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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they can board, via machines
that deliver boarding cards: this also helps to
economise on personnel. The same is true for
the growing use of the internet to book and to
pay. For low-cost companies, as is well known,
everything is done at a distance.
Finally, the brand must react through a
specific business model. Air France adopted the
hub-style business model: it allows any trav-
eller from the French regions to travel to Paris
on an Air France flight and to make use of very
convenient international connections (with
short waiting times), not to mention the imme-
diate transfer of baggage, and moving within a
single terminal. All these added values
discourage the internal traveller from flying to
Paris with a low-cost company, then being
forced to change airports or terminals, without
guaranteed immediate connections to interna-
tional flights \u2013 not to mention the air miles.
Should manufacturers produce
goods for DOBs?
One of the questions all company managers
ask concerns the opportunity to work for
distributors\u2019 brands. This question is even
more urgent today, since with the shrinking of
the shelf space allocated to branded industri-
alists, their economic model is under threat.
How can they maintain the volumes that
FROM PR IVATE LABELS TO STORE BRANDS 93
create profitability?
Those industrialists in favour of producing
DOB goods advance the following arguments:
I It relieves the burden of fixed costs.
I It allows them to benefit from economies
of scale.
I It may be intrinsically profitable, since
there is no need for marketing, communi-
cation, or sales force.
I If they do not do it, their competitors will.
In contrast, those who oppose it are right to
argue that it will undermine the long-term
legitimacy of the company\u2019s own brands,
since the industrialist will not be capable of
producing a bad product. For a while the
product Olympia manufactured for Carrefour
was superior to the comparable product of the
brand itself. An examination of the figures in
the cheese sector also shows that the most
profitable cheese maker is Bel, which sells
only branded products (Laughing Cow, Mini
Babybel, Leerdammer, etc).
Rather than drawing up a pointless balance
sheet for and against, it is worth turning to
research in this case. HEC has carried out
several specific studies on this important
theme for companies in all sectors, under the
direction of M Santi (Santi, 1996). The
selected criterion is operational profitability
compared with turnover, and the sample
comprised 167 cases drawn from numerous
mass-consumption sectors. What does this
research have to teach us?
I The profitability level is maximal when the
policy is the result of a voluntary strategy (9
per cent) and not an opportunistic reaction
to a short-term demand (5.19 per cent) or a
survival strategy (6.53 per cent).
I The profitability level also depends on the
underlying motivations: it is at its highest
when the company is seeking to create a
genuine partnership with distributors, in
order to defend already strong brands (7.90
per cent). If the brands are weak and the
DOB manufacturing approach is an
attempt to save them, the profitability in
the sample is less (3.50 per cent).
I The profitability is maximal if this is the
dominant or even exclusive activity of the
industrialist (7.51 per cent).
I The profitability is maximal if the market is
not a commodity market (7.64 per cent).
I The profitability is weakened by the fact
that the industrialist does not make a
distinction between its brand and the
distributor\u2019s brand it is producing: this is an
important point, since many industrialists
distinguish between the two only through
the packaging, in order to make the most of
the economies of scale and long
production runs.
I The profitability is better when the manu-
facturer works with distributors that
promote quality.
What can we draw from this HEC research
data? Whether or not to manufacture
distributor\u2019s brand products is a strategic
choice, and should be analysed as such.
Should they do it? Refusal to do so is clearly
the result of a long-term vision: Procter &
Gamble, Gillette and l\u2019Oréal all invest too much
in research to wish to share the benefits they
reap from it. They reserve the first fruits for their
own brands, within a structured portfolio.
Which companies should do it? There is no
correlation between any classic company
description and profitability in DOB
production: rather, profitability is linked to
the manner in which it is implemented.
In which segments should they operate?
The least commoditised possible, those where
there is still innovation.
Which distributors should they work with?
Here, too, selectivity in the choice of distrib-
utors proves to be rewarding in terms of prof-
itability over turnover.
94 WHY IS BRANDING SO STRATEGIC?
What becomes of these brand principles in
specific markets? It is worth asking the
question, given the disparities between
markets as varied as industry, business-to-
business (B2B) and medical prescription on
one side, and the world of service and luxury
on the other. Are internet brands controlled
using the same levers? What should we think
of the emergence of the brand in sectors such
as fresh produce, previously the domain of
generic products or a variety resulting from
nature and regional tendencies? Finally, we
should examine these new extensions of the
brand domain: countries, towns, educational
establishments, and also television pro-
grammes and sporting heroes.
These questions on the adaptation of
brand principles to specific sectors are raised
by sector managers themselves, since they
all recognise the trans-sectoral validity of
brand logic, its points of application, and
the brand activation modes, which are
bound to differ according to the different
markets. This chapter is dedicated to these
differences.
Luxury, brand and griffe
Recently there has been a surge of interest in
luxury brands. It is true that they are the polar
opposite of low cost: here, the company has
complete freedom to fix its prices \u2013 as high as
possible. How much does a bottle of Royal
Salute cost in a Shanghai disco? The answer is
s1,000. This is why financial groups have
been set up to relaunch luxury brands \u2013 the
world number one, LVMH, was born from the
talent of its founder, B Arnault, who acquired
a fading star, Dior, at a low price. Then he got
his hands on Vuitton, now the world\u2019s leading
luxury brand in terms of financial value.
But what is luxury? How is it different from
premium brands, such as Victoria\u2019s Secret
lingerie, Callaway golf clubs, Belvedere vodka
or Nespresso coffee? These brands are typical
of trading up, as consumers move up the
range. Admittedly there is a little of luxury\u2019s
ingredients in these brands (better quality,
selective distribution, emotive value), but
luxury is elsewhere. Let us return to its
etymology. The word \u2018luxury\u2019 derives from
the Latin luxatio, meaning distance: luxury is
95
5
Brand diversity: the types of
brands
96 WHY IS BRANDING SO STRATEGIC?
an enormous distance. There is a disconti-
nuity between premium and luxury.
To return to the essence of luxury, it is
customers\u2019 desire to mark their difference. The
first luxury manager was King Louis XIV of
France. Aristocracy is now dead, but it has
been replaced by the power of money.
Everywhere in China, in Russia, in the United
States and in Dubai, recent fortunes grant
more than unlimited purchasing power: they
grant power, pure and simple. This is the heart
of luxury: giving men and women of power
the privileges that accompany it. For power
must be shown off in our democratic societies.
Once upon a time, the mere name of the
noble marked the unbridgeable distance
between him or her and an ordinary person.
Nowadays, the frontier still exists