Chapter10 Product Branding and Packaging Decisions

Chapter10: PRODUCT, BRANDING, AND PACKAGING DECISIONS
Chapter Opener
p. 308
LEARNING OBJECTIVES
How do firms adjust their product lines to changing market conditions?
Why are brands valuable to firms?
How do firms implement different branding strategies?
How do a product’s packaging and label contribute to a firm’s overall strategy?
p. 309
In 1984, Michael Jordan was a top-three draft pick, chosen by the Chicago Bulls after Hakeem
Olajuwon and Sam Bowie had gone to other teams. He was predicted to be good, but few likely could
have predicted he would change the face of basketball and become what many sports fans consider the
best player that will ever be.
Around the same time, the athletic shoe company Nike was in a tough spot, facing diminishing sales as
the running shoe mania that had swept the United States in the early 1980s appeared to be coming to
an end, taking Nike’s profits with it. Intrigued by Jordan’s charisma and friendly appeal, demonstrated in a
couple of previous endorsement deals, the company approached the young star. 1
At the time, endorsement deals for athletic shoes centered primarily on getting the athlete to wear the
products on the field or court. For example, Converse kept basketball great Larry Bird supplied in
sneakers, but he never appeared in specific advertising for the company. The shoe companies tended to
avoid investing too much in a single athlete. Yet Nike went a different route with Jordan, proposing that it
would create an entire line named after him and would run advertising featuring him, in addition to asking
him to wear the shoes.
The first Air Jordans were notably different from the conventional basketball shoe. Primarily, they were
bright red and black, not white, which meant that every time Jordan wore them on the court, the NBA
fined him $5,000 for being out of uniform. It was a marketing bonanza. Nike happily paid each fine,
thrilled with the press that the controversy stirred. And people bought the shoes in droves, even despite
the then-astronomical price of $125 per pair.
p. 310 Within a couple of years, Jordan was gaining more and more recognition, especially after he won the
1986 Slam Dunk contest with a high-flying leap from the top of the arc, his legs splayed, and his arm, ball
in palm, seeming to touch the sky. So when Nike got around to designing the Air Jordan III, it again did
something few other endorsement advertisers had ever done: It asked Jordan to help it design the new
shoe, then replaced Nike’s well-known, valuable “swoosh” logo with a silhouette of Jordan dunking the
ball.
The strategy represented a huge risk, because the swoosh logo was widely recognized as a branding
tool. But by betting on Jordan’s popularity, as well as the popularity of the shoes bearing his name, Nike
created yet another logo that provided it widespread recognition and great value. Eventually, Nike spun
Air Jordans off into its own subbrand, with the now world-famous Jordan silhouette as the only logo on
the shoe.
The Air Jordan XXIII, released in January 2008, promises to be another big seller, especially considering
the metaphoric connection it has to Jordan’s playing number (23) during his championship years with the
Bulls. But Nike isn’t relying solely on Jordan’s appeal anymore to ensure sufficient sales of its $185
sneaker. It also promises a shoe made of sustainable materials, made through a manufacturing process
that creates minimal waste. 2
The unsurpassed success of the collaboration between a beloved national athlete and the shoe company
prompted the latter to continue down the same path with others. Some deals succeeded as well as
Jordan’s; Tiger Woods has extended the company’s reach into the world of golf, and his deal requires
that he wears all Nike gear, not just a pair of shoes. With the famous swoosh appearing on his shirts and
hats every time Woods wins yet another tournament, Tiger is closely associated with Nike.3
But deals with other athletes have been less successful; Nike signed Michelle Wie to a deal when she
was 15 years old, and the teen phenom has yet to win a major tournament on the LPGA golf circuit.
Even more worrisome for Nike is the potential backlash against its brand when its endorsees run into
legal trouble, as when Kobe Bryant was accused of rape. He continued to be retained by Nike, and
ultimately was exonerated. However, when Michael Vick was convicted of dogfighting, he was dropped
as an endorser by the company.
As a key element of a firm’s marketing mix (the four Ps), product strategies are central to the creation of
value for the consumer. A product is anything that is of value to a consumer and can be offered through a
voluntary marketing exchange. In addition to goods, such as soft drinks, or services, such as a stay in a
hotel, products might also be places (e.g., Universal Studio theme park), ideas (e.g., “stop smoking”),
Product Assortment and Product Line Decisions
The complete set of all products offered by a firm is called its product assortment or product mix. An
abbreviated version of Colgate-Palmolive’s product assortment is shown in Exhibit 10.1. The product
assortment typically consists of various product lines, which are groups of associated items, such as items
that consumers use together or think of as part of a group of similar products. Colgate-Palmolive’s product
lines include oral care, personal care, home care, and pet nutrition.
EXHIBIT 10.1 Colgate-Palmolive Product Assortment
Within each product line, there are often multiple product categories. A product category is an assortment
of items that the customer sees as reasonable substitutes for one another or are used under similar
circumstances. For example, in the oral care product line, Colgate-Palmolive offers several categories:
toothpaste, toothbrushes, kids’ oral care products, whitening products, floss, and oral first aid. Each
category within a product line may use the same or different brands, which are the names, terms, designs,
symbols, or any other features that identify one seller’s good or service as distinct from those of other
sellers. 4 For instance, Colgate-Palmolive offers several brands of toothbrushes (e.g., Plus, Whitening,
Massager, Navigator).
Product assortments can also be described in terms of their breadth and depth. A firm’s product line
breadth (sometimes also referred to as variety) represents the number of product lines offered by the firm;
Colgate-Palmolive has four. Product line depth, in contrast, is the number of categories within a product
line. Within Colgate-Palmolive’s oral care line, for example, there are several categories—toothpaste,
toothbrushes, kids’ products, and so forth. Its pet nutrition product line, however, comprises fewer categories
and therefore has less depth.
Pepsi has realized significant growth of sales and profits by its introduction of the Diet Pepsi Max line.
p. 312 Within each product category are a number of individual items called stock keeping units (SKUs), which
are the smallest unit available for inventory control. Within the toothpaste category, for instance, Colgate-
Palmolive offers 39 Colgate SKUs that represent various sizes, flavors, and configurations of Colgate
Luminous, Colgate Max, Colgate Total, and Colgate Fresh Confidence.5 The category depth is the
number of SKUs within a category.
The decision to expand or contract product lines and categories depends on several industry-, consumer-,
and firm-level factors. Among the industry factors, firms expand their product lines when it is relatively easy
to enter a specific market (entry barriers are low) and/or when there is a substantial market opportunity. 6
When firms add new product categories and brands to their product assortments, they often earn significant
sales and profits, as was the case with Doritos’ Cool Ranch product line, Oil of Olay’s Definity antiaging
products, Chrysler’s minivans, and Pepsi’s Diet Max line.7
However, unchecked and unlimited product line extensions may have adverse consequences. Too much
variety in the product assortment is often too costly to maintain, and too many brands may weaken the
firm’s brand reputation. 8 In the past several years, for example, Revlon undertook a significant restructuring.
It introduced a new line, Vital Radiance, aimed at women over the age of 45 years. But when it realized this
line was cutting into the sales of its other brands, Revlon eliminated the Vital Radiance line, forced out its
CEO, and cut jobs in an attempt to refocus on those products and markets that were doing well. 9
Now let’s look at why firms change their product mix’s breadth or depth, as well as product line decisions for
services.
Change Product Mix Breadth

Firms may change their product mix breadth by either adding to or deleting categories.
Increase Breadth Firms often add new product categories to capture new or evolving markets, increase
sales, and compete in new venues. Since the growth of “designer” jeans has slowed, several designers
have branched out. True Religion Brand Jeans are increasing its merchandise categories to become more
of an all-encompassing lifestyle brand rather than just a denim company. It now makes apparel, belts,
swimwear, a fragrance, and handbags. Similarly, Seven For All Mankind, Antik, and other premium denim
companies are branching out into other categories. 10
Decrease Breadth Sometimes it is necessary to delete entire product lines to address changing market
conditions or meet internal strategic priorities. Shortly after expanding its offerings to include a line of heated
breakfast sandwiches, Starbucks began phasing out the offerings. According to Starbucks’ CEO Howard
Schultz, the decision marks the company’s effort to “build for the long-term and get back to the roots and
the core of our heritage, which is the leading roaster of specialty coffee in the world.” 11 Without having to
worry about sandwiches, the coffee chain can focus instead on competing effectively with competitors such
as Dunkin’ Donuts and increase its flexibility to invest in new product lines in the future.
TCBY has decreased its breadth by eliminating ice cream so it can concentrate on the health benefits of
yogurt.
p. 313 In the 1980s frozen yogurt became a low-fat, healthy substitute for ice cream. In the 1990s, the government
allowed ice-cream companies to advertise “reduced fat” on their labels. This caused a sharp decline in the
sales of frozen yogurt. TCBY, which began as a frozen yogurt shop, sold ice cream from 1996 to 2004, but
recently reduced its breadth by eliminating ice cream so that it can concentrate on its original product
category, frozen yogurt. The chain is renovating its stores, and touting the immune system and weight
control benefits of eating frozen yogurt in its promotions. 12
Change Product Assortment Depth

