Innovation And Branding Strategy In A Down Market

Carol PhillipsJanuary 26, 201110 min

During long and deep recessions companies look to shift resources away from poor performing brands to more profitable ones. With cash from operations declining and borrowing at a premium, it makes sense to sacrifice cash-consuming brands. While difficult and unpleasant to do, this portfolio reshuffling is a rather straightforward recessionary response. However, a ‘refocus on core brands’ has hidden dangers. One risk is under investing in innovation to keep core brands vital.

The Tension Between Innovation And Branding

Even in the best of times, the relationship between branding and innovation can be tricky. In theory they work together, with the brand strategy providing the ‘face’ of the business’s growth strategy. Brand strategy helps companies bring innovation to the market. Innovation returns the favor by enhancing brand reputation. It sounds simple, but the partnership can be an uneasy one and it is particularly uneasy during a market downturn when investing in new brands or sub-brands can be perceived as ‘too risky’. The difficult choices imposed by hard times forces managers to confront the challenge of ‘brand stretch’ more acutely.

Balancing the need for brand focus with the need for innovation is the essence of the dilemma. Staying inside the confines of existing brand boundaries risks missing opportunities to meet emerging market needs. At the other extreme, stepping too far outside the brand’s comfort zone risks dilution of brand meaning — the dreaded “everything-to-everyone syndrome”. Every company aspires to a brand extension success, but at the same time they also fear the warning provided by brands that expanded too aggressively. Who can forget Hooters move into the airline business or Maxim’s into men’s hair color?

Among the many reasons for conflict between innovation and branding, two stand out:

The goals of innovation and branding can seem contradictory. Branding is about establishing trust through consistency; a brand is built by giving customers what they expect. Brands that change their messages too frequently, or extend too far into unrelated businesses risk confusing their customers and diluting their meaning. Innovation is about giving customers what they don’t expect. Innovation builds excitement and interest by delivering something new.

Both innovation and branding demand resources. Unlike Apple and Virgin, most brands find it difficult to sustain a reputation for continuous innovation. Instead they build a brand by doing one or two things really well. For these brands a tension often exists between the desire to extend the brand beyond its expected horizons and maintaining brand focus. Innovation puts pressure on both branding budgets and brand architecture. Should the new brand be given a separate name, or sub-brand name? In our current economic climate, the answer to this question is likely to be “no”.

Striking The Right Balance

Finding and maintaining the right balance can be tough. It requires constant vigilance. As Lucas Conley so emphatically pointed out in his book, “Obsessive Branding Disorder”, the branding path can be seductive. Innovation is difficult and, by stretching the brand in new directions, innovation doesn’t always line-up neatly with branding’s first commandment of ‘consistency’.

Our experience with firms that understand the need for balance, during good times as well as bad, is that they adhere to several best practices:

1. Don’t Take What Customers Say Too Literally. While carefully listening to the voice of the customer is key, it is even more important to reach into the mind of the customer, by looking for the motivations that underlie their behaviors and expressions. Good innovation decisions are unlikely to come from what consumers can articulate about their immediate rational needs. They are more likely to originate from their emotional desires or future needs. ‘Rear window syndrome’ can lead to preoccupation with solving today’s or even yesterday’s obvious problems and limits innovation to the incremental variety. When Apple introduced the iPod, Virgin launched Virgin Atlantic Airways and Amazon introduced the Kindle, these companies reached outside their existing brand competencies to address new markets and unfulfilled customer needs.

In their book, “Juicing the Orange: How to Turn Creativity into a Powerful Business Advantage”, Pat Fallon and Fred Senn describe the strategic breakthrough that led to Citibank’s famous “Live Richly” campaign. Research identified a large and lucrative group of consumers, who defined wealth in terms of balance rather than quantity, i.e., there’s more to life than money. Research also showed ads based on this insight were connecting strongly with balance seekers, but the agency was nervous about sharing the campaign with the client.

“The idea we were advocating would surely put demands on the Citi organization in areas like training, leadership, and brand advocacy that go well beyond our role as marketers. The company’s behavior would have to match the advertising, or else the entire construct would fall apart.”

Fortunately, the client immediately saw how this ‘unbanklike’ approach could help them serve this market better than anyone else. This insight became a ‘platform’ idea that drove both innovative internal changes and external messaging.

2. Don’t Be Overly Protective Of The Brand: Fear of tarnishing brand reputation with customers, or employees and suppliers can suppress the desire to pursue ideas that promise to ‘stretch’ the brand. Most brands can stretch; the real question is whether it makes business sense, not whether stakeholders will accept it. ‘Brand stretch’ research can be misleading since customers are only able to answer questions based on what they already know. When marketers rely on customers to tell them whether a new offering can fit within their understanding of the brand, we again fail to see what is possible and limit ourselves to what is probable.

There are many examples of unlikely brand stretches that succeeded (at least from a market acceptance standpoint). BIC moved from pens to lighters to razors and Jeep from cars to strollers. We don’t know if Starbucks and Tide did ‘stretch’ research before moving their brands into new categories, or if they did what consumers thought of the ideas. If we had been working with them, we may have argued against the research, or at least against listening too closely to what consumers had to say about the ideas. Both companies no doubt already had ample evidence that the moves made business sense (licensing in the case of Starbucks, and superior product performance in the case of Tide-to-Go). Whether consumers would embrace the idea was probably a matter more of spending and awareness than brand ‘fit’.

