m
 

  
  
  
c

 YOU SHOULD BE ABLE TO:

1. Define accounting and financial

concepts useful in marketing
management.
2. Describe how pro forma income
statements are prepared.

c

@
A
 AL ASPETS O@ MARKET

MA
AEME
T

£
  D
FD COSTS

c

 TYPES O@ OSTS

Variable/
Variable @ixed @ixed
  

Oer
  Pr ra ed  ied Selli

Variable
d Sld   Expe
e


Maerial Overead Adverii

Re
 Salary

Sale Sale Ad i
iraive/  ii
/
Labr
 ii
 Pr i
lerial B


Oer Di
 Oer Oer

Oer
c

 TYPES O@ OSTS

Variable 

¢ re expenses that are uniform per unit

of output within a relevant time period
(i.e. budget year).
¢ Fluctuate in direct proportion to the
number of units produced.

c


 TYPES O@ OSTS

Variable 

re divided into two categories:

  Materials, labor, and overhead tied directly

d Sld to production.

Oer £ariable expenses not tied to production but

Variable do vary with volume. ncludes sales

commissions, discounts, etc.

c

 TYPES O@ OSTS

@ixed 

¢ re expenses that do not fluctuate with

output volume within a budget year.
¢ On a per-unit basis, decrease as the number
of units over which they are allocated
increase.
¢
emain unchanged regardless of the
number of units produced.
c

 TYPES O@ OSTS

@ixed 

re divided into two categories:

Those that generate sales. ncludes
Pr ra ed
 marketing costs such as advertising, sales
promotion, salesforce salaries, etc.
Those that maintain the organization.
 ied
 ncludes rent, administrative/clerical
salaries, etc.

c

 TYPES O@ OSTS

Variable/@ixed 

Some costs have both a variable and fixed

component. xample:

Selli

 Fixed component: salary
Expe
e
 £ariable component: commission or bonus

c

@
A
 AL ASPETS O@ MARKET

MA
AEME
T

£ T D
SU COSTS

c

 RELEVA
T OSTS

a
ant costs are expenditures that:

¢ re expected to occur in the future as a
result of some marketing action.
¢ Differ among marketing alternatives being
considered.
¢ nclude opportunity costs, the forgone
benefits from an alternative not chosen.

c

 SU
K OSTS

cunk costs are past expenditures for a

given activity and are typically irrelevant
in whole or in part to future decisions.
¢ re the opposite of relevant costs.
¢ nclude past
D, test marketing, and
advertising expenses.
¢ cunk cost fa

acy:
ecoup spent dollars by
spending still more dollars in the future.
c

@
A
 AL ASPETS O@ MARKET

MA
AEME
T

M

S

c

 MAR

˜argin refers to the difference between

the selling price and the ³cost´ of a
product or service.
¢ s expressed on a total volume or individual
basis, dollar terms, or percentages.
¢ Consists of three types:

r Mar i
Trade Mar i
Pri Mar i

c

 ROSS MAR

-ross margin (or gross profit) is:

¢ The difference between total sales revenue
and total cost of goods sold or
¢ On a per-unit basis, the difference between
unit selling price and unit cost of goods
sold.

c


 ROSS MAR

ross margin is expressed in dollars or percent:

 
   ï

 

  

Ne   a le  $100 100%
C       d    ld -$ 4 0 -4 0 %
Gr   p r i a r i
$60 60%

   

U
i ale prie $1.00 100%
U
i   d ld -$0.40 -40%
U
i r pri ar i
$0.60 60%
c

 TRADE MAR

àrad margin is:

¢ The difference between unit sales price and unit

cost at each level of a marketing channel
(manufacturer‘wholesaler‘retailer).

¢ Frequently referred to as a markup or mark-on

by channel members, expressed as a percentage.

c

 TRADE MAR

xample: Selling Price = $20; Cost = $10; Margin = $10

a 
  a 
 

   
  

 


Mar i
: $10 Mar i
: $10
100 = 100% 100 = 50%
: $10 Selli
Prie: $20

¢ Differences in margin percentages show the importance of

knowing the base (cost or selling price).

¢ Trade margin percents are usually based on selling price.

c

 TRADE MAR

¢ Managers must work backward from the consumer

retail selling price through the marketing channel to
arrive at the manufacturer¶s product¶s selling price.
¢ xample:
  
        

  
  

 

 

 

˜
 r r . .88 3 . %

Whol s l r .88 3. . %

 il r 3. . . %

o
sr .

c


ET PRO@ T MAR
(BE@ORE TAXES)

¢ Ñ t profit margin is the remainder after cost of goods sold,

other variable costs, and fixed costs have been subtracted
from sales revenue.

¢ xample: et profit margin in an income statement

ï

 
  

e ale $100,000 100%

  d ld -$ 0,000 - 0%
r pri ar i
$70,000 70%
Selli
expe
e -$20,000 -20%
@ixed expe
e -$40,000 -40%

e pri ar i
$10,000 10%
c

@
A
 AL ASPETS O@ MARKET

MA
AEME
T

COT
UTO  SS

c

 O
TR BUT O
A
ALYS S

¢ ›ontribution is:
 The difference between total sales revenue and
total variable costs or
 On a per-unit basis, the difference between
unit selling price and unit variable cost

¢ Contribution analysis is used to assess the

relationship between costs, prices, volume,
and profit.

c

 BREAK-EVE
A
ALYS S

¢ ^r ak  n ana
ysis identifies the unit or

dollar sales volume at which an
organization neither makes a profit nor
incurs a loss.
¢ reak-even is shown by this equation:

Tal Tal Tal

Reve
e = Variable  + @ixed 

c

 BREAK-EVE
A
ALYS S

reak-even requires the following:

¢ n estimate of unit variable costs.
¢ n estimate of the relevant total dollar
fixed costs to produce and market the
product or service unit.
¢ The selling price for each product or
service unit.

c

 BREAK-EVE
A
ALYS S

reak-even formula:

Tal
@ixed 
U
i
Break-Eve
=
Vl e
U
i U
i
Selli
Prie
± Variable 

De
 i
ar = 
ribi
per 
i
c


 BREAK-EVE
A
ALYS S

Unit reak-ven £olume xample: Unit Selling Price = $5;

Unit £ariable Costs = $2; Total Fixed Costs = $30,000

U
i $ 0,000
Break-Eve
=
Vl e $5 ± $2

U
i
Break-Eve
= 10,000 
i
Vl e

c

 BREAK-EVE
A
ALYS S

Dollar reak-ven £olume xample: Unit Selling Price = $5;

