Branding & Distribution Issues

MKTG 485

May 10, 2004

Week 7

• Branding– Yahoo

• Distribution– Internet’s Role in Economy

Branding

• It is through the creation of a recognized and desired brand name that marketing creates value to a business or organization.

Battle of the Brands

What’s different between them?

World’s Most Valuable Brands(Source: Business Week, August 6, 2002

(1995))1. Coca Cola $69 (72) billion

2. Microsoft $64 (70) billion

3. IBM $51 (53) billion

4. GE $41 (38) billion

5. Intel $30 (39) billion

6. Nokia $29 (38) billion

7. Disney $29 (34) billion

8. McDonald’s $26 (28) billion

9. Marlboro $24 () billion

10. Mercedes $21 () billion

11. Ford $20 (36) billion

Power of Branding

“A product is something that is made in a factory; a brand is something that is bought by a customer.”

“A product can be copied by a competitor; a brand is unique.”

“A product can be quickly outdated; a successful brand is timeless.”

Stephen KingWPP Group, London

PRODUCT

BRAND

Leading Brands in 1920’s

WheatiesIvory SoapSwift Premium BaconColgate toothpasteDel Monte canned fruitWrigley’s chewing gumEveready flashlight batteriesGillette razorsLipton teaGoodyear tiresCampbell’s soupSherwin-Williams paint

Longevity of Brands

• Brand Awareness

• Perceived Quality

• Brand Associations

• Brand Bonding

Brand AwarenessAwareness is the extent to which consumer readily identify your brand name with certain products and also identify certain products with your brand name

High Low

Coke Canada Dry

Colgate Aim

McDonalds Jack in the Box

Northgate Aurora Village

Brand AwarenessAwareness is the extent to which consumer readily identify your brand name with certain products and also identify certain products with your brand name

Top of Mind Awareness - % mentioning a brand name first when asked to name brands in a product category.

Perceived QualityPerceived quality is the extent to which

consumers believe that the branded products are superior to other branded products

HighLow

Starbucks Folgers

Diet Coke Diet Pepsi

Quality -- Schlitz1974 - 2nd in Market Share (16%)

Market value - $1.67 billionSchlitz equity - $1.08 billion“The Great Light Beer with Gusto”

1975 - Speeded up brewing process & used cheaper ingredients

1978 - preservatives added making beer cloudy- had to recall 10 million bottles“It’s the Right Product”

1979 - “Take Away My Gusto”1980 - Superbowl taste test

Brand AssociationsBrand Associations are the qualities (thoughts and feelings) that consumers readily associate

with the brand name.

High Low

Clairol Gillette

GE Black & Decker

Costco Sears

Associations - Weight Watchers

Heinz purchased Weight Watchers in 1978 for $120 million.

Competing products were called Lite, Slim Light

Had to overcome several problems1. Terrible Taste2. Advertising/packaging3. Limited offerings (now over 210 items)

In 1989 - sales were $1.3 billionprofits were over $100 million

Brand BondingBrand Bonding is the extent to which consumers are enthusiastic believers in the vision/meaning

established for the brand.

High Low

VW in 60’s VW in 80’s

VW in 00’s

Nike Converse

Microsoft LotusApple Computers

Brand Bonding -- Nintendo

• Once, leading electronic game manufacturer with over 90% market share

• Introduced SuperNintendo game and machines that were incompatible with existing Nintendo games and machines

• Forced consumers to have multiple machines in order to play all of their games

• Created an opening for Sega and later Sony to become one of the multiple machines

• Slow to innovate – color Gameboy, cdrom games, etc.• Now, facing a battle with Microsoft as well as Sony – Sega

has given up making machines

Microsoft and XP• Office XP and Windows XP require that users activate the

program with the computer it is installed on.

• Otherwise, the program will stop operating after a few users

• Programs can not be installed on another machine

• Even when enough new peripherals are installed, program may think that it is being installed in a new computer and refuse to operate.

