Marketing

CHAPTER 10
CRAFTING THE BRAND POSITIONING
No company can win if its products and offerings resemble every other product and offering. Companies must pursue relevant positioning and differentiation. As part of the strategic brand management process, each company and offering must represent a distinctive big idea in the mind of the target market.
he Public Broadcasting
Service finds its brand in a difficult
position. 349
The average nightly prime-time
ratings for public television's
stations declined 23 percent from 1993 to 2002. During that same period, cable networks such as Discovery off PBS viewers Channel, History and experienced Channel, a 122 A&E, percent PBS
and Fox News siphoned
growth. PBS's loyal audience is agingthe
average age of a prime-time new, younger
viewer is the mid-fifties. while still maintaining
The challenge
is to attract
viewers
the quality programming to proclaim
that is its mission. PBS's idenin 2002: "For public to have to embrace broadsome
tity crisis caused CEO Pat Mitchell casting to be vital and viable,
1
we are going
changes."'
A recent PBS fund drive on New York's Channel Thirteen. Channel Thirteen is adjusting its programming to attract a more diverse audience.
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BUILDING STRONG BRANDS
As the plight of PBS demonstrates, even when a company succeeds in distinguishing itself, differences can be short-lived. Companies normally reformulate their marketing strategies and offerings several times. Economic conditions change, competitors launch new assaults, and products pass through new stages of buyer interest and requirements. Marketers must develop strategies for each stage in the product's life cycle. The goal is to extend the product's life and profitability, keeping in mind that products do not last forever. This chapter explores specific ways a company can effectively position and differentiate its offerings t o achieve a competitive advantage throughout the life cycle of a product or an offering.
Ill Developing and Communicating a Positioning Strategy

All marketing strategy is built on STPSegmentation, Targeting, and Positioning. A company discovers different needs and groups in the marketplace, targets those needs and groups that it can satisfy in a superior way, and then positions its offering so that the target market recognizes the company's distinctive offering and image. If a company does a poor job of positioning, the market will be confused. This happened when National Car Company and Alamo Rent-a-Car were combined by their former parent, ANC Rental Corp., following its Chapter 11 bankruptcy court filing in 2001.
NATIONAL CAR RENTAL AND ALAMO RENT-A-CAR
Premium brand National traditionally catered to business travelers, whereas Alamo Rent-a-Car has been getting 90 percent of its business from leisure travelers. After the two merged, the dual Alamo/National logos were plastered on everything from airport shuttle buses to workers' polo shirts. Customers of both Alamo and National had problems distinguishing between the brands, even though National's cars typically rent for 10 to 20 percent more than Alamo's. After all, the customers had to stand in the same line behind the same airport counter, receive service from the same rental agents, ride the same shuttle buses, and drive cars from the same fleet. National was most hurt by the lack of differentiation at these key touchpoints, and its market share fell 5 to 10 percent. Interestingly, after consolidation of the brands, shuttle bus frequency improved 38 percent and business travelers were given even more options to bypass the rental counter entirely. Still, in surveys, National renters perceived the buses to be slower, the lines longer, and customer service poorer. The clear implication was that in order for the two brands to maintain their integrity and their positioning with their respective market segments, they had to be separated.2
If a company does an excellent job of positioning, then it can work out the rest of its marketing planning and differentiation from its positioning strategy. We define positioning as follows: Positioning is the act of designing the company's offering and image to occupy a distinctive place in the mind of the target market. The goal is to locate the brand in the minds of consumers to maximize the potential benefit to the firm. A good brand positioning helps guide marketing strategy by clarifying the brand's essence, what goals it helps the consumer achieve, and how it does so in a unique way. The result of positioning is the successful creation of a customer-focused value proposition, a cogent reason why the target market should buy the product. Table 10.1 shows how three companiesPerdue, Volvo, and Domino'sdefined their value proposition given their target customers, benefits, and prices. The word "positioning" was popularized by two advertising executives, Al Ries and jack Trout. They see positioning as a creative exercise done with an existing product:
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TABLE 10.1 Company and Product Perdue (chicken) Volvo (station wagon) Domino's (pizza)
Examples of Value Propositions Demand States and Marketing Tasks Target Customers Quality-conscious consumers of chicken Safety-conscious "upscale" families Convenience-minded pizza lovers Value Proposition More tender golden chicken at a moderate premium price The safest, most durable wagon in which your family can ride A good hot pizza, delivered to your door within 30 minutes of ordering, at a moderate price
Benefits Tenderness Durability and safety Delivery speed and good quality
Price 10% premium 20% premium 15% premium
Positioning starts with a product. A piece of merchandise, a service, a company, an institution, or even a person.... But positioning is not what you do to a product. Positioning is what you do to the mind of the prospect. That is, you position the product in the mind of the prospect.3 "Marketing Insight: Value Disciplines Positioning" offers another point of view about positioning. According to virtually all approaches, positioning requires that similarities and differences between brands be defined and communicated. Specifically, deciding on a positioning requires determining a frame of reference by identifying the target market and the competition, and identifying the ideal points-of-parity and points-of-difference brand associations. C o m p e t i t i v e Frame of Reference A starting point in defining a competitive frame of reference for a brand positioning is to determine category membershipthe products or sets of products with which a brand competes and which function as close substitutes. As we discuss in Chapter 11, competitive analysis will consider a whole host of factorsincluding the resources, capabilities, and likely intentions of various other firmsin choosing those markets where consumers can be profitably serviced. Target market decisions are often a key determinant of the competitive frame of reference. Deciding to target a certain type of consumer can define the nature of competition because certain firms have decided to target that segment in the past (or plan to do so in the
MARKETING INSIGHT
VALUE DISCIPLINES POSITIONING
Two consultants, Michael Treacy and Fred Wiersema, proposed a rupt the smooth functioning of normal operations. Even within a large positioning framework called value disciplines. Within its industry, a company, such as GE, each division might follow a different value firm could aspire to be the product leader, the operationally excellent discipline: GE's major appliance division pursues operational excelfirm, or the customer-intimate firm. This framework is based on the lence, its engineered plastics division pursues customer intimacy, notion that in every market there is a mix of three types of customers. and its jet engine division pursues product leadership. Some customers favor the firm that is on the technological frontier Treacy and Wiersema propose that a business should follow four (product leadership); other customers want highly reliable perfor- rules for success: mance (operational excellence); and still others want high responsiveness in meeting their individual needs (customer intimacy). 1. Become best at one of the three value disciplines. A firm cannot normally be best in all three ways, or even in two ways. Each value discipline requires different managerial mind-sets and investments that often conflict. Thus McDonald's excels at operational excellence, but could not afford to slow down its service to prepare hamburgers differently for each customer. Nor could McDonald's lead in new products because each addition would dis2. Achieve an adequate performance level in the other two disciplines. 3. Keep improving one's superior position in the chosen discipline so as not to lose out to a competitor. 4. Keep becoming more adequate in the other two disciplines, because competitors keep raising customers' expectations.
Source: Michael Treacy and Fred Wiersema, The Disciplines of Market Leaders (Reading, MA: Addison-Wesley, 1994).
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"It's not delivery, it's DiGiomo." DiGiomo print ad that carries through on the delivered pizza positioning, which helped make it the frozen pizza leader.
future), or consumers in that segment already may look to certain brands in their purchase decisions. Determining the proper competitive frame of reference requires understanding consumer behavior and the consideration sets consumers use in making brand choices. In the United Kingdom, for example, the Automobile Association has positioned itself as the fourth "emergency service"along with police, fire, and ambulanceto convey greater credibility and urgency. And look at how DiGiorno's positioned itself:
DIGIORNO'S
PIZZA
DiGiorno's is a frozen pizza whose crust rises when the pizza is heated. Instead of putting it in the frozen pizza category, the marketers positioned it in the delivered pizza category. One of their ads shows party guests asking which pizza delivery service the host used. Then he says: "It's not delivery, its DiGiomo!" This helped highlight DiGiorno's fresh quality and superior taste. Through this clever positioning, DiGiorno's sales went from essentially nothing in 1995 to $382 million in 2002, making it the frozen pizza leader.4
Points-of-Parity and Points-of-Difference

Once the competitive frame of reference for positioning has been fixed by defining the customer target market and nature of competition, marketers can define the appropriate points-of-difference and points-of-parity associations.5 = Points-of-difference (PODs) are attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe that they could not find to the same extent with a competitive brand. Strong, favorable, and unique brand associations that
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make up points-of-difference may be based on virtually any type of attribute or benefit. Examples are FedEx {guaranteed overnight delivery), Nike {performance), and Lexus {quality). Creating strong, favorable, and unique associations as points-of-difference is a real challenge, but essential in terms of competitive brand positioning. Consider the success of IKEA.
IKEA Swedish retailer IKEA took a luxury producthome furnishings and furnitureand made it a reasonably priced alternative for the mass market. IKEA supports its low prices by having customers self-serve, deliver, and assemble the products themselves. IKEA also gains a point-of-difference through its product offerings. As one commentator noted, "IKEA built its reputation on the notion that Sweden produces good, safe, well-built things for the masses. It has some of the most innovative designs at the lowest cost out there." It also operates an excellent restaurant in each store (rare among furniture stores); offers child-care services while the parents shop; offers a membership program entitling members to special discounts on their purchases beyond the normal low price; and mails out millions of catalogs featuring the latest furniture.6
OF-PARITY Points-of-parity (POPs), on the other hand, are associations that are not necessarily unique to the brand but may in fact be shared with other brands. These types of associations come in two basic forms: category and competitive. Category points-of-parity are associations consumers view as essential to be a legitimate and credible offering within a certain product or service category. In other words, they represent necessarybut not necessarily sufficientconditions for brand choice. Consumers might not consider a travel agency truly a travel agency unless it is able to make air and hotel reservations, provide advice about leisure packages, and offer various ticket payment and delivery options. Category points-of-parity may change over time due to technological advances, legal developments, or consumer trends, but they are the "greens fees" to play the marketing game. Competitive points-of-parity are associations designed to negate competitors' points-ofdifference. If, in the eyes of consumers, the brand association designed to be the competitor's point-of-difference is as strong for a brand as for competitors and the brand is able to establish another association as strong, favorable, and unique as part of its point-of-difference, then the brand should be in a superior competitive position. In other words, if a brand can "break even" in those areas where the competitors are trying to find an advantage and can achieve advantages in other areas, the brand should be in a strongand perhaps unbeatablecompetitive position. While other luxury-goods makers slumped in 2000, Coach saw its sales zoom ahead by adding style and fashion to its legendary rugged bags and briefcases.7 As another example, consider the introduction of Miller Lite beer.8
MILLER LITE
The initial advertising strategy for Miller Lite beer had two goalsassuring parity with key competitors in the category by stating that it "tastes great," while at the same time creating a point-of-difference: It contained one-third less calories and was thus "less filling" than regular, full-strength beers. As is often the case, the point-of-parity and point-of-difference were somewhat conflicting, as consumers tend to equate taste with calories. To overcome potential resistance, Miller employed credible spokespeople, primarily popular former professional athletes, who would presumably not drink a beer unless it tasted good. These exjocks humorously debated which of the two product benefits"tastes great" or "less filling"was more descriptive of the beer. The ads ended with the clever tagline "Everything You've Always Wanted In a Beer . . . And Less."
POINTS-OF-PARITY VERSUS POINTS-OF-DIFFERENCE To achieve a point-of-parity (POP) on a particular attribute or benefit, a sufficient number of consumers must believe that the brand is "good enough" on that dimension. There is a "zone" or "range of tolerance or acceptance" with points-of-parity. The brand does not literally have to be seen as equal to competitors, but consumers must feel that the brand does well enough on that particular attribute or benefit. If consumers feel that way, they may be willing to base their evaluations and decisions on other factors potentially more favorable to the brand. A light beer presumably would never taste as good as a full-strength beer, but it would have to taste close enough to be able to effectively compete. With points-of-difference, however, the brand must
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demonstrate clear superiority. Consumers must be convinced that Louis Vuitton has the most stylish handbags, Energizer is the longest-lasting battery, and Merrill Lynch offers the best financial advice and planning. Often, the key to positioning is not so much in achieving a point-of-difference (POD) as in achieving points-of-parity!
rVISA VERSUS AMERICAN EXPRESS
Visa's POD in the credit card category is that it is the most widely available card, which underscores the category's main benefit of convenience. American Express, on the other hand, has built the equity of its brand by highlighting the prestige associated with the use of its card. Having established their PODs, Visa and American Express now compete by attempting to blunt each others' advantage to create POPs. Visa offers gold and platinum cards to enhance the prestige of its brand and advertises, "It's Everywhere You Want to Be" in settings that reinforce exclusivity and acceptability. American Express has substantially increased the number of ven dors that accept its cards and created other value enhancements through its "Make Life Rewarding" program.
Establishing Category Membership

