Branding Strategy Insider

Why Do Brand Extensions Succeed Or Fail?

We are happy to answer marketing questions of all types here on Branding Strategy Insider. Today, Sanaya, a Reporter in Dubai, United Arab Emirates asks…

"Hi Brad and Derrick, I would appreciate your input for an article that I’m working on for a Gulf News publication (largest English daily in the Middle East). The fashion and lifestyle article takes a look at how noted fashion designers, such as Giorgio Armani, Tom Ford, Chanel, and most recently Burberry have extended their brands by launching their own cosmetic, skincare and beauty lines.

It would be great if you could share your expertise and help by answering the questions below."

• What are the primary drivers that propel fashion houses to move from apparel to cosmetics? The same thing that drives most companies to extend their brands from their core categories to additional categories – the potential for additional revenues. Whether they achieve this via new product development or brand licensing, this is a way to leverage the brand for increased revenues. Cosmetics and apparel are highly related under the broader umbrella of “fashion,” so the brand extension is more likely to succeed as long as the apparel and cosmetics are positioned similarly.
• How does stretching a brand affect its DNA? The trick with brand extension is to make sure the brand’s associations and the associations within the new product category are not in conflict. Better yet, those associations should complement and reinforce one another. The brand extensions with the highest failure rates are those that attempt to stretch a premium or luxury brand down into a value segment.
• What value-additions do such brand extensions bring to the brand itself?

Marketing Is Changing, Are You Ready?

It is no surprise that academics and professionals alike are calling for new approaches to marketing, because the old approaches are inadequate to the challenges. New forms of media are showing up all the time. Consumers are faced with a turbo-charged range of choices, and an array of new technology is available to support marketing decisions and programs. According to Phillip Kotler, new marketing requires new financial IT mindsets as well as some additional skills so that systems will better support marketing decisions.

As we continue the drive toward making marketing more accountable and scientific, it is important to look at what has changed and what remains of the old model. While marketers enjoy new media and technology enabled tools, the fundamental marketing model itself has not changed. People and businesses still want useful products and services and relevant and entertaining messages. Marketing is still about identifying needs so that people line up to buy. The change is in how consumers learn about products and services and receive the messages. We are entering a ‘post-mass media’ marketing world.

Consumers have new tools, too.
Consumers have always wanted to avoid poor or overpriced products and intrusive messages, but now they are empowered to act on those feelings in unprecedented ways. These consumer-empowering technologies promise to eliminate the concept of ‘mass markets’ once and for all. Proof is everywhere, from declining audiences across most media, to the penetration of TIVO and the explosion of DVD sales – of TV shows no less!

Innovation And Branding Strategy In A Down Market

During long and deep recessions like this one, companies look to shift resources away from poor performing brands to more profitable ones. With cash from operations declining and borrowing at a premium, it makes sense to sacrifice cash- consuming brands. While difficult and unpleasant to do, this portfolio reshuffling is a rather straightforward recessionary response. However, a ‘refocus on core brands’ has hidden dangers. One risk is under investing in innovation to keep core brands vital.

The Tension between Innovation and Branding
Even in the best of times, the relationship between branding and innovation can be tricky. In theory they work together, with the brand strategy providing the ‘face’ of the business’s growth strategy. Brand strategy helps companies bring innovation to the market. Innovation returns the favor by enhancing brand reputation. It sounds simple, but the partnership can be an uneasy one and it is particularly uneasy during a market downturn when investing in new brands or sub-brands can be perceived as ‘too risky’. The difficult choices imposed by hard times forces managers to confront the challenge of ‘brand stretch’ more acutely.

Balancing the need for brand focus with the need for innovation is the essence of the dilemma. Staying inside the confines of existing brand boundaries risks missing opportunities to meet emerging market needs. At the other extreme, stepping too far outside the brand’s comfort zone risks dilution of brand meaning -- the dreaded “everything-to-everyone syndrome”. Every company aspires to a brand extension success, but at the same time they also fear the warning provided by brands that expanded too aggressively. Who can forget Hooters move into the airline business or Maxim’s into men’s hair color?

Among the many reasons for conflict between innovation and branding, two stand out:

Brand Counsel

 
When should you seek the counsel of a brand consultant?

