Posted in Marketing & Strategy Articles, Total Reads: 1378
, Published on 03 February 2015
"A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well.”
― Jeff Bezos
Brands are important assets for companies. Companies invest in researching, defining, building, promoting and maintaining their brands by spending loads of cash over time. After all brand is a source of a promise to the customers. Companies strive hard to create and maintain strong loyalty among customers by promoting point of differentiations. But a quick reality check will leave a person bewildered. The surprising truth is that most brand don’t make money. Businesses struggle to get return from most of its brand. Around 80-90 % revenue is generated by fewer than 20% of the brands. Honchos as big as Unilever, P&G and Nestle find themselves helpless impacted by the Pareto’s 80-20 rule. The number of brands shut down runs into thousands over the past decades and they go ahead and kill their brands.
Brand killing, to be or not to be?
It’s important to understand the concept behind brand killing. Orkut was once the dominating and among a few effective social interaction platform. It was one of the most profitable product for Google, which had just started to dominate the internet. But as its popularity decreased and it lost its share in the revenue, Google decided to shut it down forever.
In another instance, Coca-Cola tried to kill one of the soft drink brand it acquired Thumps up as it was not consistent with its product portfolio. Thumps up was eating up the market share and giving Coke a tough time. Market then saw something which had never happened before. The consumer base of Thumps Up forced Coca cola to re-launch it in India. Since then Thumps Up has proven to be a profitable asset in Coca Cola portfolio.
Art lies in the timing, when to kill?
Brand killing if often considered by a company when a brand doesn’t contribute enough to the revenues. Since branding and maintaining reputation involves a lot of investment, when a brand fails in doing so company tries to kill it down. Ironically, sometimes brands are even killed when they are profitable. In case of Thumps up, it contributed a good share in the revenues but it was dropped to avoid sales cannibalization of Coca-Cola itself.
Another reason is when the product fails to match the portfolio. This time again the product can be successful yet proving to be detrimental to your overall brand value. Qualis was a success in India and witnessed record sales. It was so effective that it was being used as a taxi by many travel agencies. Toyota which is known for its luxurious cars around the globe didn’t like getting its brand diluted. It killed Qualis and introduced Innova. Many were against this decision. But finally the brand value was at stake.
In order to have a competitive edge, almost all companies upgrade their product in accordance with latest technology. This constant product improvisation causes the product to become obsolete and is forced to be removed with time. Gillette is a great example–first killing its highly successful single-edge razor blades in favor of the twin blade, then killing that with triple blade and recently by quadruple blade. Good knight also showcased similar strategy when it switched from mosquito repelling coil to low smoke coil and from Good knight Matts to its latest Good Knight fast card.
Products have a limited life and they pass through different stages that poses different challenges and opportunities. High fluctuations in revenue and profit margins cannot be denied. Thus, every product requires a different marketing strategy in different life cycles.
Product life cycle
Most product life cycle are shown as bell shaped curve and it is divided into four stages:
Introduction- It is a period of slow sales growth as the product is just introduced in the market. In this phase, profit aspects remain nonexistent. Vaio laptop, initially witnessed low growth and profit was not up to the desired level.
Growth- It is a period of rapid market acceptance and substantial profit improvement. Vaio due to its sleek body design, Oomph factor, and cutting edge technology had put Sony Corp at the new level and the sales grew rapidly.
Maturity- This period in which sales growth slowdown due to customer’s acceptance and profit stabilize because of increased competition. For example, with the sudden rise of tablets and smartphones and sudden contracting of PC business with low profit margin, so it’s very hard a company to make buck as a PC maker these days.
Decline- Sales show downward shift and soon profits erode. Vaio headed into high expectations that they couldn’t match up. They weren’t able to create the buzz for its PC that Apple already built around themselves which led Sony Corp to close down its PC business due to huge loss in Q3, 2013.
The Boston consulting matrix is based on the product life cycle theory that helps to determine what priorities should be given to the product portfolio of a business unit.
In BCG analysis products are divided into Stars (High growth, High share), Cash Cows (Low growth, High share), Question mark (High growth, Low share), Dogs (Low growth, Low share).
For a company planning to cut down the product range of ineffective products which are unable to bring revenues, BCG matrix comes very handy. All the products lying in the Dogs quadrant have a high chance of getting laid down. These are the products which are a liability to the company. But, there are some exceptions as well. Sometimes even cash cow products are killed when they conflict with the overall objectives of the company.
Killing machine isn’t needed, how to kill?
The most challenging task is to decide on the most appropriate way to kill a brand. While doing so, company has to ensure that they don’t lose the loyal customer base but transit them to a different brand in its portfolio.
Rather than directly dropping the brand, companies follow a merge approach which helps in retaining the current customer base. They transfer the product features or sometimes the image of targeted brand into a new lesser strong product which they plan to retain. On the other hand, when the two products are of equal stature they are grouped and marketed as a single entity and slowly the targeted product is dropped.
Some of the products are popular among customers and companies face hard time in dropping them. In such cases they decide to compromise on sales for profit. It reduces the expenses on marketing and advertisements and invest bare minimum capital to keep the product moving on the shelves. It may further go on to reduce retailer’s margin and distribution costs. Employees are slowly moved from the brand. As the sales goes down, profit from the product rises before the brand slowly dies out.
Killing the brand is not just restricted to removing a particular brand from the market. It may also involve changing the perception or target customer base. It happens because either the brand had receive low calling or it had fail to achieve the marketing objectives. Tata Nano was positioned as the lowest cost car which was perceived as ‘cheap’ car in Indian market. Nobody wanted to be known as an owner of a cheap car. Tata has since then been trying to reposition it as a smart city car for youth brigade.
Company may decide to kill the brand entirely without any undergoing any transition. General Motors beautifully applied this approach when it had to eliminate some of the brands. It offered lucrative discounts on the products which ultimately benefited GM in two ways. First, it let them clear the stock at a faster pace. Secondly, it help GM build a loyal customer base by selling cars at high discounts. These customer had high chance of coming back to GM when they would switch to another new car in future. A perfect example of win-win scenario. In another example, Unilever and Electrolux were able to increase both profits and sales by methodically killing bands. Another approach taken by companies is by providing extended service long after the brand is killed. This allows a lasting relationship with the customers over a long time.
Brands are a result of nurturing and investment and therefore killing a brand is difficult task for companies. However, if the product is not handled properly it can prove to be a liability for the company and may even lead to overall dilution. That’s why killing a brand requires high level of expertise and strategic thinking keeping in mind the future implications on the company’s product portfolio.
This article has been authored by Sanjeev Ranjan & Aviral Verma from IIFT