Unit £ariable Costs = $2; Total Fixed Costs = $30,000

Dllar U
i
U
i
Break-Eve
= Selli
Prie × Break-Eve

Vl e Vl e

Dllar
Break-Eve
= $5 × 10,000 
i
Vl e

Dllar
Break-Eve
= $50,000
Vl e
c

 O
TR BUT O
MAR

Contribution margin formula:

U
i U
i
Selli
Prie ± Variable 


ribi

Mar i
=
U
i
Selli
Prie

c

 O
TR BUT O
MAR

Contribution Margin xample: Unit Selling Price = $5;

Unit £ariable Costs = $2


ribi
$5 ± $2 
ribi

Mar i
= ; Mar i
= 60%
$5

Tal
Dllar @ixed  $ 0,000
Break-Eve
= = = $50,000
Vl e 
ribi
0.60
Mar i

c

BREAK-EVE
A
ALYS S HART

c

 SE
S T V TY A
ALYS S

reak-even points can change if there are changes

in selling price, variable costs, and/or fixed costs.
  ï


 
  
     !" !"


 
    #&  
 
 


  # 
  #$ #$%

 '( $5.00 $2.00 $40,000 $ .00 1 , 

i $66,667

 ') $4.00 $2.00 $ 0,000 $2.00 15,000 

i $60,000

 '* $5.00 $1.50 $ 0,000 $ .50 ,571 

i $42, 57

* Contribution margin (CM) = [(P ± U£C) ÷ P]

c

 O
TR BUT O
A
ALYS S A
D
PRO@ T MPAT

¢ modified break-even analysis is used to incorporate a

profit goal since profits are necessary for the continued
operation of an organization.
¢ To incorporate a profit goal in the break-even formula,
treat it as an additional fixed cost.

Tal Dllar Pri

@ixed  + al
U
i Vl e
 Aieve =
Pri al 
ribi

Per U
i

c

 O
TR BUT O
A
ALYS S A
D
PRO@ T MPAT
Profit
oal xample: Unit Selling Price = $25;
Unit £ariable Costs = $10; Total Fixed Costs = $200,000;
Profit
oal = $20,000

U
i
Break-Eve
$200,000 + $20,000
Vl e wi =
$25 ± $10
Pri al

U
i
Break-Eve

Vl e wi = 14,667 

i
Pri al
c

 O
TR BUT O
A
ALYS S A
D
PRO@ T MPAT
¢ profit goal can also be specified as a percentage of sales
rather than as a dollar amount: Profit goal = 20% on
sales.
¢ To incorporate a profit goal in the break-even formula,
subtract the profit goal from the contribution per unit.

Tal
@ixed 
U
i Vl e
 Aieve =
Pri al 
ribi
Dllar
Per U
i ± Pri al

c

 O
TR BUT O
A
ALYS S A
D
PRO@ T MPAT
Profit
oal xample: Unit Selling Price (P) = $25;
Unit £ariable Costs (U£C) = $10; Total Fixed Costs (FC) = $200,000;
Profit
oal = 20% of Unit Selling Price (P);
Contribution per Unit (CU) = P- U£C

U
i
Break-Eve
$200,000
Vl e wi =
[($25 ± $10) ± $5*]
Pri al

U
i
Break-Eve

Vl e wi = 20,000 

i
Pri al
* Dollar Profit
oal = (P × Profit
oal Percent on Sales) = $25 × 20%; $25 × .20 = $5
c


 O
TR BUT O
A
ALYS S A
D

MARKET S E

¢ manager can assess the feasibility of a venture

by comparing the break-even volume with
market size and market-capture percentage.

¢ xample: Market potential is 100,000 units and

unit volume break-even point is 50,000 units.
Therefore, a firm¶s product or service needs a
50 percent market share to break even.

¢ Marketing implication: Can such a percentage

can be achieved?

c

 O
TR BUT O
A
ALYS S A
D
PER@ORMA
E MEASUREME
T
Prd X Prd Y Tal
(10,000 
i) (20,000 
i) ( 0,000 
i)

÷

 


  




 


÷

 

 


 








÷
 

 

 

 

 









 







  

!




¢ †hich product is more profitable?

¢ †hich product is more profitable on a unit-contribution basis?
¢ Should Product  or Product  be dropped? †hy or why not?
c

ASSESSME
T O@ A

BAL AT O

Cannibalization occurs when a firm obtains revenue

by diverting sales from one product or service to
another.
Bra
d X: Bra
d Y:
Exii
Opaqe
ew el
ie Tpae Tpae

i p rice

i aria le c   

i c
ri  i
  

¢ †hich product has the higher unit contribution?

¢ †hy is this important?
c

ASSESSME
T O@ A

BAL AT O

¢ xample: stimate of rand  sold = 1,000,000 units;

stimate of rand  sold = 1,000,000;
Cannibalization effect =
 oss of 500,000 units of rand  sales diverted to rand 
 oss of $0.10 per unit of rand  for each unit of rand  sold

¢ How will the introduction of rand  affect the total

contribution dollars of rand ?
 rand  total contribution
ost? ($0.10 per unit lost × 500,000
cannibalized units from rand  to rand  = ±$50,000)
 rand  total contribution gain d? ($0.70 unit contribution ×
500,000 units of rand  = +$350,000)
 Financial effect of introducing rand ? (et contribution dollars
= +$350,000 ± $50,000 = $300,000)
c

ASSESSME
T O@ A

BAL AT O

U
i U
i 
ribi

Prd
Vl e 
ribi
Dllar

w w

c
 
L U D TY A
D ORK
 AP TAL

firm¶s ability to meet short-term

Liqidiy
financial obligations within a budget year.

rki
rre
 rre

= Ae ± Liabiliie
apial

rre
 Consists of cash, accounts receivable,
Ae prepaid expenses, inventory, etc.

rre
 Consists of short-term accounts payable,
Liabiliie income taxes, etc.

Managers must be aware of the impact of marketing actions

on working capital.
c
 
 OPERAT
 LEVERAE

¢ 0p rating
 rag refers to the extent to which fixed

costs and variable costs are used in the production
and marketing of products and services.
Hi 
High total fixed costs relative to total
Operai

Levera e variable costs. xample: irlines

Lw
ow total fixed costs relative to total
Operai

Levera e variable costs. xample: †holesalers

¢ The higher the operating leverage, the faster total

profits will rise or fall once sales volume rises or falls
below break-even volume.
c
 
 E@@ET O@ OPERAT
 LEVERAE
O
PRO@ T

10%
reae 10% Dereae
Bae ae
i
Sale i
Sale

Hi  @ixed Hi  Variable Hi  @ixed Hi  Variable Hi  @ixed Hi  Variable

 @ir  @ir  @ir  @ir  @ir  @ir

Sale $100,000 $100,000 $110,000 $110,000 $90,000 $90,000

Variable
$20,000 $0,000 $22,000 $,000 $1,000 $72,000


@ixed
$0,000 $20,000 $0,000 $20,000 $0,000 $20,000


Pri $0 $0 $,000 $2,000 ($,000) ($2,000)

c
 
 D SOU
TED ASH @LO

¢ ïiscount d cash f
ows are future cash flows

expressed in terms of their present value.

