Brand Positioning and Customer Satisfaction Quiz

CHAPTER 9 Designing and Managing Services

In line with its aim to be the world’s premier quality food retailer, all employees of Publix are trained to put customers first, resulting in the largest employee-owned U.S. grocery chain consistently earning an impressive customer satisfaction rate. Source: Ken Wolter/Alamy Stock Photo

A s companies find it harder to differentiate their physical products, they turn to service differentiation, whether that involves on-time delivery, better and faster response to inquiries, or quicker resolution of complaints. Top service providers are well aware of the advantages of service differentiation and its value in creating memorable customer experiences. 1 One service business that understands how to keep customers satisfied is Publix.

>>> The history of Publix goes back to 1930, when George Jenkins opened his first Publix Food Store in Winter Haven, Florida. The store set a new standard for cleanliness and product ­ a ssortment. While many of his competitors’ store shelves went bare for lack of goods during the Great Depression, ­

Jenkins traversed the country seeking products to put on the shelves of his stores. In his travels, he

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also gathered ideas about how to modernize the business. Over time, Jenkins expanded the number of locations by acquiring small grocery stores and replacing them with larger, modern ­ s upermarkets that featured innovations such as air conditioning, fluorescent lighting, electric-eye doors, and

­ terrazzo floors. Publix’s formula of offering a pleasant shopping environment, friendly service, and quality merchandise helped it become the largest employee-owned grocery chain in the United States, with over 1,200 supermarkets generating more than $35 billion in revenues. ­ T hroughout its history, the company never veered from Jenkins’s philosophy of treating employees and ­ c ustomers like family. The company’s employees, who are also its largest collective ­ s hareholders, are all trained to put their customers first. As a result, year after year Publix has been recognized as the number one supermarket by the American Customer Satisfaction Index, has consistently been rated highest ­ in customer satisfaction among supermarket pharmacies by J.D. Power, and has been one of Fortune ­ magazine’s “100 Best Companies to Work For” since the list’s inception. By ­ p assionately focusing on creating superior customer value, Publix aims to stay true to its mission to be the

premier ­ quality food retailer in the world. 2

Because it is critical to understand the special nature of services and what that means to marketers, in this chapter we systematically analyze services and how to market them most effectively.

The Nature of Services

A service is an act that one entity performs for another that is essentially intangible and does not result in the ownership of anything. It may or may not be tied to a physical product. Increasingly, manufacturers, distributors, and retailers are providing value-added services, or simply excellent customer ­ service, to differentiate themselves.

Services are everywhere. The government sector —with its courts, employment services, hospitals, loan agencies, military services, police and fire departments, postal service, regulatory agencies, and schools— is in the service business. The private nonprofit sector— museums, charities, churches, colleges, foundations, and hospitals— is in the service business. A good part of the business sector —with its airlines, banks, hotels, insurance companies, law firms, management consulting firms, medical practices, motion picture companies, plumbing repair companies, and real estate firms— is in the service business. ­ Many workers in the manufacturing sector —such as computer operators, accountants, and legal staff— are really service providers. In fact, they make up a “service factory” providing services to the “goods factory.” And those in the retail sector —such as cashiers, clerks, salespeople, and customerservice representatives— are also providing a service.

Learning Objectives

9.1

9.2

After studying this chapter you should be able to:

Define the distinctive characteristics of services.

Explain the new realities that service firms face.

9.3

9.4

Identify the key strategies to achieve service excellence.

Explain how service firms can manage quality effectively.

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<< Carnival found out the hard way how quickly a company’s image and customer loyalty can be undermined when an engine fire on its Carnival Triumph left more than 3,000 passengers with limited access to food, water, and working toilets.

Because services are generally high in experience and credence qualities, there is more risk involved in their purchase, with several consequences. First, service consumers generally rely on word of mouth rather than advertising. Second, they rely heavily on price, provider, and physical cues to judge quality. Third, they are highly loyal to service providers who satisfy them. Finally, because switching costs are high, consumer inertia can make it challenging to entice business away from a competitor.

Although customer loyalty can be strong for services, in today’s modern communications environment, a service failure can be a PR nightmare and undermine that loyalty, as Carnival Cruises found.

Carnival The Carnival Triumph was on the third day of a four-day cruise from Galveston, Texas, to Mexico when an engine room fire disabled the boat and set it adrift, leaving

3,100 passengers with little access to food, water, and restrooms. Waste spilled into the hallways, and decks below became insufferably hot. When the boat returned to shore after a long five days, the CEO greeted passengers as they disembarked and gave each of them $500, a free flight home, a refund for the trip, and credit for another cruise. Nevertheless, given the publicity surrounding what the media called the “poop cruise,” the damage had been done. Public opinion of cruises as a whole dropped. Carnival found its bookings declining by a hefty 20 percent, forcing the company to pass along steep discounts to fill boats. To avoid future problems, the cruise line invested $600 million to upgrade its fleet and hired a new VP of Technical Operations to oversee its safety initiatives. Seven years later, amid the COVID outbreak in March 2020, Carnival faced a similar challenge when it experienced several high-profile outbreaks on its ships, which spurred a congressional inquiry into the company’s safety practices. 5

DISTINCTIVE CHARACTERISTICS OF SERVICES Researchers delineate four key characteristics that distinguish services from products: intangibility, inseparability, variability , and perishability . 6 Understanding these unique aspects of service delivery is important, because they can greatly affect the design of marketing programs. We discuss these four aspects of services in more detail next.

Intangibility. Unlike physical products, services cannot be seen, tasted, felt, heard, or smelled before they are bought. A person getting cosmetic surgery cannot see the results beforehand, and the patient in the psychiatrist’s office cannot know the exact outcome of treatment. To reduce uncertainty, buyers will look for evidence of quality by drawing inferences from the place, people, equipment, communication material, symbols, and price. Therefore, the service provider’s task is to “manage the evidence”—to “tangibilize the intangible.” 7

Service companies can try to demonstrate their service quality by emphasizing their tangible aspects. Because there is no physical product, the service provider’s facilities— such as its primary and secondary signage, environmental design and reception area, employee apparel, and collateral material— are especially important. All aspects of the service delivery process can be branded, which is why Allied Van Lines is concerned about the appearance of its drivers and laborers, why UPS has

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developed such strong equity with its brown trucks, and why Doubletree by Hilton Hotels & Resorts offers fresh-baked chocolate chip cookies to symbolize care and friendliness.

Service providers often choose brand elements such as logos, symbols, characters, and slogans to

make the service and its key benefits more tangible; consider the “friendly skies” of United, the “good hands” of Allstate, and the “bullish” nature of Merrill Lynch. Disney is a master at “tangibilizing the intangible” and creating magical fantasies in its theme parks. So are retailers such as Dick’s Sporting Goods and Bass Pro Shops. 8 Apple tangibilized its customer service by creating its “Genius Bar”—a tech support station inside Apple’s stores, aiming to provide concierge-style customer support.

Banks and financial institutions are particularly inclined to add a tangible dimension to their ­services—by securing a prestigious office address and an imposing building structure— in order to convey a sense of stability and instill trust. In addition, many financial institutions, including ­Scotiabank, MetLife, Chase, Citi, SunTrust, US Bank, Barclays, and Bank of America, have paid upwards of $100 ­million (and in some cases over $500 million) for the naming rights to major stadiums and sports arenas. 9

Inseparability. Whereas physical goods are manufactured, inventoried, distributed, and later consumed, services are typically produced and consumed simultaneously. 10 A haircut can’t be stored, nor can it be produced without the barber. The provider is part of the service. Because the client is also often present, provider– client interaction is a special feature of services marketing. When clients have strong provider preferences, the provider can raise its price to ration its limited time.

Several strategies exist for getting around the limitations of inseparability. The service provider can work with larger groups. Some psychotherapists have moved from one-on-one therapy to small-group therapy to groups of more than 300 people in a large hotel ballroom. The service provider can work faster; the psychotherapist can spend 30 more efficient minutes with each patient instead of 50 less structured minutes and thus see more patients. The service organization can train more service providers and build client confidence, as H&R Block has done with its national network of trained tax consultants.

A common approach to addressing the inseparability aspect of services is yield management— a

pricing strategy that aims to optimize customer demand based on the available capacity of the service provider. Because services cannot be inventoried to increase availability at times of greater demand, service

service providers use variable pricing to influence consumer behavior by setting a price point at which consumer demand matches a company’s capacity. For example, resorts are subject to seasonal fluctuations in demand, restaurants tend to be busier on weekends, and airlines experience higher than usual demand around holidays such as Thanksgiving, Christmas, and New Year’s Eve. By varying their price, companies are able to influence customer demand in a way that matches their capacity. Variability. The quality of services depends on who provides them— as well as on when, where, and to whom; thus, services are highly variable. Because service delivery is an interactive experience, the actual service received by customers varies across individual customers and service providers. Service firms know that variability in their performance puts them at risk. Hilton initiated a major program to create more uniformity in guest experiences.

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Photo Stock Hilton Hotels Between 1964, when Hilton Hotels sold its foreign licensee Hilton International Co., and 2006, when it bought Hilton International Co. back, the two companies operated largely independently. As a result, the Hilton brand was no longer providing customers with a uniform high-quality experience. One research analyst said, “The brand standards in Europe were always very different from those in the U.S. I think they were, quite frankly, a bit slacker in Europe. To address this inconsistency, Hilton initiated H360, a project to review everything from breakfast fare to bath amenities, the décor of lobbies, Wi-Fi service, hotel architecture, and handling of customer complaints at all the company’s hotels. As a result of H360— whose motto was “One brand. One vision. One culture”—independent owners of Hilton-branded hotels in the United States and abroad have been forced to upgrade to Hilton standards where necessary or be dropped from the Hilton system. Protecting the brand seems to have served the company well, helping increase its revenues and strengthening its brand equity. 11

>> To ensure that Hilton properties in both Europe and the United States provide its guests with uniformly high-quality services or be purged from its system, Hilton launched a project to review all aspects of the guest experience— from property architecture to customer complaints.

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Service buyers are aware of potential variability and often talk to others or go online to collect

information before selecting a specific service provider. To reassure customers, some firms offer service guarantees that may reduce consumer perceptions of risk. 12 Here are three steps that service firms can take to increase quality control.

• Invest in good hiring and training procedures. Recruiting the right employees and giving them excellent training are crucial elements of quality control, whether employees are highly skilled professionals or low-skilled workers. Better-trained people exhibit six characteristics that improve service quality: competence, courtesy, credibility, reliability, responsiveness, and communication skill.

• Standardize the service-performance process throughout the organization. A service blueprint can map out the service process, the points of customer contact, and the evidence of service from the customer’s point of view. 13 Figure 9.1 shows a service blueprint for an overnight guest at a hotel. 14 Behind the scenes, the hotel must skillfully help the guest move from one step to the next. Service blueprints can be helpful in identifying potential “pain points” for customers, developing new services, supporting a zero-defects culture, and devising service recovery strategies.

• Monitor customer satisfaction. Reduce service variability by employing suggestion and complaint systems, customer surveys, and third-party comparison shopping. Customer needs may vary in different areas, allowing firms to develop region-specific customer satisfaction ­programs. 15 Firms can also develop customer information databases and systems for more personalized service, especially online. 16

Perishability. Services cannot be stored, so their perishability can be a problem when demand fluctuates. To accommodate rush-hour demand, public transportation companies must own more equipment than if demand were even throughout the day. Some doctors charge patients for missed appointments because the service value (the doctor’s availability) exists only at the time of the appointment.

FIGURE 9.1 Blueprint for Overnight Hotel Stay Source: Valarie Zeithaml, Mary Jo Bitner, and Dwayne D. Gremler, Services Marketing: Integrating Customer Focus across the Firm , 7th ed. (New York: McGraw-Hill, 2017).

Hotel Exterior

Parking

Arrive at Hotel

Cart for Bags

Give Bags to Bellperson

Desk Registration Papers Lobby Key

Check In

Elevators Hallways Room

Go to Room

Care for Bags

Receive Bags

Room Amenities Bath

Sleep Shower

Menu

Call Room Service

Delivery Tray Food Appearance

Receive Food

Food

Eat

Bill Desk Lobby Hotel Exterior Parking

Check Out and Leave

Greet and Take Bags Process

Registration Deliver Bags Deliver Food

Line of Interaction

Process Check Out

Take Bags to Room Take Food Order

Line of Visibility

Registration System Prepare Food

Line of Internal Interaction

Registration System

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>> Dynamic pricing

based on advance sales and anticipated demand has helped the Indianapolis Zoo to simultaneously control the number of visitors and increase revenue.

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Source: Wm. Baker/GhostWorx

Demand or yield management is critical; the right services

must be available to the right customers at the right places at the right times and at the right prices to maximize profitability. Several strategies can produce a better match between service demand and ­supply. 17 On the demand (customer) side, we can identify the following strategies:

• Differential pricing will shift some demand from peak to off-peak periods. Examples include lower matinee movie prices and weekend discounts for car rentals. 18

• Nonpeak demand can be cultivated. McDonald’s pushes breakfast service, and hotels promote minivacation weekends.

• Complementary services can provide alternatives for waiting customers, such as cocktail lounges in restaurants and automated teller machines in banks.

• Reservation systems are a way to manage the demand level. Airlines, hotels, and physicians employ them extensively.

Perhaps one of the most popular approaches to balancing supply and demand in service delivery is yield pricing . For example, highway operators use dynamic pricing to optimize traffic. Ferrovial SA’s Cintra ­ unit has opened several toll roads in the Dallas area that can change prices every five minutes to keep speeds above 50 miles an hour. The toll for one 7-mile stretch, for instance, can fluctuate between 90 cents and $4.50. In the same vein, sports teams, bands, ski resorts, and theme parks have begun adjusting prices based on demand. Dynamic pricing can produce results. Consider the ­Indianapolis Zoo.

Indianapolis Zoo The Indianapolis Zoo adopted dynamic pricing in part to limit crowds after opening a new orangutan center. As a result, adult passes that used to cost $16.95 were priced between $8 and $30, based on advance sales and expected demand. For example, the Zoo discounts cold weekdays in the winter and boosts prices after school groups book dozens of tickets. The dynamic pricing produced tangible results: Two-thirds of guests visited on weekdays the following summer, compared with 57 percent in the past. In the year following the introduction of this yield-management pricing, the zoo’s admission revenue grew 12 percent. 19

On the supply side, the following strategies can facilitate yield management: • Part-time employees can serve peak demand. Colleges add part-time teachers when enrollment goes up; stores hire extra clerks during holiday periods.

• Peak-time efficiency routines can allow employees to perform only essential tasks during peak periods.

Paramedics assist physicians during busy periods.

• Increased consumer participation frees up service providers’ time. Consumers fill out their own medical records or bag their own groceries.

• Shared services can improve offerings. Several hospitals can share medical-equipment

purchases.

• Facilities for future expansion can be a good investment. An amusement park might buy surrounding land for later development.

For fast-food chains, drive-through windows are a way to expand selling opportunities beyond sitdown meals. An impressive 70 percent of revenue for the fast-food industry comes via drive-through windows. According to QSR magazine, Taco Bell operates some of the fastest and most accurate drivethrough windows. The company aims for 3 minutes and 30 seconds per order and is constantly looking for ways to shave seconds and cut costs. 20

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The New Services Realities

Service firms once lagged behind manufacturers in their understanding and use of marketing because they were small or faced large demand or little competition. This has certainly changed. Some of the most skilled marketers now are service firms.

Savvy services marketers are recognizing the new services realities, such as the increasing role of technology, the importance of the increasingly empowered customer, customer coproduction, and the need to engage employees as well as customers.

INCREASING ROLE OF TECHNOLOGY Technology is changing the rules of the game for services in a very fundamental way. Banking, for instance, is being transformed by the ability to bank online and via mobile apps; some customers rarely see a bank lobby or interact with an employee anymore. The Covid-19 pandemic accelerated the digital transformation of services by forcing many companies to change course and transform their businesses by integrating digital technology to fundamentally change how they deliver value to their customers.

Technology also has great power to make service workers more productive. However, companies must avoid pushing technological efficiency so hard that they reduce perceived quality. 21 Amazon has some of the most innovative technology in online retailing, but it also keeps customers extremely satisfied when a problem arises, even if they don’t actually talk to an Amazon employee. More companies have introduced “live chat” features to blend technology with a human voice. One company that enables enterprises to connect with customers across different touch points— from text messages to emails, phone calls to video, intelligent chatbots and back— is Twilio.

Twilio Twilio, the leading cloud communications platform, is used by millions of developers around the world to “virtualize” the telecommunications infrastructure and improve the human interaction experience. Twilio has over 60,000 business customers, including high-profile clients such as Airbnb, Intuit, Salesforce, Uber, Twitter, eBay, Sony, Yelp, Hulu, and Lyft. Twilio offers its clients a comprehensive, customizable, and easy-to-use platform to automate and streamline communications to customers, collaborators, employees, and coworkers. Coca-Cola uses Twilio to rapidly dispatch service technicians, real estate site Trulia uses Twilio for its click-to-call app that enables potential buyers to connect with an agent, EMC uses Twilio to send texts to

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Gabby Source: Jones/Bloomberg/Getty

<< To keep both its high-profile business customers and their customers happy, leading cloud communication platform Twilio offers a variety of easy-touse, customizable services that automate, streamline, and enhance interactions between companies and their customers, collaborators, and employees.

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employees when an IT service goes down, and Airbnb uses it to automatically text information about potential renters to hosts. Building on its communications platform for text, voice, video, chats, and messaging apps, Twilio expanded its portfolio of services to include a cloud-based call-center service and a pay app that allows companies to process payments over the phone without having to read a card number to a representative. To add e-mail capabilities to its portfolio of offerings, Twilio in 2019 acquired SendGrid, the leading e-mail API platform, which bolstered the company’s ability to deliver consistent messaging based on its customers’ preferred form of communication. 22

The internet and cloud computing enable firms to improve their service offerings and strengthen their relationships with customers by allowing for true interactivity, customer-specific and situational personalization, and real-time adjustments of the firm’s offerings. But as companies collect, store, and use more information about customers, concerns about security and privacy arise. Companies must incorporate the proper safeguards and reassure customers about their efforts to keep customers’ private information secure.

CUSTOMER EMPOWERMENT The digital era has clearly altered customer relationships. Customers are becoming more sophisticated about buying product-support services and are pressing for “unbundled services” and the right to select the elements they want. They increasingly dislike having to deal with a multitude of service providers handling different types of products or equipment. With that in mind, some third-party service organizations now service a greater range of equipment. A plumbing business may also service air conditioners, furnaces, and other components of a household infrastructure.

Most important, social media have empowered customers by letting them send their comments around the world with a mouse click. A person who has a good customer experience is more likely to talk about it, but someone who has a bad experience will talk to more people. Ninety percent of angry customers reported sharing their story with a friend; they can now share it with strangers too. Online sites such as Angie’s List, Yelp, and TripAdvisor are other popular means to spread the word about customer-service adventures. Even more challenging for firms, unhappy customers may choose to upload a damaging video to share their customer-service miseries with others.

When a customer complains, most companies now respond quickly. Many companies allow contact

contact 24/7 by phone and e-chat, but they also reach out to customers and monitor blogs, websites, and social media. If employees see a customer report a problem on a blog, they get in touch and offer help. Clear, helpful e-mail replies to customers’ queries can be very effective. Delta Airlines introduced Delta Assist to monitor customer Twitter tweets and Facebook posts around the clock with a 10-person team that provides real-time replies to any queries or problems.

