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CHAPTER II

THEORITICAL FOUNDATION

2.1 Strategic Planning

Strategic planning is the process of defining its strategy, or direction, and making

decisions on allocating its resources to pursue this strategy, including its capital and

people (Urkhart, 1993). Therefore, strategic planning is a management tool for

organizing the present on the basis of the projections of the desired future, Which, a

strategic plan is a road map to lead an organization from where it is now to where it

would like to be in five or ten years. It is essential to have a strategic plan for your

division or subdivision. In order to develop a complete plan for your division or chapter

which would include both Strategic elements and long range, we recommend the

methods and mechanisms outlined in this manual. The plan must be simple, written,

clear, and based on the real current situation. It also has enough time allowed to give it a

time to settle. It should not be rushed; rushing the plan will cause problems to the plan.

Branding strategies is when a company manages its brands it has a number of strategies

it can use to further increase its brand value (Branding Glossary). The strategies are:

Line extension: This is where an organisation adds to its current product line by

introducing, versions with new features, an example could be a Crisp manufacturer

extending its line by adding more exotic flavours.

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Brand extension: If your current brand name is successful, you may use the brand name

to extend into new or existing areas. For example Virgin extending its brand from

records, to airlines, to mobiles.

Multi Branding: The company decides to further introduce more brands into an already

existing category. Kellogg‟s for example have a number of brands in the cereal market

and the cereal bar market. Multi-branding can allow an organisation to maximise profits,

but a company needs to be weary over their own brands competing with each other over

market share.

New Brands: An organisation may decide to launch a new brand into a market. A new

brand may be used to compete with existing rivals and may be marketed as something

„new and fresh‟.

Figure 1.1 Branding Strategies

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2.2 Brand

What is a brand? Brand is defined as a name, term, sign symbol or a combination of

these, which identifies the maker or the seller of that product (Kotler P. and Armstrong,

1994). Kotler and Keller (2006) defined brand as a “product or service that adds

dimensions that differentiate it in some way from the other products and services

designed to satisfy the same need “. The brand in this context is as an identifier. Amber

and Styles (1996) argue that a brand is more than just a product, is a combination of all

elements of the marketing mix. Abreast with Ambler‟s (1992) holistic view that defines

a brand as “the promise of the bundles of attributes that someone buys and that provides

satisfaction”. Brands exist for the long-term. They establish trust in consumers‟ minds.

They are a company‟s most valuable assets and they should be treated very carefully.

Every change to the brand should be viewed in terms of its long-term impact on

consumers. All elements of the brand are taken into consideration, and these include the

marketing mix and all the brand‟s product lines. This context is given to increase the

preference for brand extensions.

2.3 Brand Image

In marketing communications, advertising and promotions do have a most important

role in building brand image. This is because this activity has a broad target audience.

So, in relatively short messages to be conveyed about the brand is more quickly. Lots of

companies have not realized that build a brand image with marketing communications is

no just limited through advertising and promotion. There are several other activities that

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also make a major impact. Like brand personality, brand image is not something you

have or not. A brand is not possible to have one brand image, but several, though one or

two may dominant. The important thing in brand image research is to develop or

identify the most powerful images and reinforce them through subsequent brand

communications. The phase "brand image" obtained popularity as evidence began to

grow that the feelings and images associated with a brand were powerful purchase

influencers, though brand recognition, recall and brand identity. It is based on the

partition that consumers buy not only a product (commodity), but also the image

associations of the product, such as sophistication, power, wealth, and most importantly

identification and association with other users of the brand. According to Sigmund

Freud, the ego and superego control to a large extent the image and personality that

people would like others to have of them. Good brand images are positive, instantly

evoked, and always unique among competitive brands. Brand image can be strengthened

by brand communications such as promotion, customer service, packaging, advertising,

word-of-mouth and other aspects of the brand experience. Brand images are often

evoked by asking consumers the first words or images that come to their mind when a

certain brand is mentioned, or usually it called "top of mind". The indicator of a weak

brand image such as when variable of responses are high, non-forthcoming, or refer to

non-image attributes such as cost (Asia Market Research).

