Experiential marketing promotes a product by not only communicating a product’s features and benefits but also connecting it with unique and interesting consumer experiences. One marketing commentator describes experiential marketing this way: “The idea is not to sell something, but to demonstrate how a brand can enrich a customer’s life.”7

Pine and Gilmore, pioneers on the topic, argued over a decade ago that we are on the threshold of the “Experience Economy,” a new economic era in which all businesses must orchestrate memorable events for their customers.8 They made the following assertions:

• If you charge for stuff, then you are in the commodity business.

• If you charge for tangible things, then you are in the goods business.

• If you charge for the activities you perform, then you are in the service business.

• If you charge for the time customers spend with you, then and only then are you in the experience business.

Citing a range of examples from Disney to AOL, they maintain that saleable experiences come in four varieties: entertainment, education, aesthetic, and escapist.

Columbia University’s Bernd Schmitt, another pioneering expert on the subject, notes that “experiential marketing is usually broadly defined as any form of customer-focused marketing activity, at various touchpoints, that creates a sensory-emotional connection to customers.”9 Schmitt details five different types of marketing experiences that are becoming increasingly vital to consumers’ perceptions of brands:

• Sense marketing appeals to consumers’ senses (sight, sound, touch, taste, and smell).

• Feel marketing appeals to customers’ inner feelings and emotions, ranging from mildly positive moods linked to a brand (e.g., for a noninvolving, nondurable grocery brand or service or industrial product) to strong emotions of joy and pride (e.g., for a consumer durable, technology, or social marketing campaign).

• Think marketing appeals to the intellect in order to deliver cognitive, problem-solving experiences that engage customers creatively.

• Act marketing targets physical behaviors, lifestyles, and interactions.

• Relate marketing creates experiences by taking into account individuals’ desires to be part of a social context (e.g., to their self-esteem, being part of a subculture, or a brand community).

He also describes how various “experience providers” (such as communications, visual/verbal identity and signage, product presence, co-branding, spatial environments, electronic media, and salespeople) can become part of a marketing campaign to create these experiences. In describing the increasingly more demanding consumer, Schmitt writes, “Customers want to be entertained, stimulated, emotionally affected and creatively challenged.”

Figure 5-2 displays a scale developed by Schmitt and his colleagues to measure experiences and its dimensions. Their study respondents rated LEGO, Victoria’s Secret, iPod, and Starbucks as the most experiential brands.10

Meyer and Schwager describe a customer experience management (CEM) process that involves monitoring three different patterns: past patterns (evaluating completed transactions), present patterns (tracking current relationships), and potential patterns (conducting inquiries in the hope of unveiling future opportunities).11 The Science of Branding 5-1 describes how some marketers are thinking more carefully about one particularly interesting aspect of brand experiences—brand scents!

Marketing strategies must transcend the actual product or service to create stronger bonds with consumers and maximize brand resonance. This broader set of activities is sometimes called relationship marketing and is based on the premise that current customers are the key to long-term brand success.12 Relationship marketing attempts to provide a more holistic, personalized brand experience to create stronger consumer ties. It expands both the depth and the breadth of brand-building marketing programs.

Here are just a few of the basic benefits relationship marketing provides:13

• Acquiring new customers can cost five times as much as satisfying and retaining current customers.

• The average company loses 10 percent of its customers each year.

• A 5 percent reduction in the customer defection rate can increase profits by 25–85 percent, depending on the industry.

• The customer profit rate tends to increase over the life of the retained customer.

We next review three concepts that can be helpful with relationship marketing: mass customization, one-to-one marketing, and permission marketing.

One-to-One Marketing

Don Peppers and Martha Rogers popularized the concept of one- to-one marketing, an influential perspective on relationship marketing.18 The basic rationale is that consumers help add value by providing information to marketers; marketers add value, in turn, by taking that information and generating rewarding experiences for consumers. The firm is then able to create switching costs, reduce transaction costs, and maximize utility for consumers, all of which help build strong, profitable relationships.

One-to-one marketing is thus based on several fundamental strategies:

• Focus on individual consumers through consumer databases—“We single out consumers.”

• Respond to consumer dialogue via interactivity—“The consumer talks to us.”

• Customize products and services—“We make something unique for him or her.”

Another tenet of one-to-one marketing is treating different consumers differently because of their different needs, and their different current and future value to the firm. In particular, Peppers and Rogers stress the importance of devoting more marketing effort to the most valuable consumers.

