building successful brand on the internet

A DISSERTATION
S
UBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF A
MASTERS IN BUSINESS ADMINISTRATION (MBA)
AT THE
UNIVERSITY OF CAMBRIDGE







ROBIN S. CLELAND
SEPTEMBER 2000
O N T H E I N T E R N E T
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BUILDING SUCCESSFUL BRANDS ON THE INTERNET

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CONTENTS
SUBJECT PAGE


1.1 Overview 7
1.2 Objectives 9
1.3 Methodology 9

1.4 Structure 11


2.1 Introduction 13
2.2 What is a Brand? 13
2.3 The Layers of a Brand 14
2.4 Product and Service Brands 15
2.5 Branding & the Buying Process 16
2.6 The Importance of Customer Satisfaction and Loyalty 18
2.7 Emotional Loyalty 19
2.8 The Concept of Brand Equity 20
2.8.1 The Value of Brands to Customers 22
2.8.2 The Value of Brands to Companies 22
2.9 Conclusion 23


3.1 Introduction 25
3.2 Overview of the Brand-Building Process 25
3.3 The Value Proposition 26
3.3.1 Added Value 27
3.3.2 Distinctive Brand Identity 28
3.4 Developing the Framework and Communicating the Value Proposition 30
3.5 Building Customer Relationships 31
3.6 Characteristics of Successful Brands 32
3.7 Conclusion 32



CHAPTER 1 INTRODUCTION 6
CHAPTER 2 THE NATURE OF BRANDS 12

CHAPTER 3 BUILDING BRANDS 24
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

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4.1 Introduction 34
4.2 Overview of the Internet 34
4.2.1 The Defining Characteristics of the Internet 35
4.3 The Growth of the Internet 35
4.4 The Internet & e-Commerce 39
4.5 The Impact of the Internet on Business 40
4.6 Conclusion 43


5.1 Introduction 45
5.2 The New Dynamics of Brands 45
5.3 The Importance of Customer Loyalty Online 47
5.4 Increasing Returns Economics and First-Mover Advantage 48
5.5 Viral Marketing 50
5.5.1 The Case of Hotmail.com 51
5.6 The Online Experience & The 7Cs Framework 52
5.7 The Interactive Brand-Building Model 57
5.8 Limitations of Brand-Building on the Internet 59
5.9 Conclusion 60


6.1 Introduction 62
6.2 Case Study: Amazon.com 62
6.2.1 Company Overview 62
6.2.2 Value Proposition 62

6.2.3 Sources of Value - The 7Cs Framework 64
6.2.4 Brand-Building Strategy 66
6.2.5 Other Factors that Contribute to their Brand Leadership 69
6.2.6 Conclusion 70
6.3 Case Study: BarnesandNoble.com 71
6.3.1 Company Overview 71
6.3.2 Value Proposition 72
6.3.3 Sources of Value - The 7Cs Framework 72
6.3.4 Brand-Building Strategy 73
6.3.5 Conclusion 75
CHAPTER 4 THE INTERNET 33
CHAPTER 5 BUILDING BRANDS ON THE INTERNET 44
CHAPTER 6 CASE STUDIES 61
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

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6.4 Case Study: Boo.com 76
6.4.1 Company Overview 76
6.4.2 Value Proposition 76
6.4.3 Sources of Value - The Failure of Boo.com 77
6.4.4 Brand-Building Strategy 78
6.4.5 Conclusion 79
6.5 Case Study: CDnow 80
6.5.1 Company Overview 80
6.5.2 Value Proposition 80
6.5.3 Sources of Value - The 7Cs Framework 81
6.5.4 Brand-Building Strategy 83
6.5.5 Other Factors that Contribute to their Brand Leadership 84
6.5.6 Conclusion 85
6.6 Case Study: eBay 86

6.6.1 Company Overview 86
6.6.2 Value Proposition 86
6.6.3 Sources of Value - The 7Cs Framework 87
6.6.4 Brand-Building Strategy 91
6.6.5 Conclusion 92
6.7 Case Study: Gap.com 93
6.7.1 Company Overview 93
6.7.2 Value Proposition 93
6.7.3 Sources of Value - The 7Cs Framework 94
6.7.4 Brand-Building Strategy - Extensive Integration 96
6.7.5 Conclusion 97
6.8 Case Study: Yahoo! 98
6.8.1 Company Overview 98
6.8.2 Value Proposition 98
6.8.3 Sources of Value - The 7Cs Framework 99
6.8.4 Brand-Building Strategy 102
6.8.5 Other Factors That Contribute to their Brand Leadership 104
6.8.6 Conclusion 104


