LABREPORT | JAN. 2008
Multi-Brand Strategy in the Modern Market
We all know that our lifestyle is filled with a large number of branded products, but you may not realize that many of the most commonly used product brands—Crest
toothpaste, Pantene shampoo, Gillette shaving cream, Pringles potato chips and Duracell batteries—in fact belong to one company, in this case Proctor & Gamble (P&G). It has become very common for a company to have a portfolio of multiple brands, but what is the advantage of adopting a multi-brand strategy in today’s market?
Looking at several multi-brand companies, we can see that most exist in the B2C industries. For instance, this phenomenon can be observed in FMCG, cosmetics, automobile, as well as pharmaceutical fields. The following graph shows examples of companies in these industries, as well as their brands:
Compared with B2B industries, companies in B2C industries pay more attention to market segmentation. Market segmentation is a good way to increase the company’s influence to consumers who make purchasing decisions based on factors which vary drastically from one consumer to another. It would be difficult for one brand to position itself to match this variation and still maintain a strong brand identity. Therefore, by diversifying its brands, a company can fill multiple market positions to maximize relevance to the consumer. P&G achieves this by having multiple shampoo brands: Head & Shoulders provides dandruff control, Pantene promotes healthy hair, and Sassoon aims to provide a professional salon experience.
From the brand management perspective, having multiple brands is a portfolio strategy which can maintain the continuity of profit-generating activities. The BCG Matrix model (pictured below) is based on the two indexes “current market share” and “market growth potential”. The brand portfolio of a company can be divided into four quadrants with each part representing a function. Using the example of L’Oreal, we will use this structure to illustrate the multi-brands practices.
- Cash cow: a “cash cow” brand possesses a large market share, but its market growth potential is limited. In this case, the reputation of the brand has been established and the brand is profitable. The optimized choice is to maximize the current revenue from the brand.
- Star: a “star” brand possesses a large market share, and at the same time, its market growth potential is promising. Like the name, this kind of brand is the star of a company because it has high positioning and generates high revenue. A “star” brand is a good indicator of a company’s activities and profile. For L’Oreal, Lancôme is the star because it occupies a leading position in the premium cosmetics market.
- Dogs: “dogs” are brands lacking both market share and growth potential. This kind of brand is usually in the later stages of its brand-life, and should be removed from the market as soon as possible.
- Wildcats: a “wildcat” brand has a small market share but good growth potential; it has the potential to become a “star” or a “dog”. To help the brand become a star, the company should increase advertising and promotional activities. For L’Oreal, Shu Uemura can be viewed as a “wildcat” in the China market.
- The BCG Matrix model expresses the dynamic process of a brand’s life. Every brand has it own life: growth, maturity, aging and death. By having multiple brands, the company can offset the negative effects of its unprofitable brands.
It is important to note that having a large brand portfolio is a strategy best used by larger companies, as using this strategy means confronting higher risks which a small company cannot bear. If the company’s brands in the same market are not positioned clearly, competition between these brands will only harm the company. Cost control is another key problem here. Obviously, the more brands there are to manage, the higher the costs. For this reason, many prudent companies prefer brand extension (extending a brand from one market to another) over multi-brands management.