As with product line breadth, firms occasionally either add to or delete from their product line depth.
Increase Depth Firms may add items or SKUS to address changing consumer preferences or preempt
competitors while boosting sales. Johnson&Johnson’s Band-Aid was introduced in 1920 with a one-size-fits-
all product. Today it has more than 40 products that help to heal cuts and scrapes. Band-Aid is constantly
increasing its depth by introducing new products that solve every possible wound or blister problem. One of
its most recent products, called Blister Block, prevents the formation of blisters. 13
Decrease Depth From time to time it is also necessary to delete SKUs to realign resources. The decision
to delete SKUs is never taken lightly. Generally, substantial investments have been made to develop and
manufacture the products. Consumer goods firms make pruning decisions regularly to eliminate unprofitable
items and refocus their marketing efforts on more profitable items. The spice company McCormick
eliminates dozens of products each year including sauces, Golden Dipt products, and Grill Mates
seasonings. The company’s growth strategy focuses on introducing new products, increasing overall profit
margins, and reducing the complexity of its product lines. Increased commodity costs have also forced lower
margin products to be eliminated. McCormick’s B2B sales to food manufacturers have increased 51 percent
because these firms switched to the new, more desirable products.14
Johnson&Johnson’s Band-Aid Brand has more than 40 SKUs.
Product Line Decisions for Services

Many of the strategies used to make product line decisions for physical products can also be applied to
services. For instance, a service provider like a bank typically offers different product lines for its business
and retail (consumer) accounts; those product lines are further divided into categories based on the needs
of different target markets.
p. 314 On the retail side, banks offer savings and checking accounts to individual consumers. The different types
of accounts thus are equivalent to SKUs. Bank of America (BofA), one of the world’s largest financial
institutions, which serves more than 59 million customers in the United States and additional customers in
175 other countries,15 offers a variety of checking account products to meet the needs of its different target
markets. For example, with Bank of America Advantage Checking ® , customers who maintain higher
balances are rewarded with preferred interest and free banking services. For customers older than 55 years
of age, BofA offers Bank of America Advantage for Seniors ® , which allows customers to invest in CDs and
use up to $2,500 of their value, without early withdrawal penalties, for expenditures or emergencies. BofA
even offers college accounts, like CampusEdge® Checking, with low opening deposits and low fees. 16
CHECK YOURSELF
1. What is the difference between product line breadth versus depth?
2. Why change product line breadth?
3. Why change product line depth?
4. American Marketing Association, Dictionary of Marketing Terms (Chicago: American Marketing Association),
available at http://www.marketingpower.com/live/mg-dictionary-view329.php? (accessed December 21, 2007).
5. “All Colgate Toothpastes,” http://www.colgate.com (accessed December February 1, 2008).
6. Kostas Axarloglou, “Product Line Extensions: Causes and Effects,” Managerial & Decision Economics, 29, no. 1
(2008), pp. 9–21; Michaela Draganska and Dipak C. Jain, “Product-Line Length as a Competitive Tool,” Journal of
Economics & Management Strategy, 14, no. 1 (2005), pp. 1–28; William P. Putsis Jr. and Barry L. Bayus, “An
Empirical Analysis of Firms' Product Line Decisions,” Journal of Marketing Research, 38, no. 1 (February 2001),
pp. 110–118.
Branding
Branding provides a way for a firm to differentiate its product offerings from those of its competitors and can
be used to represent the name of a firm and its entire product assortment (General Motors), one product
line (Chevrolet), or a single item (Corvette). Brand names, logos, symbols, characters, slogans, jingles, and
even distinctive packages constitute the various brand elements firms use, 17 which they usually choose to
be easy for consumers to recognize and remember. For example, most consumers are aware of the
Mercedes-Benz star and would recognize it even if the word Mercedes-Benz did not appear on the product
or in an advertisement. Exhibit 10.2 summarizes these brand elements.
p. 315
EXHIBIT 10.2 What Makes a Brand?
Most consumers are aware of the Mercedes-Benz star and would recognize it even if the word “Mercedes-
Benz” did not appear on the product or in an advertisement.
Value of Branding for the Customer and the Marketer

