brand leverage power: the critical role of brand balance

Brand leverage Power: The Critical Role of Brand Balance

Vicki R. Lane

L ured by financial gain, marketers have littered the consumer landscape with brand extensions ranging from Vatican

luggage and bed linens to Ralph Lauren paint. Yet brand leveraging-attaching an established brand name to a new product-is not a panacea. Although some brands have successfully been extended to create financial value for their companies, in many situations this practice actually robs the brand of its equity. The trade-offs of brand leveraging dictate that some brands will end up suffering more than they gain.

Consider the toll on Gucci. Once favored by such clients as Grace Kelly and Jackie Kennedy, the Gucci brand name lost its exclusive image as a result of brand extensions. This occurred despite a good “fit” between the brand and each extension. As an image brand, Gucci initially added panache to each extension; but expansion ultimately cheapened it. Only after many years of discipline, in which Gucci severed old licensing and distribution deals, did the designer brand rebound financially.

Ultimately, such losses in consumer brand equity lead to losses in financial brand equity. The consequences of brand leveraging can be quite severe; in some cases, they can be impos- sible to overcome. Unfortunately, although companies often experience the benefits of brand leveraging immediately, the negative side effects may not show up until years later, complicating the expansion decision. Given the potential for negative returns, assessing a brand’s leverage power-its ability to provide long-term financial returns via extension-is a key to effective decision making.

Is there a way of assessing a brand’s leverage power before deciding to extend the brand? Mar- ket repercussions, such as those experienced by Gucci, indicate that evaluating the fit between the brand and the extension is a necessary but insuf- ficient consideration. Evidence says that manag-

Brand Leverage Power: The Critical Role of Brand Ualance

ers need to assess both consumer familiarity with, and consumer regard for, the brand. Of critical importance is an unclerstanding of what these brand equity characteristics-and the balance or imbalance between them-communi- cate about the likely trade-offs of brand expansion.

From diamonds to tarnished treasures, a brand’s balance influences whether extensions will turn short-term wins into long-term woes,

BRAND LEVERAGE POWER: THE FINANCIAL TRADE-OFFS OF BRAND EXTENSIONS

B rands vary considerably when it comes to leverage power. Extending some will create high net financial value; extending

others will not. Some will even generate net financial loss. This variability is a result of the financial trade-offs inherent in brand leveraging.

The upside is that brand extensions often create positive cash flows in the extension market and for the entire brand family of products. Of course, extension sales add to revenue. At the same time, umbrella marketing under one brand name provides synergy in advertising and promotional costs across the brand franchise. Moreover, extensions can reinforce and enhance a brand’s image, thereby increasing sales for the company’s other products.

The downside is that brand extensions sometimes create negative cash flows, both in the extension market and for the brand family as a whole. In addition to the actual costs of creating the extension, the production costs for all products may rise because of greater manufacturing complexity and heightened competition for facilities, materials, and human resources. Cannibaliza-

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tion of existing products also takes a toll at the cash register. Moreover, the extension may erode or even tarnish consumer perceptions of the brand’s quality or prestige, causing lost sales and lower profit margins tllroL~~lloLIt the bmnd franchise.

liltimately, a brand’s leverage power depends on the net effect of all these extension benefits and costs. Hence, greater power rests in management’s ability to minimize the downside and maximize the upside of extensions.

The Stock Market Assessment of Brand Leverage Power

A study by Lane and Jacobson (lW5) of stock market responses to brand extension announcements indicates that consumer regard for and familiarity with a brand are the critical determ- nants of its leverage power. These dimensions of consumer brand equity should he in balance. In other words, consumers must rank brands similarly in both familiarity and appeal. According to the study, extensions of balanced brands are more likely to generate gains that exceed accompanying costs. in contrast, extensions of brands that are imbalanced are more likely to generate costs that outweigh accompanying gains.

The premise of assessing the stock market’s reaction to brand extensions as a method of un-

licly traded companies the stock Inarket’s response to management decisions provides a way to score the game. Second, as in other financial markets, investors in the stock market determine what price they will pay for the stock by forming expectations about future cash flows. Because the stock market rapidly absorbs all information as it becomes available, its response on any given day provides an assessment of expected future cash tk)ws based on that day’s new information. Thus, widely accepted statistical techniques capture the stock market’s assessment of the future financial consequences of new information.

