Journal of Consumer Marketing

Building Successful Brands: The Strategic Options

Peter Doyle
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Peter Doyle, (1990),"Building Successful Brands: The Strategic Options", Journal of Consumer Marketing, Vol. 7 Iss 2 pp. 5 -
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 BUILDING SUCCESSFUL BRANDS: THE
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STRATEGIC OPTIONS
Peter Doyle
The debate on whether to include brands on Introduction
the balance sheet has created a new interest The role and valuation of brands have
in branding strategies. Successful brands recently become a controversial issue. Not only
clearly generate higher returns on sales and is the importance of successful brands empha-
on investment. But quality and service, rather sized by marketing managers, but some finan-
than advertising, is the best way of creating cial executives have developed a new enthusi-
such brands. Acquisition strategies frequently asm for brands, having seen that their inclu-
produce inconsistent portfolios of brands. The sion in the balance sheet enhances shareholder
policy toward brand extension is shown to funds, reduces company gearing, and so facili-
depend upon the similarity of positioning tates further growth by acquisition. This article
strategies between current and new brands. explores six key questions about brands: (1)

Peter Doyle is Professor of Marketing and Strategic Management at the University of Warwick. He has taught at the
London Business School, INSEAD, and Bradford University. He has also been Visiting Professor at Stanford, University
of Hawaii, and the University of South Carolina.
He graduated with a first in Economics from Manchester University and took a Ph.D in Industrial Administration from
Carnegie-Mellon University. His research interests are in marketing modeling and strategic planning. Publications
include five books and numerous articles in leading journals, including Journal of Marketing Research, Management
Science, Journal of Business, Journal of the Operational Research Society, and the Economic Journal.
He is on the editorial boards of the European Journal of Marketing, Journal of Business Research, International
Journal of Advertising, International Journal of Research in Marketing, and the Journal of Marketing Management and he
is a member of the Industry and Employment and International Activities Committees of the ESRC. He also acts as a con-
sultant on international marketing and strategy with a number of companies, including IBM, Shell, ICI, Unilever, 3M,
Hewlett-Packard British Telecom, and Marks and Spencer.
Editor's Note: This is one of a series of articles which were originally published in the distinguished Journal of
Marketing Management, University of Strathclyde, Glasglow. Some editing has been done to fit our format and to
Americanize some of the British spelling (e.g., commercialise) and unique word usage (e.g. whilst).

5
Vol. 7 No. 2 Spring 1990
 THE JOURNAL OF CONSUMER MARKETING

What is a successful brand? (2) How do brands "doesn't sell products; it sells solutions to cus-
work? (3) What is the value of a brand? (4) tomers' problems." 20
How are successful brands built? (5) What are
the comparative advantages of buying brands A product then is anything that meets the
versus building and developing them internal- needs of customers. When several companies
ly? and (6) What are the logic and economics are offering rival products, each will want to
behind brand extension strategies? identify and distinguish its particular offering.
This is called "branding," so there is a Black
The Successful Brand and Decker brand, a Revlon brand, and an IBM
brand. But the focus here is not on brands per
Before defining a brand, it is first necessary
to define a product. The concept of a product se, but on successful brands. The mere fact that
is n o t straightforward. First, p r o d u c t s and people are aware of a specific brand does not
brands are often mistakenly associated only mean that it is successful. People recognized
with consumer goods. Today the most rapidly brands like the Sinclair C5, the Ford Edsel, the
growing and profitable products are in ser- Co-op, or Wimpy restaurants, but they did not
vices—financial, retail, and management. In d e v e l o p p r e f e r e n c e s for t h e m . T h e r e c e n t
a d d i t i o n to p r o d u c t s a n d services, p e o p l e , L a n d o r s u r v e y 1 4 f o u n d , for e x a m p l e , t h a t
places, and ideas can be thought of as "prod- British Telecom was in the UK's top ten brands
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ucts." Politicians, movie stars, and privatiza- for awareness, but in terms of esteem it was
tion schemes are now marketed in much the rated number 300. BT has been referred to as a
same way as Coca-Cola and Crest toothpaste. strong negative brand. It was known for all the
wrong reasons.