Peppers and Rogers identified several examples of brands that have practiced one-to-one marketing through the years, such as Avon, Owens-Corning, and Nike.19 They note how Ritz-Carlton hotels use databases to store consumer preferences, so that if a customer makes a special request in one of its hotels, it is already known when he or she stays in another.

Peppers and Rogers also provide an example of a localized version of one-to-one marketing. After having ordered flowers at a local florist for his or her mother, a customer might receive a postcard “reminding him that he had sent roses and star lilies last year and that a phone call would put a beautiful arrangement on her doorstep again for her birthday this year.” Although such online or offline reminders can be helpful, marketers must not assume that customers always want to repeat their behaviors. For example, what if the flowers were a doomed, last-chance attempt to salvage a failing relationship? Then a reminder under such circumstances may not be exactly welcome!

An example of a highly successful relationship marketing program comes from Tesco, the United Kingdom’s largest grocer.

Tesco

Celebrating its fifteenth anniversary in 2010, Tesco Clubcard is one of the world’s most successful retail loyalty schemes. Each of the 10 million members in the program has a unique “DNA profile” based on the products he or she buys. Products themselves are classified on up to 40 dimensions—such as package size, healthy, own label, ecofriendly, ready-to-eat, and so on—to facilitate this customer categorization. In exchange for providing their purchase information and basic demographic information, members receive a variety of purchase benefits across a wide range of products and services beyond what is sold in their stores. Tracking customers’ purchases in the program, in turn, helps Tesco uncover price elasticities, offer targeted promotions, and improve marketing efficiency. By also strengthening customer loyalty, the Clubcard program has been estimated to generate cumulative savings to Tesco of over £350 million. The range of products, the nature of merchandising, and even the location of Tesco’s convenience stores all benefit from the use of this customer data to develop tailored solutions. Tesco has introduced a number of Clubcard program innovations through the years, including key fobs and newly designed cards issued in 2008.20

Instruction or user manuals for many products are too often an afterthought, put together by engineers who use overly technical terms and convoluted language. Online help forums put the consumer at the mercy of other equally ignorant users or so-called experts who may not understand or appreciate the obstacles the average consumer faces.

As a result, consumers’ initial product experiences may be frustrating or, even worse, unsuccessful. Even if consumers are able to figure out how to make the product perform its basic functions, they may not learn to appreciate some of its more advanced features, which are usually highly desirable and possibly unique to the brand.

To enhance consumers’ consumption experiences, marketers must develop user manuals or help features that clearly and comprehensively describe both what the product or service can do for consumers and how they can realize these benefits. With increasing globalization, writing easy-to-use instructions has become even more important because they often require translation into multiple languages.28 Manufacturers are spending more time designing and testing instructions to make them as user friendly as possible.

User manuals increasingly may need to appear in online and multimedia formats to most effectively demonstrate product functions and benefits. Intuit, makers of the Quicken personal finance management software package, routinely sends researchers home with first-time buyers to check that its software is easy to install and to identify any sources of problems that might arise. Corel software adopts a similar “Follow Me Home” strategy and also has “pizza parties” at the company where marketing, engineering, and quality assurance teams analyze the market research together, so that marketing does not just hand down conclusions to other departments.29

Aftermarketing, however, is more than the design and communication of product instructions. As one expert in the area notes, “The term ‘aftermarketing’ describes a necessary new mind-set that reminds businesses of the importance of building a lasting relationship with customers, to extend their lifetimes. It also points to the crucial need to better balance the allocation of marketing funds between conquest activities (like advertising) and retention activities (like customer communication programs).”30

Creating stronger ties with consumers can be as simple as creating a well-designed customer service department. Research by Accenture in 2010 found that two in three customers switched companies in the past year due to poor customer service.31 In the auto industry, after-sales service from the dealer is a critical determinant of loyalty and repeat buying of a brand. Routine maintenance and unplanned repairs are an opportunity for dealers to strengthen their ties with customers.32

Aftermarketing can include the sale of complementary products that help make up a system or in any other way enhance the value of the core product. Printer manufacturers such as Hewlett-Packard derive much of their revenue from high-margin postpurchase items such as ink-jet cartridges, laser toner cartridges, and paper specially designed for PC printers. The average owner of a home PC printer spends much more on consumables over the lifetime of the machine than on the machine itself.33