More important than simply responding to a disgruntled customer, however, is preventing dissatisfaction from occurring in the future. That may mean simply taking the time to nurture customer relationships with attention from a real person. Solving a customer’s problem quickly and easily goes a long way toward winning long-term loyal customers. 23

CUSTOMER COPRODUCTION

The reality is that customers do not merely purchase and use a service; they play an active role in its delivery. Their words and actions affect the quality of their service experiences and those of others, as well as the productivity of frontline employees. 24

Customers often believe they derive more value, and feel a stronger connection to the service provider, if they are actively engaged in the service process. This coproduction can put stress on employees, however, and reduce their satisfaction, especially if they do not share the same values, interests, or knowledge with their customers. 25 Moreover, one study estimated that one-third of all service problems are caused by the customer. 26 The growing shift to self-service technologies is likely to increase this percentage.

Preventing service failures is crucial because recovery is always challenging. One of the biggest problems is attribution. Customers often feel that the firm is at fault or that, even if it is not at fault, it is still responsible for righting any wrongs. Unfortunately, even though many firms have welldesigned and well-executed procedures to deal with their own failures, they find managing customer

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failures— service problems arising from a customer’s mistake or lack of understanding— much more difficult. Solutions come in all forms, as the following examples show. 27

• Redesign processes and redefine customer roles to simplify service encounters. Staples transformed its business with its “Easy” program to take the hassle out of ordering office supplies.

• Incorporate the right technology to aid employees and customers. Comcast, the largest U.S. cable operator, introduced software to identify network glitches before they affected service and to better inform call center operators about customer problems.

• Create high-performance customers by enhancing the clarity of their role, their motivation, and their ability to perform their role. USAA reminds enlisted policyholders to suspend their car insurance when they are stationed overseas.

• Encourage “customer citizenship” so customers will help one another. At golf courses, players not only can follow the rules by playing and behaving appropriately; they can also encourage others to do so.

SATISFYING EMPLOYEES AS WELL AS CUSTOMERS

Excellent service companies know that positive employee attitudes will strengthen customer loyalty. 28 Instilling a strong customer orientation in employees can also increase their job satisfaction and commitment, especially if they have extensive customer contact. Employees thrive in customer-contact positions when they have an internal drive to (1) pamper customers, (2) accurately read their needs, (3) develop a personal relationship with them, and (4) deliver high-quality service to solve customers’ problems. 29

Given the importance of positive employee attitudes to customer satisfaction, service companies must attract the best employees they can find. They need to market a career rather than just a job, design a sound training program, provide support for employees, and reward them for good performance. Companies can use an intranet, internal newsletters, daily reminders, and employee roundtables to reinforce customer-centered attitudes. Finally, they must audit employee job satisfaction regularly.

Zappos has built a customer-focused organization admired by many.

Zappos Online retailer Zappos was founded with superior customer service at the core of its culture. With free shipping and returns, 24/7 customer service, and fast turnaround on the numerous products and thousands of brands offered on the site, the company works hard to create repeat customers. Unlike many other companies, it has not outsourced its Zappos.com call centers, and half the interview process is devoted to finding out whether job candidates are sufficiently outgoing, open-minded, and creative to be a good cultural fit. Zappos empowers

<< Building customer loyalty by providing outstanding service are at the center of Zappos’ corporate culture, a culture fostered by its former longtime CEO, Tony Hsieh.

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its customer-service reps to solve problems. When a customer called to complain that a pair of boots was leaking after a year of use, the rep sent a new pair, even though the company’s policy is that only unworn shoes are returnable. Every employee has a chance each year to contribute to the company’s Culture Book about life at Zappos and how each department— from selling to warehousing, delivery, pricing, and billing— implements superior customer service. Thanks to its success, Zappos even offers two-day seminars to business executives eager to learn the secrets behind its unique corporate culture and approach to customer service. 30

Achieving Service Excellence

The increased importance of the service industry has sharpened the focus on what it takes to excel in the marketing of services. 31 The superior marketing of services requires excellence in three broad areas: external marketing, internal marketing, and interactive marketing. 32 External marketing is the normal work of preparing, pricing, distributing, and promoting the service to customers. Internal marketing consists of training and motivating employees to serve customers well. Arguably the most important contribution the marketing department can make is to be “exceptionally clever in getting everyone else in the organization to practice marketing.” 33 Interactive marketing reflects employees’ skill in serving the client. In interactive marketing, teamwork is often key. Delegating authority to frontline employees can allow for greater service flexibility and adaptability because it promotes better problem solving, closer employee cooperation, and more efficient knowledge transfer. 34

BEST PRACTICES OF TOP SERVICE COMPANIES

Well-managed service companies that achieve marketing excellence share a focus on customer-­ centricity, a commitment to service quality, an understanding of the need to cater to high-value customers, and the implementation of strategies for managing customer complaints.

Customer-Centricity. Top service companies are “customer obsessed.” They have a clear sense of their target customers and their needs, and they have developed a distinctive strategy for satisfying them. At the Four Seasons luxury hotel chain, employees must pass four interviews before being hired. Each hotel also employs a “guest historian” to track guest preferences. With more than 10,000 branches in the United States (more than any other brokerage firm), Edward Jones stays close to customers by assigning a single financial advisor and one administrator to each office. Although costly, maintaining such small teams fosters personal relationships. 35

Customer-centricity means seeing the world in general, and a company’s services in particular,

from the customer’s point of view. Customer-centricity goes beyond providing the services that the company performs to delivering solutions that customers need. The customer-centric company is proactive in identifying and addressing customer needs (rather than being merely reactive and offering services that customers explicitly requested). Companies like The Ritz-Carlton, Four Seasons, REI, and Zappos have embraced customer-centricity as the underlying principle of their business models. One company that wins consistent praise for its brand-building success is Singapore Airlines.

Singapore Airlines Singapore Airlines (SIA) has been consistently recognized as the world’s “best” airline, in large part thanks to its stellar marketing. The carrier wins so many awards that it has to update its website monthly. Famous for pampering passengers, it continuously strives to create a “wow effect” and surpass customers’ expectations. SIA was the first to launch on-demand entertainment systems in all classes, Dolby sound systems, and a book-the-cook service that allows businessand first-class passengers to order meals before boarding. Thanks to a first-of-its-kind $1 million simulator the airline built to mimic the air pressure and humidity inside a plane, it found that taste buds change in the air and that, among other things, it needed to cut back on spices in its food. New SIA recruits receive four months of training (twice the industry average), and existing staff get nearly three weeks of refresher training a year (costing $70 million). With its reputation for excellence, the carrier attracts some of the best local graduates and staffs each flight with more attendants and other cabin crew members than other airlines. SIA applies a 40– 30– 30 rule: 40 percent of resources go to training and motivating staff, 30 percent to reviewing process and procedures, and 30 percent to creating new product and service ideas. 36

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<< Singapore Airlines has achieved high-flying marketing success

and earned plaudits by continuously working to delight its passengers and exceed their expectations.

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Service Quality. Companies such as Marriott, Disney, and Ace Hardware have a thorough commitment to service quality. Their managers look monthly not only at financial performance but also at service performance. Ray Kroc of McDonald’s insisted on continually measuring each McDonald’s outlet on its conformance to QSCV: quality, service, cleanliness, and value. Some companies insert a reminder with employees’ paychecks: “Brought to you by the customer.” Sam Walton of Walmart required the following employee pledge: “I solemnly swear and declare that every customer that comes within 10 feet of me, I will smile, look them in the eye, and greet them, so help me Sam.” Allstate, Dunkin’ Brands, Oracle, and USAA have high-level senior executives with titles such as chief customer officer, chief client officer, or chief experience officer, who have the power and authority to improve customer service across every customer interaction. 37

The best service providers set superior quality standards. In the highly regulated banking industry, Citibank still aims to answer customer phone calls within 10 seconds and letters within two days; it also has been an industry leader in using social media for customer service. The standards must be set appropriately high. A 98 percent accuracy standard may sound good, but it would result in 64,000 lost FedEx packages a day; six misspelled words on each page of a book; 400,000 incorrectly filled prescriptions daily; 3 million lost pieces of USPS mail each day; no phone, internet, or electricity for eight days per year, or 29 minutes per day; 1,000 mislabeled or (mispriced) products at a supermarket; and 6 million people unaccounted for in a U.S. census.

Top firms audit their own service performance, as well as that of competitors, on a regular basis.

They collect voice of the customer measurements to probe customer satisfiers and dissatisfiers using comparison shopping, mystery or ghost shopping, customer surveys, suggestion and complaint forms, service-audit teams, and customers’ letters. We can judge services on customer importance and company performance. Importance– performance analysis rates the various elements of the service bundle and identifies required actions.

Because U.S. consumers generally have high expectations about service delivery, they often feel their needs are not being adequately met. Service providers receive low marks for many ­ r easons. Customers complain about inaccurate information; unresponsive, rude, or poorly trained workers; and long waits. Even worse, many find their complaints never reach a human ear because of slow or faulty phone or online reporting systems. Consumers report that companies mishandle online complaints by responding selectively or inconsistently (or not at all) and by “cutting and running,” appearing insincere, or attempting to just “bribe” the consumer. It doesn’t have to be that way. Consider the case of Butterball, the largest producer of turkey products in the United States.

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>> Trained experts have

been talking turkey to thousands of U.S and Canadian households every fall as they answer more than 100,000 queries on how to prepare, cook, and serve this focal element of Thanksgiving meals.

Fitzgerald/Shutterstock Source: Sheila

Butterball Talk Line Available every November and December, the 50 + experts at the company’s talk line answer more than 100,000 questions about how to prepare, cook, and serve turkeys from thousands of households around the United States and Canada; 12,000 people call on Thanksgiving Day alone. Trained at Butterball University, the operators have all cooked turkeys dozens of different ways and can handle any queries that come up, including why turkeys shouldn’t be stashed in snow banks and how to tell when the turkey is done. The Talk Line began in 1981 with six volunteers who worked the phones that holiday season to answer 11,000 turkeycooking questions. Most recently, the company expanded the ways in which customers can connect with the Talk Line to include social media, live chat, texting— and even Amazon Alexa. 38

Catering to High-Value Customers. Many firms have decided to coddle big spenders to retain their patronage as long as possible. Customers in high-profit tiers get special discounts, promotional offers, and lots of special service; those in lower-profit tiers, who barely pay their way, may get more fees, stripped-down service, and voice messages to process their inquiries.

When the 2008 recession hit, Zappos decided to stop offering complimentary overnight shipping to first-time buyers and to offer it to repeat buyers only. The money saved was invested in a new VIP service for the company’s most loyal customers. 39 Companies that provide differentiated levels of service must be careful about claiming superior service, however; customers who receive lesser treatment will bad-mouth the company and injure its reputation. One type of company that is expert at identifying and catering to high-value customers is the casino.

Casinos like Caesars Palace, Bellagio, and Harrah’s offer huge perks to high rollers in order to persuade them to come and stay as long as possible. This strategy ultimately pays off: High-profile high rollers, or “whales,” regularly wager thousands and sometimes millions of dollars ­ in a single night. For many casinos, high rollers represent as much as 50 percent of their ­revenues. Common perks received by high rollers include discounted or comped luxury accommodations that often feature a butler and a private chef, a free luxury car and driver, and even discounts on gambling losses. Some are also offered meals at ­ M ichelin-starred restaurants that are located on the premises of the hotel-casinos. High-roller spouses who are not interested in gambling may receive store credit to entice them to spend more time shopping. 40

Delivering services that maximize both customer satisfaction and company profitability can be challenging. On the one hand, a company needs to make sure that it creates meaningful benefits for its high-value customers. On the other hand, providing too many benefits could have a negative impact

CHAPTER 9 | Designing and Managing Services 221

on the company’s profits and thus prove counterproductive. Consider the experience of Atlantic City’s Tropicana casino.

Eager to attract big spenders, Atlantic City’s Tropicana casino offered Don Johnson, a high roller and experienced blackjack player, a special deal that modified the rules of the game in a way that reduced the casino’s advantage, in addition to offering him a 20 percent discount on losses (meaning that if he lost $500,000, he only had to pay $400,000). In their zeal to entice Johnson to play in their casino, managers did not realize that they had given up too much by offering Johnson an edge in betting against the house. With the odds on his side, Johnson won nearly $6 million in one night— an amount equal to the casino’s monthly revenue. The Tropicana was not alone in offering overly generous benefits to high rollers; Atlantic City’s Borgata and Caesars casinos succumbed to the same fate, losing $9 million to Johnson. 41

Managing Customer Complaints. On average, 40 percent of customers who suffer through a bad service experience with a company stop doing business with it. 42 However, if those customers were willing to complain first, they would actually offer the company a gift— provided that the complaint is handled well. Companies that encourage disappointed customers to complain— and also empower employees to remedy the situation on the spot— have been shown to achieve higher revenues and greater profits than companies without a systematic approach for addressing service failures. 43

Frontline employees who adopt extra-role behaviors , advocate the interests and enhance the image of the firm to consumers, and take the initiative to engage in conscientious behavior in dealing with customers can be a critical asset in handling complaints. 44 Customers evaluate complaint incidents in terms of the outcomes they receive, the procedures used to arrive at those outcomes, and the nature of interpersonal treatment during the process. 45 Companies are also looking to improve the way they handle complaints by increasing the quality of their call centers and their customer-service representatives . “Marketing Insight: Improving Company Call Centers” at the end of this chapter illustrates what top companies are doing.

DIFFERENTIATING SERVICES

When the physical product cannot easily be differentiated, the key to competitive success may lie in adding valued services and constantly improving their quality. Rolls-Royce PLC has ensured that its aircraft engines are in high demand by continuously monitoring the health of its airplane engines in use around the world through live satellite feeds. Under its TotalCare and CorporateCare programs, airlines pay Rolls a fee for every hour an engine is in flight, and Rolls assumes the risks and costs of downtime and repairs.

The main service differentiators are ease of ordering; speed and timing of delivery; installation,

training, and consulting; maintenance and repair; and returns.

Ease of Ordering. Ordering ease reflects how simple it is for the customer to place an order with the company. As markets become increasingly competitive, many companies focus on making the ordering process as convenient as possible. This involves streamlining all aspects of a customer’s interaction with the company— from the initial evaluation of the available options to the actual p ­ urchase. Voice assistants such as Alexa, Google Home, and Siri have helped make the ordering process even easier by using artificial intelligence to predict consumer preferences.

Striving to simplify the ordering process is not limited to consumer markets. It plays a major role

in business markets as well. Baxter Healthcare supplies hospitals with computer terminals through which they send orders directly to the firm, thus streamlining the ordering process. Another example of simplifying the ordering process is Align Technology.

Align Technology Align Technology pioneered the invisible orthodontics market with the introduction of the Invisalign system— transparent dental braces used to adjust teeth. The company was born from the simple observation that the dental retainers commonly prescribed after orthodontic procedures could be used not only to prevent teeth from moving but also to realign teeth. This observation led to the idea that a series of custom-designed aligners could be used to straighten misaligned teeth. By 2018, the company’s Invisalign system had been used to treat over 5 million patients and enjoyed wide adoption by dental professionals. To streamline the treatment process, the company introduced a digital scanner that replaced the cumbersome and time-consuming process of taking physical impressions. The use of digital scanning technology enabled the company to speed up the ordering process, increase the quality of the impressions, and improve the overall customer experience. 46

222 PART 4 | DESIGNING VALUE

>> By using digital

scanning technology to obviate the need for taking physical impressions, Align Technology has streamlined, sped up, and improved the orthodontic process for both dental professionals and customers.

Photo Stock

Fülscher Andreas Source:

Schliemann/Alamy

Many companies, especially those offering subscription services, look beyond a single transaction to ensure that customers continue using the service. Harry’s— a razor blade and shaving cream subscription service— simplified shoppers’ decisions by offering a three-step process that helps buyers choose a razor and determine the frequency with which to receive replacements. Gillette introduced text ordering for its subscription service, enabling members to text “BLADES” when they’re ready for a new shipment. In the same vein, Amazon introduced Dash— a Wi-Fi device that reorders a particular product (such as razors, laundry detergent, or dog food) with the press of a button.

Speed and Timing of Delivery. Delivery entails how well the product or service is brought to the customer, including the speed, accuracy, and care that characterize the process. Today’s customers have grown to expect speed: pizza delivered in half an hour, eyeglasses made in 60 minutes, and cars lubricated in 15 minutes. Many firms have computerized quick-response systems that link the information systems of their suppliers, manufacturing plants, distribution centers, and retailing outlets to improve delivery.

In the consumer space, Amazon has led the charge in the speed-of-delivery game among online retailers, offering delivery options ranging from a week to only a couple of hours. Food delivery services such as Uber Eats help many restaurants and vendors offer fast and reliable delivery to their customers without having to invest in developing their own delivery infrastructure.

In business markets, Cemex, a giant cement company based in Mexico, has transformed its business by promising to deliver concrete faster than pizza and equipping every truck with a global positioning system so dispatchers know its real-time location. Its 24/7 LOAD service program guarantees delivery within a 20-minute window, providing important flexibility in an industry where delays are costly but common. 47

Installation, Training, and Consulting. Installation consists of the work done to make a product operational in its planned location. Ease of installation is a true selling point for technology novices and for buyers of complex products like heavy equipment.

Customer training helps the customer’s employees use the vendor’s equipment properly and efficiently. General Electric not only sells expensive X-ray equipment to hospitals and installs it but also provides users with extensive training. McDonald’s requires its new franchisees to attend Hamburger University in Oak Brook, Illinois, for two weeks to learn how to manage the franchise properly.

Customer consulting includes data, information systems, and advice services that the seller offers to buyers. Technology firms like IBM, Oracle, and SAP have learned that such consulting is an essential— and profitable— part of their business. Many industrial equipment manufacturers,

CHAPTER 9 | Designing and Managing Services 223

such as Haas Automation, offer additional installation and training services to educate operators on how to use the machinery. Some of these additional services are part of a maintenance program that that can be purchased by customers. In the consumer space, a number of companies, including IKEA, Home Depot, and Best Buy, offer assembly and installation services to their customers for an additional fee.

Maintenance and Repair. Maintenance and repair programs help customers keep purchased products in good working order. These services are critical in business-to-business settings. Goodyear’s TVTrack program helps its fleet customers monitor and manage tires more effectively. Many firms offer online technical support, or “e-support,” for customers, who can search an online database for fixes or seek online help from a technician. Appliance makers such as LG, Kenmore, and Miele have introduced products that can transmit self-diagnostic data over the phone to a customer-service number that electronically describes the nature of any technical problems.

Makers of luxury products especially recognize the importance of a smooth repair process.

Although Movado’s watches are high-end, its repair process had been anything but, requiring timeconsuming manual labor and entailing customer inconvenience. Recognizing the need to offer more digital services in general, Movado created a website where customers can buy products directly from the company as well as execute many of the initial steps in the repair process online (such as registering any problems and identifying possible repair options) before contacting customer service directly. The database created by users of the site has also allowed the company to recruit p ­ otential focus-group participants and to identify repair trends that may suggest recurring ­ p roduction problems. 48

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52

Returns. A nuisance to customers, manufacturers, retailers, and distributors alike, product returns are also an unavoidable reality of doing business, especially for online purchases. Free shipping, which is growing more popular, makes it easier for customers to try out an item— but also increases the likelihood of its being returned.

