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FRAMEWORK OF BRAND EQUITY THROUGH

EFECTIVENESS IN SUPPLY CHAIN

MANAGEMENT

DISSERTATION

2009

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SUBMITTED BY:

SAURABH SHUKLA Roll. No. – (07162)

UNDER THE GUIDANCE OF Prof. Ruchi Arora

Faculty, IME

Department of Management

INSTITUTE OF MANAGEMENTEDUCATIONS

SAHIBABAD

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ACKNOWLEDGEMENT

It is my pleasure to be indebted to various people, who directly or indirectly contributed

in the development of this work and who influenced my thinking, behavior, and acts

during the course of study.

As a student specializing in marketing, I came to know about the ground realities in

complex topics like brand equity and supply chain management. For this I am indebted to

Prof.Ruchi arora, Faculty, IME who took personal interest in my project and bore the

associated headaches

My attitude carries the imprint of Dr.Taruna Gautam, Assistant Director, IME. I am

thankful to her for her support, cooperation, and motivation provided to me during the

study.

It would be unfair if I do not mention the name of Dr.D.P.Goeal,Director, & Prof.

Sidharth verma faculty IME who gave me valuable tips to complete this project and

Mr. H.P. Gupta, vice chairman, for his inspiring presence and blessings.

Lastly, I would like to thank the almighty and my parents for their moral support and my

colleagues with whom I shared my day-to-day experience and received lots off

suggestions that improved my work quality.

Signature:-

Name:- Saurabh Shukla

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CERTIFICATE

This is to certify that the Dissertation entitled (FRAMEWORK OF

BRAND EQUITY THROUGH EFECTIVENESS IN SUPPLY CHAIN

MANAGEMENT) and submitted by SAURABH SHUKLA having roll

no7162 for the partial fulfillment of the requirements of the PGDM BATCH

2007-09, IME, embodies the bonafide work done by him under our

supervision.

……………………………. …… …………...............

Signature of the guide Signature of the dean

Place………………….

Date………………….

ABSTRACT

Supply chain management (SCM) is the oversight of materials, information, and finances

as they move in a process from supplier to manufacturer to wholesaler to retailer to

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consumer. Supply chain management involves coordinating and integrating these flows

both within and among companies. It is said that the ultimate goal of any effective supply

chain management system is to reduce inventory (with the assumption that products are

available when needed).

Here we investigate the impact on brand equity and the hedonic level of the product on

consumer stock-out responses, which is generally caused by absence of an effective

Supply Chain Management system. We also examine whether the hedonic level of the

product moderates the effect of brand equity.

For supply chain management, the branding should reflect and embody a value

proposition. Value here is not a financial figure, such as sales, profits, or assets. Value,

for the value proposition, should be something that matters to customers. It should be

tangible and should define the benefit and solution that customers will gain with you. It

presents why customers should do business with you, rather than with competitors.

This work is a conscious effort to show that Supply Chain Management can be an

effective tool in developing favorable brand equity of a product. This can benefit the

marketers, manufacturers as well as the upcoming retailers to gain an insight of the

consumers and what goes into making their particular shopping behavior

CONTENTS

ACKNOWLEDGEMENT……………………………………………..

ABSTRACT………………………………………………………………

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CHAPTER 1: INTRODUCTION ………………………………………….7

i) Background

ii) Need for study

CHAPTER 2: Literature review…………………………………………8

CHAPTER 3: RESEARCH METHODOLOGY .…………………………..22

i) Research Process

ii) Modus Operandi

CHAPTER 4: DESCRIPTIVE WORK ……..……………………………...31.

i) Brand Equity: An Introduction

ii) Constituents of Brand Equity

iii) Supply Chain Management vs. Effective Supply Chain Management

iv) What goes into making of effective Supply Chain Management?

v) Risk and Reward in effective Supply Chain Management.

CHAPTER 5: DATA ANALYSIS AND INTERPRETATION. ………….60

i) Conceptual model and hypotheses

ii) Empirical results

iii) Discussion

CHAPTER 6: SUGGESTIONS AND CONCLUSION ……………………..79

BIBLIOGRAPHY

APPENDIX

List of tables

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Table-1 Metrological Overview Of Studies About Consumer Report To

OOS……………...9

Table-2 Metrological overview of exploring variable for consumer stock-out

reactions……11

Table -3 Socio demographic

characteristics…………………………………………………..30

Table-4 The IPR tool kit and what they

protect……………………………………………....37

Table-5 Utilitarian and hedonic level of selected product

group……………………………..60

Table-6 Descriptive analysis of stock-

out…………………………………………………….70

Table-7 Correlation matrix between dependent and independent

variables…………………..73

Table-8 Marginal effect of full

model…………………………………………………………74

Table-9 Summary of hypothesis and results.

………………………………………………….77

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LIST OF FIGURES

Figure-1 consumer appeal…………………………………………….35

Figure-3 IPR tool……………………………………………………...36

Figure-3 using IPR model for brand creation…………………………36

Figure-4 numbers attach to the products………………………………41

Figure-5 conceptual model of stock-out response……………………..60

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INTRODUCTION

It will not be less than correct to mention that marketing starts with customers and also

ends with customers only. So to say, customer and marketing are inseparable from each

other. Customer is considered king in the market who dictates the market and makes the

enterprise run. Today, what customer wants is better products, lower prices and faster

supplies of goods and services. These enhance the customer delight and enterprise plight.

Meeting customer’s wants have never been simple especially in a competitive market.

Marketers have been engaged in evolving devices to gain competitive advantage that

enables them to satisfy the customer’s wants and stay and survive in market. In fact,

innovate and invent have become, of late, the new mantras in modern marketing to

possess competitive advantage especially in a highly competitive market.

Branding is a way to differentiate your company, product or service from competitors,

and to provide it with a personality that is both unique and appealing to potential

customers. It is a multifaceted, multilayered process and discipline.

Branding has taken on a greater significance in the past decade as companies begin to see

their brands as assets - as valuable and as tangible as their factories and patents. So

brands have become more than marketing slogans and icons today: they are now closely

monitored by the CEO and CFO, and assessed by industry analysts and pundits.

Delivering on the brand promise becomes a moment of truth in any customer

relationship. This moment of truth can have a positive or negative impact on the

customer's perception of your brand. You may have great marketing communications and

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a superior product, but the buying experience stands between you and the customer. If the

customer has a negative buying experience due to poor fulfillment you have diluted the

equity in your brand. And this happens all too often. So how do you make sure it doesn't

happen in your company?

It is interesting to appreciate brands have always been considered as intangible assets,

presumably justified on the basis that brands cannot be seen or touched like a building or

plant and machinery. But anyone who has worked in a brand environment will testify

there is nothing more tangible than the cash flows generated from the company’s brands.

For leading brands these cash flows are resilient, reliable and sustainable and often the

sole basis of a businesses existence. Without them there is no real business just people in

buildings with not a great deal to do. Besides it should be appreciated that strong brands

provide very reliable steady cash flows and I would argue very strongly that you could

far more accurately value a brand as opposed to a commercial building (based on future

rental expectations).

Out-Of-Stock (OOS) is a regular phenomenon for grocery shoppers. This rather common

temporary unavailability of items rates high on shoppers’ irritation lists and causes a

lower level of consumer satisfaction. An OOS occurrence may have a direct impact on a

retailer’s financial outcome, because it leads to a loss of category sales if consumers

decide to switch stores or cancel their purchases completely. If consumers decide to

switch stores, a loss of sales might result in a loss of sales in other categories as well. The

resulting gross margin losses for retailers resulting from OOS are estimated to lie

between $7 and $12 billion per year in the United States (Andersen Consulting 1996).

In response, some efficient consumer response (ECR) projects have focused on

developing methods to improve the supply chain. According to Vergin and Barr (1999),

the application of continuous replenishment planning can decrease OOS levels by 55

percent. Although some ECR projects have showed encouraging decreases in OOS

levels, a substantial decrease of OOS levels has not yet been observed in practice (EFMI

2000). Due to extensions in assortments and because shelf space is often fixed in the

short and midterms, OOS occurrences likely will remain regular phenomena for

shoppers.

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Therefore, retailers need additional insights into the effects of OOS on consumer

behavior, particularly regarding which types of OOS situations lead to high levels of store

switching, postponement or cancellation of purchases. Another important issue for

retailers pertains to the product groups and brands for which OOS occurrences result in

substantial sales losses.

For brand manufacturers, OOS is important as well, because high OOS levels for a

specific brand may lead to losses in brand sales and decreased brand loyalty. In addition

to the important financial consequences of OOS, understanding consumers’ OOS

responses improves manufacturers’ insight into the importance of distribution and shelf

space allocation.

In this respect, consumer OOS reactions may provide valuable information about the

possible effects of OOS when an item or a brand is permanently delisted.

Background

In marketing literature, there has been substantial interest in the topic of consumer

reactions to Out-Of-Stock (OOS) since the 1960s (Peckham 1963). The majority of early

studies on OOS mainly focused on the definition and measurement of consumer OOS

reactions (Emmelhainz, Stock, & Emmelhainz 1991; Gattorna 1988; Peckham 1963;

Zinszer&Lesser 1981) or the financial consequences of OOS (Walter & Grabner 1975).

More recently, researchers developed and tested theory-based models to explain OOS

reactions (Campo, Gijsbrechts, & Nisol 2000; Verbeke, Farris, & Thurik 1998; Zinn

&Liu 2001). The study of Campo et al. (2000) study is particularly noteworthy, because

it provides and tests a theoretical framework to explain consumer OOS responses. In

general, these studies are limited in their consideration of only a small number of product

categories. They also often limit their attention to one particular supermarket or retail

format. Finally, most studies have not considered whether OOS reactions vary among

product categories and brands. As a result, theories that may explain observed differences

in reactions between product categories and brands are not well developed.

In this study, we aim to fill these research gaps. We develop a theoretical framework in

which brand equity and the hedonic level of the product are the two main antecedents of

consumer OOS reactions. The inclusion of these variables is based on the notion,

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common in marketing literature, that both brand equity and the hedonic nature of

products affect how consumers react to certain marketing stimuli (Aaker 1990; Ailawadi,

Lehman, & Neslin 2002; Batra & Ahtola 1991; Chandon, Wansink, & Laurent 2000;

Dhar & Wertenbroch 2000; Hirschman & Holbrook 1982; Keller 1993, 2002).

We also consider how the hedonic level of the product moderates the effect of brand

equity on these reactions. In doing so, we extend the current literature about antecedents

of OOS reactions in the following ways: First, no studies have considered the impact of

the hedonic nature of products on OOS reactions.1 Second, though some studies have

included consumer-based brand loyalty indicators as antecedents, no studies explicitly

have tried to explain consumer OOS reactions from a brand equity perspective. As a

corollary, we investigate whether the effect of brand equity is moderated by the hedonic

nature of a product. Third, in contrast to other explanatory studies, we study OOS

responses in a modest number of product groups and retail chains, which improves the

generalizability and external validity of our results.

In addition to its theoretical contribution, our study also provides a clear managerial

framework. Using this framework, both retailing and manufacturing managers can set

priorities regarding which product groups and brands for which OOS should be

minimized.

We continue this article with a review of the prior literature on OOS. Next, we discuss

our conceptual model and the underlying hypotheses. We subsequently describe the

research methodology and empirical results, and we end with a discussion of the

managerial implications, research limitations, and directions for further research.

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Need for study

Supply chain management (SCM) is the oversight of materials, information, and finances

as they move in a process from supplier to manufacturer to wholesaler to retailer to

consumer. Supply chain management involves coordinating and integrating these flows

both within and among companies. It is said that the ultimate goal of any effective supply

chain management system is to reduce inventory (with the assumption that products are

available when needed).

Is brand equity the price at which a brand can be sold by an organisation to another? Is it

better measured by the level of awareness or the buying intention for the next ten

purchases? Is brand loyalty a straight measure of brand equity? Is it the price of the brand

under study when all brands in the market are forced to have equal share?

It is all this and more. In fact, brand equity cannot be defined without reference to the

point of view from which it is being defined. Brand equity is probably the most popular

topic on debate in issues related to marketing. What is brand equity? Several attempts

have been made to define this

Branding is a way to differentiate your company, product or service from competitors,

and to provide it with a personality that is both unique and appealing to potential

customers. It is a multifaceted, multilayered process and discipline.

For differentiating among all these points to know all about all those hidden and non

hidden points, to analyze different points and how these factors are related to each other

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and in what manner supply chain management system can play important role to

identifying these factor study should be done to get it.

SCOPE OF THE STUDY

A supply chain is a network of facilities and distribution options that performs the

functions of procurement of materials, transformation of these materials into intermediate

and finished products, and the distribution of these finished products to customers.

Supply chains exist in both service and manufacturing organizations, although the

complexity of the chain may vary greatly from industry to industry and firm to firm.

Branding is a way to position your organization. It is your organization’s identity; it is

who you are. Branding should be dynamic and innovative. Branding can maximize

organization value to its customers, whether internal customers or external. It should be

more than just an image; it should have substance to create the value. It should reflect

reality, not perception, and have depth to be viable and to have longevity. Branding

should be executable for supply chain management.

For supply chain management, the branding should reflect and embody a value

proposition. Value here is not a financial figure, such as sales, profits, or assets. Value,

for the value proposition, should be something that matters to customers. It should be

tangible and should define the benefit and solution that customers will gain with you. It

presents why customers should do business with you, rather than with competitors.

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OBJECTIVE OF THE RESEARCH: - To study the role of Supply Chain in increasing

the effectiveness in operations and the building the brand equity especially in sectors like

retail, FMCG, consumer durables etc.

LIMITATIONS

While surveying I encounter with some problems like-

• A secondary data should involve a larger sample size otherwise the findings of the

survey can not be generalized.

• As this report is based on secondary data so we can not rely much on this.

• But a larger sample size may increase the time and cost of collecting the

secondary data and it will difficult to analyze it totally

• Another problem which I face was that people were hesitating to give information

about their brand factor and in-depth knowledge of the product.

• Moreover, our investment was limited and time was also less to go in depth.

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Literature review

In this section, we provide a literature review of prior studies on OOS reactions and

discuss the objectives, research methodology, research setting, OOS reactions considered,

and antecedents of OOS reactions. In Table 1, we provide an overview of the published

studies about consumer stock out reactions in marketing and business logistics literature.

Objectives: -The objectives of early studies on OOS were mainly to de- fine and measure

OOS reactions and their financial impact. In some of these studies, OOS reactions were

explained in an explorative way (e.g., Peckham 1963). Schary and Christopher’s (1979)

study was the first to attempt to explain OOS reactions. In the early 1990s, Emmelhainz

et al. (1991) continued to focus on explaining OOS reactions. Although their study is

mainly descriptive in nature, they take some interesting product and situational variables

into account to explain OOS reactions. Campo et al. (2000) were the first to explicitly

build a theoretically based conceptual framework to explain consumer reactions to OOS.

