Record Breaking

SpongeBob SquarePants has become an enduring, revolutionary pop icon, inspiring nautical nonsense in millions of people worldwide white generating record-breaking ratings and retail sales.


The practice of using the established brand names of two different companies on the same product.

Licensing. Most manufacturers take years and spend millions to create their own brand names. However, some companies license names or symbols previously created by other manufacturers, names of well-known celebrities, or characters from popular movies and books. For a fee, any of these can provide an instant and proven brand name.

Apparel and accessories sellers pay large royalties to adorn their products—from blouses to ties, and linens to luggage—with the names or initials of well-known fashion innovators such as Calvin Klein, Tommy Hilfiger, Gucci, or Armani. Sellers of children's products attach an almost endless list of character names to clothing, toys, school supplies, linens, dolls, lunch boxes, cereals, and other items. Licensed character names range from classics such as Sesame Street, Disney, Asterix, Winnie the Pooh, the Muppets, Scooby Doo, and Dr. Seuss characters to the more recent Dora the Explorer, Powerpuff Girls, Rugrats, Blue's Clues, and Harry Potter characters. And currently a number of top-selling retail toys are products based on television shows and movies, such as the Spiderman Deluxe Spinning Web Blaster and the Talking Friendship Adventures Dora.

Name and character licensing has grown rapidly in recent years. Licensing can be a highly profitable business for many companies. A For example, Nickelodeon has developed a stable full of hugely popular characters, such as Dora the Explorer, Go, Diego, Go!, and SpongeBob SquarePants. Dora alone has generated more than $5.3 billion in retail sales in under five years. "When it comes to licensing its brands for consumer products, Nickelodeon has proved that it has the Midas touch," states a brand licensing expert.29

Co-branding. Although companies have been co-branding products for many years, there has been a recent resurgence in co-branding. Co-branding occurs when two established brand names of different companies are used on the same product. For example, financial services firms often partner with other companies to create co-branded credit cards, such as when Chase and United Airlines joined forces to create the Chase United Travel Card. Similarly, Costco teamed with mattress maker Stearns & Foster to market a line of Kirkland Signature by Stearns & Foster mattress sets. And Nike and Apple co-branded the Nike+iPod Sport Kit, which lets runners link their Nike shoes with their iPod Nanos to track and enhance running performance

Line extension

Extending an existing brand name to new forms, colors, sizes, ingredients, or flavors of an existing product category.

in real time. "Thanks to a unique partnership between Nike and Apple, your iPod nano becomes your coach. Your personal trainer. Your favorite workout companion."30

In most co-branding situations, one company licenses another company's well-known brand to use in combination with its own. Co-branding offers many advantages. Because each brand dominates in a different category, the combined brands create broader consumer appeal and greater brand equity. Co-branding also allows a company to expand its existing brand into a category it might otherwise have difficulty entering alone. For example, Nickelodeon Family Suites by Holiday Inn gives the cable channel Nickelodeon yet another opportunity to become a deeper part of viewers' lives. And it provides Holiday Inn with a shot at a new, younger travel market made up of young parents who grew up watching Nick. Similarly, the Nike + iPod arrangement gives Apple a presence in the sports and fitness market. At the same time, it helps Nike to bring new value to its customers.31

Co-branding also has limitations. Such relationships usually involve complex legal contracts and licenses. Co-branding partners must carefully coordinate their advertising, sales promotion, and other marketing efforts. Finally, when co-branding, each partner must trust that the other will take good care of its brand. For example, consider the marriage between the retailer Kmart and the Martha Stewart Everyday housewares brand. When Kmart declared bankruptcy before being acquired by Sears, it cast a shadow on the Martha Stewart brand. In turn, when Martha Stewart, the brand's founder, was convicted and jailed for illegal financial dealings, it created negative associations for Kmart. Finally, Kmart was further embarrassed when Martha Stewart Living Omnimedia recently struck major licensing agreements with Macy's and Lowe's, two other retailers, announcing that it would separate from Kmart when the current contract ends in 2009. Thus, as one manager puts it, "Giving away your brand is a lot like giving away your child—you want to make sure everything is perfect."32

Brand Development

A company has four choices when it comes to developing brands (see \ Figure 8.4). It can introduce line extensions, brand extensions, multibrands, or new brands.

