This week I am at Oxford University, presenting a paper* at a Branding conference. Aside from the paper presentation, I am looking forward to the formal dinner at Balliol College. From previous such dinners at Cambridge University, I’m expecting some pomp, some ceremony, good conversation, and good wine. But first, let me fill you in on the research I will be presenting – I’d love to get your thoughts.
According to some estimates, almost half of the profits of US and UK companies come from products introduced in the previous five years. So innovation is key.
But it is also risky: on average about 40% of consumer and industrial innovations and more than 60% of high-tech products are rejected by the market, and cease to exist within a year of launch. Failure rates are particularly high for novel or new-to-the-market products, as opposed to, say, your run of the mill incremental innovation. The first of its kind Prius hybrid by Toyota is a novel innovation (new to the world), while Porsche's Cayenne launched in an SUV-saturated market is an incremental innovation (new to the company, but not to the world).
But since the world is fair, and higher risks tend to carry higher potential rewards, novel products that do succeed tend to be much more profitable than incremental innovations. This provides firms with an incentive to attempt novel innovation despite its risks.
But since the world is fair, and higher risks tend to carry higher potential rewards, novel products that do succeed tend to be much more profitable than incremental innovations. This provides firms with an incentive to attempt novel innovation despite its risks.
Interestingly, novel products tend to fail not necessarily because of product shortcomings, but because consumers just don’t know what to make of them. They are seen as too risky, too uncertain, too goofy, or all of the above. You can hear the consumer now: so what exactly is this Segway thing you’re trying to sell me? What am I supposed to do with it? Don’t I risk injury, or worse, ridicule, if I ride it to work?
The classic marketing tactic for reducing consumer uncertainty is to use a well-known, well-established, trustworthy brand. In the academic literature, these are called prototypical brands. Honda, for instance, is prototypical of the motorcycle category; just as Vespa is to scooters.
Would the Segway have been a better off launched under the Honda name? How about branded as Vespa?
Turns out, we don’t really know. That makes this a potentially interesting research question.
But there is a further wrinkle (wrinkles are good – they require resolution). Prototypical brands tend to be strongly anchored in their home product category: Coca-Cola is a prototypical brand, and it is strongly anchored in the cola category; Kleenex is the prototypical brand in the tissue category; just as Fedex is prototypical of couriers. Each of them is central to, and dominant in their product category. Are these brands even extendible to products outside their core category? Are they more or less extendible than the peripheral brands in their category?
So you see the problem – the marketer would love to use a prototypical brand to introduce a novel product with low risk to the consumer. But those brands are category-bound.
Or are they? No one knows for sure – there is no research on this topic. Interestinger and interestinger.
So we (my super-competent co-authors at the Vlerick School and I) conducted a series of studies on a large sample selected from a panel of European consumers. We presented respondents with a carefully selected set of innovative products in four product categories. We told half of them that these innovations were being launched under a prototypical brand, and the other half that they were being launched by a peripheral brand (from the same home category as the prototypical brand).
The results: we find that prototypical brands, despite being anchored in their home category, are surprisingly elastic. Consumers readily accept novel products from prototypical brands – as long as the brands help reduce customers’ perceived risk about the novel product. It turns out, their trustworthiness compensates for their category-anchoring.
What the consumer is looking for is some way to reduce the uncertainty and risk of novel products – and a prototypical brand offers that in spades, while other brands don’t.
The Honda Segway might have been good idea for the Segway.
But then, maybe not for Honda.
So there's another unaddressed question: what would launching a Segway do to consumer perceptions of the Honda brand? In this research we didn't investigate the feedback effect of innovative brand extensions on the parent brand. That's for another paper.
Now, for the dinner at Balliol...
What the consumer is looking for is some way to reduce the uncertainty and risk of novel products – and a prototypical brand offers that in spades, while other brands don’t.
The Honda Segway might have been good idea for the Segway.
But then, maybe not for Honda.
So there's another unaddressed question: what would launching a Segway do to consumer perceptions of the Honda brand? In this research we didn't investigate the feedback effect of innovative brand extensions on the parent brand. That's for another paper.
Now, for the dinner at Balliol...
10 comments:
It is an interesting can of worms. Without doubt, launching anything under the umbrella of a prototypical brand gives a higher level of consumer trust that hopefully will translate into a greater propensity to try. And as such, it is a very seductive route for the managers concerned who will have much invested in the success of the new product.
But I feel you downplay slightly the downside risk to the parent brand which, by definition, has much greater value at stake than the innovation.
Cadbury in the 1960s had a peerless name for quality in the UK chocolate category, but had a stagnant business. Their strategy was to expand beyond chocolate in the then rapidly growing convenience food sector. NPD pipelines were cranked up and the strategy got off to an excellent start with two very innovative launches of a dried skimmed milk powder and an instant mashed potato. These were launched under the Cadbury name as Cadbury's Marvel and Cadbury's Smash.
It seemed a win-win. Consumer trial was very high, the products were widely accepted and there was a consequential benefit to the Cadbury brand, which had become seen as being rather dull and staid, by ratcheting up it's scores on 'innovative', 'modern' and 'exciting'.
