Notes on Brand Creation and Growth

A brand is more than a name and a logo. Brands need a personality and a ‘physicality’. Brands need to exist in the minds of consumers as much as they do on a product label or in an advertisement.

Brands are the expression of intangible values and attributes through the use of tangible symbols – names, symbols and phrases.

Here are some notes on the basics of brand creation:

Brand Name

It has never been more important to get a brand name right, particularly if your aim is to enter global or international markets.  A famous example is the use of the name Nova by Vauxhall.  In the UK, Nova was not a problem but General Motors couldn’t use that name in Spanish speaking territories. Nova in Spanish means ‘doesn’t go’.  Hence the car was marketed in Europe under the Opel badge as the Corsa.

Your target customers are likely better educated and have access to more information than past consumers.  It is easy for consumers to do research thanks to the internet. As a result they are more likely to react negatively to names capable of causing offence. Even big businesses get brand names wrong, or suffer when they try to change a name. For instance some people in the UK still complain about Marathon Bars having their name changed to Snickers.  Some existing product names have cultural associations.

Brand names can be imbued with values and gives clues to consumers about what to expect from a product or product range. Such associations allow consumers to describe and understand the brand fully.

Brand names can also act as a barrier to new market entrants. Hoover became the generic descriptor of a vacuum cleaner in the UK, and this allowed Hoover to dominate the market for decades.  Only when Hoover suffered financial setbacks, through the production of the Sinclair C5 and the fiasco of their free flights offer was space in the market created for competitors like Dyson.

However, becoming the generic descriptor for a type of product, like Hoover, or Jacuzzi, can destroy intellectual property rights.

Names should reflect useful and unique associations e.g. friendly, reliable, fast.  They should be easily symbolised e.g. the Apple logo. Names need to be memorable: being different and being creative helps memorability. Names shouldn’t be too complex. Names should also be pronounceable – people do not remember names they cannot pronounce. Names should also avoid unfavourable associations in wider culture.

Brand Symbols

Brand symbols – logos and images – can be more memorable than names.  McDonald’s can be identified through the golden arches; Nike can be recognised by their tick.  Coca Cola through the distinctive bottle shape. Symbols can have a faster impact than a name – better brand recognition.  Remember, the first trade mark wasn’t a brand name, it was the Bass red triangle – a brand symbol.

Symbols must portray something of the brand and be associated in the minds of consumers with positive feelings.  Symbols should also be able to evolve over time. This allows brands to avoid becoming dated.  However, for some brands history and tradition are important signifiers e.g. Lyle’s Golden Syrup.

You must be able to protect your brand symbols; both from the actions of competitors or even over enthusiastic internal campaign proposals.  Promotional campaigns cannot allow a brand symbol to be devalued or lose their meaning.

Brand Slogans

Some brands are as well known for their slogan as they are for their name or logo:

Beanz Meanz Heinz

Just Do It

Never Knowingly Undersold.

Each of these slogans is as memorable as the brand name itself. (Heinz, Nike and John Lewis and Partners)

Slogans help consumers transition to brands.  They speed up brand recognition and imbue brands with values and meanings.

Strong competition and mature markets require brands to be easily recognisable and you need to deliver brand associations quickly – a slogan can do this.

Slogans can infer a brands’ current and future aims.  They can assist in the repositioning of a brand or aid current positioning initiatives.  For example, following the 2008 financial crisis, Lloyds Bank changed it’s slogan to, “The best bank for customers’, in an attempt to reposition the brand away from the casino of investment banking and back to its roots in retail and business banking.

Slogans must provide additional associations beyond those provided by names and symbols.  They also need to reinforce the associations provided by names and symbols.  Slogans need to be specific, brief and memorable.

Finally, a brand name, slogan and symbol need to provide competitive advantage.  If they don’t, you need to go back to the drawing board.

Marketing Strategy: Warfare or Game

We are all aware of the stereotypes of marketing and PR professionals in the media.  They are either air brained non-entities like Siobhan Sharp in W1a or Steve Coogan’s ultra-aggressive salesman, Gareth Cheeseman.