Brands add value to merchandise and services beyond physical and functional characteristics or the pure
act of performing the service. 18 Let’s examine some ways in which brands add value for both customers
and the firm.
Brand makes a difference: Could you tell the difference between these brands by tasting them?
Brands Facilitate Purchasing Brands are often easily recognized by consumers and, because they signify
a certain quality level and contain familiar attributes, brands help consumers make quick decisions. 19
Consumers recognize orange juice brands like Sunny Delight, Tropicana, Florida’s Natural, Simply Orange,
Minute Maid, and Odwalla. From promotions, past purchases, or information from friends and family, they
have a perception of a brand’s level of quality, how it tastes, how healthy it is, whether it is a good value,
and most important, whether they like it and want to buy it. Brands enable customers to differentiate one
firm or product from another. Without branding, how could we easily tell the difference between Minute Maid
and Tropicana without a taste?
Brands Establish Loyalty Over time and with continued use, consumers learn to trust certain brands.
They know, for instance, that Band-Aid bandages always perform in the exact same way. Many customers
become loyal to certain brands in much the same way that you or your friends likely have become loyal to
your college. They wouldn’t consider switching brands and, in some cases, feel a strong affinity to certain
brands. For instance, Coca-Cola drinkers don’t drink Pepsi, and wouldn’t dare touch a Dr Pepper.
Companies are applying innovative techniques to strengthen brand loyalty on their Internet sites, as Power
of the Internet 10.1 describes.
Brands Protect from Competition and Price Competition Strong brands are somewhat protected from
competition and price competition. Because such brands are more established in the market and have a
more loyal customer base, neither competitive pressures on price nor retail-level competition is as
threatening to the firm. For instance, Chemise Lacoste is known for its polo shirts. Although many similar
brands are available and some retailers offer their own brands, Lacoste is perceived to be of superior
quality, garners a certain status among its users, and can therefore command a premium price.
p. 316 Power of the Internet 10.1 Luxury Designers Build Loyalty through Web Site Branding 20
Because 99 percent of people who earn a minimum household income of $150,000 have Internet access
at home, luxury brands are starting to find ways to benefit from the online video and interactive Web
features available on the Internet. Luxury brands used to depend on print ads and retailers for advertising,
but reaching out to customers on Web sites, especially those with cutting-edge features, is proving
valuable.
Older Web technology could make products look too much the same; what is the visual difference
between a $499 Marc Jacobs shoe and $14 Target shoe? But modern Internet technology evokes a
stronger connection with the brand and the products than do print ads. Leading this revolution is
Createthe Group, which has created Web site designs for high-fashion sites such as Miu Miu, Balenciaga,
and Marc Jacobs. Through these designers’ Web sites designers can offer more content to consumers
than they could through retailers.
For example, the Christian Dior Fall/Winter Haute Couture extravaganza was available online the morning
after the show. Balenciaga.com (www.balenciaga.com) focuses on its fashion heritage by featuring
archival footage from the 1960 spring/summer runway show. Prada.com (www.prada.com) features 20
short films about its production process, including shots showing artists sketching handbags, the making
of a Prada ballerina slipper, and more. The featured craftsmanship reminds consumers why they pay
premiums for these products. And then there’s the Marc Jacobs site, which posts insider gossip and news
from the employees—content that luxury consumers live for.
Consumers spend more time on these Web sites than ever before, probably because the video, three-
dimensional branding, and luxury appeals help create emotional connections with customers. Luxury
retailers can distinguish themselves from other producers by allowing customers to feel as though they
really know what goes on behind the scenes.
The Rolex brand is such a valuable asset that to protect it, the firm must continually watch for counterfeit
merchandise and sales through nonauthorized dealers.
Brands Reduce Marketing Costs Firms with well-known brands can spend relatively less on marketing
costs than firms with little-known brands because the brand sells itself. People have become familiar with
Target’s red-and-white bull’s-eye logo, so its advertisements don’t need to explain who the company is or
what it does. People just know.
Brands Are Assets Brands are also assets that can be legally protected through trademarks and
copyrights and thus constitute a unique ownership for the firm. Firms sometimes have to fight to keep their
brands “pure.” Rolex and other Swiss watch companies are ever watchful to ensure that the value of their
brands is not diluted with counterfeit merchandise or sales through nonauthorized dealers. Louis Vuitton
fights an ongoing battle to keep handbags with slightly altered versions of its logos from sidewalks and
shops. In the Internet age, the fight has extended to keyword branding; American Airlines has brought suit
against Google, asserting that the search engine infringes on its trademark by using “American Airlines” as
a keyword that triggers paid advertisements posted by other companies.21
Brands Impact Market Value Having well-known brands can have a direct impact on the company’s
bottom line. The value of a brand can be calculated by assessing the earning potential of the brand over the
next 12 months.22 The world’s 10 most valuable brands appear in Exhibit 10.3.
p. 317
EXHIBIT 10.3 The World’s Ten Most Valuable Brands
Brand Equity
The value of a brand translates into brand equity, or the set of assets and liabilities linked to a brand that
add to or subtract from the value provided by the product or service. 23 Like the physical possessions of a
firm, brands are assets the firm can build, manage, and harness over time to increase its revenue,
profitability, and overall value. Firms spend millions of dollars on promotion, advertising, and other
marketing efforts throughout a brand’s life cycle. These marketing expenditures, if done carefully, result in
greater brand recognition, awareness, and consumer loyalty for the brand.
Ralph Lauren has mastered the art of building brand equity by defining its own version of value. The name
Ralph Lauren, the ubiquitous polo player, and associated brands like Ralph Lauren, Purple Label, RLX, and
Pink Pony have engendered a loyal following throughout North America and the rest of the world. Ralph
Lauren merchandise can command prices 50 to 100 percent higher than similar-quality merchandise from
lesser known and appreciated designers and manufacturers. The brand, under the tight control of its parent
company, has been licensed for tabletop, bed and bath, furniture, paints, broadloom, and gift items. 24 A
licensed brand is one in which there is a contractual arrangement between firms, whereby one firm allows
another to use its brand name, logo, symbols, and/or characters in exchange for a negotiated fee. 25 These
licensed products are manufactured and distributed by firms other than Ralph Lauren, but the brand
association earns them greater value.
How do we know how “good” a brand is, or how much equity it has? Experts look at four aspects of a brand
to determine its equity: brand awareness, perceived value, brand associations, and brand loyalty.
Brand Awareness brand awareness measures how many consumers in a market are familiar with the
brand and what it stands for and have an opinion about that brand. The more aware or familiar customers
are with a brand, the easier their decision-making process will be. Familiarity matters most for products that
are bought without much thought, such as soap or chewing gum. However, brand awareness is also
important for infrequently purchased items or items the consumer has never purchased before. If the
consumer recognizes the brand, it probably has attributes that make it valuable. 26 For those who have
never purchased a Toyota, for instance, just being aware of the brand can help facilitate a purchase.
These brands are so strong that they have become synonymous with the product itself.
p. 318 Certain brands gain such predominance in a particular product market over time that they become
synonymous with the product itself; that is, the brand name starts being used as the generic product
category. Examples include Kleenex tissue, Clorox bleach, Xerox copiers, Band-Aid adhesive bandages,
and Rollerblade skates. Companies must be vigilant in protecting their brand names, because if they are
used so generically, over time, the brand itself can lose its trademark status.
Marketers create brand awareness through repeated exposures of the various brand elements (brand name,
logo, symbol, character, packaging, or slogan) in the firm’s communications to consumers. Such
communication media include advertising and promotions, personal selling, sponsorship and event
marketing, publicity, and public relations27 (see Chapters 17–19). Because consumer awareness is one of
the most important steps in creating a strong brand, firms are willing to spend tremendous amounts of
money advertising the brand, especially when they think they can reach a lot of potential consumers.
Therefore, 30-second spots on television during the Super Bowl sell for an average of $2.7 million, and the
last few spots in the game go for as much as $3.3 million.28
Perceived Value Perceived value of a brand is the relationship between a product or service’s benefits
and its cost. Customers usually determine the offering’s value in relationship to that of its close competitors.
If they feel a less expensive brand is about the same quality as a premium brand, the perceived value of
the cheaper choice is high. For instance, private-label brands, which are brands developed by retailers
rather than manufacturers, are generally less expensive than brands developed by manufacturers. These
brands, commonly found in supermarkets, drug stores, and in apparel stores, have seen such a rise in
popularity in recent years because of their high perceived value.
Sarah Jessica Parker designed a sportswear and shoe line for Steve&Barry’s with all items priced under
$20.
p. 319 Brand awareness alone does not ensure a strong brand. Consumers could be aware of a brand but have a
negative opinion of its value or of the firm’s reputation. Philip Morris is well known as a tobacco company,
especially for its Marlboro brands. The Philip Morris holding company, which still owns Philip Morris and at
one time owned Kraft Foods, was forced to change its name to Altria Group to shield Kraft Foods against
the negative publicity associated with tobacco.29
Good marketing raises customers’ quality perceptions relative to price; thus, it increases perceived value.
Many customers tend to associate higher prices with higher quality, but they also have become more
informed and perceptive in recent years. Retailers like Target and Kohl’s specialize in providing great value.
Certainly, merchandise at these stores is not always of the highest possible quality, and the apparel is not
the most fashion-forward. But customers don’t necessarily want to buy a paring knife that will last for 50
years or a wastebasket that is suitable for display in a living room, nor do they need to show up at school
looking like they came from a fashion show runway. At the same time, these retailers are finding ways to
make their offerings even more valuable, such as by hiring high-fashion designers to create reasonably
priced lines to feature in their stores. Target pioneered this affordable, well- designed trend with Isaac
Mizrahi. H&M has been very successful in hiring Stella McCartney, Karl Lagerfeld, and most recently
Roberto Cavalli. Customers are able to snatch up well-designed pieces for H&M prices. Sarah Jessica
Parker designed a sportswear and shoe line for Steve&Barry’s with all items priced under $20. Although
Sarah Jessica Parker is more of a celebrity than a designer, her fashion image is still bringing a special
touch to the line. The “Armani Lounge” in the Chelsea Football Club Director’s Suite at Stamford Bridge,
U.K., is designed by Giorgio Armani. 30
Brand Associations Brand associations reflect the mental links that consumers make between a brand
and its key product attributes, such as a logo, slogan, or famous personality. These brand associations
often result from a firm’s advertising and promotional efforts. For instance, Toyota’s hybrid car, the Prius, is
known for being economical, a good value, and stylishly good for the environment. BMW and Audi are
associated with performance. Firms also attempt to create specific associations for their brands with positive
consumer emotions, such as fun, friendship, good feelings, family gatherings, and parties. State Farm
Insurance advertises that “like a good neighbor, State Farm is there.” Hallmark Cards associates its brand
with helping people show they care with quality: “When you care enough to send the very best.” The
company’s crown logo and its slogan are recognized by over 90 percent of American consumers. The
programs on Hallmark television channel are consistent with the brand’s wholesome family image. 31
p. 320 Firms sometimes even develop a personality for their brands, as if the brand were human. Brand
personality refers to such a set of human characteristics associated with a brand,32 which has symbolic or
self-expressive meanings for consumers. 33 Brand personality elements could include personal issues such
as gender, age, or personality, and/or physical traits such as fresh, smooth, round, clean, or floral. 34
McDonald’s has created a fun-loving, youth-oriented brand personality with its golden arches, brightly lit and
colored restaurants, exciting and youthful packaging and advertising, and spokesperson and mascot Ronald
McDonald, the clown. But in Europe, where consumers embrace a more “sit-down-to-eat” lifestyle than in
the United States, McDonald’s restaurants are starting to feature cafe lattes, lime-green designer chairs,
and dark leather upholstery. To create a brand personality that appeals more to young adults and
professionals and combat its image of unappealing décor, the restaurant chain is spending more than $828
million to remodel 1,280 European outlets. 35
Brand Loyalty Brand loyalty occurs when a consumer buys the same brand’s product or service
repeatedly over time rather than buy from multiple suppliers within the same category.36 Therefore, brand-
loyal customers are an important source of value for firms. First, such consumers are often less sensitive to
price. In return, firms sometimes reward loyal consumers with loyalty or customer relationship management
(CRM) programs, such as points customers can redeem for extra discounts or free services, advance
notice of sale items, and invitations to special events sponsored by the company. Second, the marketing
costs of reaching loyal consumers are much lower because the firm does not have to spend money on
advertising and promotion campaigns to attract these customers. Loyal consumers simply do not need
persuasion or an extra push to buy the firm’s brands. Third, loyal customers tend to praise the virtues of
their favorite products, retailers, or services to others. This positive word-of-mouth reaches potential
customers and reinforces the perceived value of current customers, all at no cost to the firm. Finally, a high
level of brand loyalty insulates the firm from competition because, as we noted in Chapter 2, brand-loyal
customers do not switch to competitors’ brands, even when provided with a variety of incentives.
Firms can manage brand loyalty through a variety of CRM programs. They create associations and clubs to
provide a community feeling among loyal customers. Perhaps the firms best able to create such a sense of
community are sports teams, which enjoy existing customer loyalty and then can improve it through their
CRM efforts. For example, the United Kingdom–based soccer club Manchester United may not have won a
championship title since 2004, but the term “ManU” means something to soccer fans all over the world. 37
These fans can join the club’s “One United” community. Their membership card arrives with a personalized
letter from the club’s coach, Sir Alex Ferguson, which allows them online access to purchase ManU-related
products, read topical articles, participate in discussion forums, and even download ManU screensavers.
Dedicated fans do their banking with ManU Finance, obtain their mobile phones through ManU Mobile
(available with, of course, ManU ringtones), and join one of the more than 200 local fan clubs located in 24
countries.38
A multitude of other firms, like airlines, hotels, long-distance telephone providers, credit card companies,
and retailers, also have developed frequent buyer/user programs to reward their loyal customers. The better
CRM programs attempt to maintain continuous contact with loyal customers by sending them birthday cards
or having a personal sales associate contact them to inform them of special events and sales. Adding Value
10.1 illustrates just how close a brand can come to a consumer’s life—if consumers will let it.
p. 321 Adding Value 10.1 The Brands Singles Choose to Find Them a Friend
In Seattle, natural grocery store chain Whole Foods holds a “singles” night every month, during which it
offers wine tastings and snacks, as well as an opportunity for people to mingle and interact.39 Singles
wear red or blue ribbons, depending on whether they are looking for a male or female partner. Is Whole
Foods trying to turn into Match.com in the produce aisle? In reality, Whole Foods is simply expanding the
brand experience for its customers, meaning that the retailer not only sells commodities but also creates
communities. Human interactions within the store environment ideally turn into increased sales.
Similarly, REI, the leading outdoor equipment company, offers kayak training; PetSmart and Petco offer
dog training and classes for pet owners; and Cabela’s offers classes on trout fishing and gun cleaning in
stores that include stuffed game, artificial trout streams, and restaurants.
The Nike store in Portland, Oregon, hosts running groups that meet two times per week, after which the
runners meet at the Niketown store for refreshments. Members who have logged more than 100 miles
earn special recognition, and the Nike Plus Web site communicates with runners’ Apple iPods to track
their running metrics. More than half of the 200,000 runners involved in Nike’s program use this system,
visiting the Web site more than four times per week. In comparison, even Starbucks’ core customers
frequent its stores only about 15 times per month.
REI offers kayak training to help build a community and its brand.
By extending their brands to match customers’ lifestyles and creating and showing support for their
communities, companies earn more loyal customers, which turns into higher profits. For customers, in the
end, the brand experience is what resonates. If they can find a friend, training partner, or even spouse
who shares similar interests, whether that be natural foods, well-trained dogs, or grueling marathons,
they’re likely to develop a strong affection for the company. That affection could even get passed down for
generations, as couples tell their “how we met” stories to their children and grandchildren: “Well, I was in
the cracker aisle, and there was your mother in the cookie aisle … …”
CHECK YOURSELF
1. How do brands create value for the customer and the firm?
2. What are the components of brand equity?
17. Kevin Lane Keller, Strategic Brand Management: Building, Measuring, and Managing Brand Equity, 2nd ed.
Branding Strategies
Firms institute a variety of brand-related strategies to create and manage key brand assets, such as the
decision to own the brands, establishing a branding policy, extending the brand name to other products and
markets, cooperatively using the brand name with that of another firm, and licensing the brand to other
firms.
Brand Ownership
Brands can be owned by any firm in the supply chain, whether manufacturers, wholesalers, or retailers.
There are two basic brand ownership strategies: manufacturer brands and private-label brands.
p. 322 Manufacturer Brands Manufacturer brands, also known as national brands, are owned and managed
by the manufacturer. Some famous manufacturer brands are Nike, Coca-Cola, KitchenAid, and Marriott.
With these brands, the manufacturer develops the merchandise, produces it to ensure consistent quality,
and invests in a marketing program to establish an appealing brand image. The majority of the brands
marketed in the United States are manufacturer brands, and manufacturing firms spend millions of dollars
each year to promote their brands. For example, for the Simple Pleasures product line of its Tide brand,
Procter&Gamble spends $32 million annually on media—and that is only one of approximately 35 Tide
product lines that P&G owns. 40 By owning their brands, manufacturers retain more control over their
marketing strategy, are able to choose the appropriate market segments and positioning for the brand, and
can build the brand and thereby create their own brand equity.
Private-Label Brands 41 Private-label brands, also called store brands, house brands, or own brands,
are products developed by retailers. Some manufacturers prefer to make only private-label merchandise
because the costs of developing and marketing a manufacturer’s brand are prohibitive. Other firms
manufacture both their own brand and merchandise for other brands or retailers. In many cases, retailers
develop the design and specifications for their private-label products and then contract with manufacturers
to produce those products. In other cases, national brand vendors work with a retailer to develop a special
version of its standard merchandise offering to be sold exclusively by the retailer. In these cases, the
national brand manufacturer is responsible for the design and specification as well as the production of the
merchandise.
In the past, sales of private-label brands were limited. National brands had the resources to develop loyalty
toward their brands through aggressive marketing. It was difficult for smaller local and regional retailers to
gain the economies of scale in design, production, and promotion needed to develop well-known brands.
In recent years, as the size of retail firms has increased through growth and consolidation, more retailers
have the scale economies to develop private-label merchandise and use this merchandise to establish a
distinctive identity. In addition, manufacturers are more willing to accommodate the needs of retailers and
develop exclusive cobrands for them. Private-label products now account for an average of 16 percent of
the purchases in North America and roughly 22 percent in Europe. 42
There are four categories of private brands: premium, generic, copycat, and exclusive cobrands.
Premium brands Premium brands offer the consumer a private label that is comparable to, or even
superior to, a manufacturer’s brand quality, sometimes with modest price savings. Examples of premium
private labels include Wal-Mart’s Sam’s Choice (U.S.), Loblaw’s President’s Choice (Canada), Tesco Finest
(U.K.), Marks&Spencer’s St. Michael (U.K.), Woolworth Select (Australia), Pick and Pay’s Choice (South
Africa), and Albert Heijn’s AH Select (Netherlands).43
President’s Choice is Canadian retailer Loblaw’s premium private label. It competes on quality, not price.
Kellogg has two scoops of raisins in its cereal, but President’s Choice cereal has four and is still cheaper.
The Decadent chocolate chip cookie under the President’s Choice label has 39 percent chocolate chips by
weight, compared with 19 percent in Chips Ahoy! In addition, it uses real butter instead of hydrogenated
coconut oil and quality chocolate instead of artificial chips. The resulting product is Canada’s market leader
in chocolate chip cookies, despite being sold only in 20 percent of the market held by Loblaw. 44
Generic brands Generic brands target a price-sensitive segment by offering a no-frills product at a

