Introduction
Due to limitations of line and brand extensions, companies have to go for a portfolio of brands. Portfolios offer advantages. At the same time, they also are not without disadvantages. The lecture discusses both.
Brand portfolio and segmentation
Every market can be segmented by product, customer expectation, or the type of customers. A chain of hotels may like to have its presence in different segments of the hotel market by having three-, four-, and five-star hotels. Its presence in three different segments addresses different needs of customers within those segments.
Customers in the three-star segment are economy-oriented audience interested in neat accommodation with no frills at affordable pricing in a middle class area of town.
Conversely, customers in the five-star segment are desirous of high comfort, pampering, sophisticated ambience, and high status. Customers in the four-star category fall in between the two ends of the spectrum.
The example illustrates different products and different types of customers with different expectations. Considering the variance of factors among different segments, it is obvious for the company not to sell its services through three kinds of hotels under the same brand name. With the same name, customers in the five-star segment will feel degraded and under-served, while those in three- and four-star segments will expect to have upgraded service offered at the five-star set-up at the pricing of three- and four-star accommodations. It will lead to quite a confusing situation devoid of a rationale.
The company therefore should consider different brand names for the simple reason that all three products relate to a particular set of corporate objectives through segmentation and differentiation. This implies that depending on the corporate objectives, degree of competition, and company’s resources, the company should decide about the number of brands it should be having. In this case, it looks apparent to have three brand names for three different hotels.
It, however, is a multi-stage process that drives one to decide the practical number of brands.
The stages are related with a historical study of the segments that you have been in or are interested in.
All strategies flow out of two areas of marketing - segmentation and differentiation. That owes to the external growth factor of the total category. As mentioned above, given the degree of competition and historical perspective of the whole category, you position different brands in
different segments. To address differentiation, you may not successfully do that by way of having just one brand do all the jobs for you. It is graphically illustrated.
Segment variance
If the variance in terms of segments is too broad like in the case of the hotel, then one brand will work at cross purposes. You have to have different brands. If the variance is narrow, then you may go for an extension. But, you may still go for some distinction in name that signifies differentiation. It can be exemplified by way of calling one economy and the other executive.
By competing at the bottom of the top segment (top right quadrant), you are defining new boundaries, repositioning the competition, and keeping it off-limits to your top-of-the-line offering, which is surrounded by two direct competitors. You are a little more expensive there, but less expensive at the bottom of the segment where you have a nice fighting brand with higher quality than those offered by two others.
The variance in segmentation corresponds to different positions. That is, different positions on the positioning grid necessitate different brand names. A multiple brand policy therefore corresponds to a segmented market, where various expectations in each segment are not only different, but also seen as incompatible by consumers.
The above means customers in upscale segment will never accept the same brand name unless there is differentiation between their brand and the one that is perceived inferior. You may go back to the hotel example. As a comparison and conclusion, we can say that
Yet it should not mean that companies are prepared to spend unlimited sums in the areas of multi-brands. The objective to cut costs never escapes managers’ attention. They like to offer differentiation at the end of the production process, thus trying to make brands appear different. The tendency to achieve productivity gains via fragmentation of the assembly line at the fag end of the process kills two birds with one stone:
Most of the multi-brands of cars make use of such productive gains. Look at the models by Toyota and see the differences between the base model and the saloon model. Differentiation seems to take place after having had the gains of productivity in terms of the shape of the model. Even the latest “Altis” with a bigger engine is subjected to the philosophy of production harmony and cohesion.
Due to limitations of line and brand extensions, companies have to go for a portfolio of brands. Portfolios offer advantages. At the same time, they also are not without disadvantages. The lecture discusses both.
Brand portfolio and segmentation
Every market can be segmented by product, customer expectation, or the type of customers. A chain of hotels may like to have its presence in different segments of the hotel market by having three-, four-, and five-star hotels. Its presence in three different segments addresses different needs of customers within those segments.
Customers in the three-star segment are economy-oriented audience interested in neat accommodation with no frills at affordable pricing in a middle class area of town.
Conversely, customers in the five-star segment are desirous of high comfort, pampering, sophisticated ambience, and high status. Customers in the four-star category fall in between the two ends of the spectrum.
The example illustrates different products and different types of customers with different expectations. Considering the variance of factors among different segments, it is obvious for the company not to sell its services through three kinds of hotels under the same brand name. With the same name, customers in the five-star segment will feel degraded and under-served, while those in three- and four-star segments will expect to have upgraded service offered at the five-star set-up at the pricing of three- and four-star accommodations. It will lead to quite a confusing situation devoid of a rationale.
The company therefore should consider different brand names for the simple reason that all three products relate to a particular set of corporate objectives through segmentation and differentiation. This implies that depending on the corporate objectives, degree of competition, and company’s resources, the company should decide about the number of brands it should be having. In this case, it looks apparent to have three brand names for three different hotels.
