Responsibility Accounting, Operational Performance Measure.docx

Responsibility Accounting, Operational Performance Measures,
and the Balanced Scorecard
Chapter 12
Copyright © 2014 by The McGraw-Hill Companies, Inc. All
rights reserved.
McGraw-Hill/Irwin
Chapter 12: Responsibility Accounting, Operational
Performance Measures, and the Balanced Scorecard
Learning Objective 12-1 – Explain the role of responsibility
accounting in fostering goal congruence.
12-*
Learning Objective 12-1. Explain the role of responsibility
accounting in fostering goal congruence.
Responsibility Accounting
Responsibility accounting is used to measure the performance of
people and departments to foster goal congruence.
12-*
Most organizations are divided into smaller units or

departments, each of which is assigned particular
responsibilities.
Each department is made up of individuals who are responsible
for particular tasks or managerial functions.
Goal congruence results when the managers of subunits
throughout an organization strive to achieve the goals set by top
management.
Responsibility accounting refers to the various concepts and
tools used by managerial accountants to measure the
performance of people and departments in order to foster goal
congruence. (LO 12-1)
Learning Objective 12-2 – Define and give an example of a cost
center, a revenue center, a profit center, and an investment
center.
12-*
Learning Objective 12-2. Define and give an example of a cost
center, a revenue center, a profit center, and an investment
center.
Responsibility Centers
A subunit in an organization whose manager is held accountable
for specified financial results.
12-*
A responsibility center is a subunit in an organization whose
manager is held accountable for specified financial results of
the subunit’s activities.
There are four common types of responsibility centers. (LO 12-

2)
Cost Center
Segment has control over the incurrence of costs.
The Paint Department
in an automobile plant.
Revenue Center
Segment
is responsible
for the revenue of a unit.
The Reservations
Department of an airline.
12-*
A cost center is an organizational subunit, such as a department
or division, whose manager is held accountable for the costs
incurred in the subunit.
The Painting Department in an automobile plant is an example
of a cost center.
The manager of a revenue center is held accountable for the
revenue attributed to the subunit.
For example, the Reservations Department of an airline and the
Sales Department of a manufacturer are revenue centers. (LO
12-2)
Profit Center
Segment has control over both costs and revenues.
Company-owned restaurant in a fast-food chain.
12-*

Investment Center
Segment has control over profits and invested capital.
A division of a
large corporation.
A profit center is an organizational subunit whose manager is
held accountable for profit. Since profit is equal to revenue
minus expense, profit- center managers are held accountable for
both the revenue and expenses attributed to their subunits.
An example of a profit center is a company-owned restaurant in
a fast-food chain.
The manager of an investment center is held accountable for the
subunit’s profit and the invested capital used by the subunit to
generate its profit.
A division of a large corporation is typically designated as an
investment center. (LO 12-2)
Learning Objective 12-3 – Prepare a performance report and
explain the relationships between the performance reports for
various responsibility centers.
12-*
Learning Objective 12-3. Prepare a performance report and
explain the relationships between the performance reports for
various responsibility centers.
Performance Reports
Show the budgeted and actual amounts, and the variances
between these amounts, of key financial results appropriate for
the type of responsibility center.

12-*
A performance report shows the budgeted and actual amounts,
and the variances between these amounts, of key financial
results appropriate for the type of responsibility center
involved.
The data in a performance report help managers use
management by exception to control an organization’s
operations effectively. (LO 12-3)
Performance Reports
12-*
Helen (H) - Slide 10 CORRECTION REQUIRED
This exhibit should be updated (Hilton 11e).
Variance column, food and beverage row: Note that the value
'15F' should be corrected to read '15U.'
The performance report for Waikiki Sands Hotel shows the
relationships between the February performance reports for
several of its subunits.
The numbers for the Grounds and Maintenance Department, the
Housekeeping and Custodial Department, and the Kitchen are in
parentheses.
These subunits are cost centers, so the numbers shown are
expenses.

All of the other subunits shown are either profit centers or
investment centers.
The numbers for these subunits are profits, so they are not
enclosed in parentheses.
The kitchen is the lowest-level subunit shown.
The total expense line from the kitchen performance report is
included as one line in the performance report for the Food and
Beverage Department.
Also included are the total profit figures for the department’s
other two subunits: Banquets and Catering, and Restaurants.
The hierarchy of performance reports starts at the bottom and
builds toward the top, just like the organization structure.
Each manager in the organization receives the performance
report for his or her own subunit in addition to the performance
reports for the major subunits in the next lower level. (LO 12-
3)
Ch. 10Raw-Material InventoryxxxDirect-Material Price
VariancexxxRaw-material InventoryWork-in-Process
InventoryWork-in-Process InventoryAccounts
PayablexxxActual quantity atStandard quantityStandard
quantityTo record the purchase of raw material and the
incurrence of anstandard costat standard priceat standard
priceunfavorable price variance.Work-in-Process
InventoryxxxDirect-Material Quantity VariancexxxRaw-
Material InventoryxxxDirect-Material Price VarianceDirect-
Material Quantity VarianceDirect-Labor Rate VarianceTo
record the use of direct material in production and the
incurrenceUnfavorableFavorableUnfavorableFavorableUnfavora
bleFavorableof an unfavorable quantity
variancevariancevariancevariancevariancevariancevarianceWork
-in-Process InventoryxxxDirect-Labor Rate VariancexxxDirect-
Labor Efficiency VariancexxxWages PayablexxxAccount
PayableRaw-material InventoryWages PayableTo record the
usage of direct labor, the incurrance of an unfavorableActual
quantity atActual quantity atActual quantity atdirect-labor rate

variance and the incurrence of a favorable direct-laboractual
coststandard costactual costefficiency varianceCost of Goods
SoldxxxDirect-Labor Efficiency VariancexxxDirect-Labor Rate
VariancexxxCost of Goods SoldDirect-Labor Efficiency
VarianceDirect-Material Price
VariancexxxUnfavorableFavorableUnfavorableFavorableDirect-
Material Quantity
VariancexxxvariancevariancevariancevarianceDisposition of
Variances
Sheet2Normal CostingManufacturing OverheadWork-in-Process
InventoryActualAppliedAppliedoverheadoverhead:overhead:Act
ual hoursActual hoursxxPredeterminedPredeterminedoverhead
rateoverhead rateDifference lies in the quantity of hours
used.Standard CostingManufacturing OverheadWork-in-Process
InventoryActualAppliedAppliedoverheadoverhead:overhead:Sta
ndardStandardallowed hoursallowed
hoursxxPredeterminedPredeterminedoverhead rateoverhead rate
Sheet3BudgetedPlannedPredeterminedOverheadMonthly
ActivityOverhead RateVariable . . . . . . .$ 60,000* . . . . . . . .
.8,000machine hours. . . . . . . . .$ 7.50per process hourFixed .
. . . . . . . .14,000* . . . . . . . . .8,000machine hours. . . . . . . .
.1.75per process hourTotal . . . . . . . . .$ 74,000. . . . . . . .
.8,000machine hours. . . . . . . . .$ 9.25per process hour* From
the flexible budget for planned activity of 8,000 machine hours
Sheet1Variable costs:Indirect material:WaxPlastic wrapPaper
productsMisc. suppliesIndirect
labor:MaintenanceJanitorialUtilities:ElectricityNatural
gasWaterTotal variable costFixed costs:Indirect
labor:InspectionProduction supervisorSet
upDepreciation:EquipmentInsuranceProperty taxesTotal fixed
costTotal overhead cost
Sheet4Normal CostingManufacturing OverheadWork-in-Process
InventoryActualAppliedAppliedoverheadoverhead:overhead:Act
ual hoursActual hoursxxPredeterminedPredeterminedoverhead
rateoverhead rateStandard CostingManufacturing
OverheadWork-in-Process

InventoryActualAppliedAppliedoverheadoverhead:overhead:Sta
ndardStandardallowed hoursallowed
hoursxxPredeterminedPredeterminedoverhead rateoverhead
rateDisposition of VariancesManufacturing OverheadCost of
Goods SoldActualAppliedBalance (1)Balance
(2)overheadoverhead:ActualAppliedStandardoverheadoverheada
llowed hoursgreater thangreater
thanxAppliedActualPredeterminedoverheadoverheadoverhead
rateBalance (1)Balance (2)Balance (2)Balance (1)
Sheet5Flexible Budget*Actual Results*Variance†FebruaryYear
to DateFebruaryYear to DateFebruaryYear to DateCompany . . .
. . . . . . . . . . . . . . . . . . .$30,660$64,567$30,716$64,570$56 F$
3 FMaui Division . . . . . . . . . . . . . . . . .
.$18,400$38,620$18,470$38,630$70 F$10 FOahu Division . . . .
. . . . . . . . . . . . . .12,26025,94712,24625,94014 U7 UTotal
profit . . . . . . . . . . . . . . . . . . .
.$30,660$64,567$30,716$64,570$56 F$ 3 FOahu
DivisionWaimea Beach Resort . . . . . . . . . .
.$6,050$12,700$6,060$12,740$10 F$40 FDiamond Head Lodge.
. . . . . . . . . .2,1004,5002,0504,43050 U70 UWaikiki Sands
Hotel . . . . . . . . . . . . .4,1108,7474,1368,77026 F23 FTotal
profit . . . . . . . . . . . . . . . . . . .
.$12,260$25,947$12,246$25,940$14 U$ 7 UWaikiki Sands
HotelGrounds and Maintenance . . . . . . .
.($45)($90)($44)($90)$ 1 F—Housekeeping and Custodial . . . .
. .(40)(90)(41)(90)1 U—Recreational Services . . . . . . . . . . .
.408541881 F$ 3 FHospitality . . . . . . . . . . . . . . . . . . .
.2,8006,0002,8406,03040 F30 FFood and Beverage . . . . . . . . . .
. . .1,3552,8421,3402,83215 F10 UTotal profit . . . . . . . . . . . . .
. . . . . . .$4,110$8,747$4,136$8,770$26 F$23 FFood and
Beverage DepartmentBanquets and Catering . . . . . . . . . .
.$600$1,260$605$1,265$ 5 F$ 5 FRestaurants . . . . . . . . . . . . .
. . . . . .1,7853,7501,7603,74025 U10 UKitchen. . . . . . . . . . . . .
. . . . . . . . . .(1,030)(2,168)(1,025)(2,173)5 F5 UTotal profit . . .
. . . . . . . . . . . . . . . . .$1,355$2,842$1,340$2,832$15 U$10
UKitchenKitchen staff wages . . . . . . . . . . . .