7.1 Conclusion & Discussion of Key Findings 106
7.1.1 Key Factors that Contribute to Building a Successful Online Brand 107
7.2 Opportunities for Further Research 110


Appendix A Interbrand's Ranking of the Top 60 Brands 112
Appendix B The Mckinsey 7S Framework 113
CHAPTER 7 CONCLUSION 105
APPENDICES 111
BIBLIOGRAPHY 114

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

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Figure 1.1 Years to Reach $100 million in Sales 7
Figure 1.2 Research Methodology 9
Figure 2.1 A Brand is More Than a Product or Service 13
Figure 2.2 Layers of a Brand 14
Figure 2.3 Five-Stage Model of the Buying Process 16
Figure 2.4 Steps Between Evaluation of Alternatives and a Purchase Decision 17
Figure 2.5 The Satisfaction-Loyalty Relationship 18
Figure 2.6 Creating Emotional Loyalty 20
Figure 2.7 Brand Progression 20
Figure 2.8 Brand Equity 21
Figure 3.1 Brand-Building Mechanism 25
Figure 3.2 Define the Value Proposition 26
Figure 3.3 Kapferer's Brand Identity Prism 29
Figure 3.4 The Innovation-Adoption Model 30
Figure 4.1 The Three Layers of the Internet 34
Figure 4.2 Growth in Internet Host Computers and Major Developments 36
Figure 4.3 Accelerated Rate of New Technology Acceptance 36
Figure 4.4 The Virtuous Growth Cycle of the Internet 37
Figure 4.5 What are People Doing Online? 38
Figure 4.6 World-wide Commerce on the Internet (1998-2003) 39
Figure 4.7 The Structure of an Online Company 43
Figure 5.1 The Network Effect 48
Figure 5.2 The Virtuous Spiral of Online Growth 49
Figure 5.3 The 7Cs Framework 52
Figure 5.4 Factors Affecting Web Brand Loyalty 53
Figure 5.5 The Community Hexagon 55

Figure 5.6 Customer Access to Information 56
Figure 5.7 The Interactive Brand-Building Model 57
Figure 5.8 Website Promotion Methods - Popularity & Effectiveness 58
Figure 5.9 Categories Suitable for Interactive Marketing 60
Figure 6.1 Overview of Amazon.com's Website 64
Figure 6.2 Amazon.com's Associates Programme 67
Figure 6.3 Overview of BarnesandNoble.com's Website 72
Figure 6.4 Overview of Boo.com's Website 77
Figure 6.5 Overview of CDnow's Website 81
Figure 6.6 Overview of eBay's Website 88
Figure 6.7 Overview of Gap's Website 94
Figure 6.8 Overview of Yahoo!'s Website 100
Figure 6.9 Overview of My Yahoo! 101
LIST OF FIGURES
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

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

LIST OF TABLES
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

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CHAPTER 1

INTRODUCTION

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

7
1.1 OVERVIEW

Over the past few years, there has been an explosion in the online world - an explosion that is
also a harbinger of how business will operate in the future. Supply chains are being re-
thought, products and services reconfigured, and business models revamped. As such, the
Internet is having a profound impact on the way business is being conducted in ways that are
often disruptive to traditional methods
1
. This is creating new challenges and opportunities.

The Internet provides the opportunity for companies to reach a wider audience and create
compelling value propositions never before possible (e.g. Amazon.com's range of 4.5 million
book titles), while providing new tools for promotion, interaction and relationship building. It
is empowering customers with more options and more information to make informed
decisions. The Internet also represents a fundamental shift in how buyers and sellers interact,
as they face each other through an electronic connection, and its interactivity provides the
opportunity for brands to establish a dialogue with customers in a one-to-one setting. As
such, the Internet is changing fundamentals about customers, relationships, service and
brands, and is triggering the need for new brand-building strategies and tools.

In the midst of this, aggressive Internet start-ups have emerged, creating strong brands that
are putting established brands at risk. Internet companies such as Yahoo!, Amazon.com,

America Online (AOL) and eBay have been able to build powerful brands in a few years,
whereas it has taken decades for traditional companies to achieve the client base, customer
affiliation and level of sales, that these Internet start-ups have achieved. Figure 1.1 shows the
number of years it has taken some Internet brands to reach sales of $100 million.