¢ ncorporates the theory of the time value of

money or present-value analysis.

¢ Premise: dollar received next year is

worth less than a dollar received today
because its future value is affected by risk,
inflation, and opportunity cost.
c

 D SOU
TED ASH @LO

Di
ed 1
a @lw = ™

 r = nterest rate
 n = umber of the year
@ar 1 
(1 + ë

e a a a

= ±
@lw
lw Olw

The cost of earnings opportunities forgone

  by investing in a business with its attendant
apial risk as opposed to investing in risk-free
securities such as U.S. Treasury bills.

The interest or discount rate is defined by the cost of capital.

c


APPL AT O
O@ D SOU
TED ASH @LO A
ALYS S

TH A 15 PERE
T D SOU
T @ATOR

Bi
e A Bi
e B
Di
 a  laive Di
ed a  laive Di
ed
Year
@ar @lw a @lw a @lw @lw a @lw a @lw

0 1.000 ($105,000) ($105,000) ($105,000) ($105,000) ($105,000) ($105,000)

1 0.70 $25,000 ($0,000) $21,750 $50,000 ($55,000) $4 ,500

2 0.75 $ 5,000 ($45,000) $2 ,4 0 $55,000 $0 $41,50

0. 5 $50,000 $5,000 $ 2,900 $ 0,000 $ 0,000 $ 9,40

4 0.572 $70,000 $75,000 $40,040 $ 5,000 $125,000 $ 7,10

5 0.497 $90,000 $1 5,000 $44,7 0 $70,000 $195,000 $ 4,790

Tal $ 0,0 $91,5 0

¢ †hich business has the larger cumu
ati cash f
ow? †hy is this important?
¢ †hich business has the faster payback? †hy is this important?
¢ †hich business has the greater discount d cash f
ow? †hy is this important?
c
 
@
A
 AL ASPETS O@ MARKET

MA
AEME
T

CUSTOM
FTM
£ U

c
 
USTOMER L @ET ME VALUE

 er
Liei e The present value of future cash flows
Vale from a customer relationship.
(LV)

The C£ calculation requires this information:

$M =
Sale
Reve
e ±  Variable
 + Oer  er
Aqiii
 
Ree
i

Rae = (r)

ere
Rae = (i)
c

USTOMER L @ET ME VALUE

The customer lifetime value (C£) formula is:

 er
Liei e 1
Vale = $M ×
(LV)
1+±ë
xample: $M = $2,000; i = 10%; and r = 80%. C£ is:
1
LV = $2,000 ×
1.0 + 0.1 ± 0.
LV = $6,666.67
c
 
USTOMER L @ET ME VALUE

xample: $M = $2,000; i = 10%; r = 80%;

g (constant growth rate) = 6%. C£ is:

1
LV = $2,000 ×
1.00 + 0.10 ± 0.0 ± 0.06

LV = $, .

¢ Marketing affects the customer margin ($M),

the retention rate (r), and the growth rate (g)
but not the interest rate (i).
c


@
A
 AL ASPETS O@ MARKET

MA
AEME
T

P
P

P
O FO
M
COM ST TMT

c


PRO @ORMA
OME STATEME
T

¢ pro forma income statement displays projected

revenues, budgeted expenses, and estimated net
profit for an organization, product, or service
during a specific planning period, usually a year.

¢ pro forma income statement includes a sales

forecast and a listing of variable and fixed costs
that can be programmed or committed.

¢ pro forma income statement reflects a

marketer¶s expectations (sales) given certain
inputs (costs).
c


PRO @ORMA
OME STATEME
T
DE@
T O
S

¢ ca
s. The forecasted unit volume times unit

selling price.
¢ ›ost of goods so
d. The costs incurred in buying or
producing offerings, which:
 re constant per unit within certain volume ranges
 £ary with total unit volume

¢ -ross margin or gross profit. The remainder after

cost of goods sold has been subtracted from sales.

c


PRO @ORMA
OME STATEME
T
DE@
T O
S

¢ ˜ark ting p ns s. The programmed expenses

budgeted to produce sales.
¢ - n ra
and administrati p ns s (overhead).
The committed fixed costs for the planning
period, which cannot be avoided if the
organization is to operate.
¢ Ñ t incom b for (incom  ta s or n t profit
b for ta s. The remainder after all costs have
been subtracted from sales.

c


PRO @ORMA
OME STATEME
T @OR THE 12-MO
TH
PER OD E
DED DEEMBER 1, 200

S ls 1,000,000
os o goo s sol 00,000
ross  rgi
00,000
M r i
g  
ss
S ls  
ss 1 0,000
A risi
g  
ss 
0,000
@righ or li r  
ss 0,000 00,000

r l
i
isr i   
ss
A i
isr i  s l ris 120,000
D ri io
o
il i
gs/i 
 20,000

rs  
s ,000
Pro r  s
i
sr
 ,000
Ohr i
isr i   
ss ,000 1,000

 roi or (i
o)  s ,000

c


Prof. Dr. M  Chishty

à

 

c


6 „
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c


6 0 „






c


6  „product 

  


 brand 

   


!„product 




 brand "
product 

"
 




!

c


6 „ #







6 

$ does 
$ means

c

 „
 „







 








 



!
 %„ à


 

&







!

c

6 „



6 %





'



6 (
 




c

6 %

$






U  ()))))!!*



U „  %)!!%
 (

U '  ))))))%
 

6 (
 





 


c

6 º









U






6 +
$ 
  

,

6 






c

6 ^
6 ^$


6 +


"
6 ^

c


6 ÷
^
-- .
 