Researchers have used this technique exten- sively over the past 25 years. Their studies con- tinually reaffirm the stock market’s ability to quickly capture the expectation of the future financial consequences of new inf~)rtn~Iti~~n. Given this ability, any consistent stock market reaction to a specific management strategy provides insight into the likely future financial returns from implementing that strategy. And although the market is not always right about the implications of every i~idi~,i~~~lal brand extension, it does provide statistically appropriate data for sound cm- pirical studies. Hence. lessons learned from studying the stock market provide evidence about the expected long-term performance of organiza- tions that engage in such strategies.

Figure 1. which shows stock market reaction derstanding brand leverage power is twofold. to brand extensions, graphically reinforces the First, corporations that maximize wealth do so for idea that brand balance is a critical determinant the benefit of equity holders. Obviously, for pub- of brand leverage power. The figure summarizes

Figure 1 Stock Market Assessment of Brand Leverage Power

Imbalanced Brands

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stock market price changes in response to 117 announcements of new food product introduc- tions made from June 1989 through December 1990. This study of 50 companies, 13 new brands, and 74 established brands included such well- known names as Kraft, Tropicana, Campbell’s, Coke, Frito-Lay, Ben &Jerry’s, Spam, and Healthy Choice.

The brands were divided into six categories according to how consumers ranked them along the dimensions of appeal and familiarity.’ Three brand categories were formed in which consumer rankings were balanced: Troopers, Diamonds, and Developers. Troopers rank high on consumer appeal and familiarity; Diamonds rank even higher: in the top 50 on both dimensions. Developers, on the other hand, rank below the median on both appeal and familiarity. Two categories were formed in which consumer rankings of appeal and familiarity were imbalanced: Tarnished Trea- sures, which rank disproportionately low on consumer appeal compared to familiarity; and Cov- eted Icons, which rank disproportionately high on consumer appeal compared to familiarity. Finally, as a point of comparison, an additional group was composed of newly minted brands.

Figure 1 depicts the average stock market responses to brand extension announcements for these various categories over a two-day event window. Consistent with other stock market studies, the market captured the impact of each event very rapidly. After controlling for other variables (such as ‘.fit”) that could influence stock return, the market’s reaction to brand extensions varied with the brand’s consumer familiarity and appeal rankings and the balance between them. The three categories with brand balance increased in financial value after announcing extensions, whereas the two categories with brand imbalance lost financial value. Newly minted brands re- sulted in a very small increase in financial value.

Brand categories vary in their ability to create stock market value via extensions because market participants collectively recognize that brand balance influences financial trade-offs. The stock market response indicates that, although all the categories may “own“ some amount of brand equity, each varies in its amount of inherent leverage power. The increase in prices associated with balanced brands indicates that the latter tend to make better extension brands. Investors generally expect the returns from such extensions to more than compensate for the potential costs. All three categories with brand balance have inherent brand leverage power that enables them to increase financial equity via extension strategies.

On the other hand, the lower prices associated with imbalanced brands indicate that stock market participants tend to expect the costs and

risks associated with these brands’ extensions to outweigh the benefits. When these brand equity components are out of balance, problems are likely to ensue following extension strategies. The stock market response concludes that these brands generally do not have the same inherent brand leverageability.

Why does the market believe that consumer familiarity and regard for a brand-and the balance between the two-influence the financial trade-offs extensions generate? Consider how these brand characteristics provide a profile of the nature of the brand and its ability to extend into new markets without suffering excessively from expansion’s financial downside. Interest- ingly, as the following discussion points out, the specific manner in which the extension creates or destroys value tends to vary with each brand category.

BALANCED BRANDS: STRONG LEVERAGE POWER

B rands that rank similarly among consumers on both appeal and familiarity repre- sent the norm on the marketing scene.

For most brands, appeal and familiarity go hand- in-hand. When a brand is born, it ranks low on both dimensions; over time, however, factors that create market success for the brand generally lead to simultaneous increases in both familiarity and appeal.

Familiarity with a brand arises from consumer awareness of it, the ease with which it comes to mind, and its usage. Regard for a brand arises from perceptions of product quality, user satisfac- tion, and prestige. People obviously must be aware of a brand before they can form an evalua- tion of it. And we generally tend to prefer the familiar. So as a brand increases in familiarity, at least up to a point, consumers tend to like it better. Moreover, because brand usage influences both of these variables, the two generally coin- cide. Consumers choose brands that come to mind and that they like. Choice, in turn, increases consumer familiarity with the brand.

