Recently, the Conference Board asked 704 chief executive officers to rank a number of business priorities. Here are the top six items on their list.
1. Business growth.
3. Cost optimization.
5. Government regulations.
6. Corporate brand and reputation.
Anyone in the business community wouldn’t be surprised that the top priority on the list was “business growth.” And anyone in the marketing community wouldn’t be surprised that “corporate brand and reputation” was way back in sixth place.
Business leaders today have one overwhelming objective: “Grow the business.” Who can argue with that objective, but the real question is “How.”
Conventional wisdom suggests that way to grow the business is “More.” More products, more services, more markets, more distribution.
Down the chute at AOL.
Look at AOL. In 2010, revenues were down 26 percent. In 2009, revenues were down 22 percent. In the past three years, AOL reported $2.1 billion in losses on revenues of $9.9 billion. So with all the bad news from the past, what is AOL’s current marketing strategy?
More, of course. “Tim Armstrong, AOL’s chief executive,” as reported in a February Reuters article, “has been trying to transform the company into a media and entertainment powerhouse.”
How do you transform a company into a media and entertainment powerhouse? Apparently, you buy the parts and put them together. Like The Huffington Post for $315 million. StudioNow, an online platform for creating, storing and distributing video for some $36 million. The technology blog TechCrunch for about $30 million. Patch Media, a network of local community sites for $7 million (plus a commitment of $50 million to build out the network.)
More versus less.
AOL is not an isolated example. More and more business leaders base their strategies on “more,” yet history of marketing suggests that the road to success is “less.”
What many business leaders are missing is the effectiveness (or lack of effectiveness) of brands. When you expand your brand, you weaken your brand. When you narrow your brand, you strengthen your brand.
Take AltaVista, the first search engine. But “search” wasn’t good enough for AltaVista, so they added email, directories, topic boards, comparison shopping and loads of advertising on the home page. They also spent more than a billion dollars to buy a portal services company, Shopping.com, a comparison shopping site, and Raging Bull, a financial site. In essence, they turned AltaVista into a portal.
Hasta la vista, AltaVista.
By focusing on search and only search, Google became the fourth most-valuable brand in the world (after Coca-Cola, IBM and Microsoft), worth, according to Interbrand, $43.6 billion.
So what did Google do next? Naturally, they expanded the Google brand into a host of new businesses, including targeted ads in television, radio and newspapers.
Strong versus weak brands.
But here’s the difference between AOL and Google. Expanding a weak brand like AOL won’t make the brand successful. Expanding a strong brand like Google will weaken the brand, but the Google brand itself is so strong that the differences are going to be hard to measure.
The three most valuable brands in the world, according to Interbrand, (Coca-Cola, IBM and Microsoft) have all been expanded. Yet these brands were exceptionally strong before the line extensions took place. (Coca-Cola in cola. IBM in mainframes. Microsoft in personal-computer software.)
All three of these companies, in my opinion, would be stronger and more profitable today if they had kept their core brands focused and launched second, third, or even more additional brands.
Take Google. Potentially, the most valuable Google expansions are not Google brands at all. They are YouTube and Android, both the result of acquisitions.
Currently, Android leads all other mobile operating systems with 33 percent of the smartphone market. BlackBerry is second with 29 percent and the iPhone is third with 25 percent. And YouTube which is getting two billions downloads a day.
It’s odd. If a company buys another company, it normally keeps using the acquired company’s brand names. If a company develops a product or service internally, it normally introduces the new development as a line extension.
Why the difference? There seems to be a feeling that if you introduce an internally-developed product with a new brand name, you are in some way “disloyal” to your company.
But loyalty or disloyalty have nothing to do with your brands. They don’t even make their primary residences inside your own company. A brand is nothing more or less than a name that stands for something in consumers’ minds. That determines the value of a brand, not the opinions of insiders.
And how can you stand for something when you put your name on everything?
The branding mistakes at Nokia.
As you know, Nokia is now run by Stephen Elop, an ex-Microsoft executive who is counting on Microsoft Windows Phone 7 to help revive the struggling cellphone company.
Nokia is in trouble. Four years ago, in 2007, Nokia had revenues of $75.1 billion, net profits of $10.6 billion, or a net profit margin of 14.1 percent.
Last year, Nokia had revenues of $56.2 billion, net profits of $2.5 billion, or a net profit margin of 4.4 percent. In just four years, revenues fell 25 percent. Profits fell 76 percent. And net margins fell 69 percent.
