There are a few principles to be followed to optimise the results of multi-brand entries in a competitive market. Although simple to express, they pose implementation problems to organisations built and organised on other principles than brand logic.
Portfolios need strong coordination
Brand portfolios do not manage themselves, they need some form of coordination and even a coordinator above brand level. Experience has shown that companies are ‘porous’, with ideas passing between departments, across corridors and even between buildings. This gives rise to an – albeit involuntary – tendency to duplicate brands within the same portfolio.
The allocation of innovations also gives rise to difficulties, with each brand wanting the innovation before the others. This is why companies have either a brand coordinator or a brand committee responsible for addressing these problems.
Allocate innovations according to each brand’s positioning
It is a well-known fact that innovations are the lifeblood of a brand, since they renew its relevance and differentiation. This is why it is essential to have clear and precise platforms (a charter of identity) for each brand – a tool for clarifying the main lines of development and innovation of the brand.
This makes it possible to allocate innovation according to brand values and not under pressure from the sales force, which wants each brand to enjoy the same advantages. In fact, it should be quite the opposite – it is through innovation that the brand reveals its identity. It is therefore important to distinguish between exclusive innovations (such as coupés for Peugeot) and innovations that will be introduced over a period of time (phased innovations), and also to establish the order in which these innovations will be allocated to the brands.
Apart from brand values, positioning and market share also influence the allocation of innovations. For example, there is no point in allocating a specialised innovation (targeting a small number of households) to a mass market brand. It is far better to reserve an exclusive innovation for a top-of-the-range brand which, by definition, targets a more limited clientele. This is how Elcobrandt manages the allocation of innovations between its mass-market brand Brandt and its top-of-the-range brand Thomson.
However, the rule for allocating innovations as a function of brand identity comes up against another type of logic, the logic of cost reduction. For example, the logic of platforms where an increasing number of parts are shared between different brand models totally contradicts the principle of allocating innovations according to brand value.
Nothing could be more a function of identity than Citroën’s hydro-pneumatic suspension, which reflects the identity and very essence of the brand – overcoming technical constraints to increase passenger comfort. This suspension – the historic attribute dating from the famous DS models – is only found at the very top of the Citroën range. But if it had to be invented today, what industrial group governed by the logic of production platforms would agree to create and develop such an innovation for a single brand, let alone a single model?
Conversely, to increase the relevance of the Peugeot 607, it could be necessary to adopt the rear-wheel drive option typical of the German top-of-the-range models that set the international standards. The 607 is constructed on the top-of-the-range Citroën platform which, as everyone knows, is a frontwheel drive. Given the design issues and costs of a production line for a rear-wheel drive, it is easy to understand why an industrial group might hesitate to commit itself to this option for the only top-of-the-range model of a single brand. The future lies in partnerships with other manufacturers.
Do not ‘rob Peter to pay Paul’
Since the aim is to create a portfolio of strong brands, you must avoid making this mistake. Although it is standard practice to position brands clearly in relation to one another in order to maximise their appropriateness for the segments targeted, a brand should not be prevented from becoming strong.
Thus innovation is an integral part of the key values of PSA’s two general brands Peugeot and Citroën. Limiting this value (innovativeness) to one brand would destroy the other. There is simply no future for non-innovative brands in the car market.
A brand portfolio is not an accumulation of independent brands but the reflection of a global strategy of market domination
This makes the procedures and intervention of the US Federal Authorities and the European Commission rather paradoxical since, for these bodies, the fact of maintaining a sufficient level of competition is essential to accept or refuse a proposed merger or an acquisition. But there is no point in hiding the naked truth.
Corporate mergers and brand acquisitions are largely determined by a single objective – market domination – over and above the synergies and cost reductions achieved by pooling resources. Why did Coca- Cola want to buy Orangina and pay US $1 billion for this predominately local brand? Quite simply because it would have enabled the group to force Pepsi-Cola out of the market. Since it did not have a fizzy orange drink in its portfolio to offset Coca-Cola’s Fanta, Pepsico had in fact signed a strategic distribution agreement with Orangina.
A portfolio is therefore a global approach on the chessboard of competition, with a precise role allocated to each brand. Brand managers should therefore receive a set of instructions so that they understand their role and do not deviate from the global plan by carrying out a series of independent initiatives over a period of time.