6 /
(-- 

 






 
6 00-- 0



6 º"÷
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6 „


  
 
U $


1
$


$ 

 
6 „$








6 







$

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6 ^
"





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6 ^
"$





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c

m !  "
##

 
! 
$
  
c

 YOU SHOULD BE ABLE TO:

1. Describe each step in the decision-

making process using the ³DCD´
method.
2. Prepare and present an analysis of a
written case.

c

 DE S O
MAK


³Decision making is a rational

and systematic process and that
its organization is a definite
sequence of steps, each of them in
turn rational and systematic.´
² ÿ t r ïruck r

c

MARKET
 DE S O
MAK
 A
D ASE
A
ALYS S

DCSO-M 

P
OCSS

c

DE S O
-MAK
 PROESS: DE DE

Dei
e e prble

E
 erae e deii
ar


ider e releva

i
r ai

de
iy e be aler
aive

Develp a pla
r i ple e
i

e e
aler
aive
Evalae e deii
a
d e
deii
pre c

 STEP 1: DE@
E THE PROBLEM

³ problem well defined is half solved.´

² iohn ï w y

Problem definition framework includes:

Se
Objeive 
rai

Meare

c

STEP 2: E
UMERATE THE DE S O

@ATORS

Two decision factors to be enumerated

and related to each other:
Aler
aive
U
erai
ie
re  Ai

Controllable by the Uncontrollable factors

decision maker such as that the manager
the marketing mix. cannot influence.
c


 STEP : O
S DER RELEVA
T

@ORMAT O

a
ant information consists of information that

relates to the alternatives identified by the manager
as being likely to affect future events. ncludes
characteristics of the following:

dry
Or a
izai

( peiive

 er Aler
aive
re
 a
d
pii
)
 peir
c

 STEP : O
S DER RELEVA
T

@ORMAT O

¢ dentifying relevant information is difficult:

 There is often an overabundance of information
and viewpoints
 Determining what does and does not matter is a
skill learned through experience

esist the temptation to consider everything as
factual information

 Sometimes relevant information must be created

¢ manager has performed a situation analysis

when steps 1 through 3 are completed.
c

 STEP 4: DE
T @Y THE BEST
ALTER
AT VE

¢ The framework for identifying the best

alternative is d cision ana
ysis, which:
 Matches each alternative with the
uncertainties in the environment
 ssigns a quantitative value to the outcome
associated with each match

¢ Use a decision tree and a payoff table to

show the relationship among alternatives,
uncertainties, and potential outcomes.
c

 STEP 4: DE
T @Y THE BEST
ALTER
AT VE

xample: l acho Foods

Aler
aive
U
erai
ie
re  Ai

ab  peir
r @rze
Di

er


educe price  Maintain lower price

 Maintain price 
educe price further

c

 EXH B T .1: DE S O
TREE @OR
EL
AHO @OODS

 pa
y  peiive @i
a
ial
Ai
Rep
e O e

Mai
ai

$150,000
prie
Rede prie
Rede
$110,000
prie rer

Mai
ai

$175,000
prie
Mai
ai
prie
Rede
$90,000
prie rer
c
 
 STEP 4: DE
T @Y THE BEST
ALTER
AT VE

payoff tab
:
¢ Displays the alternatives, uncertainties, and
outcomes facing a firm.
¢ ncludes management¶s determination of
the probability of an uncertainty¶s
occurrence.

c
 
 EXH B T .2: PAYO@@ TABLE @OR
EL
AHO @OODS

÷
ë

 peir  peir
Mai
ai
Prie Rede Prie
(Prbabiliy = 0.9) (Prbabiliy = 0.1)

Rede prie $150,000 $110,000

ë
 

Mai
ai
prie $175,000 $90,000

c
 
 STEP 4: DE
T @Y THE BEST
ALTER
AT VE

¢ payoff tab
computes the ³expected monetary

value´ (M£) for each alternative.

¢ The M£ is calculated as follows:

EMV =  0   
  +( ×
 
 +,
  +(  +

 0   
  +) ×

 
 +,
  +)  +
l

¢ M£P = M£ of Perfect nformation

c
 
EXH B T .: DE S O
A
ALYS S A
D
THE VALUE O@
@ORMAT O

ÿ
 ÷
ë

 peir  peir
EMV
Mai
ai
Prie Rede Prie
allai

(Prbabiliy = 0.9) (Prbabiliy = 0.1)

A1: Rede prie $150,000 $110,000 $146,000

ë
 
A2: Mai
ai
prie $175,000 $90,000 $166,500

EMVA1 = (0.9 × $150,000) + (0.1 × $110,000) = $146,000

EMVA2 = (0.9 × $175,000) + (0.1 × $90,000) = $166,500
EMVerai
y = (0.9 × $175,000) + (0.1 × $110,000) = $16,500
EMVP = EMVerai
y ± EMVBe aler
aive
EMVP = $16,500 ± $166,500) = $2,000
c

 STEP 4: DE
T @Y THE BEST
ALTER
AT VE

Decision analysis is important because it:

¢ s a fundamental tool for considering ³what if´
situations.
¢ Forces the manager to quantify outcomes
associated with specific actions.

¢ s useful in a variety of settings.

¢ Can be used in determining the value of

³perfect´ information.
c


 STEP 5: DEVELOP A PLA
@OR

MPLEME
T
 THE HOSE
ALTER
AT VE

Developing an implementation plan

involves:
¢ llocation of marketing, financial, and
manufacturing resources.
¢ Timing needed to develop a marketing
plan.
¢ Strategy formulation.
¢ Strategy implementation.
c
 
STEP 6: EVALUATE THE DE S O

A
D THE DE S O
PROESS

†ith respect to the decision itself, ask

two questions:
¢ †as a decision made?
¢ †as the decision appropriate given the
situation?

c
 
STEP 6: EVALUATE THE DE S O

A
D THE DE S O
PROESS

†ith respect to the performance of the decision-

making process, ask five questions:
¢ †as the problem defined adequately?

¢ †ere all the pertinent alternatives and uncertainties

identified? †ere the assumptions realistic?

¢ †as all the relevant information considered?

¢ †as an appropriate course of action recommended?
†as the logic consistent? †as any important piece of
information overlooked?
¢ How can the recommendation be implemented?
c

MARKET
 DE S O
MAK
 A
D ASE
A
ALYS S

P
P

D
P
ST

C S  SS

c
 
 APPROAH
 THE ASE

¢ @irst r ading. ecome familiar with the

situation of the organization:
 dentify insights into the problem
 Obtain background information on the
environment and organization
¢ c cond r ading. ay attention to key facts
and assumptions:
 Determine relevance and reliability of data
 Take extensive notes c

 APPROAH
 THE ASE

void these pitfalls:

¢ Do not rush to a conclusion.

¢ Do not ³work the numbers´ until their

meaning and derivation are understood.

