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6.1 Riding the Crest of Innovation

Have you ever wanted to go surfing but couldn’t find a body of water with decent waves? You no longer have a problem: the PowerSki Jetboard makes its own waves. This innovative product combines the ease of waterskiing with the excitement of surfing. A high-tech surfboard with a forty-five-horsepower, forty-five-pound watercraft engine, the PowerSki Jetboard has the power of a small motorcycle. Experienced surfers use it to get to the top of rising ocean waves, but if you’re just a weekend water-sports enthusiast, you can get your adrenaline going by skimming across the surface of a local lake at forty miles an hour. All you have to do is submerge the tail of the board, slide across on your belly, and stand up (with the help of a flexible pole). To innocent bystanders, you’ll look like a very fast water-skier without a boat.

Where do product ideas like the PowerSki Jetboard come from? How do people create products that meet customer needs? How are  ideas developed and turned into actual  products? How do you forecast demand for a product? How do you protect your product ideas? These are some of the questions that we’ll address in this chapter.

PowerSki Jetboard High-Speed Chase Down the Colorado River

6.2 What Is a Product?

Learning Objectives

1. Define “product.”

2. Describe the four major categories of product developments: new-to-the-market, new-to-the-company, improvement of existing product, and extension of product line.

3. Contrast a calculated risk and an unnecessary risk.

4. Indicate how entrepreneurial decision making can be improved.

Basically, a  productSomething that can be marketed to customers because it provides a benefit and satisfies a need. is something that can be marketed to customers because it provides them with a benefit and satisfies a need. It can be a physical  good, such as the PowerSki Jetboard, or a  service, such as a haircut or a taxi ride. The distinction between goods and services isn’t always clear-cut. Say, for example, that a company hires a professional to provide an in-house executive training program on “netiquette” (internet etiquette). Off the top of our heads, most of us would say that the company is buying a service. What if the program is offered online? We’d probably still argue that the product is a service. But what if the company buys training materials that the trainer furnishes on DVD? Is the customer still buying a service? Probably not: we’d have to say that when it buys the DVD, the company is buying a tangible good.

In this case, the product that satisfies the customer’s need has both a tangible component (the training materials on DVD) and an intangible component (the educational activities performed by the seller). Not surprisingly, many products have both tangible and intangible components. If, for example, you buy an Apple computer, you get not only the computer (a tangible good) but certain promises to answer any technical questions that you might have and certain guarantees to fix your computer if it breaks within a specified time period (intangible services).

Types of Product Developments

Figure 6.1

Holiday decorating kits have extended Just Born’s product line beyond Peeps.

Source: © 2010 Jupiterimages Corporation

New product developments can be grouped into four major categories: new-to-the-company, improvement of existing product, extension of product line, and new-to-the-market.

For examples of the first three types of new product developments, we’ll take a look at Just Born. The company is known for its famous “Marshmallow Peeps,” and consequently its management is very interested in marshmallows. It conducted research that revealed that families use marshmallows in lots of ways, including crafts and decorating. This led Just Born to develop an Easter decorating kit that used Peeps marshmallows. It was such a hit that the company followed by creating decorating kits for Halloween and the Christmas season. Because similar products are made by other companies, the decorating kits are not “new to the market” but are “new to the company.” Now, let’s look at another product development involving Just Born’s also famous Mike & Ike’s candies. The marketing people at Just Born discovered that teenagers prefer to buy candies that come in pouches (which fit into their pants pockets) rather than in small boxes. In response, the company reduced the piece size, added some new ingredients, and put the Mike & Ike’s in pouches. This “improvement in an existing product” resulted in a 20 percent annual sales jump for Mike & Ike’s. Our last look at Just Born demonstrates an approach used by the company to “extend its existing product line.” Most of us like chocolate and most of us also like marshmallow, so how about putting them together? This is just what Just Born did—the company extended its Peeps product line to include “Peeps in a chocolate egg.” Consumers loved the combination, and its success prompted the company to extend its product line again and launch a chocolate crispy version for Easter.

New-to-the-Market Products

The PowerSki Jetboard is a “new-to-the-market product.” Before it was invented, no comparable product existed. Launching a new-to-the-market product is very risky, and only about 10 percent of products created fall into this category. On a positive note, introducing a new product to the market can be very profitable, because the product often enjoys a temporary monopolistic position.

Entrepreneurial Start-Ups

Inventors of new-to-the-market products often form entrepreneurial start-ups to refine their product idea and bring it to market. This was the path taken by Bob Montgomery, inventor of the PowerSki Jetboard. As is typical of entrepreneurial start-ups, the company that Montgomery founded has these characteristics:

· It’s characterized by innovative products and/or practices. Before the PowerSki Jetboard was invented, no comparable product existed.

· Its goals include profitability and growth. Because the patented Jetboard enjoys a temporary monopolistic position, PowerSki potentially could be very profitable.

· It focuses on new opportunities. Bob Montgomery dreamed of creating the first motorized surfboard. This dream began when he and a few of his surfer friends (all around age twelve) missed a wave because it was too far down the beach for them to catch. He imagined that if he had been on a motorized surfboard (instead of an ordinary one that you had to paddle), he would have been able to catch that wave. His dream became the mission of his company: “PowerSki International Corp. was founded to deliver the patented PowerSki Jetboard, the world’s only motorized surfboard, and its engine technology to the world market. It’s PowerSki’s goal to bring the experience of surfing to everyone on lakes, rivers, seas, and the ocean. ‘Now everybody has an ocean, and can ride an endless wave.’”

· Its owners are willing to take risks.  Anybody who starts  any business is taking a risk of some kind. The key to  entrepreneurial risk is related to the idea of innovation: as Woody Allen once put it, “If you’re not failing every now and again, it’s a sign you’re not doing anything very innovative.”

How to Take a Calculated Risk

As Montgomery learned, the introduction of an  innovative product to the market is more unpredictable, and thus more risky, than the introduction of a market-tested product. Starting up a store to sell an improved version of an existing surfboard entails one level of risk; starting up a business to market the first motorized surfboard entails quite another. Even though the introduction of new-to-the-market products are more risky, some of this risk can be avoided. What if, for example, Montgomery had brought the Jetboard to market only to discover that many of the buyers in his target market—water-sports enthusiasts—couldn’t easily maneuver the Jetboard? We could then say that he took an unnecessarily risky step in bringing his product to market, but we could also say that he simply attempted to market his product without adequate information. Surely a little research would have alerted Montgomery to the probable consequences of his decision to go to market when he did and with his product in its current state of development.

Figure 6.2

Taking a “risk” is risky, but taking a “calculated risk” can be a good business move.

Source: Sohel Parvez Haque/Shutterstock.com

A couple of final words, therefore, about introducing an entirely new product to the market. First, this type of product introduction is about carefully  calculated risks, not  unnecessary risks. Second, though little is certain in the entrepreneurial world, most decision making can be improved with input from one or both of two sources:

1. Information gathered from research

2. Knowledge gained from personal experience

Again, you can’t be  certain about any results, but remember that  uncertainty reflects merely the lack of complete knowledge or information; thus, the more knowledge and information that you can bring to a situation, the less uncertain—and the less risky—the decision becomes. In short, always do your homework, and if you’re new to entrepreneurship or to your market, make it a point to work with people who know from experience what they’re talking about.

Key Takeaways

· A  product is something that can be marketed to customers because it provides them with a benefit and satisfies a need. Products can be goods or services or a combination of both.

· A “new-to-the-company product” is a good or a service that is new to the company but has been sold by a competitor in the past—for example, Peeps marshmallow Easter decorating kits.

· An “improvement in an existing product” is an enhancement of a product already on the market—for example, a change of ingredients and packaging for Mike & Ike’s.

· An “extension to an existing product line” is a new product developed as a variation of an already existing product—for example, Peeps chocolate eggs.

· A “new-to-the-market product” is a good or a service that has not been available to consumers or manufacturers in the past—for example, the PowerSki Jetboard.

· Four characteristics of the entrepreneurial start-up are:

· It’s characterized by innovative products and/or practices.

· Its goals include profitability and growth.

· It focuses on new opportunities.

· Its owners are willing to take risks.

· Entrepreneurship is about carefully  calculated risks, not  unnecessary risks. Most entrepreneurial decision making can be improved with input from one or both of two sources:

· Information gathered from research

· Knowledge gained from personal experience

Before going to the next section of this chapter, take a few minutes to take an online quiz in order to test your knowledge of the material covered in this section. Quizzes can be found under the “Quiz” tab at the bottom of the online reader.

6.3 Where Do Product Ideas Come From?

Learning Objectives

1. Explain where product ideas come from.

2. Identify the approaches used by firms to seek product ideas.

For some people, coming up with a great product idea is a gratifying adventure. For most, however, it’s a daunting task. The key to coming up with a product idea is identifying something that customers want—or, perhaps more important, filling an unmet customer need. In coming up with a product idea, ask not “what do I want to sell?” but rather “what does the customer want to buy?” With this piece of advice in mind, let’s get back to the task of coming up with a product idea. Nobel Prize–winning chemist Linus Pauling suggested that “the best way to have a good idea is to have lots of ideas,” and though this notion might seem a little whimsical at first, it actually makes a lot of sense, especially if you’re trying to be innovative in the entrepreneurial sense. Every year, for example, companies launch about 30,000 new food, beverage, and beauty products, and up to 90 percent fail within a year. You might need ten good ideas just to have one that stands a chance.

Purple Cow Ideas

Figure 6.3

Keep looking—maybe someday you will come up with a “purple cow” idea.

Source: © Shutterstock, Inc.

So where do these ideas come from? Product ideas can originate from almost anywhere. How many times have you looked at a product that just hit the market and said, “I could have thought of that”? Just about anybody can come up with a product  idea; basically, you just need a little imagination. Success is more likely to result from a truly remarkable product—something that grabs the attention of consumers. Entrepreneur and marketing consultant Seth Godin refers to truly remarkable products as “purple cows.” He came up with the term while driving through the countryside one day. As he drove along, his interest was attracted by the hundreds of cows dotting the countryside. After a while, however, he started to ignore the cows because looking at them had become tedious. For one thing, they were all brown, and it occurred to him that a glimpse of a  purple cow would be worth writing home about. People would remember a purple cow. In fact, they might even want one.

Who thinks up “purple cow” ideas? Where do the truly remarkable business ideas come from? As we pointed out in an earlier chapter, entrepreneurs and small-business owners are a rich source of new product ideas (according to the Small Business Administration, 55 percent of all new product innovations come from small businesses). Take Dean Kamen, inventor of the Segway Human Transporter, a battery-operated vehicle that responds to the rider’s movements: lean forward, and you can go straight ahead at 12.5 miles per hour; to stop, just tilt backward. This revolutionary product is only one of Kamen’s many remarkable business ideas. He invented his first product—a wearable infusion pump for administering chemotherapy and other drugs—while he was still a college undergraduate.

Jacob Dunnack also got an early entrepreneurial start. At  age six, Jacob became frustrated one day when he took his baseball bat to his grandmother’s house but forgot to take some baseballs as well. His solution? A hollow baseball bat that holds baseballs. Dunnack’s invention, now called the JD Batball, was quickly developed and sold in some of the biggest toy stores. But, there is an inspiring story that goes along with Jacob’s great business idea. Jacob was born with a rare congenital disease that required a series of operations. One operation, at eleven months old, caused a stroke. Doctors were not optimistic and feared he would be blind, paralyzed, and permanently disabled. But a brave and determined Jacob defied the odds by not only seeing but also walking. And—you guessed it—playing baseball, even though the stroke had resulted in Jacob’s losing the use of his right hand. Without the use of his hand, he could not carry both the bat and balls. So, his invention was designed to help him. But, at the same time, it helped other baseball-playing kids keep their bat and balls together.     

Why do so many entrepreneurs and small businesspeople come up with so many purple cows? For one thing, entrepreneurs are often creative people. Moreover, they’re often willing to take risks. This is certainly true of Bob Montgomery, inventor of the PowerSki Jetboard (which undoubtedly qualifies as a purple cow). With more than twenty years’ experience in the water-sports industry and considerable knowledge of the personal-watercraft market, Montgomery finally decided to follow his long-cherished dream of creating an entirely new and conceptually different product—one that would offer users ease of operation, high performance, speed, and quality. His creative efforts have earned him the prestigious  Popular Science “Best of What’s New” award.

Figure 6.4

Have you ever thought of a great product idea? Did you consider selling the idea to a company? To sell your idea, you will need to make a presentation to an interested company. But first, protect your idea by applying for a patent.

Source: gst/Shutterstock.com

To remain competitive, medium and large organizations alike must also identify product development opportunities. Many companies actively solicit product ideas from people inside the organization, including marketing, sales, research, and manufacturing personnel, and some even establish internal “entrepreneurial” units. Others seek product ideas from outside the organization by talking to customers and paying attention to what the competition is doing. In addition to looking out for new product ideas, most companies constantly seek out ways to make incremental improvements in existing products by adding features that will broaden their consumer appeal. 

A novel approach to generating new-to-the-world product ideas is hiring “creativity” consultants. One of the best is Doug Hall, who’s been called “America’s Number 1 Idea Guru.” At a Cincinnati idea factory called Eureka! Ranch, Hall and other members of his consulting firm specialize in helping corporate executives get their creative juices flowing. Hall’s job is getting people to invent products that make a real difference to consumers, and his strategies are designed to help corporate clients become more innovative—to jump-start their brains. Eureka! Ranch’s extensive client list includes Disney, Kellogg, Johnson & Johnson, Procter & Gamble, Coca-Cola, and Nike as well as a number of budding entrepreneurs. Hall boasts that the average home uses eighteen goods or services that the Ranch helped shape, and if he’s right, you yourself have probably benefited from one of the company’s idea-generating sessions.

Key Takeaways

· The majority of product ideas come from entrepreneurs and small-business owners, though medium and large organizations also must identify product-development opportunities in order to remain competitive.

· Firms seek product ideas from people inside the organization, including those in marketing, sales, research, and manufacturing, as well as from customers and others outside the organization.

Before going to the next section of this chapter, take a few minutes to take an online quiz in order to test your knowledge of the material covered in this section. Quizzes can be found under the “Quiz” tab at the bottom of the online reader.

6.4 Identifying Business Opportunities

Learning Objectives

1. Explain how an idea turns into a business opportunity.

2. Describe the four types of utility provided by a product: time, place, ownership, and form.

Figure 6.5

There might be many creative ways for Bic to extend its product lines, aside from the disposable underwear idea. Can you think of a product idea that might be more successful for Bic?

Source: © 2010 Jupiterimages Corporation

An idea turns into a business opportunity when it has commercial potential—when you can make money by selling the product. But needless to say, not all ideas generate business opportunities. Consider these products that made the list of the “Top 25 Biggest Product Flops of All Time”:

· Bic underwear. When you think of Bic, you think of inexpensive pens, disposable razors, and lighters. But disposable underwear? Women didn’t find the idea of buying intimate attire from a pen manufacturer appealing, and the disposability factor was just plain weird.

· Harley-Davidson perfume. Even its loyal fans found the idea of Harley-Davidson perfume peculiar (and they weren’t terribly fond of the Harley-Davidson aftershave, either). Perhaps they were afraid they would end up smelling like a motorcycle.

· Bottled water for pets. OK, so people love their pets and cater to them, but does it really make sense to serve Thirsty Cat! and Thirsty Dog! bottled water to your four-legged friends? Even though the water came in tantalizing flavors such as Tangy Fish and Crispy Beef, it never caught on. Do you wonder why?

· Colgate kitchen entrees. Colgate’s entrance into food products wasn’t well received. Maybe the company believed customers would buy into the idea of eating one of its prepared meals and then brushing their teeth with Colgate toothpaste. For most of us, the name Colgate doesn’t get our taste buds tingling.

