Informing Adjustments and New Strategies As soon as the first activity identified in the plan is executed, the marketing plan begins to be outdated. The more successful the plan is, the more quickly it will require a significant revision. If you are able to identify and implement a strategy that results in tremendous success, that will change the competitive dynamics and cause other companies to adjust their strategy and tactics. Moreover, each action will generate new market data about what works and what doesn’t work. This creates opportunities for new analysis and better strategies. Sometimes an organization can get away with small quarterly updates to the marketing plan and major annual revisions. Other times, the market has shifted enough by the end of one quarter that a completely new approach is warranted—or a more aggressive implementation of the current approach. Either way, a regular update to the marketing plan allows for new analysis informed by new market experience, opportunities to realign plans with other functions, and the chance to inform others within the marketing function so that the team can learn and evolve together.

The marketing plan captures the outputs from the marketing planning process in one cohesive document. If the plan is done well, it puts a plan in place that aligns the marketing strategy, objectives, and tactics with the corporate mission. It also supports the corporate objectives and strategy, which creates alignment with other functions across the company. While this alignment is assumed, the presentation and formalization of the marketing plan often surfaces misalignment. Perhaps the finance team had assumed that the promotion strategy was not central to the plan and had reduced the budget. Perhaps the supply chain team had not recognized how aggressive the new product plans were and is not staffed to support them. While it it frustrating to identify points of confusion and misalignment, it is always best to do that in the planning process before it has impact on customers and on the market. The marketing plan acts as a mechanism to communicate with other functions and to check for alignment.

The specific things you’ll learn in this section include: Discuss how the marketing plan is used to coordinate efforts between the marketing team and other parts of the organization Explain how the marketing plan is used to track progress, evaluate impact, and adjust course where needed Explain why and how to update the marketing plan Learning Activities Reading: Using and Updating the Marketing Plan Self Check: The Marketing Plan in Action

The specific things you’ll learn in this section include: Identify appropriate media and format for presenting a marketing plan Apply recommended practices about how to organize content in an informational presentation Apply recommended practices for writing and developing presentation visuals (slides) that communicate effectively Apply recommended practices for delivering a presentation in a business setting Learning Activities Reading: Presenting the Marketing Plan Reading: Business Presentations Self Check: Presenting the Marketing Plan

The specific things you’ll learn in this section include: Define integrated marketing communication (IMC) Explain how IMC strengthens the impact of marketing communication tools List the primary marketing communication methods marketers use as part of their IMC strategy Explain how marketers use IMC in their campaigns in order to execute marketing strategy Learning Activities Reading: Integrated Marketing Communication (IMC) Definition Reading: Marketing Campaigns and IMC Self Check: Integrated Marketing Communication (IMC) Definition Licenses and Attributions

You can download a copy of the machine-graded assessments for module 11 here

Let’s return to our discussion of Amazon Prime pricing in the context of the pricing concepts we’ve discussed. It might be helpful to review the key facts: In 2005, Amazon introduced Amazon Prime for an annual membership fee of $79 The service initially included unlimited 2-day shipping on orders Over the next 8 years, Amazon augmented Prime with a host of new features without changing the price In 2014 Amazon raised the pricing for annual Amazon Prime memberships to $99 Annually, Amazon loses at least $1 billion on Prime-related shipping expenses Amazon spent $1.3 billion on Prime Instant Video in 2014, over and above the shipping costs Amazon Prime has between 40 and 50 million subscribers Prime members spend an average of $538 annually with Amazon, far more than the $320 by non-Prime members[1] Returning to our original question, is it strategic genius or terrible folly for Amazon to lose billions of dollars a year on Amazon Prime on account of its pricing? Is Amazon actually losing money on Prime, or is Prime bringing in enough other sales to cover its costs? Customer Value Amazon was able to clearly articulate benefits to the customer that aligned with the offering and supported the pricing. It did this by Providing shipping that had been a luxury Eliminating delivery risk with predictable fulfillment Offering ease of purchase by combining the cost into one annual purchase These benefits allowed Amazon to create value with the offering. Introductory Pricing It wasn’t completely clear whether Amazon’s initial pricing was penetration pricing. Because it was a completely new offering, it was difficult to know how much it would be used and hard to analyze the cost to Amazon for providing the service. The decision to keep the pricing at $79 while adding significant new services certainly looks like penetration pricing. As a reminder, this is a strategy to drive significant early sales—to penetrate the market. Achieving Pricing Objectives Clearly, Amazon is hoping to draw new customers and increase total sales. Let’s look at some of the assumptions and see whether this is working. If Amazon has 40 million Prime subscribers, and each is spending $218 more annually ($538 – $320 from the data above) because of Prime, then Amazon is bringing in an additional $8.7 billion in revenue annually from increased Prime sales. Perhaps only half of the members truly spend more, but that would still mean $4.36 billion in revenue. Not all of that revenue is profit. If Amazon’s average markup on the sales of the items sold is 25 percent, then $8.7 billion in revenue might result in $2.2 billion in profit. This could then cover some of the losses that the Prime service collects as an independent offering. Based on this simple analysis, it is not immediately clear if Amazon is growing its profitability because of Amazon Prime. It does indicate that Amazon is growing revenue because of Prime. Both revenue growth and profitability growth are common objectives, and Amazon has historically been willing to take losses on the profit side in order to grow product lines and markets with long-term potential. If that is the case here, then Amazon is achieving a key objective. Answering the Strategic Question Is the pricing for Amazon Prime the right decision? Clearly, the answer has to be, “It depends.” That’s not completely satisfying, but it does acknowledge the complexity of pricing an offering that is driving growth, increasing sales per customer, opening new offerings and markets (like video and music streaming), and generating a significant financial loss for the company. Amazon reminds us that pricing is complex, and it doesn’t always have a clear right answer.

