Brand architecture: building brand portfolio value

Michael Petromilli, Dan Morrison and Michael Million

Michael Petromilli is a Director and Dan Morrison and Michael Million are engagement managers with Prophet (www.prophet.com), a consulting firm specializing in brand and business strategy, headquartered in San Francisco. The authors, all located in the firm's Chicago office, can be reached by e-mail at: mpetromilli@prophet.com, dmorrison@prophet.com and mmillion@prophet.com

ne of the consequences of operating opportunistically in the boom years of the 1990s was the proliferation of products and brands. You developed a new Internet technology you launched it as a new product. You wanted to enter a new market you acquired a company with successful products. You needed scale you found a merger partner whose products and brands more or less complemented your line. Today, many businesses are paying the price of this opportunism with a collection of products, brands and businesses that ultimately overlap so much that they are fighting each other for customers and for corporate resources. Some are so unrelated to the core business that no one knows what to do with them. It matters less what is in the corporate portfolio when the economy is expanding rapidly and all new products and emerging brands seem to offer prospects of contributing to the creation of shareholder value. Assessing the portfolio takes on a decidedly new relevance, however, now that customers have less to spend and are scrutinizing every purchase, and looking harder to find the best partner and brand to fit their needs. Corporations must now ask, how should we allocate existing financial and human resources among our brands to grow shareholder value? As a result, branding is increasingly discussed during strategic planning session conversations among senior level decision makers and in boardrooms throughout the corporate world. That is because of the substantial impact a well-managed brand can have on the bottom line. Total Research Corporation's much-respected EquiTrend study shows that firms experiencing the largest gains in brand equity saw their ROI average 30 percent; those with the

largest losses in brand equity saw their ROI average a negative 10 percent. Where much of an organization's brand-building efforts once focused on acquiring, launching, or aggressively extending brands to expand the brand and business portfolio, today's focus is on trying get the most from existing brands through better organizing and managing brands and brand inter-relationships within the existing portfolio.

``By looking at their offerings from this customer perspective, the company could start developing a strategic brand architecture.''
Changing market dynamics and new business strategies have forced a critical re-evaluation of how the various pieces of the brand portfolio fit together or how they do not. The way these pieces are structured, managed and perceived in terms of how they relate to each other and add value to the organization is known as brand architecture.

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Strategy & Leadership 30,5 2002, pp. 22-28, # MCB UP Limited, 1087-8572, DOI 10.1108/10878570210442524

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Defining brand architecture Let us start by defining the term brand broadly as all the expectations and associations evoked from experience with a company or its offerings. Logos, taglines, advertising jingles, spokespeople or packaging are merely the representations of the brand. The actual brand is how customers think and feel about what the business, product or service does. Next we define brand architecture as the way in which companies organize, manage and go to market with their brands. Brand architecture is often the external ``face'' of business strategy and must align with and support business goals and objectives. And different business strategies may require different brand architectures. Two of the most common types of brand architectures are called the ``branded house'' and the ``house of brands.'' ``Branded house'' architecture employs a single (master) brand to span a series of offerings that may operate with descriptive sub-brand names. The sub-brands often add clarity and further definition to the offering. Market leaders like Boeing and IBM that seek to dominate entire markets and categories through a single, highly relevant and highly leveraged master brand typically employ the branded house structure. At the other end of the spectrum, ``house of brands'' architecture characterizes a group of stand-alone brands. Here, each brand operates independently to maximize its market share and financial return. In such an approach, the belief is that the sum performance of the range of independent brands will be greater than if they were managed under the banner of a single master brand. Examples of house of brand companies include General Motors, Viacom, and Procter & Gamble. Neither strategy is inherently better than the other, and some companies employ a mix of the two. Numerous competing companies like General Mills (house of brands) and Kellogg's (branded house) in the cereal business use the different brand architecture strategies effectively and successfully. The key to success is to have an overriding brand architecture strategy that is well defined and is grounded in and informed by a clear understanding of market dynamics, the brand strategies being employed by key competitors, and alignment with internal business goals and objectives. Analyzing brand architecture The first step in taking a more strategic approach to maximizing brand architecture is to first take stock of your brand portfolio and its individual brands as seen from the perspective of your customers. After all, it is the customer who ultimately determines a brand's success. Keep in mind, however, that customers experience brands interdependently rather than independently. Moreover, their views of brands change over time.

A customer builds a relationship with a brand through both direct and indirect experience, often within the context of exposure to another, related brand. Think of the woman who buys and reads Martha Stewart Living magazine, watches Martha Stewart's cable television show and then inspects her house wares line at Kmart. This customer eventually forms an impression of each product and the Martha Stewart brand overall.