Years ago, Nokia made one branding mistake and is now in the process of making a second one. Nokia used its cellphone brand name on its smartphones. That was its first branding mistake.
Now Nokia is planning to use a computer operating-system brand (Microsoft Windows) on its smartphones. This is its second branding mistake.
How many chief executives think these are mistakes? Very, very few. CEOs believe in “expanding the business” and instinctively they associate “expanding the business” with “expanding the brand.” Those are two different conceptual ideas.
Apple expanded its business by launching new brands (iPod, iPhone, iPad), not by expanding the Apple brand. (Like Procter & Gamble, Apple is a company, not a product brand.)
Is that so difficult to understand? Apparently so. Most columnists confuse the two. Even Interbrand lists “Apple” as a brand (the 17th most valuable brand in the world, worth $21.1 billion.) But iPod, iPhone and iPad don’t make the 100 most-valuable brands list.
Friendster, MySpace and Facebook.
Take the three social media sites. Friendster was launched in 2002, MySpace in 2003 and Facebook in 2004.
Facebook has become a powerful brand, valued at $82.9 billion on a secondary exchange, SharesPost Inc. The other two sites are worth a small fraction of the value of Facebook.
What did Facebook do differently than the other two? The same thing that Dell, Enterprise, FedEx, Subway and dozens of other brands have done. Facebook narrowed its focus.
Facebook membership was initially restricted to students of Harvard College, and within the first month, more than half the students were registered. Then it was expanded to other colleges in the Boston area, then the Ivy League, then Stanford University.
Facebook also launched a high-school version and later expanded its eligibility to employees of several companies, including Apple and Microsoft. Finally, it was opened to everyone, ages 13 and older with a valid email address.
Early on, as compared to Friendster and MySpace, Facebook was perceived as more exclusive, an extremely important attribute for a social-media site. It’s only human nature to want to join the more-exclusive club.
That’s exactly the strategy that has built many dominant brands. First start narrow and build the brand. Then only expa nd the distribution after you have built a strong brand. In grocery products, for example, you might restrict distribution to Whole Foods. In hardware products, you might restrict distribution to Home Depot.
Instead of a national launch, you might consider a regional launch. Or perhaps launch the new brand in one city only. And then roll out the brand to additional cities after its initial success.
Invariably, today’s strong brands started narrowly and only expanded after winning the initial branding battle.
You can’t expand your way to success. You can only narrow your way to success and then hope you don’t spoil that success by over-expanding the brand.
Dell, Enterprise, FedEx and Subway.
How did Dell become the world’s largest-selling personal-computer brand? Not by selling computers to everybody in every distribution outlet, but by focusing on selling computers direct to business customers only, first by phone and later on the Internet.
And how did Dell lose its personal-computer leadership? By over expanding the brand, first to consumers, then to retail outlets. And today, by trying to sell a wide range of products and services under the Dell name.
How did Enterprise become the world’s largest car-rental company? Not by opening up outlets everywhere, but by focusing on the consumer market in the suburbs. It was only after the brand became a big success did the company move into airline terminals to service business customers.
How did FedEx become the second-largest air-cargo company in the world? Not by promoting all types of service, but by focusing on “overnight” deliveries only. FedEx expanded its services only after its brand became an overnight success.
How did Subway become the second-largest sandwich chain with $10 billion in U.S revenues and more U.S. outlets than McDonald’s? Not by selling all types of sandwiches, but by focusing on submarine sandwiches only.
McDonald’s versus Burger King.
Only after you have built a strong brand should you consider expanding the brand. And if the brand is strong enough, then it might be possible to move it into adjacent positions. Or more typically, a second brand might be the better choice.
Consider McDonald’s versus Burger King. McDonald’s is the strongest hamburger brand (by far), so the company has been successful selling other food products, including upscale coffee.
By comparison, Burger King is a much weaker brand. Instead of expanding the brand, the company should have gone in exactly the opposite direction. Narrow the brand to hamburgers only and make the brand stand for something. Flame-broiled Angus beef, perhaps.
Consider Ignighter.com, a dating site. Launched in 2008, the site had 50,000 registered users by the end of the year, a modest number by Internet standards. The following year, the company noticed a lot of traffic coming from Asia, especially India.
So in January 2010, Ignighter decided to become an Indian dating site. Today with almost two million users, and 7,000 more signing up daily, Ignighter is India fastest-growing dating site.
Old military axiom: It’s better to be strong somewhere than weak everywhere.]]>