What you’ll learn to do: explain the use of competitive bidding for B2B pricing Generally in business-to-consumer sales there is a standard price structure for all customers. That doesn’t necessarily mean that every customer will pay exactly the same price. The company may provide discounts—such as “loyalty” discounts, for instance—to a particular group of customers, but overall, the pricing is fairly uniform. This is not at all the case in business-to-business marketing. In B2B marketing, most vendors will expect to give deep discounts to large customers who generate significant revenue. They also expect to tailor the solution to the customer to a much greater extent. This may include making adjustments to the levels of service, response time for issues, payment terms, and other aspects of the solution. The B2B marketing requires solutions that are more customized to the individual buyer, and the pricing is no exception. The specific things you’ll learn in this section include: Describe the competitive bidding process Describe the role of pricing in the competitive bid Learning Activities Reading: Competitive Bidding Reading: Price in the Competitive Bid Self Check: Competitive Bidding

Inelastic Demand Elastic Demand Gasoline The demand for gasoline generally is fairly inelastic. Car travel requires gasoline. The substitutes for car travel offer less convenience and control. Much car travel is necessary for people to move between activities and cannot be reduced to save money. Gas from a Specific Station The demand for gasoline from any single gas station, or chain of gas stations, is highly elastic. Buyers can choose between comparable products based on price. There are often many stations in a small geographic area that are equally convenient. Traditional Textbooks Generally an instructor assigns a textbook to the student, and the student who wants access to the learning materials must buy it, regardless of the price. Because the student can’t easily identify another textbook or resource that will ensure the same content and grade for the class, he has no substitutes and must buy the book at any price. New Textbook Distribution Channels Increasingly, students have new options to buy the same textbooks from different distribution channels at different price points. The introduction of new distribution channels is increasing options for buyers and having an impact on the price elasticity for publishers. Specialty Coffee Drinks Many coffee shops have developed branded drinks and specialized experiences in order to reduce substitutes and build customer loyalty. While black coffee is available almost universally, there are few substitutes for a Starbucks Java Chip Frappuccino. Demand for such products is more inelastic. Black Coffee Coffee is generally widely available at a level of quality that meets the needs of most buyers. The combination of a low price, relative to the buyer’s spending power, and the fact that the product is sold by many different suppliers in a competitive market make the demand highly elastic. Concert Tickets Only Taylor Swift can offer a Taylor Swift concert. She holds a monopoly on the creation and delivery of that experience. There is no substitute, and loyal fans are willing to pay for the experience. Because it is a scarce resource and the delivery is tightly controlled by a single provider, access to concerts has inelastic demand. Airline Tickets Airline tickets are sold in a fiercely competitive market. Buyers can easily compare prices, and buyers experience the services provided by competitors as being very similar. Buyers can often choose not to travel it the cost is too high, or to substitute travel by car or train. Medical Procedures Essential medical procedures have inelastic demand. The patient will pay what she can or what she must. In general, products that significantly affect health and well-being have inelastic demand. Soft Drinks Soft drinks and many other nonessential items have highly elastic demand. There is competition among every brand and type of soda, and there are many substitutes for the entire category of soft drinks.