But it was not to last. Spurred on by these early successes and the need to match and beat the early sales peaks of Marvel and Smash , more and more products were rolled out on a similar branding strategy but, alas, were less successful in the marketplace.
The Cadbury name soon began to stand for, at best, not very much, and at worst, purveyors of substandard products. The low point came with the launch of Cadbury's Soya Choice, a meat replacement product about which the kindest thing that can be said is that it was a technology before its time.
By the mid-1980's the problem had got so bad that the decision was made to remove the Cadbury name off anything that did not contain chocolate, even the still relatively successful Marvel and Smash. Despite this bold action, it is debatable if the Cadbury name ever really recovered its power.
The moral of the tale is that the use of a well established brand name on an innovation does indeed lower barriers to trial, but the new product has to be at least as good as the accumulated goodwill behind the brand, otherwise it's effect will be to dilute. This is a tough ask when failure rates are as high as you quote.
But the biggest problem, as ever, is the human element. If you accept the product is going to dilute, then why are you launching it in the first place? This is a tough call to make when suffering from a combination of launch fever and a 10% increase sales target that has the new product built in.
In my opinion brand extensions are very much an art, in that even the most established and elastic brand is not a recipe for success. Product success instead is determined by a number of different elements from positioning, price point, target market and of course the nature and perceptions of the new product itself.
When considering an extension firms must find the delicate balance between product uniqueness and lifestyle fit- this, I believe, is the root cause of new product failures. Firms must ensure that their product is innovative enough to attract the interest of consumers while at the same time can be perceived as an integral improvement or addition to their lifestyles. It is at this aspect that the Segway failed- although visually appealing and for lack of a better word "cool" consumers were unsure as to how this product could be incorporated into their everyday lives. Even if under a recognizable brand like Honda, that built trust with consumers, the Segway would have lacked the consumer education strong enough to change behaviours. Lifestyle fit is particularly important for new product innovations that are at higher price points.
While an association with a well known brand will undoubtedly benefit an initial product launch, it is important to consider the fit of the parent brand with the target market of the new product. Recognition and awareness advantages can be realized through an affiliation with any established brand, but firms must realize that the public has specific perceptions of different brands, and some of these may be better suited to the new product than others.
Examine the Segway launch once again. In this post, you cited safety and the potential for ridicule as two concerns that potential customers might experience when deciding whether or not to purchase the product. Now imagine that the Segway had been launched associated with the BMW brand. The BMW brand has undeniable cachet, and consumers' fear of ridicule might have been eased knowing that the BMW logo would be displayed on their Segway. Alternatively, consider the effect of the Segway being launched under the Volvo brand. Although the Volvo name does not carry the same prestige as BMW, the brand is clearly associated with high standards of safety. Both brands would provide recognition, but each would have trade-offs with their specific image perception in the market. Segway would need to decide which of these concerns would be most important to their consumers before moving forwards.
When considering an association with a well known brand, firms must first ask what the consumer wants from the new product. However, it is also important to anticipate consumers' greatest concerns with the product. The established brands whose brand image helps to alleviate the most critical of these concerns can prove to be the most effective partnership.
It's quite an interesting question raised in this article, and like some other comments, I would have to agree that the effect on the parent brand does seem understated to a certain degree.
Firms must find a balance between leveraging their brand equity and diluting it, or more concerning, cannibalizing their brand's more profitable products.
In the instance of the Segway - sure, Honda, BMW, Volvo all would have done great things for the product - but what would happen to the cars? The more people riding around on Segways, the less people riding around in a BMW. And if the BMW earns a higher margin and costs less to advertise, why would resources be diverted to the Segway?
Developing a strong brand is only the means to the profitability end. Just because an established brand could drive high sales of a new product, is that going to drive profitability for them in the future, even if it were to improve their brand?
Rechargeable batteries, for instance, are all the environmental rage. And even though entering this market is a necessary evolution for battery giants Energizer and Duracell, one can bet that it is not a brand extension that is in the best interest of profitability. The product certainly fits with the brand, and vice versa, but to what end? People have not suddenly started to buy more batteries from those companies in light of an improved brand image. In fact, just the opposite. After a few recharges, the investment in the charger is recouped and you don't have to go buy batteries again for a while. Then what? Energizer and Duracell have improved their brands, seen as contributors to eliminating battery related pollution, but now people buy less batteries. Who cares if you look better if your not going to be rewarded?
The question "what is the effect on a prototypical brand of launching a novel product under it?" may be for another day but it is an equally important question.
The benefits a novel product has to gain by being launched under a prototypical brand are numerous. However, my concern regards the brand equity of the parent company. Brand equity takes years to build but only one poor decision to destroy. It is the brand equity that a novel product asks a prototypical brand to risk when launching under their name. Take the example of launching Segway under Volvo. Segway would benefit with an instantaneous reputation of high safety standards but if there was a single incident where a Segway did not lived up to this perceived safety standard it would be the Volvo brand equity taking the hit.