Some financial executives have A p o s i t i v e or s u c c e s s f u l b r a n d c a n b e

developed a new enthusiasm for defined as follows: A successful brand is a
brands name, symbol, design, or some combination,
which identifies the "product" of a particular
organization as having a sustainable differen-
Second, products mean different things to tial advantage.
people inside the business than they do to peo-
ple outside. Inside, to the firm's managers and "Differential advantage" means simply that
accountants, a product is something produced customers have a reason for preferring that
in the factory or the office. It is about materi- brand to competitors' brands. "Sustainable"
als, components, labor costs, quality, and out- means an advantage that is not easily copied by
put specifications. But outside, to consumers, a competitors. That is, the business creates barri-
product is something different: it is a means of ers to entry, for example by developing an out-
meeting their needs or solving their problems. standing reputation or image for quality, service,
These needs and problems are as likely to be or reliability. (For a useful study of the issues
emotional and psychological as functional and surrounding the concept of a differential advan-
economic. It is a product's ability to meet these tage see Endnote 8). Brands such as IBM, Coca-
needs and aspirations which creates its value. Cola, Sony, and Marks and Spencer are success-
The value of a product is not what the produc- ful brands because they have such sustainable
er puts in, but what the consumer gets out. As differential advantages, which, as will be shown
the chief executive of Black and Decker put it, below, invariably result in superior profit and
"Our job is not to sell 1/4-inch drills, but to market performance. Successful b r a n d s are
m a k e 1/4-inch h o l e s . " Or the c h a i r m a n of always brand leaders in their segments.
Revlon Cosmetics: "In the factory w e make
c o s m e t i c s , b u t in t h e store w e sell h o p e . " Two implications of this definition can be
Similarly, IBM has always maintained that it noted. First, brands are assets only if they have

6
 BUILDING SUCCESSFUL BRANDS: THE STRATEGIC OPTIONS

sustainable differential advantages. If a brand this decision-making process, the individual

is negative or neutral like BT, Woolworth, or looks for short-cuts. The most important of
the Austin Maestro, it should not appear on these is to rely on habit—buy brands that have
the balance sheet, however much is spent on proved satisfactory in the past. This is particu-
advertising. Any profit these brands achieve is larly the case for low-involvement purchases,
through their property or distribution invest- which make up most of the things people buy.
ments rather than through their differential This does not mean that people are totally
advantage. brand loyal, of course, since most of them
know that many brands will satisfy their needs.
Most people ask for Coca-Cola but they are not
It is a p r o d u c t ' s ability to meet too disappointed when they are offered Pepsi.
needs and aspirations which creates
its value This habit rule is not based just upon experi-
ence of use, it can also be based upon long-
standing perceptions. People can have quite
Similarly if the differential advantage is not strong brand preferences even though they
sustainable, it should not appear on the bal- have never bought the product. This is espe-
ance sheet. In some markets, such as games or cially true for aspirational products. My son
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children's toys, a successful brand often has a has long had a preference for a Porsche, even
life expectancy of only six months and there- though he has still to wait another five years
after has no value. before he is old enough to have a driver's
license. Such preferences or brand images are
Second, like most other assets, brands depre-
based upon cultural, social, and personality
ciate without further investment. If manage- factors, as well as commercial stimuli such as
ment fails to reinvest in enhancing quality, ser- advertising, public relations, and prominence
vice, and brand image, then the brand will of distribution.
decline. Hoover, Singer, Frigidaire, and MG are
examples of brands that were once so success- Even with nonroutine, supposedly highly
ful as to be almost generic names for the prod- rational purchasing situations in the industrial
uct, but have since declined or disappeared sector, where decisions are taken by technical
because of lack of investment. personnel, it is remarkable how important
brand image is in the choice process. Even
This factor is often underestimated. Most industrial buyers tend to rely on experience
models suggest that brands tend to decay loga- and long-held attitudes about the brand, rather
rithmically. 17 This means that in the short- than undertaking a zero-based approach to the
term, managers can increase profits by cutting wide range of alternative options.16 As the cyn-
back brand support, without damaging the ical IBM salesman is supposed to have said to
brand's market share. However, the mistake is a purchasing manager, "Nobody's ever been
thinking that brand disinvestment can be con- fired for buying IBM."
tinued. Without adequate support, typically
after about a year the brand enters a period of
Successful brands are those that create this
spiraling decline.6
image or "personality." They do so by encour-
aging customers to perceive the attributes to
How Brands Work which they aspire as being strongly associated
Brands work by facilitating and making more with the brand. These attributes may be real
effective the customer's choice process. and objective (e.g., quality, value for money) or
Everyday an individual makes hundreds of abstract and emotional (e.g., status, youthful-
consumer decisions. He or she is besieged by ness). The personality of the brand is a func-
countless products and messages competing for tion of its rational characteristics but these
attention. To make life bearable and to simplify have to be augmented and communicated to

