137Make (process A)Make (process B)Buy

Annual volume 10,000 units 10,000 units 10,000 units

Fixed cost/year £100,000 £300,000 –

Variable cost/unit £75 £70 £80

Total £850,000 £1,000,000 £800,000

Together, they have developed the following estimates:

Product/Service

Facelift Minor product change with little or no change to the rest of the marketing mix or target market. Cars often undergo facelifts midway through their life cycle by undergoing minor styling alterations, for example. Japanese companies constantly facelift current electronic products such as video recorders and camcorders by changing product features, a process known as product churning.

Inconspicuous technological substitution A major technological change with little or no alteration of the other elements of the marketing mix. The technological change is not brought to the consumer’s attention. For example, brand loyalty to instant mashed potatoes was retained through major technological process and product changed (powder to granules to flakes) with little attempt to highlight these changes through advertising.

Remerchandising A modification of name, promotion, price, packaging and/or distribution while maintaining the basic product. For example, an unsuccessful men’s deodorant was successfully remerchandised by repackaging, heavier advertising, a higher price and new brand name ‘Brut’.

Relaunch Both the product and other marketing-mix elements are changed.

Relaunches are common in the car industry when every four to five years a model is replaced with an upgraded version. The replacement of the Ford Sierra with the Mondeo is an example.

Conspicuous technological substitution A major technological change is accompanied by heavy promotional (and other mix changes) to stimulate awareness and trial.

The replacement of the IBM PC by the IBM PS/2 is an example.

Intangible repositioning The basic product is retained but other mix elements and target customers change. Lucozade is an example of a product which kept its original formulation but was targeted at different customer segments over time.

Tangible repositioning Both the product and target market change. In the UK, Kendalls – a down-market women’s accessories chain – was repositioned as next, a more up-market women’s clothing store.

Neo-innovation A fundamental technology change accompanied by target market and mix changes. For example, Compaq became a market leader in computers for a time by replacing its down-market inexpensive IBM PC compatible machines with up-market premium-priced computers based on the 286 chip.

Companies, therefore, face an array of replacement options with varying degrees of risk. Figure 5.3 categorises these options and provides an aid to strategic thinking when considering how to replace products in the marketplace.

Problem

Volvo is a global name that is successful in its chosen markets. Volvo pays much more than lip service to the idea of change. Although Volvo is exceptionally well established in its market, it recognises that they will stay at the top by embracing constant change.

Second, Volvo sees marketing as more than a technical function confined to a specialist department. Volvo Car UK, marketing pervades the whole company. Managers at all levels are involved and recognise that they have a role to play in the company’s success.

Volvo has set itself the ambition of becoming the ‘most desired and successful speciality car brand and the most customer-focused organisation in the world, achieving

exemplary standards and support which will match or exceed customer expectations’.

But when it speaks of being customer-focused who, exactly, is the customer?

At one level, it is the dealer network. At another, it is Volvo’s corporate customers.

Regardless of how a car is purchased, the customers who matter most are those at the end of the chain – the people who drive the cars. Ultimately, it is they who decide whether Volvo achieves its objectives. Clearly there would be no point in Volvo developing successful business-to-business relationships if the employees of corporate customers did not want to choose Volvos as their company car.

To tackle this issue, Volvo has two programmes. The first is corporate account relationship experience (Care). This is a corporate account programme aimed both internally and at selected dealers. It has ‘the specific purpose of ensuring that everyone involved with our corporate customers delivers a level of service and professionalism consistent with our global ambitions’.

The second is ‘one customer one relationship’ (Oncore). This is a dealer programme designed to satisfy the end customer. Volvo describes it as ‘the creation of a differentiated customer experience, an experience that will match the new products and services that Volvo will launch over the coming years’.

These two programmes work together to satisfy both the business needs of the corporate customer and the human needs of the driver. They reflect the fact that looking after corporate customers is a shared responsibility for Volvo and its dealers, the common factors being drivers, their spouses and families. Both programmes concentrate on developing the skills of all those people who touch the customer, whether they are employed by Volvo or a dealer. The two programmes dovetail together. Care is the business-to-business management process. When a car is delivered or a driver calls in at a dealership, Oncore takes over.

Volvo deals directly with its largest customers. Dealers have involved pre- and/or post-sales with all organisations that have company Volvos. The larger dealers have a business centre with a business sales manager, trained in all aspects of fleet customer requirements.

This manager’s main role is to develop business-to-business relationships not handled directly by Volvo. Dealer business centres are typically in main towns and cities. They are responsible for most of Volvo’s sales. But the company has wide geographic representation and service cover.

One of the interesting features of the way Volvo develops customer relationships is how it uses multiple relationships. For example, a person who drives a company Volvo is involved in as many as six relationships. Significantly, Volvo has a direct impact on every one of these relationships.

• Volvo and its corporate customers Relationships between Volvo and its corporate customers govern Volvo’s inclusion in entitlement lists.

