The Brand Portfolio Diet

Volume 6 Letter 12

Like too much Christmas turkey, companies bloated with too many brands in their portfolios can lead to a bad case of market indigestion. Mergers and acquisitions can leave firms stuffed with too many products fighting for too few resources. Often managed as a collection of individual brands, the ability to differentiate between them becomes blurred – often leading to pricing pressures on all the brands. Additionally manufacturing costs often soar and distribution turns into a nightmare. It’s enough to make Ebenezer Scrooge roll over in his bad dream. Yet, when managed correctly, individual brands positioned suitably within a portfolio can be far more powerful when they are interconnected as we’ll see in the following story.

Marriott Hotel group has 2,100 properties in almost 60 countries generating superior profits and growing at almost double the rate of their competitors. Marriott knows when to add to their portfolio and when to trim it. In the 1980’s Marriott noticed the economy hotel market had a lot of local brands which were unfamiliar to most travelers. With nothing in it’s brand portfolio and no established hotel chain to purchase, Marriott saw an opportunity and introduced a hotel brand called ‘Courtyard by Marriott’. Travelers knew the Marriott brand, and those concerned about the quality of unknown local chains were brought in by the familiarity and high standards of the Marriott name. Since its introduction in 1985, Courtyard by Marriott has dominated the economy segment, with more than 500 properties in the United States.

Marriott’s managers however have a clear understanding of where they can and cannot take their brand. In 1995 they moved into the high end segment by acquiring Ritz-Carlton’s 31 properties. The chain was suffering from poor financial performance but had a strong image among affluent customers for whom the Marriott name had very little pull. Marriott didn’t change the name nor did they add their name to it. (It’s not the Ritz Carlton by Marriott!)

Too often managers of multi-brand businesses don’t understand the value lost in not properly managing a brand portfolio. Marriott offers just one brand (never two) to each distinct customer segment in the traveling market. Their portfolio covers all segments of the traveling market from economy to luxury, and Marriott gains the synergies between the brands. For example the management systems (accounting, payroll, deliveries etc.) are common to all the brands while supplies (sheets, blankets, beds, furniture, etc.) may only cross a few brand lines.

To help us shape up in the New Year we’ve developed the Brand Portfolio Diet:

    • Understand each brands’ equity (the attributes of a brand that influence customer behavior) and the economic contribution this brings – consider this as the “weigh in”. Marriott did research to determine in which segments the brand was valued and in which segments the brand was not.

 

    • List any synergies that exist among brands in a portfolio. Are there individual or collective brand strategies that could help better support and position the brand (build more muscle) or are some brands just excess fat? Marriott uses one brand to target one segment (never two) but they do share R&D and other costs.

 

    • Align the brand portfolio with business strategies. Use divisional or business unit brands to create and protect unique business opportunities within the company. For example, John Deere is using the Scott brand in the Home Depot channel while keeping the John Deere brand for specialty outlets.

 

    • Build muscle; drop the fat. Support your power brands with your best management talent and invest money in these brands. Conversely, be rigorous about cutting or repositioning weaker brands.

 

    • Build a pyramid. Brands should be positioned to cover all the attractive segments in the market place. Marriott has hotels from the economy end to the very high end.

 

  • Don’t over indulge. Be careful in extending brands to adjacent markets or entirely new markets. Starbucks tried to sell branded furniture. Turns out good coffee doesn’t mean good furniture – an expensive mistake. Rather than stretching a brand too far it’s better to build a new brand or buy a brand. Marriott bought the Ritz Carlton name in the high end segment.

This New Year go on the brand portfolio diet. Cut out the fat and position your brand portfolio to best take advantage of manufacturing, marketing and distribution efficiencies while being careful to make sure that each brand offering targets a unique segment which brings your company superior value. Happy New Year!

References and Further reading (the second article is excellent)

1. How to Slim Down a Brand Portfolio by Nikhil Bahadur, Edward Landry, and Steven Treppo Booz Allen consulting

2. Brand Portfolio Economics White paper by Mercer consulting www.Mercer.com

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