Notes

Developing Marketing Strategy

• Implementing Marketing Actions
• Generating Marketing Assets
• Providing Marketing Information

Branding What is a Brand? "Products are created in the factory, but brands are created in the mind" - Walter Landor

Brands: A name, term, sign, symbol, or design or a combination of these that identifies the maker or seller of a product or service.

However, marketing managers refer to a brand as more than that. something that has actually created awareness, reputation, prominence, etc.

A brand is crucial to identify the goods and services of the seller, but also to differentiate it from its competitors.

The Most Distinctive Skill of Marketers: Building and Managing Brands.

However, marketing managers refer to a brand as more than that. Something that has actually created awareness, reputation, prominence, etc.

Why Brand?

• To identify the goods and services of the seller.
• To differentiate it to its competitors.

Brands versus Product Brand

• More than a product
• Has the dimension that differentiate it in some way from other products designed to satisfy the same need.
• Differences may be:
  • Rational and tangible: related to product performance.
  • Symbolic, emotional, and intangible: related to what the brand represents.

Product

• Something that a company offers to satisfy consumer needs or wants.
• A physical good.

Elements of a Brand

Why Does a Brand Matter? Firms

• Differentiate the product from competing products.
• Reducing marketing costs.
• Premium price.
• Signaling level of quality.
• Competitive advantage and entry barriers.

Consumers

• Information about product quality: reducing risk.
• Reducing time and effort for decision making.
• Helping consumers express themselves: meaning.

Types of Risk a Consumer has to bear

• Functional (He is not sure that the products work as expected)
• Financial (He is not sure whether the price is worth)
• Psychological
• Social (Social embarrassment)
• Physical (Not sure whether it is physically safe or not).
• Time (Value of loosing time)

How to Build a Strong Brand? Building Strong Brands - Sources of Brand Equity

• Brand Awareness, it consists of brand recognition and brand recall.
  • Brand Recognition
    • Consumers' ability to confirm prior exposure to the brand
    • Are consumers able to recognize the brand as one exposed to them?
  • Brand Recall
    • Consumers' ability to retrieve the brand from memory when given the product category, the needs fulfilled by the category, or a purchase or usage situation as a cue.

As a first step to build a strong brand: Creating Brand Awareness

• Increasing familiarity
  • Repeated exposure probably through advertising.
  • Establishing strong association with the product category, other relevant purchase or consumption cues.
• Brand Image, given a sufficient level of brand awareness Crafting a brand image.
  • Brand Association
    • Brand association can be brand attributes (descriptive features of the product) or brand benefits (personal value and meaning attached to the product or service attributes).
    • Strong Association
    • Favorable Association
    • Unique Association

Brand Positioning

• Marketers need to position the brands clearly in target customers' minds.
• Product Attributes
• A Desirable Benefit
• Strong Beliefs and Values
  • Engaging customers on a deep and emotional level
  • A deeper meaning connected with the value that they play in customers' lives and relationships.
  • Lovemarks brands: customers have strong emotional connections with the brands and love them unconditionally.

Branding Strategy

• National Brands (Manufacturer's) versus Store Brands.
• National Brands: Corporate Branding vs. Individual Branding.
• Corporate Branding: a firm uses its corporate name to all products.
• Individual Branding (or Multi-Branding): different brands for different products.
• Store Brand (Private Brand)
  • Recent private brand boom
  • When the level of differentiation in the category is low, consumers are likely to buy it due to reasonable price.

Brand Development

• Line Extension
  • Extending existing brand names to new forms, colors, sizes, ingredients, or flavors of an existing product category.
  • Burger King Whopper Line
  • Low cost, Low risk, but overextended brand name might cause consumer confusion or lose some of its specific meaning.
• Brand Extension
  • A current brand name to new or modified products in a new category.
  • Create immediate new-product familiarity and acceptance at lower costs.
  • A brand extension strategy involves some risk.
  • May confuse the image of the main brand (Ferrari parfume).
• Multibrands
  • New brand names in the existing product category.
  • PepsiCo: 8 soft drinks + 3 sports and energy drinks + 4 bottled teas and coffee brands + 3 bottled water brands + 9 fruit drinks.
  • A way to establish different features that appeal to different customer segments and capture large market shares.
  • Each might have a small market share and is not profitable.
• New Brands
  • Concern about waning the power of the existing brand.
  • Offering too many new brands requires huge costs.
  • Kindle, IPhone.