``Today's focus is on trying get the most from existing brands through better organizing and managing brands and brand inter-relationships within the existing portfolio.''
Direct and indirect links or synergies between brands experienced in a similar context can present the greatest opportunity to increase the value of individual brands and of the overall portfolio. To achieve this requires a brand architecture that is based on the evolving set of relationships between the portfolio's brands. Less important than a brand's position in the portfolio is the way it can and does influence other brands in the portfolio. A customer perspective is the foundation for determining strategy for this brand architecture. It requires the brand management team to answer such questions as: & Which brands do customers perceive as being in our portfolio? & What relationships do customers see between brands in the portfolio? & Do customers transfer the value positive or negative that they see in one brand to others in the portfolio? (see Exhibit 1). Answers to these questions can only come from the marketplace and from current and potential customers themselves. These answers can be gleaned from a variety of sources. Market trend data, information from the sales force, advertising tracking studies, competitive analysis, and customer satisfaction studies are all data sources that are generally compiled by a company on an ongoing basis and that begin to answer many of these questions. In addition, customer focus panels, sales force inquiries, Internet surveys, and targeted qualitative research in the form of customer interviews and focus groups should supplement existing data sources and help to provide answers to these critical questions in both a time and cost-effective manner.
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Exhibit 1 Alternative branding approaches

Relationship mapping identifies opportunities to create value After taking steps to understand the customer context, the next step is to look at the brand portfolio as a whole (versus by individual brand or product categories) in order to identify potential opportunities to increase its overall value (see Exhibit 2). This is a process called ``brand relationship mapping.'' It is designed to reveal, as the name suggests, relationships between brands across the portfolio, where fits and disconnects exist and could be better leveraged (or not) to create more value to the organization. Most companies today use this process simply as a means to inventory, classify, and group existing brands in a portfolio. Strategically oriented brand relationship mapping, however, requires the brand management team to look more broadly at the brand portfolio to define: & brand relevance and credibility to address various customer needs; & perceived limitations that might inhibit brand and, thus, business growth; & brands that overlap and can be consolidated into others or divested; & gaps in the brand portfolio and the relative size of potential opportunities.
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Relationship mapping is the type of decision framework that is particularly valuable to businesses faced with the challenge of integrating new brands into the portfolio as a result of a merger or acquisition. It addresses such questions as: & Does the acquired brand support the company's brand vision and strategy? & Does the brand strengthen the company's presence in existing markets or allow it to enter new markets? & Does the brand, in relation to others in the portfolio, add or enhance perceived value to customers? The strategic relationship mapping process described above uncovers opportunities to enhance the value of an organization's brand portfolio. But can and should those opportunities be acted on? And how? To get at these decisions requires measuring these opportunities against three distinct, but inter-related criteria. These are: & The perceived or potential credibility of the brands in that space the perceptual license. & Whether or not the organization currently has or can develop competencies in that space the organizational capabilities. & Whether the size and current or potential growth of the market is significant enough to merit exploitation and investment the market opportunity.

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Exhibit 2 Brand relationship mapping

When opportunities fit against all three parameters, you have what is known as the ``sweet spot.'' These are the types of opportunities that are most often identified and pursued through traditional brand architecture and management. The best brand builders have capitalized on expanding, over time, their opportunities to develop brands that align with all three criteria. This has allowed them to extend the relevance of existing brands while adding new capabilities that capitalize on emerging market needs and opportunities. For example, Clorox bleach has effectively taken advantage of its operational capabilities and brand associations of safe, powerful cleaning to expand its franchise from the laundry room to the bathroom and more recently to the kitchen, with the introduction of Clorox disinfecting wipes and its new kitchen floor scrubber. More innovative techniques for integrated strategies But what approach should be taken with opportunities that do not meet all three criteria? Some situations require integrated corporate branding strategies. These may yield the greatest, long-term value for the brand, the brand portfolio as a whole and for the business in terms of added growth and all that comes with it. But they are often overlooked in traditional brand management settings where the focus is on individual brands, and all too often initiatives