Research methodology: -Most studies apply either a field experiment or a survey. In field

experiments, true stock-outs are studied. Researchers either remove specific items or

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Table1

brands in advance of the research or ask consumers if they encountered an OOS situation

during their shopping trip (quasi-experiments). Studies that apply exploratory designs

(e.g., surveys) consider hypothetical stock-out situations. In these cases, respondents are

asked how they would react if a purchased item or brand was unavailable. We expect that

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these differences in research design influence the OOS reactions of consumers. For

example, the “cost” of switching stores is obviously lower in surveys, because consumers

do not really have to perform this time consuming activity.

With respect to the research design, the type of Out-Of-Stock (OOS) also is important.

Generally, two types of OOS can be distinguished: item and brand. In the first case, a

single item of a brand (e.g., regular Coca-Cola) is OOS, whereas in the second case, all

items of a single brand in a product group (e.g., all Coca-Cola products) are OOS. As we

might expect, the reported OOS reactions differ. Moreover, in the case of brand OOS, an

item switch (e.g., purchasing diet Coca-Cola instead of regular Coca-Cola) is not

possible. When different research designs are used, it is difficult to derive empirical

generalizations about the determinants of OOS reactions.

Research setting: -Studies about OOS reactions have been executed in a variety of

product categories. As a result of their methodology, studies that consider actual OOS

experiences (quasi experiments) usually measure reactions for most categories in the

store. With respect to the type of brands studied, our review reveals that some studies

only consider high share brands (e.g., Verbeke et al. 1998), whereas others consider

manufacturer brands and private labels (e.g., Schary & Christopher 1979). However,

despite the consideration of a broad range of brands, OOS studies usually do not regard

the type of brand as an explanatory variable for OOS response.

Finally, our review of the research setting shows that studies are usually executed within

stores of a single retail chain, which limits the generalizability of their results. Consumer

OOS reactions: -To define and measure OOS reactions, six main behavioral consumer

responses usually are distinguished. Ranked from relatively high to relatively low brand

loyalty, these reactions are as follows:

(1) Store switch: going to another store on the same day to buy the item that is OOS;

(2) Item switch: switching to another format or variety of the same brand;

(3) Postponement: postponing the intended buy until the next regular trip to the

supermarket;

(4) Cancel: dropping the intended purchase completely or postponing it for a longer

period of time;

(5) Category switch: buying a substitute product from another product category; and

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(6) Brand switch: buying another brand within the same product category.

Table 2

Studies of OOS reactions typically do not consider these six reactions simultaneously.

For example, Verbeke et al. (1998) only focus on reactions 1, 3, and 6, whereas Campo et

al. (2000) do not explicitly consider reactions 5 or 6. In addition, different definitions and

measurement approaches are used by different researchers. For example, Campo et al.

(2000) include a brand switch within the item switch reaction, though they differ

significantly. Buying another item of the same brand can be considered an indication of

brand loyalty; buying an item of another brand indicates the opposite.

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Prior studies also show that the frequency of cancel and category switch reactions is very

small. In our empirical study, which we present subsequently, we also find small

frequencies. Therefore, we focus on the four most common reactions—store, item, and

brand switches and postponement—in our discussion of the antecedents of OOS reactions

and the hypotheses that underlie our empirical model.

Antecedents of OOS response: - In Table 2, we provide an overview of the empirical

evidence regarding the effect of possible determinants of OOS reactions. In line with

prior research (Campo et al. 2000; Zinn & Liu 2001), we distinguish among the following

clusters of antecedents: (1) product-related variables, (2) store-related variables, (3)

situation-related variables, and (4) consumer related variables.

Product-related variables: - The first group of variables relates to the specific product

category, including the brands, for which the stock-out appears. Several studies have

claimed that the perceived availability of acceptable alternatives is an important

determinant of consumer response to OOS occurrences. For example, Campo et al.

(2000) show that the availability of acceptable alternatives is negatively related to store

switching and positively related to brand switching, and Emmelhainz et al. (1991) report

that the risk consumers perceive with respect to the substitutes offered negatively affects

brand switching.

A second important characteristic is brand loyalty. Several studies have shown that the

more loyal a consumer is to a specific brand (in terms of attitude or behavior), the less

likely he or she is to switch to another brand in the case of an OOS occurrence.

Furthermore, brand-loyal consumers are more likely to buy the OOS item or brand in

another store (Campo et al. 2000; Emmelhainz et al. 1991; Peckham 1963; Verbeke et al.

1998).

A third variable is the level of safety stock consumers generally maintain before they

make a new purchase (Campo et al. 2000; Narasimhan, Neslin, & Sen 1996). Some

perishable products, such as milk or sour cream, are unlikely to be stockpiled. Consumers

tend to buy these products to consume them within a few days. Therefore, for such

products, it is less likely that consumers will postpone their purchase if the preferred item

is OOS.

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A fourth variable is the type of brand that is unavailable. Schary and Christopher (1979)

find a significant effect of the type of brand on OOS reactions. National brand buyers

have a greater tendency to switch stores in the case of OOS than do private label buyers.

This effect may be caused by the limited distribution level of private labels compared

with national brands. As a consequence, it is relatively more inconvenient for private

label buyers to obtain their favorite item if it is OOS than for national brand buyers.

Store-related variables: - Store-related antecedents pertain to variables that are related to

the store or retail chain in which the OOS occurs. Several studies include store loyalty

(attitudinal and behavioral) as an antecedent of OOS reactions. Not surprisingly, most

report a positive effect of store loyalty on item switching, brand switching, and

postponement of the purchase. Store loyal consumers are less likely to switch to another

store in the case of an OOS occurrence (Campo et al. 2000; Emmelhainz et al. 1991).

Some studies also have considered the availability of alternative stores in the vicinity of

the store in which the OOS appears. Not only the number of alternative stores, but also

the acceptability of these stores, plays an important role in shoppers’ decision to switch

stores. For example, attributes such as the available parking space, price level, and

service level of alternative stores may influence the decision to switch stores in the case

of an OOS occurrence. Theoretically, consumers with many acceptable alternative stores

within a reasonable distance are more likely to switch to another store and less likely to

buy a substitute (item or brand switch) or postpone the purchase. Although this

expectation seems logical, no studies have supported this effect (e.g., Verbeke et al.

1998).

Situation-related variables: - Situation-related variables pertain to antecedents that focus

on the specific conditions of the consumers’ shopping trip. Several studies have

suggested that buying urgency is an important determinant of OOS response (Campo et

al. 2000; Emmelhainz et al. 1991; Zinn & Liu 2001). When a specific product is needed

immediately, consumers cannot postpone the purchase. Therefore, they are more likely to

buy a substitute or switch stores to buy the needed item. Campo et al. (2000) also

consider the type of shopping trip as an antecedent of OOS reactions. Consumers who

visit the store for a major shopping trip are less likely to switch to another store and more

likely to buy a substitute. The underlying rationale for this effect is that a major shopping

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trip is very time consuming, and consumers are therefore reluctant to spend additional

time shopping in another store.

Consumer-related variables: - Consumer-related variables consist of those variables

related to the consumer who faces the OOS occurrence. One such characteristic is

shopping attitude. Consumers with a positive shopping attitude are more likely to switch

stores in the case of an OOS because they value visiting different stores (Campo et al.

2000). Another characteristic is shopping frequency. Consumers who shop frequently are

more likely to postpone a purchase, because the chance of being without the product at

home is smaller than for consumers who shop less frequently. However, there is no

empirical evidence for such an effect (Campo et al. 2000). The time constraint or time

pressure also may be an explanatory variable. Campo et al. (2000) show that consumers

who have less time to shop are less likely to switch stores and more likely to buy a

substitute.

Related to time constraint is the age of the consumer. Peckham (1963) reports that age is

negatively related to substitute buying. A possible reason for this relationship may be that

older people have more spare time to shop; therefore, they have fewer time constraints

against switching stores.

The role of Supply Chain Management in a brand

It's probably safe to assume that the supply chain doesn't figure strongly at most firms.

After all, how many times have you heard the classic line (normally delivered with an

uninterested shrug of the shoulders) 'no stock '?

And despite the poor performance of global brands such as Sony, GM, Ford and other

brands that use advertising to build their brands, it is sad, really, to hear agencies and

consultants still talk about branding in terms of logos, slogans, ad campaigns, static

websites and even new business cards while ignoring the role of supply chain

management (SCM).

Before getting into it, let’s see the evolution of Supply Chain Management. Earlier

logistics was used as one of the devices to gain competitive advantage in the market. Of

late, there has been a paradigm shift from logistics to its modem day avatar, better known

as Supply Chain Management (SCM), which has been discovered as a source of

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competitive advantage. Let us first understand what these two terms, namely, logistics

and SCM mean. Simply stating, logistics is a logical extension of transportation and its

related areas to achieve an efficient and effective goods distribution system. Thus,

logistics encompasses the activities of inventory management; order processing,

warehouse and materials handling and physical distribution. SCM is the design and

operation of the physical and managerial systems needed to transfer goods and services

from vendor to customer in an effective and efficient manner. In other words,

SCM is shorthand for the interconnected coordination of the flow of materials,

information, and finances (credit terms, payment schedules, etc.) as they move in a

process from supplier to manufacturer to wholesaler to retailer to customer.

Customer Service: Improved placement and deployment of inventory in the company

results in a higher incidence of “having the right product in the right place at the right

time.” This has two benefits, one direct and one indirect.

The direct benefit is that customer service levels are improved because there are fewer

stock-outs. In a stock out situation, one of two things occurs. With luck, the customer will

be willing to wait until the product is in stock before making the purchase. If not, the

customer finds another source or forgoes the purchase altogether, resulting in a lost sale.

The rate at which stock-outs result in lost sales depends on the industry and product. For

instance, the conversion rate for a product with high brand loyalty (e.g., automobiles, soft

drinks) is very low, whereas a product that is viewed as a commodity (e.g., gasoline,

milk, lumber) will have a much higher loss conversion ratio. This means that people will

wait if they are loyal to a brand. For example, if I go to the store to buy Coca-Cola, but

it’s out of stock, I won’t buy Pepsi. I’ll wait until I can get the Coca-Cola. On the other

hand, if I go to buy “Brand A” milk, and it’s out of stock—I will buy “Brand B” milk

instead.

Improving customer service levels from 90% to 95% will result in a 2%, or $5 million,

increase in sales. The 10% profit margin implies an additional $500,000 in profit. In our

hypothetical company, assume that 40% of stock-outs result in lost sales. That is, 40% of

the time that a customer requests the product and it isn’t available, they either buy a

substitute product or forgo the purchase altogether. The other 60% of the time they wait

until the desired product is available and buy it then.

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The indirect benefit from fewer stock-outs is lower transportation costs. To maintain

customer service levels in a stock-out situation, companies often transfer stock from one

location to another, serve the customer from a different location, or expedite a shipment

to meet the demand. Unfortunately, each of these options increases overall supply chain

costs.

Without effective SCM, companies cannot deliver on the promises made to customers

which in turn leads to customer disloyalty -- the death knell for any brand. Just as

importantly, ineffective SCM raises costs across the board. According to the consulting

firm A.T. Kearney, supply chain inefficiencies can eat up to 25% of a firm's operating

costs.

Poor SCM is the cause of many branding mistakes. Offerings are advertised without

adequate inventory, leading to that all too familiar refrain 'no stock!’ can come back next

week?' which results in unhappy or more likely, lost customers. Excess inventory leads to

obsolescence or sales at a loss. Late deliveries disrupt customer schedules.

Such supply chain failings are common, but not easily fixed due to enormous complexity.

Which is often why firms ignore it. However, the problem of sales at a loss will not go

away.

The supply chain is often visualized as serial linkages, like an assembly line, but actually

it is a choreographed network of interconnected activities, each dealing with uncertainty,

conflicting objectives and resource constraints.

Steve David, CIO of Procter & Gamble, lays out the vision of the supply chain as a

branding tool: "To realize the vision of a fully integrated and efficient supply chain, we

need to have data visibility across all of the supply chain. So when a consumer buys a roll

of paper towels, the forest products company knows immediately they need to cut another

tree to send to the pulp maker who supplies Procter & Gamble so that we can make

another roll of towels to send to the retailer."

Achieving this vision requires progress in three interrelated areas. The first, of course, is

greater use of the Internet to encourage collaboration and automate transactions within

the supply chain. Remember that the phenomenal branding ability of the Internet does not

rest on advertising but rather on its capacity to disperse the information fog that obscures

supply chain activities.

25

Second, data integration standards are required. Sometimes, a powerful industry giant

like Wal-Mart can enforce such standards; other industries may see protocols like XML

as a solution. Finally, organizational imperatives have to evolve. Companies are still

more concerned about information hoarding than - sharing.

Other areas to address include:

"Lean" or agile manufacturing: Most manufacturing today represents a holdover from

the mass economy. By contrast, lean manufacturing seeks a system so responsive that

production can respond to actual demand, rather than try to predict it. Lean

manufacturing enables short, profitable production runs with quick changeovers, or

machine conversions to manufacture different products. Lean manufacturing requires

redesigning manufacturing processes, increased supplier involvement and improved

resource planning.

Logistics: Late deliveries are a prime source of customer unhappiness. Yet, according to

an Economist survey of 70 global companies, only 22% of companies were consistently

able to deliver on time. Companies must incorporate transportation management systems

for routing and scheduling, or rely on advanced FedEx and other carrier capabilities to

improve delivery experiences.

Forecasting: Accurate demand forecasting is one of the biggest supply chain challenges.

Poor forecasts lead to lost sales or profits through excessive inventories. Unexpected

sales fluctuations also burden the workforce as well as inventory and production

management.

New demand planning systems can help. These systems combine sales history,

promotional plans and other information with sophisticated algorithms to predict demand

for each product, reducing the possibility of over- or underproduction. The best forecasts

are achieved with close supplier and customer collaboration.

The payoffs from these initiatives can be substantial, especially since it's estimated that

supply chain costs form 50%-75% of a product's final price. According to the

consultancy FinListics Solutions, reducing SCM costs at a prototypical $5 billion

company would increase annual profits by $20 million.

Consulting firm Pittiglio Rabin Todd & McGrath found that best-practice SCM

companies had a 45% supply chain cost advantage over median competitors. They

26

enjoyed a 50% faster cash-to-order cycle time, 50% fewer days of inventory and 2%

fewer out-of-stock conditions. Additionally, supply chain improvements also contribute

to accountability, still being ignored in most branding discussions.

Measurement can encompass three areas: performance, including order fill rates and

return rates; cost savings, including inventory turns; and capital efficiency, including

percentage of work-in progress inventory to total inventory.

In the mass economy, marketing departments could build brands through "positioning,"

advertising and other tactics. In today's new economy, it requires an organizational effort

to build a brand based on relationships. In the emerging Now economy, branding will

require the coordinated efforts of the whole organisation.