And such stereotypes seem to feed into the minds of some business managers who treat the marketing function as either a form of warfare or as a complex game.  So, if you are charged with your businesses marketing function, are you to act like a field marshal planning troop movements or like John Nash, the Nobel Prize winning mathematician and inventor of Game Theory.

In truth, running a business is not warfare; and I suspect many business owners would be extremely worried if their staff were treating strategy as a game. You are not organising the D-Day landings; you are not playing Monopoly.

However, that does not mean your business strategy cannot learn from both military strategy and game strategy.  Even I succumb to occasional quoting Sun Tzu’s The Art of War (and even Machiavelli’s The Prince).

The effective marketer will be able to learn from both military strategy and game strategy.

Some of the analogies in marketing that can be lifted from military strategy are:

  1.  Select and maintain your aim
  2. Use surprise with audacity and speed
  3. Maintain morale
  4.  Take offensive action
  5. Secure your defences and never be taken by surprise
  6. Maintain flexibility
  7. Use concentration of force
  8. Use economy of effort.

These principles can be summarised in four broad strategic options:

  • Offensive Marketing:
    • Careful consideration of the market leader’s position
    • Search for and attack weak points in the market leader’s position
    • Attack on as narrow a front as possible like the point of a spear splitting chain mail.
  • Defensive Marketing:
    • Only those in a market leadership position should consider defence as their primary strategy. Everyone else in the market needs to prioritise offense.
    • Attack is the best form of defence
    • Strong competitive moves should always be blocked.
    • Never underestimate or ignore the competition.
  • Flank Marketing:
    • Flank into uncontested areas
    • Use tactical surprise
    • The pursuit is as critical as the attack itself
  • Guerrilla Marketing:
    • Find a niche segment that is small enough to defend but also viable.
    • Regardless of your level of success, never act like a market leader.
    • Be prepared to retreat at short notice especially when faced with threats you cannot deal with.

Competitive strategy can also learn from gaming.  Like in many games, outcomes of marketing strategy are not reliant on the actions of your business alone: Outcomes are also reliant on the actions and reactions of your competitors.

Markets are becoming increasingly competitive as they mature and new technologies are leveraged. The game of marketing is becoming more difficult to win.

There is a real danger that this complexity will lead to the threat of damaging price wars as businesses desperately try to avoid losing customers, share and sales volume.   Increasingly it will appear that the only way to defend against competitors is to cut prices.  This in turn leads to a downward spiral where prices only go down, margins are eroded and profitability disappears.  This is marketing’s version of MAD; Mutually Assured Destruction.

To avoid MAD, you need to ‘manage’; the competitive process and your competitors.  This can be achieved by following these broad guidelines:

  1.  Never ignore new market entrants; particularly those focused on the bottom end of your market.  Look at the success of Lidl and Aldi as discount supermarkets and their effect on the pre-existing groceries market in the UK.  Look at Norton (a company now in administration).  Norton, BSA, Triumph and other UK motorbike manufacturers were once the dominant market leaders but they ignored the ‘cheap’, low powered motorbikes coming from Japan and lost their market dominance to Yamaha and Honda.  The UK motorbike industry went from a position of market dominance to that of also-rans.
  2. Always exploit competitive advantages (unless they are replaced by another advantage which is more attractive, powerful and meaningful to your target customers)
  3. Never launch a new product or take a new initiative without anticipating the probable response of your competitors.

Day (1996) wrote that successful businesses:

“Formulate strategies by devising creative alternatives that minimise or preclude or encourage cooperative competitive responses.  They adroitly use weaponry other than price including advertising, litigation and product innovation. They play the competitive game as though it were chess; by envisioning the long-term consequences of their moves.  Their goal is long-term success rather than settling for short-run gains or avoiding immediate losses.”

Too many businesses focus on past experience for future success.  They focus on past campaigns; they expect competitors to do as they have previously done.  These businesses often fail to ask what their competitors are likely to do in the future.  Often these assumptions are invalidated by small market changes.

Many businesses also look to simplify reality (and not just businesses, much of today’s politics, particularly Brexit, is based on simplification of often highly complex realities).  Such simplification may just be about sustainable in a static market. But ask yourself how many markets are static?

