STRATEGIC BRAND MANAGEMENT ALEXANDER CHERNEV Kellogg School of Management Northwestern University SECOND EDITION 2 No part of this publication may be recorded, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the United States Copyright Act, without the prior written permission of the publisher. Requests to the publisher for permission should be addressed to Cerebellum Press, Inc., at [email protected]. All trademarks and trade names appearing in this book are the property of their respective owners. While the publisher and the author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of its contents and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. 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Strategic Brand Management Second Edition | October 2017 Copyright © 2015–2017 by Alexander Chernev www.CHERNEV.com Published by Cerebellum Press, USA 3 T C ABLE OF ONTENTS PREFACE PART ONE THE BIG PICTURE Chapter 1 Marketing Strategy and Tactics Chapter 2 Brands as a Means of Creating Market Value PART TWO BUILDING STRONG BRANDS Chapter 3 Developing a Brand Strategy Chapter 4 Designing Brand Tactics PART THREE MANAGING THE BRAND Chapter 5 Managing Brand Portfolios Chapter 6 Managing Brand Dynamics Chapter 7 Protecting the Brand Chapter 8 Brand Analysis and Planning PART FOUR MEASURING BRAND IMPACT Chapter 9 Brand Equity and Brand Power Chapter 10 Brand Research 4 A A BOUT THE UTHOR Alexander Chernev is a professor of marketing at the Kellogg School of Management, Northwestern University. He holds a PhD in psychology and a second PhD in business administration from Duke University. Dr. Chernev has written numerous articles focused on business strategy, brand management, consumer behavior, and market planning. His research has been published in the leading marketing journals and has been frequently quoted in the business and popular press, including The Wall Street Journal, Financial Times, The New York Times, The Washington Post, Harvard Business Review, Scientific American, Associated Press, Forbes, and Business Week. He was ranked among the top ten most prolific scholars in the leading marketing journals by the Journal of Marketing and among the top five marketing faculty in the area of consumer behavior by a global survey of marketing faculty published by the Journal of Marketing Education. Dr. Chernev’s books—Strategic Marketing Management, Strategic Brand Management, The Marketing Plan Handbook, and The Business Model: How to Develop New Products, Create Market Value, and Make the Competition Irrelevant—have been translated into multiple languages and are used in top business schools and by marketing executives around the world. He serves as an area editor for the Journal of Marketing and is on the editorial boards of leading research journals, including the Journal of Marketing Research, Journal of Consumer Research, Journal of Consumer Psychology, Journal of the Academy of Marketing Science, and Journal of Marketing Behavior. Dr. Chernev teaches marketing strategy, brand management, and behavioral decision theory in MBA, PhD, and executive education programs at the Kellogg School of Management. He has also taught in executive programs at INSEAD in France and Singapore, at the Institute for Management Development (IMD) in Switzerland, and at Hong Kong University of Science and Technology. He has received numerous teaching awards, including the Chairs’ Core Course Teaching Award, Kellogg Faculty Impact Award, and the Top Professor Award from the Kellogg Executive MBA Program, which he has received nine times. 5 In addition to research and teaching, Dr. Chernev is an Academic Trustee of the Marketing Science Institute and advises companies around the world on issues of marketing strategy, brand management, consumer behavior, pricing, strategic planning, and new product development. He has worked with Fortune 500 companies on ways to reinvent their business models, develop new products, and gain competitive advantage. He is an early-stage investor and has helped multiple startups to uncover market opportunities, craft their business models, and implement their market strategies. 6 A CKNOWLEDGMENTS This book has benefited from the wisdom of many of my current and former colleagues at the Kellogg School of Management at Northwestern University: Eric Anderson, Jim Anderson, Ulf Böckenholt, Miguel Brendl, Bobby Calder, Tim Calkins, Gregory Carpenter, Moran Cerf, Anne Coughlan, Kelly Goldsmith, Kent Grayson, Julie Hennessy, Aparna Labroo, Lakshman Krishnamurthi, Eric Leininger, Angela Lee, Sidney Levy, Michal Maimaran, Eyal Maoz, Blake McShane, Kevin McTigue, Mary Pearlman, Derek Rucker, Brian Sternthal, Rima Touré-Tillery, Alice Tybout, Song Yao, and Florian Zettelmeyer. I would like to thank Neal Rose (Northwestern University) and Ryan Hamilton (Emory University) for their valuable comments on the contents of this book. I would also like to thank James Conley and Mark McCareins (Northwestern University) for