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2.4 Brand Associations

Understanding of brand association is one component of brand equity. Strong brand

equity will be achieved if the consumer has a high level of awareness and familiarity of

a brand, and also have strong associations, unique and has a positive meaning for the

consumer itself (Keller K. , Strategic Brand Management: Building, Measuring, and

Managing, 2003). The understanding of brand equity is a brand that is able to survive,

compete, and being the leader in the tight of market competition. The stronger the equity

of a brand, the more powerful its attractiveness in the eye of consumer to consume the

brand loyalty and also make the company continuously benefit. According to (David,

1991) Marketers use brand associations to differentiate, position, and extend brands, to

create positive attitudes and feelings towards brands, and to suggest attributes or

benefits of purchasing or using a specific brand. However, brand associations are more

use to the customer than the marketer. The way a brand association creates value to the

customer will depend on the customer‟s perception of value. A brand that has been

mature will have a dominant position in the competition, when supported by strong

associations. Strong brand associations and interconnected associations will create a

relation which called brand image. The more associations related, the stronger the brand

image they have. Brand associations in general, especially from those formed the brand

image, will be a step for consumer in making decision and loyalty to the brand. In

practice, it often found many of associations and variation‟s possibilities of brand

associations that can deliver value to the brand that can be seen from company‟s point of

view or from the user‟s.

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2.5 Brand Extension

A brand extension strategy involves using an established brand name in one product

class to enter another product class. When a new brand is combined with an existing

brand, a sub-brand can be also called as the brand extension. The existing brand that

creates a brand extension is referred to as the parent brand (Keller K. , Strategic Brand

Management: Building, Measuring, and Managing, 2003). Brand Extension basically is

the application of a brand beyond its original range of products or outer of its category.

This becomes possible when the brand image and attributes have contributed to a

perception with the consumer/user where the brand and not the product is the decision

driver. Brand extension is certainly a way in which the brand can be made much

stronger but it also has the potential to dilute the brand equity or cannibalize sales of the

parent brand. Too much brand extension that we see nowadays could be viewed as

indicative of poor brand practice. Clearly brand extension is an area that has to be

approached with a degree of caution. The maintenance of long-term brand health is of

paramount importance and should never be sacrificed for short-term advantage when

there is pressure to deliver. www.brandextension.org is presenting eight major types of

brands extensions:

Identical product in a different form from the original parent product. This is

where a company changes the form of the product from the original parent

product.

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Specific flavor/ingredient/component in the new item. When a brand “owns” a

flavor, ingredient or component, there may be the other categories where

consumers want that property.

Benefit/attribute/feature owned. Many brands “own” a benefit, attribute, or

feature that can be expanded.

Expertise. From time to time, particular brands may put on a reputation for

having an expertise in a certain area. Leverage can be achieved when extending

into areas where this extraordinary expertise is deemed important.

Companion products. Some brand extensions are a “natural” companion to the

previous products the company already makes.

Vertical extensions. Some brand extensions are vertical extensions of what they

offer today. A brand can use their ingredient or component‟s heritage to launch

products in a more or unfinished form.

Same customer base. Many brand extensions represent a marketer‟s effort to sell

their different product to its customer base.

Designer image/status. Certain brands communicate status and as a result create

an image for the customer.

Product extensions, on the other side, are versions of the same parent product that serve

a segment of the target market and increase the variety of a contribution. An example of

a product extension is Lifebuoy soap vs. Lifebuoy shampoo. A well known brand helps

a company enter new product categories more easily. These are the advantages of brand

extensions strategy planning:

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Brand extensions let a marketer take a brand with well-known quality perceptions

and associations and put it on a brand in a new category. Not only can marketers

capitalize on brand awareness, they can also leverage off of the associations

consumers know about the parent brand.

Second, consumers who favorably evaluate a parent brand are more willing to try

and adopt the brand extension than an unfamiliar brand in the same category.

They trust a known brand name.

Brand extensions can also help a firm stock price. Some academic research has

found that Wall Street attend to brand extension announcements and that whether

they like them or not depends on how much they like the parent band.

