Extend, or focus?

When Chinese companies try to create their own brands in both domestic and international markets, they are getting more and more difficult to choose their brand strategy. Should they focus a single brand on a single product, or should they extend the brand?

At this point, it's a matter of opinion. Let's learn from the experiences of leading international companies and see how they make choices and meet challenges.

Why Brands Must Extend

What do the following products and services have in common? Aviation, Cell Phones, Soft Drinks, Wedding Services, Financial Services, Record Stores, Rail Transportation, Home Electric Services, Hotel Management, Restaurant and Internet Services.

You might shake your head: no. However, the Virgin brand covers all of the above areas. Under the management of corporate and cultural legend Richard Branson (founder of the Viking Group), Viking has become the most prestigious and diverse brand.

What exactly is the positioning of the Viking brand? We asked this question when we interviewed Branson himself a few years ago. He replied, "The Viking brand is very important. It has become synonymous with quality, value, innovation and fun. No matter what we do, we will stick to these attributes."

About Viking , one of the most frequently asked questions is: How far will Branson's brand extension strategy go? Marketing experts believe that the misuse of the Viking name on unrelated products and services is likely to cause brand dilution. Branson's response to the criticism is: "As long as the integrity of the brand is not compromised, then it has complete flexibility [to extend]." Fear that this will damage the brand image. For example, the company did not want to encourage teens to smoke, so it did not get involved in the tobacco industry. In many fast-developing consumer goods industries, consumers are more satisfied with the existing optional products, and it will be difficult for Viking to break the original rules of the game and form a certain influence.

Besides Viking, another well-known extension brand is Bic. It started with ballpoint pens and successfully extended to disposable lighters and razors. Additionally, the Caterpillar brand extends from heavy machinery to footwear, apparel and handbags.

Other companies have not gone as far in brand extension as Viking, BAK and Caterpillar. They are content to use the brand only in the same category of goods.

Successful businesses always look to brand extensions. It seems plausible and beyond reproach: if you are successful in one market, why not spread your tentacles in another?

Nike started out as a shoe business and now also sells apparel. The most recent example is Google, the most powerful search engine is preparing to launch its own mail service - Gmail. Statistics show that up to 75% of "new products" are the product of brand extension.

According to the research of tutor2u.net, successful brand extension can give companies several advantages:

●If the new product has a well-known brand name, the dealer may feel that the business risk will be greatly reduced. For example, when a new food product is branded as Heinz, consumers are more likely to buy it.

●Customers will associate the new product with the quality of the famous brand, and thus trust the new product more.

●New products will be easier to win customers' awareness and attract customers to try to consume.

●Promotional costs (especially advertising costs) are likely to be greatly reduced.

You can implement brand extension through the following seven ways:

1. Distribution. You may have established an ideal distribution network, or have a sound distribution channel management system, and plan to develop new products that can be sold through existing channels and networks. You may choose the product that the salesperson is most confident about. And the more similar the new product is to the original, the more confident your salespeople will be and the less risk you will have.

Brand extension through distribution channels is quite common in Asia. Compared with the West, the distribution network in Asian countries is not well developed. But there are still many corporate giants that sell a wide variety of products through their distribution networks.

For example, CP Group is the largest and most powerful company in Thailand, and was once rated as the best company in Thailand by the Far Eastern Economic Review. Through its efficient distribution network covering the whole country, CP Group provides a variety of well-known consumer goods to the mass market in Thailand and has become an efficient distributor of many well-known consumer goods. The products it distributes can be divided into three categories: non-food products such as toothbrushes, condoms and hairdressing products; food products such as fish sauce, palm oil, Thai sauces and sauces; confectionery.

2. Manufacturing. You may have excess production capacity. Like most companies react to this situation, you may want to decide: "What other kinds of products can our factories make?" brand.

3. Marketing. If practice has proved that your company's brand marketing measures are effective, you can extend the brand through marketing links. For example, the sales of a certain consumer product are very successful, and the company will consider how to extend the brand to other consumer products.