Source: Securities and Exchange Commission Filings; McKinsey Analysis (www.mckinseyquarterly.com)
5.1
3.2
3.9
3.5
2.0
1.7
2.9
0
1
2
3
4
5
6
CDnow Onsale.com
1
Amazon.com

Cyberian
Outpost
eBay
Barnesand
noble.com
Priceline.com
FEBRUARY
1994
JULY
1994
MARCH
1995
SEPTEMBER
1995
MARCH
1997
JULY
1997
JULY
1994
DATE OF
INCEPTION
1
Since merged with Egghead.com
FIGURE 1.1 - YEARS TO
R
EACH $100 MILLION IN SALES
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

8

As a result, harnessing the reach and interactivity of the Internet to build and maintain brands
has become extremely important. For pure online players, who are essentially intangible,
brands are even more critical as customers have little to go on other than a recognised brand.
Given the tremendous clutter in today's e-commerce marketplace, and the high cost of
acquiring online customers
2
, the most successful sites will be those that can attract customers
and build brand loyalty and enthusiasm, that extends the brand-customer relationship beyond
a single transaction. A Business Week / Harris poll, found that 57% of Internet users go to
the same sites over and over again, rather than drifting from site to site
3
.

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


1
Christensen, C., & Overdorf, M., 'Meeting the Challenge of Disruptive Change', Harvard Business Review, March - April
2000, Volume 78 Issue 2, pp. 66-76
2
Hoffman, D. L. and Novak, T. P., 'How to Acquire Customers on the Web', Harvard Business Review, May-June 2000
3
Hof, R., Browder, S., & Elstrom, P., 'Internet Communities - Forget Surfers. A New Class of Netizen is Settling Right In' -

Business Week, May 5, 1997, p.66
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

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1.2 OBJECTIVES

The objectives of this dissertation are as follows:

• To gain an understanding of the role of brands and how they have traditionally been built.
A review and analysis of leading academic thinking will be used to explore these issues.

• To explore how the Internet is changing the brand-building environment, and to identify
new sources of value, tools and strategies to build brands on the Internet.
Academic literature and an analysis of the impacts of the Internet will be used to
investigate these factors, supported by secondary data related to aspects of online
business from accredited and published sources.

• To identify the key factors and characteristics that contribute to the development of
successful Internet brands.
This is based on the outcome of the primary research (in-depth case studies), with
reference to the theoretical themes that emerge from the literature review and in terms of
the practical implications for companies.


1.3 METHODOLOGY

The methodology used in this dissertation is illustrated in Figure 1.2.

ACADEMIC RESEARCH
SECONDARY DATA
CASE STUDIES CONCLUSIONHYPOTHESIS
The 7Cs Framework
& The Interactive
Brand-Building Process
FIGURE 1.2 -
R
ESEARCH METHODOLOGY
Primary Data
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

10
Academic Research: Given that the Internet is such a new area, there is more work in popular
rather than academic literature. Consequently, the literature review draws on leading
academic thinking in more established areas such as brand management, relationship
management, marketing, strategy and economics. The absence of academic literature on
Internet branding posed a major obstacle, however, this also highlights the true value of the
dissertation. While there is no attempt, nor desire, to provide an in-depth analysis of the
psychological and social dimensions of brands, certain key factors are highlighted in their
relevance to the dissertation.

Secondary Data: This consists primarily of key facts and survey results quoted by leading
consultancy and research firms, and is used to provide insight into some of the factors that
contribute to the development of successful brands.

Hypothesis (Framework): This is based on the literature review and secondary data. The
resulting 7Cs Framework and Interactive Brand-Building Model outline key sources of added
value and the tools available for companies to create a high-impact customer experience that
is critical in building an online brand. These are further refined using the insight obtained
through the case studies.

Case Studies: The dissertation is essentially built on the in-depth analysis of the brand-
building efforts of seven online companies. The case studies include born-on-the-web
companies that are among the most recognised Internet Brands (Amazon.com, CDnow,
eBay and Yahoo!), traditional 'bricks-and-mortar' companies that rose to the challenge of
taking their brands to the Internet (Barnesandnoble.com and Gap.com), as well as a recent
Internet failure (Boo.com). The combination of cases provides a useful and practical insight
into brand-building issues and problems, and factors that contribute to a brand's success.

