CHAPTER 5: DESIGNING MARKETING PROGRAMS TO BUILD BRAND EQUITY

Kevin Lane Keller Tuck School of Business Dartmouth College

5.1

Overview

How do marketing activities in generaland product, pricing, and distribution strategies in particularbuild brand equity? How can marketers integrate these activities to enhance brand awareness, improve the brand image, elicit positive brand responses, and increase brand resonance?

5.2

New Perspectives on Marketing

The strategy and tactics behind marketing programs have changed dramatically in recent years as firms have dealt with enormous shifts in their external marketing environments:

Digitalization and connectivity (through Internet, intranet, and mobile devices) Disintermediation and reintermediation (via new middlemen of various sorts) Customization and customerization (through tailored products and ingredients provided to customers to make products themselves) Industry convergence (through the blurring of industry boundaries)
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Implications for the Practice of Brand Management

They have a number of implications for the practice of brand management. Marketers are increasingly abandoning the mass-market strategies that built brand powerhouses in the 1950s, 1960s, and 1970s to implement new approaches. Even marketers in staid, traditional industries are rethinking their practices and not doing business as usual.
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Integrating Marketing Programs and Activities

Creative and original thinking is necessary to create fresh new marketing programs that break through the noise (clutter) in the marketplace to connect with customers. There are numorous ways customers/prospect can come in contact (moment-of-truth) with a brand to be explored Marketers are increasingly trying a host of unconventional means of building brand equity (e.g.pop uo stores) However, creativity must not sacrify a brand building goal; Marketers must orchestrate programs to provide integrated solution and experiences for customers that create awareness, spur demand and cultivate loyalty
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Unconventional Marketing e.g. Magnum Cafe

Pop-Up Restaurant brings a royal Victorian ambiance.. It's not only about the place, in here the waiter also will greet you with 'my lady' and 'my lord' 5.6

Personalizing Marketing

All of these approaches are a means to create deeper, richer, and more favorable brand associations considering the rapid expansion of the internet and continued fragmentation of mass media Relationship marketing has become a powerful brandbuilding force.

Can slip through consumer radar May creatively create unique associations May reinforce brand imagery and feelings

Nevertheless, there is still a need for the control and predictability of traditional marketing activities.
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Personalizing Marketing Concepts Reconciling the New Marketing Approaches

To adapt the increased consumer desire for personalisation, marketer should embraced a personalization concepts, which are: Experiential marketing One-to-one marketing Permission marketing One-to-one, permission, and experiential marketing are all potentially effective means of getting consumers more actively involved with a brand.
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Personalizing Marketing: 1. Experiential Marketing

Promotes a product by not only communicating the product features and benefit, but also connecting (and focuses) with unique and interesting customer experience Focuses on the consumption situation Views customers as rational and emotional elements Uses electric methods and tools

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e.g. Experiential Marketing

The Army Experience Center located at the Franklin Mills shopping mall in Philadelphia With no shortage of military video games, Black Hawk and Humvee simulators and consoles, it was a place that marked the Army look very cool and relevant in the eyes of the 1724 demographic. 5.10

Personalizing Marketing: 2. One-to-One Marketing: Competitive Rationale

Consumers help to add value by providing information. Firm adds value, in turns, bytaking that information and generating rewarding experiences with consumers. Creates switching costs for consumers Reduces transaction costs for consumers Maximizes utility for consumers Several one-to-one fundamental strategies:

Focus on individual consumers through consumer database we single out customers Respond to customers dialogue via interactivity The customers talk to us Cuztomize product and services we make something unique for him/her
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One-to-One Marketing: Consumer Differentiation

Treat different consumers differently

Different needs Different values to firm

Current Future (lifetime value)

Devote more marketing effort on most valuable consumers (and customers)

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One-to-One Marketing: Five Key Steps

Identify consumers, individually and addressably Differentiate them by value and needs Interact with them more cost-efficiently and effectively Customize some aspect of the firms behavior Brand the relationship

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e.g. one-to-one Marketing

1995 Tesco Clubcard: each customers has DNA Profile based on product bought. The products are classified into 40 dimensions to facilitate customer ategorization. Based on the the profile, customers received their quarterly statements (and coupons) in one of literally 4 million different variation. Tracking customers purchases in the program helps to uncover price elasticities, set promotional schedules, figure out the nature of merchandising, the range product etc resulting in saving Tesco 300 Million
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Permission Marketing (Seth Godin)

The practice of marketing to customers only after gaining their express permission Encourages consumers to participate in a long-term interactive marketing campaign in which they are rewarded in some way for paying attention to increasingly relevant messages.