Aftermarketing can be an important determinant of profitability. For example, roughly three-quarters of revenue for aerospace and defense providers comes from aftermarket support and related sales. Aftermarket sales are strongest when customers are locked in to buying from the company that sold them the primary product due to service contracts, proprietary technology or patents, or unique service expertise.34

Loyalty or frequency programs have become one popular means by which marketers can create stronger ties to customers.35 Their purpose is “identifying, maintaining, and increasing the yield from a firm’s ‘best’ customers through long-term, interactive, value-added relationships.”36 Firms in all kinds of industries—most notably the airlines—have established loyalty programs through different mixtures of specialized services, newsletters, premiums, and incentives. Often they include extensive co-branding arrangements or brand alliances.

Many businesses besides airlines introduced loyalty programs in the intervening years because they often yield results.38 As one marketing executive said, “Loyalty programs reduce defection rates and increase retention. You can win more of a customer’s purchasing share.” The value created by the loyalty program creates switching costs for consumers, reducing price competition among brands.

To get discounts, however, consumers must typically hand over personal data, raising privacy concerns. When the loyalty program is tied into a credit card, as is sometimes the case, privacy concerns are even more acute. Nevertheless, the lure of special deals can be compelling to consumers, and in 2011, there were more than 2 billion memberships in loyalty programs, with an average value of $622 points issues per household. A third of these rewards, however, remain unredeemed.39

The appeal to marketers is clear too. Fifteen percent of a retailer’s most loyal customers can account for as much as half its sales, and it can take between 12 and 20 new customers to replace a lost loyal customer.40 Some tips for building effective loyalty programs follow:41

• Know your audience: Most loyalty marketers employ sophisticated databases and software to determine which customer segment to target with a given program. Target customers whose purchasing behavior can be changed by the program.

• Change is good: Marketers must constantly update the program to attract new customers and prevent other companies in their category from developing “me-too” programs. “Any loyalty program that stays static will die,” said one executive.

• Listen to your best customers: Suggestions and complaints from top customers deserve careful consideration, because they can lead to improvements in the program. Because they typically represent a large percentage of business, top customers must also receive better service and more attention.

• Engage people: Make customers want to join the program. Make the program easy to use and offer immediate rewards when customers sign up. Once they become members, make customers “feel special,” for example, by sending them birthday greetings, special offers, or invitations to special events.

The objective of value pricing is to uncover the right blend of product quality, product costs, and product prices that fully satisfies the needs and wants of consumers and the profit targets of the firm. Marketers have employed value pricing in various ways for years, sometimes learning the hard way that consumers will not pay price premiums that exceed their perceptions of the value of a brand. Perhaps the most vivid illustration was the legendary price cut for Philip Morris’s leading cigarette brand, Marlboro, described in Branding Brief 5-1.48

Two important and enduring branding lessons emerged from the Marlboro episode. First, strong brands can command price premiums. Once Marlboro’s price entered a more acceptable range, consumers were willing to pay the still-higher price, and sales of the brand started to increase. Second, strong brands cannot command an excessive price premium. The clear signal sent to marketers everywhere is that price hikes without corresponding investments in the value of the brand may increase the vulnerability of the brand to lower-priced competition. In these cases, consumers may be willing to “trade down” because they no longer can justify to themselves that the higher-priced brand is worth it. Although the Marlboro price discounts led to short-term profitability declines, they also led to regained market share that put the brand on a stronger footing over the longer haul.

In today’s challenging new climate, several firms have been successful by adopting a value-pricing strategy. For example, Walmart’s slogan, “Save Money. Live Better,” describes the pricing strategy that has allowed it to become the world’s largest retailer. Southwest Airlines combined low fares with no-frills—but friendly—service to become a powerful force in the airline industry. The success of these and other firms has dramatized the potential benefits of implementing a value-pricing strategy.

As you might expect, there are a number of opinions regarding the keys for success in adopting a value-based pricing approach. In general, however, an effective value-pricing strategy should strike the proper balance among three key components:

• Product design and delivery

• Product costs

• Product prices

In other words, as we’ve seen before, the right kind of product has to be made the right way and sold at the right price. We look at each of these three elements below. Meanwhile, a brand that has experienced much success in recent years balancing this formula is Hyundai.