You need to put in effort to learn about your competitors; their strengths and weaknesses; their ways of doing business; their alliances; and their strategic position. You need market intelligence.

In developing business and marketing strategies you are not Napoleon at Waterloo and you are not John Nash building complex mathematical models. That said, the successful marketer will know the principles of military strategy; they will know the rules of the game; and the shape of the game board.  Knowledge of games and military strategy can have a strong influence on business success.

Understanding and managing market share risk

Firstly, lets define market share.

Market share is the total sales of a product or service in a specified market expressed as a percentage of the total sales by all entities offering a similar product or service.

The market share metric was originally created to measure the sale of tangible products in consumer markets it is a measurement which has enduring popularity.  The most precise way to calculate market share is sales as a percentage of the total defined market over a specific period of time.  Market share is possibly a flawed measure of marketing success.  There is no accepted formula which links market share to profitability and it is a difficult measure to apply to services and intangibles.

That said, too many businesses focus solely on financial metrics and not on wider measures of their position in a market.  Carillion issued returns showing a glowing financial situation only a few months before insolvency hit.  Historical financial statistics can, and often are, manipulated; even if it is just to lower the tax bill.  You need to look wider at the position of your firm in the market to ensure survival in that market.

Market share has five main components:

  • Target Market Risk
  • Proposition Risk
  • SWOT Alignment Risk
  • Uniqueness Risk
  • Future Risk

Market share risk is a function of strategic strength.  If you have a weak strategy, it is likely that you have high market share risk; and vice versa.

Understanding and managing market share risk requires the appreciation of the need to engineer the chosen target customer group and you value proposition.  This process is best achieved through the application of marketing due diligence diagnostics.

Target market risk arises from having a poor definition of your target customers.  This is especially important if you target customers are heterogenous.  If you have a single value proposition and your target customers are not all the same (who is?), then the proportion of your target customer group your offer attracts is the upper limit of your market share.

Target market risk is high when marketing strategy does not target defined market segments but targets weakly defined classifications of customers.  Recently the most commonly used weak classification was ‘millennials’; This refers to adults whose eighteenth birthday was after the year 2000.  This is an especially weak category as the term millennial could apply to over one third of the UK population.  That is not a defined target market.  It is also weak to define your market in terms of particular goods and services.

The way to reduce target market risk is to have a deep understanding of both your market and of market segmentation techniques.

You need to carry out rigorous market segmentation processes to analyse your market. This reduces target market risk, which in turn reduces market share risk and thus business risk.

To create real market segments:

  1. Accurately define your market
  2. Decide where the purchase decision is made e.g. Consumers decide which TV to buy but your Doctor will often decide which prescription medicines are needed. You need to fill in the gaps in the following statements:  Our market choice is made at …….. level by ………….
  3. You need to decide what drives the decision to purchase.  Is it hygiene factors or motivator factors.
  4. You then need to cluster your customers by the motivator factors which drive them. Clusters are often driven by needs.
  5. You then need to find your customers within the wider market.
  6. Then you need to test your chosen segments.  Are they accurate? Are they viable? Are they distinct? are they accessible? Are they homogenous?

To reduce proposition risk you need to ensure that your offer appeals to your target customers.  too many entrepreneurs create a product and then try to find customers who are willing to buy it.  Surely it is better to define a target group and then to create a product which meets the needs of that target group?

A major component in proposition risk can be the battle within a company between creating customised products and true mass production. Customised products are those ‘made to measure’ for a particular customer.  Mass production is the creation of identical products for all consumers.  It is the Savile Row suit versus the Burton suit.

Customisation can create luxury product but it is expensive to customise.  Mass production allows for economies of scale.  The problem is that expensive customisation may be the best way to reduce proposition risk.

Offering the same product to two or more market segments may be sub-optimal but it may be the best mix between maximising economies of scale and minimising proposition risk.

Some firms, such as BMW Mini and Brompton Bicycles offer mass customisation.  This often requires highly efficient just in time procedures and significant levels of technology.  Mass customisation will never be as cost efficient as true mass production.