7
 THE JOURNAL OF CONSUMER MARKETING

consumers through advertising, design, pack- Weak brands mean weak profits. A UK study
aging, effective distribution, and display. shows that for grocery brands the relationship
These position the brand's personality in the is even stronger. The number one brand gener-
consumer's mind, generate confidence, and ates over six times the return on sales of the
create the purchasing environment. (A more number two brand, while the number three
complete description of consumer behavior and four brands are totally unprofitable (Figure
and its implications for brands can be found in 2). The pattern is similar in the United States,
a number of excellent texts. 3,11,13) where a recent survey of American consumer
goods showed that the number one brand
The Value of a Successful earned 20 percent return, the number two
earned about 5 percent, and the rest lost
Brand money.21
Successful brands are valuable because they
can create a stream of future earnings. It is use-
ful to dissect the mechanisms by which brands
generate these income streams.

Brands, Market Share, and Profits

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A successful brand is one that customers

want to buy and retailers want to stock—it
achieves a high market share. Brands with a
high market share are the more profitable ones.
The well-known PIMS findings, 5 based on
detailed studies of 2,600 businesses, showed Niche Brands
that on average, products with a market share The above findings do not mean that a suc-
of 40 percent generate three times the return cessful brand has to be large in absolute terms.
on investment of those with a market share of It is normally much more profitable to be num-
only 10 percent (Figure 1). ber one in a small niche market than to be
number three in a huge market. It is market
share which is the key to performance, not
absolute sales. In fact, there is research that
provides convincing evidence that a strong
brand in a niche market earns a higher percent-
age return than a strong brand in a big market
(Figure 3). In large markets, competitive threats
and retailer pressure can hold back profits
even for the top brand.

Prices
Because successful brands have differential
advantages, they are normally able to obtain
higher prices than less successful brands.
Sometimes this occurs at the customer level
but more frequently it is earned at the retailer
level. Strong brands can resist pressure from
the trade for discounts and in this way gener-
ate superior earnings. Premium price products,
on average, earned 20 percent more than dis-
count brands7(Figure 4).