Hyundai

Taking a page from the Samsung playbook, Korean upstart automaker Hyundai is trying to do to Toyota and Honda what Samsung successfully did to Sony—provide an affordable alternative to a popular market leader. Like Samsung, Hyundai has adopted a well-executed value pricing strategy that combines advanced technology, reliable performance, and attractive design with lower prices. As the head of U.S. design noted in discussing the 2011 Sonata sedan and revamped Tucson crossover, “The basic idea is a car that looks like a premium car, but not at a premium price. We’re looking to pull people out of Camrys and Accords and give them something different.” Hyundai’s 10-year or 100,000 mile power train warranty programs and positive reviews from car analysts such as J. D. Power provided additional reassurance to potential buyers of the quality of the products and the company’s stability. To maintain momentum during the recession, Hyundai’s “Assurance” program, featuring a highly publicized Super Bowl TV spot, allowed new buyers to return their Hyundai vehicles if they lost their job. All these efforts were met with greater customer acceptance: the number of potential U.S. buyers who say they would “definitely” consider a Hyundai tripled from 2000 to 2009. Hyundai’s current Assurance program is centered on a new Trade-in Value Guarantee that preserves the market value of a new Hyundai by guaranteeing to customers at the time of purchase exactly how much it would be worth, two, three, or four years from now.49

Product Costs

The second key to a successful value-pricing strategy is to lower costs as much as possible. Meeting cost targets invariably requires finding additional cost savings through productivity gains, outsourcing, material substitution (less expensive or less wasteful materials),

product reformulations, and process changes like automation or other factory improvements.53 As one marketing executive once put it:

The customer is only going to pay you for what he perceives as real value-added. When you look at your overhead, you’ve got to ask yourself if the customer is really willing to pay for that. If the answer is no, you’ve got to figure out how to get rid of it or you’re not going to make money.54

To reduce its costs to achieve value pricing, Procter & Gamble cut overhead according to four simple guidelines: change the work, do more with less, eliminate work, and reduce costs that cannot be passed on to consumers. P&G simplified the distribution chain to make restocking more efficient through continuous product replenishment. The company also scaled back its product portfolio by eliminating 25 percent of its stock-keeping units.

Firms have to be able to develop business models and cost structures to support their pricing plans. Taco Bell reduced operating costs enough to lower prices for many items on the menu to under $1, sparking an industry-wide trend in fast foods. Unfortunately, many other fast food chains found it difficult to lower their overhead costs enough or found that their value menu cannibalized more profitable items.55

Cost reductions certainly cannot sacrifice quality, effectiveness, or efficiency. Toyota and Johnson & Johnson’s Tylenol both experienced brand crises due to product problems, which analysts and even some of the management of the two firms attributed to overly zealous cost reductions. When H&R Block cut costs as it moved into new areas outside tax preparation, customer service suffered and customers began to complain about long wait times and rudeness.56

At the same time, different consumers may have different value perceptions and therefore could—and most likely should—receive different prices. Price segmentation sets and adjusts prices for appropriate market segments. Apple has a three-tier pricing scheme for iTunes downloads—a base price of 99 cents, but $1.29 for popular hits and 69 cents for oldies-but-not-so-goodies.58 Starbucks similarly has raised the prices of some of its specialty beverages while charging less for some basic drinks.59

In part because of wide adoption of the Internet, firms are increasingly employing yield management principles or dynamic pricing, such as those adopted by airlines to vary their prices for different market segments according to their different demand and value perceptions. Here are several examples:

• Allstate Insurance embarked on a yield management pricing program, looking at drivers’ credit history, demographic profile, and other factors to better match automobile policy premiums to customer risk profiles.60

• To better compete with scalpers and online ticket brokers such as StubHub, concert giant Ticketmaster has begun to implement more efficient variable pricing schemes based on demand that charge higher prices for the most sought-after tickets and lower prices for less-desirable seats for sporting events and concerts.61

• The San Francisco Giants now uses a software system that allows the team to look at different variables such as current ticket sales, weather forecasts, and pitching matchups to determine whether it should adjust prices—right up until game day. The software allows the team to take the price-tier strategy baseball has traditionally used and make it more dynamic.62

• New start-up Village Vines offers a demand-management solution to restaurants that allows them to effectively price discriminate by offering deal-prone customers the option of making reservations for 30 percent off the entire bill on select (less desirable) days and times.63

Everyday low pricing (EDLP) has received increased attention as a means of determining price discounts and promotions over time. EDLP avoids the sawtooth, whiplash pattern of alternating price increases and decreases or discounts in favor of a more consistent set of “everyday” base prices on products. In many cases, these EDLP prices are based on the value-pricing considerations we’ve noted above.