their insights on the legal aspects of brand management. Thanks are also due to Faye Palmer for tracking down countless brand logos and Joanne Freeman for superbly editing this book with a very keen and helpful eye. Special thanks are also due to students in the MBA and Executive MBA programs that I have taught at the Kellogg School of Management, who have motivated me to write this book and helped shape its content. I owe a considerable debt of gratitude to Philip Kotler, one of the leading thinkers in the field of marketing, who through his insightful writings sparked my interest in marketing. I am also indebted to Jim Bettman, Julie Edell, Joel Huber, John Lynch, John Payne, and Rick Staelin at the Fuqua School of Business at Duke University for their advice and support at the outset of my academic career. 7 P REFACE Brands are one of a company’s most valuable assets. Apple, Coca-Cola, Disney, McDonald’s, and Nike brands are each estimated to be worth tens of billions of dollars. The combined value of the top 100 brands is estimated to be in excess of a trillion dollars. For many of these companies, the value of the brand is greater than the value of their tangible assets. Brands have become the new wealth creators. The increased importance of brands stems from several factors. The unprecedented wave of outsourcing in the past decades has accelerated the rate of product commoditization, with the same manufacturer making similar products for competing companies. Commoditization is not the only challenge facing companies. Technological innovation has resulted in dramatic improvements in product quality, enabling most competitors to create products that meet the essential needs of their customers. The challenge is that once products reach a certain level of performance and become “good enough,” customers view competing products as functionally similar. For example, when display technology has improved to the degree that its resolution exceeds that of the human eye, customers tend to care much less about further differences among competing displays. The decline in a company’s ability to differentiate its offerings based on functional performance naturally shifts the focus to brand-based differentiation. In the world of rapidly commoditizing products and services, brands have become the new frontier of competitive differentiation. To succeed, a brand must create market value. A brand’s value-creation model has two key components: strategy and tactics. The strategic component of brand management involves identifying the target markets in which the brand will compete and defining the value the brand will create in this market. Brand tactics, on the other hand, encompass the specific activities involved in designing the brand and communicating its value to the relevant market entities. A brand’s success is, therefore, defined by the viability of its strategy and the effectiveness of its tactics in creating market value. The complexity of the branding decisions involved in creating market value necessitates that a company’s brand-building activities be guided by a 8 framework that offers a systematic approach to brand management. Such a brand management framework is advanced in this book. This framework stems from the more general framework for marketing management that, in addition to managing the brand, focuses on managing the other aspects of the offering—product, service, price, incentives, communication, and distribution. In this context, brand management, working in concert with other marketing tactics, aims to create market value by forming a meaningful image of a company’s offering in the minds of its customers, collaborators, and stakeholders. The strategic brand management theory outlined in this book is organized as follows. Chapter 1 presents a general framework for marketing management, of which brand management is an integral component. Chapter 2 delineates the unique role of brands as a means of creating market value and outlines an overarching framework for brand management. Chapter 3 outlines the key aspects of developing brand strategy: Defining the target market and articulating the brand’s value proposition for target customers, the company, and its collaborators. Chapter 4 defines the key aspects of brand tactics as a means of designing and communicating market value. Chapter 5 addresses the key issues in managing brand portfolios and designing cobranding strategies. Chapter 6 examines managing brands over time, focusing on the issues of brand repositioning and brand extensions. Chapter 7 focuses on legal issues in protecting the brand and outlines the key legal concepts in brand management. Chapter 8 outlines the key aspects of developing an actionable brand management plan. Chapter 9 then addresses the issue of brand valuation, delineating the concepts of brand equity and brand power. Finally, Chapter 10 outlines some of the most common brand research methods. 9 P O ART NE T B P HE IG ICTURE 10