8
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BUILDING SUCCESSFUL BRANDS: THE STRATEGIC OPTIONS

9
 THE JOURNAL OF CONSUMER MARKETING
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Brand Loyalty and Beliefs al months. Once the scare was over, however,
Successful brands achieve higher customer customers went back to the brand they trusted,
loyalty. Unsuccessful brands or new brands effecting a remarkably complete recovery for
have to attract customers. Having to do this Tylenol. Tom Peters tells a revealing story
hits the net margin because it is much more about Federal Express, which has a superb rep-
expensive in advertising, promotion, and sell- utation for service. He telephoned FEDX 27
ing to win new customers than to hold existing times over a six-month period to request ser-
satisfied ones. One study suggested that it vice. Twenty-six times a FEDX employee
costs six times as much to win new customers answered during the first ring of the telephone.
as to retain current users.18 On the twenty-seventh time the telephone rang
repeatedly without any response. After repeat-
Strong brands can also override the occa- ed rings, he put the phone down because he
sional hitches and even disasters which can assumed that he had made the mistake of call-
destroy weaker brands. After terrorists poi- ing the wrong number! Of course, if this had
soned samples of the leading analgesic, been a neutral or negative brand this episode
Tylenol, in 1987, U.S. retailers had to remove would have simply reinforced one's current
the brand entirely from their shelves for sever- image of the brand.

10
 BUILDING SUCCESSFUL BRANDS: THE STRATEGIC OPTIONS

Common Products, Unique Brands have lasted the decades have shifted to incor-
Today, c o m p e t i t i o n can q u i c k l y e m u l a t e porate new technology, ingredients, and pack-
advances in technology or product formula- aging developments to circumvent the product
tion. Competitors can quickly copy a cigarette, life cycle. Many b r a n d s , such as Johnson &
a soft drink formula, or PC specification. What Johnson's Baby S h a m p o o , have moved into
cannot be copied, however, is the Silk Cut, new market segments to continue growth. The
Coca-Cola, or IBM brand personalities. Studies fourth g r o w t h d i r e c t i o n is t o w a r d global
show overwhelmingly that the best feasible branding, w h i c h appears to offer increasing
strategy is to focus on brand differentiation o p p o r t u n i t i e s to t o d a y ' s m u l t i n a t i o n a l s . 1 5
(Figure 5), rather than cost and price, as a way Growth based upon continuously developing
of building profitability and growth. While the successful brands provides a more secure foun-
best strategy in theory is both low cost and dation than growth based upon unrelated
high differentiation, in practice it is worth pay- acquisitions or n e w untried products where
ing some cost penalty to achieve strong differ- failure rates are as high as 95 percent. 4
entiation. 12
Difficulty of Competitive Depositioning
The Brand Growth Direction Matrix The brand leader is in an enormously strong
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The product life cycle is a well-known phe- position to fend off attacks. First, it has finan-
nomenon. The product peaks and eventually cial strength—almost invariably it will have
dies as its markets mature and new technolo- the biggest market share and the higher profit
gies replace it. But this life cycle refers to prod- margins. This advantage should enable it to
ucts, not to brands. There is no reason why a outgun competitors in terms of aggressive pro-
brand cannot adapt to new technologies and motion and innovation. Second, the trade is
move from mature into new growth markets. a l w a y s r e l u c t a n t to a d d n e w b r a n d s if t h e
The brand growth direction matrix (Figure 6) existing brand leader satisfies the customers
indicates the main growth opportunities avail- and themselves. Third, the brand leader can
able. I n i t i a l l y brand share is the strategic exploit its superiority, as Coca-Cola does with
focus. But most of the successful brands which its "real thing" advertising. Without a major

11
 THE JOURNAL OF CONSUMER MARKETING

strategic window, 1 only a substantial under- The Creation of Successful

investment in quality and brand support is
likely to dethrone a successful brand. Brands
Brands are rarely created by advertising.
Motivating Stakeholders This concept is often misunderstood because
Companies with strong brands find recruit- the advertising is generally much more visible
ment easier than do other companies. People than the factor that creates the differential
want to work with companies that exhibit suc- advantage. For example, Singapore Airlines is
cess. Strong brands also widen share ownership a strong brand and does some attractive adver-
by increasing awareness and understanding of tising but the advertising is not the basis of the
the company. Finally, successful brands elicit brand—rather the advertising communicates
local authority and governmental support. and positions it. The basis of the brand is the
Western countries, for example, compete with superior customer service provided by the
inducements to attract the better-known Japanese cabin staff. This, in turn, is largely achieved by
companies to build their brands with them. Singapore Airlines putting in more cabin staff
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12
 BUILDING SUCCESSFUL BRANDS: THE STRATEGIC OPTIONS

