L’OREAL owns about 500 brands. P&G owns 300 brands. GM owns 12 auto brands. Electrolux possesses over 50 brands.
They concentrate on specific fields and use multi-brand strategies in order to create bigger business so that competitors have no chance of threatening their markets.
Through their experiences and own practices we can see they prove multi-brand strategies are effective and successful.
Under Coca Cola co. they are 400 non-alcoholic beverage brands in 200 countries throughout the globe. Why do they own so many brands? The reason is very simple: different people want to drink different beverages because of different reasons at different times in different places. Likewise, companies such as Unilever, P&G, LOREAL, GM and Electrolux and so on also utilize multi-brand strategies due to the same reason.
Why and how do these successful enterprises use multi-brand strategies? What is the logic and methods behind it? Lets dig into the answers.
Different Levels and Different Brands
Are you familiar with the brand BLANCPAIN? According to its publicity information, it considers itself as the last mechanical watch in the world, which has a history of 400 years and has been sold in limited numbers throughout the world. How much is it? The newest developed BLANCPAIN 1735 wrist watch costs more than RMB six million, It goes without saying that few could afford it.
You may also know the popular Swiss wrist watch brand SWATCH. It is famous for its delicate craftwork and bold designs. Every year sees its continuous development in various classic designs. The watches have even inspired some to collect them as a hobby.
However, it may be unknown that more than 20 famous wrist watch brands like BLANCPAIN, SWATCH, OMEGA actually belong to one company: Swiss SMH Group. SMH seems to be unwilling to disclose this fact, which is different from companies such as P&G and Unilever. Therefore it is only brands, not which company the brands belong to, that is used for communications.
SMH has organized its brands in to three levels: low-level pricing, 100 Swiss francs; medium-level pricing, 1000 Swiss francs; and high-level luxurious pricing as high as one million Swiss francs and more. As the SMH president Hayek said, The price can be as high as the sky.
Similar products are sorted to different price sections. Different prices actually correspond with different types of people, because of their different psychological price points and budget. After different brands are given different price levels, their quality not only must match the price, but brand connotations must also be different. A general definition of different levels of brands can be presented in a most simplistic way: high-level products are committed to providing high-quality products for specific people, and the products have different brand external features; medium-level products are committed to meeting the needs of people pursuing for higher quality who are able to afford products of higher priceLow-level products are committed to providing choices of highest price-to-value ratio.
This kind of brand layout is called levels of the consumers minds.
When Bentley is mentioned, what do you imagine? Is your first impression a luxury limousine worth RMB eight million, which is the symbol of a multi-millionaire? What about if Audi is brought up? Do you think of a new Audi A6the symbol of power and strength, which are the tools of Chinese government officials or CEOs? If Volkswagen is mentioned, do you think of Jetta, Bora and Passat worth between 100 thousand to 200 thousand RMB? Their credibility, practicality, and high quality have made them the first choice for the middle class in mainstream society. There is no Volkswagen with the price of eight million or Audi with the price of 100 thousand, because these prices do not correspond with the brand levels in the consumers minds.
Design different prices for different brands; and create level perceptions in consumers minds so that the consumers needs for different levels can be met. These two ideas are one aspect of a multi-brand strategy.
Different Features and Different Brands
Why does SMH possess 20 wrist watch brands instead of just having a high level, medium level and a low level brand? The reason being some people want mens watches, others want watches with simplified designs or long histories. It is the celebrities outstanding personalities that make people want to buy OMEGA; its RADO scratch-resistant surface and advanced industrial designs that arouse consumers attention; LONGINES romantic style and elegant features that make consumers very confident in their products
This is also the reason why P&G develops five brands of shampoo. Large-scale brand communication has made us so familiar with them. The whole shampoo market is entirely covered in all directions by their shampoo brands. This effective occupancy of so many brands in the market also makes competitors reluctant enter the market.