Target customers are aware that Maybelline is a leading brand of cosmetics, Cheerios is a leading brand of cereal, Accenture is a leading consulting firm, and so on. Often, however, marketers must inform consumers of a brand's category membership. Perhaps the most obvious situation is the introduction of new products, especially when the category membership is not apparent. This uncertainty can be a special problem for high-tech products. There are also situations where consumers know a brand's category membership, but may not be convinced that the brand is a valid member of the category. For example, consumers may be aware that Hewlett-Packard produces digital cameras, but they may not be certain whether Hewlett-Packard cameras are in the same class as Sony, Olympus, Kodak, and Nikon. In this instance, HP might find it useful to reinforce category membership. Brands are sometimes affiliated with categories in which they do not hold membership. This approach is one way to highlight a brand's point-of-difference, providing that consumers know the brand's actual membership. With this approach, however, it is important that consumers understand what the brand stands for, and not just what it is not. It is important to not be trapped between categories. The Konica e-mini M digital camera and MP3 player was marketed as the "four-in-one entertainment solution," but suffered from functional deficiencies in each of its product applications and languished in the marketplace.9 The preferred approach to positioning is to inform consumers of a brand's membership before stating its point-of-difference. Presumably, consumers need to know what a product is and what function it serves before deciding whether it dominates the brands against which it competes. For new products, initial advertising often concentrates on creating brand awareness and subsequent advertising attempts to craft the brand image. Occasionally, a company will try to straddle two frames of reference:
rBMW When BMW first made a strong competitive push into the U.S. market in the early 1980s, it positioned the brand as being the only automobile that offered both luxury and performance. At that time, American luxury cars were seen by many as lacking performance, and American performance cars were seen as lacking luxury. By relying on the design of its cars, its German heritage, and other aspects of a well-conceived marketing program, BMW was able to simultaneously achieve: (1) a point-of-difference on luxury and a point-of-parity on performance with respect to performance cars and (2) a point-of-difference on performance and a point-of-parity on luxury with respect to luxury cars. The clever slogan "The Ultimate Driving Machine" effectively captured the newly cres ated umbrella categoryluxury performance cars.
While a straddle positioning often is attractive as a means of reconciling potentially conflicting consumer goals, it also carries an extra burden. If the points-of-parity and points-of-difference with respect to both categories are not credible, the brand may not be viewed as a legitimate player in either category. Many early PDAs that unsuccessfully tried to straddle categories ranging from pagers to laptop computers provide a vivid illustration of this risk.
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There are three main ways to convey a brand's category membership: 1. Announcing category benefits. To reassure consumers that a brand will deliver on the fundamental reason for using a category, benefits are frequently used to announce category membership. Thus, industrial tools might claim to have durability and antacids might announce their efficacy. A brownie mix might attain membership in the baked desserts category by claiming the benefit of great taste and support this benefit claim by possessing high-quality ingredients (performance) or by showing users delighting in its consumption (imagery). 2. Comparing to exemplars. Well-known, noteworthy brands in a category can also be used to specify category membership. When Tommy Hilfiger was an unknown, advertising announced his membership as a great American designer by associating him with Geoffrey Beene, Stanley Blacker, Calvin Klein, and Perry Ellis, who were recognized members of that category. 3. Relying on the product descriptor. The product descriptor that follows the brand name is often a concise means of conveying category origin. Ford Motor Co., invested more than $1 billion on a radical new 2004 model called the X-Trainer, which combines the attributes of an SUV, a minivan, and a station wagon. To communicate its unique positionand to avoid association with its Explorer and Country Squire modelsthe vehicle is designated a "sports wagon."10
Choosing POPs and PODs

Points-of-parity are driven by the needs of category membership (to create category POPs) and the necessity of negating competitors' PODs (to create competitive POPs). In choosing points-of-difference, two important considerations are that consumers find the POD desirable and that the firm has the capabilities to deliver on the POD. There are three key consumer desirability criteria for PODs. 1. Relevance. Target consumers must find the POD personally relevant and important. The Westin Stamford hotel in Singapore advertised that it was the world's tallest hotel, but a hotel's height is not important to many tourists. 2. Distinctiveness. Target consumers must find the POD distinctive and superior. When entering a category where there are established brands, the challenge is to find a viable basis for differentiation. Splenda sugar substitute overtook Equal and Sweet 'n Low to become the leader in its category in 2003 by differentiating itself on its authenticity as a product derived from sugar, without any of the associated drawbacks.11 3. Believability. Target consumers must find the POD believable and credible. A brand must offer a compelling reason for choosing it over the other options. Mountain Dew may argue that it is more energizing than other soft drinks and support this claim by noting that it has a higher level of caffeine. Chanel No. 5 perfume may claim to be the quintessential elegant French perfume and support this claim by noting the long association between Chanel and haute couture. There are three key deliverability criteria. 1. Feasibility. The firm must be able to actually create the POD. The product design and marketing offering must support the desired association. Does communicating the desired association involve real changes to the product itself, or just perceptual ones as to how the consumer thinks of the product or brand? It is obviously easier to convince consumers of some fact about the brand that they were unaware of and may have overlooked than to make changes in the product and convince consumers of these changes. General Motors has had to work to overcome public perceptions that Cadillac is not a youthful, contemporary brand. 2. Communicability. It is very difficult to create an association that is not consistent with existing consumer knowledge or that consumers, for whatever reason, have trouble believing. Consumers must be given a compelling reason and understandable rationale as to why the brand can deliver the desired benefit. What factual, verifiable evidence or "proof points" can be given as support so that consumers will actually believe in the brand and its desired associations? Substantiators often come in the form of patented, branded ingredients, such as Nivea Wrinkle Control Creme with Q10 co-enzyme or Herbal Essences hair conditioner with Hawafena.
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3. Sustaiiiability. Is the positioning preemptive, defensible, and difficult to attack? Can the favorability of a brand association be reinforced and strengthened over time? If yes, the positioning is likely to be enduring. Sustainability will depend on internal commitment and use of resources as well as external market forces. It is generally easier for market leaders such as Gillette, Intel, and Microsoft, whose positioning is based in part on demonstrable product performance, to sustain their positioning than for market leaders such as Gucci, Prada, and Hermes, whose positioning is based on fashion and is thus subject to the whims of a more fickle market. Marketers must decide at which Ievel(s) to anchor the brand's points-of-differences. At the lowest level are the brand attributes, at the next level are the brand's benefits, and at the top are the brand's values. Thus marketers of Dove soap can talk about its attribute of onequarter cleansing cream; or its benefit of softer skin; or its value, being more attractive. Attributes are typically the least desirable level to position. First, the buyer is more interested in benefits. Second, competitors can easily copy attributes. Third, the current attributes may become less desirable. Research has shown, however, that brands can sometimes be successfully differentiated on seemingly irrelevant attributes //"consumers infer the proper benefit.12 Procter & Gamble differentiates its Folger's instant coffee by its "flaked coffee crystals," created through a "unique patented process." In reality, the shape of the coffee particles is irrelevant because the crystals immediately dissolve in the hot water. Saying that a brand of coffee is "mountain grown" is irrelevant because most coffee is mountain grown. "Marketing Memo: Writing a Positioning Statement" outlines how positioning can be expressed formally. Creating POPs and P O D s One common difficulty in creating a strong, competitive brand positioning is that many of the attributes or benefits that make up the points-of-parity and points-of-difference are negatively correlated. If consumers rate the brand highly on one particular attribute or benefit, they also rate it poorly on another important attribute. For example, it might be difficult to position a brand as "inexpensive" and at the same time assert that it is "of the highest quality." Table 10.2 displays some other examples of negatively correlated attributes and benefits. Moreover, individual attributes and benefits often have positive and negative aspects. For example, consider a long-lived brand that is seen as having a great deal of heritage. Heritage could suggest experience, wisdom, and expertise. On the other hand, it could also easily be seen as a negative: It might imply being old-fashioned and not up-to-date.
MARKETING MEMO
WRITING A POSITIONING STATEMENT
To communicate a company or brand positioning, marketing plans the highest level of caffeine. With Mountain Dew, you can stay often include a positioning statement. The statement should follow alert and keep going even when you haven't been able to get the form: To (target group and need) our (Brand) is (concept) that a good night's sleep. (point-of-difference). For example: "To busy professionals who need Note that the positioning first states the product's membership in a to stay organized, Palm Pilot is an electronic organizer that allows category (e.g., Mountain Dew is a soft drink) and then shows its you to back up files on your PC more easily and reliably than compoint-of-difference from other members of the group (e.g., has more petitive products." Sometimes the positioning statement is more caffeine). The product's membership in the category suggests the detailed: points-of-parity that it might have with other products in the category, but the case for the product rests on its points-of-difference. Mountain Dew: To young, active soft-drink consumers who Sometimes the marketer will put the product in a surprisingly differhave little time for sleep, Mountain Dew is the soft drink that ent category before indicating the points of difference. gives you more energy than any other brand because it has
Sources: Bobby J. Calder and Steven J. Reagan, "Brand Design," in Kellogg on Marketing, edited by Dawn lacobucci (New York: John Wiley & Sons, 2001), p. 61; Alice M. Tybout and Brian Sternthal, "Brand Positioning," in Kellogg on Marketing, edited by Dawn lacobucci (New York: John Wiley & Sons, 2001), p. 54.
> CRAFTING THE BRAND POSITIONING
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TABLE 10.2
Low Price vs. High Quality Taste vs. Low Calories Nutritious vs. Good Tasting Efficacious vs. Mild
Powerful vs. Safe Strong vs. Refined Ubiquitous vs. Exclusive Varied vs. Simple
Examples of Negatively Correlated Attributes and Benefits
BROOKS
B R O T H ERS
In the late 1990s, Brooks Brothers found its heritage to be a deficit rather than a plus. The American retailer's starched shirts and pinstriped suits seemed an anachronism in a world of jeans, khakis, polo tops, and casual Fridays. The company tried to downplay its heritage by stocking trendier sweaters and slacks. The move both alienated loyal customers and failed to attract new ones, and the company lost share. In 2001, Italian-born Claudio Del Vecchio bought the company for $225 million, and began using the Brooks Brothers heritage as a positive point-of-difference. The look is more sophisticated, quality is back, and prices are higher. For now, Brooks Brothers is focused on wooing its traditional customers. The store has published a book chronicling its history. It is inviting select customers to a series of 185th anniversary events and reintroducing pieces from its past, including the Shetland sweater introduced in 1904 and the sack suit JFK loved. As a sign that the beleaguered company must be doing something right, other stores are copying it by mining their own heritage: Coach is bringing back its bucket-shaped "feed bag" purse, Eddie Bauer is reintroducing the 1936 quilted Skyliner jacket, and J. Crew is making its classic tweed jacket and roll-neck sweater again.13
Unfortunately, consumers typically want to maximize botli attributes and benefits. Much of the art and science of marketing is dealing with trade-offs, and positioning is no different. The best approach clearly is to develop a product or service that performs well on both dimensions. BMW was able to establish its "luxury and performance" straddle positioning due in large part to product design and the fact that the car was seen as both luxurious and high performance. Gore-Tex was able to overcome the seemingly conflicting product image of "breathable" and "waterproof" through technological advances. There are additional ways to address the problem of negatively correlated POPs and PODs. >ENT SEPARATELY An expensive but sometimes effective approach to addressing negatively correlated attributes and benefits is to launch two different marketing campaigns, each one devoted to a different brand attribute or benefit. These campaigns may run together at one point in time or sequentially over time. Head & Shoulders shampoo met success in Europe with a dual campaign where one campaign emphasized its dandruff removal efficacy while another emphasized the appearance and beauty of hair after its use. The hope is that consumers will be less critical when judging the POP and POD benefits in isolation. The downside with such an approach is that you need two strong campaigns. Moreover, if marketers do not address the negative correlation head-on, consumers may not develop the desired positive associations. TY In the Miller Lite example above, the brand "borrowed" or leveraged the equity of well-known and well-liked celebrities to lend credibility to a negatively correlated benefit. Brands can potentially link themselves to any kind of entity that possesses the right kind of equity as a means to establish an attribute or benefit as a POP or POD. Branded ingredients may also lend some credibility to a questionable attribute in consumers' minds. Borrowing equity, however, is not riskless. Personal computer manufacturers such as IBM and Compaq found that the Intel Inside co-op advertising program, which gave Intel exposure in the PC makers' ad, resulted in consumers seeking Intel-based computers.
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P Another potentially powerful but often difficult way to address the negative relationship between attributes and benefits is to convince consumers that in fact the relationship is positive. This redefinition can be accomplished by providing consumers with a different perspective and suggesting that they may be overlooking or ignoring certain considerations.
APPLE COMPUTERS
When Apple Computers launched Macintosh, its key point-of-difference was "user friendly." Many consumers valued ease of use, especially those who bought personal computers for the home. One drawback with a "user-friendly" association was that customers who bought personal computers for business applications thought that if a personal computer was easy to use, then it must not be very powerful. Recognizing this potential problem, Apple ran a clever ad campaign with the tag line "The Power to Be Your Best." The strategy behind the ads was that because Apple was easy to use, people in fact did just thatthey used it!a simple but important indication of "power." In other words, the most powerful computers were ones people actually used.
Differentiation Strategies To avoid the commodity trap, marketers must start with the belief that you can differentiate anything. (See "Marketing Memo: How to Derive Fresh Consumer Insights to Differentiate Products and Services.") Brands can be differentiated on the basis of many variables. Southwest Airlines has differentiated itself in several different ways.
SOUTHWEST
AIRLINES
The Dallas-based airline carved its niche in short-haul flights with low prices, reliable service, and a healthy sense of humor. Southwest keeps costs low by offering only basic in-flight service (no meals, no movies) and rapid turnaround at the gates to keep the planes in the air. Southwest knew that it could not differentiate on price alone because competitors could try to muscle into the market with their own cheaper versions. The airline has also distinguished itself as a "fun" airline, noted for humorous in-flight commentary from pilots and cabin crew members. Another popular feature of Southwest flights is the first-come, first-served open seating: Passengers are given numbered cards based on when they arrive at the gate. Southwest is now the nation's sixth-largest airline in revenue, and holds the distinction of being the only low-fare airline to achieve long-term success.14
MARKETING MEMO
HOW TO DERIVE FRESH CONSUMER INSIGHTS TO DIFFERENTIATE PRODUCTS A N D SERVICES
In "Discovering New Points of Differentiation," Ian C. MacMillan and Rita Gunther McGrath argue that if companies examine customers' entire experience with a product or servicethe consumption chainthey can uncover opportunities to position their offerings in ways that neither they nor their competitors thought possible. MacMillan and McGrath list a set of questions marketers can use to help them identify new, consumer-based points of differentiation. * How do people become aware of their need for your product and service? ' i ' How do consumers find your offering? How do consumers make their final selection? How do consumers order and purchase your product or service?
i What happens when your product or service is delivered?

