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Brand Management

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Brand Management (MKT624)
VU
Lesson 30
CREATING VALUE
Introduction
How to create value through building image and cost-efficiencies is the starting point of
discussion in this lecture. Having known the fundamentals of what lays the foundation for
creating the right channels for the company, we shall take a look at the amount of power that
different members of the channel enjoy. We shall then see how that affects the negotiation
process that goes on among different members to make a channel system function.
Value thru image building
Companies must be very careful in choosing the channel that is compatible with the brand
picture. They must pick up retailers and dealers that are compatible with the associations the
brand evokes and the persona the management wants built.
Expensive luggage, expensive perfumes, race and mountain bikes, expensive watches, top-of-
the-line consumer items like olive oil, or those FMCGs that are extended by selective
ingredients are to be sold through stores that have image compatible with the persona of the
products. Selling these items at stores incompatible in overall appearance, inner décor, and
retail management practices will become difficult. Actually, doing so may damage the brand by
lowering its image.
Value thru cost-efficiency
A company must establish a channel system that assures availability of products at the locations
preferred by customers. This holds true for most of the consumer items requiring an extensive
outreach. A widespread availability reduces cost; the more you sell, the lesser is the cost of
transaction. The more cost-efficient is the system, the more profitable is the business.
It is the responsibility of the business to develop channels that are cost-efficient and at the same
time deliver all possible benefits to customers.
Channel power through brand power
Who controls the channel is a question that attracts everyone's attention among all members of
the channel. Basically, it is the ability of the brand to offer value to customers that drives power
all along the channel. A brand also accumulates power by offering opportunities of growth to
intermediaries. The source of power, mostly, is the brand itself.
Members' relationship with brand
All members of the channel have a certain relationship with the brand. Each one of them
assumes ownership of the brand that dictates warehousing, selling, and recovering the
investment made on procuring the brand.
It is the job of management to identify the value of relationships at various stages of the
channel. It is obvious that we are considering an indirect channel system that has multiple
layers, and it also goes without saying that the more multi-layered is the system the more
diluted would be power. The more direct is the system, the higher is the power for the
manufacturer.
The objective for the company here is to make the right most decisions for brand movement
through different stages of the channel without making glaring mistakes that may compromise
brand value for customers.
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Brand Management (MKT624)
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Power defined
"Social scientists define power as the ability to have others do something that otherwise
would not be done. In other words, power is the ability to cause a change1".
Power in the context of distribution channels is the ability of one channel member to influence
or alter the behavior or decision of the other member2. Example: A manufacturer may influence
retailers to acquire the most prime space for its products. Space acquired is power exercised.
Inter-dependence
Because of interdependence among all members, no one member has the absolute power. Some
have more power and some have less of it. For a new manufacturer, distributors and retailers
may pose challenging demands thus exercising their power toward the pricing strategy. It is
important to view the relative degree of power each member has and weigh the advantage it
carries before negotiating strategic moves. Channel power, therefore, is a function of
dependence and a number of concepts and opportunities emerge while we view it.
Sources of power
The sources of power show us how each member influences the behavior of the other toward its
goal attainment. It is done in a few following different ways3.
Rewards
Rewards power is one member's ability to give other something of value.
Example: A retailer offering shelf space and point-of-sale support is of value to a manufacturer.
By offering these rewards, a retailer may influence the manufacturer's support, who in turn,
may promise better pricing, promotional allowances, advertising, extended payment terms etc.
By offering rewards in their respective capacities, the two are able to change each other's
behavior. If promises are fulfilled, the relationships acquire more credibility. Reward power
becomes a positive source of power.
Coercion
The coercive power (compelling by force) is exercised when one member has the ability to
control resources and change behavior of the other. The member being coerced knows that he
has limited choice and therefore accepts change of behavior; whenever, what could have been
rewards are withheld.
Coercive power ultimately leads to channel conflict and therefore should be avoided. It is
perceived as force employed by the one with an advantage. In other words, it is exploitation.
There is a natural tendency to resist that.
Legitimate power
It is based on the belief that one party is entitled to ask for a certain behavior, owing to its
reputation, position, and role in the market. Such beliefs are held about manufacturers of high
reputation who are involved in the development and production of goods that surpass
customers' expectations. Pharmaceutical companies fall into this category. It does not exclude
some of the good consumer items companies and any other that are involved in scientific
developments. This kind of power stems also from the value systems of other channel members
who grant that status to the one of power. It is highly traditional.
Expert power
This power is based on a channel member's superior knowledge and information that he has
about his products. Example: A manufacturer's sales force may impart vital information to
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Brand Management (MKT624)
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distributors and retailers on merchandizing, inventory control, promotional techniques, and
latest market trends etc. The company wields power.