Anticipated Personal Relevant

Permission marketing is the replacements of the interruption marketing /mass media campaign. The worse the clutter gets, the more profitable your permission marketing become. Companies can breaktrhough the clutter and buid cutomer loyalty Permission marketing is a way of developing the consumer dialogue component of one-to one marketing Drawback: presuming consumers know they want to some extent, while in reality consumers have undefined, ambiguous and conflicting preferences that might be difficult to express and need a guidance (Participatory Marketing)
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Five Steps in Permission Marketing

1.
2.

3.

4.

5.

Offer the prospect an incentive to volunteer. Offer the interested prospect a curriculum over time, teaching consumers about the product. Reinforce the incentive to guarantee that prospect maintains the permission. Offer additional incentives to get more permission from the consumer. Over time, leverage the permission to change consumer behavior toward profits.

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e.g. Permission Marketing

http://bluewheelmedia.com/why-use-permission-marketing/

5.17

Inbound vs. Outbound Marketing

http://bluewheelmedia.com/why-use-permission-marketing/

5.18

Reconciling the New Marketing Approaches

Before mentioned new marketing approaches help to improve marketing oncept and techniques, which might eliciting positive brand responses and creating brand resonance to create CBBE According to CBBE; one-to one or permission marketing might be effective to create stronger behavior loyalty and attitudinal attachment while Experiential Mkt effective to establish brand imagery and taping into different feelings as well as building brand communities Broader set activities above the three, which also acts as an umbrella called Relationship Marketing, attempts to provide a more holistic, personalized brand experience to create stronger consumer ties. It is above traditional 4Ps
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Integrating the Brand Into Supporting Marketing Programs

Supporting marketing mix should be designed to enhance awareness and establish desired brand image. The 4Ps will be adjusted with some newer developments

Product strategy Pricing strategy Channel strategy Promotion strategy (Chapter 6)

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Product Strategy
The primary influence on what cosumers experience with a brand designing and delivering product that satisfy customer is a prerequisite Perceived quality (preception of the overall quality/superiority of product compared to alternatives with respect to its intended purpose) and value Brand intangibles (other than functional product performance/benefit, e.g. Process benefit and relationship benefit (McKinsey)) Value chain (combination quality and cost perception) Value chain from Porter identify five primary value-creating activities and four support activities . Company can achieve competitive advantage by improving performance and reducing cost in any of these value creating activities Relationship marketing (premise: current customers are the key to long term brand success Mass customization (making product costomize: enables customers to distinguish themselves even with the basic purchases) e.g. Nikes NIKEiD, Dell, Computer Aftermarketing (the marketing activities that occur after consumer purchase) Loyalty programs (purpose: identifying, maintaining, and increasing the yield from a firms best customers through long term, interactive, value added relationship)
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PortersValue Chain

5.22

Benefit of Relationship Marketing

Acquiring new customers can cost five (some other said 8-10) times as much as satisfying and retaining current customers The average company loses 10% of its customers/year A 5% reduction in the customers defection rate can increase profit by 25% to 85%, depending on the industry The customer profit rate tends to increase over the life of the retained customers Buchanan and Gilles (1990) stated that the increased profitability associated with customer retention efforts occurs because of several factors that occur once a relationship has been established with a customer.

The cost of acquisition occurs only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost. Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue). Long-term customers tend to be less inclined to switch, and also tend to be less price sensitive. This can result in stable unit sales volume and increases in dollar-sales volume. Long-term customers may initiate free word of mouth promotions and referrals. Long-term customers are more likely to purchase ancillary products and high margin supplemental products. Customers that stay with you tend to be satisfied with the relationship and are less likely to switch to competitors, making it difficult for competitors to enter the market or gain market share. Regular customers tend to be less expensive to service because they are familiar with the process, require less "education", and are consistent in their order placement. Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into better customer satisfaction in a virtuous circle 5.23

e.g. Mass Customization

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Seven After Sales (Marketing) Activities

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2.

3.

4.

5.

6.

7.

