DRIVING FORCES

One basic force behind the increased sensitivity to value and price is overcapacity created by the combination of new competitors and fairly static markets. The new competitors come in part from brands being extended from adjacent product classes, brands entering from other markets (notably from other countries), and new or revitalized store brands that are now often competitive in quality. Because they often introduce parity products without innovative, distinctive value propositions, the new entrants, as well as the struggling third-or fourth-place brands, are forced to emphasize price promotions and sales events instead of product. As a result, customers come to believe that the brands are not very different; brand loyalty erodes, and customers focus on features and price. As fewer and fewer customers are willing to pay the historical brand premium, market share starts falling (sometimes dramatically) for those who maintain their price levels.

A second driving force is the retail environment created by new channels that typically have a lower cost structure, engage in aggressive price competition, and freely use private-label goods. New specialty superstars such as Home Depot, Circuit City, and Tower Records leverage their singular buying power for consumers interested in an individual product category. Warehouse clubs such as Price Club are major factors in categories ranging from food to computers. Direct marketing has exploded in the past decade, often providing considerable cost savings to participants. Dell and Gateway, for example, became two of the top five players in the computer market by selling directly through ads placed in computer magazines and catalogs. Customers were supported over the phone by a staff of technicians backed up by third-party service organizations for the rare cases when they were needed. With prices one-third less than IBM and Compaq, they forced these leading firms to change strains and forever altered the face of computer marketing.

A third driving force is technological change. A new market for a product can be introduced because of new technology; examples might be disposable razors and single-use 35mm cameras. Technological change can also influence the cost structure, as brands emerge are simpler and cheaper, creating new price points. When this phenomenon happened in food processors, the inability of Cuisinart to keep up led to Black & Decker and others taking over.

These forces represent a major paradigm shift. The old assumptions do not hold any longer, and there is enormous pressure on participants at the low end. For example, John Deere makes a lawn actor that sells through full-service dealers. Although the price points in that channel have not eroded, a large and growing portion of the market is now being served by volume retailers such as Home Depot. This new channel features products being sold at half the price that John Deere commands. Thus John Deere must either find a way to participate in this new channel or accept a declining share of the market. The problem that John Deere and many others face is how to make this transition without damaging the brand's accumulated brand equity.

MOVING DOWN IS EASY; PROTECTING THE BRAND IS HARD

Mountain bikers discover that going down, while much easier than going up, usually creates a challenge of recapturing the vertical. Like mountain bikers, brands move down easily (if sometimes inadvertently), and they find that there are problems and challenges created by getting to the bottom. The biggest challenge is to avoid harming the brand, particularly in terms of its perceived quality associations. The problem is that moving down affects perceptions of the brand perhaps more significantly than any other brand management option. Psychologists have documented the fact that people are influenced much more by unfavorable information than by favorable information. Initial negative information about a person, for example, is very resistant to subsequent positive information, whereas an initial good impression is quite likely to be altered by subsequent negative interactions. The use of negative political ads is an illustration of this principle at work.

Similar results have been found in more traditional marketing research contexts. For example, Motley and Rudy presented consumers with repositioning statements for Saks (a prestigious department store) and for Mart (a discount department store). [footnote omitted] The statements described the store as either very upscale, very downscale, or in between. Results indicated that attitudes toward Mart were not affected by the statements, even when the store was described as very upscale. In contrast, attitudes toward Saks were influenced by both the downscale depiction and the in-between portrayal. In a related study, Arndt found that negative word of mouth had twice as much impact on purchase intentions as did positive word of mouth. [footnote omitted]

Downward Movement Need Not Be Fatal to the Brand

It should not be assumed that a downward entry is always too risky. If the new product can be made distinct from the parent brand through the use of a subbrand and other devices, the risk can be reduced. Sony's apparent ability to operate at the high end with some products (such as televisions and the Walkman) and at lower price points with others (such as audio products) suggests that consumers can compartmentalize perceptions. There is further evidence from laboratory studies involving consumer products that people can insulate parent brands from extensions, even when the latter reflect lower quality levels or have quality problems.