Utility

Remember: being in business is not about you—it’s about the customer. Successful businesspeople don’t ask themselves “What do I want to sell?” but rather “What does the customer want to buy?”  Customers buy products to fill unmet needs and because they expect to derive some value or utility from them. People don’t buy Alka-Seltzer because they like the taste or even because the price is right: they buy it because it makes their indigestion go away. They don’t shop at Amazon.com because the website is entertaining: they shop there because they want their purchases delivered quickly. The realization that this kind of service would meet customer needs made Amazon.com a genuine business opportunity.

Products provide customers with four types of utility or benefit:

1. Time utility. The value to a consumer of having a good or a service available at a convenient time. A concessionaire selling bottled water at a summer concert is making liquid refreshment available when it’s needed.

2. Place utility. The value to a consumer of having a product available in a convenient location. A street vendor selling hotdogs outside an office building is making fast food available where it’s needed.

3. Ownership utility. Value created by transferring a product’s ownership. A real estate agent helping a young couple buy a home is transferring ownership from someone who doesn’t need it to someone who does.

4. Form utility. The value to consumers from changing the composition of a product. A company that makes apparel is turning raw material (fabric) into a form (clothing) that people need. A company that produces liquid detergent, rather than powdered detergent, is adding form utility for some consumers.

How can you decide whether an idea provides utility and has the potential to become a business opportunity? You should start by asking yourself the questions in  Figure 6.6: if you can’t come up with good answers to these questions, you probably don’t have a highly promising product. On the other hand, if you conclude that you have a potential product for which people would pay money, you’re ready to take the next step: analyze the market to see whether you should go forward with the development of the product.

Figure 6.6 When Is an Idea a Business Opportunity?

Key Takeaways

· An idea turns into a business opportunity when it has commercial potential—when you can make money by selling the product.

· Time utility provides value by having a product available at a convenient time.

· Place utility provides value by having a product available in a convenient location.

· Ownership utility provides value by transferring a product’s ownership.

· Form utility provides value by changing the composition of a product.

Before going to the next section of this chapter, take a few minutes to take an online quiz in order to test your knowledge of the material covered in this section. Quizzes can be found under the “Quiz” tab at the bottom of the online reader.

6.5 Understand Your Industry

Learning Objectives

1. Define an “industry.”

2. Explain how to research an industry.

3. Define and give an example of a “niche market.”

Before you invest a lot of time and money to develop a new product, you need to understand the industry in which it’s going to be sold. As inventor of the PowerSki Jetboard, Bob Montgomery had the advantage of being quite familiar with the industry that he proposed to enter. With more than twenty years’ experience in the water-sports and personal-watercraft industry, he felt at home in this business environment. He knew who his potential customers were, and he knew who his competitors were. He had experience in marketing similar products, and he was familiar with industry regulations.

Most people don’t have the same head start as Montgomery. So, how does the average would-be businessperson learn about an industry? What should you want to know about it? Let’s tackle the first question first.

Evaluating Your Industry

Before you can study an industry, you need to know what industry to study. An  industryGroup of businesses that compete with one another to market products that are the same or similar. is a group of related businesses: they do similar things and they compete with each other. In the footwear industry, for example, firms make footwear, sell it, or both. Players in the industry include Nike and Adidas, both of which specialize in athletic footwear; but the industry is also sprinkled with companies like Candies (which sells young women’s fashion footwear) and Florsheim (quality men’s dress shoes).

Let’s say that you want to know something about the footwear industry because your potential purple cow is a line of jogging shoes designed specifically for older people (those over sixty-five) who live in the Southeast. You’d certainly need a broad understanding of the footwear industry, but would general knowledge be enough? Wouldn’t you feel more comfortable about pursuing your idea if you could focus on a smaller segment of the industry—namely, the segment that specializes in products similar to the one you plan to sell? Here’s a method that will help you narrow your focus.

Segmenting Your Market

Begin with the overall industry—in this case, the footwear industry. Within this industry, there are several groups of customers, each of which is a  marketGroup of buyers or potential buyers who share a common need that can be met by a certain product.. You’re interested in the  consumer market—retail customers. But this, too, is a fairly broad market; it includes everybody who buys shoes at retail. Your next step, then, is to subdivide this market into smaller  market segmentsGroup of potential customers with common characteristics that influence their buying decisions.—groups of potential customers with common characteristics that influence their buying decisions. You can use a variety of standard characteristics, including  demographics (age, sex, income),  geography (region, climate, city size), and  psychographics (lifestyle, activities, interests). The segment you’re interested in consists of older people (a demographic variable) living in the Southeast (a geographic variable) who jog (a psychographic variable). Within this market segment, you might want to subdivide further and find a  nicheNarrowly defined group of potential customers with a fairly specific set of needs.—an unmet need. Your niche might turn out to be providing high-quality jogging shoes to active adults living in retirement communities in Florida.

The goal of this process is to identify progressively narrower sectors of a given industry. You need to become familiar with the whole industry—not only with the footwear industry but also with the retail market for jogging shoes designed for older people. You also need to understand your niche market, which consists of older people who live active lives in Florida.

Figure 6.7

Let’s go through another segmenting-your-market example: industry (computer); market (those interested in buying a laptop); market segment (college students interested in buying a hybrid laptop/tablet computer); niche (college students who want and can afford a high-quality, expensive hybrid laptop/tablet with high-speed gaming capabilities).

Source: © Shutterstock, Inc.

Now that we know something about the process of focusing in on an industry, let’s look at another example. Suppose that your product idea is offering dedicated cruises for college students. You’d begin by looking at the recreational-activities  industry. Your  market would be people who travel for leisure, and within that market, you’d focus on the  market segment consisting of people who take cruises. Your  niche would be college students who want to take cruises.

6.6 Forecasting Demand

Learning Objective

1. Forecast demand for a product.

It goes without saying, but without enough customers your business will go nowhere. So, before you delve into the complex, expensive world of developing and marketing a new product, ask yourself questions like those in  Figure 6.9. When Bob Montgomery asked himself these questions, he concluded that he had two groups of customers for the PowerSki Jetboard: (1) the dealerships that would sell the product and (2) the water-sports enthusiasts who would buy and use it. His job, therefore, was to design a product that dealers would want to sell and enthusiasts would buy. When he was confident that he could satisfy these criteria, he moved forward with his plans to develop the PowerSki Jetboard.

Figure 6.9 When to Develop and Market a New Product

After you’ve identified a group of potential customers, your next step is finding out as much as you can about what they think of your product idea. Remember: Because your ultimate goal is to roll out a product that satisfies customer needs, you need to know ahead of time what your potential customers want. Precisely what are their unmet needs? Ask them questions such as these:

· What do you like about this product idea? What don’t you like?

· What improvements would you make?

· What benefits would you get from it?

· Would you buy it? Why, or why not?

· What would it take for you to buy it?

Before making a substantial investment in the development of a product, you need to ask yourself yet another question: are there enough customers willing to buy my product at a price that will allow me to make a profit? Answering this question means performing one of the hardest tasks in business: forecasting demand for your proposed product. There are several possible approaches to this task that can be used alone or in combination.

People in Similar Businesses

Though some businesspeople are reluctant to share proprietary information, such as sales volume, others are willing to help out individuals starting new businesses or launching new products. Talking to people in your prospective industry (or one that’s similar) can be especially helpful if your proposed product is a service. Say, for example, that you plan to open a pizza parlor with an old cartoons theme: customers will be able to eat pizza while watching reruns of their favorite cartoons on portable DVD players. If you visited a few local restaurants and asked owners how many customers they served every day, you’d probably learn enough to estimate the number of pizzas that you’d serve during your first year. If the owners weren’t cooperative, you could just hang out and make an informal count of the customers.

Potential Customers

You can also learn a lot by talking with potential customers. Ask them how often they buy products similar to the one you want to launch. Where do they buy them and in what quantity? What factors affect demand for them? If you were contemplating a frozen yogurt store in North Dakota, it wouldn’t hurt to ask customers coming out of a bakery whether they’d buy frozen yogurt in the winter.

Published Industry Data

To get some idea of the total market for a particular product, you might begin by examining pertinent industry research. For example, to estimate the demand for jogging shoes among consumers ages sixty-five and older who live in retirement communities in Florida, you could look at data published by the National Sporting Goods Association ( http://www.nsga.org). This organization collects extensive data annually, compiles the data, creates reports on various topics, and sells the reports on its website to its members and other interested buyers. You might be particularly interested in four of the organization’s reports: (1) “Sports Participation in the U.S.” (provides overall statistics on the current and future state of the sporting goods industry), (2) “Sports Participation State-by-State” (reports sports participation statistics for each state, including Florida), (3) “Sports Participation: Lifecycle Demographics” (details participation in sports by various demographic variables, including age and geographical location), and (4) “Sports Participation, Single Sport” (reports detailed participation figures for a variety of sports, including running and jogging).

Now, let’s say that your research turns up the fact that there are 3 million joggers older than sixty-five and that 600,000 of them live in Florida, which attracts 20 percent of all people who move when they retire. How do you use this information to estimate the number of jogging shoes that you’ll be able to sell during your first year of business? First, you have to estimate your  market shareCompany’s portion of the market that it has targeted.: your portion of total sales in the older-than-sixty-five jogging shoe market in Florida. Being realistic (but having faith in an excellent product), you estimate that you’ll capture 2 percent of the market during your first year. So you do the math: 600,000 pairs of jogging shoes sold in Florida × 0.02 (a 2 percent share of the market) = 12,000, the estimated first-year demand for your proposed product.

Figure 6.10

Forecasting your products’ share of the pie is very difficult. Be careful to keep market share estimates realistic.  

Source: iQoncept/Shutterstock.com

Granted, this is just an estimate. But at least it’s an educated guess rather than a wild one. You’ll still want to talk with people in the industry, as well as potential customers, to hear their views on the demand for your product. Only then would you use your sales estimate to make financial projections and decide whether your proposed business is financially feasible. We’ll discuss this process in a later chapter.

Key Takeaways

· After you’ve identified a group of potential customers, your next step is finding out as much as you can about what they think of your product idea.

· Before making a substantial investment in the development of a product, you need to ask yourself: are there enough customers willing to buy my product at a price that will allow me to make a profit?

· Answering this question means performing one of the hardest tasks in business: forecasting demand for your proposed product.

· There are several possible approaches to this task that can be used alone or in combination.

· You can obtain helpful information about product demand by talking with people in similar businesses and potential customers.

· You can also examine published industry data to estimate the total market for products like yours and estimate your  market share, or portion of the targeted market.

6.7 Breakeven Analysis

Learning Objective

1. Learn how to use breakeven analysis to estimate the number of sales units at which net income is zero.

Forecasting sales of shoes has started you thinking. Selling 12,000 pairs of shoes the first year you run the business sounds great, but you still need to find an answer to the all-important question: are there enough customers willing to buy my jogging shoes at a price that will allow me to make a profit? Is there some way to figure out the level of sales I would need to avoid  losing money—to “break even”? Fortunately, an accountant friend of yours informs you that there is. Not surprisingly, it’s called  breakeven analysisMethod of determining the level of sales at which the company will break even (have no profit or loss)., and here’s how it works: to break even (have no profit or loss),  total sales revenue must exactly equal all your expenses (both variable and fixed). To determine the level of sales at which this will occur, you need to do the following:

1. Determine your total  fixed costsCosts that don’t change when the amount of goods sold changes., which are so called because the total cost doesn’t change as the quantity of goods sold changes:

. Fixed costs = $210,000 salaries + $60,000 rent + $10,000 advertising + $8,000 insurance + 12,000 other fixed costs = $300,000

· Identify your  variable costsCosts that vary, in total, as the quantity of goods sold changes but stay constant on a per-unit basis.. These are costs that vary, in total, as the quantity of goods sold changes but that stay constant on a per-unit basis. State variable costs on a per-unit basis:

. Variable cost per unit = $40 (cost of each pair of shoes) + $5 sales commission = $45

· Determine your  contribution margin per unitExcess of revenue per unit over variable cost per unit.: selling price per unit less variable cost per unit:

. Contribution margin per unit = $80 selling price minus $45 variable cost per unit = $35

· Calculate your  breakeven point in unitsNumber of sales units at which net income is zero.: fixed costs ÷ contribution margin per unit:

. Breakeven in units = $300,000 fixed costs ÷ $35 contribution margin per unit = 8,571 units

Your calculation means that if you sell 8,571 pairs of shoes, you will end up with zero profit (or loss) and will exactly break even.

If your sales estimate is realistic (a big “if”), then you should be optimistic about starting the business. All your fixed costs will be covered once you sell 8,571 pairs of shoes. Any sales above that level will be pure profit. So, if you sell your expected level of 12,000 pairs of shoes, you’ll make a profit of $120,015 for the first year. Here’s how we calculated that profit:

· 12,000 expected sales level – 8,571 breakeven sales level = 3,429 units × $35 contribution margin per unit = $120,015 first-year profit

Figure 6.11

Breakeven analysis is a useful technique. It allows you to determine the point at which your company will break even (have neither a loss nor a profit).

Source: © Shutterstock, Inc.

As you can see, breakeven analysis is pretty handy. It allows you to determine the level of sales that you must reach to avoid losing money and the profit you’ll make if you reach a higher sales goal. Such information will help you plan for your business.

Key Takeaways

· Breakeven analysis is a method of determining the level of sales at which the company will break even (have no profit or loss).

· The following information is used in calculating the breakeven point: fixed costs, variable costs, and contribution margin per unit.

· Fixed costs are costs that don’t change when the amount of goods sold changes. For example, rent is a fixed cost.

· Variable costs are costs that vary, in total, as the quantity of goods sold changes but stay constant on a per-unit basis. For example, sales commissions paid based on unit sales are a variable cost.

· Contribution margin per unit is the excess revenue per unit over the variable cost per unit.

· The  breakeven point in units is calculated with this formula: fixed costs divided by contribution margin per unit (selling price per unit less variable cost per unit).

Before going to the next section of this chapter, take a few minutes to take an online quiz in order to test your knowledge of the material covered in this section. Quizzes can be found under the “Quiz” tab at the bottom of the online reader.

Exercise

1. For the past ten years, you’ve worked at a PETCO Salon as a dog groomer. You’re thinking of starting your own dog grooming business. You found a place you could rent that’s right next to a popular shopping center, and two of your friends (who are also dog groomers) have agreed to work for you. The problem is that you need to borrow money to start the business and your banker has asked for a breakeven analysis. You have prepared the following cost estimates for your first year of operations:

Fixed Costs
Salaries	$120,000
Rent and utilities	$39,000
Advertising	$2,000
Equipment	$3,000
Variable Cost per Dog
Shampoo	$2.00
Coat conditioner	$1.50
Pet cologne	$0.75
Dog treats	$1.40
Hair ribbons	$0.50

1. You went online and researched grooming prices in your area. Based on your review, you have decided to charge $35 for each grooming.

2. Part 1:

b. What’s the breakeven point in units—how many dogs will you need to groom in the first year to break even?

b. If you and your two employees groomed dogs five days a week, seven hours a day, fifty weeks a year, how many dogs would each of you need to groom each day? Is this realistic given that it takes one hour to groom a dog?

1. Part 2:

a. If you raised your grooming fee to $40, how many dogs would you need to groom to break even?

a. At this new price, how many dogs will each of you have to groom each day (assuming, again, that the three of you groom dogs fifty weeks a year, five days a week, seven hours a day)?

1. Part 3:

a. Would you start this business?

a. What price would you charge to groom a dog?

a. How could you lower the breakeven point and make the business more profitable?

6.8 Product Development

Learning Objectives

1. Explain what drives the success of a business.

2. Describe the process of developing a product that meets customer needs.

3. Define “project team” and the “product development process.”

4. Identify the seven steps or activities that transform a project idea into a final product.

5. Appreciate the creation of artificial intelligence and identify some of its advances.

Figure 6.12

If you head up a shoe company, you can’t just design and manufacture a shoe and hand it to the marketing group and tell them to sell it. Representatives from all functional areas (design, engineering, manufacturing, accounting, finance, and marketing) must join together as a project team to arrive at a salable shoe.

