All Cars Have Four Wheels
by: Socrates - Consulting & Strategy Club at IIFT
Yet they manage to differentiate themselves by the way they BRAND themselves. Powerful word these days isn’t it, yet the word brand began simply as a way to tell one person’s cattle from another by means of a hot iron stamp. But today it is the personality with which the customer identifies a product, service or company and it can be anything right from a name (Colgate) to a symbol (McDonald’s) to a tagline (Nike, ‘Just do it’).
For a brand to be strong it should generate a strong identity in the minds of the consumer, for instance, the brand ‘Volvo’ generates a sense of safety, ‘Mercedes’ a sense of prestige while if we look at the Indian markets ‘Colgate’ means toothpaste, ‘Maggi’ means noodles or ‘Parle-G’ biscuits. Building a brand is no doubt a very big challenge and it can take years even if you have all the world’s resources at your disposal (read ‘Nirma’ vs. HUL’s ‘Surf’ in the 80s) but maintaining that image is an even bigger task (read Coca-Cola’s ‘New Coke’ fiasco or Cadbury’s worm controversy) and considering the ever changing global landscape, the task of a brand consultant is getting complex day by day.
Branding is a very hot topic in boardroom meetings these days as most CEOs have realized the value attached to these intangible assets called ‘brand’. And why shouldn’t it be as shown by a McKinsey analysis which suggests that about half of the market value of the Fortune 250 is tied to intangible assets; who knows this figure for some of the world’s best known companies can be even higher. So let us take a look at some of the complex issues a brand consultant faces today:
Brand leverage—why, when and how?
Branding is a very powerful tool for each and every one involved in the process right from the companies (increased revenue) to the shareholders (strong brands generate, on average, TRS that are 1.9 percent above the industry average, while weaker brands lag behind the average by 3.1 percent)1 to the customers from simplifying everyday choices (when she buys Colgate she does not have to fret daily over a simple toothpaste) to reducing the risk of complex buying decisions (Maruti or Hero Honda). So if we look at it closely, a strong brand can be of two types: a focused one (Dell, Maruti) or a diversified (Kingfisher, Tata) one. A strong company can do both as research2 suggests that focused brands earn 0.9% higher than average while diversified brands earn no less than 5% more.
Leveraging a brand means using the initial brand platform to move into other opportunities. But, then what are the key factors required for a successful brand leverage and when should the brand do it? Firstly, the brand must see itself from the customer’s perspective i.e. it’s ‘personality’ and then leverage the core brand’s characteristics, for instance, ‘Maggi’ noodles to ‘Maggi’ sauces or ‘Kingfisher’ beverages to ‘Kingfisher’ airlines. Obviously, some brands do it more quickly than others to cash in on their wide recognition like ‘Google’ from search engine to email in less than a decade while some take a tad longer than others like ‘Gillette’, the razor maker which waited for almost 30-40 years before launching its shaving cream. Hence, the key for the brand here is to realize that the consumers have to understand the brand’s personality and the core offerings and that they are ready for a much diversified offering.
Making brand portfolio strategies work
Marketing strategists say that brands should be run as a portfolio as this makes them easier to manage and have a more efficient use of resources. But due to an ever increasing competition, we are increasingly seeing brand extensions, line extensions, sub brands and much more. So what then is the most effective strategy for a brand? Firstly, one should adopt a flexible strategy for both consumers and current brands alike, also with the ever increasing number of mergers & acquisitions happening managing a portfolio can be quite a complex task, for ex, when PepsiCo acquired Quaker Oats for ‘Gatorade’, it also got quite a few popular brands like ‘Cap’n Crunch’ (breakfast cereal) to dinner favorites like ‘Rice-A-Roni’ which complicated the brand portfolio further.
Let us take a look at how viewing brands from the point of view of consumers can be successful as shown by PepsiCo when it recognized that consumers choose not just carbonated drinks to quench their thirst but other drinks like just plain water!!! Hence it developed new products like Aquafina or made acquisitions like Gatorade, Tropicana.
Also, the above methodology can be quite useful when the portfolio has to be restructured to meet the harsh economic realities as can be seen from Procter & Gamble’s recent strategy to prune those brands that are not top two performers in their category which is very easy if the company has a clear understanding of the consumer’s needs.
Brand building in emerging markets
Due to stagnant demand at home, US & European firms are increasingly looking at developing markets like SE Asia, Africa to fuel their growth. But understanding these emerging markets may not be their cup of tea as we have numerous times of brands successful in developed markets failing in emerging markets like India, China, for ex, Oral-B, one of the most successful brands in the US failed to reach the same heights in India due to the unique price sensitive nature of its market.
So, then, how can a foreign brand emulate its success in emerging markets like India? Firstly they need to match their low cost competitors especially in the low cost segment by matching to the local quality and price standards as was successfully done by Hindustan Unilever in the 70s-80s, when its premium product, Surf, could not even stand a chance against market leader ‘Nirma’, by launching its own very low cost, similar looking product ‘Wheel’ which turned out to be a very popular product (it had a market share of 38% at that time) 3.
Also, companies can tweak their product offerings to garner to local needs as has been done previously by McDonald’s or KFC when they introduced vegetarian food in their menu or Nokia when it introduced unconventional features like torchlight in its mobile phones.
Alternatively, there have been examples in Indian markets when foreign firms having failed to compete against a local product have taken over them as was seen by the capture of ‘Thums-up’ (which had a near monopoly at that time) by American giant Coca Cola from Parle Agro in the early 90s. Also, foreign firms unable to successfully market their products can outsource some of the functions to local manufactures through JVs like that of Renault & Mahindra or through other agreements like the one between Tata (distribution channel) and Fiat (petrol engine technology). At the end, howsoever successful a brand may be in its home market, the companies need to learn a harsh lesson, i.e. to flourish in the emerging markets they have to adapt to local needs and tastes.
(Source: 1, 2 – McKinsey Research, 3 – A. C. Nielsen India)
BY - Apoorv Dixit, IIFT Delhi, 2010-12