It, however, is a multi-stage process that drives one to decide the practical number of brands.
The stages are related with a historical study of the segments that you have been in or are interested in.
All strategies flow out of two areas of marketing - segmentation and differentiation. That owes to the external growth factor of the total category. As mentioned above, given the degree of competition and historical perspective of the whole category, you position different brands in
different segments. To address differentiation, you may not successfully do that by way of having just one brand do all the jobs for you. It is graphically illustrated.
Segment variance
If the variance in terms of segments is too broad like in the case of the hotel, then one brand will work at cross purposes. You have to have different brands. If the variance is narrow, then you may go for an extension. But, you may still go for some distinction in name that signifies differentiation. It can be exemplified by way of calling one economy and the other executive.
By competing at the bottom of the top segment (top right quadrant), you are defining new boundaries, repositioning the competition, and keeping it off-limits to your top-of-the-line offering, which is surrounded by two direct competitors. You are a little more expensive there, but less expensive at the bottom of the segment where you have a nice fighting brand with higher quality than those offered by two others.
The variance in segmentation corresponds to different positions. That is, different positions on the positioning grid necessitate different brand names. A multiple brand policy therefore corresponds to a segmented market, where various expectations in each segment are not only different, but also seen as incompatible by consumers.
The above means customers in upscale segment will never accept the same brand name unless there is differentiation between their brand and the one that is perceived inferior. You may go back to the hotel example. As a comparison and conclusion, we can say that
- while brand extensions correspond to a strategy of domination and competitive advantage via low costs
- the multi-brand strategy is a logical consequence of a differentiation strategy and as such cannot coexist with low costs in view of reduced scale economies, technical specialization, specific sales networks, and necessary advertising budgets
Yet it should not mean that companies are prepared to spend unlimited sums in the areas of multi-brands. The objective to cut costs never escapes managers’ attention. They like to offer differentiation at the end of the production process, thus trying to make brands appear different. The tendency to achieve productivity gains via fragmentation of the assembly line at the fag end of the process kills two birds with one stone:
- Companies try to achieve differentiation there and
- Companies try to reap the benefits of the learning curve, which is characterized by a lot of common features
Most of the multi-brands of cars make use of such productive gains. Look at the models by Toyota and see the differences between the base model and the saloon model. Differentiation seems to take place after having had the gains of productivity in terms of the shape of the model. Even the latest “Altis” with a bigger engine is subjected to the philosophy of production harmony and cohesion.
What makes it necessary to have different brands?
- Collective play: One brand cannot develop the market. It’s the collective positions and communication campaigns that educate the customers about different features different brands offer. When different players collectively promote their respective differences, it tends to promote the market collectively. Combined advertising offers a combined view of the whole category thus improving the whole category. Multiplication of players, therefore, becomes essential.
- Market coverage: The role played by multiple players automatically strengthens the concept of segmentation, because they all opt for different segments by positioning them uniquely. Such situations lead to coverage of the market that is not possible with just one brand. Different price-quality-indexes (PQIs) emerge and one brand revolving around all PQIs is bound to lose its identity.
- Effective fight to competition: You introduce a new brand to position it right below established competitors’ pricing. You don’t do that with the original brand, for that amounts to cutting brand’s pricing and hurting its image. Refer to figure 31. In other words, it offers you to create the territory of marketing battle away from that of your original brand.
- Fills the market and keeps the competition out: It offers you the opportunity in line with the fundamental that says a multiplication of players is important. A strong player can take on the role of a multi-supplier by having different brands and hence keeping the competition out.
- Protects the main brand image: If the new entry is not successful, it doesn’t hurt the original brand.
- Responsive to retailers’ needs: A multi-brand policy fulfills needs of different retailers, because different retailers cater to the needs of a different level of clientele and, hence, needing an array of different brands for different customers with different demographic backgrounds is essential. Actually, the identity of retailers is defined by the selection of different brands they carry and specialize in selling.
- Takes over where extensions feel limited: A multi-brand policy emerges from the limitation of extensions to look after all the segments of the market. A sophisticated market is bound to be confused by extension of one brand, if it addresses different quality and needs-fulfilling criteria across different zones of customers’ attitudes. Electronics offer a perfect example. Japanese electronics companies offer more than one brand of televisions and musical instruments by being sensitive to the following psychographics.
- There are customers who buy on the basis of technical innovation and, hence, don’t care about the price.
- There are customers who buy on the basis of basic need-fulfillment, and hence, are economy-oriented
- There are customers who buy on the basis of reliability and durability
If you classify customers in the above three segments, you may like to have different brands for those segments. You, therefore, have to relate different features and benefits with the brands’ attributes. One brand extension cannot do that.
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