The P&G Experience

In the early 1990s, Procter & Gamble made a well-publicized conversion to EDLP.64 By reducing list prices on half its brands and eliminating many temporary discounts, P&G reported that it saved $175 million in 1991, or 10 percent of its previous year’s profits. Advocates of EDLP argue that maintaining consistently low prices on major items every day helps build brand loyalty, fend off private-label inroads, and reduce manufacturing and inventory costs.65

Even strict adherents of EDLP, however, see the need for some types of price discounts over time. When P&G encountered some difficulties in the late 1990s, it altered its value-pricing strategy in some segments and reinstated selected price promotions. More recently, P&G has adopted a more fluid pricing strategy in reaction to market conditions.66 Although P&G lowered prices in 2010 to try to gain market share in the depths of a severe recession, the company actually raised some prices to offset rising commodity costs in 2011. Management felt confident about the strength of some of the firm’s popular premium-priced brands—such as Fusion ProGlide, Crest 3-D products, and Old Spice body wash—where demand had actually even exceeded supply.

As Chapter 6 will discuss, well -conceived, timely sales promotions can provide important financial incentives to consumers and induce sales. As part of revenue-management systems or yield-management systems, many firms have been using sophisticated models and software to determine the optimal schedule for markdowns and discounts.67

Besides the indirect avenue of image transfer, retailers can directly affect the equity of the brands they sell. Their methods of stocking, displaying, and selling products can enhance or detract from brand equity, suggesting that manufacturers must take an active role in helping retailers add value to their brands. A topic of great interest in recent years in that regard is shopper marketing.

Though defined differently by different people, at its core shopper marketing emphasizes collaboration between manufacturers and retailers on in-store marketing like brand-building displays, sampling promotions, and other in-store activities designed to capitalize on a retailer’s capabilities and its customers. Vlasic is a brand that has ramped up its shopper marketing program.

Vlasic

Although many homes keep a jar of pickles in their refrigerator, too often it ends up in the back of a shelf, where it is forgotten. When summer barbecue season rolls along, pickle consumption increases, although still not as much as market leader Vlasic would like. Company research revealed that about 80 percent of pickles consumed in U.S. homes accompany a hamburger or other sandwich, but only 3 percent of all sandwiches consumed are served with pickles. Compounding the consumption problem is a shopping obstacle. Pickles typically are stocked in the center aisles of stores, where only about 20 percent of shoppers turn on any given trip, compared with the produce or deli aisles on the perimeter of the store, where about 60 percent shop. Vlasic did have one advantage with which to work. Through the years, its iconic brand character—a stork with a Groucho Marx look and personality—had become widely recognizable from all its advertising appearances. For the 2011 summer selling season, Vlasic decided to pull all those factors together to try something different in its marketing. In-store ad cutouts with the stork began to appear in sections of the supermarket away from where pickles were stocked. In the meat section, for example, an ad was placed that included a speech balloon near the stork’s beak proclaiming: “Pro tip: Serve your burgers with a Vlasic pickle. Amateur tip: Don’t.” Similar type ads appeared near the hamburger buns in the bread aisle and all through the cheese aisles. The ads also appeared on shopping carts and on vinyl ads on the supermarket floor. To provide further marketing support outside the store, print ads for the brand stating “Bring On the Bite” appeared in magazines and on Web sites.75

Such collaborative efforts can spur greater sales of a brand. Yet, at the same time, much conflict has also emerged in recent years between manufacturers and the retailers making up their channels of distribution. Because of greater competition for shelf space among what many retailers feel are increasingly undifferentiated brands, retailers have gained power and are now in a better position to set the terms of trade with manufacturers. Increased power means that retailers can command more frequent and lucrative trade promotions.

One way for manufacturers to regain some of their lost leverage is to create strong brands through some of the brand-building tactics described in this book , for example, by selling innovative and unique products—properly priced and advertised—that consumers demand. In this way, consumers may ask or even pressure retailers to stock and promote manufacturers’ products.

