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Brand architecture

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  • 1. Brand architecture:building brand portfoliovalueMichael Petromilli, Dan Morrison and Michael Million Michael Petromilli is a Director and Dan Morrison and Michael Million are engagement managers with Prophet (www.prophet.com), a consulting firm specializing in brand and business strategy, headquartered in San Francisco. The authors, all located in the firms Chicago office, can be reached by e-mail at: mpetromilli@prophet.com, dmorrison@prophet.com and mmillion@prophet.comO ne of the consequences of operating largest losses in brand equity saw their ROI average a opportunistically in the boom years of the 1990s negative 10 percent. was the proliferation of products and brands. You Where much of an organizations brand-building effortsdeveloped a new Internet technology ± you launched it as a once focused on acquiring, launching, or aggressivelynew product. You wanted to enter a new market ± you extending brands to expand the brand and businessacquired a company with successful products. You needed portfolio, todays focus is on trying get the most from existingscale ± you found a merger partner whose products and brands through better organizing and managing brands andbrands more or less complemented your line. Today, many brand inter-relationships within the existing portfolio.businesses are paying the price of this opportunism with acollection of products, brands and businesses that ultimatelyoverlap so much that they are fighting each other for ``By looking at their offerings from thiscustomers and for corporate resources. Some are sounrelated to the core business that no one knows what to do customer perspective, the companywith them. It matters less what is in the corporate portfolio when the could start developing a strategiceconomy is expanding rapidly and all new products andemerging brands seem to offer prospects of contributing to brand architecture.the creation of shareholder value. Assessing the portfoliotakes on a decidedly new relevance, however, now that Changing market dynamics and new business strategiescustomers have less to spend and are scrutinizing every have forced a critical re-evaluation of how the various piecespurchase, and looking harder to find the best partner and of the brand portfolio fit together ± or how they do not. Thebrand to fit their needs. Corporations must now ask, how way these pieces are structured, managed and perceived inshould we allocate existing financial and human resources terms of how they relate to each other and add value to theamong our brands to grow shareholder value? organization is known as brand architecture. As a result, branding is increasingly discussed duringstrategic planning session conversations among senior leveldecision makers and in boardrooms throughout thecorporate world. That is because of the substantial impact awell-managed brand can have on the bottom line. TotalResearch Corporations much-respected EquiTrend study The current issue and full text archive of thisshows that firms experiencing the largest gains in brand journal is available atequity saw their ROI average 30 percent; those with the http://www.emeraldinsight.com/1087-8572.htmStrategy & Leadership 30,5 2002, pp. 22-28, # MCB UP Limited, 1087-8572, DOI 10.1108/1087857021044252422
  • 2. Defining brand architecture A customer builds a relationship with a brand throughLet us start by defining the term brand broadly as all the both direct and indirect experience, often within the contextexpectations and associations evoked from experience with of exposure to another, related brand. Think of the womana company or its offerings. Logos, taglines, advertising who buys and reads Martha Stewart Living magazine,jingles, spokespeople or packaging are merely the watches Martha Stewarts cable television show and thenrepresentations of the brand. The actual brand is how inspects her house wares line at Kmart. This customercustomers think and feel about what the business, product eventually forms an impression of each product ± and theor service does. Martha Stewart brand overall. Next we define brand architecture as the way in whichcompanies organize, manage and go to market with theirbrands. Brand architecture is often the external ``face of ``Todays focus is on trying get the mostbusiness strategy and must align with and support businessgoals and objectives. And different business strategies may from existing brands through betterrequire different brand architectures. Two of the mostcommon types of brand architectures are called the organizing and managing brands and``branded house and the ``house of brands. ``Branded house architecture employs a single (master) brand inter-relationships within thebrand to span a series of offerings that may operate withdescriptive sub-brand names. The sub-brands often add existing portfolio.clarity and further definition to the offering. Market leaderslike Boeing and IBM that seek to dominate entire markets Direct and indirect links or synergies between brandsand categories through a single, highly relevant and highly experienced in a similar context can present the greatestleveraged master brand typically employ the branded house opportunity to increase the