Returns can add up. One estimate is that 10 percent to 15 percent of overall holiday sales come

returns or exchanges, and the total annual cost of dealing with them may be $100 billion. 49

consumer, returns can be inconvenient, embarrassing, or difficult to complete. Returns have a for merchants, too, especially when the returned merchandise is not in resellable condition, proper proof of purchase, or is returned to the wrong store. It may even be used or stolen. Yet if merchant is reluctant to accept returns, customers can become annoyed.

However, product returns do have an upside. Physically returning a product can get the consumer store, maybe for the first time. One research study found that a lenient return policy left customers more willing to make other purchases and to refer the company to others. 50

can think of product returns in two ways: 51 Controllable returns result from problems or errors by the seller or customer; they can be largely eliminated with improved handling or storage, packaging, and more effective transportation and logistics by the seller or its supply chain partners. Uncontrollable returns result from the need for customers to actually see, try, or experience products in person to determine suitability; these returns can’t be eliminated by the company in the short run.

One basic strategy is to eliminate the root causes of controllable returns while developing processes for handling uncontrollable returns. The goal is to have fewer products returned and put a higher percentage back into the distribution pipeline to be sold again. San Diego– based Road Runner Sports— which sells running shoes, clothing, and equipment through multiple stores, catalogs, and a website— trains its salespeople to be as knowledgeable as possible in order to recommend the right products. As a result, its return rate on running shoes has been 12 percent, noticeably below the industry average of 15 percent to 20 percent.

INNOVATION WITH SERVICES Innovation is as vital in services as in any industry. 53 New service categories are constantly being introduced to satisfy unmet needs and wants. Examples include Drybar, the “blow-dry salon” concept created around the simple promise of “No Cuts. No Color; Just Blowouts for Only $40”; Reddit, a giant online digital bulletin board with tens of thousands of active forums where registered users can post content or links; and CareLinx, which functions as a matchmaking site for families with elderly members and nonmedical caregivers who can provide home care.

224 PART 4 | DESIGNING VALUE

>> New service

­ c ategories are always being created, as with drybar, a blow-dry-only chain of salons founded by Alli Webb.

Washington Post via Getty Images

Source: Craig Hudson/For The

Consider how the following service categories emerged and how, in some cases, organizations found creative solutions in existing categories.

Online Travel Online travel agents such as Expedia and Travelocity offer customers the opportunity to conveniently book travel at discount prices. However, they make money only when visitors go to their websites and book travel. Kayak successfully entered the category later by applying the Google business model of collecting money on a per-click basis. Kayak’s marketing emphasis is on building a better search engine by offering more alternatives, flexibility, and airlines. Kayak makes search simpler for travelers by ranking flights using artificial intelligence algorithm that factors in price, duration, and number of stops and offers information about, and discounts on, nearby hotels. 54

Retail Health Clinics One of the hardest areas in which to innovate is health care. But whereas the current health care system is designed to treat a small number of complex cases, retail health clinics address a large number of simple cases. Retail health clinics such as Quick Care, RediClinic, and MinuteClinic are often found in drugstores and other retail chain stores such as Target and Walmart. They typically use nurse practitioners to handle minor injuries and illnesses such as colds, flu, and ear infections; to offer various health and wellness services such as physicals and exams for high school sports; and to administer vaccinations. The clinics seek to offer convenient, predictable service and transparent pricing, without an appointment, seven days (and evenings) a week. Most visits take no more than 15 minutes, and costs vary from $25 to $100. 55

Private Aviation Initially, private aviation was restricted to those who could own or charter a private plane. Fractional ownership, pioneered by NetJets, allowed customers to pay a percentage of the cost of a private plane, plus maintenance and a direct hourly cost, making it more affordable for a broader customer base. Marquis Jets came up with the simple idea of prepaid time on what it calls the world’s largest, best-maintained fleet, offering the consistency and benefits of fractional ownership without the long-term commitment. The two companies merged in 2010. Along with competitor Flight Options, private aviation firms are capitalizing on business executives’ increasing dissatisfaction with commercial airline service and their need for efficient travel options. 56

Innovation in existing services can also have big payoffs. When Ticketmaster introduced interactive seat maps that allowed customers to pick their own seats instead of being given one by a “best

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Limited/Alamy Imaginechina

Photo Stock

Source:

<< Cirque du Soleil has grown from its street-performance roots into a global enterprise by eschewing some traditional circus elements and placing others in innovative, spectacularly staged theme-based settings.

seat available” function, the conversion rate from potential to actual buyers increased to 30 percent, a 25 percent jump. Persuading a ticket buyer to add an “I’m going . . .” message to Facebook adds an extra $5 in ticket sales on average; adding reviews of a show on the site doubles the conversion rate. 57

The service company that regularly introduces innovations can intrigue customers and stay a step ahead of its competitors. 58 Sometimes it can even reinvent a service category, as Cirque du Soleil did.

Cirque du Soleil In its more than 25-year history, Cirque du Soleil (French for “circus of the sun”) has repeatedly broken loose from circus convention. The company takes traditional ingredients such as trapeze artists, clowns, muscle men, and contortionists and places them in a nontraditional setting replete with lavish costumes, new age music, and spectacular stage designs. And it eliminates other common circus elements: There are no animals. Each production is loosely tied together with a theme such as “a tribute to the nomadic soul” (Varekai) or “a phantasmagoria of urban life” (Saltimbanco). The group has grown from its Québec streetperformance roots to become a half-billion-dollar global enterprise, with 3,000 employees on four continents entertaining audiences of millions annually. Part of its success comes from a company culture that encourages artistic creativity and innovation and carefully safeguards the brand. One new production is created each year— always in house and unique: There are no duplicate touring companies. In addition to Cirque’s mix of media and local promotion, an extensive interactive e-mail program to its million-plus-member Club Cirque creates an online community of fans that accounts for 20 percent to 30 percent of all ticket sales. Generating $800 million in revenue annually, the Cirque du Soleil brand has expanded to encompass a record label, a retail operation, and resident productions in Las Vegas (five in all), Orlando, Tokyo, and other cities. 59

Managing Service Quality

The service quality of a firm is tested at each service encounter. If employees are bored, cannot answer simple questions, or are visiting with each other while customers are waiting, customers will think twice about doing business there again. Flawless service delivery is the ideal output for any service organization. Two important activities are managing customer expectations and incorporating selfservice technologies.

226 PART 4 | DESIGNING VALUE

MANAGING CUSTOMER EXPECTATIONS Customers form service expectations from many sources, including past experiences, word of mouth, and advertising. In general, they compare perceived and expected service. If the perceived service falls below the expected service, customers are disappointed. Successful companies add benefits to their offering that not only satisfy customers but surprise and delight them by exceeding expectations. ­

60

One company that has built its business around exceeding customer expectations is American Express.

American Express American Express has embraced a relationship-building approach

in which customer-service reps are judged in part based on customer feedback. Reps— called customer care professionals— can see all kinds of relevant data on their screen when a customer calls, including name, age, address, and buying and payment habits. Whether a cardmember loses a wallet or purse while traveling or needs assistance finding a missing child in a foreign country, American Express has empowered its customer care professionals to do whatever it takes to help. This exemplary customer service brings financial benefits too. Cardmembers who positively rate their customer experience tend to increase their AmEx card spending by10 percent to 15 percent and are four to five times more likely to remain customers, increasing shareholder value. Not least, because of its strong service culture and support, American Express boasts some of the highest employee retention rates in the industry. 61

>> Customer-service reps are empowered to do whatever it takes to maintain and increase customer satisfaction among American Express cardholders, in the bargain yielding financial benefits for the company.

The service-quality model in Figure 9.2 highlights the main requirements for delivering high service quality. 62 It also identifies five gaps that prevent successful delivery.

Gap between consumer expectation and management perception — Management does not always correctly perceive what customers want. Hospital administrators may think patients want better food, but patients may be more concerned with nurse responsiveness.

Gap between management perception and service-quality specification — Management might correctly perceive customers’ wants but not set a uniform performance standard. Hospital administrators may tell the nurses to give “fast” service without specifying speed in minutes.

Gap between service-quality specifications and service delivery — Employees might be poorly trained; they might be incapable of meeting, or unwilling to meet, the standard; or they may be held to conflicting standards. Nurses might be confused about whether they should take time to listen to customers or give them fast service.

Gap between service delivery and external communications — Consumer expectations are affected by statements made by company representatives and ads. If a hospital brochure shows a beautiful room but the patient finds it cheap and tacky-looking, external communications have distorted the customer’s expectations.

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Source: Chris Pearsall/Alamy

CHAPTER 9 | Designing and Managing Services 227

Word-of-mouth communications

GAP 5

Personal needs

Expected service

Past experience FIGURE 9.2 Service-Quality Model

Source: A. Parasuraman,

Valarie ­ A. Zeithaml, and ­ Leonard L. Berry, “A Conceptual ­ Model of Service Quality and Its Implications ­

for Future Research,” J ­ ournal of Marketing , Fall 1985, p. 44.

CONSUMER MARKETER

GAP 1 GAP 3

GAP 2

Perceived service

Service delivery (including preand post-contacts)

Translation of perceptions into service-quality specifications

Management perceptions of consumer

expectations

GAP 4 External communications to consumers

5. Gap between perceived and expected service — The consumer may misperceive the service quality. The physician may keep visiting the patient to show care, but the patient may interpret this as an indication that something is really wrong.

Much work has validated the role of expectations in consumers’ interpretations and evaluations of the service encounter and in the relationship they adopt with a firm over time. 63 Consumers are often forward-looking in terms of their likely behavior and interactions with a firm when deciding whether to keep or drop a service relationship. Any marketing activity that positively affects current or expected future usage can help to solidify a service relationship.

For continuously provided services such as public utilities, health care, financial and computing services, insurance, and other professional, membership, or subscription services, customers have been observed to mentally calculate the perceived economic benefits relative to the economic costs. In other words, customers ask themselves, “Am I using this service enough, given what I pay for it?” A negative response will lead to a change in behavior and the possible termination of an account.

Long-term service relationships can have a dark side. An ad agency client may feel that over time the agency is losing objectivity, becoming stale in its thinking, or beginning to take advantage of the relationship. 64

MANAGING SERVICE QUALITY Based on the service-quality model described above, researchers have identified five determinants of service quality— reliability, responsiveness, assurance, empathy, and tangibles— in descending order of importance. 65

• Reliability — The ability to perform the promised service dependably and accurately. This involves providing the service as promised, offering dependability in handling customers’ service problems, performing services right the first time, providing services at the promised time, maintaining error-free records, and hiring employees who have the knowledge to answer customers’ questions.

228 PART 4 | DESIGNING VALUE

• Responsiveness — The willingness to help customers and provide prompt service. This involves keeping

keeping customers informed about when services will be performed, giving prompt service to customers, being willing to help customers, and showing readiness to respond to customers’ requests.

• Assurance — The knowledge and courtesy of employees and their ability to convey trust and ­confidence. Employees who exhibit assurance instill confidence in customers and are consistently courteous, making customers feel safe in their transactions.

• Empathy — The provision of caring, individualized attention to customers. This involves giving customers individual attention, dealing with customers in a caring fashion, having the customer’s best interests at heart, understanding the needs of customers, and offering convenient business hours.

• Tangibles — The appearance of physical facilities, equipment, staff, and communication materials.

Tangibles include modern equipment, attractive facilities, employees with a neat, professional appearance, and visually appealing materials associated with the service.

Based on these five factors, the researchers developed the 21-item SERVQUAL scale. 66 In addition, they noted the presence of a zone of tolerance , a range in which a service will be deemed satisfactory, anchored at one end by the minimum level of service that consumers are willing to accept and, at the other end, by the level they believe can and should be delivered.

Subsequent research has extended the service-quality model. One dynamic process model of service quality is based on the premise that customer perceptions and expectations of service quality change over time, but that at any given point, they are a function of prior expectations about what will and what should happen during the service encounter, as well as of the actual service delivered during the last contact. 67 Tests of the dynamic process model reveal that the two different types of expectations have opposite effects on perceptions of service quality. Thus, increasing customer expectations of what the firm will deliver can lead to improved perceptions of overall service quality. In contrast, decreasing customer expectations of what the firm should deliver can also lead to improved perceptions of overall service quality.

MANAGING SELF-SERVICE Consumers value convenience in services, 68 and many person-to-person service interactions are being replaced by self-service technologies intended to provide that convenience. To traditional vending machines, we can add automated teller machines (ATMs), self-service at gas pumps, self-checkout at hotels, and a variety of activities on the internet, such as ticket purchasing, investment trading, and customization of products.

To streamline its operations and speed up customer service, Chili’s installed tabletop computer screens in its restaurants so customers can order directly and pay by credit card. The restaurant chain found that users of the service spend more per check, in part because they buy more desserts and coffee when the screen is present. As another example, OpenTable lets customers easily book a dining reservation online.

OpenTable OpenTable has become the world’s largest online reservation system, letting users book a reservation on its website or with its smartphone app at thousands of restaurants around the world. For a fairly modest setup charge and monthly fee—$249 a month for software to manage bookings plus $1 for every diner seated through the website— a restaurant can tap into OpenTable’s vast customer base. With half of all restaurants in North America signed up and more than 15 million people seated monthly via the website, the service has been adding functionality. For instance, the $10 million acquisition of Foodspotting allows users to search menu images by dish. With more than 40 percent of its reservations booked via phone or tablet, OpenTable is beefing up its mobile strategy and adding payment services with a new app. It upgraded its flagship GuestCenter package for restaurant managers, improving its ability to handle large parties and better juggle servers’ shifts. Customers can now see what’s happening with their reservations in real time and even on their Apple Watch. OpenTable also offers consumers points that can earn benefits like access to special wine tastings or menus at various restaurants and payment for the meal. OpenTable’s new priority is to use the massive amounts of data it has collected on users’ dining preferences to offer customized dining recommendations. 69

Every company needs to think about improving its service using self-service technologies.

C ­ omcast’s need for customer service has been reduced because 40 percent of its installations are done by the customer and 31 percent of customers now manage their accounts completely online. 70

CHAPTER 9 | Designing and Managing Services 229

<< Online restaurant reservations giant OpenTable lets ­customers book reservations by phone or tablet, using accumulated data on user preferences to recommend customized dining experiences.

Photo

Stock

Source: True Images/Alamy

Successfully integrating technology into the workforce requires a comprehensive reengineering of the front office to identify what people do best, what machines do best, and how to deploy them separately and together. 71 Some companies have found that the biggest obstacle is not the technology itself but convincing customers to use it, especially for the first time.

Customers must have a clear sense of their roles in the self-service process, must see a clear benefit, and must feel they can actually use the technology. 72 Self-service technology is not for everyone. Although some automated voices are actually popular with customers, many can provoke frustration and even rage at being unable to speak with an actual person.

MANAGING PRODUCT– SERVICE BUNDLES No less important than service industries are product-based industries that must provide a service bundle. 73 Manufacturers of equipment— ranging from small appliances and office machines to tractors, mainframes, and airplanes— must all provide product-support services, now a battleground for competitive advantage. Many product companies also have a stronger online presence than before and must ensure that they offer adequate, if not superior, service online as well.

Products can be augmented with key service differentiators in areas such as ordering, delivery, installation, customer training, customer consulting, maintenance, and repair. Some equipment companies, such as Caterpillar and Deere, make a significant percentage of their profits from these ­services. 74 In the global marketplace, companies that make a good product but provide poor local service support are seriously disadvantaged.

The quality of customer-service departments varies greatly. At one extreme are those that simply transfer customer calls to the appropriate person for action with little follow-up. At the other extreme are departments that are eager to receive customer requests, suggestions, and even complaints and that handle them expeditiously. Some firms even proactively contact customers to provide service after the sale is complete. 75

Manufacturers usually start by running their own parts-and-service departments. They want to stay close to the equipment and understand its problems. They also find it expensive and time-­ consuming to train others and typically discover that they can make good money from parts and service if they are the only supplier and can charge a premium price. In fact, many equipment manufacturers price their equipment low and compensate by charging high prices for parts and service.

Over time, manufacturers switch more maintenance and repair service to authorized distributors and dealers. These intermediaries are closer to customers, operate in more locations, and can offer quicker service. Still later, independent service firms emerge and offer a lower price or faster service. A significant percentage of auto-service work is now done outside franchised automobile dealerships by independent garages and chains such as Midas Muffler and Jiffy Lube. Independent

230 PART 4 | DESIGNING VALUE

service organizations handle servers, telecommunications equipment, and a variety of other equipment lines.

Customer-service choices are increasing rapidly, however, and equipment manufacturers increasingly

increasingly must figure out how to make money on their equipment, independent of service contracts. Some new-car warranties now cover 100,000 miles before customers have to pay for servicing. The increase in disposable or never-fail equipment makes customers less inclined to pay 2 percent to 10 percent of the purchase price every year for service. A company with several hundred laptops, printers, and related equipment might find it cheaper to have its own service people on-site.

marketing

INSIGHT Improving Company Call Centers

Many firms have learned the hard way that empowered

customers will not put up with poor service. After Sprint and Nextel merged, they set out to run their call centers as cost centers rather than as a means of enhancing customer loyalty. Employee rewards were based on keeping customer calls short, and when management started to monitor even bathroom trips, morale sank. With customer churn spinning out of control, Sprint Nextel adopted a plan to emphasize service over efficiency. The company appointed its first chief service officer and started rewarding operators for solving problems on a customer’s first call rather than for keeping their calls short. After a year, the average customer was contacting customer service only four times instead of eight.

Some firms— such as AT&T, JPMorgan Chase, and Expedia— have established call centers in the Philippines rather than India, because Filipinos speak lightly accented English and are more steeped in U.S. culture than Indians, who speak British-style English and may use unfamiliar idioms. 76 Other companies are getting smarter about the types of calls they send to off-shore call centers, directing more complex calls to highly trained domestic customerservice reps. These work-at-home reps often provide higher-quality service at less cost with lower turnover.

Firms have to decide how many customer-service reps they need. One study showed that cutting just four reps at a call center of three dozen sent the number of customers put on hold for four minutes or more from zero to 80. Firms can also try to reasonably get more from each

rep. Marriott and other firms, such as KeyBank and Ace Hardware, have consolidated call center operations into fewer locations, allowing them to maintain the same number of reps in the process.

Hiring and training are influential, too. An extensive study by Xerox demonstrated that a good call center worker with a high probability of staying the six months necessary for the company to recoup its $5,000 investment in training was likely to have a creative rather than an inquisitive personality. Thus, in hiring for its roughly 50,000 call center jobs, Xerox, instead of emphasizing prior experience, now factors in responses to prompts like “I ask more questions than most people do” and “People tend to trust what I say.”

Some firms are taking advantage of Big Data capabilities to match individual customers with the call center agent best suited to meet their needs. Using something like the methods of online dating sites, advanced analytics technology mines transaction and demographic information about customers (products or services they’ve purchased, contract terms and expiration date, record of complaints and average call wait time) and call center agents (average call-handling time and sales efficiency) to identify optimal matches in real time.