.($80)($168)($78)($169)$ 2 F$ 1 UFood . . . . . . . . . . . . . . . . .
. . . . . . .(675)(1,420)(678)(1,421)3 U1 UPaper products. . . . . .
. . . . . . . . . . .(120)(250)(115)(248)5 F2 FVariable overhead. . .
. . . . . . . . . . . .(70)(150)(71)(154)1 U4 UFixed overhead. . . . .
. . . . . . . . . . . .(85)(180)(83)(181)2 F1 UTotal expense . . . . . .
. . . . . . . . . . . .($1,030)($2,168)($1,025)($2,173)$ 5 F$ 5
U*Numbers without parentheses denote profit; numbers with
parentheses denote expenses; numbers in thousands.†F denotes
favorable variance; U denotes unfavorable variance.
Learning Objective 12-4 – Use a cost allocation base to allocate
costs.
12-*
Learning Objective 12-4. Use a cost allocation base to allocate
costs.
Cost Allocation
The process of assigning the costs in the cost pool to the cost
objects is called cost allocation or cost distribution.
12-*
An organization will have costs that are a joint result of the

activities of several subunits.
A responsibility-accounting system will assign these joint costs
to the subunits that cause them to be incurred. A collection of
costs to be assigned is called a cost pool.
The responsibility centers, products, or services to which costs
are to be assigned are called cost objects.
The process of assigning the costs in the cost pool to the cost
objects is called cost allocation or cost distribution. (LO 12-4)
Cost Allocation Bases
An allocation base is a measure of activity, physical
characteristic, or economic characteristic that is associated with
the responsibility centers, which are the cost objects in the
allocation process.
12-*
An allocation base is used to distribute (or allocate) costs to
responsibility centers.
An allocation base is a measure of activity, physical
characteristic, or economic characteristic that is associated with
the responsibility centers, which are the cost objects in the
allocation process.
The allocation base chosen for a cost pool should reflect some
characteristic of the various responsibility centers that is related
to the incurrence of costs.
Each cost pool is distributed to each responsibility center in
proportion to that center’s relative amount of the allocation
base. (LO 12-4)
Activity-Based Responsibility Accounting
Traditional responsibility-accounting systems tend to focus on

the financial performance measures of cost, revenue, and profit
for subunits of the organization.
Activity-based costing systems associate costs with the
activities that drive those costs. In activity-based responsibility
accounting, attention is directed not only to costs incurred but
also to the activity creating the cost.
12-*
Traditional responsibility-accounting systems tend to focus on
the financial performance measures of cost, revenue, and profit
for the subunits of an organization.
Contemporary cost management systems, however, are
beginning to focus more and more on activities.
Activity-based costing systems associate costs with the
activities that drive those costs.
In activity-based responsibility accounting, attention is directed
not only to costs incurred but also to the activity creating the
cost. (LO 12-4)
Behavioral Effects of
Responsibility Accounting
12-*
Information
versus
Blame
Controllability

Motivating
Desired
Behavior
Responsibility-accounting systems can influence behavior
significantly. Whether the behavioral effects are positive or
negative, however, depends on how responsibility accounting is
implemented.
When used properly, a responsibility accounting system does
not emphasize blame.
The proper focus of a responsibility-accounting system is
information.
Performance reports can be used to distinguish between
controllable and uncontrollable costs or revenues.
Managerial accountants often use the responsibility-accounting
system to motivate actions considered desirable by upper-level
management.
Sometimes the responsibility accounting system can solve
behavioral problems as well. (LO 12-4)
Learning Objective 12-5 – Prepare a segmented income
statement.
12-*
Learning Objective 12-5. Prepare a segmented income
statement.

Segmented Reporting
Segmented reporting refers to the preparation of accounting
reports by segment and for the organization as a whole.
A segment is any part or activity of an organization about which
a manager seeks cost, revenue, or profit data.
12-*
A segment is any part or activity of an organization about which
a manager seeks cost, revenue, or profit data.
Segmented reporting refers to the preparation of accounting
reports by segment and for the organization as a whole.
Many organizations prepare segmented income statements,
which show the income for major segments and for the entire
enterprise. (LO 12-5)
Segmented Reporting
Divisions
•
Units
•
Aloha Hotels and Resorts
Oahu Division
Maui Division
Waikiki Sands Hotel
Diamond Head Lodge
Waimea Beach Resort
12-*

Helen (H) - Slide 18 CORRECTION REQUIRED
Note that the units within the Oahu Division is being shown as
units wit hin the Maui Division. This relationship should be
correcred.
A segmented income statement for Aloha Hotels and Resorts’
Oahu division would show income for Aloha Resorts and Hotels
as a whole, then for each division, then for each unit within the
Oahu Division. (LO 12-5)
Segmented Reporting
12-*
Segmented income statements are prepared in the contribution
format. Three items require special emphasis.
First, the common fixed expenses is not allocated to the
company’s two divisions. Included in this figure are such costs
as the company president’s salary.
These costs cannot be allocated to the divisions, except in some
arbitrary manner.
Second, there are fixed expenses controllable by the segment
manager allocated to each unit within the Oahu division, but
some of those costs are not allocated.
These are costs that cannot be traced to the division’s three

hotels, except on an arbitrary basis. For example, this expense
includes the salary of the Oahu Division’s vice president.
This procedure illustrates an important point.
Costs that are traceable to segments at one level in an
organization may become common costs at a lower level in the
organization.
Third, there are fixed expenses, traceable to the segment, but
controllable by others.
A large portion of those expenses cannot be allocated among the
three hotels, except arbitrarily.
Therefore, that portion is in the column marked Not Allocated.
(LO 12-5)
Key Features of Segmented Reporting
Contribution format.
Controllable versus uncontrollable expenses.
Segmented income statement.
12-*
To summarize, there are three important characteristics of
segmented reporting:
1. These income statements use the contribution format. The
statements subtract variable expenses from sales revenue to
obtain the contribution margin.
2. The income statements highlight the costs that can be
controlled, or heavily influenced, by each segment manager.
This approach is consistent with responsibility accounting.
3. Segmented reporting shows income statements for the
company as a whole and for its major segments.
(LO 12-5)

Customer Profitability Analysis
and Activity-Based Costing
Company
Sales Rep
Customer
12-*
Let’s see, I need . . .
Special credit terms,
Small order lots,
Special packing,
Great field service,
and JIT delivery.
We can handle
that - but we need
to quote a price that
reflects the value
of these services.
Helen (H) - Slide 21 NN
Second sentence: Added a comma after the word 'service.'
Customer profitability analysis uses the concept of activity-
based costing to determine how serving particular customers
causes activities to be performed and costs to be incurred.
Suppose, for example, that customer A requests special credit
terms, small order lots, special packaging, increased service,
and JIT delivery.
These services can be provided, but at a cost. (LO 12-5)

Learning Objective 12-6 – Describe the operational performance
measures appropriate for today’s production environment.
12-*
Learning Objective 12-6. Describe the operational performance
measures appropriate for today’s production environment.
Operational Control Measures in Today’s Manufacturing
Environment
10-*
Under the philosophy of activity-based management, the goal is
to focus on continually improving each activity.
As a result, the emerging operational control measures focus on
the key activities in which the organization engages.
In using these measures to control operations, management
emphasizes trends over time.
The goal is to continually improve all aspects of the plant’s
operations. (LO 12-6)
Operational Performance Measures in Today’s Manufacturing
Environment
Raw Material & Scrap Control
Quality
Lead time
Cost of scrap
Total cost
Inventory Control
Average value

Average holding time
Ratio of inventory value to sales revenue
10-*
Some of the performance measures relating to raw material and
scrap control include the quality of the raw material purchased,
the amount of lead time required for delivery, the cost of scrap,
and the total cost of the raw material.
Inventory control measures include the average value of
inventory, the average amount of time various inventory items
are held, and other inventory turnover measures, such as the
ratio of inventory value to sales revenue. (LO 12-6)
Environment
Machine Performance
Availability
Downtime
Maintenance records
Setup time
Product Quality
Warranty claims
Customer complaints
Defective products
Cost of rework
10-*
Production machinery must work when it is needed, which
means that routine maintenance schedules must be adhered to
scrupulously.

Performance controls in this area include measures of machine
downtime and machine availability, and detailed maintenance
records.
Setup time also is highlighted as a machinery performance
measure.
Various nonfinancial data are vital for assessing a
manufacturer’s effectiveness in maintaining product quality.
Typical performance measures include the number of customer
complaints, the number of warranty claims, the number of
products returned, and the cost of repairing returned products.
(LO 12-6)
Environment
ProductionManufacturing cycle timeVelocityManufacturing
cycle efficiency
Delivery% of on-time deliveries% of orders filledDelivery cycle
time
10-*
World-class manufacturers are striving toward a goal of filling
100 percent of their orders on time.
Common measures of product delivery performance include the
percentage of on-time deliveries and the percentage of orders
filled.
Another measure is delivery cycle time, the average time
between the receipt of a customer order and delivery of the
goods.
Delivering goods on time requires that they be produced on
time.
Production performance measures include manufacturing cycle

time, which is the total amount of production time required per
unit.
Velocity is defined as the number of units produced in a given
time period. Perhaps an even more important operational
measure is the manufacturing cycle efficiency (MCE).
The value of the MCE measure lies in its comparison between
value-added time (processing) and non-value-added time
(inspection, waiting, and moving). (LO 12-6)
Environment
Productivity
Aggregate productivity
Partial productivity
Innovation and Learning
Percentage of sales from new products
Cost savings from process improvements
10-*
Global competitiveness has forced virtually all manufacturers to
strive for greater productivity.
One financial productivity measure is aggregate (or total)
productivity, defined as total output divided by total input.
Another financial measure is a partial (or component)
productivity measure, in which total output (in dollars) is
divided by the cost of a particular input.
Global competition requires that companies continually improve
and innovate.
New products must be developed and introduced to replace
those that become obsolete, which can be measured by the
percentage of sales from new products.
New processes must continually be developed to make
production more efficient.

