building successful brand on the internet

Figure 1.1 Years to Reach $100 million in Sales 7 Figure 1.2 Research Methodology 9 Figure 2.1 A Brand is More Than a Product or Service 13 Figure 2.2 Layers of a Brand 14 Figure 2.3 Fiv

A DISSERTATION

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF A

M ASTERS IN B USINESS A DMINISTRATION (MBA)

C ONTENTS

1.1 Overview 7

1.2 Objectives 9

1.3 Methodology 9

1.4 Structure 11

2.1 Introduction 13

2.2 What is a Brand? 13

2.3 The Layers of a Brand 14

2.4 Product and Service Brands 15

2.5 Branding & the Buying Process 16

2.6 The Importance of Customer Satisfaction and Loyalty 18

2.7 Emotional Loyalty 19

2.8 The Concept of Brand Equity 20

2.8.1 The Value of Brands to Customers 22

2.8.2 The Value of Brands to Companies 22

2.9 Conclusion 23

3.1 Introduction 25

3.2 Overview of the Brand-Building Process 25

3.3 The Value Proposition 26

3.3.1 Added Value 27

3.3.2 Distinctive Brand Identity 28

3.4 Developing the Framework and Communicating the Value Proposition 30

3.5 Building Customer Relationships 31

3.6 Characteristics of Successful Brands 32

3.7 Conclusion 32

4.1 Introduction 34

4.2 Overview of the Internet 34

4.2.1 The Defining Characteristics of the Internet 35

4.3 The Growth of the Internet 35

4.4 The Internet & e-Commerce 39

4.5 The Impact of the Internet on Business 40

4.6 Conclusion 43

5.1 Introduction 45

5.2 The New Dynamics of Brands 45

5.3 The Importance of Customer Loyalty Online 47

5.4 Increasing Returns Economics and First-Mover Advantage 48

5.5 Viral Marketing 50

5.5.1 The Case of Hotmail.com 51

5.6 The Online Experience & The 7Cs Framework 52

5.7 The Interactive Brand-Building Model 57

5.8 Limitations of Brand-Building on the Internet 59

5.9 Conclusion 60

6.1 Introduction 62

6.2 Case Study: Amazon.com 62

6.2.1 Company Overview 62

6.2.2 Value Proposition 62

6.2.3 Sources of Value - The 7Cs Framework 64

6.2.4 Brand-Building Strategy 66

6.2.5 Other Factors that Contribute to their Brand Leadership 69

6.2.6 Conclusion 70

6.3 Case Study: BarnesandNoble.com 71

6.3.1 Company Overview 71

6.3.2 Value Proposition 72

6.3.3 Sources of Value - The 7Cs Framework 72

6.3.4 Brand-Building Strategy 73

6.3.5 Conclusion 75

6.4 Case Study: Boo.com 76

7.1 Conclusion & Discussion of Key Findings 106

7.1.1 Key Factors that Contribute to Building a Successful Online Brand 107 7.2 Opportunities for Further Research 110

Appendix A Interbrand's Ranking of the Top 60 Brands 112

Figure 1.1 Years to Reach $100 million in Sales 7

Figure 1.2 Research Methodology 9

Figure 2.1 A Brand is More Than a Product or Service 13

Figure 2.2 Layers of a Brand 14

Figure 2.3 Five-Stage Model of the Buying Process 16

Figure 2.4 Steps Between Evaluation of Alternatives and a Purchase Decision 17

Figure 2.5 The Satisfaction-Loyalty Relationship 18

Figure 2.6 Creating Emotional Loyalty 20

Figure 2.7 Brand Progression 20

Figure 2.8 Brand Equity 21

Figure 3.1 Brand-Building Mechanism 25

Figure 3.2 Define the Value Proposition 26

Figure 3.3 Kapferer's Brand Identity Prism 29

Figure 3.4 The Innovation-Adoption Model 30

Figure 4.1 The Three Layers of the Internet 34

Figure 4.2 Growth in Internet Host Computers and Major Developments 36

Figure 4.3 Accelerated Rate of New Technology Acceptance 36

Figure 4.4 The Virtuous Growth Cycle of the Internet 37

Figure 4.5 What are People Doing Online? 38

Figure 4.6 World-wide Commerce on the Internet (1998-2003) 39

Figure 4.7 The Structure of an Online Company 43

Figure 5.1 The Network Effect 48

Figure 5.2 The Virtuous Spiral of Online Growth 49

Figure 5.3 The 7Cs Framework 52

Figure 5.4 Factors Affecting Web Brand Loyalty 53

Figure 5.5 The Community Hexagon 55

Figure 5.6 Customer Access to Information 56

Figure 5.7 The Interactive Brand-Building Model 57

Figure 5.8 Website Promotion Methods - Popularity & Effectiveness 58

Figure 5.9 Categories Suitable for Interactive Marketing 60

Figure 6.1 Overview of Amazon.com's Website 64

Figure 6.2 Amazon.com's Associates Programme 67

Figure 6.3 Overview of BarnesandNoble.com's Website 72

Figure 6.4 Overview of Boo.com's Website 77

Figure 6.5 Overview of CDnow's Website 81

Figure 6.6 Overview of eBay's Website 88

Figure 6.7 Overview of Gap's Website 94

Figure 6.8 Overview of Yahoo!'s Website 100

Figure 6.9 Overview of My Yahoo! 101

LIST OF FIGURES

Table 5.1 The Emerging Brand-Building Environment 46 Table 6.1 Amazon.com - Timeline and Major Milestones 63 Table 6.2 BarnesandNoble.com - Timeline and Major Milestones 71 Table 6.3 Boo.com - Timeline and Major Milestones 76 Table 6.4 CDnow - Timeline and Major Milestones 80 Table 6.5 eBay - Timeline and Major Milestones 87 Table 6.6 Gap.com - Timeline and Major Milestones 93 Table 6.7 Yahoo! - Timeline and Major Milestones 99