Marketers obviously have a direct impact on both consumer familiarity and regard for a brand. The magnitude of advertising and promotion, the breadth and intensity of distribution, the brand’s visibility and prominence in a consumer’s every- day world, and the nature of its appeal, whether for the mass market or for specialized (niche) markets, all influence consumers’ perceptions. Because of these shared factors, consumer familiarity and regard for a brand interact in consumers’ minds.

Not surprisingly, these two factors are statistically highly correlated. For example, the correla- tion between measures of consumer familiarity

Brand Leverage Power: The Critical Role of Brand Balance 77

with a brand and consumer regard for a brand was approximately 0.7 in the Landor 1990 Image Power Survey of 2,000 U.S. brands.’ This suggests that many brands tend to have balance. Consider how balanced brand equity comes into play to create brands with high leverage power: Troop- ers, Diamonds, and Developers,

Troopers

Troopers are both familiar and appealing to consumers and thus make good extension brands. High and balanced consumer rankings signal that

such a brand appeals to a broadly based market

“Trooper extensions can rather than just to a

enhance a brand’s market particular niche.

exposure and reinforce its image, as long as they fit

Such broad appeal indicates that ex-

that image and preserve

tensions can gener-

the standard of quality

ate revenue by bringing in new

established by the flagship

customers. The ability to attract new customers is

brand. ” important because without them new extensions may

end up simply cannibalizing existing products. Moreover, the high and balanced rankings signal that a brand’s appeal does not derive from an image of exclusivity or elitism. This is critical because brand expansion can dilute the image of prestige brands.

For Troopers, just the opposite is the case. Trooper extensions can enhance a brand’s market exposure and reinforce its image, as long as they fit that image and preserve the standard of quality established by the flagship brand. Troopers provide leverage power by achieving as expected- creating more financial benefits than costs.

Consider the performance of the Tropicana brand. In the stock market study, Tropicana’s stock price increased two percentage points over two days following its announcement of a brand expansion. The market recognized the value of Tropicana’s high and balanced familiarity and appeal with consumers. Subsequently, Tropicana has grown via extensions to generate sales of approximately $1.4 billion. The clear winner in the worldwide chilled, ready-to-serve orange juice market, it owns a 31 percent share.

Diamonds

Diamonds are the most valuable brands in the world, ranking highest with consumers in both familiarity and appeal. The exceptional brand equity of this group, which includes such names

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as Kraft, Coca-Cola, Hershey, and Campbell Soup,

leads to very high leverage power. For the same reasons that apply to Troopers.

diamonds’ financial performance is more positive than negative. Their appeal is exportable to a broad base of consumers, allowing for more revenues to be created while protecting against can- nibalism. Moreover, because prestige is not a significant factor for these brands, extensions do not create dilution from overexposure. Instead, appropriate extensions help reinforce the brand’s image. Like real diamonds, these brands are pre- cious but also resilient and strong. Such characteristics imbue many of them with a “forever” quality.

Witness the Campbell brand’s SLKC~SS. Kec-

ognizing Campbell Soup’s very high and balanced brand equity, the stock market rapidly increased nine percentage points following the company’s announcement of expansion with Campbell’s Microwave Soup. Undoubtedly, this expansion helped propel the company’s superior financial performance; corporate earnings for 1995 were $698 million on sales of $7.3 billion. Campbell’s 80 percent market share of the canned soup market points to the success of the name in protecting the brand franchise against the costs of extensions.

Developers

Developers rank relatively low with consumers on both appeal and familiarity. This profile sug-

gests that, rather than the brand bolstering the extension, the extension provides a payoff to the brand. In other words, as the name Developer implies, extensions help build the brand franchise. The low appeal and familiarity rankings suggest that these brands have little to canniba- ize or dilute, so they contain minimal downside risk. However. the brand franchise stands to gain a great deal. Most consumers have limited or no awareness of Developers. Given such a lack of familiarity, it is not surprising that their appeal is correspondingly low.