discount price. These products are used for commodities like milk and eggs in grocery stores and
underwear in discount stores. However, even in these markets, the popularity and acceptance of generic
products has declined. Consumers question the quality and origin of the products, and retailers have found
better profit potential and the ability to build brand equity with manufacturer and store brands. For example,
many fruits and vegetables sold through supermarket chains now carry either the manufacturer’s brand
name (Dole bananas) or the store’s.
President's Choice Decadent chocolate chip cookie is a premium private label that is Canada's market leader
because of its high-quality ingredients.
p. 323 Copycat brands Copycat brands imitate the manufacturer’s brand in appearance and packaging,
generally are perceived as lower quality, and are offered at lower prices. Copycat brands abound in
drugstores. Many retailers track manufacturer’s brands as they introduce new products and then modify
them to meet the needs of their target customers. For instance, CVS and Walgreen’s brands are placed
next to the manufacturer’s brands and often look like them. Both the Pepto-Bismol and CVS’s generic
equivalent are similarly packaged and contain pink liquid.
Exclusive cobrands An exclusive cobrand is a brand that is developed by a national brand vendor, often
in conjunction with a retailer, and is sold exclusively by the retailer. The simplest form of an exclusive
cobrand is when a national brand manufacturer assigns different model numbers and has different exterior
features for the same basic product sold by different retailers. For example, a Sony TV sold at Best Buy
might have a different model number than a Sony TV with similar features available at Circuit City. These
exclusive models make it difficult for consumers to compare prices for virtually the same television sold by
different retailers. Thus, the retailers are less likely to compete on price when selling these exclusive
cobrands, their margins for the products are higher, and they are motivated to devote more resources
toward selling the exclusive cobrands than they would for similar manufacturer’s brands.45
A more sophisticated form of exclusive cobranding is when a manufacturer develops an exclusive product
or group of related products for a retailer. For example, cosmetics powerhouse Estée Lauder sells three
brands of cosmetics and skin care products—American Beauty, Flirt!, and Good Skin—exclusively at
Kohl’s. The products are priced between mass-market brands such as Cover Girl or Maybelline (sold mainly
in drugstores, discount stores, and supermarkets) and Lauder’s higher-end brands, sold primarily in more
fashion-forward department stores such as Macy’s. Whole Foods’ very successful 365 Organic brand gives
customers an opportunity to buy high-quality products that are less expensive compared to other brands in
the store. Examples of these and several other exclusive cobrands you might recognize are found in Exhibit
10.4.
p. 324 EXHIBIT 10.4 Exclusive Cobrands
Naming Brands and Product Lines