Finally, keeping call center reps happy and motivated is obviously a key to boosting their ability to offer excellent customer service. American Express lets call center reps choose their own hours and swap shifts without a supervisor’s approval. 77

summary

1. A service is an act that one entity performs for another that is essentially intangible and does not result in the ownership of anything. It may or may not be tied to a physical product.

2. Because services are generally high in experience and qualities, there is more risk in their purchase,

and consumers tend to rely heavily on price, provider, and physical cues to judge quality. Switching costs for many services tend to be high because customers are very loyal to service providers who satisfy them.

3. Services are intangible, inseparable, variable, and perishcredence able. Each characteristic poses challenges and requires

CHAPTER 9 | Designing and Managing Services 231

certain strategies. Marketers must find ways to give tangibility to the intangible, increase the productivity of service providers, enhance and standardize the quality of the service provided, and match the supply of services with market demand.

4. The marketing of services faces new realities in the 21st century because of customer empowerment, customer coproduction, and the need to satisfy employees as well as customers. The digital era has clearly altered customer relationships. Customers do not merely purchase and use a service; they play an active role in its delivery.

5. Achieving excellence in service marketing calls not only

only external marketing, but also for internal marketing to motivate employees and for interactive marketing to emphasize the importance of both “high tech” and “high touch.”

6. Top service companies adopt a strategic concept, have a history of top-management commitment to quality, institute high standards, establish profit tiers, and pay attention to their systems for monitoring service performance and customer complaints. They also differentiate

their brands through primary and secondary service features and continual innovation.

7. Superior service delivery requires managing customer expectations and incorporating self-service ­technologies. Customers’ expectations play a critical role in their service experiences and evaluations. Companies must manage service quality by understanding the effects of each service encounter. Well-managed service companies that achieve marketing excellence have in common a focus on customer-centricity, a commitment to service quality, and the aim of catering to high-value customers.

8. Service differentiation is a crucial component of a comfor pany’s marketing success. The main service differentiators are ease of ordering; speed and timing of delivery; installation, training, and consulting; maintenance and repair; and returns.

9. Service quality is a key driver of customer satisfaction.

There are five determinants of service quality: reliability, responsiveness, assurance, empathy, and tangibles. To create customer value, a company must strive to deliver superior service on all of these dimensions, while focusing on those services that customers value most.

marketing SPOTLIGHT

Premier Inn

The United Kingdom’s crowded and competitive budget hotel sector has a wide range of customers from many

­ socioeconomic categories, each with their own reasons for ­ seeking a hotel. Most low-cost offerings are very similar in terms of location, facilities, and price, making differentiation and communication ­

challenging.

Premier Inn is the largest hotel chain in the United Kingdom, ­ with more than 76,000 rooms across over 800 hotels; its nearest rival, Travelodge, has 42,000 rooms. The Premier Inn brand belongs to Whitbread PLC, which originated as a London brewery in 1742. In 2004, their Travel Inn and Premier Lodge chains were merged; in 2007, they rebranded as Premier Inn. Today, Whitbread focuses on Premier ­ Inn— which accounts for 70 percent of its ­ r evenue— and several restaurant chains that share locations with Premier Inn properties. Premier Inn hotels are found in convenient locations all over the United Kingdom. Rooms are simple, but all have a bathroom, Wi-Fi, tea and coffee, and a TV.

In addition to advertising campaigns, the Premier Inn brand has used three main strategies to attract new customers and win the loyalty of repeat customers: (1) internal marketing, (2) the promise of a good night’s sleep with a money-back guarantee, and (3) a straightforward online reservation system connected with a well-designed and ­ well-managed customer loyalty scheme.

Photo Stock

Martyn Source: Williams/Alamy

Service quality is unlikely to be at the top of most people’s list of requirements when they think about budget hotels, but the way guests are welcomed and the manner in which problems are resolved go a long way toward defining the overall guest experience. Customers just like to feel welcome and appreciated, even when paying budget prices.

Developing an organizational culture that emphasizes the well-being of internal customers— that is, employees— as a means to attract and retain external customers is the foundation of internal marketing. From the external customer’s point of view, the internal customer (the employee) represents the firm. Premier Inn’s employees are hired and trained to provide friendly and efficient interaction, especially in the resolution

resolution of difficulties. There is an apprentice scheme for young recruits and continuous training for all levels of staff, with an emphasis on internal promotion and development. Reviews

( continued )

232 PART 4 | DESIGNING VALUE

by customers typically praise the individual and thoughtful attention ­ they have received. By investing in internal

­ marketing to develop well-trained and contented ­ e mployees, Premier Inn is enabling interactive marketing, thereby helping to create satisfied and loyal customers. These happy clients will create more positive reviews on online travel portals and social media, which in turn will encourage new customers to try the brand.

The second strategy used by Premier Inn to attract and

retain guests is their unique guarantee to customers—“a good night’s sleep or your money back.” Should a guest fail to get the promised good night’s sleep, they can report the issue and request a refund.

The third strategy is to provide a genuinely useful and engaging telephone, online, and smartphone app experience for customers. This focus on the customer experience at the time of booking is aligned with the concept of internal marketing that Premier Inn embraces, but many customers will use the web or the app and have no human contact. Booking through the website or app is simple and quick, and there are clear benefits to signing up as a member. Telephone reservations are handled by efficient, courteous staff who have instant access to customers’ histories and preferences through the customer relationship management (CRM) functions of the Whitbread reservation system. Whether the reservation is by telephone, app or online, the Whitbread CRM system identifies and treats customers by segment, identifying the most important customers and those with the most potential. Communicating with customers according to their segment has contributed to consistent revenue growth.

In fact, it is possible to book, check in, pay, and check out with almost no contact with staff, so it pays to provide a digital experience as good as anything employees can ­ p rovide. Customers are then motivated to book directly with the brand instead of using online agencies such as Booking.com and Expedia.com. At the time of writing, more than 80 percent of reservations are made directly, compared with the industry norm of 30– 40 percent, which saves Whitbread a lot of money in commissions while enabling more direct customer contact and the collection of valuable customer information.

According to CEO Alison Brittain, Whitbread will continue to invest in Premier Inn in spite of the challenges arising from Brexit, homestays such as AirBnB, and the COVID-19 pandemic. Hub by Premier Inn, a sub-brand of compact city hotels, was recently launched and now has thirteen sites operating in London and Edinburgh. Premier Inn has plans for a further 10,000 rooms in the United Kingdom and has begun to move into Europe, with 17 hotels already open in Germany and 4 in Ireland. Investment in good customer service, consistent marketing with an emphasis on reliability and value, and that unique promise of a good night’s sleep will continue to support further growth and success. 78

Questions

1. Why is differentiation difficult in the UK budget hotel sector, and how does internal marketing help Premier Inn succeed in differentiating itself?

2. How does investment in well-designed online and app reservation experiences for customers align with the concept of internal marketing?

marketing SPOTLIGHT

For London’s bus network, keeping 6.5 million passengers happy as they make an average of 2.25 billion trips every year is no easy task. Transport for London (TfL), which reports to the office of the Mayor of London, runs the day-to-day operations of the capital’s public transport, which includes buses, trains, trams, river piers and boat licensing, the underground railway, and the main roads. There are 10 independent bus operating companies reporting to TfL, each responsible for hiring and training their own drivers.

In 2016, London’s buses were running with their highestever reliability, yet two-thirds of all customer complaints

to TfL were about the bus service. An investigation by TfL revealed that the behavior of bus drivers and how they interacted with customers were the major sources of these

Transport for London

photography/Alamy

Source: one-image Photo Stock

complaints. It seemed that while TfL was successfully using external marketing, such as advertising and PR, to communicate and interact with passengers and stakeholders, it was ignoring internal marketing, which led to the high number of poor-quality interactions between staff and passengers

CHAPTER 9 | Designing and Managing Services 233

Internal marketing means educating staff to believe in and to represent the values of the organization; it also means investing in the training and support that will enable them

to deliver a great experience for customers. Done well and consistently, internal marketing enables and empowers service staff to deliver excellent interactive marketing, providing customers with the level of service and attention that will keep them satisfied and coming back for more. The potential benefits ­ are happier customers, increased loyalty, more word-of-mouth recommendations, and increased revenue.

TfL decided to initiate an internal marketing campaign for the employees of all 10 bus companies under the heading “Hello London” to improve the customer service skills of all London bus drivers together with their managers and support staff.

Previous training given by the operating companies had mostly covered the technical and safety requirements of their jobs. The Hello London training program was designed to make the drivers aware of the importance of good customer relations and to provide them with the tools to improve it.

The Steps company provides educational programs to change behavior within organizations using drama as their main tool. They use professional actors to illustrate the issues that need to be addressed and to engage staff in reenactments ­

and role-plays to arrive at solutions. Steps was selected by TfL to design and deliver a series of two-day workshops, developed with the operating companies.

These workshops were attended by 23,099 drivers and support staff between June 2016 and March 2018. Using their “see it, own it, change it, live it” approach, groups of 100 participants were shown dramatized reconstructions of various typical customer interactions that demonstrated how travelers can react when buses do not stop as expected, drivers fail to react to customer difficulties, or little or no information is provided during journeys. In a lively, informal, and

­ interactive environment, attendees also received guidance on how to deal with conflict in stressful situations and on how best to use their public address systems to keep passengers informed. Each session included drivers from all 10 operating companies, and they were encouraged to share experiences

and develop solutions together. This sense of common purpose was created deliberately, as travelers see London buses as one brand and may not be aware of the individual operating companies.

The workshops succeeded in raising awareness and encouraging drivers to rethink their relationship with the public. To maintain and develop this new enthusiasm and motivation, the “live it” phase of the program continued with regular visits by the program’s leaders, the appointment of champions and ambassadors among the staff, follow-up practice sessions for making public announcements, and the processing of 2,600 suggestions made by the drivers during the workshops. Interactive marketing communication using video resources and trainer packs are still being delivered at the time of writing.

To support the drivers as they worked on improving their customer relations skills, a complimentary external marketing campaign was presented to the public in a series of advertisements that explained the complex role of bus drivers and the challenges they face.

The results of the Hello London program have been overwhelmingly positive. The number of customer complaints fell by 41 percent. Additional revenue and cost savings are estimated to have contributed an extra £13.5 million against a total investment of £6 million. Thanks to these successes, TfL and Steps were honored with the second prize in the 2019 “Putting Passengers First” awards.

In this example, we see that internal marketing, in the form of raising awareness, training, and following up, has a significant and lasting effect on the reputation and performance of a service organization. The enhanced abilities of the London bus drivers to interact positively with passengers means they are better at interactively marketing the London bus brand. 79

Questions 1. Why is interactive marketing important for service organizations?

2. Explain how the Hello London training program used

internal marketing to improve interactive marketing.

CHAPTER 10 Building Strong Brands

Market leader Gatorade has refocused ­ on its core target market of athletes, ­ with a broad assortment of new ­ products and a revamped ad campaign. Source: The Gatorade Company

B rands are one of the most valuable intangible assets of a firm, and it is incumbent on marketers to properly manage their value. Building a strong brand is both an art and a science. It requires careful planning, a deep long-term commitment, and creatively designed and executed marketing. A strong brand commands intense consumer loyalty— and at its heart is a great product or service. Building a strong brand is a never-ending process, as the marketers of Gatorade found out.

>>> Gatorade’s roots go back nearly five decades. Developed by researchers at the University of Florida to help the school’s athletes cope with the debilitating effects of the hot and humid climate, Gatorade ­ subsequently succeeded as the pioneering leader of the sports drink category, prompting

234

PART 4 | DESIGNING VALUE

PepsiCo to acquire its parent company, Quaker Oats, in 2001 for over $13 billion. The brand took off even faster in the following years, as a result of PepsiCo’s massive distribution system and a slew of new product and packaging introductions. But when market share dropped from 80 percent to 75 percent, Pepsico decided a change was needed. Gatorade marketers returned the brand to its roots, walking away from the mass market to focus more on athletes. Its goal was to transcend the $7-billion-a-year sports drink market and become a major player in the $20-billion-a-year sports nutrition market. Three new lines— labeled 01 Prime, 02 Perform, and 03 Recover— were introduced for pre-, during-, and post-workout, respectively, targeting three different markets. The G Series line aimed at “performance” athletes engaged in scholastic, collegiate, or high-intensity recreational sports; the G Series Fit line targeted 18to 34-year-olds who exercised three to four times a week; and the G Series Pro line targeted professional athletes. The advertising tagline, “Win from Within,” reflected the new Gatorade brand focus on what’s inside an athlete’s body, much as Nike was seen as being all about what is outside the body. 1

Marketers of successful 21st-century brands must excel at the strategic brand management process. Strategic brand management combines the design and implementation of marketing activities and programs to build, measure, and manage brands to maximize their value. It has four main steps: 2 identifying and establishing brand positioning, planning and implementing brand marketing, measuring and interpreting brand performance, and growing and sustaining brand value.

How Does Branding Work?

Perhaps the most distinctive skill of professional marketers is their ability to create, maintain, enhance, and protect brands, whether established brands such as Mercedes, Sony, and Nike or new ones like Warby Parker, Casper, and Tovala.

The American Marketing Association defines a brand as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.” The ultimate purpose of the brand is to create, for consumers, the company, and its collaborators, value that goes beyond the value created by the product and service aspects of the offering.

THE ESSENCE OF BRANDING Branding is the process of endowing products and services with the power of a brand. It’s all about creating differences between products. Marketers use brand names and other brand elements to inform consumers “who” and “what” the product is— and why consumers should care. Effective

Learning Objectives

10.1

10.2

10.3

After studying this chapter you should be able to:

Explain the role of brands in creating market value.

Describe the key principles in designing brand elements and associations.

Discuss how a company should design the hierarchy of its brands.

10.4

10.5

Explain how a company should manage its brands over time.

Describe the key aspects of luxury branding.

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236 PART 4 | DESIGNING VALUE

branding creates mental structures that help consumers organize their knowledge about products and services in a way that clarifies their decision making and, in the process, provides value to the firm.

Branding has been around for centuries as a means to identify the goods of one producer and

distinguish them from those of another. Medieval guilds in Europe required that craftspeople put trademarks on their products to protect themselves and their customers against inferior quality. In the fine arts, branding began with artists signing their works. Brands today play a number of important roles that improve consumers’ lives and enhance the financial value of firms.

How do you “brand” a product or a service? Although firms provide the impetus for brand creation through marketing programs and other activities, ultimately a brand resides in the minds and hearts of consumers. It is a perceptual entity rooted in reality but reflecting the views and idiosyncrasies of consumers.

For branding strategies to be successful and create brand value, consumers must be convinced that there are meaningful differences among brands in the product or service category. Brand differences are often related to attributes or benefits of the product itself. Gillette, Merck, and 3M have led their product categories for decades, in part because of continual innovation. Other brands create competitive advantages through non– product-related means. Gucci, Chanel, and Louis Vuitton have become category leaders by understanding consumer motivations and desires and creating relevant and appealing imagery around their stylish products.

Successful brands are seen as genuine and authentic in what they sell and who they are. 3 A successful brand makes itself an indispensable part of its customers’ lives. Once a faded preppy afterthought, J.Crew tripled its revenue by becoming a highly creative force in fashion. By constantly introducing new styles while retaining a cohesive look, the brand enjoys intense loyalty, numerous fan blogs, and high-profile celebrity supporters like Michelle Obama and Anna Wintour.

Marketers can apply branding virtually anywhere a consumer has a choice. It’s possible to brand a physical good (Tesla automobile or Lipitor cholesterol medication), a service (Singapore Airlines or Blue Cross Blue Shield medical insurance), a store (Nordstrom or Dick’s Sporting Goods), a place (the city of Sydney or the country of Ireland), an organization (U2 or the American Automobile ­ Association), or an idea (abortion rights or free trade).

Branding has become of great importance in sports, arts, and entertainment. One of the world’s top sports brands comes from Madrid, Spain.

Real Madrid Real Madrid surpassed Manchester United in 2013 to become the world’s most valuable team in soccer— or football, as it is known outside the United States— with an estimated value of $3.3 billion. Also known by fans as “Los Merengues,” the iconic but floundering club began to thrive when the billionaire construction tycoon Florentine Perez took over in 2000. Perez’s strategy was to attract some of the very top players in the game, brand names in their own right, such as David Beckham, Zinedine Zidane, and, later, Cristiano Ronaldo. Success on the pitch (field) allowed Perez to develop three distinct and lucrative lines of business: broadcast rights, sponsorship and endorsement revenue, and match-day revenue. Real Madrid is truly a global brand and derives much of its revenue abroad. Sponsorship includes high-profile deals with Adidas, Emirates Airlines, and Spanish banking group BBVA. 4

THE ROLE OF BRANDS

Brands identify the maker of a product and allow consumers to assign responsibility for its performance to that maker or distributor. Brands perform a number of functions for both consumers and firms.

Brands’ Role for Consumers. A brand is a promise the firm makes to the consumer. It is a means to set consumers’ expectations and reduce their risk. In return for customer loyalty, the firm promises that its products or services will reliably deliver a predictably positive experience and set of desirable benefits. A brand may even be “predictably unpredictable” if that is what consumers expect, but the key is that it fulfills or exceeds customer expectations in satisfying their needs and wants.

Consumers may evaluate the identical product differently depending on how it is branded. For example, consumers might be willing to pay $100 for a generic (unbranded) leather bag but ten times more for the same bag carrying the brand of Louis Vuitton, Hermès, or Gucci. They learn about brands through past experiences with the product and its marketing program, finding out which brands

CHAPTER 10 | Building Strong Brands 237

<< Signing top players who were brands in their own right rocketed football (soccer) team Real Madrid into a multibillion-dollar global brand.

Photo

Stock

Source: Xinhua/Alamy

satisfy their needs and which do not. As consumers’ lives become more rushed and complicated, a brand’s ability to simplify decision making and reduce risk becomes invaluable. 5

Brands can also take on personal meaning for consumers and become an important part of their identity. 6 They can express who consumers are or who they would like to be. For some consumers, brands can even take on human-like characteristics. 7 Brand relationships, like any relationship, are not cast in stone, and marketers must be sensitive to all the words and actions that might strengthen or weaken consumer ties with the brand. 8

Cameron Hughes A wine négociant who buys excess juice from high-end wineries and wine brokers in France, Italy, Spain, Argentina, South Africa, and California, Cameron Hughes makes limited-edition, premium blends carrying his own namesake brand. Hughes doesn’t own any grapes, bottling machines, or trucks. He outsources the bottling and sells directly to retailers such as Costco, Sam’s Club, and Safeway, eliminating intermediaries and multiple markups. Hughes never knows which lots of wine he will have or how many, but he’s turned uncertainty to his advantage by creating a new product with every batch. Rapid turnover is part of Costco’s appeal for him. The discount store’s customers love the idea of finding a rare bargain, and Hughes promotes his brand through in-store wine tastings and insider e-mails about his upcoming numbered lots, which sell out quickly. Hughes also buys unsold, unlabeled bottles of wine and markets them under his own label. A $100 bottle of California cabernet may sell for $25 a bottle or less under his Lot 500 Napa Valley Cabernet Sauvignon brand. 9

Brands’ Role for Firms. Brands also perform valuable functions for firms. 10 First, they simplify product handling by helping to organize inventory and accounting records. A credible brand signals a certain level of quality so that satisfied buyers can easily choose the product again. 11 Brand loyalty provides predictability and security of demand for the firm and creates barriers to entry that make it difficult for other firms to enter the market. Loyalty also can translate into customer willingness to pay a higher price— often even 20 percent to 25 percent more than the price of competing brands. 12

Although competitors may duplicate manufacturing processes and product designs, they cannot

easily match the lasting impressions left in the minds of individuals and organizations by years of favorable product experiences and marketing activity. In this sense, branding can be a powerful means to secure a competitive advantage. Sometimes marketers don’t see the real importance of brand loyalty until they change a crucial element of the brand, as the classic tale of New Coke illustrates.