For example, Keller and Aaker found that the perceived quality of a brand of potato chips was not affected by its extension to cookies or ice cream, even when the extension was described as poorly accepted because of taste and texture. [footnote omitted] Similarly, in a study involving the extension of a fruit juice brand into sherbet, Romeo found being exposed to an unfavorable evaluation from Consumer Reports of the sherbet did not hurt the fruit juice brand's perceived quality (although perceptions were affected by unfavorable reports about a line extension to the fruit juice brand). [footnote omitted] In another study, Betty and Zoomer found that extending Sony and Becky to low price/quality points did not affect attitudes toward the parent brand. [footnote omitted]

The key to reducing the brand risk is to distinguish the new context from the original category. Liken and John found that an extension of shampoo to an inferior tissue product did not affect the perceived quality of the shampoo, but only if respondents were first asked if the extension was representative of the brand. [footnote omitted] The implication is that customers can separate the brand's identity into two product classes, but they may need help doing so. If the extension is far afield (such as Coca-Cola to clothes), the risk of transferring negative quality impressions is reduced; of course, though, there is also the risk that the brand will not contribute anything positive in the new context and may even make customers feel uncomfortable.

A brand should indeed guard its equity and, in particular, its perceived quality. The bottom line, however, is that a brand can take some risks. A strong brand is resilient and can stand some extension difficulties, especially if the extension has some degree of separation. The question then is what is the best amount of separation? What will protect the brand but still work?

The Risk of a Stand-Alone Brand

Although the creation of an entirely new brand will result in the ultimate separation and protection of the core brand, it does not guarantee success. IBM created such a brand, Amber, with its own separate organization to compete with mail order firms. The brand Source its products in Asia and was marketed in Europe and the United States. Less than two years after its introduction, though, Amber was killed. In retrospect, IBM should have found a way to use its own name, one of the strongest brands in the United States and Europe. Creating a new brand at any level with credibility is most difficult, as the Amber case rather graphically illustrates.

DROPPING THE PRICE AND MAINTAINING QUALITY PERCEPTIONS

Perhaps the most direct approach to moving a brand down is to lower its price. Marlboro, Budweiser, and Pampers are among the brands that have recognized that their equity will not support a large price premium in the face of price-oriented competitors and powerful retailers. Thus they have "value priced" their products to make them competitive. However, although consumers have begun to question higher-priced brands, the reality is that the price point is still a positioning cue. A sharp price reduction can indicate to customers that as they may have begun to suspect the brand really is not different from any other brand, and is therefore of average quality.

If the brand has lost all credibility in terms of offering a different or better product, dropping the price is a risk-free strategy. When Schlitz, for example, saw its sales fall to less than 1 million barrels from more than 17 million barrels, it had nothing to lose by being associated with a lower price and occupying a solid position in the price brand category.

Many brands, however, still retain a very worthwhile market segment at the premium end of the market. Further, they offer premium quality or features that prevent them from obtaining cost parity with their new competitors. If these brands wish to move down, it is therefore important that they retain some quality differentiation. The challenge then is to start competing at a new price point without repositioning the brand as a lower-quality price brand.

The key to adjusting price while retaining a quality position is to convince retailers and customers that the change does not reflect a different quality level. Procter & Gamble, for example, reduced prices in the context of an everyday-low-price program that it presented as a new way of doing business. The company emphasized that consumer and trade promotions had led to channel inefficiencies for the retailer, as well as confusion and bother for the consumer. By offering an everyday low price, P&G reduced the incentives for retailers to engage in such costly practices as diverting (buying a product on deal, shipping it across the country, and warehousing it for months) and forward buying (buying for inventory to take advantage of a trade deal). The new pricing policy also helped to reduce costs in ordering, warehousing, and logistics systems. As a result, the price reductions were perceived as a part of a larger coherent strategy.