Firms use several very different strategies to name their brands and product lines: corporate or family
brands, corporate and product line brands, and individual brands.
Corporate or Family Brands A firm can use its own corporate name to brand all its product lines and
products, such as the General Electric Company (GE), which brands its appliances prominently with the GE
brand name. Similarly, all products sold through The Gap stores bear only The Gap brand name. When all
products are sold under one corporate or family brand, the individual brands benefit from the overall brand
awareness associated with the family name.
Corporate and Product Line Brands A firm also could use combinations of the corporate and product
line brands to distinguish its products. For example, Kellogg’s uses its family brand name prominently on its
cereal brands (e.g., Special K, Froot Loops, Rice Krispies). In other cases, the individual brand’s name is
more prominently displayed on the package than the Kellogg’s name, as in the case of Pop-Tarts, Eggo,
Cheez-Its, and Nutri-Grain. In addition, Kellogg’s owns other brands, such as Keebler, that are not overtly
associated with the family brand.
Individual Brands A firm can use individual brand names for each of its products. For example, in its
house and home products line, Procter&Gamble markets various detergent products (Tide, Gain, Cheer,
Downy, Febreze), paper products (Bounty, Charmin), household cleaners (Mr. Clean, Swiffer), and
dishwashing products (Cascade, Dawn, Joy). Furthermore, it markets brands in various other product lines,
such as personal and beauty products (Olay, Old Spice, Secret, Cover Girl), health and wellness products
(Prilosec OTC, Glide, Puffs), baby products (Pampers, Luvs), and pet nutrition and care products (Iams).50
Choosing a Name Although there is no simple way to decide how to name a brand or a product line, the
more the products vary in their usage or performance, the more likely it is that the firm should use individual
brands, just as the examples of consumer packaged goods manufacturers (e.g., P&G, Colgate-Palmolive)
demonstrate. Choosing a name also can be an exercise in creativity, as the alcoholic beverage market
shows. Wines named “Cardinal Zin” and “Dirty Laundry” enable these wineries to distinguish themselves
from more traditionally named products, especially in a market as diverse and full of offerings as the wine
market. The name can also indicate a strong brand image: By renaming its craft beer “Dead Frog,” the
previously titled Backwoods Brewing Company prompted laughs, some shock, and a sense that the
company was cutting-edge and entertaining among its consumers—as well as a virtual guarantee that they
would remember the name.51
Sometimes Frito-Lay uses its family brand name on its products, while other times the individual brand’s
name is more prominently displayed.
p. 325 Brand Extension

A brand extension refers to the use of the same brand name for new products being introduced to the
same or new markets.52 The dental hygiene market, for instance, is full of brand extensions; Colgate and
Crest sell toothpaste, toothbrushes, and other dental hygiene products, even though their original product
line was just toothpaste.
There are several advantages to using the same brand name for new products. First, because the brand
name is already well established, the firm can spend less in developing consumer brand awareness and
brand associations for the new product.53 Gillette’s Braun brand started selling kitchen appliances
(coffeemakers, toasters, food processors, blenders, juicers) in the United States, then extended into various
other product categories, including shaving (dry razors, beard care), beauty care products (cordless hair
stylers), oral care products (power toothbrushes), and steam irons. 54
Second, if either the original brand or the brand extension has stong consumer acceptance, that perception
will carry over to the other product. Following its success in the PC market, Dell extended its brand name to
monitors, printers, handheld computers, digital juke boxes, LCD televisions, servers, and network switches,
among other products.55 Similarly, consumers who had not used the Neutrogena brand before trying the
brand extension, Neutrogena On-the-Spot Acne Patch, might be encouraged to try Neutrogena’s core
product line of moisturizing lotions, especially if their experience with the acne patch has been positive. 56
Crest uses a brand extension strategy, since they use the same brand name for many related products.
Finally, when brand extensions are used for complementary products, a synergy exists between the two
products that can increase overall sales. For example, Frito-Lay markets both chips and dips under its Frito-
Lay and Doritos brand names.57 When people buy the chips, they tend to buy the dips as well.
p. 326 The Walt Disney Company began as an animation and movie studio and has expanded its brand to include
television networks (Disney, ABC, ESPN)58 and theme parks around the world. Disney’s more recent brand
extensions have been spurred by market expansion into sophisticated demographic segments. Disney’s new
line of wedding gowns, created in partnership with designer Kirstie Kelly, is inspired by the Disney
characters that brides-to-be grew up with: Snow White, Belle, Sleeping Beauty, Jasmine, and Ariel.59 Other
brand Disney extensions include Chardonnay with Costco, lighting products with the Minka Group, Fashion
bath and bedding collection with Dan River, outdoor tabletops and entertaining products with Zak Designs,
Furniture with Drexel Heritage, Disney Jeans, and a sporting line.60
Not all brand extensions are successful, however. Some can dilute brand equity. 61 Brand dilution occurs
when the brand extension adversely affects consumer perceptions about the attributes the core brand is
believed to hold. 62 Sir Richard Branson’s Virgin conglomerate has successfully branched out from record
stores to health clubs to book publishing to tourism to cosmetics, but it also has experienced some serious
failures, especially in the alcoholic and cola beverages markets.63 Its brand of vodka was a failure, and
Virgin Cola failed in the United States and achieved only a 3 percent market share in the United Kingdom.
The primary risk that Virgin runs from extending its brand too far is not being able to satisfy all its customers
of all its brands. As long as the customer has a nice flight on Virgin Atlantic, he or she may try Virgin
Mobile. But if that same person has a bad experience with his or her cell phone contract, Virgin Atlantic—
and the other Virgin brands—may lose a customer forever. Finally, if the brand extension is very similar to
the core brand, it even could cause cannibalization of sales from the core brand.
Sir Richard Branson has successfully extended the Virgin brand beyond its core businesses of air travel
and music stores. One of his latest ventures is Virgin Home Loans.
To prevent the potentially negative consequences of brand extensions, firms consider the following:
Marketers should evaluate the fit between the product class of the core brand and that of the
extension.64 If the fit between the product categories is high, consumers will consider the extension
credible, and the brand association will be stronger for the extension. Thus, when the pastry maker
Entenmann’s introduced a line of coffee, it made sense to consumers and improved the brand’s
image. 65
Firms should evaluate consumer perceptions of the attributes of the core brand and seek out similar
attributes for the extension because brand-specific associations are very important for extensions.66 For
example, if HP printers were associated with reliability, performance, and value, consumers would
expect the same brand-specific attributes in other products that carried the HP brand name.
Firms should refrain from extending the brand name to too many products and product categories to
avoid diluting the brand and damaging brand equity. Donald Trump has been quite successful lending
his name to various property, business, and television lines, but when he tried to extend himself to
branding steaks and a home rug line, he prompted mostly derision; as one observer jokingly asked,
“the Trump rug collection? For the head or the floor?”67
Firms should consider whether the brand extension will be distanced from the core brand, especially if
the firm wants to use some but not all of the existing brand associations. When Marriott introduced its
budget line of hotels, it downplayed the Marriott name, calling the new chain Fairfield Inn. And did you
even know that Marriott International owns 99 percent of the Ritz-Carlton chain of luxury hotels? Not
many people do, and that ignorance is by the company’s design. The information is buried on Ritz-
Carlton’s Web site.68
p. 327 Cobranding
Cobranding is the practice of marketing two or more brands together, on the same package or promotion.
Primarily due to credit card companies, such as Visa and MasterCard, the practice has greatly increased in
the past decade. Airlines were among the first to cobrand with credit card companies (such as the United
Airlines Visa Card), but recently, firms in other industries, such as banking, retail, and restaurants, have
begun forming similar alliances. Starbucks was the first in the quick-service restaurant industry to offer its
own Starbucks credit card in alliance with Visa. 69
Cobranding can enhance consumers’ perceptions of product quality 70 by signaling “unobservable” product
quality through links between the firm’s brand and a well-known quality brand. For example, NutraSweet’s
claim to be a sugar substitute that was safe and left no aftertaste got a boost after both Coca-Cola and
Pepsi started offering products that contained NutraSweet and included a reference to it on its labels and in
its promotions. Microsoft has joined with Ford Motors to offer its Sync brand of “in-car communication and
entertainment systems” in certain models under the Ford, Lincoln, and Mercury brand names (e.g., Ford
Explorer, Lincoln MKZ, Mercury Sable). Commercials name all these brands in touting the new technology,
and the Sync Web site features logos from Microsoft, Mercury, Lincoln, and Ford on the introductory
page. 71
Cobranding can also be a prelude to an acquisition strategy. FedEx entered into a cobranding arrangement
with Kinko’s, whereby it provided FedEx delivery services at Kinko’s retail outlets. 72 Then in early 2004,
FedEx acquired Kinko’s for an estimated $2.4 billion and began rebranding Kinko’s as FedEx Kinko’s. 73
The combined company has entered into another cobranding agreement with Adobe, in which the latest
version of Acrobat would feature an icon users could click to forward their Acrobat document directly to any
FedEx Kinko’s for printing.74 But this strategy has been less successful. Faced with complaints from printing
companies that compete with FedEx Kinkos, Adobe agreed to remove the button in another update just two
months after announcing its cobranding attempt.75
This example suggests just one of the risks to cobranding; another risk becomes apparent when the
customers of each of the brands turn out to be vastly different. For example, the Burger King and HÄagen-
Dazs cobranding strategy failed because the customer profiles for each brand were too different. 76
Cobranding may also fail if the brands’ owners cannot resolve financial disputes about revenue or royalty
sharing.77 Finally, the firms that own the brands may change their priorities, as a result of which the
cobranded product may no longer be available. In this scenario, the customer relationships and loyalty
created with the cobranded product would be lost.78
Brand Licensing
Brand licensing is a contractual arrangement between firms, whereby one firm allows another to use its
brand name, logo, symbols, and/or characters in exchange for a negotiated fee. 79 Brand licensing is
common for toys, apparel, accessories, and entertainment products, such as video games; in the United
States alone, it generates more than $100 billion in retail sales per year. 80 The firm that provides the right
to use its brand (licensor) obtains revenues through royalty payments from the firm that has obtained the
right to use the brand (licensee). These royalty payments sometimes take the form of an up-front, lump-sum
licensing fee or may be based on the dollar value of sales of the licensed merchandise.
p. 328 Giorgio Armani, the well-known fashion designer, not only produces apparel collections, but also has
developed a line of high-end electronics in conjunction with Samsung Electronics. As Armani says, “We
make as much of a personal statement with mobile phones or the televisions in our living rooms as we do
with the shoes and bags we wear.” The electronics line will join the other products bearing the Armani
name, like chocolates, housewares, flowers, and even a hotel in Dubai. 81 Other electronics companies have
partnered with designers as well, including Dolce&Gabbana’s design of a Razr for Motorola and a Prada-
designed cell phone for LG Electronics. The Porsche name appears on Grundig radios, watches, luggage
sets, and tennis rackets. The computer world has even capitalized on the Porsche brand name with the
game Need for Speed: Porsche Unleashed. If Porsche isn’t luxurious enough, racing game fans can drive a
virtual Maserati in Gran Turismo 5 for the PlayStation.
One very popular form of licensing is the use of characters created in books and other media. Such
entertainment licensing has generated tremendous revenues for movie studios. Disney, for instance,
flooded retail stores with Jack Sparrow after the release of each of the three Pirates of the Caribbean films.
Star Wars memorabilia has continued to be successful since the first film was released in the 1970s. A
long-standing staple of licensing has been major league sports teams that play in the NBA, NFL, or NHL,
as well as various collegiate sports teams.
Licensing is an effective form of attracting visibility for the brand and thereby building brand equity while
also generating additional revenue. There are, however, some risks associated with it. For the licensor, the
major risk is the dilution of its brand equity through overexposure of the brand, especially if the brand name
and characters are used inappropriately.82
Consider, for instance, the famous—or possibly infamous—alligator shirt. In 1933, the company founded by
Frenchman René Lacoste (the licensor), famous as a tennis player and for his nickname “the alligator,”
entered into a licensing agreement with André Gillier (the first licensee) to produce a high-quality white knit
shirt with a ribbed collar, short sleeves, and a crocodile emblazoned on the right breast. The line expanded
to include other casual apparel items, and in 1966, the Lacoste name was licensed to American
manufacturer Izod (the second licensee). Alligator-emblazoned apparel could be found in better department
stores and country club golf and tennis shops into the late 1980s. But Izod also began to sell the alligator
apparel in discount stores, and quality and sales suffered. The alliance continued until 1992, when Lacoste
severed its ties with Izod. Lacoste has since regained its prestige image and can be found in boutiques and
exclusive specialty department stores around the world. 83