Source: Aleksandr Lupin/Shutterstock.com

Like PowerSki, every organization—whether it produces goods or provides services—sees Job 1 as furnishing customers with quality products. The success of a business depends on its ability to identify the unmet needs of consumers and to develop products that meet those needs at a low cost. In other words, effective product development results in goods and services that can be sold at a profit. In addition, it results in high-quality products that not only satisfy consumer needs but also can be developed in a timely, cost-efficient manner. Accomplishing these goals entails a collaborative effort by individuals from all areas of an organization: operations management (including representatives from engineering, design, and manufacturing), marketing, accounting, and finance. In fact, companies increasingly assign representatives from various functional areas who work together as a  project teamIndividuals from different functional areas assigned to work together throughout the product development process. throughout the product development processes. This approach allows individuals with varied backgrounds and experience to provide input as the product is being developed.

Product Development Is a Risky Proposition

Not surprisingly, developing profitable products is difficult, and the success rate is low. On average, for every successful product, a company has twelve failures. At this rate, the firms on the  Fortune 1000 list waste over $60 billion a year in research and development. There are several reasons why product development is such a risky proposition:

· Trade-offs. You might, for instance, be able to make your jogging shoes lighter than your competitors’, but if you do, they probably won’t wear as well. They could be of higher quality, but that will make them more costly (they might price themselves out of the market).

· Time pressure. Developing a product can require hundreds of decisions that must be made quickly and with imperfect information.

· Economics. Because developing a product requires a lot of time and money, there’s always pressure to make sure that the project not only results in a successful product but also gets it to market at the most opportune time. Failure to be first to market with an otherwise desirable new product can cost a company a great deal of money.

Even so, organizations continue to dedicate immense resources to developing new products. Your supermarket, for example, can choose from about 100,000 items to carry on its shelves—including 20,000  new products every year. Unfortunately, the typical supermarket can stock only 30,000 products.

The Product Development Process

The  product development processSeries of activities by which a product idea is transformed into a final product. is a series of activities by which a product idea is transformed into a final product. It can be broken down into the seven steps summarized in  Figure 6.13.

Figure 6.13 The Product Development Process

The Product Development Process

Watch this video to experience an active version of this figure.

Evaluate Opportunities and Select the Best Product Idea

If you’re starting your first business, you might have only one product idea. But existing organizations often have several ideas for new products, as well as improvements to existing ones. Where do they come from? They can come from individuals within the organization or from outside sources, such as customers. Typically, various ideas are reviewed and evaluated by a team of individuals, who identify the most promising ideas for development. They may rely on a variety of criteria: Does the proposed product fill an unmet need of our customers? Will enough people buy our product to make it commercially successful? Do we have the resources and expertise to make it?

Get Feedback to Refine the Product Concept

From the selected product idea, the team generates an initial  product conceptDescription of what a new product will look like and how it will work. that describes what the product might look like and how it might work. Members talk both with other people in the organization and with potential buyers to identify customer needs and the benefits that consumers will get from the product. They study the industry in which the product will be sold and investigate competing products. They brainstorm various  product designs—that is, the specifications for how the product is to be made, what it will look like, and what performance standards it will meet.

Based on information gathered through this process, the team will revise the product concept, probably pinpointing several alternative models. Then they’ll go back to potential customers and get their feedback on both the basic concept and the various alternatives. Based on this feedback, the team will decide what the product will look like, how it will work, and what features it will have.

Make Sure the Product Performs and Appeals to Consumers

The team then decides how the product will be made, what components it will require, and how it will be assembled. It will decide whether the product should be made in-house or outsourced to other companies. For products to be made in-house, the team determines where parts will be obtained. During this phase, team members are involved in design work to ensure that the product will be appealing, safe, and easy to use and maintain.

Design with Manufacturing in Mind

As a rule, there’s more than one way to make any product, and some methods are more expensive than others. During the next phase, therefore, the team focuses its attention on making a high-quality product at the lowest possible cost, working to minimize the number of parts and simplify the components. The goal is to build both quality and efficiency into the manufacturing process.

Build and Test Prototypes

A  prototypePhysical model of a new product. is a physical model of the product. In the next phase, prototypes are produced and tested to make sure that the product meets the customer needs that it’s supposed to. The team usually begins with a preliminary prototype from which, based on feedback from potential customers, a more sophisticated model will then be developed. The process of building and testing prototypes will continue until the team feels comfortable that it has fashioned the best possible product. The final prototype will be extensively tested by customers to identify any changes that need to be made before the finished product is produced.

Ramp Up Production and Run Market Tests

During the production  ramp-up stageStage in the product development process during which employees are trained in necessary production processes and new products are tested., employees are trained in manufacturing and assembly processes. Products turned out during this phase are carefully inspected for residual flaws. Samples are often demonstrated or given to potential customers for testing and feedback.

Launch the Product

In the final stage, the firm starts ongoing production and makes the product available for widespread distribution.

Artificial Intelligence

Most likely, artificial intelligence (AI) is not a new term for you. Its successes surround us:  think smartphones, video games, Amazon Echo, drones, Google Maps, face recognition technology and autonomous cars. A common definition of  artificial intelligenceThe ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings. is: “The ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings.”

Figure 6.14

Many advances brought about by artificial intelligence are positive and will make life in the U.S. better, but some advances will harm people by eliminating their jobs.

Source: Panchenko Vladimir/Shutterstock.com

Machine learning, a subfield of artificial intelligence, “is the science (and art) of programming computers so they can learn from data.” The fundamental structure created by a machine-learning programmer is a "neural network," a scaled-down model of part of a human brain. We’ll use a simple machine-learning example to help you understand how some artificial intelligence applications are developed. Let’s begin by pretending our goal is to train a computer to tell the difference between an apple and an orange. The first step is to train the network by inputting hundreds or even thousands of pictures of the two fruits (each labeled "apple" or "orange" as appropriate). When the network correctly identifies the fruit shown in each of the "training-set” inputs, a "test set" of new pictures is provided. If the network correctly identifies the fruit shown in each of the test-set inputs, the network is said to have "learned" to distinguish apples from oranges. Otherwise, more training and testing are needed. Once learning has occurred, the network can then be used to instruct a computer (perhaps a robot), to separate real apples from real oranges.

Now, distinguishing between an apple and an orange is not terribly difficult for a computer program. So, let’s look at a “learning” the difference between a dog and a cat. To teach a network to distinguish between these two animals, a network would need to be trained using thousands or even millions of pictures containing dogs and cats (thanks to all the proud pet owners on Facebook and Instagram). Using super speed (thanks to powerful computer chips from Nvidia), testing, retraining, and retesting, as above, the network will eventually be able to group dogs into a “dog” group and cats into a “cat” group.  

So, what can we take away from these examples: (1) a computer does not learn without the aid of a person (likely a programmer) who identifies the training and testing; (2) before you start training a network, you need to define your goal; (3) unless accurate information is used in the training process, the results will be faulty (garbage in—garbage out); and (4) achieving network learning can require extensive training, testing, and retesting, but computers operate at electronic speed. These guidelines apply to the training of networks to perform other artificial intelligence applications, such as natural language processing (that enables programs to “understand” written or spoken language), and computer vision (that allows computers to see and navigate around objects).

What do business executives think of artificial intelligence? In a recent survey by  Forbes of more than 300 top executives, 95 percent reported that “AI will play an important role in their responsibilities in the near future.” These executives identified the following benefits from artificial intelligence: increased productivity; reduced operating costs, improved speed to market; and transformed business and operating models.

What do you think of artificial intelligence?  Will it make life in the U.S. better or worse?  Is the rise of artificial intelligence something to admire or to fear? The answer to these questions is “it depends.”

Many of the advances brought about by artificial intelligence are positive and will make life in the U.S. better. For example, the use of artificial intelligence in the medical profession has had and will continue to have a positive influence on our lives. This positive influence can be demonstrated by a recent study comparing the success rate of Google’s AI and that of trained radiologists in detecting signs of lung cancer. The findings reveal that Google’s AI detected lung cancer better than did human doctors. Similar results occurred in a recent study of breast cancer.  Google’s AI was better at detecting breast cancer than were human doctors.

You’re likely asking, what about me? How will AI affect my future career? AI can help or hurt employees in two ways: (1) AI automates repetitive, often boring work, and (2) AI helps employees become more effective at what they do. As far as job security goes, you want to avoid being in the first category. This category includes jobs that are already being hit hard by AI, such as those in fast food, retail, agriculture and warehousing. Over the next ten years, this first category will expand to include low- to medium-skill jobs in occupations such as retail sales, trucking (as autonomous trucks become a reality), manufacturing and repetitive office work. So, for those in category 1, AI is something to fear. But for those in category 2, AI is something to admire. Jobs in this category are protected from job loss, at least in the near term. The types of jobs that fall into this category require higher education, judgment, and social skills. It is this category of jobs that you should include in your career plans.

Key Takeaways

· The success of a business depends on its ability to identify the unmet needs of consumers and to develop products that meet those needs at a reasonable cost.

· Accomplishing these goals requires a collaborative effort by individuals from all areas of the organization: operations management (including representatives from engineering, design, and manufacturing), marketing, accounting, and finance.

· Representatives from these various functional areas often work together as  project teams throughout the  product development process, which consists of a series of activities that transform a product idea into a final product.

· This process can be broken down into seven steps:

· Evaluate opportunities and select the best product mix.

· Get feedback to refine the  product concept that describes what the product might look like and how it might work.

· Make sure that the product performs and appeals to consumers.

· Design with manufacturing in mind to build both quality and efficiency into the manufacturing process.

· Build and test  prototypes, or physical models of the product.

· Run market tests and enter the  ramp-up stage during which employees are trained in the production process.

· Launch the product.

· Artificial intelligence can be defined as “The ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings.”

6.9 Protecting Your Idea

Learning Objective

1. Learn how to protect your product idea by applying for a patent.

You can protect your rights to your idea with a  patentGrant of the exclusive right to produce or sell a product, process, or invention. from the U.S. Patent and Trademark Office, which grants you “the right to exclude others from making, using, offering for sale, or selling” the invention in the United States for twenty years.

What do you need to know about applying for a patent? For one thing, document your idea as soon as you think of it. Simply fill out a form, stating the purpose of your invention and the current date. Then sign it and get someone to witness it. The procedure sounds fairly informal, but you may need this document to strengthen your claim that you came up with the idea before someone else who also claims it. Later, you’ll apply formally for a patent by filling out an application (generally with the help of a lawyer), sending it to the U.S. Patent and Trademark Office, and waiting. Nothing moves quickly through the U.S. Patent and Trademark Office, and it takes about two years for any application to get through the process.

Figure 6.15

Even if you’re very proud of a new product you designed, avoid showing it to your friends until you have submitted a patent application. Otherwise, someone could steal your idea.

Source: Waldemarus/Shutterstock.com

Will your application get through at all? There’s a good chance if your invention meets all the following criteria:

· It’s new. No one else can have known about it, used it, or written about it before you filed your patent application (so keep it to yourself until you’ve filed).

· It’s not obvious. It has to be sufficiently different from everything that’s been used for the purpose in the past (you can’t patent a new color for a cell phone).

· It has utility. It can’t be useless; it must have some value.

Applying for a U.S. patent is only the first step. If you plan to export your product outside the United States, you’ll need patent protection in each country in which you plan to do business, and getting a foreign patent isn’t any easier than getting a U.S. patent. The process keeps lawyers busy: during a three-year period, PowerSki International had to take out more than eighty patents on the PowerSki Jetboard. It still has a long way to go to match the number of patents issued to some extremely large corporations. For example, IBM was granted 9,088 U.S. patents in 2018.  This is the 26th consecutive year that IBM was granted more patents than any other company.

Clearly, the patent business is booming. The U.S. Patent and Trademark Office issued approximately 310,000 patents in 2018. One reason for the recent proliferation of patents is the high-tech boom. Over the last decade, the number of patents granted has doubled.

Key Takeaways

· You can protect your rights to your idea with a  patent from the U.S. Patent and Trademark Office.

· A patent grants you “the right to exclude others from making, using, offering for sale, or selling” the invention in the United States for twenty years.

· To be patentable, an invention must meet all the following criteria: it’s new (no one else can have known about it, used it, or written about it before you filed your patent application); it’s not obvious (it’s sufficiently different from everything that’s been used for the purpose in the past); and it has utility (it must have some value; it can’t be useless).

Before going to the next section of this chapter, take a few minutes to take an online quiz in order to test your knowledge of the material covered in this section. Quizzes can be found under the “Quiz” tab at the bottom of the online reader.

Exercise

1. A friend of yours described a product idea she had been working on. It is a child’s swing set with a sensor to stop the swing if anyone walks in front of it. She came to you for advice on protecting her product idea. What questions would you need to ask her to determine whether her product idea is patentable? How would she apply for a patent? What protection would the patent give her? How long would the patent apply?

6.10 Cases and Problems

Learning on the Web

Breaking Even on Burgers

You and your business partner plan to open a gourmet burger restaurant. Your partner estimated the new business will sell 150,000 burgers during its first year and a half of operations. You want to determine the number of burgers you must sell to break even during this period.

Here are the figures you know so far:

· The variable cost for each burger is $0.95 each.

· The fixed cost of making burgers for eighteen months is $180,000 (this includes costs such as rent, utilities, and insurance).

· You will sell your burgers for $2.10 each.

· At the $2.10 per-unit selling price, how many burgers will you have to sell to break even?

Part 1: Using the previous information, calculate the breakeven number of burgers. How close is the breakeven number of burgers to your partner’s sales estimate of 150,000 burgers? How confident are you that your restaurant will be profitable?

Part 2: Now, recalculate the breakeven number of burgers using a higher selling price. Pretend that your likely customers are burger fanatics and will pay $2.99 for a burger (rather than $2.10). Also pretend that the variable cost for each burger and your fixed costs won’t change (variable cost per burger is still $0.95 and fixed costs are still $180,000). Manually calculate the number of burgers you must sell to break even at this higher selling price. Are you now more confident that the business will succeed?

Part 3: Without recalculating breakeven, answer these two questions:

1. If the variable cost for each burger went down from $0.95 to $0.80 per burger (and your selling price stayed at $2.10), would you need to sell more or fewer burgers to break even?

2. If fixed costs went down from $180,000 to $120,000 (and your selling price stayed at $2.10 and variable cost per burger returned to $0.95), would you need to sell more or fewer burgers to break even?

Career Opportunities

Being a “Big Idea” Person

Imagine a career in which you design the products people use every day. If you’re a “big idea” person, have an active imagination, have artistic flair, and possess the ability to understand how products function, then a career in product design and development might be for you. To learn what opportunities are available in this field, go to the Job Bank section of the Product Development and Management Association’s website ( http://www.pdma.org) and click on “Career Center” and then “Job Seekers.”  Explore the various job openings by clicking on a position (to highlight it), and then read the section titled “Job Description” at the side of the screen. Find a position that interests you and look for answers to these questions:

1. What’s the job like?

2. What educational background, work experience, and skills are needed for the job?

3. What aspects of the job appeal to you? What aspects are unappealing?

4. Are you cut out for a career in product design and development? Why, or why not?

Ethics Angle

Who’s Getting Fat from Fast Food?

Product liability laws cover the responsibility of manufacturers, sellers, and others for injuries caused by defective products. Under product liability laws, a toy manufacturer can be held liable if a child is harmed by a toy that’s been manufactured and used with a design flaw. The manufacturer can also be held liable for defects in marketing the toy, such as giving improper instructions on its use or failing to warn consumers about potential dangers. But what if the product isn’t a toy, but rather a fast-food kid’s meal? And what if the harm isn’t immediately obvious but emerges over time?