Line Extensions. Line extensions occur when a company extends existing brand names to new forms, colors, sizes, ingredients, or flavors of an existing product category. Thus, Morton Salt has expanded its line to include regular iodized salt plus Morton Coarse Kosher Salt, Morton Sea Salt, Morton Lite Salt (low in sodium), Morton Popcorn Salt, Morton Salt Substitute, and several others. The vast majority of all new-product activity consists of line extensions.

A company might introduce line extensions as a low-cost, low-risk way to introduce new products. Or it might want to meet consumer desires for variety, to use excess capacity, or simply to command more shelf space from resellers. However, line extensions involve some risks. An overextended brand name might lose its specific meaning. For example, you can now pick from an array of seven different Jeep SUV models—Commander, Grand Cherokee, Compass, Patriot, Liberty, Wrangler, and Wrangler Unlimited. It's unlikely that many customers will fully appreciate the differences across the many similar models, and such "Jeep creep" can cause consumer confusion or even frustration.

Another risk is that sales of an extension may come at the expense of other items in the line. A For example, the original Doritos Tortilla Chips have now morphed into a full line of 20 different types and flavors of chips, including such high-decibel flavors as

Brand Development Strategies

cs m

Product category

Existing New

Product category

Existing New






New brands

This is a very handy framework for analyzing brand development opportunities. For example, what strategy did Toyota use when it Introduced the Toyota Camry Hybrid? When it introduced the Toyota Prlus? The Scion?

Examples Line Extension Strategy
Line extensions: An overextended brand name might cause consumer confusion or frustration. The original Doritos Tortilla Chips have now morphed into a full line of 20 different types and flavors of chips, making the original Doritos seem like just another flavor.

Brand extension

Extending an existing brand name to new product categories.

Brand Extensions. A brand extension extends a current brand name to new or modified products in a new category. For example, Kimberly-Clark extended its market-leading Huggies brand from disposable diapers to a full line of toiletries for tots, from shampoos, lotions, and diaper-rash ointments to baby wash, disposable washcloths, and disposable changing pads. Victorinox extended its venerable Swiss Army brand from multitool knives to products ranging from cutlery and ballpoint pens to watches, luggage, and apparel. And P&G has leveraged the strength of its Mr. Clean household cleaner brand to launch several new lines: cleaning pads (Magic Eraser), bathroom cleaning tools (Magic Reach), and home auto cleaning kits (Mr. Clean AutoDry). It's even launching Mr. Clean-branded car washes.

A brand extension gives a new product instant recognition and faster acceptance. It also saves the high advertising costs usually required to build a new brand name. At the same time, a brand extension strategy involves some risk. Brand extensions such as Bic pantyhose, Heinz pet food, Life Savers gum, and Clorox laundry detergent met early deaths. The extension may confuse the image of the main brand. And if a brand extension fails, it may harm consumer attitudes toward the other products carrying the same brand name.

Furthermore, a brand name may not be appropriate to a particular new product, even if it is well made and satisfying—would you consider flying on Hooters Air or drinking Hooters energy drink? How about an Evian water-filled padded bra? All of these products failed. Companies that are tempted to transfer a brand name must research how well the brand's associations fit the new product.33

Blazin' Buffalo Ranch, Black Pepper Jack, and Fiery Habanero. Although the line seems to be doing well, the original Doritos chips seem like just another flavor. A line extension works best when it takes sales away from competing brands, not when it "cannibalizes" the company's other items.

Multibrands. Companies often introduce additional brands in the same category. Thus, Procter & Gamble markets many different brands in each of its product categories. Multibranding offers a way to establish different features and appeal to different buying motives. It also allows a company to lock up more reseller shelf space.

A major drawback of multibranding is that each brand might obtain only a small market share, and none may be very profitable. The company may end up spreading its resources over many brands instead of building a few brands to a highly profitable level. These companies should reduce the number of brands they sell in a given category and set up tighter screening procedures for new brands.