Hughes Cameron

Wine

>> Cameron Hughes buys excess juice to make and sell affordable, high-quality wines to select merchants.

Source:

238 PART 4 | DESIGNING VALUE

>> The hue and cry

raised by passionately loyal fans forced Coca-Cola to ditch its heavily researched launch of New Coke and reinstate the company’s century-old formula.

Images

Source: Todd Gipstein/Getty

Coca-Cola Battered by a nationwide series of taste-test challenges from sweeter-tasting Pepsi-Cola, Coca-Cola decided in 1985 to replace its old formula with a sweeter variation dubbed New Coke. The company spent $4 million on market research, and blind taste tests showed that Coke drinkers preferred the new formula. But the launch of New Coke provoked a national uproar. Market researchers had measured the taste but failed to adequately measure the emotional attachment consumers had to Coca-Cola. There were angry letters, formal protests, and even lawsuit threats to force the retention of “The Real Thing.” Ten weeks later, the company reintroduced its century-old formula as “Classic Coke.” Efforts to resuscitate New Coke eventually failed, and the brand disappeared around 1992. Ironically, the failed introduction of New Coke ended up giving the old formula measurably stronger status in the marketplace, with more favorable attitudes and greater sales as a result. Interestingly, 34 years later, New Coke made a brief comeback as part of a promotional campaign with Netflix, when it was featured in several episodes of the third season of the sci-fi thriller “Stranger Things” and was made available in retail channels for a limited time. 13

For firms, brands represent enormously valuable pieces of legal property that can influence consumer behavior, can be bought and sold, and offer their owner the security of sustained future ­revenues. 14 Companies have paid dearly for brands in mergers or acquisitions, often justifying the price premium on the basis of the extra profits expected and the difficulty and expense of creating similar brands from scratch. 15 Wall Street believes strong brands result in better earnings and profit performance for firms, which, in turn, create greater value for shareholders. 16

BRAND EQUITY AND BRAND POWER

The value created by a brand is captured by two key concepts: brand equity and brand power. We discuss these two concepts and the relationship between them next.

Brand Equity. The monetary value of a brand is called brand equity and reflects the premium that is placed on a company’s valuation because of its ownership of the brand. Brand equity encompasses the net present value of the total financial returns that the brand will generate over its lifetime. Understanding the concept of brand equity, managing its antecedents and consequences, and developing methodologies to assess brand equity are of the utmost importance for ensuring a company’s financial well-being.

Prior to the wave of mergers and acquisitions in the 1980s, including the $25 billion RJR Nabisco buyout, companies spent millions of dollars on brand building with no established accounting procedures in place to assess the value of the brands they created. The spate of mergers and acquisitions spiked interest in brand valuation and led to more accurate ways to measure brand equity. Putting a fair

CHAPTER 10 | Building Strong Brands 239

dollar amount on the brand assets that a firm has accrued through the years is vital, because the value of its brands is not reflected in the company’s books and could exceed its tangible assets.

Brand equity is included in the accounting term goodwill , which is the monetary value of all

intangible assets of a company. Goodwill not only documents the company’s tangible assets, such as property, infrastructure, materials, and investments, but also incorporates the intangible assets that a company owns, including brands, patents, copyrights, know-how, licenses, distribution arrangements, company culture, and management practices. Thus, goodwill is a much broader term than brand equity and includes both the value of the company’s brand and the value of the company’s other intangible assets.

Measuring Brand Equity. Although the importance of brand equity is undisputed, there is no universally agreed-on method for assessing the equity of a brand accurately. 17 Several alternative methods ­ exist, all of which emphasize different means of gauging brand equity. The cost approach , the market approach , and the financial approach are the three most common methods of measuring brand equity.

• The cost approach calculates brand equity by examining the costs of developing the brand, such as marketing research, brand design, communication, management, and legal costs. The cost method can hinge on the historical costs of creating the brand, which include an estimate of all relevant brand-building expenditures; alternatively, it can be based on the brand’s replacement cost— the monetary expense of rebuilding the brand— at the time of valuation.

• The market approach estimates brand equity by measuring the difference between the sales revenues from a branded offering against those of an identical unbranded offering, adjusted for the expense of building the brand. Assessing the value of the Morton Salt brand, for example, would entail comparing the sales revenues generated by the Morton product with the sales revenues generated by its generic equivalent— regular salt— minus the cost of building and managing the brand.

• The financial approach evaluates brand equity as the net present value (NPV) of a brand’s future earnings and usually encompasses three key steps: computing the company’s future cash flow, estimating the brand’s contribution to the company’s future cash flow, and adjusting this cash flow using a risk factor that accounts for the volatility of the earnings that are attributable to the brand.

Each of the three approaches has its advantages and shortcomings. Therefore, a company can benefit from using multiple methods and alternative approaches to measuring brand value. Such approaches must take into account the strategic value of the brand and, specifically, the brand’s power to influence the behavior of different market entities.

and

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of all

Brand Power. Brand power , also referred to as customer-based brand equity, is the ancillary value contributed by the brand to a product or a service. 18 Brand power reflects the degree to which the brand influences the way consumers think, feel, and act with respect to the brand.

Brand power is thus the differential effect that brand knowledge has on consumer response to the marketing of that brand. 19 A brand has positive power if consumers react more favorably to a product the way it is marketed when the brand is identified than when it is not identified. A brand has negative power if consumers react less favorably to marketing activity for the brand under the same circumstances.

Brand power arises from differences in consumer response that a brand evokes. If no differences the brand-name product is essentially a commodity, and competition will probably be based price. Furthermore, differences in response are a result of consumers’ brand knowledge, as well as the thoughts, feelings, images, experiences, and beliefs associated with the brand. Brands must create strong, favorable, and unique brand associations with customers, as have Toyota (reliability), Hallmark (caring), and Amazon.com (convenience and wide selection). Finally, brand equity is reflected in perceptions, preferences, and behavior related to all aspects of the marketing of a brand. Stronger brands earn greater revenue. 20

The key benefits of brand power include improved perception of product performance, greater loyalty, less vulnerability to competitive marketing actions and marketing crises, larger margins, more inelastic consumer response to price increases and more elastic consumer response to price decreases, greater trade cooperation and support, increased effectiveness of marketing communications, expanded licensing opportunities, additional brand extension opportunities, improved employee recruiting and retention, and greater financial market returns.

240 PART 4 | DESIGNING VALUE

The challenge for marketers, therefore, is ensuring that customers have the right kinds of experiences

experiences with products, services, and marketing programs to create the desired thoughts, feelings, and brand knowledge. In an abstract sense, we can think of brand equity as providing marketers with a vital strategic bridge from their past to their future.

Marketers should also think of the marketing dollars spent on products and services each year as investments in consumer brand knowledge. The quality, rather than the quantity, of that investment is the critical factor. It’s possible to overspend on brand building if money is not spent wisely.

Customers’ brand knowledge dictates appropriate future directions for the brand. Consumers will decide, based on what they think and feel about the brand, where (and how) they believe the brand should go, and they will (or will not) grant permission to any marketing action or program. New-product ventures such as Bengay aspirin, Cracker Jack cereal, Frito-Lay lemonade, Fruit of the Loom laundry detergent, and Smucker’s premium ketchup all failed because consumers found them inappropriate extensions of the brand.

Measuring Brand Power. How do we measure brand power? An indirect approach assesses potential sources of brand power by identifying and tracking consumer brand knowledge. 21 A direct approach assesses the actual impact of brand knowledge on consumer response to different aspects of the marketing.

The two general approaches are complementary, and marketers can employ both. In other words, for brand power to perform a useful strategic function and guide marketing decisions, marketers need to fully understand (1) the sources of brand equity and how they affect outcomes of interest and (2) how these sources and outcomes change, if at all, over time. Brand audits are important for the former, brand tracking for the latter.

• A brand audit is a focused series of procedures to assess the health of the brand, uncover its sources of brand equity, and suggest ways to improve and leverage its equity. Marketers should conduct a brand audit when setting up marketing plans and when considering shifts in strategic direction. Conducting brand audits on a regular basis, such as annually, allows marketers to keep their finger on the pulse of their brands so they can manage them more proactively and ­responsively. A good brand audit provides keen insights into consumers, brands, and the relationship between the two.

• In brand tracking , the brand audit is used as input to collect quantitative data from consumers over time, providing consistent, baseline information about how brands and marketing programs are performing. Brand-tracking studies help us understand where, to what degree, and in what ways brand value is being created to facilitate day-to-day decision making.

One firm that conducted a major brand audit and redefined its brand positioning is Kellogg.

Kellogg Company The ready-to-eat cereal category has been under siege in recent years as busy consumers choose to eat on the run, while nutrition-minded consumers worry about genetically modified ingredients. With a history spanning more than a century, Kellogg decided it needed to refresh the brand and address the issues head-on. An extensive brand audit, called “Project Signature,” was launched to provide strategic direction and creative inspiration. A year of collaboration with brand-consulting partner Interbrand resulted in a new tagline, “Let’s Make Today Great”; an updated design and more contemporary logo; clear identification of the brand’s core purpose as highlighting the “power of breakfast”; explicit incorporation of the Kellogg master brand into all its marketing campaigns; and consolidation of 42 company websites around the world into one. The brand audit influenced a number of Kellogg’s specific marketing programs and activities, from the cause-related “Share Your Breakfast” campaign (to help the one in five U.S. children who might not have access to breakfast) to the “Love Your Cereal” social media program debunking myths about cereal. An Olympic sponsor, Kellogg also devotes a percentage of its communication budget to online engagement. 22

Marketers should distinguish brand equity from brand valuation, which is the job of estimating the total financial value of the brand. In well-known companies, brand value is typically more than half the total company market capitalization. John Stuart, cofounder of Quaker Oats, said, “If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and

CHAPTER 10 | Building Strong Brands 241

Limited/Alamy

Photo Stock

Source: Newscast Online

<< Changes precipitated by Kellogg’s yearlong cereal-category audit confronted changing consumer habits and resulted in updated marketing tools that ranged from a new tagline and updated packaging to consolidation of the company’s websites.

trademarks, and I would fare better than you.” U.S. companies do not list brand equity on their balance sheets, in part because of differences in opinion about what constitutes a good estimate. H ­ owever, companies do give it a value in countries such as the United Kingdom, Hong Kong, and Australia.

Designing the Brand

Marketers build brand equity by creating the right brand associations in consumers’ minds. The success of this process depends on all brand-related contacts with consumers— whether marketerinitiated or not. 23

DEFINING THE BRAND MANTRA To focus brand positioning and guide the way their marketers help consumers think about the brand, firms can define a brand mantra. A brand mantra is a threeto five-word articulation of the heart and soul of the brand and is closely related to other branding concepts like “brand essence” and “core brand promise.” The mantra’s purpose is to guide the actions of all employees within the organization, and of all external marketing partners, by ensuring that they understand what the brand fundamentally should represent to consumers.

Brand mantras are powerful devices. By highlighting points of difference, they provide guidance about what products to introduce under the brand, what ad campaigns to run, and where and how to sell the brand. Their influence can even extend beyond these tactical concerns. Brand mantras can guide the most seemingly unrelated or mundane decisions, such as the look of a reception area and the way phones are answered. In effect, they create a mental filter to screen out brand-inappropriate marketing activities or actions of any type that may have a negative effect on customers’ impressions.

Brand mantras must economically communicate what the brand is and what it is not . What makes a good brand mantra? McDonald’s “Food, Folks, and Fun” captures its brand essence and core brand promise. Two other high-profile and successful examples, from Nike and Disney, show the power and utility of a well-designed brand mantra.

Nike The Nike brand has a rich set of associations for consumers, based on its innovative product designs, its sponsorship of top athletes, its award-winning communications, its competitive drive, and its irreverent attitude. Internally, Nike marketers adopted the three-word brand mantra “authentic athletic performance” to guide their marketing efforts. Thus, in Nike’s

242 PART 4 | DESIGNING VALUE

eyes, its entire marketing program— its products and the way they are sold— must reflect that key brand value. Over the years, Nike has expanded its brand associations from “running shoes” to “athletic shoes” to “athletic shoes and apparel” to “all things associated with athletics (including equipment).” Each step of the way, however, it has been guided by its “authentic athletic performance” brand mantra. For example, as Nike rolled out its successful apparel line, one important hurdle was that the products’ material, cut, and design must be innovative enough to truly benefit top athletes. At the same time, the company has been careful to avoid using the Nike name to brand products that do not fit with the brand mantra (such as casual “brown” shoes).

Disney Disney developed its brand mantra in response to its incredible growth through licensing and product development during the mid-1980s. In the late 1980s, Disney became concerned that some of its characters, such as Mickey Mouse and Donald Duck, were being used inappropriately and becoming overexposed. The characters were on so many products, and were marketed in so many ways, that in some cases it was difficult to discern what the rationale behind the deal could have been to start with. Moreover, because of the characters’ broad exposure

in the marketplace, many consumers had begun to feel Disney was exploiting its name. Disney moved quickly to ensure that a consistent image— reinforcing its key brand associations— was conveyed by all third-party products and services. To that end, Disney adopted the internal brand mantra “fun family entertainment” to filter proposed ventures. Opportunities that were not consistent with the brand mantra— no matter how appealing— were rejected. (As useful as that mantra was to Disney, adding the word magical might have made it even more so.)

Unlike brand slogans meant to engage consumers, brand mantras are designed with internal purposes in mind. Nike’s internal mantra, “authentic athletic performance,” was not directly communicated to consumers, who were presented, instead, with the slogan “Just Do It” that aimed to capture the brand mantra. There are three key criteria for a brand mantra. First, a good brand mantra should communicate what is unique about the brand. It may also need to define the brand’s category (or categories) and set brand boundaries. Second, it should simplify the essence of the brand: It should be short, crisp, and vivid in meaning. Finally, it should inspire by staking out ground that is personally meaningful and relevant to as many employees as possible.

For brands anticipating rapid growth, it is helpful to define the product or benefit space in which the brand would like to compete, as Nike did with “athletic performance” and Disney with “family entertainment.” Words that describe the nature of the product or service, or the type of experiences or benefits the brand provides, can be critical to identifying appropriate categories into which to extend. For brands in more stable categories where extensions are less likely to occur, the brand mantra may focus exclusively on points of difference.

Other brands may be strong on one, or perhaps even a few, of the brand associations that make up the company’s brand mantra. However, for a mantra to be effective, no other brand should singularly excel on all its dimensions. Part of the key to the success of both Nike and Disney is that for many years, no competitor could really deliver on the combined promise suggested by their brand mantras.

CHOOSING BRAND ELEMENTS

Brand elements are devices that identify and differentiate the brand. Most strong brands employ multiple brand elements, which can be trademarked. Nike has the distinctive “swoosh” logo, the empowering “Just Do It” slogan, and the “Nike” name from the Greek winged goddess of victory. Marketers should choose brand elements that build as much brand equity as possible. The test of the appropriateness of a particular brand element is what consumers would think or feel about the product or service if the brand element were all they knew . Based on its name alone, for instance, a consumer might expect SnackWell’s products to be healthful snack foods and Panasonic Toughbook laptop computers to be durable and reliable.

There are several factors to consider when choosing brand elements. They should be memorable, meaningful, and likable, as well as transferable, adaptable, and protectable. The first three characteristics are brand-building. The latter three are defensive; they help maintain leverage and preserve brand equity against challenges.

CHAPTER 10 | Building Strong Brands 243

• Memorable — How easily do consumers recall and recognize the brand element, and when? At

both purchase and consumption? Names such as Tide, Crest, and Puffs are memorable brand elements. 24

• Meaningful — Is the brand element evocative? Consider the inherent meaning in names such as DieHard ­ auto batteries, Mop & Glo floor wax, and Lean Cuisine low-calorie frozen entrées. The brand name of New Zealand’s 42BELOW vodka refers to both a latitude that runs through New Zealand and the drink’s alcohol content. The packaging and other visual cues are designed to leverage the perceived purity of the country to communicate the positioning for the brand. 25

• Likable — How aesthetically appealing is the brand element? A recent trend is toward playful names that also offer a readily available URL, especially for online brands like Flickr, Instagram, Pinterest, Tumblr, and Dropbox.

• Transferable — Can the brand element introduce new products in the same or different categories? Does it add to brand equity across geographic boundaries and market segments? Although initially an online bookseller, Amazon.com was smart enough not to call itself “Books ‘R’ Us.” Choosing the name of the world’s biggest river allowed the company to grow into its now stag­ geringly diverse range of products.

• Adaptable — How adaptable and updatable is the brand element? Logos can easily be updated. The past 100 years have seen the Shell logo updated 10 times.

• Protectable — How legally protectable is the brand element? How competitively protectable? When names are in danger of becoming synonymous with product categories— as has happened to Kleenex, Kitty Litter, Jell-O, Scotch Tape, Xerox, and Fiberglass— their makers should retain their trademark rights and not allow the brand to become generic.

Brand elements can play a number of brand-building roles. 26 If consumers don’t examine much information in making product decisions, brand elements should be easy to recall and inherently descriptive and persuasive. The likability of brand elements can also increase awareness and ­associations. 27 But choosing a name with inherent meaning may make it harder to later add a different meaning or update the positioning. 28

Often, the more important brand elements are those that capture intangible, less concrete characteristics. Many insurance firms use symbols of strength for their brands (the Rock of Gibraltar for Prudential and the stag for Hartford) or symbols of security (the “good hands” of Allstate, the Traveler’s umbrella, and the hard hat of Fireman’s Fund).

Like brand names, slogans are an extremely efficient means of building brand equity. 29 They can function as useful “hooks” to help consumers grasp what the brand is and what makes it special, as in “Like a Good Neighbor, State Farm Is There,” “Nothing Runs Like a Deere,” and “Every Kiss Begins with Kay” for the jeweler.

Firms should be careful about replacing a good slogan. Citi walked away from its famous “Citi Never Sleeps” slogan, replacing it with “Let’s Get It Done,” only to return to the old slogan when the new one failed to catch on. After 50 years, Avis Car Rental dropped “We Try Harder” for “It’s Your Space.” The new slogan had much less staying power— to say nothing of the inherent message— of the one it replaced.

