around themselves- Charlie girls of Revlon are comfortable in corporate world, Disney characters remind us ofthe 'child' in us, and Mercedes symbolises prestige and opulence. Some perfumes are serene, while some emphasise an all-consuming lust. Close-Up is our neighbourhood girl, but Colgate is a protective mother. Nirma housewife does the chores herself, but Ariel represents the mod working woman. Each brand has its own image, and represents a unique culture.

It is the endeavour of marketers to fit the brand culture in the overall culture of the target audience. The greater the congruence between the two, the more is the acceptance of the brand. Pillsbury started in India on a clean slate. In the US, though Pillsbury started as flour, it soon diversified into baked foods. The company stood for family life enriched by moms with the feelings of warmth and togetherness. Even in India, these values can be extrapolated. When a mom puts a chapati on the dining table, she is putting a bit of herself into it. The company developed this culture for the Pillsbury brand. It did not communicate the technology of its manufacture. It just emphasised the chakki freshness and tradition. The dough boy has been used as a mascot. He is assistive, and helps moms in the kitchen. He provides cheers. He helps the women to live up to their traditional image, while using the modern means. Thus Pillsbury is extremely sensitive to culture.

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Product Management

Local Culture Influences a Brand

McDonald's culture is to bring a smile on the face of everyone by being childlike. Even the old relish the youthful spirit once they are at McDonald's. The layout of a McDonald restaurant suits its target audience. In a family-oriented Indian society, it serves dishes distinctly Indian in taste. De Beers had to change the mindset of the Indian society while promoting diamonds. In fact, De Beers is selling love. Indian women can afford a costly Kanjeevaram silk sari, butthey are apprehensive to pick up a flawless diamond. De Beers sells love with a price tag. It educates the Indians aboutthe fourC's of diamonds - cut, clarity, colour and carat. Brands have to provide value for money (VFM) in India. They should not hurt the religious sentiments. The elderly approval is considered a good thing in India. Kellog has found it very difficult to sell its breakfast food in India on account of cultural factors. India loves idlis and parathas. Pepsi succeeds by being a youth brand who wants to juice the maximum out of life (yeh dil maange more). Even Chinese food and pizzas are adapted to Indian palate. T ropicana orange juice being sour was not accepted by Indians, and so it positioned itself as 'the taste of good health' to overcome its 'not so sweet' barrier. Louis Jadot is a typical French wine. Gucci is typically Italian. A country of origin is used as a surrogate for product quality. Brands Influencing Culture

IBM is serious and sober. Apple is just opposite. Nike wins at all costs. 'Just do it' is educative - it teaches us to beat the competition, and be a winner. Singapore girls of Singapore airlines are from nowhere else, but Singapore. Gucci presents its Italian pedigree. Basamati rice is typically Indian. Ferrari is the pride ofitaly. Red Label tea is associated with a loving mother who says 'Jiyo mere lal.' Mother anchors the family. So does the tea. Amul is the taste of India. McDonald cannot Indianise cent per cent or else it loses its focus. They do use spices to suit Indian taste, but they don't sell the samosas. McDonald is neither too American nor too Indian. It does not dilute its core values of quality, service, cleanliness and value.

New Culture Virginia Slims make 'women come a long way.' Body Shop is a cosmetic company whose products are not tested on animals. It thus wards off negativity associated with cosmetics. MTV has spawned MTV generation. Dockers put Americans on casuals who so far were dressed in pin-striped dark-blue suits. Zodiac created a tie culture in India. Coca-Cola invented the friendly old Santa Claus in a scarlet jacket in 1920s while releasing its Xmas ads. Pre-Coke Santas were stem-looking and wore multi-coloured jackets. Brands trigger off latent desires and stimulate unfelt needs. They put new meaning into the lives of people and change the attitudes and outlook of the consumers. They set new trends, and mould the consumer behaviour. They become social artefacts. In due course of time, they create cultures - the sum total of man's learned beliefs, values and customs. Barbie dolls have stirred the imagination of countless little kids who want to be what she is. A macho Marlboro man has a profound impact on the youngsters. We know what MTV generation looks like - fast lives, fast vehicles, rhythmic music, outlandish clothes, tattoed skin, and wierd hair-style. MTV has taught youth to celebrate the zest oflife. Chivas Regal is a new standard to bid goodbye to an orange-coloured dusky day-end. Brands make us aspire higher. Michael Jordan, the basketball star asks us to 'just do it' with Nike. Valentine Day is a new way to express our emotions, and has generated a whole array of cards to greet our beloved. Brands teach us to overcome the effects of ageing e.g., Synergie anti-wrinkle cream. They make us conscious of fitness and health. Cosmetics make you a gorgeous woman - with eyes having mascara and contact lenses, lips

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Brand Culture and Brand Rituals

coloured exotically, and foundation to take care of blemishes. Brands teach us new habits - iced tea. They provide convenience all around us - ATMs to dispense cash, ready-to-eat food packets to make our meals, washing machines to wash our dirty linen. Some brands symbolise global consumer culture. Benetton, computer companies and consumer electronics companies make globally relevant ad copies. In Asia, bikes are a means of transport, but in the States, they are a health and fitness product. In the Arctics, refrigerators prevent food from freezing and in the tropics, they are used to preserve the food and keep it cold. Some countries like less-sweet products. Coffee consumption differs from society to society - black coffee, milk coffee, coffee with chicory. Campbell's soup changes its composition to suitthe different tastes. Soaps like Camay are marketed under the same brand name globally, but the composition varies from country to country. Rituals

Brand culture can be experienced, but cannot be seen. What we see are the rituals. Vespa, a funky Italian brand of scooter, has owners who meet each Sunday in Manhattan to ride their favourite machine. Santa Claus bringing X-mas goodies is a ritual. Ronald of McDonald is patterned after Santa, and is a ritual. Khadi symoblises self-help and austerity, and wearing it became a ritual ali through the freedom struggle of India. Pillsbury's mascot, the dough boy, got people to taste seviya kheer during Ganesh Chaturthi. It amounted to a ritual. Femina's beauty pageants are an annual ritual for the brand and so are the Filmfare awards. Kit Kat's consumption - breaking a finger and eating it - is a ritual. A noisy opening up of a Coke bottle with something to munch is also a ritual. Say 'Cello' instead of 'hello' on the phone to get the prize is ritualisitic. Brand loyalists tend to form a strong user community around the brand; and celebrate their emotions with rituals. Man is social, and tends to build ties and tries to belong to groups. Brand rituals are a celebration, and user community provides a sense of belonging. Rituals have prons and cons. They enhance the brand equity further. Some have a sad story. New Coke could not replace the old one inspite of costly research. Brand Experience

'Fire and Ice' lingers when we wear it to a party. Amul Icecream is just 'mmm ... so tasty.' Chicken Biryani emits a strong aroma. Gautierfurniture has typical French look. Pepsi's electric blue is loved by young generation. Kya swad hai zindagi mein of Cadbury is a haunting tune. Brands are to be experienced, and the dimensions of these experiences are sight, sound, taste, smell orfeeling. These appeal to the consumer, and are retafned in his memory. They act as stimuli which are interpreted by his CNS. Sometimes, these stimuli are too weak to be perceived conSciously but are strong enough to be received by the receptor cells. Brandassociated stimuli may be in the presentation or content of the communication, the ad jingle, the physical characteristics of the brand, the brand image and the brand name itself. The core of brand experience is diagrammatically presented here: Experiences Sight

Brands

Sound BrandsAssociated Stimuli

Rituals

_ _-I.~

Appeal

Feeling Taste Smell Sensory Organs

Message in the CNS

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Product Management

Demonstration Effect

Ordinary people may aspire to have extra-ordinary products under the influence of brands. A middle-class youngster may be seen wearing a Provogue shirt, spending almost 1/3 rd of his parent's monthly income on one shirt. Brands make people status-conscious. They stimulate people to spend more than they ought to. This is called demonstration effect. It rises the general propensity to consume. Art of Living

As we learn how to make the best of life, we do so by dreaming big and aspiring more. Brands teach us the art of living. They represent the spirit of the age .

•••

LEVERAGING BRANDS A brand is a very prominent asset owned by an organisation. It is endowed with awareness, perceived quality, associations and brand loyalty. An organisation can leverage brand to grow bigger and better. There are a number of ways this can be done. An organisation can put line extensions in existing product class or can think of brand extensions in the same product class by upward or downward stretching or brand extensions in different product classes by ad hoc extensions or putting a brand range or by co-branding. The following diagram illustrates how a brand is leveraged. Line Extensions ..-----1 in the same product

class Making Brand Extensions most of in the same the Brand: Leveragingl-----t product class a Brand '----------' Brand Extensions in different product class

Upward stretching

Downward stretching

Ad Hoc Extensions

Put a brand range Adopt Co-branding

Fig. 16.J Brand Leveraging

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Product Management

Line Extensions or Stretching

The product is offered as a new version in the same product class. New sizes of TV by an existing TV manufacturer is a case of line extension. A new packaging option like shampoo in a sachet is a case of line extension. A new flavour, for instance, Elaichi Horlicks is a case ofline extension. Line extension may shoot up costs if increasing volumes do not compensate them. A brand that is line extended too much becomes diffused and loses focus. It is difficult to promote such a brand. The merits of line extensions are that they broad-base the users and accommodate modifications. The purpose behind extensions could be to block the competitors. Extensions also make a brand vibrant and provide variety in the market. Innovations are managed well by line extensions. They enhance the value of a brand. The context of the brand usage is expanded. A brand becomes differentiated. Sanitary napkins are a good example. Thus we have belted napkins, beltless napkins, perfumed napkins and so on. We also have broad napkins. Broad napkins can absorb the heavy flow, and trim ones are suitable for teenagers. Dry-weave napkins with funnellike absorbent material is the latest extension. These different types of napkins are possible because of line extensions. We can add a functional benefit to extend the line. Addition of this functional benefit helps attract the new customers. Line extensions must not always be financially successful. Sometimes, they serve a strategic purpose. They pre-empt a competitor's move.

BRAND EXTENSIONS We shaH consider two dimensions - downward stretching and upward stretching of brands. Downward Stretching of Brands

In many instances. consumers do not just want status and prestige from a brand. They may need just acceptable quality and features at reasonable prices. This is the motivation behind downward stretching of a brand. Such downward stretching should not dilute the original brand. The market environment itself may drive the marketers to stretch the brand downwards. It may so happen that consumers are not willing to pay a brand premium. The market share may then decline, if the prices remain what they are. Retail environment in which cheaper unorganised industry's brands are available at lesser prices may also be a driving force to downstretch. Technological change may also bring about a shift in market, e.g., cheaper disposable cameras, low cost calculators. Moving down the brand is easy, but this by itself creates problems in retaining the original values of the brand. Moving down brings about a change in brand perceptions. However, it is not correct to assume that going downwards is always risky. A new brand extension should be distinguished from the parent brand. Perceptions should be compartmentalized - as those for the high end and for the low end. The task is to create a separate contextfor the extended brand. A brand's identity can be separated in two product classes. Though parent brand's equity must be protected, a strong brand can afford to take some risks by attempting a sort of separation. It is true that a new brand rather than a brand extension creates 100 per cent separation. But that means building the brand rightfrom scratch; and this by itselfis so very risky. Downward movement of a brand by lowering price is a very common method. A company can create sub-brands to keep the parent brand unaffected. The danger of cannibalization, and the tainting of the original brand name should not be neglected. Sub-brands distinguish a downward brand from a parent brand. If the extension is qualitatively different from the main brand, there is a lower risk. A descriptive sub-brand suggests a lowerlevel product, e.g., IBM Value computers and Videocon Budget-line TVs. A brand that is stretched downwards must project the same basic identity when stretched vertically upwards. Thus all Lux Soaps are beauty soaps. A sub-brand can be given a strong pers0nality to avoid cannibalization and to reduce the image tarnishing risk to the main brand. If we considerfather-son relationship, the son takes after the father in many

Leveraging Brands

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respects, and is thus called the chip of the old block. However, a son as an individual also differs in many respects from his father. The same is valid for brands. A sub-brand is distinguished from the parent brand. This is easier when the product features are different. However, it is difficult when key product characteristics are not visible, e.g., camera rolls or different computer brands. Targeting the brand to a different segment is one way out. An upscale resort can down scale itself for honeymoon enjoying couples. Thus a small segment is being catered by its down scaling, while the entire market of holiday and business tourists remain unaffected. It is sometimes necessary to manage both the parent brand and down-scaled brand by sub-branding them simultaneously. Upward Stretching of a Brand

A brand may be market leader, which is assaulted by price brands or private brands. This brand can be stretched upwards. The margins at the upper end of the market are high. Mineral waters from Alps like Evita, luxury cars and specialised magazines are all niche market products, and are less price sensitive. We have now India Today stretched upwards as India Today Plus. Sometimes, a new brand name is created for upward stretching, with no reference to parentage. Thus we have Lexus car from Toyota and Zen from Maruti. Alternatively, a sub-brand can be used to upscale the brand. Thus we have Amex Gold card, as distinguished from Amex Green card for high-income individuals. The risks involved in damaging the brand equity of the parent brand are much less while moving up, than while moving down. Sometimes, the premium brand may make the parent brand look ordinary. It is necessary to develop a distinct identity of a sub-brand. Sub-brands which are premium use descriptive terms like Kodak Gold, Captain Cook Premium salt, AmEx Platinum card, limited edition Iiqour etc. Butsuch descriptive terms make the move to make the sub-brand distinct that much more difficult. A brand being stretched upwards must have consistent identity and must contribute positively to the original brand identity. Brand Extensions in Other Categories Brands are extended to other product categories, e.g., Videocon is extended from washing machines to TV to audio products to refrigerators to water-purifiers to air-conditioners. This is done to take advantage of the brand's associations, perceived quality and awareness levels. Such brand extensions re-inforce these associations and awareness levels. The risk is that sometimes the brand name does not add anything to the new product category. It may so happen that negative associations of the original brand pass on to the extended brand. In extending the brand this way, we may even dilute the equity of the original brand. Sometimes, we may lose an opportunity to develop an original brand name for a new product category. Organisations extending brands across categories create mega-brands. The better term, however, is range brand that works across several product categories. The decision to have range brands is more strategic and long-term. Co-Branding

Another method to leverage a brand is to adopt co-branding. In co-branding, a brand is not extended while moving into another product category.

Ingredient brands use branding for key ingredients in a brand. Composite brands combine two brands to add to consumer benefit or to reduce costs. Times Card, under the Master Card logo, issued by Citi Bank is an example of a composite brand.

Affinity brands are co-brands used forfurthering a cause. A card issued to further women' s movement, and branded as women's card is an example of an affinity brand. Citi Bank's World Wild Life Card is also an example of an affinity brand, where part of the transaction money goes to serve some social cause .

•••

BRAND EQUllY A brand is as much an asset as a factory and plant and machinery are. A brand does not become an asset as soon as it is born. It is 'built up' over a period of time. Before it comes into existence, there is a long development process at a great cost. After creation, there is investment to improve it continuously. Brand equity is just the process of brand building. A good example of brand equity is Wills Filter cigarettes which has a heritage of more than three decades, and which has taken close to 30 price increases in its stride, and yet it holds its own. It enjoys immense loyalty. The Wills Filter Made for Each Other campaign has been nurtured, nourished and continuously freshened. Another example of brand equity is Lux, which has consistently followed a strategy of 'beauty soap of film stars' position. Brand Heritage Heritage brands have a glorious past, and a carefully nurtured image built over a period of time. However, heritage alone or the core values built over a period of time around the brand may not be sufficient to be a winner in the market place. Sometimes, heritage becomes an inherent weakness rather than a strength especially in the face of a target audience of new generation. We have to keep adding on new values to the brand, taking care that old core values are not diluted while doing so. At times, line extensions are put in the market which have the same core values of the past, but are contemporary in the delivery form for instance Lux and Lifebuoy. Lux has tried to remain as young as the reigning star. Wills Navy Cut cigarette is another heritage brand that has adjusted itself to the present times. It is to be noted that what works for one heritage brand may not work for another. Sometimes, the product category to which a heritage brand belongs loses its relevance. Cad bury chocolates enlarged its base by being relevant to adults. Horlicks lost out as a milk substitute and became a health drink with proteins, calcium, vitamins and iron. Heritage sometimes becomes generic - Duckback provides protection from water. This can be extended beyond the present product to products like wind-cheaters and cost-wool shirts. It should be noted that management of heritage works the magic, rather than heritage by itself.