per plane than do other airlines. Equally strik- Figure 8

ing is t h e fact t h a t B r i t a i n ' s s t r o n g e s t Britain's Top Ten Brands
brand—Marks a n d Spencer, has historically
done little or no advertising. There is little cor-
1. MARKS AND SPENCER 6. BOOTS
relation between the amount spent on advertis- 2. CADBURY 7. NESCAFE
ing and the strength of the brand. 3. KELLOGG 8. BBC
4. HEINZ 9. ROWNTREE
5. ROLLS-ROYCE 10. SAINSBURY
Another common mistake is to think that
brand loyalty is irrational. A recent survey on Source: Buzzell, R.D. and Gale, B.T. (1987)
branding by The Economist reflected this view:
" P e o p l e all over the w o r l d form i r r a t i o n a l The PIMS analysis showed that brands with
attachments to different products. Humans like high perceived quality earned twice as much
to take sides. . . . By most 'tangible' measures, return on investment and return and sales than
BMW cars and IBM computers are not signifi- do low-quality brands (Figure 9).
cantly better than rivals, but customers will
pay significantly more for them." 21 Levitt pro- Quality generates h i g h e r margins in t w o
vides a framework for understanding how suc- ways. First, quality boosts market share, which
cessful brands are created and why customers results in lower unit costs through economies
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are not "irrational" to choose them. 16 (Figure 7) of scale. Second, by creating a differential
a d v a n t a g e , q u a l i t y p e r m i t s higher r e l a t i v e
At the core of every brand there is a tangible price.
product—the commodity which meets the
basic customer need. For the thirsty customer, 2. Build superior service. Service is per-
there is water. For the p r o d u c t i o n manager haps the most sustainable differential advan-
with a data storage problem, there is the com- tage. While products are easily copied by com-
p u t e r . T h i s t a n g i b l e p r o d u c t is w h a t petitors, service, because it depends on t h e
culture of the organization and the training
economists believe rational consumers should
and attitudes of its employees, is much more
base their choices on.
difficult. McDonald's, IBM, Singapore Airlines,
But to generate sales in a competitive envi- and Federal Express are all brands built on ser-
ronment, this tangible core has to be put in the vice. A recent study 2 showed the importance
form of a basic brand. It has to be packaged of service: In the sample survey, 67 percent of
conveniently, and the customer needs to know customers changed brands because of poor ser-
the features of the product and its quality. It vice. Of those customers w h o felt u n h a p p y
should also be designed to facilitate ease of with the service provided by a bank, hotel, or
use. But there are further ways to augment the s u p p l i e r , only 4 p e r c e n t b o t h e r e d to com-
brand to enhance its value: guaranteeing its plain—they just did not expect any satisfac-
performance, providing credit, delivery, and tion. Of those that did complain, 91 percent
effective after-sales service. Finally, there is the dropped the brand permanently. But, interest-
potential brand, which consists of anything ingly, suppliers that dealt with complaints fast
that conceivably could be done to build cus- and generously held onto the vast majority of
tomer preference and loyalty. Which of these dissatisfied customers. In fact, there was some
d i m e n s i o n s appear to be most important in evidence that really effective responses to com-
practice? plaints actually increased brand loyalty.

1. Quality is number one. O v e r w h e l m - 3. Get there first. Perhaps the most com-
ingly, the most important determinant of brand mon means of building an outstanding brand is
strength is its perceived quality. Britain's top being first into a market. This does not mean
ten brands (Figure 8) are all quality brands. being technologically first, but rather being

13
 THE JOURNAL OF CONSUMER MARKETING
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first i n t o t h e m i n d of t h e c o n s u m e r . IBM, recent years. Where markets are strongly differ-