When considering mass production you must also consider your product halo; the services you offer beyond the core product.  There is the extended product, the services and optional extras you offer beyond the core product, and there is the augmented product, the status, emotional associations and ownership experience felt by your customers.

Fender owns the Squier brand of electric guitar.  Often there is little to distinguish a basic Fender guitar from a high-end Squier guitar.  So if the products are of equivalent quality what would you choose.  I suspect most guitar players prefer to have the Fender name on the guitar headstock.

It is therefore possible to have a mass produced core product but to offer a variety of service options and optional extras to suit the needs of heterogenous consumers.

to lower proposition risk, you need a clear understanding of the nature of your value proposition, its components and its attractiveness to consumers

SWOT alignment risk is where your strategy does not align with organisational strengths and weaknesses; or it fails to exploit opportunities; or it fails to defend against threats.

Previously, I have criticised many business start-up programmes for getting new business proprietors to do a SWOT analysis without going further and defining strategies to deal with SWOT issues.

SWOT analysis requires the alignment of internal business factors with external market factors.  It is not simply the listing of these factors.  You must use SWOT analysis to identify key market factors and to suggest key issues.  You must then develop strategies to address these issues.

So BMW’s strength in engineering excellence allow their vehicles to be marketed as a driving experience and status symbol not just a car.  Apple’s focus on design allows their products to be aspirational and ‘cool’.

Weaknesses are only weaknesses if they are meaningful to the customer and it is uncommon, i.e. not shared by all suppliers in the market.  A weakness must also be costly or difficult to correct to be a true weakness and it must not be able to be compensated by other factors.

A strength is a strength if:

  • it is valuable to the customer
  • It is rare (not possessed by competitors)
  •  It is imitable (hard to copy)
  •  it is aligned i.e. you are best placed to leverage the strength.

Uniqueness risk is lowered by not going head on against your competitors.  If all competitors have the same offer it is easy for consumers to switch preferences.  Uniqueness risk is usually a result of poor targeting.  Remember much of marketing strategy is about the creation of difference and creating competitive advantage through that difference.

Today’s strong market may be tomorrow’s weak market.  I recently watched a repeat of the programme Who Do You Think You Are? which focused on his links to the Kilner glassware firm.  Clarkson wondered where the fortune of his Kilner relatives went.  The truth is that the glass bottle and jar market collapsed with the arrival of new plastics and his ancestors made a critical error in not buying new bottling technologies which were snapped up by their competitors.

The Kilner’s business failed because they did not properly assess future risk. Similarly, the record industry failed to properly assess the future risk of download technology and allowed Apple and other non-music related firms to dominate their market.

To prevent future risk, you should constantly be scanning your macro-environment, use PESTEL analysis.  If a high level of future risk is evident in your market, you need to accurately forecast potential market change through future scenario building.  you cannot sit in your comfort zone.  Look beyond your existing market for potential new entrants and disruptors offering new market models and supply technologies.

 

Relationship Marketing Myopia

In the early days of marketing size, the focus of businesses was very much on successful transactions.  The aim of marketing departments was to grow sales.

Today, that focus has changed.  The market is mature. New customers can be hard to come by and expensive to obtain. So the focus of marketers has shifted to creating and maintaining relationships between a business and its customer base.  This is obviously based on the tenet: The longer you keep a customer, the more you earn from them.

This relationship focus has seen the rise of social media as a marketing tool.  Social media in marketing is an unproven and likely poor sales channel. Businesses should not see it as an aid to successful transactions. Social media is about developing relationships, creating brand communities and moving target consumers from prospects to close business partners.  Social media is also about weaponizing your current customer based as part of your marketing team; through the development of E-WOM (electronic word of mouth).

So much of marketing today is about relationship building.

Piercy (1999) warned that businesses need to avoid relationship marketing myopia; the naïve belief that every consumer wants a deep relationship with their suppliers.  This is why I often laugh when necessary but embarrassing products have social media accounts. For example, who wants to become part of the John Smith haemorrhoid cream community?