value of individual brands and ofstructure. the overall portfolio. To achieve this requires a brand At the other end of the spectrum, ``house of brandsarchitecture characterizes a group of stand-alone brands. architecture that is based on the evolving set of relationshipsHere, each brand operates independently to maximize its between the portfolios brands. Less important than amarket share and financial return. In such an approach, the brands position in the portfolio is the way it can and doesbelief is that the sum performance of the range of influence other brands in the portfolio.independent brands will be greater than if they were A customer perspective is the foundation for determiningmanaged under the banner of a single master brand. strategy for this brand architecture. It requires the brandExamples of house of brand companies include General management team to answer such questions as:Motors, Viacom, and Procter & Gamble. & Which brands do customers perceive as being in our Neither strategy is inherently better than the other, and portfolio?some companies employ a mix of the two. Numerous & What relationships do customers see between brands incompeting companies ± like General Mills (house of brands) the portfolio?and Kelloggs (branded house) in the cereal business ± use & Do customers transfer the value ± positive or negative ±the different brand architecture strategies effectively and that they see in one brand to others in the portfolio? (seesuccessfully. The key to success is to have an overriding Exhibit 1).brand architecture strategy that is well defined and isgrounded in and informed by a clear understanding of Answers to these questions can only come from themarket dynamics, the brand strategies being employed by marketplace and from current and potential customerskey competitors, and alignment with internal business goals themselves. These answers can be gleaned from a variety ofand objectives. sources. Market trend data, information from the sales force, advertising tracking studies, competitive analysis, andAnalyzing brand architecture customer satisfaction studies are all data sources that areThe first step in taking a more strategic approach to generally compiled by a company on an ongoing basis andmaximizing brand architecture is to first take stock of your that begin to answer many of these questions. In addition,brand portfolio and its individual brands as seen from theperspective of your customers. After all, it is the customer customer focus panels, sales force inquiries, Internetwho ultimately determines a brands success. Keep in mind, surveys, and targeted qualitative research in the form ofhowever, that customers experience brands inter- customer interviews and focus groups should supplementdependently rather than independently. Moreover, their views existing data sources and help to provide answers to theseof brands change over time. critical questions in both a time and cost-effective manner. Strategy & Leadership 30,5 2002 23
  • 3. Exhibit 1 Ð Alternative branding approachesRelationship mapping identifies opportunities Relationship mapping is the type of decision framework thatto create value is particularly valuable to businesses faced with the challengeAfter taking steps to understand the customer context, the of integrating new brands into the portfolio as a result of anext step is to look at the brand portfolio as a whole (versus merger or acquisition. It addresses such questions as:by individual brand or product categories) in order to identify & Does the acquired brand support the companys brandpotential opportunities to increase its overall value (see vision and strategy?Exhibit 2). This is a process called ``brand relationship & Does the brand strengthen the companys presence inmapping. It is designed to reveal, as the name suggests, existing markets or allow it to enter new markets? & Does the brand, in relation to others in the portfolio, addrelationships between brands across the portfolio, where fitsand disconnects exist and could be better leveraged (or not) or enhance perceived value to customers?to create more value to the organization. Most companies The strategic relationship mapping process described abovetoday use this process simply as a means to inventory, uncovers opportunities to enhance the value of anclassify, and group existing brands in a portfolio. organizations brand portfolio. But can and should thoseStrategically oriented brand relationship mapping, however, opportunities be acted on? And how? To get at theserequires the brand management team to look more broadly decisions requires measuring these opportunities againstat the brand portfolio to define: three distinct, but inter-related criteria. These are:& brand relevance and credibility to address various & The perceived or potential credibility of the brands in that customer needs; space ± the perceptual license.& perceived limitations that might inhibit brand and, thus, & Whether or not the organization currently has or can business growth; develop competencies in that space ± the organizational& brands that overlap and can be consolidated into others capabilities. or divested; & Whether the size and current or potential growth of the& gaps in the brand portfolio and the relative size of market is significant enough to merit exploitation and potential opportunities. investment ± the market opportunity.Strategy & Leadership 30,5 200224