Kleenex, Casio, and McDonald's did not invent entiated—that is, different segments are look-
their respective products, but they were first to ing for different b u n d l e s of attributes—then
build major brands out of them and bring them both niche brands and big power brands can
into the mass market. It is much easier to build potentially earn very high returns on invest-
a strong brand in the customer's mind and in ment. Power brands such as IBM, Marks and
the market when the brand has no established Spencer, and Coca-Cola, can earn high returns
competitors. This is w h y pioneering brands b e c a u s e they are p e r c e i v e d as high-quality
earned on average more than one-third higher brands in most of the segments. Niche brands,
r e t u r n s on i n v e s t m e n t t h a n late e n t r a n t s 7 . such as Top Shop and Neutrogena, can earn
(Figure 10) high profits by being preferred in one segment
even though their overall rating in the broad
There are five ways of "getting there first": market is not great. In markets that are undif-
(1) exploiting n e w technology (e.g., Xerox, ferentiated, however—that is, where customers
IBM); (2) n e w p o s i t i o n i n g c o n c e p t s (Body do n o t see m u c h d i f f e r e n c e b e t w e e n t h e
S h o p , Fosters Lager); (3) n e w d i s t r i b u t i o n brands—none typically earns exceptional
channels (e.g., Home Shopping Network); (4) returns.
new market segments (e.g., Weight Watcher's
foods); a n d (5) exploiting gaps created by To summarize, building successful brands
s u d d e n e n v i r o n m e n t a l c h a n g e s (e.g., egg involves quality, service, innovation, and dif-
substitutes). ferentiation. What then is the role of advertis-
ing? Advertising has two functions in building
4. Look for differentiation. In b u i l d i n g successful brands. First, successful advertising
brands, the principle is to invest in markets accelerates the c o m m u n i c a t i o n s process.
that are highly differentiated or where such Marks and Spencer built a great brand without
differentiation can be created, as, for example, advertising—they relied primarily on their
the Body Shop or Levi jeans have d o n e in m a i n street p r e s e n c e , customer e x p e r i e n c e

14
 BUILDING SUCCESSFUL BRANDS: THE STRATEGIC OPTIONS

mer is obviously a high-risk, slow, and expen-

sive route. Studies have shown clearly that a
very high proportion of new brands tested and
introduced into the market fail.4 It takes time
and investment to build a brand and position it
in the m i n d s of consumers. Acquisitions, in
c o n t r a s t , are a d e c e p t i v e l y quick r o u t e to
obtaining a brand portfolio and it is a route
that is increasingly followed today, especially
by British companies. It also appears a cheap
a l t e r n a t i v e , e s p e c i a l l y if t h e a c q u i r e r is
exchanging high-valued shares in b u y i n g a
company operating on a lower-price earnings
ratio. Unfortunately, there is comprehensive
evidence that most such acquisitions fail to
generate long-term v a l u e for the acquirer's
shareholders or to build lasting brand portfo-
lios. 19 How can this dilemma be explained and
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resolved?

Previous studies9,10 suggest that the

approach companies adopt depends upon
what their primary objectives are. Some com-
p a n i e s have objectives primarily related to
marketing and market share. Others are pri-
marily oriented to return on investment and
financial objectives (Figure 11). Generally,
with the b r a n d , and word-of-mouth—but it c o m p a n i e s that h a v e p r i m a r i l y m a r k e t i n g
took them 30 years to build the strong brand of objectives ("right-hand companies") choose to
today. Today, one cannot wait that long—com- build brands, whereas companies whose objec-
petition would preempt the brand before it had tives are primarily financial ("left-hand compa-
p o s i t i o n e d itself in t h e c u s t o m e r ' s m i n d . nies") are oriented toward buying brands or
Advertising speeds up the process of generat- companies with brands.
ing awareness and interest in the brand. The
second function of advertising is to position
the brand's values in a manner which appeals Japanese companies, for example, tend to be
to the target customers and increases confi- overwhelmingly r i g h t - h a n d oriented. Their
dence in the choice process. The creative mes- objective is market share. They believe that the
sages of the Levi or the Nescafe a d v e r t i s e - most appropriate way to achieve market share
ments, for example, present the brand as hav- is to develop strong brands which offer cus-
ing a set of values that match the aspirations of tomers differential advantages. Therefore they
target customers. adopt a classical marketing approach: under-
stand the expectations of customers in the tar-
get market segments and seek to match them.
Buying Brands Versus They seek to build brands that provide the cus-
Building Brands tomers with value and that beat the competi-
Today there are two routes a company can tion. Japanese c o m p a n i e s rarely acquire,
follow to obtain brands: it can build and devel- because they believe that they have the skills
op t h e m or it can a c q u i r e t h e m , or r a t h e r to do it better. It is not surprising that most of
acquire companies that possess them. The for- the great new global brands in the last decade