Establishing and maintaining a customer information file (trcking akk current, potential, inactive and past customers) Blueprinting customer contacts (identifying and characterizing points of interaction with customers in search of moment of truths Analyzing customer feedback (explore the nature of customer satisfaction and dissatisfaction) Conductiong coustomer satisfaction surveys (to also signal interest in customers reaction Formulating and managing communication program (sending customer proprietary magazine or newsletters Hosting special customer events or program (celebrating relationship with the brand) Identifying and reclaiming lost customers (one of the best sources for new Vavra (1995) Aftermarketing: How to keep customer
customers for life through Relationship Marketing
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e.g. Loyalty Program

effective loyalty program

Know your audience: target customer whose purchasing behavior can be changed by the program Change is good: update the program, prevent mee-too competitors programs Listen to your best customers: suggestion and complain from top consumers deserve careful consideration large percentage business Engage people: make customer want to join the program, makethe program easy to use
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Pricing Strategy

Price is the one revenue-generating elementof the traditional marketing mix and Price premiums are among the most important brand equity benefits of building a strong brand. Consumer price perceptions: Consumers often rank brands according to price tiers (low/medium/high) in a category. And how flexible they think about price based on how deeply/frequently it is discounted Setting prices to build brand equity Value pricing (objective: to uncover the rigt blend of product quality, product costs, product prices that fully satisfied the needs and wants of customers as well as companys profit target) e.g. Wall-mart (we sell for less), Taco Bell reduce costs enough to lower the price many item on the menu to under $1 Note: key-success of VP: proper balance of product design and delivery (e.g. New improved value added to increase price), product cost(lower the cost as low as possible, but shouldnt sacrify quality) , product prices (understand the actual customer valueperception) Everyday low pricing (EDLP) determining price discount over time. It might help to build brand loyalty, fend off private labels in road, and reduce manufacturing+inventory cost. (forward buying)
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Summary Pricing

Consumer must find the price is right and resasonable given benefit they receive Lower the price vs. Product quality Price segmentation sets and adjust prices for appropriate market segments Yield management principles: e.g. Airlines To build brand equity, marketers must determine strategies for setting prices and adjusting them, if at all, over the S/T or L/T This decision will reflect consumers perception on value The benefit delivered by product and its relative advantages will determine what consumer see as fair price Value pricing strikes balance among product design, product cost and product prices EDLP is a complementary pricing approach to determine the nature of price discounts and promotion over time
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e.g. pricing

Yield Management
5.29

Channel Strategy

Marketing Channel: sets of interdependent organization involved in the process of making a product available for consumption The manner by which a product is sold or distributed can have a profound impact on the resulting equity and ultimate sales success of a brand. Channel strategy includes the design and management of intermediaries such as wholesalers, distributors, brokers, and retailers.

5.30

Channel Design

Direct channels

Selling through personal contacts from the company to prospective customers by mail, phone, electronic means, in-person visits, and so forth Selling through third-party intermediaries such as agents or broker representatives, wholesalers or distributors, and retailers or dealers Push and pull strategies

Indirect channels

Web strategies
5.31

Indirect Channel: Push and Pull Strategies

By devoting marketing efforts to the end consumer, a manufacturer is said to employ a pull strategy. Alternatively, marketers can devote their selling efforts to the channel members themselves, providing direct incentives for them to stock and sell products to the end consumer. This approach is called a push strategy.
5.32

Indirect Channel: Channel Support

Two such partnership strategies are retail segmentation activities and cooperative advertising programs. Retail segmentation

Retailers are customers too A manufacturer pays for a portion of the advertising that a retailer runs to promote the manufacturers product and its availability in the retailers place of business.

Cooperative advertising

5.33

Direct Channel

Company-owned stores (e.g. Polo, Levis and Nike town stores Osh Kosh BGosh, Warner Bross) Advantage

Means to showcase the brand and all its different product varieties in a manner not easily achieved through normal channel (depth & breath variety) Provide added benefit of functioning asa test market to gauge consumer response to alternative product design, presentation and prices, allowing to tap consumer habit
Expensive: to build and to maintain effectivelly (e.g. Disneys store in Japan and North America fnally sold to The Childrens Place) Potential conflict with existing retail channels and distributors

Disadvantage

5.34

Web Strategies

Advantage of having both a physical brick and mortar channel and a virtual, online retail channel The Boston Consulting Group concluded that multichannel retailers were able to acquire customers at half the cost of Internet-only retailers, citing a number of advantages for the multichannel retailers.
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