LECTURE 10

Designing Marketing Programs to Build Brand Equity

Overview
This chapter explores the contribution of three of the four marketing
Ps -- product, price and place to customer-based brand equity. The
creation of equity effectively begins with the design of a product or
service that satisfies consumer wants and needs. Perceived quality,
which influences attitude and behavior, reflects consumer
assessments of the relative superiority of a brand on dimensions
related to performance, design, durability and other factors. Perceived
value reflects consumer judgments about a brands price-quality
relationship.
The chapter also discusses some of the new developments in
personalized marketing. Experiential marketing, where the marketer
focuses on connecting the consumer to the brand through a unique
experience, is one emerging personalized marketing technique.
Others include one-to-one marketing, where the marketer uses
technologies such as the Internet to target individual consumers with
individualized marketing messages; and permission marketing, where
the marketer seeks permission in advance from consumers to send
them appropriate, relevant marketing materials.
Pricing strategy can affect consumer perceptions of a brands position
in its product category and of its overall quality. Many firms now
employ value pricing, in which a brands price is based on
considerations of product quality, product costs, and product prices
that satisfy consumer needs as well as the profit goals of the firm.
Another popular strategy is everyday low pricing, which entails
reducing or eliminating discounts and sales promotions in favor of an
everyday fair price.
A brands distribution strategy also has an important influence on the
creation of customer-based equity. Channels are of two broad types:
direct, which involves selling to customers by mail, phone, the
Internet, or personal visit, and indirect, which involves selling through
intermediaries. The image a retailer has in the minds of consumers
and the actions it takes with respect to stocking and selling products
can affect the equity of the brands it sells. Therefore, it is in a firms

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interest to treat channel members as customers and assist in their

selling efforts.
The chapter concludes with a discussion of private labels in Brand
Focus 5.0, noting that they primarily threaten brands that are
overpriced, under-supported, or undifferentiated. It is important not
to confuse private labels with generic brands, because private labels
identify the source of the product. The source is usually the chain in
which the private label is sold, which is why private labels are also
called store brands. Major brands employ a number of strategies to
fight private labels, from value pricing to continued product
innovation.
Key take-away points
1. All of the four Ps not just promotion have important roles to play
in the creation and maintenance of brand equity.
2. Personalized marketing is an emerging strategy to build brand
awareness and brand loyalty.
3. The products and services that firms design are the cornerstones of
customer-based brand equity.
4. Pricing strategy must be based on consumers and the competition,
as well as cost and quality considerations.
5. Channel members should be thought of and treated as valuable
customers whose image and actions can hurt or enhance brand
equity.

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BRANDING BRIEF 5-5

THE CHALLENGES OF LAUNCHING A NEW BRAND1
In 1996, Seagram Co. executives noticed a change in the vodka
market. The popular Absolut brand of vodka, which Seagram
distributed, was being replaced on the top shelf of trendy restaurants
and nightspots by upstart superpremium vodkas like Grey Goose,
Ketel One, and Belvedere. These superpremium vodkas came in tall,
elegant cut-glass bottles and typically cost up to four dollars per glass
more than Absolut. Research indicated that some of Absoluts core
customers had switched to the premium brands. Seagram sought to
counter this trend by developing a high-end vodka in partnership with
Absolut named Sundsvall after the Swedish town where it was
distilled.
Sundsvall was positioned as a super-Absolut, whose pedigree would
make up for its late arrival and obliterate the rival upstarts. Bottles
of Sundsvall cost $30, twice as much as Absolut and more than four
dollars more than Belvedere. While the other bottles in the category
were made from either cut or frosted glass, the Sundsvall bottle was
designed with clear glass and an orange shrink-wrap top in order to
stand out from the crowd. In 1998, Absolut and Seagram launched
the brand with a modest $2 million advertising budget. The
companies devised what they called a discovery strategy, where
Sundsvall was initially marketed only in eight metropolitan test
markets in order to build buzz. In these markets, Sundsvall sponsored
or hosted special events, such as invitation-only dinners at expensive
restaurants where the brand was served exclusively.
When Sundsvall launched nationally, it garnered a lukewarm
reception. One problem: premium brands like Belvedere had already
been on the market for three years. Another problem was the
packaging. Bartenders agreed that the product was high quality, but
one bartender claimed the bottle was too discreet for where it was
competing. Compared with the competition, Sundsvall sold at a
plodding pace. For example, one Boston restaurant typically poured
through two bottles a day of a competing brand, while a single bottle
of Sundsvall might last three months there. In 1999, Sundsvall sold
1,000 cases of product, compared with sales of more than 100,000
cases each for Belvedere and Grey Goose.