4. Demographic characteristics of consumers. Certain products have a narrow range of consumers (eg, men aged 25 to 40). If your product fits this profile, you may want to ask, "What happens when your customers get older and out of your product's customer range?" Age groups of customers (e.g. baby food, teen products, yuppie services, etc.) that you want to keep as they get older and beyond that age group. At this time, you need to extend the brand to other products.

And vice versa. Some companies hope to attract a younger customer base than the target customers of existing products. Such as the Ralph Lauren brand launched the Ralph Lauren children's clothing series.

A more common approach to extending a brand to different demographics is the extension of a product across genders of customers. Gillette launched a female blade based on the development of the male blade. The women's clothing product line can also be extended to male customers, and the DKNY brand has entered the men's clothing market.

5. Pricing. Your company may have served the low end of the market and now wants to break into the high end. Or on the contrary, you sell high-quality products at a high price, and you want to develop a similar product at a lower price because you are worried that some customers will not be able to bear the price. In short, this is an extension to market segments with different purchasing power.

According to Chris Macrae, a well-known British brand strategist, such brand extensions can be implemented through so-called sub-brands or hidden brands. "Sub-brands allow the brand to extend upmarket," says Chris, "for example, Holiday Inn named its luxury hotel Crowne Plaza." Likewise, with its deeply rooted logo "Sony Trinitron," Japan's Sony Companies have added technical names from their own brands, such as ProFeel and XBR, to their TV brands.

Although hidden brands are completely independent, consumers still associate them with dominant brands. For example, the car brand "Lexus" is independent of Toyota's products and brands, but consumers still trust it because of its family roots.

6. Region. Your company may have a strong track record in a city or province and plan to expand in other regions, or even across the country or even the world. In this case, the company may extend the existing brand beyond its existing operating territory, or simply create a new brand.

7. "Big is good". Perhaps your company has ambitions to maximize its size, enter a new field, extend a brand, or create a new brand. Your path, then, could be similar to that of South Korean corporate giants Samsung, Daewoo and Hyundai, or Japanese conglomerates Sony, Canon and Toshiba.

It should be pointed out that while there are many options, risks still exist.

A company like BAK, despite its successful brand extension, has lost the battle for fragrance products. Experts believe that fragrance products are too far off the mark and simply cannot reflect the core values of the BAK brand. Or Google, can it carry forward its dominance in search technology in the e-mail business? Wouldn't it be wiser if Google focused on maintaining its unique position in the search business rather than building a reputation for diversity?

For mind-advertising.com, despite the brilliance of the Viking brand, it is almost impossible to define it clearly, and it is equally difficult to judge its value: "Almost all Viking's business units have all taken the form of joint ventures, and as a result, all the money made is used to make up for the losses."

A research result of a research group shows that the product similarity perceived by customers is the judge of the extended value of the service brand key factor. If the customer perceives the new service of the brand extension to be similar to the original service, the risk is lower. Another major finding is that brand reputation is the key to the success of brand extension. The higher the reputation of the brand, the more likely it is that the brand extension will be successful.

The researchers also found that the more creative consumers were, the higher they rated service brand extensions. "Targeting a more creative audience can lead to a more efficient brand extension strategy."

Why brands should focus

The existence of the above risks also provides a powerful argument for opponents of brand extension Arguments, they argue: Companies can and must say no to brand extensions.

Al Ries, author of Focus, co-invented the concept of positioning with brand strategist Jack Trout. "A half-hearted effort will get you nowhere," Rees likes to say.

He believes that brand extensions may be successful in the short term, but not in the long run. For example, "Seven Up" only produced one beverage in 1978, occupying 5.7% of the market share, and later tried to produce a variety of seven up beverages. As a result, its market share fell to an all-time low of 1.2% last year. Rees points out that brand extensions confuse consumers and can't tell who is who.

Not to mention that brand extensions are not necessarily cost-effective. It's easy to overstate the synergies of brand extensions. "The cost of a brand extension is no less than the cost of introducing a new brand," said John MacDonough, CEO of Miller Brewing Company.

What if brand extensions are not desirable? Bottom line: focus on established brands.

"The most powerful idea in marketing is to imprint a brand's name in the customer's mind." This is one of Reese and Trout's "Eternal Laws of Marketing." When we ask, in that case, why are Asians so interested in brand extensions? They replied, "Maybe it's because a lot of companies are transitioning from OEM to creating their own brands. There's nothing wrong with that in itself. The point is, if you want to make bikes, focus on making bikes and building a bike brand. Don't hold a brand that makes bicycles, watches, and sports products."