When we discussed break-even pricing, we used the example of a new cookie company that was selling its cookies for $2. In this example, let’s put the cookies in a convenience store, which has several options on the counter that customers can choose as a last-minute impulse buy. All of the impulse items range between $1 and $2 in price. In order to raise revenue, Helen (the baker, who has taken over the company,) decides to raise her price to $2.20. If Helen increases the cookie price from $2.00 to $2.20—a 10% increase—will fewer customers buy cookies? If you think that the change in price will cause many buyers to forego a cookie, then you are suggesting that the demand is elastic, or that the buyers are sensitive to price changes. If you think that the change in price will not impact sales much, then you are suggesting that the demand for cookies is inelastic, or insensitive to price changes. Let’s assume that this price change does impact customer behavior. Many customers choose a $1 chocolate bar or a $1.50 doughnut over the cookie, or they simply resist the temptation of the cookie at the higher price. Before we do any math, this assumption suggests that the demand for cookies is elastic. Adding in the numbers, we find that Helen’s weekly sales drop from 200 cookies to 150 cookies. This is a 25% change in demand on account of a 10% price increase. We immediately see that the change in demand is greater than the change in price. That means that demand is elastic. Let’s do the math. % change in quantity demanded / % change in price 25% / 10% = 2.5 2.5 > 1 When the absolute value of the price elasticity is > 1, the demand is elastic. In this example, the demand for cookies is elastic. What impact does this have on Helen’s objective to increase revenue? It’s not pretty. Price 1: 200 cookies sold x $2.00 per cookie = $400 Price 2: 150 cookies sold x $2.20 = $330 She is earning less revenue because of the price change. What should Helen do next? She has learned that a small change in price leads to a large change in demand. What if she lowered the price slightly from her original $2.00 price? If the pattern holds, then a small reduction in price will lead to a large increase in sales. That would give her a much more favorable result.

The following video is a little long to watch, but it provides an excellent overview of elasticity and explains both the concept and the calculations in a simple, easy-to-follow way.

Quantity discounts are reductions in base price given as the result of a buyer purchasing some predetermined quantity of merchandise. A noncumulative quantity discount applies to each purchase and is intended to encourage buyers to make larger purchases. This means that the buyer holds the excess merchandise until it is used, possibly cutting the inventory cost of the seller and preventing the buyer from switching to a competitor at least until the stock is used. A cumulative quantity discount applies to the total bought over a period of time. The buyer adds to the potential discount with each additional purchase. Such a policy helps to build repeat purchases. Both Home Depot and Lowe’s offer a contractor discount to customers who buy more than $5,000 worth of goods. Home Depot has a tiered discount for painters, who can save as much as 20 percent off of retail once they spend $7,500.[1] Seasonal discounts are price reductions given for out-of-season merchandise—snowmobiles discounted during the summer, for example. The intention of such discounts is to spread demand over the year, which can allow fuller use of production facilities and improved cash flow during the year. Seasonal discounts are not always straightforward. It seems logical that gas grills are discounted in September when the summer grilling season is over, and hot tubs are discounted in January when the weather is bad and consumers spend less freely. However, the biggest discounts on large-screen televisions are offered during the weeks before the Super Bowl when demand is greatest. This strategy aims to drive impulse purchases of the large-ticket item, rather than spurring sales during the off-season. Cash discounts are reductions on base price given to customers for paying cash or within some short time period. For example, a 2 percent discount on bills paid within 10 days is a cash discount. The purpose is generally to accelerate the cash flow of the organization and to reduce transaction costs. Generally cash discounts are offered in a business-to-business transaction where the buyer is negotiating a range of pricing terms, including payment terms. You can imagine that if you offered to pay cash immediately instead of using a credit card at a department store, you wouldn’t receive a discount. Trade discounts are price reductions given to middlemen (e.g., wholesalers, industrial distributors, retailers) to encourage them to stock and give preferred treatment to an organization’s products. For example, a consumer goods company might give a retailer a 20 percent discount to place a larger order for soap. Such a discount might also be used to gain shelf space or a preferred position in the store. Calico Corners offers a 15 percent discount on fabrics to interior designers who are creating designs or products for their customers. They have paired this with a quantity-discounts program that offers gift certificates for buyers who purchase more than $10,000 in a year.  Personal allowances are similar strategies aimed at middlemen. Their purpose is to encourage middlemen to aggressively promote the organization’s products. For example, a furniture manufacturer may offer to pay some specified amount toward a retailer’s advertising expenses if the retailer agrees to include the manufacturer’s brand name in the ads. Some manufacturers or wholesalers also give retailers prize money called “spiffs,” which can be passed on to the retailer’s sales clerks as a reward for aggressively selling certain items. This is especially common in the electronics and clothing industries, where spiffs are used primarily with new products, slow movers, or high-margin items. When employees in electronics stores recommend a specific brand or product to a buyer they may receive compensation from the manufacturer on top of their wages and commissions from the store. Trade-in allowances also reduce the base price of a product or service. These are often used to help the seller negotiate the best price with a buyer. The trade-in may, of course, be of value if it can be resold. Accepting trade-ins is necessary in marketing many types of products. A construction company with a used grader worth $70,000 probably wouldn’t buy a new model from an equipment company that did not accept trade-ins, particularly when other companies do accept them. Price bundling is a very popular pricing strategy. The marketer groups similar or complementary products and charges a total price that is lower than if they were sold separately. Comcast and Direct TV both follow this strategy by combining different products and services for a set price. Similarly, Microsoft bundles Microsoft Word, Excel, Powerpoint, OneNote, and Outlook in the Microsoft Office Suite. The underlying assumption of this pricing strategy is that the increased sales generated will more than compensate for a lower profit margin. It may also be a way of selling a less popular product—like Microsoft OneNote—by combining it with popular ones. Industries such as financial services, telecommunications, and software companies make very effective use of this strategy.

