This week I want to explore a topic that’s rarely talked about but crucial for the successful management of a business portfolio: killing a dying brand (brand rationalization). In fact, the topic has become somewhat of a white elephant: every good marketer knows it’s an option at their disposal but very rarely do any marketers go so far as to enact this strategy. Why?
Businesses typically reward marketing managers for growth and identifying new opportunities for growth. This is why we see a proliferation of new brands and businesses appearing every few years in our markets, as it’s much more exciting for a company to sponsor the introduction of a new product or brand than to sponsor the execution of an old one. The numbers speak for themselves: Roughly three-quarters of the Fortune 1000 consumer goods companies manage more than 100 brands each. From 1997 to 2001, the number of brands increased by 79 percent in the pharmaceutical industry, by 60 percent in white goods and travel and leisure, by 46 percent in the automotive industry, and by at least 15 percent in food, household goods, and beverages. So what’s wrong with this proliferation of brands and growth? Doesn’t this simply translate to more money for the parent companies and targeting consumers more effectively?
Nope. Nirmalya Kumar, professor of Marketing at the London Business School, asked this exact question and published her findings in the Harvard Business Review, showing that “many corporations generate 80% to 90% of their profits from fewer than 20% of the brands they sell, while they lose money or barely break even on many of the other brands in their portfolios.” To support this she highlighted four major corporations falling prey to this extreme 80/20 rule:
Diageo, the world’s largest spirits company, sold 35 brands of liquor in some 170 countries in 1999. Just eight of those brands—Baileys liqueur, Captain Morgan rum, Cuervo tequila, Smirnoff vodka, Tanqueray gin, Guinness stout, and J&B and Johnnie Walker whiskeys—provided the company with more than 50% of its sales and 70% of its profits.
Nestlé marketed more than 8,000 brands in 190 countries in 1996. Around 55 of them were global brands, 140-odd were regional brands, and the remaining 7,800 or so were local brands. The bulk of the company’s profits came from around 200 brands, or 2.5% of the portfolio.
Procter & Gamble had a portfolio of over 250 brands that it sold in more than 160 countries. Yet the company’s ten biggest brands—which include Pampers diapers, Tide detergent, and Bounty paper products—accounted for 50% of the company’s sales, more than 50% of its profits, and 66% of its sales growth between 1992 and 2002.
Unilever had 1,600 brands in its portfolio in 1999, when it did business in some 150 countries. More than 90% of its profits came from 400 brands. Most of the other 1,200 brands made losses or, at best, marginal profits.
The findings speak for themselves – it makes no sense to maintain some of these brands and, if you are a marketing manager running a brand portfolio, it should be considered irresponsible to continue carrying the brands that are pulling down your portfolio. And the biggest and best companies have done just that: Colgate-Palmolive dropped 25% of its product offerings in the early 1990s, saving around $20 million on operating expenses; Procter & Gamble (the world’s biggest brand) eliminated about 25% of its brand offerings around the same time, simultaneously growing market share; and Unilever, in their famous Path to Growth consolidated (after their merger with BestFoods) 1,600 brands to about 400 brands in under five years, finding savings while maintaining rough market share.
But then why do managers fail to actively eliminate brands from their portfolio? As mentioned before, they are not incentivized to do so. In fact, historically speaking, brand deletion is incredibly hard, as Kumar points out:
several studies show that after companies clubbed together several brands or switched from selling local brands to global or regional brands, they were able to maintain market share less than 50% of the time. Similarly, when firms merged two brands, the market share of the new brand stayed below the combined market share of the deleted brands in seven out of eight cases (Kumar, 2003).
Irrespective of the challenges you will confront when trying to eliminate a brand (maintaining market share, keeping brand managers happy and gainfully employed, etc.) you will more likely than not reduce costs and improve profitability. So the question is whether to kill or not to kill and you need to follow the below steps before you can answer that question:
Step 1: Review the Portfolio
First, your organization needs to determine whether you have too many brands or not. This is a delicate process, ever since the advent of brand managers at P+G back in the 1930’s, when brand managers were spearheading the innovation and growth within their respective strategic business units as part of the overall portfolio. In short, brand managers have love for their brands and are not quick to relinquish the reins.
An in depth portfolio analysis should be conducted to really get a comprehensive understanding of what makes up and drives the performance of the entire portfolio. You should look at all the marketing components of each brand (the 5-P’s), the sales and distribution strategy, the local and regional (if applicable) context within which your brands operate, the competitive landscape, etc. Doing this in detail will provide you with a solid understanding of what you need to do next.
Once you have completed this review, you can do a quick gut test to see if brand rationalization (brand consolidation or simplification) is something you should consider. One that is fun and gives you a quick read on your portfolio is the “Do You Have Too Many Brands?” Test:
If you discover that your portfolio is in need of some brand rationalization, then you need to keep going down the path of brand rationalization to ensure your portfolio is brought back to health.
Step 2: Map Need States against Product Offerings
While many brands have gotten stuck thinking about their brands from a top down approach (our brand is a value brand) and where it sits on price, or based on basic market segmentation (our brand targets the youth), the real potential in effective brand positioning is to match up with what consumers want and how they want it (aka need states). Instead of saying, our brand is the value brand for the youth, we need to start saying “our brand is the brand of choice when our target wants something affordable, doesn’t care much about x, and can’t be bothered to think about or do y.”
Above: First, each portfolio manager needs to map out consumers needs in a need state assessment.
Below: Once you identify the need states, determine which ones have the most potential.
