Whenever a fashion or technological change occurs, an existing brand, no matter how dominant, faces a choice.
Should the brand be “stretched” to encompass the new fas
hion or technology or should the company launch a second brand? If the change is significant enough, the better answer is almost always “launch a second brand.”
* The rise of casual clothing in the workplace led Levi Strauss to introduce Dockers which has become a billion dollar worldwide brand.
* The success of Mercedes-Benz and BMW led Toyota to introduce Lexus which has become the largest-selling luxury vehicle in the U.S.
* The success of Makita, a Japanese professional-tool brand, led Black & Decker to introduce DeWalt which has become the dominant brand in the category.
* The success of Costco led Wal-Mart to introduce Sam’s Club which is now neck and neck with the category leader.
When it comes to launching successful second brands, you rapidly run out of case histories. By far the majority of marketers prefer to expand their core brand to cover the new category. With mediocre success. Some examples:
* IBM’s failure to extend its mainframe dominance to the personal computer field.
* Xerox’s failure to extend its copier dominance to the computer field.
* Polaroid’s failure to move its brand out of instant photography.
* Kodak’s failure to duplicate its film photography success in the digital field.
Companies that shy away from second brands usually end up paying a high price for their insularity. The latest victims of second-brand skittishness are Visa U.S.A. and MasterCard International. So far, it has cost the two credit card companies $3 billion with possibly more financial bad news to come.
A number of years ago, the two credit-card giants decided to get into debit-card business. It would be hard to find two categories that are more competitive. Credit cards are the enemy of debit cards. And visa versa.
So what do Visa and MasterCard do? They put the same names on both cards. Visa on credit cards and Visa on debit cards. And the same for Master Card. To compound the problem, both card companies force their retailers to “honor all cards.” In other words, if a retailer accepts a Visa credit card, the retailer must also accept a Visa debit card.
Then they put the debit card charges through the same signature-based system as the credit card charges, forcing the retailer to pay five to ten times as much in fees as they would if the customer has used one of the alternate debit card networks such as Star, Pulse or NYCE, which use a personal identification number, or PIN-based system.
In the biggest antitrust settlement in history, Visa U.S.A. agreed to pay $2 billion and MasterCard International $1 billion to a group of retailers led by Wal-Mart. Their contention: “Honor all cards” was an illegal tie-in scheme.
Why not launch a second “debit” brand to complement the Visa or MasterCard “credit” brands? It’s the chicken-and-egg problem, explained one Visa executive. Visa would have had to start a new brand from scratch, one not yet issued by any bank or honored by any merchant. “But why would you possibly have done that?”
We can think of three billion reasons. But more important than the short-term financial losses at Visa and MasterCard are the long-term implications of their “honor all cards” strategy. By integrating its debit with its credit card system, Visa (as well as MasterCard) is locked into a slower, less secure and more expensive way of processing debit-card charges.
Actually MasterCard did try a second brand strategy, launching a PIN product called Maestro (not exactly a worldclass name). But Maestro was losing out to the Visa signature-debit card, so MasterCard reversed course and came up with their own signature debit card. Too bad. If they had had a little more faith in their strategy, today MasterCard would have been a billion dollar richer with a big lead in PIN-based debit cards over its Visa competition.
Like many marketing problems, the debit-card situation is complicated. How do you design a product that has benefits for all the players in the game? Consumers, retailers, banks and the card network itself? It’s not easy.
Here is where the power of conceptual thinking comes in. Categories tend to diverge, not converge. You may not know how, when or where that divergence will take place, but you can be sure that ultimately it will. Two different categories, credit cards and debit cards, will become more and more different and there’s nothing one company can do about it. Trying to keep them together under the same brand name is an exercise in futility.
Never fight a trend. As time goes on, there’s always room for new brands. If you don’t launch a second brand, you can be sure that some of your competitors will.