LIST OF TABLES

C HAPTER 1

1.1 OVERVIEW

Over the past few years, there has been an explosion in the online world - an explosion that is also a harbinger of how business will operate in the future Supply chains are being re-thought, products and services reconfigured, and business models revamped As such, the Internet is having a profound impact on the way business is being conducted in ways that are often disruptive to traditional methods1 This is creating new challenges and opportunities

The Internet provides the opportunity for companies to reach a wider audience and create

compelling value propositions never before possible (e.g Amazon.com's range of 4.5 million

book titles), while providing new tools for promotion, interaction and relationship building It

is empowering customers with more options and more information to make informed decisions The Internet also represents a fundamental shift in how buyers and sellers interact,

as they face each other through an electronic connection, and its interactivity provides the opportunity for brands to establish a dialogue with customers in a one-to-one setting As such, the Internet is changing fundamentals about customers, relationships, service and brands, and is triggering the need for new brand-building strategies and tools

In the midst of this, aggressive Internet start-ups have emerged, creating strong brands that

are putting established brands at risk Internet companies such as Yahoo!, Amazon.com,

America Online (AOL) and eBay have been able to build powerful brands in a few years,

whereas it has taken decades for traditional companies to achieve the client base, customer affiliation and level of sales, that these Internet start-ups have achieved Figure 1.1 shows the number of years it has taken some Internet brands to reach sales of $100 million

Source: Securities and Exchange Commission Filings; McKinsey Analysis ( www.mckinseyquarterly.com )

CDnow Onsale.com 1 Amazon.com Cyberian

Outpost eBay Barnesand noble.com Priceline.com

1 Since merged with Egghead.com

FIGURE 1.1 - YEARS TO REACH $100 MILLION IN SALES

As a result, harnessing the reach and interactivity of the Internet to build and maintain brands has become extremely important For pure online players, who are essentially intangible, brands are even more critical as customers have little to go on other than a recognised brand Given the tremendous clutter in today's e-commerce marketplace, and the high cost of acquiring online customers2, the most successful sites will be those that can attract customers and build brand loyalty and enthusiasm, that extends the brand-customer relationship beyond

a single transaction A Business Week / Harris poll, found that 57% of Internet users go to the same sites over and over again, rather than drifting from site to site3

Therefore, building awareness, attracting traffic or 'eyeballs', turning browsers into buyers,

and turning first-time buyers into loyal repeat customers has become the Holy Grail of online marketing strategies However, as the need to build brand loyalty online is reaching a peak, there is a growing recognition that traditional methods are no longer suited to this new interactive environment As such, companies lack a coherent framework and concrete methods to build an online brand In light of this, this dissertation seeks to explore how companies should go about building a successful Internet brand and to identify the critical factors that must be considered

1 Christensen, C., & Overdorf, M., 'Meeting the Challenge of Disruptive Change', Harvard Business Review, March - April

2000, Volume 78 Issue 2, pp 66-76

2 Hoffman, D L and Novak, T P., 'How to Acquire Customers on the Web', Harvard Business Review, May-June 2000

3 Hof, R., Browder, S., & Elstrom, P., 'Internet Communities - Forget Surfers A New Class of Netizen is Settling Right In' -

Business Week, May 5, 1997, p.66

1.2 OBJECTIVES

The objectives of this dissertation are as follows:

• To gain an understanding of the role of brands and how they have traditionally been built

Areview and analysis of leadingacademic thinkingwillbeused to explore these issues

• To explore how the Internet is changing the brand-building environment, and to identify new sources of value, tools and strategies to build brands on the Internet

Academic literature and an analysis of the impacts of the Internet will be used to investigate these factors, supported by secondary data related to aspects of online business from accredited and published sources

• To identify the key factors and characteristics that contribute to the development of successful Internet brands

This is based on the outcome of the primary research (in-depth case studies), with reference to the theoretical themes that emerge from the literature review and in terms of the practical implications for companies

Academic Research: Given that the Internet is such a new area, there is more work in popular

rather than academic literature Consequently, the literature review draws on leading academic thinking in more established areas such as brand management, relationship management, marketing, strategy and economics The absence of academic literature on Internet branding posed a major obstacle, however, this also highlights the true value of the dissertation While there is no attempt, nor desire, to provide an in-depth analysis of the psychological and social dimensions of brands, certain key factors are highlighted in their relevance to the dissertation

Secondary Data: This consists primarily of key facts and survey results quoted by leading

consultancy and research firms, and is used to provide insight into some of the factors that contribute to the development of successful brands

Hypothesis (Framework): This is based on the literature review and secondary data The

resulting 7Cs Framework and Interactive Brand-Building Model outline key sources of added

value and the tools available for companies to create a high-impact customer experience that

is critical in building an online brand These are further refined using the insight obtained through the case studies

Case Studies: The dissertation is essentially built on the in-depth analysis of the

brand-building efforts of seven online companies The case studies include born-on-the-web

companies that are among the most recognised Internet Brands (Amazon.com, CDnow,

eBay and Yahoo!), traditional 'bricks-and-mortar' companies that rose to the challenge of

taking their brands to the Internet (Barnesandnoble.com and Gap.com), as well as a recent Internet failure (Boo.com) The combination of cases provides a useful and practical insight

into brand-building issues and problems, and factors that contribute to a brand's success

Conclusion: Discusses the key findings and areas for further research

1.4 STRUCTURE

The next chapter, Chapter 2, provides an analysis of leading academic literature in relation

to branding, and introduces the core concepts that form the backbone of the dissertation The nature of brands, their purpose and value are discussed