¢ Do not confuse supposition with fact.

c

@ORMULAT
 THE ASE A
ALYS S

ature of the ndustry, Market, and

uying ehavior:
¢ ssess the structure, conduct, and
performance of the industry and
competitors.
¢ dentify the buyers and why, where, when,
how, what, and how much they buy.

c

@ORMULAT
 THE ASE A
ALYS S

The Organization:
¢ Understand an organization¶s resources²
financial, human, and material.
¢ dentify an organization¶s strengths and
weaknesses and the reasons for success or
failure.
¢ ssess the ³fit´ between an organization
and its environment via a S†OT analysis.
c

@ORMULAT
 THE ASE A
ALYS S

Plan of ction:
¢ dentify possible courses of action based on
the situation analysis.
¢ Calculate realistic estimates of the revenues
and costs of each course of action.

c

@ORMULAT
 THE ASE A
ALYS S

Potential Outcomes:
¢ valuate the potential outcomes of all
courses of action.
¢
ecommend the best course of action to be
pursued.

c


@ORMULAT
 THE ASE A
ALYS S

f Using Teams:
¢ Create a balanced team whose member¶s
skill sets complement one another (writing,
oral presentation, financial, etc.).
¢ e committed to the task and dependable.

¢ void ³groupthink.´

c

 MARKET
 ASE A
ALYS S
ORKSHEET
1. a i e
are  e i
dry rre, 
d, a
d perr a
e?

are  e 2.  are e  peir, a
d wa are eir re
 a
d weak
ee?
i
dry, arke, . Hw d 
 er by i
i i
dry r arke?
a
d byer
4. a
e arke be e e
ed? Hw? a
e e e
 be qa
iied?
beavir
5. a are e reqire e
 r e i
i i
dry?

1. a are e r a

izai
 ii
, bjeive, a
d dii
ive  pee
y?
2. a i i eri
 e arke? Hw a
i pa a
d pree
 perr a
e be
Te araerized? a i i pe
ial?
Or a
izai
. a i e iai
i
wi e a
a er r r a
izai
i
d iel?
4. a ar ave 
ribed  e pree
 iai
?

1. a ai
 are available  e r a
izai
?
A Pla
2. a are e  a
d be
ei  ai
i
b qaliaive a
d qa
iaive er ?
 Ai
.  ere a dipariy bewee
wa e r a
izai
wa
  d, ld d, a
d, a
d
 d?

1. a will be e byer, rade, a

d  peiive rep
e  ea re  ai
?

Pe
ial 2. Hw will ea re  ai
aiy byer, rade, a
d r a
izai
reqire e
?
O e . a i e pe
ial priabiliy  ea re  ai
?
4. ill e ai
e
a
e r rede e r a
izai
 abiliy   pee i
e re?
c

 MARKET
 ASE A
ALYS S
ORKSHEET

1. a i e
are  e i
dry
rre, 
d, a
d perr a
e?

2.  are e  peir, a

d wa are

are  e eir re
 a
d weak
ee?
i
dry,
. Hw d 
 er by i
i i
dry
arke, a
d r arke?
byer
beavir 4. a
e arke be e e
ed? Hw?
a
e e e
 be qa
iied?

5. a are e reqire e

 r e
i
i i
dry?

c

 MARKET
 ASE A
ALYS S
ORKSHEET

1. a are e r a

izai
 ii
,
bjeive, a
d dii
ive  pee
y?

2. a i i eri

 e arke? Hw
a
i pa a
d pree
 perr a
e be
Te araerized? a i i pe
ial?
Or a
izai

. a i e iai

i
wi e
a
a er r r a
izai
i
d iel?

4. a ar ave 

ribed  e
pree
 iai
?

c

 MARKET
 ASE A
ALYS S
ORKSHEET

1. a ai
 are available  e
r a
izai
?

2. a are e  a

d be
ei  ai

A Pla
i
b qaliaive a
d qa
iaive
 Ai
er ?

.  ere a dipariy bewee

wa e
r a
izai
wa
  d, ld d, a

d, a
d  d?

c

 MARKET
 ASE A
ALYS S
ORKSHEET

1. a will be e byer, rade, a

d
 peiive rep
e  ea re 
ai
?

2. Hw will ea re  ai

aiy
byer, rade, a
d r a
izai

Pe
ial reqire e
?
O e
. a i e pe
ial priabiliy  ea
re  ai
?

4. ill e ai

e
a
e r rede e
r a
izai
 abiliy   pee i
e
re?

c

 OMMU
AT
 THE ASE
A
ALYS S

la Dii

¢ Case preparation requires 4±5 hours.

¢ ring notes to class.
¢ Carefully listen to the viewpoints of other
students during the discussion of the case.
¢ Prepare a short summary of the case after
discussing it in class.
c

 OMMU
AT
 THE ASE
A
ALYS S

Oral Pree
ai

¢
ehearse the presentation.

¢ £isual aids do not replace the oral
presentation.
 Do not read slides to the audience
 Do not use too many graphics, colors, and
transitions
c

 OMMU
AT
 THE ASE
A
ALYS S

Oral Pree
ai

¢ Slides should cover the following:

 Opening slide: Presentation title and presenters¶ names

 Outline of the presentation

 ey problems and strategic issues that management
needs to address
 nalysis of the organization¶s situation or problem


ecommendations and supporting reasoning for each

c

 OMMU
AT
 THE ASE
A
ALYS S

rie
Repr

¢ e carefully organized and grammatically

correct.
¢ Has three major sections:
 Strategic problem and issue identification
 nalysis and evaluation

ecommendations c


m
%& !  "
##

$ $
'(' 
$ $
  
c

 FT
CTU

OU SHOUD   TO:

1. xplain the offering concept and offering mix

portfolio.

2. Describe how the marketing manager modifies the

offering mix.

3. dentify and describe the stages in the new-offering

development process.

4. dentify and describe the stages in the product life

cycle.
c

 FT
CTU

OU SHOUD   TO:

5. xplain the types of positioning strategies.

6. Define the concepts of brand and brand equity.

7. Describe how brand equity is created as well as its

value to organizations.

8. xplain the types of branding and brand growth

strategies.
c

OFF

ST
T
 F
M†O


¢ The profitability of an organization depends on its

product or service offering(s) and the strength of its
brand(s).

¢ Marketers face three offering-related

strategy decisions:

Modifying the Positioning randing

Offering Mix Offerings Offerings

c

P
ODUCT D S
£C ST
T
 D 
D
M 
MT

TH OFF


PO
TFOO

c

TH OFF

COCPT

¢ n off ring consists of the benefits or satisfaction

provided to target markets by an organization.
¢ t consists of the following elements:

Tangible
product/service

elated services § 
 

rand name(s)
§


†arranties/
Packaging

uarantees
Other Features
c

TH OFF

M

The totality of an organization¶s

Offering Mix/
offerings is known as its product
Portfolio or service.

roups of offerings similar in
Product terms of usage, buyers
ines marketed to, or technical
characteristics.

specific product or
Product tems service noted by a
brand, size, or price.
c

TH OFF

M

Offering mix decisions concern the:

†idth The number of offering lines.

