The brand portfolio is indicative of a company’s desire to better meet the demands of the market, not only through differentiated products but also through different brands and therefore different identities. The organization of the brand portfolio reflects the type of market segmentation chosen by the company.
Ferrero (Kinder) bases its market segmentation on narrow age groups and user status, l’Oréal bases it on distribution channels, Legrand on types of consumer motivators, Procter & Gamble and Volkswagen on price brackets, SEB on consumer populations and value systems, Evian on the benefits sought from the water, Guinness on occasions, and so on.
Although certain people regard socio-demographic segmentation as an outmoded concept, it is still a useful tool when it comes to understanding consumer behaviour and preferences, and as such, can be used to establish a brand portfolio. Ferrero (Kinder) is Europe’s leading confectionery company.
Unlike the Mars bar, Kinder has developed a portfolio that adheres rigorously to segmentation by age, with the development of needs and situations corresponding to each age group – from Kinder eggs for the very young to snacks for adolescents. All magazine editors produce different titles based on age and gender. Their magazines target extremely narrow age groups and reflect progress at school or rather the child’s cognitive development according to Piaget. Lego also has a brand portfolio based on different age groups, from the very young to pre-adolescence.
To whom should Pernod-Ricard sell Ballantines in China? And to whom should it sell Chivas? Both are some of the best products of Scotland. Clearly socio-demographics do not help. But the general life-style values, the attitudes about heritage vs modernity of the new rich in Shanghai, are not all the same.
A key criterion for segmentation is the main benefit looked for by consumers. Companies can organise their brand portfolio by positioning each brand on one single motivation/benefit, as long as of course it is a profitable business. This is the basis of Danone Waters brand portfolio in Europe. Recent marketing research revealed the following motivations to purchase: status, good life (13 per cent); health (57 per cent); and price (30 per cent).
The macro motivation for health needs to be sub-segmented: for 16 per cent it refers to an aesthetic vision of health, for 15 per cent it means vitality and for 26 per cent this refers to specific problems. Danone Waters reorganised its brand portfolio of non-carbonated waters as follows:Evian targets 29 per cent of the consumers (those seeking status and aesthetic health).Volvic is positioned on vitality (15 per cent of the market), against Nestlé’s Vittel.New brands were created on physiological needs: Taillefine against Contrex (Nestlé), both on remaining slim, and Talians, another new brand.A host of source waters to fulfil distribution expectations of a low-cost brand.
In this portfolio, Evian’s role is to be the referent of the market, and to valorise water as much as possible (in addition, this is consistent with the fact that Evian’s supply is not unlimited: it takes time for the Alps to create this water). As a consequence, some brand extensions are forbidden, such as the growing area of aromatised waters.
The second brand of the group, Volvic, priced 10 per cent below Evian, has the ability to stimulate the market through such extensions. Taillefine (known as Vitalinea in other countries) is actually an extension in the field of water of a dairy brand positioned on 0 per cent fat. To compete in the weight-conscious segment, against Contrex (segment leader, from Nestlé), instead of launching from scratch a new brand, it was decided to extend this global franchise to water.
Unlike most automobile manufacturers, which organise their portfolio along a vertical price line, PSA has chosen to develop two parallel generalist brands, Peugeot and Citroën. In 2007 PSA is the second largest European car manufacturer. What is the basis then of the segmentation? Peugeot has in its roots, its identity, a number of core values (reliability/quality but also dynamism and aesthetics) which address primarily the consumers who like to drive, to master their car, deriving pleasure out of it.
Citroën, although its cars share 60 per cent of their hidden parts with the Peugeot models, delivers a totally different driving and living experience. Once a brand with character, ingenuity, innovativeness, it went bankrupt twice before being bought by Peugeot. Reinventing Citroën, PSA has made it a car brand for people expecting their car to foresee the evolution of life-styles (Folz, 2003).
There are strong gains in having two parallel brands, beyond sharing the same platform for manufacturing. Aiming at the same price segment, when one model of a brand starts declining in its life cycle, the other brand launches its own model. As a result, the rate of innovation of the group within each price segment is exceptionally high compared with competitors, a key success factor in modern markets.