This can be measured by the cost savings realized from process
improvements. (LO 12-6)
Learning Objective 12-7 – Describe the balanced scorecard
concept and explain the reasoning behind it.
12-*
Learning 12-7. Describe the balanced scorecard concept and
explain the reasoning behind it.
Balanced Scorecard
The balanced scorecard is a balanced approach to the area of
performance evaluation. Employees are evaluated on a series of
financial and nonfinancial measures in a variety of areas.
12-*
The balanced scorecard is a balanced approach to the area of
performance evaluation. Employees are evaluated on a series of
financial and nonfinancial measures in a variety of areas.
Financial measures summarize the results of past.
Nonfinancial measures concentrate on current activities,
namely, activities that will drive future financial performance.
(LO 12-7)
The Balanced Scorecard

Financial
Learning and Growth
Internal Business Processes
Customer
Vision and Strategy
10-*
Effective management requires a balanced perspective on
performance measurement, a viewpoint that some call the
balanced scorecard perspective.
Key to understanding the balanced scorecard is the distinction
between lead and lag indicators of performance.
Lead indicators guide management to take actions now that will
have positive effects on enterprise performance later.
Lag indicators are measures of the final outcomes of earlier
management decisions.
To make successful use of the balanced scorecard, the
scorecard’s lead and lag measures need to be linked to the
organization’s strategy.
The organization’s vision and strategy drive the specification of
both goals and metrics in the scorecard’s financial, customer,
internal operations, and learning and growth perspectives. (LO
12-7)
End of Chapter 12
12-*
Helen (H) - Slide 31
Added the word 'of' and deleted the dash after the word 'End.'

FebruaryYear to DateFebruaryYear to DateFebruaryYear to
Date
Company . . . . . . . . . . . . . . . . . . . . . .
$30,660$64,567$30,716$64,570$56 F $ 3 F
Maui Division . . . . . . . . . . . . . . . . . .
$18,400$38,620$18,470$38,630$70 F $10 F
Oahu Division . . . . . . . . . . . . . . . . . . 12,260 25,947
12,246 25,940 14 U 7 U
Total profit . . . . . . . . . . . . . . . . . . . .
$30,660$64,567$30,716$64,570$56 F $ 3 F
Oahu Division
Waimea Beach Resort . . . . . . . . . . .
$6,050$12,700$6,060$12,740$10 F $40 F
Diamond Head Lodge. . . . . . . . . . . 2,100 4,500
2,050 4,430 50 U 70 U
Waikiki Sands Hotel . . . . . . . . . . . . . 4,110 8,747
4,136 8,770 26 F 23 F
Total profit . . . . . . . . . . . . . . . . . . . .
$12,260$25,947$12,246$25,940$14 U $ 7 U
Waikiki Sands Hotel
Grounds and Maintenance . . . . . . . . ($45)($90)($44)($90)$ 1 F
—
Housekeeping and Custodial . . . . . . (40) (90)
(41) (90) 1 U —
Recreational Services . . . . . . . . . . . . 40 85
41 88 1 F $ 3 F
Hospitality . . . . . . . . . . . . . . . . . . . .2,800 6,000
2,840 6,030 40 F 30 F
Food and Beverage . . . . . . . . . . . . . 1,355 2,842
1,340 2,832 15 F 10 U
Total profit . . . . . . . . . . . . . . . . . . . .
$4,110$8,747$4,136$8,770$26 F $23 F
Food and Beverage Department
Banquets and Catering . . . . . . . . . . . $600$1,260$605$1,265$ 5

F $ 5 F
Restaurants . . . . . . . . . . . . . . . . . . . 1,785 3,750
1,760 3,740 25 U 10 U
Kitchen. . . . . . . . . . . . . . . . . . . . . . . (1,030) (2,168)
(1,025) (2,173) 5 F 5 U
Total profit . . . . . . . . . . . . . . . . . . . .
$1,355$2,842$1,340$2,832$15 U $10 U
Kitchen
Kitchen staff wages . . . . . . . . . . . . . ($80)($168)($78)($169)$
2 F $ 1 U
Food . . . . . . . . . . . . . . . . . . . . . . . . (675) (1,420)
(678) (1,421) 3 U 1 U
Paper products. . . . . . . . . . . . . . . . .(120) (250)
(115) (248) 5 F 2 F
Variable overhead. . . . . . . . . . . . . . . (70) (150)
(71) (154) 1 U 4 U
Fixed overhead. . . . . . . . . . . . . . . . . (85) (180)
(83) (181) 2 F 1 U
Total expense . . . . . . . . . . . . . . . . . .
($1,030)($2,168)($1,025)($2,173)$ 5 F $ 5 U
*Numbers without parentheses denote profit; numbers with
parentheses denote expenses; numbers in thousands.
†F denotes favorable variance; U denotes unfavorable variance.
Flexible Budget* Actual Results* Variance†
FLICKERING SNAPSHOT
OF YAHOO S FUTURE
MYSPACES BIC PLAN
(STOP LAUGHING)
INNOVATING IN
MICROSOFT'S GARAGE

FIVE TRUTHS THAT EXPLAIN
WITH THE QUINTESSENTIALLY
PHOTO ILLUSTRATION BY JOE ZEFF DESIGN APRIL 2013
FASTC0MPANY.COM 35
NEXT
Could it be that Apple's best quarter
ever—and the second most profitable in
U.S. corporate history, at $13.1 billion—is
a head-for-the-hills disaster? With mar-
gins declining and no imminent "in-
sanely greaf new products (as Steve Jobs
liked to call them), has the age of Apple
come abruptly to an end?
To understand whaf s happening with
Apple, it's prudent to step back from the
noise of Wall Street and recognize five
essential truths about Apple's success.
TRUTH NO. I: Apple has never been a non-
stop, new-product machine.
Apple's stock wouldn't have plunged if
expectations, financial and otherwise,
hadn't been so high. Apple is the market's
most emotionally driven brand, "the
Super Bowl for stock lunatics," as Stock-
TWits CEO Howard Lindzon puts it. Every
tech blogger, hedge-fund manager, and
fan has a fervent opinion about it. We

have been emotionally conditioned to
believe in Apple's game-changing powers.
Apple thrived on this attention and
the belief that the next revolutionary
product was coming: iPod, iPhone, iPad.
What is too easily forgotten is that Apple's
quantum leaps were never fast and furi-
ous. We forget that six years separated
the launches of the iPod and the iPhone,
The marvel of Apple has been
its seemingly inexhaustible
capacity to pummel consumers
again and a jiain with
product refinements.
and three years came between the iPhone
and iPad. What is more, the pace of adop-
tion of these products, meteoric of late,
was not always so. The iPad took two
years to sell 100 million units; the iPhone
nearly four years; the iPod six.
Is there impatience about what's
coming next? Of course. Wall Street is
indignant that Apple hasn't announced
a wearable computer, say, or a voice-
controlled TV As Lindzon says, "Apple's
problem is that it can't dance to what Wall
Street wants." But, frankly, it never has.
TRUTH NO. 2: The real driver of Apple's
success has been incremental
innovation.

If the magic of Steve Jobs was his aptitude
for conceiving new product categories,
the marvel of Apple has been its seem-
ingly inexhaustible capacity to pummel
consumers again and again with product
refinements. Apple has earned a distinc-
tive reputation for thriving with only a
handful of products; often overlooked is
how many different versions of these few
products Apple continually rolls out.
The Apple gadgets we know and love
today are markedly different from their
first iterations. Yes, the 2001 launch of
the iPod marked the beginning of a
revolution in how we consume music.
But most forget that iPod sales didn't
explode until 2005, when Apple released
the Nano. Apple released two dozen ver-
sions of the iPod—including generations
of the Classic, Nano, Mini, Shuffle, Touch,
even one branded and distributed by
Hewlett-Packard—and gobbled up 70%
of the market
Apple repeated the trick with the
iPhone and iPad. The iPhone launched in
2007; sales surged in 2009, vyith the launch
of the iPhone 3GS. Last quarter, the iPhone
4,4S, and 5 were among the top five best-
selling smartphones in the United States.
The iPad, launched in 2010, went through
four generations in two years, prolonging
Apple's stock surge; last quarter, 43% of
tablets shipped were iPads.

Apple's software innovations helped
turn these products into objects of lust,
as the iTunes Store did for the iPod and
the App Store and Siri did for the iPad
Mini and iPhone 4S. ,
TAKING STOCK OF APPLE
An unsteady relationship between share price and earnings
$700
$600
$500
y $400
$300
$200
$100
Share price,
monthly average
ä Net income
SEPTEMBER
7,200s
Apple releases
the iPod Nano,
its best-selling
music player.