Brand Valuation Brand Equity Challenges for Measuring Brand Equity

• Brand equity is crucial but notoriously difficult to measure.
• There are various ways - suggested by many firms - to measure it.
• Brands are commonly assessed by customer mind-set measures such as awareness and attitudes.
• These metrics do not translate into monetary value. Though it is challenging to measure Brand Equity. It is important for marketing managers to measure it. Why?

Brand Asset Valuator (Young & Rubicam BAV)

• Differentiation
  • The ability of the brand to stand apart from its competitors and is a central component in brand equity.
    • It is measured by whether consumers perceived the brand as unique and distinctive.
• Relevance
  • Personal appropriateness of the brand to consumers.
    • It is measured by the extent to which the brand is relevant to consumers.
• Esteem
  • The level of respects, deference, and regard a consumer holds for a given brand.
    • It is measured the four components:
      • High Quality: if consumers believe the brand is of high quality.
      • Leader: if consumer believe the brand is reliable.
      • Reliability: if consumer believe the brand is reliable.
      • Personal Regard: if consumers have personal regard for the brand.
• Knowledge
  • Reflects brand awareness and the extent to which consumers recall and recognize the brand.
    • It is measured by the extent to which consumers are familiar with the brand.

• Brand Valuation Model (Interbrand): Interbrand publishes the Best Global Brands (the world's 100 most valuable brands) report on an annual basis. Interbrand's brand valuation model examines three key aspects that contribute to a brand's value:
  • The financial performance of the branded products or service.
  • The role the brand plays in influencing consumer choice.
  • The strength of the brand has to command a premium price, or secure earnings for the company.

• Brand Valuation Methodology
  • Financial Analysis: Economic profits, i.e., the after-tax operating profit of the brand minus the cost used to generate the brand revenue and margins.
  • Role of Brand: The portion of the purchase decision attributable to the brand, as opposed to other factors (e.g., factors such as price, convenience, or product features). This is so-called Role of Brand Index.
  • Brand Strength: The ability of the brand to create loyalty and, therefore, sustainable demand and profit into the future.
    • Internal Dimensions: Clarity, Governance, Commitment, and Responsiveness.
    • External Dimensions: Authenticity, Consistency, Relevance, Presence, Differentiation, Engagement.

Marketing Strategy and Elasticities

Key Takeaway In a linear regression model, the elasticity depends on the values of the focal IV and all other IVs. This is not useful in practice! It makes things complicated, and interpretation is not straightforward.

Key Takeaway A log-log model gives constant elasticities. (Elasticity does not depend on values of IVs). This makes interpretation super easy! If price goes up by 1%, sales change by $\beta_{1}\%$. Can We Apply the Log-Log Model to Other Contexts in Marketing?

Dummy Variables - Marketing Variables Continuous variables:

• All (many) values possible
• Brand quality
• Advertising expenditures

Categorical variables:

• Limited number of values possible
  • Gender_new (0 or 1)
  • Age bracket (1, 2, 3, 4)
  • Favorite color (1 = blue, 2 = red, 3 = green).
  • Product type

Is the Linear Relationship Appropriate? How can we interpret the mean of favorite color? Imagine that we have the variable of locations in a regression model. How can we interpret the coefficient of favorite color or locations?

When we include age bracket as a continuous variable in a regression model, we assume a linear relationship.

Then, How Do We Model It? Dummy Variables Dummy Coding: we recode Age bracket into 4 new variables:

Dummy Variables in Regression

We should leave out one dummy variable (Bracket4), this is our reference category (i.e., as a baseline). It can be Bracket1, 2 or 3.

Interpretation

Any More Applications? When to use Dummy Variable Regression? Application of Dummy Variables in Marketing

• Measuring product category effects
• Measuring different effects in different times or regions
• Controlling for geographic effects
• Controlling for time effects
• Controlling for economic shocks Can we apply dummy variables to experiments?

