Flexing Your Brand Muscles Can Cause Injury

Flexing Your Brand Muscles Can Cause Injury

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David Taylor, founder of the Brandgym, and a marketing thought leader in Europe, warns of the dangers of over-extending brands, that is, using an established brand as the platform to launch new products in new markets. With a portfolio of airlines, financial services and telecommunications Richard Branson does not agree. Virgin has been extended into new markets very successfully. However, it has also been very unsuccessful anyone remember Virgin Cola? Both Taylor and Branson are right. Brands are like muscles, the more you stretch them the more you can stretch them. Virgin went from music to airlines as a first move. This was risky but Branson pulled it off and created the reputation of Virgin as a peoples champion. That built a strong muscle, capable of being stretched still further into other markets with entrenched players and poor service levels in need of shaking up. Virgins muscle is based on values first, product second. Where a brand is inextricably linked to a product with values, like Coca Cola or Levis, the muscle is stiff. A quick stretch into a new market (like shoes or suits in the case of Levis) and there is a risk of injury. As Taylor says, better to grow the core of the brand and extend the market footprint in a more evolutionary way.
But why is it that in developing brand strategies and marketing ideas some marketers have this tendency to over stretch brands? It is because they want to generate growth and believe, often wrongly, that using an existing brand to attack new markets rather than focusing on building growth in their core markets is a less risky way of doing this. It is the result of marketing and finance trying to get on the same page growing brands and making money but taking the quick fix rather than addressing the real issues that would lead to shared objectives.
The late Peter Doyle, Professor of Marketing at Warwick University in the UK, used to emphasize the purpose of marketing as the creation of profitable growth. It is easy to confuse the tools and processes of marketing with the ultimate purpose. Doing consumer research or making ads are a significant part of marketing, market segmentation and brand positioning are important processes but, as Doyle stressed, they are just means to an end. The end in question is the same as for business as a whole, to create and sustain growth. We should stop referring to marketing ideas and use business marketing ideas instead, to make this higher purpose more obvious.
Marketings obsession with brands also obscures the role of marketing. Brands are a means to the same end. Brand management is effectively reputation management and the purpose of developing brand strategies is to strengthen reputation in order to secure long term income flows. As the influence of marketing has grown in business a tension has been created between the finance community and the brand managers. Finance sees the purpose of business as making money whereas brand managers only care about their precious brands.
This is nothing more than an argument about timing, as Doyle also pointed out. Every decision in business has a risk profile and a positive and negative effect on cash. In finance, the decision, for example, to reduce working capital has a short term positive effect. Working capital goes down, cash goes up - normally within one fiscal year. However, lowering working capital means lowering stock cover and that can run the risk of spaces on the shelves where your brand should be. In the long term this can cause reputational damage with distributors and the chance that people will buy the competitors brand. Short term cash gain, long term risk. When a brand manager invests money behind a brand the short term effect on cash is immediate and negative (marketing spend cannot be amortized). The potential gains in terms of enhanced reputation, more buyers, higher prices are long term and uncertain. Short term risk, long term gain, hopefully.
This is over simplified but illustrates the potential disconnect between marketing and finance. Of course the purpose of business is to make money for its shareholders, the question is with what risk profile and over what time scale. Brands enable a business to lower its risk profile by building intangible value in terms of reputation and, as has been proved, they offer higher, more secure income returns over a longer time frame. Coca Cola makes superior returns than any manufacturer of unbranded fizzy drinks.
For marketing and finance to get on the same page there needs to be a shared understanding of what the risk profile and timescales for income flows should be. The problem is measurement and the time frame over which measures are applied. Public companies have to issue results every quarter. Brands, the tool to deliver those results, are built over years, decades even, and the methods of measuring brand strength and brand value are much less precise than the measurement of purely financial returns. The result can be over stretching brands to chase short term financial gains and a painful pulled muscle. Taylors advice to focus on core brand growth (build the muscle up to stretch an analogy!) is wise. As he points out, there can be less risk and higher returns in doing so which keeps everyone happy.

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