JANUARY
9 , 2 0 0 7
Jobs introduces
the iPhone,
which generates
$173 billion
in revenue.
JANUARY
14,2009
Jobs goes on
medical leave.
SEPTEMBER 2012
ciosing price:
$660.22; all-time
peai< of $705.07
came on September
21,2012.
JANUARY
27,2010
Jobsunveiis
theiPad;itseils
100 million units
in two years.
JANUARY
23,2013
Apple reports
Its best
quarterly
earnings ever.
$45

$35
$15
$5
01/04 01/05 01/06 01/07 01/08 01/09 01/10 01/11 01/12 01/13
3 6 F A S T C 0 M P A N Y . C O M A P R Í L 2 O 1 3
NEXT
TRUTH NO. 3: Apple's distinctive
reputation can hurt as much as help.
"Apple has become a victim of its own
success," says Piper Jaffray analyst Gene
Munster. As the lore of Apple's innovative
prowess spreads through the culture, its
iterative improvements have started to
feel like too little, too late. Some consum-
ers have hegun to discount (or he disap-
pointed hy) the latest product tweaks,
waiting for revolutionary disruptions
that, in fact, come only rarely Others feel
burned by Apple's habit of holding hack
features to create demand for the next
generation (as Apple purportedly did by
omitting the camera in the original iPad).
The result is that Apple doesn't get full
credit anymore for some great products.
Apple's last major launch was the iPhone

5. It is the lightest, thinnest, and fastest-
selling iPhone yet, with 5 mulion snapped
up on its first weekend. But like Apple's
exceptional quarterly earnings, the
iPhone 5 drew lukewarm reaction from
critics. Apple's success has led everyone
to judge it by a different set of standards.
It's the M. Night Shyamalan effect: The
more people expect the unexpected—
and incessantly guess what's coming—
the harder it is to surprise them.
had since heen named as responsible
for Apple's Maps fiasco.
In the wake of Maps, and with no ap-
parent breakthrough product coming,
investors and consumers alike are won-
dering what the post-Johs era will really
be like.
TRUTH NO. 5: Apple won't give up the
magic without a fight.
Apple's aura of Oz-like omniscience has
always heen carefully cultivated. Johs
famously cloaked Apple in a mantle of
paranoid secrecy, perpetually grooming
the rumor mill to hype the Next Great
Thing. With Johs gone, Apple's constitu-
ents (including carping Wall Streeters)
are less patient with this approach.
In the meantime, competitors are fill-
ing the void, which explains why Google

Jobs famously cloaked Apple
in a mantle of paranoid
secrecy, perpetually
grooming the rumor mill to
hype the Next Great Thing.
has spent so much üme talking up Google
TV and Google Glass, its futuristic eye-
wear project. Google's openness about
the projects on its docket differs mar-
kedly from the Apple model: The effect
is hoth to sustain interest and to temper
expectations—training followers that
when the company discusses a product,
it isn't necessarily just around the corner.
So if Google doesn't introduce, say, a driv-
erless car in the next three years, nobody
will be (too) disappointed.
The question is whether Apple can
defy the odds and retain its sorcerer's
hat or whether it will settle down into a
life more ordinary. The latter has heen
the fate of tech stars before Apple (wit-
ness Microsoft) and since (witness Face-
book). The transition would be a tough
one for Apple; if it sheds its status as an
agent of revolutionary change, there's
no telling how proponents—consumers
and investors—will react
But all will be forgiven, and the ques-
tion forgotten, if Apple can indeed deliver
something unexpected and terrific. So

will Apple produce another iPod? Another
iPhone? Another iPad? We can only do
what we have always done with Apple:
wait and wonder. ®
TRUTH NO. 4: The legacy of Jobs is
haunting the company.
The impatience with Apple isn't driven
solely by emotion. Tangible changes in
the business are at issue too. When Jobs
died, in late 2011, many speculated Apple's
unprecedented market run would end.
Instead, its share price continued to swell,
leading some to helieve that the fears
about Jobs's passing were overblown.
In actuality, we're seeing the post-
Jobs slump today, a year later than ex-
pected. Why the delay? After his death,
Apple continued to churn out hit prod-
ucts, and just as important, the outpour-
ing of support for Jobs devolved upon
the company, which was seen to embody
his spirit—the archetypal American in-
novator. The halo effect is gone today;
Apple is clearly Tim Cook's company
now. He has put his stamp on it most
noticeably by ousting top executive Scott
Forstall, who was one of Jobs's closest
confidants. Forstall was chiefly behind
the company's success in mobile—but te spotlight
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https://content.ashford.edu/print/AUBUS620.12.1?sections=ch0
7,ch07introduction,sec7.1,sec7.2,sec7.3,sec7.4,sec7.5,sec7.6,ch
07conclusion,ch07_… 1/16
Chapter 7
Product Differentiation and Brand Positioning
Associated Press
Learning Outcomes
By the end of this chapter, you should:
Understand the nature of the brand as the primary unit of
analysis in marke�ng management and its
rela�onship to brand awareness and image.
Conceptualize key brand-related concepts including brand
equity, loyalty, and perceived quality.
Recognize the significance of product posi�oning as the key
element of marke�ng strategy that drives all of the

marke�ng mix decisions.
Develop a prac�cal understanding of how to iden�fy the best
posi�oning strategy for a brand within a
compe��ve market.
Appreciate the strategic significance of product differen�a�on
and know the alterna�ve bases for differen�a�ng
a brand from its rivals.
Recognize that the essen�al character of services makes them
difficult to differen�ate from one another and
iden�fy the available bases for differen�a�ng the quality of
one service provider from another.
4/10/2019 Print
Ch. 7 Introduction
A brand can be defined as a “name, term, design, symbol,
or any other feature that iden�fies one seller’s good or
service as dis�nct from those of other sellers”
(The American Marke�ng Associa�on, 2011). Brands can
be assigned to iden�fy a single product, a collec�on of
related products, or all items of goods and services
created by a single seller. The most essen�al func�on of
a brand name is to uniquely iden�fy one product or
family of products as dis�nct from others. The brand
provides a conceptual founda�on to which sellers can
a�ach product a�ributes, promo�onal messages, and
percep�ons to shape a unique iden�ty in the
marketplace.

The first sec�ons of this chapter focus on the meaning of
brands and branding. The concept of brand equity is
introduced as a means of capturing the value and
significance of crea�ng powerful product iden��es.
Building from this base, product posi�oning and
differen�a�on are explored. A four-step posi�oning
process
model is introduced based on an understanding of the
linkages between buyers’ percep�ons of brands and their
product-specific needs and expecta�ons. The final
sec�on of the chapter focuses on product differen�a�on
and its rela�onship to product strategy. Three poten�al
sources for effec�vely differen�a�ng one brand
from its compe�tors are iden�fied: tangible a�ributes,
perceived benefits, and price.
* * *
It is common to hear people in nonmarke�ng areas of
business management doubt the impact of marke�ng
programs. A brand manager for a large West Coast
retail chain found an interes�ng way to respond to a
colleague when she expressed her doubts about the power
of branding. He challenged her to put her
skep�cism to the test. “Over the next few days, try
replacing your 7-year-old’s favorite brand of cereal with a
similar one. Remove the brand-iden�fying patches and
logos that are s�tched into her sneakers and backpack.
Replace your 5-year-old son’s Mickey Mouse DVD with
one featuring Mighty Mouse. They’re about the same,
right? And insist that the kids change brands of toothpaste
before they go to bed tonight.” I guess we can’t know
the outcome of this test with certainty since she
was unwilling to make even one of the changes he
proposed.

4/10/2019 Print
Familiar and consistent packaging themes
promote brand awareness and recogni�on
for Maxwell House coffee.
Associated Press
7.1 Building Brand Image and Brand Awareness
Brand image is a term used to refer to the percep�on of
a brand in the minds of current and prospec�ve buyers.
Some�mes referred to as brand iden�ty or brand
personality, it is a composite of what the brand means to
the buyer in terms of a�tudes and expecta�ons. A
consumer’s percep�on of brand image serves several
important func�ons. It simplifies the shopping process. If
a buyer was pleased by a prior purchase, the brand
enables him or her to find the same product again
next �me. In this way, brand names convey informa�on
to buyers about product a�ributes, quality, and
consistency. Over �me, this promotes brand loyalty among
sa�sfied customers.
In all markets, brand names enable buyers to organize
informa�on about compe�ng products in their mind.
Brands
provide anchor points to which posi�ve and nega�ve

associa�ons are a�ached over �me. These a�achments
may even
extend across genera�ons. Preferences for Maxwell House
coffee, Ivory soap, or Ford trucks may be built on
percep�ons
carried forward from parents to children. As we saw in
Chapter 4, an individual’s a�tude toward a brand provides
the
psychological framework for organizing product knowledge
in a systema�c way.
The brand is typically the unit of analysis and planning
for marke�ng managers. Marke�ng plans and specific
marke�ng
mixes are usually created to promote, distribute, and sell
products iden�fied by one specific brand name. In this
sense,
the func�on of the marke�ng mix for any given product
is to shape buyers’ percep�ons of the brand’s image.
Central to
this task are the promo�onal elements of the marke�ng
mix. Adver�sing messages, sales presenta�ons, publicity
events,
and sales promo�ons are all intended to shape the target
market’s percep�on of the brand. Decisions related to
pricing
strategy, distribu�on channels, and the quality of the
product itself also impact the process of building a brand
image. In
the final analysis, brand images are created by customers
based on the influence of marketer-controlled inputs, the
counterac�ng impact of compe�tors’ marke�ng programs,
and the customers’ direct experience with the brand and
its
alterna�ves in the product category.