Service is a powerful means of adding customer value. Increasingly it is the case that

markets are becoming more service sensitive and this of course poses particular

challenges for logistics management. There is a trend in many markets towards a decline

in the strength of the ‘brand’ and a more consequent move towards a ‘commodity’ market

status. Quite simply means that it is becoming progressively more difficult to compete

purely on the basis of brand or corporate image. Additionally, there is increasingly a

convergence of technology within product categories, which means that it is no longer

possible to compete effectively on the basis of product differences. Thus the need to seek

differentiation through means other that technology. A number of companies have

responded to this by focusing upon service as a means of gaining a competitive edge.

Service in this context relates to the process of developing relationships with customers

through the provision of an augmented offer. This augmentation can take many forms

including delivery service, after sales service, financial packages, technical support and

so forth.

In practice what we find that the successful companies will often seek to achieve a

position based upon both a productivity advantage and a value advantage. A useful way

of examining the available options is to present them as a simple matrix.

27

HI

Value Advantage LO

LO HI

Productivity Advantage

For companies who find themselves in the bottom left hand corner of above matrix the

world is an uncomfortable place. Their products are indistinguishable from competitors’

offerings and they have no cost advantage. These are typical commodity market

situations and ultimately the only strategy is either to move to the right on the matrix, i.e.

to cost leadership, or upwards towards service leadership. Often the cost leadership route

is simply not available. This particularly will be the case in a mature market where

substantial market share gains are difficult to achieve. New technology may sometimes

provide a window of opportunity for cost reduction but in such a situations the same

technology is often available to competitors.

Cost leadership strategies have traditionally been based upon the economies of scale,

gained through sales volume. This is why market share is considered to be so important

in many industries. However, if volume is to be basis for cost leadership then it is

preferable for that volume to be gained early in the market life cycle. The ‘experience

curve’ concept, briefly described earlier, demonstrates the value of early market share

gains- higher you’re your relative to your competitors the lower your costs should be.

This cost advantage can be used strategically to assume a position of price leader and, if

Service Cost and Leader Service leader Commodity Cost

Market Leader

28

appropriate, to make it impossible for higher cost competitors to survive. Alternatively,

price may be maintained enabling above average profit to be earned which potentially is

available to further develop the position of the product in the market.

An increasingly powerful route to achieving a cost advantage comes not necessarily

through volume and the economies of scale but instead through logistics management. In

many industries logistics costs represents such a significant proportion of total cost s that

it is possible to make major cost reductions through fundamentally reengineering

logistics processes.

The other way out of the ‘commodity’ quadrant of the matrix is to seek a strategy of

differentiation through service excellence. I have already commented on the fact that

markets have become more ‘service-sensitive’. Customers in all industries are seeking

greater responsiveness and reliability from suppliers, they are looking for reduced lead

times, just-in-time delivery and value added services that enable them to do better job

servicing their customers.

LO

Relative

Differentiation

HI

HI LO

Relative Delivered Costs

One thing is for sure: there is no middle ground between cost leadership and service

excellence. Indeed the challenge to management is to identify appropriate logistics

strategies to take the organisation to the top right hand corner of the matrix. Companies

who occupy that position have offers that are distinctive in the value they deliver and are

also competitive. Clearly it is a position of some strength, occupying ‘high ground’ which

is extremely difficult for competitors to attack. The above figure clearly presents the

•

29

strategic challenge to logistics: it is to seek out strategies that will take the business away

from the ‘commodity’ end of the market towards a securer position of strength based

upon differentiation and cost advantage.

30

RESEARCH METHODOLOGY

The purpose of research is to discover answers to the questions through the application of

scientific procedures. The main aim of research is to find out the truth which is hidden

and which has not been discovered as yet. Though each research study has its own

specific purpose, we may think of research objectives as falling into a number of

following broad categories:

1) To gain familiarity with a phenomenon or to achieve new insights into it.

2) To portray accurately the characteristics of a particular individual, situation or

a group.

3) To determine the frequency with which something occurs or with which it is

associated with something else.

4) To test a hypothesis of a casual relationship between variables.

Research methodology is a way to systematically solve the research problem . it may be

understood as a science of studying how research is done scientifically. In it we study the

various steps that are generally adopted by a researcher in studying his research problem

along with the logic behind them.

Research methodology has many dimensions and research methods do constitute a part of

the research methodology. The scope of research methodology is wider than that of

research methods. Thus, when we talk of research methodology we not only talk of the

research methods but also consider the logic behind the methods we use in the context of

our research study and explain why we are using a particular method or technique and

why we are not using others so that research results are capable of being evaluated either

by the researcher himself or by others. Why a research study has been undertaken, what

data have been collected and what particular method has been adopted, why particular

technique of analyzing data has been used and a host of similar other question are usually

answered when we talk of research methodology concerning a research problem or study.

31

Research Process

Research process consists of series of actions or steps necessary to effectively carry out

research and the desired sequencing of these steps.

Review the Literature Feed forward

Feed back

A brief description of the above steps is stated below:

1) Formulating the research problem

At the very outset the researcher must single out the problem he wants to study, i.e. that is

he must decide the general area of interest or aspect of a subject matter that he would like

to inquire into. Initially the problem may be stated in a broad general way and then the

ambiguities, if any, relating to the problem be resolved. Then the feasibility of a

particular solution has to be considered before a working formulation of the problem can

be set up. In fact, formulation of the problem often follows a sequential pattern where a

number of formulations are set up, each formulation more specific than the preceding

one, each one phrased in more analytical terms, and each more realistic in terms of the

available data and resources.

Define

research

problem

Review

concepts &

theories

Review

previous

research

& findings

Formulate

hypotheses Design

research

Interpret

and report

Analyze

data

Collect

data

32

2) Extensive literature survey

Once the problem is formulated, a brief summary of it should be written down. At this

juncture the researcher should undertake extensive literature survey connected with the

problem. The earlier studies, if any, which are similar to the study in hand should be

carefully studied.

3) Development of the working hypothesis

After extensive literature survey, researcher should state in clear terms the working

hypothesis or hypotheses. Working hypothesis is tentative assumption made in order to

draw out and test its logical or empirical consequences. The manner in which research

hypothesis are developed is particularly important since they provide the focal point for

research. They also affect the manner in which tests must be conducted in the analysis of

the data and indirectly the quality of data, which is required for the analysis.

4) Preparing the research design

The research problem having been formulated in clear-cut terms, the researcher will be

required to prepare a research design i.e. he will have to state the conceptual structure

within which research would be conducted. In other words the function of research

design is to provide for the collection of relevant evidence with minimal expenditure of

effort, time and money.

The preparation of the research design, involves usually the consideration of the

following:

a) The means of obtaining the information:

b) The availability and skills of the researcher and his staff;

c) Explanation of the way in which selected means of obtaining information will

be organized and the reasoning leading to the selection;

d) The time available for research; and

e) The cost factor relating to research.

33

5) Determining sample design

All the items under consideration in any field of inquiry constitute a ‘universe’ or

‘population’. Quite often we select only a few items from the universe for our study

purposes. The items so selected constitute what is technically called a sample.

The researcher must decide the way of selecting a sample or what is popularly known as

the sample design. In other words, a sample design is a definite plan determined before

any data are actually collected for obtaining a sample from a given population

6) Collecting the data

In dealing with any real life problem it becomes necessary to collect data that are

appropriate. There are several ways of collecting the appropriate data.

Primary data can be collected either through experiment or through survey.but in case of

survey; data can be collected by any one of the following ways:

a) By observation.

b) Through personal interview.

c) Through telephone interview.

d) By mailing of questionnaires.

e) Through schedules.

The researcher should select one of these methods of collecting the data taking into

consideration the nature of investigation, objective and scope of the inquiry.

7) Execution of the project

Execution of the project is a very important step in the research process. The researcher

should see that the project is executed in a systematic manner and in time. A careful

watch should be kept for unanticipated factors in order to keep the survey as much

realistic as possible.

8) Analysis of the data

After the data have been collected, the researcher turns to the task of analyzing them.the

analysis of data requires a number of closely related operations such as establishment of

34

categories, the application of these categories to raw data through coding, tabulation and

then drawing statistical inferences.

Analysis work after tabulation is generally based on the computation of various

percentages, coefficients, etc. in brief the researcher can analyse the collected data with

the help of various statistical tools.

9) Hypothesis-testing

After analyzing the data, the researcher is in a position to test the hypothesis, if any, he

had formulated earlier. Do the facts support the hypothesis or they happen to be contrary?

This is the usual question, which should be answered while testing the hypothesis.

10) Generalisations and interpretation

If a hypothesis is tested and upheld several times, it may be possible for the researcher to

arrive at generalization, i.e., to build a theory. As a matter of fact, the real value of

research lies in its ability to arrive at certain generalization.

11) Preparation of the report

Finally the researcher has to prepare the report of what has been done by him. Writing of

report must be done with great care keeping in view the following:

1) In its preliminary pages the report should carry the title and data

followed by acknowledgements and foreword.

2) Report should be written in a concise and objective style.

3) Charts and illustrations in the main report should be used only if

they present the information more clearly and forcibly.

35

Modus Operandi

Traditional research approaches provide marketers with the challenge of compiling data

from different sources – purchase behavior and attitudinal studies and trying to patch

them together to get an integrated perspective of brand dynamics: both in the minds of

the consumer and observed behavior in-store. This research demonstrates that it is

possible to integrate attitudes and behaviors and create a more holistic diagnosis of brand

health in form of brand equity build by an effective Supply Chain Management.

Specifically it connects the dots between…’what consumers hold in their heads about

brands’ …’decision rules used to choose between brands’…’their shopping modality –

are they in scrutiny shopping mode or are on habitual autopilot – what in-store and pre-

store influences impinge on their choices’….and finally ’what they buy in the store’…to

develop a strategic road map for the brand.

This research, attempts to integrate insights from consumers’ feelings with how

consumers actually behave in store to diagnose where marketing attention needs to be

focused to drive equity as well as ensure market performance. This valuable study

provides an integrated perspective on the behavioral and attitudinal dynamics of the

brand, the category and key competitors in a single snapshot. The study was particularly

useful in dealing with a number of myths about the category and competitors that had

arisen over the years. Without data to refute them – or confirm them these “myths” were

leading to a number of marketing decisions that were sub-optimal. One specific example

was around the roles of and relative values of trade and media spending for the

company/champion brand.

Marketers tend to adopt a myopic view of only reviewing individual brands and their

direct competitors within a category. However I began the diagnostic evaluation with

taking a step back and examining the operating environment in which a brand resides

before delving into individual brands. Did the brand exist in a healthy category? It is

possible to have a resilient brand but in a vulnerable category, which threatens the long-

term prospects of the brand. The existing structure of the market keeps evolving.

Traditional categories are under threat and new categories are nudging or even displacing

existing categories.

36

Data collection

The data collection took place in supermarkets by the surveyor. Data on consumer OOS

responses and antecedents were collected using a structured questionnaire, which offers

good opportunities to collect data about consumer OOS responses, as well as about a

variety of antecedents of such responses.

In this research setting, I worked with hypothetical OOS situations instead of real ones,

which has been used in previous explanatory studies (e.g., Campo et al. 2000). A possible

drawback of this design is that people do not always act in the same way they claim that

they would or sometimes have difficulties imagining what action they would actually

take. This limitation might lower the external validity of reported OOS behavior.

However, the major advantage of working with hypothetical stock-outs is that it enables

us to study OOS behavior for different products groups and brands with varying brand

equity levels. In light of the objectives in this study we use hypothetical OOS situations.

Data were collected by means of personal interviews with respondents who had just

visited a supermarket by a team of three to four experienced interviewers of a research

agency.

37

The interviews took place in twelve different supermarkets of eight retail chains. Through

visual inspection of their shopping baskets at the checkout lanes, the interviewers

preselected consumers who purchased the product groups of interest.

After leaving the checkout area, the preselected consumers were asked to participate in a

study about shopping behavior. Approximately two-thirds of the preselected consumers

agreed to participate. A basket analysis then was conducted to highlight the item of

interest, and questions pertaining to OOS responses were asked with reference to this

purchased item. The advantage of interviewing shoppers shortly after their shopping trip

is that consumers can recall more easily their real decision-making situation. We believe

this data collection procedure enhanced the realism of the OOS situation and, therefore,

the validity of the OOS reactions.

To select the product groups of interest, we created a shortlist of twenty product groups.

Then, 40 food experts (managers and academics) classified the preselected product

groups as utilitarian or hedonic. On the basis of these evaluations, four product groups

with a clear utilitarian nature (eggs, milk, margarine, and detergent) and four with a clear

hedonic nature (cigarettes, salty snacks, beer, and cola) were selected.

A quota system was used to gather enough responses in those product groups with a

relatively low purchase frequency (e.g., detergent). Actual responses per product group

varied between 74 (detergent buyers) and 102 (beer and margarine buyers). Interviews

took place throughout the week to control for the part of the week variable and were

spread throughout the day (8:00 a.m.–12:00 p.m. 35 percent, 12:00–3:00 p.m. 29 percent,

and 3:00–6:00 p.m. 36 percent). In total, 793 respondents participated in the study. In the

data screening process respondents with missing values for the dependent variable or

with two or more missing values for independent variables were excluded. Some

additional respondents were deleted because the interviewer noted that they had difficulty

understanding several questions. After data screening 749 cases (95 percent) were

selected for further analyses. Compared with general information about the background

of shoppers, our sample of 749 cases is in line with the profile of regular shoppers (see

Table 3).

38

Table 3

39

DESCRIPTIVE WORK

Brand Equity: An Introduction

A brand is a name or symbol used to identify the source of a product. When developing a

new product, branding is an important decision. The brand can add significant value

when it is well recognized and has positive associations in the mind of the consumer.

This concept is referred to as brand equity.

What is Brand Equity?

Brand equity is an intangible asset that depends on associations made by the consumer.

There are at least three perspectives from which to view brand equity:

• Financial - One way to measure brand equity is to determine the price premium

that a brand commands over a generic product. For example, if consumers are

willing to pay $100 more for a branded television over the same unbranded

television, this premium provides important information about the value of the

brand. However, expenses such as promotional costs must be taken into account

when using this method to measure brand equity.

• Brand extensions - A successful brand can be used as a platform to launch

related products. The benefits of brand extensions are the leveraging of existing

brand awareness thus reducing advertising expenditures, and a lower risk from the

perspective of the consumer. Furthermore, appropriate brand extensions can

enhance the core brand. However, the value of brand extensions is more difficult

to quantify than are direct financial measures of brand equity.

• Consumer-based - A strong brand increases the consumer's attitude strength

toward the product associated with the brand. Attitude strength is built by

experience with a product. This importance of actual experience by the customer

implies that trial samples are more effective than advertising in the early stages of

building a strong brand. The consumer's awareness and associations lead to

perceived quality, inferred attributes, and eventually, brand loyalty.

40

Strong brand equity provides the following benefits:

• Facilitates a more predictable income stream.