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Brand Equity

Brand Equity

To Upshaw, brand equity represents 'the total accumulated value or worth of a brand.' Konapp (2000) considers brand equity is 'totality of brand's perception.' He includes the feelings of consumers, customers, employees and all stakeholders while measuring the brand equity. Keller (1993) defines brand equity in terms of marketing effects whereby certain outcomes occur as a result of brand name, and these would not have occurred, had there been no brand name. To Trout, brand equity is simply the reason one should buy a specific brand instead of a competitive brand. The equity of a brand consists of its assets and liabilities. We have to understand that in order to have equity, there should be a brand. Ifthere is no brand, there is no equity. Customers respond to a brand in a discriminative manner or are willing to pay a premium for the brand. When these responses are converted in terms of money; it represents the brand's financial worth. A brand draws customers on a sustained basis, and this can be attributed to its perception in their mind or its image. It is the key driver. This loyalty of customer towards the brand on account of their perception is customer equity. Diagrammatically, brand equity can be presented as Brand (Product +Associations)

Brand Identity Brand Image (Perception)

Revenue + or (Equity)

The output of the process of perceiving a brand image clothed in the brand name leads to cash flows or equity. Brand identity is in the consumer's mind space. Brand name is just a cue. It triggers offthe process in the mind. The intervening variable between brand name and the brand equity is the brand identity or image. Strong brands take the equity upwards. Weak brands lead to marginal increase. The key driver of brand equity is the brand image. Brand image is a matter of customer perception. Therefore, brand equity has a customer perspective. Brand equity gets affected by the attitudes of the consumers towards the brand. Brand associations are embedded in the information nodes of the brain. These nodes store information about the characteristics of the brand, its benefits, its functions, its psychological position etc. Brand name is the central node to which these information nodes are connected. It determines the buyer's behaviour. From the viewpoint of the customer, brand equity shows strong positive brand attitude dependent on the beliefs and meanings accessible from the memory when activated. Aaker calls brand equity a set of assets associated with a brand, and which add to the value provided by the product/service to its customers. Brand equity is usually measured using brand awareness quality, loyalty, associations and/or brand assets. A brand equity is in effect the aggregate of potential customer's beliefs that it will deliver on its promise. Brands have equity both for customers and investors. Brand equity translates into customer preference, loyalty and financial gains. Brands are appraised and traded in the market. Brand equity has several dimensions. According to Kotler, these include performance, social image, value, trustworthiness and identification. In the final analysis, the term brand equity refers to the value inherent in a well-known brand name. A strong brand equity means easy acceptance of new products, willingness to pay more for the brand, preferred shelf-space. A strong brand equity gives financial c1outto the company. Brands with strong equity can be bought and sold. It is easier to buy than to create a brand name with enduring strength. A Relationship

Let us take a simple example. You meet a friend of yours after a long time, but he does not show the type of warmth that you expect in a long-standing friendship. May be, he is experiencing the 'blues' due to a bad day at the office. You are hurt but you are generous enough to understand his predicament. At the next meeting, the friend still is not in his element. You imagine some family problems may have told

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upon his temperament. But when you are short-changed repeatedly, you put an end to this relationship. A brand can be compared to your friend. Though you may have a great relationship with the brand, you may ultimately discard it if it fails to meet your expectations. Once or twice, you can understand some shortcomings. Over a period of time however, your experience with the brand must not be unsavoury. Brand equity though initially high is diluted everytime the brand does not measure up to your expectations. A brand is a person, a friend, a companion. Your relationship or connect with the brand develops over a period of time. The more the number of people who have such connect with the brand, the more is its equity. Aaker's Approach to Brand Equity (1996)

Aaker calls brand equity a set of assets associated with the brand. Which is this set of assets Aaker is referring to, which when associated with a brand lends it equity? Brand awareness, brand loyalty, perceived quality of the brand and brand associations are the four assets which brand managers create and enhance to build brand equity. It is also necessary to realise that a brand is an intellectual property and so patents also form a brand asset. Besides, we cannot undermine the importance of the relationship between a channel and a brand. We shall consider these assets one by one. BrandAwareness

We say we are aware of brand when its presence is registered in our mind. The level of awareness can range from mere recognition to recall to top-of-mind to dominant. We recognise a brand on account of past experience. Recognition by itselfleads to positive feelings. Familiarity also means that a company is spending money to keep it in our memory. We remember some brands when a product class is mentioned. Thus, detergents bring to our mind, Surf, Ariel and Nirma. Though recognition is a positive sign, it does not necessarily indicate the brand's strength. We recognise a weak brand too. When for a product category, we name only one single brand, it is called brand name dominance. Say computers and we remember just IBM. Say copier and we remember just Xerox. However, such dominance may make a brand generic, e.g., Dalda for any vanaspati ghee and Aspirin for any headache tablets. While creating awareness, we make use of advertising, promotion, event management, sponsorships, PR and direct marketing. Some brands have small life, and so it will be uneconomical to incur heavy promotional expenses for them. It is economical to use corporate brand names in such cases. As promotion is expensive, we must have a policy regarding the number of brands which are selected for brand-building. Awareness ultimately enhances brand equity. Some brands should have a different kind of awareness as they are strategic brands. A brand that is promoted over a period of time retains cumulative level of name recognition. Brand Loyalty

Brand equity concept tends to exclude brand loyalty, as loyalty itself is an outcome of a good equity. However, Aaker includes brand loyalty in the set of assets, because the other a...c;sets that make up brand equity and brand loyalty work simultaneously in tandem. A brand manager who conceives programmes to build brand loyalty is actually enhancing brand equity. Brand loyalty gives us a stable and growing market share. It is reflected in the purchase price. Brands with larger market shares, according to one study, have proportionately larger group of loyal buyers. Brand loyalty means to retain our existing customers on a continuous basis. It is less costly to do so than to attract new customers. Even when we lure new customers, it does not mean we have to ignore our existing customers. Strong brand loyalty is an effective entry barrier for the competitors. Brand loyalty can be c;lefined in terms of consumer behaviour or consumer attitudes. Frequency of purchase is a behavioural indication. Attitude towards a brand is an attitudinal indication. Food products have more brand loyal users. A customer who has found a satisfactory brand resists the promotional efforts of rival brands. Brand loyalty is not necessarily based on perceived differences amongst brands. Brand loyalty is also time-related. Brand loyalty is related to involvement. High involvement leads to extensive information search, and hence to brand loyalty.

Brand Equity

215

An organisation can put its customers into loyalty segments - those who are really committed to the brand and those who buy brands possibly due to habits formed. These two categories of customers need marketing support to retain their loyalty. There are non-users of the brand and customers who are indifferent to it. Brand loyalty develops quite early in family life cycle. Marketers should not play around with brands having loyal following without considering all the factors. A new Coke formula was not acceptable to its brand loyal customers. Brand loyalty is enhanced by creating brand awareness, improving perceived quality and establishing a clear identity. To enhance brand loyalty, there can be incentives forfrequent buyers, benefits of a customer club and data-based direct marketing. Sales promotion also helps in arresting a declining brand loyalty. Brand switching is a headache for brand managers. It happens when there are new products with distinct benefits. There is brand switching due to pricing. Sometimes, customers develop fatigue with an existing product-brand. Product line extensions and product-form extensions are sometimes used when brand loyalty starts declining. Brand loyalty is closely related to brand associations and imagery evoked. These are emphasised in promotion to enhance the brand memory.

BrandAssociations Consumers associate the brand with certain tangible and intangible attributes, a celebrity endorser or a visual symbol. Most of these associations are derived from brand identity and brand image. Each organisation has to carve a brand identity and develop it further to build strong brands. Brand associations have already been discussed in the previous chapters.

Perceived Quality Perceived quality becomes an important asset for a brand as it is a major thrust area of a business. It affects all other elements of a brand identity. Perceived quality is a result of an understanding of the requirements of customer segments. Perceived quality leads to financial performance. It is a key positioning dimenSion, and often a part of company's mission statement. Quality achieved, however, in an area not considered important by the customers may not payoff. Perceived quality is based on judgements of quality. It is necessary to understand the cues associated with quality. Perceived quality is not the same thing as actual quality. Suppose the physical quality of the product improves, butthe consumers still carry a poor image the product had, the perceived quality will be low. It is necessary to educate the customers about the right parameters to measure the quality. The building blocks of brand equity are awareness, loyalty, associations and perceived quality along with patents and channel support. Upshaw (1995) calls this identity equity. There is another kind of brand equity called valuation equity which focuses on the financial value of the brand.

Brand EqUity's Diagrammatic Representation (Aaker) When we say a brand has a high equity, we mean it has a high value as a tradeable asset. This equity may be due to a number of factors. Mostly, brand equity is because of its reputation, loyalty that it commands, the awareness it has, its distribution, patent and other brand associations. David Aaker has diagrammatically represented brand equity as follows:

It is obvious from the Fig. 17.1 that brand equity is captured in the brand name and symbol of that brand, A brand has equity both with the consumers and distributors. Coke is having very high brand equity because it is within our reach anywhere in the world owing to its wide distribution. High equity brands are preferred by the consumers since they find it easier to interpret what the brand stands for - what benefits it offers, and are confidenl' in dealing with it. They do get more satisfaction by

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Product Management

using a high equity brand. Such preference of consumers can be leveraged, and a company can charge a higher price , and can command loyalty and run more effective marketing programmes. (It need not do more sales promotion and can extend the brand). It has a higher asset value.

Reputation Awareness Brand Equity Brand name-Symbol

Brand Assets such as Patents

Loyalty Value to the Consumer • Facilitates information processing and interpretation • Assurance regarding purchase decision • Consumer satisfaction

Value to the Company • Effective marketing programme • PriceIMargin leverage • Extensions • Loyalty • Competitive advantage

Fig. 17.1 Brand Equity (Aaker) Adapted after Managing Brand Equity (N.Y. : Free Press, 1991)

Keller's Approach to Brand Equity (1993) Keller has focussed on the relation~/:lip of a brand with the consumers. According to him, brand equity is related to a consumer's familiarity with the brand, and his favourable associations with it. These associations are strong, congruent, unique and leverageable. Both these lead to greater consumer preference. Keller's approach is diagramatically represented in the following figure: Brand Knowledge

I Brand Awareness

Brand Image I Brand Associations

~ Recall

Recognition

I

~

Attributes

I

Favourability of Brand Ass,ociations

+

Non-Product Related

Price

+

Packaging

I

+ User Imagery

Strength of Brand Association Benefits

+

Usage Imagery

Uniqueness of Brand Associations

+

Attitudes

I Functional

Experiential

Fig. 17.2 Brand Knowledge of a Consumer Adopted after Kevin Keller, Conceptuallzln,g and Managing Customer Based Brand Equity, Journal of Mal'ketlng (1993), AMA

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217

It can be seen from the above figure that brand associations relate to the attributes of the brand, or benefits or attitudes towards it. Brand associations generally contribute to brand image. A brand is just not a physical entity. It is what the consumer thinks and feels it is or visualises itto be when he comes across the brand name or its symbol. Strong brands are brands with a substance - they evoke more favourable or stronger associations. Explanation of Keller's Approach to Brand Equity (1993) Keller has focused on the relationship of a brand with the consumers. He talks in terms of brand knowledge which is either favourable or unfavourable. Consumer's response, to a brand depends on this. Consumer's brand knowledge results from brand awareness and brand image. Brand knowledge evaluates the consumer's interpretation of the values linked to a brand. Brand image reflects consumer's perception of the brand's characteristics. Thus, these two are core components at the bottom of brand attributes.

Brand awareness reflects the salience of the brand and helps consumers identify the brand with a specific prod uct category. It can be measured through brand recognition (previous experience with the brand) and brand recall (retrieve the brand from the memory). Brand associations relate to the attributes of the brand or benefits or attitude towards it. These generally contribute to the brand image. A brand is not just a physical entity. It is what the consumer thinks and feels it is or visualizes it to be when he comes across the brand name or its symbol. Strong brands are brands with a substance. They evoke more favourable associations. Brand associations are strong, congruent, unique and !everageable. Brand awareness and brand image lead to greater consumer preference. Alex Beil on Brand Associations

Alex Beil puts brand associations into two categories - hard and soft. Hard associations are tangible or functional attributes such as price, speed etc. Soft associations could deal with personality (a youthful personality) or life-style. Brand associations, according to Beil, are drawn from product image, or company image or user image. Some associations flow from the country of origin, in case of global brands. Brand associations put together lead to brand image, and to brand equity. Non-image factors such as market growth, margins also contribute to brand equity. Beil's thinking is diagrammatically given here: Soft Attributes

I

/

Demographic Factors

Functional

Attri~utes

Company / Product Image ~=------..... ~ Imtge '"----- - - - - . Brand Image Non-image Factors

.

Brand Equity

jer

~ Image

~

t

Soft Attributes

Market Value of a Brand

Fig. 17.3 Types ofBrand Associations Adapted after Alex Bell, Converting Image into Equity, Journal of Advertising Research (Nov.-Dec. 1992), ARF

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Product Management

Brand Valuation Methods

Brands can be valued in a number of ways. The following table illustrates different brand valuation methodologies: Criterion of Valuation

Description

Cost-based

Historical cost Replacement cost

Actual cost in establishing a brand. Cost of establishing a similar brand under current market. It includes costs for product development, test marketing and promotion.

Market-based

Comparable market value

Value paid in comparable transactions recently.

Comparable royalty rate

Royalty paid of usage of a similar brand.

Economic

Capitalisation of earnings

Future potential of the brand in terms of earnings.

Brand contribution

Premium generated by the brand over a comparable generic product.

Royalty

Potential revenue generation by making use of the brand name by another group.

Hybrid

Asset-approach

Net Asset Value (NAV) of the ·business.

Multiples

Multiple of earnings or sales paid for acquisition of the brands.

Consumer-based

Equi-Trend

Consumer's perception of the brand's quality on an eleven-point scale.

(Total Research Corporation) Conversion Model

Willingness to continue to buy the brand.

(Market Facts) Image Power

Brand equity is based on how well the brand is known and is regarded.

(Landor Associations) Brand Equity Index (Longman Moran)

Four factors are considered - the high market shares or concentration of the brand, the repeat rate, the substitutability and brand equity index. Brand equity is brand awareness liking perceived quality.

Historic Costs

In this approach, the costs of establishing the brand are aggregated. These costs are investment costs such as marketing, advertising and R&D expenditure incurred since the birth of a brand. We assume all these

Brand Equity

219

costs have contributed to the value of the brand, and none of them were ineffective. But in this model, an older brand is more valuable than a younger one. Historical costs therefore should be adjusted for inflation. A brand acquires value after several years of nurturing. It is to be decided at exactly what point of time its value is to be considered. This model ignores the qualitative factors such as creativity of advertising support. Some factors are unquantifiable, e.g., management expertise and organisational culture. There are brand failures involving huge expenditure. But out of these failures, managementleams to make a successful brand. How costs incurred on failed brands could be allocated? This approach is far from perfect. Interbrand Approach

Future EarningsDiscounted to Present-Day Values Interbrand Group PLC is the pioneer in the field of assessing the brand value (Birkin, 1994). In order to assess the brand value, a company must compute the benefits offuture ownership, i. e., current and future cash flows of a brand, and discount them to take inflation and risk into account. In this model, the net present value of the future earnings of the brand determines its value. A brand is evaluated against two factorsearnings and strength. Strength represents the potential of future earnings - it represents the discount rate given by a brand multiple. The greater the multiple, the larger the scope of future earning, and to that extent the lesser risk. It also translates into a low discount rate.

Brand Earnings Just as a PIE ratio gives company's market value, brand multiple is used to provide the value of a single brand. Brand multiple is given by Brand Multiple

=

Brand Equity Brand Profit

Therefore, the brand value is given by Brand Profit x Brand Multiple = Brand Equity. A brand's earnings are adjusted. First historical profit and loss account is made, since future earnings are extension of the present earnings. The profit taken is post-tax profit, after deducting central overhead costs. If earnings are composite from manufacturer's brand and private label brand, there should be suitable adjustment. Even earnings that do not relate to brand strength are adjusted - earnings that a generic would have earned. Generally, average profits of the previous three years are considered. It reduces the effect of any unusual year's performance. But while doing so, we can assign weightage to the different years; the most recent being given a weight of 3; and year immediately preceding it a weight of 2 and the year before that a weight of 1. The aggregate profits are then divided by the weighting factors, i.e., six in our case. Each year's earnings are adjusted for inflation also.

Brand Multiple After calculating brand's earnings, we should calculate brand's multiple. Brand multiple is given by brand strength, since it indicates its future earning potential. Interbrand proposes that a brand's strength can be found from evaluating the brand against seven factors.

Brand Strength A brand's strength is a composite constituted by measuring the following seven variables: (i) Leadership

How the brand influences the market? Dominance, strong distribution.

(ii) Stability

How enduring the brand has been in the market? Established brand, consumer loyalty.

(iii) Market

How attractive is the market in terms of growth, entry barriers etc.? Stable and growing market. High entry barriers.

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Product Management (iv) Geographic

How appealing and acceptable the brand is across different markets? Appeal across main market.

(v) Trend

How relevant the brand is and whether it is contemporary? Long-term trend healthy.

(vi) Support

What marketing support has been made to maintain the brand? Investment and focused support.

(vii) Protection

How the brand is protected legally? Trade mark registered. Legal protection. After auditing the brand against the above seven factors, we tabulate the maximum scores for each factor as follows: Strength Factor

Maximum Score

Leadership Stability Market Geographic Trend Support Protection

25 15 10 25 10 10 5

Total Score

100

Source: Interbrand, Berkin (1994).

Relationship between Brand Strength and Brand Value The relationship between the brand strength and brand value follows normal distribution represented by an S-curve. As the brand becomes stronger, it shifts to the right of the S-curve. The multiple on the left and the curvature is decided by considering all the brands of that particular segment or industry. The higher the score of brand of strength, the greater is its multiple score. WEAK BRAND

MEDIUM BRAND

STRONG BRAND

20 J.I.l .....l 1=1-.

......

!:l ~

~ J.I.l

--~ 0:::

...... Z

~

0

U

IZl

...... Cl

0 0

25

50 BRAND STRENGTH

75

100-D

Fig. 17.4 Relationship: Value and Strength

If the brand strength is known, as taken on x-axis, then corresponding brand multiple can be obtained any-axis.

Brand Equity

221

A brand adjusted estimated earnings are discounted by the measure of brand strength so as to getthe present value.