3
How is your product installed? How is your product or service paid for? How is your product stored? How is your product moved around? What is the consumer really using your product for?
3
What do consumers need help with when they use your product? What about returns or exchanges?
i How is your product repaired or serviced? ' What happens when your product is disposed of or no longer used?
Source: Ian C. MacMillan and Rita Gunther McGrath, "Discovering New Points of Differentiation," Harvard Business Review (July-August 1997): 133-145.
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The obvious means of differentiation, and often most compelling ones to consumers, relate to aspects of the product and service. Swatch offers colorful, fashionable watches. Subway differentiates itself in terms of healthy sandwiches as an alternative to fast food. Method built a $10 million business in a year by creating a line of nontoxic household cleaning products with bright colors and sleek designs totally unique to the category.15 In competitive markets, however, firms may need to go beyond these. Among the other dimensions a company can use to differentiate its market offering are personnel, channel, and image. This section highlights these four different differentiation strategies. Product Differentiation As Chapter 12 describes, brands can be differentiated on the basis of a number of different product or service dimensions: product form, features, performance, conformance, durability, reliability, repairability, style, and design, as well as such service dimensions as ordering ease, delivery, installation, customer training, customer consulting, and maintenance and repair. Besides these specific concerns, one more general positioning for brands is as "best quality." How important is a high-quality product positioning? The Strategic Planning Institute studied the impact of higher relative product quality and found a significantly positive correlation between relative produci quality and return on investment (ROI).16 High-quality business units earned more because premium quality allowed them to charge a premium price; they benefited from more repeat purchase, consumer loyalty, and positive word of mouth; and the costs of delivering more quality were not much higher than for business units producing low quality. Quality will depend on actual product performance, but it is also communicated by choosing physical signs and cues. Here are some examples: B A lawnmower manufacturer that claims its lawnmower is "powerful" has given it a noisy motor because buyers think noisy lawnmowers are more powerful. A truck manufacturer undercoats the chassis not because it needs undercoating but because undercoating suggests concern for quality. a A car manufacturer makes sure its car doors make a solid sound when they slam shut because many buyers slam the doors in the showroom to test how well the car is built. H Ritz Carlton hotels signal high quality by training employees to answer calls within three rings, to answer with a genuine "smile" in their voices, and to be extremely knowledgeable about all hotel services. Quality is also communicated through other marketing elements. A high price usually signals premium quality. Quality image is also affected by packaging, distribution, advertising, and promotion. Here are some cases where a brand's quality image was hurt: B A well-known frozen-food brand lost its prestige image by being on sale too often. EJ A premium beer's image was hurt when it switched from bottles to cans. Q A highly regarded television receiver lost its quality image when mass-merchandise outlets began to carry it. A manufacturer's reputation also contributes to the perception of quality. Certain companies are sticklers for quality; consumers expect Nestle and IBM products to be well made. Smart companies communicate quality to buyers and guarantee "customer satisfaction or your money back." Personnel Differentiation Companies can gain a strong competitive advantage through having better-trained people. Singapore Airlines enjoys an excellent reputation in large part because of its flight attendants.
Becoming a Singapore Airlines flight attendant is not easy: company requirements are strict. But Singapore Airlines has a worldwide reputation for excellent service, built largely on the customer relations skills of its flight attendants.
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McDonald's people are courteous, IBM people are professional, and Disney people are upbeat. The sales forces of such companies as General Electric, Cisco, Frito-Lay, Northwestern Mutual Life, and Pfizer enjoy an excellent reputation. 17 Better-trained personnel exhibit six characteristics: Competence: They possess the required skill and knowledge; courtesy. They are friendly, respectful, and considerate; credibility. They are trustworthy; reliability. They perform the service consistently and accurately; responsiveness: They respond quickly to customers' requests and problems; and communication: They make an effort to understand the customer and communicate clearly.18 Retailers, in particular, are likely to use their front-line employees as a means of differentiating and positioning their brand. This is certainly true of large chain bookstores like Barnes & Noble and Borders:19
BARNES
&
NOBLE
AND
BORDERS
Barnes & Noble and Borders superstores certainly look eerily similar: large comfy chairs, mahogany bookshelves, tasteful decor, and the scent of fresh-brewed coffee. However, the stores have very different business philosophies and both use their employees as "missionaries" for widely different inventory and business models. Borders, which has 32,000 employees and 445 U.S. superstores, focuses on offering the widest assortment of titles and tailoring its inventory to each store's location. Barnes & Noble, which has 40,000 employees in 800 U.S. stores, attracts customers with low prices and the most popular books. While both companies say that "passion" is the most important quality in their booksellers, that passion is expressed in different ways. Barnes & Noble hires people with a passion for customer service and a general love of books. They are clean cut and wear collared shirts. Putting the book in the customer's hand and fast cashiering are their mandates. Borders employees are likely to be tattooed or have multiple body piercings. The company prides itself on the diversity of its employees and hires people who radiate excitement about particular books and music, relying on them to suggest topics and titles rather than simply find a book for a customer.
Channel Differentiation Companies can achieve competitive advantage through the way they design their distribution channels' coverage, expertise, and performance. Caterpillar's success in the constructionequipment industry is based partly on superior channel development. Its dealers are found in more locations than competitors' dealers, and they are typically better trained and perform more reliably. Dell in computers and Avon in cosmetics distinguish themselves by developing and managing high-quality direct-marketing channels. Back in 1946, pet food was cheap, not too nutritious, and sold exclusively in supermarkets and the occasional feed store: Dayton, Ohio-based lams found success selling premium pet food through regional veterinarians, breeders, and pet stores.
APOLLO GROUP INC.
Apollo Group Inc., has turned conventional higher education on its head by launching an online university geared toward the neglected market of working adults. University of Phoenix Online is one of Apollo's most successful ventures, with 50,000 students, and in the past year UOP's enrollment surged by 70 percent. In addition to differentiating based on delivering education through a different channelonline classesApollo charges only $10,000 for yearly tuition, 55 percent of what a typical private college charges.20
Image Differentiation Buyers respond differently to company and brand images. The primary way to account for Marlboro's extraordinary worldwide market share (around 30 percent) is that Marlboro's "macho cowboy" image has struck a responsive chord with much of the cigarette-smoking public. Wine and liquor companies also work hard to develop distinctive images for their brands.
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Image differentiation: The world-famous "Marlboro Man" image is instantly recognizable on billboards and in print ads.
Identity and image need to be distinguished. Identity is the way a company aims to identify or position itself or its product. Image is the way the public perceives the company or its products. An effective identity does three things: It establishes the product's character and value proposition. It conveys this character in a distinctive way. It delivers emotional power beyond a mental image. For the identity to work, it must be conveyed through every available communication vehicle and brand contact. It should be diffused in ads, annual reports, brochures, catalogs, packaging, company stationery, and business cards. If "IBM means service," this message must be expressed in symbols, colors and slogans, atmosphere, events, and employee behavior. Even a seller's physical space can be a powerful image generator. Hyatt Regency hotels developed a distinctive image through its atrium lobbies. Companies can create a strong image by inviting prospects and customers to visit their headquarters and factories. Boeing, Ben & Jerry's, Hershey's, Saturn, and Crayola all sponsor excellent company tours that draw millions of visitors a year.21 Companies such as Hallmark and Kohler have built corporate museums at their headquarters that display their history and the drama of producing and marketing their products. "Marketing Memo: Exceeding Customer Expectations" describes one systematic approach to developing a differentiated, customer-oriented offering.
Ill Product Life-Cycle Marketing Strategies