A portfolio is not a simple collection of brands that just happen to be there as a result of the vagaries of history, but a well-structured and coherent group in which each brand has a place and clearly defined role:For example, this may be a financial role, in which the brand contributes to the financing of another brand. This is typically the case of local brands which are leaders in their own market. These brands are and must remain important contributors to enable the portfolio under construction to develop as a whole.The role of a brand may also be to defend the brand leader. For example, Colgate Palmolive, thinking that a price war was about to be declared on its leading fabric softener Soupline, was prepared to lower the price of its ‘flanker’ brand Doulinge to avoid lowering the price of its brand leader. Legrand successfully covered the market and rendered its general brand impervious to attacks from competitors by a precise allocation of roles between the Legrand general brand and the specialist brands it had bought and maintained (Arnoult, Planet Watthom and so on). These brands formed an outer barrier at wholesaler level in the event of foreign competitors trying to enter the market. If the wholesalers were disloyal to Legrand and referenced a newcomer, at least they only affected the escort ships and not the flagship.A brand can also fulfil the role of group banner brand, especially if the brand has the same name as the group.It is worthy of note that this rationale is equally valid for daughter brands and their role in the construction, reinforcement and defence of the parent brand.It has already been seen that, apart from their specific positioning relating to a particular need or clientele, the 14 daughter brands of Nivea all had a specific role to play and made their contribution to the Nivea ‘house’ in terms of a specialised area of competence as well as an input of innovation, sensuality and fashion. There is no doubt that they are all very much Nivea brands but nonetheless each adds a personal touch, which is why, in spite of a very strong ‘Nivea-ness’ and very precise guidelines on how the brand should be presented, it does not come across as monolithic.The consequence of the portfolio logic is that it is dangerous to acquire a brand leader without the smaller brands that go with it. If Schneider had succeeded in merging with Legrand, it would have been crucial to preserve the network of more modest, more specialised brands maintained precisely because they created an effective barrier that protected the star brand, Legrand. All too often, company rescuers, especially if they are investment funds, do not have this long-term vision. They resell the small brands without taking account of their collective role.
Within all large companies, there is an inevitable tendency to replicate
Take the Seb group, managing four global brands of small appliances: Krups, Rowenta, Moulinex and Tefal. How do we prevent ideas and designs from being known by another and adopted, hence diluting brand identity?
This must be combated since it destroys the competitiveness and imagination of the brands concerned. It is partly because there is always an underlying competition based on prices, since the basic function of groups is to reduce costs by pooling as many resources as possible.
The main danger of groups is that, in the interests of making economies (which is quite natural), they tend to erode the identity of their brand in their portfolio by giving the common areas too much prominence when they should be concealing them, or by publicizing too much information on the fact that the different brand models come from the same platform.
It is crucial to ensure that all the visible parts of these brands are different. Now ‘visible’ does not only refer to design: companies that buy trucks look at the engine and some key hidden technical parts of the truck, especially for long-haul models.
It will be a challenge for Volvo AG to keep enough differentiating competencies between long-haul Volvo Trucks and Renault trucks. The brand positionings should be the guiding force.
Focus each brand of the portfolio on a specific external competitor
This is one way of preventing the brands in a portfolio from replicating each other, apart from permanent surveillance by the brand committee or brand coordinator. This reminds managers that the best way to cover the market is via the logic of multi-brand portfolios and not by ‘narrowing the focus’. Choosing a target competitor for each brand increases the chances of achieving this objective.
A classic risk of brand portfolios is their complexity
This is true since exaggerated fragmentation does not allow each brand to achieve its critical size. This is what business-to-business companies look out for since, for them, a brand – even registered – is merely a name and not a long-term publicity and promotional medium.
This is why their legal departments are gradually collapsing under the cost of registering and monitoring trademarks (brand names), and it is what led Air Liquide to reassess its entire portfolio of more than 700 ‘brands’ in 2003. Distributors are also susceptible to the same risk when they rethink their portfolio of distributors’ brands (private labels).
Decathlon managed to avoid this pitfall; when it changed from the single Decathlon brand to the so-called ‘passion brands’ portfolio, as many as 13 brands were envisaged before some were merged and the company decided on 7.
The Volkswagen group is currently subject to this risk. Although Seat and Skoda should, in theory, have been separated geographically, the four brands Seat, Skoda, Volkswagen and Audi are still found in several countries, each with its own network of agents. Sustaining an independent commercial network requires a large product range and the ability to create customer loyalty.
This means that Seat and Skoda have to move upmarket, but where do they stop and how are they to be differentiated from the very similar newcomers from Volkswagen and Audi? Price is one solution, but the publicity based on the fact that these four brands come from the same factories and even the same platforms has created the ideal conditions for internal cannibalisation. The agents selling Seat and Skoda use it as a sales argument.