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  Forcing Brands into Early Retirement   Forcing Brands into Early Retirement  Randall Frost  
         
 
Forcing Brands into Early Retirement Few brand enthusiasts can forget Marlboro Friday. In 1993, the death of brands was predicted after Philip Morris announced it would slash the price of Marlboro cigarettes to position the label more competitively against cheaper, generic rivals. More than a decade later, brands are still alive. But there may be a new executioner behind the shroud: the brand manager.

There is no question that brand diversity is on the block. Several years ago, Unilever, wishing to reduce brand redundancy in the countries in which it operates, announced its decision to shrink its brand portfolio from 1,600 brands to 400 superbrands. Japan’s cosmetic giant Shiseido is reportedly now planning to cut its brand portfolio by 75 percent. Recognizing that its top ten brands account for half its sales, P&G is now focusing most intently on fourteen of its approximately 300 brands.

 
Meanwhile, megastores like Wal-Mart have opted to carry only the leading one or two brands (plus perhaps a private label) in any given product category, with the result that less profitable brands are being squeezed out of an increasingly less diverse market.

But the trend goes far beyond volume discount stores. Automobile manufacturers, seeking economies of scale, routinely attempt to use the same parts in many different vehicles, while producing more than one model on a single assembly line. The result has been, in several cases, increasingly indistinguishable—and unprofitable, car brands.

 
In the December 2003 issue of the Harvard Business Review, Professor Nirmalya Kumar of the London Business School argued that companies can often achieve greater economies of scale, corporate growth and profitability by reducing the number of brands in their portfolios. According to Kumar, once any unprofitable brands have been killed off, companies are left with more freedom to invest in the growth of their remaining brands.

Arguing that any decisions to delete brands must ultimately be based on profitability, Kumar provides the following list of questions to help brand managers identify any brands ripe for deletion. According to the author, the more “yes” answers these questions elicit, the greater the justification for killing off brands.

1) Are more than 50 percent of the company’s brands laggards or losers in their categories?
2) Is the company unable to match its rivals on marketing and advertising for many of its brands?
3) Is the company losing money on its small brands?
4) Does the company have different brands in different countries for essentially the same product?
5) Do the target segments, product lines, price bands, or distribution channels overlap to a great degree for any brands in the company’s portfolio?
6) Do the company’s customers think its brands compete with each other?
7) Are retailers stocking only a subset of the company’s brand portfolio?
8) Does an increase in advertising expenditure for one of the company’s brands decrease the sales of any of its other brands?
9) Does the company spend an inordinate amount of time discussing resource allocation decisions across brands?
10) Do the company’s brand managers see one another as their biggest rivals?

Although this set of questions specifically addresses the reduction of brands in a corporate portfolio, Kumar says it can be adapted to the deletion of individual brands. “Question 1 becomes: ‘Is the brand a laggard in the category’; Question 2: ‘We do not anticipate having the scale to match our rivals on marketing and advertising;’ Question 3: ‘We cannot see how to make the brand profitable’; and so on,” explains Kumar by email correspondence.

Having identified the underachievers, Kumar next advises the company to merge, sell, “milk” or simply eliminate them. Any brands that have trouble competing for shelf space and buyers are simply dropped. (Legal rights to the discontinued brand must be kept lest the dead brand later come back as a rival.)

But Dr. Claudia Imhoff, a business intelligence expert and president of Intelligent Solutions in Boulder, Colorado, says she became squeamish when she read Kumar’s Harvard Business Review article. “The guy looked at [brand deletion] from a solely marketing orientation,” she says. “There are so many other factors.”

Others seem to agree. Martin Roll, founder and CEO of VentureRepublic, a branding advisory with offices in Singapore and Denmark, says: “Basically, I believe that most brands in most categories can be revitalized, but it requires that the product/service it represents is still up to speed, relevant, competitive etc.... [T]he brand could have lost relevance, touch, edge and all that, and it might be feasible to abandon it. If this is the case, I would look at the following factors which could be reasons to stop the brand management efforts of that brand:

1) It costs too much to revitalize/rejuvenate compared to the ROI of alternative investments of the budget.
2) The brand has got such negative connotations that it is one long uphill battle to fight back to normal.
3) The brand portfolio has become too large/too widespread [such that] individual brands might have suffered.
4) Similarly new brands in the company portfolio serve needs better than the brand in question.
5) The organization does not understand/believe in the brand (right or wrong) so back-up is slim.”