This is also the main reason why LVMH has 13 brands of clothing and bags: Classic bags like LV and CELINE both have completely different luxury features. MARC JACOBs western romance culture is different from KENZOs eastern mystery; GIVENCHY is more mature and stable; LOEWE is famous for its leather products
If there are two brands with the same products and neither product have any unique features, than it will make no difference to the consumers which product they choose. This shows that in the market there is only room for one of these two products to exist. One of them could essentially be ignored. The meaning of brands lies in differentiation, and the meaning of differentiation lies in meeting special demands of special consumers and creating a differentiation between brands in consumers minds. The 20 wrist watch brands have their own features; the five shampoo brands of P&G have their own emphasis; there are delicate differences between LVMH luxurious brands. Brands of different features and styles will meet different consumers demands, through this, multi-brand strategies are carried out.
The Origins of Multi-brand Strategy
Industry leaders such as Coca-cola Company, Auto producer GM, cosmetic company LOREAL, Commodity company P&Gluxury company LVMH and so on continuously concentrate on specific industries and businesses, and emphasize their own core competitiveness. But what do multi-brand strategies mean to them and why do they use multi-brand strategies?
Simply speaking, it is to make bigger business and compete with others.
Firstly, the multi-brand strategy conforms to the principle of industry development, i.e. the industry development process exists for constantly enlarging and subdividing markets. When IBM mainframes controlled the computer market, it would be impossible to predict the computer developments of today: servers, desktop computers, laptops, tablets, PDAs, workstations, smart phones etc Just as when autos were first invented, it would be hard to even imagine the future development of autos like: SUVs, cars, two-compartment cars, MPS, MPV, lorries, microbuses, mini-microbus, limousines and so on Different products will be developed into the market for different consumers different demands, and they need to differentiate with the original brands and emphasize positioning.
Some people can only afford certain prices; others are willing to pay higher prices for products of higher quality; some like light food; others are fond of spicy food; some pursue success; others enjoy life People of different levels of wealth can afford different prices; different people may be attracted by the features of different products; values, beliefs essentially life styles of different people. These differences lay the foundations for multi-brand strategies because industries have different sub-divided markets.
Secondly, multi-brand strategies are also used as a means for both offensive and defensive business practices. The enterprises can look for, lead, motivate and create different demands for consumers. If enterprises do not provide specific products and services for peoples different demands while maintaining powerful brand, their competitors will. Their competitors will create a more powerful brand in order to establish a clear product orientation in consumers minds. Then enterprises will see their lost consumers, smaller market share and its damaged profit margins. 16 million Ford Model-T cars were sold, but 50% of the American auto market was later seized by GM Chevrolet, Buick and Cadillac. Confronting competitors successful brands, enterprises may compete with them by developing brands of the same orientation. Maybach targets the same consumers as Rolls-royce and Bentley, while the definition of consumers of Lancome, SKII, and Guerlain are all nearly the same. When the market dominator actively starts using a multi-brand strategy and achieves various consumers by clearly defining brand combinations, its competitors will be hard-pressed to find a chance to prosper or room to profit. Wrigley Company captured over 60% of Chinese gum market by Wrigley’s Doublemint, Spearmint, Juicy Fruit and so on. If you were one of its competitors, where will your products be found in supermarkets and shops?
These enterprises have attained advantages by concentrating on familiar industries and correctly implementing brand strategies. Because of their market share and brand power, they can get better returns in aspects such as suppliers costs, manufacturing and management, and controlling channels. Enterprises can achieve higher stock market values after every brand in the market has achieved success.
The Process of Creating Multiple Brands
Enterprises may create many brands, but how does this happen? Simply speaking, they correctly define market opportunities and then properly manage their brands.
In order to give a correct definition on markets, we must firstly figure out where we are, in other words what our business is, and what kind of consumers demands we are meeting? LOREAL concentrates on beauty; GM involves itself in making traffic tools on land; LVMH is famous for its luxury; Wrigley manages the gum industry.
Where are the market opportunities? Take the gum industry for example; the demands of this market are various. Some people want gum with a strong minty flavor; others want to blow bubbles while having fresh breath. Would consumers be more willing to buy gum that is good for dental hygiene?
The answer for each question actually corresponds with certain people, a market and a potential profit opportunity.
Do some people want a sweet sugar-free gum? Are consumers reluctant to buy this, because its high sugar content will cause people to gain weight? If they knew gum containing xylitol will effectively help them avoid cavities, how will they respond to this? These kinds of people actually exist and so do these kinds of demands.
Do you think gum without sugar should be developed as soon as possible? Correct brand decisions must be made if new products are developed and correct brand decisions are based on asking the correct questions: What kind of brands should be used? Should the present brand Double Mint be used or should a new brand be created?