Conclusion: Discusses the key findings and areas for further research.
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

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1.4 STRUCTURE

The next chapter, Chapter 2, provides an analysis of leading academic literature in relation
to branding, and introduces the core concepts that form the backbone of the dissertation. The
nature of brands, their purpose and value are discussed.

Chapter 3 explores how brands have traditionally been built, highlighting some key factors
that have contributed to brand success.

Chapter 4 provides an overview of the Internet and its defining characteristics, outlining the
key developments that have contributed to the Internet's explosive growth and accelerated
adoption. This chapter sets the context within which online brands must be built, by
outlining the impact of the Internet on the business and competitive environment.

Chapter 5 explores new strategies and tools for building brands on the Internet (the 7Cs
Framework) and the importance of creating a positive end-to-end customer experience, as
well as the interactive approach to attracting customers and building loyalty. The limitations
of the Internet in terms of brand-building are also discussed.

Chapter 6 examines the brand-building efforts of seven companies. These case studies
provide a detailed and practical insight into how leading online brands have actually built
their brands.

The final chapter, Chapter 7, summarises the key findings, and outlines the opportunities for
further research.
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

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CHAPTER 2

THE NATURE OF BRANDS

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

13
2.1 INTRODUCTION

Brands are made up of many layers and dimensions. In this chapter, these layers are
unravelled to reveal the nature of brands and their reason for existence. The chapter proceeds
to describe the influence of brands on the buying process, and the importance of customer
satisfaction and brand loyalty. The concept of brand equity is outlined, explaining the value
of brands, both to customers, and to companies. These concepts are central to brands and
brand-building, whether online or offline, and they form the backbone of this dissertation.

2.2 WHAT IS A BRAND?

According to Rita Clifton, CEO of Interbrand Newell and Sorrell - a leading specialist brand
consultancy firm - a brand is:

"a mixture of tangible and intangible attributes, symbolised in a trademark,
which, if properly managed, creates influence and generates value
4
"



This definition truly captures the essence of a brand, and highlights the importance of brand
management. Branding is about creating 'value', both for customers, and for the company.

This value stems from the products and services that companies create and bring to the market,
but extends further to encompass added values derived from factors such as the brand-customer
relationship, the brand's emotional benefits and its self-expressive benefits - see Figure 2.1.













4
Clifton, R. & Maughan, E., 'The Future of Brands', (London: Macmillan Press Ltd.), 2000, p. vii
PRODUCT
OR SERVICE
SCOPE
ATTRIBUTES
QUALITY
USES
COUNTRY
OF ORIGIN
USER
IMAGERY
SYMBOLS
SELF-EXPRESSIVE

BENEFITS
BRAND
PERSONALITY
ORGANISATIONAL
ASSOCIATIONS
EMOTIONAL
BENEFITS
BRAND-CUSTOMER
RELATIONSHIPS
BRAND
FIGURE 2.1 - A BRAND IS MORE THAN A PRODUCT OR SERVICE
Source: Adapted from Aaker, D. A, 'Building Strong Brands', (New York: Free Press), 1996, p. 74
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

14
Other common descriptions of a brand include - a 'relationship', a 'reputation', a 'set of
expectations', and a 'promise'. It is a company's promise to consistently deliver a specific set
of features, benefits, and services to customers.

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

2.3 THE LAYERS OF A BRAND

Brands are made up of four layers - the core product or service, the basic brand, the

augmented brand and the potential brand - Figure 2.2.

















PRODUCT
OR SERVICE
BASIC BRAND
AUGMENTED BRAND
POTENTIAL BRAND
Quality
Features
Packaging
Name
Design
Guarantees
Service

Credit
& Terms
Delivery
& Installation
Source: Adapted from Levitt, T., 'Marketing success through differentiation - of anything', Harvard Bu
s
iness
Review, January-February, 1980, p.86
FIGURE 2.2 - LAYERS OF A BRAND
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

15
Product / Service
At the most basic level, customers buy products to meet certain functional needs. However,
most products and services cannot survive on functionality alone as this is usually matched in
time. The most common barrier to competition is building a brand.
The Basic Brand
The basic brand consists of the "name, term, sign, symbol, or design, or a combination of
them, intended to identify the goods and services of one seller or group of sellers and to
differentiate them from those of competitors"
5
. Essentially, this should support the offering's
performance and differentiate the brand from those of competitors.
The Augmented Brand
Successful companies seek a competitive edge through the enlargement of the core product or
service, with supplementary products and services (e.g. information, quick delivery) that
enhance the customer’s total purchasing and use experience. These products and services add
value and make the offering much more difficult for competitors to emulate.
The Potential Brand
A brand achieves its potential when added values are so great that customers will not

willingly accept substitutes, even when the alternatives are substantially cheaper or more
readily available (e.g. Coca-Cola, Kodak, Levi's).