The famous tennis player René “the alligator” Lacoste (left in 1927 photo) cofounded a firm that made a
white knit shirt with an alligator emblazoned on the right breast. The brand is still sold today (right) at
Lacoste boutiques and stores like Neiman Marcus.
p. 329 Licensors also run the risk of improperly valuing their brand for licensing purposes or entering into the
wrong type of licensing arrangement. For example, Marvel Entertainment Inc.’s previous deals with movie
studios for the use of its comic book characters were “undervalued,” because the firm took lump-sum
licensing fees up front rather than pegging its royalty fees to sales. As a result, the firm probably left money
on the table for deals on the first X-Men and Blade films.84 In entertainment licensing, both licensors and
licensees run the risk that characters based on books and movies will be only a fad. Moreover, the success
or failure of merchandise based on movies is directly affected by the success or failure of the movie itself.
Brand Repositioning
Brand repositioning or rebranding refers to a strategy in which marketers change a brand’s focus to
target new markets or realign the brand’s core emphasis with changing market preferences.85 Although
repositioning can improve the brand’s fit with its target segment or boost the vitality of old brands, it is not
without costs and risks. Firms often need to spend tremendous amounts of money to make tangible
changes to the product and packages, as well as intangible changes to the brand’s image through
advertising. These costs may not be recovered if the repositioned brand and messages are not credible to
the consumer or if the firm has mistaken a fad for a long-term market trend.
Abercrombie&Fitch (A&F), founded in 1892, was the largest high-quality sporting goods and outfitting store
for camping, fishing, and hunting gear. Its customers were mainly professional hunters, explorers, trappers,
and outdoorsmen, and included Theodore Roosevelt, Amelia Earhart, Katharine Hepburn, and Howard
Hughes. In fact, their 12-story building on Madison Avenue and 45th Street in Manhattan had a log cabin
on the roof, a casting pool for fishermen to sample rods and flies, an armored rifle range in the basement, a
golf school, and a dog and cat kennel. Although these special features may seem commonplace today at
stores like REI and Bass Pro Shops that have equally enticing attractions, it was innovative during A&F’s
sporting goods heyday from 1907 through the early 1960s. The store carried unique exotic items such as
hot air balloons, yachting pennants, portable trampolines, treadmills for exercising dogs, and other high-end
toys for grownups. In 1988, Abercrombie&Fitch was acquired by Limited Brands after years of struggling
and bankruptcy. Limited Brands repositioned it into a casual luxury lifestyle brand for college students age
18–22.86 Limited Brands spun off Abercrombie&Fitch in 1988 as an independent company and began to
open new concepts to extend its market reach.
Procter&Gamble’s Head&Shoulders is repositioning its popular antidandruff shampoo and conditioners. The
company’s repositioning strategy broadens its appeal to those looking for a glamorous health-oriented
product from its roots as a clinically proven antidandruff aid. The key to this successful repositioning is
gaining new customers without losing its appeal to its loyal customer base. The repositioning strategy
includes a more glamorous youth-oriented promotional theme, new packaging, and the addition of Kristin
Davis from Sex&the City as the global face for the brand.87
p. 330 CHECK YOURSELF
1. What is the difference between manufacturer, private-

label, and generic brands?
2. What is cobranding?
3. What are some advantages and disadvantages of brand