Chapter 3 explores how brands have traditionally been built, highlighting some key factors

that have contributed to brand success

Chapter 4 provides an overview of the Internet and its defining characteristics, outlining the

key developments that have contributed to the Internet's explosive growth and accelerated adoption This chapter sets the context within which online brands must be built, by outlining the impact of the Internet on the business and competitive environment

Chapter 5 explores new strategies and tools for building brands on the Internet (the 7Cs

Framework) and the importance of creating a positive end-to-end customer experience, as well as the interactive approach to attracting customers and building loyalty The limitations

of the Internet in terms of brand-building are also discussed

Chapter 6 examines the brand-building efforts of seven companies These case studies

provide a detailed and practical insight into how leading online brands have actually built their brands

The final chapter, Chapter 7, summarises the key findings, and outlines the opportunities for

further research

C HAPTER 2

"a mixture of tangible and intangible attributes, symbolised in a trademark,

which, if properly managed, creates influence and generates value4"

This definition truly captures the essence of a brand, and highlights the importance of brand management Branding is about creating 'value', both for customers, and for the company Thisvaluestemsfromtheproducts andservicesthatcompaniescreate and bring to the market, butextendsfurthertoencompassaddedvaluesderivedfromfactorssuchasthebrand-customer relationship, the brand's emotional benefits and its self-expressive benefits - see Figure 2.1

COUNTRY

OF ORIGIN

USER IMAGERY

SYMBOLS

SELF-EXPRESSIVE BENEFITS

BRAND PERSONALITY

ORGANISATIONAL ASSOCIATIONS

EMOTIONAL BENEFITS

BRAND-CUSTOMER RELATIONSHIPS

BRAND

FIGURE 2.1 - A BRAND IS MORE THAN A PRODUCT OR SERVICE

Source: Adapted from Aaker, D A, 'Building Strong Brands', (New York: Free Press), 1996, p 74

Other common descriptions of a brand include - a 'relationship', a 'reputation', a 'set of expectations', and a 'promise' It is a company's promise to consistently deliver a specific set

of features, benefits, and services to customers

Brands are richly endowed entities They start life as ideas, making their way into planning and strategy documents, yet ultimately reside as consumer perceptions For some companies, brands are their most valuable asset The space a brand occupies inside a customer's head can create a 'mental' patent, which grows out of the cumulative memory and the experiences customers have of products or services As such, brand-building is about creating value through the provision of a compelling and consistent customer experience that satisfies customers and keeps them coming back

2.3 THE LAYERS OF A BRAND

Brands are made up of four layers - the core product or service, the basic brand, the augmented brand and the potential brand - Figure 2.2

PRODUCT

OR SERVICE

BASIC BRAND AUGMENTED BRAND POTENTIAL BRAND

Quality Features Packaging

Name Design

Product / Service

At the most basic level, customers buy products to meet certain functional needs However, most products and services cannot survive on functionality alone as this is usually matched in time The most common barrier to competition is building a brand

The Basic Brand

The basic brand consists of the "name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors"5 Essentially, this should support the offering's performance and differentiate the brand from those of competitors

The Augmented Brand

Successful companies seek a competitive edge through the enlargement of the core product or service, with supplementary products and services (e.g information, quick delivery) that enhance the customer’s total purchasing and use experience These products and services add value and make the offering much more difficult for competitors to emulate

The Potential Brand

A brand achieves its potential when added values are so great that customers will not willingly accept substitutes, even when the alternatives are substantially cheaper or more

readily available (e.g Coca-Cola, Kodak, Levi's)

2.4 PRODUCT AND SERVICE BRANDS

Product brands are the original brand carriers They are the historical core of branding

because they are the most prevalent, and because they most readily come to mind when consumers are asked to recall brands

Service Brands (intangible) are much less numerous than their product counter parts

Intangible services are also more challenging to "package" and sell to consumers who often have difficulty conceptualising, preferring things they can see and touch Certain service brands, such as in retailing, actually sell products, but the brand itself is the store, not the

products it sells - The Gap stores, Southwest Airlines and Amazon.com are examples In

fact, this is the case with all Internet companies, as they essentially perform the function of a 'virtual' intermediary or 'infomediary' and are intangible

5Kotler, P., 'Marketing Management - Analysis, Planning, Implementation, & Control', (Europe: Prentice Hall) 1996, 8th Ed

2.5 BRANDING & THE BUYING PROCESS

In order to understand the context and the role of brands, it is important to clarify customers' underlying buying behaviour and the buying process The buying process consists of five stages (Figure 2.3)

The process starts when the buyer recognises a need This can be triggered by internal or external stimuli (advertisements) Once aroused, a consumer will be inclined to search for more information, either through heightened attention or through an active information search Through gathering information, the consumer learns about competing brands, and evaluates them in terms of the degree to which their benefits and bundle of attributes satisfy their needs Consumers differ as to which product / service attributes they see as important, and pay the most attention to the brands that will deliver the sought benefits Therefore, it is critical to understand what attributes consumers value

Consumers develop a set of brand beliefs about the attributes of competing brands These

brand beliefs make up the brand image (this concept is re-visited in Chapter 3) These beliefs

depend on their previous experiences with the brand, and the effect of selective perception, selective distortion, and selective retention In the evaluation stage, the consumer forms preferences among brands and may form a purchase intention to buy the brand they prefer However, two factors can intervene between the purchase intention and the purchase decision

- attitudes of others and unexpected situational factors (Figure 2.4)

NEED

RECOGNITION INFORMATION SEARCH

EVALUATION

OF ALTERNATIVES

PURCHASE DECISION

PURCHASE BEHAVIOUR

POST-FIGURE 2.3 - FIVE-STAGE MODEL OF THE BUYING PROCESS

Source: Kotler, P., 'Marketing Management - Analysis, Planning, Implementation, and Control', (Europe:

