Although the main function of a brand extension is growth, there are limits to what a single brand can achieve. Each brand is targeted. Even if psychographics are substituted for demographics, a brand is not a catchall. BMW values attract only 20 per cent of the premium car buyers worldwide. BMW refuses to dilute its brand and in order to grow it went international. It also bought the Mini and Rolls-Royce brands.
The other way in which a company can grow is by creating new brands to meet the demand that existing brands cannot satisfy. But it takes courage to launch and position new brands.
It takes courage because, at a time when extensions are the order of the day, it is difficult to admit that even a mega-brand has its limits. Companies prefer to attribute failure to production problems so that they can try – and fail – again. Thus Mattel is facing the challenge of the ‘tweens’ (see Lindstrom, 2003) who are no longer really children but not quite teenagers or adolescents. There is a saying in the business that today’s kids are getting older younger.
In concrete terms, this means that the company’s business model for the 1970s, 1980s and 1990s is defunct. In the past, Mattel treated children in the 4–10 age group in exactly the same way, as a homogenous group. This had a major advantage in terms of cost (economies of scale) – they were all sold the same Barbie doll, which represented 40 per cent of the company’s sales.
Mattel’s first response to the tweens challenge was to segment the target group and create a special Barbie for 8–10-year-olds, the Barbie Generation Girl with the single Barbie signature. Then, to counter the success of MGA’s Bratz dolls for 8–12-year-olds, Mattel relaunched My Scene Barbie, still with the Barbie signature but smaller.
However, the company had to make up its mind to take the plunge and create a genuine new brand rather than a brand extension, and in 2003, the multinational launched Flavas to succeed Barbie. After all, there comes a time in every little girl’s life when she no longer wishes to play with Barbie.
Levi’s had already taken the plunge by launching Dockers after initially trying a simple brand extension – Levi’s Tailored Classic. But the same brand cannot be simultaneously rebellious and classic. In the car sector, brands seem to represent progress up the social ladder.
Thus, Honda created the Accura in the United States, just as Toyota created the Lexus and Nissan Infinity, since customers worldwide seem to equate changing the brand of their car with proof of financial success. This is why Renault really needs to buy Volvo or Jaguar to add some topof- the-range brands to its portfolio.
This same rationale applies to the distribution networks. For example, Hanes – the largest apparel brand in the world – is sold in the big department stores but could not be sold in supermarkets, so Eggs was created for this network.
Basically, therefore, the purpose of multibrand portfolios is to better meet the demands of segmented markets, and any reassessment of the portfolio raises the question of the segments to be retained. So when Procter & Gamble decided to dispose of a number of brands in Europe, in 1999, it was because they did not fit into the group’s European segmentation – premium, smart buyer and low-price.
Inherited complex portfolios
The question of how many brands should be kept in each market has become a primary concern of all senior marketing managers. The fact is that, due to historical reasons, most firms have to manage a large portfolio of brands. The natural tendency during the growth of firms has been to add new brands each time they wanted to penetrate new market segments or new distribution channels.
This was done so as not to create conflicts with former segments and channels which could have endangered their old brands. The vogue of company mergers and acquisitions brought additional brands that managers were reluctant to dispose of or merge with other brands. The size of brand portfolios, therefore, just grew and grew, with increased complexity and waste.
Times have changed though, and now the trend is to reduce the size of portfolios as quickly as possible. There are several reasons for this reverse in trends:
- Although it is easy to maintain several brands simultaneously in industrial markets where different brands are sometimes used for the same product to ease relations with distributors, in the retail market it is nearly impossible. The direct consequence is that only a few brands in a portfolio will be promoted, to gain a significant market share. The others will be abandoned.
- The concentration of the distribution trade has reduced the number of retailers and has even almost suppressed certain retail channels and small businesses. Brands that were previously uniquely handled by specific distribution channels and sold only in certain stores may now be found in a single wholesaler or purchasing group. This tends to lead to the reduction in their numbers. The trade has also pursued a policy of creating distributors’ own brands. This, coupled with the fact that supermarket shelf space is limited, leads to the reduction of space allocated to the other brands, another factor causing a reduction in the number of references or brands themselves.
- Industrial production has also become concentrated. International competition has put the emphasis on high productivity and low costs and has led to the regrouping of production units and research and development activities. There is less justification for large brand portfolios when the products, however varied, come from the same factories, and even the same production line.
- Consumers, however, still have the last say and despite the fact that the objective of a brand is to clarify the market, their most frequent complaint is that they are confused by the growing number of brands. A company is fooling the consumer if it sells two identical products under two different brand names. Manufacturers respond by rationalising their brands.
- The last point, but not the least, concerns brand internationalisation.
In many areas today, national barriers no longer make sense. In Europe, for example, class, lifestyle and consumer needs are no longer exclusive to a single country. The luxury goods industry has long been targeting the world market, as indeed have most industrial companies. Not all brands are suited to the international arena, however.
The investment required to establish a significant global presence means that firms can only maintain a small number of brands, or indeed just a single one for a mono-brand strategy such as that of Philips, Siemens, Alcatel, Mitsubishi or ABB.
How many brands, therefore, should be retained in a portfolio? It is obvious at this stage that there does not exist any magic formula or number. The question of the number of brands to retain is closely linked to the strategic role and status of the brands. In keeping only a single brand, we are assuming that an umbrella brand policy is possible and indeed pertinent in the market being considered.
For decades, the Philips brand included both brown and white products, yet they parted with the latter markets, selling them to the American company Whirlpool. The decision regarding the number of brands to be retained should therefore be closely linked to an analysis of the brand’s function in its respective market. Every market can be segmented, by product, customer expectation or type of clientele.
This does not mean, though, that a market divided into six segments, for example, should necessarily call for six brands. This depends on their function (do we need endorsing, umbrella, range or product brands?). It also depends upon the long-term corporate objectives, the degree of competition and the resources of the company. The appropriate number of brands results from a multi-stage, multi-criteria decision process whereby various scenarios are presented and evaluated. A good example of this approach is Michelin.