A company's positioning and differentiation strategy must change as the product, market, and competitors change over the product life cycle (PLC). To say that a product has a life cycle is to assert four things: 1. Products have a limited life. 2. Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller.
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MARKETING MEMO
Crego and Schiffrin have proposed that customer-centered organizations should study what customers value and then prepare an offering that exceeds their expectations. They see this as a three-step process: 1. Defining the customer value model: The company first lists all the product and service factors that might influence the target customers' perception of value. 2. Building the customer value hierarchy: The company now assigns each factor to one of four groups: basic, expected, desired, and unanticipated. Consider the set of factors at a fine restaurant: Basic:The food is edible and delivered in a timely fashion. (If this is all the restaurant does right, the customer would normally not be satisfied.)
EXCEEDING CUSTOMER EXPECTATIONS
i Expected: There is good china and tableware, a linen tablecloth and napkin, flowers, discreet service, and wellprepared food. (These factors make the offering acceptable, but not exceptional.) i Desired: The restaurant is pleasant and quiet, and the food is especially good and interesting. Unanticipated: The restaurant serves a complimentary sorbet between the courses and places candy on the table after the last course is served. 3. Deciding on the customer value package: Now the company chooses that combination of tangible and intangible items, experiences, and outcomes designed to outperform competitors and win the customers' delight and loyalty.
Sources: Edwin T. Crego Jr. and Peter D. Schiffrin, Customer Centered Reengineering (Homewood, IL: Irwin, 1995).
3. Profits rise and fall at different stages of the product life cycle. 4. Products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each life-cycle stage. Product Life Cycles Most product life-cycle curves are portrayed as bell-shaped (see Figure 10.1). This curve is typically divided into four stages: introduction, growth, maturity, and decline.22 1. Introduction -A period of slow sales growth as the product is introduced in the market. Profits are nonexistent because of the heavy expenses of product introduction. 2. Growth -A period of rapid market acceptance and substantial profit improvement. 3. Maturity-A slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or decline because of increased competition. 4. Decline - Sales show a downward drift and profits erode. The PLC concept can be used to analyze a product category (liquor), a product form (white liquor), a product (vodka), or a brand (Smirnoff). Not all products exhibit a bellshaped PLC.23 Three common alternate patterns are shown in Figure 10.2.
FIG. 1 0 . 1 Sales and Profit Life Cycles
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(a) Growth-Slump-Maturity Pattern
(b) Cycle-Recycle Pattern
(c) Scalloped Pattern
Time
Time
Time
F I G . 1 0 . 2 I Common Product Life-Cycle Patterns
Figure 10.2(a) shows a growth-slump-maturity pattern, often characteristic of small kitchen appliances such as handheld mixers and bread makers. Sales grow rapidly when the product is first introduced and then fall to a "petrified" level that is sustained by late adopters buying the product for the first time and early adopters replacing the product. The cycle-recycle pattern in Figure 10.2(b) often describes the sales of new drugs. The pharmaceutical company aggressively promotes its new drug, and this produces the first cycle. Later, sales start declining and the company gives the drug another promotion push, which produces a second cycle (usually of smaller magnitude and duration).24 Another common pattern is the scallopedPLCin Figure 10.2(c). Here sales pass through a succession of life cycles based on the discovery of new-product characteristics, uses, or users. The sales of nylon, for example, show a scalloped pattern because of the many new usesparachutes, hosiery, shirts, carpeting, boat sails, automobile tiresthat continue to be discovered over time.2-"5 Style, Fashion, and Fad Life Cycles We need to distinguish three special categories of product life cyclesstyles, fashions, and fads (Figure 10.3). A style is a basic and distinctive mode of expression appearing in a field of human endeavor. Styles appear in homes (colonial, ranch, Cape Cod); clothing (formal, casual, funky); and art (realistic, surrealistic, abstract). A style can last for generations, and go in and out of vogue. A fashion is a currently accepted or popular style in a given field. Fashions pass through four stages: distinctiveness, emulation, mass fashion, and decline.26 The length of a fashion cycle is hard to predict. One point of view is that fashions end because they represent a purchase compromise, and consumers start looking for missing attributes.27 For example, as automobiles become smaller, they become less comfortable, and then a growing number of buyers start wanting larger cars. Furthermore, too many consumers adopt the fashion, thus turning others away. Another observation is that the length of a particular fashion cycle depends on the extent to which the fashion meets a genuine
Style
Fashion
FIG. 1 0 . 3 | Style, Fashion, and Fad Life Cycles
Time
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need, is consistent with other trends in the society, satisfies societal norms and values, and does not exceed technological limits as it develops.28 Fads are fashions that come quickly into public view, are adopted with great zeal, peak early, and decline very fast. Their acceptance cycle is short, and they tend to attract only a limited following of those who are searching for excitement or want to distinguish themselves from others. Fads do not survive because they do not normally satisfy a strong need. The marketing winners are those who recognize fads early and leverage them into products with staying power. Here is a success story of a company that managed to extend a fad's life span:
TRIVIAL
PURSUIT
Since its debut at the International Toy Fair in 1982, Trivial Pursuit has sold 65 million copies in 18 languages in 32 countries, and it remains one of the best-selling adult games. Parker Brothers has kept the product's popularity going by making a new game with updated questions every year. It also keeps creating offshootstravel packs, a children's version, Trivial Pursuit Genus IV, and an interactive CD-ROM from Virgin Entertainment Interactive. The game has its own Web site (www.trivialpursuit.com), which received 100,000 visitors in its initial two-month test period. If you are having trouble making dinner conversation on a dateno problem: NTN Entertainment Network has put Trivial Pursuit in about 3,000 restaurants.29
Marketing Strategies: Introduction Stage and the Pioneer Advantage

