Posted in Marketing & Strategy Articles, Total Reads: 1520
, Published on 28 October 2014
When this May, 2014, Hindustan Motors announced that it is discontinuing the production of Ambassador, popularly known as "Amby" , it was an another nail in the coffin of our old classic products which had left us like Maruti 800 and Bajaj Chetak two wheeler in 2005. People emotions started pouring out in editorials, in blogs where everyone shared their love tale with them.
But, what we are concerned about are the factors that affect a product, which is liked by so many people, which in some sense did become the part of a country. What forces an organization to kill a Brand which they nurtured using financially, managerially and reputational resources?
Image Courtesy: freedigitalphotos.net, Stuart Miles
Birth of "Brand Killing"
Mr. Neil McElroy who was in charge of supervising the advertisement of Camay Soap in 1930s, Procter & Gamble product, was annoyed by the fact that the company was only advertising its flagship product, Ivory. Dismayed by this, he wrote an internal memoir stating that an organization should have band-based management system. This will provide every product management team with a dedicated budget and chance to position its product at first. In his opinion an organization should encourage intra product competitiveness at the expense of other product. He went on to become the head of P&G in 1948, and his proposition became the basis of portfolio management in P&G and other organizations, and was called "Killing of a Brand".
Most Companies do not examine their portfolio. They do not check the brands making loss, identify weak ones, and kill unprofitable ones. Consequently, many brand portfolios make losses or very marginal profit.
Through this article we will look at some of the Brands which were discontinued and the rationale behind them.
The "Ambassador" which was launched in 1958 by Hindustan Motors (HM), along the lines of British car "Moriss Oxford III", fondly came to be known as "The king of Indian Roads". HM was selling 24,000 Ambassador's in 70s and 80s. The first blow that it faced was when Maruti 800 was launched in 1984. By 1995, HM Ambassador sales had declined by 50%. After the economic reforms in 1991, which opened the door for foreign car manufacturers, HM market share started decreasing. It happened that sometimes even a single car was not manufactured on a working day in HM plant, in comparison 5,000 cars by Maruti\ Suzuki every day.
The fall of the Ambassador can't be just attributed to external Factors, in its lifetime of 56 years, Ambassadors didn't do any significant interior and exterior changes. The car came in variants but with only some minor changes and was priced in 5-8 lakhs bracket.
It appears, HM marketing strategy was not Customer Oriented, but they fell in love with their car. HM neither aligned itself with the changing preferences of the customers nor tried to be in "Me Too" category by keeping up with the competitors. Since 1998, it was making losses and was funding it by selling its assets.
Whereas, Maruti Suzuki 800 and Bajaj Chetak were launched later but left the market before Ambassador in 2005. As the sales of Maruti Suzuki 800 were decreasing and its other products were doing well in comparison to it. So they decided to stop its production as they had other gems in their portfolio.
In case of Bajaj Chetak, customers were migrating from scooters to motorcycles and scooter were not much of relevance. But similar to HM, Bajaj also didn't spend much on R&D of the product and became anachronistic.
One can infer that all three of them flourished in the License Raj, but after 1991, were not able to keep up with the foreign competitors owing to their lackadaisical management.
When to kill a brand?
So what is that apt and perfect time to decide to let that brand go, so that you sail smoothly through that transition time without hurting your customer base, your market share and your organization?
We have to consider some of the below mentioned parameters to judge a Brand before parting it away and they are -
Financial Contribution of the Brand
You can easily find out if a Brand is a Cash Generator or Cash Consumer through financial report of the brand. Killing a Cash consumer will free up the asset and resources, which can be used to make the strong brands stronger. Ambassador as discussed above was a Cash Consumer for a long time and has to be discontinued. Nestle for example in 1996 had around 8000 brands inclusive of Global, National, Regional and Local brands in 190 countries. But much to the surprise, only 200 or 2.5% of the brands contributed to a large chunk of revenue. Similarly, in 1999 Unilever had 1600 brands around the globe, of which only 400 brands were responsible for more than 90% profit.
Do you have too many brands in your Portfolio?
The truth is most of the brands do not generate revenue for the companies and instead act as a liability. So you need to adopt an approach which can help you decide your Brand portfolio. Broadly, organizations take two approaches, Portfolio Approach and Segment Approach which are complementary to each other.
In Portfolio approach companies keep that brands which confirm to certain parameters such as Brand Power - if a Brand has a potential to become number one or two in the market. Brand Growth Potential - it has to display the potential to be able to meet the consumer demands. Brand Scale - Brand should be big enough to justify the marketing and technological investments in it by generating revenue proportionally. Unilever through this approach got away with 1200 brands and retained 400 which accounted for 92% of its profit.
Through Segment approach, companies try to redefine and find the distinct consumer segments and infer the right size of portfolio for a particular category. It is always advisable to segment the market on the customer needs instead of price or product. It makes your portfolio more relevant to the market.
Branding Contribution of the Brand
Companies sometimes have to kill a brand event if it is extremely profitable. During merger and acquisition of two companies, it may happen that a brand of one company is not compatible with the portfolio of other. For example, when Coke acquired Thumps Up, it was the market leader in Beverages. As to position its product, when Coke tried to kill the Thumps Up, there was backlash in the form of customer's reaction and after sometime Coke had to relaunch it and now it is a star product in its portfolio. Sometimes, when a company does not wish to associate itself with a product, it goes ahead to kill it. As Newton Computer, a product by Apple, with a very high popularity was perceived to be anachronistic by the company itself. Apple was aggressively furthering in technology domain and the product might didn't go with the image. So company killed it, even when the product was financially lucrative
How to kill a Brand?
The effectiveness of every process depends upon the execution of it. As it is important to identify the Brands which need to be killed, it is more important to stealthily execute it without making any noises. Organizations have to make sure that they do not lose customers and in the process migrate them to the other brands. Some of the approaches which can help an organization make the final cut without making much noise are discussed below.
When Brands have more than a few customers, companies prefer to "MERGE" the brands. They start attributing the features of the brand they plan to drop to the brand they plan to retain. When Unilever when was planning to merge washing powders Radion and Surf, it came up with the "SunFresh" having the sun fresh accent of Radion. It helped the brand in gaining a good market share.
Sometimes organizations go for "SELLING" the brand as they do not want to waste resources on their non-core products.
If you can't MERGE a brand and the same time can’t SELL it, you can always intentionally cut down the marketing and margin incomes of the brand to gradually take it from market. This is called "MILKING" of the brand.
Through "PROMOTIONAL SELLING" the process can be initiated much before you start the withdrawal of the brand. For example when GM was planning to withdraw some of its brands, it offered a sale on them, first with the aim to clear the inventory and second, to retain the customer. So that once the brand is killed, people remain loyal to portfolio because of the prior good experience.
Now, a Marketing Manager may think of himself as the James Bond, a secret service intelligence officer of MI6 with a license to kill. But remember unlike him, you are responsible and accountable for your actions. Your actions will have impact on the organization and your inactions may bleed the organization because of inefficiency.
But the aforementioned concepts will help you to tread this path safely.
This article has been authored by Priyank Bhartiya from IIFT Kolkata