The brand name and other identifiers can be protected through registered trademarks, manufacturing processes can be protected through patents, and packaging can be protected through copyrights and proprietary designs. These intellectual property rights ensure that the firm can safely invest in the brand and reap the benefits of a valuable asset. 30

The Magic of Brand Characters Brand characters have a long and important history in marketing. The Keebler elves reinforce home-style baking quality and a sense of magic and fun for the company’s line of cookies. In the insurance industry, the Aflac duck competes for consumer attention with GEICO’s gecko, and Progressive’s chatty Flo competes with Met Life’s adorable Peanuts characters. Michelin’s friendly tire-shaped Bibendum— the “Michelin Man”—conveys

safety for the family and is credited with helping the brand achieve 80 percent awareness around the world. Each year Michelin distributes a “Passport” for Bibendum that sets boundaries on the character’s advertising use by

­ marketers. Bibendum is never aggressive, for example, and never delivers a sales pitch. 31

Brand characters represent a special type of brand symbol— one with human characteristics that both

44 PART 4 | DESIGNING VALUE

enhance likability and tag the brand as interesting and fun. Consumers can more easily form relationships with a brand when it is represented by a human or other character. Brand characters typically are introduced through advertising and can play a central role in ad campaigns and package designs. M&M’s “spokescandies” are an integral part of all advertising, promotion, and digital communications for the brand. Some brand characters are animated, like the Pillsbury Doughboy, Peter Pan (peanut butter), and numerous cereal characters such as Tony the Tiger and Snap, Crackle, & Pop. Others are live-action figures like Juan Valdez (Colombian coffee) and Ronald McDonald. 32

Because they are often colorful and rich in imagery, brand characters can help brands break through marketplace clutter and communicate a key product benefit in a soft-sell manner. ­ C haracters also avoid many of the problems associated with human spokespeople: They don’t demand pay raises or misbehave. Offering the opportunity to shape the brand’s personality and facilitate consumer interactions, brand characters play an increasingly important role in a digital world. The success of Mr. P ­ eanut in viral videos led to the introduction of a new peanut butter line. Even old-timers are making their way onto the web. First introduced in 1957, Mr. Clean has amassed over a million Facebook fans.

CHOOSING SECONDARY ASSOCIATIONS To build strong brands, marketers link brands to other meaningful information in the memories of consumers. These linked associations become secondary sources of brand knowledge (see Figure 10.1).

These “secondary” brand associations can link the brand to sources such as the company itself (through branding strategies), to countries or other geographic regions (through identification of product origin), and to channels of distribution (through channel strategy), as well as to other brands (through ingredient or cobranding), characters (through licensing), spokespeople (through endorsements), sporting or cultural events (through sponsorship), or some other third-party sources (through awards or reviews).

Suppose Burton— the maker of snowboards, snowboard boots, bindings, clothing, and ­ o uterwear— decided to introduce a new surfboard called the Dominator. Burton has gained more than a third of the snowboard market by closely aligning itself with top professional riders and creating a strong amateur

FIGURE 10.1 Secondary Sources of Brand Knowledge

Alliances

Ingredients Company

Extensions

Employees Other Brands Country of origin

People BRAND Places

Endorsers Things Channels

Events

Causes

Third-party endorsements

CHAPTER 10 | Building Strong Brands 245

snowboarder community around the country. 33 To support the new surfboard, Burton could leverage secondary brand knowledge in a number of ways.

First, it could “sub-brand” the surfboard, calling it “Dominator by Burton.” In this case, consumers’

evaluations of the new product would be influenced by how they felt about Burton and by whether they felt that such knowledge predicted the quality of a Burton surfboard. Alternatively, Burton could rely on its rural New England origins, but this geographic location would seem to have little relevance to surfing. Burton could also sell through popular surf shops in the hope that their credibility would rub off on the Dominator brand. Burton could co-brand by identifying a strong ingredient brand for its foam or fiberglass materials (as Wilson did by incorporating Goodyear tire rubber on the soles of its Pro Staff Classic tennis shoes).

Another approach for Burton would be to find one or more top professional surfers to endorse the surfboard, or it could sponsor a surfing competition or even the entire Association of Surfing ­Professionals (ASP) World Tour. Finally, Burton could secure and publicize favorable ratings from thirdparty sources such as the magazines Surfer and Surfing . Thus, independent of the associations created by the surfboard itself, its brand name, or any other aspects of the marketing program, Burton could build equity by linking the brand to these other entities.

Leveraging secondary associations can be an efficient and effective way to strengthen a brand. But

linking a brand to someone or something else can be risky, because anything bad that happens to that other entity may also be linked to the brand. When popular endorsers Tiger Woods and Lance Armstrong got into trouble, many of the firms that were using them to promote their brands chose to cut ties.

A brand’s secondary associations must be aligned with the brand’s personality. A brand ­personality is the specific mix of human traits that we can attribute to a particular brand. Defining the personality of a brand is important because consumers tend to choose brands whose personalities match their own. Researchers have identified the following brand personality traits: 34 Sincerity (down to earth, honest, wholesome, and cheerful), Excitement (daring, spirited, imaginative, and up-to-date), Competence (reliable, intelligent, and successful), Sophistication (upper-class and charming), and ­Ruggedness (outdoorsy and tough). A brand personality may have several attributes: Levi’s suggests a personality that is youthful, rebellious, authentic, and American.

A cross-cultural study exploring the generalizability of the brand personality scale outside the United States found that three of the five factors applied in Japan and Spain, but that a “peacefulness” dimension replaced “ruggedness” in both countries, and a “passion” dimension emerged in Spain instead of “competence.” 35 Research on brand personality in Korea revealed two culture-specific ­ factors—“passive likableness” and “ascendancy”—reflecting the importance of Confucian values in the Korean social and economic systems. 36

Brand Hierarchy Brand hierarchy reflects the way in which a company’s brands are related to a company’s products and services, as well as to one another. Developing a meaningful brand hierarchy is particularly important for companies that are managing diverse brand portfolios.

MANAGING BRAND PORTFOLIOS

A brand can be stretched only so far, and it is possible that not all segments that the firm would like to target view the brand in an equally favorable light. Marketers often need multiple brands in order to pursue multiple consumer segments. Other reasons for introducing multiple brands in a category include increasing shelf presence and retailer dependence in the store, retaining variety-seeking consumers who may otherwise switch to another brand, increasing competition within the firm, and exploiting economies of scale in advertising, sales, merchandising, and physical distribution. 37

The brand portfolio is the set of all brands and brand lines that a particular firm offers for sale in a particular category or market segment. Building a good brand portfolio requires careful thinking and creative execution. The hallmark of an optimal brand portfolio is the ability of each brand it contains to maximize equity in combination with all the other brands. Marketers generally need to trade off market coverage with costs and profitability. If they can increase profits by dropping brands, a portfolio is too big; if they can increase profits by adding brands, it’s not big enough.

The basic principle in designing a brand portfolio is to maximize market coverage so that no target

target customers are ignored but to minimize brand overlap so company brands are not competing for

246 PART 4 | DESIGNING VALUE

customer approval. Each brand should be clearly differentiated and appealing to a sufficiently sizable marketing segment to justify its marketing and production costs. Consider these examples:

Dow Corning Dow Corning has adopted a dual-brand approach to sell its silicon, which is used as an ingredient by many companies. Silicon sold under the Dow Corning name uses a “high touch” approach that gives customers much attention and support; silicon sold under the Xiameter name uses a “no frills” approach emphasizing low prices. 38

Unilever Unilever, partnering with PepsiCo, sells four distinct brands of ready-to-drink iced tea. Brisk Iced Tea is an “on ramp” brand that serves as an entry point and a “flavor-forward” value brand; Lipton Iced Tea is a mainstream brand with an appealing blend of flavors; Lipton Pure Leaf Iced Tea is a premium and “tea-forward” brand for tea purists; and Tazo is a super-premium, niche brand. 39

Marketers carefully monitor brand portfolios over time to identify weak brands and kill unprofitable

unprofitable ones. 40 Brands associated with poorly differentiated offerings are likely to be characterized by cannibalization and brand dilution. Such overextended and undifferentiated offerings might require pruning in order to ensure the health of the brand and its ability to create market value.

Three general brand portfolio strategies are popular:

• A house-of-brands strategy involves individual or separate family brand names. Consumer packaged-goods companies have a long tradition of branding different products by different names. General Mills largely uses individual brand names, such as Bisquick, Gold Medal flour, Nature Valley granola bars, Old El Paso Mexican foods, Progresso soup, Wheaties cereal, and Yoplait yogurt. If a company produces quite different products, one blanket name is often not desirable. Swift & Company developed separate family names for its hams (Premium) and fertilizers (Vigoro). Companies often use different brand names for different quality lines within the same product class. A major advantage of separate family brand names is that if a product fails or appears to be of low quality, the company has not tied the reputation of its other offerings to that product. 41

• A branded-house strategy involves a corporate umbrella or company brand name. Many firms, such as Heinz and GE, use their corporate brand as an umbrella brand across their entire range of products. 42 Development costs are lower with umbrella names, because there’s no need to research a name or spend heavily on advertising to build recognition. Campbell Soup introduces new soups under its brand name with extreme simplicity and achieves instant recognition. Sales of the new product are likely to be strong if the manufacturer’s name is good. Corporate-image associations of innovativeness, expertise, and trustworthiness have been shown to directly influence consumer evaluations. 43 Finally, a corporate branding strategy can lead to greater intangible value for the firm. 44 On the downside, however, there is a greater change of a negative spillover effect if consumers’ bad experience with one product contaminates their perceptions of other products associated with the same brand.

• A sub-brand strategy combines two or more corporate, family, or individual product brand names. Kellogg employs a sub-brand or hybrid branding strategy by combining the corporate brand with individual product brands (as with Kellogg’s Rice Krispies, Kellogg’s Raisin Bran, and Kellogg’s Corn Flakes). Many durable-goods makers such as Honda, Sony, and Hewlett-Packard use sub-brands for their products. The corporate or company name legitimizes the new product, and the sub-brand name individualizes it.

The house-of-brands and branded-house strategies represent two ends of a continuum. A subbrand strategy falls somewhere between, depending on which component of the sub-brand receives more emphasis. A good example of a house-of-brands strategy is used by United Technologies.

United Technologies United Technology Corporation (UTC) provides a broad range of high-technology products and services for the aerospace and commercial building industries, generating nearly $63 billion in revenues. Its aerospace businesses include Sikorsky helicopters, Pratt & Whitney aircraft engines, and UTC Aerospace Systems (which includes Goodrich Corporation and Hamilton Sundstrand aerospace systems). UTC Building & Industrial Systems, the world’s largest provider of building technologies, includes Otis elevators and escalators; Carrier heating, air-conditioning, and refrigeration systems; and fire and security solutions from brands such as Kidde and Chubb. Most of its in-market brands are the names of the individuals

CHAPTER 10 | Building Strong Brands 247

<< United Technologies (now Raytheon Technologies) relies on the power of its individual brands— which include Pratt & Whitney, Goodrich, Otis, Carrier, and Kidde— to garner recognition and respect for the parent organization.

Photo

Stock

Source: David Gee/Alamy

who invented the product or created the company decades ago. These names have more power and are more recognizable in the business-buying marketplace than the name of the parent brand, and employees are loyal to the individual companies. The UTC name is advertised only to small but influential audiences— the financial community and opinion leaders in New York and Washington, DC. “My philosophy has always been to use the power of the trademarks of the subsidiaries to improve the recognition and brand acceptance, awareness, and respect for the parent company itself,” said UTC’s former CEO George David. In early 2020, United Technologies merged with the defense contractor Raytheon, forming the Raytheon Technologies Corporation. 45

With a branded-house strategy, it is often useful to have a well-defined flagship product.

A flagship ­ product is one that best represents or embodies the brand as a whole to consumers. It often is the first product by which the brand gained fame, a widely accepted best-seller, or a highly admired or award-winning product. 46

Flagship products play a key role in the brand portfolio in that marketing them can have shortterm benefits (increased sales) as well as long-term benefits (improved brand equity for a range of products). Certain models play important flagship roles for many car manufacturers. Besides generating the most sales, family sedans Toyota Camry and Honda Accord represent brand values that all cars from those manufacturers share. In justifying the large investments incurred in launching its new 2014 Mercedes S-class automobiles, Daimler’s chief executive Dieter Zetsche explained, “This car is for Mercedes-Benz what the harbor is for Hamburg, the Mona Lisa for Leonardo da Vinci and ‘Satisfaction’ for the Rolling Stones: the most important symbol of the reputation of the whole.” 47

Many companies are introducing branded variants , which are specific brand lines supplied to

specific retailers or distribution channels. They result from the pressure retailers put on manufacturers to provide distinctive offerings. A camera company may supply its low-end cameras to mass merchandisers, while limiting its higher-priced items to specialty camera shops. Valentino may design and supply different lines of suits and jackets to different department stores. 48

COBRANDING

Marketers often combine their brands with brands from other companies to create superior market value. Cobranding —also called dual branding— involves two or more brands marketed together.

The Essence of Cobranding. One form of cobranding is same-company cobranding , as when General Mills advertises Trix cereal and Yoplait yogurt. Another form is joint-venture cobranding , such as General Electric and Hitachi lightbulbs in Japan or the Citi Platinum Select AAdvantage Visa Signature

248 PART 4 | DESIGNING VALUE

credit card in which three different parties are involved. There is multiple-sponsor cobranding , such as Taligent, a one-time technological alliance of Apple, IBM, and Motorola. Finally, there is retail cobranding in which two retail establishments use the same location to optimize space and profits, such as jointly owned Pizza Hut, KFC, and Taco Bell restaurants.

The main advantage of cobranding is that a product can be convincingly positioned by virtue of the multiple brands. Cobranding can generate greater sales from the existing market and can open opportunities to attract new consumers and channels. It can also reduce the cost of product introduction because it combines two well-known images and speeds adoption. And cobranding may be a valuable means to learn about consumers and how other companies approach them. Companies in the automotive industry have reaped all these benefits. 49

The potential disadvantages of cobranding are the risks and lack of control involved in becoming aligned with another brand in consumers’ minds. Consumer expectations of co-brands are likely to be high, so unsatisfactory performance could have negative repercussions for both brands. And if one of the brands enters into a number of cobranding arrangements, overexposure may dilute the transfer of any meaningful association. 50

For cobranding to succeed, the two brands must separately have brand equity— adequate brand awareness and a sufficiently positive brand image. The most important requirement is a logical fit between the two brands, to maximize the advantages of each while minimizing disadvantages. ­Consumers are more apt to perceive co-brands favorably if they are complementary and offer unique quality, rather than being overly similar and redundant. 51

Managers must enter cobranding ventures carefully, looking for the right fit in values, capabilities, and goals, along with an appropriate balance of brand equity. There must be detailed plans to legalize contracts, make financial arrangements, and coordinate marketing programs. As one executive at Nabisco put it, “Giving away your brand is a lot like giving away your child— you want to make sure everything is perfect.” Financial arrangements between brands vary; one common approach is for the brand more deeply invested in the production process to pay the other a licensing fee and royalty.

Brand alliances require a number of decisions. What capabilities do you not have? What resource constraints do you face (people, time, money)? What are your strategic goals? Does partnering help strengthen brand equity? Is there any risk of diluting brand equity? Does the opportunity offer strategic advantages such as knowledge transfer?

Ingredient Branding. Ingredient branding is a special case of cobranding. It creates brand equity for materials, components, or parts that are necessarily contained within other branded products. For host products whose brands are not that strong, ingredient brands can provide differentiation and important signals of quality. 52

Successful ingredient brands include Dolby noise-reduction technology, the GORE-TEX waterresistant fibers, and Scotchgard fabrics. Vibram is the world leader in high-performance rubber soles for outdoor, work, military, recreation, fashion, and orthopedic shoes. Look under your shoe and you may find Vibram soles. They are used by a wide range of footwear manufacturers, including The North Face, Saucony, Timberland, Lacoste, L.L. Bean, Wolverine, Rockport, Columbia, Nike, and Frye.

An interesting take on ingredient branding is self-branded ingredients that companies advertise and even trademark. 53 Westin Hotels advertises its own “Heavenly Bed”—an ingredient that is critically important to a guest’s good night’s sleep. The brand has been so successful that Westin now sells the mattress,

>> The cobranding of Milka and Oreo, both Mondelēz brands, is aimed at gaining a stronger foothold for Swiss-based Milka in the U.S. market.

frederique/Shutterstock Source: page

CHAPTER 10 | Building Strong Brands 249

pillows, sheets, and blankets via an online catalog, along with other “Heavenly” gifts, bath products, and even pet items. The success of the bed has also created a halo for the Westin brand as a whole. Heavenly Bed enthusiasts are more likely to rate other aspects of their room or stay as positive. 54 If it can be done well, using self-branded ingredients makes sense because firms have more control over them and can develop them to suit their purposes.

Ingredient brands try to create enough awareness and preference for their product so consumers will not buy a host product that doesn’t contain it. DuPont has introduced a number of ­ innovative products, such as Corian ® solid-surface material, for use in markets ranging from apparel to aerospace. Many of its products, such as Tyvek ® house wrap, Teflon ® non-stick coating, and Kevlar ®

fiber, became household names as ingredient brands in consumer products manufactured by other companies.

Many manufacturers make components or materials that are used in branded products but lose their individual identity. One of the few companies that avoided this fate is Intel. Intel’s consumerdirected brand campaign convinced many personal computer buyers to purchase only brands with “Intel Inside.” As a result, major PC manufacturers— Dell, HP, Lenovo— typically purchase their chips from Intel at a premium price rather than buying equivalent chips from an unknown supplier.

What are the requirements for successful ingredient branding? 55 First, consumers must believe the ingredient matters to the performance and success of the end product. Ideally, this intrinsic value is easily seen or experienced. Second, consumers must be convinced that the ingredient is superior. To this end, the company must coordinate a communication campaign— often with the help of the manufacturers of the final products and the retailers carrying these products— that helps consumers understand the advantages of the branded ingredient. Finally, a distinctive symbol or logo must clearly signal that the host product contains the ingredient. Ideally, this symbol or logo functions like a “seal” and is simple and versatile, credibly communicating quality and confidence. 56

The Brand Value Chain

The brand value chain is a structured approach to assessing the sources and outcomes of brand equity and the way marketing activities create brand value (­Figure 10.2). It is based on several premises. 57

First, brand value creation begins when the firm targets actual or potential customers by investing in a marketing program to develop the brand, including marketing communications, trade or intermediary support,

and product research, development, and design. This marketing activity will change customers’ mindsets— ­ customers’ thoughts and feelings that become linked to the brand. Next, these customer mindsets will affect buying behavior and the way consumers respond to all subsequent marketing activity— pricing, distribution channels, communication, and the product itself— which will affect the resulting market share and profitability of the brand.

VALUE STAGES Marketing Program Investment

- Product

- Communications - Trade

- Employee - Other

Customer Mind-set

- Awareness - Associations - Attitudes

- Attachment - Activity

Brand Performance

- Price premiums - Price elasticities - Market share

- Expansion success - Cost structure

- Profitability

Shareholder Value

- Stock price - P/E ratio

- Market capitalization

FIGURE 10.2 Brand Value Chain Source: Kevin Lane Keller and Vanitha Swaminathan, Strategic Brand Management , 5th ed. (Upper Saddle River, NJ: Pearson E ­ ducation, 2020), chapter 3.

MULTIPLIERS Program Multiplier Customer Multiplier Market Multiplier

- Distinctiveness - Relevance

- Integrated - Value

- Excellence

- Competitive reactions - Channel support

- Customer size & profile

- Market dynamics - Growth potential - Risk profile

- Brand contribution

( continued )

250 PART 4 | DESIGNING VALUE

Finally, the investment community will consider the market performance of the brand when assessing shareholder value in general and the value of a brand in particular.