• Increases cash flow by increasing market share, reducing promotional costs, and

allowing premium pricing.

• Brand equity is an asset that can be sold or leased.

However, brand equity is not always positive in value. Some brands acquire a bad

reputation that results in negative brand equity. Negative brand equity can be measured

by surveys in which consumers indicate that a discount is needed to purchase the brand

over a generic product.

Building and Managing Brand Equity

In his 1989 paper, Managing Brand Equity, Peter H. Farquhar outlined the following

three stages that are required in order to build a strong brand:

1. Introduction - Introduce a quality product with the strategy of using the brand as

a platform from which to launch future products. A positive evaluation by the

consumer is important.

2. Elaboration - Make the brand easy to remember and develop repeat usage. There

should be accessible brand attitude, that is, the consumer should easily remember

his or her positive evaluation of the brand.

3. Fortification - The brand should carry a consistent image over time to reinforce

its place in the consumer's mind and develop a special relationship with the

consumer. Brand extensions can further fortify the brand, but only with related

products having a perceived fit in the mind of the consumer.

Alternative Means to Brand Equity

Building brand equity requires a significant effort, and some companies use alternative

means of achieving the benefits of a strong brand. For example, brand equity can be

borrowed by extending the brand name to a line of products in the same product category

41

or even to other categories. In some cases, especially when there is a perceptual

connection between the products, such extensions are successful. In other cases, the

extensions are unsuccessful and can dilute the original brand equity.

Brand equity also can be "bought" by licensing the use of a strong brand for a new

product. As in line extensions by the same company, the success of brand licensing is not

guaranteed and must be analyzed carefully for appropriateness.

Constituents of Brand Equity

Your target customers’ first impression is your “brand.” It often determines whether a

potential customer becomes an actual customer. It communicates your Company’s

character, creates a critical perception, and is just as much of an asset to your

organization as its people, equipment and capital. Everything you do online or offline

plays an important role in building a strong brand. That includes your logo, advertising

style, communications style, service levels, customer perception, operational assets, web

site design, copy, photo imagery, colors, marketing technologies, media and techniques,

etc. Your brand will acquire an identity whether you plan it or not. Hence, the importance

of taking control over your company's branding strategy.

The brand is the "relationship" between a product and/or service and the consumer. As a

fact, the consumer actually owns the brand not the company, as “their perception” of

what values and promises it delivers dictates the brand's value. Your company's ability to

manage and grow your brand will determine its sustainability and equity. In overview,

anytime a consumer touches your brand via any medium whether phone, interpersonal,

print, web, or otherwise, it must consistently communicate the promises and values your

product and/or service can deliver. This is called the "moment of truth".

Saying your product or service is a better value is not enough. It’s about the customers

“experience” at every touch-point. Many companies find themselves too close to the

product or service to best interpret and/or communicate its core values. Unless the story

about the product or service is told in a way that consumers will understand and connect

with its unique value, the true success of the brand will never be fully realized, and

opportunities will be lost.

42

Many companies struggle with how much to invest in their brand and how it will affect

brand equity, and will an increase in brand equity translate into revenue generation and

profits.

Brand Equity valuation can be a tangible and accountable measure for understanding the

extent to which Brand Equity drives market share. Marketers can therefore develop

strategies to build market share based on strengthening the sources driving brand equity

or other marketing variables – such as distribution, pricing or targeting – that may be

impeding the brand’s in-market performance.

A comparison of the Brand Equity Indices of FMCG brands, as well as a few in other

industries, reveals that for most, their BEIs relative to the competition are in proportion to

the market shares for the category. This demonstrates that brand equity is a strong driver

of market share, and the sources of brand equity – familiarity and brand associations –

should be examined to determine how share could be built.

However, in some cases, BEIs do not correlate with the brand’s in-market performance,

indicating there are factors other than Brand Equity, e.g. distribution, pricing or targeting,

that must be addressed to build share, strengthen Sources of Brand equity to drive market

share.

Brand equity is also related, according to Aaker to the degree of brand-name recognition,

perceived brand quality, strong mental and emotional associations and other assets such

as patents, trademarks and channel relationships.

Enterprises in their drive to stay ahead of competition in the market place, strive to retain

distinctiveness and quality in their products and services so that a discerning customer is

repeatedly drawn to them in preference to the competitors. Another area of global

concern has been rampant counterfeiting and “me-too products” creating confusion

resulting in loss of sale and profits to genuine producers. The small and medium sized

businesses get most hard hit, as they do not necessarily have adequate resources and

infrastructure to deal with such exigencies. The significance of intellectual property rights

is best viewed in the context of this backdrop.

Customers benchmark product/services by a variety impacting identifiers such as their

names, function, quality, origin, looks, availability, price range etc. [figure1]. Intellectual

Property Rights provide a range the tools to protect the innovative and distinctive features

43

of products and services vis-à-vis competition. Advertising can take advantage of these

aspects in the “brand building” exercise building on trust & relationships, promising

value to the consumers that resonates what the product stands for thereby creating a

symbolic image of the product and service in the heart & mind of the consumer to create

the required crave and confidence for repeated consumer motivation, recall and demand.

A brand generally conveys to the consumer certain perceptions, attitudes and behaviours

with which the consumers consciously and/or subconsciously feel comfortable to

associate.

©VISION-IPR 2002

Decorative

Functionality Design

Ethnic

Cost

AvailabilityQuality

UniquenessTrend

Meeting standards

Multiple uses

Figure 1. Consumer Appeal

Significant effort and investments is made by businesses all around the world to establish

a distinctive platform to enable consumers to Identify the origin of a product / service. It

is therefore imperative organizations and individuals irrespective of the size of their

operations understand the significance of the tools of intellectual property rights and take

proactive steps to protect the innovative and distinctive aspects of their products and

services so that unauthorised copying or free riding by imitators are discouraged and

when necessary the rights are forcefully enforced to derive maximum value from the

intellectual assets. In addition to the proactive actions on the part of the entrepreneurs,

enterprises, and institutions, the facilitating role of industry associations, cooperatives,

44

NGOs to help their members to protect their innovations and competitiveness is of

paramount significance.

A short review of the IPR tool depicted in Figure 2 and table 4 is of relevance

TRADEMARK

COPYRIGHT

TRADE SECRETS

IPR TOOLS

SERVICE MARKS

LAYOUT DESIGNS FOR

INTEGRATED CIRCUITS

ANTI COMPETITIVE

PRACTICES IN

CONTRACTUAL

LICENSES

Fig.2 . IPR Tools

©VISION-IPR 2002

Brand Differentiation and

Distinctiveness

• Logo(s) TM/Copyright

• Words and their combinations

TM/Copyright

• Sound TM/Copyright

• Ornamentation, Shape, Form

Copyright/TM/Design Registration

• Functionality Patents

• Geographical Place of Origin G I

• Know How Confidentiality/Trade Secrets

Fig. 3. Using IPR tools for Brand Creation and Sustenance

45

Table 4: The IPR tool Kit and what they protect.

Patents Protects inventions that are novel, non-obvious and useful. Patents have a term of 20 years from the date of filing a complete specification.

Trademark And Service Mark

® ™

Protects distinctive marks such as words/signs including personal names, letters, numerals, figurative elements (logos), visually perceptible 2D or 3D shapes or their combinations capable of distinguishing the goods or services in connection with which it is used in course of trade. In some countries sounds and distinctive smells can also be registered as trademarks. It can be perpetually renewed from time to time.

Industrial Design Registration Protects novel non-functional features of shape, configuration, pattern, ornamentation or composition of lines or colors, applied to any article either in two or three dimensional or in both forms by any industrial process or means whether manual, mechanical or chemical, separate or combined which in the finished article appeal to and are judged solely by the eye. This registration has a specific term (initially 10 years and renewable for another term of 10 years).

Copyright ©

Protects creative works that are musical, literary, artistic, lectures, plays, art reproductions, models, photographs, computer software, etc. It is valid for the lifetime of the author and minimum 50 years after the death of the author.

Layout Designs for Integrated Circuits Scope of protection not only includes the protected chip but also the articles incorporating it. The term of protection is 10 years.

Geographical Indications (GI) Protects the distinctive names of goods that can be identified as originating or manufactured in the territory of a country, or a region or locality in that territory where a given quality, reputation or other characteristic of such goods is essentially attributable to its geographical origin. The term is initially for a period of 10 years and can be renewed perpetually

Trade Secrets and Undisclosed Information

Protection to persons/institutions on information lawfully under their control from being disclosed to, acquired by or used by others without their consent in a manner contrary to commercial practices so long as the information is secret and has commercial value because it is secret.

Competitive Practices in Contractual

Licenses

Protection against incorporation of restrictive clauses in licensing deals such as exclusive grant back conditions, conditions preventing challenges to validity and coercive package licensing, etc. that may have adverse impact on trade and impede transfer of technology.

46

Commonly, brand equity is built on the foundation of protected Trademark(s). Several

related products with or without individual trademarks may get clubbed together under a

common brand. For example the brand LUX of Unilever has a range of personal care

products such as soaps bars, body wash, face wash etc. all to serve a generic set of

consumer needs. TATA in India is a well known corporate house with a group of

companies with a range of products varying from cars, trucks, busses, financial services,

steel, etc. Though the corporate brand TATA (also a trademark) is the umbrella brand,

the products have also been trademarked to retain heir distinctiveness.

Many start-up companies record their beginnings with a trademark or a ingle product or

for a group of products. When these products become popular and the trademark becomes

well known and used, these companies then begin to ride on the reputation of their

trademark leading to the creation of a brand.

As indicated in figure 2, the creation of a distinctive brand image of the product/service

involves a judicious use of the IPR tools that help to nourish a brand image, extend

products’ life cycle, provide a basis for international expansion of the business, supported

by legal protection, for licensing, franchising, acting as a buffer to survive market or

product pressures, and also allowing to lower cost of brand extensions. It should be

appreciated that Trademark is legal concept and remains valid over time so long as it is

renewed and/or used, whereas Brand is a marketing concept and the brand profile or

positioning may vary over time. In several cases a brand is also registered as a trademark

as it adds value as it protects its other inherent assets

Therefore those involved in business of selling products/services must seek Trademark

and or Copyright protection of their distinctive signs, logos, advertisements etc so that

the consumer easily identifies them with the products as origination from a particular

source. The distinctive shapes or ornamentation if any should be protected by design

registrations.

Several corporate houses have invested in creating their brand value by positioning

their corporate identity to convey an image in the mind of the consumer their brand

irrespective of the products they sell For example “LUCENT normally conveys a

company delivering new and advanced technologies, “IBM conveying service and

47

support systems in IT”, “P&G conveying the concept of meeting the housewife’s needs”,

“INTEL conveying technologically advanced processors in computers”, “AMUL in India

conveying a company based on cooperative movement quality and affordable milk

products”, “TATAs’ conveying a socially responsible group of companies delivering

quality products and services”, etc. INFOSYS, WIPRO, SATYAM are other well known

brands in the area of IT services and products in India which have now been established

on a global platform.

In India several SME’s and cooperatives have recently been able to create brands of their

products and services. For example “LIJJAT” conveys a brand for a cooperative of

empowered women manufacturing affordable preservable foodstuff for daily use.

One has to guard against trademarks becoming generic and leading o dilution of

exclusivity through common usage by the public or people in trade. For example

DuPont’s “nylon” and “rayon”; ICI’s “cellophane”; Bayer’s “Aspirin”, Cynamid’s

“Formica” etc have lost their distinctiveness due to indiscriminate use by all in the trade.

The original company that owns the trademark losses out because of the generalization.

An aspect of considerable significance in the field of trademark is “Collective Marks “

and “Certification Marks”. Collective marks are those, which distinguish goods/services

of members of an association of persons, which is the proprietor of the trademark from

the goods or services of others. This becomes important especially for industry

associations, cooperatives etc. The SME sector especially those governed by some

associations of their own can own collective marks and specify the conditions of

membership and conditions for use of these collective marks.

Certification Marks are given to those who do not themselves trade but who certify that

goods or services satisfy prescribed standards concerning origin, material, mode of

manufacture, quality, accuracy and other characteristics. For example in India “Agmark”

is a certification mark used for food items including spices, milk products etc

The competitive potential in the use of “collective marks” and “certification marks” by

the SME sector and their role in brand building exercise have not been exploited in most

counties and is only waiting to be unleashed.

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It may be noted that the first level of consumer appeal is indeed its appearance The

company has to create distinctive shape of the product or ornamentation/surface pattern

on the product that are novel to get it registered.

The SME sector should be able to cost effectively utilize Industrial Designs

Registration in a large number of sectors to retain their competitiveness, as this IPR tool

is relatively cheaper and simpler to obtain as compared to patents. The example of the

drink maker and the wrapper given below are a few simple examples of design

registration of articles for competitive marketing in the market place.

It may be noted that such registrations are possible with any object be it a spoon, fork,

drinking cups, cycle handles, motorcar bodies, airplane bodies etc.

An example of effective use of a combination of IPR tools by an entrepreneur MMrr..

MMoommooffuukkuu AANNDDOO iinn tthhee case of his cup noodles in Japan. This is depicted in figure 3.

49

Patent Number

924284

Utility Model Number

1428858

Design Number

359633

Trademark Number

1183902

U.S.A, Canada, UK, Germany, Holland, France, Spain,

Italy, Sweden, Norway, Iran, Mexico, Chili, Argentina,

Taipei, The Philippines, Hong Kong,

Source: Slide Presented by Mr Yuji Okuma of JPO at the

WIPO Workshop, Guangzhou, China July 10-12, 2002

Figure-4 number attach to the product

Making a very small beginning, Mr ANDO was able to create a profitable global business

of his invention. It may be noted that he effectively used various tools of IPR to protect

his business interest in various parts of the world in a planned manner.

If the products originate from any particular geographic location that is responsible for

the key characteristics of the products, then those names must be appropriately protected

by Geographical indications. It should be appreciated that geographical indication

(which is different from a trademark) is to be registered by any association of persons or

producers or any organization or authority representing the interest of the producers of

the concerned goods in the specified region. The application for GI registration is to be

made to the designated national authority under the law of geographical indication of that

country.

The implication of GI as an IPR instrument is that it gives rights to the people who

produce these products in a specified region to stop others from using the geographical

name in marketing the produce which does not originate from that defined area.

Examples of such products are wines, champagne, cognac, port, sherry, etc. This has

been effectively exploited in Europe but is yet to be put into practice in developing

nations where traditional goods (agricultural and non-agricultural) have been in existence

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for centuries. The provisions are yet to be effectively explored by governments in most

developing countries. It may also be noted that once the geographical indication has been

registered in a country one must proceed to have it internationally accepted so that it is

globally recognized as a geographical indication.