Brand extensions can also help consumers understand the core meaning of the

brand name.

One of the principal dangers of brand extension is that the parent brand equity may be

diluted. If there is a misunderstanding of consumers‟ perception of the brand, it could be

moved into a sector that consumers view inappropriate. Quite often the parent brand will

have been available for some time, enabling it to build a level of equity and trust with

consumers. It will have strong credentials. Time to time, its marketing has sought to

build and secure these credentials within its target market. An irrelevant positioning has

the ability to undermine the parents‟ credentials (Brand Express Blog, 2005). According

to Keller (2003, p. 577), defined a brand extensions as when a firm uses an established

brand name to introduce a new product.

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In analyzing potential consumer response to a brand extension, it is useful to start with a

baseline case in which it is assumed that consumers are evaluating the brand extension

based only on what they already know about the parent brand and the extension category

and before any advertising, promotion, or detailed product information is made

available. This baseline case provides the cleanest test of the extension concept itself

and provides managers with guidance as to whether to proceed with an extension

concept and, if so, what type of marketing program might be necessary.

In evaluating a brand extension under these baseline conditions, consumers can be

expected to use their existing brand knowledge, as well as that know about the extension

category, to try to infer what the extension product might be like, in order for these

inferences to result in favorable consumer evaluations of an extension, four basic

assumptions must generally hold true. First, consumers have some awareness of and

positive associations about the parent brand in memory. Unless their use some type of

potentially beneficial consumer knowledge about the parent brand, it is difficult to

expect consumers to form favorable expectations of an extension. Secondly, at least

some of these positive associations will be evoked by the brand extension. As will be

discussed shortly, a number of different factors will determine which parent brand

association are evoked when consumers evaluate an extension. In general, consumers

are likely to infer associations similar in strength, favorability, and uniqueness to the

parent brand when the brand extensions is seen as being similar or close in fit to the

parent brand. Third, negative associations are not transferred from the parent brand

extension. Finally, the fourth basic is negative associations are not created by the brand

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extension. Finally, it must be the case that any attributes or benefits that are viewed

positively or at least naturally by consumers with respect to the parent brand are not

seen as a negative in the extension context. Consumers must also not infer any new

attribute or benefit associations that did not characterize the parent brand but which they

as a potential drawback o the extension.

The more that these four assumptions hold true, the more likely it is that consumers will

form favorable attitudes toward an extension. The next contexts will examine some

factors that influence the validity of these assumptions and considers in more detail how

a brand extension, in turn, affects brand equity. The ultimate success of an extension

will depend on its ability to both achieve some of its own brand equity in the new

category as well as contribute to the equity of the parent brand. This section examines

each consideration in turn.

2.6 Brand Equity

For the brand extension to create equity it must have a sufficiently high level of

awareness and some strong, favorable, and unique associations just like any brand

(Keller K. , Strategic Brand Management: Building, Measuring, and Managing, 2003).

Brand awareness will depend primarily on the marketing program and resources devoted

to spreading the word about the extension. It will also obviously depend on the type of

branding strategy adopted: the more prominently an existing brand that has already

achieved a certain level of awareness and an image for the extension in memory.

Initially, creating a positive image for an extension will depend primarily in three

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consume related factors. First, how salient parent brand associations are in the minds of

consumers in the extension context, that is, what information comes to mind about the

parent brand when consumers think of the proposed extension and the strength of those

associations. Secondly, how favorable any inferred associations are in the extension

context, that is, whether this information is seen as suggestive of the type of product or

service that the brand extension would be and whether or not these associations would

be viewed as good or bad in the extension context. Finally, the third factor is how

unique any inferred associations are in the extension category, that is, how these

perceptions compare with those of competitors. As with any brand, successful brand

extensions must achieve desired points of parity and points of difference. Without

powerful points of difference, the brand risks becoming an undistinguished “me-too”

entry, vulnerable to well positioned competitors. (Tauber, Brand leverage: strategy for

growth in a cost-controlled world, 1988) refers to “competitive leverage” as the set of

advantages that a brand conveys to an extended product in the new category, that is,

“when the consumer, by simply knowing the brand, can think of important ways that

they perceive that the new brand extension would be better than competing brands in the

category. At the same time, it is also necessary to establish any required points of parity.