The model also assumes that three multipliers increase or decrease the value that can flow from one stage to another:

• The program multiplier determines the marketing program’s ability to affect the customer mindset and is a function of the quality of the program investment.

• The customer multiplier determines the extent to which the value created in the minds and hearts of customers affects market performance. This result

depends on competitive superiority (the effectiveness of the marketing investment of other competing brands), channel and other intermediary support (the amount of brand reinforcement and selling effort that various marketing partners contribute), and customer size and profile (the number and types of customers, profitable or not, attracted to the brand).

• The market multiplier determines the extent to which the value shown by the market performance of a brand is manifested in shareholder value. It depends, in part, on the actions of financial analysts and investors.

Brand Dynamics Most brands don’t stay the same; they evolve over time. The two most common ways in which brands evolve are through brand repositioning and brand extensions.

BRAND REPOSITIONING

Any new development in the marketing environment can affect a brand’s fortunes. Nevertheless, a number of brands have managed to make impressive comebacks in recent years. 58 After some hard times in the automotive market, Cadillac, Fiat, and Volkswagen have all turned their brand fortunes around to varying degrees. General Motors’s rescue of its fading Cadillac brand was fueled by a complete overhaul of its product lineup with new designs that redefined its look and styling, such as the SRX crossover, the XTS and CTS sedans, the Escalade SUV, and the ATS sports sedan. A healthy dose of breakthrough marketing, including the first use of Led Zeppelin’s music in advertising, also helped.

Often, the first thing to do in repositioning a brand is to understand what the sources of brand

equity were to begin with. Are positive associations losing their strength or uniqueness? Have negative associations become linked to the brand? Then decide whether to retain the same positioning or to create a new one (and, if so, what new positioning to create). 59

Sometimes the actual marketing program is the source of the problem because it fails to deliver on the brand promise. Then a “back to basics” strategy may make sense. We’ve mentioned that Harley-Davidson

regained its market leadership by doing a better job of living up to customer expec­ tations for product performance. Pabst Brewing Company did the same by returning to its roots and leveraging iconic packaging and imagery and a perception of authenticity.

In other cases, however, the old positioning is just no longer viable, and a reinvention strategy is necessary. Mountain Dew completely overhauled its brand image to become a soft-drink powerhouse. As its history reveals, it is often easier to revive a brand that is alive but has been more or less forgotten. Old Spice is another example of a brand that transcended its roots as the classic aftershave and cologne gift set that baby boomers gave their dads on Father’s Day to become positively identified with contemporary male grooming products for a younger Millennial audience. To revitalize Old Spice, P&G used product innovation and tongue-in-cheek communications that stressed the brand’s “experience.”

There is obviously a continuum of repositioning strategies, with pure “back to basics” at one end, pure “reinvention” at the other, and many combinations in between. The challenge is often to change enough to attract some new customers, but not so much as to alienate old ones. 60 Consider how ­ B urberry made its comeback.

Burberry Burberry has an incredible 150-year history. The company’s classic English trench coats were worn by British soldiers in World War I; Sir Ernest Shackleton wore a Burberry during his Antarctic expedition; and Burberry has even been designated an official supplier to the royal family. By the turn of the 21st century, though, the brand’s distinctive plaid pattern was no longer cool. It had been splashed over too many products and knocked off by too many counterfeiters. Despite the trench coat’s iconic status, outerwear made up only 20 percent of Burberry’s global business.

252 PART 4 | DESIGNING VALUE

>> Armani’s three price

tiers within its product lines help the company survive and prosper in good and bad times.

Michael Source:

Kemp/Alamy

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When to Extend a Brand? Marketers must judge each potential brand extension by how effectively it leverages existing brand equity from the parent brand, as well as by how effectively it contributes to the parent brand’s equity. Crest Whitestrips leveraged the strong reputation of Crest in dental care to provide reassurance in the teeth-whitening arena, while also reinforcing its image of dental authority. Jewelry maker Bulgari has moved into hotels, restaurants, fragrances, chocolate, and skin care.

Armani Armani has extended its brand from high-end Giorgio Armani and Giorgio Armani Privé to mid-range luxury with Emporio Armani and affordable luxury with Armani Jeans and Armani Exchange. Clear differentiation exists between these brand extensions, minimizing the potential for consumer confusion and brand cannibalization. Each also lives up to the core promise of the parent brand, reducing the chances of hurting the parent’s image.

Ralph Lauren Ralph Lauren has successfully marketed an aspirational luxury brand with wholesome all-American lifestyle imagery across a wide range of products. Besides clothing and fragrances, Lauren boutiques sell linens, candles, beds, couches, dishware, photo albums, and jewelry. Calvin Klein has adopted a similarly successful extension strategy, though with different lifestyle imagery.

Marketers should ask a number of questions when weighing the potential success of an extension. 62 Does the parent brand have significant power? Is there a strong basis of fit? Will the extension have the optimal points of parity and points of difference? How can marketing programs enhance extension equity? What implications will the extension have for parent brand equity and profitability?

Some of the key research insights on brand extensions are summarized as follows: 63

• Successful brand extensions occur when the parent brand is seen as having favorable associations and there is a perception of fit between the parent brand and the extension product. This fit can involve product-related attributes and benefits, as well as attributes and benefits related to common usage situations or user types. For example, Ralph Lauren extended its brand from fashion apparel to perfume, furniture, and even paint.

• A brand that is seen as prototypical of a product category can be difficult to extend outside the category. For example, extending the Coca-Cola brand to fresh-squeezed juices might be challenging because of the prototypical nature of the brand in the carbonated cola category. Thus, brand associations that are positive in the original product category can become negative in the extension context. In addition, concrete attribute associations tend to be more difficult to extend than abstract benefit associations.

• Vertical extensions often require sub-branding strategies to prevent negative brand associations (in the case of upscale extensions) and brand dilution and product cannibalization (in the case of downscale extensions). For example, rather than using its core brand to launch a downscale product-line extension, Giorgio Armani introduced a sub-brand— Armani Exchange— which helped mitigate the likelihood of brand dilution and sales cannibalization.

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One major mistake in evaluating extension opportunities is failing to take all consumers’ brand knowledge into account and focusing instead on one or a few brand associations as a potential basis of fit. 64 Bic offers a classic example of that mistake.

<< Although Bic touted its $5 perfumes for men and women as extending Bic’s heritage of convenience and affordable quality, the product extension was doomed to failure by its incongruity with consumers’ image of the company.

Bic By emphasizing inexpensive, disposable products, French company Société Bic was able to create markets for nonrefillable ballpoint pens in the late 1950s, disposable cigarette lighters in the early 1970s, and disposable razors in the early 1980s. It unsuccessfully tried the same strategy to market Bic perfumes in the United States and Europe. The perfumes—“Nuit” and “Jour” for women and “Bic for Men” and “Bic Sport for Men”—were packaged in quarter-ounce glass spray bottles that looked like fat cigarette lighters and sold for $5 each. The products were displayed on racks at checkout counters throughout Bic’s extensive distribution channels. At the time, a Bic spokeswoman described the new products as extensions of the Bic heritage—“high quality at affordable prices, convenient to purchase, and convenient to use.” The brand extension was launched with a $20 million advertising and promotion campaign containing images of stylish people enjoying the perfume and using the tagline “Paris in Your Pocket.” Nevertheless, Bic was unable to overcome its lack of cachet and negative image associations, and the extension was a failure. 65

Advantages of Brand Extensions. Consumers form expectations about a new product based on what they know about the parent brand and the extent to which they feel this information is relevant. When Sony introduced a new personal computer tailored for multimedia applications, the VAIO, consumers may have felt comfortable with its anticipated performance because of their experience with and knowledge of other Sony products. Once the VAIO brand gained customer recognition, it was spun off from Sony, and it now operates as a stand-alone brand, with Sony maintaining a minority stake in the company as well as the trademark for the VAIO brand and logo.

By setting up positive expectations, extensions reduce risk. It also may be easier to convince retailers to stock and promote a brand extension because of anticipated increased customer demand. An introductory campaign for an extension doesn’t need to create awareness of both the brand and the new product; it can concentrate on the new product itself. 66

Extensions can thus reduce launch costs, which is important because establishing a major new brand name for a consumer packaged good in the U.S. marketplace can cost more than $100 million! Extensions also can avoid the difficulty— and expense— of coming up with a new name, thus allowing packaging and labeling efficiencies. Similar or identical packages and labels can lower production costs for extensions and, if coordinated properly, provide more prominence in the retail store via a “billboard” effect. 67 Stouffer’s offers a variety of frozen entrées with identical orange packaging that increases their visibility when stocked together in the grocer’s freezer. With a portfolio of brand variants within a product category, consumers who want a change can switch to a different product type without having to leave the brand family.

Coca-Cola To break away from its traditional image and shift to health-focused trends, Coca-Cola decided to launch a range of energy drinks, for the first time using its own brand name. The new energy drink branded “Coca-Cola Energy” and “Coca-Cola Energy No Sugar” and made with naturally derived caffeine and guarana extract. This move puts the company’s energy drinks in direct competition with Monster Energy, a brand partially owned and distributed by Coca-Cola. The new energy drink also faces an uphill battle trying to change consumers’ perception of the Coca-Cola brand, which has traditionally been associated with carbonated colas. 68

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Besides facilitating acceptance of new products, brand extensions can help to clarify the meaning

of a brand and its core values or improve consumer loyalty to the company creating the extension. Through their brand extensions, Crayola means “colorful arts and crafts for kids” and Weight Watchers means “weight loss and maintenance.”

A successful category extension may not only reinforce the parent brand and open up a new market but also facilitate even more new category extensions. The success of Apple’s iPod and iTunes products opened up a new market, boosted sales of core Mac products, and paved the way for the launch of the iPhone and iPad.

brand

food of losing

to

Disadvantages of Brand Extensions. On the downside, line extensions may cause the name to be less strongly identified with any one product. 69 By linking its brand to mainstream products such as mashed potatoes, powdered milk, soups, and beverages, Cadbury ran the risk

its more specific meaning as a chocolate and candy brand. 70

Brand dilution occurs when consumers no longer associate a brand with a specific or highly similar set of products and start thinking less of the brand. Porsche found sales success with its Cayenne sport utility vehicle and Panamera four-door sedan, which accounted for three-quarters of its vehicle sales in 2012, but some critics felt the company was watering down its sports car image in the process. Porsche subsequently dialed up its onand off-road test tracks, driving courses, and roadshow events help customers get the adrenaline rush of driving a legendary Porsche 911.

If a firm launches extensions that consumers deem inappropriate, they may question the integrity of the brand or become confused or even frustrated: Which version of the product is “the right one” for them? Do they know the brand as well as they thought they did? Retailers reject many new products and brands because they don’t have the shelf or display space for them. And the firm itself may become overwhelmed.

Even if sales of a brand extension are high and meet targets, the revenue may be coming from consumers switching to the extension from existing parent-brand offerings— in effect cannibalizing the parent brand. Within-brand shifts in sales may not necessarily be undesirable if they’re a form of preemptive cannibalization. In other words, consumers who switched to a line extension might otherwise ­ have switched to a competing brand instead. Tide laundry detergent maintains the same market share it had 50 years ago because of the sales contributions of its various line extensions— scented and unscented powder, pods, liquid, and other forms.

One easily overlooked disadvantage of brand extensions is that the firm forgoes the chance to create a new brand with its own unique image and equity. Consider the long-term financial advantages to Disney of having introduced more grown-up Touchstone films, to Levi’s of creating casual Dockers pants, and to Black & Decker of introducing high-end DeWalt power tools.

MANAGING A BRAND CRISIS

Marketing managers must assume a brand crisis will someday arise. Chick-fil-A, BP, Domino’s, and Toyota have all experienced damaging— and even potentially crippling— brand crises. Bank of America, JPMorgan, AIG, and other financial services firms have been rocked by scandals that sig­ nificantly eroded investor trust. Repercussions include lost sales, reduced effectiveness of marketing activities, increased sensitivity to rivals’ marketing activities, and reduced impact of the firm’s marketing activities on competing brands. To protect the brand, key executives and sometimes even company founders might have to step down. 71

In general, the stronger the brand and corporate image— especially for credibility and trustworthiness—the

more likely the firm can weather the storm. Careful preparation and a well­ managed crisis management program are also critical, however. As Johnson & Johnson’s legendary and nearly flawless handling of the Tylenol product-tampering incident taught marketers everywhere, consumers must see the firm’s response as both swift and sincere . They must immediately sense that the company truly cares.

The longer the firm takes to respond, the more likely consumers are to form negative impressions from unfavorable media coverage or word of mouth. Perhaps worse, they may find they don’t like the brand after all and permanently switch. Getting in front of a problem with public relations, and perhaps even ads, can help avoid those problems. 72

A classic example is Perrier— the one-time brand leader in the bottled water category. In 1994, Perrier was forced to halt production worldwide and recall all existing product when traces of benzene, a known carcinogen, were found in excessive quantities in its bottled water. Over the next weeks it offered several explanations, creating confusion and skepticism. Perhaps more damaging, the product was off shelves for more than three months. Despite an expensive relaunch featuring ads and

CHAPTER 10 | Building Strong Brands 255

promotions, the brand struggled to regain lost market share, and a full year later sales were less than half what they had been. With its key association with purity tarnished, Perrier had no other compelling points of difference. Consumers and retailers had found satisfactory substitutes, and the brand never recovered. Eventually it was taken over by Nestlé SA. 73

The more sincere the firm’s response— ideally a public acknowledgment of the impact on consumers and willingness to take necessary steps— the less likely it is that consumers will form negative attributions. When shards of glass were found in some jars of its baby food, Gerber tried to reassure the public that there were no problems in its manufacturing plants but adamantly refused to withdraw products from stores. After market share slumped from 66 percent to 52 percent within a couple of months, one company official admitted, “Not pulling our baby food off the shelf gave the appearance that we aren’t a caring company.”

If a problem exists, consumers need to know without a shadow of a doubt that the company has found the proper solution. One of the keys to Tylenol’s recovery was Johnson & Johnson’s introduction of triple tamper-proof packaging, successfully eliminating consumer worry that the product could ever be undetectably tampered with again.

Not all crises stem from a company’s own actions. External crises such as economic recessions, natural disasters, and major geopolitical events can threaten the brand and require an appropriate brand response. For example, during the difficulties precipitated by the Covid-19 pandemic, many organizations looked to their marketers to retain customers and sustain brands. Marketing spending as a share of revenue rose to an all-time high of 11.4 percent in May 2020, up from 8.6 percent only four months earlier and topping the previous high of 9.3 percent six years previously. 74 Brand marketers were challenged like never before by this global predicament. The best marketers responded quickly and took bold action to protect brand health and customer loyalty. Consider Nike’s response:

Nike Based on prevailing market conditions and factors, Nike implemented a four-phase global response to Covid-19: Containment, Recovery, Normalization, and Return to Growth. The company used its innovation and marketing teams to help in the development of Personal Protective Equipment (PPE) for frontline doctors, nurses, and medical workers. It also reassured staff and employees that there would be pay continuity despite the closing of many of its retail outlets. For consumers, Nike launched an engaging “Play Inside” digital campaign, encouraging people to stay healthy and active while they sheltered at home. The firm also offered consumers the premium component of its popular exercise app free for 90 days. Continuing a selling shift that had been building in previous years, Nike drove even more of its business online with a proprietary e-commerce app. 75

The pandemic forced all brands to rethink what and how they were selling. Already important, digital marketing became even more so. Social media as a percentage of the marketing budget rose from 13 percent in January 2020 to 23 percent in May 2020. Successful firms, however, employed a well-rounded digital strategy that also emphasized websites, apps, and e-commerce options. As sales rose for home-related products, some brands enjoyed unprecedented demand and growth. King Arthur Flour— known for its pure, organic, and high-quality product— found that many of its infrequent customers, who previously baked only a few times a year, began to bake a few times a month . With exploding demand and interest in its products, the employee-owned company began to sell smaller bags to reach more customers and brought in staff reinforcement to deal with the thousands of questions on its Baker’s Hotline, as well as its booming social media interactions and web traffic. 76

No easy solutions exist for successfully navigating a brand through such marketplace turbulence, but the following four guidelines may help firms that find themselves managing a brand through an economic, health, or other crisis.

• Empathy : Get even closer to consumers and customers. What are they thinking and feeling now, and what are they doing differently? Are these changes temporary or permanent?

• Value : Put forth the most compelling value proposition. Recognize the totality of value, and communicate all possible economic, functional, and psychological benefits and all possible savings in time, money, energy, and psychological wear-and-tear.

• Strategy : Be authentic and true to the brand promise. Find ways to develop programs that address short-term needs in a brand-faithful manner.

• Innovation : Engage in “Stop, Start, and Continue (But Improve)” exercises and activities. Take advantage of the opportunity to “clean house” to prune and focus brand and product offerings. Rethink budgets, go-to-market plans, and consumer targets.

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Although a crisis can put a severe strain on even the strongest brands, the best brand marketers

step up in these and many other ways to thoughtfully provide clear strategic direction and creatively find new ways to implement their plans.

Luxury Branding Luxury brands are one of the purest examples of the role of branding, because the brand and its image frequently offer key competitive advantages that create immense value for both the company and its customers. Marketers for luxury brands like Prada, Gucci, Cartier, and Louis Vuitton manage lucrative franchises that have endured for decades in what some believe is now a $300 billion industry. 77

CHARACTERISTICS OF LUXURY BRANDS

Priced significantly higher than typical items in their categories, luxury brands for years were about social status and who a customer was— or perhaps wanted to be. Times have changed, and luxury in many developed countries has become more about style and substance, combining personal pleasure and self-expression.

A luxury shopper must feel he or she is getting something truly special. Thus, the common denominators of luxury brands are quality and uniqueness. A winning formula for many is craftsmanship, heritage, authenticity, and history (often critical to justifying a high price). Hermès, the French luxury leather-goods maker, sells its classic designs for hundreds or even thousands of dollars, “not because they are in fashion,” as one writer put it, “but [because] they never go out of fashion.” 78 Here is how several luxury brands have become enduring market successes:

Sub-Zero Sub-Zero sells refrigerators that range from $2,000 for small, under-counter models to $15,000 and up for high-end models. The target is customers with high standards of performance and design who cherish their home and what they buy to furnish it. Sub-Zero extensively surveys this group, as well as the kitchen designers, architects, and retailers who recommend and sell its products. 79

>> In keeping with its name, which denotes “the boss,” Patrón, sold in numbered hand-blown decanters, has ascended to the top of the high-end tequila market that it essentially created.

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Patrón Cofounded by Paul Mitchell hair care founder John Paul DeJoria, Patrón came about after a 1989 trip to a distillery in the small Mexican state of Jalisco. Named Patrón to convey “the boss, the cool guy,” the smooth agave tequila comes in an elegant hand-blown decanter and

is sold in individually numbered bottles for $45 or more. Patrón, which essentially created the high-end tequila market, has generated more than $600 million in retail sales, surpassing Jose Cuervo to become the world’s largest tequila brand. In 2018, Patrón was acquired by Bacardi for $5.1 billion. 80

Montblanc The goal of Montblanc, whose products now range from pens to fragrances, is to be a strong luxury brand to as many classes of luxury customers as possible, while still retaining a prominent public image. The brand promise is that “Montblanc unites fine European craftsmanship with time-honoured designs, bringing pieces to life that emanate classic heritage and refined creation. Just as a soul remains long after its body is gone, our pieces are crafted to perform superbly and symbolize elegance for many lifetimes.” The company branched out from its origins in writing instruments into categories such as leather goods and timepieces, where it could leverage its brand power and its philosophy of manufacturing competence, highest quality, sustainable value, and creativity. 81

Much of the growth in luxury brands in recent years has been geographic. China has overtaken the United States as the world’s largest luxury market. Although initially very “logo-driven” and interested in conspicuous brand signals, Chinese luxury consumers have become more conscious of quality and design, like luxury consumers in other parts of the world.

