CHAPTER 5:

DESIGNING MARKETING
PROGRAMS TO BUILD
BRAND EQUITY

Copyright © 2013 Pearson Education

Learning Objectives
 Identify some of the new perspectives and
developments in marketing
 Describe how marketers enhance product
experience
 Explain the rationale for value pricing
 List some of the direct and indirect channel options
 Summarize the reasons for the growth in private
labels
New Perspectives on Marketing
 As firms are dealing with enormous shifts in their
external marketing environments:
 The marketing strategies and tactics have changed
dramatically
 Traditional categories and industries are rethinking their
practices and not doing business as usual
 Marketers are increasingly abandoning the mass-
market strategies
New Approaches Embraced by
Marketers
 Rapid technological developments
 Greater customer empowerment
 Fragmentation of traditional media
 Growth of interactive and mobile marketing options
 Channel transformation and disintermediation
 Increased competition and industry convergence
 Globalization and growth of developing markets
 Heightened environmental, community, and social
concerns
 Severe economic recession
Figure 5.1 - The New Capabilities of the
New Economy
Integrating Marketing
 Brand Association  awareness, strength,
favorability, and uniqueness

Personalizing Marketing

Reconciling the Different

Marketing Approaches
Personalizing marketing
• The rapid expansion of the Internet and continued
fragmentation of mass media have brought the need
for personalized marketing into sharp focus.
• Modern economy celebrates the power of the
individual consumer.
• To adapt to the increased consumer desire for
personalization, marketers have embraced concepts
such as experiential marketing and relationship
marketing.
Personalizing Marketing

Experiential
Marketing

Relationship
Marketing
Experiential Marketing
Promotes a product by communicating a product’s
features and benefits and connecting it with unique and
interesting consumer experiences.
 “The idea is not to sell something, but to demonstrate how
a brand can enrich a customer’s life.”
 If you charge for stuff, then you are in the commodity
business;
 If you charge for tangible things, then you are in the
goods business;
 If you charge for the activities you perform, then you are
in the service business;
 If you charge for the time customers spend with you, then
and only then are you in the experience business.
Experiential Marketing
 These are the five traditionally recognized human
senses:
 Sight (vision)
 Hearing (audition)

 Taste (gustation)

 Smell (olfaction)

 Touch (somatosensation)
Experiential Marketing
 Sense Marketing: consumers’ sense (sight, touch, sound,
taste and smell)
 Feel Marketing: consumers’ inner feelings and emotions
 Think Marketing: to deliver cognitive and problem-solving
experiences that engage consumers creatively
 Act Marketing: targets physical behaviors, lifestyles, and
interactions
 Relate Marketing: create marketing by taking into account
individuals’ desires to be part of a social context
 “Customers want to be entertained, stimulated,
emotionally affected and creatively challenged.”
 Examples: LEGO, Victoria’s Secret and iPhone.
 Figure 5.2 - Brand Experience Scale
The idea is not to sell something, but to demonstrate how a brand can enrich a customer’s life.
Relationship Marketing
• Acquiring new customers can cost 5 times as much as
satisfying and retaining current customers;
• The average company loses 10% of its customers
each year;
• A 5% reduction in the customer defection rate can
increase profits by 25% to 85% depending on the
industry;
• The customer profit rate tends to increase over the
life of the retained customer.
Relationship Marketing

Mass Customization

One-to-One Marketing

Permission Marketing
Mass customization
• Making products to fit the customer’s exact
specifications.
• The advent of digital-age technology enables
companies to offer customized products on a
previously unheard-of scale. Examples:
• NikeID  customers can make a customized shoe by
selecting the size, width, and color scheme and affixing
an eight-character personal ID to their creation
• Sony Vaio Laptops  customers can engrave their
names on it.
One-to-one marketing
• Consumers help add value by providing information to
marketers.
• Marketers add value by taking that information and
generating rewarding experiences for consumers.
• To devote more marketing effort to the most valuable
consumers.
• Focus on individual consumers through consumer databases – We
single out consumers
• Respond to consumer dialogue via interactivity – The consumer talk
to us
• Customize products and services  We make something unique for
him
 Examples: Ritz-Carlton Hotel, Hilton Hotel and TESCO in UK
(members receive a variety of purchase benefits across a wide
range of products and services beyond what is sold in their stores).
Permission marketing
• The practice of marketing to consumers only after
gaining their express permission (see Permission
Marketing by Seth Godin).
• An influential perspective on how companies can
break through the clutter and build customer loyalty.
• It is a way of developing the “customer dialogue”.

• Marketers first need to get the permission of his/her

customer with some kind of inducement component of
one-to-one marketing in more detail.
• Examples: Amazon, Android and IOS Apps
Reconciling the Different Marketing
Approaches
 Mass customization and permission marketing might
be particularly effective at creating greater
relevance, stronger behavioral loyalty, and
attitudinal attachment.
 Experiential marketing would seem to be
particularly effective at establishing brand imagery
and tapping into a variety of different feelings as
well as helping build brand communities.
To Sum Up..
 Implication of the new approaches:
 The traditional “marketing mix” concept and the notion
of the “4 Ps” of marketing may not fully describe
modern marketing programs
 Firms must still devise product, pricing, and distribution
strategies as part of their marketing programs
Product Strategy

Perceived Quality
Customers’ perception of the overall quality or superiority of a
product or service compared to alternatives and with respect to
its intended purpose.