Limitations (i) Interbrand approach has an accounting focus. It has relevance for audit purposes. (ii) Market multiples may not necessarily be correct indicators of brand strength. (iii) It is used at the time of acquisitions. But the final figures for brand acquisition may be inflated on

account of overbid. The S-curve ignores this factor. (iv) A slight variation in the multiple can modify the value of the brand significantly. Interbrand Survey

Businessweek Interbrand Survey lists the world's 100 most valuable brands. Eight of the top 10 slots are taken by the US brands - Coca-Cola, Microsoft, IBM, GE, Intel, Disney, McDonald's and Marlboro in that order. The only exceptions are Nokia at No.8 which has originated in Finland and Toyota at No.9 originated in Japan. The list contains a fair sprinkling of brands from Asia - Toyota (9), Sony (20), Honda (18), Samsung (21), and Europe - Mercedes (11), BMW (17), Nescafe (23) - to name a few. Not even one Indian brand figures among the top 100. Interbrand's list is not consumer but number-based. Interbrand

Interbrand started as an organisation specialising in brand and corporate name development in London in 1974. Later, it developed into a multi-disciplinary brand consultancy firm. In 1994, Interbrand was asked by Ranks Hovis MacDougall (RHM), a UK-based food company to fend off a hostile take-over bid by Goodman Fielder Wactie (GFW), an Australian food group. RHM could repel GFW bid on the basis of a brand valuation exercise by Interbrand for RHM. Thus, Interbrand was given the first opportunity to try its hand at brand valuation. This ability was further consolidated in collaboration with London Business School by developing a proprietary brand valuation methodology through cash flow analysis, brand strength scoring and discounted cash-flow valuation. The UK Accounting Standards recognised this methodology as the basis for balance sheet valuations of brands. Interbrand has so far valued more than 1200 of world's leading brands. It has recently tied up with Equitor Consulting, Bangalore to have a foothold in India. Several elements are considered to decide the world's most valuable brands. Even for the purpose of qualification, the brand must have a value of greater than $ 1 billion, draw about one third of its earnings outside its home country and have publicity available marketing and financial data. Some brands do not satisfy one or more of these criteria and are thus eliminated e.g. Visa, Wal-Mart, Mars and CNN. Parent companies are not ranked and that is why P&G is eliminated. Air-lines are excluded since it is difficult to factor in the effect of brand on sales. Interbrand's methodology evaluates brands just like other assets - the potential of future earnings. The projected profits are discounted to a present value, assuming that those earnings will actually materialize. As a first step, we have to figure out what percentage of a companies revenue can be attributed to a brand. The brand may be almost the entire company e.g. McDonald or just a portion e.g., Marlboro. Interbrand projects five years of earnings and sales for the brand. Out of these earnings, operating costs, taxes and a charge for capital employed are deducted to get the intangible earnings. Intangibles such as patents and customer convenience are stripped out to assess the portion of earnings entirely due to a brand. In the last step, the brand's strength is assessed to determine the risk profile of those earning forecasts. The elements considered are market leadership, stability and global reach. This generates a discount rate, which is applied to brand earnings to get the net present value.

According to Interbrand, a nascent brand shows slow growth to begin with but its growth increases exponentially as it moves from national to international level. But research suggests, the relationship between the brand strength and brand multiple may be of less regular pattern. Interbrand, in spite of the above limitations is a popular method of brand evaluation.

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Young and Rubicam Brand Asset Valuator Model (Y&R Model, 1994)

Rediffusion DY & R brought its Brand Asset Valuator (BAV) to India in 1998. BAV is a tool for building and managing brand equity, and was perfected through a study involving over 40,000 people across 40 countries. The agency claims that BAV is the most extensive worldwide study of brands ever undertaken. BAV takes the agency beyond creative services and closer to advisory services. BAV has been used for 11 clients so far including Maruti, Airtel, Citibank, Herbertsons and ING Insurance. Brand consulting is however, not possible unless there is partnership with the clients. This model is based on consumer perceptions, and evaluates a brand on two dimensions - brand strength and brand stature. According to this model, brand strength is the combination of differentiation and relevance, where differentiation means distinctiveness of a brand in the market and relevance means its appropriateness or meaningfulness to the consumer. We have no reason to be in business if we are not differentiated. Relevance is important to build and sustain a business. Brand stature is a combination of esteem and knowledge. Esteem means the quality perception, popularity and regard for the brand in the minds of the consumers. Knowledge refers to an understanding by the consumer about what the brand stands for. Esteem is what the consumers give back to the brand. By measuring the brand on these two dimensions, we can assess the health of a brand. This model can be used as a diagnostic tool. Young and Rubicam propose that scores on the relevance and differentiation provide an assessment of brand's potential for growth. They call this brand vitality. Scores on esteem and familiarity, as we know, measure brand's current strength brand stature. A matrix can be prepared by plotting these values:

or

High Unrealized Potential

Leadership

C

B

New

Low

,

Eroding Potential

A

0 ~

Low

Brand Status

High

Fig. 17.5 Strategic Direction of Brand Strength, After Young and Rublcam (1994)

The life of a brand begins in lower-left hand quadrant A. It has low scores on all attribu.tes. Managers have to invest so as to move the brand upwards to quadrant B, and to gain vitality in terms of differentiation and relevance. Brand managers can then have two options - maintain them as niche brands or build its esteem by investing more so as to move it to quadrant C. This top right-hand corner quadrant is home to strong brands. They have good brand equity growth. But still there is scope for further growth. Managers have to maintain brand's stature and handle its vitality creatively. This ensures a long life to the brand. But if it is not maintained properly, its vitality falls (in terms of differentiation and relevance). The brand is on price promotions, and declines to quadrant D. It then

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Brand Equity

becomes vulnerable to price competition. As its future is bleak, its marketing support is cut, resulting in a fall of familiarity and esteem. As a result brand equity falls, as the brand slips back to quadrant A.

Advantages (i) We can identify the aspects of brand (familiarity, esteem, differentiation, relevance) which need

our attention in the long and short-run. (ii) It juxtaposes our brands and competitor's brands. We can then formulate suitable strategies to

increase our brand equity and protect them against competition. This database of knowledge called BAV helps in gaining insight on the driving forces behind great brands. When a brand begins to erode, the first thing it loses is differentiation. If a brand can maintain higher scores on the other three, it can turn things around. But if no action is taken, all the factors start eroding, and eventually a brand dies. Landor's Brand Economic Model (BEM)

Landor is a branding consultancy firm of WPP group. Brand Economic Model is a component of Landor's proprietary research on brands. The research has a sample size of 1.51akh people around the world. It covers 2000-3000 brands, 500 of which are global, and looks at them from the consumer perspective.

It is a component of BAV. BEM enables brand evaluation modelled on financials to be combined with consumer perspectives to get the full picture. BVA provides consumer insight which is read with financial performance and economic context using EVA methodology. Landor assesses a brand's contribution to company's financial performance by looking at the relationship between changes in brand health and changes in financial performance and value. Perceived

Personal

distinctiveness

appropriateness

of the brand

of the brand

(Differentiation)

(Relevance) Brand Asset Valuator (BAV) Approach

Regard for

Understanding

the brand

of the offering

(Esteem)

(Knowledge)

Stature = Esteem + Relevance Strength = Differentiation

+ Relevance

Fig. 17.6 BA V Approach

Price Premium

This is a measure of brand loyalty. What kind of money a consumer is willing to pay for a brand in preference to its competitors? A consumer may be willing to pay more for brand A than for brand B. This

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Product Management

is the price premium associated with brand loyalty. It could be high or low, and positive or negative. While measuring price premium, it is necessary to divide the market into loyalty segments. Premium is always with respect to one or a set of competitors, which must be specified. A simple question put to the customers measures price premium, e.g., how much more would you pay so as to buy Sony TV instead of Video con TV? A sophisticated approach would be to conduct conjoint analysis or trade-off analysis. A drawback of this approach is its reference to a competitor or set of competitors. It is necessary to arrive at several set of price premiums when there am a number of brands in the market. Even then an emerging competitor might be missed.

Premium Price We can compare the premium price of a branded product over a non-branded or generic product. The difference between the two prices multiplied by the volume of sales of the branded product represents the brand's value. But it is not always possible to find a comparable generic product.

Customer Satisfaction Satisfaction or preference for a brand shows how loyal the consumer is likely to be to a brand. Consumers are asked abouttheir experience with the brand, and whether the brand mettheir expectations. Preference is measured by asking them whether they would recommend the brand to others, and whether they would again buy the brand. It is also assessed whether the usage of the brand caused some inconvenience. There can be direct questions about loyalty to the brand, e.g., are you loyal to this brand? Satisfaction model is very useful in service industry like airlines and banks. One drawback of this model is that it can be applied only to the users and customers. We have discussed evaluation of brands with respect to the market and consumers. We have to consider one more factor- competitors. How the competitors assess the brand is also important in brand valuation? Brands limit our competitors' options.

Sustainable Competitive Advantage Being an asset, a brand is source of competitive advantage which is sustainable, e.g., share of mind, share of heart, perceived quality. This advantage is brand equity. It is difficult for the competitors to imitate this advantage. Equity of a brand due to competitive advantage is also subject to threats of imitation and substitution. We have to nurture a brand continuously to protect its equity. A brand as an asset is leveraged to realise its value. In the process, it depletes in value. There should be constant value addition to it so as to exceed its value depletion. This alone maintains the sustained competitive advantage. Brand Buying and Selling

Knoll sold Coldarin brand of anti-cold tablets to Johnson and Johnson at a price of Rs. 22 crores, four times its net sales. Knoll sold Burnol to Reckit Piramal at a price of Rs. 12 crores. Duphar Interfran received Rs. 45 crores on selling its brand name Crocin to Smith Kline Beecham (SKB). It is more than its peak sales ofRs. 27 croreswithDuphar. The current sales ofCrocin is Rs. 35 crores. LeverpaidRs. 110 crores to acquire Lakme's brand in 1997. In 1993, Coca-Cola paid about Rs. 175 crores to buy Thums-Up, Limca, Citra and Gold Spot. Generally, payments made are three times of actual sales. Potential sales are expected to be 78 times of current sales. The more meaningful valuation of brands would be a multiple of potential sales, and not a multiple of actual sales. Companies generally sell off marginal brands to emphasise on core areas. Brands come clean when bought and generally without field staff, liabilities and add to the top-line immediately. In India, MNCs consider buying brands in those segments which they understand due to their presence in the segments internationally, e.g., Johnson and Johnson bought Coldarin as it has experience of selling Tylerool, a popular anti-cold preparation in the US. Under-promoted and potential to leave brands are also targets. Sometimes, brands are bought to synergise with existing brands, e.g., Ranbaxy purchased MOX from Gufic as a companion to its Ampicilin brand. Brands are purchased to tap areas of market so

225

Brand Equity

far untapped. Crossland's takeover bought dermatological brands to Ranbaxy. It is essential to be accurate about our estimates of sales or else the valuation will go wrong. Ranbaxy paid Rs. 80 crores for Max, Zole, Excel and Suprimox. It is also necessary to separate pure brand profits from product profits. It is so difficult to separate the brand from the restofthe company and from otherintangible assets like patents, know-how and business relationships. BPL has been sold to Essar with BPL earning at least Rs. 1400 crores. Corn Products Co. India Ltd. has acquired the Captain Cook Brand. Years ago, Dhangadra Chemicals Works (DCW) made Captain Cook salt. In 1998, InternationalBest Foods bought the brand. Later, it was sold. Corn products have also acquired Tarla Dalal Food (TLF) brand name. United Breweries (UB) Group is re-structuring its brand portfolio and is evaluating all its brands. Its McDowell and Kingfisherbrands are alre adyworthaboutRs.2000crores.Boots has acquired anti-acne brand Clearsil from P & G for $ 340m. In India, the brand will be used by Boots Piramal Health Care. The big brand acquisition recently was that of Dabur buying Balsara. Brand valuation, though a financial exercise, should be based upon marketing research. Brand valuation must also be related to distribution. A market leader's loyal distribution channel can be assigned a high value. A brand may have some value independent of the distribution channel, but it is rare. The distribution network is valued on the basis of cost, time taken, potential to sell other products, and potential to act as entry barrier. We can also consider the market value of the company's shares since they capture the brand's value indirectly. Under the Indian law, a brand can be sold only when it is registered. An unregistered brand can be sold along with the business. In India, there is no need to amortise brands in accounting.

THE MAJOR DEALS Date

December 2002 December 2002 September 2002 June 2002 June 2002 May 2002 December 2001 September 2001 November 2000 September 2000 September 2000 June 2000 March 1999 January 1999 Bestfoods January 1999 June 1998 (Abott India) December 1997 December 1997

Acquirer

Seller

Brand Acquired

Transaction Value Sales (Rs. Mi11ion)

PIS

Guinness UDV Label East Asiatic Pfizer Raymond ColorPlus Ranbaxy P&G Healthcare Dr. Morepen Yash Pharma Desai Brothers ADF Foods Morepen Labs ReckiU Zydus Cadila Kopran E. Merck GSK US Vitamins GSK Universal Medicare GSK Macraberin Glenmark Pharma Lyka Labs Sensur Ranbaxy Gufic International DCW Home Products HLL Lakme

Gilbery's Green

600

1143

05

Alcohol

Protinex Colorplus Veratide Lemolate Mother's Recipe Piramal Burnol Aten Livogen Anovate, Derobin Multivate FM &

350 600 250 110 60 90 950 90 60 100

200 570 192 96 88 62 380 75 60 100

1.8 1.1 1.3 1.1 0.7 0.5 2.5 1.2 1 1

Pharma Apparel Pharma Pharma Foods Pharma Pharma Pharma Pharma Pharma

Alex, Flucort &

350

233

1.5

Pharma

Gufic Captain Cook

700 785

636 800

1.1 1.0

Pharma Foods

Lakme

1,101

1,376

Personal

Knoll Pharma

Epilex

100

50

0.8 care 2.0

Burnol Coldarin

125 210

55 60

2.3 3.5

Pharma Pharma

United Breweries

Reckitt India

Reckitt & Colman Knoll Johnson & Johnson Knoll

Sector

Pharma

226 August 1997 Bestfoods January 1996 1995 Food Division , October 1994 1994 care

Product Management International SmithKline Beecharr Heinz Complan, Farex Colgate-Palmolive Ciba-Geigy Godrej

I

Tarla Dalal

Tarla Dalal

50

50

1.0

Foods

Duphar Interf f'I Crocin Nycil, Glucon, Glaxo

420 2,100

280 1,400

1.5 1.5

Pharma Foods

Hindustan

Cibaca

1,309

573

2.3

Translektra

Good Knight

NA

NA

Personal care 1.5 Personal

Source: Business Illdia, JUlle 9-22, 2003.

Brand Buying

As we are aware, establishing and bUilding a new brand is a complex time consuming exercise, replete with risks. It is safer to buy an existing brand that has some equity in the market, and start the process of building it from that point onwards. Reckitl and Colin has picked up Colin, a surface cleaner brand from Fernlill Labs. Henkel has picked up Brisk, again a floor-cleaner brand of Modem Home. Spencer is likely to fetch a good price for the RPG group. P & G acquired Ezee, Key and Trilo from Godrej and sold them off to Cussons. Binacca may stage a comeback through Dabur, and Rasika through Modem Foods. J & J has allowed Lever to use its Savlon bra.nd to improve its position in germicide soap market. Ranbaxy is interested in buying 15-20 brands which it has identified. Go::lrej bought Transelectra (Goodknight) for Rs. 80 crores. Glaxo received Rs. 210 crores from Heinz. Colgate bought Ciba Geigy's range of toothpastes and brushes for Rs. 131 crores. Sundrop was transferred at Rs. 25 crores. Brand value is the difference between market capitalisation and book value. Business valuation is the brand value plus book value; or market capitalisation of the company. Merges can generate additional business value. Valuation by Capitalisation

Recently, the chairman of lTC estimated the value of its brands at Rs. 3,000 crores, though it is an understatement. lTC's present equity consists of Rs. 11.673 crore shares of Rs. 10 each, amounting to Rs. 116.73 crores. Considering the stock market quotation of Rs. 450 per share, the market capitalisation amounts to Rs. 5,253 crore.1f we deduct the net current assets of Rs. 4,210 from this, we getthe minimum premium for the brands as estimated by the stock market. Nestle paid 2.5 times the amount of market capitalisation to Rowntree. As per this norm, the valuation of ITC brands on the basis of 2 V2 times of market capitalisation would be Rs. 13,132.5 crores. Coke' market capitalisation is accounted by its intangible assets, mainly the brand. On Dec. 31,1997, Coke's market capitalisation was $ 165 billion, while its book-value excluding goodwill, was $ 16.2 billion. Thus, almost 90 per cent of Coke's value is intangible. We can capitalise the actual royalties commanded by the brand name, since they represent the premium that an external party is willing to pay for the use of that brand name. This method is useful only when a brand is licensed against royalty. In the absence of such actual arrangement, a notional royalty can be calculated by a hypothetical arrangement where the hypothetical licensor owning the brand imagined to have licenced it to the business against a royalty rate equated to lease rental. The imputed royalty is then c3pitalised. The crucial part is to arrive at a reasonable rate of imputed royalty by making several subjective assumptions.

Brand Equity

227

BRAND EVALUATION Organisation

Ammirati-Purls

Model

Lin Solutions

Lintas

Ogilvy & Mather (O&M)

Insight, Consumer Speak, situation Linkered is a quantitative tool. Linsight is a qualitative tool. Lincepts is the creative development tool.

Brand Audit

Qualitative assessment of brands. Cadbury's brand audit led to the insight 'childhood without end.'

McCann Erickson (M.E.)

Road Map

Based on Consumer knowledge, dialogue and contact. It goes beyond brand positioning. Pulse monitors collective cultural undercurrents.

Brand-Footprint defines a brand essence. Selling strategy emphaises generation of brand building ideas. Adworks provides born validation and feedback from customers. Priceless moments the famous Mastercard campaign is inspired by Road Map.