15
 THE JOURNAL OF CONSUMER MARKETING
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have been Japanese—Sony, Toyota, National During the past twelve months, for example,
Panasonic, Honda, Canon, Casio, and others. British companies have acquired four times the
amount of all Japanese companies, five times
British companies, on the other hand, have A m e r i c a n c o m p a n i e s , and twenty t i m e s as
been more left-hand or financially oriented. much as German businesses.
Stock market pressures have made return-on-
investment and financial budgets the primary The recent debate about brands in the bal-
goal r a t h e r t h a n marketing p l a n s the m a i n ance sheet in Britain is essentially about acqui-
p l a n n i n g m e c h a n i s m s . In these c o m p a n i e s , sition strategy rather than about building cus-
products, pricing, and promotional decisions tomer value. Acquisition-oriented managers
are dictated mainly by financial constraints have observed that if brands are put in the bal-
rather than by marketing requirements. One ance sheet, then balance sheet gearing can be
result is that while there have been very few reduced, retained earning enhanced, and so
major global brands developed by British com- further acquisitions are facilitated.
panies in the last ten years, Britain has led the Paradoxically, companies that put brands in
world in acquisitions. the balance sheet are likely to put less empha-

16
 BUILDING SUCCESSFUL BRANDS: THE STRATEGIC OPTIONS

Figure 12
Building vs. Buying Brands

Build Buy
Market attractiveness
Market growth High Low
Strength of competitors Weak Strong
Retailer power Weak Strong
Relative cost of acquisitions
Industry attractiveness High Low
Valuation of company Full Undervalued
Restructuring potential Low High
Brand's potential Realised Unrealised
Acquisitions potential synergy
Cost reduction potential Low High
Marketing competence Unchanged Increased
Complementarity Low High
Relevant management expertise Low Transfers
Brand's strategic opportunity
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Product performance Breakthrough Me-too

Positioning concept New Mature
Market opportunity High Low
Corporate situation
Growth potential High Low
Cash situation Average Abundant
Marketing/R&D capability Strong Weak

sis on brand building and brand development and BTR have focused their acquisition strate-
than those that do not follow this practice. gies on these dull, mature markets. The other
advantage of these types of markets is that the
Of c o u r s e , a c q u i r i n g b r a n d s s o m e t i m e s relative cost of acquisitions may be low. Often
makes sense. The problems with acquisitions the stock market undervalues these apparently
are, first, that in the long-run the evidence sug- d u l l c o m p a n i e s a n d t h e r e is s u b s t a n t i a l
gests they rarely work. Second, they do not restructuring potential in selling off parts after
create coherent brand strategies, especially at the acquisition.
the international level. In general, the compa-
ny ends up with a ragbag of brands with differ- Acquisitions work when there is real poten-
ent brand names in different countries, differ- tial synergy—when t h e acquirer can reduce
ent positioning strategies, and no synergy with joint costs or improve marketing competence
the existing b u s i n e s s . Figure 12 suggests a by c o m i n g t o g e t h e r . F i n a l l y , t h e s t r a t e g i c
checklist w h i c h appraises those c o n d i t i o n s opportunities offered by the acquirer's existing
under which acquiring companies with brands brand portfolio and its corporate cash situation
makes sense. play a major role. If the company's current
products are me-too, if it has limited skills but
With a l o w - g r o w t h , u n a t t r a c t i v e m a r k e t , abundant cash spun off from its portfolio of
building a brand costs too much. It is generally mature products, then acquisitions appear
cheaper to buy competition and competitors' attractive. By contrast, it is generally better to
retail space than to beat out well-entrenched d e v e l o p and b u i l d o n the c o m p a n y ' s o w n
brands. This is why companies such as Hanson brands if these are operating in growth mar-