By devoting marketing efforts to the end consumer, a manufacturer is said to employ a pull strategy, since consumers use their buying power and influence on retailers to “pull” the product through the channel. Alternatively, marketers can devote their selling efforts to the channel members themselves, providing direct incentives for them to stock and sell products to the end consumer. This approach is called a push strategy, because the manufacturer is attempting to reach the consumer by “pushing” the product through each step of the distribution chain.

Although certain brands seem to emphasize one strategy more than another (push strategies are usually associated with more selective distribution, and pull strategies with broader, more intensive distribution), the most successful marketers—brands like Apple, Coca-Cola, and Nike—skillfully blend push and pull strategies.

A number of different services provided by channel members can enhance the value to consumers of purchasing and consuming a brand name product (see Figure 5-5). Although firms are increasingly providing some of the services themselves through toll-free numbers and Web sites, establishing a “marketing partnership” with retailers may nevertheless be critical to ensuring proper channel support and the execution of these various services.

Manufacturers can take a number of steps to keep retail partners happy and prevent breaks in the supply chain. Resellers often sink significant amounts of money into maintaining their facilities and paying sales staffs. To compensate them, manufacturers can offer dealers exclusive access to new products, or branded variants, as described below. Experts also advise that manufacturers stick to fixed prices when they offer products directly to consumers. If they do offer big discounts, they should offer them at outlet malls, where they won’t confuse customers.

Manufacturers also can back up their distributors by educating them about their products so the retail partners can shape an effective sales force. When makeup giant Mary Kay began selling its cosmetics online in 1997, it also helped the members of its direct sales force set up their own online stores. Sharing product information and also doing good advertising contributes to distributors’ success. John Deere effectively partnered with its channel members on customer service.

Ultimately, companies have to share the power to make decisions with their distributors and recognize that dealers’ success benefits them too. In many markets, dealers have captured more of the retail sales, so manufacturers must keep them happy and profitable if they want the benefits of a smooth supply chain. Two important components of partnership strategies are retail segmentation activities and cooperative advertising programs.

In eliciting channel support, manufacturers must be creative in the way they develop marketing and merchandising programs aimed at the trade or any other channel members. They should consider how channel activity can encourage trial purchase and communicate or demonstrate product information, to build brand awareness and image and to elicit positive brand responses.

To gain control over the selling process and build stronger relationships with customers, some manufacturers are introducing their own retail outlets, as well as selling their product directly to customers through various means. These channels can take many forms, the most complex of which, from a manufacturer’s perspective, is company-owned stores. Hallmark, Goodyear, and others have sold their own products in their own stores for years. They have eventually been joined by a number of other firms—including some of the biggest marketers around.

For example, in December 1994, after the Federal Trade Commission amended a 16-year ban on the jeans maker selling its own wares, Levi Strauss began to open up Levi’s Stores in the United States and abroad, located mostly in downtown areas and upscale suburban malls.82 Only launched in 2001, Apple now derives 20 percent of its revenue from its physical stores, generating revenue at a rate of about $4,000 per square foot a year. Apple’s own-store success is attributed to strong customer service, a clear link between the retail space and the product’s user-friendly design, and the “community center” environment that add up to create a distinctively Apple retail experience.83

A number of other brands of all kinds have created their own stores, such as Bang & Olufsen audio equipment, OshKosh B’Gosh children’s wear, Dr. Martens boots and shoes, and Warner Bros. entertainment. But not all company stores are big structures with extensive inventory. One recent trend is the launching of pop-up stores—temporary stores that blend retail and event marketing.84

Pop-Up Stores

As a means to complement their existing channels and even own brick-and-mortar stores, some companies are introducing temporary store locations, especially during the holiday season. One popular location is New York City, which at times can have many appealing vacant spaces to choose from. During the 2010 holiday season, Procter & Gamble’s 4,000-square-foot pop-up location on Fifty-Seventh Street in Manhattan drew 14,000 visitors in the first 10 days it was open. P&G’s store, with tinted windows and neon lights, was designed as a flashy means to distribute samples of its products and experiences—from a full CoverGirl makeover or Head & Shoulders wash-and-blow-dry to free Febreze scented candles. Levi Strauss’s 10,000-square-foot “workshop” in a former art gallery in Manhattan’s SoHo district was designed to reinforce craftsmanship and collaboration themes in its “Go Forth” ad campaign. Target’s Liberty of London pop-up shop closed a day early when it sold out of all its merchandise. For all these companies, pop-up stores are a way to create buzz, try out some new products and merchandising, and connect with some consumers in a unique way.