Distribution Strategy

FedEx Remakes Itself

• UPS purchases MailBox Etc. to give itself a stronger retail presence

• FedEx decides that it must upgrade its dropoff facilities to prevent a substantial market share decline.

• Ziba – a design firm from Portland takes on the assignment of remodeling the sites

FedEx Remakes Itself

PREPARED UNPREPARED

Do Not Crave Reassurance

Frisbee Do It Yourself

CraveReassurance

Confirmers HighMaintenance

FedEx Remakes Itself

PREPARED UNPREPARED

Do Not Crave Reassurance

Drop Box Inside Front Door

Self-ServiceStation at Front

CraveReassurance

Feedback(put through

slots)

Counter in the Back

Process Research

• Find It

• Enter & Orient

• Educate

• Implement

• Reassurance

• Exit

FedEx

• Find It – Large Clock hung on outside of building – Barber Shop Pole

• Enter/Orient – Zoning with Labels

• Transaction – Signage (some digital for uniformity & check updates)

• Reassurance – sorted slots

Levi’s New Product & Distribution Strategy

Levi’s New Product & Distribution Strategy

Model Price Stores

Levi’s Vintage $145-$220 Neiman Marcus, Sharon Segal

Type One $35-95 Kohl’s, Barney’s New York

Levi’s Red Tab $27-35 Macy’s, Sears, K Mart

Levi Strauss Signature

Under $30 Wal-Mart

Product - Customer’s View

CLASSIFICATION OF CONSUMER GOODS- I 

• Convenience Goods - goods that the customer usually purchases frequently and with a minimal effort to compare alternatives before buying.

Classification of Goods

Convenience Purchased frequently with little effort

Shopping Selection involves feature and price comparisons

Specialty Unique characteristics resulting in special effort

Impulse Desire strongly associated with availability

Unsought Need but little desire to purchase

Length of Distribution

Producer

Consumer

Producer

Retailer

ZeroStage

One-Stage Two-Stage

Producer

Wholesaler

ConsumerConsumer

Retailer

What Intermediaries Add To The Cost Of A Compact Disc

Production of disc .74Packaging (tuck box, etc.) 1.72American Federation of Musicians dues .27Songwriters’ royalties .39Recording artists’ royalties 1.01Freight to wholesaler .36Manufacturer’s advertising and selling expenses 1.74Manufacturer’s administrative expenses 1.76Manufacturer's total cost $7.99Manufacturer’s profit margin 1.10Manufacturer’s price to wholesaler $9.09Freight to retailer .38Wholesaler’s administrative expenses .47Wholesaler’s cost $9.94Wholesaler’s profit margin .80Wholesaler’s price to retailer $10.74Retailer’s advertising, selling, and administrative expenses 1.76Retailer’s profit margin 3.49Retailer’s price to consumer $15.99

$6.90

Disintermediation

• The elimination of intermediaries from the channel of distribution.

• Examples– Travel Agents (received a 5% commission)– Airlines – book your own flights– Expedia, Travelocity, Orbitz

Internet Evolution

Jan, 1996 Jan, 1999 Nov, 2001

1. AOL.com2. Webcrawler.com3. Netscape.com4. Yahoo.com5. Infoseek.com6. Prodigy.com7. Compuserv.com8. Umich.edu9. Primenet.com10. Well.com

1. AOL.com2. Yahoo.com3. MSN.com4. Geocities.com5. Go.com 6. Netscape.com7. Excite.com8. Microsoft.com9. Lycos.com

10. Tripod.com

1. Aol.com2. Yahoo.com

3. MSN4. Microsoft5. Lycos6. American Greeting7. Ebay8. Amazon9. Google10. Walt Disney

Internet Automobile Sales

• AutobyTel – Referral System

• Cars Direct – Intermediary

• CarPoint (Microsoft-Ford) – build to order

Intermediary Efficiencies

P C

P

P

P

C

C

C

P C

P

P

P

C

C

C

M

TOTAL = P X C = 16 TOTAL = P + C = 8

ECONOMIES IN FLOWS

A. Physical Flow1. Transportation2. Storage3. Handling

B. Title or Use Rights

C. Payment

D. Information

Distribution Questions

• What criteria should be used to identify outlets for an organization?

