Economy Spells Opportunity to Evaluate Brand Portfolio

The year 2008 will be remembered as one of the worst in history from an economic perspective. Declining home values, the S&P plummeting close to 40 percent and poor corporate results all marked the second half of 2008. The good news is that 2008 is over. The bad news is that 2009 doesn’t look as though it will offer the relief that we are hoping for.

Companies that are successful over the long term are those that use this turbulence to rethink and optimize their businesses and portfolios in preparation for the recovery that’s sure to come. They will take a hard look at their assets and make tough decisions to maximize return on investments. Brands are no exception and should be reevaluated on an ongoing basis.

Our experience with Fortune 500 companies has shown that most companies have more brands than they need to effectively serve their target customers. This is typically a result of acquisition strategies, engrained management beliefs, lazy marketing and organizational silos that prevent the development of a comprehensive view of the business. Too many brands in a portfolio results in assets that are underleveraged and under-resourced, leaving companies vulnerable to more focused competition.

The solution is to identify and prioritize the most powerful brands in the portfolio, explore and select the optimal orientation for the portfolio, and assign the roles and resources required for each brand to meet its objectives.

Unfortunately, many companies think of their offerings as brands, when in fact it is often the case that they are just offerings, which we define as having a minimum level of connection with customers, such as limited awareness and loyalty. Brands, in contrast, have and promote an emotional connection with customers and build a set of associations and expectations around their offerings. The key is to focus resources on the brands that have a true connection with target segments. Examples of brands that have effectively leveraged their relationships with customers to expand their offerings include Iams (pet insurance) and Tide (To Go stain removal pen).

Two lenses should be applied to begin prioritizing the future brand portfolio: strategic intent and financial performance.

Strategic intent usually offers the greatest insights about the future of a brand. This lens allows you to identify which brands have a clear, strategic role in the portfolio today or, importantly, could have one in the future. Key questions include: Which brands have a clear target segment and associated value proposition? Which brands have the potential to extend into other categories or markets? Which brands play a key and well-defined offensive or defensive role?

Then identify those brands that are important contributors to financial performance and/or have exhibited strong growth. Revenue figures typically tell the story and guide the prioritization of brands from a financial perspective. For example, in a recent engagement with a leading CPG company, we found that close to 70 percent of the company’s revenues were driven by 25 percent of the brands in the portfolio. While EBITDA figures shed additional light on brand performance, they also provide direction and serve as input to inform key financial roles of secondary brands within the portfolio.

Applying both lenses helps identify those brands that should be prioritized in the portfolio (strong financial performance and clear strategic intent), those that should be rationalized (weak financial performance and lack of strategic intent) and others that still require further analysis.

While identifying the strong and weak brands is relatively straightforward, the real opportunity is to determine what to do with grey assets—those that have strong financial performance and weak strategic intent, or vice versa. The best way to understand their potential is to look at them as part of the overall portfolio rather than as individual assets. Often the interdependencies with other brands and the resources allocated to them or their category can explain their current performance and/or delineate their potential role in the portfolio.

Once the most relevant brands have been identified, the next step is to create a set of brand portfolio solutions that respond to the needs of target customers in the market. How are brands aligned with customer segments? Are there customer segments that are being underserved? Are there brands that are overlapping in terms of what they offer to customers? Are there strong brands that could expand cross-category or regionally to drive growth? Just recently, for example, Toyota announced the development of a fourth brand in its portfolio to expand into the ultra-affordable car segment in developing economies.

In a recent client engagement, we used quantitative research, such as customer segmentation and brand equity analysis, to create three alternative portfolios: one based on very few, large megabrands spanning across categories, another based on a few strong category-specific brands, and one that just trimmed down the number of brands in the portfolio.

What serves as the silver bullet in identifying the winning portfolio strategy is an estimate of commercial impact. While the ultimate metric is usually sales and/or profitability, we have found that customer preference, purchase intent, and ability to attract new customers or increase loyalty are among the metrics that can be used during research to determine brand potential.

When you evaluate your brands and “offerings” as a portfolio, you may identify the need to divest brands to meet your strategic and financial objectives. Most recently, for example, Procter and Gamble sold its Folgers business to J.M. Smucker for US$ 3.3 billion. P&G chairman and CEO A.G. Lafley explained the move: “Strategically, P&G has exited certain categories in order to focus on our core businesses and enhance the growth profile of the portfolio.”

Once the portfolio solution has been defined, a portfolio roadmap must be established to clearly outline the roles and priorities of each brand during the transition. Which brands will be invested in? Which brands will fund the growth during the implementation? What impact does this change have on the organization, both internally and externally? How will marketing investments be realigned to support the strategy?

Answering these questions as part of a brand portfolio journey should not be taken lightly. To be successful, a team with representation of all major geographies, product categories, brands and customer segments needs to be assembled to have a comprehensive view of the business. The effort should be led by an empowered CMO with the influence in the organization to drive to the tough decisions as well as generate buy-in of the resulting brand portfolio strategy.

There’s no argument that the current economic climate is extremely challenging. But as President Obama’s Chief of Staff Rahm Emanuel puts it: “You never let a serious crisis go to waste…it’s an opportunity to do things that you could not do before.”