2.4 PRODUCT AND SERVICE BRANDS

Product brands are the original brand carriers. They are the historical core of branding
because they are the most prevalent, and because they most readily come to mind when
consumers are asked to recall brands.

Service Brands (intangible) are much less numerous than their product counter parts.
Intangible services are also more challenging to "package" and sell to consumers who often
have difficulty conceptualising, preferring things they can see and touch. Certain service
brands, such as in retailing, actually sell products, but the brand itself is the store, not the
products it sells - The Gap stores, Southwest Airlines and Amazon.com are examples. In
fact, this is the case with all Internet companies, as they essentially perform the function of a
'virtual' intermediary or 'infomediary' and are intangible.


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

16
2.5 BRANDING & THE BUYING PROCESS

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

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

Consumers develop a set of brand beliefs about the attributes of competing brands. These
brand beliefs make up the brand image (this concept is re-visited in Chapter 3). These beliefs
depend on their previous experiences with the brand, and the effect of selective perception,
selective distortion, and selective retention. In the evaluation stage, the consumer forms
preferences among brands and may form a purchase intention to buy the brand they prefer.
However, two factors can intervene between the purchase intention and the purchase decision
- attitudes of others and unexpected situational factors (Figure 2.4).

NEED
RECOGNITION

INFORMATION
SEARCH

EVALUATION
OF
ALTERNATIVES

PURCHASE
DECISION

POST-
PURCHASE
BEHAVIOUR
FIGURE 2.3 - FIVE-STAGE MODEL OF THE BUYING PROCESS
Source: Kotler, P., 'Marketing Management - Analysis, Planning, Implementation, and Control', (Europe:
Prentice-Hall) 8
th
Ed., 1996, p.194
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

17









If other people have had a negative experience with the brand, their negative attitude may
influence the consumer's purchase intent or vice versa. A consumer's decision to modify,

postpone, or avoid a purchase decision is heavily influenced by perceived risk. Expensive
purchases involve some risk taking. A consumer tries to deal with this by gathering
information from friends, and a preference for recognised brands they can trust.

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

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

The level of customer satisfaction will influence whether they buy the brand again and talk
favourably or unfavourably about it to others. Highly satisfied and loyal customers tend to
move directly from the need recognition stage to the purchase decision, locking out potential
competitors. Customer satisfaction and loyalty are essential to creating successful brands.



EVALUATION
OF
ALTERNATIVES

PURCHASE
INTENTION

ATTITUDES
OF OTHERS
(WORD-OF-MOUTH)

UNEXPECTED
SITUATIONAL
FACTORS

PURCHASE
DECISION
FIGURE 2.4 STEPS BETWEEN EVALUATION OF ALTERNATIVES AND A PURCHASE
DECISION
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

18
2.6 THE IMPORTANCE OF CUSTOMER SATISFACTION AND LOYALTY

According to Thomas Jones and Earl Sasser (1995)
6
, customers at the lowest and highest
ends of the satisfaction scale tend to have intense feelings about a brand and its products /
services. The customers at the bottom end of the scale are "terrorists" - those who actively
attack the brand telling others not to buy from the company. At the opposite end of the
satisfaction spectrum are "apostles" - customers who are satisfied and loyal and talk
favourably about the brand - Figure 2.5.

Loyalty is derived when customers are continuously satisfied over time. This satisfaction
encompasses the whole experience and not just a company's products or services. Customers
that are passionately or emotionally loyal are those that have built trust in a company, and
believe that it will always act in their best interest. Trust is critical for a brand's success.
Some traditional companies identified as having established a strong trust relationship with
their customers include: Disney, Federal Express, Hewlett-Packard, Johnson & Johnson,
Saturn, Southwest Airlines and Xerox
7
.