The more dissimilar the extension product is to the parent brand, the more likely it is

that points of similarity will become a positioning priority.

To contribute to the parent brand equity, an extension must strengthen or add favorable

and unique associations to the parent brand as well as not diminish the strength,

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favorability, or uniqueness of any already existing associations for the parent brand. The

effects of an extension on consumer brand knowledge will depend on four factors.

How compelling the evidence is concerning the corresponding attribute or

benefit associations in the extension context.

How relevant or diagnostic he extension evidence is concerning the attribute or

benefit for the parent brand.

How consistent the extension evidence is with the corresponding parent brand

associations.

How strong existing attribute or benefit associations are held in consumer

memory for the parent brand.

According to these factors, feedback effects that change brand knowledge are most

likely when the consumers view information about the extension as equally revealing

about the parent brand and when they only hold a weak and inconsistent association

about parent brand with respect to the information. The nature of the feedback effects

will depend on the nature of the actual information: An unfavorable extension

evaluation can lead to negative feedback effects, whereas a favorable extension

evaluation can lead to positive feedback effects. Note that negative feedback effects are

not restricted to product related performance associations. As note earlier, of a brand has

a favorable “prestige” image association, then a vertical extension (e.g., offering a new

version of the product at a lower price) may be viewed disapprovingly or even resented

by existing consumer franchise.

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2.7 Consumer Behavior

The term of consumer behavior is defined as a behavior that is shown by consumer in

finding, buying, using, evaluating, and spent products and service that they expect will

satisfy their needs (Lazar, 1997). According to (Kotler and Amstrong 1997), consumer

behavior definition is as the end consumer buying behavior, both individuals and

households, which buy products for personal consumption. There are reasons for

studying consumer behavior; first, consumer behavior must play the important role in

development of public policy. Study of consumer behavior will allow people to be more

effective consumer. Consumer analysis provides a broad knowledge about human

behavior. Previously consumer behaviors focus only on how consumer try to satisfy

themselves, but nowadays consumer behavior has many influences on their purchasing

decision.

According to (Hawkins, 2007) from Consumer Behavior Building Marketing Strategy,

there are two types of influences affecting decision making. First are internal influences

and then external influences. Internal influences are consisting of perception, learning,

memory, motive, emotions, personality, and attitudes. And external influences are

consist of culture, subculture, demographic, family, social status, reference group, and

marketing activities. Specific part of internal and external influences has related with

this study.

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2.7.1 Internal Influence

Perception

Individual behave influences by their perception, “Perception is a process that

begins with consumer exposure and attention to marketing stimuli and ends with

consumer interpretation.

Learning

Learning is any change in the content or organization of long-term memory or

behavior due to information or experience. Learning is related with education,

the development of education has led people to have a higher education than in

the past. The ability to learn also increases. In general, there is two type of

learning situation: high involvement and low involvement. High involvement,

individual have higher enthusiasm to be more understand to the given

information. Therefore, the learning is more conscious and on a purpose. On the

other hand, low involvement, individual have a lower enthusiasm to understand

to the given information. Furthermore, the learning is more unconscious

(Hawkins, Mothersbaught, &Best, 2007). Individuals with higher involvement

try to search information more than lower involvement individuals.

Memory

Memory is the short-term use of meaning for immediate decision-making or

longer-term retention of the meaning. People tend to remember something when

they want to purchase something, usually people remembering several brand that

people they periodically bought. There are also people remembering brands of

products that come to their top of mind. In term of food knowledge, the ability of

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individuals to remembering the use and of nutrition is affected food knowledge,

and the ability of remembering is called memory

Motive

“A motive is why individual does something”. According to Hawkins/

mothersbaugh motivation and needs more often used interchangeable, it is

related to individual usually recognized their needs first and then experiencing

motivation to fulfill the desire. Several Mcguire‟s psychological motives can be

related to the current study. First consumer may have need of attribution to

know who or what those influence them to purchase a product. People with

health conscious tend to believe what they read in the nutritional fact, rather than

promotional advertisings. Secondly, utilitarian need theory that consumer will

try to solve their needs problem and trying to search for information. Especially

in internet era, information can be search easily. Thirdly, the need for tension

reduction theory that consumer will find a way or activities to reduce their level

of stress.