Whereas Kumar justified killing off General Motors’ oldest brand, Oldsmobile, because it was unprofitable (a condition he attributed to the inability to distinguish Oldsmobile from the rest of the General Motors line-up), Imhoff would take a more systemic approach. “If you are a normal family where one of the cars is an Oldsmobile, what’s the other one?,” she asks. “Are you going to lose that customer—not only one car but both cars, if you kill the brand? Not understanding this broader interpretation of what a customer is, is to me a death knell.”

Imhoff continues. “It’s like the banks when they decide what branches they are going to shut down, or what ATM machines they are going to pull out. What if your most profitable customers go to that branch? It may not be terribly profitable in terms of the branch itself, but if your most profitable customers go to that branch, then you may want to rethink keeping it open—simply to hang on to those customers. That’s the kind of thing many companies don’t look at. They look solely at the revenue status of a brand, instead of what the whole interplay is. What’s the interplay between brands as well as the customers themselves?”

Certainly if lack of brand distinction in the General Motors line-up were the sole factor contributing to Oldsmobile’s demise, newly displaced Oldsmobile buyers might be expected to turn to a similar GM product for their next car purchase. But customers who have been loyal to the Oldsmobile brand in the past are reportedly now turning not to other GM brands such as Buick, but instead, to Japanese models.

Los Angeles car talk-show host Kenny Morse suggests an explanation: “The last people who owned Oldsmobiles were die-hards. When they left Oldsmobile, they had nowhere else to go. They were re-evaluating their brand decisions, and they were more inclined to go with value and quality.” Essentially Morse argues that once a customer’s ties to an automobile brand are severed, everything else is up for grabs.

But other factors may also influence customer migration. According to Bob Kurilko, vice president of marketing at online auto-dealer Edmunds.com, Oldsmobile often teamed up with another brand in multi-point dealerships. “If [the other brand was] an import brand,” says Kurilko, “the consumer may stay there and switch brands to remain loyal to the dealer and service department. If it [was] a GM brand, the Oldsmobile loyalist may be angry with GM for taking away the brand that was working well for them, and rebel by going elsewhere." Of course, if the dealership closes down, the consumer has little choice but to start over somewhere else.

There is little question that brand migration patterns need to be thoroughly understood before a brand is deleted. In an article that appeared on DMReview.com (April 2004), Imhoff wrote that brand managers need to understand the relationships not only of the customers to any brands marked for deletion, but also the relationship of those brands to the retained brands. She also pointed out that there may be relationships that, if interrupted, could hurt the retained brand.

Customer migration patterns, of course, may be next to impossible to predict. Coca-Cola’s decision to take its time-tested formula off the market several years ago must rank among the best examples of a company misreading customer preferences and attempting to kill a product brand that still had a strong following. As everyone now knows, consumers hated the reformulated Coke, and the company had little choice but to bring back the old formula as Classic Coke.

But what is sometimes forgotten is that Coca-Cola’s decision to reformulate its flagship soft drink made absolute sense based on the numbers: taste tests clearly indicated that consumers preferred a sweeter soft drink. What the company seems not to have realized was that its consumers were more attached to the notion of getting the “real thing,” than they were to having a better-tasting cola.

In his recently published book, Marketing as Strategy (Harvard, 2004), Kumar concedes that the art of brand deletion is “neither straightforward nor well understood,” and that no decision to delete a brand should be reached as a textbook exercise. Even though market pressures are increasingly arguing for reduced corporate brand portfolios, brand deletion needs to be based on more than the current profit and loss statement. But Kumar nevertheless holds to his thesis that the deletion of unproductive brands will eventually lead to corporate profitability.

Imhoff cautions, however, that brand deletion involves political and emotional issues—quite aside from marketing ones, that must also must be resolved if the deletion is to be successful. Otherwise, even if profit is immediately affected by killing a brand, it may take several years to recover from a contraction if something unexpectedly goes wrong.    

[2-Aug-2004]

 
  
  

Randall Frost, a freelance writer based in Pleasanton, California, is the author of The Globalization of Trade. His work has appeared in Worth, The New England Financial Journal, CBSHealthWatch and a variety of educational publications.

     
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