6
Jones, T., & Sasser, E., 'Why Satisfied Customers Defect' - Harvard Business Review, Nov-Dec 1995
7
Hart, C. W. and Johnson, M. D., 'Growing the Trust Relationship', Marketing Management, Spring 1999
1

2345
SATISFACTION
LOW
HIGH
LOYALTY
“HOSTAGES”
“MERCENARIES”
“TERRORISTS”
“APOSTLES”
Completely
Satisfied
Completely
Dissatisfied
HIGHLY
COMPETITIVE
ZONE

• Commodity
• Consumer
indifference
• Many
substitutes
• Low switching
costs
NON
COMPETITIVE
ZONE

• Regulated
• Proprietary

technology
• Few substitutes
• High switching
costs
FIGURE 2.5 THE SATISFACTION-LOYALTY RELATIONSHIP
& THE IMPACT OF COMPETITIVE ENVIRONMENT
Source: Jones, T., & Sasser, E., 'Why Satisfied Customers Defect' - Harvard Business Review, Nov-Dec 1995, p. 91

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

19
Loyal customers are assets. The benefits of strong customer relationships are:
- The average cost of acquiring a new customer is five times more than it costs to retain an
existing one
8

- Loyal customers tend to spend more
- Regular customers tend to place frequent, consistent orders
- Satisfied customers are the best advertisement - they provide good word-of-mouth and are
the best salespeople for the product / service
- They are willing to pay premium prices to a supplier they know and trust
- Gaining market entry or share becomes very difficult for competitors
- It is easier to communicate with them on a regular basis

2.7 EMOTIONAL LOYALTY

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

"animate" the brand, giving quasi-human qualities and relate to it as they would to humans -
consider how Coke consumers felt betrayed when Coca-Cola decided to change their
formula in 1985.

Emotional loyalty can be also created through the formation of a strong user community
around the brand. The consumer reaches emotional loyalty when membership in the brand's
user community becomes an end in itself. In this way, the brand becomes a link for people
for whom fulfilling similar aspirations is a major life theme (e.g. Harley-Davidson
motorcycle clubs). There is also clear evidence of this on the Internet, with the emergence of
"community brands
9
" such as Geocities ('home' of more than 3 million community members
'living' in 41 'neighbourhoods') and FortuneCity.com. Some established brands are
successfully developing online communities around them such as Disney and Pentax (where
professional and aspiring photographers can exchange tips and information on techniques and
equipment).

8
Peppers, D. & Rogers, M., 'The One to One Future', 1993
9
McWilliam, G., 'Building Stronger Brands through Online Communities' - Sloan Management Review, Spring 2000
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

20
Emotional loyalty leads to a deeper, almost irreplaceable bond as well as potentially to the
negative feelings of betrayal. Emotionally loyal customers build a sense of trust and two-way
commitment with the brand, which goes well beyond the satisfaction of a specific need.

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

market is essential.

2.8 THE CONCEPT OF BRAND EQUITY

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






At one extreme, there are brands that are unknown by most buyers. Some brands have a
fairly high degree of brand awareness (measured by brand recall and recognition). Beyond
this, there are brands that customers perceive as acceptable and would not resist buying. A
stronger brand enjoys a high degree of brand preference over competing brands. However, a
'powerbrand' tends to have a high degree of brand loyalty, whereby customers would be
unwilling to substitute it with competitors' offers.

UNKNOWN
BRAND

BRAND
AWARENESS

BRAND
PREFERENCE

BRAND
ACCEPTABILITY

BRAND
LOYALTY
FIGURE 2.7 - BRAND PROGRESSION
• Congruence with Life
Themes

• Accomplishment of
Life Projects

• Resolution of Current
Concerns
TRIGGERS PATHWAYS THRESHOLDS

Brand
Personification

Community as
an End in itsel
f

User
Community
Personal
Relationship
with the Brand
EMOTIONAL
LOYALTY
FIGURE 2.6 - CREATING EMOTIONAL LOYALTY
Source: Fournier, S., 'Consumers and Their Brands: Developing Relationship Theory in Consumer Research',
Journal of Consumer Research, March 1998, pp. 343-373.

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

21
A strong brand is said to have high brand equity, which is the value of the brand over and
above its commodity value. According to David Aaker (1991), brand equity "is a set of
assets (and liabilities) linked to a brand's name and symbol that adds to (or subtracts from)
the value provided by a product or service
10
".