  • 4. Exhibit 2 Ð Brand relationship mappingWhen opportunities fit against all three parameters, you have designed to enhance the value of the entire brand portfoliowhat is known as the ``sweet spot. These are the types of are not rewarded.opportunities that are most often identified and pursued Mining the value of opportunities where perceptualthrough traditional brand architecture and management. The license, organizational capabilities, and marketingbest brand builders have capitalized on expanding, over opportunity do not neatly intersect may require innovativetime, their opportunities to develop brands that align with all branding techniques such as:three criteria. This has allowed them to extend the relevance & ``Pooling and ``trading. These are two brandingof existing brands while adding new capabilities that strategies that help strengthen relationships betweencapitalize on emerging market needs and opportunities. For disparate brands in the portfolio. Brand pooling putsexample, Clorox bleach has effectively taken advantage of its multiple and distinct brands in a portfolio to work in aoperational capabilities and brand associations of safe, concerted way to address a spectrum of consumerpowerful cleaning to expand its franchise from the laundry needs. Each brand in the portfolio possesses uniqueroom to the bathroom and more recently to the kitchen, with equities and provides its own set of values to thethe introduction of Clorox disinfecting wipes and its new customer. But it is by ``pooling the benefits of thekitchen floor scrubber. collective brands that the portfolio gains its strength: achieving greater relevance to a broader market, andMore innovative techniques for integrated making the most of cross-selling and loyalty-buildingstrategies opportunities across the brands in the portfolio. Thus,But what approach should be taken with opportunities that pooling creates top-line growth by generating greaterdo not meet all three criteria? Some situations require revenue, and bottom-line growth by achieving greaterintegrated corporate branding strategies. These may yield efficiencies across the portfolio of brands.the greatest, long-term value for the brand, the brand The architecture of Procter & Gamble consumerportfolio as a whole and for the business in terms of added product brands is an example. Procter & Gamble hasgrowth and all that comes with it. But they are often leveraged its manufacturing capabilities to develop aoverlooked in traditional brand management settings where host of laundry detergent brands ± Tide, Cheer andthe focus is on individual brands, and all too often initiatives Gain. Each targets a different segment of the market Strategy & Leadership 30,5 2002 25
  • 5. and offers different benefits, but Procter & Gamble has longer strategically aligned or desired, they provide the ``pooled them together by presenting the entire portfolio ability for rapid and low-exposure departure from a to the trade in order to capture more shelf space and category. ultimately, gain additional market share. & Strategic brand consolidation. Opportunities to In the ``trading strategy, two or more brands are used consolidate the number of brands in a portfolio can together in an effort to trade off each others values. This emerge after a strategic evaluation of the structure and approach helps fill gaps in a portfolio and can also relationships between all the brands (taking into account create a combined offering with value that a single brand the customers perspective). This analysis is weighed could not match. against the contribution of these brands to the bottom For example, Disney effectively utilizes trading to line and the companys overall strategic objectives (see support its ``wholesome family entertainment brand the case example, ``How a leading software company identity. The Disney master brand is used and creates applied brand architecture principles.) Streamlining the value in its sub-brands, whether they are Disney World, portfolio benefits the company and customers alike by Disneyland, or the Disney Stores. Each sub-brand has creating an opportunity for more efficient allocation of its own value, as fun theme parks or shopping organizational resources and by creating more destinations. But they also benefit from the halo effect of compelling and beneficial brands. the Disney master brand associations. Strategic brand consolidation is an area that can Identifying opportunities for pooling and trading deliver immediate and significant benefits to the top and between brands in the portfolio enables more cost- bottom line. Eliminating or consolidating brands that are effective and higher-returning investments. More inherently weak or non-strategic within an existing traditional brand-building approaches focus on portfolio should lead to direct cost reductions from managing brands and brand investments individually savings in areas as diverse as marketing (reduced and focus on returns being delivered from investments support costs), manufacturing (fewer runs), materials in brand ``A and brand ``B individually. In contrast, (fewer parts, paint, etc.), and distribution (fewer SKUs). pooling and trading enables