Chapter 7 Products, Services, and Brands: Building Customer Value
Managing Service Differentiation
The offer can include innovative features that set one company’s offer apart from competitors’
offers.
Service companies can differentiate their service delivery by having more able and reliable
customer-contact people, by developing a superior physical environment in which the service
product is delivered, or by designing a superior delivery process.
Service companies can work on differentiating their images through symbols and branding.
Managing Service Quality
Service quality is harder to define and judge than product quality.
Service quality will always vary, depending on the interactions between employees and
customers.
Good service recovery can turn angry customers into loyal ones.
Managing Service Productivity
Service firms are under great pressure to increase service productivity.
• They can train current employees better or hire new ones who will work harder or more
skillfully.
• They can increase the quantity of their service by giving up some quality.
• They can harness the power of technology.
Use Linking the Concepts 2 here.
BRANDING STRATEGY: BUILDING STRONG BRANDS
Some analysts see brands as the major enduring asset of a company.
Use Chapter Objective 4 here.
Brand equity is the differential effect that knowing the brand name has on customer response to
the product or its marketing.
Use Key Term Brand Equity here.
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Chapter 7 Products, Services, and Brands: Building Customer Value
Young & Rubicam’s Brand Asset Evaluator measures brand strength along four consumer
perception dimensions:
1. differentiation (what makes the brand stand out),
2. relevance (how consumers feel it meets their needs),
3. knowledge (how much consumers know about the brand), and
4. esteem (how highly consumers regard and respect the brand).
Brand value is the process of estimating the total financial value of a brand.
High brand equity provides a company with many competitive advantages.
• High level of consumer brand awareness and loyalty
• More leverage in bargaining with resellers
• Greater ability to launch line and brand extensions
• Defense against fierce price competition
• Basis for building strong and profitable customer relationships
The fundamental asset underlying brand equity is customer equity—the value of the customer
relationships that the brand creates.
Use Critical Thinking Exercise 7-8 here.
Use Figure 7.5 here.
Building Strong Brands (Figure 7.5)
Brand Positioning
Marketers can position brands at any of three levels.
1. They can position the brand on product attributes.
2. They can position the brand with a desirable benefit.
3. They can position the brand on beliefs and values.
Brand Name Selection
Desirable qualities for a brand name include the following:
(1) It should suggest something about the product’s benefits and qualities.
(2) It should be easy to pronounce, recognize, and remember.
(3) The brand name should be distinctive.
(4) It should be extendable.
(5) The name should translate easily into foreign languages.
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Chapter 7 Products, Services, and Brands: Building Customer Value
(6) It should be capable of registration and legal protection.
Brand Sponsorship
A manufacturer has four sponsorship options:
(1) The product may be launched as a manufacturer’s brand (or national brand).
(2) The manufacturer may sell to resellers who give it a private brand (also called a store
brand or distributor brand).
(3) The manufacturer can market licensed brands.
(4) Two companies can join forces and co-brand a product
National Brands versus Store Brands
National brands (or manufacturers’ brands) have long dominated the retail scene. In recent times,
an increasing number of retailers and wholesalers have created their own store brands (or
private brands).
Private brands yield on average a 38 percent savings.
Store brands have grown much faster than national brands in recent years.
Use Key Term Store Brand (Private Brand) here.
In the battle of the brands between national and private brands, retailers have many advantages.
• Retailers often price their store brands lower than comparable national brands.
• Store brands yield higher profit margins for the reseller.
• Store brands give resellers exclusive products that cannot be bought from competitors.
Licensing
Name and character licensing has grown rapidly in recent years.
Annual retail sales of licensed products in the United States and Canada have grown from only
$4 billion in 1977 to $55 billion in 1987 and more than $252 billion today.
Co-branding
Use Key Term Co-branding here.
Co-branding occurs when two established brand names of different companies are used on the
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Chapter 7 Products, Services, and Brands: Building Customer Value
same product.
Co-branding offers many advantages.
• The combined brands create broader consumer appeal and greater brand equity.
• Co-branding also allows a company to expand its existing brand into a category it might
otherwise have difficulty entering alone.
Co-branding also has limitations.
• Such relationships involve complex legal contracts and licenses.
• Co-branding partners must carefully coordinate their advertising, sales promotion, and
other marketing efforts.
• Each partner must trust that the other will take good care of its brand.
Brand Development
Use Figure 7.6 here.
A company has four choices when it comes to developing brands (see Figure 7.6).
(1) Line extensions occur when a company extends existing brand names to new forms,
colors, sizes, ingredients, or flavors of an existing product category.