1 Shelly Branch. Vodka on the Rocks: This High-End Brand Was an Absolut Flop.
Wall Street Journal, December 21, 2000.

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A little more than a year after the launch, Absolut stopped production
of Sundsvall and ceased all marketing activities. For a company that
achieved incredible success marketing its flagship product over the
last two decades, the disappointing Sundsvall brand was considered a
major failure.

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BRANDING BRIEF 5-6

PRICING SHOWDOWN IN THE CEREAL MARKET2
The cereal category experienced interesting price competition in the
late 1980s and early 1990s. During this time, the cereal industry as a
whole aggressively raised prices on items as much as 5 to 6 percent
every eight months. In order to disguise the higher prices, cereal
makers attempted to offset them with a host of coupons, trade
promotions, and other deals (such as two-for-the-price-of-one and buyone-get-one-free or bogo offers) a strategy dubbed price-up, deal
back.
On April 4, 1994 (Cheerios Monday), General Mills, the number two
player in the $8.7 billion cereal market with a 29 percent share,
announced that it would lower prices between 30 cents and 70 cents a
box (or 11 percent on average) on its eight most popular ready-to-eat
cereals (Cheerios, Honey Nut Cheerios, Multi Grain Cheerios,
Wheaties, Whole Grain Total, Golden Grahams, Lucky Charms, and
Trix). General Mills also announced that it was cutting coupon and
other promotional expenditures by $175 million.
General Mills was motivated by a number of factors. With prices as
much as 25 percent lower, private label cereals had begun to make
some significant inroads on sales, increasing their share of the market
to 5.2 percent. Because of pervasive sales promotions, more than 60
percent of all cereal purchases were being made with some kind of
coupon or discount. As Steve Sanger, president of General Mills,
stated:
The practice of pricing up and discounting back has
become more and more and more inefficient for
manufacturers and retailers and burdensome for
consumers. Theres tremendous cost associated with
printing, distributing, handling, and redeeming coupons.
Because of this inefficiency, the 50 cents that the
consumer saves by clipping a coupon can cost
manufacturers as much as 75 cents. It just doesnt make
sense.
2 Richard Gibson, "General Mills to Slash Prices of Some Cereals," Wall Street
Journal, April 5, 1994, p. A-4; John McManus, "Sanity's at Stake in Steve Sanger's
Cereal Showdown," Brandweek, April 25, 1994, p.16; Betsy Spethman, "Kellogg
Counters Big G Price Cuts: 'Bogo' a No Go June 1;" Brandweek, April 25, 1994, p.3,
Julie Liesse and Kate Fitzgerald, "General Mills Price Cuts Fail to Stem Couponing,"
Advertising Age, August 1, 1994, p.26. Kellogg Raises the Prices of Some Cereals.
Orange County Register, December 15, 1998; Betsy Spethmann. Breakfast in Battle
Creek. Promo, May 30, 2000