Like skim pricing, penetration pricing shows an awareness of the dynamics in the product life cycle. The advantages of penetration pricing to the firm are the following: It can result in fast diffusion and adoption across the product life cycle. The strategy can achieve high market penetration rates quickly, taking competitors by surprise and not giving them time to react. It can create goodwill among the Innovators and Early Adopters, which can generate more demand via word of mouth. It establishes cost-control and cost-reduction pressures from the start, leading to greater efficiency. It discourages the entry of competitors. It can generate high stock turnover throughout the distribution channel, which creates important enthusiasm and support in the channel. The main disadvantage of penetration pricing is that it establishes long-term price expectations for the product and image preconceptions for the brand and company. Both can make it difficult to raise prices later. Another potential disadvantage is that the low profit margins may not be sustainable long enough for the strategy to be effective.

Introduction With a totally new product, competition either doesn’t exist or is minimal, and there’s no market data about customer demand. How should the price be set in such a case? There are two common pricing strategies that organizations use for new products: skim pricing and penetration pricing. The Economics of Price and Demand In order to understand these pricing strategies, let’s review the demand curve. In a typical economic analysis of pricing, the demand curve shows the quantity demanded at every price. In our graph below, the demand increases by 100 units each time the price drops by $1. Based on this demand, if a company priced its product at $4, consumers would buy 200 units. If the company wanted to raise its prices, it could charge $5, but then consumers would buy only 100 units. This is an oversimplified example, but it shows an important relationship between price and demand. The key thing to understand about this model is that when all else is equal, demand decreases as price increases. Fortunately, the marketer does not have to regard everything else as fixed. She can make adjustments to product, promotion, or distribution to increase the value to the customer in order to increase demand without lowering price. Still, once the other elements of the marketing mix are fixed, it’s generally true that a higher price will result in less demand for a product, and a lower price will result in more demand for a product. What Is Skim Pricing? Price skimming involves the top part of the demand curve. A firm charges the highest initial price that customers will pay. As the demand of the first customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment. Using our example of the demand curve, the price might be set at $5 per unit at first, generating a demand of only 100 units. The skimming strategy gets its name from skimming successive layers of “cream”—or customer segments—as prices are lowered over time. Why Might Skim Pricing Make Sense? There are a number of reasons why an organization might consider a skimming strategy. Sometimes a company simply can’t deliver enough of a new product to meet demand. By setting the price high, the company is able to maximize the total revenue that it can generate from the quantity of product that it can make available. Price skimming can also be part of a customer segmentation strategy. Take a look at the graph, above. You’ll remember from our discussion of the product life cycle and customer adoption patterns that the Innovators—the adventurous customers on the left who are game to try new products—are less price sensitive and place a premium on being first to own a new product. A skim-pricing strategy targets these customers and sets a higher price for them. As the product starts to move through the Early Adopters stage, the marketer will often reduce the price to begin drawing Early Majority buyers. A skimming strategy is most appropriate for a premium product. Today we can see many examples of skim pricing in the electronics industry when new product innovations are introduced. Electronics companies know that many buyers will wait to purchase new technologies, so they use skim pricing to get the highest possible price from the Innovators and Early Adopters.  

Learning Activities Reading: Skim Pricing Reading: Penetration Pricing Reading: Cost-Oriented Pricing Reading: Discounting Strategies Self Check: Common Pricing Strategies

Many organizations attempt to establish prices that, on average, are the same as those set by their more important competitors. Automobiles of the same size with comparable equipment and features tend to have similar prices, for instance. This strategy means that the organization uses price as an indicator or baseline. Quality in production, better service, creativity in advertising, or some other element of the marketing mix is used to attract customers who are interested in products in a particular price category. The key to implementing a strategy of meeting competitive prices is to have an accurate definition of competition and a knowledge of competitors’ prices. A maker of handcrafted leather shoes is not in competition with mass producers. If he/she attempts to compete with mass producers on price, higher production costs will make the business unprofitable. A more realistic definition of competition in this case would be other makers of handcrafted leather shoes. Such a definition along with an understanding of competitors’ prices would enable management to put the strategy into effect. The banking industry often uses this strategy by using technology to actively monitor competitors’ rates, fees, and packages in order to adjust their own prices.