In most of the cases power results from a combination of different factors of which high brand
acceptance and store acceptance are on top. This implies that manufacturers and retailers are
generally the ones who wield power in most of the cases.
How do manufacturers and retailers end up having more power in proportion to other members
of the trade is an interesting discussion that gives the answer.
Multi-brand companies' power
Mega brand companies and multi-brand conglomerates are in a much better position to cut
better deals with retailers. The advantages of having different brand portfolios come into play
here and offer the companies the opportunity to deal from a position of strength and, hence,
power. Companies with lesser powerful brands may not exert the kind of influence wielded by
multi-brand companies.
Retailer concentration and power
What really should make businesses prudent and pragmatic is the mutual dependence. This
dependence is highlighted in case of growing power of retailers. The balance of power is
shifting from manufacturers to retailers4. Retail store is the place where final purchasing action
takes place. It has become a dynamic sector which is uplifting itself in appearance, growth,
intensity, and innovation. The emergence of chain stores is making retail stores look more and
more credible. All those factors are changing the landscape of retailing with more power to
retailers.
Because of better management techniques and marketing orientation, retailers can give better
feedback on buying patterns and criteria. They can better measure the sales relationship with
shelf space, location in the store, effect of promotions etc., and provide detailed and minute
data to manufacturers.
Companies working very closely with retailers can benefit from that feedback that provides
insights into customer behavior and, hence, can lead to improvements in the brand-based
customer model.
Convergence of manufacturer and retailer power
Manufacturers, on the other hand, have a better understanding of the whole marketing process
and their product, which is a result of extensive R&D and investments. The perspectives of
both, when converge, provide the brand with better support, which dictate that both work
together as partners, and not powerful opponents.
Reaction to retail power
Due basically to the shift of balance of power in retailers' favor, manufacturers have started
thinking of their own retail outlets. Some are acting upon this thought. By having your own
outlets the channel is not only better controlled, it is owned. In addition to better profitability
and power, the management process becomes conflict-free offering better opportunities for
growth.
Retail brand (store of the name) becomes the product brand and the brand-consumer
relationship acquires a whole new definition.
Take a look at chain stores of clothing (Hang Ten) and shoes (Service and Urban Sole) and you
will notice the whole set-up is created with brand positioning, brand values, and quality
proposition in mind. Strategically, they have a differentiation advantage. They can express their
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Brand Management (MKT624)
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core values in everything they do, from décor to display of the products. That is not the case at
other retail stores that sell everybody else's brands.
Reaction to distributor power
Manufacturers, in certain cases, also decide to become their own distributors only to avoid
being subjected to established distributors' power. The process could be a little more
challenging in the beginning owing to high cost of learning. But, soon after you are
comfortably sitting on the learning curve, you may be approached by other manufacturers to
start handling their distribution. Distribution, in itself, becomes a huge business line for such
manufacturers.
If you have a product meant for an exclusive market, getting into your own setup makes more
sense than if you want to introduce a mass consumption product.
Twin focus and pragmatism
However, it is obvious that retailers and distributors play and will continue to play well into the
future important roles. It is important that manufacturers have a twin focus both on their
customers (distributors and retailers) and consumers (ultimate consumers).
The companies have got to be nimble and quick in assessing changes taking place in the market
and then deciding strategic shifts. The objective here is to enhance brand power, and use it to
give the company channel power and sustain it.
Summary - power
Power basically stems from the
value of brand. It is shared by all
Figure 38
members of the trade. The
sharing,  however,  is  not
proportionate. Depending on the
strategic standing of various
members
stemming
from
different reasons, different levels
of power are enjoyed by those
members. What is important is
that all should work as partners
and see to it how the power
wielded by each of them can be
exercised to enhance the value
of the brand.
Channels ­ concluded
A business may have attractive
products and services, but if it
cannot deliver those to the target
market
efficiently
and
effectively, it will not succeed at
the game of marketing.
Customers have preferences for
products and services in view of
benefits  along  with  their
preference for the place of purchase. Businesses have the preference to deliver effectively and
cost efficiently; they also need to build image.
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Unless there is an equilibrium between the requirements of customers and businesses, the
channel system cannot be described as optimal having potential to leverage the brand. This can
be graphically illustrated.