The value of a brand can be evaluated by comparing the profitability of branded products to the profitability of unbranded products of similar nature. The cost structure of both branded and unbranded products is studied. The difference represents the premium price that the brand commands. This difference is applied to a brand's sales level and the consequent after-tax earnings are capitalised at an appropriate rate to arrive at the value of a brand name. Brand Profits vs. Brand Sales

In India brand valuation is done 'prlce-to-sales' multiple, i.e., how many times the current annual sales does the brand value present. However, this method does not work satisfactorily with a brand that shows higher sales but only marginally higher profits. The valuation, therefore, should reckon with brand profits and not brand sales. Brand Consolidation

Birla group is consolidating its eight-odd cement brands into just one or two umbrella brands. ICICI wants to use its corporate brand for its new business like retail finance. ANZ wants to leverage its corporate brand equity by putting eight-odd consumer loan brands under one common name ANZ loans. Hong-Kong Bank and its various subsidiaries will now be called HSBC and will emphasise a hexagonal logo in all its advertising. Brand Ownership vs. Shareholders

While brand strength does prove beneficial to the shareholders in a going concern, does it really benefit them when the brands are sold, especially by the promoters who own them? Nirma is just marketed by Nirma

228

Product Management

Consumer Care. It is actually owned by Nirma Chemical Works, a closely-held company. Parachute and Saffola do not belong to widely held Marico Industries, but to Bombay Oil Industries owned by the Mariwalla family. They have been leased to Marico. The Tata name is owned by TataSons. The arrangement is perfectly legal and does not violate the Trade and Merchandise Act. Lakme's share prices declined after the company announced sell off its brands to HLL. Mostly promoters treat the brands as their personal property. Synopsis

Brand value equals the net present value of its future cash flows. Future cash flows arise from future sales volumes and prices. We have to consider also the leveraging option of the brands by extending them, and put a value on this leverage. Brands equity, as we know, also depends upon its key resources like product features, the number of loyal customers, and sales outlets. We also consider intangible resources like the quality of retail display and employee morale. We must identify the factors contributing to the valuation of the brand. All these resources inter-act and create a system. It contains time-delays and feedback loops. Management needs insight into the inter-dependence of the various factors. There are efforts to develop software of valuation incorporating both the qualitative and quantitative aspects. This model helps in identifying the revenue streams for each strategy. It reveals the impact of different management actions. Knowledge-based and Brand-based Measures

Traditionally, companies measure their value creation by financial yardsticks such as ROI. EVA, ROCE, CVA etc. Capital has been considered a critical resource since the process of industrial development. As now we have entered knowledge-based economy, we need not use capital-based measures of performance for knowledge-intensive businesses. For those businesses forwhich the critical resource is knowledge, e.g., an infotech company, the principal measure should be the productivity of knowledge assets of the business, rather than the productivity of capital used. Similarly, for those businesses that create value through brands, the productivity of brands has to be a principal measure. Knowledge-based assets are usually in two forms. Some of the knowledge is in the form of intellectual property such as patents. But much of the knowledge cannot be separated from the people who create it and use it. Therefore, the principal knowledge assets are its people. Value added per unit of capital is defined as profit produced by one unit capital, with profit defined as sales less all costs, including people costs, but excluding cost of capital. If the critical resource is people, then the denominator in the equation should be the number of people in the business and the profit in the numerator has to sales, less all costs which should include capital costs but exclude people costs. This gives the value added per unit of people or knowledge assets of the business. We can substitute brands for capital to know the brand productivity. These measures are less precise than capital based measures. It is difficult to know the cost of creating and maintaining brands. But we should overcome this difficulty and should not use it as an excuse to exclude brand-based perfo!11}ance measures. Superbrands

Marcel Knobil is devoted to the subject of brand management which has led him to set up Superbrand Organisation in 1993 to promote excellence in branding and the discipline itself. It tracks brands in several countries ofthe world where it maintains aSuperbrand Council. Every year, the council selects in each country top brands in different product categories. Such selection puts the brands in a different league and represents the best practices in brand management. Superbrand Organisation has now set The Superbrand Council of India (2003). The Council has an eminent jury from the marketing and advertising world.

Brand Equity

229

According to Knobil, branding distinguishes a product from the competitors when all competing products are technologically similar. Even in consumer products, consumers are not able to distinguish one beverage from another or one cigareltle from another. Branding differentiates in such situations. According to Knobil. branding is an evolving process. It uses new methods to capitalise on e.g. the internet, SMS an product placement in movies. Branding has become sensitive to ethical considerations. Some brands are being built solely on ethical platform e.g. Shell which cares for its customers. Brand ranking is done the world over. Butthe consumer gains from such rankings only when they are ranked against criteria such as 'the ability to deliver against promises.' Such ranking incentivise brands to deliver quality to consumers. Knobil also advocates good corporate brands since this reputation rubs off the sub-brands. A brand is built upon much more than advertising and PR. Customer service is an essential element of the brand. British Airways is the 'world's favourite airline.' They invested several million dollars in training to live upto this ambitious claim. There was a significant improvement of service, and consumers started admiring the brand. Companies may adopt practices like 'putting change in the hands of the customers' , baby changing facility, 24-hour open facility, loyalty cards etc. Superbrand pays tribute to the most exceptional brands by awarding them after scoring .

•••

BRAND BUILDING Brands are developed over a period of time-they are not made in a day. The process of brand building is continuous. At the new product development stage, the unique selling proposition (USP) is built into a brand's concept. However, brands take on most values when they enter the market. Positioning at the development stage is important but the real test of the brand is after it is launched. The destiny of the brand is mostly shaped by the actual users. Brands should be constantly improved upon during the consolidation phase. Brands are consolidated sometimes by extensions either to re-inforce the existing values represented by the brand or to introduce new values to give it a new lease of life. The extensions could become 'new generation' for a brand. In short, brand building process has the following stages: 1. Product Development - Idea/Concept 2. Positioning and Launch 3. Brand Development 4. Brand Consolidation 5. Brand Extension - Brand Improvement 'Being first' gives a head-start to brands, though laggards may overtake the pioneer. Brands are built along four dimensions - attributes, benefits, values and relationship. Attributes and benefits represent 'skills of a brand' and 'values and relationship' represent its character. Obviously, no brand can sustain on values and relationship alone. It must stand on its attributes and benefits first. Simultaneously, there should be creation of values and relationship. Brand benefit is stated in brand proposition. This leads to brand's personality. Brand is presented as a creative idea. The place a brand occupies in consumer mind is its positioning. If the brand proposition, personality and creative idea are allowed to remain constant, the brand can take a relevant contemporary position. Advertising builds brands over these four 'P's - proposition, personality, presentation and positioning. There can be a shift in advertising - from attributes to values.

Brand Building

231

Brands are monitored in terms of their strengths and weaknesses on a regular basis. Competitive brands are reviewed. Each stage of brand building is managed by keeping a correct time-frame. Despite the best efforts, a brand may show a decline. We, therefore, should have a contingency plan. Keith Reinhard, DDB Needham ad network's chairman and CEO had suggested the following steps to build brands: (i) Have a clear point of view. (ii) Communicate it with pasSion. (iii) Create a distinct personality.

(iv) Support it with money over time. Significance of Brand Management

Brands communicate three things - a distinct identity called brand identity, of which brand associations and image are a part. Any purchase decision poses a risk to the buyer. Brands reduce this perceived risk. To survive in the turbulent market of the 90s, brand management has come to acquire added importance. Proliferation of products have expanded the role of brands - they have been more critical than ever before. Brands that seek proactively to build customer loyalty and deliver more than what they promise will always have a future. Role of Publicity in Brand Building

AI Ries and Laura Ries in their latest book 22 Immutable Laws of Branding recommend publicity to build new br3nds. According to them, advertising is u~ed generally to maintain existing brands. For new brands, concepts are thrown into the environment. Press coverage and media coverage are improved. Publicity helps in creating perceptions. In the past, advertising might have worked in the new brand building. Today it is not true. There is the element of clutter in our over-communicated society. Without favourable publicity in the media, the brand cannot be a winner. Publicity, according to the Ries, is best generated by being the first brand in the new category, for instance, Band-Aid is the first adhesive strip, CNN, the first news channel and Zee lV, the first Indian satellite channel. Being the pioneer or new or better has its own publicity potential. A new category has more potential of making news than, a new product version in an existing category. Publicity is what others tell about our brand. It is much more credible than advertising which is what we say about our brand. Public relations thus is very important in building brands. Advantages of Building a Brand

A company gets the following advantages through brand management:

• Better profit margins. Customers pay more for successful brands. The higher the realisation, the higher the margin. This leads to higher profits.

• Better cash flows. As successful brands are sold continuously, there is a stream of cash inflows. This inflow allows us to manage our assets better, leading to higher productivity.

• Entry-barrier to competition. A successful brand can withstand the competitive pressure. Competition has to spend heavily on promotion to sustain its brand. All competitors may not have that type of financial muscle.

• Immunity from cyclical fluctuations. Economic cycles have little impact on successful brands; as they are not price sensitive to a great extent. • Better market valuation of stock. Successful brands give better valuation to company's stock. Generic Brand

A brand that becomes generic becomes a product category, and no longerremains a brand. Frigid~1ire is GE's brand. But now we call any refrigerator a 'fridge.' So it has become generic. Other well-positioned

232

Product Management

brands have over-taken Frigidaire and it is no longer a market leader. Dalda vanaspati has become generic. It is now again trying to lose its generic label. Though consumer asks for a product by generic name, he ends up buying a brand that offers attractive benefits. The generic brand sits on the shdf. Xerox has ceased to be a brand, and is used as a verb for photocopying process. Xerox ads exhort the customers to copy the document, rather than xerox it.

Brand Power Brand power is evaluated along four dimensions:

(i) Brand weight is the influence of the brand over its category or market. (ii) Brand length is how enduring it has been in the past, and is likely to be in future. (iii) Brand breadth is its age spread, consumer spread and universal appeal.

(iv) Brand depth is the degree of commitment it has gained amongst users. Brand Extensions

Developing a new brand and launching it is an expensive as well as a risky proposition. As an alternative strategy, companies resort to brand extensions which reduce costs as well as risks. Besides, the values if embodied in a brand are transferred to the extended brand. There are three types of brand extensions: Brand Extension

I Line Extension

Vertical Extension

Horizontal Extension

Brand extensions occur when firms 'enter markets they had not previously been present ... under the name of one of their existing brands' -Jean Noel-Kapferer in Strategic Brand Management. In other words , what Ries and Trout call line extension, Kapferer calls brand extension. The extended product's qualities should not go againstthe consumer perception of the original brand name, e.g., Camlin' s effort to extend the stationery and art material brand name to cosmetics has not proved successful. Similarly, Dettol antiseptic's extension to Dettol beauty soap could not succeed, though after repositioning, there is some amount of success. Many companies in India have opted for Iinelbrand extensions, e.g., Amul, Maggi, Nirma, Lux, Clinic, Milkmaid, Lakme, Bata. Brand extensions reduce the initial resistance of the consumers to a new brand since they are already familiar with the original brand. The trade channels also support the extension readily. There should not be, however, uncontrolled extensions. The danger is to the identity of each brand. The associations get diluted. Sharp association is necessary for a product. By themselves, brand extensions do not spell out success of a product which also depends upon other factors like quality, price, market characteristics, consumer perceptions and promotional efforts. Wrong extensions damage not only the extended brand but also the original brand. According to a study by the US-based Neilsen Company, 40 per cent of new product launch in the US grocery trade in recent times were brand extensions. No such study exists for the Indian market. In 1997, Smith Kline Beecham Healthcare (SKBH) extended 2 ofits beverage brands - Horlicks and Boost - into biscuits. In 1999, Kellog breakfast food introduced glucose biscuits. The logic is to leverage the

Brand Building

233

equity of the existing brand and enter asegmentthat is considered profitable. The incremental costs are merely the costs involved in production, packaging and distribution. Ries and Trout do not favour brand extensions when the company tries to be all things to all people. They lack the confidence to build the brand from scratch. To develop a new brand requires corporate courage which is very much in short supply. Ries and Trout find that brand extensions are never the leaders in the US in any product category, the only exception being Diet Cola segment. Pond's toothpaste is a very glaring example of an extended brand failing in India. Lakme shaving cream failed to work as brand extension due to Lakme's strong feminine connotation. Similarly, Vicks Hot Sip did not work. Each brand has certain core values. When brand extension is for dissimilar products, the brand has to draw more on its core values (provided they are present) to be successful. Besides, brand extensions creating new products must be symbiotic - the new brand puts something back into the mother brand, and mother brand rubbing off its values to the new brand. Sometimes, the new brand overshadows the mother brand, e.g., Wipro computers have overshadowed Wipro Oils. We may say that what is considered to be mother brand today may become child brand tomorrow - the composition of the family may change. In the ultimate analysis, brand extensions are the second-best options to launching a new brand. Given the capacity to invest, one must opt for a new brand name. Extensions

A single brand can be extended to two markets - from industrial markets to the domestic consumer markets. It increases the consumer base of the industrial marketers. Industrial market products are associated with a specific technology. Ultimately, the markets for such a technology shrinks. It is logical for them then to expand in the domestic sector. The industrial marketers identify the need for gaps and extend theirproducts. The successful extension in India of several such products can be quoted here - M-Seal of Mahindra, Fevicol of Pidilite, Zero-B of Ion Exchange, Cease Fire of Real Value Appliances. Of course, once an industrial marketer decides to enterthe consumer market, he has to put in fresh brand building efforts. They may involve new communication strategies, new methods of packaging, changed distribution strategies and selling techniques. The product should be made more user-friendly. However, industrial to domestic transition may not always succeed, e.g., Super Glue. To ward off failure, the industrial marketer might tie-up with a consumer marketer, e.g., Grindwell Norton's tie-up with Lever to supply scrubbers with Vim. Brand Stretch or Extensions

Brands are stretched to tap the business opportunities in new areas where the company believes it has technical, financial and marketing expertise. Brand stretching logic can be better understood within a framework of marketing forces in which they have a better chance to succeed. There are three types of extension philosophies:

Commercial: There is an opportunitys. We have a strong brand. Extending the brand to the new opportunity legitimises it in the minds of the consumers, and lessens the ad expenditure to make it familiar. This is an economical option. However, underpromotion may not always work. Marketing: Marketing viewpoints restrain the wanton extensions. It emphasises brand equity. Ideally, there should be one brand-one product form. Brand equity becomes diluted due to extensions. Brand equity is to be guarded. It is a narrow viewpointthat makes one prone to neglect the marketing opportunities, e.g., Colgate entered the gel category very late. Naive: Brand is a symbol of quality and promises a particularq uality. Brand extension rubs off brand' s quality promise to new categories. Each brand, however, also stands for a host of benefits and expertise in product areas. Cadbury's learnt this when they entered biscuits market.

234

Product Management

Successful Extensions

These extend the core brand benefit. They consider the brand's area of expertise. They are timed critically. Had Colgate gel come earlier, it would have been a market leader instead of Close-Up. When core brand benefit is reflected in the extended product, the extension becomes credible. Dettol antic;eptic was extended to Dettol Soap. The benefit associated with Dettol was that it was a cut and care product whereas Dettol soap is a 'love and care' product, which thus runs contrary to the care benefit of the parent brand. However, Surf becoming Surf Ultra, and Lifebuoy becoming a liquid are examples of the brands remaining confined to their core benefit even when extended. These extensions have strengthened the brand equity. Each brand has an area of expertise. Lipton's expertise in tea would not make it successful in biscuits market. Even category Experience counts. Pond's have no category experience in toothpaste market, and thus its extension into this area was troublesome. Maggie has successfully exploited its expertise in culinary across different brands. There are hardly any other brands having expertise in areas in which Maggie extended. It has in the process created new categories. Each extension has to be timed properly. Shower gels were unimaginable a decade back. The state of development around must be conducive to the acceptance of the extension. Line extensions have become popular on account of the prohibitive costs of entry for new products, ranging from Rs. 5 crore for a soft drink to Rs. 30 crore for a detergent. Line extensions, normally, could mean a one-third reduction in entry costs. Experiments in Line Extensions Product Plus Price-linked Extras

Positioning

Using Form Product Synergy

Horlicks' extension into Chocolate Horlicks. It is within a product category. A brand is extended to gain niche markets. Pricing is used

to differentiate products. The well-known example is that of Johnson and Johnson in sanitary napkins market. Carefree is in belted segment, whereas Stayfree is in beltless segment. Stasyfree is available as a regular, double and deodorant. Stayfree silky dry is poised against Whisper. Cheaper line extension, however, may endanger the equity of the mother brand. Palmolive Extra Care was launched as a premium skin care soap in 1989 with three colour variants. Colgate Palmolive used skin-typing as a distinguishing factor; white for normal skin, pinsk for dry skin, and green for oily skin. Lever has three variants of Lux International based on skin typing. Palmolive took the risk of downgrading its product by offering Palmolive regular in the popular segment. It has also three variants based on skin typing. Sharply positioned line extensions are also sometimes an opportunity for rejuvenating stagnating brands, e.g., Cinthol from Godrej Soaps. Cinthol is extended to include Cinthol Lime, Cologne and Sandal. Liril's attempt to extend to cologne segment is, however, not so successful. Vim has successfully used form to extend line. It was a scouring powder. It became then a liquid cleaner. Now it has become a washing bar. As already explained, a brand extension should be in harmony with the mother brand. A lack of synergy between the two leads to a near-certain failure, whether there is product-plus or no product-plus. Cibaca Top was extended as Cibaca Lime, but it did not have synergy with Cibaca Top. On the other hand, Colgate Dental Cream (CDC) was extended as a blue gel in the South. The blue gel combined the therapeutic and cosmetic properties of the parent brand (stops bad breath and fights tooth decay). It was further positioned as the confidence product which became its USP. The gel extension gave consumers a reason to stay with the brand name.

(Based on Nandini Laxman, Stretching

the Leader Brands, The Strategist Recollected 1993-94.)