• Your company has acquired or merged with another company.
• You're launching a new product, service or company.
• A competitor has mounted an unexpected attack on your brand.
• Your profit margin or market share is shrinking.
• Research shows that your brand is not understood by your audience.
• Customers don't see a difference between your brand and your competitors.
• You're having difficulty knowing what to brand and how.
• You need to decide the relationships between parent and sub brands.
• There's a noticeable gap between business vision and customer experience.
• Your brand expressions don't fit your brand strategy.
• Your brand expressions lack excitement or relevance.
• Your brand expressions are confusing with too many product names, sub-brands, logos, taglines, etc.
• Your brand's touchpoints lack consistency across media or cultural borders.
• Your creative partners need to better understand your brand.
• You need to get executive buy-in for brand programs.

Branding Debate: Does Logo Design Really Matter?

In an era of crowd sourcing and online $100 logo design, the specialized skills and talents involved in identity design are seemingly being marginalized even further. Are big iconic brands moving in that direction?

“If, in the business of communication, image is king, the essence of this image, the logo, is the jewel in its crown”. – Paul Rand

Throughout the brand strategy and marketing blogosphere, there’s been a lot of buzz and chatter about the recent logo / identity changes Starbuck’s has implemented to help it move closer to its next incarnation. A few months back, the Gap made a similar move with less favorable reviews.

In both these instances, it’s pretty clear people in our business continue to care about these changes. The question is–do customers care? Do they really care what your logo looks like?  Does it matter that much to your marketing success?

In my view big brand identity changes of any kind illustrates a couple of interesting points. Mainly that people pay attention to the marketing shifts brands they care about undertake. Secondly, there appears to be a huge gap in people’s understanding of the difference between a trademark and a brand.  They are not one and the same. And finally, the critical importance of brand management to align all customer facing communication (of which trademarks are a primary component) to evolving strategic imperatives that effect business performance in the future. The stylistic aspects of these types of changes are less important than the potential to diminish brand meaning in the process.

How To Identify A Brand-Building Winner

Marketers are trained to believe insights are the foundations of brand strategy and powerful insights about the target customer yield strong brands. But what exactly constitutes an ‘insight’ and how do you recognize one when you see it? What makes one idea worthy of building a brand around and another simply ‘nice to know’?

That’s an Insight?
When I read case histories about brand building, I am often surprised at how modest are the insights at the heart of the strategy. My immediate reaction, ‘that’s an insight?’, is immediately followed by curiosity. How did the team pluck that idea out of mountains of consumer research and make it the basis of their brand strategy? Consider these examples:

•Did someone in a Dawn Direct Foam strategy meeting actually jump up to say, “I’ve got it! Women don’t like to do dishes and want to make it fast and easy!”

•Did the Master Card team really need an extensive brand audit to conclude, “Buying things allows you to get to some other place in your life that makes you feel good”?

•How many proprietary studies did the Dove team at Unilever need to determine “Only 2% of all women consider themselves beautiful, and only 5% consider themselves pretty”?

•Did it take a rocket scientist at Goodby Berlin to discover that “Things just don’t feel the same without milk”?

In retrospect, each of these ideas is enormously insightful and each provided a powerful platform for brand building. But how did they know? Even now, each so-called insight seems a bit obvious.

Social Couponing And A Warning For Brands

Many marketers asked Santa for a social coupon campaign for 2011. The explosive growth of Groupon and Groupon clones (BuyWithMe, LivingSocial, SocialBuy, and Tippr), offering “ridiculously huge” coupons (50-90% off), is taking marketing plans by storm.

These social coupon sites promise high customer demand in return for a deep discount and a share of the deal. In August, Gap offered a nationwide deal of $50 worth of apparel for $25 through Groupon.  Some brands and businesses are offering social coupons directly, including ConAgra, Jack in the Box, and Walmart. However, the biggest participants have been small and mid-size businesses.

But tread carefully before you join the social coupon bandwagon. Running such deeply discounted deals can create a short term volume spike that backfires in the long run. There are plenty of cautionary tales from brands and businesses that didn’t do the math and regretted it.

Hypnosis: Key To A Superior Focus Group?