A few examples of geographical indications (GI) that are protected in various countries

will help appreciate the concept

Bulgaria 192 local appellations of origin registered, e.g. Bulgarian yoghurt,

Traminer from Khan Kroum (wine), Merlou from Sakar (wine)

Canada Canadian Rye Whisky, Canadian Whisky, Fraser Valley, Okangan

Valley, Similkameen Valley, Vancouver Island

Czech Republic Beers: Pilsen, Budweis

Others: various vines, liqueurs, Saaz hops, Auscha hops, Jablonec

Jewellery, Bohemia crystal, Vamberk lace

European Union Wines: Champagne, Sherry, Porto, Chianti, Samos, Rheinhessen,

Moselle Luxembourgeoise, Mittleburgenland

Spirits: Cognac, Brandy de Jerez, Grappa di Barolo, Berliner

Kummel, Genievre Flandres Artois, Scotch Whisky, Irish Whiskey,

Tsikoudia (from Crete)

Other products: Newcastle brown ale, Kentish ale, Kentish strong

ale, Rutland bitter, Gloucestershire/Herefordshire/Worcestershire

cider/Perry, Scottish beef, Orkney beef, Orkney lamb, Jersey Royal

potatoes, Cornish Clotted Cream, Cabrales, Roquefort, Gorgonzola,

Aziete de Moura, Olive de Kalamata, Opperdoezer Ronde,

Wachauer Marille, Danablu, Lubecker Marzipan, Svecia, Oueijo do

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Pico, Coquille Saint-Jacques des Cotes-d’Amour, Jamon de Huelva,

Lammefjordsgulerod.

Hungary Ger (wine), Szatmar (plum)

Liechtenstein Malbuner (meat products), Balzer (Hi-tech products)

Slovak Republic Korytnicka mineralna voda (mineral water), Karpatska perla

(wine), Modranska majolika (hand-painted pottery), Piest’anske

bahno (healing mud)

United States Idaho, (potatoes and onions), Real California Cheese, Napa Valley

Reserve (still and sparkling wines), Pride of New York

(agricultural products), Ohio River Valley (viticulture area)

GI can become a very powerful competitive tool for the SMEs collectively involved in

manufacturing and marketing of agricultural goods, foodstuff, handicrafts, traditional

arts, etc.

Products/processes when appropriately protected by the various tools of IPR they become

enterprise marketable assets and significantly contribute to brand building. Ford paid 6.2

million euro for the Jaguar Brand. Brand buying and selling as part of a brand

consolidation and building exercise has now become common phenomena. A good brand

provides the platform for premium pricing (value for money as perceived by the

consumer), increased market share and creating entry barriers thereby limiting growth of

competitors. Co-branding is becoming a powerful means of one brand riding on the other.

The statement “Intel inside” in various computers manufactured by Compaq/HP and

other companies is a good example of co-branding.

Selection of a brand name is of paramount significance as local cultural practices and

linguistic interpretation of the “branded term” would either appeal to the consumer or be

rejected.

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Some of the examples given below illustrate that negligence and lack of cultural insight

and sensitivity conveys a wrong message to the consumer:

� Chavrolet launched “NOVA” only to learn that in Spanish the brand means “Does

not work”!

� Volkswagen with it “Jetta”model, which means bad luck in Italy

� Well-known Italian mineral water brand “Traficante” in Spanish means a drug

dealer.

The creation of a brand is not an end in itself. Issues such as popular brands attracting

counterfeiting, parallel importation, digital trademarks/domain name conflicts, dilution or

misleading use, etc. constantly haunt brand creators and managers. Similarly associated

risks in the management of brands are under nourishing, excessive milking, excessive

line extensions, excessive repositioning, and excessive promotions. Extreme care is to be

taken to protect a brand by vigilant IPR/ brand audit in the market place and timely legal

action on infringes. Other issues of relevance are registration of the IPRs and their

renewal (domestic or abroad), issues of assignment (with or without the business),

licensing (Exclusive or non-exclusive; Quality Control; registered user), franchising,

managing tax liability (M & A; Divestiture), insurance etc.

Brand management therefore is a dynamic exercise and therefore requires the enterprise

to be adaptability to change as the market place experiences impact of technological

development leading to newer innovations, changes in consumer tastes and product

concepts, shifts in the economy, industry and brands. Brands give an enterprise its face

with a whisper of future markets while addressing the shouts of today.

Supply Chain Management Vs Effective Supply Chain Management

A supply chain is a network of facilities and distribution options that performs the

functions of procurement of materials, transformation of these materials into intermediate

and finished products, and the distribution of these finished products to customers.

Supply chains exist in both service and manufacturing organizations, although the

complexity of the chain may vary greatly from industry to industry and firm to firm.

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Below is an example of a very simple supply chain for a single product, where raw

material is procured from vendors/suppliers, transformed into finished goods in a single

step (in plants), and then transported to distribution centers/warehouses, and ultimately,

customers. Realistic supply chains have multiple end products with shared components,

facilities and capacities. The flow of materials is not always along an arborescent

network, various modes of transportation may be considered, and the bill of materials for

the end items may be both deep and large.

A Typical Supply Chain

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing

organizations along the supply chain operated independently. These organizations have

their own objectives and these are often conflicting. Marketing's objective of high

customer service and maximum sales dollars conflict with manufacturing and distribution

goals. Many manufacturing operations are designed to maximize throughput and lower

costs with little consideration for the impact on inventory levels and distribution

capabilities. Purchasing contracts are often negotiated with very little information beyond

historical buying patterns. The result of these factors is that there is not a single,

integrated plan for the organization---there were as many plans as businesses. Clearly,

there is a need for a mechanism through which these different functions can be integrated

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together. Supply chain management is a strategy through which such an integration can

be achieved.

Supply chain management is typically viewed to lie between fully vertically integrated

firms, where the entire material flow is owned by a single firm, and those where each

channel member operates independently. Therefore coordination between the various

players in the chain is key in its effective management. Cooper and Ellram [1993]

compare supply chain management to a well-balanced and well-practiced relay team.

Such a team is more competitive when each player knows how to be positioned for the

hand-off. The relationships are the strongest between players who directly pass the baton,

but the entire team needs to make a coordinated effort to win the race.

The complexities of getting material ordered, manufactured and delivered overload most

supply chain management (SCM) systems. The fact is, most systems are just not up to

handling all the variables up and down the supply chain.

For years, it was thought that it was enough for manufacturers to have an MRP or ERP

system that could help answer fundamental questions such as: What are we going to

make? What do we need to make the products? What do we have now? What materials

do we need, and when? What resources/ capacity do we need and when?

Manufacturers need to know a lot more today to have a truly effective supply chain.

There are a number of fundamental weaknesses in the old system logic. Many planning

and scheduling systems in use today assume that lead times are fixed, queues do not

change, queues must exist, capacity is infinite and backward scheduling logic will

produce valid load profiles and good shop floor schedules. These assumptions are totally

illogical, and following them causes many schedule compliance problems. An effective

fix is first to streamline operations and then to apply predictive, preventive forms of

advanced planning and scheduling.

SCM involves two flows. Information flow signals the need to start the flow of material.

In a supply chain, the fast flow of high-quality information and material is inextricably

linked and of paramount importance to SCM success. Untimely or low-quality

information virtually guarantees poor performance.

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Manufacturers need to develop flexible supply chain processes that can adapt to the needs

of various customer segments. They must also develop supply chain strategy, processes

and supporting systems that conform to current and future requirements.

Generally, an effective SCM approach must focus on:

• Flexible supply and production processes that can very quickly respond to changing

customer demand

• A short-cycle, demand-driven order-to-delivery process

• Accurate, relevant information that is available on demand throughout the supply chain

Throughout the supply chain, there are some absolutely critical and predictive questions

your system should accurately and quickly answer:

• When will specific orders really ship?

• Which orders will be late?

• Why will these orders be late?

• What are the specific problems that are delaying the schedule?

• What are the future schedule problems and when will they occur?

• What is the best schedule that can be executed now?

If management can answer predictive questions, its decisions will greatly improve.

Preventive actions can offset what were once unforeseen problems. The supply chain will

be managed more effectively and improve chances of gaining a competitive advantage.

In the early 1980s, with the introduction of just-in-time production to the United States,

many were convinced that pull signals (kanbans) and instant material deliveries would

eradicate the need for MRP. The announcement of MRP’s death was premature, except

for firms with simple products and absolute control of supplier deliveries.

Those with more complex products requiring more supply sources for more parts

discovered that longer lead times and demand and supply variability were still issues to

be dealt with.

Simply put, the more diverse your product line and the more complex your products, the

more valuable MRP is for planning raw material needs. This is not to say pull logic is not

useful for raw material planning, because it is. Yet for most, it is not necessary (or

desirable) to put every part number from every supplier on a pull system.

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Scheduling production with MRP push logic, however, is like pushing a rope. You don’t

know what direction it will go. Pull systems will eventually dominate the entire supply

chain—to customers and from suppliers, as well as internal material movement. Yet,

MRP can, and must, coexist with pull scheduling.

Cycle time compression should be the first objective in the order-to-delivery process.

Midrange manufacturers often have limited clout with suppliers, making across-the-board

mandatory lead-time reductions unlikely.

While there are many ways to work out mutually beneficial and necessary improvements

with suppliers, the real enemy is time. The alternative is to work selectively on supply

improvements while using a rationalized inventory deployment strategy to support the

first objective—reducing order-to-delivery cycle time.

Good collaborative forecasting, good planning and realistic replenishment scheduling are

essential to effective SCM. Further improvements come from redesigning supplier links

to make them firm, fast and flexible for the benefit of the entire supply chain. During the

transformation, companies have learned the value of minimizing cycle time and having

predictable schedules, especially with mass customization. Both are necessary for

effective supply chain performance.

What goes into making of effective Supply Chain Management?

Collaboration and communication are critical to successfully managing an organization in

today’s dynamic global economy. Unfortunately, most organizations are operating with a

certain degree of supply chain fragmentation, struggling to create and incorporate new

products, people, process and systems in order to find—and maintain— a competitive

advantage.

Today, large and small businesses are faced with the pressures of speeding the time to-

market on new products, finding and collaborating with the best trading partners, gaining

critical supply chain visibility, and managing logistics and inventory on a global basis. In

order to drive net profit and increase and maintain scarce and valuable shelf space, these

critical issues must be at the core of effective and efficient program management.

As companies begin to re-tool their organizations, the emphasis is on streamlined

approaches centered around Merchandise Planning, Product Lifecycle Management,

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Open-to-Buy Management, Supply Chain Tracking & Visibility and Merchandise &

Inventory Management.

Line Planning is where critical decisions are made preseason. Increased attention is

being paid to the quality of this process as retailers and suppliers strive to deliver the

level of variety consumers expect, while balancing the inventory costs associated with

staying in-stock.

Product Lifecycle Management has become a greater focus as organizations shift from

being product-driven to being concept-driven.

Open-to-Buy Management is an essential discipline to ensuring that organizations

balance the needs of merchandising with the constraints of the supply chain.

Supply Chain Strategy and Management is even more crucial than ever as

organizations have sought to gain a competitive advantage, reduce cycle time and

increase net margin by moving supply chain operations overseas.

Supply Chain Visibility for product track and trace is also a growing area. Purchase

order issuance, container loading, shipment processes and tracking have begun to drive

supply chain optimization in responses to the challenges posed by import tracking &

reporting processes.

Inventory Management is paramount in the global market to understand where to stock

products for optimal deployment. To do this, companies have to have a solid forecasting

process and well defined distribution networks.

As companies face the challenges inherent to managing a global supply chain, they must

have the right process, people and technology in place to achieve success. Given that,

how do you distinguish your supply chain to satisfy both internal and external

requirements? How do you create branding to position and build competitive advantage?

Branding is a way to position your organization. It is your organization’s identity; it is

who you are. Branding should be dynamic and innovative. Branding can maximize

organization value to its customers, whether internal customers or external. It should be

more than just an image; it should have substance to create the value. It should reflect

reality, not perception, and have depth to be viable and to have longevity. Branding

should be executable for supply chain management.

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For supply chain management, the branding should reflect and embody a value

proposition. Value here is not a financial figure, such as sales, profits, or assets. Value,

for the value proposition, should be something that matters to customers. It should be

tangible and should define the benefit and solution that customers will gain with you. It

presents why customers should do business with you, rather than with competitors.

Sometimes the value proposition is based on fundamentals, such as low price. This

proposition ignores both the service, cycle time and inventory impact of supply chain

management and reduces SCM to a commodity service where price is the determining

factor. Branding and a value proposition based on low cost may be tactically viable, but

is weak strategically. Costs can only be lowered to some limit. Competitors can do lower

prices too. It can make customers wait for even lower prices rather than acting now. A

low cost proposition can create a somewhat negative image about the supply chain

service and its value. And pursuing lowest cost can divert the supply chain organization

from its primary purpose with both short-term and long-term impact.

For purposes of this article, the value proposition goes deeper into the needs of

customers. With consumer goods being a dominant part of the economy and of supply

chain management for both logistics executives the value proposition should be directed

at a critical supply chain need and one that is may be difficult to recognize and to address.

Having a value proposition of increased yield management is unique. Yield management

is often associated with the airline and hotel industries where reservation-based

companies attempt to maximize revenue from fixed supply or capacity, seats on a flight

or rooms in a hotel. The analysis can involve operations research tools, such as linear

programming and simulations, to determine a pricing model at the micro level. It

recognizes that price or revenue creating ability of the item in supply decreases with time.

Yield management is applicable in supply chain management when inventory is viewed

as the supply whose yield is to be maximized. Inventory is key to success for

manufacturers, wholesalers, distributors and retailers. Having the right inventory is also

difficult and challenging. Insufficient inventory means lost sales opportunities. Too much

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inventory means markdowns—and reduced profits--to sell it. Firms working on thin

margins especially feel such pain. Ocean carriers practice a form of yield management

balancing the timing and value from the service contract signing period through peak

season when space may be at a premium regardless of pricing and into slack season

where price reductions are given to freight forwarders to fill ships.

Many items, as retailers know, enjoy a short shelf life relative to demand to the price

customers are willing to pay. Sales promotions, discounts and markdowns are almost

common practices to draw customers. Firms that are in dynamic, volatile businesses, such

as fashion and related, know the impact of short product life cycles and pricing decisions

on the bottom line.

The operations research approach determines the “optimal” markdown(s). But this is

somewhat of an after-the-fact approach. It does not address the underlying problem of

demand planning and uncertainty and how to mitigate it. The length of the inbound

supply chains has increased significantly with global sourcing. Longer chains have also

meant longer times to produce and deliver products from suppliers.

This yield management value proposition realizes inventory velocity with its focus on

supplying product and not on placing it at customers or in stores. It puts the focus where

it belongs, at the beginning of the supply chain where product originates. Firms can better

turn inventory from purchase orders into cash. Inventory that is in a long transit,

inventory that sits in warehouses and inventory that sits on store shelves and floors does

not increase in value with age. Inventory goes stale and loses value. It loses the sales

window of opportunity. The only solution then left is price reduction.

