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How far can a brand stretch?
by Alycia de Mesa
[bc.com, 23-Feb-2004]
While some consumers may view brands like Disney, which is applied from theme parks to credit cards, as a ploy for world domination, most investors and businesses will agree that attaching a parent brand to a new business outside the parent’s core expertise is simply a growth strategy for the purpose of larger financial returns.
Sir Richard Branson, long considered king of the über-stretch, has successfully wrapped his core Virgin brand (which began as a student magazine and small mail order record company in the 1970s) around everything from wine to bridal gear to travel and financial services. No matter what type of business it is, the autographed Virgin identity and/or signature red and white colors are prominently incorporated within the business unit’s visual identity.
Is this kind of coverage successful? With over 200 businesses comprising the Virgin Group brand, at the end of 2003, one-year revenue growth was 7.7 percent.
Courtney Reeser, managing director of Landor in San Francisco, believes that a significant part of Virgin’s success is attributed to understanding who its core constituents are. “The Virgin brand is built around an idea, and in general, brands that have a strong idea like that are ultimately more elastic. Even though they offer a lot of different things, they don’t really stray away from their core audience.”
Shelley Rosen, senior director of McDonald’s, agrees that ideas and understanding a brand’s core competencies can translate to elasticity. “General Electric has a portfolio of 21 different organizations from rocket engines to MRI machines to light bulbs because they did a lot of work on what their core competencies are. At General Electric that’s leadership… Selling leadership in everything they do. They have figured out how to replicate leadership whether they’re making MRI machines or rocket engines.”
Other companies such as McDonald’s may have enviable global brand recognition, but they achieved the highest echelon by being well known for just one thing. In McDonald’s case, hamburgers and French fries in a hurry has added up to a US$ 46 billion brand with one asset in the portfolio -- versus General Electric’s US$ 50 billion built around 21 companies.
Unlike GE, McDonald’s colossal success hasn’t stretched much beyond fast food. A few years ago, the corporate offices in Oak Brook, Illinois, began exploring new businesses -- including an experiment with the hotel and travel business.
Urs Hammer, who ran McDonald’s Switzerland, parlayed his 30 years of hotel business experience into a joint venture deal with McDonald’s in Switzerland. He created a McDonald’s train and McDonald’s airplane for family vacations and then launched a sleek, hip hotel primarily for business travelers, called the Golden Arch. The four-star modern hotel with minimalist design incorporating the golden arches and McDonald’s colors conveniently offered a McDonald’s restaurant next door.
But after less than three years of riding the corporate innovation bandwagon, McDonald’s is back focusing on its core business. “We decided not to scale it,” says McDonald’s Rosen. “The business model didn’t prove that there was a financial wealth opportunity there.” In plainer words, it didn’t work; the two Golden Arch hotels were acquired by Park Inns in August 2003.
Reflecting on the pitfalls of stretching a brand, Rosen cautions, “People tend to get excited about trends; they say ‘this is hot -- let’s go pursue it.’ They don’t ask themselves the questions like: are we good at retail, at hiring employees, or are we good at labor-less businesses? That’s why many of these ventures fail because they’re more excited about the idea and less excited about marrying the idea with what they’re really good at.”
Identifying and agreeing upon core competencies and the core essence of a brand, which are defensible and a part of the brand’s equity, are what many brand experts agree to be the basis for stretching a brand to new businesses. Rosen explains, “If senior management can’t agree on the core, they can’t expand the brand. There has to be a unified agreement at the senior level. You then have to spend the rest of your time in what you’re exploring, making those core competencies come alive.”
The other part of the equation is knowing when to stretch the brand and when to create a stand-alone brand that may or may not refer back to the parent brand. Many large companies, such as Disney, have successfully navigated these often costly waters.
“If you’re a publicly-traded company and you’re promising X amount to Wall Street, you have to ask yourself how you’re going to get there? Can I do it with my current brand or do I need to grow and stretch it? The whole thing, bottom line, has to be rooted in trust and authenticity,” concludes Rosen, “If you’re not yourself then people are not going to believe [the new offering].”
Back in the 1980s, Disney faced these decisions as it moved into adult entertainment markets. Ultimately, the Touchstone Pictures brand was created to make Disney’s venture into adult-theme films more credible and to prevent erosion of the Disney brand. Today the Walt Disney Company operates through four business segments: Media Networks, Studio Entertainment, Parks and Resorts and Consumer Products, which range from kids’ electronics to magazines, Disney-branded Bank One credit card and breakfast foods to personal care items. It all adds up to over US$ 27 billion in revenue for 2003. Each business seems to benefit from the Disney association, and in turn, the overall Disney brand does not suffer from any one revenue stream.
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