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Learning Activities Reading: Pricing Objectives Reading: Break-Even Pricing Reading: Competitor Impact on Pricing Reading: Benefits of Value-Based Pricing Self Check: Pricing Considerations

Many consumers pay a premium price for branded eyewear. How does the brand name influence the price and value? The following video shows the mechanics behind these brands and considers the impact on price.

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Rent the Runway is a company that lets customers borrow expensive designer dresses for a short time at a low price—to wear on a special occasion, e.g.— and then send them back. A customer can rent a Theia gown that retails for $995 for four days for the price of $150. Or, she can rent a gown from Laundry by Shelli Segal that retails for $325 for the price of $100. The company offers a 20 percent discount to first-time buyers and offers a “free second size” option to ensure that customers get the right fit.

When Amazon.com was created in 1994, the company sold books online. While many viewed it as a real threat to traditional bookstores, few, other than its founder and CEO, Jeff Bezos, imagined what the company would become. Today the services that Amazon offers are extensive, and many of them center on a quiet service membership called Amazon Prime. The following video shows the impact of this offering on one American family. You can read a transcript of the video here. What is Amazon Prime? When Amazon launched the product in 2005, it included free two-day shipping for most orders, and it was priced as an annual $79 membership fee. At the time, analysts wondered how Amazon could justify the value to customers (implying that it was too expensive) and, at the same time, how it could afford to keep offering the service if demand should grow (implying that it was too cheap to cover costs). Greg Greeley, the vice president of Amazon Prime Global, reflected on the company’s decision and told the Washington Post, We have always thought of it as the best bargain in shopping—Jeff [Bezos] went on record again saying that—in 2005 when we launched it with unlimited two-day shipping on 1 million items. But we did not think of it as a shipping program, but as a convenience program. Prime introduced three concepts. It had two-day shipping at a time when people expected to pay for shipping and still not get their items for four to seven business days. It was very predictable: We put it on the Web site that if you ordered in the next 3 hours and 20 min., for example, you could have it in two days. And it was an unlimited, single membership fee that made fast delivery an everyday experience instead of an occasional indulgence.[1] Was the initial $79 price too low? Too high? Does it really matter that much? After 2005, Amazon began adding services to the Prime membership without raising the price. Today the service includes unlimited video streaming, unlimited music streaming, $5.99 flat-fee shipping on discounted household items, access to a Kindle lending library and a host of others services. In spite of increased services, Amazon held pricing flat at $79 per year. In 2013, Amazon admitted that by simply adjusting the 2005 price for inflation, transportation, and fuel costs, the price would be more than $100 today. Finally, in January 2014 Amazon told its customers to expect a price increase of $40 for Amazon Prime memberships, which would make the new price $119. In March 2014, the company announced the actual price increase: a $20 increase, or annual price of $99. While there were some disgruntled customers, the majority accepted the increase without complaint.

Behind the Power Brand: LEGO Toymaker LEGO provides a great example of the brand-alignment and brand-building strategies explored in this module. Anyone who has wandered through the LEGO section of a toy store or a department store knows that the company understands its target audiences very well: young children (ages 1.5 to 11) who like to build things and parents who want to guide their children’s development and success—in other words, virtually all children and all parents. LEGO articulates perfectly the brand promise its toys deliver to these audiences: Joy of building, pride of creation. As illustrated in the LEGO Brand Framework (see Figure 1, below), the company values are in step with this promise: imagination, creativity, fun, learning, caring, and quality.

Learning Activities The learning activities for this section include the following: Reading: Brand Development Strategies Self Check: Brand Development Strategies

Product packaging is an underappreciated hero in the marketing world. Packaging is supremely functional: it protects the product. It contains the product. It displays the product. It promotes the product. Its design and labeling communicate about the product. And the package itself can even increase the product’s utility, making it better suited to however the customer wants to use it. If packaging does all these things, why is it undervalued? As a marketing tool, packaging often feels low-tech and old-school in the information age. It’s just not as sexy as Web sites, events, or social media—and yet, it remains a staple of the purchasing environment. With the increased emphasis on self-service marketing at supermarkets, drugstores, and even department stores, the role of packaging is significant. For example, in a typical supermarket a shopper passes about six hundred items per minute—or one item every tenth of a second. Thus, the only way to get some consumers to notice a product is by in-store displays, shelf hangers, tear-off coupon blocks, other point-of-purchase devices, or, last but not least, effective packages.[1] Packaging provides an opportunity for a product to jump out and differentiate itself on the crowded, viciously competitive shelves of supermarkets, drugstores, department stores, and other retailers. Every single customer who buys a product inevitably interacts with the packaging, which is what makes it such a potentially powerful touch point.