These questions are being debated in the legal and health professions (and the media). Some people believe that fast-food restaurants should be held responsible (at least in part) for childhood obesity. They argue that fast-food products—such as kids’ meals made up of high-calorie burgers, fried chicken fingers, French fries, and sugary soft drinks—are helping to make U.S. children overweight. They point out that while restaurant chains spend billions each year to advertise fast food to children, they don’t do nearly enough to warn parents of the dangers posed by such foods. On the other side of the debate are restaurant owners, who argue that they’re not the culprits. They say that their food can be a part of a child’s diet—if it’s eaten in moderation.

There’s no disputing that 20 percent of American children ages 6–11 and 10 percent of children ages 2–5 are obese and that fast-food consumption by children has increased by 500 percent since 1970. Most observers also accept the data furnished by the U.S. Surgeon General: that obesity in the United States claims some 300,000 lives a year and costs $117 billion in healthcare. The controversy centers on the following questions:

1. Who really is to blame for the increase in obesity among U.S. children?

2. Under current consumer-protection laws, is fast-food marketing aimed at children misleading?

3. Should fast-food restaurants be held legally liable for the health problems associated with their products?

What’s your opinion? If you owned a fast-food restaurant, what action (if any) would you take in response to the charges leveled by critics of your industry?

Team-Building Skills

The Great Idea

Get together with members of your team and brainstorm ideas for a new-to-the-market product. Begin the brainstorming session by asking each person to write an idea on a sticky note. Post the idea and repeat the process four times. After the team has evaluated and discussed the ideas, all members should vote. Each gets ten votes, which can be placed on one idea or spread over many. Once the voting ends, add up the votes received by each idea and declare one idea the winner.

Write a group report that answers the following questions:

1. Product Idea

. What is the idea?

. How would the idea work?

. Who would our customers be?

. What unmet need does it fill?

· Industry

. What is the product’s industry, segment, and niche?

. Is the industry growing or contracting?

. Who are our major competitors?

. How does our product differ from those of our competitors?

. What opportunities exist in the industry? What threats?

· Product

. What will the product look like?

. What features will it have?

. How will customers benefit from our product?

. Why will customers buy the product from us?

. Why will our product be financially successful?

The Global View

Fake Goods 

If someone on the street tried to sell you a “Rolex” watch for $20, you’d probably suspect that it’s a fake. But what about a pair of New Balance athletic shoes? How do you know they’re authentic? How can you tell? Often you can’t. Counterfeiters are getting so good at copying products that even experts have trouble telling a fake from the real thing. What if the counterfeit product in question was a prescription drug? Even worse, what if it had been counterfeited with unsterile equipment or contained no active ingredients?

How likely is it that you’ll buy a counterfeit product in the next year? Unfortunately, it’s very likely. To learn a little more about the global counterfeiting business, read these articles: “Counterfeit goods: How to tell the real from the rip-off” (by  Consumer Reports),  https://www.consumerreports.org/cro/magazine/2015/05/counterfeit-goods-how-to-tell-real-from-ripoff/index.htm; and “Fake Goods, Real Dangers” (by U.S. Customs and Border Protection),   https://www.cbp.gov/FakeGoodsRealDangers. Then watch the following video, titled “Fake Goods Creating Real Problem”:  https://youtu.be/yvAmcSje_j4. After you read the articles and watch the video, answer the following questions:

1. How has the practice of counterfeiting changed over time? What factors have allowed it to escalate?

2. What types of products are commonly counterfeited, and why might they be unsafe? What counterfeit products are particularly dangerous?

3. How do the counterfeiters get goods onto the market? How can you reduce your chances of buying fake goods?

4. Why is counterfeiting so profitable? How can counterfeiters compete on price with those making the authentic goods? How do counterfeiters harm U.S. businesses?

5. What efforts are being made to stop counterfeiters?

6. If you know that a product is fake, is it ethical to buy it?

11.1 Product Branding

Learning Objectives

1. Understand what a brand is.

2. Grasp the power of brand recognition.

3. Understand brand definition and the process involved.

4. Understand the goodwill value of a brand for its owners.

5. Understand what commodity products are.

6. Recognize the opportunity to disrupt stale brands.

7. Appreciate the importance of corporate ethics and how unethical behavior can induce brand disasters.

8. Recognize the importance of brand fit to the market, the entrepreneur, and the growth plan.

9. Learn the value of trademarks.

Perception Management

Walking through a modern shopping mall or surfing through Amazon.com is an immersive experience in  product brandingThe marketing practice of creating an image or identity associated with a specific product.. Our subconscious instantly recognizes hundreds of  logosA graphic, text, or symbol designed to represent a brand. —graphic or text symbols designed to represent a brand. We see and process the symbols for Apple, Nike, and Louis Vuitton more quickly than common words, and each of these logos generates an emotional response. That all happens because the large firms whose products dominate the mall and internet landscape have invested millions of dollars into  marketing campaignsA specific, defined series of activities used in marketing a new or changed product or service. designed to instill positive associations with these symbols in the minds of consumers. Why is so much time and money being spent on ingraining these images in your mind and managing your response to them as opposed to demonstrating the functionality of the products they represent?

We live in a world where information flows are growing exponentially. We are constantly collecting data from our school, work, family, and friends. In addition to in-person interactions and voice calls, asynchronous communications such as email and social media allow this information to accumulate to the point where it must be processed in bulk, consuming more and more of our time. When we add to this a barrage of advertisements on signage, television, computers, and mobile devices, it is simply overwhelming. Most of the information we receive is trivial, and as individuals, we must spend more and more of our mental energy processing, sorting, and eliminating information that we can’t afford to consider.

Today’s  marketersThose people whose skill lies in developing brands and generating attention for companies.—those people whose skill lies in developing brands and generating attention for companies—understand that, try as they might, they will get very little of your attention. In fact, they will probably only get a few seconds or even a fraction of a second of your conscious awareness as you stroll through that mall. Building the image of a brand at every opportunity and tying it to that instantly processed logo is the key to modern  mass marketingEffort to reach an entire customer segment through a single strategy utilizing mass media and/or mass distribution. . What if you don’t make a consumer good that would be sold in the mall? What if your customers are all other businesses? Do nonconsumer companies need to worry about branding?

Boeing (and Rolls Royce) Logo on a 787 Dreamliner.

Source: Ryan Fletcher/Shutterstock.com

Think about the Boeing corporation. Are you likely to ever buy a Boeing product? Probably not, but you probably do know they are a global leader in the production of large jet aircraft. You’d also likely recognize the Boeing logo. Why do you recognize the logo? Boeing doesn’t sell jets directly to consumers (outside of a few billionaires with private 737s), but it does sell to airlines and governments around the world. Those large organizations build fleets of planes that cost hundreds of millions and even billions of dollars.

Thousands of individuals will be involved in making the recommendation to go with Boeing or with their archrival, Airbus. Having global brand awareness guarantees that when a buying decision is at hand, all the parties involved will instantly recognize the Boeing brand and hopefully have a positive association with that brand. Did the loss of two Boeing 737 MAX aircraft in 2019 impact your overall perception of this brand? You can imagine that Boeing’s marketers were working hard to ensure that the perception of their brand stayed positive in the minds of people across the globe. That’s quite a task!

As a small business owner or startup founder, your brand is a precious and delicate thing. You must plant, nurture, and protect it at all costs. It is an investment in time, dedication to quality, and an exercise in  perception managementActions taken to guide consumer understanding of a brand. . Good brand building will return value and support your firm in the future at no additional cost. The well-constructed brand is a resource as valuable as gold. The New Entrepreneurial Dynamic requires that brands stay true to their core principles while dynamically adapting to the realities of a global market that is constantly evolving around them.

Defining Your Brand

Every established brand has a  brand definitionWhat a product or company stands for in the mind of consumers. —something that it stands for in the mind of consumers.  Figure 11.1 shows the rankings of the top-rated brands in the world, according to Interbrand, a brand consulting and marketing firm.

Figure 11.1 Top 15 Global Brands

Top 15 global brands ranked by Interbrand.

Source: Based on rankings from https://interbrand.com/best-global-brands/

Apple’s brand is defined as hipness and leading technology; Harley Davidson is rebellious yet patriotic; BMW is luxury and excellence in engineering. Do you see something each of those brand definitions has in common?

Notice that each of these great brands combines two distinct ideas to create a unique identity. Aspiring to something as simple as “being the best in our industry” is great, but not distinctive. You need another “hook” for your brand.

Apple has combined technological savvy with a hip, freethinking, and artistic feel, but their arch-rival Microsoft has done the opposite. The firm from Redmond has combined technology with the reliable, button-down culture of multinational corporations. So, although their products do many of the same things in nearly identical ways, their user bases are distinctly loyal. A college professor today looks out at a sea of Apple logos on the laptops that face him, while many bankers and engineers simply can’t imagine using any computer that doesn’t run Windows. Does any of this apply to a small business?

Yes, your small business has a brand! Regrettably, many small business owners don’t think of that, but they should. Your brand definition will determine who your customers are. Your customers will determine the profitability and longevity of your brand. Consequently, controlling the development of your brand definition is a critical strategic function of your business. As you learned with company culture in an earlier chapter, if you do not consciously define your brand, others will define it for you. Allowing that process to proceed randomly is inherently dangerous.

Without a Brand, You Throw Away Value

Look again at  Figure 11.1. Do you see the dollar amounts listed next to each brand? These are the values that Interbrand has calculated for each brand, meaning that if the firm decided to sell its brand and nothing else, it would collect that amount. Interbrand’s valuation suggests that Apple could burn its facilities to the ground, fire every top employee, dump all its product inventory in the sea, and still sell the firm for $170 billion simply because the Apple brand creates so much value. It may seem hard to believe, but a cursory look at products without a brand easily demonstrates the power of branding.

In today’s marketing-driven world, it is hard to imagine that there are products without a brand! There are. Think of those famously unbranded store products in the plain white and blue packages that say nothing more than “flour” or “milk” or “sugar.” Think of generic drugs. What is the main feature that drives consumers to select those choices over their branded peer products? It’s price, of course. When your business competes only on price, you are selling a  commodityA generic product for which the primary distinguishing feature is price, i.e., salt, flour, oil., a good for which it is assumed that all competing products are essentially of equal quality and performance. Is that a problem?

Commodities are a tough place for a small business to make money. They nearly always trade on very slim margins since they attract customers who are only differentiating on price. What cost control that can be achieved is usually based on economies of scale that favor large incumbent firms. Usually, the barriers to entry are very low as well, leaving the threat of new entrants high. Commodities markets are also subject to speculative price variations outside the control of the entrepreneur. These factors make commodities very unattractive markets.

Stores offer non-branded products at lower prices.

Source: Sheila Fitzgerald/Shutterstock.com

On the other hand, experience shows that consumers will pay more for a branded product, even if it offers no real-world advantages! Table salt is a basic chemical, sodium chloride (NaCl). Most manufacturers add a little iodine as a nutritional supplement. Skipping some exotic cooking salts containing other minerals, there is no patent, additional feature, or other intellectual property to make one container of the white table salt crystals better than another. So, you’d think that all brands of salt would sell for the same price, right?

The Morton logo dominates its market.

Source: Julie Clopper/Shutterstock.com

In North America, the largest seller of salt is a company called Morton, whose logo of a young girl walking in the rain with an umbrella is well known. The company’s slogan, “When it rains, it pours,” is also familiar to many Americans. On Amazon.com, a 26-ounce container of Morton salt sells for $11.99, while a 26-ounce of Diamond Crystal brand salt sells for $5.99. Since Morton’s input costs are the same, or even lower, based on their massive scale, the margins it and its resellers capture are far higher than those of the commodity sellers. That is a real measure of the pure value-add of branding: twice the price for the same thing.

Great brands like Apple, Morton, and Coca-Cola are so culturally embedded in the retail landscape that it is hard for consumers to imagine a world without them. Apple’s brand helps its users identify themselves. Apple owners feel that their use of the firm’s sleek products signals their hipness, affluence, and intelligence. For the amount of profits that it generates, Apple does very little advertising compared to other large companies. Morton doesn’t need to advertise to maintain its dominance in salt and keep those higher margins. Parents simply pass on their buying choice to their kids by observation. Consider that Coca-Cola can charge higher margins for clothing and other gear emblazoned with its logo. Another way to look at that is to recognize that people will pay money for the opportunity to advertise Coke. Now that is brand power!

Interbrand uses firm financial statements and their analysis of the brand’s role in sales to analyze how much of a firm’s higher profits come from its brand value. They suggest that not only does a solid brand generate more money for the firm’s shareholders, but it also reduces risk. A stable brand supports a stable firm.

Product Fit

Would anyone buy a Lamborghini if they were not over-the-top about everything? Every brand appeals to some customer identity. Understanding what attracts existing customers and what will bring in new customers is essential to a brand. The branding of the consumer audio equipment company Beats differs significantly from that of its competitor, Sennheiser. Beats focuses on youth appeal and looks since its customers care less about the intricacies of music and more about appearances and the perception of luxury. Their customer wants to pay extra for the sake of everyone else knowing they spent the money. Sennheiser, on the other hand, is a pure quality performer, and thus its image is simpler and geared toward those who are willing to pay for superior technology. Browsing the websites of these two companies will clearly reveal this marketing distinction.

TOMS shoes knew it wanted to give back to the world by providing footwear to those in need. Rather than choosing a wishy-washy approach, TOMS set a simple one-for-one model. This clear branding for its product, centered on charity, allowed the impact of every purchase to be visible to consumers. Visibility is important in all industries, but especially so in non-profits.

Managing the Brand

If you’re a fan of college basketball, you know that each team has a unique style of play. Kansas State usually prefers to play it slow, while the University of Kentucky plays quicker and more active. These playstyles define each team as a whole, independent of the composition of players, and are intentionally designed by the management and coaching staff. If a playstyle is not working well, it can be adapted to better suit the competition and the situation, but changing it completely isn’t likely to work out well for a team trained to deliver in a particular style.

Every team has its own style of play which defines its brand with fans.

Source: © Shutterstock, Inc.

Great brands are similar. Just by its logo or slogan, a consumer can instantly identify the branded product. Done right, the logo and the product seem inseparable and feel inevitable. Think of Apple’s iconic aluminum and glass products. The customer has expectations that a new product from that brand will maintain the style they’ve come to love and identify with.

For this reason, the product-brand connection must be carefully managed. It is often relatively easy to make a radical technical or physical change in a product or to present a service very differently. However, when that veers away from customers’ expectations of the brand—imagine the Kentucky coach asking his players to “slow it down”—what do you think might happen?

A brand’s message must stay consistent. This allows consumers to feel comfortable using the brand to signal messages about their identity. They do not want to find themselves surprisingly tied to an image they don’t admire. For instance, the Nike Swoosh suggests “active, bold, and assertive.” Yet, Nike is aware of current global demographic trends, and the firm understands that the most desirable higher-income consumers in the developed world are aging and gaining weight. So, the sportswear firm does offer a line of plus-sized clothing and products targeted at seniors. While we’ve all seen not-so-athletic people wearing Nike gear in the real world, there are no pictures of a 300 pound, 60-year-old man smoking while eating a pizza on Nike’s website. The carefully crafted home page and the firm’s expertly managed social media are dominated by fit young people. Why?

Would aspiring young athletes feel compelled to buy Nike after seeing advertisements featuring overweight guys in Nike stretch pants and old ladies using walkers emblazoned with the Swoosh? Of course not! Even Nike’s older and out-of-shape customers do not want to see themselves that way. Great branding isn’t about the current reality of the buyer; it’s about their aspirations. Understanding this, Nike uses the clever slogan “Where All Athletes Belong,” implying everyone is welcome and can feel athletic.

The Nike Story

Customers expect branded products to behave in a certain way, and change is usually punished by those comfortable with the existing paradigm. Remember that noncustomers have already rejected the brand, and that choice will blind them to the attractive nature of the new product—even if the firm designed it specifically for them.