If your brand is used in too many product categories or market segments, it is suspected of "brand abuse". The term was coined by Scott Davis, an associate professor at Northwestern University's Graduate School of Management.

Davis cited the example of Arm & Hammer, a company known for making baking soda. "Over the past five years, Arm & Hammer has launched laundry detergents, dishwashing detergents, toothpastes, deodorants and bleaches, and chewing gum with baking soda as a key ingredient." The "clean, fresh" advantages of the baking soda brand that customers recognize are applied to as many product categories as possible. But the problem arises when the leading brands of each commodity can easily beat the advantage of this characteristic. "Crest and Colgate quickly developed products with the same characteristics as baking soda, and Arm & Hammer's products were swept away."

In other words, your product may have a competitive advantage in your assortment , but that doesn't mean you can necessarily extend this advantage to other areas.

If your product fits the above, you should consider a brand-focused strategy. There are two implementation methods:

1. Narrow the scope of products and services. Not only should companies not broaden their product offerings, but they should do the opposite. The key is to decide which product range to focus on and then do your best to do it well.

Easier said than done, because it goes against the general business thinking. Most managers strive to expand their product offerings as much as they can, not shrink them. For many people, the obvious truth is: expand your business and you can offer your customers a wider variety of products and services.

"The obvious isn't necessarily true," says Rees. "In the ever-changing marketplace, less is better than more."

Starbucks is probably the company best known for sticking to a single product: It has always offered only one product - coffee. It operates in more than 30 countries and owns or franchises more than 7,500 coffee shops.

Sunglass Hut is the world's largest retailer of sunglasses, with annual revenue of $650 million and a 40 percent share of the North American premium sunglasses market.

Starbucks and Sunglass Hut, as well as Toys "R" Us, Blockbuster Video, etc., have leveraged the strengths of brand focus to the extreme by digging deep. For example, a department store's toy inventory can reach 3,000 pieces, while Toys "R" Us' inventory can be increased by a factor of 6.

2. Focus on a specific customer group or market segment. Some companies want to capture a certain segment of the customer base or market segment and position themselves with the company that best understands the needs of that segment.

Fred Wiersema, a marketing guru and author of "Close to the Customer," says Swedish truck maker Scania's performance has consistently overwhelmed Volvo and Mercedes-Benz company. "The secret of Scania's longevity is that it can be tailored to the needs of its customers," Wilsma said. "As a result, it has won unrivaled customer loyalty." The company has an enviable 80% customer retention rate.

Narrowing down your clientele is only the first step. To maximize your strengths, you also need to make the most efficient use of your resources. Scania uses a standardized way of building modules, thus allowing the customer to choose the engine and cab. The move has cut costs considerably, as Scania's raw material inventory is half that of its rivals.

While there are plenty of reasons to implement brand focus, it's not that this strategy is risk-free. The biggest risk is putting all your eggs in one basket. A fundamental principle of investing is to diversify risk. It is more difficult for a company with a single brand to do this, and opportunities and risks follow, because it cannot take full advantage of the brand.

Like most management practices, there is a compromise between brand extension and brand focus in brand management: extending the brand in a controlled manner and avoiding "brand abuse."

Davies offers some "remedies" to help you avoid or overcome the ills of brand abuse: 1. Know where your brand is now and how extensible your customers think it is; 2. Make sure it's long-term Look, any brand introduced will not deviate from the company's long-term brand strategy; 3. Establish a brand value method to determine how each brand extension program affects the overall brand value.

Faced with the above three brand strategies, how do you choose the one that suits you best? As with all management practices, you need to choose the strategy that suits your specific situation, that benefits you, and controls its risks and costs. More importantly, you also need to stick to the basic principles of building your brand (see the sidebar "The Seven Principles of Building Brand Value"). Whether you are running a brand, extending a brand, diversifying a brand, or building a new brand, these basic principles cannot be discarded.

Author Jet Magsaysay is a consultant to this magazine; translated by Liu Songjie.

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