Brand Building

235

Ingredient Marketing

Some components or ingredients that go into the making of the final products are promoted heavily, e.g., Intel chips which are integral parts of the computers. Such components or ingredients are never seen or bought directly by the consumers. Courtlauds, UK has started promoting its fibre Tencel which is as soft as silk and is bio-degradable. Dolby logo is put on those audio products which use this technology. Such promotion of components ensure continued success of the company, which might face commodification of its product otherwise. The consumer is also ensured of the quality of the end product. Du Pont supervises all Teflon using cookwear manufacturers. In ingredient marketing, the ingredient or component is branded. Irrespective of the brand of the end product, the ingredient which is branded ensures a certain quality level. In export markets, hang-tags of Iycra (Du Pont) ensure the consumers of what has gone into the making of this garment. Quality assurance labels like Woolmark awarded by International Wool Secretariat also play the same role. It ensures conformance to certain international quality standards. In carpet marketing, the Rugmark label ensures that the carpet is child labour free. Although ingredient branding is used commonly, the broader concept is attribute branding which describes the practice of branding qualities, characteristics or distinctive features of a product or service including form, functions, ingredients and components. To illustrate, in terms of form, Power Tip bristles on Oral B tooth-brushes. For functions, we have Crest Dual Action Whitening. In terms of components, we have evolution engine in Harley - Davidson bikes. A new host brand lacks an established identity one gains by attribute branding. Ingredient branding provides the missing link when the host brand is perceived to be deficient. It provides additional proof to support the positioning of the host brand. It also acts as a differentiator. ingredient brand may be present in so many products. It will have to then enrich itself constantly. Intel thus puts newer chips. Though attribute branding provides a value, the whole product is a collection of values provided by different attributes. There should not be mismatch of attribute and the whole brand. Unique Selling Proposition of Rosser Reeves

Rosser Reeves was by profession ajournalistwho switched tracks to be an advertising professionala copywriter with Ted, Bates & Co. in 1940. He rose to become the chairman 15 years later. He wrote an advertising classic Reality in Advertising, where he explained how the concept of unique selling proposition, USP, originated. The concept of USP was developed at Ted, Bates & Co. in the early 40s. It became the catchword of the 60s and the 70s. With a USP it is easy to create a distinct brand position in the mind. The product differentiator becomes a brand differentiator. The USP has the following three major features:

1. Each ad must make a proposition to the consumer. Each advertisement must say to each reader what specific benefit the product offers if bought. Dove soap has a unique proposition to offer - it contains 1/4 moisturising cream. Therefore, the benefit offered is 'it won't dry your skin.' Reeves, however, does not define benefit. 2. The proposition or promise made by the advertisement must be one that the competition has not so far made. There are very few genuine differences amongst brands. Technologically, they may be similar. When we make a promise, the competitors also follow suit. Fluoride ingredient was a unique proposition for a paste to begin with, but now several pastes have fluoride. Ariel with bio-enzymes is a microsystem and Surf Ultra with its utrons or stain digesters is unique. The USPs should endure to give a benefit position not claimed so far by competitors. This position is strengthened in the consumer mind so that promise and company are identified with each other. Competitors then find it difficultto atlemptto wrest the benefit away. To illustrate, clove oil's presence is a USP for Promise. Promise was the first to be synonymous with clove oil. Any other company has not adopted this USP. An important point to remember is that the USP then should stimulate rational thinking in the consumer. Creative strategy need not remain in the domain offeelings and emotions only but should operate rationally too. The USP is supported in the body copy - how clove oil has been traditionally used to arrest toothache and is related to customer's needs or his perception of those

236

Product Management

needs. Mere promises are not enough. They must be rationally justified - a credibility issue. Reasons, therefore, must be given. It is possible that the connection between promises and reasons may be tenuous - more myth than scientific reality. We may doubt whether Pepsodent's germicheckmight keep on working against germs long after brushing teeth. If there is disbelief the USP may fail. But if we believe in the claim made, we may ignore the evidence since belief and desire are strongly correlated. 3. The consumer tends to remember just one thing from the ad - one strong claim or concept. The claim or proposition should, therefore, be so strong that it can move the mass of millions, i.e., to pull new customers to your product. Maggie 2 minute noodles revolutionized children's eating habits, which were pulled over to this new style of eating. Its USP is its shortest possible time to cook, and so instant gratification of a hungry child's desire to eat. Brand Images and USP

Though apparently the image approach and USP look a distance apart, they are quite close. USP makes the consumer identify the brand with a particular benefit. Brand stimulates an association of the benefit. But this very association is an image. The difference between USP and the brand image is the difference of the degree of complexity of the associations. Marlboro gave a cowboy image via USP. It is a focused identity, a narrow identity. The company was the first to do it. Perhaps, brand image gives a rather diffused identity, open-textured identity. There is one essential difference between USP and the brand image. The former established itself by logic and rational appeal. The latter does so by psychological and emotional appeals. But ads do not work solely on rational appeals. Even appeals like economy are expressed through emotionally charged 'Surfki Kharidarimein Samajhdari' - a self-congratulation on being thrifty. Every rational appeal needs emotional trigger. Thanks to Surf, Lalitaji is a better housewife. Appeals manifestly are a blend of reason and emotion. USP

All through the 60s and 70s USP was a catchword available to the marketers. This is, however, not so for the 90s, basically because a USP based on technology remains unique for a shortwhile, and is copied soon by the rival me-too brands. To illustrate, can we say now with confidence as to who pioneered the nofrost fridge, whether BPL or Videocon or Godrej? The premium brands find USP to be inadequate. USP as a product differentiator is inadequate for the premium brands. They need a different communication strategy. In addition to the tangible properties of the product, critical intangibles like retail environment, ambience of the selling set up, and the life-style that is projected in advertising are highlighted. These are all value-addons. The aspirational benefits are also made to stand out from the clutter. Premium brands have two marketing dimensions - top-end pricing and perceivable or endowed sense of product superiority in the concerned category. Top-end pricing is to be justified on the quality platform - ranging from total functional superiority to imagery-related superiority or shades of both (in-between). BPL's 'fuzzy logic' is an example offunctional superiority. Zodiac Grill's power breakfast is imagery-related superiority. Citibank's priority banking is a mix of both. A premium brand has not only a level of technology but also ease of use, serviceability and status. Power of Philips is an example of this. In the light of the above, a marketer relies not on USP also, but offers a package of benefits to differentiate the brand. These benefits may be functional or aspirational or both. Ariel's launch is an example of this approach. The product has three functional benefits - superior stain removing capacity, benefits of a powder as against a bar, and less volume of powder for more value. The emotional benefits are a victory of the modem over the traditional (daughter-in-law and mother-in-law communication). Here the brand proposition cannot be a single argument.

Brand Building

237

It must be appreciated, however, that a single USP of lemon freshness initiated for Uril in the 70s is still a winning proposition today. Dove soap has a USP of having 1/4th moisturizer in it. Since all soaps are cleaners, a secondary benefit can be converted into a USP.

In general, however, one can venture to say that the concept of a single USP is outdated. Premiumness as USP is too general. For Lakme's premium make-up line, the USP is 'the shades you want are the shades you get.' Premiurnness is just incidental. USPs are defined more in terms of aspirationallevels. Tanishq watch of Titan does not keep watch just a chromometer, but elevates it to the level of an ornament. BPL Home theatre brings cinema to one's living room. Rayban glasses give status.

USPs are short-lived: A pioneer gets more benefit out of a USP, e.g., Titan quartz us. HMT quartz. USPs based on functional superiority are outdated, since technology is copiable with ease. Brand USP's are becoming a package of functional and aspirational unique benefits. Working of USPs

Marketers give certain tips on making the USPs work for the brand:

Credible USP: The brand, its equity and heritage are to be built up over a period of time.

Be the First: It is necessary to have a brand locking with a particularfunctionaisuperiority much ahead of others.

End-result Orientation: Rather than depending on superior technology, itis safe to emphasise the end result.

Price Wars not Beneficial: Instead emphasise the core benefits. Flexibility: It may be necessary to strike a golden mean by taking the rational as well as emotional route to form a USP. Surf Ultras Dhoondte Reh Jaaoge is a mix of core and emotional benefits. Guard the USP by Appropriating Segment Benefits: On being challenged, guard the USP on your surf. The benefits of the whole segment can be appropriated as our core benefits. Coke met Pepsi challenge on taste by declaring it 'the real thing' or by insisting that 'coke is it.' The generic becomes here the USP of the brand.

Maintain a Wider USP: Each brand has established core values. They must not be diluted. There can be add-on values say Videocon TV becomes Videocon Bazooka. Add-on values should keep alive the core brand properties. Upgradation of the brand move it a few notches above in the consumer's mind -set. Consistency: Enduring USPs maintained over a period of time vest a brand with a character which is difficult to assail, e.g., Power of Philips, Sony for innovations. Brand building in short, means developing a brand identity, value proposition and positioning of the brands. It further includes managing the brand system, and leveraging the brands by extending them. The ultimate aim is to build brand equity, and evaluate it continuously. Brand building requires organisational mechanism which we shall discuss in the next chapter. Based on Marion Arathoon write-up in ET, May 17-23, 1995. Brand Relationship

While building a brand, the foremost task is to understand the brand. A brand goes beyond functional utility. It symbolises something special to consumers. This something special can be technological superiority or emotional satisfaction it gives. When consumers find this something special, a relationship develops between products and customers. They identify with the product, become their loyal users, and start feeling

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a kind of kinship with it. In return, they may be ready to pay even more. The promise of something special and the relationship this creates with the customers convert a mere product into a brand. Second Quality Products

John Rutledge strongly recommends that good companies must protect their brands. Mistakes are made, and second-quality products come into being. Have we ever come across a factory-second Porsche or ascratched-and-dented Mercedes? No Tiffany diamond necklace that has been damaged in shipping ever appears on the market. Premium companies sell premium products. They throw off the damaged ones. It builds a long-term value in a business. Attributes of a Great Brand

Steve Rivkin, a communication consultant in the US and the author of the book The New Positioning (1995), interviewed Jack Trout, the author of six best-sellers on marketing and asked him what constitutes a great brand. According to Trout, most great brands have good names which can verbally be connected to their positioning strategies. Many great brands are the pioneer brands, but more important than being first is to be with a good idea. The most powerful brands own up a word in the consumer's mind, say IBM and computers, Aspro and headache, Vicks and common cold. Great brands remain focussed on their words or concepts. They should not fuzz up their identities. Brands should stay for a long time. Those that arrive like mushrooms in the rains or shooting stars come and disappear. A great brand is sensitive about tomorrow. In the changed environment, a brand has to change. If it is too late to change, someone else will pre-empt it. Characteristics of a Strong Brand

A strong brand exhibits three strong characteristics, viz., clarity, consistency and leadership. Clarity is spoken with reference to the values which the brand delivers and is expected to deliver. These values should be distinctive and relevant. Consistency defines a brand - what it is and what it is expected to do. It is aligned with brand values. Consistency makes a brand trustworthy. Leadership gives the brand an ability to lead and exceed expectations. Such a brand is capable of self-renewal. Thus a brand is represented by this triangle of clarity, consistency and leadership. Leadership is a matter of building up the brands. Clarity exists when a brand is differentiated. Consistence is the ideal. Leadership

Clarity

Consistency

Discontinuity

It is seen that a brand is made to break off from the identity it has created as a matter of strategy. Product-proposition is re-worked. In the process, new benefits or usage-occasion or values are created. Brand context is changed. Consumers' ingrained beliefs and attitudes are questioned. All this is a part of discontinuity - a paradigm shift by rebuilding the brand, or using new technology to present fresh product-offering, or putting a different marketing mix for penetration. Disconuity is thus a big revolutionary idea. When it works for the consumer, it becomes a breakthrough. Need for Discontinuity

Over-crowded markets are an incentive to discontinuity, especially atthe time oflaunch. Akai made TV acquisitionadeal, rather than a purchase. Onida used a devil to symbolise envy due to its superior quality for several years. But now it has left this old baggage in view of the better models available from MNCs. Discontinuity is not just new positioning. Kellog is attempting a discontinuity by putting biscuits as a breakfast

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Brand Building

food. In any discontinuity, we have to retain the core values of the brand, but we can change the entire marketing mix. It is easier to recognise discontinuities but difficult to create them. After identifying what is good for the customer, we have to check whether he likes these attributes.

Vehicle for Discontinuity We can putthe discontinuity through an existing brand or a new brand or a brand extension. Parachute lite is an extended brand. Here the mother brand Parachute Coconut Oil was subjected to discontinuity by putting modem design and a new logo, but retaining the benefits of coconut. The brand is now not just hairoil, but retains its core value ofthe goodness of coconuts. Discontinuity need not always begin with the mother brand. Brand extension can bring about it. Cadbury Gold is an example. Discontinuity must be supported by clear objectives. We can introduce discontinuity in sales and distribution system (multi-marketing of cosmetics), product attributes and pricing. Discontinuity works when supported by product cues, thus Surf Ultra chose stain-removing property as a discontinuity from the existing detergents, butthe product cues were not present. Later Surf Excel was created, with a special package and perfume. The following matrix illustrates the scope of discontuity over the life-cycle of the product through different elements of the marketing mix.

~M~ PLC Introduction Growth

Product

'-I '-I

Maturity

X

Decline

X

Promotion

Price

Place

'-I

'-I

'-I

X

X

'-I '-I

'-I '-I

'-I '-I X

'-I Indicates scope for discontinuity X

Indicates there is no scope for discontinuity

Limitations of Discontinuity

When the discontinuity does not provide either a superior product or a distinct benefit that is relevant for the customer, it may not work. Shower gels could not work, as this discontinuity from the existing soaps did not interestthe consumers. Along with sponge-scrubs, they did have some effect. Ruf-and-Tuf ready-tostitch jeans kit did not enthuse the customers. What is introduced today as discontinuity may become standard tomorrow. Behind the successful discontinuity, you will find continuity. We have to change for the better. Brand - An Experience

In the Brand Summit at Chennai (November, 1999), a brand is viewed as an experience. Much more than functionality, a brand is defined in terms of how it relates to the user. We have to see how a brand fits in our lives both rationally and emotionally. A company is very broadly positioned today beyond its functional products. Thus GE 'brings good things to life' adding value beyond lighting, cooking, transportation and medical science. Pepsi is just not a drink, but represents the way young people think and feel. Tata represents trust of the people, crossing the functionality of the Tata group of products. Customers look not for relationship benefits. They form an emotional bond with the brand through a history of experiences. The need today is to build complete brand experience. We have to use communications in such a way that they shape their attitudes towards brands. The dialogue with the customers is the done thing. We also need dialogue

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Product Management

between customers. The user-groups should meet regularly to exchange views and discuss problems regarding products they use. It strengthens customer loyalty and builds up brand image. Customer relationship marketing would define the future of marketing. Brand Experience

It is necessary to provide consumers an experience which they cannot get elsewhere. A product has to move from being a commodity to brand to service to experience. A decision to buy does not just remain an intellectual decision, but as the brand develops, it becomes an emotional decision which engages the customer's senses. An emotional response develops a stronger relationship and commitment to the brand. It also results in a willingness to pay more for the experience. A product has to fulfill customer's dreams, for which we must engage their senses - both their head and heart. Senses are addressed through an experience - which could be as rich as the brand can afford. Literally, a physical structure may not be builtto experience - which could be as rich as the brand can afford. Literally, a physical structure may not be builtto experience the brand, but experience can be built adding sensory texture to it. Experience is created by incorporating the following. (a) Personalisation of transaction (b) Surprise element (c) Charge to participate or get in (d) Customisation opportunity (e) Product is used as an accessory to an event (f) Souvenior of the event is made (g) Engage the senses Experiential marketing is packaging of the best marketing abilities integrated to sensory experience. An emotionally starved customer seeks succor in our brand, but after being satisfied, it is possible for him to seek greener pastures elsewhere. We have to think afresh how we can reach him with out brand. Experiential Marketing

Marketers of different product categories are opting for experiential marketing. McDonald's is visited not just for fast food, but for the experience. Super-markets are not for selling just products. They sell the experience. In India, we have to go a long way. India has yetto tap the full potential of branding. Experiential values supplement, and at times replace the functional values. A brand is just not an identity (brand = JD), but is a source of sensory, affective and cognitive associations leading to memorable and rewarding brand experiences (brand = EX). Experimental marketing is a focus on customer experiences. In this approach, the whole consumption situation is taken into account, and try to fit in products into this consumption situation, and see that the consumption experience is enhanced by design, packaging and communication. It is a holistic view of the consumption experience. Experience has five dimensions: Brand Experience

Sensory (sight, sound, touch, smell)

Feeling (emotional brand symbols such as Mickey Mouse)

Thinking (Corporate campaigns)

Action (Targets physical and life-style interactions, e.g., Nike)

Relationsf1ip (Beyond individual's personal feelings, e.g., family group relations)

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Brand Building

The above contribution is made by Dr. Brand Schmitt, the evangelist of the concept of Experiential Marketing. Holistic integrated marketing experiences can have several dimensions at the same time. Cars, as a means of transport, are functional. But they have aesthetic value too (sense), and make the individual who possess them proud (feel). When we get an Indica, an indigenous car, we are full of praise for Indian talent (relationship) . Cars appeal to our intellect (think) and affect our lifestyle (action) . Brand experience is provided through communications, salespeople, co-branding and spatial environments. Through a mix of such experience provider mechanisms, a consistent holistic brand experience appeal is created. Each experience has to be thought of in terms of depth, breadth, intensity and linkages. Depth refers to the broadening experience or its narrowing to a single experience. Breadth refers to enrichment of experience by using several experience providers or simplifying it by concentrating on only a few such providers. Intensity of experience providers can be increased or decreased. Dimensions of experience and its providers have interrelationships. Should we have one experience for everyone or different experiences to different segments? A company may have a corporate brand and sub-brands. Here corporate brand may carry experiential qualities or these can be reserved for the sub-brands. Some companies have the experiential qualities both for the corporate brand as well as the sub-brand, e .g., Swatch. Swatch (Corporate Brand) What is time? It presents sensory, affective, cognitive, behavioural and rationale images

Visual-design intensive watches (Sensory)

Romantic symbols like hearts (Feeling)

Conceptual watches (Thinking)

Exercise watches (Action)

Cultural events watches (Relationship)

Product innovations are related on the degree to which they enhance the experiential image of the brand, add new experiences that can be leveraged, and create holistic experiences. Global brands are a complex matter. Across the nations, we may have different dimensions of experience. We may also have to choose the experience providers judiciously.