Because it takes time to roll out a new product, work out the technical problems, fill dealer pipelines, and gain consumer acceptance, sales growth tends to be slow at this stage.30 Sales of expensive new products such as high-definition TV are slowed by additional factors such as product complexity and fewer potential buyers. Profits are negative or low in the introduction stage. Promotional expenditures are at their highest ratio to sales because of the need to (1) inform potential consumers, (2) induce product trial, and (3) secure distribution in retail outlets.31 Firms focus on those buyers who are the most ready to buy, usually higher-income groups. Prices tend to be high because costs are high. Companies that plan to introduce a new product must decide when to enter the market. To be first can be rewarding, but risky and expensive. To come in later makes sense if the firm can bring superior technology, quality, or brand strength. Speeding up innovation time is essential in an age of shortening product life cycles. Being early can pay off. One study found that products that came out six months latebut on budgetearned an average of 33 percent less profit in their first five years; products that came out on time but 50 percent over budget cut their profits by only 4 percent. Most studies indicate that the market pioneer gains the most advantage. Companies like Campbell, Coca-Cola, Hallmark, and Amazon.com developed sustained market dominance. 32 Carpenter and Nakamoto found that 19 out of 25 companies who were market leaders in 1923 were still the market leaders in 1983, 60 years later.33 Robinson and Min found that in a sample of industrial-goods businesses, 66 percent of pioneers survived at least 10 years, versus 48 percent of the early followers.34 What are the sources of the pioneer's advantage?35 Early users will recall the pioneer's brand name if the product satisfies them. The pioneer's brand also establishes the attributes the product class should possess. The pioneer's brand normally aims at the middle of the market and so captures more users. Customer inertia also plays a role; and there are producer advantages: economies of scale, technological leadership, patents, ownership of scarce assets, and other barriers to entry. Pioneers can have more effective marketing spending and enjoy higher rates of consumer repeat purchases. An alert pioneer can maintain its leadership indefinitely by pursuing various strategies.36 The pioneer advantage, however, is not inevitable.37 Look at the fate of Bowmar (hand calculators), Apple's Newton (personal digital assistant), Netscape (Web browser), Reynolds (ballpoint pens), and Osborne (portable computers), market pioneers who were overtaken by later entrants. Steven Schnaars studied 28 industries where the imita-
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tors surpassed the innovators. 38 He found several weaknesses among the failing pioneers, including new products that were too crude, were improperly positioned, or appeared before there was strong demand; product-development costs that exhausted the innovator's resources; a lack of resources to compete against entering larger firms; and managerial incompetence or unhealthy complacency. Successful imitators thrived by offering lower prices, improving the product more continuously, or using brute market power to overtake the pioneer. None of the companies that now dominate in the manufacture of personal computersincluding Dell, Gateway, and Compaqwere first movers.39 Golder and Tellis raise further doubts about the pioneer advantage.40 They distinguish between an inventor (fast to develop patents in a new-product category), a product pioneer (first to develop a working model), and a market pioneer (first to sell in the new-product category). They also include nonsurviving pioneers in their sample. They conclude that although pioneers may still have an advantage, a larger number of market pioneers fail than has been reported and a larger number of early market leaders (though not pioneers) succeed. Examples of later entrants overtaking market pioneers are IBM over Sperry in mainframe computers, Matsushita over Sony in VCRs, and GE over EMI in CAT scan equipment. In a more recent study, Tellis and Golder identify the following five factors as underpinning long-term market leadership: vision of a mass market, persistence, relentless innovation, financial commitment, and asset leverage.41 The pioneer should visualize the various product marketsMt could initially enter, knowing that it cannot enter all of them at once. Suppose market-segmentation analysis reveals the product market segments shown in Figure 10.4. The pioneer should analyze the profit potential of each product market singly and in combination and decide on a market expansion path. Thus the pioneer in Figure 10.4 plans first to enter product market PjMj, then move the product into a second market (P,M2), then surprise the competition by developing a second product for the second market (P2M2), then take the second product back into the first market (P2M,), and then launch a third product for the first market (P3M,). If this game plan works, the pioneer firm will own a good part of the first two segments and serve them with two or three products.
FIG. 10.4 I
Long-Range Product Market Expansion Strategy (P, = product i; M: = Market j)
M a r k e t i n g Strategies: G r o w t h Stage The growth stage is marked by a rapid climb in sales. Early adopters like the product, and additional consumers start buying it. New competitors enter, attracted by the opportunities. They introduce new product features and expand distribution. Prices remain where they are or fall slightly, depending on how fast demand increases. Companies maintain their promotional expenditures at the same or at a slightly increased level to meet competition and to continue to educate the market. Sales rise much faster than promotional expenditures, causing a welcome decline in the promotion-sales ratio. Profits increase during this stage as promotion costs are spread over a larger volume and unit manufacturing costs fall faster than price declines owing to the producer learning effect. Firms have to watch for a change from an accelerating to a decelerating rate of growth in order to prepare new strategies. During this stage, the firm uses several strategies to sustain rapid market growth: s It improves product quality and adds new product features and improved styling. a It adds new models and flanker products (i.e., products of different sizes, flavors, and so forth that protect the main product). s It enters new market segments. It increases its distribution coverage and enters new distribution channels. a It shifts from product-awareness advertising to product-preference advertising. B It lowers prices to attract the next layer of price-sensitive buyers. These market expansion strategies strengthen the firm's competitive position. Consider how Yahoo! has fueled growth.
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YAHOO! Founded in 1994 by Web-surfing Stanford University grad students, Yahoo! has become the number-one place to be on the Web, averaging 120 million visitors in a month. The company grew into more than just a search engine; it became a portal, offering a full-blown package of information and services, from e-mail to online shopping malls. Yahool's revenues, which exceeded $1.3 billion in 2003, come from a number of sourcesbanner ads, paid search, subscriptions for services such as personals, and a broadband partnership with SBC Communications. Yahool's $1.6 billion acquisition of Overture Services, a key paid search competitor of Google, helped strengthen its claim as a one-stop shop for advertisers. Yahoo! also continued to grow globally with strong emphasis on Europe and Asia.42
A firm in the growth stage faces a trade-off between high market share and high current profit. By spending money on product improvement, promotion, and distribution, it can capture a dominant position. It forgoes maximum current profit in the hope of making even greater profits in the next stage. M a r k e t i n g Strategies: M a t u r i t y S t a g e At some point, the rate of sales growth will slow, and the product will enter a stage of relative maturity. This stage normally lasts longer than the previous stages and poses big challenges to marketing management. Most products are in the maturity stage of the life cycle, and most marketing managers cope with the problem of marketing the mature product. The maturity stage divides into three phases: growth, stable, and decaying maturity. In the first phase, the sales growth rate starts to decline. There are no new distribution channels to fill. In the second phase, sales flatten on a per capita basis because of market saturation. Most potential consumers have tried the product, and future sales are governed by population growth and replacement demand. In the third phase, decaying maturity, the absolute level of sales starts to decline, and customers begin switching to other products. The sales slowdown creates overcapacity in the industry, which leads to intensified competition. Competitors scramble to find niches. They engage in frequent markdowns. They increase advertising and trade and consumer promotion. They increase R&D budgets to develop product improvements and line extensions. They make deals to supply private brands. A shakeout begins, and weaker competitors withdraw. The industry eventually consists of wellentrenched competitors whose basic drive is to gain or maintain market share. Dominating the industry are a few giant firmsperhaps a quality leader, a service leader, and a cost leaderthat serve the whole market and make their profits mainly through high volume and lower costs. Surrounding these dominant firms is a multitude of market nichers, including market specialists, product specialists, and customizing firms. The issue facing a firm in a mature market is whether to struggle to become one of the "big three" and achieve profits through high volume and low cost or to pursue a niching strategy and achieve profits through low volume and a high margin. Some companies abandon weaker products and concentrate on more profitable products and on new products. Yet they may be ignoring the high potential many mature markets and old products still have. Industries widely thought to be matureautos, motorcycles, television, watches, cameraswere proved otherwise by the Sustaining rapid market growth by adding new models and flanker products: the Snapple Japanese, who found ways to offer new value to customers. Seemingly moribund brands like product line.
RCA, Jell-O, and Ovaltine have achieved sales revivals through the exercise of marketing imagination.43 The resurgence in Hush Puppies' popularity in the footwear category is a case study in reviving an old, nearly forgotten brand.
HUSH PUPPIES
Hush Puppies' suede shoes, symbolized by the cuddly, rumpled, droopy-eyed dog, were a kid's favorite in the 1950s and 1960s. Changes in fashion trends and a series of marketing mishaps eventually resulted in an out-ofdate image and diminished sales. Wolverine World Wide, makers of Hush Puppies, made a number of marketing changes in the early 1990s to reverse the sales slide. New product designs and numerous offbeat color combinations, such as powder blue, lime green, and electric orange, enhanced the brand's fashion appeal. Popular designers began to use the shoes in their fashion shows. Wolverine also jacked the price up from $40 to $70, and showered free shoes on Hollywood celebrities. Once the shoes had garnered enough buzz, the company made them more widely available by distributing them to better department stores. Hush Puppies sales rose from 30,000 pairs in 1994 to more than 1.7 million pairs in 1996. When fashions shifted a few years later, Hush Puppies expanded into sandals and walking shoes, and new international markets, and experienced an all-time sales high in 2002.44
MARKET MODIFICATION A company might try to expand the market for its mature brand by working with the two factors that make up sales volume:
Volume = number of brand users x usage rate per user
It can try to expand the number of brand users by converting nonusers. The key to the growth of air freight service is the constant search for new users to whom air carriers can demonstrate the benefits of using air freight rather than ground transportation.
DENTAL FLOSS
Despite the fact that the Academy of General Dentistry touts brushing and flossing as the best methods for fighting tooth decay, only 24 percent of households use floss. Several oral care marketers see this as a golden opportunity to convert the floss-averse. Aquafresh, owned by GlaxoSmithKline, has created Aquafresh Floss 'N' Cap which combines toothpaste and floss with a cap that doubles as a built-in floss dispenser. Johnson & Johnson, the market leader in this category, has developed a special handheld flosser called the Reach Access Daily Flosser. Glide, newly acquired by Procter & Gamble and the most recommended brand by dentists, perhaps has the easiest job convincing people to floss; the company got a boost when hygiene-obsessed Jerry Seinfeld used Glide on his hugely popular TV show.45
It can also try to expand the number of brand users by entering new market segments. When Goodyear decided to sell its tires via Wal-Mart, Sears, and Discount Tire, it boosted market share from 14 to 16 percent in the first year.46 In recent years AARP has tried the tack of reaching out to new market segments:47
AARP AARP, the American Association for Retired Persons, is a mature brand in more ways than one. The $625 million, 35million-member organization serves people age 50 and over by offering advocacy efforts, products, services, and benefits. Yet, the organization has been dogged by the perception that it is only for elderly people living in retirement communities. With the boomer population expected to double in the next 30 years, AARP is repositioning itself to appeal to people in their late fifties who still have an active lifestyle. AARP's goal is to recruit 50 percent of people age 50 and over by 2003 and to that end it is hosting a number of activities. These include triathlons in several cities to promote fitness, a touring exhibit of Grandma Moses' art to inspire creativity, and an education campaign to prevent predatory mortgage lending and home improvement fraud. The challenge for AARP, however, is creating a single brand that not only attracts new members but also continues to appeal to those in the age 65 and over segment. As part of that effort, AARP is publishing several editions of its newly titled AARP: The Magazine (formerly called Modern MaturiM: one for 50 to 59-year-old boomers, an edition for 60 to 69-year-olds, and one for those 70 and older.
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A third way to expand the number of brand users is winning competitors' customers. Examples of this approach abound. Marketers of Puffs facial tissues are always wooing Kleenex customers. Volume can also be increased by convincing current users to increase their brand usage: (1) Use the product on more occasions. Serve Campbell's soup for a snack. Use Heinz vinegar to clean windows. Take Kodak pictures of your pets. (2) Use more of the product on each occasion. Drink a larger glass of orange juice. (3) Use the product in new ways. Use Turns antacid as a calcium supplement. 48 PRODUCT MODIFICATION Managers also try to stimulate sales by modifying the product's characteristics through quality improvement, feature improvement, or style improvement. Quality improvement aims at increasing the product's functional performance. A manufacturer can often overtake its competition by launching a "new and improved" product. Grocery manufacturers call this a "plus launch" and promote a new additive or advertise something as "stronger," "bigger," or "better." This strategy is effective to the extent that the quality is improved, buyers accept the claim of improved quality, and a sufficient number of buyers will pay for higher quality. In the case of the canned coffee industry, manufacturers are using "freshness" to better position their brands in the face of fierce competition from premium rivals, such as store brands where customers grind their own beans in the store. Kraft's Maxwell House will tout coffee sold in its new Feature improvement: Vlasic Hamburger Stackers. Fresh Seal packaging and P&G's Folger's ads will show how its AromaSeal canistersplastic, peel-top, resealable and easy-grip packageswill make its ground beans fresher.49 However, customers are not always willing to accept an "improved" product, as the classic tale of New Coke illustrates.
COCA-COLA
Battered by competition from the sweeter Pepsi-Cola, Coca-Cola decided in 1985 to replace its old formula with a sweeter variation, dubbed the New Coke. Coca-Cola spent $4 million on market research. Blind taste tests showed that Coke drinkers preferred the new, sweeter formula, but the launch of New Coke provoked a national uproar. Market researchers had measured the taste but had failed to 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 withdrew New Coke and reintroduced its century-old formula as "Classic Coke," giving the old formula even stronger status in the marketplace.
Feature improvement aims at adding new features (for example, size, weight, materials, additives, accessories) that expand the product's performance, versatility, safety, or convenience. In 1998, after years of research and development, Vlasic created a cucumber 10 times larger than the traditional pickle cucumber. The chips, sold as "Hamburger Stackers," are large enough to cover the entire surface of a hamburger and are stacked a dozen high in jars.50 Pfizer also embarked on feature improvement for its Listerine brand.
PFIZER INC.
"Obviously it's very difficult for people to walk down the street with a bottle of Listerine, take a swig and spit it out," says Dermot Boden, vice president for global oral care at Pfizer Inc., which owns the Listerine brand. This is the rationale behind Cool Mint Listerine's PocketPak, oral care strips which dissolve instantly in the mouth, allowing for oral care on the go. Six years in the making, this new, convenient form of Listerine not only enabled the brand to reach younger consumers, but it also generated a hefty $120 million in less than
I
a year after its release.51
This strategy has several advantages. New features build the company's image as an innovator and win the loyalty of market segments that value these features. They provide an opportunity for free publicity and they generate sales force and distributor enthusiasm. The chief disadvantage is that feature improvements are easily imitated; unless there is a permanent gain from being first, the feature improvement might not pay off in the long run.52 Style improvement aims at increasing the product's esthetic appeal. The periodic introduction of new car models is largely about style competition, as is the introduction of new packaging for consumer products. A style strategy might give the product a unique market identity. Yet style competition has problems. First, it is difficult to predict whether people and which peoplewill like a new style. Second, a style change usually requires discontinuing the old style, and the company risks losing customers. MARKETING PROGRAM MODIFICATION Product managers might also try to stimulate sales by modifying other marketing program elements. They should ask the following questions: Prices. Would a price cut attract new buyers? If so, should the list price be lowered, or should prices be lowered through price specials, volume or early purchase discounts, freight cost absorption, or easier credit terms? Or would it be better to raise the price to signal higher quality? Distribution. Can the company obtain more product support and display in existing outlets? Can more outlets be penetrated? Can the company introduce the product into new distribution channels? Advertising. Should advertising expenditures be increased? Should the message or copy be changed? Should the media mix be changed? Should the timing, frequency, or size of ads be changed? Sales promotion. Should the company step up sales promotiontrade deals, cents-off coupons, rebates, warranties, gifts, and contests? Personal selling. Should the number or quality of salespeople be increased? Should the basis for sales force specialization be changed? Should sales territories be revised? Should sales force incentives be revised? Can sales-call planning be improved? m Services. Can the company speed up delivery? Can it extend more technical assistance to customers? Can it extend more credit? Marketers often debate which tools are most effective in the mature stage. For example, would the company gain more by increasing its advertising or its sales promotion budget? Sales promotion has more impact at this stage because consumers have reached an equilibrium in their buying habits and preferences, and psychological persuasion (advertising) is not as effective as financial persuasion (sales promotion deals). Many consumer-packagedgoods companies now spend over 60 percent of their total promotion budget on sales promotion to support mature products. Other marketers argue that brands should be managed as capital assets and supported by advertising. Advertising expenditures should be treated as a capital investment. Brand managers use sales promotion because its effects are quicker and more visible to their superiors; but excessive sales promotion activity can hurt the brand's image and long-run profit performance.
Marketing Strategies: Decline Stage