A great real-world example of attempting to deal with customer brand expectations comes from legendary country singer Garth Brooks. With a long series of hits, his trademark black Stetson Tyler cowboy hat, and friendly good looks, Brooks had established an iconic country brand. However, in 1999 the country star decided to make an unexpected detour into popular rock with the release of an album under the pseudonym “Chris Gaines.” Brooks figured he could have fun exploring another genre and expand his appeal to those rock fans who disdained country music. He even planned to make a documentary film about his alter ego. Brooks hosted  Saturday Night Live one evening and introduced Chris Gaines as the musical guest. The connection was obvious to everyone.

Fans wanted the country music superstar to stick to the country image they had of him.

Source: Sterling Munksgard/Shutterstock.com

When Brooks’ fans saw their clean-cut country star strut out in leather pants with shaggy hair and sporting a goatee, they were appalled. They figured he’d gone nuts, and they rejected what was actually a pretty good collection of songs. Rock listeners were not fooled by the pseudonym and generally refused to give the release a try either. The results were as expected: poor album sales with little airplay on either country or pop stations. Brooks’ esteem and career suffered a minor setback. Luckily for him, his talent allowed him to slide right back into the country saddle again.

The lesson from the Brooks/Gaines story is that it is very hard to be all things to all people. It is best to clearly identify a  market, develop your brand, and stick with it. This is especially true for small businesses, where resources are limited. If you’re absolutely compelled to pursue another market or develop an alternate product, you’re better off establishing another brand that captures the nature of that product in a way that won’t  pollute your existing brand.

For an alternate brand to work, you must keep it completely separate in the public’s mind as though it comes from an entirely different source, something a celebrity like Brooks couldn’t pull off. For instance, PepsiCo, the soda maker, owns Tropicana. Most consumers don’t realize this, and Pepsi doesn’t emphasize the connection because the association with unhealthy, corn syrup-sweetened soda would  pollute these brands and dilute their healthy appeal.

Although the popular global brand is owned by PepsiCo, its health-focused branding is entirely different.

Source: MAHATHIR MOHD YASIN/Shutterstock.com

How do these lessons apply to small business branding? How many “Donuts and Pizza” stores do you see? Don’t laugh; there is a very viable business model behind the idea. Both donuts and pizza are popular takeout foods, and the small businesses that serve them operate out of similarly sized and equipped strip mall locations. Most significantly, donuts are generally sold only in the morning, while pizza is lunch and dinner fare. A savvy small business owner would maximize the utilization of a location by serving donuts in the morning and switching to pizza at about 11 a.m. It makes economic sense, but it’s a branding disaster. Consumers will be suspicious of a brand that claims excellence in both of those categories. The whole idea of donuts and pizza offers an improbable mix of tastes and smells, and it probably makes most people slightly ill just thinking about it. So, sadly, most small donut stores do 90 percent of their business from 6 a.m. to 10 a.m. and have very low utilization after that.

Great Brands and Brand Value

How do you measure the value of a brand? Consider the amazing brand that is Disney. Tickets to Disneyland in Anaheim, California, are substantially higher than passes to their Southern California competitors such as Knott’s Berry Farm, Legoland, and Universal Studios. Yet a lot more people visit Mickey Mouse’s home than these other more affordable fun spots. In fact, everyone in the SoCal tourism industry understands that Disneyland is “the destination,” and other sites simply compete for tourists choosing a second stop on their California trip.

On the other hand, if a Chevron gas station raises the price on its regular gas by five cents a gallon, drivers on their way to Disneyland will promptly dash across the street to a lower price at Shell.

You can measure the relative value of the Disney brand versus Chevron by looking at the  gross profit marginA financial metric calculated by dividing gross profit by revenues.  in their financial statements. While oil and gas companies make good profits during good times, it’s a business based on enormous volume at relatively low profit margins. Valuable brands like Disney create mental switching costs around the branded product and reduce the price sensitivity of customers. Gas is a commodity, and purveyors of it have had a very hard time adding significant brand value. If your small business commands exceptional prices and reports higher margins than your peers, you’ve probably established some brand value.

Imagine a nifty hipster coffee shop near a college campus. This is the hot place to hang out and sip organic, fair-trade, wholesome brew under old-timey lights in red leather chairs. Now imagine this coffee shop moves two miles away, but everyone still chooses to hang out there. Not only that, but they are also charging more than other local shops. This is brand value in action. When the coffee shop owner goes to sell her business, she will command a better price if she can effectively demonstrate this brand value to potential buyers.

New Brands Versus Old Brands

All of this makes it clear that it is difficult to displace a powerful existing brand. Can you imagine being a new entrant with a digital tablet trying to go up against Apple in the consumer market? Even global mega-corporations, including Samsung, Microsoft, and Hewlett-Packard have found that to be a daunting challenge. Occasionally, however, a plucky little disruptor manages to establish a foothold with a new brand in a market long dominated by one or a few powerful incumbents. Can you think of any?

The Dollar Shave Club’s disruption of the branded razor business is a great example. King Camp Gillette founded the American Safety Razor company in 1901 and began marketing the first mass-produced, disposable blade razors based on his innovative patent for stamping rather than forging steel blades. He is credited with inventing the famous “razor and blades” business model. The firm sold the razor at cost, locking customers into the brand and necessitating their purchase of expensive replacement blades. This model has been applied successfully across many industries. For more than 100 years, the Gillette brand dominated the higher end of the American disposable blade razor industry. Brands like Schick and Bic competed mostly on price, but most men were willing to pay a bit more every week to not nick their necks. They stuck with Gillette’s brand reputation for quality, and the firm could support its relatively high-cost U.S. manufacturing. Today, Gillette is owned by the multinational consumer goods firm Proctor and Gamble.

Mark Levine and Michael Dubin saw an opportunity to make huge margins in the disposable razor business. They reduced costs by importing blades from Asia and selling directly online, enabling them to offer lower prices to the consumer and take a chunk of the retailer’s margin as well. Dollar Shave arranged to source product from a Korean blade maker and lined up funding from an incubator to outsource production of the handle and packaging and build their brand. This brand building is where the real magic occurred. Remember, most consumers had been happy with Gillette for more than 100 years. Dollar Shave needed to disrupt that and did so with a brilliantly humorous online video titled “Our Blades Are F***ing Great,” which now has well over 20 million views on YouTube. The 2012 video caught people’s attention, and Dollar Shave delivered a good product at a good price and demonstrated high customer retention rates. Dollar Shave was now viewed as a credible threat to Gillette and garnered the attention of Proctor and Gamble’s international competitor, Unilever. In July 2016, the brand was sold to Unilever for $1 billion. That is the power of brand disruption. Can you do something like that in a local market?

Dollar Shave Club Video

This offbeat YouTube video went viral, establishing a new trend in men’s grooming products.

Yiu has been dreaming of opening an art gallery in a small coastal town. It’s a vibrant area with a strong creative streak. It also has a tight-knit group of wealthy businesspeople who view themselves as art patrons. However, the local scene has been dominated for many years by one gallery. Charleston, the owner of the incumbent gallery, has established his shop as the hub for all the popular artists as well as the buyers. He also dominates the social scene. Yiu feels there is room for more than one gallery, but she knows that her competitor will see her entry as a threat and will not be eager to share either his artists or his wealthy clients with her. What can she do?

Yiu will need to disrupt the existing paradigm, and the key to doing that will be to find compelling new local artists or to bring in hot outside talent whose works are substantially different from what Charleston is offering. She must then convince the art buyers that her artists are leading a new wave they need to be aware of. How can she get them in?

Yiu decides to host a charity event and auction off several new pieces to support an important local cause, cleaning up the town’s notoriously polluted water supply. This cause engages the support of many community activists who are able to pressure local political leaders into backing the event. These politicians, seeing a way to score points with the citizenry over a popular issue and to solve a municipal problem without tapping into their own budgets, eagerly compel attendance among the town’s business leaders. At the dramatic opening, Yiu finds she has a captive audience for her new artists. Once the owners have added a few pieces of the new work to their collections, she is sure they will want to expand their investment. It is an auspicious beginning for her new gallery.

Brand Disasters

Most consumer product companies have opportunities to save money by reducing the quality of their products. They can use inferior materials or reduce the amount of more expensive ingredients. For instance, a candy firm might shrink a popular candy bar or cut back on expensive nuts, hoping buyers won’t notice. This is a risky strategy, because if the change becomes a topic of public discussion, the brand could be damaged, and some consumers might switch long-term brand loyalties. Some brand disasters are much worse than that.

Women’s clothing boutique chain Lily Pulitzer was proud to be featured in a news article that was going to be based on interviews with executives at their headquarters. Unfortunately, the visiting reporter’s eye landed on a doodle taped to an employee’s cubicle with a caption reading, “Just another day of fat, white, and hideous. You should probably just kill yourself.” This little drawing posted in a private space sent the very public news article in a decidedly negative direction. While the employee was probably motivating themselves to stay in shape, it underscored the fashion industry’s dangerously obsessive preoccupation with thinness. Lily Pulitzer ended up in the middle of a negative discussion around fat-shaming rather than getting a load of positive publicity. What is the message here?

The message is that  every form of communication is a message to the public about the values of your brand. The culture of your company must genuinely reflect the values you wish to present to the consumer. Everyone must be  on messageAdhering to the approved message of an organization. all the time, and that’s easier to do when the message is genuine and natural. The media and the public will latch onto anything that looks disingenuous and tear it apart.

Can you imagine anything being worse than the brand disaster Lily Pulitzer faced? There have been cases where brand disaster created  existential threatsA problem so serious that it threatens the very existence of the organization. to major businesses. Sometimes these events were well handled, and the brand was reinforced. In some other cases, things went very badly indeed.

Malaysian Airlines lost two airplanes in 2014. One plane completely vanished in March, likely the result of terrorism. That July another was mistakenly shot down by a missile while crossing over a war zone in the Ukraine. Hundreds of passengers perished in each event. Perplexingly, the national airline’s marketing department then choose to proceed with an ad campaign entitled “Bucket List,” asking people to tweet about places they would like to see before they died. Associating flying with dying is a bad idea for any airline at any time, but in the case of Malaysian in 2014, it was a destructive misuse of marketing resources at a time when all public messaging should have been very carefully controlled.

Johnson & Johnson earned the public’s trust by responding in an ethical manner to a brand nightmare.

Source: Sean Locke Photography/Shutterstock.com

An example of a firm doing a much better job of managing a brand threat occurred in 1982, when a psychopath inserted potassium cyanide poison into bottles of Tylenol brand pain reliever. His acts killed seven people in the Chicago area, beginning with a twelve-year-old girl from Elk Grove, Illinois. James William Lewis did this in an attempt to extort $1 million from Tylenol’s manufacturer, Johnson & Johnson. Rather than make a payoff and keep things quiet, the firm immediately warned the public and hospitals, and swiftly recalled 31 million containers valued at over $100 million. Johnson & Johnson incurred a huge financial loss, but it emerged with a golden reputation among consumers and the respect of the global business community. The firm then developed tamper-resistant packaging for its medications, which consumer product companies imitated. When you peel off the plastic seal on the top of a juice bottle today, it’s because of this case and one firm’s ethical response.

One company that failed to learn from Johnson & Johnson was the Sanlu Group, a manufacturer of baby formula in Shijiazhuang, China. In 2008, some of the firm’s milk suppliers discovered that adding melamine, a chemical typically used to make plastic resins, would cause their milk to test higher for protein content. This  adulterationChanging the formula of a product in a negative way. of the product increased the milk’s wholesale market value. Unaware of the deception, Sanlu paid more for what they thought was better milk. However, consuming melamine causes serious kidney damage, and some Sanlu customers began to get sick. When Sanlu discovered what was going on, they should have admitted that they’d been duped by their suppliers and alerted the public to the danger. Instead, they attempted to cover up the issue to protect their brand’s reputation. They even asked local authorities to keep the problem quiet “to avoid whipping up the issue and creating a negative influence in society.” Some authorities were paid bribes. At least six children died, more than 50,000 were hospitalized, and as many as 300,000 suffered health problems. In the end, some of the milk suppliers were actually executed by the Chinese government. It doesn’t get much worse for a brand than that.

It’s unlikely you will have to deal with such life-and-death problems threatening your brand, but honesty is always the best policy, and broadcasting the bad news is usually best done sooner rather than later. Preventing a brand crisis from occurring is another case where a small business actually holds the advantage because a brand image is easier to control for no other reason than  there are fewer people to keep on message. In a small business, the owner can personally vet all the official marketing material and interview every candidate for employment.

If a brand crisis does happen, a small business is again better equipped to manage the damage control process and to not make it worse. Again, the business owner can keep his or her finger directly on the situation. If you have any employees who may not react well under fire, now is the time to send them on a quick vacation.

Brand and Market Transitions

Cambria is a top producer of high-quality quartz countertops. You might be surprised to learn that Stan Davis started his family’s business in 1936 by buying into a creamery, or a manufacturer of butter. Over the years, that firm expanded its dairy processing operations into cheese and developed a variety of brands through several acquisitions and mergers. This is hardly the background for establishing a presence in the fickle interior design market. In fact, the firm’s website says, “Nothing about Cambria’s beginning was very strategic.” Cambria President and CEO Marty Davis remarked, “It just kind of happened.”

In 2000, the Davis family saw an opportunity to diversify and acquired a quartz processing operation. Their dedication to quality resulted in a great product. However, the firm was not recognized in the world of interior design or construction. They wisely decided to partner with DuPont and began utilizing the larger, more established firm for distribution of their original quartz tile products. This gave the family a chance to get their production process down while developing their own “Cambria” brand. In just over a decade, they had built a successful operation and a highly admired brand that commands respect in the interior design world.

Targeting: Market and Community Specific Brands

You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time.

            —Unknown (often attributed to Abraham Lincoln)

Many people would assert that marketing is not much more than a sophisticated tool used to trick customers into buying a product or service they otherwise would not need. Good marketing should be a process of bringing the perceived value of a  great brand in line with the value of its  great products. However, the quote above makes an excellent point: brands must target customers, but they need not and should not court  all customers. Brands can be laser focused on specific targets by interest, identity, or geography.

A hardworking entrepreneur who had built a successful line of snowboarding clothing and accessories was frustrated by the lack of respect that his parents showed for his accomplishments. When he attended an industry tradeshow or showed up on the slopes, he was a rock star, but none of that prestige translated when he visited home. He was considering expanding his advertising into television or print media that his parents would appreciate. He thought that perhaps it might also bring him some unexpected customers.

GOEXPO Winter 2019 Fair

Source: Aleksandra Suzi/Shutterstock.com

Don’t fret if your mom has no idea that your brand is huge as long as the consumers who are most likely to buy your products respect it. We live in an age where information technology allows advertising and messaging to be targeted with almost pinpoint accuracy. The best marketing is so focused and direct that your noncustomer mom will never, ever see it. In fact, if she does come across it, that may be a signal that you’re wasting your time and money.

Do not waste your precious brand-building efforts or your advertising budget on people who will never help pay for that effort or produce profits. Marketing simply for prestige, recognition, and ego are signs of a brand about to fail.

Your marketing goal is to drive sales and build awareness within a target audience. Your audience may be defined by geography. For example, imagine you own a hotel laundry service company that targets inns along the Tijuana-Rosarito-Ensenada corridor of Baja California. Alternatively, your audience may be the whole world but limited by specific consumer interests, as with the previous snowboard products example. An audience might also be limited by demographics, as is the case with an auto brand aimed at first-time car buyers in the developing world. Finally, your audience could be some specific mix of all these factors, geography, interests, and demographics, such as for a clothing store in Tokyo that sells only to high-end men’s business suit buyers.