New Brands. A company might believe that the power of its existing brand name is waning and a new brand name is needed. Or it may create a new brand name when it enters a new product category for which none of the company's current brand names are appropriate. For example, Toyota created the separate Scion brand, targeted toward younger consumers.

As with multibranding, offering too many new brands can result in a company spreading its resources too thin. And in some industries, such as consumer packaged goods, consumers and retailers have become concerned that there are already too many brands, with too few differences between them. Thus, Unilever, Frito-Lay, Nestle , and other large consumer-product marketers are now pursuing megabrand strategies—weeding out weaker or slower-growing brands and focusing their marketing dollars only on brands that can achieve the number-one or number-two market share positions with good growth prospects in their categories.

Managing Brands

Companies must manage their brands carefully. First, the brand's positioning must be continuously communicated to consumers. Major brand marketers often spend huge amounts on advertising to create brand awareness and to build preference and loyalty. For example, Vodafone spends more than $400 million annually to promote its brand. McDonald's spends more than $1.7 billion.34

Such advertising campaigns can help to create name recognition, brand knowledge, and maybe even some brand preference. However, the fact is that brands are not maintained by advertising but by the brand experience. Today, customers come to know a brand through a wide range of contacts and touch points. These include advertising, but also personal experience with the brand, word of mouth, company Web pages, and many others. The company must put as much care into managing these touch points as it does into producing its ads. "Managing each customer's experience is perhaps the most important ingredient in building [brand] loyalty," states one branding expert. "Every memorable interaction ... must be completed with excellence and ... must reinforce your brand essence." A A former Disney executive agrees: "A brand is a living entity, and it is enriched or undermined cumulatively over time, the product of a thousand small gestures."35

The brand's positioning will not take hold fully unless everyone in the company lives the brand. Therefore the company needs to train its people to be customer centered. Even better, the company should carry on internal brand building to help employees understand and be enthusiastic about the brand promise. Many companies go even further by training and encouraging their distributors and dealers to serve their customers well.

Finally, companies need to periodically audit their brands' strengths and weaknesses.36 They should ask: Does our brand excel at delivering benefits that consumers truly value? Is the brand properly positioned? Do all of our consumer touch points support the brand's positioning? Do the brand's managers understand what the brand means to consumers? Does the brand receive proper, sustained support? The brand audit may turn up brands that need more support, brands that need to be dropped, or brands that must be rebranded or repositioned because of changing customer preferences or new competitors.

Managing brands requires managing "touch points." Says a former Disney executive: "A brand is a living entity, and it is enriched or undermined cumulatively over time, the product of a thousand small gestures."

Author I As noted at the start of Comment | ^g chapter, services are "products," too—jU5t intangible ones. So all of the product topics we've discussed so far apply to services as well as to physical products. However, in this final section, we'll focus in on the special characteristics and marketing needs that set services apart.

Services Marketing (pp 268-275)

Services have grown dramatically in recent years. Services now account for close to 79 percent of the gross domestic product of the United States alone. Services are growing even faster in the world economy, making up 64 percent of gross world product.37

Service industries vary greatly. Governments offer services through courts, employment services, hospitals, military services, police and fire departments, postal service, and schools. Private not-for-profit organizations offer services through museums, charities, churches, colleges, foundations, and hospitals. A large number of business organizations offer services—airlines, banks, hotels, insurance companies, consulting firms, medical and legal practices, entertainment companies, real-estate firms, retailers, and others.

Nature and Characteristics of a Service

A company must consider four special service characteristics when designing marketing programs: intangibility, inseparability, variability, and perishability (see \ Figure 8.5).

Four Service Characteristics

Although services are "products" in a general sense, they have special characteristics and marketing needs. The biggest differences come from the fact that services are essentially Intangible and that they are created through direct interactions with customers. Think about your experiences with an airline versus Adidas or Sony.


Services cannot be seen, tasted, felt, heard, or smelled before purchase


Quality of services depends on who provides them and when, where, and how


Services cannot be seen, tasted, felt, heard, or smelled before purchase


Quality of services depends on who provides them and when, where, and how

Service Perishability


Services cannot be separated from their providers


Services cannot be stored for later sale or use


Services cannot be separated from their providers


Services cannot be stored for later sale or use

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