The learning activities for this section include the following: Reading: Packaging Self Check: Packaging

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Finally, consistency is an imperative in the globalized economy in which virtually every business operates today. Brand-related messages and communications circulate around the world at astonishing speed: Just ask any company that has seen a major story break on social media. While it does make sense to target specific messages to different global markets according to consumer needs, those messages should all be aligned to a consistent, centralized brand identity. A brand manager–the marketer responsible for directing and managing brand strategy–must think of herself as an ambassador, advocating and communicating on behalf of that common brand in the various markets where the brand is represented.

The learning activities for this section include the following: Reading: Brand Positioning and Alignment Video: Red Bull’s Extreme Brand Alignment Self Check: Brand Positioning and Alignment

Brands are shaped by many different activities. As a marketer, you can control some of these activities, but not others. For instance, you can put together an amazing product design, a fabulous brand name, memorable packaging, irresistible marketing promotions, and delightful customer service—those are all things within your control. But you can’t control how customers actually react to and use the product, despite your best efforts to direct and influence them. You also can’t control what they write in online reviews.

Popular Loyalty Programs Below are some of the most popular customer loyalty programs used today by many companies. These programs allow organizations to engage their customers beyond traditional advertising and create incentives for consumers to become brand-loyal, repeat customers. Sweepstakes and Advergames Points-based loyalty programs, awarding prizes for incremental purchase behavior (e.g., frequent-flyer programs Branded digital games that engage consumers with prize incentives Contests Skill tests and user-generated promotions such as video and photo contests Social media applications and management Social media promotions and offers Customer rewards programs (e.g., pay lower prices using a frequent-buyer card) Coupons (hard copy and/or digital) Promotional auctions—bid for prizes with points earned from incremental purchase behavior Email clubs Subscription databases—national and/or segmented by market SMS Promotions iPhone apps Branded Web apps As you’ll see in the following video, customers are well aware that companies are using loyalty programs to court them and win their repeat business—but it doesn’t seem to matter. Customers have come to expect something in exchange for their loyalty.

Measuring Brand Equity Brand equity is strategically important but also difficult to measure (or “quantify”). As a result, many experts have developed tools or metrics to analyze brand equity, although there is no universally accepted way to measure it. For example, while it can be measured quantitatively using numerical values such as profit margins and market share, this approach fails to capture qualitative elements such as prestige and mental and emotional associations. What to Measure According to David Aaker, a marketing professor and brand consultant, the following are ten attributes of a brand that can be used to assess its strength, or equity:[1] Price premium: the amount a customer is willing to pay for one brand in comparison to other comparable brands Customer satisfaction/loyalty: whether a customer would buy the brand at the next opportunity, or remain loyal to that brand Perceived quality: perceptions about whether a brand is of high, average, or inferior quality Leadership/popularity: being in market leadership position as a leading brand, a leader in innovation, and/or growing in popularity Value: perceptions of whether a brand has good value for the money and whether there are reasons to choose it over competitors Brand personality: distinctive, interesting, emotional, and self-expressive benefits associated with a brand Organizational associations: the people, values, and programs associated with the brand Brand awareness: the degree to which customers are familiar with and have knowledge about a brand Market share: share of sales among the competitive set Market price and distribution coverage: measures of average selling price relative to competitors and how many people have access to the brand Marketers can use various research methods to measure each of these attributes. Some organizations invest in complex marketing research projects to measure and track brand equity over time using one or more of these metrics. Brand Asset Valuator Young & Rubicam (Y&R), a marketing communications agency, has developed the “brand asset valuator,” a tool used to diagnose the power and value of a brand. The agency uses this tool to survey and measure consumers’ perspectives along the following four dimensions:[2] Differentiation: the defining characteristics of the brand and its distinctiveness relative to competitors Relevance: the appropriateness and connection of the brand to a given consumer Esteem: consumers’ respect for and attraction to the brand Knowledge: consumers’ awareness of the brand and understanding of what it represents This approach is useful for gaining a detailed understanding of how target audiences perceive a brand, how well they understand it, and how relevant it is in their lives. Y&R uses this methodology to help organizations diagnose whether their brands are rising or fading relative to competitors and help them develop strategies and tactics to strengthen existing brands or freshen up/rebuild those that are waning. Figure 1, The Power Grid, below, shows how Y&R visually maps this “rising” and “fading.” Figure 1. Power Grid. With help of the power grid, a brand’s strengths and weaknesses–as well as its growth prospects–can be mapped out. Based on these findings, it can be predicted whether a brand is able to establish itself as a strong power brand, or whether erosion is causing it to lose ground. Source: http://young-rubicam.de/tools-wissen/tools/brandasset-valuator/?lang=en Other Methods for Measuring Brand Equity Brand equity can also be measured using other methods, such as the following: As a financial asset: Brand equity can be studied as a financial asset by making a calculation of a brand’s worth as an intangible asset. For example, a company can estimate brand value on the basis of projected profits discounted to a present value. In turn, the present value can be used to calculate the risk profile, market leadership, stability, and global reach. Forbes, Interbrand and other organizations conduct this type of valuation and publish annual lists of the most valuable global brands. As a price differential: The price of an equivalent well-known brand can be compared to that of competing, no-name, or private-label products. The value of this price differential can be calculated to estimate the brand’s price premium in terms of past, present, or future revenue. As consumer favorability and preference: Several brand-equity methodologies try to map the mind of the consumer to uncover associations with a given brand. For example, projective techniques can be used to identify tangible and intangible attributes, attitudes, and various perceptions about the brand. Under this approach, the brands with the highest levels of awareness and most favorable and unique associations are considered high-equity brands. As consumer perceptions: Another brand-equity measurement technique assesses which attributes are most important in influencing customer buying choices, and then measures how well various competitors perform against the most important attributes. This approach helps marketers better understand the customer decision-making process, how brands influence it, and which competitors “own” key attributes that drive customer decisions.