Focusing narrowly offers several marketing advantages. The first is that good targeting ensures that the  conversion ratePercentage of potential buyers exposed to your message who complete an action, i.e., learning about the product or making a purchase., or the percentage of potential buyers exposed to your message compared with those who complete an action like learning about your product or making a purchase, is relatively high. In  Chapter 12 “Marketing”, the mechanics of how to make this happen for your brand will be discussed!

Entrepreneur Fit

Have you noticed how the faces of some brands just fit their products or services? Think about Sir Richard Branson, and then think about flying. Picture Martha Stewart and her conservative home décor. Look at Alibaba’s Jack Ma, and imagine huge online sales.

These entrepreneurs fit their companies and their products like a glove. They seem to love what they do, and their customers can sense it. The fact that these famous entrepreneurs are a vital part of their brand works well for them and for their companies. You can do the same with your small business.

The trials of small business ownership are hard enough without enduring a bad match between your brand and your own  self-imageA personal identity.. If you cannot agree with your company’s model, brand, or product, then it will be a rough ride. For example, if you don’t smoke, do you want to open a tobacco store? If you are a recovering alcoholic, is it smart to launch a nightclub? Most likely, the answer is no. So, first and foremost, do something that’s both profitable and at least agreeable to you. If you can be passionate about your work, all the better.

Now, just because you fit the product doesn’t mean that any business in that category will fit you. If you love scuba diving but cannot stand humidity or mosquitoes, do you want to buy a dive shop in Florida? The New Entrepreneurial Dynamic requires that the brand be an integrated part of the entire entrepreneurial fit. If some aspect of your small business makes it difficult for you to love your work, it will be that much harder for you to build a brand that other people will love. So, if you love to swim with fish, open that dive shop in Hawaii where the weather is better and the mosquitoes are fewer. Your undistracted love for the work will show and make the brand all the better. Just make sure that your brand is something that you wake up smiling about each morning.

Growth Plan Fit

A brand must fit the current and future scale of an organization. If you’re a local café, part of the ambiance and credibility is in the authenticity of being a small business. Many people prefer the idea of patronizing a locally owned establishment and expect a higher quality and more unique product from it. They don’t want to patronize a large, impersonal, global entity. If you get too professional and “slick” in your approach, you risk looking like just another chain restaurant, and you may reduce the value of your brand to this group of “authenticity seekers.”

On the other hand, if you plan to grow your operation into a global franchise, you want to make sure you’ve got a brand and image that can support that growth. Some customers prefer to patronize a large organization that has strictly defined quality standards. They aren’t looking for new experiences, and they want a consistently uniform product. The McDonald’s brand is what works for them. This group is comforted by shiny plastic and an assembly line feel that our authenticity seekers eschew.

Multinational Conglomerates Dress Up as Small Biz

Be aware that the consumer’s perception of the difference between big and small businesses is intentionally blurred by corporate marketers. They are looking to establish brands that capture the authenticity of small business while still leveraging their economies of scale in production and their retail distribution monopolies.

Let’s go check out the specialty sauce aisle in a big, chain supermarket. You will see dozens of products in all different categories striving to look authentic to their cuisine. There’s Italian marinara, Thai peanut sauce, and Mexican mole with chocolate in it. There will also be a large section of Southern (U.S.) barbecue sauces as well. Our eyes land on “Little Bob’s Famous BBQ Sauce.” The bottle features a picture of a wise, smiling old man, “Little Bob.” The label design is a bit “cheesy” with a big map of Texas on it. It looks like something Little Bob and his family made in their kitchen in Houston and shipped out of their garage. You’re thinking, “That’s some authentic sauce!”

Many of these brands aspire to appear “authentic.”

Source: Niloo/Shutterstock.com

Before you think you’re helping an entrepreneur when you buy this stuff, let’s consider how many bottles must have been shipped to fill up the shelves of even one major supermarket chain. It’s highly unlikely this tasty stuff was bottled at home. Some investigation would show that the BBQ sauce was actually developed in a giant food lab in Minnesota using statistical data on consumer preferences. It was made by technicians and is bottled by several large “co-packing” factories across the nation.

“Authentic” branded products may actually be developed by scientists in sterile labs.

Source: © Shutterstock, Inc.

The Little Bob label was produced by a group of hipster graphic artists in Venice, California. In fact, it turns out “Little Bob” himself was portrayed by a model. Sadly, there never was a person of that name. The photo on the label was selected by interviewing consumers in  focus groupsA tool for gathering insights from potential customers that brings a group of individuals together to discuss a proposed new product or service and its marketing. about which image they felt was most authentic.

Association

Brand associationA planned relationship between a brand and something else, i.e., a color, concept, person, emotion, or idea that comes to the consumer’s mind when a brand is considered.  is a powerful psychological tool that marketers have been using for years. At the abstract level, brands tie themselves to things like specific bright colors (Coke, Pepsi), smiles (Amazon), the sun (BP), or other generally positive concepts, expressions, and things.

Iconic public symbols with positive associations are often co-opted by brands.

Source: © Shutterstock, Inc.

At the most concrete level, repeated messaging is used to tie the brand to something or even someone very specific. For instance, many companies, such as Liberty Tax Service, have leveraged the public’s positive association with the iconic Statue of Liberty. Other brands have tied themselves to famous people, for example, the very successful George Foreman Grill (no, George did not invent that). Some have established artificial personalities who are archetypes of the individual they want to be associated with (see  “Multinational Conglomerates Dress Up as Small Biz”).

If your small business pulls mostly from the local community, including that community’s name in your brand or in a  taglineA catchphrase or slogan used to identify a product or company., it usually makes the locals happy. If you have a strong reputation in the community, your own name might be a great association as well. Imagine Joe Basher, a retired NHL hockey player, returning home to Maple, the rural town in Canada’s Manitoba province where he grew up. Joe still needs income and is looking for a way to leverage his sports-related fame and continue to work in the sport that he loves. Joe buys an ice rink that serves local recreational skaters and hosts a hockey league. The ice rink is called, not surprisingly, the “Maple Ice Rink.”

Joe has a number of choices. He could rename the rink “Basher’s Sports Complex,” an association that would probably attract more hockey players. The recreational skaters, on the other hand, are very fond of the Maple association. Joe might try a combination like “Joe Basher’s Maple Ice Rink” or keep the existing name and add a tagline that plays on his fame, as in “Maple Ice Rink: Home of the Basher Hockey League.” What is the best way to go?

Remember our discussion of scaling? It applies to associations. If Joe is looking for a relaxing lifestyle business in Maple, he should keep the town’s name. On the other hand, if he aspires to build a national chain like Tim Horton did in donuts, he should lead with the Basher brand that would appeal to fans across North America. The first rink could be “Basher’s Sports Complex: Maple,” and maybe the next one will be “Basher’s Sports Complex: Ottawa”!

Association can also be dangerous for your brand. Remember that although you can control your own product quality, you cannot control the independent things or people that you associate your brand with. Nike learned that painfully when their expensive endorsement of Tiger Woods became a nightmare following public revelations of the famous golfer’s infamous personal misconduct. Could negative association possibly be that big a problem for a small business?

Imagine that it is 2003, and you are launching a line of authentic Japanese food products from your adopted city of San Francisco, California. Your first product is a seafood seasoning mix. To lend it some authenticity, you name the mix “Fukushima Flavor” in honor of the prefecture on Honshu Island where you lived as a child. The spice sells well, and you add “Fukushima” to all your new product names to keep the brand going! That’s all very good until 2011 when a devastating earthquake and tsunami destroys the Daiichi nuclear power plant at Fukushima. Suddenly, the name “Fukushima” is indelibly associated with disaster and frightening radiation leakage.

Trademarks, Brandmarks, Copyright

In 2009, director James Cameron released his blockbuster film  Avatar. The following year the Nickelodeon TV network released a film adaptation of its cartoon series,  Avatar: The Last Airbender, which had been running since 2006. However, because Nickelodeon did not properly  trademarkA symbol, word, or phrase that denotes a specific product and may be legally registered for protection. the name “Avatar,” they were legally barred from using their own title for their own film project despite being “first to market.” Even worse, when they developed a sequel TV series,  Avatar: Legend of Korra, they were forced to remove “Avatar” from that media as well. Such disasters are easily avoided.

In the United States, anyone can simply claim a trademark for their product name or a service mark for their service by placing the TM or SM symbols after the name. No paperwork or registration is required. However, if you wish to go a step further to secure enhanced rights and evidentiary benefits at trial, you can obtain a registered mark ® by filing with the U.S. Patent and Trade Office. If, as in the case of “Avatar,” your work is worth millions of dollars, you are strongly advised to file with the assistance of an experienced patent attorney. If you’re opening Paul’s Fishing Supply on Main Street, you probably don’t have to worry much at all. For most businesses, using the TM is good practice.

Registered Trademark, Copyright, Trademark, and Service Mark symbols.

Source: Greg Autry

You can also use copyrights for slogans, product descriptions, and sales verbiage. Again, you do not actually need to register; simply place the © afterward or note your claim as in “Copyright 2021 Greg Autry.” However, if you wish to clearly establish your legal rights and precedent, you may file a copyright notice with the U.S. Copyright Office.

In Europe, some countries respect a trademark that is not registered, but for full protection in all EU states, it is recommended that you register your trademark online with the European Union Intellectual Property Office (EUIPO). In China, you should register with the China Patent and Trademark Office (CTMO), which is part of the State Administration for Industry & Commerce.

While these intellectual property protections are critical in many arenas, in most small businesses, you can probably safely wait a bit before filing, particularly if the legal fees are a challenge. As with everything in the New Entrepreneurial Dynamic, business names are subject to change. Your original gut instincts on a great name may not be what you eventually run with. For example, Walmart started life as “Walton’s Five and Dime.” Rather than feeding your lawyer your profits, wait until you know it’s the perfect time to file.

Key Takeaways

· Always be building your brand.

· Consider brand impact on every decision you make.

· Know what your brand definition is and why.

· Make sure your brand can grow with your firm.

· Protect your valuable trademarks and register if needed.

Annotate

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11.1 Product Branding

Learning Objectives

1. Understand what a brand is.

2. Grasp the power of brand recognition.

3. Understand brand definition and the process involved.

4. Understand the goodwill value of a brand for its owners.

5. Understand what commodity products are.

6. Recognize the opportunity to disrupt stale brands.

7. Appreciate the importance of corporate ethics and how unethical behavior can induce brand disasters.

8. Recognize the importance of brand fit to the market, the entrepreneur, and the growth plan.

9. Learn the value of trademarks.

Perception Management

Walking through a modern shopping mall or surfing through Amazon.com is an immersive experience in  product brandingThe marketing practice of creating an image or identity associated with a specific product.. Our subconscious instantly recognizes hundreds of  logosA graphic, text, or symbol designed to represent a brand. —graphic or text symbols designed to represent a brand. We see and process the symbols for Apple, Nike, and Louis Vuitton more quickly than common words, and each of these logos generates an emotional response. That all happens because the large firms whose products dominate the mall and internet landscape have invested millions of dollars into  marketing campaignsA specific, defined series of activities used in marketing a new or changed product or service. designed to instill positive associations with these symbols in the minds of consumers. Why is so much time and money being spent on ingraining these images in your mind and managing your response to them as opposed to demonstrating the functionality of the products they represent?

We live in a world where information flows are growing exponentially. We are constantly collecting data from our school, work, family, and friends. In addition to in-person interactions and voice calls, asynchronous communications such as email and social media allow this information to accumulate to the point where it must be processed in bulk, consuming more and more of our time. When we add to this a barrage of advertisements on signage, television, computers, and mobile devices, it is simply overwhelming. Most of the information we receive is trivial, and as individuals, we must spend more and more of our mental energy processing, sorting, and eliminating information that we can’t afford to consider.

Today’s  marketersThose people whose skill lies in developing brands and generating attention for companies.—those people whose skill lies in developing brands and generating attention for companies—understand that, try as they might, they will get very little of your attention. In fact, they will probably only get a few seconds or even a fraction of a second of your conscious awareness as you stroll through that mall. Building the image of a brand at every opportunity and tying it to that instantly processed logo is the key to modern  mass marketingEffort to reach an entire customer segment through a single strategy utilizing mass media and/or mass distribution. . What if you don’t make a consumer good that would be sold in the mall? What if your customers are all other businesses? Do nonconsumer companies need to worry about branding?

Boeing (and Rolls Royce) Logo on a 787 Dreamliner.

Source: Ryan Fletcher/Shutterstock.com

Think about the Boeing corporation. Are you likely to ever buy a Boeing product? Probably not, but you probably do know they are a global leader in the production of large jet aircraft. You’d also likely recognize the Boeing logo. Why do you recognize the logo? Boeing doesn’t sell jets directly to consumers (outside of a few billionaires with private 737s), but it does sell to airlines and governments around the world. Those large organizations build fleets of planes that cost hundreds of millions and even billions of dollars.

Thousands of individuals will be involved in making the recommendation to go with Boeing or with their archrival, Airbus. Having global brand awareness guarantees that when a buying decision is at hand, all the parties involved will instantly recognize the Boeing brand and hopefully have a positive association with that brand. Did the loss of two Boeing 737 MAX aircraft in 2019 impact your overall perception of this brand? You can imagine that Boeing’s marketers were working hard to ensure that the perception of their brand stayed positive in the minds of people across the globe. That’s quite a task!

As a small business owner or startup founder, your brand is a precious and delicate thing. You must plant, nurture, and protect it at all costs. It is an investment in time, dedication to quality, and an exercise in  perception managementActions taken to guide consumer understanding of a brand. . Good brand building will return value and support your firm in the future at no additional cost. The well-constructed brand is a resource as valuable as gold. The New Entrepreneurial Dynamic requires that brands stay true to their core principles while dynamically adapting to the realities of a global market that is constantly evolving around them.

Defining Your Brand

Every established brand has a  brand definitionWhat a product or company stands for in the mind of consumers. —something that it stands for in the mind of consumers.  Figure 11.1 shows the rankings of the top-rated brands in the world, according to Interbrand, a brand consulting and marketing firm.

Figure 11.1 Top 15 Global Brands

Top 15 global brands ranked by Interbrand.

Source: Based on rankings from https://interbrand.com/best-global-brands/

Apple’s brand is defined as hipness and leading technology; Harley Davidson is rebellious yet patriotic; BMW is luxury and excellence in engineering. Do you see something each of those brand definitions has in common?

Notice that each of these great brands combines two distinct ideas to create a unique identity. Aspiring to something as simple as “being the best in our industry” is great, but not distinctive. You need another “hook” for your brand.

Apple has combined technological savvy with a hip, freethinking, and artistic feel, but their arch-rival Microsoft has done the opposite. The firm from Redmond has combined technology with the reliable, button-down culture of multinational corporations. So, although their products do many of the same things in nearly identical ways, their user bases are distinctly loyal. A college professor today looks out at a sea of Apple logos on the laptops that face him, while many bankers and engineers simply can’t imagine using any computer that doesn’t run Windows. Does any of this apply to a small business?

Yes, your small business has a brand! Regrettably, many small business owners don’t think of that, but they should. Your brand definition will determine who your customers are. Your customers will determine the profitability and longevity of your brand. Consequently, controlling the development of your brand definition is a critical strategic function of your business. As you learned with company culture in an earlier chapter, if you do not consciously define your brand, others will define it for you. Allowing that process to proceed randomly is inherently dangerous.

Without a Brand, You Throw Away Value

Look again at  Figure 11.1. Do you see the dollar amounts listed next to each brand? These are the values that Interbrand has calculated for each brand, meaning that if the firm decided to sell its brand and nothing else, it would collect that amount. Interbrand’s valuation suggests that Apple could burn its facilities to the ground, fire every top employee, dump all its product inventory in the sea, and still sell the firm for $170 billion simply because the Apple brand creates so much value. It may seem hard to believe, but a cursory look at products without a brand easily demonstrates the power of branding.