Will Wright, founder of Maxis and creator of games SimCity and Spore, expressed the opinion that lack of excitement about a new idea is the only real way to tell that an idea is really innovative. “It’s getting to the point where it’s almost disappointing if people don’t push back, because if it sounds like a great idea, that means either it’s obvious or other people have tried it. Typically, if you tell somebody, ‘I have this idea,’ and they start telling you how horrible it is, at least you know it’s unexplored territory.” (Fast Company, Sept. 2008).

3. Don’t Think Of Brand Stretch As An All-Or-Nothing Gamble: Sometimes we are reluctant to stretch the brand too far because we imagine a calamitous reaction from brand loyalists that permanently dilutes brand meaning, destroys our brand equity and erodes hard-earned market share. In fact, this risk can be managed through in-market experiments. Consider Best Buy’s expansion into musical instruments and music training. Recently, Best Buy announced it is opening six 2,500 square foot store-within-a- stores in South Florida. It is a stretch for Best Buy to deliver an artsy, high-touch service like music training, and they no doubt have research that suggests the market is unlikely to already believe that Best Buy can deliver high quality music instruction. Some of this is reality — there is an internal capability gap that will need to be addressed. To Best Buy’s credit, though, they have decided to move forward. Whether or not this ‘innovation’ is ultimately successful will depend more on how much investment they make than any predetermined level of ‘brand fit’ or misfit.

The key for Best Buy is that it is a relatively low risk experiment that will not broadly impact their national brand equity. In a February 2009 Harvard Business Review article, Thomas Davenport (author of Competing on Analytics: The New Science of Winning) describes a high level methodology for designing smart business experiments. He writes, “Thanks to new, broadly available software and given some straightforward investments to build capabilities, managers can now base consequential decisions on scientifically valid experiments.” Obviously, the level of investment required to run a market experiment can vary greatly. For service businesses such as consumer retail, the investments are relatively low. For those with more limited options, a well- designed simulated market experiment can provide some direction.

Making Innovation Strategy And Brand Strategy Work Together

Successful companies understand the need for both short-term incremental improvements that freshen the brand through a constant stream of news, even in recessionary times. They also understand growth initiatives should be guided by an innovation strategy, not a brand strategy.

Smart innovation strategy in turn is based on a clear corporate growth strategy. Will the company grow by serving new markets, by creating new products for existing markets, or both? Each of these strategic directions has brand strategy implications. The chart to the right, a variation on the standard corporate growth quadrant analysis, indicates how a brand’s positioning may have to alter or stretch to accommodate the new initiative. Let’s look at the impact of each quadrant on brand strategy.

Diversification: Diversification the least likely approach to be used during a recession. Introducing new services to new customer segments with game changing innovation, new benefits and new reasons to believe, may stretch the brand severely and require substantial investments in marketing communications. This is the approach BIC took when it moved from disposable pens to disposable razors. Making an inexpensive pen did not make BIC credible as the maker of an inexpensive shaving implement. They had to make their case, which makes this the riskiest of the four growth quadrants.

Penetration: Penetration represents the opposite extreme and is the least risky approach. A strategic decision to grow through incremental process improvements directed at current users requires little or no change in brand strategy. However, it may make maintaining salience and relevance through marketing even more critical. It may even require creating new ingredient brands or ‘brand energizers’ (i.e., Heavenly Bed from Westin) to solidify a brand’s position with the current market.

Product Development: Expanding a brand to new customers often requires new products, if not a new reason to believe, which makes it a moderately risky approach for recessionary times. Harley-Davidson recognized that many people identified with the Harley brand that would never purchase an expensive motorcycle. Through licensing of everything from clothing to motor homes to tattoos to baby gear, they were able to successfully extend their franchise to new audiences with minimal investment or risk.

Market Development: Finally, the decision to expand the meaning of the brand to satisfy a greater range of the needs of the current market (market development) ‘stretches’ a brand. This is a very sensible strategy for recessionary times, although it still requires investment. For example, when Ralph Lauren expanded his timeless sense of style to home fashions, hotels and fragrances, he needed to broaden the ‘frame of reference’ for his positioning beyond apparel. We are currently working with two highly iconic brands. Both are struggling with how to innovate in the market development quadrant. The strong associations their brands enjoy can make it difficult to expand current consumers’ positive understanding of their brands. However, finding a way to do this can mean significant growth at minimal risk.

Which Comes first? Brand Or Innovation?
Our advice to clients struggling to reconcile growth strategy with brand strategy is to ignore your brand equity while exploring how to best grow your business. The first priority is to determine the best opportunities for leveraging competencies into new markets, new products or both from a business standpoint. Then determine how the brand can support the business as it takes this new direction. The gain from extending the meaning of the existing brand may outweigh the risk of dilution. But without putting innovation and growth first, it is possible to miss the opportunity entirely.

A great example of putting growth and innovation first is P&G’s move into car washes. P&G began operating two Mr. Clean car washes in Cincinnati in 2007. Recently, they announced the purchase of a 14-store chain in Atlanta. In this instance, P&G determined that the franchise car wash business offered an opportunity to grow with a different business model. Acquiring an existing chain allows them to test both the viability of the business model and how well Mr. Clean supports this new venture. It also allows them to assess the impact on the Mr. Clean brand with minimal risk.

Whatever quadrant(s) a company decides to pursue, in good times or bad, it is important to maintain a balance between refocusing on the core and growth and innovation. The key to making innovation and branding work together in a recession is to put innovation first, then use brand strategy to articulate how innovation will be leveraged to build strategic equity for the company.

Contributed to Branding Strategy Insider by: Carol Phillips, Founder, Brand Amplitude and Brian Christian, President DASO Consulting.

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