Brand awareness is a general measure of consumers’
knowledge of the existence of a brand. It is the first
preliminary
step in the purchase decision process that ul�mately leads
to a sale. Since it is a necessary prerequisite to sales, it
is a
primary marke�ng objec�ve for all brands. As a
commonly used performance metric, brand awareness is
expressed as
the percentage of the target market that recognizes or
knows of the brand by name. Top-of-mind awareness is
measured
by asking customers to indicate the first brand that they
recall when the product category is men�oned as a
prompt.
Think About It
Ask some friends outside of class which brands come to
mind when you men�on the following product categories:
car �res, toothpaste, fast food, and canned
soups. All of their answers won’t be iden�cal, but certain
brands will usually wind up on top. If you were to pose
this ques�on to a random sample of 1,000
people, the percentage of people responding Goodyear,
Crest, McDonald’s, and Campbell’s would be higher than
the brands’ actual market share.
Why should this be the case?
The rela�ve value of high brand awareness in any
specific situa�on will depend on several factors. For low
involvement products (e.g., candy), the absence of brand
awareness may represent a low barrier to sales since
consumers exert rela�vely li�le effort in the decision-
making process. In this context, simply being an

unfamiliar name could be an advantage if the buyer is
seeking a new experience. For first-�me buyers in high
involvement product categories (e.g., home
appliances), the brand name itself represents a unique bit
of informa�on that is o�en relied upon as an indicator of
product quality. The lack of confidence that
comes from having no experience in the category tends to
inflate the value of familiar brand names as first-�me
buyers seek to minimize the risk of making a poor
choice. Consequently, newlyweds shopping for appliances
o�en look for brand names that they are familiar with
from their childhood.
Think About It
Although percep�ons of brand image tend to become very
well established over �me, consumers who are new to any
purchase situa�on represent a blank slate
for marketers. Consider the way that colleges and
universi�es work to shape the ini�al impressions of
prospec�ve students and their parents. Long before
se�ng foot on the campus, poten�al recruits are o�en
inundated with posi�ve images and messages about
schools, par�cularly from online sources. Compare
this process to way in which both real estate agents and
banks approach first-�me home buyers.
How do these types of customers and brands differ?
What brand features are typically stressed to persuade
each of these audiences?
Over �me, familiar brand names become synonymous in
consumers’ minds with the products that they represent
just as personali�es are inseparable from people.
The unique iden�ty and corresponding a�tudes acquired

by a brand name have substan�al value when they are
consistently reinforced by posi�ve experiences
with the product. These posi�ve associa�ons in the mind
of the consumer have real, tangible market value that is
o�en referred to as brand equity.
4/10/2019 Print
The brand equity concept is complex and mul�faceted. It
encompasses many dimensions of the rela�onship between
consumers and brands.
7.2 Brand Equity Management
Brand equity is, in simplest terms, the value of a brand
based on consumer a�tudes about posi�ve brand a�ributes
and the favorable consequences of brand use.
When considered in greater depth, however, brand equity
can also be appreciated as a fairly intricate, mul�faceted
construct. Figure 7.1 illustrates the full
complexity of brand equity as developed by David A.
Aaker (1996).
Figure 7.1: Aaker’s model of brand equity
In this dissec�on of the concept, brand equity is defined
by a set of five underlying classes of assets that
contribute to a posi�ve percep�on of the brand name in
the mind of the buyer: brand loyalty, brand awareness,

perceived quality, brand associa�ons, and other proprietary
assets.
Dimensions of Brand Equity
In B2C markets, brand loyalty refers to the reliable
tendency of consumers to consistently purchase the same
brand within a given product class. In B2B markets,
the emphasis tends to shi� from product-specific loyalty
to consistency in buying from the same supplier repeatedly
over �me, rather than purchasing across
mul�ple suppliers within a category. In both kinds of
markets, the value of brand loyalty to sellers is
mul�dimensional. A core cons�tuency of loyal buyers
provides
sellers with a degree of both opera�onal and financial
stability from a base of reliable sales. It reduces the costs
of marke�ng and improves unit margins on sales
to loyal customers. It also provides a buffer against
compe��ve threats and a pla�orm for a�rac�ng new
customers.
Brand awareness is a stepping stone, an essen�al first
step to crea�ng sales. Though awareness by itself does
not convey brand preference, higher levels of
awareness provide a more familiar pla�orm or stage upon
which to build posi�ve a�tudes toward the brand. In the
absence of addi�onal informa�on, B2C
consumers tend to have greater confidence in brand names
with which they are more familiar.
Perceived quality of the brand is instrumental to a buyer’s
assessment of product value and, ul�mately, sa�sfac�on
with the purchase of the product. Though
necessarily a subjec�ve appraisal, both B2B and B2C
consumers become experts in judging product quality over

the course of repeated category purchases.
Consequently, the ability of a brand to meet or surpass
quality expecta�ons provides buyers with reasons to repeat
brand purchases. As an integral feature of the
bundle of benefits delivered by the product, quality is
essen�al to product differen�a�on and posi�oning
strategy.
4/10/2019 Print
The posi�ve brand associa�ons that
consumers have with Smucker's jelly
products have been created and
reinforced over a span of more than 100
years.
Associated Press
As discussed at the outset of this chapter, brand
associa�ons define brand image. One possible outcome of
building
posi�ve brand associa�ons over �me is the opportunity
to leverage these exis�ng a�tudes to promote the
successful
launch of related products through brand extensions. For
example, the posi�ve brand equity in Smucker’s jams and
jellies
was used effec�vely to launch its brand of peanut bu�er
in a very compe��ve consumer market. Brand extensions

of this
type leverage posi�ve a�ributes (e.g., brand awareness,
product quality) while reducing related marke�ng costs
and
lowering the risk of a new product trial for consumers.
The category of other proprietary assets includes legally
protected intellectual property such as copyrights,
trademarks, and
patents. Though primarily intangible assets, items such as
scien�fic discoveries, manufacturing innova�ons, and
ar�s�c
works have taken on greater importance and value in the
informa�on age. Computers and the emergence of the
Internet
pose challenges to intellectual property protec�on laws;
such laws were developed in an era when machine patents
were
intended to protect proprietary assets within manufacturing
industries. Providing comparable safeguards to protect the
expression of ideas through so�ware programs, algorithms,
and source codes has been problema�c. Preven�ng the
piracy
of games, music, and movies via the Internet remains a
huge challenge.
Counterfei�ng Brands
The the� of intellectual property is probably most familiar
to consumers in the form of pira�ng so�ware and books
and illegally downloading music from the
Internet. However, the illegal appropria�on and use of
trademarks, brand names, and patent-protected goods and
processes represents a serious form of
compe��on to the vic�ms of intellectual property the�.
In the short term, sales and profitability are damaged

directly. In the long term, however, the the� of
intellectual property has the poten�al to discourage
companies from inves�ng in new product development and
innova�on.
Effec�ve intellectual property protec�on is essen�al to
promo�ng innova�on in many types of industries.
So�ware development, pharmaceu�cal R&D, and even
entertainment-related industries require the legal means to
protect proprietary ideas and products. Just as tradi�onal
industries are discouraged from inves�ng
in new products if they have no guarantee of realizing the
full economic benefit of their crea�ons, crea�ve
intellectual endeavors can be also be suppressed if
financial incen�ves are reduced due to brand
counterfei�ng.
According to FBI, Interpol, World Customs Organiza�on,
and Interna�onal Chamber of Commerce es�mates, roughly
7 to 8 percent of world trade every year is
in counterfeit goods. That is the equivalent of as much as
$512 billion in global lost sales. Of that amount, U.S.
companies lose between $200 billion and $250
billion. This type of the� has a major impact at home,
too. According to the U.S. Chamber of Commerce, the
the� of intellectual property costs 750,000 U.S.
jobs a year (Interna�onal Trade Administra�on, U.S.
Department of Commerce, 2012).
The retail sale of counterfeit goods and online piracy of
intellectual property pose a serious threat to businesses by
exposing their legi�mate goods to unfair
compe��on at home and abroad. However, the impact of
counterfeit goods can be par�cularly damaging to a
brand’s reputa�on for quality if the imita�on
products are poorly made. For most products, the inferior

quality adversely impacts the level of sa�sfac�on that a
customer derives from its use. For
pharmaceu�cals, however, the impact of counterfeits can
be deadly.
It has been es�mated that 1 to 2 percent of drugs sold
in North America are fraudulent. Worldwide, drug
counterfei�ng generated an es�mated $75 billion,
according to the Center for Medicine in the Public
Interest. Of par�cular concern is evidence that counterfeit
pharmaceu�cal sales are increasing at nearly twice
the pace of legi�mate pharmaceu�cal sales—approximately
13 percent annually (Center for Medicine in the Public
Interest, 2012). The composi�on of
fraudulent drugs can include glue, chalk, and pes�cides,
as well as a wide range of addi�onal toxic and
poten�ally fatal elements. People consuming counterfeit
drugs are at risk for serious health problems including
unexpected side effects, allergic reac�ons, and a
worsening of the health condi�on the drug was
intended to treat or cure.
The sale and distribu�on of counterfeit drugs has serious
implica�ons throughout the world. The World Health
Organiza�on’s (www.who.int) malaria eradica�on
ini�a�ve has suffered significant setbacks over the past
few years due to the sale of fake pharmaceu�cals. The
latest and most effec�ve treatment for malaria
comes from a plant origina�ng in China known as
artemisinin. However, its effec�veness is being undermined
by fake and poor-quality an�-malarial drugs that
are also being traced back to China and are flowing into
Africa and Southeast Asia. Counterfeit an�-malarial drugs
not only are poten�ally harmful to the
individuals who consume them, but also may help the
malaria parasite develop an immunity to artemisinin (ABC

News, 2012). Though it is difficult to precisely
calculate the impact of the damage, there’s no doubt that
it is substan�al since hundreds of thousands of packets of
fake an�-malarials are in circula�on
annually.
Measuring Brand Equity
Although brand equity could be a poten�ally valuable
metric for marke�ng managers to use in evalua�ng the
value added by marke�ng programs, there is not a
single generally accepted basis for assessing it. However,
two measures of brand equity can be used to provide an
inexact appraisal of a brand’s equity value.
The price premium that a branded product commands above
and beyond the retail price associated with generic or
unbranded compe�tors provides a general
approxima�on of the brand’s equity value. For example, if
buyers are willing to pay 25 percent more for Starbucks
coffee over generic compe�tors, the difference
4/10/2019 Print
Consistent quality and taste are important ingredients in
Starbucks’
recipe for differen�a�ng itself from compe�tors.
Ambient Images Inc./SuperStock

can be a�ributed to brand equity. This is an ROI
perspec�ve that recognizes the value of past
expenditures on efforts to market the brand as investments
in building equity.
An alterna�ve, less specific assessment of brand equity
can be made based on consumer a�tude
research. The target market’s strength of posi�ve product-
specific associa�ons for a given brand
demonstrate brand equity. Assessing the rela�ve strength
of one baseline brand versus others can
provide a valuable perspec�ve on the brand equity of
compe�tors within a product market. Of equal
value, this type of research can reveal opportuni�es to
reinforce weak spots in the market’s
perceived quality of a given brand.
Building substan�al brand equity is ul�mately dependent
on how consumers perceive the value and
characteris�cs of the brand rela�ve to its nearest
compe�tors. One of marke�ng managers’ primary
responsibili�es is to create a blueprint for developing the
most advantageous impression possible of
a brand. The term most o�en used to describe this
strategic impera�ve is product posi�oning.
4/10/2019 Print