designed to enhance the value of the entire brand portfolio are not rewarded. Mining the value of opportunities where perceptual license, organizational capabilities, and marketing opportunity do not neatly intersect may require innovative branding techniques such as: & ``Pooling'' and ``trading''. These are two branding strategies that help strengthen relationships between disparate brands in the portfolio. Brand pooling puts multiple and distinct brands in a portfolio to work in a concerted way to address a spectrum of consumer needs. Each brand in the portfolio possesses unique equities and provides its own set of values to the customer. But it is by ``pooling'' the benefits of the collective brands that the portfolio gains its strength: achieving greater relevance to a broader market, and making the most of cross-selling and loyalty-building opportunities across the brands in the portfolio. Thus, pooling creates top-line growth by generating greater revenue, and bottom-line growth by achieving greater efficiencies across the portfolio of brands. The architecture of Procter & Gamble consumer product brands is an example. Procter & Gamble has leveraged its manufacturing capabilities to develop a host of laundry detergent brands Tide, Cheer and Gain. Each targets a different segment of the market
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and offers different benefits, but Procter & Gamble has ``pooled'' them together by presenting the entire portfolio to the trade in order to capture more shelf space and ultimately, gain additional market share. In the ``trading'' strategy, two or more brands are used together in an effort to trade off each other's values. This approach helps fill gaps in a portfolio and can also create a combined offering with value that a single brand could not match. For example, Disney effectively utilizes trading to support its ``wholesome family entertainment'' brand identity. The Disney master brand is used and creates value in its sub-brands, whether they are Disney World, Disneyland, or the Disney Stores. Each sub-brand has its own value, as fun theme parks or shopping destinations. But they also benefit from the halo effect of the Disney master brand associations. Identifying opportunities for pooling and trading between brands in the portfolio enables more costeffective and higher-returning investments. More traditional brand-building approaches focus on managing brands and brand investments individually and focus on returns being delivered from investments in brand ``A'' and brand ``B'' individually. In contrast, pooling and trading enables investments to be better directed across brands, resulting in collective returns that are greater than the sum of the individual returns. & Branded partnerships. While this branding strategy is less risky than creating or acquiring a new brand to fill a gap in the portfolio, it still requires careful selection and planning. Branded partnerships are designed to enable a brand to extend into markets where it would not be perceived to have a strong presence on its own. By partnering, one brand's attributes and benefits complement and add to those offered by another. Trek and Volkswagen employed the strategy effectively by offering a Trek bike and bike rack with the Jetta. The upshot for Jetta was a 15 percent jump in sales and a reinforcement of brand perceptions such as ``fun'' and ``sporty.'' It is important to avoid the pitfalls of this strategy by ensuring that the approach addresses the needs of the customer. Too many organizations have gotten caught up in partnerships that were more focused on capitalizing on a trend than on filling a real gap in their portfolios. From a financial standpoint branded partnerships provide a highly cost-effective, non-capital intense, and relatively low-risk means to take existing brands into new markets or categories and thus generate new revenue and profit streams. If successful, branded partnerships can provide an effective base on which to formally extend existing brands with a moderate and gradual level of investment. If they prove unsuccessful or are no
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longer strategically aligned or desired, they provide the ability for rapid and low-exposure departure from a category. & Strategic brand consolidation. Opportunities to consolidate the number of brands in a portfolio can emerge after a strategic evaluation of the structure and relationships between all the brands (taking into account the customer's perspective). This analysis is weighed against the contribution of these brands to the bottom line and the company's overall strategic objectives (see the case example, ``How a leading software company applied brand architecture principles''.) Streamlining the portfolio benefits the company and customers alike by creating an opportunity for more efficient allocation of organizational resources and by creating more compelling and beneficial brands. Strategic brand consolidation is an area that can deliver immediate and significant benefits to the top and bottom line. Eliminating or consolidating brands that are inherently weak or non-strategic within an existing portfolio should lead to direct cost reductions from savings in areas as diverse as marketing (reduced support costs), manufacturing (fewer runs), materials (fewer parts, paint, etc.), and distribution (fewer SKUs). & Brand acquisition. Since most M&A activity is focused on achieving bottom-line growth, few businesses think about applying brand relationship mapping principles to the potential acquisition. As a result, many acquisitions add to brand proliferation and market confusion instead of achieving new brand synergies and brand value creation. However, if brand strategy is brought into the discussion before the deal is finalized, a mergers and acquisitions strategy can fill the gaps and expand the relevance and reach of brand portfolios. Household product manufacturer S.C. Johnson is among the forward-thinking companies that have used well-defined brand architectures and strategies to consistently guide the selection, integration and leverage of new brands and businesses. This is exemplified by its approach to purchasing the Ziploc brand. Prior to pursuing the Ziploc opportunity, Johnson first defined how that brand would potentially complement its existing portfolio, where future brand synergies and consolidations could lie, and what stream of related new products could help drive growth and redefine the brand's role within the overall brand portfolio. & New brand creation. This should be the last option considered when seeking to fill portfolio gaps and maximize portfolio value. It should only be considered when other strategies to use brand to create value are not viable. Creating a whole new brand is both risky and expensive. Even the renowned brand-builder Procter & Gamble has focused on other approaches, believing the