MANAGING LUXURY BRANDS Luxury marketers have learned that luxury is not viewed the same way everywhere around the world. But in the end, luxury brand marketers have to remember they are often selling a dream, anchored in product quality, status, and prestige. 82

Just like marketers in less expensive categories, those guiding the fortunes of luxury brands operate

operate in a constantly evolving marketing environment. Globalization, new technologies, shifting consumer cultures, and other forces require them to be skillful and adept at their brand stewardship. To ensure success in such a dynamic environment, marketers must adhere to the general principles that

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<< Offerings in Montblanc’s expanding product line combine exceptional craftsmanship with refined, classic designs that promise its customers superb and elegant performance for generations

258 PART 4 | DESIGNING VALUE

apply in managing luxury brands. Some of the key principles of luxury brand management are as follows: 83

• All marketing decisions associated with luxury brands— product, service, pricing, sales incentives, communication, and distribution— must be aligned to ensure that purchase and consumption experiences are consistent with the image of the brand.

• Luxury branding typically includes the creation of a premium, aspirational image. • Luxury brands frequently span categories, and as a result, their competitors are often defined broadly. • Luxury brands must protect their identity and aggressively combat trademark infringement and counterfeits.

• All attributes of luxury brands must be aligned with the image of the brand. This includes brand identifiers such as names, logos, symbols, and packaging, as well as brand associations such as personalities, events, countries, and other entities.

One trend for luxury brands is to wrap personal experiences around the products. Top-end fashion

fashion retailers are offering such experiences alongside their wares, expecting that customers who have visited a workshop or met the designer will feel closer to the brand. Gucci invites its biggest spenders to fashion shows, equestrian events, and the Cannes Film Festival.

Porsche Sport Driving Schools and Experience Centers in Germany, the United States, and other parts of the world allow Porsche drivers to “train their driving skills and enjoy the all-out pleasure of driving, on-road, off-road, or on snow and ice.” To this end, Porsche opened a state-of-the-art facility in southern California that features 45-degree off-road inclines and a simulated ice hill.

In an increasingly connected world, some luxury marketers have struggled to find the appropriate

online selling and communication strategies for their brand. Some fashion brands have gone beyond glossy magazine spreads to listening to and communicating with consumers through Facebook, ­

­ Twitter, Instagram, WeChat, and other digital and social media channels. E-commerce has also taken hold for some luxury brands. Sites such as Net-a-Porter (now Yoox Net-a-Porter), Gilt Groupe, and Farfetch now offer new ways for fashion brands to move high-end goods.

Ultimately, luxury marketers are learning that success for them, and indeed for all marketers, depends on getting the right balance of classic and contemporary imagery, and of continuity and change, in marketing programs and activities.

Given the lengths to which they go to pamper customers in their stores— with doormen, glasses of champagne, and extravagant surroundings— luxury brands have had to work hard to provide a high-quality digital experience. They are increasingly blending the two. Gucci partnered with Samsung Electronics to create an immersive in-store experience for its timepieces and jewelry that combines physical and mobile commerce. Stores feature transparent displays that show images on the screen without obscuring the products behind them and a digital shop-in-shop section where customers

>> Porsche Sport Driving Schools and Experience Centers in Germany, the United States, and elsewhere encourage Porsche drivers to rev up their road skills and capture the fun of putting vehicles through their paces in various conditions.

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can use tablet computers to browse. To reach affluent customers who work long hours and have little time to shop, many high-end fashion brands such as Dior, Louis Vuitton, and Fendi have unveiled e-commerce sites that allow customers to research items before visiting a store— and offer a means to combat fakes sold online.

marketing INSIGHT Constructing a Brand Positioning Bull’s-Eye

The key to developing a meaningful brand positioning is using a systematic approach to design the different aspects of the brand in a way that is relevant and meaningful to the customers the firm is targeting. Such a systematic approach is offered by the Bull’s-Eye Framework. We discuss this framework in the context of a hypothetical Starbucks example illustrated in Figure 10.3.

The inner circle of the bull’s-eye is the brand mantra defining the essence of the brand and the core brand promise. It guides the actions of company employees and collaborators by ensuring that they have a clear understanding of what the brand should represent to consumers. The brand mantra is at the heart of the bull’seye and is the guiding principle for all other aspects of brand positioning. One could define the Starbucks brand mantra as “a rich, rewarding coffee experience.” Although ­ Starbucks has extended its offerings to include non-coffee drinks, snacks, and even wine, coffee and the experience of its consumption are at the core of the brand. “Rich” and “rewarding” capture both the physical and the psychological aspects of the ideal Starbucks experience.

The circle surrounding the one that contains the brand mantra encompasses the brand’s points of difference and points of parity that make up its positioning. Points of parity and points of difference should be made as specific as possible without being too narrow, and they should be constructed in terms of the benefits a customer can actually derive from the product or service.

Different competitors will suggest different points of difference and points of parity. With competitors such as mom-and-pop coffee shops, fast-food restaurants like McDonald’s, and at-home coffee brands in mind, benefits such as offering fresh, high-quality coffee, providing a variety of coffee drinks, and delivering fast, personalized service can be viewed as potential points of difference for Starbucks, whereas fair prices, the availability of convenient locations, and social responsibility can be viewed as important points of parity for the brand.

In the next concentric circle are the substantiators, or reasons to believe— attributes or benefits that provide factual or demonstrable support for the points of parity and points of difference. Substantiators are also referred to as reasons

Rich, rewarding coffee experience ues/ Personality/Charac Val ter Contemporary Thoughtful

Caring

Convenient locations Fair prices Socially responsible Poi nts of Parity

Brand Mantra

Integrated supply chain Extensive training of baristas Generous employee benefits

Fresh, high-quality

coffee Variety of espresso

drinks

Fast, personalized service

Po in t s o f D iff e re n e c

Subst a nti a t o r s

Ex ec u tio n al Pro p e r ti e s / V i s u a l Id ity ent

Starbucks name Siren logo

Green color

FIGURE 10.3 A Hypothetical Example of a Starbucks Brand Positioning Bull’s-Eye ( continued )

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marketing insight ( continued )

to believe because they are sometimes used in a company’s communication campaign to provide customers with facts that validate the company’s brand messaging. Starbucks’s integrated supply chain, extensive training of baristas, and generous employee benefits program are among the factors that enable it to substantiate its positioning.

Finally, the outer circle contains two additional relevant aspect of brand positioning. The first involves the brand values, personality, or character— intangible

associations evoked by words and actions that help to establish the tone of the brand. In the case of Starbucks, one might think of the brand as contemporary, thoughtful, and caring. The second aspect involves executional properties and visual identity— more tangible components of the brand that affect the way customers perceive it. For Starbucks this includes its brand name, the siren logo, and the dark green and white color scheme characterizing the brand’s visual appearance.

summary

1. A brand is a name, term, sign, symbol, design, or some

combination of these elements that is intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors. The ultimate purpose of the brand is to create, for consumers, the company, and its collaborators, value that goes beyond the value created by the product and service aspects of the offering.

2. Brands are valuable intangible assets that offer a number

of benefits to customers and firms and that need to be managed carefully.

3. The value created by a brand is captured by two key concepts: brand equity and brand power. Brand equity reflects the premium that is placed on a company’s valuation because of its ownership of the brand. It encompasses the net present value of the total financial returns that the brand will generate over its lifetime. Brand power reflects the degree to which the brand influences the way consumers think, feel, and act with respect to the brand. It is thus the differential effect that brand knowledge has on consumer response to the marketing of that product or service.

4. Brand elements are devices that identify and differenti-

ate the brand. Common brand elements include brand names, logos, symbols, mottos, and packaging. Effective brand elements are memorable, meaningful, likable, transferable, adaptable, and protectable.

5. To build strong brands, marketers link brands to other information in memory that conveys meaning to consumers. These “secondary” brand associations link the brand to sources such as the company itself, to countries or other geographic regions, and to channels of distribution, as well as to other brands, characters, spokespeople, sporting or cultural events, or other third-party sources.

6. Brand hierarchy reflects the way a company’s brands

are related to a company’s products and services, as well as to one another. Developing a meaningful brand hierarchy is particularly important for companies that are managing diverse brand portfolios. The hallmark of an optimal brand portfolio is the ability of each brand to maximize equity in combination with all the other brands in the portfolio. Three general brand-portfolio strategies are house-of-brands, branded-house, and subbranding strategies.

7. Marketers often combine their brands with brands

from other companies to create superior market value. Cobranding involves two or more brands marketed together. Ingredient branding is a special case of cobranding involving materials, components, or parts that are necessarily contained within other branded products.

8. Brands evolve over time. The two most common ways in which brands evolve are through brand repositioning and through brand extensions. Brand repositioning involves changing the meaning of an existing brand without necessarily associating it with new products or services. In contrast, brand extension involves using an established brand to introduce a new product in a different category or price tier.

9. Brands play a key role in designing luxury offerings, because the brand and its image are often key competitive advantages that create significant value for both the company and its customers. All marketing decisions associated with luxury brands— product, service, pricing, sales incentives, communication, and ­distribution—must be aligned to ensure that purchase and consumption experiences are consistent with the image of the brand.

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marketing SPOTLIGHT

Founded by Guccio Gucci in 1921 in Florence, Italy, Gucci is arguably the country’s most famous brand. A fashion powerhouse that sells high-quality luxury products including clothes, shoes, handbags, and accessories, the brand is now owned by Kering, a luxury fashion group based in France that also owns Alexander McQueen, Balenciaga, and Yves Saint Laurent. Gucci has approximately 500 stores around the world and collaborates with some of the most renowned luxury retailers.

The brand and its logo are among the most recognizable labels in the fashion world, representing sophistication, exclusivity, class, and innovation. Its logo consists of the brand name “GUCCI” and its double G sign with mirrored “G” letters ­ facing each other. The brand is also visually represented by its signature red and green striped pattern, which has become a Gucci brand identifier even without the wordmark or the double G sign. Gucci also emphasizes “Made in Italy” as part of the brand strategy.

Gucci has always been associated with luxury fashion, appealing to the customer’s self-image, status, and sense of prestige. It has maintained its salience as a high-end

­ Italian brand thanks to its authenticity, uniqueness, skillfully designed products, and iconic logo, but this hasn’t always been the case. During its 100-year history, Gucci has had its share of ups and downs, and there were times when it struggled to find the right fit between its brand image, the target market, and brand loyalty. In the period between the late 1990s and the early 2010s, for example, the brand expanded its target market reach by offering a wider price range, but this led to some dilution of its brand image. Gucci later attempted to reverse the loss of brand prestige by raising the price of its bags, but the damage had been done, and the core customer group was confused about how to identify with the brand. Compared to other luxury brands, Gucci was no longer as prestigious as it had been.

In 2014, after a decline in sales and overall popularity, the leadership of the fashion house was changed: CEO Patrizio Di Marco and Creative Director Frida Giannini were replaced by Marco Bizzarri and Alessandro Michele, respectively. Giannini had stuck to a bold, sexually provocative communication style for Gucci that had been started by Tom Ford in the 1990s, a strategy that had worked extremely well for many years but had become unexciting and now failed to appeal to millennials. Gucci needed a strategy that would attract the younger market while catering to its loyal customer base. Bizzarri and Michele decided to reposition the brand by focusing on Gucci’s legacy of prestige with an update to a more modern and romantic feel. For Gucci’s new strategic

Gucci

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direction, they sought to leverage nostalgia as well as the brand’s sophisticated image by giving it a modern touch-up, thereby creating a more contemporary chapter in Gucci’s brand’s story that would be in continuation with its legacy and heritage. Therefore, in 2015, a subtler approach of brand communication was adopted, targeting “fashion dreamers.” Gucci’s image transformed from bold, glossy, and sexual to raw, romantic, and modern.

A clear objective of Gucci’s new brand strategy was to focus on millennials and Gen Z while retaining its loyal customer base. The younger segment of its target market was more digitally oriented, sought exciting experiences, and was more open to switching between brands. To appeal to this audience, Gucci became highly visible on social media, incorporated mobile-based purchasing platforms, and partnered with celebrities like Rihanna, Beyoncé, and Dakota Johnson. The success of the new brand strategy rocked the fashion world; in 2017, Gucci recorded a sales growth of 48 percent, their most impressive performance since the late 1990s.

An interesting aspect of this success was the fact that the brand became a favorite among Millennials and Gen Z, who are widely seen as the most demanding buyers for a modern luxury brand to cater to. Despite this reputation, this segment does not shy away from spending on luxury, so long as the brand offers values and meanings with which they can identify. In 2018, they accounted for more than 60 percent of Gucci’s sales, with Gen Z as its fastest-growing buyer group. One of the key reasons for this popularity was that Gucci had stepped beyond the accepted definition of luxury fashion

by maintaining its legacy and prestige while developing an impressive digital presence, which worked well with younger, unconventional, and opened-minded consumers. The brand adopted highly successful web strategies that integrated

its online presence with an in-store experience. On digital competence, a measure of a company’s performance based on its website, online shopping presence, social media, and mobile marketing, Gucci has scored much higher than other luxury brands like Louis Vuitton, Fendi, Burberry, and Michael ( continued )

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Kors. An article in Luxury Daily titled “Digital IQ Index: ­ Fashion,” identified digital channels like websites, social media, and mobile as influencing nearly 60 percent of luxury brand purchases. In 2017, Gucci replaced Burberry in the top spot in Luxury Daily’s rankings of digital performance.

Attributes embraced by the brand that have resonated well with Millennials and Gen Z and have created a “community feel” include romance, fairy tales, dreams, self-expression, individuality, breaking of gender roles, equal rights, and authentic values. For example, in 2017, Gucci took a bold stand and joined the anti-fur movement, instantly endearing ­ itself to a large number of young consumers. It has also initiated a program called Gucci Equilibrium, through which it shares information about its CSR activities, innovations for the good of the planet, and its environmental impact.

By staying connected to its heritage yet breaking out of the typical perceptual boundaries of luxury brands, Gucci has experienced a rebirth as a star brand. Gucci’s astuteness and success with its new customer base has won plaudits within the industry; at the 2018 British Fashion Awards, Gucci received the Brand of the Year award and the Best Business Leader award for Marco Bizzarri. 84

Questions

1. Discuss the various aspects of Gucci’s brand positioning, and how it has changed over time. What are some of Gucci’s main points of difference?

2. What primary value does Gucci offer Millennials and Gen Z? Do you think these consumer groups will stay loyal to Gucci? How can the brand stay relevant to them?

marketing SPOTLIGHT

MUJI was founded in 1980 as a private label for Japanese supermarket The Seiyu. At the time, foreign brands were becoming increasingly popular as the economy grew. As a result, cheaper, low-quality imitation goods became attractive alternatives for budget-conscious consumers. MUJI goods were created to fill the growing market for quality goods that were affordable and long-lasting. MUJI started with 9 household and 31 food products, which were advertised with the slogan “lower priced for a reason.” Products were packaged in simple materials such as clear cellophane and brown paper. Over the next couple of years, MUJI expanded its product line to include stationery, clothing, kitchen appliances, and home furnishings. It also began opening its own stores across Japan.

The company’s full name, Mujirushi Ryohin, means “no-brand quality goods,” a design philosophy that reflects the simplicity and functionality of its products. MUJI claims that its products are “brandless,” which means that they do not have logos or distinct markings. They are designed not to stand out, but rather to look minimalist— as MUJI describes them, to be just “enough” to deliver the one function they were designed for. This can be seen in MUJI socks, which are made with a 90-degree angle rather than the normal 120. The right angle helps with heel slippage when the socks

are worn inside boots and increases overall comfort. MUJI intends its products to be simple in both function and style, so they can be mixed and matched to suit any user’s needs and lifestyle.

MUJI follows three core principles to create quality,

minimalist products that anyone can afford. First, MUJI

MUJI

Photo Stock

Dennis Source: Gilbert-VIEW/Alamy

carefully selects the materials used to manufacture its products. The company has been known to use industrial materials that it can buy in bulk at low cost. This concept started with the food that MUJI carried in the early 1980s; MUJI sold U-shaped pasta after buying the ends of spaghetti cut off after manufacturing, as well as canned salmon made from undesirable parts of the fish. Second, MUJI streamlines its manufacturing process; products typically use natural or unfinished materials that don’t have to be painted or dyed. This not only makes MUJI products uniform in color and material but also creates less waste and reduces costs. Third, MUJI uses bulk packaging for its products, placing them in plain containers. Besides being in line with MUJI’s “brandless” philosophy, the minimalist packaging saves resources and keeps the company environmentally friendly.

MUJI’s “no brand” philosophy can also be seen in its promotional strategy. The company keeps its advertising budget modest by relying on word of mouth to spread

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awareness. Instead of running huge advertising campaigns on TV and print media, MUJI prefers to reach people through press and in-store events. Resources are invested in the salespeople employed in its physical locations. Locally hired store managers are sent to MUJI offices in Tokyo for training on how to sell MUJI products. By ensuring that customers receive a good in-store experience, MUJI has fostered sustainable brand awareness. And by keeping marketing costs low, MUJI can keep its prices low and channel more resources into product development.

By promoting itself as the “no brand” brand, MUJI has created a niche that has allowed the company to successfully expand globally. Even though the company offers over 7,000 items, MUJI does not customize its products for particular countries and regions. Rather, MUJI products are designed to fit into households all over the world. Each MUJI product is built for a specific purpose, so it is simple to use. MUJI also employs the same style of store design, layout, and merchandising for all its locations around the world. The uniformity in both retail location and products cuts the costs of regional adaptation. MUJI has stuck to a policy of adding more stores in new countries only when existing ones are

running profitably, which has kept profits high and growth stable. Overseas business locations account for the majority of MUJI’s stores, with East Asia accounting for the largest share.

MUJI’s insistence that its brand values permeate all aspects of the company has contributed to a strong, consistent brand and a sustainable business model. The “brandless” design of its products creates a unique aesthetic: Although MUJI intends its products to look indistinct, they are at the same time recognizable among heavily branded products. Adherence to its three core principles keeps the price of MUJI products low. Combining these advantages with the products’ simplicity in function and form, MUJI has created a winning combination for global expansion. Since its first store opened in 1983, MUJI has added over 1,000 locations worldwide. 85

Questions

1. What are the key drivers of MUJI’s market success?

What are MUJI’s points of parity and points of difference relative to the competition?

2. What are the pros and cons of using the “no brand” strategy?

3. How should MUJI grow its brand?

Test your knowledge on brand positioning concepts with a focus on Starbucks and Publix. This quiz explores key elements such as supply chain impact, visual identity, and customer satisfaction strategies. Dive into the marketing tactics that set these brands apart in the industry.