11 New Strategic Brand Management by Philip Kotler   4th Edition
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11 New Strategic Brand Management by Philip Kotler 4th Edition


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of quality Food, staples Weak
Optimisation of choice, sign of Cars, cosmetics, appliances, Strong
high-quality performance paint, services
Personalising one\u2019s choice Perfumes, clothing Strong
Permanence, bonding, Old brands Strong but challenged
familiarity relationship
Pleasure Polysensual brands, luxury brands Strong
Ethics and social responsibility Trust brands, corporate brands Strong but challenged
company with brands the financial analyst is
acquiring near certain future cashflows.
If the brand is strong it benefits from a high
degree of loyalty and thus from stability of
future sales. Ten per cent of the buyers of
Volvic mineral water are regular and loyal and
represent 50 per cent of the sales. The repu-
tation of the brand is a source of demand and
lasting attractiveness, the image of superior
quality and added value justifies a premium
price. A dominant brand is an entry barrier to
competitors because it acts as a reference in its
category. If it is prestigious or a trendsetter in
terms of style it can generate substantial
royalties by granting licences, for example, at
its peak, Naf-Naf, a designer brand, earned
over £6 million in net royalties. The brand can
enter other markets when it is well known, is a
symbol of quality and offers a certain promise
which is valued by the market. The Palmolive
brand name has become symbolic of mildness
and has been extended to a number of
markets besides that of soap, for example
shampoo, shaving cream and washing-up
liquid. This is known as brand extension (see
Chapter 12) and saves on the need to create
awareness if you had to launch a new product
on each of these markets.
In determining the financial value of the
brand, the expert must take into account the
sources of any additional revenues which are
generated by the presence of a strong brand.
Additional buyers may be attracted to a
product which appears identical to another
but which has a brand name with a strong
reputation. If such is the company\u2019s strategy
the brand may command a premium price in
addition to providing an added margin due to
economies of scale and market domination.
Brand extensions into new markets can result
in royalties and important leverage effects. To
calculate this value, it is necessary to subtract
the costs involved in brand management: the
costs involved in quality control and in
investing in R&D, the costs of a national,
indeed international, sales force, advertising
costs, the cost of a legal registration, the cost
of capital invested, etc. The financial value of
the brand is the difference between the extra
revenue generated by the brand and the asso-
ciated costs for the next few years, which are
discounted back to today. The number of
years is determined by the business plan of the
valuer (the potential buyer, the auditors). The
discount rate used to weigh these future cash-
flows is determined by the confidence or the
lack of it that the investor has in his or her
forecasts. However, a significant fact is that
the stronger the brand, the smaller the risk.
Thus, future net cashflows are considered
more certain when brand strength is high.
Figure 1.2 shows the three generators of
profit of the brand: the price premium, more
attraction and loyalty, and higher margin.
These effects work on the original market for
the brand but they can be offered subse-
quently on other markets and in other
product categories, either through direct
brand extension (for example, Bic moved
from ballpoint pens to lighters to disposable
razors and recently to sailboards) or through
licensing, from which the manufacturer
benefits from royalties (for example all the
luxury brands, and Caterpillar).
Once these levers are measured in euros,
yen, dollars or any other currency they may
serve as a base for evaluating the marginal
profit which is attributable to the brand. They
only emerge when the company wishes to
strategically differentiate its products. This
wish can come about through three types of
investment:
l Investment in production, productivity and
R&D. Thanks to these, the company can
acquire specific know-how, a knack which
cannot be imitated and which in
accounting terms is also an intangible asset.
Sometimes the company temporarily blocks
new entrants by registering a patent. This is
the basis of marketing in the pharmaceu-
tical industry (a patent and a brand) but also
of companies like Ferrero, whose products
are not easily imitated despite their success.
24 WHY IS BRANDING SO STRATEGIC?
Patents are on their own an intangible asset:
the activity of the company benefits from
them in a lasting manner.
l Investment in research and marketing
studies in order to get new insights, to antic-
ipate the changes of consumers\u2019 tastes and
life-styles in order to define any important
innovations which will match these evolu-
tions. Chrysler\u2019s Minivan is an example of a
product created in anticipation of the
demands of baby boomers with tall children.
An understanding of the expectations of
distributors is also needed, as they are an
essential component of the physical prox-
imity of brands. Nowadays a key element of
brand success is understanding and adapting
to the logic of distributors, and developing
good relations with the channels (even
though it is still necessary when valuing a
brand to make a distinction between what
part of its sales is due to the power of the
company and what part to the brand itself).
l Investment in listing allowances, in the
sales force and merchandising, in trade
marketing and, naturally, in communi-
cating to consumers to promote the
uniqueness of the brand and to endow it
with saliency (awareness), perceived
difference and esteem. The hidden intrinsic
qualities or intangible values which are
associated with consumption would be
unknown without brand advertising.
BRAND EQUITY IN QUEST ION 25
CORPORATE
RESOURCES
EXTENDING BRAND EQUITY
BEYOND ITS CATEGORY AND COUNTRY
MKTG INVESTMENTS
FORECASTING CHANGES
OF CONSUMER VALUES
AND LIFE-STYLES
BRAND RELEVANCE
AND ADAPTATION TO
ITS PRESENT MARKET
PERCEIVED VALUE
VIS-À-VIS COMPETITION
INCREMENTAL
ATTRACTION
AND LOYALTY
INVESTMENTS:
PRODUCTIVITY, R&D
KNOW-HOW, PATENTS
LEVEL OF
OBJECTIVE QUALITY
COST OF QUALITY
COMPETITION
\u2013 OTHER BRANDS
\u2013 DOB'S
\u2013 HARD DISCOUNT
LEVEL OF
SUSTAINABLE
PRICE PREMIUM
DISTRIBUTION
INVESTMENTS
(PROXIMITY,
AVAILABILITY)
AND COMMUNICATION
SHARE OF VOICE
SHARE OF MIND
SHARE OF SHELF
CUSTOMERS'
\u2013 INVOLVEMENT
\u2013 PRICE SENSITIVITY
\u2013 BUYING CRITERIA
COST ADVANTAGES
DUE TO MARKET
LEADERSHIP
BRAND SALIENCY
Figure 1.2 The levers of brand profitability
The value of the brand, and thus the legit-
imacy of implementing a brand policy,
depends on the difference between the
marginal revenues and the necessary marginal
costs associated with brand management.
How brand reputation affects the
impact of advertising
Brands are a form of capital that can slowly be
built, while in the meantime one is growing
business. Of course it is very possible to grow a
business without creating such brand capital:
a push strategy or a price strategy can deliver
high sales and market share without building
any brand equity. This is the case for many
private labels or own-label brands, for
instance. The volume leader in the market for
Scotch whisky in France is not Johnnie Walker
or Ballantines or Famous Grouse but William
Peel, a local brand that aimed all its efforts at
the trade (hypermarkets) and sells at a low
price. It has almost no saliency (spontaneous
brand awareness).
Now managers are being asked to build
both business and brand value. Their salary is
indexed on these two yardsticks: sales and
reputation. One should not see them as
separate, leading to a kind of schizophrenia.
Chaudhuri\u2019s very relevant research (2002)
reminds