(breadth)

Depth The number of items in each line.

The extent to which offerings

satisfy similar needs, appeal to
Consistency similar buyer groups, or use
similar technologies.
c

TH OFF

M

Offering mix decisions depend on the:

Competitive Organizational
Situation
esources

Marketing
Strategy

High-Profit or
One Complete
High-£olume
Offering ines
Offerings
c

TH OFF

M

^und
ing involves the marketing of two or more product or

service items in a single ³package´ that creates a new
offering:

£alue Meals £acation Packages

c


TH OFF

M

undling:

¢ Means that consumers value the package more

than the individual items.
¢ s due to benefits received from not having to
make separate purchases and the satisfaction
from one item given the presence of another.
¢ Provides a lower total cost to buyers and lower
marketing costs to sellers.

c

P
ODUCT D S
£C ST
T
 D 
D
M 
MT

MODF
TH
OFF

M

c

OFF

M MODFC TO
ST
T
 DCSOS
Single
dding to the ew Offering Offering

Offering Mix Development ntire

ine

Trading
Modifying Up

the Offering Trading

Down

Harvesting
the Offering

liminating
the Offering
c

DDTOS TO TH OFF

M

Single ntire
¢ dditions take the form of: Offering ine

¢ ƒuestions to ask when considering new offerings:

How consist nt is the new offering with

Consistency
existing offerings?

Does the organization have the r sourc s to

esources
introduce and sustain the offering?

Market s there a viable mark t for the offering?

c

DDTOS TO TH OFF

M

Consistency

¢ Consider demand interrelationships (offering substitutes

or complements)
²the cannibalization effect.

¢ Consider the degree to which the new offering fits the

organization¶s existing selling and distribution strategies.

c

DDTOS TO TH OFF

M

esources

¢ Consider the organization¶s financial strength²
D

and marketing programs.

¢ Consider the speed and magnitude of the competitive

response.

¢ Consider the market growth rate.

c

DDTOS TO TH OFF

M

Market

¢ Consider whether a market exists.

¢ Consider whether the new offering has a relative

advantage over competitive offerings at a price
consumers are willing and able to pay.
¢ Consider if there is a distinct buyer group or
segment for which no present offering is
satisfactory.
c

ST
S  TH †-OFF


D£OPMT P
OCSS
dea

eneration

dea
Screening

usiness nalysis

Market
Testing

Commercial-
ization
c

ST
S  TH †-OFF


D£OPMT P
OCSS

dea
eneration

¢ Sources of new offering ideas include:

mployees uyers Competitors

¢ deas are obtained through marketing research (formal)

and informal means.

c

ST
S  TH †-OFF


D£OPMT P
OCSS

dea Screening

¢ deas are screened based on:

Organizational Organizational Prospective

Definition Capability uyers

¢ deas deemed incompatible with organizational definition

and capability
are quickly eliminated.

c


ST
S  TH †-OFF


D£OPMT P
OCSS

dea Screening

¢ ssess the match between prospective buyers and

offering characteristics by asking:
 Does the offering have a r
ati adantag over existing offerings?
 s the offering compatib
with buyers¶ use or consumption behavior?
 s the offering simp
enough for buyers to understand and use?
 Can the offering be t st d on a limited basis prior to actual purchase?

 re there imm diat b n fits from the offering once it is consumed?

¢ f the answers are ³yes´ and the offering satisfies a f
t n d,

then go to the business analysis stage.
c

ST
S  TH †-OFF


D£OPMT P
OCSS

usiness nalysis

¢ ssess financial viability based on estimated:

Sales Costs Profits

¢ Forecasting sales is difficult for new offerings.

¢ Profitability analyses relate to:

nvestment reak-even Payback Period

c

ST
S  TH †-OFF


D£OPMT P
OCSS

usiness nalysis

The number of years required for

Payback
Period
= an organization to recapture its
initial offering investment.

Total Fixed Costs

Payback
Period
=
Cash Flows

c

ST
S  TH †-OFF


D£OPMT P
OCSS

usiness nalysis

The ratio of average annual

eturn on
net earnings (return) divided by
nvestment =
(
O) average annual investment,
discounted to the present time.

nnual et

eturn on arnings
Discount
nvestment = × Factor
(
O)
nnual
nvestment

c

ST
S  TH †-OFF


D£OPMT P
OCSS

Market Testing

¢ May include product concept or buyer preference

tests in a laboratory situation or field test market.
¢ test market is a scaled-down implementation of
one or more alternative marketing strategies for
introducing the new offering.
¢ deas that pass through this stage are
commercially introduced into the marketplace.

c

ST
S  TH †-OFF


D£OPMT P
OCSS

Market Testing

¢
enerate benchmark data for assessing sales volume
when the product is introduced over a wider area.
¢ xamine the relative impacts of alternative marketing
strategies and programs under actual market conditions.
¢ ssess the incidence of trial, repeat-purchase, and
quantities purchased by potential buyers of the offering.
¢ nform competitors of the organization¶s activities,
which may increase the speed and effectiveness of
competitive response.
c

ST
S  TH †-OFF


D£OPMT P
OCSS

Commercialization

¢ 3,000 raw ideas are needed to produce a single

commercially successful new offering.

¢ ew offering success depends on a fit with:

 Market needs

 Organizational strengths and resources

c

F-CC COCPT

¢
if cyc
plots sales of an offering

(a brand of coffee) or a product class
(all ground coffee brands) over a period
of time.

¢ ife cycles are divided into four stages:

Maturity-
ntroduction
rowth Decline
Saturation

c

HT 5.1:

 FO
M OF
P
ODUCT F CC
Sales

ntroduction
rowth Maturity-Saturation Decline

Time
c

F-CC COCPT

The sales curve can be viewed as the result of offering trial

and repeat purchasing behavior.

