Everyone likes growth. In fact, everyone demands growth. Growth is an indication of success and a catalyst for taking your business to the next level. If your brand building effort is not creating some kind of growth for the business or at least charge a price premium, then that brand building is not serving its purpose.
However, Growth can be categorized in two divisions. One is controlled, well-directed, single-minded. The other is unrestricted, unrealistic and irrational. One is simply natural outgrowth of business with a well-set strategy in mind. The other is simply to raise the bar high, set illogical growth numbers, preach a lot to the employees about the importance of meeting such lofty numbers and meet that growth target by any means possible. The first type of growth is good. The second type, unfortunately is not. Just like cancerous cells, unchecked, unplanned growth actually can end the power of the brand.
So its an interesting cycle. The power of your brand can help you grow. But that growth itself can neutralize the power of your brand.
To understand growth further, we have to understand two concepts called Line Extension and Brand Extension. A cola brand X sees growth opportunity in diet cola subategory and decided to launch a new brand called X1. Now that’s line extension. Because the principle category “Cola” has not changed. So whenever an extisng brand launches a new variant in the same category by using its own name, its called line extension. Diet Coke obviously is an extension of Classic Coke. Now, the company in question can go in a different route. They found out that energy drink category is rapidly getting large and they need to launch something there. This time, instead of calling it Coke something something, they decided to call it Gatorade. This time instead of a line extension, the company in question launched a completely new brand to catpture the opportunity.
There are obvious pros and cons between these two options – launching a line extension vs launching a new brand. Launching a completely new brand is obviously more expensive than launching a line extension because you are using the current brand’s equity. However, in the history of brand marketing line extension is always a controversial move. To put it simply, too much extension weakens the brand
Let us dive into the world of Hollywood blockbusters to understand this phenomenon better. On surface level, the pulling power of movie sequels can never be denied. The sequels make more money than the original. Spiderman may have dangled and amazed from the rooftop, but its Spiderman 2 that made more money. Shrek was a family entertainment film with big laughs. But Shrek 2 is the one that brought big money along with the big laughs.
But what makes you succeed, presents your biggest trap. Yes, on paper it looks so simple. You have a successful product which is being used by X number of people. If you just add another 3 more versions of your product you can rope in at least 3X times more people., right? It doesn’t quite work like that.
If that was true how can one explain why Coke’s brand value has not quadrupled after Coke added innumerable variants of its classic Coke? Why did Pepsi suffer the same fate? Why was there reduction in earnings for General Motors in 2006 after they have broadened their portfolio in the past two decades? When Crest toothpaste has limited variants they were the undisputed market leader. Now that they have line extended to a lot more variations, why is Colgate the market leader, not Crest? The answer is quite simple. The more you want to sell, the greater variant you add to your product line, the more choices you give to your customers, your brand becomes less and less powerful. Because mind cannot deal with complication or extra information, it prefers simplicity.
There is a subtle, hidden rule of thumb here. And it goes like this – one will amaze, two will make money, three will bomb. Thats why Batman 1 and 2 was a great success, but when it came to Batman 3 (Batman forever), it bombed in the box office. Same applied to The Matrix, to the X-Men and all the rest of big money earners. Because once the initial film creates the fan, they simply cant wait to get more of the same film and same character. But when it comes to the third installment, usually boredom sets in and the makers run out of fresh ideas.
In the world of line extension, same things happen. You should only extend it to the second level. If you have a successful Lifebouy brand, extend it to make it a Lifebouy Plus. But dont follow it up with another extension called Lifebouy Plus Ultra. Take it to one level extra to build on it. But dont overdo it, unless you have some serious value additions to make, not just mild tinkering of formula.
The second concept called Brand Extension
takes place when one company uses its current brand name to go to a completely new category. Now this was frowned upon a few years ago and company’s like TATA or SAMSUNG that exercised this concept of using its brand name to go to unrelated business were frowned upon. In the past, brand building was always about focus. But in this digital era all these notions are being challenged. Right now the line that draws between individual categories are getting blurred. That’s why Google is using brand extension to get into car business and Amazon is using it to get into everything from logistics, to retailing to streaming service.
Does that mean there are no rules anymore and we can launch anything in a unplanned way and keep on putting our brand name everywhere? The answer is no. The basic rules still apply. It is only when an existing brand sees an opportunity to create significant, relevant value in another category that he goes there with its existing brand name, Amazon went into streaming service because they found that field to be growing and they saw an opportunity to fulfil latent consumer demand that is not being fulfilled by existing cable companies.
So the acid test of growth decision is value creation. As long as you create value for consumer you tend to create value for your shareholder to justify your growth decisions.