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expense of creating new brands would leave it with inadequate resources to fund, support and grow its current portfolio. Sometimes, however, brand creation may be the best or most viable means to help an organization meet both business and brand portfolio objectives. In this case, the new brand's development and launch should combine traditional brand management approaches with principles of strategic brand architecture designed to support the value of the whole portfolio. This requires evaluating the new brand's role within the context of the existing brand portfolio. Issues to consider are: how well it complements and is supported by other brands; where opportunities lie to create synergies between them; and how these will enhance the overall portfolio's value (see Exhibit 3). Coca Cola, for example, saw that it was missing out on a significant opportunity in the bottled drinking water category. Evian water had gone from a niche product to a category creator and Coke was left on the sidelines until it developed its Dasani brand of water. By leveraging its distribution capabilities and trade relationships, Coca Cola quickly created the second largest bottled water brand. Despite the drawbacks of this approach, it is often the only viable option for capitalizing on new value creation opportunities. As the case with Dasani and numerous other brand launches, if
Exhibit 3 Assessing brand choices

done in a strategic manner and planned and supported well, the payoff and returns can be significant. The need for new mindsets, guidelines Brand management must take a more strategic role that emphasizes the portfolio-wide approach and the businesswide implications of brand-oriented decisions. Category managers in multi-brand companies must assume a more active role in the brand strategy, taking on ownership of the brand portfolio and management responsibilities for the brand architecture. They should be intimately familiar with the equities of each brand, as well as the relationships between them. Further, brand managers must be given financial incentives to ensure their perspectives and decisions support the optimization of the entire portfolio and, thus, the entire business' performance. Such changes require guidelines that articulate the brand strategy and approach, how different types of brands will be leveraged, the role each plays in the portfolio, their equities, and how they inter-relate with each other. At the same time, it is necessary to establish what exceptions will be allowed, helping to establish clear criteria while removing subjectivity and emotion from the decision-making process. Finally, it is extremely difficult for managers focused on a single brand to gain the broader perspective of the brand portfolio. To this end, a brand council should be formed as a forum to team brand managers, category managers and

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other, non-marketing, senior-level decision-makers to oversee the performance of the brand portfolio and to ensure that guidelines are being upheld. A dynamic, forward-thinking brand architecture may well be one untapped source enabling organizations to get more from their existing brands and derive real value from those that they acquire. When managed strategically and used as a structure to anticipate future business and brand needs, concerns, and issues, brand architecture can be the critical link to business strategy and the means to optimize growth opportunities and brand portfolio value. And achieving such benefits may well be the means for competing and winning in the long term.

& How many different products do the customers want offered to them? & Do customers understand the value proposition of 200 products? & Does the current organization of the brands reflect the customers' perspective? Raising these questions helped the company understand its customers' needs and how the brand portfolio could be structured to provide the most value to them, and to the company itself. The answers came from a careful analysis of research that segmented the company's markets vertically by industry. It was based on such parameters as the size of the target company and sophistication of its IT organization. This type of outside-in market segmentation is particularly crucial to high-tech innovators where products often evolve from technological breakthroughs rather than customer needs. A final analysis studied three key issues to ensure alignment of the brand architecture strategy with strategic business imperatives: & Selling enterprise solutions (or bundled ``suites'' of products) versus single-product ``point'' solutions. & Managing partnerships and alliances. & Managing new products and services. The result was a new brand architecture that allowed the company to sell both point products and suites of products. It also provided a structure against which brand extensions could be planned and acquired products could be more effectively integrated. Finally, it reflected the company's strategic imperatives. To facilitate implementation of the brand architecture strategy, the company adopted a set of tools. The three primary tools were: (1) Brand approval process. (2) Brand architecture decision framework. This essentially organizes the brands in the portfolio in a logical fashion, answering such questions as: & Should a product/suite solution/service be its own brand? & What brands should be supported? & Which should be divested or absorbed into another? (3) Naming guidelines. Particularly for complex brand architectures, the guidelines help managers quickly and efficiently select a brand name from a pre-approved list. To better meet its customers' needs, the company reorganized into several strategic business units. It can now deliver the complete software solutions its customers want. Furthermore, it has minimized overlap among brands and achieved more efficient allocation of its resources by consolidating and divesting brands within its portfolio.

``Strategic brand consolidation is an area that can deliver immediate and significant benefits to the top and bottom line.''
Case: how a leading software company applied strategic brand architecture principles A leading software provider grappled with the challenges of managing a complex mix of more than 200 product and service offerings that had resulted from aggressive growth. The company recognized that it needed to better organize, prioritize and distinguish its brand portfolio because its sales force could not effectively sell such a large number of branded products. Nor could its customers keep track of them. For its first attempt at organizing its portfolio, the company adopted a product indexing approach that segmented its offerings into three categories based on functional product benefits. Each of these categories had a group brand name that described its product mix adequately. But, the names bore little relation to customer buying decisions the critical information required to shape strategic brand architecture. Research showed that the company's customers buy software by platform (mainframe or open systems) and by activity or usage. By looking at their offerings from this customer perspective, the company could start developing a strategic brand architecture. The first step was to assess the brand equity that is, the monetary and perceived value of the portfolio's major brands and sub-brands. Key questions that needed answering: & What do the brands and sub-brands stand for? & How are the products viewed from an external and internal perspective?

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