extensions?
Packaging
Packaging is an important brand element with more tangible or physical benefits than the other brand
elements. Packages come in different types and offer a variety of benefits to consumers, manufacturers,
and retailers. The primary package is the one the consumer uses, such as the toothpaste tube. From the
primary package, consumers typically seek convenience in terms of storage, use, and consumption.
The secondary package is the wrapper or exterior carton that contains the primary package and provides
the UPC label used by retail scanners. Consumers can use the secondary package to find additional
product information that may not be available on the primary package. Like primary packages, secondary
packages add consumer value by facilitating the convenience of carrying, using, and storing the product.
Labatt Blue is reinforcing its brand throughout the product’s journey to the point of consumption at a tailgate
party, picnic, or barbeque. The two-layer plastic package holds 28 cans and actually chills the beer without
a cooler. There is a tear-away section to access the beer and pack ice around the cans. The inner bag
prevents the melting ice from dripping. The perforated divider inserts become paperboard coasters to be
used at the outdoor event. 88
The secondary package can also be an important marketing tool for the manufacturer if it is used to convey
the brand’s positioning. Cosmetics companies, for instance, consider the secondary package to be primarily
about brand image, so their secondary packages are designed to match the image they want to portray and
are immediately recognizable. 89
Retailers’ priorities for secondary packaging, however, differ. They want convenience in terms of displaying
and selling the product. In addition, secondary packages often may be packed into larger cartons, pallets, or
containers to facilitate shipment and storage from the manufacturer to the retailer. These shipping packages
benefit the manufacturer and the retailer in that they protect the shipment during transit; aid in loading,
unloading, and storage; and allow cost efficiencies due to the larger order and shipment sizes.
The secondary package is especially important to cosmetics companies. It is used to reinforce the image
and be immediately recognizable.
Because packages are critical to the firm’s brand positioning and shelf appeal, many innovations in design
and materials have occurred in the past few decades. Some examples include: 90
FlexCan, stand-up, reclosable zipper pouches: Capri Sun’s stand-up pouch juice drink took the
lead. Now a variety of products and pouch types are available, including pouches with reclosable
zippers to maintain product freshness.
DailyGloss: This type of packaging has many individually sealed pouches, and is normally used for pills
or chewing gum. Adapted for lip gloss, individual doses can be easily accessed without affecting the
rest of the package.
p. 331 Smart lids: The plastic cap on a portable paper cup changes color depending on temperature of the
contents. When cold, the lid is brown, when hot, the lid turns red.
This Chips Ahoy! package has individually sealed subpackages with a reclosable feature to keep the
product fresh.
Labatt Blue: The aluminum beer can is wrapped in an insulated layer which protects the contents from
heat transferred from warm hands and the outside temperature. The can is also more comfortable to
hold because of the thermal barrier.
Aseptic drink bottles: TetraPak and IP provided designs and machinery that increased the shelf life of
beverages without refrigeration. They are used primarily by juice marketers.
Child-resistant/senior-friendly packages: Products that are harmful to children under the age of five
years, such as drugs and medicines, solvents, chemicals, and pesticides, now are packaged with child-
resistant tops. In 1995, the Consumer Products Safety Council amended the child-resistant packaging
protocol so that older adults could easily open such packaging.
Snack ‘n’ seal: These packages are used to increase the product’s freshness, resealability, and ease
of opening. Originally used for baby wipes and now for baked goods like Chips Ahoy! and Oreo
cookies, these packages have individually sealed subpackages with a reclosable feature.
Product Labeling
Labels on products and packages provide information the consumer needs for his or her purchase decision
and consumption of the product. In that they identify the product and brand, labels are also an important
element of branding and can be used for promotion. The information required on them must comply with
general and industry-specific laws and regulations, including the constituents or ingredients contained in the
product, where the product was made, directions for use, and/or safety precautions.
Many labeling requirements stem from various laws, including the Federal Trade Commission Act of 1914,
the Fair Packaging and Labeling Act of 1967, and the Nutrition Labeling Act of 1990. Several federal
agencies, industry groups, and consumer watchdogs carefully monitor product labels. The Food and Drug
Administration is the primary federal agency that reviews food and package labels and ensures that the
claims made by the manufacturer are true.
Ethical and Societal Dilemma 10.1 illustrates the problems food manufacturers face with regard to the types
of ingredients they use in their products, as well as the associated labeling concerns. These concerns are
further compounded when the products are sold across international borders.
A product label is much more than just a sticker on the package; it is a communication tool. Many of the
elements on the label are required by laws and regulations (i.e., ingredients, fat content, sodium content,
serving size, calories), but other elements of the label remain within the control of the manufacturer. How
manufacturers use labels to communicate the benefits of their products to consumers varies by the product.
Many products highlight specific ingredients, vitamin content, or nutrient content (e.g., iron). This focus
signals to consumers that the product offers these benefits. Although often overlooked, the importance of
the label as a communication tool should not be underestimated.
p. 332
What’s in the Food? Is It on the Label?
Ethical and Societal Dilemma 10.1
How is it that an American jar of mayonnaise has double the saturated fat of a jar sold in London?91 The
culprit is soy oil, a genetically altered ingredient used to make mayonnaise in the United States. In the
United Kingdom, however, putting soy oil into a product poses a problem: Genetically modified food has
become a serious issue for consumers there. Consumer protests have led to the adoption of new labeling
requirements that are designed to alert consumers to the presence of genetically modified ingredients.
Companies like Hellmann’s thus avoid mentioning the difference in ingredients, and substitute vegetable oil
for soy oil in the United Kingdom. Vegetable oil is lower in saturated fats, which leads to the difference
between a jar of mayonnaise in the two countries.
For food manufacturers, it is not just consumer protests that are causing product changes; there are also
increasing concerns about the global rise in obesity. Many countries are investigating whether to regulate
the marketing of food products or require products deemed “unhealthy” or “junk food” to carry warning
labels. In response, manufacturers are scrambling to reformulate certain products to be lower in fat, salt,
sugar, and calories. Some products are promoting these new changes, such as calcium-enriched Kraft
Macaroni&Cheese and General Mills’ whole grain cereals.
To address consumers’ heightened sensitivity to health concerns, some firms, in a questionable attempt to
make products appear healthier, have played games with the serving sizes listed on the label. Thus, one
label for a candy bar might list information as it pertains to one serving, considered to be the entire bar,
whereas the label for another candy bar also lists the information for one serving, but defines a serving as
half the bar. Although not inaccurate, this type of labeling has the potential to mislead consumers into
thinking a product is healthier than it truly is. Companies also might tout the health benefits of their
products while downplaying less attractive product attributes. For example, some consumer packaged
goods manufacturers advertise that their products are low fat, but in order to make them still taste good,
they add sugar and/or salt.
Even restaurants are getting in on this practice. Subway touts itself as a healthy fast-food alternative, but
in actuality, a regular 12-inch roast beef sandwich with cheese and mayonnaise has more calories and fat
than a Big Mac from McDonald’s. Consumers who believe they are eating healthier by stopping at Subway
also tend to indulge themselves in treat items, like chips and a soda to go with their “healthier” sandwich.
In response, some states are considering legislation that would require chain restaurants to post all
nutrition information on prominent placards in their stores. 92
Should firms provide full disclosure on labels and try to make products healthier, or should they make
products that they think consumers want and let them make their own health decisions?
brand
The name, term, design, symbol, or any other features that identify one seller's good or service as distinct from those
of other sellers.
brand association
The mental links that consumers make between a brand and its key product attributes; can involve a logo, slogan, or
famous personality.
brand awareness
Measures how many consumers in a market are familiar with the brand and what it stands for; created through
repeated exposures of the various brand elements (brand name, logo, symbol, character, packaging, or slogan) in the
firm's communications to consumers.
brand dilution
Occurs when a brand extension adversely affects consumer perceptions about the attributes the core brand is believed
to hold.
brand equity
The set of assets and liabilities linked to a brand that add to or subtract from the value provided by the product or
service.
brand extension
The use of the same brand name for new products being introduced to the same or new markets.
brand licensing
A contractual arrangement between firms, whereby one firm allows another to use its brand name, logo, symbols, or
characters in exchange for a negotiated fee.
brand loyalty
Occurs when a consumer buys the same brand's product or service repeatedly over time rather than buying from
multiple suppliers within the same category.
brand personality
Refers to a set of human characteristics associated with a brand, which has symbolic or self-expressive meanings for
consumers.
brand repositioning (rebranding)

A strategy in which marketers change a brand's focus to target new markets or realign the brand's core emphasis with
changing market preferences.
breadth
Number of product lines offered by a firm; also known as variety.
category depth
The number of stock keeping units (SKUs) within a category.
cobranding
The practice of marketing two or more brands together, on the same package or promotion.
copycat brands
Mimic a manufacturer's brand in appearance but generally with lower quality and prices.
corporate brand (family brand)

The use of a firm's own corporate name to brand all of its product lines and products.
corporate and product line brands

A firm also could use combinations of the corporate and product line brands to distinguish its products. For example,
Kellogg’s uses its family brand name prominently on its cereal brands (e.g., Special K, Froot Loops, Rice Krispies). In
other cases, the individual brand’s name is more prominently displayed on the package than the Kellogg’s name, as in
the case of Pop-Tarts, Eggo, Cheez-Its, and Nutri-Grain. In addition, Kellogg’s owns other brands, such as Keebler,
that are not overtly associated with the family brand.
depth
The number of categories within a product line.
exclusive cobrand
Developed by national brand vendor and retailer and sold only by that retailer.
generic brands
Generic brands target a price-sensitive segment by offering a no-frills product at a discount price. These products are
used for commodities like milk and eggs in grocery stores and underwear in discount stores.
house brands
Private-label brands, also called store brands, house brands, or own brands, are products developed by retailers. Some
manufacturers prefer to make only private-label merchandise because the costs of developing and marketing a
manufacturer’s brand is prohibitive.
individual brands
The use of individual brand names for each of a firm's products.
licensed brand
An agreement allows one brand to use another's name, image, and/or logo for a fee.
manufacturer brands (national brands)

