Brand Decisions 191
Why do middlemen sponsor their own brands? First, these brands are more prof-
itable, since they are produced at a low cost by manufacturers with excess capacity.
Other costs, such as research and development, advertising, sales promotion, and
physical distribution, are also much lower. This means that the private brander can
charge a lower price and yet make a higher profit margin. Second, retailers develop
exclusive store brands to differentiate themselves from competitors.
In years past, consumers viewed the brands in a category arranged in a brand lad-
der, with their favorite brand at the top and remaining brands in descending order of
preference. There are now signs that this ladder is being replaced with a consumer
perception of brand parity—that many brands are equivalent.^9 Instead of a strongly
preferred brand, consumers buy from a set of acceptable brands, choosing whichever
is on sale that day.
Today’s consumers are also more price sensitive, because a steady barrage of
coupons and price specials has trained them to buy on price. In fact, over time, compa-
nies have reduced advertising to 30 percent of their total promotion budget, weakening
brand equity. Moreover, the endless stream of brand extensions and line extensions has
blurred brand identity and led to a confusing amount of product proliferation. Further,
consumers see little difference in quality among brands now that competing manufac-
turers and retailers are copying and duplicating the qualities of the best brands.
Of course, one of the factors that is changing the entire branding landscape is
the Internet. While some “born digital” companies like America Online (AOL) and
Amazon.com have used the Internet to gain brand recognition seemingly overnight,
other companies have poured millions of dollars into on-line advertising with little
effect on brand awareness or preference. For some low-price, low-involvement prod-
ucts, such as soap, the Internet offers little potential as a commerce vehicle. Still, the
packaged-goods powerhouses are trying different approaches to Web marketing.
Procter & Gamble, for example, has put much of its on-line marketing budget
behind brands like Always panty liners, Tampax tampons, and Pampers diapers,
which have narrow target audiences with more personal subject matter. With this
strategy, the company has turned Pampers.com into Pampers Parenting Institute,
reaching out to customers by addressing various issues of concern to new or expec-
tant parents.^10
All companies that have powerful brand awareness on the Web have sites that
help customers do something—whether it’s configuring a computer system on-line at
Dell.com or offering customization options for services at Yahoo.com. Yet some of the
biggest superstars of e-commerce conduct most of their branding efforts off-line: Cisco
advertises in business publications, while Dell advertises in tech trade magazines and
on television.^11
AOL, like many high-tech companies, has been adept at achieving solid brand
recognition through less conventional marketing approaches. Today, over half of all
U.S. households are familiar with AOL brand. That’s because AOL has blanketed the
country for years with free software and free trial offers. The company has also cut
deals to put its product in some unlikely places: inside Rice Chex cereal boxes, United
Airlines in-flight meals, and Omaha Steaks packages, to name a few. AOL’s marketers
believe that novices need to try the service to appreciate its benefits. Then, once con-
sumers start using AOL, the company reasons that the user-friendly program will lure
them to subscribe. Also on AOL’s side is sheer inertia, which prevents many people
from switching to another Internet service provider.^12
Brand-Name Decision
Manufacturers and service companies who brand their products must choose which
brand names to use. Four strategies are available, as shown in Table 4.2.