17
 THE JOURNAL OF CONSUMER MARKETING

Figure 13
Brand Extension Strategies

Differential advantage

Similar Different
Similar COMPANY OR COMPANY PLUS
RANGE NAME BRANDS
(IBM, Timotei) (Kellogs Cornflakes,
Kelloggs Rice Krispies)
Target
Market
Segment

COMPANY PLUS UNIQUE BRAND

GRADE ID. NAMES
Different (Mercedes 200, (P&G: Tide, Bold,
Mercedes 500) Dreft, Ariel, . . .)
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kets, if the company possesses potentially tage, then they can safely share the same com-
strong brands, and if inside the company there pany name. Here, there is consistency in the
are strong marketing and development skills. positioning strategies—the same name applied
These five sets of factors are the key criteria in to different products. Examples of this type of
making judgments about the balance between extension i n c l u d e IBM, Timotei (from
building and purchasing brands. Unilever), Dunhill and Sony.

Brand Extension Strategies 2. If the differential advantage is the same

Brand extension strategies are another contro- but the target market differs, then the company
versial area in branding. Brand extension is the name can be extended, because the benefit is
transfer of name of a successful brand to addi- similar. However, it is important to identify the
tional products possessed by the company. "grade." For example, both the Mercedes Benz
There are three possible advantages of such an 200 and 500 series offer differential advantages
extension: (1) it encourages customer confidence based upon quality, but the more expensive
in a new product; (2) it may create scale 500 series appeals to a much more prestige seg-
economies in advertising and promotion; (3) it ment of the market. The supplemental number
opens distribution and retail channels. The dan- acts to preserve the prestigious positioning of
gers are that it confuses the brand identity and the latter mark.
can degrade the reputation of a successful brand.
3. If a company has different differential
What are the principles in striking a bal- advantages, then it should use separate brand
ance? The right approach depends on the simi- names. It can find some synergy if the brands
larity of the positioning strategies of the
are appealing to the same target market, by
brands. Four brand extension options can be
identified (Figure 13). using the same company name with separate
brand names. For example, different brands of
1. If the brands appeal to the same target Kellogg's may be selected within the same fam-
segment and have the same differential advan- ily unit.

18
 BUILDING SUCCESSFUL BRANDS: THE STRATEGIC OPTIONS

4. If both the target customers and the dif- ple of seeking to build sustainable differential
ferential advantages are different, then using advantages for the customer. There are four
u n i q u e b r a n d n a m e s is l o g i c a l l y the m o s t levers for developing such brands: quality, ser-
appropriate strategy. Thus Procter and Gamble vice, innovation, and differentiation. Strategies
believe that it is worth losing the advantages of based upon acquiring brands generally fail to
a common corporate name in order to position work because they are more usually geared to
the b r a n d s separately in the market, to give satisfying the i n t e r e s t s of the stock m a r k e t
each brand a distinct positioning appeal to a r a t h e r t h a n the long-term interests of c u s -
separate benefit segment. Similarly, Honda has tomers. The danger of the "brand in the bal-
recently separately positioned its Acura brand ance sheet" argument is that it leads to weaker
because it wishes to position it away from its rather than stronger branding strategies.
existing models. Finally, on brand extension strategies there are
real advantages in brands sharing a corporate
SUMMARY logo, but care is required not to erode a suc-
Successful brands are built upon the princi- cessful brand's unique positioning.

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