2.7.2 External Factors

Culture

“Culture is the complex whole that includes knowledge, belief, art, law, morals,

customs, and any other capabilities and habits acquired by humans as member of

society.” Culture is different from one place to another; people adopt culture for

the way they are living.

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Subculture

“Subculture is a segment of a larger culture whose members share distinguishes

values and patterns of behavior such as Ethnic subcultures, religious subcultures,

and region subculture.” Subculture is a smaller segment from culture.

Demographics

“Demographic is a population in terms of size (number of individuals in society),

structure (age, income, education, and occupation), and distribution (region,

rural, suburban, urban)”. Each variables in demographic could influence

individual‟s purchasing behavior.

Social Status

Social status is usually an individual‟s combination of characteristic such as

education, occupation, income and many more that valued by society. The higher

characteristic such as higher income, higher education will increase individual

value in society that accumulated to higher social status.

Reference Group

“Reference group is a group whose presumed perspectives or values are being

used by an individual as the basis for his or her current behavior”. Reference

group works as a benchmark for individuals to compare, which influence the

way people to behave. Reference group valued in society because of their

expertise in certain area, which make their opinion valued in society. Reference

group is differentiate in to two in a matter of strength of social tie: Primary

groups, such as family and friends, and Secondary groups such as professional

and neighborhood

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Family

Family is essential for everyone. Most of the younger family member (children)

tends to copy older family member‟s (Mother, Father, older sister and brother

and other more) behaviors. “Family decision making is the process by which

decisions that directly or indirectly involve two or more family member are

made.” It is stated that when individuals trying to buy something for other

individuals may influence to satisfy others. Buying something for others to

consume may induce concerns about satisfying others (Moore and Lehmann,

1980).

Marketing Activities

Every marketer would always try to stimulus their customer to purchase their

products. Creating an integrated marketing mix such as Product, Price,

Promotion, Place to be positively perceived by customers is one of their main

objectives. The positive marketing activities can affect people to perceive more.

In comparison, if the marketing activities created badly it will also affect people

to perceive less. This is how marketing activities affected consumer behavior.

2.8 Perceived Fit

Perceived fit between the parent brand and the extension is one of the major

determinants of brand extension success (Vo¨lckner and Sattler, 2006). Despite the lack

of consensus on the definition of this concept (Bridges et al., 2000), the idea of fit

always refers to the degree of proximity between parent brand and extension that

consumers perceive. This dimension therefore reflects the degree of congruence

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between the parent brand and the new product launched by the firm. Perceived fit has a

twofold importance: its weight in the evaluation of extensions (Aaker and Keller, 1990;

Boush and Loken, 1991; Bottomley and Doyle, 1996; Bottomley and Holden, 2001) and

its feedback effect on the parent brand (Smith and Park, 1992; Morrin, 1999). When the

firm launches a new product consistent with the parent brand, consumers perceive

higher fit between the products associated to the brand and the extension. In this context,

consumers regard the new products as credible, which in turn make them more

willingness to buy them. Thus, previous studies indicate that perceived fit has a positive

effect on the evaluation of extensions (Aaker and Keller, 1990; Boush and Loken, 1991;

de Ruyter and Wetzels, 2000; Vo¨lckner and Sattler, 2006). Such positive relationships

appear in studies that analyse both tangible products (Boush et al., 1987; Aaker and

Keller, 1990; Park et al., 1991) and services (de Ruyter and Wetzels, 2000; van Riel et

al., 2001; Hem et al., 2003; Lei et al., 2004). The positive influence of fit also occurs

both in studies considering fit globally (Gutie´rrez and Rodrı´guez, 1994; Martı´nez and

Pina, 2005) or focused on the dimensions of category and image fit (Boush et al., 1987;