Prentice-Hall) 8 th Ed., 1996, p.194

If other people have had a negative experience with the brand, their negative attitude may influence the consumer's purchase intent or vice versa A consumer's decision to modify, postpone, or avoid a purchase decision is heavily influenced by perceived risk Expensive purchases involve some risk taking A consumer tries to deal with this by gathering information from friends, and a preference for recognised brands they can trust

After a consumer has actually purchased the product or service, they will evaluate their level

of satisfaction - the customer will be highly satisfied, somewhat satisfied, or dissatisfied with the purchase decision Satisfaction depends on how closely the brand's perceived performance matches the customer's expectations If perceived performance and quality exceed their expectations then they are satisfied, even delighted If performance falls below their expectations, they will be dissatisfied and look for alternative brands in the future

Customers' expectations are particularly important when dealing with services, and especially important when dealing with purchases made through the Internet, as these services are intangible and therefore, customers make decisions purely on the basis of their expectations These expectations are formed through a combination of past experiences, word-of-mouth, advertising and communication

The level of customer satisfaction will influence whether they buy the brand again and talk favourably or unfavourably about it to others Highly satisfied and loyal customers tend to

move directly from the need recognition stage to the purchase decision, locking out potential

competitors Customer satisfaction and loyalty are essential to creating successful brands

EVALUATION

OF

ALTERNATIVES

PURCHASE INTENTION

ATTITUDES

OF OTHERS

(WORD-OF-MOUTH)

UNEXPECTED SITUATIONAL FACTORS

PURCHASE DECISION

FIGURE 2.4 STEPS BETWEEN EVALUATION OF ALTERNATIVES AND A PURCHASE

DECISION

2.6 THE IMPORTANCE OF CUSTOMER SATISFACTION AND LOYALTY

According to Thomas Jones and Earl Sasser (1995)6, customers at the lowest and highest ends of the satisfaction scale tend to have intense feelings about a brand and its products /

services The customers at the bottom end of the scale are "terrorists" - those who actively

attack the brand telling others not to buy from the company At the opposite end of the

satisfaction spectrum are "apostles" - customers who are satisfied and loyal and talk

favourably about the brand - Figure 2.5

Loyalty is derived when customers are continuously satisfied over time This satisfaction encompasses the whole experience and not just a company's products or services Customers that are passionately or emotionally loyal are those that have built trust in a company, and believe that it will always act in their best interest Trust is critical for a brand's success Some traditional companies identified as having established a strong trust relationship with

their customers include: Disney, Federal Express, Hewlett-Packard, Johnson & Johnson,

Saturn, Southwest Airlines and Xerox7

6 Jones, T., & Sasser, E., 'Why Satisfied Customers Defect' - Harvard Business Review, Nov-Dec 1995

7 Hart, C W and Johnson, M D., 'Growing the Trust Relationship', Marketing Management, Spring 1999

SATISFACTION LOW

Completely Dissatisfied

HIGHLY COMPETITIVE ZONE

• Commodity

• Consumer indifference

• Many substitutes

• Low switching costs

FIGURE 2.5 THE SATISFACTION-LOYALTY RELATIONSHIP

& THE IMPACT OF COMPETITIVE ENVIRONMENT

Source: Jones, T., & Sasser, E., 'Why Satisfied Customers Defect' - Harvard Business Review, Nov-Dec 1995, p 91

Loyal customers are assets The benefits of strong customer relationships are:

- The average cost of acquiring a new customer is five times more than it costs to retain an existing one8

- Loyal customers tend to spend more

- Regular customers tend to place frequent, consistent orders

- Satisfied customers are the best advertisement - they provide good word-of-mouth and are the best salespeople for the product / service

- They are willing to pay premium prices to a supplier they know and trust

- Gaining market entry or share becomes very difficult for competitors

- It is easier to communicate with them on a regular basis

2.7 EMOTIONAL LOYALTY

Emotional loyalty can be brought about in two main ways Firstly, emotional loyalty is born out of a consumer's personal relationship with a brand This relationship can actually start through the satisfaction of a functional need or expressiveness (self-image) need Consumers cross the threshold from a mere brand relationship into emotional loyalty when they

"animate" the brand, giving quasi-human qualities and relate to it as they would to humans -

consider how Coke consumers felt betrayed when Coca-Cola decided to change their

formula in 1985

Emotional loyalty can be also created through the formation of a strong user community around the brand The consumer reaches emotional loyalty when membership in the brand's user community becomes an end in itself In this way, the brand becomes a link for people

for whom fulfilling similar aspirations is a major life theme (e.g Harley-Davidson

motorcycle clubs) There is also clear evidence of this on the Internet, with the emergence of

"community brands9" such as Geocities ('home' of more than 3 million community members 'living' in 41 'neighbourhoods') and FortuneCity.com Some established brands are successfully developing online communities around them such as Disney and Pentax (where

professional and aspiring photographers can exchange tips and information on techniques and equipment)

8 Peppers, D & Rogers, M., 'The One to One Future', 1993

9 McWilliam, G., 'Building Stronger Brands through Online Communities' - Sloan Management Review, Spring 2000

Emotional loyalty leads to a deeper, almost irreplaceable bond as well as potentially to the negative feelings of betrayal Emotionally loyal customers build a sense of trust and two-way commitment with the brand, which goes well beyond the satisfaction of a specific need

Satisfying customers and building loyalty (creating "apostles") is the ultimate objective behind building a brand, and understanding the needs and buying processes of the target market is essential

2.8 THE CONCEPT OF BRAND EQUITY

Brands vary in the amount of power and value they have in the marketplace (Figure 2.7)

At one extreme, there are brands that are unknown by most buyers Some brands have a fairly high degree of brand awareness (measured by brand recall and recognition) Beyond this, there are brands that customers perceive as acceptable and would not resist buying A stronger brand enjoys a high degree of brand preference over competing brands However, a

'powerbrand' tends to have a high degree of brand loyalty, whereby customers would be

unwilling to substitute it with competitors' offers

UNKNOWN

BRAND

BRAND AWARENESS

BRAND PREFERENCE

BRAND

ACCEPTABILITY

BRAND LOYALTY

FIGURE 2.7 - BRAND PROGRESSION

• Congruence with Life

Community as

an End in itself

User Community

Personal Relationship with the Brand

EMOTIONAL LOYALTY

FIGURE 2.6 - CREATING EMOTIONAL LOYALTY

Source: Fournier, S., 'Consumers and Their Brands: Developing Relationship Theory in Consumer Research',

Journal of Consumer Research, March 1998, pp 343-373.

