Managing Brand Portfolios to Unlock Real Potential
by Reshma Shah

The composition of a company's brands is a vital issue for marketers. What constitutes a well-tended brand portfolio, and what are the signs of neglect? Does the portfolio fit together coherently, or is it simply a loose confederation of offerings that grew out of historical decisions to do with products? Marketing executives at most large companies have wrestled with this question.

General managers devote much attention to the technical and logistical aspects of their portfolio of products, and branding is often treated as a set of decisions to be taken after products have been developed. This approach undervalues the contribution of those decisions as a way of generating growth. Managers who focus on individual products or brands often miss the bigger picture that helps ensure the company's entire portfolio of products maximizes shareholder value.

Although few companies have the luxury of starting with a clean slate and creating a well-balanced set of brands, they all have much to gain from a formal assessment of their portfolio of brands.

Most managers understand that brands are highly valuable assets of the company. But they seldom have mechanisms in place to reveal where a company is not fully exploiting the opportunity to apply existing brands to new products - in the same way, for example, that financial discipline helps focus attention on underused fixed assets or assets with a poor return on investment. A brand assessment exercise can help expose these hidden sources of value.

Brands can be exploited in two ways. First, to expand a product portfolio; in other words, to increase the number of different lines a company offers. For example, Colgate Palmolive's product line currently consists of five areas: oral care, personal care, household surface cleaners, fabric care and pet foods. In contrast, its competitor, Clorox, offers more than 10 different product lines, including laundry care, household cleaners, dressings and sauces, fireplaces and wraps and containers.

Second, a company can use a brand to expand the number of variations within each product line. In the five lines that Colgate Palmolive operates, it offers only nine major brands with one or two variations in most of its lines. Clorox's product lines exist under 42 different brands, each with dozens of variations.

Brand portfolio assessment can also help identify situations where brand exploitation has gone too far, where sales or perceptions of products can be hurt. Some extensions can be potentially damaging to their parent brands because they have the potential to dilute a brand's position in the mind of the customer. Further, managers often fail to make room for new brands by removing poorly performing old ones. A disorganised product and brand mix can confuse customers.

Finally, portfolio analysis can help to identify opportunities for introducing new brands in situations where existing brands are not ideal for sustaining long-term competitive advantage. For example, when Toyota was interested in higher-value segments of the market, it introduced Lexus rather than extend the Toyota brand.

So what should managers do once they have a good idea of the strengths and weaknesses of their brands, their balance and coherence? They face a number of choices: whether to extend the product line or brand, introduce new brands, enter a co-branding arrangement or adopt a private label initiative.

Managers often use their existing brands to limit the risk of introducing new ones in a competitive market. The product determines whether the introduction is a line extension or brand extension.

A line extension occurs when an existing brand name is used to introduce products within the same product category as the parent brand. The new products may vary slightly in terms of color, flavor, form or size. For example, the introduction of diet and caffeine-free line extensions extended the soft drinks market into new segments.

Companies can also carry out brand extensions, where an existing brand name is used to introduce products in an entirely different category from the parent brand. For example, Yamaha has successfully applied its brand to products as diverse as motorcycles, electronic keyboards and tennis rackets.

Line and brand extensions are not only good for growth, but can also revitalize tired brands. Extensions breathe new life into brands by satisfying customers' desires for "something different". For example, after the decline of the Volkswagen Beetle the introduction of line extensions under the names Jetta, Golf and Passat have taken Volkswagen to a top spot in new car sales internationally.

Private label brands can also reduce the risk of launching new products. Companies can introduce private label lines, products that carry the name of a channel wholesaler or retailer that does business with the manufacturer. Successful examples include the President's Choice line of organic products from Loblaw, Canada's largest food distributor, the Craftsman brand of tools from Sears, and the St Michael's clothing line from Marks and Spencer.

For the most part, these labels offer products that are considered as good as, if not better than, the national brand leader at prices 30 to 50 per cent below the leader's price. This branding option offers strong value to customers and its popularity and appeal is growing apace.

Co-branding represents another way to introduce a new product into the market. This often includes licensing, ingredient branding and composite branding. Co-branding is used to exploit a partner company's brand strength or relevance in a given market. One of the best examples is the prominent display of the "Intel Inside" logo that computer-makers use to bolster their brands.

Companies can also introduce completely new names in an attempt to distance products from existing brands. This option works well when the goal is to introduce products that are very different from the existing brand, such as Godiva Chocolates and its parent, the Campbell Soup Company.

So what factors determine these choices? The first is the degree of brand equity enjoyed by the brand. Simply put, this is the set of assets and liabilities linked to a brand. It is critical to the management of brands as it can strengthen loyalty and provide the foundation for growth through extensions. The Starbucks brand is not only recognized around the world, but its customer following is strong enough for it consider expanding into other categories. Weak equity, however, can trouble companies by limiting opportunities to exploit their brands. The US retailer, K-Mart, for example, may be better off using co-branding to support its less valuable brand.

A second factor is the scope of the product category, or its capacity to contain many different lines of products. Personal hygiene is a category with broad scope, as it can conceivably include many mutually exclusive lines of products such as hair care, oral care, feminine hygiene, health and beauty and skin care. Within each line, a number of different products can exist. In contrast, the dental hygiene category has a narrow scope, since it contains only a limited number of products, such as toothpaste and whiteners, toothbrushes, flosses and picks.

When a brand is strong, marketers should consider line extension and brand extension. Managed well, strong brands can be effortlessly extended into new product categories. When the scope of the product category is broad, brand extensions are better than line extensions because the brand can be associated with a larger number of products. For example, brand extensions have served brands like Glade very well, since the category of air freshening is associated with many different lines of products (aerosol sprays, solids, oils, carpet powders and liquids) and many situations (at home, in the car, at the office, etc).

When the scope of the product category is narrow, line extensions appear more feasible than brand extensions since product lines are few. For example, when Mercedes-Benz introduced the 190 model in the mid-1980s, it was able to appeal to the sub-luxury segment of buyers as never before. The downscale 190 model did not diminish the image of the brand; rather, it contributed an aura of excitement and youthfulness to the Mercedes name.

When brand equity is weak, leveraging existing brands may not be the best option. Indeed, it may be better to consider introducing an entirely new brand, or pursue co-branding or private labeling opportunities. Distancing new products or partnering with a stronger brand (including retail brands) can improve customers' acceptance when core brands are weak.

Scope is also important for weak brands. When the scope of the product category is wide, private labeling and co-branding may be wiser than introducing new brands. The logic is as follows: wholesalers and retailers will be more likely to consider carrying a private-label brand when they believe the brand can be expanded into many other product categories. Similarly, co-branding allows both parties to exploit the brand name and other assets associated with it. The further these combined assets can be stretched, the more enduring the relationship.

When the company's brands are weak and the product category scope is relatively narrow, one option is to introduce entirely new brands. Customers are more likely to embrace new brands when their meaning is associated with a narrow set of items.

A final option when brands are weak and category scope is narrow is to simply rationalize your portfolio by de-listing brands that aren't performing. In the narrow category of hard surface cleaners, Unilever, realising that its Lux Liquid brand had lost relevance for both channel members and end users, discontinued the brand in many major markets.

Brands are among a company's most valuable assets. While most executives recognize this, few view branding as a strategic means of generating growth. A formal assessment of the brand portfolio will reveal which branding options are best pursued under certain situations. Those who manage their brands as actively as their product and financial portfolios will be best placed to harness this potential for growth.

Reshma Shah is an assistant professor in the practice of marketing at Goizueta Business School, Emory University.