Extensions help build market exposure for and consumer awareness of these unfamiliar brands. If product quality is high, the increase in market exposure can enhance the image and create correspondingly high consumer regard for the brand. This was certainly the case for Healthy Choice. Introduced in the late 1980s by ConAgra, the Healthy Choice brand mS subsequently extended to a variety of new products. In response to an announcement that the company was extending its brand to a substitute egg product, the stock market recognized the future benefit from this expansion strategy and responded favorably. Healthy Choice has subsequently grown to become a $1.3 billion brand.

EMBALANCED BRANDS: LIMITED new users. Hence, cannibalization is more likely LEVERAGE POWER to offset any extension revenues.

A lthough consumer familiarity and regard for a brand normally go hand-in-hand, many brands develop in a different

manner. These exceptions to the norm emerge because of specific marketing strategies that create brands with different types of equity. How does the development of Tarnished Treasures’ and Coveted Icons’ brand equity vary from the more normal balanced approach? And what does this imply for their extendability?

Tarnished Treasures

One exception arises when marketers design brands with a marketing mix that appeals to some consumers but turns off others. The magnitude of promotion, mass market characteristics, brand visibility, and extensive distribution create high brand familiarity, but the features and pric- ing, by design, inhibit a corresponding high appeal ranking.

In some cases, the brand develops as a “cost cutter” brand. Marketplace success emerges because some consumers cannot or will not pay more for a preferred competitive product. In the economist’s lexicon, these brands are “inferior goods.“ Such an approach, though perhaps somewhat satisfying to consumers, does not necessarily win their preference. Examples of brands that compete by offering lower prices than competitors include Sanka instant coffee, Tang orange drink mix. Shasta cola, and Jim Beam bourbon.

In other situations, a brand’s association with product features or promotional images inhibits widely held respect. The Marlboro brand may enjoy incredible brand equity among smokers, but it ranks disproportionately lower on consumer regard compared to familiarity. The brand’s associations with the harmful aspects of smoking limit its attractiveness to a specific market. Other examples of highly familiar brands with characteristics that restrict their appeal include Alpo dog food, Sani-Flush toilet cleaner, and Playboy.

Despite their success within a confined product arena, these Tarnished Treasures have a greater risk of diminishing financial equity when they extend. Brand extensions do not help build the image because underexposure is not the problem; lack of broadly based preference is. Even though the brands are widely known. many consumers may view them as somewhat tainted. Hence, the brand name may bring a liability rather than a bonus to the extension market. In this case, the brand name does not help Save extension marketing costs or augment revenues. Because many consumers do not prefer it, the brand extension will have difficulty attracting

The case of Spam illustrates these problems. Introduced in 1937, Hormel’s Spam brand grew in popularity during World War II as its long shelf life lured consumers when shortages of fresh meat developed. Over time, Spam’s marketing strategies created a brand with 82 percent of the canned luncheon meat market, bringing in about $100 million in sales. These same strategies also created a brand with a disproportionately higher consumer familiarity ranking than appeal ranking. Such an imbalance indicates that many non-users, though aware of and familiar with Spam, do not appreciate its product attributes. Everyone knows Spam, but relatively few prefer it. Countless Monty Python jokes have reinforced its status as a brand that is clearly not for everyone. Although it enjoys a loyal consumer following, non-users often view the product unfavorably. Because of this, Hormel’s stock market price quickly fell 2.5 percent following Spam’s announcement of a new product, Spam breakfast strips.

Coveted Icons

Another exception to the more normal balanced approach to brand building occurs when a consumer appeal ranking becomes disproportionately high compared to the familiarity ranking. Such brands enjoy a high-quality or prestigious image with many consumers despite limited advertising budgets and low consumer usage. In some cases they become well-liked because of perceptions of exclusivity associated with them. By design, marketers create this

“Everyone knows Spurn, but relatively few prefer it. Coun Hess Mon ty Python jokes have reinforced its status as a brand that is clearly not for everyone. II

type of brand-a I

“Coveted Icon”-to attract a special niche of consumers who are often willing and able to pay a premium for what they perceive as superior and exclusive product features.

The appeal for Coveted Icons comes about. in part, because they are not as widely available to the masses as are more balanced brands. Ex- amples include L.L. Bean, Lamborghini, Maserati, Mrs. Fields, Godiva, Bang & Olufsen, and Eddie Bauer. In extreme cases, a brand may create a cult following whose members proudly “wear” it as a sign of rebellion against a cultural norm. Apple Computer’s landmark 1984 Superbowl commercial positioned the company as the righ- teous antiestablishment computer brand via the Orwellian 1984 metaphor. The positioning stuck;

Urand kverage I’owcr: The Critical Role of Brltnd Ualance 79

Apple attracted a staunchly loyal band of follow- ers. but eventually encountered difficulty in building widespread market share.

