kth vertical extension jan 08

Vertical Brand Extension- Up/Down Market Leverage

Daniel Filipsson, Ph.D Candidate – Brand Portfolio StrategyStockholm, 25th of January 2008

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Table of content

Essen and myself

Introduction

The logic of up-market moveRisks with up-market extension

The logic of down-market moveRisks with up-market extension

Cases: Absolut Vodka

Nokia

Porsche

Essen and myself

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Essen – a introduction

– Established 1991 – Located in Stockholm– 30+ co-workers – brand consultants, designers, & layers– Independent company– Our customers are private, public and state owned companies,

authorities, public sector organizations and NGO's

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Examples of customersAlectaAltia AndritzAtriaAbsolut CatellaCollectumSwedbankITT FlygtKarolinska InstitutetPfizerPreviaSave the ChildrenScribonaSveaskogSwedish museum of Natural historyTietoEnatorVattenfallVPCWM-data

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• Brand consultant at Essen since 2006, prior that working as brand consultant at Differ (Sthlm) and Vivaldi Partners (Munich)

• Worked with strategic branding with brands such as Siemens mobile, Deutsche Telecom, Alliance, Hewlett Packard (HP), Gore Tex and Red Bull

• Today responsible for clients such as V&S, Johnson & Johnson, Sveaskog etc.

Daniel Filipsson

Introduction

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Introduction - Brand Contract

BMW Houndstooth Collection

Traditional brand contract:

• One brand = one product = one promise

Today's brand contract:

• One brand = one promise = several products

• Today, companies often use their established

brands to introduce new products instead of

creating new ones.

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Brand Leverage

Line ExtensionIn Existing Product

Class

Co-brandinge.g. Using Alliances To

New Categories

Vertical ExtensionIn Existing Product

Class

Brand ExtensionIn Different Product

Classes

StretchingDown

Stretching

UpCreating

Range Brand

AdhocBrand

Extension

Line ExtensionIn Existing Product

Class

Co-brandinge.g. Using Alliances To

New Categories

Vertical ExtensionIn Existing Product

Class

StretchingDown

Stretching

Up

Using an already known brand in new and creative forms, which usually ffollows 2 patterns:

• Extension of the brand

• Connections between brands

Introduction - Brand Leverage

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Brand leverage examples

Brand ExtensionIn Different Product

Classes

Line ExtensionIn Existing Product

Class

Co-brandinge.g. Using Alliances To

New Categories

Vertical ExtensionIn Existing Product

Class

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Extension tradition: East vs. West

East – branded house

• More recently a shift into house of brands though upscale vertical extension

• Infiniti (Nissan) and Lexus (Toyota)

West – house of brands

• 100-years tradition of product branding P&G, Unilever & Nestle

• Have started to reduce the numbers of brands in the portfolio - consolidating

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Vertical extension is everywhere…

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Vertical extension is everywhere…

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Vertical extension is everywhere…

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Three questions before vertical extension

• Customer trends• Competition• Margins

• Organisational cost structure, culture, system etc. –adaptations?

• Sustainable point of differentiation

• Customer relevance

• Brand credibility• Existing brand• Sub-brand• Endorsed brand• New brand

Extending into higher or lower markets

Market opportunity

Firm competence & ability

Brand strategy

Up-market move

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Drivers: up-market move

The motivation for a company to move up-market is not to obtain volume as it is in down-market move but rather…

Drivers:Attractive margins• Lower margins on the standard product - opportunity too

higher margins in the super-premium segment

Re-vitalize the brand (energy & interest)• Innovation and quality gets more noticed at the high end

and the high margins helps to pay for new innovations

Enhance the brand• Boost the brand with higher quality and more prestigious

associations e.g. credibility

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Risks: up-market move

Brand is Inadequate:• Lacks credibility and the capability to

deliver a high-end experience

• Lacks self-expressive benefits

Offering is unsuccessful: • Falls short of expectations

• Damaging the core brand

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Brand strategy options: up-market move

1. Position the brand to work vertically

2. Position the brand as a super-premium brand in -different products and/or different markets

3. Re-brand at the low end

4. Use a sub-brand

5. Develop a new brand

Let’s go through each of these 5 strategies

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# 1: Position the brand to work vertically

• Create credibility for the whole product-class

• Avoid a value proposition focused on price

• Create a personality that can be effective at different price points

• Create a positioning/ pay-off that works at different price points

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# 2: Different products / markets

• Use a different product class or market to create distance - make up-market move less transparent…

• …A strategy that also works well in a new geographical markets

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# 2: Different products / markets

• Energizes the core brand long term through broader brand meaning

Find opportunity – solve with technology – wrap in art

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# 3: Re-brand at the low end

• Remove driver of value from the low end • Increase psychological distance between

premium and value space

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# 4: Use or create a sub-brand

• Create a silver bullet

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# 4: Use or create a sub-brand

• Use an up-scale descriptor

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# 4: Use or create a sub-brand

• Position as the value super- premium• Co-brand with a prestige brand

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# 5: Develop a new brand

Down-market move

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Drivers: down-market move

In maturing markets with weak growth or even decline, there is a need and search for growth – one way is the value market

Drivers:Price sensitive customers:• Perceived differentiation is reduced in favour for price

Value channels• New channels with different cost structure

New technology• New technology with lower cost structure

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Risks: down-market move

Brand is damaged:• Perceived quality is compromised

• Self-expressive benefits are reduced

• Risk of cannibalization

Offering is unsuccessful: • Falls short of expectations

• Perceived as high priced

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Brand strategy options: down-market move

1. Reposition a struggling premium brand down

2. Position the brand to work vertically

3. Separate the premium and value space

4. Develop a new brand

Let’s go through each of these 4 strategies

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# 1: Reposition a struggling premium brand down

• Consider down market re-positioning if the brand is third or fourth player in the category with few prospects of moving up

• Reposition a outmoded premium brand into the value space

• Reposition premium brand after an image-setback

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# 2: Position the brand to work vertically

• Avoid a value proposition focused on exclusivity and price

• Create a personality that can be effective at different price points

• Create a positioning/ pay-off that works at different price points

A mobile phone is something you wear

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# 3: Separate the premium and value space

• Use the value brand on different products or markets• Use sub-brands• Use endorsed brands

Reduce image setback Reduce cannibalization & protect the premium position

Provides more separation

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# 4: Create a new brand

• Different segment

• Different channel

• Different brand values

• Hidden brand links

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# 4: Create a new brand

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Summary

• Vertical extensions is one important brand strategy (brand portfolio strategy) in many mature market

• Up-market:

• Even though the customer base for super-premium brands is limited, almost all people search for self-expressive benefits, even in less exclusive categories -indulge at Starbucks

• Down-market:

• It is almost impossible for a company today to stay outside the value market, emerging powerful value channels

• A organisations existing brand architecture should be used in order to successfully conduct up-market and down-market moves

Case for discussion

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Case #1: Absolut Vodka

How should any additional vertical extensions for the following brand look like and why do you recommend this strategy in comparison to other alternatives?

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Case #2: Nokia

What is your opinion regarding Nokia’s up-market extensions using a second brand, Vertu, and what do you recommend as future extension strategy?

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Case #3: Porsche

What is your opinion regarding Porsche’s extension into SUV and coming extensions into 4-door sedan? Is it correct to extend the brand away from only being a sport car or not?

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Contact

Daniel Filipsson: daniel.filipsson@essen.se+46-70-184 01 51

Essen International ABKungsgatan 37SE-111 56 Stockholm, Sweden

Telephone +46 8 5030 01 00Fax +46 8 5030 01 01www.essen.se