Learning Activities The learning activities for this section include the following: Reading: Brand Equity Self Check: Brand Equity

When most people see the Nike swoosh, what makes them think, “Just Do It!”? When kids see Mickey Mouse ears, what makes them think, “Disneyland”? When fans see the international soccer logo, FIFA, what makes them think of corrupt officials and financial misdeeds?  When many Americans see the BP logo, what makes them think of environmental disaster in the Gulf of Mexico? All of these scenarios are examples of brand equity, which are the associations people have about a particular brand. Brand equity translates into a value premium (or deficit) associated with a given brand in the minds of customers. Think of it as the “super bonus” a teen boy feels for a pair of Adidas or Nike sneakers compared with Skechers or no-name shoes. Or think of it as the negativity an airline has to overcome the day after one of its planes goes down in a crash.

A brand can convey multiple levels of meaning, including the following: As an automobile brand, the Mercedes-Benz logo suggests high prestige. Attributes: specific product features. The Mercedes-Benz brand, for example, suggests expensive, well-built, well-engineered, durable vehicles. Benefits: attributes translate into functional and emotional benefits. Mercedes automobiles suggest prestige, luxury, wealth, reliability, self-esteem. Values: company values and operational principles. The Mercedes brand evokes company values around excellence, high performance, power. Culture: cultural elements of the company and brand. Mercedes represents German precision, discipline, efficiency, quality. Personality: strong brands often project a distinctive personality. The Mercedes brand personality combines luxury and efficiency, precision and prestige. User: brands may suggest the types of consumers who buy and use the product. Mercedes drivers might be perceived and classified differently than, for example, the drivers of Cadillacs, Corvettes, or BMWs.

Putting It Together: Segmentation and Targeting Remember Chumber, your new employer from the beginning of this module? Now that you’ve learned something about segmentation and targeting strategy, let’s return to the request your boss made for recommendations about whom Chumber ought to target and why. Remember that Chumber’s product is an automated, fully online system for checking the references of job candidates. Chumber’s customers are other companies. After learning about market segmentation, you know that “all companies” is too broad to be a useful target market. Even on your first day of work, you can guess that marketing to every company you can find isn’t going to be a smart strategy. Instead, you do a little research. It stands to reason that Chumber will be most valuable to companies that do a lot of hiring. A Google search for “employment by industry” brings up U.S. Bureau of Labor statistics data to help you identify which industries are expected to post the biggest gains in employment in the coming years.

Background Red Bull is an Austria-based company started in 1987 by Dietrich Mateschitz that sells one product: an energy drink containing taurine (an amino acid) that’s sold in a slim, silver-colored 8.3-ounce can (shown at the right). The drink has been an enormous hit with the company’s target youth segment around the globe. For the year 2001, Red Bull boasted sales of $51 million in the United States alone and captured 70 percent of the energy-drink market worldwide. From Stanford University in California to the beaches of Australia and Thailand, Red Bull has managed to maintain its hip, cool image, with virtually no mass-market advertising. Red Bull’s Targeted Approach to Marketing Red Bull used Collegiate Brand Managers to promote the drink via free samples handed out at student parties. The company also organized extreme sports events—like cliff diving in Hawaii and skateboarding in San Francisco—to reinforce the brand’s extreme, on-the-edge image. Their grass-roots approach to reaching the youth market worked: “In terms of attracting new customers and enhancing consumer loyalty, Red Bull has a more effective branding campaign than Coke or Pepsi,” said Nancy F. Koehn, author of Brand New: How Entrepreneurs Earned Consumers’ Trust from Wedgwood to Dell. Red Bull’s success has also gained attention (and concern) among beverage-industry giants, and some have tried to follow its lead: For a time Coke ran a stealth marketing campaign, packaging its cola in a slim can reminiscent of Red Bull and offering it to customers in trendy bars and clubs in New York City. Licenses and Attributions