Generally, Coveted Icons arise when marketing strategy consists of superior product ingredi- ents or technology, restricted distribution, high prices, and/or limited advertising. Indeed. these particular marketing mix factors work together to create the imbalance between consumer rankings of appeal and familiarity. The higher consumer appeal arises in part because the brand is not as widely familiar. This type of imbalance is specific to niche brands that succeed by fulfilling the idio- syncratic needs of a smaller, exclusive market niche. Success is contingent upon consumers in the niche rewarding the brand with higher profit margins.

Although Coveted Icons appeal to consumers, their imbalance is indicative of other characteristics that limit these brands’ leverage power. Non-users as well as users may like the brand and its extensions, but these non-users may not he willing or able to pay the higher prices. LIlti- mately. the price dictated by the market may not cover actual extension production costs. Morc- over, restricted distribution and limited exposure may limit brand exportability. If consumers out- side the core target market have limited access to or familiarity with the brand. extension SLICC~SS

will depend solely on current customers. Even though core customers wo~itd still appreciate the variety offered by the extension, cannibalization could cancel out extension revenues. And brand expansion may escalate production costs for the entire brand franchise. Many niche firms, in the face of initial sales growth. find they lack the financial and human resources to serve an ex- panded customer base successfully.

Finally, this type of imbalance sometimes profiles a prestige brand that, because of limited market exposure, maintains an aura of exclusivity. For these brands, product proliferation destroys the very image on which the extension depends. Although consumers tend to judge any single extension positively as they individually tap into the brand’s exclusive image. collectively the extensions sully the brand’s prestige. In the long run, revenues for the franchise may decline because the brand name is stamped on too many other products.

Consider Ben & Jerry’s, which is famous for producing such esoteric concoctions of ice cream as Cherry Garcia and for its counterculture image that appeals particularly to Generation X-ers (people between the ages of l&30). Favorable press stories have praised the firm’s marketing practices, such as buying milk only from family farms in Vermont, buying blueberries from the Passamaquoddy Indian tribe, and passing along profits to fund a nut growers‘ cooperative in Bra-

zil. This helped create a brand that by 1990 en- joyed a consumer appeal ranking that was disproportionately high compared to its familiarity ranking. Eating Ben bi Jerry’s ice cream was a special privilege; only those in the know and those who cared participated.

The company’s 39 percent market share in the superpremium ice-cream category testifies to the payoff a niche marketing approach can provide. Nevertheless, the brand has suffered because of extensions. When Ben 8 Jerry’s an- nounced an expansion into the Light Ice Cream and Frozen Yogurt category in late 1989, the stock market responded very rapidly by devalu-

ing the stock price almost 6 percent. Although the company’s accounting reports were rosy at that time. Wall Street recognized the potential for long-term problems.

Subsequently. Ben Sr; Jerry‘s was beset in the mid-1990s with declining sales in the superpremium category under pressure from lower-priced, lower-fat brands. Moreover, increased costs associated with hiring new management, glitches in production facilities and scheduling, and higher than expected marketing expenses contributed to negative profits. Interestingly, :I $6.8 million write- down of an ice cream manufacturing facility was a cost incurred because of the need to consoli- date production in Vermont so that the brand could accurately portray its image 21s “Vermont’s Finest.” Other signs, including unfavorable press about Ben & Jerry’s failure to deliver on the so- cial responsibility front, indicate that the brand expansion has already eroded its special image.

THE BRAND EXTENSION DECISION- A THREE-STEP APPROACH

J ust as investors anticipate the probable cash flows from extensions based on an announcement of a planned extension strategy. so too can managers assess the

probable financial impact of a proposed cxten- sion alternative. The following three-step approach focuses attention on the financial trade- offs of brand extensions and encourages an understanding of how rankings of consumer familiarity and regard for a brand can affect the brand’s leverage power.