Aftermarketing
To achieve the desired brand image, product strategies should
focus on both purchase and consumption. “The second moment
of truth”. Marketing activities that occur after customer
purchase.
Perceived Quality
 Product quality depends not only on functional
product performance but on broader performance
considerations as well, like speed, accuracy, and
care of product delivery and installation; the
promptness, courtesy, and helpfulness of customer
service and training; and the quality of repair
service.
 Brand attitudes may also depend on more abstract
product imagery, such as the symbolism or
personality reflected in the brand.
Perceived Quality
• Opinions about quality differ from customer to
customer. The evaluation is subjective.
• How can I measure quality?
• Service Quality: SERVQUAL (Parasuraman, Zeithaml, and
Berry 1986, 1988)
• Service Quality of Retail Stores (Dabholkar, Thorpe, and
Rentz 1996)
• Electronic Service Quality: E-S-QUAL (Parasuraman, Zeithaml,
and Malhotra 2005)
• Service Convenience: SERVCON (Seiders et al. 2007)
• Service Quality: Physical Distribution Service Quality
(Bienstock, Mentzer, and Bird 1997)
Aftermarketing
 Much marketing activity is devoted to finding ways
to encourage trial and repeat purchases by
consumers.
 First moment of truth  occurs at purchase versus
Second moment of truth  occurs at the result from
actual product experience, after consumption.
Aftermarketing
• User manuals - An afterthought, put together by
engineers who use overly technical terms and
convoluted language.
• Customer service programs - Aftermarketing is
more than the design and communication of product
instructions. 2 in 3 customers switched companies in
the past year due to poor customer services.
• Loyalty programs (frequency programs) - Purpose
is identifying, maintaining, and increasing the yield
from a firm’s ‘best’ customers through long-term,
interactive, value-added relationships.
To Sum Up..
 The product is at the heart of brand equity
 Product strategy entails choosing:
 Tangible and intangible benefits the product will
embody
 Marketing activities that consumers desire and the
marketing program can deliver
 Learn how to know the audience, listen (the best)
customers and engage them
Pricing Strategy

Consumer Price
Perceptions

Setting Prices to
Build Brand Equity
Consumer Price Perceptions
• The pricing strategy can dictate:
• How consumers categorize the price of the brand.
• How firm or how flexible they think the price is, based on
how deeply or how frequently it is discounted.
• Consumers rank brands according to price tiers in a
category.
• Price bands: Range of acceptable prices that indicate
the flexibility and breadth marketers can adopt in
pricing their brands within a tier.
• Value-based pricing strategies: Attempting to sell the
right product at the right price to better meet consumer
wishes.
Figure 5.3 - Price Tiers in the Ice
Cream Market
Figure 5.4 – Phillips Van-Heusen Brand
Price Tiers
Pricing Strategies
Pricing anchoring
• Williams-Sonoma and the bread maker
• USD279.00 and the USD429.00
• Expensive Restaurants
• Sundaes  USD500.00 versus cheesecake for USD25.00
• Pizza Hut
• Personal  USD4.79, Medium  USD11.99, Large 
USD14.99
Nonlinear pricing
• One soap for USD2.50. You need 2, but there is a
bundle of soap (5 soaps) for USD10.00
• Credit cards  people spend 18% more

• Menu pricing  wine menu

Setting Prices to Build Brand Equity
A method for setting current prices. A policy for
choosing the depth and duration of promotions and
discounts

Value Pricing

Price
Segmentation

Everyday Low
Pricing
Value Pricing
• Sets prices primarily, but not exclusively, according to
the perceived or estimated value of a product or
service to the customer.
• Objective is to uncover the right blend of product
quality, product costs, and product prices that fully
satisfies the needs and wants of consumers and the
profit targets of the firm.
• It should strike the proper balance among three key
components:
• (1) Product design and delivery, (2) Product costs, and
(3) Product prices
• Communicating value - Marketers may need to engage
in marketing communications to help consumers better
recognize the value.
Price Segmentation
• Sets and adjusts prices for appropriate market
segments.
• Because of wide adoption of the Internet, firms are
increasingly employing yield management principles or
dynamic pricing to vary their prices for different
market segments according to their different demand
and value perceptions.
Everyday Low Price
• Has received increased attention as a means of
determining price discounts and promotions over
time.
Channel Strategy

Channel Design

Indirect Channels

Direct Channels

Online Strategies
Channel Strategy
 Channel design
• Classified into direct and indirect channels.
• Direct channels sell through personal contacts from the
company to prospective customers by mail, phone,
electronic means, and in-person visits.
• Indirect channels sell through third-party intermediaries
such as agents or broker representatives, wholesalers or
distributors, and retailers or dealers.
• Nike  Branded Niketown stores, NikeStore.com,
Outlet stores, Retail, Catalog retailers and Specialty
stores.
Channel Strategy
Indirect channels
• Retailers - Can have a profound influence on the
equity of the brands they sell, in terms of the brand-
related services they can support or help create.
• Pull strategy - Consumers use their buying power and
influence on retailers to “pull” the product through
the channel.
• Push strategy - The manufacturer is attempting to
reach the consumer by “pushing” the product through
each step of the distribution chain.
Channel Strategy
Direct channels
• Company-owned stores - To gain control over the
selling process and build stronger relationships with
customers:
• Other Means - Sell directly to consumers via phone,
mail, or electronic means.
Online strategies
• Multichannel retailers were able to acquire customers
at half the cost of Internet-only retailers, citing a
number of advantages :
• They have market clout with suppliers.
• They have established distribution and fulfillment
systems.
Figure 5.5 - Services Provided by
Channel Members
To Sum Up..

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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Copyright © 2013 Pearson Education