investments to be better & Brand acquisition. Since most M&A activity is focused directed across brands, resulting in collective returns on achieving bottom-line growth, few businesses think that are greater than the sum of the individual returns. about applying brand relationship mapping principles to& Branded partnerships. While this branding strategy is the potential acquisition. As a result, many acquisitions less risky than creating or acquiring a new brand to fill a add to brand proliferation and market confusion instead gap in the portfolio, it still requires careful selection and of achieving new brand synergies and brand value planning. creation. However, if brand strategy is brought into the Branded partnerships are designed to enable a brand discussion before the deal is finalized, a mergers and to extend into markets where it would not be perceived acquisitions strategy can fill the gaps and expand the to have a strong presence on its own. By partnering, one relevance and reach of brand portfolios. brands attributes and benefits complement and add to Household product manufacturer S.C. Johnson is those offered by another. Trek and Volkswagen among the forward-thinking companies that have used employed the strategy effectively by offering a Trek bike well-defined brand architectures and strategies to and bike rack with the Jetta. The upshot for Jetta was a consistently guide the selection, integration and 15 percent jump in sales and a reinforcement of brand leverage of new brands and businesses. This is perceptions such as ``fun and ``sporty. exemplified by its approach to purchasing the Ziploc It is important to avoid the pitfalls of this strategy by brand. Prior to pursuing the Ziploc opportunity, Johnson ensuring that the approach addresses the needs of the first defined how that brand would potentially customer. Too many organizations have gotten caught complement its existing portfolio, where future brand up in partnerships that were more focused on synergies and consolidations could lie, and what stream capitalizing on a trend than on filling a real gap in their of related new products could help drive growth and portfolios. redefine the brands role within the overall brand From a financial standpoint branded partnerships portfolio. provide a highly cost-effective, non-capital intense, and & New brand creation. This should be the last option relatively low-risk means to take existing brands into new considered when seeking to fill portfolio gaps and markets or categories and thus generate new revenue maximize portfolio value. It should only be considered and profit streams. If successful, branded partnerships when other strategies to use brand to create value are can provide an effective base on which to formally not viable. Creating a whole new brand is both risky and extend existing brands with a moderate and gradual expensive. Even the renowned brand-builder Procter & level of investment. If they prove unsuccessful or are no Gamble has focused on other approaches, believing theStrategy & Leadership 30,5 200226
  • 6. expense of creating new brands would leave it with done in a strategic manner and planned and supported inadequate resources to fund, support and grow its well, the payoff and returns can be significant. current portfolio. Sometimes, however, brand creation may be the best The need for new mindsets, guidelines or most viable means to help an organization meet both Brand management must take a more strategic role that business and brand portfolio objectives. In this case, the emphasizes the portfolio-wide approach and the business- new brands development and launch should combine wide implications of brand-oriented decisions. Category traditional brand management approaches with managers in multi-brand companies must assume a more principles of strategic brand architecture designed to active role in the brand strategy, taking on ownership of the support the value of the whole portfolio. This requires brand portfolio and management responsibilities for the evaluating the new brands role within the context of the brand architecture. They should be intimately familiar with the existing brand portfolio. Issues to consider are: how well equities of each brand, as well as the relationships between it complements and is supported by other brands; them. Further, brand managers must be given financial where opportunities lie to create synergies between incentives to ensure their perspectives and decisions them; and how these will enhance the overall portfolios support the optimization of the entire portfolio ± and, thus, value (see Exhibit 3). the entire business performance. Coca Cola, for example, saw that it was missing out Such changes require guidelines that articulate the brand on a significant opportunity in the bottled drinking water strategy and approach, how different types of brands will be category. Evian water had gone from a niche product to leveraged, the role each plays in the portfolio, their equities, a category creator and Coke was left on the sidelines and how they inter-relate with each other. At the same time, it until it developed its Dasani brand of water. By is necessary to establish what exceptions will be allowed, leveraging its distribution capabilities and trade helping to establish clear criteria while removing subjectivity relationships, Coca Cola quickly created the second and emotion from the decision-making process. largest bottled water brand. Despite the drawbacks of Finally, it is extremely difficult for managers focused on a this approach, it is often the only viable option for single brand to gain the broader perspective of the brand capitalizing on new value creation opportunities. As the portfolio. To this end, a brand council should be formed as a case with Dasani and numerous other brand launches, if forum to team brand managers, category managers andExhibit 3 Ð Assessing brand choices Strategy & Leadership 30,5 2002 27