In contrast, consider the move by Marlboro to abruptly drop prices on its flagship brand in the face of falling market share. The move may have been strategically wise, but it was perceived by some retailers and customers (and shareholders) as a panic reaction and thus cast a cloud over the brand's equity. The dramatic price reduction was not supported by the kind of logical strategic reasoning offered by P&G, so consumers and retailers used their own logic to explain the drop. Of course, the Marlboro brand is so established and strong that it is difficult to damage. The fact that the price cut did reverse the fall in market share is an indicator that the brand is strong bat had become overpriced.

THE USE OF SUBBRANDS

Subbrands such as Kodak's Phantom film have the potential to permit entry in an emerging low end without threatening the parent brand's equity in the higher ranges of the market. There are two problems, though, with adding subbrand offerings that use the premium brand name at a lower price point. The first is possible cannibalization, in that buyers will shift to the cheaper version; the second is the risk that extending the brand down will taint the brand name.

The job of the subbrand is to reduce these risks by distinguishing the downscale subbrand from the parent brand. In one study, Aaker and Markey explored a toilet paper extension from Kleenex and a low-calorie orange juice from Snapple Fruit Drinks. [footnote omitted] In each case, an inferior extension (a hard, coarse toilet paper and a watery orange juice) affected attitudes toward the parent brands unless a subbrand was used. The subbrand served to insulate the parent brand from the inferior performance of the extension.

In computers, IBM, Compaq, and even Dell, the premium mailorder house, have used subbrands to provide entry at a lower price point that had become the heart of the market. The Compaq Praline computers, the IBM ValuePoint line, and the Dell Dimension line are all subbrands that distinguish less expensive lines from the rest of the offerings. Of course, there is still cannibalization; being able to buy a lower-priced computer with the endorser name is attractive and will certainly appeal to some who would have bought the original brand instead. Further, the distinction between the economy lines and the other lines is sometimes fuzzy. The subbrand signals, however, that it does not possess the features and quality of the lines positioned above it. Moreover, those who move from the premium brand to the subbrand might otherwise have been attracted to the value brand of another manufacturer, so that what seems like cannibalization is actually strategic brand protection.

In contrast, Gap stores a successful retailer of distinctive casual clothing--backed away from a subbrand because of cannibalization and image dilution issues. In 1993, Gap faced competitors who were targeting value-conscious customers by offering Gap-like fashions at prices that were 20 to 30 percent lower. To compete against this threat, Gap tested warehouse- style outlets called Gap Warehouse that sold a broad array of clothing at competitive prices. The problem was that the clothing was too similar to what was sold at the Gap. As a result, a decision was made a year later to change the name to Old Navy Clothing Co., with Gap relegated to a much less prominent endorser role at the outset and scheduled to disappear entirely over time.

The risk to the brand is much lower when the extension is qualitatively different from the parent. For example, Gillette has historically meant quality, innovative razors for men. Believing that a position in the growing disposable razor market was crucial, Gillette launched the Gillette Good News line. The subbrand younger, lighter personality contrasted with the masculine/macho Gillette persona and played a key role in distinguishing the disposable brand from the rest of the line. The fact that the Gillette Good News disposable was a premium entry in the disposable category also helped to reduce the potential damage to the perceived quality of the Gillette brand.

DESCRIPTIVE SUBBRANDS FOR VALUE POSITIONING

The name and logo of a subbrand can assist in signaling a lower-level product. By containing the word value, IBM ValuePoint suggests that it is a low-end addition to the IBM line. Stanley's Professional and Thrifty subbrand names clearly position the two lines. Masterlock has a "Lockers and Bikes" line (of lighter locks) as well as a "Sheds and Gates" lock. Fender makes high-quality electric guitars that sell for $1,500 to $3,000, but they also have a "Starter" electric guitar priced at $199. A brand may also use a series of numbers to denote clearly where in the quality/value spectrum the products fit. For instance, the 100 series may be qualitatively larger and superior to the 90 series and the 70 series.

WILL THE IDENTITY STRETCH?

One concern is whether the brand has an identity that can span the vertical line definition or whether the identity is compromised by new entries at the low end. BMW's 300 series (the smallest and least expensive), 500 series, and 700 series reflect very different sizes and price points. Each of them, however, still have the same identity--the ultimate driving machine." A car that is responsive and fun to drive works at all the price points.