Step 1: Determine Consumer Familiarity and Regard for the Brand

When selecting measures of consumer familiarity and regard for a brand, managers should keep several issues in mind. Choosing measures that reflect the balance between the two dimensions is crucial. One possible approach is to examine rankings, relative to other brands in a wide variety of product markets. from a diverse array of

consumers. It is important to compare the brand any particular brand. Just because a brand has to a variety of brands because although it may low leverage power does not mean it has no appear balanced relative to a small group, such equity. Indeed, the opposite is true. Both Coveted as its competitors, it may in fact be imbalanced Icons and Tarnished Treasures often enjoy tre- compared to a larger group. This can occur when mendous brand equity in existing markets. Both the brand’s competitors are all imbalanced. More- exceptions develop because of specific marketing over, because attracting new consumers is often strategies that create brands with different types essential to expansion, it is important to use mea- of equity. Recognizing a brand’s equity in existing sures gathered from a varied group of consumers, markets and understanding why consumers value not just present users. Because of the manner in the brand are important to good brand manage- which consumers form evaluations and familiarity ment. Any marketing strategy should build off judgments, a survey of users may yield a different and protect the brand’s special value with con- measure than a survey of non-users. sumers.

Step 2: Assess the Brand’s Expected Leverage Power

Armed with information on consumer familiarity and regard for the brand, marketers can use the Brand Leverage Power Assessor (Figure 2) to indicate the particular category to which the brand belongs and to gain important insight about its relative leverage power. The Assessor indicates that balanced brands have greater leverage power than imbalanced brands. Moreover, the brand profile corresponding to each category reveals how the brand will particularly benefit or suffer from expansion. By fitting the brand within a category, managers can more readily compare it to similar brands. Perhaps most important, placement within a category helps force recogni- tion of the potential downside of extensions.

Conserve the brand’s value. Many Coveted Icons and Tarnished Treasures may produce maximum financial value over the long run by avoiding most extension strategies. A policy that favors keeping either of these two brand types unique will help avoid any liabilities their names bring to extension markets and protect them from reciprocal damage to the core brand franchise. Rather than extending them, one should consider choosing a balanced brand from the portfolio when new product opportunities arise. Alterna- tively, one might invest in a different and more suitable brand franchise via acquisition or brand creation. Although acquisition and creation costs are high, so are the potential rewards.

The following two success stories can serve as examples. Seagram Co. Ltd., recognizing the implications of an increasingly health-conscious public, acquired Tropicana Products Inc. in 1988 for $1.2 billion. or 12 times Tropicana’s pretax

Figure 2 Brand Leverage Power Assessor

Whereas placement via the Leverage Power Assessor helps indicate future success or failure, further analy- sis provides a more precise esti- mate of the brand expansion’s ultimate financial consequences. How the extension will add to costs as well as how it might add to revenues should logically depend on the brand’s balance and other market factors, such as brand fit. The appropriate- ness of leveraging a brand depends on the net effect of the strategy and the timing of positive and negative cash flows. As with any investment decision, a positive net present value predicts ultimate financial success, whereas a negative present value predicts failure.

Step 3. Consider Alternatives

Recognize the brand’s existing value. Other strategic alternatives besides traditional extension may be more suitable for

ConsumerFAMILIARITY Ranking

Brand Leverage Power: The Critical Role of Brand Balance Xl

earnings. Seagram subsequently spent another $300 million to improve and expand the brand’s manufacturing and clistril,ution facilities. Through- out the 1990s the Tropicana brand, undeniably :t “Trooper.” has continued to grow through extensions. redoing $1.3 l2iIIion in annual sales 3rd $177 million in earnings by 1994. Moreover, it has provided a marvelous springhod into new markets. including the international arena. Imagine what would have happened had Seagram tried to le\wage the Seagram I3rand instead of acquiring Tropicana.

Similarly, ConAgra resJwncled to the health and fitness movement by creating the Healthy Choice brand in the late 1980s. Advertising and promotion supJ3ort (S44 million plnnnccl in 1996). along with extensions, helped develop the S 1.3 Idlion high-lel.eI-age-ponder l~rand. If ConAgl-a had focused on the J3otentid benefits of l~uicl extension in its decision making and chosen to Ie\wage its I3anquct l~r2ncl. the extensions might well have fbilecl. Even w’orse, ConAgra ~~oc~lcl

lia\~ missed an increclilde 13I-ancl development opportunity.