  • 7. other, non-marketing, senior-level decision-makers to & How many different products do the customers wantoversee the performance of the brand portfolio and to ensure offered to them?that guidelines are being upheld. & Do customers understand the value proposition of 200 A dynamic, forward-thinking brand architecture may well products?be one untapped source enabling organizations to get more & Does the current organization of the brands reflect thefrom their existing brands and derive real value from those customers perspective?that they acquire. When managed strategically and used asa structure to anticipate future business and brand needs, Raising these questions helped the company understand itsconcerns, and issues, brand architecture can be the critical customers needs ± and how the brand portfolio could belink to business strategy and the means to optimize growth structured to provide the most value to them, and to theopportunities and brand portfolio value. And achieving such company itself. The answers came from a careful analysis ofbenefits may well be the means for competing and winning in research that segmented the companys markets verticallythe long term. by industry. It was based on such parameters as the size of the target company and sophistication of its IT organization. This type of outside-in market segmentation is particularly ``Strategic brand consolidation is an crucial to high-tech innovators where products often evolve from technological breakthroughs rather than customer area that can deliver immediate and needs. A final analysis studied three key issues to ensure significant benefits to the top and alignment of the brand architecture strategy with strategic business imperatives: bottom line. & Selling enterprise solutions (or bundled ``suites of products) versus single-product ``point solutions. & Managing partnerships and alliances.Case: how a leading software company applied & Managing new products and services.strategic brand architecture principles The result was a new brand architecture that allowed theA leading software provider grappled with the challenges of company to sell both point products and suites of products.managing a complex mix of more than 200 product and It also provided a structure against which brand extensionsservice offerings that had resulted from aggressive growth. could be planned and acquired products could be moreThe company recognized that it needed to better organize, effectively integrated. Finally, it reflected the companysprioritize and distinguish its brand portfolio because its sales strategic imperatives.force could not effectively sell such a large number of To facilitate implementation of the brand architecturebranded products. Nor could its customers keep track of strategy, the company adopted a set of tools. The threethem. primary tools were: For its first attempt at organizing its portfolio, the company (1) Brand approval process.adopted a product indexing approach that segmented its (2) Brand architecture decision framework. This essentiallyofferings into three categories based on functional product organizes the brands in the portfolio in a logical fashion,benefits. Each of these categories had a group brand name answering such questions as:that described its product mix adequately. But, the names & Should a product/suite solution/service be its ownbore little relation to customer buying decisions ± the critical brand?information required to shape strategic brand architecture. & What brands should be supported?Research showed that the companys customers buy & Which should be divested or absorbed intosoftware by platform (mainframe or open systems) and by another?activity or usage. By looking at their offerings from this (3) Naming guidelines. Particularly for complex brandcustomer perspective, the company could start developing a architectures, the guidelines help managers quickly andstrategic brand architecture. efficiently select a brand name from a pre-approved list. The first step was to assess the brand equity ± that is, themonetary and perceived value ± of the portfolios major To better meet its customers needs, the companybrands and sub-brands. Key questions that needed reorganized into several strategic business units. It can nowanswering: deliver the complete software solutions its customers want.& What do the brands and sub-brands stand for? Furthermore, it has minimized overlap among brands and& How are the products viewed from an external and achieved more efficient allocation of its resources by internal perspective? consolidating and divesting brands within its portfolio.Strategy & Leadership 30,5 200228