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

10
Aaker, D., 'Managing Brand Equity: Capitalising on the Value of a Brand Name', (New York: Free Press), 1991


BRAND
EQUITY

FIGURE 2.8 - BRAND EQUITY
Source: Aaker, D., 'Managing Brand Equity: Capitalising on the Value of a Brand Name', (New York: Free Press), 1991
Provides Value to
Customer by
Enhancing Customer's:
• Interpretation /
processing of
information
• Confidence & Trust
in the purchase
decision
• Use satisfaction
Provides Value to Firm
by Enhancing:

• Efficiency and
effectiveness of
marketing programs
• Brand loyalty
• Prices / margins
• Brand extensions
• Trade leverage
• Competitive
advantage

BRAND
LOYALTY

OTHER
PROPRIETARY
BRAND ASSETS

PERCEIVED
QUALITY

BRAND
ASSOCIATIONS

BRAND
AWARENESS
• Reduced Marketing Costs
• Trade Leverage
• Attracting New
Customers
- Create Awareness

- Reassurance
• Time to Respond to
Com
p
etitive Threats
• Anchor to which other
associations can be
attached
• Familiarity / Liking
• Signal of Substance /
commitment
• Brand to be considered
• Reason-to-Buy
• Differentiate / Position
• Price
• Channel Member
• Extensions

• Competitive Advantage
• Help Process / Retrieve
Information
• Reason-to-Buy
• Create Positive Attitude /
Feelings
• Extensions

BUILDING SUCCESSFUL BRANDS ON THE INTERNET

22
2.8.1 THE VALUE OF BRANDS TO CUSTOMERS

According to Jean-Noel Kapferer (1992)
11
, brands perform several functions that add value
and customer benefits:
• Identification - To be clearly seen, to make sense of the offer, to quickly identify sought
after products
• Practicality - To save time and energy through identical repurchasing and loyalty
• Guarantee - To be sure of finding the same quality no matter where or when you buy the
product or service
• Optimisation - To be sure of buying the best product in the category, the best performer
for a particular purpose
• Characterisation - To have confirmation of your self-image or the image that you
present to others
• Continuity - Satisfaction brought about through familiarity and intimacy with the brand
that you have been consuming for years
• Hedonistic - Satisfaction linked to the attractiveness of the brand, to its logo, to its
communication
• Ethical - Satisfaction linked to the responsible behaviour of the brand in its relationship
with society

2.8.2 T
HE VALUE OF BRANDS TO COMPANIES

Brands create value for companies, in the following ways:
• Brands, market share and profits - Typically a brand leader obtains twice the market
share of the number two brand, and the number two twice the share of the number three
12
.
The brand leader is the most profitable and all beyond number two are unprofitable

13
.
• Brand Leverage - The brand leader benefits from two main leverage effects: Higher
volume leads to economies of scale in development, production and marketing; Premium
pricing increases revenue.

11
Kapferer, J., 'Strategic Brand Management', (New York: Free Press), 1992
12
Worcester, R. & Downham, J., 'Consumer Market Research Handbook', (London: McGraw Hill), 3
rd
Ed., 1986
13
Golder, P. N., & Tellis, G., 'Pioneer Advantage: Marketing Logic or Marketing Legend?', Journal of Marketing
Research, May 1993, pp. 158-170.
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

23
• The Value of Niche Brands - Dominating a niche market is usually more profitable than
being fifth in a large market.
• Brand Loyalty and Beliefs - Strong brands are more attractive to investors. Brand
loyalty also reduces marketing costs and enables firms to override occasional problems
(e.g. Johnson & Johnson with Tylenol).
• The Brand Barrier - Brand leaders usually have the financial strength to fend off
competitors. Potential competitors are usually reluctant to enter the market if existing
brands satisfy customers. In addition, brand leaders can exploit their superiority in the
market (e.g. Coca-Cola “the real thing”).
• Avenues for Growth - The product life cycle applies to products, not brands. Companies
can maintain a brand while modifying the underlying product to account for new
technology, fashion or prevailing market conditions. The brand can also be used to

penetrate new markets.
• Motivating Stakeholders - Companies with strong brands attract good recruits. They
also tend to elicit community and government support.

In trying to estimate the monetary value of brands, companies such as Interbrand (see
Appendix A), and Young & Rubicam have created complex formulas, but there remains an
ongoing controversy about how accurate and meaningful these measures are.

2.9 C
ONCLUSION

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

The next chapter describes the process of how brands are built, the tools that are used, and the
characteristics of successful brands.
BUILDING SUCCESSFUL BRANDS ON THE INTERNET

24
CHAPTER 3

BUILDING BRANDS