In contrast, the identity for Mercedes is based in part on prestige and exclusivity. Thus the Mercedes 190, which costs less than $30,000, presented a problem because of its potential inconsistency with the Mercedes identity of status cars for the affluent. When Mercedes redefined its identity to focus on quality rather than status, the 190 subbrand fit in better and provided a way to extend the Mercedes franchise to a younger group of buyers.

CREATING A DIFFERENT PERSONALITY: THE PARENT--CHILD RELATIONSHIP

Because of the identity problems that can result when a brand moves down, it may be useful to use the subbrand personality as a way to differentiate the new, lower-priced entry. If it is given a strong personality which is different from that of the original brand, the risks of cannibalization and image tarnishing are reduced.

Because family relationships are so familiar to consumers, they offer a clear and rich opportunity for creating distinct but related subbrand personalities. The subbrand could be a child (either son or daughter) of the original brand (the father or mother), one who cannot yet afford or appreciate the better version. Or it could be the grandparent of the original, one who appreciates good value more than premium quality.

Consider a parent brand with an honest, caring, hardworking, small-town persona--for example, John Deere, Chevrolet, or Kodak. The son of this brand (perhaps named John Deere Jr.) could have many of these same characteristics; after all, he (or it) is a chip off the old block.

The son, though, could also be different in many respects from the father. He would likely be drawn to simpler, less expensive options

perhaps looking to move up as he accumulated money over time. Other characteristics will depend in part on the product class. A son with youth and vigor might be appropriate for a motorcycle or bicycle. A serious, nerd son might be reassuring for a new line of lawn equipment or trucks. For clothes, it might be better to have the son be spontaneous and fun to be with, perhaps similar to the Jolly Green Giant "Little Sprout" character. For a sports car or mountaineering line, the son might have a reckless, living-on-the-edge element to him. In any case, the personality of the son offers a point of distinction from the parent brand and a way to connect with a target market while still providing a coherent link to the brand's heritage.

DISTINGUISHING THE SUBBRAND

The product itself is one way to separate the subbrand from the parent brand. If the product is clearly different in terms of features, applications, and users, the risk to the core brand is reduced. Courtyard by Marriott, for example, is very different from Marriott itself-- it has fewer services and offers a different hotel experience. The Gillette Good News is a very different product than Sensor and the rest of the Gillette line. If a retailer such as Neiman went downscale, the two types of stores might be separated by color scheme, ambiance, background music, and featured clothing styles as well as the service spectrum.

When the product is more difficult to distinguish because key product characteristics are not visible, the problem is more severe. This is true for Kodak Phantom film, the Kodak Funsaver camera, or the IBM ValuePoint line (as least for many inexperienced computer users). In such cases it becomes important to create different personalities and to manage the symbols associated with the new brand. Even a different logo and color can help to provide the necessary separation.

Aiming at a different market will not only provide a point of distinction but reduce the image-tarnishing risk, because customers of the parent brand will be less likely to be exposed to the new offering. The downscale offering of an upscale health chain, for example, could be for a younger clientele (say, in their twenties or thirties) or could focus on a small-city market, leaving the large cities for the parent brand.

The parent brand can also be managed in a way that accentuates the distinction between it and a subbrand. For example, a line of tools might be upgraded and given a subbrand name (such as the "ProChoice") at the same time as a thrifty subbrand (the "HomeMaster") is introduced. In essence, the tactic is to simultaneously move the brand up and down. The downlevel Gillette Good News subbrand works in part because the rest of the razor line is positioned (and thus elevated) by the Gillette Sensor. It is easier to separate Gillette Good News from Gillette Sensor than it is to separate either subbrand from Gillette.

Alternatively, the line of tools for the main brand might remain the same, but a ProChoice line might be created at the same time the lower-level HomeMaster line is introduced. The result is three levels, with any tarnishing effect of a lower subbrand compensated by the "halo" effect of a higher brand.