7.3 Positioning Strategy
Product posi�oning is defined as “the way consumers,
users, buyers, and others view compe��ve brands or
types of products” (American Marke�ng Associa�on,
2011). The term is also commonly used to describe the
strategy used to achieve the intended posi�on in the
market rela�ve to compe�ng brands. It is an essen�al,
central concept in the process of marke�ng management.
Following market segmenta�on and the selec�on of a
target market, managers need to determine how
the brand will be posi�oned rela�ve to compe�ng brands
within the product market. All of the marke�ng mix
decisions that determine the success or failure of the
brand are based on this core strategic decision.
The purpose of product posi�oning is to communicate and
establish the intended brand image in the mind of the
target audience. How the brand is posi�oned
rela�ve to its compe�tors must reflect an understanding
of the target market’s needs and the compe��ve
advantages inherent to the brand. Successfully posi�oned
brands are clearly understood by the intended audience.
They are aware of the brand, understand the benefits of
using the brand, and know how the brand is
different from compe�tors’ products. The ul�mate
objec�ve of posi�oning in this regard is to provide a
brand that is understood by the intended customer as
fi�ng his or her needs and preferences be�er than any
available alterna�ves.
Both tangible and intangible perceived differences
contribute to the process of differen�a�ng a brand and
establishing the desired posi�on in the consumer’s mind.
An emphasis on the promo�on of product features related
to the substan�al, physical quali�es of the product (e.g.,
monitor screen size or resolu�on) is generally

preferred when communica�ng a posi�oning strategy for
high involvement products. The lack of substan�ve points
of differen�a�on and consumer mo�va�on to
evaluate brands for low involvement products favors
reliance on broad conceptual themes (e.g., popularity with
peers).
Without regard to the primacy of tangible or physical
characteris�cs in the posi�oning of a brand, a perceptual
dimension is invariably involved simply because the
process ul�mately takes place in the mind of the
consumer. This becomes increasingly evident over �me as
buyers learn to associate the physical characteris�cs of
the product with the brand. That is, the customer’s
percep�on of brand image or personality comes to
represent a composite of the underlying tangible traits.
This
imaging effect occurs in both B2C and B2B markets.
4/10/2019 Print
Jollibee posi�ons its brand in part on the basis of several
intangible
quali�es such as value, fun, and originality.
Associated Press
7.4 The Positioning Process

The cri�cal importance of posi�oning in driving
marke�ng mix decisions warrants the development of a
systema�c, process-oriented approach to making this core
strategic decision. The posi�oning process described here
is intended to aid managers in establishing brand image
goals and developing the strategic path to
achieve them.
Step 1: Identify the Competitive Set
Since a brand’s posi�on is defined by its rela�onship to
compe�tors’ products, it is essen�al to begin with an
understanding of who the compe�tors are. These are
not always limited to others in the immediate product
market. Consider the case of the Jollibee fast-food
restaurant chain based in the Philippines. The company
entered the U.S. market in 1998 featuring an eclec�c
menu of burgers, rice-based meals, noodle dishes, hot
dogs, pasta, and fried chicken. When evalua�ng the
market to determine Jollibee’s nearest compe�tors, it is
apparent that not all of its rivals are fast-food restaurants.
The menu items drawn from authen�c Southeast
Asian cuisine only have direct counterparts in tradi�onal,
full-service restaurants. Consequently, its compe��ve set
includes the usual fast-food alterna�ves as well
as some Asian-inspired fine dining restaurants. Similarly,
within the fast-food category, some compe�tors will be
posi�oned closer to Jollibee’s desired brand image
than others. How the company defines its target market
will determine who its closest compe�tors are.
Step 2: Determine Target Market Perceptions
Developing an effec�ve posi�oning strategy requires a
thorough understanding of the target market. This
necessitates reliable market research on the composi�on

of customer a�tudes with par�cular emphasis on the
target benefit segment of interest. The most essen�al
informa�on required to create the best possible fit
between the brand and target market is the focus of the
mul�-a�ribute model of a�tude forma�on presented in
Chapter 5. Using this approach to market
research, three cri�cal ques�ons must be answered before
the best posi�oning strategy can be determined. What
product a�ributes or benefits do these customers
use to evaluate alterna�ve brands? How important are
each of these dimensions to the construc�on of their
product-related a�tudes and decision-making? How
do each of the brands compare on the most heavily
weighted a�ributes?
Based on the responses to these ques�ons, marke�ng
managers can determine the key elements of
brand differen�a�on and posi�oning that will have the
greatest value in crea�ng the desired brand
image in buyers’ minds. These elements may be
func�onal, tangible product a�ributes or something
more abstract and conceptual. In highly compe��ve
markets, the benefits most earnestly prized by
consumers may be delivered equally well by mul�ple
compe�tors. In these cases, the focus of the
differen�a�on strategy may be on less important features
where brands are truly dis�nct from each
other or shi� en�rely to abstract a�ributes unrelated to
the performance characteris�cs of the
product.
In the case of Jollibee, the target market for its U.S.
franchises seems to be families with young
children. Research would need to determine which product
features are most important to this
segment when choosing a fast-food restaurant. The

alterna�ve tangible a�ributes could include
factors such as loca�on, availability of a kid’s menu,
variety, nutri�on, and product quality. However,
intangibles such as good value for money, a fun place, and
something different could also play a
significant role in the differen�a�on and the ul�mate
posi�oning of the brand.
Step 3: Analyze the Positions of the Brand and Its Competitors
Working from the market research collected in the
preceding stage, the next step is to evaluate the brand’s
strengths and weaknesses rela�ve to compe�tors’
brands and the target consumers’ expecta�ons of an ideal
brand. In most cases, brand perceptual maps or
posi�oning maps are created to compare compe��ve
brands on the a�ributes or benefits that the target market
regards as most important. Figure 7.2 is a simple
posi�oning map for local fast-food alterna�ves based
on the summary criteria of price and quality.
Figure 7.2: Posi�oning map for fast-food restaurants
4/10/2019 Print
Understanding how brands compete on the basis of price
and quality is o�en a first step in the development of a
more detailed and thorough understanding of the
posi�oning strategy.

Consider the specific compe��ve challenge confron�ng
Jollibee foods as a result of its decision to enter the U.S.
fast-food market. The compe��on from solidly
entrenched rivals such as McDonald’s, KFC, and Pizza
Hut poses a formidable obstacle. When evalua�ng the
strengths and weaknesses of the Jollibee brand concept
against these alterna�ves, marke�ng managers might
iden�fy opportuni�es along several important dimensions.
In terms of menu variety and uniqueness, for
example, the product array offered by this newcomer
differs substan�ally from the usual mix of fast-food
op�ons available in most markets. In addi�on, an
uncompromised focus on serving children and their parents
might also provide a significant and valued point of
product differen�a�on. However, although this new
franchise would need to provide good value for money in
mee�ng the needs of its target market, the ability to
compete directly on price with price leaders such as
McDonald’s may not be feasible.
Posi�oning maps are a par�cularly useful tool for
marketers since they can be used to provide visual
representa�ons of how rival brands are perceived. These
charts can be designed to convey the informa�on in any
manner the user finds most helpful. Sta�s�cal techniques
such as mul�dimensional scaling (MDS) enable
researchers to display more than two product a�ributes on
the same map by transla�ng data into a visual
representa�on of the pa�ern of similari�es between
objects. In Figure 7.3, MDS is used to plot research data
on customers’ percep�ons of compe�ng car brands.
Brands perceived to be most like each other are
nearest each other, and those most different from one
another are placed at a greater distance.
Figure 7.3: Mul�dimensional scaling illustrates elements of

brand posi�oning
4/10/2019 Print
07conclusion,ch07… 10/16
Mul�dimensional scaling on customer percep�ons of car
brands illustrates sharp contrasts between the posi�oning
strategies of different manufacturers.
In some instances, the target customers’ ideal brand is
also plo�ed on posi�oning maps to provide a point of
reference. It is important to keep in mind, however,
that the best posi�oning strategy for any given brand is
not simply to provide the maximum level of performance
or benefit on one specific a�ribute. Rather, it is
the unique combina�on of features and benefits that
determines how successfully a brand will appeal to its
target market.
Step 4: Determine Combination of Attributes
When all customers within a target market converge on a
common ideal brand posi�on, each firm will compete for
their business by posi�oning its brand as near
to the ideal point as possible. Since no brand can ever be
perfect in this respect, the resul�ng posi�oning strategy
for each compe�tor is a compromise between
providing a li�le more of one a�ribute at the expense of
another. Consumers respond to the alterna�ve pairings of
a�ribute levels according to their personal
preferences and the product’s price. This is consistent with

buyer percep�ons of product value (Chapter 2) as the
buyer’s es�ma�on of the overall bundle of
benefits received from the product rela�ve to the price
paid to acquire them. The trade-offs that target customers
make in this situa�on reflects their personal
valua�ons of the importance and worth a�ached to each
product a�ribute or benefit.
The alterna�ve situa�on exists when more than one ideal
point exists within a target market. For example, buyers
may want both whiter teeth and fresher breath
from the toothpaste they buy, but the specific importance
of each benefit and the preferred combina�on of benefits
shi�s from one subset of the target market to
the next. In this case, the strategy for each compe�tor is
to provide the best possible fit of its brand with a
por�on or microsegment of the target market by
posi�oning closest to a demand cluster.
In both instances, the essence of the posi�oning strategy
is to deliver a combina�on of product benefits that meets
the needs of the customer be�er than
alterna�ve brands. This usually entails the considera�on
of more than two product a�ributes, however, since price
is also an important factor in many buyers’
decisions. The rela�ve importance of product price to the
value equa�on for any given segment of the market is
ini�ally iden�fied in the process of market
segmenta�on that precedes posi�oning analysis.
The final determina�on of the best combina�on of
a�ributes to occupy the desired posi�on in target
consumers’ minds is a pivotal point in marke�ng the
brand.
All of the marke�ng mix decisions for this brand follow
from this determina�on. In terms of the overall