Sales

epeater£
olume

Trier
£olume
Time

(umber of triers × average purchase amount × price) + (number

Sales volume =
of repeaters × average purchase amount × price)

c


F-CC COCPT

ntroduction Stage

¢ Focus on stimulating trial of the offering by:

 dvertising

iving out free samples
 Obtaining adequate distribution

¢ The vast majority of sales volume is due to trial

purchases.

c

F-CC COCPT

rowth Stage

¢ n increasing share of volume is due to repeat

purchases.
¢ Marketers focus on retaining existing buyers of
the offering through offering:
 Modifications
 nhanced brand image
 Competitive pricing

c

F-CC COCPT

Maturity-Saturation Stage

There is an increase in the:

¢ Proportion of buyers who are repeat purchasers

(i.e. few new buyers or triers exist).
¢ Standardization of production operations and
product-service offerings.
¢ ncidence of aggressive pricing activities by
competitors.
c

F-CC COCPT

Maturity-Saturation Stage

Marketers focus on:

¢ Finding new buyers for the offering.
¢ Significantly improving the offering.
¢ ncreasing the frequency of usage among current buyers.

Decline Stage

Marketers decide to harvest or eliminate the offering.

c

MODF
OFF

S

nvolves adding new

features and higher-
Trading quality materials or
Up augmenting the offering
with attendant services
Modifying and then raising the price.
the Offering
s the process of reducing
Trading the number of features or
Down quality of an offering and
lowering the price.

c
 
H
£ST
OFF

S

¢ Gar sting is the strategic decision to reduce the

investment in a business entity in the hope of cutting costs
and/or improving cash flow.

¢ The decision is not to abandon the offering outright but to

minimize the human and financial resources allocated to
it.

c
 
H
£ST
OFF

S

Harvesting should be considered when:

¢ The market for the offering is stable.

¢ The offering is not producing good profits.

¢ Market share becomes increasingly costly to

defend from competitive inroads.
¢ The offering enhances the firm¶s image or
provides a full product line despite a poor future.

c
 
M T
OFF

S

¢ limination means that the offering is dropped from the

firm¶s offering mix.
¢ n offering may be eliminated if the answers to these
questions are ³very little´ or ³none.´
 †hat is the future sales potential of the offering?

 How much is the offering contributing to offering mix profitability?

 How much is the offering contributing to the sale of other offerings

in the mix?

 How much could be gained by modifying the offering?

 †hat would be the effect on channel members and buyers?

c
 
P
ODUCT D S
£C ST
T
 D 
D
M 
MT

POSTO
OFF

S

c

POSTO

ÿositioning is the act of designing

an organization¶s offering and
image so that it occupies a
distinct and valued place in the
target customer¶s mind relative
to competitive offerings.

c


POSTO
ST
T
S

¢ Strategies include positioning by:

ttribute or Use or Product or

enefit pplication rand User

Product or Price and

Competitors
Service Class ƒuality

¢ Marketers often combine two or more of these strategies

when positioning a product, service, or brand.

c
 
POSTO
 TT
UT O

FT

¢ s the strategy most frequently used.

¢
equires determining:
 †hich attributes are important to target markets
 †hich attributes are being emphasized by
competitors
 How the offering can be fitted into this offering-
target market environment

¢ ccomplished by designing an offering that contains

appropriate attributes or stressing the appropriate
attributes if they already exist.
c
 
 TT
UT O
FT
POSTO
M T


¢ Develop a matrix relating attributes of the

offering to market segments (see xhibit 5.2).

¢ enefits of the positioning matrix:

 Can spot potential opportunities for new offerings
and determine if a market niche exists
 Permits subjective estimation of the extent to which
a new offering might cannibalize existing offerings
 Can judge the competitive response to a new
offering more effectively

c

 TT
UTS D M
T

S
MT POSTO

Market Segments
Toothpaste
ttributes Teens;
Children Family dults
oung dults

Flavor Œ
Color Œ
†hiteness of Teeth Œ
Fresh reath Œ
Decay Prevention Œ
Price Œ
Plaque Prevention Œ
Stain Prevention Œ
Principal rands Ultra rite; Topol;
im; Stripe Colgate; Crest
for ach Segment McCleans
embrandt

OT: check (Œ) indicates principal benefits sought by each market segment.
c
 
C
FT
POSTO

ST TMT

¢ Once the desired positioning has been determined,

marketers prepare a succinct, written positioning
statement.

¢ positioning statement identifies:

 The target market and needs satisfied

 The product (service) class or category in
which the organization¶s offering competes
 The offering¶s unique attributes or benefits
c


C
FT
POSTO

ST TMT

positioning statement takes this form:

¢ For (targ t mark t and n d), the (product, s ric ,

brand nam ) is a (product/s ric c
ass or cat gory)
that (stat m nt of uniqu attribut s or b n fits proid d).

¢ xample:

³For upscale merican families who desire

a carefree driving experience, £olvo is a
premium-priced automobile that offers the
utmost in safety and dependability.´

c



POSTO

¢
epositioning is necessary when:

 The initial positioning of a product, service,

brand, or organization is no longer
competitively sustainable or profitable
 etter positioning opportunities arise

¢ t takes time and is costly to establish a new position, so

do this after careful study.

c


M 
TH POSTO

ST
T
 DCSO

The choice of which positioning strategy to use can be made

by answering the following:

¢ †ho are the likely competitors, what positions

have they staked out in the marketplace, and how
strong are they?
¢ †hat are the preferences of the target consumers
and how do they perceive competitors¶ offerings?
¢ †hat position, if any, does the organization
already have in the target consumers¶ mind?
c


M 
TH POSTO

ST
T
 DCSO

Positioning strategy implementation decisions can be made

by answering the following:

¢ †hat position do we want to own?

¢ †hat competitors must be outperformed if we

are to establish the position?
¢ Do we have the marketing resources to occupy
and hold the position?

c


M 
TH POSTO

ST
T
 DCSO

The success of a positioning strategy depends on the following

factors:

¢ The position must be clearly communicated to

and valued by targeted customers.
¢ Frequent positioning changes should be avoided
since the development of a position is a lengthy
and expensive process.
¢ The position taken in the marketplace should be
sustainable and profitable.
c


P
ODUCT D S
£C ST
T

 D 
D
M 
MT


D ƒUT D

D M 
MT

c



D D 
D ƒUT

rand rand quity

brand name is any ^rand quity is the

word, ³device´ (design, added value a brand
sound, shape, or color), name bestows on a
or combination of these product or service
that are used to identify beyond the functional
an offering and set it benefits provided.
apart from competing
offerings.
c



D ƒUT

rand equity has two marketing

advantages:
¢ Provides a competitive advantage, such as signifying
quality.