Traditional procurement approaches focus on product price as does traditional logistics

approaches that focus on freight price. The result of these pricing efficiency approaches is

to place prices before inventory requirements by treating the product supply as two

discrete events. They create discord in the development of an effective supply chain that

can minimize time, inventory and cost while maximizing service and profits. The dual-

price approach hinders the development of inventory management at suppliers to create

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yield management as a benefit of supply chain management by focusing on having the

right inventory at the right quantity at the right place and at the right time. And the place

to implement that is at the supply origins with suppliers.

Product and freight pricing emphases do not recognize yield management. They do not

take yield management from being an analytical tool to being part of the supply chain

practice and process. The impact is to trade-off product and freight prices for markdowns

and lower profits.

Developing a value proposition by incorporating yield maximization of inventory

beginning at the supplier level converts an operations research tool into a supply chain

operations paradigm to manage the product and its flow. It expands the supply chain

focus supplier management. It creates substantial benefit and competitive advantage.

Yield management success requires supplier management in order to bridge between

supply chain planning and supply chain execution.

Supplier management is controlling supplier performance. It looks at the timing of

product, the quantities, how and where delivered, product mix and more. The intent is to

maximize yield.

Effective supplier management is based on technology, process and people. Technology

is how purchase orders are placed on supplier, via the Internet, EDI or other. It is supply

chain execution. More importantly it is how purchase orders and suppliers and managed

with event management and exception management. The technology enables revising

orders, their priorities, their style and other mixes, their timing, quantities and more.

Technology gives visibility to directing and controlling supplier performance and what is

in the supply chain, including what is happening with transport and other logistics service

providers.

Process takes purchase orders from being transactions to being part of a process that

flows through the organization. That process enables the linking of all parts of the supply

chain, the integration within the company and between trading partners. It gives the

dynamics to controlling product flow and inventory positioning. That control is key to

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placing the right inventory, right as to quantity and timing and location, so as to achieve

higher price yield.

People are logistics personnel positioned in China, India or wherever your suppliers are

located. They speak the same language and are in the same time zone as suppliers. They

are the day-to-day operational spears that make process and technology work. Global

supply chains cannot be managed with emails. Managing suppliers takes people.

Value proposition is needed for C-level supply chain executives and for 3PLs and 4PLs.

It must bring significant bottom line benefit within the company and to its customers. A

value proposition built on yield management and supplier management is unique, creates

competitive advantage and drives increased profits. The challenge is to move beyond

traditional functions and tasks.

Trust Factor in SCM: It might appear copy-bookish, but trust does play a key and

critical role in ensuring commitment in supply chain relationships. It is one of those non-

measurable and intangible elements that most business leaders would skip because it does

not fall into their scheme of financial cost matrices. What happens is due to lack of trust

among supply chain participants and partners; there is a lot of ineffective and inefficient

performance that goes on.

In this piece we are trying to brush through some of the factors that affect the level of

trust among the supply chain actors and the supply chain relationships. We would try to

fix on certain indications about the level of commitment and its relation with the level of

trust. Moreover, a business' trust in its supply chain partners is highly and positively

related to perceived satisfaction, the partners' reputations in the market, and

communication. Another factor to consider is, a partner's perceived conflict leads to a

strong negative impact on trust.

To start at the basic level, lets get around the basic principle that forms the construct of

the whole supply chain management hum-drum: well, the idea is that ongoing

relationships among supply chain participants/actors has the tremendous capability to

enhance both efficiency and effectiveness of the whole supply chain. Furthermore, it is an

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essential requirement and need for a successful supply chain management to have

effective supply chain planning, which is based on shared information and trust among

partners.

However, there is a catch and perhaps a bottleneck too. The information that needs to be

shared across the supply chain, given the trust level being high, could be those packets of

information that are critical and guarded such as financial, strategic and operating

information to partners that might have been or will be competitors

Risk and reward in Supply Chain Management

No matter the risks, global supply chains continue to grow longer and more complex as

companies push deeper into uncharted territory in search of lower costs. As a result, the

questions surrounding what managers should do about risk have never been more

pressing. Do you add tons of inventory, quietly ripening toward obsolescence? Build

myriad backup plans, most of which you'll never draw on? Or rethink the whole thing

and retreat from the cost-saving sourcing deals that are driving you into far-flung lands in

the first place?

While there are no easy answers—and, in most cases, no "right" answers—there are

frameworks for thinking about how to manage risk more effectively and reach the right

balance with potential return that will show benefits to supply chain managers, strategic

planners, and C-level executives alike.

The key is, first, to examine your basic supply-to-market strategy to ensure you are

following the course that best supports your business, and, second, to determine the right

tactics to support your strategy. This two-step process may sound simple enough, but to

execute it correctly you must have a firm grip on your company's core strategies, be

willing to invest in new forms of internal analysis such as portfolio modeling, and be

prepared to make decisions that might fly in the face of organizational precedent.

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Strategy first In order to effectively balance risk and opportunity, product manufacturers,

distributors, and retailers need to periodically rethink their strategies for going to market.

There are two ways to strategically address the burgeoning nature of risk: (1) shorten the

supply chain in order to reduce cycle time and disruption risk or (2) optimize the

portfolio of supply chain sources and locations in order to gain flexibility through

diversification. Many innovative companies have used the first approach effectively, but

it does have its limitations—indeed, it prevents a company from taking full advantage of

the economic benefits of extending the supply chain globally.

For firms set on driving their supply chains deeper into new markets, the second strategic

approach may offer some as-yet-untapped advantages. The idea of optimizing a

company's portfolio of sources, assembly locations, and distribution points derives from

financial portfolio theory and offers a valuable framework for assessing risk/return

tradeoffs. The goal here is to create a supply chain strategy that best fits the overarching

needs of the firm through a process of modeling that clearly shows decision makers the

benefits and risks of different sourcing tactics. Through portfolio modeling, firms can

mix and match different tactics in pursuit of the arrangement of sources, locations, and so

on that maximizes the supply chain's ability to support a specific company strategy.

Creating a portfolio starts with developing a set of alternative supply chain designs that

support the business in different ways. For example, one design might emphasize speed

to market, another might focus on manufacturing quality, and a third might home in on

cost. In parallel, supply chain risks associated with each design are identified, classified,

and quantified. The projected returns and risks can then be modeled and plotted on a

spectrum. The optimal solution will lie along the "efficient frontier," representing the set

of options with the highest return for a given level of risk. The key here is to combine

supply chain elements whose disruption risks are not directly tied to each other. In other

words, you are seeking to minimize the likelihood of a domino effect in which a problem

at one stop in the supply chain imperils others. There may be several effective strategies

to choose from, offering different combinations of risk and reward.

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Portfolio modeling offers several advantages. First, it is understood and practiced by

CFOs and allows supply chain executives to make the case about risk in terms that senior

management understands. Second, it appropriately focuses on the business value that

supply chain management can deliver—through satisfied customers, capital efficiency,

and low operating costs—for a given level of risk. This framework can also adapt to

changes in supply chain strategy in light of shifts, over time, in relative costs and

perceived risks.

Then, down to tactics once the strategy is in place, many ways exist to reduce risk. Here

are practical steps any company can take:

Demand management

1. Improve demand planning with distributors and retailers by being closely connected to

customers through shared demand forecasts, vendor-managed inventory, and other joint

systems. The goal is to reduce the risk of being blindsided by demand shifts.

Supply management

2. Work with suppliers to create contingency plans. In the wake of 9/11, Continental

Teves, a major automotive supplier, activated existing contingency relationships with

transport firms such as Emery to supplement air shipments of parts from Europe. After

making a same-day assessment of parts flows at risk, Continental Teves was able to rely

on prearranged ocean shipping space and increased inventories, thus allowing its

customers, including Toyota, to continue operations with little disruption over the

following weeks.

3. Diversify sourcing to reduce the risk of catastrophic supply chain failure. Establish

backup arrangements by qualifying additional suppliers, without necessarily awarding

them significant volume. Geberit, a large Swiss sanitary fixture manufacturer, has

adopted a dual sourcing policy. It either retains an existing supplier as a second source, or

develops a second source in Asia. Companies can choose to meet 10 percent to 20

percent of their needs from a second supplier, which generally will work hard in hopes of

65

displacing the primary supplier. Service-level agreements can call for rapid ramp-up if

required.

4. Extend insurance policies to cover overseas suppliers. Contingent business interruption

coverage, for example, is typically limited to the United States and nearby countries;

have it explicitly extended to cover major suppliers located in Asia and other low-cost

geographies.

Logistics enhancement

5. To deal with contingencies, employ a major third-party logistics provider with broad

resources. One electrical manufacturer recently asked its freight forwarder to provide

weekly updates on the best U.S. ports for its inbound product flows from Asia. In

essence, the logistics provider becomes a key risk-mitigation agent by continually

looking over the horizon on a company's behalf.

6. Model and optimize inventories on a disaggregated basis, as all components are not

created equal. Modeling supply susceptibility to delays leads to finer tuning of safety

stocks, which may rise for some parts or finished goods (depending on which point in the

supply chain one is looking at) but fall for others. A typical product with a one-week lead

time and delivery variability of one day will require 15 percent more safety stock, for

example, if supply variability increases by one day, and 175 percent more if variability

increases by a week.

Supply chain integration

7. Increase product component standardization. The ability to mix and match components

from multiple suppliers and plants allows such manufacturers as Dell, IBM, and Herman

Miller to make their supply chains more flexible. Reducing product complexity shortens

cycle times in normal conditions and speeds response to supply crises as well.

8. Create a centralized product data management system. If the supplier is the only one

who knows the actual specifications of products or components, rapid resourcing of

66

products can be time-consuming, if not impossible, during an emergency. Centralized

product data for immediate consultation or preemptive use helps reduce the risk of

disruption. In practice, this means developing a database of product and component

designs so that substitute suppliers can be rapidly brought up to speed. Companies that

have sole-sourced a key component for years, without maintaining control over drawings

or other design characteristics, take heed.

9. Raise visibility along the extended supply chain. When inventory is tracked from order

placement to reception at a forward distribution center or customer, it can effectively

become part of a company's safety stock. Achieving real-time knowledge of the location

of parts and products as they flow from distant origins is not easy, to be sure, but trade

management software can help track global goods flows and divert shipments when

necessary.

10. Monitor specific warning signs of trouble. Tracking a limited number of supply chain

risk indicators, such as average train speed, weeks of orders outstanding, component

delivery variability, and exchange rate movements, can provide a crucial warning as a

problem approaches the tipping point and becomes a dangerous disruption. It is no longer

sufficient to track just service levels, lead times, inventories, and logistics costs.

Changing the mindset by using an appropriate mix of the initiatives outlined here,

managers should expect to see real improvements in their supply chain performance. Of

course, incorporating risk considerations into what have historically been highly cost-

focused analyses requires a shift in thinking and organizational behavior. To improve the

risk/reward equation, compartmentalized decision-making must be replaced by cross-

functional cooperation. Participants can come from marketing, sales, sourcing,

manufacturing, finance, and risk management. Eliciting full commitment from all these

functions might require the CEO's or COO's involvement. The long-term trend toward

just-in-time delivery combined with strong economic incentives to access the best global

supply sources virtually guarantees abundant risks throughout the supply chain.

Frictionless commerce remains a utopian vision rather than reality. Where managers can

excel, however, is in identifying, quantifying, and preparing for the new realities of risk.

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Final word: Companies that are looking to spread the reach of their operations are also

seeking ways to minimize the supply chain risks involved. This can be achieved either by

reducing the length of the supply chain and hence the cycle time, or by introducing

flexibility and diversity through additional suppliers, locations and resources.

The first alternative, though effective in reducing risks, often does not give companies the

chance to diversify their operations. Firms choosing to implement the second alternative

would benefit in the long run by using internal analysis techniques like portfolio

modeling. Portfolio modeling involves choosing the best strategy from a range of

different scenarios in order to maximize returns and minimize the implicated risks. A

diverse list of supply chains are plotted, each with its own cost-benefit trade-off, and the

best strategy that suits the firm at any given time can be adopted.

Once an optimal strategy is in place, there are various aspects that, if paid attention to,

will help in implementing the strategy effectively. A company should ensure that its

finger is on the pulse of the market demand and that its supply is steady even in times of

contingencies. Goods should be adequately insured against unexpected losses. Logistics

should be taken care of so that alternatives are available when one channel breaks down.

Products and components should be standardized as much as possible to avoid

dependence on one supplier. An optimal inventory should be maintained in such a way

that holding and storage costs are justified by inventory turnover and lead times. Data

management should be centered so that many departments of the firm are knowledgeable

about the product specifications supplied by wholesalers. This will reduce down time

when new suppliers have to be contacted under unforeseen circumstances.

Flow of goods and inventory should be made as visible as possible along the supply

chain. Finally, the entire chain should be monitored for signs of trouble, and recovery

measures should be in place to cover all emergencies

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DATA ANALYSIS AND INTERPRETATION

Conceptual model and hypotheses

In Fig. 1, we show our conceptual model. In the main model, we focus on the effect of

brand equity, the hedonic level of the product, and the moderating effect of the hedonic

level of the product on the effect of brand equity. In the full model, we also include

variables that could be important determinants of OOS reactions according to the

literature.

Figure -5

These variables are classified according to the four categories: product-, store-, situation-,

and consumer-related.

Brand equity: - In defining brand equity, Chandon et al. (2000) make a distinction

between high- and low-equity brands. A brand has high customer-based brand equity

when consumers react more favorably to a product when the brand is identified than

when it is not (Keller 2002). In general, consumers value high-equity brands more than

low-equity brands. Compared with high-equity brands, low-equity brands do not provide

as many benefits and are bought mainly because of their lower price (Chandon et al.

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2000). Therefore, some researchers suggest that the difference in price level between a

national brand and a private label is a good indicator of brand equity (Kamakura &

Russell 1993). A theoretical advantage of using brand equity as an antecedent of OOS

reactions is that both manufacturer and retailer brands (i.e., private labels) can be

classified according to this criterion (Ailawadi et al. 2002).

As noted, consumers generally prefer high-equity brands and therefore are willing to

exercise more effort to obtain their favorite high-equity brand. Furthermore, high-equity

brands tend to have a greater distribution level than low equity brands, which often

consist of private labels, regional brands, and price brands. From the perspective of both

brand loyalty and brand availability, consumers who are confronted with an OOS

situation for an item of a high-equity brand will be more inclined to switch to another

store to purchase the preferred item. Schary and Christopher (1979) provide some

preliminary evidence for this hypothesis by showing that national brand buyers are more

likely to switch to another store than are private label buyers in case of a stock-out

situation.

Therefore, we expect that the level of brand equity is positively related to store switching,

item switching, and postponement of the intended purchase and negatively related to

brand switching. We hypothesize that for OOS situations,

H1a: Brand equity negatively affects the probability of brand switching.

H1b: Brand equity positively affects the probability of store switching.