compe��ve strategy for the brand, it specifically
establishes
the primary bases and direc�on for differen�a�ng one
brand from the others.
Think About It
Go to Jollibee’s website (h�p://www.jollibeeusa.com/
(h�p://www.jollibeeusa.com/) ) and read about the
company’s mission, values, and vision. Review the
informa�on provided under the “About Us” tab to get a
clear sense of the corporate culture. Then review the
Menu and Services sec�ons in detail.
Based on the informa�on that you have acquired about
Jollibee and your exis�ng knowledge of its fast-food
compe�tors, how do you think the company should
compete in the U.S. market?
Specifically, what combina�on of a�ributes and benefits
will enable Jollibee to occupy the desired posi�on in
target consumers’ minds?
http://www.jollibeeusa.com/
4/10/2019 Print
Volkswagen built its early reputa�on in the United States
on

product reliability.
Transtock/SuperStock
7.5 Differentiation Strategies for Products
Product differen�a�on is the process of meaningfully
dis�nguishing one product or brand from another in a
way that renders it more appealing to a given target
market. The strategic intent is to provide the brand with a
sustainable advantage over compe�tors. This means
providing buyers with value-added differences or
product improvements that directly contribute to greater
customer sa�sfac�on. Ideally, the basis for differen�a�ng
one brand from the pack should also be difficult
for compe�tors to imitate.
There are three poten�al sources for differen�a�ng one
brand from compe�tors within the category: tangible brand
a�ributes, perceived product benefits, and
price. Price advantages, as discussed in previous chapters,
are typically grounded in economies of scale and
experience curve effects. Consequently, it is an op�on
usually reserved for the larger compe�tors within an
industry. Differen�a�on strategies based on product
a�ributes or benefits can be built into the brand in many
ways. The annotated list of differen�a�on factors provided
here iden�fies several of the variables most commonly
used to differen�ate one brand from another.
Physical Appearance: Form, Shape, Style, and Size
One of the most obvious differences between compe�ng
brands in any given product category is the
physical appearance. Many successful brands can be
readily recognized simply from the shape of the
product or packaging. Consider, for example, the

dis�nc�ve shape of a Volkswagen Beetle, a KFC
bucket, or a Pringle’s potato chip. The appeal of
economy-sized packaging or convenience-sized
products depends on the buyer’s lifestyle.
Although style preferences are subjec�ve ma�ers, the
styling of a product is a physical or tangible
a�ribute. Many consumer products are differen�ated
primarily on style-related dimensions. For some
market segments, style is the primary determinant and the
course of brand preference for everything
from cars and clothes to mountain bikes and home
appliances.
Colors also play a significant role in product
differen�a�on. Consider how fan percep�ons of NFL and
college football teams are �ed to the team colors. Would
McDonald’s or Wendy’s seem the same if
their familiar signage were in black and green? If Black
& Decker power tools weren’t black and
orange anymore, would they s�ll be the same?
Product Features and Attributes
Product features are the elements of the product that
relate to its basic u�lity or func�ons. They are the
a�ributes that improve or impede the func�onal value or
opera�on of the product. Core features are those that are
essen�al to the product’s func�on (e.g., a fuel-injected
engine in a car). Supplemental features are those
elements that enhance the level of performance (e.g. a
fuel-injected engine with a supercharger). Most consumer
goods categories include several brands with
added features that enhance product performance. With
respect to how new features are included and incorporated
into exis�ng brands, marke�ng managers need

to be par�cularly mindful that buyers are responding to
the overall bundle of benefits being sold. Consequently,
addi�onal features must be consistent with the
target segment’s expecta�ons of product quality and
compa�ble with their percep�on of the brand’s image.
Think About It
Product features are a key element in differen�a�ng one
brand from another. However, the natural forces of
compe��on make it difficult to sustain meaningful
differen�a�on on this basis for very long in most
markets. Consider how quickly consumer electronics evolve
over �me. New features that are ini�ally unique to
one brand are quickly copied by rivals.
Patents seem to provide limited protec�on in this regard.
Why?
What other steps can marketers take to extend the
effec�ve life of brand differen�a�on strategies that are
rooted in tangible, physical features?
Adding new features can accomplish several objec�ves for
marke�ng managers. It can renew customers’ interest in a
brand and keep it current with respect to
shi�ing consumer priori�es. Environmentally friendly,
minimal packaging designs and the use of post-consumer
recycled materials are opportuni�es for packaged
goods companies to respond to the contemporary concerns
of many buyers. New features can also be an effec�ve
strategy for extending a brand’s reach to markets
or market segments. Specializing products to provide a
be�er fit with the preferences of new clusters of buyers
is an example of the mul�ple-segment
specializa�on strategy introduced in the previous chapter.

The risks of adding addi�onal product features to
differen�ate a brand are associated with losing sight of
what the customer wants. Whether trying to improve the
brand’s fit with exis�ng buyers’ preferences or pursuing
an en�rely new target market, marke�ng managers need
to make decisions based on a sound
understanding of what customers are seeking from the
product they are buying. Too o�en, the tendency is to
add features because we can, because compe�tors
already have, or because management believes it would
improve the product.
The addi�on of new features, as with other bases for
brand differen�a�on, comes with costs a�ached. The most
common costs relate to produc�on and promo�on
of the new product element, though new distribu�on-
related costs are almost inevitable when any changes are
made to standardized consumer goods. As with
4/10/2019 Print
Cra�sman built its brand image on the trust customers
had in the
Sears brand name.
Ge�y Images News/Ge�y Images
every element of the marke�ng plan, the costs associated
with altera�ons to the brand’s core or supplemental

features must be treated as investment in future
sales and evaluated based on their projected rate of
return.
Performance Level and Consistency
Performance level refers to the brand’s opera�onal
capabili�es with respect to the product’s essen�al
func�onal a�ributes. In short, how well does it do what
it is
intended to do? The performance level and quality of a
brand are primarily compara�ve measures. Prospec�ve
buyers typically have a range of choices that
correspond to the trade-offs between price and quality,
called product value. The extent to which consumers are
willing to pay more for be�er performance and
product quality determines their percep�ons of value.
Dis�nguishing between groups of buyers along the value
preference dimension is a common way to segment
product markets. Sears and Best Buy are among the stores
best known for using this approach, breaking down
product lines into good, be�er, and best categories.
Marke�ng managers need to iden�fy the preferences
within their target markets and create product offerings
that correspond to the range of performance levels
their buyers desire. The brand op�ons made available by
compe�tors will also impact product posi�oning strategies
in this regard. As product markets grow
increasingly mature and compe��ve, companies need to
differen�ate their brands by providing be�er overall value
than compe�tors’ brands. This requires
providing buyers with higher levels of quality and
performance for the same or less money.
Maintaining consistent and reliable levels of product

performance and quality over �me is essen�al to building
a valued brand image, a trusted iden�ty, and
posi�ve brand equity. Consistency extends beyond the
quality of the product itself to other marke�ng mix
considera�ons. The promo�onal strategy for the brand
must shape and reinforce a consistent percep�on of the
brand over �me. The distribu�on strategy and all of the
elements of the supply chain must work together
to ensure reliable availability of the brand. If a product is
unavailable, some poten�al new customers will be
forfeited to those brands that are on the shelves; some
previously loyal buyers could be lost once they are
compelled at try an alterna�ve brand due to stock-outs.
Durability
The meaning of product durability is highly variable and
relates to the nature of the product being sold. It is a
usually a measure of how long a product will
con�nue to exist or perform as it was designed to work
without significant deteriora�on or loss of func�on. In
B2B contexts, it is frequently used to refer to the
opera�onal effec�veness, efficiency, or capacity of a
product when it is being used under rou�ne condi�ons.
The value of durability is greater for some types of
products than other. Many inexpensive products within a
category (e.g., $3 wristwatches), convenience
purchases (e.g., Styrofoam coolers), and fashion-specific
purchases (e.g., a purse to match shoes) are not bought
with durability in mind. For other types of
products, however, the brand’s reputa�on for long-las�ng
performance warrants substan�al price premiums in the
market. Dr. Martens boots, Cra�sman tools,
Maytag appliances, and Oshkosh B’Gosh clothing are some
of the brands that have built their brand image on

durability. However, B2C products that excel in this
area can be found in almost every conceivable product
category.
Other Differentiation Factors
The range of possible bases for differen�a�ng one
product from another includes other possibili�es
as well. The choice of distribu�on channels and retail
outlets can make a significant impact on how
prospec�ve buyers view alterna�ve brands. The
manufacturer’s provisions for obtaining service a�er
the sale, product warran�es, and the perceived ease of
repairing a damaged product also can be
used to differen�ate brands. And promo�onal messages
and themes, independent of the tangible
characteris�cs of the brand, always provide an opportunity
to establish a unique brand image or
personality within the target market.
Many goods sold in both B2C and B2B markets are a
composite of both products and services. When
parity exists between the product dimension of
compe�tors, companies o�en seek to differen�ate
their brand along service lines. Further, many valued
goods consist almost exclusively of services,
such as educa�on, health care, and financial and legal
services. In both situa�ons, differen�a�ng
services and service providers from each other
encompasses some unique opportuni�es and
challenges for marke�ng managers since services
themselves are largely intangible.