Bibliography:
1. Donald J. Bowersox and Bixby Cooper: "Strategic Marketing Channel Management";
McGraw-Hill International Edition (292)
2. Punam Anand and Louis W. Stern: "A Sociopsychological  Explanation for Why
Marketing Channel Members Relinquish Control"; Journal of Marketing Research,
22;4 November 1985 (365-376)
3. Donald J. Bowersox and Bixby Cooper: "Strategic Marketing Channel Management";
McGraw-Hill International Edition (294-297)
4. Geoffrey Randall: "Branding ­ A Practical Guide To Planning Your Strategy"; Kogan
Page (37)
Suggested readings:
1. Scot M. Davis: "Brand Asset Management ­ Driving Profitable Growth through Your
Brands; Jossey-Bass, a Wiley Imprint (181-197)
2. Roger J. Best: "Market-Based Management ­ Strategies for Growing Customer Value
and Profitability"; Prentice Hall (271-294)
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Table of Contents:
  1. UNDERSTANDING BRANDS – INTRODUCTION:Functions of Brand Management, Sales forecast, Brand plan
  2. INTRODUCTION:Brand Value and Power, Generate Profits and Build Brand Equity
  3. BRAND MANIFESTATIONS/ FUNDAMENTALS:Brand identity, Communication, Differentiation
  4. BRAND MANIFESTATIONS/ FUNDAMENTALS:Layers/levels of brands, Commitment of top management
  5. BRAND CHALLENGES:Consumer Revolt, Media Cost and Fragmentation, Vision
  6. STRATEGIC BRAND MANAGEMENT:Setting Objectives, Crafting a Strategy, The Brand Mission
  7. BRAND VISION:Consensus among management, Vision Statement of a Fast Food Company, Glossary of terms
  8. BUILDING BRAND VISION:Seek senior management’s input, Determine the financial contribution gap
  9. BUILDING BRAND VISION:Collect industry data and create a brand vision starter, BRAND PICTURE,
  10. BRAND PICTURE:Brand Value Pyramid, Importance of being at pinnacle, From pinnacle to bottom
  11. BRAND PERSONA:Need-based segmentation research, Personality traits through research
  12. BRAND CONTRACT:The need to stay contemporary, Summary
  13. BRAND CONTRACT:How to create a brand contract?, Brand contract principles, Understand customers’ perspective
  14. BRAND CONTRACT:Translate into standards, Fulfill Good Promises, Uncover Bad Promises
  15. BRAND BASED CUSTOMER MODEL:Identify your competitors, Compare your brand with competition
  16. BRAND BASED CUSTOMER MODEL:POSITIONING, Product era, Image Era, An important factor
  17. POSITIONING:Strong Positioning, Understanding of components through an example
  18. POSITIONING:Clarity about target market, Clarity about point of difference
  19. POSITIONING – GUIDING PRINCIPLES:Uniqueness, Credibility, Fit
  20. POSITIONING – GUIDING PRINCIPLES:Communicating the actual positioning, Evaluation criteria, Coining the message
  21. BRAND EXTENSION:Leveraging, Leveraging, Line Extension in detail, Positive side of line extension
  22. LINE EXTENSION:Reaction to negative side of extensions, Immediate actions for better managing line extensions
  23. BRAND EXTENSION/ DIVERSIFICATION:Why extend/diversify the brand,
  24. POSITIONING – THE BASE OF EXTENSION:Extending your target market, Consistency with brand vision
  25. DEVELOPING THE MODEL OF BRAND EXTENSION:Limitations, Multi-brand portfolio, The question of portfolio size
  26. BRAND PORTFOLIO:Segment variance, Constraints, Developing the model – multi-brand portfolio
  27. BRAND ARCHITECTURE:Branding strategies, Drawbacks of the product brand strategy, The umbrella brand strategy
  28. BRAND ARCHITECTURE:Source brand strategy, Endorsing brand strategy, What strategy to choose?
  29. CHANNELS OF DISTRIBUTION:Components of channel performance, Value thru product benefits
  30. CREATING VALUE:Value thru cost-efficiency, Members’ relationship with brand, Power defined
  31. CO BRANDING:Bundling, Forms of communications, Advertising and Promotions
  32. CUSTOMER RESPONSE HIERARCHY:Brand-based strategy, Methods of appropriations
  33. ADVERTISING:Developing advertising, Major responsibilities
  34. ADVERTISING:Message Frequency and Customer Awareness, Message Reinforcement
  35. SALES PROMOTIONS:Involvement of sales staff, Effects of promotions, Duration should be short
  36. OTHER COMMUNICATION TOOLS:Public relations, Event marketing, Foundations of one-to-one relationship
  37. PRICING:Strong umbrella lets you charge premium, Factors that drive loyalty
  38. PRICING:Market-based pricing, Cost-based pricing
  39. RETURN ON BRAND INVESTMENT – ROBI:Brand dynamics, On the relevance dimension
  40. BRAND DYNAMICS:On the dimension of knowledge, The importance of measures
  41. BRAND – BASED ORGANIZATION:Benefits, Not just marketing but whole culture, Tools to effective communication
  42. SERVICE BRANDS:The difference, Hard side of service selling, Solutions
  43. BRAND PLANNING:Corporate strategy and brands, Brand chartering, Brand planning process
  44. BRAND PLANNING PROCESS:Driver for change (continued), Brand analysis
  45. BRAND PLAN:Objectives, Need, Source of volume, Media strategy, Management strategy