Groupon and Amazon Local are excellent examples of local marketing. Both online services partner with local businesses to promote timely offers and special pricing for individuals living in a designated geographic area. Limited-time and limited-quantity deals may include restaurant meals, spa treatments, performances, recreational activities, lessons, hotel accommodations, and a wide variety of other local area products and services. These local marketing companies earn revenue when consumers purchase and redeem the special offers in their neighborhood or city. Another example are farm cooperatives and CSAs (community-supported agriculture shares), which virtually always use a local marketing strategy. They market locally grown produce and farm-fresh goods to people residing in the immediate community, and their ongoing goal is to increase local supply and demand for healthy, local, farm-fresh food and produce.

A differentiated marketing strategy is one in which the company decides to provide separate offerings to each different market segment that it targets. It is also called multisegment marketing. Each segment is targeted in a particular way, as the company provides unique benefits to different segments. The goal is to help the company increase sales and market share across each segment it targets. Proctor and Gamble, for example, segments some of its markets by gender, and it has separate product offerings and marketing plans for each: Secret-brand deodorant for women, and Rogaine (a treatment for hair loss) for men.[1] When it is successful, differentiated marketing can create a very strong, entrenched market presence that is difficult for competitors to displace because of consumers’ strong affinity for products and offers that meet the unique needs of their segment. A differentiated strategy can be a smart approach for new companies that enter a market and lure customers away from established players to capture share in a large overall market. Often, established companies become vulnerable to new competitors because they don’t give sufficient attention to the perfect marketing mix for any given market segment. However, differentiated marketing is also very expensive. It carries higher costs for the company because it requires the development of unique products to fit each target segment. Likewise, each unique product and market segment requires its own marketing plans and execution: unique messages, campaigns, and promotional tactics and investments. Costs can add up quickly, especially if you are targeting a lot of unique market segments. Chinese green-tea Oreos For a large company such as Kraft, the cost of this kind of marketing is well worth it, since its products are sold all over the world. An example of its differentiated marketing strategy are the many surprising variations of the famous Oreo cookie developed for the Chinese market. Consumers there can enjoy Oreos with cream flavors such as green-tea ice cream, raspberry-blueberry, mango-orange, and grape-peach. All of these Oreo formulations have been heavily market tested and are based on the unique preferences of Chinese consumers. [2]

Mass Marketing Mass marketing, also called undifferentiated marketing, involves marketing to the entire market the same way. Mass marketing effectively ignores segmentation and instead generates a single offer and marketing mix for everyone. The market is treated as a homogeneous aggregate. Mass marketing aims to reach the largest audience possible, and exposure to the product is maximized. In theory, this would directly correlate with a larger number of sales or buy-in to the product. Mass marketing tries to spread a marketing message to anyone and everyone willing to listen. Communication tends to be less personal, as evidenced by common mass-marketing tactics: national television, radio and print advertising campaigns; nationally focused coupons; nationally focused point-of-purchase displays. The success of mass-marketing depends on whether it is possible to reach enough people, through mass-communication techniques and one universal product offer, to keep them interested in the product and make the strategy worthwhile. While mass-marketing tactics tend to be costly because they operate on a large scale, this approach yields efficiencies and cost savings for companies because it requires the marketing team to execute only one product offer and marketing mix. Crest Toothpaste. All-purpose toothpaste isn’t targeted to one particular market segment. For certain types of widely consumed items (e.g., gasoline, soft drinks, white bread), the undifferentiated market approach makes the most sense. For example, toothpaste (such as the brand Crest) isn’t made specially for one consumer segment, and it is sold in huge quantities. The manufacturer’s goal is to get more people to select and buy their particular brand over another when they come to the point of purchase. Walk through any supermarket, and you will observe hundreds of grocery products, especially generic items, that are perceived as nearly identical by the consumer and are treated as such by the producer. Many mass-marketed items are considered staple or “commodity” items. People buy new ones when the old ones wear out or are used up, and mass-marketed brand loyalty might be the primary driver when they decide which replacement product to purchase.

segmentation approaches,

This segmentation approach groups people according to who makes the purchasing decision in an organization or household.

according to how ready they are to purchase a product: unaware, aware, informed, interested, desirous, and intend to buy.