Advertising Shaping the Overall Promotional Mix - Promotion Mix Strategies: Push vs Pull Strategy Push Strategy A push strategy involves "pushing" the product through marketing channels to final consumers. Companies direct marketing activities toward channel members to induce them to carry the product and promote it to final consumers. Example: Medicine or products for kitchens or toilets with IKEA.

Pull Strategy Under a pull strategy, consumer demand "pulls" the product through marketing channels. Companies direct marketing activities toward final consumers to induce them to buy the product. Example: Coca-Cola.

Marketing and Advertising Does advertising matter for companies?

• P&G spent $8 billion on advertising in 2016.
• Apple spent $1.8 billion in 2015.
• Many companies increasingly spend a lot on advertising.

Advertising is one of the most important elements of the marketing mix: the key element of marketing expenditure: "Our spending on advertising and marketing as a percentage of sales increased by 40 basis points" - Indra K. Nooyi, Chairman & CEO (Pepsi 2017). "We are expecting increases in advertising spend this year versus last" - Jon Moeller, CFO (P&G 2016).

Marketing Performance Outcome Chain

Why Is Advertising Important?

The Role of Advertising There are two different theoretical view on the role of advertising.

Advertising as Information.

• Advertising merely informs consumers about product availability and increases awareness.
• Consumers can't buy a product if they don't know it is available.

Advertising as Persuasion.

• Advertising not only informs consumers about product availability but also creates brand loyalty.
• Advertising persuades consumers that the product is superior (i.e., the product provides superior customer value).

Which one do you agree with? How Do These Theoretical Views Relate to Measuring Advertising Effects on Sales? The Effectiveness of Advertising Advertising as information view: this view suggests advertising increases the current sales.

Advertising as persuasion view: this view suggests advertising increases not only the currents sales but also future sales (through brand equity).

The Effectiveness of Advertising Then, how do we measure advertising and its effectiveness? Measure issue: there are multiple metrics to measure advertising, each of which capture different aspects. Model Issues:

• Linear or Non-Linear?
• Lag Effect?
• Competitive Effect?
• Interaction with other Marketing Actions?

Measures of Advertising

• Advertising to Sales Ratio

  • Advertising to Sales Ratio = Advertising Spending / Sales
  • Most Popular Measure
  • Rule of thumb to simply advertising decision: advertising decision are complex and involve multiple trade-offs in dynamic and turbulent business environments.
  • Mirrors how companies allocate budgets on advertising in practice.
  • Costless to replicate
  • Enables normalization: companies vary in sizes.

• Share of Voice

  • Advertising Spending / Total Advertising Spending in an industry (or a brand category).
  • This measure captures a company's advertising relative to that of its competitors.
  • Advertising expenditures differ dramatically across industries.
    • More comparable across different industries
    • More useful and managerially relevant.
  • "How are we doing relative to our competitors?"
  • Not fully under managers' control
  • In practice, more relevant to brand level than firm level. How much is it relevant?
  • What is the theory behind share of voice?
  • It is also applied to social media contexts (i.e., social share of voice).
  • Relevance of Advertising Share of Voice (ASOV): Financial Analysts

    "Wanted to understand how your share of voice has changed" - Societe Generale Analyst (Diageo 2016) "It seems like your market shares aren't impacted at all by the pullback and maybe it's like a share of voice issue." - Deutsche Bank Analyst (Colgate Palmolive 2015)

• Relevance of Advertising Share of Voice: Senior Managers

  "We are putting more dollars into marketing just to make sure that our share of voice is strong" - Marvin Ellison, CEO (JC Penney 2016). "Our share of voice continues to increase in the pizza category in the US" - Jeff Lawrence, CFO (Domino Pizza 2017).

• Goal of Advertising Target Audience

  • Aware of the brand, product, or service
  • Induce consumer behavior (e.g., trial, purchase or conversation).

• Having high share of voice can lead to increase in brand awareness and increase sales.

• Consumer Theory: this measure is more consistent with the way consumers process advertisements.