Bernd Schmitt, Professor of Marketing, Columbia Business School and Evangelist of Experiential Marketing

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Product Management

Experience-oriented organisations must have a conducive atmosphere and an ability to integrate communications. New Brand World

Scott Bedbury has written a brilliant book titled New Brand World (Viking) where he offers eight basic principles for achieving brand leadership in the 21st Century: (1) Relying on brand awareness has become marketing fool's gold (2) You have to know it before you grow it. (3) Just because you can doesn't mean you should (the Spandex Rule ofBranding). (4) Transcend a product-only relationship with your customers. (5) Everything matters (6) All brands need good parents. (7) Big doesn't have to be bad. (8) Relevance, simplicity and humanity - not technology - will distinguish brands in the future. According Bedbury, advertising, marketing, products and services serve the brand, and not the other way round, as traditionally thought. As consumers confront countless choices, itis time to build a brand that evokes trust from customers. Bedbury built Nike and Starbucks which are two of the fastest growing brands. While building these brands, he learnt that brand building shapes and directs everything companies do. Branding started simply as a stamp of differentiation which the artisans, traders and guilds placed on their goods. But it has now become a complex and challenging process which has more elements of intuition than analytical rigour, making it less amenable to 'immutable laws' or 'theories, guidelines and case studies.' Winning Brands

According to Fitzerald of Unilever, there are three factors which contribute to the success of the brands. Consumer Understanding

The most crucial aspect to achieve brand success is knowing, understanding and anticipating the consumers. Consumer connection comes from the deep insight. We have to know how a brand meets consumerrieeds. We have to assess how their attitudes and needs are changing. It keeps the brand relevant. We can also evolve the brand by anticipating the future change. Focus

We have to concentrate ourresources where they matter most. Instead of dissipating our efforts on large number of unproductive brands, we have to focus on a few powerful brands. Innovation

Innovation can be minor, just tinkering with the functions of the brand but these add little value. True innovation pushes the boundaries of market in new directions. Innovations also keep the existing brands contemporary. According to Fitzerald, though brands can be valued in a number of ways, cashflow remains a reliable method of brand valuation. Brand is a capital asset and a reservoir of future cash flow . According to Fitzerald, good brands invite trust, earn trust, honour trust and reward trust.

•••

PRODUCT AND BRAND FAILURES The market place is full of corpses of failed productslbrands. There are basically two types of failed brands. Type A failure is a result of some marketing flaw- either in product itself or its branding or distribution or pricing - that could easily have been avoided through more effective use of MR. Type B products fail for no apparent reason. There is a paradox of perfect me-too. There is a brand that successfully satisfies a human need, A perfect me-too productthat copies the successful brand is developed. The marketing mix is kept the same. Hopefully, perfect me-too products then should do as well as the successful products or brands copied. Paradoxically this never happens. There may be high trial rate, but there is rejection later. So intertia is also ruled out. The obvious explanation is that the product fails since it has not met the consumer expectation. The question is what this expectation is. Every new product should satisfy the desire for a change. All successful products change consumer usage habits. The following table illustrates some successes and failures in the Indian market. Table 19.1 Successful Products

Product Raymond Suitings

Status Successful

Reasoning Changed suiting habits of Indian males.

Charms Cigarettes

Changed smoking occasions and frequency of young people.

VIP Suitcase

Changed travel habits.

Maggi Noodles Rin Detergent

"

Changed snack habits. Changed laundry habits.

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Table 19.2 Unsuccessful Products Product

Reasoning

Status

Bombay Dyeing Suitings Chesterfield cigarettes

Failure

LML Vespa Scooters

Failure

No change of habits in spite of high profile. High trial. But no habit change. High trial. But no habit change.

Elements of Change

1. Doing new things (activities, processes) with the product. 2. Changing the frequency of use of product. 3. Changing duration of use/consumption of product. 4. Changing sharing habits of products. 5. Changing buying habits of products. The above Delta elements are scaled along five points. Table 19.3 Element

Doing new things (A) Changing frequently of use (B) Changing Occasions (C) Changing Duration (D) Changing Sharing Habits (E) Changing Buying Habits (F)

V. High

High

Fair

Low

5 5 5 5 5 5

4 4 4 4 4 4

3 3 3 3 3 3

2 2 2 2 2 2

V. Low

1 1 1 1 1 1

1. DHF: Delta Habit Factor of a successful brand is higher than that of a failed product. 2. After trial only, the question of change in habits arise. Change in habits leads to repeat purchases and brand success. Low DHF means less chances of success. DHFSurvey

Select 10 consumers and 10 executives of an organisation whose products are being surveyed. Ask them to rate the products along Delta scale. High DHF (3.5 plus) means repeat purchases and brand success, though initial trial is difficult and expensive. DHF score between 2.5 - 3.5 means easy trial but retention is difficult. Low DHF (below 2) means likely rejection of the product. There are two alternatives then 1. Change the target market so that DHF becomes high 2. Change the product, to increase DHF for the same target market. DHF Aanalysis us Better Products

Though there is low DHF score, the consumer may switch to a better-tasting product without any change of habit, e.g., biscuits. Even here, consumption level may go up, and purchase may be made by more than one family member or in larger quantities, indicating high DHF. Conclusion

Products with high DHF require greater effort for initial trials but are more likely to succeed.

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Product and Brand Failures

The Delta Habit Factor (DHF) Model

It assesses the strength of a brand and provides a new perspective for the windows of opportunities to relaunch the brand. It contends that a brand succeeds because it changes the consumer's usage habits. The consumer uses the brand again and again. He then develops brand loyalty. The change in consumer habit itself indicates his satisfaction with the brand. Every brand has an inherent DHF - the ability to change consumer habits. The higher the degree of DHF the higher the chances of its success. If a brand is on the marketplace for quite sometime, competitors try to switch consumers to newer habits. Therefore, every brand must renew itself by changing other dimensions of consumer habits. The DHF dimensions are doing new things to personal products, change frequency of use category, change occasions for use, change duration of use, change sharing habits, and change buying habits. Case: Rajan Chibba's Delta Habit Factor (DHF) Model This model provides a framework for marketing strategy. A brand succeeds when it changes consumer habits in using it in a particular product category. His change in habits indicates his satisfaction with the brand. Market share is thus achieved by achieving 'share of habits' in a particular product category. According to this model, every brand has an inherent DHF or the ability to change consumer habits. The higher the degree of DHF, the higher the chances of the brand's success in other similar product categories. In other words, it influences collateral habits. To illustrate, for a non-alcoholic beverage, we have to consider the drinking habits for an alcoholic beverage also. Other products like lassi taken socially also form collateral habits. Close Up has brought changes in the collateral habits of two prod.uct categories - tooth-pastes and deodorants. The habit factors could be doing new things with the brand, changing frequency of use, changing occasions of use, changing duration of use, changing sharing habits and changing buying habits. Case: Flop Cigarette Brands Brand

Company

Now

rrc

Style

GTC

Chesterfield

Godfrey Philips

World Cup

NTC

Silver Kings

VST

Year of Launch Late 1985 1985 1987

Why do cigarette brands flop so often?

1. Even in international markets, one out of 11 cigarette launches truly succeeds. 2. The sheer number of new brand launched kills their charm. 3. From brands, cigarettes have gradually turned into commodities. And, commodities do not succeed as brands. 4. The cigarette industry is a shrinking industry. More brands compete in a shrinking market. 5. The companies do not invest a large sum of money in brand names. New brands are not aggreSSively marketed and advertised on a sustained basis. 6. The fiscal policy of the government hits this industry. It serves as a milch cow for the national exchequer (contributes Rs.lS00 crores as taxes: 1988). Many brands get priced out of the market (e.g.,Now and Style. When the govt. decided levy excise on the basis of the length of the cigarette). 7. Cigarette companies launch now-a-days 2-3 brands at a time, see their performance, and back up the successful one.

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8. There is dearth of creative ideas to launch new brands. The agencies promote at best an upmarket life-style. All brands are promoted with the usual stuff that is associated with high class living. 9.

Most of the innovations are inconsequential or are related to packaging.

10. The price is the most important factor. Brands like Rothmans flop here because people 'can't afford it.' 11. In the cigarette industry, while new might be bold, the old is still gold. Some recent examples of product failures, and possible reasons of failure follow. PRODUCT FAILURES Description of the Product

Possible Reasons for Failure

D'Tach Tooth Brush (Ajay)

Toothbrush with Detachable head. A spare head provided.

Replacement concept in toothbrush did not click.

Cool Cats (Polar)

Fans with decorative bladp.s

The basic function of the fan is to rotate. When it does so, the colours dissolve into a grey blur. No extra functional benefit to justify its premium price of Rs. 1200.

Kinetic Merlin

Combination of a 1V set and a Computer Terminal.

The combination was not acceptable.

Cibaca Lime Gel

Offered user squeaky clean teeth and a tangy, tasty brush.

Other gels were available. Lemon flavour leaves a jarred feeling on teeth.

Spredit Merigold

Margarine

Refining standard of sunflower oil poor in India. Margarine starts disintegrating soon and stinks. Artificial flavouring which makes margaraine an acceptable product abroad is not allowed in India.

Puma (Carona)

Premium shoes

Top-of-the-mind-brands were Reebok and Nike. Adidas came next. Puma had poor recall. Rs. 600, a premium price, could not be justified. Bata's Power were selling at Rs. 200-300.

Paloma

Iced Tea Mix

Indians drink their tea hot.

Name of the Product! Company

247

Product and Brand Failures Name of the Product/ Company

Description of the Product

Nestea (Nestle)

Possible Reasons for Failure

They cannot relate to iced tea.

Jaisalmer (GPI)

Cigarettes

Brand has North Indian connotations.

Milk Food Yoghurt

Superior form of curd

Consumers considered it as an icecream at a premium price.

Ritz Bits (Britannia)

Snackfood for teenagers

Boring biscuits attributes.

Fa range (Menezes) KB 100 RTZ (Bajaj)

Deodorant High tech robotic cheetah.

Poor positioning. The engine power could not match the expectations raised by the ad.

Top Ramen (Brooke Bond)

Challenger of Maggie Noodlesbath.

Taste not acceptable. Positioning as snoodles not sensible.

DEAD BRANDS Appela

A fruit drink launched by Cadbury

Binaca

As Cibacca, it lost its sheen.

Do It

A cola after Coke's exit in 1977. It was a diet cola and Nandini Sen modelled for it in leotards.

Double Cola

Came in mid-eighties and vanished.

Illustrated Weekly

Media once popular, now defunct.

Indrajal Comics

No longer available.

Kolynos

Paste with no trace.

Le Sancy

Soap was supposed to last, though water flow did not. However, soap itself did not last.

Lux Shower Gel

Discontinued.

Milkfood Yoghurt

Flavoured curd, couldn't make an impact.

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Product Management

Murphy

Murphy boy was very popular.

Neko Soap

Medicinal soaps give clinical bath.

Ovaltine

Generic for all chocolate flavoured brown powders.

Polson Butter

A big melt-down.

Quaker Oats

No longer available.

Signal

Red stripes containted hexa-chlorophene, later proved to be carcinogenic. Added fluoride later.

Levi Strauss Co. announced in February, 1999 a new slate of 5900 lay-offs with a vow to retool its marketing to tune it to the fast food consumer of today. Ipana, the ubiquitous 1950s tooth-paste (Briesna, brusha, brusha) is virtually forgotten today. American history is full of stories of companies that could not adjust to changing markets. Failures of Brand Extensions

The most glaring example of a failure of the extended brand in India is Shringar where this Kumkum brand was extended to nail-polish. Another popular example of the failure of the extended brand is given by Pond's tooth paste. Lakme shaving cream also could not succeed, as the original brand is a woman's preserve. Pepsi extended to Crystal Pepsi in 1992. It was trying to cater to a new niche of clear, natural, effervescent, holistic drinks like Snapple and Canadian. It is a segment of sweetened sparkling water. There were clear products in other categories like clear beer, clear mouth wash, clear soda etc. Clarity in a sense represents purity. Pepsi tried to address to the growing New Age Market. Crystal Pepsi was a pure drink. But in consumer perception Pepsi is brown, sweet, refreshing soft drink. Crystal Pepsi belied all this. The product thus failed. Improving Product Abandonment Decisions

Paul Hamelmon and Edward Mazze dwell on product abandonment decisions in their article in the Journal of Marketing (Vol. 36, April 1972). New products added to the existing product line may result in over-population of products. An organisation must, therefore, carry out Product Review and Evaluation Subsystem called PRESS. It tries to identify those products which no longer earn revenues commensurate with the marketing effort put in. Weak products are abandoned on financial considerations. The considerations could be the stage of PLC, the financial opportunity, financial security, marketing strategy, social responsibility and possibility of intervention in an organised manner against such deletion. Financial factors are quantifiable in terms of profits and profit potential on improvement. The rest are qualitative factors which can be rated on a scale. Some more criteria for abandonment are scope of product line, production efficiency, marketing efficiency, cost price, value, service and competition. Kotler used PERT model to phase out weak products in a planned manner. PRESS is a computerized model. Basic data serves as first input step in this model. It is based on

Product and Brand Failures

249

variable cost accounting approach. In step 2, price-volume relationship is established. The effect of price change is recorded on the contribution margin of specific products under study. In step 3, sales trends are studied to extrapolate historical sales by using moving averages method. It identifies potential good performers. In the last step 4, product complementarity and substitutes are analyzed. An eliminated product may affect the sales of a complementary product. If substitutes are available in the product line, there would be no loss of total sales. This model is extension of Kotler's earlier work. Management accounting system is a great help while adopting this model. Product success and failure are invariably linked to business organisation as a whole. Let us briefly refer to business success. Business Success

Business success is a matter of having several attributes. Successful organisations are customer-driven. They analyze competition, are flat and flexible with good internal communication and have strong leadership. Poorly performing organisations, on the other hand, are product-driven, do not analyze competition properly, slow and inflexible with poor internal communication and rigid structure. Successful organisations believe in doing the right things, whereas poorly performing organisations do the things right. It is not so important what the business produces, but rather what 'value' the customer derives from that it produces. Mere R&D is not a recipe for the success of new products. It is how best the money is used that determines the success rate. Besides, what matters most is the ability of the innovating firm to gain acceptance for its innovations in the market by proper marketing. Sometimes products fail because the target customers are not prepared to receive them. Sometimes, after developing an innovative product, the firm remains stodgy feeling there is no market for the innovation. Victor company developed VCR, but Matsushita introduced it in the market. Reasons of New Product failures

Don Debelak spells out some reasons for the failure of the new products. Faulty Distribution

Products move in the distribution channel to reach the final consumers. The channel may consist of distributors, wholesalers, manufacturer's representatives and retail stores. A distribution plan is developed to chart the movement of the product. Each marketer must determine the types of outlets where the product will be sold. One has to study how these outlets receive their supplies. One has to study the requirements of the distribution network -storage racks, credit, returns policy etc. The point-of-purchase requirements must be studied. The role of incentives and promotional measures must be understood. The ideal order size must be determined. We have to find out whether the distribution network will carry our product. Research gives a better chance to succeed. Industry Insiders

Our marketing people, distributor's managers, and branch managers of retail outlets are all industry insiders. They are well conversant with the market and know the steps to introduce a product. If we are marketing medicines, we must know how ethical promotion through medical representatives is carried out by calling on doctors. We must study industry journals, meet industry professionals, and attend industry trade shows. Knowing industry insiders facilitate the introduction of new products.

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Spending Habits

New product development requires heavy investment. Sometimes, entrepreneurs spend money fast, and create liabilities for themselves. Sometimes, even after developing the product, there is no money to market it properly. Investors support only a product that has sales history. Sometimes, product requires a charge. That also requires money. We have to spend prudently. Initial product development should account for 30-40 p.c. It makes a market test possible. After a market test, the remaining 20-40 p.c. resources are used us establish sales to a small target market. When all this is over, one can expect a dose of additional capital getting injected.

• ••

MARKETING ORGANISATION So far we have learnt the principles and practices of marketing from the short-term as well as long-term perspectives. These principles and practices are implemented through the mechanism of organisation. In this chapter, we shall study the current trends in a corporate organisation and the organisation of marketing department. We shall also study the interface of the marketing department with other departments. Current Trends in Corporate Organisation

As we have seen, business environment has undergone drastic changes in the last few years, and continues to change further €veryyear. Instead of a bi-polarworld, we have a uni-polarworld, with the decline of the totalitarian ideology and the disintegration of the USSR. The European Economic Community has formed one economic bloc. GATT has come into force. Economies are opening up. There is a trend towards globalisation. Rapid strides have been made in telecommunication. Service sector is emerging as a major contributor to the GDP. Companies have started reorganisation and re-engineering. They are examining their core competencies and are developing core business. New opportunities are being picked up by smaller companies. Larger companies, therefore, have started encouraging entrepreneurship within the company by forming small venture teams. There is a trend towards mega-mergers. The companies try to reduce the administrative distance between the top layer of the organisation and the final consumer. There is a case for flat organisations, rather than tall organisations. Instead of a hierarchical pattern, there is a trend towards matrix-formation and team-building. Teams are formed around core business processes. We shall now consider how the marketing department is organised. Re-engineering

In this turbulent environment, change is to be managed pro-actively to remain competitive. Maybe, we can re-structure or re-design or re-organise. Recently, however, we have another tool- to re-engineer. Re-engineering symbolises a full range of change initiatives, from the lowest operation to the restructuring of

252

Product Management

the whole business. Re-engineering is just not tinkering or superficial, but is fundamental in its approach. It means fundamental reshaping and realigning business processes, technology, people, infrastructure with customer needs so as to maximise the organisation's performance. It is a re-think on the wayan organisation does business. Strategies of the new millennium will emphasize team-work, customer focus, marketing speed and quality management. We will have to design strategies for new markets, new alliances and new customers. Globalisation has become the cornerstone of business strategy. Business processes need improvement. All processes should add value. Business structure which was formerly functional should now be process-oriented. The cardinal principles of this process-driven organisation are service delivery, customer satisfaction and product development. Technology that is new will have to be applied to new methods, rather than old methods. There are opportunities to re-tool. Retail dynamics will change. There will be EDI, bar coding and scanning. Information technology will bring about changes in the financial market. Technology, however, would have to be matched to people. The people component, the most critical, is found in the organisation structure, job structure and content, career planning and management, performance appraisal, organisation culture. All these can change. All these above components -strategy, processes, technology and people - are inter-dependent, and so re-engineering needs careful co-ordination.