• Corporate customers and their employees The agreements reached affect which models are available to employees.

• Corporate customers and Volvo dealers The local dealer usually delivers and then services the cars, however they are acquired.

• Volvo and Volvo drivers Volvo maintains a direct marketing relationship with all drivers of its cars.

• Volvo and its dealers (some of which it owns) Volvo works hard with its dealer network to maintain and improve its standards.

• Volvo dealers and Volvo drivers Volvo dealers are the front line of meeting the drivers’

expectations.

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The Oncore and Care programmes are designed to ensure systematic approaches and consistent treatment across all these relationships. Volvo is seeing the benefits of its programmes. Its combined direct and dealer focus, coupled with its deliberate, near dramatic, image shift over recent years has lifted UK business purchases to 70 per cent of sales – behind competitors such as BMW and Mercedes, but still growing.

Of course, all high-engineering products are different and so are their markets and potential customers. But both British Aerospace and Volvo demonstrate that a willingness to change and develop multi-layered relationships with customers are key ingredients of success.

Questions

1 Out of nine product replacement strategies discussed, which do you feel applies more directly to the Volvo example?

2 What is the thinking behind the ‘facelift’ and ‘relaunch’ product replacement strategies?

3 Give examples of companies that have utilised a ‘no change’, an ‘intangible repositioning’

and a ‘re-merchandising’ product replacement strategies.

(I) Problem 5.4 Brand stretching (extension) Introductory comments

The process of developing a range of products under the banner of one brand name is called brand stretching. There are certain advantages in this approach to new product launches. First and foremost, brand stretching enables a new product to take advantage of the already established functional attributes and symbolic values that make up the personality of the parent brand, whether that be product specific or corporate. Clearly, the intended personality of the parent brand should be appropriate to the new product.

Second, brand stretching can, if done successfully, enhance the reputation and sales of the parent brand. An example of this is provided by the toiletries brand Nivea (see problem).

Brand stretching is, however, not without its critics. It is sometimes argued that stretching a brand can adversely affect its health (Aaker, 1991). Brand stretching the original brand proposition can result in cannibalisation of the original product’s sales by the brand extension(s). It can also dilute the brand proposition such that consumers are confused by what becomes a more complex personality. However, there are probably as many examples of brand-stretching successes as there are failures. The important point is to ensure that the original brand is nurtured. This means, as we have said, periodic reviews of its saliency and relevance to the marketplace. Brands can quickly become old-fashioned and lose their sparkle.

If the existing brand is well-known and brings positive associations to mind, its fame and associations can be carried over to the new product. Three factors determine what associations will carry over into a new context:

1 The strength of the attribute or quality associations in the existing context. If these associations are weak to begin with, they will be weaker in the new context.

2 The fit of a brand into the new context. There needs to be a link such as a common use situation (hair care), user type (glamorous, upscale), functional benefits (speedy delivery) or attribute (salty). Vuarnet sunglasses are associated with skiing and fashion, and thus

a skiwear line as a brand extension would make sense, because it would share a common use context and involve the fashion attribute.

3 Whether it is plausible to consider the brand in the new context. Would the makers of the brand be perceived as having the expertise to make the new product class? Thus, a ‘fashion-driven firm’ like Vuarnet would probably be able to make skiwear, because a fashion touch is the key. A movement by Vuarnet into skis might be stretching it, however. To the extent that the new brand context is implausible, the positive attribute and quality associations will be weak and negative associations may emerge.

Developing brand extension options can start by finding out on what products a brand name would fit and what associations it would bring to the new product class.

For example, when Bausch & Lomb found that many associated the firm with precision German engineering and that Bausch & Lomb hearing aids would be attractive, it bought Miracle Ear, a manufacturer with a thousand franchise outlets. When it found that customer trust could be transferred, Bausch & Lomb also decided to leverage its Sensitive Eyes name to start a lotion and cream business.

A brand extension can provide substantial support for a brand name by increasing its awareness level and by reinforcing its associations. For example, the Sunkist associations with oranges, health and vitality are reinforced by the promotion of Sunkist juice bars and Sunkist vitamin C tablets. However, extensions also have the potential to damage a core brand by creating undesirable attribute associations or weakening those that exist.

Thus, the Sunkist health image may be weakened by Sunkist fruit rolls. The strong product-class associations of Kleenex and A-1 might be hurt if they were extended.

Perhaps the worst potential result of an extension is a foregone opportunity to create a new brand equity. Consider where P&G would be without Ivory, Camay, Dreft, Tide, Cheer, Joy, Pampers, Crest, Secret, Sure, Folger’s, and Pringles, and its other 70 or so brands. P&G detergent, P&G toothpaste, P&G deodorant, P&G coffee, and P&G potato chips do not have the same impact.