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Kellogg, the market leader with a 36 percent share, followed quickly

with an announcement that it would stop offering the buy-one-get-onefree offers and attempted to hold firm on price increases by cutting
costs. Recognizing a competitive opportunity, marketers of the
number three and four cereal suppliers, Post and Quaker Oats,
initially decided to continue to offer $1-plus coupons. Eventually,
however, Post enacted a 20 percent across-the-board price cut and
began to issue a new, all-purpose coupon that would apply to all sizes
of all its cereals. Kellogg soon thereafter reduced prices an average
of 19 percent on nearly two-thirds of its line.
The cycle of price cuts perpetuated by the bitter price war was bad
for the bottom line. Kellogg, as the leader, suffered significantly as a
result of the price wars. Kelloggs profit margin shrunk, sales
declined, and its market share plummeted. In 1998, Kellogg raised
cereal prices an average of 2.7 percent, its first increase since 1994.
This move signaled the end of the cereal price wars, but it did not
solve Kelloggs problems. In 1999, General Mills grabbed the
domestic market share lead from Kelloggs.

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BRANDING BRIEF 5-7

EXPANDING THE E*TRADE BRAND3
E*Trade was founded in 1991 and partnered with America Online and
CompuServe in 1992 to offer trading to users of those portals. In
1996, E*Trade established its own Internet site. That year, E*Trade
spent $25 million on its first national advertising television campaign,
which attempted to convince viewers: Someday, well all invest this
way and aired on popular network programming. Accompanying the
television spots were two-page newspaper ads and Internet banners
provocative lead-ins such as Spank a Yuppie and Low Commissions.
Leave your kids more to fight over.
E*Trade hired Goodby, Silverstein & Partners in 1999 to develop more
national advertising. Goodbys first campaign, titled Its time for
E*Trade, helped the company become one of the top four most
recognized Internet brands in 1999 as ranked by Opinion Research
Corp. According to agency co-founder Rich Silverstein, In four
months, we built the brand. CEO Christos Cotsakos maintained that,
brand building was always first and foremost among the companys
priorities.
The company launched a major ad blitz for the 2000 Super Bowl by
buying two spots during the pre-game show, another two spots during
the game, and sponsoring the halftime show. E*Trade dominated the
commercial showcase, according to Brandweek. The memorable
Monkey ad was named as the fourth-best Super Bowl ad of all time
by an online consumer vote. As a result of its Super Bowl ad blitz,
E*Trade enjoyed a 600 percent increase in new accounts in the
quarter following the Super Bowl compared with the same period the
previous year. E*Trade maintained a consistent ad push following the
Super Bowl, spending $522 million or 38 percent of revenues on
marketing.
In 1999, E*Trade diversified beyond online trading with its $1.8 billion
purchase of online banking firm Telebank, which it renamed E*Trade
Bank. E*Trade hopes to add other services to its site and become a
one-stop financial services supermarket. Additionally, E*Trade
sought to expand beyond the Internet and establish a brick-andmortar presence that would allow it to compete with traditional
3 Bank on It. Brandweek, December 11, 2000; Louise Lee. Not Just Clicks
Anymore. Business Week, August 28, 2000; Terry Lefton. Jerry Gramaglia: Trading
Up. Marketers of the Year, Brandweek, October 11, 1999; Deborah Lohse.
E*Trade Campaign Asks Investors To Skip Brokers for On-line Service. Wall Street
Journal, September 5, 1997, p. B5

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brokerage firms. In August 2000, E*Trade opened the first of its

brick-and-mortar locations, called E*Trade Zones, inside a
SuperTarget store. The E*Trade Zones feature customer service
representatives and a full complement of services from trading to
bank transactions.
E*Trade also planned a network of 18,000 automated-teller machines
in gas stations, drugstores, and supermarkets throughout 48 states,
which the company upgraded to provide customers with access to
brokerage accounts as well as bank accounts. To add to its list of
services, in 2000 E*Trade partnered with Ernst & Young to offer both
on- and offline investment advice to clients.
In 2000, E*Trade processed 150,000 transactions daily from its
customer base of more than 3.6 million. In 2001, E*Trade was the
third largest online broker in terms of number of accounts.

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