Sales decline for a number of reasons, including technological advances, shifts in consumer tastes, and increased domestic and foreign competition. All lead to overcapacity, increased price-cutting, and profit erosion. The decline might be slow, as in the case of sewing machines; or rapid, as in the case of the 5.25 floppy disks. Sales may plunge to zero, or they may petrify at a low level. As sales and profits decline, some firms withdraw from the market. Those remaining may reduce the number of products they offer. They may withdraw from smaller market segments and weaker trade channels, and they may cut their promotion budgets and reduce prices further. Unfortunately, most companies have not developed a policy for handling aging products.
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Unless strong reasons for retention exist, carrying a weak product is very costly to the firmand not just by the amount of uncovered overhead and profit: There are many hidden costs. Weak products often consume a disproportionate amount of management's time; require frequent price and inventory adjustments; generally involve short production runs in spite of expensive setup times; require both advertising and sales force attention that might be better used to make the healthy products more profitable; and can cast a shadow on the company's image. The biggest cost might well lie in the future. Failing to eliminate weak products delays the aggressive search for replacement products. The weak products create a lopsided product mix, long on yesterday's breadwinners and short on tomorrow's. In handling aging products, a company faces a number of tasks and decisions. The first task is to establish a system for identifying weak products. Many companies appoint a productreview committee with representatives from marketing, R&D, manufacturing, and finance. The controller's office supplies data for each product showing trends in market size, market share, prices, costs, and profits. A computer program then analyzes this information. The managers responsible for dubious products fill out rating forms showing where they think sales and profits will go, with and without any changes in marketing strategy. The productreview committee makes a recommendation for each productleave it alone, modify its marketing strategy, or drop it.53 Some firms abandon declining markets earlier than others. Much depends on the presence and height of exit barriers in the industry.54 The lower the exit barriers, the easier it is for firms to leave the industry, and the more tempting it is for the remaining firms to stay and attract the withdrawing firms' customers. For example, Procter & Gamble stayed in the declining liquid-soap business and improved its profits as others withdrew. According to one study of company strategies in declining industries, five strategies are available to the firm: 1. Increasing the firm's investment (to dominate the market or strengthen its competitive position). 2. Maintaining the firm's investment level until the uncertainties about the industry are resolved. 3. Decreasing the firm's investment level selectively, by dropping unprofitable customer groups, while simultaneously strengthening the firm's investment in lucrative niches. 4. Harvesting ("milking") the firm's investment to recover cash quickly. 5. Divesting the business quickly by disposing of its assets as advantageously as possible.53 The appropriate strategy depends on the industry's relative attractiveness and the company's competitive strength in that industry. A company that is in an unattractive industry but possesses competitive strength should consider shrinking selectively. A company that is in an attractive industry and has competitive strength should consider strengthening its investment. Look what Quaker Oats has done with oatmeal.
- QUAKER OATS
After being banished to the cupboard for years, instant oatmeal has staged a comeback with campaigns emphasizing health (for all) and fun (for kids) as oatmeal sales shot up in the late 1990s. The category turnaround began in January 1997 when the FDA permitted manufacturers to state that "diets low in saturated fat and cholesterol that include soluble fiber from oatmeal may reduce the risk of heart disease." Quaker Oats, which owns almost two-thirds of the category, capitalized on the opportunity to target kids by infusing fun with nutrition through new oatmeal products such as Sea Adventures and Dinosaur Eggs.56
If the company were choosing between harvesting and divesting, its strategies would be quite different. Harvesting calls for gradually reducing a product or business's costs while trying to maintain sales. The first step is to cut R&D costs and plant and equipment investment. The company might also reduce product quality, sales force size, marginal services, and advertising expenditures. It would try to cut these costs without letting customers, competitors, and employees know what is happening. Harvesting is difficult to execute. Yet many mature products warrant this strategy. Harvesting can substantially increase the company's current cash flow.57
Companies that successfully restage or rejuvenate a mature product often do so by adding value to the original product. Consider the experience of Pitney Bowes, the dominant producer of postage meters.
PITNEY BOWES
In 1996, critics, and even Pitney Bowes insiders, predicted that faxes would kill regular mail, on which Pitney's business relies. Then they predicted that e-mail would kill faxes and that all these technological advances combined would kill Pitney's profits. As it happens, the surge in direct mail and Internet-related bills has generated more mail, not less, but the Internet also enabled new companies such as e-Stamps and stamps.com to enter Pitney's territory by offering a way to download stamps over the Internet. Pitney recast itself as a messaging companyits slogan became "Engineering the Flow of Communication." It developed software products that let customers track incoming materials and outgoing products, convert bills and print files to fax or e-mail, and track when a document has been acted upon. Pitney also provides electronic billing services for e-commerce companies and even added an electronic-stamp business to compete with the stamp start-ups. Pitney's view: The Internet is not the enemy; rather, it is a vehicle for becoming a broadbased messaging company.58
When a company decides to drop a product, it faces further decisions. If the product has strong distribution and residual goodwill, the company can probably sell it to another firm. If the company can't find any buyers, it must decide whether to liquidate the brand quickly or slowly. It must also decide on how much inventory and service to maintain for past customers. The Product Life-Cycle Concept: Critique The PLC concept helps marketers interpret product and market dynamics. It can be used for planning and control, although it is useful as a forecasting tool. PLC theory has its share of critics. They claim that life-cycle patterns are too variable in shape and duration. Critics charge that marketers can seldom tell what stage the product is in. A product may appear to be mature when actually it has reached a plateau prior to another upsurge. They charge that the PLC pattern is the result of marketing strategies rather than an inevitable course that sales must follow: Suppose a brand is acceptable to consumers but has a few bad years because of other factorsfor instance, poor advertising, delisting by a major chain, or entry of a "me-too" competitive product backed by massive sampling. Instead of thinking in terms of corrective measures, management begins to feel that its brand has entered a declining stage. It therefore withdraws funds from the promotion budget to finance R&D on new items. The next year the brand does even worse, panic increases.... Clearly, the PLC is a dependent variable which is determined by marketing actions; it is not an independent variable to which companies should adapt their marketing programs.59 Table 10.3 summarizes the characteristics, marketing objectives, and marketing strategies of the four stages of the PLC.
: : : Market Evolution
Because the PLC focuses on what is happening to a particular product or brand rather than on what is happening to the overall market, it yields a product-oriented picture rather than a market-oriented picture. Firms need to visualize a market's evolutionary path as it is affected by new needs, competitors, technology, channels, and other developments.60 In the course of a product's or brand's existence, its positioning must change to keep pace with market developments. Consider the case of Lego.
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TABLE 10.3
Summary of Product Life-Cycle Characteristics, Objectives, and Strategies Introduction Growth Maturity Decline
Characteristics Sales Costs Profits Customers Competitors Marketing Objectives Create product awareness and trial Strategies Product Price Distribution Advertising Offer a basic product Charge cost-plus Build selective distribution Build product awareness among early adopters and dealers Use heavy sales promotion to entice trial Offer product extensions, service, warranty Price to penetrate market Build intensive distribution Build awareness and interest in the mass market Reduce to take advantage of heavy consumer demand Diversify brands and items models Price to match or best competitors' Build more intensive distribution Stress brand differences and benefits Increase to encourage brand switching Phase out weak Cut price Go selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyals Reduce to minimal Maximize market share Maximize profit while defending market share Reduce expenditure and milk the brand Low sales High cost per customer Negative Innovators Rapidly rising sales Average cost per customer Rising profits Early adopters Growing number Peak sales Low cost per customer High profits Middle majority Stable number beginning to decline Declining sales Low cost per customer Declining profits Laggards Declining number
Few
Sales Promotion
level
Sources: Chester R. Wasson, Dynamic Competitive Strategy and Product Life Cycles (Austin, TX: Austin Press, 1978); John A. Weber, "Planning Corporate Growth with Inverted Product Life Cycles," Long Range Planning (October 1976): 12-29; Peter Doyle, "The Realities of the Product Life Cycle," Quarterly Review of Marketing (Summer 1976).
LEGO
GROUP
LEGO Group, the Danish toy company, enjoyed a 72 percent global market share of the construction-toy market; but children were spending more of their spare time with video games, computers, and television and less time with traditional toys. Lego recognized the need to change or expand its market space. It redefined its market space as "family edutainment," which included toys, education, interactive technology, software, computers, and consumer electronics. All involved exercising the mind and having fun. Part of LEGO Group's plan is to capture an increasing share of customer spending as children become young adults and then parents.
Like products, markets evolve through four stages: emergence, growth, maturity, and decline. EMERGENCE Before a market materializes, it exists as a latent market. For example, for centuries people have wanted faster means of calculation. The market satisfied this need with abacuses, slide rules, and large adding machines. Suppose an entrepreneur recognizes
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An ad to the trade for the LEGO 2004 product line. LEGO is redefining its market space as "family edutainment," not just children's construction toys.
this need and imagines a technological solution in the form of a small, handheld electronic calculator. He now has to determine the product attributes, including physical size and number of mathematical functions. Because he is market-oriented, he interviews potential buyers and finds that target customers vary greatly in their preferences. Some want a fourfunction calculator (adding, subtracting, multiplying, and dividing) and others want more functions (calculating percentages, square roots, and logs). Some want a small hand calculator and others want a large one. This type of market, in which buyer preferences scatter evenly, is called a diffused-preference market. The entrepreneur's problem is to design an optimal product for this market. He or she has three options: 1. The new product can be designed to meet the preferences of one of the corners of the market {a single-niche strategy). 2. Two or more products can be simultaneously launched to capture two or more parts of the market (a multiple-niche strategy). 3. The new product can be designed for the middle of the market {a mass-market strategy). For small firms, a single-niche market strategy makes the most sense. A small firm does not have the resources for capturing and holding the mass market. A large firm might go after the mass market by designing a product that is medium in size and number of functions. Assume that the pioneer firm is large and designs its product for the mass market. On launching the product, the emergence stage begins.61
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(a) Market-fragmentation Stage
GROWTH If the new product sells well, new firms will enter the market, ushering in a market-growth stage. Where will a second firm enter the market, assuming that the first firm established itself in the center? If the second firm is small, it is likely to avoid head-on competition with the pioneer and to launch its brand in one of the market corners. If the second firm is large, it might launch its brand in the center against the pioneer. The two firms can easily end up sharing the mass market. Or a large second firm can implement a multipleniche strategy and surround and box in the pioneer.
(b) Market-consolidation Stage
FIG. 10.5 I
Market-Fragmentation and MarketConsolidation Strategies
MATURITY Eventually, the competitors cover and serve all the major market segments and the market enters the maturity stage. In fact, they go further and invade each others' segments, reducing everyone's profits in the process. As market growth slows down, the market splits into finer segments and high market fragmentation occurs. This situation is illustrated in Figure 10.5(a) where the letters represent different companies supplying various segments. Note that two segments are unserved because they are too small to yield a profit. Market fragmentation is often followed by a market consolidation caused by the emergence of a new attribute that has strong appeal. This situation is illustrated in Figure 10.5(b) and the expansive size of the X territory. "Marketing Insight: Dynamics of Attribute Competition" discusses how new attributes emerge in a market. However, even a consolidated market condition will not last. Other companies will copy a successful brand, and the market will eventually splinter again. Mature markets swing between fragmentation and consolidation. The fragmentation is brought about by competition, and the consolidation is brought about by innovation. Consider the evolution of the paper towel market.
MARKETING INSIGHT
DYNAMICS OF ATTRIBUTE COMPETITION
Competition produces a continuous round of new product attributes. If a new attribute succeeds, several competitors soon offer it. To the extent that oil companies all offer credit card payment at gas station pumps, payment methods are no longer a basis for choosing a gas station. Customer expectations are progressive. This fact underlines the strategic importance of maintaining the lead in introducing new attributes. Each new attribute, if successful, creates a competitive advantage for the firm, leading to temporarily higher-than-average market share and profits. The market leader must learn to routinize the innovation process. Can a firm look ahead and anticipate the succession of attributes that are likely to win favor and be technologically feasible? How can the firm discover new attributes? There are four approaches. 1. A customer-survey process: The company asks consumers what benefits they would like added to the product and their desire level for each. The firm also examines the cost of developing each new attribute and likely competitive responses. 2. An intuitive process: Entrepreneurs get hunches and undertake product development without much marketing research. Natural selection determines winners and losers. If a manufacturer has intuited an attribute that the market wants, that manufacturer is considered smart or lucky. 3. A dialectical process: Innovators should not march with the crowd. Thus blue jeans, which began as an inexpensive article of
clothing, over time became fashionable and more expensive. This unidirectional movement, however, contains the seeds of its own destruction. Eventually, the price falls again or some manufacturer introduces another cheap material for pants. 4. A needs-hierarchy process: (See Maslow's theory in Chapter 6.) We would predict that the first automobiles would provide basic transportation and be designed for safety. Later, automobiles would start appealing to social acceptance and status needs. Still later, automobiles would be designed to help people "fulfill" themselves. The innovator's task is to assess when the market is ready to satisfy a higher-order need. The actual unfolding of new attributes in a market is more complex than simple theories suggest. We should not underestimate the role of technology and societal processes. For example, the strong consumer wish for portable computers remained unmet until miniaturization technology was sufficiently developed. Developments such as inflation, shortages, environmentalism, consumerism, and new lifestyles lead consumers to reevaluate product attributes. Inflation increases the desire for a smaller car, and a desire for car safety increases the desire for a heavier car. The innovator must use marketing research to gauge the strength of different attributes to determine the company's best move.
Source: Marnik G. Dekimpe and Dominique M. Hanssens, "Empirical Generalizations about Market Evolution and Stationarity," Marketing Science 1' no. 3, pt. 1 (1995): G109-121.
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PAPER
TOWELS
Originally, homemakers used cotton and linen dishcloths and towels in their kitchens. A paper company, looking for new markets, developed paper towels. This development crystallized a latent market. Other manufacturers entered the market. The number of brands grew and created market fragmentation. Industry overcapacity led manufacturers to search for new features. One manufacturer, hearing consumers complain that paper towels were not absorbent, introduced "absorbent" towels and increased its market share. This market consolidation did not last long because competitors came out with their own versions of absorbent paper towels. The market fragmented again. Then another manufacturer introduced a "superstrength" towel. It was soon copied. Another manufacturer introduced a "lint-free" paper towel, which was subsequently copied. Thus paper towels evolved from a single product to one with various absorbencies, strengths, and applications. Market evolution was driven by the forces of innovation and competition.
DECLINE Eventually, demand for the present products will begin to decrease, and the market will enter the decline stage. Either society's total need level declines or a new technology replaces the old. For example, shifts in tradition and a trend toward cremation have caused casket makers and funeral homes to reconsider how to conduct their business.62
SUMMARY : : :