Key for Successful Re-engineering (i) Top management commitment and involvement. (ii) Customer focus. (iii) Long-term goals. Continuous measurement of performance. (iv) Review of all processes. Elimination of non-value added activities. (v) Operations developed around customer-driven business results. (vi) People empowered with knowledge, tools and authority. (vii) Continuous improvement. Each organisation decides its agenda for change. Then, there should be simultaneous alignment of technology, processes, people so that each of them support the overall strategy. Re-engineering

This term has its origins at the Massachusetts Institute of Technology (MIT) in the early 80s. It was coined there to signify the changes in business practice likely to be produced by IT (information technology) revolution, with rapid information flows, instant and direct communications and automation of business process. Re-engineering has technological roots in an information network. In the recession, re-engineering is driven by hard-cash rather than by computers. Evolution of Marketing Organisation

To begin with a company has only a sales function, along with other importantfunctions like finance, personnel, production etc. The sales manager manages a team of sales representatives. However, when the company grows both in terms of market and product mix it adds more functions to the existing sales function, e.g., marketing research to assess the needs and wants of the customers and sales promotion to induce sales. Slowly, we see the emergence of a separate marketing department with functions like marketing research, advertising, sales promotion and customer service. The sales function and marketing function remain

253

Marketing Organisation

separate in the beginning, but integrate later to convert into a modern marketing organisation. The presence of a marketing department, however, does not mean that the company is marketing-oriented. A marketingoriented company keeps consumer in the focus, and all its functions, be they production, finance, personnel or marketing, revolve around the customer. All these departments work towards fulfilling the needs of the customer. Marketing ethos pervades the whole organisation. The following diagrams illustrate the evolution of the marketing organisation. Chief Executive Officer

CEO

(CEO)

•

Sales Manager

Sales Manager uu

Sales Force

I

Sales Force

Other Marketing Functions

Fig. 20.1 (a) Sales Function Only.

Fig. 20.1 (b) Other Functions Added to Sales

CEO

CEO

t

I Sales

+ Marketing

Manager

Manager

• +

Sales Force

Marketing Manager

I

+

+

Other Marketing Functions

Sales Manager

Fig. 20.1 (c) Emergence of a Marketing Department

+

Promotion Manager

+

Marketing Research Manager

+

New Product Manager

Fig. 20.1 (d) A Full-fledged Marketing Department

Internal Organisation of Marketing Department As marketing has a broad spectrum of functions to be accomplished, the marketing department as a whole is put under a marketing manager, to whom the other functional specialists report. Marketing Manager

~

Manager Administration

+

Manager Sales

+

Manager MR

!

Manager Advertising Promotion

~

Manager Sales Relations

~

Manager Public Products

+

Product

Fig. 20.2

Marketing manager is on par with other functional heads like personnel manager, finance manager, production manager and materials manager. Marketing manager reports directly to the chief executive officer of the organisation. In some companies, a marketing manager becomes a member of the board of directors (BoD) and then he is designated as marketing director. A number of functional specialists report to the marketing manager, depending upon the business size, nature of business , and the markets served. We can have customer service manager, marketing planning manager and physical distribution (PO) manager.

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Product Management

The functional organisation forms the backbone of any further improvement. The limitation of this structure is the co-ordination problem among functional specialists. There is also a lack of focus as products keep on increasing, and markets keep on expanding. Each functional specialist also tries to appropriate as much of the total budget as he can and assume as much of the status as he can. As the company's markets expand geographically, the set-up of the sales organisation reflect this geographical reality. A company having national market may have four regional sales managers who are specialists of that region reporting to all-India sales manager. Product/Brand Organisation

To supplement functional organisation, a product type organisation is created to take care of different groups of products that a large company is supposed to handle. This organisational layer is created when there is a large number of different products which a functional marketing organisation will find difficult to handle. The pioneering product-type organisation was by P & G in 1927 to restore the sales of their Camay soap. Camay's responsibility was assigned to a separate product manager. This successful experiment encouraged introduction of product managers for several other products. What exactly is the role of a product manager? A product manager develops plans for the products which are assigned to him. He monitors the results and takes corrective action. The following six tasks are preformed by him: (i) Develop strategies for the product. (ii) Do sales forecasting for the product and prepare an annual plan.

(iii) Develop promotional strategies for the product by working in close co-operation with the ad agencies. (iv) Render assistance to the sales force and distributors to sell the product. (v) Collect marketing feedback. (vi) Think of product innovations. Advantages of a Product-type Organisation

(i) The product manager can concentrate an developing a marketing mix for the products assigned to him in a cost-effective manner. (ii) He can take quick decisions. (iii) As it is a comprehensive function, it provides training to young executives. (iv) Smaller brands are not neglected, as they are defended by a product manager. Limitations of Product-type Organisation (i) All product managers are not vested with adequate authority to carry out their expected functions. Though in the textbooks they have exalted functions, in practice, they become mere co-ordinators. In the absence of authority, they have to rely on their persuasive powers to get things done. (ij) Though product managers know all about their products, they do not have mastery over all functions they are supposed to execute, e.g., advertising. When the success of a product depends upon such a critical factor like advertising, such a situation does not bid well for the product. (iii) Product managers get over-burdened, and demand assistants. This makes the whole concept a costly proposition. (iv) Product managers do not stick to the same product group for a long time. They either move vertically upwards or horizontally to other product groups. This affects the long-term planning of the product or brands.

Marketing Organisation

255

To make the post of product managers effective, we must have an appraisal system for them thattakes into account theirrole, a mechanism to sort out conflicts between line and staff, and a sound job description of the product manager' s post. Some organisations have instead of an individual product manager, a product management team. Generally, a hierarchical team consisting of a product manager, and his assistants is formed. A triangular structure consisting of a product manager, a marketing research manager and a communications manager can also be formed. At times, we may have a horizontal team of several specialists, e.g., sales, engineering, design, laboratory, marketing research, finance etc. Team-approach encourages group decision making for a product plan. Product managers for minor products can be eliminated, transferring their products to the remaining product managers. Market-type Organisation

Instead of the products, here a market is chosen as the basis of organisation. Generally it is a good structure for a multi-market organisation. A chief market manager can have several market managers. They are also called market development managers. For a major market we can have separate functional specialists. Or else, the market managers draw upon the existing functional services. Brand Management

In order to build a brand identity, co-ordination amongst several divisions using the same brand name, coordination across the different media and marketing, we have to create an organisational mechanism. The trend today is to have brand managers. We shall discuss this concept here. Brand Managers

Brand managers have the following functions: (i) To formulate brand strategy sand implement it. (ii) To take tactical decisions concerning the brand. (iii) To maintain and build brand identity and position. (iv) To arrange marketing support, say promotional expenses to maintain a brand's identity. They

should arrange to getthe attention and resources the brand needs from the company. They are forceful advocates of the brand, since all other brands are competing for the same resources. Brand managers are responsible for brand's sales and profits. They are thus likely to be after shortterm gains, at the cost of long-term brand building measures. Besides, a successful brand manager when promoted is taken away from this area, and thus denied an opportunity to remain involved in long-term brand building activity. In P & G, every CEO has come through the brand management ranks. In fact, 90 per cent of company's management positions are filled by graduates in brand management system. In P & G, brand managers listen to the consumers. They are expected to know more about their brands than anyone else in the company. To ensure a blend of short-term and long-term measures, we have to see that both these are complementary and supplementary to each other. Brand Equity Manager

We can have clear demarcation between strategy and tactics. A brand equity manager (though he may be called brand manager) takes care of strategic considerations like brand research, and brand equity evaluation. The day-to-day management of the brand from tactical perspective is left to other managers. The overall review of tactics is done by the brand equity manager.

256

Product Management BRAND MANAGEMENT IN INDIAN COMPANIES Company

Brands

Role of Brand Managers

HUL

Lux is a 65 year old brand. The company take 5-7 years to establish a brand.

Brand managers take tactical decisions. Strategic decisions are taken by the top management. They have brand group heads.

Philips

Leader in audio products. Works to make things better. Products have good brand equity.

Brand managers are assigned product development and pricing responsibility. Budgets are based on sales turnover. They have product group heads.

P&G

Vicks - the most well-known brand. It has been here for the last 30 years. Ariel has been built up in just seven years.

They have the Category Manager as the ultimate custodian of brand value.

Godrej GE

Since 1991, it is the market leader in refrigerators.

Marketing managers act as brand managers. Half the company's budget is ear-marked for the brand building activity.

Cadbury

Under the family brand name, it advertised all its brands. Since 1985, Cadbury Dairy Milk (COM) has been established as a separate identity.

Brand managers have been given added importance.

Amritanjan

The brand formulation was improved and packaging was made contemporary keeping the core values in tact.

Brand managers have to identify the brand opportunities and do consumer research.

Palmolive

Brands inspire confidence, and command loyalty. Colgate tends to become generic.

Brand managers are brand champions. They take decisions of all aspects of the brand - advertising and promotion.

Range Brand Managers Consider a brand like American Express. It is a brand whose identity works across different product classes - charge cards, banking and travel-related selVices (TRS). American Express is thus a range brand or a mega-brand. Brand extensions extend the brand within a product class only, for a short-term. A range brand is a strategic extension across several product groupings. In each product class, a range brand name has a distinct competitive advantage. Creation of a range brand is economical. It adds to the visibility of the brand. An organisation having range brands adopts products or brand-type organisation. Each brand is placed under a brand manager. They all report to the range brand manager who takes strategic perspective. He puts overall promotion to maximise brand synergy.

Marketing Organisation

257

Global Brand Manager

Multi-nationals have brand managers in several nations, and a global brand manager who develops a universal brand identity. A global brand manager ensures that the brand strategy is faithfully implemented in different countries. He guides the universalisation of promotion. He ensures consistency and synergy across various countries. A country brand manager manages a brand locally but within the parameters of global thinking. Chief Executive Officer

Brand decisions are left to top functionary of the organisation in several companies. Though advantageous this arrangement is as it ensures commitment of top management, it over-burdens a busy functionary who cannot afford undivided attention to brand building activity only. This drawback is overcome in some organisations by creating a team of senior executives, who consider the proposals of the brand managers. These teams are important from strategic point of view but are incompetent to understand the brand contents of several different kinds of brands. The CEO has to build a corporate image. At Oshkosh B'Gosh, Douglas Hyde, the CEO is personally involved in all new product introductions. He is involved in all aspects of product management and marketing. This ensures that all their products are consistent with their corporate image. Even high-tech firms have CEOs who are brand managers. At Microsoft, for instance, no major product is shipped without the approval of Bill Gates. That approval comes only if the product meets Microsoft's standards and fits the corporate image of the company. It improves the chances of product success. The company has to keep in mind its core values, which project its image and the image of its products. The company should not stay off these core values. Brand Champions

Instead of a team, a senior manager is appOinted as a brand champion for a single brand. He makes strategic review of the brand manager's decisions. He is thus equivalentto brand equity manager. The only difference is that he is sufficiently high up in the organisational hierarchy. Category Manager

Here a brand product category is placed in charge of a category manager, e.g., toiletries, home remedies etc. He develops strategies for all products - brands and sub-brands within the category. It is easier to coordinate the functions across a few category managers rather than coordinate across several brand managers. However, it is a moot point how far this type of structure will be conducive to brand building. Product category teams have research managers, brand managers, and market managers headed by a category manager. This team consolidates the existing brands and throws off new product ideas for brand groups all over the world. Brand Committee

This committee can have promotion executives drawn from different business divisions. They develop an integrated communication plan for bUilding up a brand. Promotion Co-ordinator

A promotion manager takes care of integrated communication made by integrating promotional tools such as advertising, IR and publicity, sales promotion and supportive services like marketing research and marketing information system. Promotion co-ordinator renders staff functions and to be effective must carry others to his view-point by winning them over.

258

Product Management

Brand Equity and Advertising

Brand equity is the process of building up the brand by piecing together the elements like brand name, packaging, pricing, distribution and advertising. A brand's equity is in effect the aggregate of potential consumers' beliefs that it will deliver on its promise. The impact of advertising in building a brand varies from category to category and even from brand to brand. But in essence, contributing to brand equity is what advertising is al/ about. To quote Indranil Gupta, if we are in the business of building brands the biggest reality we need to face is 'that we would never go doing so in isolation. And that means building over equity better than (the equity) of others." Advertising agency therefore , has to playa vital role in developing the brand strategy. In these days when brand managers do change frequently, the agency is the custodian ofbrand equity. Ad agencies have to put brand strategy to execution. International advertising believes in developing a common strategy adapted to local conditions for all markets. There are other promotional heads who contribute equally to brand equity. An agency, therefore, must develop an integrated communications plan for the brand. There is a trend in India to set up different divisions ofthe agency to take care of different communications tasks, e.g., direct marketing division, public relations division, event management division etc. Even a single agency can provide multi-functional services. An integrated agency is in a better position to decide which promotional tool will be the driving force behind establishing a brand identity. Many clients do not leave the entire brand strategy to agencies, but do it within the organisation. Atthe most agency can provide some vital inputs. Clients may approach different specialist firms rather than rely on one large agency. A client can develop its own expertise over a period of time .

•••

PACKAGING Packaging has one most widely accepted definition. It is an art, science and technology of preparing goods for transport and sale. Packaging has two dimensions - the technical which is related to packaging materials, pack design and the behavioural which is related to the art of product design which is so closely linked to consumer motivation and buying behaviour. Packaging as an indusry has two sectors - those who make packaging material and those who convert these materials into packages. In addition, there are printers and MR agencies to do packaging research. New packaging materials are fast replacing the traditional ones. Packaging materials include metal, plastics, wood, paper, glass, laminates and polyester. There is a wide variety of package formations. However, the master-cartons in which unit packages are kept are standardised to facilitate handling and transportation. Packaging performs five basicfunctions: (1) It protects. (2) It appeals. (3) It performs the task for which it is designed, e.g., an aersol is not only a package but is a performing device. Uit does not perform, the product is useless. (4) It offers convenience to the end users and (5) It is cost-effective. Packaging

Is packaging a component of advertising? Or is it really a component of a product? These are the questions that are most commonly asked. The answer to both the questions is "yes." We already know that packaging is an integral component of a product; but the package also plays an important role in its saleability . It, therefore, becomes partly a component of promotional advertising. Packaging is no longer a mere outer covering for the protection of the product; it is very much a contributing factor to its increasing marketability. Ads after ads feature a beautiful package; and the product image in the minds of consumers is, to a good extent, due to attractive packaging. In the case of the similar products, the brand difference is only due to differences in packaging. Good packaging covers an idea of the quality of the product; it has a value which is distinct from the value of the product. Attractive packaging is an effective Point of Purchase (POP), and stimulates gift sales.

260

Product Management

As the old adage goes, "Clothes make the man." So, also, does the package make the prt>duct. Products are often judged by their packages-particularly for impulse product. Perfume is a good example of this. There is a close interrelationship between the advertising and packaging components of the marketing mix. Several advertisements feature the product in its package. Though packaging is primarily a means of protection during transportation and storage, our interest in it is primarily for its use as a marketing and promotion tool. Advertising people are involved because, in addition to being a protective device, packaging is featured as a campaign theme. The package is a vehicle for carrying the manufacturer's name, the brand name, the trade mark, apart from the information it provides about the ingredients and direct advantages of product use. Packaging identifies products, their quantity, constituents, shelf life, mode of use and nutritional or use value. Packaging serves as a significant source of information. The other marketing significance of packaging is that it helps in achieVing product differentiation. Packaging is designed for convenience in the use of the product, and may be used to differentiate a brand from the brands of its competitors. Further, packages are designed to have a re-use value. Good packaging will gain for a prod uct more shelf space than for a product with unsatisfactory or unattractive packaging, and will result in its extensive exposure to the customers visiting retail stores. This will improve the sales of the product. A beautiful packaging is an advertisement atthe point of sales. A package is made visually attractive. In short, packaging is an important advertising medium, carrying varying messages from the marketer to the consumer. In view of the advertising and promotional significance of packaging, professionals in this field should have a profound understanding of packaging so as to make it an effective marketing and sales tool. Packaging as a function has two separate dimensions - the physical aspects related to the science and technology and the behavioural aspect related to the art of product design associated with buyer behaviour and motivational research. It enhances the value of the contents and passes on the impression to the consumer directly or subtly. In case of consumer products, package serves as a silent salesman. It performs self-selling tasks. It should attract attention, and tell the product story. It should build the confidence and give a clean and healthy look. It should be convenient in handling and usage, as well as in storage. It must reflect good value. Packaging research concentrates on the colour of the package and its matching with the product and the consumer. Packaging research also studies the design aspects of packaging - the desirable properties of a container. Graphics and logos are an important part of package design, and in conveying the total product image. Packaging has donned the cloak of convenience. Single dose packs, ready to eatfoods, easy open and dispensing features are important in selling product. Packaging and Sales Promotion

Product package has a vital role to play in SP (sales promotion). Some of SP techniques used are: (a) Money-off Pack: A message of a reduced price is flashed in distinctive colour on the package. (b) Coupon Pack: Coupon can be made an integral part of the package or can be placed inside it

separately. For instance, Johnson and Johnson put coupons for redemption in its sanitary napkins packages. (c) Pack-in Premium: A premium or gift used to be placed in the package, e.g., charms placed inside Cibaca Fluoride Paste. (d) Premium Package: It is a specially designed package having re-use facility or a prestige storage value, e.g., instant coffee package doubling as tumblers, tea packages later serving as jars, alcoholic beverages later used as display items.

Packaging

261

(e) Self-liquidator: The buyer preserves either packages or their parts as evidence of buying the product. In return, he is given a reduced price at the time of repeat purchase or is rewarded with a different product.

(f) Other Applications of Packaging as a Marketing Tool: Shelf-life of a food product is an important consideration. Shelf-life can be increased by using special packaging materials, e.g., tetra-packs. Packaging can be used to avoid direct price comparison with the competing products, e.g., Maggie Ketchup packages 400 gms. bottle which is not comparable immediately to industry-wise norm of 500 gms. bottles. Dhara edible oil packages are popular since they are pilfer-proof and spare the consumers of the adverse effects of adulterated oil. Perfume Packages Containers of perfumes are as important as the contents. They not only sell scent but also status. Perfume packages evoke imagery. Tocade from the house of Rochas, Paris is packed in a bottle which follows the curves of a woman's body, with an amusing hat as the stopper. Jean Paul Gaultier's signature line in the tin case reminds us of a woman in Madonna corset. L'Air du Temps and the dove flying off the flacon are conjured together.

