There is perhaps no activity more vital to growing a company than the development and launch of successful new product offerings. However, the success rate of new products has been very disappointing, despite the use of increasingly sophisticated research and testing approaches. The new-product problems faced by marketers could be the result of gaps in new-brand theory, rather than faulty testing or implementation of new product launches. Maybe we have to re-evaluate the underlying principles and models we are using to develop new brands and place them within the company’s brand portfolio architecture. Let’s start with a look at the current situation.
The value of the new
Most successful marketing companies are fully aware of the important role new offerings will play in their future growth. In 1999, Robert Echert, president-CEO of Kraft Foods, stated that 100 new products would be launched within three years and that those product lines would represent approximately 75% of the company’s incremental volume growth1. Indeed, a 1998 study by Deloitte and Touche in the US predicted that new product sales would generate about 33% of the typical manufacturer’s total revenue within a few short years2.
Most successful marketing companies are fully aware of the important role new offerings will play in their future growth.
Not only are new-product successes vital to a firm’s growth, but the cost of failed new product launches is becoming ever steeper. The average cost to launch a new product in the US is $20 million to $50 million, according to New Product News. That figure varies depending on your category but according to consultancy A T Kearney’s study of the automotive industry,’during the 1970s marketers could establish a new brand by spending $10 million on marketing annually for two consecutive years. In this decade, the figure has jumped to $75 million per year,but it takes three to five years’3.
Marketers obviously see the value of new products as 31,432 new consumer packaged goods were introduced in the US in 2000 according to Productscan Online– a 21.2% increase over 1999 and nearly double that of 1992. Now it is up to marketers to distinguish their new offerings within this onslaught of new brands, products, styles and flavours. Unfortunately,most are failing.
Astounding failure rates
According to a 1997 US study by Ernst and Young,there is a 67% failure rate among truly new products (meaning products that actually create a new category). New brands entering an existing category experience a 50% failure rate and perhaps most surprising,they found an 84% failure rate among brand extensions. The reason for this high failure rate among brand extensions? Ernst and Young cited a fundamental lack of competitive differentiation. The proliferation of undifferentiated brand extensions is symptomatic of a discipline that is in desperate need of some prescriptive principles regarding portfolio architecture4.
According to Eileen Roche in the March,1999 edition of Harvard Business Review,90% of all new consumer packaged goods introduced each year are line extensions. When you factor in the escalating costs of new brand launches it is not surprising to see so many line extensions. However, there may be a false economy in this thinking. A study by Research International in London showed that line extensions rarely add more than 10% to sales – while according to Ernst & Young, most fail completely.
The underlying reasons for failure
When a new product fails in the marketplace the reasons cited are usually related to the execution of the launch. ‘We priced it inappropriately’ or ‘we entered the category too late’ or ‘the advertising missed the mark’. Sometimes the product is simply ill-conceived and there is no doubt that the sheer number of new entries has made consumers weary of yet another ‘improvement’ that does little for them other than make life more complicated.
However, there are also some fundamental strategic principles that need to be re-examined. Two key areas warrant more attention as the gaps in these two areas of marketing theory lead to unnecessary brand failure.
First, the creation of holistic new brands (as opposed to new products) seems to be woefully under-served from a theoretical perspective. There is much that has been written about NPD (New Product Development), but very little about developing a new brand idea. The academic perspective on brands seems to focus on managing existing brands in the marketplace rather than creating strong new ones. Moreover, most experienced managers spend their careers managing large,existing brands and may develop only one or two new brands in a career. The result is that very few people are in a position to create general principles about new brand development. It seems clear that marketers are in need of principles and models specifically developed for the creation of new brands.
The second area that needs to be addressed is the thorny problem of brand portfolio architecture. Portfolio architecture describes a system that clearly communicates the differences and similarities across the offerings of a brand family. The decision to launch a new product as a new brand vs a sub-brand vs a product line extension is too often made in a compartmentalised, tactical manner. We believe that the architectural impact of a new offering should always be treated as a strategic decision because bad brand architecture dilutes the power of existing brands in the portfolio and leads to overall consumer confusion. This confusion leaves brand extensions poorly differentiated and they fail in the marketplace. Moreover, poor portfolio architecture decisions can result in portfolios with inelastic brands that cannot support extensions into new product categories.
Tactical brand architecture decisions lead to a proliferation of brands that pile up over time and create inefficiencies for the company. Unilever found that only 25% of its brands generated 90% of its global revenues in 1998. By reducing its focus to 400 global brands (out of 1,600), sales were increased by 3.2%.
If brand architecture for new products is to be treated strategically, then we need better prescriptive principles for its application. If new brands are to be thought of differently,we need a model for new brands that addresses their specific challenges. This article will endeavour to outline some of our thinking in these two important areas.
New theory for new brands
A new brand must grow out of a new positioning idea. A brand strategist faced with developing a new brand is essentially looking at a blank piece of paper that requires creative thinking. New positioning ideas come out of a creative process that is largely ignored by most brand theorists. Creativity is thought to be the exclusive province of agency creative departments, whereas the positioning idea is too often seen as the inexorable output of a disciplined, ‘scientific’ process.In truth, a great brand positioning idea needs to be compelling to the consumer in a fresh, differentiated (creative) way. No model can ensure that you arrive at big ideas, but it helps to acknowledge the need for creativity in the strategic process. To help in getting to a fresh positioning idea we use a brand model that embraces marketing discipline and integrates creativity with brand theory. This model tries simply to capture the notion of creative synthesis – where elements can be combined and re-combined to develop new solutions – within a disciplined marketing construct (Exhibit 1).