In today’s marketing-driven world, it is hard to imagine that there are products without a brand! There are. Think of those famously unbranded store products in the plain white and blue packages that say nothing more than “flour” or “milk” or “sugar.” Think of generic drugs. What is the main feature that drives consumers to select those choices over their branded peer products? It’s price, of course. When your business competes only on price, you are selling a  commodityA generic product for which the primary distinguishing feature is price, i.e., salt, flour, oil., a good for which it is assumed that all competing products are essentially of equal quality and performance. Is that a problem?

Commodities are a tough place for a small business to make money. They nearly always trade on very slim margins since they attract customers who are only differentiating on price. What cost control that can be achieved is usually based on economies of scale that favor large incumbent firms. Usually, the barriers to entry are very low as well, leaving the threat of new entrants high. Commodities markets are also subject to speculative price variations outside the control of the entrepreneur. These factors make commodities very unattractive markets.

Stores offer non-branded products at lower prices.

Source: Sheila Fitzgerald/Shutterstock.com

On the other hand, experience shows that consumers will pay more for a branded product, even if it offers no real-world advantages! Table salt is a basic chemical, sodium chloride (NaCl). Most manufacturers add a little iodine as a nutritional supplement. Skipping some exotic cooking salts containing other minerals, there is no patent, additional feature, or other intellectual property to make one container of the white table salt crystals better than another. So, you’d think that all brands of salt would sell for the same price, right?

The Morton logo dominates its market.

Source: Julie Clopper/Shutterstock.com

In North America, the largest seller of salt is a company called Morton, whose logo of a young girl walking in the rain with an umbrella is well known. The company’s slogan, “When it rains, it pours,” is also familiar to many Americans. On Amazon.com, a 26-ounce container of Morton salt sells for $11.99, while a 26-ounce of Diamond Crystal brand salt sells for $5.99. Since Morton’s input costs are the same, or even lower, based on their massive scale, the margins it and its resellers capture are far higher than those of the commodity sellers. That is a real measure of the pure value-add of branding: twice the price for the same thing.

Great brands like Apple, Morton, and Coca-Cola are so culturally embedded in the retail landscape that it is hard for consumers to imagine a world without them. Apple’s brand helps its users identify themselves. Apple owners feel that their use of the firm’s sleek products signals their hipness, affluence, and intelligence. For the amount of profits that it generates, Apple does very little advertising compared to other large companies. Morton doesn’t need to advertise to maintain its dominance in salt and keep those higher margins. Parents simply pass on their buying choice to their kids by observation. Consider that Coca-Cola can charge higher margins for clothing and other gear emblazoned with its logo. Another way to look at that is to recognize that people will pay money for the opportunity to advertise Coke. Now that is brand power!

Interbrand uses firm financial statements and their analysis of the brand’s role in sales to analyze how much of a firm’s higher profits come from its brand value. They suggest that not only does a solid brand generate more money for the firm’s shareholders, but it also reduces risk. A stable brand supports a stable firm.

Product Fit

Would anyone buy a Lamborghini if they were not over-the-top about everything? Every brand appeals to some customer identity. Understanding what attracts existing customers and what will bring in new customers is essential to a brand. The branding of the consumer audio equipment company Beats differs significantly from that of its competitor, Sennheiser. Beats focuses on youth appeal and looks since its customers care less about the intricacies of music and more about appearances and the perception of luxury. Their customer wants to pay extra for the sake of everyone else knowing they spent the money. Sennheiser, on the other hand, is a pure quality performer, and thus its image is simpler and geared toward those who are willing to pay for superior technology. Browsing the websites of these two companies will clearly reveal this marketing distinction.

TOMS shoes knew it wanted to give back to the world by providing footwear to those in need. Rather than choosing a wishy-washy approach, TOMS set a simple one-for-one model. This clear branding for its product, centered on charity, allowed the impact of every purchase to be visible to consumers. Visibility is important in all industries, but especially so in non-profits.

Managing the Brand

If you’re a fan of college basketball, you know that each team has a unique style of play. Kansas State usually prefers to play it slow, while the University of Kentucky plays quicker and more active. These playstyles define each team as a whole, independent of the composition of players, and are intentionally designed by the management and coaching staff. If a playstyle is not working well, it can be adapted to better suit the competition and the situation, but changing it completely isn’t likely to work out well for a team trained to deliver in a particular style.

Every team has its own style of play which defines its brand with fans.

Source: © Shutterstock, Inc.

Great brands are similar. Just by its logo or slogan, a consumer can instantly identify the branded product. Done right, the logo and the product seem inseparable and feel inevitable. Think of Apple’s iconic aluminum and glass products. The customer has expectations that a new product from that brand will maintain the style they’ve come to love and identify with.

For this reason, the product-brand connection must be carefully managed. It is often relatively easy to make a radical technical or physical change in a product or to present a service very differently. However, when that veers away from customers’ expectations of the brand—imagine the Kentucky coach asking his players to “slow it down”—what do you think might happen?

A brand’s message must stay consistent. This allows consumers to feel comfortable using the brand to signal messages about their identity. They do not want to find themselves surprisingly tied to an image they don’t admire. For instance, the Nike Swoosh suggests “active, bold, and assertive.” Yet, Nike is aware of current global demographic trends, and the firm understands that the most desirable higher-income consumers in the developed world are aging and gaining weight. So, the sportswear firm does offer a line of plus-sized clothing and products targeted at seniors. While we’ve all seen not-so-athletic people wearing Nike gear in the real world, there are no pictures of a 300 pound, 60-year-old man smoking while eating a pizza on Nike’s website. The carefully crafted home page and the firm’s expertly managed social media are dominated by fit young people. Why?

Would aspiring young athletes feel compelled to buy Nike after seeing advertisements featuring overweight guys in Nike stretch pants and old ladies using walkers emblazoned with the Swoosh? Of course not! Even Nike’s older and out-of-shape customers do not want to see themselves that way. Great branding isn’t about the current reality of the buyer; it’s about their aspirations. Understanding this, Nike uses the clever slogan “Where All Athletes Belong,” implying everyone is welcome and can feel athletic.

The Nike Story

Customers expect branded products to behave in a certain way, and change is usually punished by those comfortable with the existing paradigm. Remember that noncustomers have already rejected the brand, and that choice will blind them to the attractive nature of the new product—even if the firm designed it specifically for them.

A great real-world example of attempting to deal with customer brand expectations comes from legendary country singer Garth Brooks. With a long series of hits, his trademark black Stetson Tyler cowboy hat, and friendly good looks, Brooks had established an iconic country brand. However, in 1999 the country star decided to make an unexpected detour into popular rock with the release of an album under the pseudonym “Chris Gaines.” Brooks figured he could have fun exploring another genre and expand his appeal to those rock fans who disdained country music. He even planned to make a documentary film about his alter ego. Brooks hosted  Saturday Night Live one evening and introduced Chris Gaines as the musical guest. The connection was obvious to everyone.

Fans wanted the country music superstar to stick to the country image they had of him.

Source: Sterling Munksgard/Shutterstock.com

When Brooks’ fans saw their clean-cut country star strut out in leather pants with shaggy hair and sporting a goatee, they were appalled. They figured he’d gone nuts, and they rejected what was actually a pretty good collection of songs. Rock listeners were not fooled by the pseudonym and generally refused to give the release a try either. The results were as expected: poor album sales with little airplay on either country or pop stations. Brooks’ esteem and career suffered a minor setback. Luckily for him, his talent allowed him to slide right back into the country saddle again.

The lesson from the Brooks/Gaines story is that it is very hard to be all things to all people. It is best to clearly identify a  market, develop your brand, and stick with it. This is especially true for small businesses, where resources are limited. If you’re absolutely compelled to pursue another market or develop an alternate product, you’re better off establishing another brand that captures the nature of that product in a way that won’t  pollute your existing brand.

For an alternate brand to work, you must keep it completely separate in the public’s mind as though it comes from an entirely different source, something a celebrity like Brooks couldn’t pull off. For instance, PepsiCo, the soda maker, owns Tropicana. Most consumers don’t realize this, and Pepsi doesn’t emphasize the connection because the association with unhealthy, corn syrup-sweetened soda would  pollute these brands and dilute their healthy appeal.

Although the popular global brand is owned by PepsiCo, its health-focused branding is entirely different.

Source: MAHATHIR MOHD YASIN/Shutterstock.com

How do these lessons apply to small business branding? How many “Donuts and Pizza” stores do you see? Don’t laugh; there is a very viable business model behind the idea. Both donuts and pizza are popular takeout foods, and the small businesses that serve them operate out of similarly sized and equipped strip mall locations. Most significantly, donuts are generally sold only in the morning, while pizza is lunch and dinner fare. A savvy small business owner would maximize the utilization of a location by serving donuts in the morning and switching to pizza at about 11 a.m. It makes economic sense, but it’s a branding disaster. Consumers will be suspicious of a brand that claims excellence in both of those categories. The whole idea of donuts and pizza offers an improbable mix of tastes and smells, and it probably makes most people slightly ill just thinking about it. So, sadly, most small donut stores do 90 percent of their business from 6 a.m. to 10 a.m. and have very low utilization after that.

Great Brands and Brand Value

How do you measure the value of a brand? Consider the amazing brand that is Disney. Tickets to Disneyland in Anaheim, California, are substantially higher than passes to their Southern California competitors such as Knott’s Berry Farm, Legoland, and Universal Studios. Yet a lot more people visit Mickey Mouse’s home than these other more affordable fun spots. In fact, everyone in the SoCal tourism industry understands that Disneyland is “the destination,” and other sites simply compete for tourists choosing a second stop on their California trip.

On the other hand, if a Chevron gas station raises the price on its regular gas by five cents a gallon, drivers on their way to Disneyland will promptly dash across the street to a lower price at Shell.

You can measure the relative value of the Disney brand versus Chevron by looking at the  gross profit marginA financial metric calculated by dividing gross profit by revenues.  in their financial statements. While oil and gas companies make good profits during good times, it’s a business based on enormous volume at relatively low profit margins. Valuable brands like Disney create mental switching costs around the branded product and reduce the price sensitivity of customers. Gas is a commodity, and purveyors of it have had a very hard time adding significant brand value. If your small business commands exceptional prices and reports higher margins than your peers, you’ve probably established some brand value.

Imagine a nifty hipster coffee shop near a college campus. This is the hot place to hang out and sip organic, fair-trade, wholesome brew under old-timey lights in red leather chairs. Now imagine this coffee shop moves two miles away, but everyone still chooses to hang out there. Not only that, but they are also charging more than other local shops. This is brand value in action. When the coffee shop owner goes to sell her business, she will command a better price if she can effectively demonstrate this brand value to potential buyers.

New Brands Versus Old Brands

All of this makes it clear that it is difficult to displace a powerful existing brand. Can you imagine being a new entrant with a digital tablet trying to go up against Apple in the consumer market? Even global mega-corporations, including Samsung, Microsoft, and Hewlett-Packard have found that to be a daunting challenge. Occasionally, however, a plucky little disruptor manages to establish a foothold with a new brand in a market long dominated by one or a few powerful incumbents. Can you think of any?

The Dollar Shave Club’s disruption of the branded razor business is a great example. King Camp Gillette founded the American Safety Razor company in 1901 and began marketing the first mass-produced, disposable blade razors based on his innovative patent for stamping rather than forging steel blades. He is credited with inventing the famous “razor and blades” business model. The firm sold the razor at cost, locking customers into the brand and necessitating their purchase of expensive replacement blades. This model has been applied successfully across many industries. For more than 100 years, the Gillette brand dominated the higher end of the American disposable blade razor industry. Brands like Schick and Bic competed mostly on price, but most men were willing to pay a bit more every week to not nick their necks. They stuck with Gillette’s brand reputation for quality, and the firm could support its relatively high-cost U.S. manufacturing. Today, Gillette is owned by the multinational consumer goods firm Proctor and Gamble.

Mark Levine and Michael Dubin saw an opportunity to make huge margins in the disposable razor business. They reduced costs by importing blades from Asia and selling directly online, enabling them to offer lower prices to the consumer and take a chunk of the retailer’s margin as well. Dollar Shave arranged to source product from a Korean blade maker and lined up funding from an incubator to outsource production of the handle and packaging and build their brand. This brand building is where the real magic occurred. Remember, most consumers had been happy with Gillette for more than 100 years. Dollar Shave needed to disrupt that and did so with a brilliantly humorous online video titled “Our Blades Are F***ing Great,” which now has well over 20 million views on YouTube. The 2012 video caught people’s attention, and Dollar Shave delivered a good product at a good price and demonstrated high customer retention rates. Dollar Shave was now viewed as a credible threat to Gillette and garnered the attention of Proctor and Gamble’s international competitor, Unilever. In July 2016, the brand was sold to Unilever for $1 billion. That is the power of brand disruption. Can you do something like that in a local market?

Dollar Shave Club Video

This offbeat YouTube video went viral, establishing a new trend in men’s grooming products.

Yiu has been dreaming of opening an art gallery in a small coastal town. It’s a vibrant area with a strong creative streak. It also has a tight-knit group of wealthy businesspeople who view themselves as art patrons. However, the local scene has been dominated for many years by one gallery. Charleston, the owner of the incumbent gallery, has established his shop as the hub for all the popular artists as well as the buyers. He also dominates the social scene. Yiu feels there is room for more than one gallery, but she knows that her competitor will see her entry as a threat and will not be eager to share either his artists or his wealthy clients with her. What can she do?

Yiu will need to disrupt the existing paradigm, and the key to doing that will be to find compelling new local artists or to bring in hot outside talent whose works are substantially different from what Charleston is offering. She must then convince the art buyers that her artists are leading a new wave they need to be aware of. How can she get them in?

Yiu decides to host a charity event and auction off several new pieces to support an important local cause, cleaning up the town’s notoriously polluted water supply. This cause engages the support of many community activists who are able to pressure local political leaders into backing the event. These politicians, seeing a way to score points with the citizenry over a popular issue and to solve a municipal problem without tapping into their own budgets, eagerly compel attendance among the town’s business leaders. At the dramatic opening, Yiu finds she has a captive audience for her new artists. Once the owners have added a few pieces of the new work to their collections, she is sure they will want to expand their investment. It is an auspicious beginning for her new gallery.

Brand Disasters

Most consumer product companies have opportunities to save money by reducing the quality of their products. They can use inferior materials or reduce the amount of more expensive ingredients. For instance, a candy firm might shrink a popular candy bar or cut back on expensive nuts, hoping buyers won’t notice. This is a risky strategy, because if the change becomes a topic of public discussion, the brand could be damaged, and some consumers might switch long-term brand loyalties. Some brand disasters are much worse than that.

Women’s clothing boutique chain Lily Pulitzer was proud to be featured in a news article that was going to be based on interviews with executives at their headquarters. Unfortunately, the visiting reporter’s eye landed on a doodle taped to an employee’s cubicle with a caption reading, “Just another day of fat, white, and hideous. You should probably just kill yourself.” This little drawing posted in a private space sent the very public news article in a decidedly negative direction. While the employee was probably motivating themselves to stay in shape, it underscored the fashion industry’s dangerously obsessive preoccupation with thinness. Lily Pulitzer ended up in the middle of a negative discussion around fat-shaming rather than getting a load of positive publicity. What is the message here?

The message is that  every form of communication is a message to the public about the values of your brand. The culture of your company must genuinely reflect the values you wish to present to the consumer. Everyone must be  on messageAdhering to the approved message of an organization. all the time, and that’s easier to do when the message is genuine and natural. The media and the public will latch onto anything that looks disingenuous and tear it apart.

Can you imagine anything being worse than the brand disaster Lily Pulitzer faced? There have been cases where brand disaster created  existential threatsA problem so serious that it threatens the very existence of the organization. to major businesses. Sometimes these events were well handled, and the brand was reinforced. In some other cases, things went very badly indeed.

