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The Licensing Journal, November 2018: Should Your Toothpaste Company Launch a Frozen Food Line?


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Brand Licensing

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The Licensing Journal, November 2018: Should Your Toothpaste Company Launch a Frozen Food Line?

  1. 1. 22 T h e L i c e n s i n g J o u r n a l NOVEMBER/DECEMBER 2018 Licensing Markets Brand Licensing Sebastian Custodia Should Your Toothpaste Company Launch a Frozen Food Line? A Closer Look at Brand Extendibility Brand equity (often equated with brand value) is an all- encompassing measure of the benefits that a company receives from its brand as a result of its cumulative marketing and brand maintenance efforts. There are various valuation methodologies that attempt to assign a specific monetary value to a given brand which range from simple cash flow models to complex combi- nations of various rankings and analyses (such as the methodol- ogy used by Interbrand, a global brand consultancy). In an article titled Brand Equity: An Overview published out of the University of Virginia, brand equity is said to encompass the following measures: • Brand Association: What triggers consumers to think of the brand and what comes to mind when they see the brand • Brand Vision: The way the brand presents itself and reflects the overall business strategy • Brand Positioning: How the brand positions itself in the target market relative to competitors • Brand Image: How consum- ers view the brand and what target personas the company wants to associate with the brand • Brand Awareness: A mea- sure of how well consumers recognize the brand; on a scale from “Unaware” to “Top of Mind Awareness” • Brand Loyalty: How likely consumers are to switch between brands within the same product category • Brand Extendibility: Potential to leverage the positive perceptions associ- ated with the brand to new customers.1 Each one of these components of brand equity deserves to be explored at length; however, this piece will focus on exploring Brand Extendibility in further detail. As mentioned in a previous article “Preventing Brand Value from Going Up in Flames”,2 the direct monetary benefits that a well-constructed brand offers the company are traditionally boiled down to two main categories: the ability to charge premium prices and diminishing marginal marketing costs as a company expands. Brand Extendibility is the main value driver of the sec- ond category. A company can introduce its brand to new cus- tomers in one of two ways. First, a company can launch a new product in a new product cat- egory. Modern tech companies are a great example of utiliz- ing Brand Extendibility in this way. For example, Amazon has successfully launched products in the e-reader, virtual assistant, tablet, and smart TV product cat- egories (among many others) all under the Amazon name which has become known for its highly efficient and customer-centric image. The second method of brand introduction to new cus- tomers is extending to a different target market within the same product category. Proctor & Gamble has done an excellent job of this over the years. For exam- ple, P&G has extended the Tide brand to many different subcat- egories within the broader deter- gent category and has extended its Crest brand to many differ- ent subcategories of the broader oral care category. Under both of these brand extension methodol- ogies, a strong brand relieves the parent company of a great deal of marketing and other brand- building expenses. Similar to the concept of economies of scale, where a company’s fixed costs become less significant as pro- duction of a product increases, Brand Extendibility reduces the significance of marketing costs as the brand extends to new products and customers. The Downside of Brand Extension: Brand Dilution It is important to remember, however, that a brand can be over extended. When this hap- pens, the value of the brand can actually take a hit, as the intended messages and associa- tions begin to get diluted (appro- priately called “Brand Dilution”).
  2. 2. NOVEMBER/DECEMBER 2018 T h e L i c e n s i n g J o u r n a l 23 Think Harley-Davidson Perfume, or Colgate Beef Lasagna. You can imagine the rugged image of Harley taking a hit as bottled fragrances hit the shelves, and Colgate’s association with fresh- ness and cleanliness beginning to fade when depicted next to layers of marinara sauce in the frozen foods section. The lesson is not only to intelligently man- age the brand internally, but also to develop restrictions on who licenses your brand and under what terms. Unfortunately, there are times when a brand exten- sion is attempted without the company’s permission. Such was the case with In-N- Out Burger, when a micro-brew- ery launched a new beer called the “Neapolitan Milkshake Stout” back in July. The Neapolitan Milkshake may be ubiquitous with the burger chain for some west coast residents, but the real problem was the proposed can design for the beer, which mimicked the In-N-Out soda cup design almost exactly and used a clear copy of the company’s logo bearing the text “In-N-Stout.” You can imagine the In-N-Out executives’ reaction to seeing their clean-cut brand being used to market what some would con- sider a vice. If this were a delib- erate move made by In-N-Out burger to try and extend their brand to the adult beverage mar- ket, we would have to question the thought process behind the decision and wonder whether or not this would actually serve to damage the family-friendly brand. In this case, however, the release of the product was out of the company’s control, and thus, swift action was the only way to mitigate such potential damage to brand equity. Fortunately, In-N- Out’s legal team crafted arguably the perfect response: issuing a pun-filled cease and desist notice which has received a great deal of publicity to date. One could argue that this response and the press coverage that followed may have actually resulted in increased brand equity. Surprisingly, this is not the sole case of a questionable brand extension into the beer arena. Back in 2015, breakfast cereal brand Wheaties teamed up with a micro-brewery in Minnesota to launch a Hefeweizen beer called “HefeWheaties” in an intentional brand extension effort. This col- laboration was built on the fact that wheat was an ingredient in both products and was offered for a limited time. Whether or not this extension positively or negatively affected the Wheaties brand equity can be debated; however, the value-add of Brand Extendibility is clear. When a recognizable and respected brand is used in the marketing of a new product, the market- ing team benefits from all past branding efforts and is relieved to a certain degree of expenses that they would normally have to incur in launching an entirely new brand. Imagine the relative expenses that Apple will under- take when it finally launches its rumored Apple Car, compared to the expenses that will arise when Wheaties inevitably launches its own electric vehicle. 1. “Brand Equity: An Overview,” Farris, Paul W.; Gregg, Eric A.; Chinn, Brandon; Razuri, Mariela. Published February 24, 2015. 2. value-from-going-up-in-flames/ Sebastian Custodia is an Associate at Foresight Valuation Group, a Silicon Valley based intellectual property advisory firm, where he specializes in the valuation of intellectual property assets including patents, brands, trade secrets, and software. His experience in finance also includes work in M&A advi- sory, high-tech compensation consulting, and solar energy financing. He holds a B.S. in Finance from Santa Clara University and is currently pursu- ing his MBA at the USC Marshall School of Business.