1. Deciding on positioning requires the determination of a frame of referenceby identifying the target market and the nature of the competitionand the ideal points-ofparity and points-of-difference brand associations. To determine the proper competitive frame of reference, one must understand consumer behavior and the considerations consumers use in making brand choices. 2. Points-of-difference are those associations unique to the brand that are also strongly held and favorably evaluated by consumers. Points-of-parity are those associations not necessarily unique to the brand but perhaps shared with other brands. Category point-of-parity associations are associations consumers view as being necessary to a legitimate and credible product offering within a certain category. Competitive point-of-parity associations are those associations designed to negate competitors' points-of-difference. 3. The key to competitive advantage is product differentiation. A market offering can be differentiated along five dimensions: product (form, features, performance quality, conformance quality, durability, reliability, repairability, style, design); services (order ease, delivery, installation, customer training, customer consulting, maintenance and repair, miscellaneous services); personnel, channel, or image (symbols, media, atmosphere, and events). 4. Because economic conditions change and competitive activity varies, companies normally find it necessary to reformulate their marketing strategy several times during a product's life cycle. Technologies, product forms, and brands also exhibit life cycles with distinct stages. The general sequence of stages in any life cycle is introduction, growth, maturity, and decline. The majority of products today are in the maturity stage. 5. Each stage of the product life cycle calls for different marketing strategies. The introduction stage is marked by slow growth and minimal profits. If successful, the product enters a growth stage marked by rapid sales growth and increasing profits. There follows a maturity stage in which sales growth slows and profits stabilize. Finally, the product enters a decline stage. The company's task is to identify the truly weak products; develop a strategy for each one; and phase out weak products in a way that minimizes the hardship to company profits, employees, and customers. 6. Like products, markets evolve through four stages: emergence, growth, maturity, and decline.
APPLICATIONS : : :
Marketing D e b a t e Do Brands Have Finite Lives?
their long-term success depends on the skill and insight of the marketers involved. Take a position: Brands cannot be expected to last forever versus There is no reason for a brand to ever become obsolete.
Often, after a brand begins to slip in the marketplace or disappears altogether, commentators observe, "all brands have their day." Their rationale is that all brands, in some sense, have a finite life and cannot be expected to be leaders forever. Other experts contend, however, that brands can live forever, and
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BUILDING STRONG BRANDS <
Marketing Discussion
Identify other negatively correlated attributes and benefits not included in Table 10.2. What strategies do firms use to try to position themselves on the basis of pairs of attributes and benefits?
MARKETING SPOTLIGHT
KRISPY KREME
Krispy Kreme makes 2.7 billion donuts a year. But it took more than fresh, hot donuts to earn Krispy Kreme the title of "hottest brand in America" in 2003. Krispy Kreme's stock price quadrupled in the three years following its IPO in 2000, and the entire chain now generates a billion dollars in annual revenues across more than 300 outlets. How did Krispy Kreme turn donuts into dollars? Careful brand positioning and local marketing tell the story. "We have a humble brand and product," says Krispy Kreme CEO Scott Livengood. "It's not flashy." The company is not new it was founded in 1937and part of its brand image is an old-fashioned feel. The plain red, green, and white colors and retro graphics evoke the squeakyclean Happy Days of the 1950s, as do the Formica-filled, kid-friendly shops. "We want every customer experience to be associated with good times and warm memories," Livengood says. The company's brand image also rests on its fresh, hot donutsa freshness that's measured in hours. In a world of processed, prepackaged food, nothing beats a fresh, hot donut. The company's marketing is grassroots local. Krispy Kreme has no traditional media advertising budget. Rather, local "community marketing managers" enlist the aid of local groups and charities. For example, the company helps charities raise money by selling them donuts at half price which they can re-sell at full price. Local bake sales become a promotional tool for Krispy Kreme. Another tactic is giving away free donuts to TV, newspapers, and radio stations before entering a market. Krispy Kreme scored a publicity coup in 1996 when it opened its first store in New York City. The company delivered boxes of donuts to the Today Show, garnering millions of dollars worth of national exposure for the price of a few donuts. Even the day of the IPO relied on the buzz from free Krispy Kreme donuts on the floor of the stock exchange. Each local outlet is an emissary for the brand, and Krispy Kreme's signature Doughnut Theater defines the brand image. A multisensory experience, Doughnut Theater occurs several times a day at each shop. When the store flicks on its "Hot Doughnuts Now" sign, the performance is about to begin. A large plate glass wall lets customers watch the whole process. The Doughnut Theater experience works on three levels. On a direct level, the performance entertains customers and draws them into the donut-making experience. On an indirect level, it shows that the products are freshly made in a clean environment. On a subliminal level, as CEO Livengood describes it, "The movement of the products on the conveyor through our proofbox has this relaxing, almost mesmerizing effect. The only other thing like it is standing on the oceanfront and watching the tide come in. It has that same consistent, relaxing motion that is really positive to people." People flock to the store to see wave after wave of donuts emerge hot and deliciously fresh. They happily stand in long lines around newly opened outlets to get the aroma of the donuts being made, the sight of the vanilla glaze waterfall, and the warmth of the hot donut that "just melts in your mouth and tastes so good," Livengood says.
Doughnut Theater is a bit of show business that draws customers into the baking experience and makes them feel like they are a part of the process. Another aspect of show business is product placements on hit shows like The Sopranos and WHI& Grace and movies like Bruce Almighty. Finally, international expansion is fueled by celebrities like Dick Clark, Hank Aaron, and Jimmy Buffet, who clamored for Krispy Kreme franchises of their own. Krispy Kreme doesn't just grant franchise rights to anyone. Krispy Kreme makes 65 percent of its revenue selling donuts directly to the public through its 106 company-owned stores. Another 31 percent comes from selling flour mix, donut-making machines, and donut supplies to its 186 franchised stores. The final 4 percent of revenue comes from franchisee licenses and fees. Krispy Kreme is now expanding and selling donuts through convenience stores. Will this hurt the brand? Stan Parker, Krispy Kreme's senior vice president of marketing, says it won't because the company continues to emphasize freshness. It replenishes the packaged donuts daily from the local Krispy Kreme store and removes any unsold packages. The donuts' presence in convenience stores will help remind people of the taste of a fresh, hot Krispy Kreme donut, and that brings them back into a Krispy Kreme shop. The success of Krispy Kreme has been a wake-up call for competitor Dunkin' Donuts, which had become complacent. The one-two punch of Krispy Kreme in donuts and Starbucks in coffee led Dunkin' Donuts to revamp its menu and its stores, neither of which had changed in years. Rather than innovate, Dunkin' Donuts looked at what customers were already eating elsewhere. It brought in basic products like bagels, low-fat muffins, and breakfast sandwiches. Dunkin Donuts still dwarfs Krispy Kreme in size, with 2003 revenues of $3 billion, but it must work to find new ways of creating excitement that builds customer pride, because one thing is sure: Krispy Kreme refuses to be dull. Discussion Questions 1. What have been the key success factors for Krispy Kreme? 2. Where is Krispy Kreme vulnerable? What should it watch out for? 3. What recommendations would you make to senior marketing executives going forward? What should they be sure to do with its marketing?
Sources: Andy Serwer, "The Hole Story: How Krispy Kreme Became the Hottest Brand in America," Fortune, July 7, 2003, pp. 52-62; "Create 'Spontaneous' Media Events," Business 2.0, December 2003; Barbara Grondin Francella, "Krispy Kreme Is Sweet on C-Stores," Convenience Store News, October 12, 2003, p. 70; "Profile: Ethical SweetenerCharlotte Taylor, Community Marketing Manager, Krispy Kreme," Marketing, September 11, 2003, p. 18; Dan Malovany, "Kreme de la Kreme," Snack Food & Wholesale Bakery, February 2002; Kirk Kazanjian and Amy Joyner, Making Dough: The 12 Secret Ingredients of Krispy Kreme's Sweet Success (New York: John Wiley & Sons, 2003); Daniel McGinn, "Oh, Sweet Revenge: Dunkin' Donuts Faces Two High-End Rivals," Newsweek, September 29, 2003, p. 34; <www.krispykreme.com>.
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NOTES : : :
1. Joseph Weber, "Public TV's Identity Crisis," BusinessWeek, September 30, 2002, pp. 65-66; Joe Flint, "PBS Takes Tack of Commercial Peers: Think Young," Wall Street Journal, March 27, 2002, pp. Bl, B4. 2. Kortney Stringer, "Hard Lesson Learned: Premium and No-Frills Don't Mix," Wall Street Journal, November 3, 2003, p. Bl. 3. Al Ries and Jack Trout, Positioning: The Bat tie for Your Mind (New York: Warner Books, 1982). 4. Alice M. Tybout and Brian Stcrnthal, "Brand Positioning," in Kellogg o)i Marketing, edited by Dawn Iacobucci (New York: John Wiley & Sons, 2001), p. 35; Theresa Howard, "DiGiorno's Campaign Delivers Major Sales," USA Today, April 1, 2002. 5. Kevin Lane Keller, Brian Stenthal, and Alice Tybout (2002), "Three Questions You Need to Ask About Your Brand," Harvard Business Review, 80 (September), pp. 80-89. 6. Richard Heller, "Folk Fortune," Forbes, September 4, 2000, pp. 66-69. 7. Julia Boorstin, "How Coach Got Hot," Fortune, October 28, 2002, pp. 132-134. 8. Professor Brian Sternthal, "Miller Lite Case," Kellogg Graduate School of Management, Northwestern University. 9. Jim Hopkins, "When the Devil Is in the Design, USA Today, December 31, 2001, p. 3B. 10. Keith Naughton, "Ford's 'Perfect Storm'," Newsweek, September 17, 2001, pp. 48-50. 11. Dale Buss, "Sweet Success," Brandweek, May 12, 2003, pp. 22-23. 12. Gregory S. Carpenter, Rashi Glazer, and Kent Nakamoto, "Meaningful Brands from Meaningless Differentiation: The Dependence on Irrevelant Attributes," Journal of Marketing Research, August 1994: 339-50. 13. Naomi Aoki, "An Alteration at Brooks Brothers Derailed by Casual Era Retailer Returns to Its Roots," Boston Globe, November 12, 2003, p. El. 14. Katrina Brooker, "The Chairman of the Board Looks Back," Fortune, May 28, 2001. 15. Bridget Finn, "Selling Cool in a Bottleof Dish Soap," Business 2.0, December 2003, pp. 72-73. 16. Robert D. Buzzell and Bradley T. Gale, ThePIMS Principles: Linking Strategy to Performance (New York: Free Press, 1987). 17. "The 25 Best Sales Forces," Sales & Marketing Management (July 1998): 32-50. 18. For a similar list, see Leonard L. Berry and A. Parasuraman, Marketing Services: Competing Through Qualit)' (New York: The Free Press, 1991), p. 16. 19. Sarah Fister Gale, "The Bookstore Battle," Workforce January 2004, pp. 51-53. Management, 20. William C. Symonds, "Working for Working Adults," BusinessWeek, June 9, 2003, p. 86. 21. Karen Axelrod and Bruce Brumberg, Watch It Made in the U.S.A. (Santa Fe: John Muir Publications, 1997). 22. Some authors distinguished additional stages. Wasson suggested a stage of competitive turbulence between growth and maturity. See Chester R. Wasson, Dynamic Competitive Strategy and Product Life Cycles (Austin, TX: Austin Press, 1978). Maturity describes a stage of sales growth slowdown and saturation, a stage of flat sales after sales have peaked. 23. John E. Swan and David R. Rink, "Fitting Market Strategy to Varying Product Life Cycles," Business Horizons (JanuaryFebruary 1982): 72-76; Gerald J. Tellis and C. Merle Crawford, "An Evolutionary Approach to Product Growth Theory," Journal of Marketing (Fall 1981): 125-134. 24. William E. Cox Jr., "Product Life Cycles as Marketing Models," journal of Business (October 1967): 375-384. 25. Jordan P Yale, "The Strategy of Nylon's Growth," Modern 'Textiles Magazine, February 1964, p. 32. Also see Theodore Levitt, "Exploit the Product Life Cycle," Harvard Business Review (NovemberDecember 1965): 81-94. 26. Chester R. Wasson, "How Predictable Are Fashion and Other Product Life Cycles?" Journal of Marketing (July 1968): 36-43. 27. Wasson, "How Predictable Are Fashion and Other Product Life Cycles?" pp. 36-43. 28. William FI. Reynolds, "Cars and Clothing: Understanding Fashion Trends," Journal of Marketing (July 1968): 44-49. 29. Patrick Butters, "What Biggest Selling Adult Game Still Cranks Out Vexing Questions?" Insight on the News, January 26, 1998, p. 39. 30. Robert D. Buzzell, "Competitive Behavior and Product Life Cycles," in New Ideas for Successful Marketing, edited by John S. Wright and Jack Goldstucker (Chicago: American Marketing Association, 1956), p. 51. 31. Rajesh J. Chandy, Gerard J. Tellis, Deborah J. Maclnnis, and Pattana Thaivanich, "What to Say When: Advertising Appeals in Evolving Markets," Journal of Marketing Research 38 (November): 399-414. 32. William T. Robinson and Claes Fornell, "Sources of Market Pioneer Advantages in Consumer Goods Industries," Journal of Marketing Research (August 1985): 305-317; Glen L. Urban et al., "Market Share Rewards to Pioneering Brands: An Empirical Analysis and Strategic Implications," Management Science (June 1986): 645-659. 33. Gregory S. Carpenter and Kent Nakamoto, "Consumer Preference Formation and Pioneering Advantage," Journal of Marketing Research (August 1989): 285-298.
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34. William T. Robinson and Sungwook Min, "Is the First to Market the First to Fail? Empirical Evidence for Industrial Goods Businesses," Journal of Marketing Research 39 (February 2002): 120-128. 35. Frank R. Kardes, Gurumurthy Kalyanaram, Murali Chankdrashekaran, and Ronald J. Dornoff, "Brand Retrieval, Consideration Set Composition, Consumer Choice, and the Pioneering Advantage," Journal of Consumer Research (June 1993): 62-75. See also, Frank H. Alpert and Michael A. Kamins, "Pioneer Brand Advantage and Consumer Behavior: A Conceptual Framework and Prepositional Inventory," Journal of the Academy of Marketing Science (Summer 1994): 244-253. 36. Thomas S. Robertson and Hubert Gatignon, "How Innovators Thwart New Entrants into Their Market," Planning Review (September-October 1991): 4-11, 48; Douglas Bowman and Hubert Gatignon, "Order of Entry as a Moderator of the Effect of Marketing Mix on Market Share," Marketing Science 15, no. 3, (1996): 222-242. 37. Venkatesh Shankar, Gregory S. Carpenter, and Lakshman Krishnamurthi, "bate Mover Advantage: How Innovative Late Entrants Outsell Pioneers," Journal of Marketing Research 35 (February 1998): 54-70. 38. Steven P. Schnaars, Managing Imitation Strategies (New York: The Free Press, 1994). See also, Jin K. Han, Namwoon Kim, and HonyBom Kin, "Entry Barriers: A Dull-, One-, or Two-Edged Sword for Incumbents? Unraveling the Paradox from a Contingency Perspective," Journal of Marketing (January 2001): 1-14. 39. Victor Kegan, "Second Sight: Second Movers Take All," The Guardian, October 10, 2002. 40. Peter N. Golder and Gerald J. Tellis, "Pioneer Advantage: Marketing Logic or Marketing Legend?" Journal of Marketing Research (May 1992): 34-46; Shi Zhang and Arthur B. Markman, "Overcoming the Early Advantage: The Role of Alignable and Nanalignable Differences," Journal of Marketing Research (November 1998): 1-15. 41. Gerald Tellis and Peter Golder, Will and Vision: How Latecomers Can Grow to Dominate Markets (New York: McGraw-Hill, 2001); Rajesh K. Chandy and Gerald J. Tellis, "The Incumbent's Curse? Incumbency, Size, and Radical Product Innovation," Journal of Marketing Research (July 2000): 1-17. 42. Linda Himelstein, "Yahoo! The Company, the Strategy, the Stock," BusinessWeek, September 7, 1998, pp. 66-76; Marc Gunther, "The Cheering Fades for Yahoo!," Fortune, November 12, 2001; Ben Elgin, "Inside Yahoo! The Untold Story of How Arrogance, Infighting, and Management Missteps Derailed One of the Hottest Companies on the Web," BusinessWeek, May 21, 2001, p. 114; Ben Elgin, "The Search War Is About to Get Bloody," BusinessWeek, July 28, 2003, pp. 72-73. 43. Himelstein, "Yahoo! The Company, the Strategy, the Stock," pp. 66-76; Gunther, "The Cheering Fades for Yahoo!"; Elgin, "Inside Yahoo! The Untold Story of I low Arrogance, Infighting, and Management Missteps Derailed One of the Hottest Companies on the Web," p. 114; Elgin, "The Search War Is About to Get Bloody," pp. 72-73. 44. Oscar Suris, "Ads Aim to Sell Hush Puppies to New Yuppies," Wall Street Journal, July 28, 1993, pp. Bl, B6; Keith Naughton, "Don't
Step on My Blue Suede Hush Puppies," BusinessWeek, September 11, 1995, pp. 84-86; Cyndee Miller, "Hush Puppies: All of a Sudden They're Cool," Marketing News, February 12, 1996, p. 10; Denise Gellene, "An Old Dog's New Tricks: Hush Puppies' Return in the '90s Is No Small Feet," Los Angeles Times, August 30, 1997, p. Dl; Malcolm Gladwell, "How to Start an Epidemic," The Guardian, April 22, 2000. 45. Sarah Ellison, "P&G to Buy Glide Dental Floss, A Popular Brand," Wall Street Journal, September 17, 2003, p. A19; Anonymous, "What's Flot: Promoting Dental Floss," Drug Store News, September 8, 2003, p. 23. 46. Allen J. McGrath, "Growth Strategies with a '90s Twist," Across the Board, March 1995, pp. 43-46. 47. Jane Eisinger Rooney, "Brand New Day," Association February 2003, pp. 46-51. Management,
48. Brian Wansink and Michael L. Ray, "Advertising Strategies to Increase Usage Frequency," Journal of Marketing (January 1996): 31-46. Also see Brian Wansink, "Expansion Advertising," in blow Advertising Works, edited by John Philip Jones (Thousand Oaks, CA: Sage Publications), pp. 95-103. 49. Stephanie Thompson, "Coffee Brands Think Outside of the Can," Advertising Age, July 28, 2003, p. 26. 50. Vanessa O'Connell, "Food: After Years of Trial and Error, a Pickle Slice That Stays Put," Wall Street Journal, October 6,1998, p. Bl; "Vlasic's Hamburger-Size Pickles," Wall Street Journal, October 5, 1998, p. A26, <www.vlasic.com>. 51. Kathryn Shattuck, "Mouthwash Without the Bottle," New York Times, July 7, 2002, p. 32; Michael Beirne and Aaron Baar, "Altoids Takes Offense in Breath Strips War," Brandweek, December 9, 2002, p. 4. 52. Stephen M. Nowlis and Itamar Simonson, "The Effect of New Product Features on Brand Choice," Journal of Marketing Research (February 1996): 36-46. 53. Philip Kotler, "Phasing Out Weak Products," Harvard Business Review (March-April 1965): 107-118; Richard T. Hise, A. Parasuraman, and R. Viswanathan, "Product Elimination: The Neglected Management Responsibility," Journal of Business Strategy (Spring 1984): 56-63; George J. Avlonitis, "Product Elimination Decision Making: Does Formality Matter," Journal of Marketing (Winter 1985): 41-52. 54. Kathryn Rudie Harrigan, "The Effect of Exit Barriers upon Strategic Flexibility," Strategic Management Journal 1 (1980): 165-176. 55. Kathryn Rudie Harrigan, "Strategies for Declining Industries," Journal of Business Strategy (Fall 1980): 27. 56. "Hot Cereal is One Hot Commodity," Prepared Poods, January 2000. 57. Philip Kotler, "Harvesting Strategies for Weak Products," Business Horizons (August 1978): 15-22; Laurence R Feldman and Albert L. Page, "I Iarvesting: The Misunderstood Market Exit Strategy," Journal of Business Strategy (Spring 1985): 79-85. 58. Claudia II. Deutsch, "Pitney Bowes Survives Faxes, E-Mail and the Internet," New York Times, August 18, 1998, p. Dl; Matthew Lubanko, "Pitney Bowes Faces E-Foes Despite Lion's Share of the Market," Hartford Courant, March 18, 2000, p. El.
CHAPTER 10
339
59. Nariman K. Dhalla and Sonia Yuspeh, "Forget the Product Life Cycle Concept!" Harvard Business Review (January-February 1976): 105. 60. Robert D. Buzzell, "Market Functions and Market Evolution," Journal of Marketings (Special Issue 1999): 61-63.
61. For a discussion of the evolution of the minivan market between 1982 and 1998, see Jose Antonio Rosa, Joseph F. Porac, Jelena Runser-Spanjol, and Michael S. Saxon, "Sociocognitive Dynamics in a Product Market," Journal of Marketing 63 (Special Issue 1999): 64-77. 62. Daniel Fisher, "Six Feet Under," Forbes, July 7, 2003, pp. 66-68.