A strong brand is said to have high brand equity, which is the value of the brand over and

above its commodity value According to David Aaker (1991), brand equity "is a set of assets (and liabilities) linked to a brand's name and symbol that adds to (or subtracts from) the value provided by a product or service10"

The major brand assets are brand loyalty, name awareness, perceived quality, strong brand associations, and other assets such as patents, trademarks, and relationships with distributors and strategic partners The benefits of each are outlined in Figure 2.8

FIGURE 2.8 - BRAND EQUITY

Source: Aaker, D., 'Managing Brand Equity: Capitalising on the Value of a Brand Name', (New York: Free Press), 1991

Customer by Enhancing Customer's:

• Interpretation / processing of information

• Confidence & Trust

in the purchase decision

• Use satisfaction

Provides Value to Firm

by Enhancing:

• Efficiency and effectiveness of marketing programs

BRAND LOYALTY

OTHER PROPRIETARY BRAND ASSETS

PERCEIVED QUALITY

BRAND ASSOCIATIONS

BRAND AWARENESS

• Reduced Marketing Costs

• Trade Leverage

• Attracting New Customers

- Create Awareness

- Reassurance

• Time to Respond to Competitive Threats

• Anchor to which other associations can be attached

• Familiarity / Liking

• Signal of Substance / commitment

2.8.1 THE VALUE OF BRANDS TO CUSTOMERS

According to Jean-Noel Kapferer (1992)11, brands perform several functions that add value and customer benefits:

• Identification - To be clearly seen, to make sense of the offer, to quickly identify sought

after products

• Practicality - To save time and energy through identical repurchasing and loyalty

• Guarantee - To be sure of finding the same quality no matter where or when you buy the

product or service

• Optimisation - To be sure of buying the best product in the category, the best performer

for a particular purpose

• Characterisation - To have confirmation of your self-image or the image that you

present to others

• Continuity - Satisfaction brought about through familiarity and intimacy with the brand

that you have been consuming for years

• Hedonistic - Satisfaction linked to the attractiveness of the brand, to its logo, to its

communication

• Ethical - Satisfaction linked to the responsible behaviour of the brand in its relationship

with society

2.8.2 THE VALUE OF BRANDS TO COMPANIES

Brands create value for companies, in the following ways:

• Brands, market share and profits - Typically a brand leader obtains twice the market

share of the number two brand, and the number two twice the share of the number three12 The brand leader is the most profitable and all beyond number two are unprofitable13

• Brand Leverage - The brand leader benefits from two main leverage effects: Higher

volume leads to economies of scale in development, production and marketing; Premium pricing increases revenue

11 Kapferer, J., 'Strategic Brand Management', (New York: Free Press), 1992

12 Worcester, R & Downham, J., 'Consumer Market Research Handbook', (London: McGraw Hill), 3rd Ed., 1986

13 Golder, P N., & Tellis, G., 'Pioneer Advantage: Marketing Logic or Marketing Legend?', Journal of Marketing

Research, May 1993, pp 158-170

• The Value of Niche Brands - Dominating a niche market is usually more profitable than

being fifth in a large market

• Brand Loyalty and Beliefs - Strong brands are more attractive to investors Brand

loyalty also reduces marketing costs and enables firms to override occasional problems

(e.g Johnson & Johnson with Tylenol)

• The Brand Barrier - Brand leaders usually have the financial strength to fend off

competitors Potential competitors are usually reluctant to enter the market if existing brands satisfy customers In addition, brand leaders can exploit their superiority in the

market (e.g Coca-Cola “the real thing”)

• Avenues for Growth - The product life cycle applies to products, not brands Companies

can maintain a brand while modifying the underlying product to account for new technology, fashion or prevailing market conditions The brand can also be used to penetrate new markets

• Motivating Stakeholders - Companies with strong brands attract good recruits They

also tend to elicit community and government support

In trying to estimate the monetary value of brands, companies such as Interbrand (see Appendix A), and Young & Rubicam have created complex formulas, but there remains an

ongoing controversy about how accurate and meaningful these measures are

2.9 CONCLUSION

Branding is essentially about creating value through the provision of a compelling and consistent offering and customer experience that will satisfy customers and keep them coming back When a company creates this type of customer preference and loyalty, it can build a strong market share, maintain good price levels and generate strong cash flows This,

in turn, drives up share price and provides the basis for future growth

The next chapter describes the process of how brands are built, the tools that are used, and the characteristics of successful brands

C HAPTER 3

3.1 INTRODUCTION

Building a strong brand is a complex task This chapter spells out the traditional building process, highlighting important factors that contribute to the success of each step along the way The major characteristics of successful brands are also reviewed

brand-3.2 OVERVIEW OF THE BRAND-BUILDING PROCESS

The brand building process starts with the development of a strong value proposition Once this has been established, the next step is to get customers to try the brand If the offering is developed properly, it should provide a satisfactory experience and lead to a willingness to buy again To entice trial and repeat purchase requires triggering mechanisms, which are created through advertising, promotion, selling, public relations, and direct marketing The company needs to communicate the values of the brand and then reinforce brand associations

to start the wheel of usage and experience, and keep it turning Through the combination of the stimulus of consistent communications and satisfactory usage and experience, brand awareness, confidence and brand equity are built This is illustrated in Figure 3.1