Also, with only two brands, one avoids the problems of Volkswagen with its four brands largely overlapping, a factor that negatively affects the profitability of the global portfolio. Salespeople trade consumers down by suggesting they consider Skoda or Seat cars, entry brands, which are essentially the same as Volkswagen cars. In addition, these two entry brands now face growth problems: where should Skoda and Seat go? To capitalise on their recently built brand loyalty, they wish to trade their own consumers up with higherpriced models, but run the risk of increased cannibalisation, and of a still larger lack of differentiation from Volkswagen’s lower lines.
This is a growing mode of segmentation and organisation of brands. The rationale is that channels are fighting against each other. An allocation of different brands to each channel avoids conflicts, price harmonization problems, and maximises the adaptation of the brand to the motives of channel patrons.
In addition, taking the small appliance business for instance, being sold exclusively at Wal-Mart prevents brands from having a presence in the selective distribution channels, which still represent more than 55 per cent of the market in the United States. This is why a portfolio is very helpful in allocating brands to channels.
The paradigm of this approach is l’Oréal: all its brands have to be sold in one and one only channel:There are brands for selective premium distribution and department stores:Lancôme, Helena Rubinstein, Biotherm, Kiehl’s and Sue Emura.There are brands for mass channels: l’Oréal Paris, Garnier and Maybelline.l There are brands for pharmacies: La Roche Posay and Vichy.l There is a brand for direct sales by mail order: CCB (Club des Créateurs de Beauté) although this name is really a handicap for the globalisation of the brand.l There are brands for the professional hairdresser channel: l’Oréal Paris Professionnel, Redken, Matrix, Kerastase and Inné.
The first segmentation criterion is the channel. When this channel is not already present, it is reconstructed thanks to the presence of two or more brands in the channel so that costs can be shared. For instance, if pharmacies in Canada do not sell cosmetics, a specific counter can be developed in department stores, with a pharmacist to assist consumers, selling both La Roche Posay and Vichy.
Of course there is another segmentation criterion: price. In each channel, there is a premium brand and a mainstream brand. Finally each brand epitomises one universal model of beauty. In the mass channels, everywhere in the world, l’Oréal Paris symbolizes Paris, and Maybelline the American style of beauty.
L’Oréal’s profitability rests largely on this systematic channel-based brand portfolio organisation. It gives this group the ability to price the same product very differently from one channel to another, capitalising on the fact that consumers’ price sensitivity is not at all the same across channels and purchase situations.
For instance, a hair fixing gel sold to consumers at a hairdressing salon for s9 under the brand Tecniart (l’Oréal Paris Professional) is bought by the hairdresser for half this price, that is to say for more or less the price at which a consumer would find the product under Fructis (Garnier) or Studio Line (l’Oréal Paris) in mass distribution. Kerastase shampoos are sold at s8 to the consumer in a hair salon, but the same product is sold at s2.5 under the Elsève brand at a multiple retailer.
The same holds true for an industrial group like Saint Gobain. This group has created a portfolio of stores aiming at building and construction:from Platform du Bâtiment, a cash and carry for small general contractors;to the mass multiple retailer Point P aimed at craftspeople;to Lapeyre aimed at the DIY expert, able to buy a window and install it without professional help;and K par K (literally, case by case), a chain of mini-stores selling tailor-made new windows, fully installed.
Of course, the last option is the most expensive (s1,000 for a replacement window, with everything included), but in most of the cases, the windows that need replacing are standard in size and design. It is therefore a standard window that is bought (not a customised one), essentially the same product as could be found at Lapeyre for instance at a fraction of the price, but without any service. The same reasoning applies to the other brands in the portfolio.
An increasing number of companies have become aware of the importance of occasion segmentation. All products are in fact purchased or consumed on a particular occasion. The real issue is therefore to influence the occasions affecting consumption rather than the consumers themselves.
In fact, the same person can consume a product in different ways during the course of the same day if he or she has encountered several clearly differentiated occasions. Each occasion gives rise to clearly differentiated expectations, and therefore to a specific type of competition for the brand since, on each occasion, the brand does not encounter the same set of circumstances.
In the case of Guinness, the occasion not only forms the basis of the brand portfolio but also structures the organisation of sales and marketing. Today, there are occasion managers, just as there used to be brand managers. Thus Guinness is positioned on the so-called ‘affiliation’ occasion typical of the pub environment, while Carlsberg corresponds to the ‘release’ occasion in nightclubs and Budweiser targets the ‘relaxing at home’ occasion.