If the former brand is used, sugar-free and xylitol must be added to differentiate former products and new products. If various flavors such as grape, strawberry and so on are further added, the name will be changed into Grape Flavor Xylitol DoublemintFurthermore, if the package must have differences, different colors can be designed for different flavors. Therefore classic Doublemint will become colorful, which will lose its clear orientation and original brand image. Competitors will also get a chance to create xylitol sugar-free gum brands for the market to grab market share. Also Grape Flavor Xylitol Doublemint would not only lose the original classic meaning of Doublemint gum, but it also lacks competitiveness with its competitors of sugar-free gum, because the more it wants to have all the features of other gums, the easier it will be to lose their original brand orientation.
So it is wise to create a new brand.
A new brand Extra is created. When a consumer wants fresh breath, he may buy Doublemint. However, If the consumer cares about how much sugar he will be consuming, he may prefer Extra. Looking at the situation on the large scale, the whole market is divided into two groups of people; each will buy Doublemint or Extra because of different reasons. From the enterprise perspective, although Doublemint and Extra belong to different consumer groups, the two brands both contribute to their companies performance. If the whole enterprise possesses fixed market shares and profit margins, different brands meet different consumers demands, why not try making a new brand?
Actually this example is highly simplified but as always it is more complicated in actual practice. However, using the same principles and thinking, we can understand the logic behind the multi-brand strategies of different markets and enterprises, or we can develop our own way of practice.
Management Emphasis of Multiple Brands
The core belief of the multi-brand strategy is: different markets, different brands.
Any enterprise concentrating on a multi-brand strategy should manage the present brands on the large scale, dont allow only a single brand to develop itself but make all the brands grow together. Different kinds of brand organizations should be upgraded from strategies, organizations, manufacturing and marketing.
If LOREAL only concentrates on beauty, are the company executives mainly thinking about how to make consumers more beautiful? For the consumers throughout the globe, when they need to dye hair, nurse their skin, use perfume, what kind of brands do they think of? How do they use these brands? What are their needs that are not satisfied? What is the current trend and how is it changing?
After completely understanding consumers, the top leaders in the enterprise will evaluate the present brand combination according to brand perception, value, increasing potential and sales contribution. Brands will be managed in a strategic way by means such as creating, repositioning, purchasing, selling, combing, deleting, and so on.
A multi-brand strategy is not concentrating on many brands, but the meaning lies in high quality. Based on facts, enterprises will decide what brands to develop and how many brands will be developed according to real needs, subdivided markets and enterprise strength. Toyotas five brands Toyota, SCION, Copen, Hino and Lexus combined sell 7.47 million autos in 2004, second place in the world.
The multi-brand management emphasis lies in the strict management on margins. Brands themselves can share some information in aspects such as manufacturing, purchasing, channel negotiation, financing and so on, so that scale effect can be used to foster a competitive advantage. However, brand differentiations must be emphasized in any aspects that consumers can interact with.
Differentiations are mainly expressed by the following aspects: price points, target consumers, brand orientations, product designs, styles, sales channels, services, and experience etc… Lexus is a department in the Toyota organization framework, but it will not sell products and provide services through Toyota channels. Its 4S shop is committed to provide perfect and special service experiences; LVMH Group will negotiate with the office building management for all their brands stores appearances except for Kenzo, Louis Vuitton and Fendi. These brands stores upholstering must be completely different; The NOKIA luxury brand Vertu core techniques may be less advanced than its other products, it still makes difference in the public cell phone market by using expensive materials for the body and providing 24-hour service. If you are willing to research such examples, you will find a lot more which have made differences between their brands. Most importantly, the core purpose for differentiation is to make consumers believe that they are buying different brands. Difference is the origin of brand power.
For Chinese businessmen, it seems our opportunities are becoming fewer in the daily use products industry such as cosmetics, foods, beverages, autos, cell phones, etc. Actually, our opportunities have become fewer. In different local markets, competition is between international brands and international managing abilities.
In this situation, different businesses, different markets and different competition situations have made us carefully think about different company strategies and our brand methods. There is no fixed formula or method in branding. It may be an effective means of making stronger and bigger business to correctly understand the theory of one business, many brands.