Once you have identified the need states that make up the market, or the minds, of your target audience, then you can start to identify which ones you should target. Since needs states are in constant flux, it’s a balancing act amongst many trends (category, consumer, product, packaging, etc.) to determine which need states have the most potential. Then, once you have identified these strong potential need states, each portfolio manager needs to ask: where does my brand fit into this need state, or does it not address it at all? This is what Toyota did back in the day when they launched Lexus – there was a need state that the Toyota brand couldn’t address and it didn’t make sense to try to transition Toyota into a luxury brand to reach that need state.
Above: Finally, identify where your brands fit into the mix – or if they don’t, where you need to introduce new brands and potentially get rid of old redundant brands that might be cannibalizing your bread winning brands.
Step 3: Prune the Portfolio
There are a variety of ways portfolio managers can then prune their portfolio. The Boston Consulting Group developed a matrix years ago, updated by McKinsey’s 9-Box matrix (see below), that essentially guides portfolio managers through the process of what to do: merge, sell, milk, or kill.
Let’s look a bit closer at your four basic options (the 9 box matrix explores a bit more complexity than necessary to review at the moment):
Merging brands together is a delicate process and involves trying to retain the consumer set from both original brands and bring them together to enjoy one product instead of two. This involves identifying the winning attributes from each brand (functional benefits, RTBs, value proposition, etc.) and trying to combine them in a coherent way. Unilever’s merging of Surf and Radion highlights this example well:
In 1999, for example, Unilever sold both Surf, which boasted a 6% share of the laundry detergent market in Britain, and Radion, which had but 2%. Market research indicated that consumers liked Radion’s strong sun fresh scent and that Surf might benefit from the attribute. That prompted Unilever to delete Radion and, simultaneously, to shift Radion’s perfume to Surf, launching “SunFresh” Surf. In six months’ time, the new Surf had a market share of 8%—the combined market share of the old Surf and Radion. However, merging brands is tricky because, as Unilever cochairman Antony Burgmans warned his marketers, “You are not migrating brands but migrating consumers.” In addition, migration is expensive, and smart companies deploy it sparingly (Kumar, 2003)
The stronger the two brands you are merging, the slower you should enact a migration like this to avoid frustrating your consumer base. Take the example of Vodocom’s expansion and its consolidation of more than 16 different brands throughout the world (each with a strong following and equity in their respective markets):
For instance, in 2000, the British mobile telecom service provider Vodafone wanted its joint ventures in 16 countries to switch to the eponymous brand to generate marketing synergies and encourage customers to use the ventures’ cellular services when they were on the road. The partner companies did so in two stages over two years. At first, all the country brands converted to dual brands such as D2 Vodafone in Germany, Vodafone Omnitel in Italy, Europolitan Vodafone in Sweden, Click Vodafone in Egypt, and so on. That allowed the joint ventures to take advantage of the strength of their brands to increase recognition of the mother brand. Vodafone tracked the brands to determine when recognition of the Vodafone brand was high enough that its partners could drop the double names. Over the two years, all 16 companies became Vodafone, the largest global brand in the mobile telecom service business (Kumar, 2003)
One solution that companies can consider is to sell off the brands that either 1) are no longer profitable for the company or 2) do not fit into their business objectives. For instance, my former client Procter & Gamble sold off their North American Coffee Business (Folgers and Millstone) to Smuckers right after I transitioned into the global baby care business. The sale was seen as a boon for Smuckers, and they immediately made the brand more profitable and increased the value to well over a $1 billion dollar brand. But P&G was happy to not have to be in the coffee business any longer.
Many companies opt to simply milk a brand to death – raise prices, cut costs, stop A+P support, etc. – until the brand is barely trucking along and the trade stops stocking it. It is a strange but common strategy amongst companies, and ensures you do not sell a brand to a competitor that can come back to win your market share – as happened with Wal Mart and their White Cloud brand.
This is pretty straightforward and should happen immediately, if it’s going to happen at all. In the absence of the trusted brand of choice, consumers will be left clueless where to turn next, so it’s up to companies to instantly fill the gap and help guide the consumers to the logical (or intended) alternative.
Step 4: Manage and Grow the Updated Portfolio
Now that you have a trimmed portfolio, you can’t sit back and relax. Whether you merged two brands into one, sold a brand, left one out to pasture, or killed one rather abruptly – you need to manage those brands left in your portfolio.
First and foremost, identify the savings you have now and reallocate back into the remaining brands. Unilever did this well with their Path to Growth strategy in the early 2000’s, although their growth projections fell short of expectations because they didn’t invest enough back into their marketing and promotion efforts (almost all critics agree this was a critical mistake):
First, Unilever reallocated the budgets from the 1,200 noncore brands to the 400 core brands. The company saved €500 million a year by stopping advertising and promotions for all the brands it planned to delete. Second, the brand rationalization program became the basis for a restructuring. Unilever decided to close 130 factories, of which 113 had been shut down by January 2003. The company also consolidated purchasing, developed shared services, and restructured supply chains for the 400 core brands.
Unilever has used part of the money to bolster the bottom line every year. However, the company has also increased marketing and promotion expenses from 13% to 15% of sales, which means an additional €1 billion a year of marketing support. Along with the €500 million advertising saving from the noncore brands, the company has spent another €1.5 billion a year on its core brands…By 2002, the company’s portfolio had shrunk to 750 brands. The top 400 brands, which brought in 75% of the firm’s sales in 1999, accounted for 90% in 2002. (Kumar, 2003)
Most importantly, the new management structure must be enforced from the top to the bottom, as the most resistance to any brand rationalization will occur at brand manager level and country level – so its crucial to get total support and buy in across the organization.
And that is how large multinational corporations can bring about a brand rationalization program to ensure that their portfolio performs to the best of its ability.
Next week, I will continue this conversation and explore whether it makes sense to revive a dying brand and if so, how to do it successfully.