Boush and Loken, 1991; Park et al., 1991; de Magalhaes and Varela, 1997; Seltene,

2004). As well as leading to positive consumers‟ attitude towards brand extensions,

perceived fit can strengthen or dilute brand equity of the parent brand. Past research

shows that an extension perceived as congruent may lead to more favourable and

positive evaluations of the original brand (Keller and Aaker, 1992; Grime et al., 2002),

which avoids dilution (Aaker, 2002). If the extension presents a high fit, consumers

transfer their quality perceptions and other associations to the new product. This

contributes to improving the level of perceived quality and image of the parent brand

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(Martı´nez and de Chernatony, 2004) since the pre-existing associations will be

reinforced (Aaker, 1990). Likewise, high fit extensions may result in consumers buying

more products of the brand (Swaminathan et al., 2001), facilitate parent brand

categorisation (Morrin, 1999), and strengthen the awareness of the original brand

through the brand extensions increasing the brand‟s visibility (Aaker, 1991). By

contrast, an extension with poor fit may lead to the loss of differentiation and credibility

of the firm, weakening associations with the parent brand (Aaker, 1992; Keller and

Aaker, 1992). In addition, distant extensions are generally regarded as questionable by

consumers (Dawar, 1996), which increase the risk of failure. Therefore, consumers‟

attitude towards brand extensions and parent brand equity after the extension depends on

the level of similarity or congruence between the original brand and the extension.

2.9 Parent Brand Type

The evaluation of extensions and the effect of brand extension strategies on parent brand

equity are likely to depend on the type of parent brand used (i.e. whether high or

medium brand equity). Previous research has verified that extensions of high equity

brands enjoy a more positive attitude. The main reason lies in the fact that these

extensions have highly perceived quality, positive associations derived from the original

brand and more brand awareness and familiarity. Research findings suggest that the

perceived quality of the parent brand has a positive effect on extension evaluation

(Milewicz and Herbig, 1994; Bottomley and Holden, 2001; Park and Kim, 2001; van

Riel et al., 2001; Martı´nez and de Chernatony, 2004; Vo¨lckner and Sattler, 2006).

Thus, if consumers perceive that a brand has a high quality level, the extension should

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benefit. As regards brand associations or brand image, del Rı´o et al. (2001) found that

three of the four dimensions that formed their brand associations construct had a

positive effect on the acceptance of brand extensions. Likewise, studies focusing on

corporate brands and services provide evidence that a positive image contributes to the

success of the extension (de Ruyter and Wetzels, 2000; van Riel et al., 2001; Hem et al.,

2003). Consequently, if a brand presents a set of positive associations, consumer

evaluations of brand extensions will be more favourable. Finally, brand awareness can

also positively affect consumers‟ attitude towards brands (Aaker, 1996). Consumers‟

reaction towards extensions can be affected by the individual‟s knowledge of the brand

(Klink and Smith, 2001). This variable also acts as a predominant choice tactic amongst

inexperienced consumers facing a new decision task (Hoyer and Brown, 1990), and its

importance remains even when consumers face more familiar and repetitive choices

(Macdonald and Sharp, 2000). As a strong brand enhances the likelihood of a positive

consumer attitude towards brand extensions, high brand equity increases the probability

of brand extension success (Rangaswamy et al., 1993). Generally, strong brands have a

level of awareness and clearly defined associations, which are transferred to the

extension. In addition, under particular circumstances, extensions can strengthen the

parent brand‟s positioning, as well as associations like perceived quality (Pitta and

Katsanis, 1995; Ambler and Styles, 1997). Furthermore, consumers have stronger

beliefs and associations regarding dominant rather than weaker brands. This makes

dominant brands less vulnerable to extensions (Morrin, 1999). Therefore, the initial

parent brand equity may help to provide a defence against failed brand extensions, thus

avoiding brand equity dilution or, at least, diminishing potential negative effects (Keller

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and Sood, 2003). In this context, brands with higher equity are expected to generate a

more positive consumer response. Similarly, we also expect to observe more favourable

feedback effects of brand extension strategies on the parent brand equity when the

original brand has a higher equity.