4/10/2019 Print
Domino’s Pizza rose to prominence as a
na�onal chain with its 30-minute delivery
guarantee.
Associated Press
7.6 Differentiation Strategies for Services
The character of services can make them difficult to
differen�ate from one another. Since services are
intangible, they cannot be easily displayed or
demonstrated.
All of the physical appearance bases of differen�a�on
associated with products have li�le relevance. The quality
of services is typically dependent on and
inseparable from the talents of the service provider and,
in many instances, services are produced and consumed
simultaneously (e.g., educa�on, dental care).
Overall, the quality of services provided is o�en more
difficult for buyers to evaluate than product quality. These
characteris�cs render conven�onal product
segmenta�on bases much less useful.
In both business-to-consumer and business-to-business
markets, the most commonly used bases for differen�a�ng
brands of services are order and delivery;
installa�on and instruc�on; and maintenance, repair, and
complaint response. Each of these features represents ways
in which service managers can provide added
value and higher levels of service quality.

Order and Delivery
To be of value, a service needs to be provided where and
when the buyer wants it, regardless of whether the good
being
sold is en�rely a service or primarily a product. One way
that marketers can help bridge the gaps posed by �me
and space
is to make the process of placing an order as simple and
straigh�orward as possible. Increasingly, for almost every
type of
hybrid product/service sold, this means online ordering.
For these products, the online environment provides the
ini�al
point of buyer–seller contact and interac�on. Whether
ordering a pizza for delivery, buying e-books, or
scheduling a
plumber, the simplicity and ease of the ordering process
has a direct bearing on buyers’ willingness to return to
the site on
future occasions.
Delivering the product or service to the customer is of
equal or greater importance to crea�ng customer
sa�sfac�on. The
dimensions of importance to product delivery include speed
and accuracy. High levels of performance on these two
elements are typically expected by customers as a ma�er
of professionalism in B2C markets and basic competence
in B2B
markets. Failure to meet customer expecta�ons in terms of
providing quick, on-�me delivery will create nega�ve
differen�a�on of the brand or service provider in buyers’
minds.

Installation and Instruction
For goods that have a substan�al service component,
installa�on may be required. This refers to all of the
ac�ons required
to make the product perform in accordance with its
intended opera�on and the seller’s commitment. This
includes
everything from se�ng up household appliances (e.g.,
washers and dryers) to large commercial installa�ons that
may
require weeks to complete (e.g., enterprise applica�on
so�ware, oil refinery processing equipment).
In many instances, a customer’s employees will also
require specialized training services from the seller on
how to properly
use the equipment. In some B2B contexts par�cularly,
complex products require substan�al instruc�onal or
consul�ng
services for a lengthy period following the ini�al sale.
These services may be provided on-site or online.
Increasingly, sellers use online videoconferencing to help
buyers learn how to make the best use of the products
they have purchased.
Maintenance, Repair, and Complaint Response
Once the ini�al purchase and installa�on have been
completed, many types of products require extended
service a�er the sale. The maintenance and repair service
features provided by a company are intended to maintain
the product in good working order and keep the ongoing
rela�onship with the buyer on the best possible
terms. It provides opportuni�es at regular intervals for the
seller to renew his or her commitment to customer

sa�sfac�on and reinforce a posi�ve brand image
through the provision of necessary services. Complaints
from buyers should be regarded as irregular or unplanned
opportuni�es to preserve or create sa�sfied
customers.
The quality of post-sale customer service varies
substan�ally across many product categories. Consequently,
excellent service a�er the sale provides opportuni�es
to posi�vely differen�ate one brand from many of its
compe�tors. The efficiency and effec�veness of a firm’s
response to customers’ calls for help with products
impacts more than how one specific buyer feels about the
seller. Their level of sa�sfac�on with these encounters is
reflected in both informal (e.g., word-of-mouth,
blog pos�ngs) and formal (e.g., published customer
sa�sfac�on ra�ngs) communica�ons. Companies noted for
their excellence in service a�er the sale recognize
that prompt and helpful responses to their customers’ most
urgent concerns have a dispropor�onately great impact on
customer loyalty.
4/10/2019 Print
Ch. 7 Conclusion
The primary strategic goal of brand differen�a�on is to
shape a unique brand image and capture a compe��ve
posi�on that be�er meets the preferences of the

target market than compe�ng brands. Market segmenta�on,
brand posi�oning, and product differen�a�on combine to
reduce the threats posed by direct
compe��on in the product market category. As the
iden�ty of brands becomes thoroughly integrated into the
minds of consumers, the costs of compe�ng
decrease, unit margins increase, and opportuni�es to build
on the equity of a well-established brand become evident.
In most cases, successful differen�a�on will shi� the
nature of the brand’s marke�ng emphasis farther away
from price-based compe��on to value- and benefit-
oriented approaches. When successful, this enhances the
perceived value of the product for the target market and
reduces buyers’ price sensi�vity, thereby
crea�ng opportuni�es to maintain a premium pricing
strategy. One consequence of this shi� is to increase the
rela�ve prominence of distribu�on and promo�onal
strategies in the marke�ng mix. The unique contribu�ons
of market segmenta�on, brand posi�oning, and product
differen�a�on to the development of a firm’s
compe��ve marke�ng strategies are examined in Chapter
8.
4/10/2019 Print
Ch. 7 Learning Resources
Key Ideas

Cri�cal Thinking Ques�ons
1. Based on your personal experiences, do you think that
consumers are consciously aware of how brands work? Under
what circumstances might buyers realize that
a specific experience with a product is impac�ng their a�tude
toward the brand?
2. Brand loyalty is typically much stronger for consumers over
the age of 50 than for younger age segments. Why do you
suppose that this is true? Are future
genera�ons of consumers more or less likely to be brand loyal?
3. Brand loyalty requires posi�ve reinforcement over �me.
Would a bad personal experience with a brand do more damage
to brand loyalty for low or high
involvement products? Why?
4. Many consumers regard the the� or piracy of downloaded
music, computer games, and movies as “less wrong” than
stealing the same products from store shelves.
Why do you think they might feel this way? What can sellers do
to counteract that belief?
5. It was stated that brand equity can be measured by the price
premium consumers are willing to pay for a brand rela�ve to its
generic alterna�ve. Under what
circumstances might this be misleading?
6. Brand posi�oning is a central concept within marke�ng
management since all marke�ng mix decisions are driven by
posi�oning strategy. What would happen if a
manager tried to develop a marke�ng plan without first
reaching a decision on brand posi�oning?
7. Brainstorm with your colleagues to come up with a new

restaurant concept for your community. Iden�fy the target
market. Determine how to differen�ate it from
compe�tors. Work through the four-step model for developing a
posi�oning strategy. Did you work through an itera�ve process
or a fairly linear one to reach the
final posi�oning strategy? Why?
8. Based on the work you completed for the previous ques�on,
iden�fy all of the different types of bases that you might use to
differen�ate a restaurant from its
compe�tors. Name which ones you are most unlikely to use and
explain why.
9. When devising a differen�a�on strategy for a
product/service hybrid, would you be more likely to focus on
the product features or service features? Provide
examples to support your answer.
Key Terms
Click on each key term to see the defini�on.
brand
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ooks/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.
12
A name, term, design, symbol, or any other feature that
iden�fies one seller’s good or service as dis�nct from
those of other sellers.
brand associa�ons

12
The posi�ve and nega�ve impressions that consumers link
to the outcomes related to buying and using a specific
brand. They are reflec�ons of the perceived brand
image.
brand awareness
12
A general measure of consumers’ knowledge of the
existence of a brand; the first preliminary step in the
purchase decision process that ul�mately leads to a sale.
brand equity
12
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4/10/2019 Print
The value of a brand based on consumer a�tudes about
posi�ve brand a�ributes and the favorable consequences
of brand use. It is a mul�faceted construct
defined by five underlying classes of assets: brand loyalty,
brand awareness, perceived quality, brand associa�ons, and
other proprietary assets.
brand image
12
The percep�on of a brand in the minds of current and
prospec�ve buyers; a composite of what the brand means
to buyers in terms of their a�tudes and
expecta�ons. Some�mes referred to as brand iden�ty or
brand personality.
brand loyalty
12
The reliable tendency of consumers to consistently
purchase the same brand within a given product class.
microsegment

12
A term used to describe a small, limited, precisely
iden�fied division of a market. It refers to a targeted
sub-segment or component of a larger defined segment.
mul�dimensional scaling (MDS)
12
A set of related sta�s�cal techniques that enables
researchers to visualize informa�on in ways that help
iden�fy pa�erns of similari�es or dissimilari�es in data.
MDS can display informa�on about two or more product
a�ributes on a perceptual map to evaluate the perceived
distances between compe�ng brands.
perceived quality
12
The consumer’s subjec�ve opinion of of a brand’s or
product’s capability to meet his or her expecta�ons and
product-specific needs.
posi�oning process

12
A four-step model used to iden�fy the best posi�oning
strategy for a brand. Steps include iden�fying the
compe��ve set, determining target market percep�ons
and determinant a�ributes, analyzing compe�tors, and
determining the a�ributes required to meet posi�oning
objec�ves.
price premium
12
The addi�onal monetary value that a customer will spend
for a specific branded product above and beyond the retail
price associated with generic or unbranded
compe�tors.
product differen�a�on
12
The process of meaningfully dis�nguishing one product or
brand from another in a way that renders it more
appealing to a given target market.
product posi�oning
12

The way that consumers view compe��ve brands or types
of products. The term is also commonly used to describe
the strategy or strategic plan that is developed
to achieve the intended posi�on in the market rela�ve to
compe�ng brands.
proprietary assets
12
Tangible or intangible items that contribute posi�ve
economic value to a brand. This includes legally protected
intellectual property such as patents, trademarks,
and copyrights.
top-of-mind awareness
12
A measure indica�ng which brand is first recalled when
customers are prompted by the name of the product
category.
Web Resources
This website links to a long and detailed PowerPoint
presenta�on on the topic of product posi�oning that was
created by Dr. Ed Forrest, a professor of marke�ng at
the University of Alaska–Anchorage. It is very informa�ve
on the topic of brand posi�oning strategy and contains
many good examples and illustra�ons.
h�p://www.cbpp.uaa.alaska.edu/afef/BA343-wk5-

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