Brands owned and managed by the manufacturer.
own brands
Brands developed and marketed by a retailer and available only from that retailer; also called store brands.
perceived value
The relationship between a product or service's benefits and its cost.
premium brand
A branding strategy that offers consumers a private label of comparable or superior quality to a manufacturer brand.
primary package
The packaging the consumer uses, such as the toothpaste tube, from which he or she typically seeks convenience in
terms of storage, use, and consumption.
private-label brands
product
Anything that is of value to a consumer and can be offered through a voluntary marketing exchange.
product assortment
The complete set of all products offered by a firm; also called the product mix.
product category
An assortment of items that the customer sees as reasonable substitutes for one another.
product lines
Groups of associated items, such as those that consumers use together or think of as part of a group of similar
products.
product mix
The complete set of all products offered by a firm; also called the product mix.
secondary package
The wrapper or exterior carton that contains the primary package and provides the UPC label used by retail scanners;
can contain additional product information that may not be available on the primary package.
stock keeping units (SKUs)

Individual items within each product category; the smallest unit available for inventory control.
store brands
Summing Up
1. How do firms adjust their product lines to changing market conditions?
Market conditions change. New opportunities arise, firms or even industries mature and die.
Competition may become more intense or competitors may move on to pursue other opportunities.
As firms grow they change their product lines by adding either new product categories or new SKUs
within a product category. The decision to add products should be made carefully. Excessive product
line expansions can confuse consumers and dilute the appeal of the brand’s core products.
Sometimes, products or product lines become unprofitable, the firm’s priorities change, or consumer
preferences shift. When this happens, firms must prune their product lines by deleting items or
possibly even entire product categories.
2. Why are brands valuable to firms?
p. 333 Brands facilitate the consumer search process. Some customers are loyal to certain brands, which
essentially protects those brands from competition. In addition, brands are valuable in a legal sense,
in that trademarks and copyrights protect firms from counterfeiters and knockoff artists. Firms with
well-known brands can spend relatively less on marketing because the brand and its associations
help sell the product. Finally, brands have real market value as a company asset.
3. How do firms implement different branding strategies?
Firms use a variety of strategies to manage their brands. First, they must decide whether to offer
manufacturer, private-label, or generic brands. Second, they have a choice of using an overall
corporate brand or a collection of product line or individual brands. Third, to reach new markets or
extend their current market, they can extend their current brands to new products. Fourth, firms can
cobrand with another brand to create sales and profit synergies for both. Fifth, firms with strong
brands have the opportunity to license their brands to other firms. Sixth and finally, as the
marketplace changes, it is often necessary to reposition a brand.
4. How do a product’s packaging and label contribute to a firm’s overall strategy?
Like brands, packaging and labels help sell the product and facilitate its use. The primary package
holds the product, and its label provides product information. The secondary package provides
additional consumer information on its label and facilitates transportation and storage for both
retailers and their customers. Labels have become increasingly important to consumers because they
supply important safety, nutritional, and product usage information.
Chapter Case Study
BAND-AID® BRAND PRODUCTS: 93 BUILDING ON THE VALUE OF THE BRAND 94

Part of global giant Johnson&Johnson’s Consumer Products Company, Band-Aid ® is widely known as a
leader in the wound care market. With its dominant share of the market, the brand is widely recognized and
respected by consumers and health care professionals alike. Known as an innovator of wound care
products, the company continues to introduce new products that exploit creative technologies, one of which
led Good Housekeeping magazine to name Band-Aid ® Brand Liquid Bandage a “Good Buy” award winner.
From its early beginnings to today, the company has excelled at providing value to its customers and
demonstrated that people across the world can trust the brand.
The Brand Begins

Necessity is the mother of invention, and in the case of Band-Aid ® the saying applies. Back in 1920, when
Earl Dickson came home from his cotton-buying job at Johnson&Johnson, he would always find a hot meal
that his wife Josephine had prepared for him. He also found visible burns and cuts on Josephine from her
kitchen labors, which prompted Earl to piece together gauze squares and adhesive tape to cover her
wounds. Soon, Earl decided to prepare ready-made bandages in this fashion, with pieces of gauze at
intervals along the tape so that Josephine could cut the premade strip and tend to her wounds throughout
the day. When the product was first launched in the market, the bandages were made by hand, were not
sterile, and had annual sales of just $3,000.
Band-Aids® come in a host of styles, including those with popular characters for kids.
The Company Today

Today, Band-Aid ® products are machine-made and completely sterile. A visit to the company’s Web site
(www.bandaid.com) reveals the distance Band-Aid ® has come from the early tape and gauze product, as
well as the modern demand for over-the-counter first-aid products in a variety of categories. 95
In keeping with its long history of product innovations, the company continues to invest in new product
development and marketing (see Exhibit 10.5). Band-Aids ® come in a host of styles, including those with
popular characters for kids; uniquely shaped bandages for various parts of the body; antibiotic Band-Aids ®
to help fight germs; waterproof products with aloe to treat burns; scar-healing strips; bandages in clear
plastic, stretchy cloth, and round and square shapes; and treated and untreated pads. Moreover, the Band-
Aid ® franchise has expanded to include various ointments, gauze, tapes, and kits for a plethora of first-aid
needs. For example, One-Step Cleansing + Infection Protection Foam antiseptic cleans and heals wounds
without the need for antibiotic ointment; Calamine Spray dries rashes from poison ivy; Bug-Bite Relief
Patches relieve itching and prevent scratching; and FIRST AID TO GO!® Mini First-Aid Kits include
essential travel-sized products.
p. 336
EXHIBIT 10.5 Examples of Band-Aid® Product Innovations
Band-Aid also knows the benefits of good packaging. To celebrate its 85th anniversary, the company made
retro tins available in limited quantities. Consumers may appreciate the convenience of modern cardboard
boxes, but they also appreciate the nostalgia associated with flipping up the lid on a tin canister. Moreover,
to promote its product lines targeted at children, Band-Aid features large, cartoon versions of its licensed
characters, including Barbie, Dora the Explorer, and Spider-Man on the boxes as well as the bandages.
But new product introductions by Band-Aid ® don’t come cheap. For instance almost half of a yearly
marketing budget was used to introduce three new product extensions. Advanced Healing Blister Block, a
round, waterproof cushioning strip to heal and prevent foot blisters, received $7 million in marketing support
to tout its ability to promote fast, natural healing. Finger Care Tough Strips obtained a marketing budget of
$5 million and was rolled out as an extension of regular finger care products. Finally, Extra Large Tough
Strips were also supported with $5 million for marketing. 96
The company is in an enviable position. People around the world see the value of Band-Aid ® products to
heal, prevent, and repair minor nicks, cuts, scrapes, wounds, and bruises. Ongoing product innovations and
line expansions likely will help the company continue to be the most recognized name in tape, bandages,
and gauze.
Questions
1. Visit the company’s Web site (www.bandaid.com) and identify and describe the different product lines
that it markets.
2. How would you describe its product line breadth?
3. Review the different product categories in each of the company’s product lines. Which has the
greatest depth? Which has the least?
4. Review the company’s products designed for children. To what extent do these use manufacturer
(national) branding? Private-label (store) branding? Licensed branding? Justify your answers. What
added value do these products offer compared with regular Band-Aid ® protection products?

Chapter10 Product Branding and Packaging Decisions

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Chapter10: PRODUCT, BRANDING, AND PACKAGING DECISIONS

How do firms adjust their product lines to changing market conditions?

Why are brands valuable to firms?

How do firms implement different branding strategies?

How do a product’s packaging and label contribute to a firm’s overall strategy?

Product Assortment and Product Line Decisions

EXHIBIT 10.1 Colgate-Palmolive Product Assortment

Change Product Mix Breadth

Change Product Assortment Depth

Johnson&Johnson’s Band-Aid Brand has more than 40 SKUs.

Product Line Decisions for Services

1. What is the difference between product line breadth versus depth?

2. Why change product line breadth?

3. Why change product line depth?

5. “All Colgate Toothpastes,” http://www.colgate.com (accessed December February 1, 2008).

Value of Branding for the Customer and the Marketer

2. What are the components of brand equity?

Generic brands Generic brands target a price-sensitive segment by offering a no-frills product at a

p. 324 EXHIBIT 10.4 Exclusive Cobrands

Naming Brands and Product Lines

p. 325 Brand Extension

p. 330 CHECK YOURSELF

1. What is the difference between manufacturer, private-

3. What are some advantages and disadvantages of brand

brand repositioning (rebranding)

corporate brand (family brand)

corporate and product line brands

manufacturer brands (national brands)

stock keeping units (SKUs)

1. How do firms adjust their product lines to changing market conditions?

2. Why are brands valuable to firms?

3. How do firms implement different branding strategies?

4. How do a product’s packaging and label contribute to a firm’s overall strategy?

Chapter Case Study

BAND-AID® BRAND PRODUCTS: 93 BUILDING ON THE VALUE OF THE BRAND 94

The Brand Begins

The Company Today

2. How would you describe its product line breadth?

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