Our experience with Fortune 500 companies has shown that most have more brands than they need to effectively serve their customers. This is often a result of acquisitions, ingrained management beliefs and organizational silos that prevent the development of a comprehensive view of the business. Having too many brands in a portfolio means assets are underleveraged and under-resourced, leaving companies vulnerable to more focused competition. Does this sound familiar?
The solution is to identify and prioritize the most powerful brands in a portfolio, explore and select the optimal orientation for each and assign the roles and resources required for each brand to meet its objectives.
Brands vs. Brand Offerings
Unfortunately, many companies confuse offerings with brands. Offerings have a minimal level of connection with customers and can sometimes be called brand extensions. Brands, in contrast, promote an emotional connection with customers, and build associations and expectations around their offerings. Examples of brands that have effectively leveraged their relationships with customers to expand their offerings include Dove (Men+Care and Baby Dove) and Tide (Tide Spin).
Step 1: Identify the Most Powerful Brands in a Portfolio
So how should marketers begin prioritizing brands in a portfolio? By looking at the strategic intent and financial performance of each.
Revisit Strategic Intent
Strategic intent usually offers the greatest insights about the future of a brand. It allows you to identify which brands have a clear, strategic role in the portfolio today, or importantly, could have one in the future too. Key questions include: Which brands have a clear target segment? Which brands have the potential to extend into other categories or markets? Which brands play a key offensive or defensive role?
Evaluate Financial Performance
Then, identify the brands that are important contributors to financial performance. Revenue figures typically help 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 input about key financial roles of secondary brands within the portfolio.
Applying both these lenses will help you identify which brands should be prioritized in the portfolio (strong financial performance and clear strategic intent), which should be rationalized (weak financial performance and lack of strategic intent) and which ones require further analysis.
The “Gray Assets”
While identifying the strong and weak brands is relatively straightforward, the real opportunity is to determine what to do with “gray assets,” those that have strong financial performance but weak strategic intent or vice-versa. The best way to understand the potential of these brands 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 future role in the portfolio.
Step 2: Define Brand Portfolio Solutions
Once the most relevant brands have been identified, the next step is to establish brand portfolio solutions that respond to the needs of target customers in the market. To create these solutions, ask yourself the following questions: How are the 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? Are there strong brands that could expand cross-category or regionally to drive growth?
It’s true that driving commercial impact is the silver bullet in identifying the winning brand portfolio strategy. But we have found that customer preference, purchase intent, and the ability to attract new customers or increase loyalty are also metrics that can be used to determine a brand’s 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. This has been a traditionally difficult decision for executives, who are always concerned about the impact of giving away brands to competitors. But consider the following: marketing behemoths such as P&G have taken significant steps to reshape their portfolios in the quest for profitable growth.
Most recently, Newell Brands announced a decision to sell off assets equal to about 10% of its portfolio, which came to about $1.5 billion of total 2015 sales. “The combination of Newell Rubbermaid and Jarden has created a unique platform for transformative value creation and the actions we are taking to reshape the company will unlock this opportunity, bringing greater investment and growth to our highest potential categories like writing, home fragrance, baby, food storage & preparation, appliances and cookware, and outdoor and recreation,” Newell President Mark Tarchetti said in a statement.
Step 3: Establish a Brand Portfolio Roadmap
Once the portfolio solution has been defined, a brand 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 requires an overarching view of the portfolio and the commitment of management teams to potentially change traditional ways of going to market. Successful efforts are often led by an empowered CMO with enough influence in the organization to make the tough decisions, and generate buy-in of the resulting brand portfolio strategy.
Organizations often have too many brands to serve their customers. An opportunity exists to do more with less by reevaluating the brand portfolio strategy.