One brand for today. One brand for tomorrow.

July 1, 2006

One of the hidden drivers of business is fashion and I’m not just talking about clothing.

Fashion is a big driver in food, in beverages, in automobiles, in furniture and in almost every o ]]>

That’s why we sometimes recommend a multiple-brand strategy. One brand for today, one brand for tomorrow.

Take cola, for example. Morgan Stanley’s Bill Pecoriello recently predicted that carbonated soft drink volume will decline 1.5 percent annually for the next five years. Not a healthy outlook for the folks at Coca-Cola and Pepsi-Cola.

Coke and Pepsi, of course, have gotten into water, sports drinks, energy drinks and other alternatives to cola. But what they have missed is an opportunity to take their cola brands into the 21st century.

What drives fashion anyway? It’s the younger generation rebelling against the older generation by refusing to buy the brands their parents buy.

That’s why Levi’s is in trouble. And why Scion is such a big success for Toyota.

One reason kids are turning away from Coke and Pepsi is the 150 calories contained in each can. Slim is in and fat is out, although the concept is more observed in theory than in practice.

With all the publicity about the dangers of obesity, you might think that Diet Coke and Diet Pepsi would greatly outsell their full-calorie siblings, but they don’t. The last time I checked, the diet flavors of Coca-Cola represented only 36 percent of the brand’s sales volume.

What should Coca-Cola have done? Launch a separate cola brand with zero calories that appealed to the younger generation.

Actually, they did. The brand was called Tab and it used to be the market leader in diet colas. (The day Diet Coke was launched, Tab was the No. 1 diet cola, ahead of Diet Pepsi by 32 percent.)

What killed Tab was a tactical mistake, although it was done deliberately. The company kept the latest sweetener (aspartame) out of Tab and reserved it exclusively for Diet Coke. Tab was stuck with saccharin.

Today, younger people perceive Diet Coke as a brand for older people on a diet. Not exactly the kind of perception that is going to make Diet Coke the hip beverage of the 21st century.

Recently Coca-Cola tried another line extension designed to reach the younger crowd. It’s called Coke Zero, a brand which has been a so-so success at best. The Coke name locks the brand into the past and the Zero name doesn’t do much for the with-it generation. Who wants to be a Zero? Zorro maybe, but not Zero.

Too bad. One of the reasons for cola’s outstanding success is its multiple flavor “notes.” Ginger ale tastes like ginger. Lemonade tastes like lemons. An orange drink tastes like an orange. But a cola drink combines many flavors: caramelized sugar, vanilla, orange, lemon, lime and a number of spices.

Like fine wines which also feature multiple flavors, colas are not a boring drink. A cola drinker seldom tires of the taste. Cola could have a bright future, but not if it gets labeled as “unfashionable.” And not without the launch of a second brand by one of the two major cola companies.

One of the most difficult problems in marketing is balancing the needs of today with the future needs of tomorrow. While Diet Coke was obviously successful in the short term, its long-term success is currently in doubt. Furthermore, Diet Coke is a brand whose obvious target is regular Coca-Cola. “The taste of Coke without the calories.”

The best target for a second brand is not your own existing brand, but the competition. Lexus didn’t take business away from Toyota. It took business away from Mercedes-Benz, BMW, Cadillac and Lincoln.

Yet nothing frightens management more than a proposal to launch a second brand. For some reason, the major thrust of most corporations is directed at “extending the equity of our existing brands.”

When a product category branches off to create two separate categories, the long-time leader usually loses its way. Even though the long-time leader uses its existing name on the new category.

When the word processor category branched off into personal computers, Wang, the category leader, lost out to Dell.

When the pain reliever category branched off into acetaminophen, Bayer, the category leader, lost out to Tylenol.

When the appliance battery category branched off into alkaline batteries, Eveready, the category leader, lost out to Duracell.

When the bookstore category branched off into online bookstores, Barnes & Noble, the category leader, lost out to Amazon.

Wang computers, Bayer acetaminophen, Eveready alkaline batteries and are losers.

When the Internet became a big deal, all the big media companies set up websites to “capitalize on the equity of their brand names.” The New York Times, The Wall Street Journal, Forbes, Business Week and Time Warner.

So which of these brands are the big Internet winners today? None. The big Internet winners are AOL, Yahoo!, eBay, Amazon and Google. All new brands launched by entrepreneurs, not by established companies who were too busy with their line extensions.

Kodak is the best example of the need for a second brand to assure a company’s future. To most people, Kodak means film photography, not digital photography. Even though Kodak invented the digital camera (in 1976), the Kodak name locks the company into the past.

Digital cameras are booming, but Kodak is a company in trouble. The numbers tell the story. In the five years from 1996 to 2000, Eastman Kodak had sales of $72.0 billion and net profits after taxes of $5.5 billion, or a net profit margin of 7.6 percent.

Then the digital decade debuted. In the five years from 2001 to 2005, Eastman Kodak had sales of $67.2 billion and a net profit of just $296 million, or a net profit margin of 4/10th of one percent.

With a second brand, you can have your cake and eat it, too. PlayStation, the market leader in videogame players, has done more to enhance Sony’s reputation than any other Sony product development.

And Lexus has done more to enhance Toyota’s reputation than any other Toyota product development.

And Trac II, Atra, Mach 3 and Fusion have done more to enhance Gillette’s reputation than anything else that Gillette has done.

Yet many marketing managers remain unconvinced about the dangers of line extension. The urge to extend the equity of the brand is literally overwhelming. To those who firmly believe in line extension, I urge you to talk with the folks at Gillette about changing the Fusion brand to Mach 5.

Or talk with the Toyota folks about changing the Lexus brand to Toyota Supreme.