Piercy goes further and states that different consumers want different forms of relationship with their suppliers.  Piercy states that to ignore this as a reality is an “expensive indulgence”.

In Piercy’s model, there are four types of relationship that consumers have with a business:

  1.  Relationship seekers:  These consumers want long and close relationships with a supplier.  So a local authority will likely want a close relationship with an ICT supplier.
  2. Relationship Exploiters:  These consumers will grab at all free services and offers provided.  They are also fickle and will move their custom when they feel like it.  They may well be ‘zombie customers’; customers who will cost more to service than you will earn from them.
  3. Loyal Buyers:  These consumers are happy with a long-term relationship but they do not want a close relationship with their suppliers.
  4. Arms-length Transactional Buyers:  These consumers actively avoid long-term relationships with suppliers.  This may well be transactions based on price, technical specification or innovation.

What these four categories highlight is that relationship strategies for marketing MUST be based on market segmentation.

Investing in relationships with profitable relationship seekers is a good thing. Relationship development with exploiters and transactional customers is a waste. You need to develop different marketing strategies to suit different relationship needs.

Some argue that there is a link between customer loyalty and customer satisfaction.  surprisingly there is little evidence to support this. As I have often written customers are fickle and so is their loyalty. What is much more likely is that there is a link between customer dissatisfaction and customer disloyalty.

In many markets, such as utility provision and retail banking, there is significant customer inertia.  Who reading this article has been a customer of their bank since childhood?

Today businesses spend billions on customer relationship management. But is a radical rethink needed?  Should we be looking at managing customer relationships with our business or should we be giving customers options as to the type of relationship on offer? Is it time for the customer management of relationships?

Customer management of relationships  represents a new power balance where customers choose the relationship they want based on:

  • What they are interested in,
  • what information they want,
  • what levels of service they want,
  • what way they want to communicate.

In this process you need to recognise the real value of relationship development tactics and target consumers who are interested in those relationships.  For example, what is the point of a loyalty card scheme if everybody can have one regardless of their level of loyalty?

Time and Technology

The hype relating to market disruptors is now somewhat reduced as compared to a couple of years ago but it is still the case that market disruption is a major component of many new businesses.

So what is meant by ‘disruptors’?

Disruptors are entrepreneurs who aim to enter existing markets through leveraging the benefits of new technologies on that market.  So if you have a plan to deliver Pizza via an app, or to sell Books through a website, or to distribute music by digital download, then you are a disruptor.  Some of the biggest businesses in the world could be classed as market disruptors, Amazon, Deliveroo, Uber, AirB&B, Tesla, etc.

There are two aspects to market disruption:

  1. The technology
  2. Time.

In fact there is a triad of components to technological disruption; money, quality and time. The implementation of technology in the marketplace has to be a set quality (that demanded by target customers).  It takes money to ensure that quality; and it also takes time to develop that quality.

Recently, Dyson abandoned their project to develop an electric car.  The proposed vehicle was a disruption product.  It was reliant on experimental solid state battery technology. In announcing the project, James Dyson stated his plan to launch the new car in 2021. Many in the automotive sector believed that such a deadline was overly ambitious and that solid state rechargeable batteries would not be commercially ready until the middle of the next decade, at the earliest. Dyson’s 2021 deadline was clearly a rush to market, and that rush risked the product not meeting the expected quality.

This tale mirrors the Sinclair C5, the 1980’s electric recumbent tricycle.  People expected Clive Sinclair, the home computer pioneer, to produce a quality, useable transport solution. Instead they got a pedal car with low power and limited range.  One of the primary reasons for the C5’s failure was the new, experimental batteries designed by Sinclair, were not ready at the time of the C5’s launch.

Technology does not just mean product technology.  There is the technology needed to produce new products (e.g. new machinery such as 3D printers) and then there is technology for support functions – e.g. Artificial Intelligence being used for support calls.

Time to market is clearly a factor on the ability of a firm to have a hold on the development of a market.  The recent rise in the Tesla share price; the firm is now worth more than Volkswagen; signifies that, at least in the minds of city traders, that Elon Musk’s car firm has a technological lead.