H1c: Brand equity positively affects the probability of item switching.

H1d: Brand equity positively affects the probability of postponing.

Hedonic level: - Several studies have suggested that the type of product is an important

variable in explaining OOS behavior and that this variable should be taken into account

(Campo et al. 2000; Emmelhainz et al. 1991; Schary & Christopher 1979).

However, products can be classified according to various dimensions. For example, in

explaining promotional elasticity, Narasimhan et al. (1996) use dimensions such as

stockpiling, impulse buying, and number of brands in the category to classify product

groups. Although we take many of these product-related variables into account in our full

model, in our theoretical framework, we specifically focus on the basic benefits that a

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product provides to consumers. These benefits can be utilitarian and/or hedonic. Products

with hedonic benefits like ice cream and salty snacks provide more experiential

consumption, fun, pleasure, and excitement, whereas products with utilitarian benefits

(hereafter referred to as utilitarian products) like detergent and toilet paper are primarily

instrumental and functional (Batra & Ahtola 1991; Dhar & Wertenbroch 2000). Some

products may offer both utilitarian and hedonic benefits to consumers. Shampoo, for

example, combines a utilitarian benefit (cleaning hair) with a hedonic benefit (nice

smell). Moreover, even products that are bought mainly out of utilitarian motives may

provide some hedonic benefits. For example, consumers may perceive a product such as

milk, which is often bought for its nutritional value (utilitarian benefit), as very tasty

(hedonic benefit).

The different nature of utilitarian and hedonic products may affect the buying process, in

that the buying process of utilitarian products will be driven mainly by rational buying

motives. In the buying process of hedonic products, in contrast, emotional motives also

play an important role, which may affect OOS responses. The unavailability of utilitarian

products, such as detergent, margarine, or toilet paper, may influence the functioning of

the household. Therefore, consumers will be less likely to postpone a purchase and more

likely to buy a substitute in the case of utilitarian products.

In contrast, hedonic products provide more emotional value to the consumer. For

example, when a consumer plans to purchase beer, ice cream, or salty snacks and

consume it that evening, he or she will be very disappointed if unable to purchase the

desired product (Fitzsimons 2000). This reasoning is supported by Dhar and Wertenbroch

(2000), who find that consumers are less satisfied if they experience a problem in the

hedonic dimensions of a service and that consumers bond more to hedonic benefits.

This trend may lead to more store switching for hedonic products in comparison with

utilitarian products. The personal bond to the hedonic benefits of a product also might

lead to the lower probability that consumers postpone the purchase.

Thus, we find two contrasting theories regarding the effect of the hedonic nature of the

product on OOS responses. In general, we adopt the first theoretical explanation in our

hypotheses.

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We expect that item switching and brand switching will be lower in product categories

with a high hedonic level, whereas a postponement of purchase will occur more

frequently for hedonic product categories. Following Dhar and Wertenbroch (2000), we

expect that store switching behavior in OOS situations will be greater for hedonic

products.

H2a: The hedonic level of a product negatively affects the probability of brand switching.

H2b: The hedonic level of a product positively affects the probability of store switching.

H2c: The hedonic level of a product negatively affects the probability of item switching.

H2d: The hedonic level of a product positively affects the probability of postponing

The interaction of hedonic level and brand equity on OOS reactions: -Two main

rationales exist for a moderating effect of the hedonic level of a product on the effect of

brand equity in OOS reactions. First, hedonic products offer more opportunities to

differentiate the brand in consumers’ minds than do utilitarian products (Keller 2002;

Rossiter & Percy 1997).

In utilitarian product groups, brands mainly are differentiated by product quality. In

hedonic product groups, however, emotional and symbolic aspects play an important role

in positioning the brand. Strong hedonic brands, such as Coca-Cola, Budweiser, and

Marlboro, have built dominant and relevant association networks in many consumers’

minds. Due to the stronger position of high-equity brands in hedonic product categories,

the effect of brand equity on brand switching or store switching should be greater in

hedonic categories than in utilitarian categories.

Second, high-equity brands in hedonic categories usually provide more items on the shelf

relative to high equity brands in utilitarian categories. For example, in a utilitarian

category like milk, there are only a few items for the leading brand, whereas consumers

may choose among many sizes and flavors (e.g., regular, vanilla, cherry) of leading

brands in a hedonic product group like cola. This provides the consumer with more

switching alternatives of the same brand, which may lead to increased item switching. In

addition, consumers have a greater need for variety in hedonic categories than in

utilitarian categories (Van Trijp, Hoyer, & Inman 1996) and therefore may be more

willing to switch to another size or flavor. Thus, the probability that consumers will

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switch items is higher for high-equity brands in hedonic product groups than for high-

equity brands in utilitarian product groups. In the same fashion, the greater availability of

items of the same brand leads to less postponement for high-equity brands in hedonic

product groups than for high-equity brands in utilitarian product groups.

H3a: The hedonic level of a product group increases the negative effect of brand equity

on the probability of brand switching.

H3b: The hedonic level of a product group increases the positive effect of brand equity

on the probability of store switching.

H3c: The hedonic level of a product group increases the positive effect of brand equity on

the probability of item switching.

H3d: The hedonic level of a product group decreases the positive effect of brand equity

on the probability of postponing.

Other explanatory variables: -On the basis of our review of OOS-oriented literature, we

selected explanatory variables that have been shown to be antecedents of consumer stock-

out reactions (see section “Antecedents of OOS response”). Through the inclusion of

these variables, we aim to gain insight into whether the hedonic levels of a product and

brand equity are important antecedents of OOS reactions. We also aim to provide a more

general test of the significance of antecedents found in previous research, in that we study

OOS responses in several product groups and retail chains.

On the basis of literature on switching behavior from a category perspective, we also

include new variables (e.g., Narasimhan et al. 1996; Van Trijp et al. 1996). These

variables also can be classified according to our four types. On the basis of research by

Narasimhan et al. (1996) and Beatty and Ferrell (1998), we include impulse buying as a

product related antecedent for stock-out reactions. These studies show that impulse

buying is important to explain consumer responses to promotions, in that, in the case of

an impulse purchase, a consumer does not plan to buy the product in advance. Therefore,

in these situations, consumers are less inclined to purchase the specific product if it is

unavailable. We also include buying frequency, a product-related antecedent, for several

reasons. First, if a product is purchased frequently, consumers must live with the

consequences of buying a less preferred item for only a limited period of time (Bawa &

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Shoemaker 1987). Second, heavy users generally use a wider variety of brands than do

light users. Therefore, we propose that buying frequency is negatively related to

postponement and store switching and positively related to brand and item switching.

As a store-related explanatory variable, we add the type of store. We distinguish between

stores with relatively limited assortments (less than 10,000 grocery items) and stores with

relatively extended assortments (greater than 15,000 grocery items). If a retailer offers

many different items in the same category, it may be easier for consumers to find an

acceptable alternative if the preferred item or brand is OOS. This antecedent also might

shed some light on the importance of conducting studies such as this in supermarkets that

belong to different retail chains.

The part of the week and personal usage are added as situation-related variables. The part

of the week pertains to the point in the week when the purchase takes place. In countries

and areas where stores are closed for part of the weekend, this variable may be especially

relevant. For example, supermarkets are usually closed on Sundays in The Netherlands.

Therefore, if a purchase trip is made early in the week, the consumer will be more likely

to postpone purchase than if he or she shops at the end of the week, or just before the day

the supermarket is closed. Personal usage refers to whether the consumer bought the

product for his or her own use or for the use of other persons in the household or visitors.

It may be more difficult to switch to another brand or item if the buyer is not the user,

because the buyer does not want to disappoint other persons. The effect of this variable

also may be affected by the specific user and/or type of product. For example, the effect

might differ among products bought for visitors (e.g., wine), other adults in the household

(e.g., beer), or children (e.g., diapers).

In shopping-related literature, price and quality consciousness are regarded as important

variables (Lichtenstein, Ridgway, & Netemeyer 1993). Many retailer-merchandising

strategies focus on attracting price- or quality-sensitive consumers. In the United

Kingdom, for example, the supermarket chain Sainsbury is known for its high-quality

offers in terms of assortment and service, whereas Wal-Mart in the United States attracts

many consumers through its guarantee of everyday low prices. For a price-conscious

shopper, loyalty is not directed to a specific brand but to a certain price range. Therefore,

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price consciousness may be related positively to substitute buying (brand or item

switching) and negatively to store switching and postponement.

In the same fashion, quality-conscious shoppers are loyal to a specific quality range, and

though consumers can easily compare different prices of different brands, it is more

difficult to compare brands according to their quality level.

Therefore, it may be more difficult for a quality-conscious shopper to switch to another

brand or item if the preferred item is OOS. Such shoppers may be more inclined to switch

stores to obtain the preferred item or postpone purchase if they do not want to or cannot

spend extra time shopping.

Dependent variable: - On the basis of prior literature, we define six types of OOS

responses: store switch, item switch, postponement, cancel, category switch, and brand

switch. To measure the dependent variable, we used the following procedure: After

selecting the item of interest, the interviewer asked the consumer what he or she probably

would have done if the selected item had been OOS during the shopping trip. Consumers

could choose between the following responses: (1) buy a substitute item in this store, (2)

go to another store today to buy the preferred item, (3) postpone the purchase until the

next shopping trip, (4) cancel the purchase, or (5) don’t know/other. Respondents who

reported that they would buy a substitute were asked if this substitute item would be of

the same or a different product group. If the respondents claimed they would buy a

substitute item of the same product group, they were asked if they would buy an item of

the same brand or switch to another brand.

In the studied product groups, the brand switch OOS response was the most common

among the respondents (34 percent), followed by postponement (23 percent), store switch

(19 percent), and item switch (18 percent). Respondents mentioned the specific OOS

reactions of canceling the purchase (3 percent) and switching categories (2 percent) less

frequently.

These results are roughly in line with the results of a field experiment conducted by

Emmelhainz et al. (1991), who created OOS situations in five different product groups by

removing the top-selling item of the market leader in each group. The OOS reactions they

reported were as follows: item switch (41 percent), brand switch (32 percent), store

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switch (14 percent), and postponement or cancellation of purchase (13 percent). Note that

the relatively high percentage of item switch behavior in their study may be due to the

relatively high variety of alternatives often offered by market leader brands.

Main independent variables: - In our main model, we distinguish two main antecedents

for OOS responses: brand equity and the hedonic level of a product. These variables were

measured independently by food experts. A group of seventeen senior managers

participating in a senior food executive program of the Erasmus University evaluated all

researched brands (n = 124) on three brand equity indicators: perceived price level,

perceived quality, and perceived consumer preference (see Chandon et al. 2000). The

managers used a 7-point Likert scale to rate each brand on each of the three brand equity

indicators (1 = low, 7 = high). The alpha score of this three-item brand equity scale was

0.85. To check the external validity of the brand equity scale, we calculated the average

level of brand equity for the market leader brands, the market challenger brands (ranked

2–4 in the category), and the market follower brands (ranked 5 or lower). Market leaders

scored an average of 6.1 on the brand equity scale, market challenger brands scored 5.1,

and market follower brands scored an average of 4.4 (F = 221.8, p < .01). Thus, our

brand equity measure seems valid.

The product groups involved in the OOS study were prior to the survey classified as

utilitarian or hedonic using the judgments of 40 food experts (practitioners and

academics), who evaluated each preselected product group on two 7-point scales

(hedonic level: 1 = not hedonic, 7 = very hedonic; utilitarian level: 1 = not utilitarian, 7 =

very utilitarian). In the survey, utilitarian and hedonic benefits were explained using

Batra and Ahtola’s (1991) definitions. For example, a key utilitarian benefit is considered

“useful,” whereas “attractive” and “enjoyment” are typical hedonic benefits. Our results

reveal a very strong negative correlation between the hedonic and utilitarian levels of

products (r =-.94; p = .00), in which the hedonic level of a product can be considered a

continuum from very utilitarian (not hedonic) to very hedonic (not utilitarian). Note, that

we selected typical utilitarian or typical hedonic categories for our research. This may

partly explain the high negative correlation between the utilitarian and hedonic item.

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On the basis of these empirical results, we sum the two items to form a measure of the

hedonic level of our selected product categories, which increases the reliability of this

measure. The hedonic and utilitarian scores of each category are given in Table 5.

Table 5

Other independent variables: - Because stock-out reactions and most of our antecedents

are measured in the same instrument, we specifically pay attention to common-method

variance (Bickart 1993), particularly the widely used self-reported Likert scales, which

seem to encourage respondents to give socially desirable, and thereby “logical,” answers.

For example, in a situation in which a respondent tells the interviewer that he or she

would probably go to another supermarket to buy the desired item, the measurement

item: “I think of myself as a loyal customer of my supermarket” provides an obvious clue

that the questions are related to the OOS reaction. To decrease the influence of common-

method variance, we implemented more straightforward measures (Rossiter 2002). For

example, to measure store loyalty and brand loyalty, we used a behavioral measure

(primary store no/yes, primary brand no/yes) instead of a self-reported Likert-type item

(e.g., “I consider myself loyal to this brand”). To measure impulse buying, we asked if

buying the product was planned in advance (no/yes).

For stockpiling, food experts (n = 15) rated each of the eight product groups on the level

of safety stock (low, medium, high) that consumers usually maintain at home before they

go to the supermarket to buy the product (e.g., Campo et al. 2000; Narasimhan et al.

1996). We also used objective criteria to measure antecedents. For example, as an

indication of the availability of alternative stores, we used the number of supermarkets

with a more or less similar merchandising strategy within a radius of 250m and/or 4 min

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of walking of the supermarket of interest. For other antecedents, we used self-reported

scales if there was no direct relation with the dependent variable. For example, we used

self-reported scales to measure shopping attitude, price consciousness, quality

consciousness, and general time constraint.

In Appendix A, we provide an overview of the explanatory variables, their measurement

method, and their source.

Analysis: -As already noted in our literature review, the cancellation and category switch

OOS responses are uncommon, which does not enable us to reliably estimate parameters

for these choice categories. Therefore, we added cancellation to the rather similar

postponement category. However, the category switch response is not similar to any of

the other categories and therefore is not considered in our model. As a consequence, our

number of valid cases drops from 749 to 734. After this procedure, the dependent

variable consists of four different choice categories: (1) brand switch, (2) store switch, (3)

item switch, and (4) postponement. Because these categories are unordered, we use a

multinomial logit model (Franses & Paap 2001; Guadagni & Little 1983), whose

parameters are estimated using the statistical software package Limdep 7.0 (Greene 1998)

for the maximum likelihood procedure, to test our hypotheses. We calculate the marginal

effects and their accompanying standard errors and significance levels (Campo et al.

2000; Greene 1998), which show the effect and direction of a predictor variable X on a

choice category.

