At the end of the twentieth century, senior leaders believed that the more brands they had, the more their company would grow – with brand proliferation rife. Today, however, it’s a different story. Senior leaders have since realised that the majority of company profit is generated by a small number of brands, reflecting the 80-20 rule where roughly 80% of the effects come from 20% of the causes.
In response, many CEOs have reduced complexity by choosing which brands to support for growth by:
- Focusing on those brands that will deliver the greatest return today as well as in the future
- Merging together brands that are used by similar customer segments to address similar need states.
For example, between 1992 and 2002, P&G’s ten biggest brands – a mere 4% of the company’s total portfolio of over 250 brands – accounted for more than half of its profits and 66% of its sales growth. By 2014, P&G had reduced its brand portfolio from more than 250 brands to around 160. Then by mid-2015, P&G divested a further 93 brands – collectively accounting for only 10% of P&G’s total sales and less than 5% of its profits – leaving a portfolio of less than 65 brands to focus on.
When analysts asked why P&G was doing this, the CEO replied, "This new streamlined P&G should continue to grow faster and more sustainably and create more value’ as it would make P&G ‘a much simpler, much less complex company of leading brands that’s easier to manage and operate’".
Introducing the 6-step Brand Portfolio Optimisation Process
The 6-step Brand Portfolio Optimisation process identifies the optimal number of brands a company should have within a category, with the aim of maximising market coverage while minimising brand overlap. Where possible, redundant or unprofitable brands should be eliminated and successful brands repositioned and stretched to take their place.
6-step Brand Portfolio Optimisation Process
Step 1:
When optimising a company’s brand portfolio within a category, it’s important to assess the issue through the customer’s eyes by using a needs-based customer segmentation to identify
- How many different types of customers with differing needs there are
- The ability of one brand to stretch across the whole market to meet these differing needs
Do some customer segments require a different brand, either because they reject some of the brands in the market or because they are looking for a brand that stands for something specific? Or can a brand successfully stretch across multiple need states?
Step 2:
Once the needs-based customer segmentation is developed, the existing brands can be overlaid onto it with the aim of understanding
- Which customer segments use each of them today and why?
- Is each brand meeting similar or distinct customer needs?
- Are the brands on top of each other or spread out across the map?
f between them, the brands are successfully attracting different customer segments or meeting different customer needs, then it may make commercial sense to retain all of them. But if two or more of them are attracting similar customer segments to meet similar customer needs then it may be inefficient to retain all of them.
Step 3:
If two or more brands are on top of each other, it’s important to understand which brand is perceived as strongest at meeting the customer needs among the core target audience. For example:
- How many people are aware of the brand, or would consider it, or have tried it or are loyal to it?
- How appealing and distinctive is each of the brands in terms of brand image?
If one or more brands need to be eliminated, this helps to identify which ones have the strongest brand equity and so should be retained – and which ones are weakest and so should be eliminated.
Step 4:
The marketing team should then identify where future growth is most likely to come from. For example:
- Which future technologies, customer segments, usage occasions and purchase channels are likely to grow most in the future?
- Which brands can best support the growth in these future trends?
If one or more brands need to be eliminated, this helps to identify which ones will be strongest at supporting future growth and so should be retained – and which ones are likely to become increasingly obsolete and so should be eliminated
Step 5:
Once this analysis is completed, we get to the fun part. How can the team best reposition the brands to support the growth trends, with the aim of maximising market coverage while minimising brand overlap. For example:
- Are there brands that are on top of each other that are meeting similar customer needs and therefore can be merged?
- Are there brands that are on top of each other that are meeting different customer needs and therefore need to be pulled apart?
- Are there brands that are playing in an increasingly declining market that should be eliminated?
- Are there gaps that existing or new brands could successfully fill, to innovate into?
By systematically working through where each brand currently plays and where each should ideally play, marketers can identify the optimal number of brands needed going forward, and what each should stand for.
Step 6:
Finally, once marketers have locked down their optimal brand portfolio, they should optimise each brand’s name architecture. Strong sub-brands and variant names enable a brand to stretch across adjacent categories and need states, by making it easy for customers to identify the right product or service for them. This in turn increases the effectiveness of the brand’s marketing spend with each marketing pound supporting a wider product or service range.
In Summary
The 6-step Brand Portfolio Optimisation process enables marketers to help senior leaders reduce company complexity by focusing their scarce resources (both money and time) on growing fewer, bigger brands.
As part of the analysis, marketers should systematically work through which brands to:
- Prioritise investment in for growth
- Milk due to their strong profitability but low growth profile
- Merge due to their focus on similar customer segments and need states
- Divest due to being non-core
- Eliminate due to their future business performance being expected to be poor
Additionally, an intuitive name architecture enables brands to stretch into more categories and need states.
Authored by Ruth Saunders, Marketing, Brand and Customer Strategy Consultant