Technology is also a measure of customers perception of your status in the market.  Often firms with the best technology are seen as market leaders (whether or not that perception is true).

When discussing time, there is time to market, but there is also the timing of market entry.  Often being first to market is a primary incentive, especially when intellectual property; such as patents and designs; is prominent.

Disruption through technology isn’t just the creation of software apps.

There is industrial technologies, such as the creation of long-life egg powder for cake mixes; or the creation of lightweight but toughened plastics for football boots; or the creation of high capacity memory chips for USB memory sticks and memory cards.

There is workplace technology.  This doesn’t just mean robots on the production line.  It is the application of scientific principles to marketing. For example, the development of graphene for flexible mobile phone screens.

There are four roles for workplace technology:

  1. Improving the speed of an activity;
  2. Improving the precision of an activity;
  3. Overcoming limitations
  4. Reducing Costs

All of these feed in to improving productivity.

Time is important because it is, in today’s world:

  • You need to meet customer expectations faster;
  • People expect ‘best value’ to be delivered faster.

it is a question of relative time, to absolute time.  Dyson’s 2021 deadline was an issue of absolute time.  he may have been better concentrating on relative time.  rather than setting an arbitrary deadline for his batteries to perform, he may have been better concentrating on ensuring his batteries were the most effective and efficient before those of competitors met those criteria.

Consumers attitudes also change over time; and changing consumer perceptions and attitudes is fundamental to marketing.

Rushing to market can be a big mistake.  Take Betamax video tapes as an example. Betamax format was first to market in the home video recorder market but VCR tapes became the market standard.

Being too late to market can also be an issue.  An example is Sony minidisc. This format was the first for digital downloading of music, and it was a better portable offer than compact disc as it was less prone to jumping.  However, Minidisc was launched just as MP3 players hit the market, which used memory chips which made the ‘disc’ bit of the technology redundant.

In 2003, Stalk and Hout wrote that time is the next competitive advantage.  This led to a humorous comment that marketing success was like going to a dance where success in getting a partner relied on being first there and being best dressed.

The best approach is to consider how relative time gives you a competitive advantage.

Rush to market and your technology may not be of the quality demanded by consumers.  It may not be perfected.  Alternatively, if you are a technological laggard, your competitors may beat you to the punch.

Strategic alliances to boost growth

Last week, I mentioned the Ansoff Matrix and the four strategic options for growing a business it proposes.  What is clear from the matrix is that each of the options contains an increasing level of risk.  Several of the options will involve significant level of expenditure. Diversification can be expensive; as is the process of new product development.

With NPD you can spend fortunes on prototype products which never go to market.  It is estimated that James Dyson spent £2 billion on his electric car project before pulling the plug (sorry for the pun) on the concept.  Dyson, when announcing that the car wasn’t going into manufacture said that production would not be financially viable. I also suspect his experimental solid state battery technology was incapable of powering the vehicle.

One way to reduce the costs of, and to some extent the risk of business growth, is to enter an alliance or joint venture.  One wonders that if Dyson had viewed his electric car project as a joint venture with an existing motor manufacturer, instead of slagging them off at the concept launch, his car might have seen the light of day in the marketplace.

Dyson forgot the mantra, ‘No business is an island’. Businesses operate in complex markets where it is likely suppliers, distributors and retailers are shared.

If you are looking to expand your market, either geographically or by moving from commercial markets to consumer markets,, you may well need the expertise and knowledge of those already operating within your expansion target.

When creating new products you may want to spread development costs, or you may need specialist technical know-how.

Diversification is the highest risk and potentially the most expensive growth option for a business.  You may need guidance from those who already know the proposed product category.

At a strategic level alliances should add value by leveraging the optimal level of assets and competencies.

It is increasingly unlikely that a single business can keep all these assets and competencies in-house. ‘No business is an island’. Exclusivity costs.

A partnership or alliance may be the best way to maximise economies of scale.

So a telecommunications firm may choose to partner with an IT firm to create integrated systems.  Computer manufacturers partner with manufacturers of VDUs, processing chips and graphics cards. Car manufacturers share production platforms and car ‘chassis’ designs.