Packaging Scene in India

The progress made by Indian packaging industry recently is commendable. Still, this 10 thousand plus crore industry has to go a long way when compared to its counterparts in other countries. The middle class is the main consumer for packaging products. The average consumption of plastics in India per person is one KG whereas in the Western countries it is 14 KG. Per capita consumption of paper is around 5 KG where as it is almost 50 KG allover the world. The packaging industry in India is mostly in the small scale sector. These units convert the basic materials into finished and semi-finished packaging forms. Medium and large units, however, contribute over 60 per cent of the value of the packaging materials produced. Still the scale is not very large by world standards. Ever since the liberalisation, the industry is changing rapidly. Many items required here are now under Open General Ucense (OGL). Duties have been reduced progressively. Machinery for this industry can come in India at zero duty if six times the value of this machinery is exported in a specified time-frame. Excise on domestic packaging materials has been reduced. ' India being an agricultural economy, packaging will playa greater role in food related sector. Processed food sector will be a main buyer of packaging materials. Transportation of milk, food grains and commodities like tea, coffee, edible oil overlarge distances, and under varying climatic conditions is a big challenge to the packaging industry. Fruits and vegetables are perishable and do require protective packaging like Modified Atmospheric Packaging (MAP) and Controlled Atomspheric Packaging (CAP). Cold storage facilities are required more and more. Pharmaceutical packaging is a very promising area. Consumerdurables with high value products also require a scientific packaging approach. Even a small dent on a durable may result in its rejection Industrial products also require packaging. Packaging should be a value added function. Packaging can provide support to Indian exporters. In packaging raw materials, we produce plastics such as low density polyethylene, high density polyethylene, polypropylene, polyestel' and otherpolymers. We also use glass, metals cans, aluminium foil. Several projects to make basic packaging materials have been launched. We also require a vibrant packaging machinery sector. Our packages lack precision and sophistication. Some machines such as filling and sealing, and measuring machines should also provide sophistication, precision and speed, Ancillary industry of adhesives, ink and coating must also develop. In these times of globalisation, our packaging standards must be raised to international levels.

262

Product Management

Rigid and Flexible Packaging

Packaging is generally classified into rigid and flexible varieties. Rigid packaging include metal containers, glass, injection or blow-moulded, HMHDE plastic drums, wooden crates and paper board and corrugated boxes. Flexible packaging comprises plastics such as LDPE, HDPE, PVC, BOPP, polyesterfilm etc. Aluminium foils used in laminates, paper, polypropylene films are also considered flexibles. Bulk Packaging

A fairly high percentage of products still needs to be moved in bulk while distributing. Bulk packaging is commonly needed for bulk drugs, chemicals, agri inputs, fertilizers, cement, solvents, petroleum products etc. Some bulk containers also serve as transport media. Jute, multi-wall paper sacks, plastic-based materials, HDPE-woven fabric, circular woven HDPE bags, polypropylene woven bags and co-extruded bags are used. In rigid systems, so many materials are used. Bag-in-box concept started with simple wine and fresh juice institutional packs. We also use combination of jute fabric with polyethylene fabric. Flexible Packaging

Non-functional packaging attributes like the aesthetic appeal and image are becoming as important as the functional aspects. Consumer products companies are willing to spend between 10-12% of their investments on packaging of their brand. Flexible pack is a pack constructed with a laminate - which is a combination of layers of polyester, BOPP, po!ythene, aluminium foil and paper. The layers of each laminate vary depending on the product required to be packed. Flexible packaging is a concept whose time has come. It has lower investment costs, both for the packager as well as the consumer products company. It offers greater variety in design and print. It gives VFM (value for money) to the end consumer, who pays less for the product as much as 80 per cent of the time as, packaging costs are lower. Unit packaging in sachets (e.g., shampoos and coffee) has given a further boost to flexible packaging. Flexible packaging industry has two components: (i) manufacturers of BOPP and ble packaging)

polyester films

(the raw material for flexi

(ii) the converters who laminate and print on the raw material giving the packaging its final form. Multi-layer flexible packaging is a technique which produces composite layers of a variety of substrates using co-extrusion, extrusion coating or adhesive lamination. Essel Packaging

It has tapped a significant niche -laminated tube packaging. Essel's lambitubes are today used by for the Hli.. and Colgate-Palmolive toothpastes, Pond's face wash, Fevicol, Vamicol, Moov of Paras , Burnol of Boots, Vicco Cream, among other brands. To expand market of lambitubes, the company is now convincing manufacturers to put shampoos and soaps in gel form, and package them in tubes. Essel's competitor is Ras. It earned revenues of Rs. 228 crores for the year end March, 2001, and has 22 per cent ofthe world market, making over 2 .2 million tubes a year. In India, these accountfor 75 per cent of the market in 2000. Over the years, seamless or co-extruded plastic tubes have become popular. Aesthetics make us opt for tubes, though they are expensive. They are to be packed in cartons again. Flex industries is a big player in the area of flexible packaging. The other big players are Paper Products, and Sharp Industries. U Flex is another big player. It has also broutht ZIPOUCH - a range wonderfully versatile packages in the kitchen.

Packaging

263

Packaging Trends

Packaging cannot be considered in isolation. It has become a part of the core product. Packaging can convey the message of a good quality product to the end users. The cost of packaging material could be as high as 50 per cent of the total product cost, e.g., Kellog's Cereals. Packaging has emerged as important component in respectoffood products, cosmetics and liquors. Packaging can make the brand stand outfrom the rest. In some industries, packaging is the cost - the rest is just water (mineral water). Packaging-led success of Frooti proves its importance. Packaging protects the customerfrom adulteration, pilferage, short weighing. Packaging innovations can change the way the product is consumed and sold. Imagine the preFrooti days when a consumer taking soft drinks was tied to a counter for returning the empty bottle. Frooti setthe consumerfree. Cordless and cellular phones similarly promise us freedom of movement. Pepsi's pet bottles converted the outdoor consumption to indoor consumption. Satchet shampoos have allowed the women who could not afford an entire bottle to enter the branded shampoo market. HLL made available Close Up paste in Satchets a few years back. It has now added a nozzle at one end of this satchet of 15 gms. It is first of its kind anywhere in the world. In this version, the satchet becqmes a small tube available at a much lower price. This satchet is enclosed in a plastic cover. Intra-venous fluids cannot be innovated further. There is no scope, except in methods of packaging them. When core product's superiority is difficult to establish, packaging takes care of the brand. Lakme's packaging shows that it is a company offering products for women, by contouring their bottles after the shoulder curve of women and giving them muted colours. Packaging innovations are, however, short-lived. It is thus necessary to innovate further and the cycle goes on, e.g., soft-squeeze tubes oftoothpastes. Some packages are re-usable as storage containers thus adding value to the product. Packaging system is related to the distribution system, e.g., tetra pack of Ohara of rectangular shape is found convenient by trade though for the consumer it is notso convenient. The Frootis, the Dharas and the Pan Parags are prominent successes of packaging innovation. But it does not work always. Carton packaged electric bulbs are inconvenientfor trade since it is easier to test a sleeve-packaged bulb on the board. A slight change in packaging can create problems of brand acceptance, e.g., colour of a Charminar pack. International packs of MNCs may not be accepted here, e.g., Le Sancy soap in individual packaging stored in jars. Now Le Sancy sells in unit packaging. Imagine the way the glue was packed formerly. It was a glass bottle with a rubber nipple which required cutting with a blade for the glue to flow out. Even then, the flow was not smooth. There were possibilities of the fingers getting injured while cutting the nipple.lttook many years before the package design was changed. The glue is now available in convenient plastic tubes. Though these cost more than the glass bottle, the tubes have replaced the glass bottles because, 'the blade and the blood', as S.K. Palekar puts it cogently, were not just worth it. Sachets

Small packages such as sachets give deep penetration of the market. They are convenient as well as affordable. Brooke Bond introduced tea sachets in 50s. Cavin Kare popularised the concept in the 90s by launching shampoos in sachets. Diverse products such as shampoos, hair conditioners, dyes, beverages like tea and coffee, pickles, pan masalas, mints and sweets, detergents and hair oils have gone the sachet way. Sachets initiate trial. They are convenient for people on the move. Sachets broaden the user-base. Sachets make style accessible to a large section of consumers. Tomato puree tetrapak container has been introduced. Package of Pillsbury-Gordrej Chakki Fresh AHa This is a distinct package especially designed to protect the chakki freshness of flour. It achieves this by the two layers of plastic. It ensures that the package does not break, and there is no spillage. The lower layer is linear low-density polyethylene (LLDP) which acts as moisture-barrier. The top layer is polyester. It acts as gas or odour barrier. The top layer is laminated over the LLDP package. The brand personality character is a doughboy. He represents softness, approachability and trustworthiness. In his hand, he holds the finished product - a roti.

264

Product Management

The top portion shows a barrel-head, with Pillsbury inscribed in it. The barrel "tores flour in the US. The blue and white swiss dots along the barrel head and the doughboy are part of the brand dress. The package shows golden hued wheat fields - the source of raw material to build up credibility. Blue colour of the package indicates it is a premium brand. Red re-inforces this premium look. The package carries labels like Chakki Fresh Atta, a desirable attribute of the product, the quality of ground flour whether medium, or fine and a promise that it is 'whole wheat atta.' It also promises 'no maida mixed' to northem customers who are paranoid about such adulteration.

Demand for Packaging Materials

The demand for packaging materials is given in the table below: Demand for Packaging Media Packaging media Polymers (PE, PVC, PS, PP)

(in lac tonnes) 1999-2000

2.52

Paper boards and corrugated boards

31.60

Metals (tinplate and aluminium)

14.70

Glass

13.40

Composites

1.80

Rexible laminates

4.20

Packaging Machinery

This is a very large sector. It consists of packaging machineries, machineries for package manufacturing and conversion of basic packagitg raw materials. An estimated 500 manufacturers in India today produce the following types of machinery: (a) Manufacturing (conversion) (b) Processing (packaging)

(c) Handlingmachinery (d) Testingmachinery Conversion

These conversion equipments produced include those of manufacturing corrugated boards and boxes. collapsible tubes, crown corks, ROPP caps, folding cartons, glass ampoules, glass bottles, laminating and coating, metal cans, paper cones and composite containers, plastic films, bags, bottles, and woven sacks, paper bags and steel drums. This is supplemented by a variety of printing machines. Processing

These are package processing machines such as capsule filling, pouch making, tube filling. wrapping machines, blister pack machines, ampoule filling and sealing machines, bottle filling machines, bagging, capping, cartoning, strip packing, thermoforming and bulk packing machines. There are machines to fill inert gas and create vaccum. The emphasis is more on low cost packaging system using flexible packaging materials.

Packaging

265

Aerosols

In its true sense, an aerosol means the suspension of very fine (liquid or solid) particles in a gaseous medium e.g., smoke, fog or mist. Today, however, the aerosol pack has come to mean a special container fitted with a release valve in which a product is packed under pressure of a liquified or compressed gas. It enables dispensing the product as liquid spray, foam or fine powder spray. Aerosols are not only a form of packaging but a total delivery system. Aerosols are used for personal products, household products, industrial products, medicinal products and automotive products. In India, aerosols were first introduced in 1965. Aerosols are high cost containers, but cost is not a deterrent in its spread. Aerosol containers can be glass bottles, aluminium containers or metal containers with inside lacquering to prevent corrosion. Valves are of several types. Press-button valve is pressed vertically down and shuts off automatically by an internal spring or tension of a membrane. In the stem, there is a slit which determines the rate of discharge. Metering valves dispense a fixed quantity of the contents and are used for premium perfumes and medicines. In tilt valves, the actuator is pressed sideways. A one-shot valve releases the whole of contents within one shot e.g. a fire extinguisher. Aerosol propellants are a necessary ingredient. They can be liquified gases or compressed gases. Liquified gases are generally used as they provide cosntant pressure and vaporise instantly. Fluro-chlorohydrocarbon compounds such as mafron/mafrosol are widely used as propellants. Aerosol machinery consists of product-filling unit, crimping unit for crimping valves into the containers and propellant charging unit. Space sprays are very fine. Surface sprays have not to drift from the surface and hence should not be very fine. Foam sprays have to expand. There is no atomisation. Product is whipped into a fine lather. The propellant content in foam sprays is less, i.e., 7-15 per cent by weight.

•••

CONSUMER PROTECTION Who is a Consumer?

According to the Consumer Protection Act, the word 'Consumer' is defined separately for 'goods' and 'selVices' . Consumer for Goods

One who buys or agrees to buy any goods for a consideration which has been paid or promised or partly paid and partly promised or under any system of deferred payment.

It includes any user of such goods other than the person who actually buys the goods and such USE is made with the approval of the purchaser. It is to be noted that a person is not a consumer if he purchases goods for commercial or resale purposes. However, the word 'commercial' does not include use by consumer of goods bought and used by him exclusively for the purpose of earning his livelihood by means of self-employment. Consumer for Services

One who hires or avails of any selVice or selVices for a consideration which has been paid or promised or party paid and partly promised or under any system of deferred payment.

It includes any beneficiary of such selVice other than the one who actually hires or avails of the selVice for consideration and such selVices are availed of with the approval of such person.

Rights Enjoyed by a Consumer • Right to be informed about the quality, quantity, potency, purity, standard and price of goods and selVices so as to protect the consumer against unfair trade practices . • Rihgt to be protected against the marketing of goods and selVices that are harazdous to life and property.

Consumer Protection

267

• Right to be heard and to be assured that the consumers interest will receive due consideration at appropriate forums. • Right to choice wherever possible, access to a variety to goods and services at competitive prices. • Right to seek redressal against unfair trade practices and unscrupulous exploitation of consumers. • Right to consumer education. • Right to clean and healthy environment. Consumer Protection Act, 1986

The CPA, 1986 provides for the better protection of consumers. The provisions of this Act are compensatory in nature (i.e. they are not punitive or preventive unlike the other Acts). The Act is intended to proVide simple, speedy, and inexpensive redressal to the consumers' grievances, award relief and compensation whenever appropriate to the consumer. The Act has been amended in 1993 both to extend its coverage and scope and to enhance the powers of the redressal machinery. The Act applies to all goods and services unless specifically exepted by the Central Government. It envisages establishment of Consumer Protection Councils atthe central and state levels and protectthe rights of the consumers. The three-tier quasi-judicial machinery is National Consumer Disputes Redressal Commission, State Consumer Disputes Redressal Commission and District Consumer Disputes Redressal Forums. They are known in short as the National Commission the State Commission and the District Forum. If the cost of goods or services and compensation asked for, exceeds Rs. 20 lacs the complaint can be filed at the National Commission at New Delhi. If the cost of goods and services and compensation asked for is more than Rs. 5 lacs, but less than Rs. 20 lacs, then the complaint can be filed before the State commission. If the cost of goods and services and compensation asked for is upto Rs. 5 lac, then the complaint can be filed in the District Forum. What is a Consumer Complaint?

Under the CPA, a complaint means any allegation in writing made by a complainant in regard to one or more of the following: • Any unfair trade practice as defined in the Act or restrictive trade practices like tie-up sales adopted by any trader. • One or more defects in goods. The goods hazardous to life and safety, being offered for sale to public in contravention of provisions of any law for the time being in force. • Deficiencies in services. • A trader charging excess of price. • The complaint can be drafted on plain paper and copies thereof are filed before the appropriate fora .

•••

®

CASE STUDIES CASEl AMULCHOCOLATES In the west, chocolates are used as mini-snack in between meals. In India, chocolates are bought as small gifts. They ae aslo shared, as all sweets are in India. Amul chocolates are, therefore, positioned as 'gifts of love', from and for people of all ages.' 1975-78 'Enjoy it with someone you.' The illustrations variously giffting and sharing of Amul chocolates. The partners of sharing were children, sweethearts, parents, grandparents.

1975 Fig. 23.1

269

Case studies

1979 We can expect to receive a chocolate treat from 'special people' called 'chocolate people.' Ads covered different age groups and emphasised family relationship To illustrate, we had: Chocolate Wife Chocolate Aunty Chocolate Granny Chocolate Daddy Chocolate Friend

~~"l::f."-f( )

~'L~D.I-'Sit

*':'-j ,~ ~ '"

1979

MIU<

EnJOY w,th love _ _,t _ _ • saneore)OU __ _ _ _ --"' . ______

.

~

MILK CHOCOLATE

I:j!'.

_ _\;:;t

Fig. 23.2

1982-1985 'Enjoy it with some one you love' is difficult to render in Hindi. Thefore the Hindi rendering read 'Pyarki Meethi Bhent' which was rendered into English as 'A gift for someone you love.' This baseline continues even today 'A gift some one you love' become a head-line in some copies. ~------~----------~

1989

1982

Fig. 23.3

One may be too old or too young for certain activities in life bu 'I think you're just right for Amul Chocolate.' It is an endearing jingle. It also appeared in print.

Product Management

270

1989 Fig. 23.4

1990 There was further segmentation. Chocolates were positioned as gifts for various reasons. Will you be mine? I will give you Amul Chocolate everyday.

1990

Fig 23 .5

1991

Issues Try to appreciate the positioning of Amul chocolates. Compare it with the positioning in recent times of Cadbury Dairy Milk (CDM) chocolate.

Case studies

271

CASE2 LUX BEAU1Y SOAP

A ","ouly hinl ,tyoighl from

Lux

It sells in over 70 countries. Introduced in Lux was launched in 1899 as the laundry soap in the UK. In 1925, the brand was introduced to the toilet soap category. Advertising Endorsement by film stars from the very beginning. The campaign was conceived by Helen Resor, the wife of Stanley Resor, the founder of JWT.1t came to India with already established advertising campaigns. The positioning as the beauty soap for fIlm stars was an international proposition and subsequently adapted to the Indian scene. Launched in India In 1929. First models were foreign actresses like Ginger Rogers and Loretta Young. The brand has been evolving ever since its birth. There are new colours, fragrances, packaging and variants. The brand has been extended to shower gels, liquid soaps and moisturizing bars. It has a 1930 romance angle that is kept constant.

GINGER R