¢ Can charge a higher price for an offering since consumers

are often willing to pay for the equity premium present in
the brand.

c


C
 T

D ƒUT

rand equity arises from a four-step process:

1. Develop positive brand awareness in consumers¶

minds and associate it with a product class or
need to give the brand an identity.
2. stablish a brand¶s meaning in the minds of
consumers, consisting of:
 rand functional performance

 rand imagery

c


C
 T

D ƒUT

rand equity arises from a four-step process:

3. licit the proper consumer responses to a brand¶s

identity and meaning²how they think and feel.
 Thinking: Focuses on a brand¶s perceived quality,
credibility, and superiority relative to other brands
 Feeling:
elates to the consumer¶s emotional
reaction to a brand

4. Create a consumer-brand resonance evident in an

intense, active loyalty relationship (psychological
bond) between consumers and the brand.
c

CUSTOM
- SD 
D ƒUT
P
MD

4.
elationships = ntense,
†hat about you active
and me? loyalty
Consumer
brand
resonance

3.
esponse = Consumer Consumer Positive, accessible

†hat about you? judgments feelings reactions

Strong, favorable,
2. Meaning = rand rand
and unique brand
†hat are you? performance imagery associations

1. dentity = Deep, broad

†ho are you?
rand salience brand awareness

c

£ U

D ƒUT

Successful brand names provide organizations with

financial benefits because they:
¢ Have economic value as intangible assets.
¢ njoy a competitive advantage.
¢ Create earnings and cash flow in excess of the return on
its tangible (plant and equipment) assets.
¢ chieve a high rate of return relative to competitors.
¢ Can be bought and sold, generating earnings.
¢ Can appreciate in value, not depreciate as tangible assets
do with time and use.
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Three common branding strategies are:

Multiproduct company uses one name for all

randing its products in a product class.

company gives each product or

Multibranding
product line a distinct name.

company supplies a reseller

Private
with a product bearing a brand
randing
name chosen by the reseller.
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Multiproduct randing

¢ s also called fami
y branding or corporat branding.

¢ stablishes dominance in a product or service class.

¢ llows consumers to transfer the good brand equity of
one product to other company offerings with the same
name.
¢ owers advertising and promotion costs and raises overall
brand awareness since the same name is used on all
products.
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Multiproduct randing

¢ uilds a g
oba
brand, which:

 s a brand marketed under the same name in
multiple countries with similar and centrally
coordinated marketing programs

equires a large financial investment to create a
unified global message

¢ Dilutes the meaning of a brand for consumers if

there are too many uses for one brand name.
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Multiproduct randing

Firms can also can employ sub-branding, which:

¢ Combines a corporate/family brand with a new one.

¢ uilds on favorable associations consumers have

toward the corporate/family brand while
differentiating the new offering.

¢ Differentiates offerings along a price-quality

continuum by adding high-end, midlevel, and low-end
offerings.
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Multibranding

¢ s a useful strategy when each brand is intended

for a different market segment or uniquely
positioned in the marketplace.

¢ Often arises from company acquisitions.

¢ ncreases promotional costs because the firm

must generate acceptance among consumers and
distributors for each new brand.
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Multibranding

Since each brand is unique to

each market segment, there is
dvantage reduced risk that an individual
brand¶s failure will transfer to the
firm itself or to its other brands.

The complexity and expense of

Disadvantage implementing this strategy can
outweigh the benefit.

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Private randing

f a reseller carries its own private brands:

¢ Price competition with other resellers is

avoided.
¢ rand equity for an offering accrues to the
reseller.

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Private randing

¢ rand name companies also produce private label

branded offerings.

¢ f a manufacturer offers its own private brands:

 Profits contribute to overhead if production capacity is
underutilized
 Thwarts competitors who may want to obtain the
rights to produce competing private label brands

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Private randing

Dangers in producing private brands:

¢ ecoming too reliant on private-brand

revenue, only to have it curtailed when a
reseller switches suppliers or produces its own.
¢ May adversely affect the trade relationship
between a producer and reseller.

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Occurs when an organization introduces additional

ine
offerings with the same brand in a product class that
xtension it currently serves.

rand s the practice of using a current brand name to enter

xtension a completely different product class.

nvolves the development of a new brand and often a

ew
new offering for a product class that has not been
rand previously served by the organization.

 Creates new brands for an existing product class that

Fighting/ attracts specific consumer segments not served by an
organization¶s existing products/brands
Flanker rand

epresents a defensive move to counteract competitors
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ÿroduct/c ric ›
ass

c r d by th 0rganization

ew Product Class xisting Product Class

ew Fighting/
ew rand rand Flanking
Strategy rand Strategy
^rand Ñam
rand
ine
xisting rand xtension
xtension Strategy
Strategy

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ine xtension Strategy

xamples: ew or different flavors, forms, colors,

ingredients, features, and package sizes. This strategy:
¢
esponds to customers¶ desire for variety.
¢ liminates gaps in a product line.
¢ owers advertising and promotion costs because
the same brand is used on all items.
¢
isks product cannibalism as buyers substitute one
item for another in the extended product line.
¢ Can create production and distribution problems
and added costs without incremental sales.
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rand xtension Strategy

¢ Provides consumers with the familiarity of

an established brand when introducing an
offering in a new market.
¢
equires that the perceptual fit and core
product benefit of the brand exists with and
transfers to the new product class.
¢ Dilutes the meaning of a brand for
consumers if the brand name has too many
uses.
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rand xtension Strategy

llows for co-branding, which:

 Pairs the two brand names of two

manufacturers on a single product
(
eneral Mills and Hershey¶s)

 Permits firms to enter a new

product class (Hershey¶s²cereal)
and capitalize on an already
established brand name
(Hershey¶s²
eese¶s)

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ew rand Strategy

¢ Used when existing brand names are not

extendable to a new product class for which
it is targeted.
¢ May be the most challenging to successfully
implement and the most costly: $50 to $100
million to introduce a new brand.
¢ This strategy is akin to diversification.

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Fighting/Flanker rand Strategy

dding a new brand whose sole

purpose is to confront competitive
Fighting rand
brands in a product class being
served by an organization.

dding new brands on the high or

Flanker rand low end of a product line based on a
price-quality continuum.

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Fighting rand

ntroduced when:
¢ n organization has a high relative share of the sales
in a product class.
¢ ts dominant brand is susceptible to having its high
market share reduced by competitors through
aggressive pricing or promotion.
¢ The organization wishes to preserve its profit margins
on its existing brand.

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Fighting/Flanker rand Strategy

¢ Fighting and flanker brand strategies risk

cannibalizing other, particularly lower-priced,
brands in a product line.

¢ Marketers should engage in pr mpti

canniba
ism²the conscious practice of stealing
sales from an organization¶s existing products
or brands to keep customers from switching to
competitors¶ offerings²than lose sales volume.

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