And it isn’t just in production that an alliance can create economies. You can build alliances with retailers, distributors and suppliers.

Alliances are not just for big multi-nationals. take the example of McKean Foods, a Haggis producer. McKean started selling haggis online and received lots of interest from the United States of America.  However, the USA bans imports of haggis as a measure against the spread of the disease Scrapie, which affects sheep.  this ban is completely non-sensical as McKean operates in the UK/EU where animal welfare and food standards regulations are amongst the most comprehensive in the world.

So as McKean Foods cannot export Haggis to the USA, clearly an alliance with a US manufacturer would allow growth through market expansion.

In modern markets there are the following motivations for alliances and joint vewntures:

  1. Globalisation: Many companies are now compelled to work on the world stage.  Globalisation has also led to shorted product lifecycles. the mobile phone market is a clear example of product lifecycle contraction. Contrary to the argument for Brexit, the world is becoming a smaller place and around the world nation states are joining forces to create economic blocs e.g. Mercosur and the South African Development Alliance.
  2. Assets and Competencies: As stated above, a single company cannot be good at everything.  It is almost certain you are going to need specialist knowledge and expertise available through alliances.  An alliance can allow your company to concentrate on its core attributes whilst ancillary functions are outsourced to external specialists.  So, for example, fast food chains link with firms operating home delivery apps such as Just Eat and Deliveroo.
  3. Risk:  Alliances can work to reduce risk.  Financial commitments can be shared.  Going it alone could mean isolation from industry and technical standards.  For example, small food producers wanting to supply UK supermarket chains are expected to meet British Retail Consortium standards which often go beyond EU and UK legislation.
  4. Learning and Innovation:  Alliances and joint-ventures allow businesses to learn. that learning can help firms develop sustainable competitive advantage.

For joint-ventures to be successful, you need more than a strategic fit.  You need a cultural fit as well.  You must be able to work with your chosen partner.  If your business is risk averse, a partnership with a buccaneering high risk operator will be unlikely to succeed.  A fine example is the failed joined venture between BP and the Russian oil firm TNK.  That partnership became distinctly frosty and hostile and in the end BP could no longer work with TNK.

 

Evaluating Brand Extension

Many entries ago, I discussed the theory of product and brand growth proposed by the American mathematician and marketing academic H. Igor Ansoff.

Ansoff believed that there were two customer groups, a brand’s existing customer base and new customers. He also stated that there were two types of brand products, existing products and new products.

This leads to a two by two matrix offering four strategic options for brand growth:

  1.  Market Penetration:  Selling more of your existing products to your existing customer base.  This could be tactics like Buy One Get One Free offers, improving delivery networks and increasing the number of retail outlets.
  2. Market Expansion:  Selling your existing products to new customers.  This could mean geographic expansion of the brand to new territories i.e. to paraphrase Andrea Leadsom, selling innovative jams to the Chinese.  It could mean selling products originally targeted at business customers in the consumer market.
  3. New Product Development/Brand Extension:  This is selling new products to your existing customers.  Dyson make vacuum cleaners but they have extended their cyclone technology into products such as hand driers, room fans, hair dryers and car air conditioning units.  Mars extended their chocolate bar brand into products such as ice cream and milk drinks.
  4. Diversification:  or selling new products to new customers.  Richard Branson’s Virgin group of companies operates a diversification policy. Virgin began as a record shop and importer.  It soon became a music label and a chain of record shops.  Today, the Virgin brand has a radio station, an airline, train franchises, a bank, a hotel chain, an online travel agency and a whole host of other businesses in a variety of sectors.

Ansoff stated that with each step from market penetration to diversification, risk of failure increased.  Diversification is the most risky strategy a business can follow.  It is therefore imperative that a firm looking at diversification strategies carries out comprehensive and accurate strategic planning.

In the early days of Virgin, Richard Branson was of the view that he would do things differently and the standard practice of planning had no place in Virgin’s operations. Virgin after all was a counter culture business.  it is widely known that if Branson hadn’t have signed Mike Oldfield and produced the album Tubular Bells, his company would have failed.  Branson was only able to develop the country house which was used as Virgin’s recording studio thanks to a significant loan from a member of his family.