Hypno-Synectics is a technique that can help marketers and planners do a better job of getting respondents to brainstorm in focus groups. It combines the 50-year old brainstorming technique of Synectics (the original “outside-the-box” technique) with the scientific use of hypnosis.

The main problems in brainstorming are (a) getting respondents to access their own knowledge bank, (b) using that knowledge in a brainstorming process, and then (c) "cajoling" them to share the new ideas with other respondents in the group. Through the combination of hypnosis and the techniques of Synectics, these brainstorming problems can be solved, and the brainstorming process can be enhanced. Let's take a look at the key elements in the process and the process itself.

What Is Synetics?

The term Synectics comes from the Greek word synectikos which means  "bringing different things into a unified connection." The key brainstorming concept here is to get people in the focus group to focus on  seemingly disconnected words, images and concepts in order to  develop something new and original. The Synectics method  gets respondents  to use  non-rational thought processes   by "making the strange appear familiar," and by "making the familiar appear strange."  As an example, respondents  might be asked to  think about new ways to show a car in a TV.  commercial; but instead of the  traditional method of the camera following the  car along the road, they would be told to think about showing the car from the viewpoint of  a pebble in the road, or by a nail in the tire, or the chrome trim on the door. New ideas will come from this type of thinking.

Reconsidering The Brand Strategy Toolkit

Abraham Maslow, the man famous for formulating one of the most ubiquitous tools in the marketing toolbox, the Hierarchy of Needs, was also famous for admonishing against over reliance on one tool.  His caution has come to be known as the law of the instrument or “Maslow’s Hammer”.  “It is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail”.

Evolving competitive market places have placed enormous pressure on brand strategy.  Competition changes perceptions of the existing options by default.  Maintaining differentiation then is more than a matter of updating positioning.  It requires layered and nuanced approaches rooted in the customer experience, shared community,  and brand purpose.

Positioning is indeed a powerful tool, especially when the competitive landscape is well demarcated, consumer targets are identifiable, and advantages reside largely in product performance or functionality.  But over reliance on positioning can lead strategists to overlook other means of differentiation and possibly even spell disaster for their brand.

The Case of Blockbuster’s TOTAL ACCESS

Blockbuster may be a case where over reliance on positioning lead to failure. In September 2010, the company filed for bankruptcy protection in order to reduce its debt to $100 million from $900 million and its shares are trading for 8 cents.  The reasons for its downward slide are generally attributed to failure to adapt to changes in technology and consumer needs which were exploited by upstarts Netflix, Redbox, Vudu, and Hulu as well as non-traditional competitors like YouTube, Vimeo, video on demand, and the DVR.  In retrospect, the story seems almost inevitable.  After all,  TIME magazine wrote off the Blockbuster brand as early as 2005. (“Blockbuster to Remake Itself Under Creditors,” Wall Street Journal, September 24, 2010.)

But the script didn’t need to run that way.  Blockbuster had its chance and came closer than most people know to actually beating Netflix and the other new players at their own game.

Pricing Strategy: Focus On Value Exchange

Our understanding of pricing has come a long way since 1890 when Alfred Marshall published his treatise on the economic scissors of supply and demand. Pricing is no longer a purely economic challenge to be addressed through studies of market elasticity. It can't be solved by lowering prices until customers' purchases improve factory utilization rates. And, it can't be solved by allocating costs and adding markups. Rather, pricing today must be focused on value exchange. 

While experts and executives agree that price should reflect value, the pricing to value mantra fails to clarify the decisions executives must make. That is, what is the value that price should reflect? Whose perception of value should determine price? And, how can value be modeled and quantified? In other words, pricing decisions today requires actionable insights. 

These insights must derive from a marketing orientation of the firm with a clear economic understanding of value exchange. The marketing orientation focuses the purpose of the firm towards serving customer needs profitably - an orientation supported by the late greats Peter Drucker and Theodore Levitt. The economic understanding of value exchange reminds us that customers will purchase when the product delivers value in excess of its price after adjusting for alternatives, and the firm must deliver products at a price in excess of their cost. These are two very simple concepts. 

Combined, the marketing orientation of the firm, and the economic understanding of value exchange, provides the foundation for developing insights required for executive decision making in pricing strategy.