Product/service brand portfolio optimization approach
In the modern world, rapid innovation and the speed and ease at which people can create, acquire, merge or delete brands creates a constant tension between efficiency and customer value.
The Covid19 pandemic has only thrown this into sharper focus. Now dealing with portfolio complexity requires organizations to look at the most cost-efficient way of meeting customers’ expectations while generating the greatest possible value for the organization.
Customers often suffer from information overwhelm and choice apathy which makes it more difficult for them to make educated buying decisions when choosing between brands. With complex corporate brand portfolios and portfolios of products and/or services, there is often no clear strategic organization or ability to deliver tactically to fully support the customers’ needs.
It’s interesting to see how Unilever and P&G, two CPG giants, are currently managing their brand portfolios which shows some of the different strategies that can be taken to optimize brand portfolios.
P&G brand portfolio optimization strategy
P&G is narrowing its brand portfolio by focusing on its top brands. In 2014, it announced a long-term plan to focus the business on its 60 to 70 most important brands. CEO at the time David Taylor said “The logic behind P&G’s strategy is quite clear: big brands have scale and efficiency. It is expensive to manage a brand, and the complexity is only increasing as traditional media vehicles fragment and consumers embrace new forms of communication. Focusing on a few big brands is a way to improve margin; small brands are a distraction and contribute little to the overall corporate results”
Unilever brand portfolio optimization strategy
Unilever has taken the opposite approach by aggressively acquiring smaller brands with strong growth prospects to broaden its portfolio – Murad, Dermalogica, Kate Somerville Skincare REN Skincare and Dollar Shave Club to name but a few.
The logic here is also clear. Unilever has decided that consumers are looking for new options. As the world become more and more fragmented, the idea that one big brand can serve everyone looks out of touch and out of date. To grow, Unilever will acquire more brands and capitalize on these growth opportunities.
Hundred’s approach to brand portfolio optimization
To fully optimize a brand portfolio a strategic and systematic approach is required to determine not only how to best organize go-to-market products/services and offerings across a portfolio, but also how to name, identify, implement and optimize these brands for the future.
At Hundred we have a clear three-stage portfolio optimization approach which we have successfully deployed with several major brands:
Discovery
First, we use two distinct and complementary models to rationalize the portfolio of brands:
Customer segmentation approach – this identifies which brands should be kept to ensure the organization can cater to all customer segments in each category. By identifying distinct consumer segments and assuming only one brand will be sold in each segment, organizations can look to grow market share.
Market share and brand positioning approach – this looks at brands comparatively using broad parameters such as market share and brand positioning. Usually this is based on data from some or all of the following categories:
- Each brand’s global market share
- Regions where the products/services are sold
- Annual sales
- Profit margin
- Internally agreed score for brand strength globally and in specific regions/countries
- Internally agreed score for brand potential for growth based on either its appeal to current customers or its ability to meet consumer needs in the future
GE for example decided to retain only those brands that were number one or number two in their segments, as measured by market share and profits. When Unilever adopted the portfolio rationalization approach it looked at all six of the above categories and in doing so was able to review 1,600 brands in 150 countries in little more than a year, reducing down to a portfolio of 400 brands that accounted for 92% of its profits whilst retaining brands such as PG Tips that had strong brand reputation in specific countries.
Other firms tailor their brand portfolio rationalization parameters according to the specific nature of their industries. For example, companies in fast growth industries often choose to keep brands that display the potential to grow rapidly.
The rationalization process begins by orchestrating groups of senior executives from marketing, heads of region, heads of product/service groups, and global brand managers to conduct joint audits of the brand portfolio. Later, the company’s product divisions and country operations often conduct similar audits to involve the next tier of executives in the rationalization drive.
Many corporations do not realize that when they slot several brands into the same category, they incur hidden costs because multi-brand strategies suffer from diseconomies of scale. Naturally, those hidden costs decline when companies reduce the number of brands they sell. Some businesses, like P&G, have improved performance by deleting not just loss-making brands but also declining, weak, and marginally profitable brands. They have then used the newly freed resources to make their remaining brands better and more attractive to customers. In this case, deleting brands may be the best way for companies to serve both customers and shareholders.
In terms of brand reputation, it can also be wise for organization to sell brands that are profitable but do not fit with corporate strategy. Unilever’s CEO Alan Jope has made it very clear for example that its portfolio of brands must have sustainable business plans if they are to remain part of the group in the long term. Unilever is also looking at ways to respond to consumer concerns about single-use plastic such as wrapper-less multipacks for its Solero ice-cream lollies.
Understanding market trends and customer drivers, cost-mapping exercises and their impact on supply chain, customer surveys, and creating smart differentiation based on customer needs rather than product or service definitions is imperative in simplifying and optimizing portfolios at the strategic level.
At Hundred we combine market analysis, employee, customer and industry expert interviews and internal strategic work-sessions with competitive brand portfolio audits and customer insight research reports to support this rationalization work.
Development
During the discovery process, organizations often find that only a small amount of brands in the company’s portfolio have clearly differentiated positions or global market share. At this point it may be preferable to merge brands rather than delete them, especially when the brands targeted for elimination have more than a few customers or occupy niches that have potential to grow.
In this stage, Hundred propose different brand portfolio and brand architecture options that are based on clear understanding and recommendations of which brands to keep, sell, merge, delete or grow. This often includes:
- A SWOT analysis of each option
- A framework for simplifying and naming categories
- A clear approval process for all portfolio elements
- Ideas for what and how to name across the portfolio and how these can be visually identified.
Delivery
Managing the sale, deletion or merging of brands is important as when companies drop brands by simply no longer investing in them, they can antagonize loyal customers. Most attempts at brand deletion fail – several studies show that after companies combine several brands together or switch from selling local to global brands, they maintain market share about 50% of the time. Often when brands are merged the market share of the new brands stays below the combined market share of the deleted brands.
For deleted brands, it is also worth ensuring that organizations retain the legal rights to deleted brands names. In 1993, P&G shifted from selling White Cloud and Charmin to selling a full suite of products under the Charmin brand. When the White Cloud trademark lapsed in 1999, a smart entrepreneur bought it and sold it to Wal-Mart, now White Cloud is considered a competitor to Charmin
While the deletion or merging of brands may be a strategic option, it can be a traumatic process for employees and have a negative effect on internal organizational culture. Brand and country managers whose careers are often integrated with their brands may need support and we find brand portfolio rationalization and optimization programs can become internally political.
To support, Hundred provides workshops, coaching and training with key stakeholders to present the new optimized brand portfolio and help people learn how to communicate this in the right way to key stakeholders.
For merged brands, Hundred often assist with the transferring of product features, attributes, value proposition, or image of the brand to be deleted to the one they plan to retain.
For retained brands, Hundred provides assistance in creating and delivering growth strategies – this could be related to how each brand can reach new customers, launch new products and services, develop new delivery systems, penetrate new geographic markets, or generate new industry concepts as well as content marketing strategies and campaign development.
In this stage, Hundred propose different brand portfolio and brand architecture options that are based on clear understanding and recommendations of which brands to keep, sell, merge, delete or grow. This often includes:
- A SWOT analysis of each option
- A framework for simplifying and naming categories
- A clear approval process for all portfolio elements
- Ideas for what and how to name across the portfolio and how these can be visually identified.
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