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How is PBS adjusting its programming to attract a more diverse audience?

How is PBS adjusting its programming to attract a more diverse audience?

What challenges does PBS face in attracting new, younger viewers?

What challenges does PBS face in attracting new, younger viewers?

CHAPTER 10

CRAFTING THE BRAND POSITIONING

Service finds its brand in a difficult

The average nightly prime-time

ratings for public television's

and Fox News siphoned

growth. PBS's loyal audience is agingthe

average age of a prime-time new, younger

viewer is the mid-fifties. while still maintaining

the quality programming to proclaim

BUILDING STRONG BRANDS

Ill Developing and Communicating a Positioning Strategy

CRAFTING THE BRAND POSITIONING

Price 10% premium 20% premium 15% premium

VALUE DISCIPLINES POSITIONING

BUILDING STRONG BRANDS

Points-of-Parity and Points-of-Difference

CRAFTING THE BRAND POSITIONING

BUILDING STRONG BRANDS

Establishing Category Membership

CRAFTING THE BRAND POSITIONING

Choosing POPs and PODs

BUILDING STRONG BRANDS

WRITING A POSITIONING STATEMENT

> CRAFTING THE BRAND POSITIONING

Examples of Negatively Correlated Attributes and Benefits

BUILDING STRONG BRANDS

HOW TO DERIVE FRESH CONSUMER INSIGHTS TO DIFFERENTIATE PRODUCTS A N D SERVICES

i What happens when your product or service is delivered?

CRAFTING THE BRAND POSITIONING

BUILDING STRONG BRANDS

CRAFTING THE BRAND POSITIONING

Ill Product Life-Cycle Marketing Strategies

BUILDING STRONG BRANDS

EXCEEDING CUSTOMER EXPECTATIONS

FIG. 1 0 . 1 Sales and Profit Life Cycles

CRAFTING THE BRAND POSITIONING

(a) Growth-Slump-Maturity Pattern

(b) Cycle-Recycle Pattern

(c) Scalloped Pattern

F I G . 1 0 . 2 I Common Product Life-Cycle Patterns

FIG. 1 0 . 3 | Style, Fashion, and Fad Life Cycles

BUILDING STRONG BRANDS

Marketing Strategies: Introduction Stage and the Pioneer Advantage

CRAFTING THE BRAND POSITIONING

BUILDING STRONG BRANDS

CRAFTING THE BRAND POSITIONING

BUILDING STRONG BRANDS

a year after its release.51

CRAFTING THE BRAND POSITIONING

Marketing Strategies: Decline Stage

BUILDING STRONG BRANDS

CRAFTING THE BRAND POSITIONING

BUILDING STRONG BRANDS