Richard Branson now states that detailed strategic planning is critical to the success of the Virgin Group.

there is one part of the Ansoff Matrix that is controversial.  Ansoff said that you shouldn’t move on to the next riskiest strategy until all efforts have been exhausted in the lesser risk strategy.  So you do not try to expand your market until you have exhausted all efforts in penetrating your existing market.  Many leading business academics and leaders see this as too restrictive a position.  Business after all is about exploiting opportunities as they arise.

But clearly you need to clearly define the risks and rewards of a business opportunity before you act.  Julian Richer of Richer Sounds, the UK hi-fi retailer has a risk averse approach and has slowly built his brand over fifty years; whereas Richard Branson leaps into new sectors at a pace, giving each new business a defined time to succeed.

For many businesses, growth is defined by diversification or brand extension. For these businesses there is little opportunity to penetrate further or to expand.  For example, farmers will look to sell all their output (the harvest) and they are tied to contracts with suppliers.  For example dairy farmers have close links to dairies.

For these businesses, the instruction has been to diversify.  So farmers built golf courses and hotels, they entered tourism markets and became food manufacturers.  Often these farm-based diversifications are poorly thought through or are ‘me too’ efforts i.e. copying the activities of neighbours.  They have not asked or answered the six crucial questions of brand extension:

  1.  What is the attraction of the new market or product category?  Is the target market growing? Is it less price sensitive than existing markets?  Are existing service levels poor and your existing service offers can thrive?
  2. What advantages do you bring to the new sector?  Do you have better distribution networks? Can you offer better customer service? Can you offer new technologies? Can you provide more efficient manufacture? Do you have higher productivity than your competitors? Can you provide better market coverage and share of voice?
  3. Can you make your market advantages durable?  Do you have intellectual property ownership of technologies? Can you offer the new extension through your existing dealer network? Can you develop exclusive partnerships with retailers? Can you demand eye level shelf space or aisle ends? Can you cut out middle men and sell direct?
  4. What will be the reaction of your new competitors to the market extension? Dyson entered the vacuum cleaner market when the existing market leader, Hoover, was in significant financial difficulty and reeling from the failure of the Sinclair C5 and the disastrous free flights special offer.  Do you have resources available to fight off the reaction of competitors e.g. price drops or aggressive advertising campaigns? Can you offer technological solutions to disrupt competitor’s defence of market share?
  5. How legitimate would your brand be in the new sector? Laughing Cow Cheese is a brand with a child-friendly family image, so an extension into the alcoholic beverage market was not legitimate.  Coca Cola, commonly used as a spirits mixer has successfully extended into the pre-mixed alcoholic beverage market (in conjunction with Bacardi Rum).  Donald Trump released a fragrance.  However it is unlikely that Trump cologne would succeed in the UK where trump is slang for breaking wind.
  6. What does the proposed extension bring to the parent brand?  Some extensions may dilute your existing brand image and identity.

Of course you must seize opportunities to pitch your business ahead but market extensions should simultaneously surprise and leave their mark.  They must be a mix of doing the unexpected and retain brand consistency.

When a brand extension is chosen it must be able to export existing brand attributes and equities; but be able to defend the new market position.

A good example is Apple which caught the music industry on the hop with the development of the iPod and iTunes but retained the brand reputation for design and quality manufacture.

Some firms through history make really surprising leaps into new sectors.  Take as an example Yamaha.

I have just bought an excellent Yamaha acoustic guitar.  Yamaha started in the 19th by making organs and pianos.  Soon it was making guitars and other acoustic instruments.  In World War Two, Yamaha’s factories were turned over to manufacturing military equipment.  After the war, the company repurposed the military manufacturing plant to make motorcycles.  In the 1970’s Yamaha’s piano division started making synthesisers.  This led to the company moving into the semiconductor market where it is now a major producer.

So don’t reject diversification or market expansion as strategies for your business: but if you intend to diversify or expand make sure you have comprehensive SMART strategies in place.