There must be a certain logic for the brand extension to be successful. In this respect, the consumer-oriented approach can be distinguished from the manufacturer-oriented approach. In the manufacturer-manufacturer-oriented approach, the success of potential brand expansions is judged by the degree of production transfer, marketing transfer, substitutability and transfer of the brand image or brand concept. For example, Mars caramel sweets could benefit from production transfer, Mars chewing gum could benefit from production transfer and substitutability and Mars sports drink could benefit from image transfer. In the consumer-oriented approach, the logic follows from the meaning structure of goods and services. Table 5.2 shows three levels of brand extension. Incidentally, brand extension can occur on more than one level simultaneously.

For example, products in a line extension may also possess the same benefits.

Characteristics level

At the characteristics level, brand extensions extend into variants of taste, colour, shape, etc. Classic Coke, Cherry Coke and Coca-Cola Light exist besides the normal Coke. Danone has yoghurt in different flavours. Besides normal Ariel, there is Ariel Ultra and next to Carlsberg, there is Carlsberg Light. There are Pampers nappies for boys and girls of different ages. The different colours, flavours and variants are substitutes for each other. The choice set of consumers becomes more extensive. The product is

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differentiated and offered to different target groups. This form of brand extension is called line extension. This type of brand extension requires little change of the brand schema, that is assimilation. In the manufacturer approach, it is assumed that the extension will be successful because consumers think that the characteristics of the extension will have the same quality as the parent brand.

Consequences level

At the consequences level, brand extension is based on the same function, the same consequence or the same ‘benefit’ for the consumer. Under the name Lean Cuisine, different products that contain few calories and are good for slimming, are brought into the market. So there is Lean Cuisine margarine, cheese, pâté, cream milk and smoked sausage. These products all share the common characteristic that they are less fattening than other products. Lean Cuisine also is associated with a certain lifestyle: if you take good care of yourself and your figure, you will have more self-confidence and be happier.

In the manufacturer approach, the expected success of these extensions is attributable to the transfer of marketing expertise, that is using the same marketing knowledge for similar products, and substitutability, that is substitutes have similar consequences.

Lifestyle and values

Brand extensions can also be based on the same lifestyle and values. Dunhill was originally a cigarette brand, but the brand Dunhill is now also used for completely different products such as expensive lighters, jewellery and watches. Ray Ban was originally a brand of sunglasses, but now this brand is also seen on skis and ski clothing.

There are brand Porsche sunglasses. Swatch is planning to release artistic and lively coloured city cars under the brand Smart, produced by Mercedes. These brand extensions appeal to a certain target group striving for certain values and a certain lifestyle and who use these brands to express their identity. From the manufacturer’s viewpoint, these extensions are expected to benefit from the transfer of brand image.

Extending brands successfully

Brand extensions are not always successful. A good brand extension must adhere to certain conditions.

• Favourable existing schema There must be a positive schema concerning the formal category of the original brand. In this case, positive associations can be conveyed. An Apple PC is seen as a user-friendly PC of high quality.

Table 5.2 Levels of brand extension

Type of brand extension Meaning structure Marketing technical elements Line extension, technical substitute Characteristics level Production transfer

Similar or complementary consequences, Consequences level Marketing transfer, substitutability usage in similar situations

Similar target group or lifestyle Value level Brand image transfer, brand concept transfer

• Favourable forward transfer A positive schema should be generalisable to the new product.

The new product receives the existing brand schema (transfer) plus a label with new product attributes. It is a formal categorisation with some functional labels. For example, Apple copiers may also be seen as user-friendly and of a high quality, according to some customers.

• Favourable backward transfer Negative schemas should not be transferred, from the existing product to the new one, or from the new product to the existing one. If photocopiers are seen as frequently defective products, a negative schema may be carried over to Apple Macs. Kleenex toilet paper might convey negative associations to Kleenex tissues. Miller Light beer had a negative effect on Miller High Life because of the schema (‘almost water’) of light beer. The new product under the same brand name is then created at the expense of the existing product (cannibalism).

It is not advisable to place a famous brand name of complex products on a trivial product, an IBM stapler for example or a Philips bathroom wash basin. This is called trivialising. The new product then detracts from the reputation of the famous brand and from the quality and complexity of the existing products brought out under that brand. It is a case of undesirable backward transfer. It is just as unadvisable to use a famous brand name of a simple product for a complex product, for example, ‘Heineken computers’. The brand name then does not achieve the association of complexity and durability that is needed for the new product.

In general, an existing brand name must not be used for products with entirely different associations. With these conditions in mind, it is interesting to examine whether the following brand extensions are favourable or unfavourable to the new and to the existing product under the same brand: McDonald’s theme parks, McDonald’s photo printing service, Heineken soda water, Swatch city cars, Akzo Nobel contraceptive pill and Heinz peanut butter. Which levels do these brand extensions have? Are these brand extensions likely to evoke positive associations for the consumer? Which of these brand extensions would have a chance of success?

Problem