Company stores provide many benefits.85 Primarily, they are a means to showcase the brand and all its different product varieties in a manner not easily achieved through normal retail channels. For example, Nike might find its products spread all through department stores and athletic specialty stores. These products may not be displayed in a logical, coordinated fashion, and certain product lines may not even be stocked. By opening its own stores, Nike was able to effectively put its best foot forward by showing the depth, breadth, and variety of its branded products. Company stores can provide the added benefit of functioning as a test market to gauge consumer response to alternative product designs, presentations, and prices, allowing firms to keep their fingers on the pulse of consumers’ shopping habits.

A disadvantage of company stores is that some companies lack the skills, resources, or contacts to operate effectively as a retailer. For example, The Disney Store, started in 1987, sells exclusive Disney-branded merchandise, ranging from toys and videos to collectibles and clothing, priced from $3 to $3,000. Disney views the stores as an extension of the “Disney experience,” referring to customers as “guests” and employees as “cast members,” just as it did in its theme parks. The company has struggled, however, to find the right retail formula through the years, even selling the chain of stores in Japan and North America to a set of other companies before eventually buying them back.86

Another issue with company stores, of course, is potential conflict with existing retail channels and distributors. In many cases, however, company stores can be a means of bolstering brand image and building brand equity rather than as direct sales devices. For example, Nike views its stores as essentially advertisements and tourist attractions. The company reports that research studies have confirmed that Niketown stores enhanced the Nike brand image by presenting the full scope of its sports and fitness lines to customers and “educating them” on the value, quality, and benefits of Nike products. The research also revealed that although only about 25 percent of visitors actually made a purchase at a Niketown store, 40 percent of those who did not buy during their visit eventually purchased Nike products from some other retailer.

These manufacturer-owned stores can also be seen as a means of hedging bets with retailers who continue to push their own labels. With one of its main distributors, JCPenney, pushing its own Arizona brand of jeans, Levi’s can protect its brand franchise to some extent by

establishing its own distribution channel. Nevertheless, many retailers and manufacturers are dancing around the turf issue, avoiding head-on clashes in establishing competitive distribution channels. Manufacturers in particular have been careful to stress that their stores are not a competitive threat to their retailers but rather a “showcase” that can help sell merchandise for any retailer carrying their brand. Branding Brief 5-2 describes some of Goodyear’s channel conflict experiences.

Besides creating their own stores, some marketers—such as Nike, Polo, and Levi Strauss (with Dockers)—are attempting to create their own shops within major department stores. More common in other parts of the world such as Asia, these approaches can offer the dual benefits of appeasing retailers—and perhaps even allowing them to benefit from the retailer’s brand image—while at the same time allowing the firm to retain control over the design and implementation of the product presentation at the point of purchase.87

The store-within-a-store concept can take hold through actual leasing arrangements or less formal arrangements where branded mini-stores are used. For retailers, these arrangements help drive foot traffic and acquire new capabilities quickly. For smaller brands, like Murray’s Cheese Shop, which has an arrangement with Kroger, they allow for quick distribution growth.

Retailers are also combining with other retailers to seek similar benefits.88 Sears has partnered with much trendier retailer Forever 21 to upgrade its image as well as established in-store leases with Edwin Watts Golf Shops, uniform apparel seller Work N’ Gear, and Whole Foods organic foods grocer. Macy’s has partnered with Sunglass Hut, maternity apparel brand Destination Modernity, and UK toiletries brand Lush.

The goal in all these situations is to find “win–win” solutions that benefit channel partners and consumers alike. In explaining the rationale of hosting beauty-products retailer Sephora in its stores, one JCPenny’s executive noted, “Longtime Sephora fanatics come in and wind up becoming loyal JCPenney shoppers, and vice versa.”89

Finally, another channel option is to sell directly to consumers via phone, mail, or electronic means. Retailers have sold their goods through catalogs for years. Many mass marketers, especially those that also sell through their own retail stores, are increasingly using direct selling, a long-successful strategy for brands such as Mary Kay and Avon. These vehicles not only help sell products but also contribute to brand equity by increasing consumer awareness of the range of products associated with a brand and increasing consumer understanding of the key benefits of those products. Marketers can execute direct marketing efforts in many ways, such as catalogs, videos, or physical sites, all of which are opportunities to engage in a dialogue and establish a relationship with consumers.