The model reflects the critical analyses that must be accomplished, ie understanding the consumer,the product and the company. We have found that it is vitally important to create brand positioning ideas that reflect the company’s values in organisations that have a strong culture. A new brand that is out of step with the values of the people who will make and sell it has little chance of success. But the brand positioning idea must be a synthesis of the key insights in each area so that the brand reflects and addresses each of these vital inputs. The competitive environment is a backdrop for this model. It is used to evaluate the degree to which the positioning idea is differentiating.
We have applied this model to many new-brand/new-offering situations for our clients. It was instrumental in our work to create a new sub-brand for Lee Jeans in the US (Exhibit 2). The Lee Dungarees sub-brand was aimed at 17–22 year olds who would never consider Lee’s core brand because it was associated with an older generation (it was their parents’ brand).
We found that Lee’s one positive equity with this younger target was its ‘virtually indestructible’ product. This brand truth was then re-framed using our brand model to make it more relevant and compelling to the target group. We looked for aspects of the consumer and company that could be integrated with this product insight to create a strong, compelling brand-positioning idea. Many different consumer insights were considered but the way that these consumers wanted to feel in their ‘ideal’ jeans was considered most thematically parallel with the product’s durability. By understanding that the ‘ideal jeans’ would make the wearer feel so confident that ‘I feel like I can do anything, like I’m indestructible’ we could re-frame the product’s durability in a far more compelling manner for the target.
Fortunately, the 108-year-old Kansas City jeans company had a strong mid-western culture defined by the motto ‘let nothing hold you back’. The culture fits perfectly with our eventual positioning idea – ‘indestructible spirit’. The positioning of the sub-brand was a tremendous success, posting share increases from 2% to 20.6% against the target group during the critical back-to-school selling season.
The value of a brand model specifically designed for new brands is that it recognises the important role of the creative process in developing a newbrand positioning from scratch. The creative process leads to relevant ideas if it is properly framed with the most important factors in defining the brand.
Prescriptive brand portfolio architecture criteria
Brand portfolio architecture must be consumer focused. The primary goal of architecture is to clearly delineate the similarities and differences across a company’s product offerings to consumers. That said, strong portfolio architecture ultimately benefits the company by decreasing marketing expenses, protecting brand equities and aligning the right offering with the right channel and consumer.
It is also important to identify what portfolio architecture is not. It is not the same as a company’s organisational chart. An ‘org’ chart is likely to be far more fractured and complex. Companies that mirror their org charts in their brand architecture systems create brands to represent every division or fiefdom, a distinction that is largely meaningless outside of the firm.
Furthermore, brand architecture is not a tactical tool. But if we are to think of it strategically, we need a set of principles or criteria that help us answer a very straightforward question: ‘we’ve got a new offering, how should we brand it? Should it be a totally new brand, a new product line underneath a brand we already have, or something in between?’
To answer this question we need to take a step back. Let us define the basic elements of brand architecture that represent the choices when launching a new product (Exhibit 3). First, you could choose to create a completely new master-brand that is completely unrelated to the rest of your portfolio. Or, the new product could be a sub-brand, which is related through name and iconography but clearly distinguished from the master-brand. Alternatively, you could choose to make the new offering a new product sitting under an existing master-brand or sub-brand.
In a simple world, one brand would be perfectly elastic and its positioning would be equally relevant to all consumer segments in all product categories. It would be simple for consumers and efficient for marketers. However, brands are not generally so elastic. Elasticity is limited or defined primarily by the brand’s positioning or personality, and its perceived competencies. For instance, Volkswagen’s brand could probably not stretch into shampoo, as it has no perceived competence in that category. The brand might have perceived competence in (say) making large SUV’s (sports utility vehicles) but it may not fit Volkswagen’s brand personality to extend into that category. Limitations on elasticity drive the need for sub-brands and new brands. For instance, VW may decide to create a sub-brand that would have a slightly different personality and therefore be acceptable in the SUV category. Also, by creating a sub-brand, Volkswagen is able to create distance from the master-brand and protect its equities from dilution, even as it enters a category that does not necessarily ‘fit’ the master-brand. In this way, new products and portfolio architecture are inextricably linked and poor architecture decisions can hurt the existing master-brand as well as new offerings.
The master-brand’s elasticity limits the product categories in which it can compete. But it also limits the number of consumer segments to which the brand is relevant. A particular brand’s positioning may be highly relevant to one segment and a real turn-off to another. If a company hopes to reach this second target, it will need to create a new, relevant positioning idea for that group. To avoid diluting their brand they will need to create a new master-brand to reach that segment.
Now we can start to sketch out some prescriptive architecture principles based on an understanding of the brand’s elasticity. Can the brand stretch into a new product category? Can the brand stretch to reach a new target consumer? The limiting factors are the brand’s positioning, personality and perceived competence (Exhibit 4).
Stretching to either a new product category or a new consumer segment drives architectural decisions. It is a short step then to establish the criteria for designating a new product as a new master-brand, sub-brand or product. (see Exhibit 5 for criteria summary.)
New brands and new products have never been more important to the success of marketing organisations. Yet the cost of new launches combined with high failure rates have made new product introductions a sore spot for marketers. In our experience, new brand failure is exacerbated by some important gaps in brand theory. We have created a brand model particularly relevant for new brands and developed some prescriptive portfolio architecture principles that have helped our clients,but there is much more discussion and thought that should take place around these ever more important subjects.
- Advertising Age. 5 July, 1999. [↩]
- ‘1998 Vision in Manufacturing,’ Deloitte & Touche and Deloitte Consulting in collaboration with researchers at Kenan-Flagler Business School of the University of North Carolina. [↩]
- Advertising Age. 17 November, 1997. [↩]
- Advertising Age International Supplement. 13 April,1998. [↩]