When dealing with occasion segmentation, the first thing a company should do before developing several new brands is to consider whether line extensions could enable a particular brand to expand by gaining a foothold in situations or places that have so far been inaccessible. However, there are limits to this extension, which is where the brand portfolio comes in.
This is a most classic organisation of the portfolio. The whole Group Volkswagen brand portfolio is based on it, with entries ranging from the low-end Skoda or Seat to Volkswagen itself, Audi and luxury brands like Rolls- Royce. Accor, Europe’s leading hotel group, has achieved its success by launching a set of product brands, all positioned at a specific price. The Chanel-Bourjois company has two entries, the luxury brand Chanel, and Bourjois for the mass market.
In the construction market, Velux is one of the most global brands: it stands for roof windows in 40 countries all around the world. It has just introduced Roof Light as a low-cost alternative, targeting the price-sensitive market segment. The price gap with Velux is 30 per cent, less expensive than Velux’s main competitors (Roto and Fakro), which are sold with a 20 per cent price gap. It is also sold as a private label of large multiple retailers in the DIY market.
In fact, very few brands have successfully managed to cover substantially different price ranges. It is true that generalist car manufacturers like Renault build a wide range of cars, from the Twingo to the Val Satis. But they cannot really enter the top-of-the-range market, even when they add a flattering extension to their brand name such as Avontime. This was also one of the aims of their association with Volvo, a brand more easily associated with top of the range cars.
Toyota took the approach of creating a separate brand, Lexus. A brand portfolio makes it possible to cover the different price sectors without affecting the reputation of each brand. The Sanford group, having taken over Parker, Waterman and Paper Mate, can specialise its brands in terms of price and style. By reputation, Parker represents the top of the range in each product segment, from the ballpoint pen to the ink pen.
Waterman represents the middle of the range. The Whirlpool group allocates to each of its brands a price bracket. The average price of the Whirlpool brand itself must be that of the middle of the market. The average price of the Laden brand corresponds to the lower quartile of the market price range and that of Bauknecht the higher quartile (see Figure below).
Segmenting the brand portfolio by price spectrum
A multi-brand portfolio only makes sense if, in the long term, each brand has its own territory. This is not always the case – companies hang on to brands whose images are not different enough to justify the economies of the multi-brand policy.
Linking brand portfolio to prescription segmentation
In the business-to-business sector, the type of key influencer targeted constitutes a strategic criterion for segmentation. The market can in fact be segmented according to the decisionmaking process. Along the value distribution chain several participants play a key role, and brands have different ideas of what they consider to be a key role.
For example, in the aluminium systems market for the residential and service sectors, the leading European company HBS (Hydro Building Systems) has three brands – Wicona from Germany, Domal from Italy and Technal from France – all represented to varying degrees in Europe, depending on the level of maturity and development of the markets. In reality, each brand targets a different operator-prescriber:Wicona targets architects, research departments and engineering companies.Domal targets installation companies, general companies that win tenders associated with building sites. It supplies flexible and inexpensive extruded aluminium systems manufactured in its small plants.Technal aims directly at the end-users via television and a network of well-known registered installers who also co-finance the advertising.
Legrand, Europe’s leading electrical appliance company, uses the same type of organisation. Legrand’s expansionist policy is based on external growth. In the electrical equipment sector, standards vary significantly from country to county in order to prevent access to national markets. There is also a great deal of intense lobbying by operators who want to perpetuate a situation that creates a network of local markets.
The only way to penetrate these markets is to buy the leading local company, which is why Legrand acquired the Italian company Bticino. It then specialized the brands, allocating Bticino to the prescribers, engineering bureaux and research departments, while Legrand became the installers’ brand, offering them a broad and totally integrated range of products in which ease of installation is the cardinal virtue.
Another example of this type of brand portfolio organisation was provided by the UK company Arjo Wiggins, formerly a leading manufacturer of top-quality paper for companies and professionals. This company reorganised its basket of brands to create mega-brands, whose size is critical, bringing together what were previously small product brands under the umbrella of each one. The new organisation is structured as follows:AW Curious Collection targets creators and designers in advertising and design agencies, since they are the key influencers for projects and creations in which innovation and creativity count for a great deal. For example, the Curious Collection ranges include aluminium and steel paper.AW Impressions targets the printers who are the key prescribers for a great many of the jobs they are asked to do by companies – for instance, letterheads.Conqueror targets the general public, the end-users who want a quality paper to reflect their company or their personal image.