• What and how many resellers should be included in the distribution system?

• What function should each member perform?

Distribution Questions

• What remuneration should be given for performing these functions?

• What strategies should be used to facilitate cooperation among channel members to increase efficiency and effectiveness?

Considerations in Establishing a Distribution System

• Customer Service

– Why Starbucks owns its stores

– Why eBay leads on the internet

Considerations in Establishing a Distribution System

• Cost minimization– Soma.com (bought by CVS located in Ohio near

pharmaceutical warehouse & air shipping fields & pharmacy schools

– Now cvs.com

Retail Banking

$1.07

$0.68

$0.27

$0.05$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

Branch Telephone ATM Internet

Average Cost per Transaction

Considerations in Establishing a Distribution System

• Flexibility – Egghead closed its stores & went completely to

the internet– Charles Schwab (stock trading)

• Store fronts

• Telephone

• Internet

Considerations in Establishing a Distribution System

• Power vs. Dependence

– because Wal Mart sells so much, it can dictate terms to suppliers

– Compaq & Dell promoted Internet Explorer in order to continue to get favorable terms for Microsoft’s operating system.

Extent of Distribution

Strategy Exclusive Selective Intensive

Outlets One Several Many

Reasons Control & Focus Adds Competition but with some control & focus

Maximize competition with high product availability

Drawbacks Low coverage Free riders Hard to monitor & control distributors

Consumer Rolls Royce Buick Coke, Kodak film

Business Dell Computers Apple Computers HP/Compaq computers

Services Seattle Pacific UW-Seattle, Bothel, Tacoma

University of Phoenix

Sales Mkt Share

# Stores Outlet Share

Sales/Store

Walgreens $13.4 23% 2,363 14% $5.67

Rite Aid 11.8 20 3,963 23 2.97

CVS 11.1 20 3,909 23 2.84

Eckerd 8.8 15 2,786 17 3.16

Am. Drug Stores

5.2 9 882 5 5.93

Longs 2.8 5 337 2 8.4

Shoppers 2.8 5 801 5 3.52

Jean Coutu 1.2 2 483 3 2.38

Phar-Mor 1.1 2 104 1 10.38

Medical 1.0 2 1,236 7 .84

Total/Avg $59.2 100% 16,864 100% $3.51

Distribution & Market Share

Sales by OutletsSales by # Stores

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

Walgreens

Video Rentals by # Outlets

Revenue OutletsRevenue

/OutletMarketShare

Outlet Share

Blockbuster $2,831 5035 $562,264 21.8% 17.9%Hollywood $287 851 $337,250 2.2% 3.0%Movie Gallery $254 972 $261,317 2.0% 3.5%West Coast $230 531 $433,145 1.8% 1.9%Video Update $84 308 $272,727 0.6% 1.1%Movies, Inc. $82 323 $253,870 0.6% 1.1%Family Video $36 84 $428,571 0.3% 0.3%Blowout $30 200 $150,000 0.2% 0.7%Easy Video $21 38 $552,632 0.2% 0.1%Video Galaxy $20 31 $645,161 0.2% 0.1%All others $9,125 19,727 $462,564 70.2% 70.2%

$13,000 $28,100 $396,318

Revenue by Outlets

$0

$50

$100

$150

$200

$250

$300

$350

0 200 400 600 800 1000 1200

Consumer Problems with Internet Shopping Can be Serious

• CyberRebate

• Founded by Joel Granick, 24-year old law school student

• Based on CompUSA–Office Depot Promos

• “Free After Rebate”