Extend selectively. Firuncially re\varding extension opportunities will oc‘c~u- sonie\vhat infrequently for iml,al:lncecl I,rancls. Ne~wtheless, occasional opJ>ortunities \vilI arise. A Tarnished Treasure band name \viIl certainly J~rovicle ;I boost in special, though limital, consumer markets. The Marltwro name adds panache to a retail clothing franchise in Europe. \\,herr smoking is more socially acceptaIde than in the linitecl States. Just like 12larlhoro smokers, ~larflwro clothing \vearers taJ3 into the machismo and indeJ~endence of the American cowl~)y image.

Co\wed Icons often stem to provide le\,er- age J7o\\w in ne\v product m:ukcts, but comJ~- nies ~tio~dd resist the tempt:ition to o\wextencl them. Although m:irket tests \\?I1 often inciic:ltc I~roadly Ixisecl. J7ositi\.e consumer feelings ton-al-cl extensions of these Lvell-liked I,rancls. man)’ con- s~miei3 \\.ilI refuse to shell out the higher J2riccs required to co\ er the costs. l’crhaJ3s more serious ~~Y~uIcI be the hidden long-term conseclwnces that u~~~1lc1 follow tw3ncl name J3roliferation. Eveq extension potentiall\~ erodes some of the hr-ancl’s exclusi\Gty. Thus. comp;mies shoulcl pursue only those markets that reinforce these brands’ sJ>ccial and exclusive ~rl~peal \,ia restricti\,e distril~ution. higher prices, ;ind suJ3erior product associations. E\ren then. these m:Lrkets shouId IX pursued on :I very limited I3;isis. deploying the valuable Ixind only in those situations that promise tremendous profit 0pJwrtunities.

Protect existing brand equity with sub- brands. When :I comp;tny decides to extend :I Coveted Icon, it sho~~fd case every tactic a\2ilahIe to J3rotect the t~rancl‘s special im:qe. 0ne technique s~1c~~ssf~111~~ ~mployetl by some firms is

that of sub-branding, in which the family t~mnd is used in conjunction with a variety of other company-owned I~rands. When extending Coveted Icons, it is worth considering a brand tag approach that maintains psychological separation between the high- and low-end markets. Ralph Lauren creatively employed this strategy to build ;I $4 billion retail franchise. The company successfully markets 21 lower-priced I~rand, Chaps, along with such premium priced brands as Jbrple La- hcl. 2 line of men’s suits priced at $1.600 and up.

Create a brand-based subculture of consumption. E\.en though Etrnished Treasures and Coveted Icons cl0 not have the same’ inherent leverage power as more t3alancecl brands, they can still tw deployecl in limitd and unique b21yh to enhance 2 firm’s value. Br;lnds that clevclo~~ with ai imbalance I>et\\w3 consumer Einiili~irit~ and regard often cl0 so hecause of their niche foc~~s. In .some c;isc’s. their ability to satisfy the needs of :I select few builds an increclitdy loyal customer foIIowin$-soilletir-nes el’en cult-like. In such ;I situation, the brand can esp;ind by gi\?ng current customers an oJ7portunity to align theii identity \\dl its o\\n. Central to this strategy is Ie\,eraging off the l~rancl’s symt~olisni and creating an icon for consumers to rally ~irouncl. With this apJ3ro;ich come’s additional financial \2Iuc via customer Ioy~ift~~ or frequent usqge progr-anis (such 3s M3rlhoro Mile:ige Gear) or via sales of products that emhellish but cl0 not compete n,ith or sully the I3rand‘s flagshil-, product.

H;lrle~-J)~l\,iclson. :I $1 hillion company Lvith ;I 5% J’ercent share of the I1.S. lica\.\weiglit motorcycle market. wderstands its t~I-;~nd‘s image ~mcl 3ppeaI \w)’ ~~~11. Rather than exJ2orting to different customer gi-OLI~S. Hzrle) concentrates marketing efforts on its sped1 t:trg:,ret niche. It intentionally keeps its motorq~cles sarcc to maint:lin its image of exclusivity hilt gives its ciIst0mw-i ;I \\.ay of cnil~ellishing the motorcycle experience \ ia 1 Iarley OLvners Group (I IO(;) nienil~erstiip and ;icccssoric~s and clothing items that portray the t,ikcr sul~culture. HOG ser\w this fan:iticalIv Iq~aI groi~p by providing an insur;ince program, tr;i\,el agency, emergent)’ roadside ser- vice. t\vo m3g:azines. memlwr comJ3etitions. and local chapters to 200,000 meml3ers \lu~rIcl~vicle.