(2) Brand extensions extend a current brand name to new or modified products in a new
category.
Use Marketing at Work 7.2 here.
Use Key Terms Line Extension and Brand Extension here.
(3) Multibrands introduce additional brands in the same category.
(4) New brands
Megabrand strategies involve weeding out weaker brands and focusing marketing dollars only
on brands that can achieve the number-one or number-two market share positions in their
categories.
Managing Brands
Brand position must be continuously communicated to consumers.
The brand experience involves customers coming to know a brand through a wide range of
contacts and touch points.
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Chapter 7 Products, Services, and Brands: Building Customer Value
Companies need to periodically audit their brands’ strengths and weaknesses.
Use Marketing by the Numbers here.
Video Case: Plymouth Rock Assurance
Plymouth Rock Assurance is an insurance company with a branding tale to tell. What started as a
single Massachusetts-based auto insurance company in the early 1980s quickly grew into a group
of separate companies that write and manage property and casualty insurance in various states.
To streamline operations, cut costs, and better serve customers, the company undertook a
rebranding process to combine three distinct auto insurance brands—Plymouth Rock, High
Point, and Palisades—into one.
Rather than remaking the brand overnight, the company carried out a gradual transformation that
retained existing brand equity and put customers’ minds at ease. With Plymouth Rock as the
parent brand and High Point and Palisades as sub-brands, the company transitioned the three into
a single brand in incremental steps
After viewing the video featuring Plymouth Rock Assurance, answer the following questions:
7-15. What value proposition lies at the core of Plymouth Rock Assurance?)
7-16. What was the reasoning behind the decision to rebrand the three auto insurance
brands as one brand?)
7-17. Describe the process that Plymouth Rock Assurance used to rebrand the company.
How does this process differ from other options it could have pursued?
Company Cases
7 Target/10 Apple Pay/16 Adidas
See Appendix 1 for cases appropriate for this chapter.
Case 7, Target: Where Store Brands Offer More Than Low Prices. In addition to carrying
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Chapter 7 Products, Services, and Brands: Building Customer Value
popular national brands, Target has built its own house for brands by moving store
brands upscale.
Case 10, Apple Pay: Taking Mobile Payments Mainstream. Apple may succeed where
Google, Paypal, Visa, and others have failed in making mobile payments the go-to way to pay.
Case 16, Adidas: Athletic Apparel with Purpose. Not just fashionable shoes and apparel,
adidas is making a difference by focusing on a strategy of sustainability.
MyMarketingLab
If assigned by your instructor, complete these writing sections from your Assignments in the
MyLab.
7-18. Describe how marketers manage service differentiation, other than through pricing, and
describe an example of a service provider that has successfully differentiated its offering from
competitors. (AACSB: Communication, Reflective Thinking)
7-19. A product’s package must satisfy many criteria, such as sustainability, convenience,
safety, efficiency, functionality, and marketing. Research “packaging awards” and develop a
presentation analyzing an award-winning product packaging effort. Describe the organization
hosting the award competition, the criteria for selecting winners, and one of the award-winning
packages. (AACSB: Written and Oral Communication; Information Technology)
GREAT IDEAS
Barriers to Effective Learning
1. Students will most likely have difficulty understanding the levels of products exhibited in
Figure 7.1; no one in class is likely to have thought of a product in that level of detail
before. This is a critical piece of information the students will need, however, so it is
worthwhile going through several products and services to get at the core benefit, actual
product, and augmented product in each so that they can see how to apply this concept.
2. Students’ eyes can glaze over at the concepts of brand equity and brand sponsorship.
Asking questions about the students’ perceptions of well-known brands such as
Starbucks, Coke, Nike, and the like will help them understand what brand equity is all
about. You can also tie in the discussion of the three levels of product with this idea of
brand equity. Finally, by using different products with different brand sponsorships—
several examples from Sears, auto companies, department store private labels, and
various licensed properties from Disney or Warner Brothers—you can bring students to
an understanding of this important concept.
3. The service characteristics of intangibility, inseparability, variability, and perishability are
usually picked up fairly easily, but again, various examples from day-to-day life may
help. For instance, everyone has had to cancel at least one doctor’s appointment in his or
her life—that beautifully illustrates the problem of perishability. Girls will understand
inseparability by talking about the beauty salons they use. Ask: If the hairdresser you
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Chapter 7 Products, Services, and Brands: Building Customer Value
used left, would you easily switch to another person at the salon? Many students today
travel heavily, so talking about airline personnel can illustrate service variability.
Intangibility is the easiest characteristic to appreciate, as most students will have suffered
through having to choose between several universities from whom they had received
acceptances.