BRAND EQUITY

LOYALTY

DIFFERENTIATION

SATISFIED CUSTOMERS

ADDED VALUE

TRIAL

PRODUCT / SERVICE

PR

ADVERTISING SELLING PROMOTION

PRESENTATIONS DISPLAY

POTENTIAL BRAND

PRODUCT OR SERVICE

FIGURE 3.1 - BRAND BUILDING MECHANISM

3.3 THE VALUE PROPOSITION

Brand-building starts with a clearly defined value proposition - a strong offer that a potential customer would find compelling and interesting In order to do this, a company must develop

a strong understanding of who their potential customers are, what they value and how the products or services should be optimised or configured to deliver this value (Figure 3.2) The value propositionmustbe continuouslyre-evaluated torespond tochanges in the marketplace

Central to this value proposition, a brand must deliver a quality product or service that meets the functional needs of customers and differentiates itself from competitors It should seek to augment its basic appeal with added value through the provision of additional products or services to delight customers In this way, the brand can elicit feelings of confidence that it is

ofhigherqualitythancompetitors' As such, acompelling value proposition is the combination

of an effective product or service (P), a distinctive brand identity (I), and added value (AV)

These three characteristics are multiplicative rather than additive - each is essential Without

a good product or service, it is impossible to build a successful brand Similarly, unless differentiation and awareness can be developed, it will never attract a strong client base

BRAND = P X I X AV

What is the

optimal product or service offering that delivers this value?

Who is your customer?

What does your customer value?

FIGURE 3.2 - DEFINE THE VALUE PROPOSITION

3.3.1 Added Value

Added value is at the heart of building successful brands Most buying decisions are influenced by brand values, which are additional to those based upon real performance The large number of decisions, the pace of technical change, the number of competing alternatives and the large variety of advertising and selling messages, mean that buyers look for short cuts Reputable brand names provide confidence and allow customers to cut through the risks and complexity of choice

Added values also occur when brands are bought for emotional reasons to satisfy other needs besides functional needs People use brands to express their lifestyles, interests, values or wealth Customers choose brands, which they perceive as meeting their needs In today's affluent society, these needs are as likely to be about satisfying self-actualisation or esteem needs, or to gain a sense of belonging, as they are to be about satisfying basic physical and economic needs14 Brand values derive from five major sources15:

• Experience of Use - if a brand provides good service over time, it acquires added values

of familiarity and proven reliability

• User Associations - brands frequently acquire an image from the type of people who are

seen as using them Advertising and sponsorship are often used to convey images of prestige or success by associating the brand with glamorous personalities

• Belief in Efficacy - in many cases, if customers have faith that a brand will work, it is

more likely to work effectively for them For pharmaceuticals, cosmetics and high-tech products, faith in brand generates satisfaction in use Beliefs in efficacy can be created by comparative evaluations and rankings from consumer associations, industry endorsements and newspaper editorials

• Brand Appearance - the design, layout and appearance of the brand can clearly affect

preference by offering cues to quality

• Manufacturers' Name and Reputation - In many situations a strong company name (e.g

Coca-Cola, Gillette, Sony, Hewlett-Packard, Kellogg's) attached to a new product will

transfer positive associations, providing confidence and incentive to trial

14 Doyle, P., 'Marketing Management and Strategy', 2nd Ed (Europe: Prentice-Hall), 1998, pp 169

15 Jones, J P., 'What's in a Name? Advertising and the Concept of Brands' (Lexington, MA, Lexington Books), 1986

3.3.2 Distinctive Brand Identity

A brand identity is the message sent out by the brand through its name, features, visual appearance, and advertising This may be different from the brand image, which depends on

how the target market perceives the brand A company should seek to differentiate its brand through developing a distinctive identity Jean-Noël Kapferer (1992) identified three levels

of a brand identity16 - Figure 3.3:

• The Brand Core - the fundamental or genetic code of the brand, which remains fixed

over time

• The Brand Style - articulates the brand core in terms of the culture it conveys, its

personality and its image or self-projection

• The Brand Theme - the way the brand communicates through its advertising, press

releases, packaging, etc Themes include the physical appearance (logo, colour scheme, and visual appearance), its reflection (e.g type of spokesperson / customer image used to advertise the brand), and the relationship expressed (e.g glamour, prestige, friendly)

Brand themes are the most flexible element and will tend to change with fashion, style or cultural differences from one country to another, however the brand style and core tend to be less flexible

16 Kapferer, J., 'Strategic Brand Management', (New York: The Free Press), 1992

The brand prism enables management to understand the brand, its strengths and opportunities Secondly, it helps in developing the brand strategy and the formulation of a distinctive positioning in the market It also facilitates consistency in the message being transmitted through presentation (e.g website design, structure and ease of use), advertising, below-the-line activities, and through line and brand extensions Finally, understanding the brand's core and style helps set the perimeters of brand extensions - how far the brand can be meaningfully stretched to other products and market segments

Source: Adapted from Kapferer, J., 'Strategic Brand Management', (New York: Free Press), 1992

FIGURE 3.3 - KAPFERER'S BRAND IDENTITY PRISM

PERSONALITY

CULTURE

REFLECTION RELATIONSHIP

PHYSICAL

SELF-IMAGE

PICTURE OF RECIPIENT BRAND STYLE

Physical The physical qualities and features of the product or service

The character of the brand and how it speaks of its products / services Personality