As you said, consumers will trust a new and innovative product more when it is attached to a prototypical brand name. However, that is only true so long as the novel product meets the expectations that consumers expect from the brand name it's associated with. If these expectations are not met not only will the novel product fail but the band, and all it's original products, will suffer.
A novel product does not have a reputation to loose but a prototypical brand does. For this reason the next question that needs to be asked is what do they have to loose? And is it worth it?
Matt, you’ve raised some very interesting points, especially that of the battery example. Whenever making a strategic decision similar to the use of prototypical brands, there are clearly inherent risks involved. Why would a company want to forfeit the potential control of their brands image in the hands of another product, especially when the product is outside their core business competencies? On the other hand, they could lose out on a great opportunity to expand their brands’ awareness. A key success factor that all companies face is growth, and how to achieve and sustain it.
With regards to the battery example, that is great point. Innovation can certainly aid in making a company’s brand more identifiable as the market leader, while at the same time cannibalize other company sales. The answer here is not hard and fast. However, in the battery example, sometimes a company has to take that risk at a new innovation, especially in an industry that competes heavily on market share. If they do not take that leap at a new innovation, it may only be a matter of time until they can no longer compete in the market place. In essence, it may be a short-term loss in profitability, with a long-term goal of staying alive, but you never know if you are making the right decision…
Like others who have commented, I’m particularity intrigued by the kind of effect launching an innovative product can have on its parent brand. It would be interesting to look at examples of successful innovative brand extensions and the effects they had on existing products of the company, as well as the impact of failed product launches.
I would assume that if there were a high degree of customer loyalty attached to a brand, consumers would be more forgiving of product failures. When Coca-cola reformulated its coke to the “New Coke”, though the product itself failed, due to customer’s strong brand loyalty, Coke was able to recover. That being said, companies with stronger brands might have more to lose by launching a novel product and may be taking a greater risk. Looking at a variety of past examples might bring some clarity to this.
I think there's little value in discussing this topic too generally. Beyond perhaps striving to "discover a basic consumer insight and finding a way to address it", there really is no "key" to marketing. By its very nature, marketing allows no room for generalizations. Marketing is dynamic, marketing is about differentiation, and the moment we see an overwhelming convergence in strategy, that strategy would no longer hold value.
Therefore, the discussion on launching products under prototypical brands should be held categorically, at least on an industry level. I find that the closer a product is to necessity on a necessity--luxury scale, the easier it is for umbrella branding. The packaged foods industry, for instance, is a great example of this. From a manufacturer's standpoint, it is easy to market a variety of food products under one strategy as the products have more or less the same value proposition to the consumer. From a consumer's standpoint, it is easy to accept umbrella branding because food purchases do not require much deliberation, differ very little from the competition, and are repeat purchases Therefore, familiarity across many food purchases offers convenience and engenders trust.
However, with something closer to a luxury good, say perhaps an expensive piece of new technology, or even the segway example given in this article... there is much more risk involved with "masterbranding". From a manufacturer's standpoint, it will not be able to aptly convey the benefits of each product as products in these industries tend to offer unique characteristics that may even conflict with each other. From a consumer's standpoint, paying the price premium for a luxury good means paying for differentiation... Differentiation from less quality brands yes, but also differentiation from anything else offered on the market, including products by the same company.
Manufacturers must be extremely careful to analyze the kind of industry they are in, and go much deeper than the example given in this comment looking at necessary goods v. luxury goods. Going back to the segway example, does it make sense to launch a segway under Honda? If Honda's core competency is providing reliable transportation, are consumers buying segways for that purpose? It seems to me that manufacturers must first understand the emotional difference consumers attribute to their purchases. They can then apply umbrella branded economies of scale (the safe way) to convenient purchases while thinking more creatively (albeit more riskily) with novel products. With the proper support and a well-researched, well-executed campaign, the new product can skyrocket with a unique identity of its very own and GROW the market. After all, if there's one thing Ivey profs have drilled into my brain... it's high risk, high reward.
I agree with Wendy; One can easily see the benefit to introducing new products or product extensions (new flavors/sizes) under umbrella brands and Masterbrands in packaged goods such as granola bars.
However, I am not convinced that brands carry the ability to launch completely novel products outside of their category. Moving away from their core offering and leveraging the brand to introduce something completely different dilutes the brand. As something that the company invests endlessly in, this can be detrimental to the brand and to the overall company.
I think that new companies should take this role and create the new product categories and grow the industry and overall market. While some consumers want to take fewer risks in purchasing, many seek the thrill of purchasing the latest and greatest new product from a new producer. There is the novelty and the desire to be the first to "discover" a new brand or new company. Think about clothing trends and how celebrities and fashionistas are always searching for the newest labels and trendiest new designers. Consumers are always looking for the novelty and fresh experience.
Although the safety net of umbrella or Masterbrands lessens the risks for consumers, it also lessens the new product hype and excitement. The most successful (media publicity, skyrocketing sales figures) seem to be the new product launches by new manufacturers that create a new brand and product category - where they become the prototypical brand.
As long as marketers make it clear what the product offering is and how consumers will benefit from using it, new products certainly do not require an umbrella brand for launch success.
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