• Log of Advertising Spending.
  • Log of advertising allows to measure advertising elasticity.
  • Beta1% of sales increase if 1% of advertising spending increases.

Other Issues in Modeling Advertising - Potential Challenges?

• There are many media vehicles companies are using.
• 18 different media vehicles.
• There are other metrics related with the quantity of advertising such as impression, gross rating point (GRP) etc.
  • Different metrics capture different aspects of advertising (e.g., budget or frequency).

Linear Relationship? - Advertising and Sales

• A Linear Positive Effect on Sales.
• What does this linear relationship suggest?
• Advertising spending or frequency improves sales, brand equity.

Advertising and Diminishing Returns Advertising and Sales

• How would be the relationship between advertising (frequency) and sales?

Why? - Economic Perspective

• Saturation of consumer demand.
• E.g., brand A has a dominant market share.
• Diseconomies of scale when buying media.
• May differ in case of sales and profit.

Psychological Mechanism Point of Saturation:

• Theory of Repetition.
• Saturation point and decline: Consumer response to repetitive exposure of a brand.
• Wear-in & Wear-out.

Rule of Three:

• Too many messages and claim.
• Less persuasive.
• The optimal number of claims to persuade consumers.

How Do We Model Non-Linear Effects? - Lagged Advertising Effects Assumption: Advertising increases the current sales. What do you think of this assumption? Advertising may have lagged effects on sales. Advertising in the current period (e.g., the current year) may not necessarily generate the current sales.

Media Advertising - Measuring Media Advertising Media Advertising Metrics

• Impression
  • The number of times a specific advertisement is available to be seen or otherwise exposed to media audience.
  • Impression = Reach x Average Frequency
    • Reach = Number of unique individuals exposed to certain ads.
    • Frequency = the average number of times each such individual is exposed.
• Gross Rating Points (GRP)
  • The sum of all rating points delivered by the media vehicles carrying an advertisement or campaign.
  • Gross Rating Points = Σ [Rating Points × Frequency]
    • Rating Points (% of Reach) = % of unique individuals exposed to certain ads in a defined population.
    • Average Frequency = the average number of times each such individual is exposed.
• Frequency Response Functions
  • Expected relationship between advertising frequency
    • Linear Response
    • Learning Curve Response
    • Threshold Response
• Wear-in
  • The frequency required before a given advertisement or campaign achieves a minimum level of effectiveness.
• Wear-out
  • The frequency at which a given advertisement or campaign begins to lose effectiveness or even yield a negative effect.

Measuring Media Advertising

Firms are spending a lot on advertising. There are 18 different media vehicles. It is almost impossible for firms to measure advertising responses accurately across 18 advertising vehicles and their combinations (how many combinations?) Manager's challenge: how can the effectively allocate advertising budgets across media vehicles? The Broad Goal of Media Advertising:

• To reach a sufficiently large audience
• To reach a high-quality audience
• With the appropriate type of advertising message.

Classifying media vehicle choices into:

• Smaller
• Manageable subset of choices

Using the following criteria:

• Quantity of the Reach, the count of the captive audience (e.g., viewers, listeners, readers) that the firm obtains through an advertising spot.
• Quality of the Reach, the degree to which the media channel's reach is customized to fit the advertiser's specific target market in terms of future buying potential.
• Product Message, the way the advertiser aims to build in product differentiation by demonstrating a favorable comparison of key product attributes over a competitor.

Interactive Effects on Performance? - Positive or Negative? Positive Interaction

• There would be superadditive benefits.
• The marginal effect of spending in one of the media type would be enhanced by spending in the other.

Memory Reinforcement

• Consumers forget the advertisement.
• Consumers see frequent advertisement.

Negative Interaction

• There would be superadditive benefits
• The marginal effect of spending in one of the media type would be mitigated by spending in the other.

Inherently Different Purposes

• National advertising: brand building
• Regional and Online advertising: promotional information

Different types of media possibly generate conflicting messages and confuse consumers when used jointly.

Marketing and Interaction Effects - Positive or Negative? In marketing, we have many options for marketing actions. Each marketing action can be independent, but there may be different types of interaction effects. What is the interaction effect? In regression models, we include the product terms.