The set of values feeding the brand's inspiration and energy Culture

The intangible exchange between the brand and the customer Relationship

The image of the buyer or user the brand seems to be portraying Reflection

What the brand says about the user (in the user's mind) Self-Image

3.4 DEVELOPING THE FRAMEWORK & COMMUNICATING THE VALUE PROPOSITION

Once the value proposition is clearly defined, the company must ensure that it develops the appropriate structure, systems, strategy (partnerships and alliances), skills, management style, culture and staff needed to support, deliver and reinforce this value proposition (see Appendix B-The McKinsey7-S Framework) Thevaluepropositionmust then be articulated

in terms of the 'marketing mix' - often referred to as the '4Ps' - Product and service features,

Price, Promotion and Place (distribution strategy)

The value proposition must be communicated to entice customers to try the product / service

If the offering is developed properly, it should lead to satisfaction and re-purchase Before potential customers can buy a product / service, they must learn about it This learning is

called the adoption process17 - Figure 3.4

The Innovation-Adoption Model consists of:

• Awareness - The company has to create awareness of the brand, and its products /

services Advertising and PR are common tools for achieving awareness

• Interest - Customers need to be stimulated to seek information about the brand's uses,

features and advantages

• Evaluation - Customers consider whether the product / service will meet their particular

needs Personal sources such as word-of-mouth from friends, colleagues and opinion leaders become important influences at this stage

• Trial - The customer tries the product / service for the first time and decides whether to

adopt it based on their expectations, and the product / service's perceived performance

• Adoption - The customer is satisfied and decides to make regular use of the product /

service

17 Rogers, E., 'Diffusion of Innovations', (New York: Free Press), 1962, pp.79-86

FIGURE 3.4 - INNOVATION-ADOPTION MODEL

Source: Rogers, E., 'Diffusion of Innovations', (New York: Free Press), 1962, pp.79-86

Traditionally, companies have used the tools of the promotions mix - advertising, direct marketing, sales promotion, personal selling and public relations / publicity - to move customers through the adoption process Advertising and public relations can be effective in generating awareness and interest Sales promotions and sampling are often used for encouraging evaluation and trial

It is beneficial for companies to accelerate the adoption process before competitors emulate the benefits they offer Enticing customers to purchase again and adopt the brand not only

requires a successful trial experience, but enhanced customer interaction through relationship

building

3.5 BUILDING CUSTOMER RELATIONSHIPS

Building relationships with customers extends beyond a single transaction This is often referredtoasCustomer Relationship Management (CRM) Thisfocusesonestablishing a long-

term, multi-transaction relationship, when each trusts the other to deal fairly and reliably

Over time, this process enables an exchange of information, providing insight into customers' needs and wants This information is a key competitive advantage, allowing companies to communicate regularly with their customers and customise their interaction In this way, companies can increase buyers' satisfaction, making them less likely to switch to a competitor Customer service is an important element of this relationship Berry and Parasuraman (1991) identified three customer relationship-building approaches18:

• Financial Benefits - such asairline frequentflyerprogrammes, & loyalty / discount cards

• Social Benefits - by learning customers' individual needs and wants and individualising

and customising service and contact with the customer

• Structural Ties - forexample, thecompany may supply customers with special equipment

or tools (e.g Internet linkages, software) to help customers interact with the company Through building relationships with customers, companies can increase the value of each customer, while strengthening the position and value of the brand

18 Berry, L & Parasuraman, A., 'Marketing Services: Competing Through Quality', (New York: Free Press),

1991, pp.136-142

3.6 CHARACTERISTICS OF SUCCESSFUL BRANDS

Several factors contributing to the success of brands have been identified19, including:

• A Quality Product / Service Experience - Satisfactory experience is the major

determinant of brand values If the quality of the experience deteriorates, or if the brand

is surpassed by superior offers from competitors, then its position will be undermined

• First-Mover Advantage - Being first into the market does not necessarily bring success,

but it makes the task easier It is easier to capture a share of the consumer's mind and build a customer base, when the brand has no competitors to rival its position

• Unique Positioning Concept - If the brand is not the innovator, it must have a unique

positioning concept - a segmentation scheme, value proposition or augmented brand, which will add value and distinguish it from competition

• Strong Communications Programme - A successful brand requires an effective selling,

advertising or promotional campaign, which will communicate the brand's existence, its function and psychological values, trigger trial and reinforce commitment to it Without building awareness, comprehension and intention to buy, the brand is meaningless

• Time and Consistency - Traditionally, brands were not built quickly It often takes years

to build up the added values, and establish a trusting relationship

3.7 CONCLUSION

Building strong brands stems from the creation of a compelling value proposition Once the framework has been established and the organisation configured to provide this proposition, companies must actively communicate it to the target audience to entice trial As customers build trust in the brand through satisfaction of use and experience, companies have the opportunity to start building relationships with their customers, strengthening the brand further, and making it more difficult for competitors to emulate The Internet provides the opportunity for companies to create compelling value propositions never before possible, while providing new tools for promotion, interaction and relationship building As a result, it has a profound impact on the traditional brand-building process As such, the next chapter explores the characteristics of the Internet and its impact on the business and competitive environment

19 Doyle, P., 'Marketing Management & Strategy', (Europe: Prentice-Hall), 1998, 2nd Ed., pp.176-177

C HAPTER 4

4.1 INTRODUCTION

The Internet is transforming the business environment, creating new challenges and opportunities This chapter provides an overview of the Internet and its defining characteristics, highlighting the key developments that have contributed to its explosive growth and its impact on the business environment

4.2 OVERVIEW OF THE INTERNET

The Internet is a world-wide network of networks In essence, it is a common technology platform that allows computing devices to communicate with each other In doing so, it offers a number of alternative channels that enable businesses and people to communicate The three core channels include e-mail (the most common), news groups and mailing lists, and the 'world wide web' (www) - Figure 4.1

The world wide web (www) is a large network of documents, which contain hypertext and pictures, and provides the opportunity for dynamic interaction Hypertext allows information

to be organised in a user-friendly way that is easily accessible Information is becoming a major part of the products and services that people buy, and a critical source of added value