Malaysian Airlines lost two airplanes in 2014. One plane completely vanished in March, likely the result of terrorism. That July another was mistakenly shot down by a missile while crossing over a war zone in the Ukraine. Hundreds of passengers perished in each event. Perplexingly, the national airline’s marketing department then choose to proceed with an ad campaign entitled “Bucket List,” asking people to tweet about places they would like to see before they died. Associating flying with dying is a bad idea for any airline at any time, but in the case of Malaysian in 2014, it was a destructive misuse of marketing resources at a time when all public messaging should have been very carefully controlled.

Johnson & Johnson earned the public’s trust by responding in an ethical manner to a brand nightmare.

Source: Sean Locke Photography/Shutterstock.com

An example of a firm doing a much better job of managing a brand threat occurred in 1982, when a psychopath inserted potassium cyanide poison into bottles of Tylenol brand pain reliever. His acts killed seven people in the Chicago area, beginning with a twelve-year-old girl from Elk Grove, Illinois. James William Lewis did this in an attempt to extort $1 million from Tylenol’s manufacturer, Johnson & Johnson. Rather than make a payoff and keep things quiet, the firm immediately warned the public and hospitals, and swiftly recalled 31 million containers valued at over $100 million. Johnson & Johnson incurred a huge financial loss, but it emerged with a golden reputation among consumers and the respect of the global business community. The firm then developed tamper-resistant packaging for its medications, which consumer product companies imitated. When you peel off the plastic seal on the top of a juice bottle today, it’s because of this case and one firm’s ethical response.

One company that failed to learn from Johnson & Johnson was the Sanlu Group, a manufacturer of baby formula in Shijiazhuang, China. In 2008, some of the firm’s milk suppliers discovered that adding melamine, a chemical typically used to make plastic resins, would cause their milk to test higher for protein content. This  adulterationChanging the formula of a product in a negative way. of the product increased the milk’s wholesale market value. Unaware of the deception, Sanlu paid more for what they thought was better milk. However, consuming melamine causes serious kidney damage, and some Sanlu customers began to get sick. When Sanlu discovered what was going on, they should have admitted that they’d been duped by their suppliers and alerted the public to the danger. Instead, they attempted to cover up the issue to protect their brand’s reputation. They even asked local authorities to keep the problem quiet “to avoid whipping up the issue and creating a negative influence in society.” Some authorities were paid bribes. At least six children died, more than 50,000 were hospitalized, and as many as 300,000 suffered health problems. In the end, some of the milk suppliers were actually executed by the Chinese government. It doesn’t get much worse for a brand than that.

It’s unlikely you will have to deal with such life-and-death problems threatening your brand, but honesty is always the best policy, and broadcasting the bad news is usually best done sooner rather than later. Preventing a brand crisis from occurring is another case where a small business actually holds the advantage because a brand image is easier to control for no other reason than  there are fewer people to keep on message. In a small business, the owner can personally vet all the official marketing material and interview every candidate for employment.

If a brand crisis does happen, a small business is again better equipped to manage the damage control process and to not make it worse. Again, the business owner can keep his or her finger directly on the situation. If you have any employees who may not react well under fire, now is the time to send them on a quick vacation.

Brand and Market Transitions

Cambria is a top producer of high-quality quartz countertops. You might be surprised to learn that Stan Davis started his family’s business in 1936 by buying into a creamery, or a manufacturer of butter. Over the years, that firm expanded its dairy processing operations into cheese and developed a variety of brands through several acquisitions and mergers. This is hardly the background for establishing a presence in the fickle interior design market. In fact, the firm’s website says, “Nothing about Cambria’s beginning was very strategic.” Cambria President and CEO Marty Davis remarked, “It just kind of happened.”

In 2000, the Davis family saw an opportunity to diversify and acquired a quartz processing operation. Their dedication to quality resulted in a great product. However, the firm was not recognized in the world of interior design or construction. They wisely decided to partner with DuPont and began utilizing the larger, more established firm for distribution of their original quartz tile products. This gave the family a chance to get their production process down while developing their own “Cambria” brand. In just over a decade, they had built a successful operation and a highly admired brand that commands respect in the interior design world.

Targeting: Market and Community Specific Brands

You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time.

            —Unknown (often attributed to Abraham Lincoln)

Many people would assert that marketing is not much more than a sophisticated tool used to trick customers into buying a product or service they otherwise would not need. Good marketing should be a process of bringing the perceived value of a  great brand in line with the value of its  great products. However, the quote above makes an excellent point: brands must target customers, but they need not and should not court  all customers. Brands can be laser focused on specific targets by interest, identity, or geography.

A hardworking entrepreneur who had built a successful line of snowboarding clothing and accessories was frustrated by the lack of respect that his parents showed for his accomplishments. When he attended an industry tradeshow or showed up on the slopes, he was a rock star, but none of that prestige translated when he visited home. He was considering expanding his advertising into television or print media that his parents would appreciate. He thought that perhaps it might also bring him some unexpected customers.

GOEXPO Winter 2019 Fair

Source: Aleksandra Suzi/Shutterstock.com

Don’t fret if your mom has no idea that your brand is huge as long as the consumers who are most likely to buy your products respect it. We live in an age where information technology allows advertising and messaging to be targeted with almost pinpoint accuracy. The best marketing is so focused and direct that your noncustomer mom will never, ever see it. In fact, if she does come across it, that may be a signal that you’re wasting your time and money.

Do not waste your precious brand-building efforts or your advertising budget on people who will never help pay for that effort or produce profits. Marketing simply for prestige, recognition, and ego are signs of a brand about to fail.

Your marketing goal is to drive sales and build awareness within a target audience. Your audience may be defined by geography. For example, imagine you own a hotel laundry service company that targets inns along the Tijuana-Rosarito-Ensenada corridor of Baja California. Alternatively, your audience may be the whole world but limited by specific consumer interests, as with the previous snowboard products example. An audience might also be limited by demographics, as is the case with an auto brand aimed at first-time car buyers in the developing world. Finally, your audience could be some specific mix of all these factors, geography, interests, and demographics, such as for a clothing store in Tokyo that sells only to high-end men’s business suit buyers.

Focusing narrowly offers several marketing advantages. The first is that good targeting ensures that the  conversion ratePercentage of potential buyers exposed to your message who complete an action, i.e., learning about the product or making a purchase., or the percentage of potential buyers exposed to your message compared with those who complete an action like learning about your product or making a purchase, is relatively high. In  Chapter 12 “Marketing”, the mechanics of how to make this happen for your brand will be discussed!

Entrepreneur Fit

Have you noticed how the faces of some brands just fit their products or services? Think about Sir Richard Branson, and then think about flying. Picture Martha Stewart and her conservative home décor. Look at Alibaba’s Jack Ma, and imagine huge online sales.

These entrepreneurs fit their companies and their products like a glove. They seem to love what they do, and their customers can sense it. The fact that these famous entrepreneurs are a vital part of their brand works well for them and for their companies. You can do the same with your small business.

The trials of small business ownership are hard enough without enduring a bad match between your brand and your own  self-imageA personal identity.. If you cannot agree with your company’s model, brand, or product, then it will be a rough ride. For example, if you don’t smoke, do you want to open a tobacco store? If you are a recovering alcoholic, is it smart to launch a nightclub? Most likely, the answer is no. So, first and foremost, do something that’s both profitable and at least agreeable to you. If you can be passionate about your work, all the better.

Now, just because you fit the product doesn’t mean that any business in that category will fit you. If you love scuba diving but cannot stand humidity or mosquitoes, do you want to buy a dive shop in Florida? The New Entrepreneurial Dynamic requires that the brand be an integrated part of the entire entrepreneurial fit. If some aspect of your small business makes it difficult for you to love your work, it will be that much harder for you to build a brand that other people will love. So, if you love to swim with fish, open that dive shop in Hawaii where the weather is better and the mosquitoes are fewer. Your undistracted love for the work will show and make the brand all the better. Just make sure that your brand is something that you wake up smiling about each morning.

Growth Plan Fit

A brand must fit the current and future scale of an organization. If you’re a local café, part of the ambiance and credibility is in the authenticity of being a small business. Many people prefer the idea of patronizing a locally owned establishment and expect a higher quality and more unique product from it. They don’t want to patronize a large, impersonal, global entity. If you get too professional and “slick” in your approach, you risk looking like just another chain restaurant, and you may reduce the value of your brand to this group of “authenticity seekers.”

On the other hand, if you plan to grow your operation into a global franchise, you want to make sure you’ve got a brand and image that can support that growth. Some customers prefer to patronize a large organization that has strictly defined quality standards. They aren’t looking for new experiences, and they want a consistently uniform product. The McDonald’s brand is what works for them. This group is comforted by shiny plastic and an assembly line feel that our authenticity seekers eschew.

Multinational Conglomerates Dress Up as Small Biz

Be aware that the consumer’s perception of the difference between big and small businesses is intentionally blurred by corporate marketers. They are looking to establish brands that capture the authenticity of small business while still leveraging their economies of scale in production and their retail distribution monopolies.

Let’s go check out the specialty sauce aisle in a big, chain supermarket. You will see dozens of products in all different categories striving to look authentic to their cuisine. There’s Italian marinara, Thai peanut sauce, and Mexican mole with chocolate in it. There will also be a large section of Southern (U.S.) barbecue sauces as well. Our eyes land on “Little Bob’s Famous BBQ Sauce.” The bottle features a picture of a wise, smiling old man, “Little Bob.” The label design is a bit “cheesy” with a big map of Texas on it. It looks like something Little Bob and his family made in their kitchen in Houston and shipped out of their garage. You’re thinking, “That’s some authentic sauce!”

Many of these brands aspire to appear “authentic.”

Source: Niloo/Shutterstock.com

Before you think you’re helping an entrepreneur when you buy this stuff, let’s consider how many bottles must have been shipped to fill up the shelves of even one major supermarket chain. It’s highly unlikely this tasty stuff was bottled at home. Some investigation would show that the BBQ sauce was actually developed in a giant food lab in Minnesota using statistical data on consumer preferences. It was made by technicians and is bottled by several large “co-packing” factories across the nation.

“Authentic” branded products may actually be developed by scientists in sterile labs.

Source: © Shutterstock, Inc.

The Little Bob label was produced by a group of hipster graphic artists in Venice, California. In fact, it turns out “Little Bob” himself was portrayed by a model. Sadly, there never was a person of that name. The photo on the label was selected by interviewing consumers in  focus groupsA tool for gathering insights from potential customers that brings a group of individuals together to discuss a proposed new product or service and its marketing. about which image they felt was most authentic.

Association

Brand associationA planned relationship between a brand and something else, i.e., a color, concept, person, emotion, or idea that comes to the consumer’s mind when a brand is considered.  is a powerful psychological tool that marketers have been using for years. At the abstract level, brands tie themselves to things like specific bright colors (Coke, Pepsi), smiles (Amazon), the sun (BP), or other generally positive concepts, expressions, and things.

Iconic public symbols with positive associations are often co-opted by brands.

Source: © Shutterstock, Inc.

At the most concrete level, repeated messaging is used to tie the brand to something or even someone very specific. For instance, many companies, such as Liberty Tax Service, have leveraged the public’s positive association with the iconic Statue of Liberty. Other brands have tied themselves to famous people, for example, the very successful George Foreman Grill (no, George did not invent that). Some have established artificial personalities who are archetypes of the individual they want to be associated with (see  “Multinational Conglomerates Dress Up as Small Biz”).

If your small business pulls mostly from the local community, including that community’s name in your brand or in a  taglineA catchphrase or slogan used to identify a product or company., it usually makes the locals happy. If you have a strong reputation in the community, your own name might be a great association as well. Imagine Joe Basher, a retired NHL hockey player, returning home to Maple, the rural town in Canada’s Manitoba province where he grew up. Joe still needs income and is looking for a way to leverage his sports-related fame and continue to work in the sport that he loves. Joe buys an ice rink that serves local recreational skaters and hosts a hockey league. The ice rink is called, not surprisingly, the “Maple Ice Rink.”

Joe has a number of choices. He could rename the rink “Basher’s Sports Complex,” an association that would probably attract more hockey players. The recreational skaters, on the other hand, are very fond of the Maple association. Joe might try a combination like “Joe Basher’s Maple Ice Rink” or keep the existing name and add a tagline that plays on his fame, as in “Maple Ice Rink: Home of the Basher Hockey League.” What is the best way to go?

Remember our discussion of scaling? It applies to associations. If Joe is looking for a relaxing lifestyle business in Maple, he should keep the town’s name. On the other hand, if he aspires to build a national chain like Tim Horton did in donuts, he should lead with the Basher brand that would appeal to fans across North America. The first rink could be “Basher’s Sports Complex: Maple,” and maybe the next one will be “Basher’s Sports Complex: Ottawa”!

Association can also be dangerous for your brand. Remember that although you can control your own product quality, you cannot control the independent things or people that you associate your brand with. Nike learned that painfully when their expensive endorsement of Tiger Woods became a nightmare following public revelations of the famous golfer’s infamous personal misconduct. Could negative association possibly be that big a problem for a small business?

Imagine that it is 2003, and you are launching a line of authentic Japanese food products from your adopted city of San Francisco, California. Your first product is a seafood seasoning mix. To lend it some authenticity, you name the mix “Fukushima Flavor” in honor of the prefecture on Honshu Island where you lived as a child. The spice sells well, and you add “Fukushima” to all your new product names to keep the brand going! That’s all very good until 2011 when a devastating earthquake and tsunami destroys the Daiichi nuclear power plant at Fukushima. Suddenly, the name “Fukushima” is indelibly associated with disaster and frightening radiation leakage.

Trademarks, Brandmarks, Copyright

In 2009, director James Cameron released his blockbuster film  Avatar. The following year the Nickelodeon TV network released a film adaptation of its cartoon series,  Avatar: The Last Airbender, which had been running since 2006. However, because Nickelodeon did not properly  trademarkA symbol, word, or phrase that denotes a specific product and may be legally registered for protection. the name “Avatar,” they were legally barred from using their own title for their own film project despite being “first to market.” Even worse, when they developed a sequel TV series,  Avatar: Legend of Korra, they were forced to remove “Avatar” from that media as well. Such disasters are easily avoided.

In the United States, anyone can simply claim a trademark for their product name or a service mark for their service by placing the TM or SM symbols after the name. No paperwork or registration is required. However, if you wish to go a step further to secure enhanced rights and evidentiary benefits at trial, you can obtain a registered mark ® by filing with the U.S. Patent and Trade Office. If, as in the case of “Avatar,” your work is worth millions of dollars, you are strongly advised to file with the assistance of an experienced patent attorney. If you’re opening Paul’s Fishing Supply on Main Street, you probably don’t have to worry much at all. For most businesses, using the TM is good practice.

Registered Trademark, Copyright, Trademark, and Service Mark symbols.

Source: Greg Autry

You can also use copyrights for slogans, product descriptions, and sales verbiage. Again, you do not actually need to register; simply place the © afterward or note your claim as in “Copyright 2021 Greg Autry.” However, if you wish to clearly establish your legal rights and precedent, you may file a copyright notice with the U.S. Copyright Office.

In Europe, some countries respect a trademark that is not registered, but for full protection in all EU states, it is recommended that you register your trademark online with the European Union Intellectual Property Office (EUIPO). In China, you should register with the China Patent and Trademark Office (CTMO), which is part of the State Administration for Industry & Commerce.

While these intellectual property protections are critical in many arenas, in most small businesses, you can probably safely wait a bit before filing, particularly if the legal fees are a challenge. As with everything in the New Entrepreneurial Dynamic, business names are subject to change. Your original gut instincts on a great name may not be what you eventually run with. For example, Walmart started life as “Walton’s Five and Dime.” Rather than feeding your lawyer your profits, wait until you know it’s the perfect time to file.

Key Takeaways

· Always be building your brand.

· Consider brand impact on every decision you make.

· Know what your brand definition is and why.

· Make sure your brand can grow with your firm.

· Protect your valuable trademarks and register if needed.

Annotate

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