Invest in brand balance to offset brand weakness. Sometimes an exJ>ansion opportunit) \vitl hold out stakes so high th2t putting the br:incl asset on the line Incomes irresistilde. In this sitw ation, m;in;ig6’rs must eng:ige in m;irketing strategies that \vilI create t~rancl Ixilanc~c J>rior to. or in conjunction \vith, the expansion. VC’ittiout aJ>pro- priate in\.estment in brand b~2kness. Lvhether it be IOU- consumer f:iniiIiarity or lo\\, aJ~‘pe;il, the I~mcl n;ime I,), itself may not he sufficient to dri\,e the esJ>:insion. The recent ad\Tent of Micro- soft‘s Winclo\vs 95 ser\.es ;is an examJ>Ie. ISefore

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the launch, consumer familiarity with the Micro- soft brand was disproportionately low compared to regard. Recognizing this weakness, Microsoft used Windows 95 to invest in consumer brand name familiarity. Indeed, instead of relying on preexisting market presence, Microsoft used the extension to create an unparalleled marketing media blitz. The corporation and its retailers spent $700 million on advertising and promoting the brand, wielding everything from mass-targeted TV ads to free sampling for one million influen- tial people. The hype and unparalleled promotional stunts helped create additional publicity. An unprecedented 3,000 headlines and 6,600 stories, along with numerous talk show interviews with CEO Bill Gates, helped launch Windows 95. More than 40 million copies were sold its first year and the Microsoft image was greatly forti- fied, its presence intensified in consumers’ minds.

Recognize the brand’s limits. IJnfortu- nately. marketing efforts may prove inadequate to overcome brand weakness associated with a disproportionately low consumer regard for the brand. Even when the brand undergoes consider- able product or image improvement, the tarnish of previous associations often hangs on indefi- nitely in consumers’ minds. Consider once again the case of Spam. Its image has created a life of its own, emerging in cyberspace and serving as fodder for stand-up comedians. IS it possible to transform this image with changes in product features, advertising, and so on? What investment outlay coulcl possibly change the image? And why should Span1 even consider such a strategy? Clearly it has value as it is. It may be tarnished to some people. but it is a treasure to others.

B rands are not created equal. Balanced brands display strong leverage power; imlx&nced brands generally do not. The

decision to extend requires strategic reflection because expansion does not necessarily create value. Indeed, it can despoil a brand’s financial success. Firms s1muld take a portfolio approach to brand management, ordinarily selecting a balanced brand instead of an imhalanced one, Lvhen new product opportunities arise. Because the downside of expanding imbalanced brands often exceeds the upside, a firm should consider pur- suing alternative strategies to build the value of suc11 brands. Managers who carefully weigh the long-term pros and cons of divergent strategies will preserve and enrich their brands equity. 0

Notes

1. The consumer appeal and familiarity data for each brand came from the Ldndor Image Power Sun/e)

of the 1990s. which examined 2,000 U.S. brands. Each of the participants in the sample of 5,000 respondents

rated 800 of the 2,000 brands. Four hundred of these were “global” brands rated by everyone and 400 were regional brands rotated into the survey at random. Ten different rotations were used to avoid set and position biases. The sample represented population, sex, age. and income distributions. Participants indicated on 3 five-point scale (a) their familiarity with each brand and (b) their personal regard for it. Familiarity wxs further described on the questionnaire as “your overall awareness of the brand and your understanding of what kind of product the brand represents. You need not have Llsed the product to be familiar with it.” Bmnds that were marked “never heard of‘ in the farnil- iarity section were eliminated from the appeal section. Landor averaged the scale values-O, 2.5, 5. 7.5, and IO-across respondents and multiplied by 100 to ob tdin the aggregated brand ratings, then used these data to rank each brand on each dimension.

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Vicki R. Lane is an assistant professor of marketing at the University of Colorado at Colorado Springs, as well as a visiting assistant professor of marketing at the Univer- sity of Washington in Seattle. The author is grateful for the data provided by Landor Associates and thanks Robert Jacobson for his comments on this research.

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brand leverage power: the critical role of brand balance

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