FIGURE 4.1 - THE THREE LEVELS OF THE INTERNET

WWW AND CHAT ROOMS

Are used by more and more people, and provide the

opportunity for the creation of Interactivity

Is the part of the Internet that most users use at present The system works as an electronic mailing system and can

be used as a real time medium

N EWS G ROUPS

Allow users to communicate

with each other, but in practice

not in real time

4.2.1 The Defining Characteristics of the Internet

The distinctive characteristics of the Internet can be summarised in three key points:

• It Dramatically Reduces Information Costs - the cost of searching for information and the

cost of the information itself is significantly reduced (and in many cases is free)

• It Allows for Two-way Communication and Interactivity - this radically alters the process

of interaction between communicating parties, allowing both parties to identify each other and build one-to-one relationships - not previously available with mass medium forms of communication

• It Overcomes the Barriers of Time and Space - The Internet is a global network and can

be reached from everywhere, regardless of where the computer or Internet access device

is physically located The Internet can also be accessed at any time - 24 hours a day, 7 days a week These qualities eliminate the barriers of time and space that exist in the physical world

These characteristics combine to create a very powerful medium By allowing for direct, ubiquitous links to anyone, anywhere, the Internet lets individuals and companies build interactive relationships with customers and suppliers, and deliver new products and services

at low cost These defining characteristics have fuelled its explosive growth

4.3 THE GROWTH OF THE INTERNET

The origins of the Internet date back to 1969, when the United States Defence Department developed the 'ARPAnet', which was intended to link military networks together The context of the Internet and certain key developments are highlighted in the Figure 4.2 (Note: Graph is not drawn to scale)

The growth of personal computing technology in the 1980s, largely contributed to the accelerated adoption of the Internet and the world-wide web (www) which far outstrips that

of previous technologies - Figure 4.3

FIGURE 4.2 - GROWTH IN INTERNET HOST COMPUTERS AND MAJOR DEVELOPMENTS

National Science Foundation (NSF) lifts restrictions on commercial use of Internet

Internet / ARPAnet was created

Source: Network Wizards, 1998, as cited in 'E-Business Technology Forecast' - a PricewaterhouseCoopers Report, 2000

FIGURE 4.3 - ACCELERATED RATE OF NEW TECHNOLOGY ACCEPTANCE

41 25

22 9

7 2

YEARS TO REACH 10 MILLION CUSTOMERS

Source: The Economist, 1996 (www.economist.com )

The number of Internet users is constantly increasing and by end-2000, there will be an estimated 375 million Internet users world-wide, increasing to 500 million users by 200220 This boom has been the result of several underlying forces that have come together:

- The wider availability of the Internet, offering inexpensive bandwidth

- Easier access to these networks provided by point-and-click web browsers

- Multimedia development tools that can be used to create rich content

- The emergence of open standards in development tools and at the network protocol level (e.g TCP/IP), making it more cost effective for software developers and other technology providers to create interoperable products

- The growth in support services (e.g web design, hosting, and gateway services)

- The development of critical processes (ordering, billing, payment, etc.)

The most important factor has been that users are becoming accustomed to the Internet and are rapidly overcoming any inhibitions concerning e-commerce As shown in Figure 4.4, the momentum created by all these forces has created a virtuous cycle of growth

20'World Online Populations' - CyberAtlas Internet Statistics and Market Research, 2000 (http://cyberatlas.internet.com )

FIGURE 4.4 - THE VIRTUOUS GROWTH CYCLE OF THE INTERNET

COMPUTING SERVICES BECOME MORE WIDESPREAD

TECHNOLOGY AND SERVICE PROVIDERS MULTIPLY

INFRASTRUCTURE DEVELOPS

COMMUNITIES OF INTEREST PROLIFERATE

Source : Harrington, L., Reed, G., 'Electronic Commerce (finally) Comes of Age', The McKinsey Quarterly, 1996, No.2

- E-Marketplaces

- Content Aggregators

- Consumer Aggregators

- Cheap microprocessors & RAM

- Higher PC penetration among consumers and companies

- New generation of PDAs and Internet appliances

- Web site designers

A recent study by the Stanford Institute for the Quantitative Study of Society (2000), reveals the wide range of areas where people are embracing the Internet - from communicating (90% use e-mail) and sourcing information, to interacting (e.g chat rooms, entertainment) and purchasing (37%) - Figure 4.5 These activities highlight the adoption of the Internet as an interactive, communication and information tool

FIGURE 4.5 - WHAT ARE PEOPLE DOING ONLINE?

Source: Stanford Institute for the Quantitative Study of Society, as cited in the Economist Intelligence Unit

(EIU), April 13, 2000 ( www.eiu.com )

4.4 THE INTERNET AND E-COMMERCE

E-commerce describes the use of the Internet as a medium and as a market for commerce The main difference between the Internet and other electronic media (i.e fax, telephone) is that the Internet goes beyond just enabling transactions The Internet becomes an information-rich 'virtual' market space through which buyers and sellers interact These 'virtual' marketplaces are not fixed in physical territory but are created by the combination of standards-based networks, web browsers, software, content, and people Conducting

business over the Internet ('e-business') represents a fundamental shift in how buyers and

sellers interact The buyer and seller 'face' each other through an electronic connection There is no need to travel to a physical location, no order book, and no cash register Instead there is a website

The value of e-commerce transactions and market forecasts vary widely among research firms and government agencies However, they all project the value e-commerce transactions

to grow at unprecedented rates Figure 4.6 outlines the growth in the value of online Business-to-Business commerce (B2B) and Business-to-Consumer (B2C) transactions, as projected by Gartner Group

FIGURE 4.6 - WORLD-WIDE COMMERCE ON THE INTERNET (1998-2003)

Source: Gartner Group, April 2000