Student Projects
1. What is your all-time favorite brand? What do you most like about the product and/or
brand name? What (if anything) do you dislike? What image does the brand have in your
mind? How loyal are you toward the brand? Why?
2. Go to the supermarket and take a look at the brand extensions that exist for Pepsi. Do you
think this makes sense or not? When is brand extension a good strategy? When is it a
poor one?
3. Consider Dunkin’ Donut. Consumers sometimes bond very closely with their preferred
brands. What type of brand equity do you believe they have established over the years?
How did this happen?
4. What do you like about your bank? How would you compare the services you receive
from your bank to other competing banks and to your “ideal” bank? What is good about
the service you currently receive? Review the service using the material from the chapter.
What specifics about the service make it very good from a marketing standpoint?
Small Group Assignment
Read the chapter-opening vignette on GoPro. Form students into groups of three to five. Each
group should then answer the following questions:
1. What is GoPro selling?
2. How has GoPro managed to develop a deep-down connection with its customers?
3. What is a ‘brand experience’? How has GoPro managed to create this?
Each group should share its findings with the class.
Individual Assignment
Review the gaming industry in Mississippi. How has that industry positioned itself in the overall
gaming market? How have they attempted to build customer value? How successful do you
believe they have been in this effort?
Think-Pair-Share
Consider the following questions, formulate answers, pair with the student on your right, share
your thoughts with one another, and respond to questions from the instructor:
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Chapter 7 Products, Services, and Brands: Building Customer Value
1. Define “product.”
2. How do products and services really differ?
3. Your text states “The product is the key element in the overall market offering.” What
does this mean?
4. When a buyer purchases a product, what are they really buying?
5. What is the difference between shopping goods and specialty goods?
Classroom Exercise/Homework Assignment
In many parts of the world, birth control is an unsought product. Assume you have been given
the task of promoting birth control in a region of the world where it has traditionally been
unused. How would you attempt to make inroads?
Classroom Management Strategies
This chapter will challenge the students to think more deeply about the concepts of products,
services, and branding strategy.
1. The first major section of this chapter “What Is a Product?” should take 10 minutes. The
primary focus should be on the classification of products and services, which will aid in
the comprehension of the next section.
2. Product and Service Decisions should be covered in 20 minutes. The individual product
decisions have the most material, and by and large students will never have focused on
the importance of packaging and labeling. Bringing in several products to discuss these
attributes is helpful. Students will generally be confused about the product line and
product mix decisions, so a careful discussion of these topics is beneficial.
3. Services marketing can be covered in 10 minutes. The special characteristics of services,
outlined in Figure 7.3, are very important to understanding the differences between
products and services. The service-profit chain seems a difficult concept to students until
they work through the fact that each link in the chain leads to the next.
4. Branding Strategy should also take about 20 minutes. Branding decisions are closely tied
in with positioning discussed in the last chapter, and now would be a good time to cover
such areas as naming and sponsorship. Again, confusion can enter the student’s mind
regarding line extensions, brand extensions, multibrands, and new brands, so examples of
each are very helpful.
PROFESSORS ON THE GO
Product, Services, and Brands: Building Customer Value
Key Concepts
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Chapter 7 Products, Services, and Brands: Building Customer Value
Products, services, and experiences
Levels and classifications of products
Product and service decisions
Is Apple’s El Capitan operating software a product or a service? Describe the core,
actual, and augmented levels of this software offering.
What is a brand? Describe the value of branding for both the buyer and seller.
Take a product of your choice and analyze it using the diagram found in Figure 7.1.
Be sure to carefully outline each of the three major levels.
Key Concepts
Brand equity
Building strong brands
Managing brands
List ten of your favorite brand names. What do you like about the product and/or
brand name? What do you dislike? What image does the brand have in your mind?
When was the last time you abandoned a brand you had used for some time in favor
of a new brand? Why did this happen?
Go to the supermarket and list five examples of products/brands that have been brand
extended. Do you think this makes sense or not?
What is brand equity?
Key Concepts
Nature and characteristics of a service
Marketing strategies for service firms
Merrill Lynch is one of the world’s leading financial management and advisory
companies (see www.ml.com). Do ML’s financial advising activities meet the four
special characteristics of a service? Explain.
List a service that you use that you think is very good. Why is the service good?
Review the service using the material from the chapter. What specifics about the
service make it very good from a marketing standpoint? Now, do the same thing with
a service that you don’t like. After comparing them separately, compare them against
each other. What could you do to improve the negative service? If you were a
competitor, how could you attack the positive service?
What are the four characteristics of a service? Apply these to a dentist’s office.
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