The mathematical formulation of the multinomial logit model states that the probability

(P) of choosing OOS reaction j by consumer i is given by:

Pj,i = exp(Vj,i)

Σ4 j=1j = 1 …………………………………(1)

The model in which we include brand equity (BE), the hedonic level of the product (HL),

the interaction effect (BE×HL) and K other variables (X) (see Appendix A for examples)

is defined as follows:

Vj,i =ΣJ α0,j + α1,j *BEi + α2,j *Hli +α3,j *BEi *HLi +ΣKk=1 γk,j *Xk,i………………… (2)

The inclusion of an interaction effect between brand equity and the hedonic level of the

product may affect our estimation results. We therefore standardize brand equity and

hedonic level and include the standardized scores in our model (Aiken & West 1991).

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Thus, the interaction effect is included as the multiplication of the two standardized

variables (see Eq. (2)).

Empirical results

Descriptive analysis: - We explore differences in OOS reactions according to the nature

of the product (utilitarian vs. hedonic) and the levels of brand equity (low vs. high) using

cross tabulations (see Table 5). Our analysis shows that buyers of low-equity brands are

much more likely to switch brands (51 percent) than are buyers of high-equity brands (26

percent). Buyers of high equity brands are more likely to switch stores (25 percent) than

are buyers of low-equity brands (ten percent), as well as switch items (21 percent vs.

fourteen percent, respectively). A χ2 test reveals a significant association between brand

equity and OOS reaction (χ2 = 54.622, p = .000).

In both utilitarian and hedonic product groups, the most common reaction to an OOS

occurrence is brand switching. However, the percentage of brand switching is higher for

utilitarian product groups (39 percent) than for hedonic product groups (31 percent). In

contrast, store switching occurs more frequently in hedonic product groups (26 percent)

than in utilitarian product groups (thirteen percent). Again, the χ2 test shows a significant

association between product type (utilitarian of hedonic) and OOS reactions (χ2 = 22.581,

p = .000).

Table 6

Multinomial logit model: - Prior to estimating the multinomial logit model for Eq. (2), we

assess whether multicollinearity might cause severe problems in our data by considering

the correlation among the independent variables. The correlation matrix, displayed in

Table 6, shows that correlation between independent variables in general is low and that

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multicollinearity will not affect our estimation results significantly (Leeflang,Wittink,

Wedel, & Naert 2000).

Due to the addition of product related, store related, situation related and consumer

related variables, the valid case number drops from 734 to 681. The estimation results of

the multinomial logit model (Eq. (2)) appear in Table 7 . The χ2 of the multinomial logit

model is 235.24 (df = 60, p = .00).

Hypothesized effects: - We find the expected significant negative effect of brand equity

on brand switching, in support of H1a. However, no effect of the hedonic level of a

product on brand switching is found, so H2a is not supported. In addition, the univariate

descriptive analysis shows a significant relationship between the hedonic level of a

product and the percentage of brand switching. A possible explanation for this

discrepancy may be that brands in hedonic product groups generally have a higher level

of brand equity. This is supported by the positive correlation between the hedonic level of

a product and brand equity (r = .30, p < .01, see Table 6). Also, no significant interaction

effect between the hedonic level of a product and brand equity on brand switching is

found. Therefore, H3a is not supported.

Both brand equity and the hedonic level of a product have a positive significant effect on

store switching, in support of H1b and H2b. However, the effect of brand equity on store

switching is not moderated by the hedonic level of the product, so H3b is not supported.

With respect to item switching, we find significant effects for two of the three main

variables. Brand equity and the interaction between brand equity and hedonic level are

positively related to item switching. No significant effect is found between hedonic level

of a product and item switch. These results support H1c and H3c.

No significant effects for either the hedonic level of a product or brand equity are found

on postponement. Thus, H1d and H2d are not supported. Note that H1d approaches

significance in the opposite direction as hypothesized as the p value is .11. The

interaction between brand equity and the hedonic level of a product is negative and

marginally significant (p = .07), in partial support of H3d.

The results show that our main variables brand equity and hedonic level of a product are

relevant explanatory variables for OOS responses, particularly for the responses brand

switch, store switch and item switch. However, the postponement response is poorly

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explained by the three main variables, though it may be better explained by our other

explanatory variables.

Other explanatory variables: - For product-related variables, we find that the number of

brands has a negative significant effect on brand switching and a positive significant

effect on store switching. These effects seem counterintuitive and contrast with results of

previous studies, which indicate that the availability of acceptable alternatives has a

positive effect on brand switching.

One possible explanation for this finding may be that some product groups carry more

brands than others because of the many market segments in a particular product group,

which provide ample room for brands with different intrinsic and extrinsic values

(Narasimhan et al. 1996). Stockpiling has a negative significant effect on store and item

switching, though it has a positive significant effect on postponement.

This result has not been found in prior research (e.g., Campo et al. 2000). In line with

previous research, we find that brand-loyal consumers are significantly less likely to

switch to another brand and significantly more likely to postpone purchase. We also find

significant effects for impulse buying. If the purchase was not planned in advance,

consumers are less likely to switch stores and more likely to postpone the purchase. No

significant effects are found for buying frequency.

The store-related variables seem somewhat less important in explaining OOS behavior.

Store loyalty is positively related to brand switching (not significant) and item switching

(p = .05) and negatively related to store switching (p = .09) and postponement (p = .13).

Although this variable is not strongly significant, the expected signs are logical.

Consumers who are more loyal to a store tend to be more inclined to find a substitute in

their primary store. The number of alternative stores in the vicinity of the store has a

positive effect on store switching and a negative effect on postponement.

However, the store type variable is not significantly related to any of the studied OOS

responses; that is, customers of stores with relatively extended assortments tend to

behave in the same way as those of stores with relatively limited assortments.

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Table 7

With respect to the situation-related variables, the variable part of the week has a

significant effect, which may be of particular interest for countries or states where

supermarkets are closed on Sundays. The results show that if shopping takes place in the

first part of the week (Monday–Wednesday), consumers are more likely to postpone.

Although the findings are not or only marginally significant, consumers also are more

likely to switch brands (p = .20), switch items (p = .10), or switch stores (p = .12) during

the second part of the week.

A possible explanation for this finding may be that some consumers may have weekly

planning cycles for their grocery shopping. If consumers face an OOS of a desired item

early in the week, they may already know that their next shopping trip will be within a

few days and thus be more inclined to postpone the purchase. The shopping trip (minor or

major trip) and personal usage variables do not display significant effects. With respect to

the consumer-related variables, our results show no significant effect for general time

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constraints, inconsistent with Campo et al. (2000), who find this variable significant in

their research to explain OOS responses. Part of the lack of effect in our research may be

caused by the inclusion of age as explanatory variable. Because age is negatively related

to general time constraints (r =-.23, p = .00), it may function as a proxy for general time

constraints. For example, older, “empty nester” shoppers, who have a great deal of spare

time, have fewer time constraints. The results, which show that age has a significant

positive effect on store switching and a negative effect on brand switching, support this

theory. In line with Campo et al. (2000), we find no significant effects of shopping

frequency. Finally, we find some significant effects for price and quality consciousness.

Price consciousness is negatively related to store switching; quality consciousness is

negatively related to brand switching.

Table 8

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Discussion

In this study, we investigate the effect of brand equity and the hedonic level of a product

on OOS responses, as well as the moderating effect of the hedonic level of the product on

the effect of brand equity. In addition, we examine the effect of prior researched and

additional product-, store-, situation-, and consumer-related variables.

Because we have tested our model using eight product groups and eight retail chains, our

study provides an important discussion of the role of these variables in OOS situations.

In Table 8, we provide a summary of our hypotheses results. In our full model, six of our

twelve hypotheses are supported. Although further confirmation of these results in other

studies are needed this indicates that the main variables are important in explaining OOS

responses. None of the twenty antecedents in our full model is significantly related to all

four different OOS responses. We therefore conclude that OOS responses can be

explained in a reasonable way only through the use of comprehensive models. Models

with too few antecedents may suggest significant relationships that would not be

significant if more antecedents were included.

However, as further support for the relevance of our main variables, we note that the

effects of our main variables are approximately the same in both the basic and the full

model.

That is, though we included many other explanatory variables, the effects of brand equity

and the hedonic level of the product remain significant.

Effect of brand equity and hedonic level of the product: - Brand equity and the hedonic

level of a product are important variables to explain OOS responses. Keller (2002) argues

that consumers of brands that have positive customer-based brand equity react more

favorably to the brand. We show that this also holds true in OOS situations. Our results

also show that purchasers of high-equity brands are less inclined to switch brands, more

inclined to switch stores, and more inclined to postpone the purchase. The first two

reactions can be explained by brand equity literature. The impact of brand equity on

postponement shows that the preference for high equity brands, in many cases, is not only

brand directed, but also item directed. For example, a consumer who prefers regular

Coca-Cola may be loyal to Coca-Cola in general and to the regular variety specifically. If

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regular Coca-Cola is not available, that consumer might postpone his or her intended

purchase until the next visit to the supermarket, at which point the consumer will

purchase regular Coca-Cola.

Our results also reveal a positive main effect of the hedonic level of a product on store

switching. In hedonic product groups, consumers are more likely to switch to another

store.

We find two significant moderating effects of the hedonic level of a product on the effect

of brand equity. In hedonic product groups, purchasers of high-equity brands are

relatively more inclined to switch to another item, whereas they are less likely to

postpone. Consumers value the brand more in hedonic categories and are less inclined to

postpone the purchase because they feel a relatively strong urgency to purchase the

preferred brand immediately. One solution for the consumer is to purchase another item

of the same brand.

Effect of other explanatory variables: - With respect to the other explanatory variables,

our results confirm some prior research and put forward some new variables as

antecedents of OOS reactions. In particular, we confirm prior findings that brand loyalty

is an important variable for the explanation of OOS. However, our results do not show

that buying frequency, the types of shopping trip, shopping attitude, or general time

constraints are important determinants of OOS responses.

Following the literature on promotion responsiveness (e.g., Narasimhan et al. 1996), we

included impulse buying and stockpiling as antecedents. Our results show that these

variables are important antecedents of OOS responses. In the case of impulse purchases,

consumers are less likely to switch to another store and more likely to postpone the

purchase because the need to buy a product impulsively is less strong if the preferred

item in the category is not available.

When consumers stockpile products at home, they do not need the product immediately;

thus, stockpiling negatively affects store and item switching and positively affects

postponement.

Shopping frequency, similar to our results for buying frequency, is not related to OOS

responses. However, brand and item switching occurs more often at the end of the week,

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whereas postponement occurs less frequently at the end of the week. In addition, no

effect of store type was found, and

OOS reactions do not differ significantly between supermarkets that offer less or more

variety. Finally, our results indicate that price-conscious consumers are less likely to

switch stores, whereas quality-conscious consumers are less likely to switch brands. One

of several plausible explanations for this finding may be that price-conscious shoppers

are more loyal to a specific price range instead of a specific brand or item; quality-

conscious shoppers may be more inclined to buy a certain quality level that is embodied

by the brand they prefer.

Table 9

In summary, we conclude that product- and brand-related antecedents (including the three

main variables) appear particularly important for explaining OOS responses. In our study,

store-, situation-, and consumer-related variables affected OOS reactions to a much lesser

extent. Furthermore, the full model shows that there are many antecedents for OOS

responses. Of the 20 explanatory variables in our full model, thirteen show significant

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relations to one or more specific OOS responses. Compared with the main model, the full

model sheds particular light on the antecedents of purchase postponement. Although this

OOS response is not well explained by our main model, variables such as stockpiling,

brand loyalty, impulse buying, and the part of the week appear highly related to

postponement.

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SUGGESTIONS AND CONCLUSION

My research provides some clear guidelines for how retailers and manufacturers should

handle OOS occurrences. On the basis of our two main variables—brand equity and the

hedonic level of the product—the assortment of supermarkets can be classified in four

segments. For each segment, managerial directions for retailers and manufacturers with

regard to how they can handle the OOS problem is provided (see Table 10).

Implications for retailers: - A retailer should maintain an active policy to reduce OOS

occurrences, because a stock-out can result in store switching, postponement or

cancellation of purchase. However, the damage of OOS occurrences for a retailer varies

according to the product group and brand. Retailers should consider this finding when

they attempt to decrease their OOS problems and pay special attention to the segment of

high-equity brands in hedonic categories. In this segment, retailers should try to minimize

OOS occurrences, for example, by allocating more shelf space to such items at the

expense of items in the low-equity brands, utilitarian segment. Furthermore, retailers

should consider to minimize the breadth of their assortment in utilitarian product groups

and increase the number of items per brand for high-equity brands.

We also believe that consumer OOS reactions provide insights into the short-term

reactions of consumers in the case of permanent unavailability. If retailers notice many

complaints or a strong drop in product group sales when certain items in certain product

groups are OOS, they should be careful about permanently delisting those items.

Implications for manufacturers: -Table 10 also includes guidelines for manufactures. If a

manufacturer faces high OOS levels for its own brand, it will lose sales, even if the brand

is a high-equity brand in a hedonic product group. Therefore, all manufacturers should try

to help retailers to lower OOS levels, especially because research shows that OOS levels

between five percent and ten percent are common. Particularly, manufacturers of low

equity brands in utilitarian categories can suffer severe damage of OOS occurrences; in

many cases, consumers will simply switch to items of another brand. For these

manufacturers the necessity to lower OOS levels is relatively more important than for

other manufacturers because it may not be a high priority for the retailer.

The objectives for retailers and manufacturers with regard to OOS management often are

contradictory. For retailers, item switching does not present a significant problem,

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because retailers tend to focus instead on OOS situations in which consumers do not buy

a substitute.

Therefore, retailers will focus to lower OOS for brands and product groups were it hurts

the most. Particularly, these are the high-equity brands in the hedonic product groups.

In addition to this, many of the manufacturers with low equity brands will probably not

have state-of-the-art knowledge in the area of category management and supply chain

management. These manufacturers will not be first in line to cooperate with retailers to

solve the OOS problem. Therefore, we recommend that manufacturers of low-equity

brands focus on holding their shelf space, for example, through short-term-oriented trade

allowances. In contrast, manufacturers of high-equity brands could attempt to remedy

retailers’ OOS problems by participating in category management projects that focus on

reducing OOS levels. In doing so, these high-equity brand manufacturers demonstrate

their category management capabilities and improve their relationship with retailers.

Table 10

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BIBLIOGRAPHY

BOOKS REFERRED:

� Marketing Management- Philip Kotler

� Marketing Management- Namakumari

� Marketing Research – Harper Boyd.

� Brand management- Harsh V. Verma.

JOURNALS REFERRED:

� Journal of Supply Chain Management

� Journal of Marketing

� Journal of Retailing

� 4 P’s

� Business World

� Business Today

WEBSITES VISITED:

� Marketresearch.com

� ITtoolbox.com

� SCM.com

� allaboutbranding.com

� bettermanagement.com

and sites of KPMG, Ernst & Young, and PriceWaterhouseCooper etc.

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Appendix A Overview And Definition Of Independent

Variables

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