Chilton offers "The 10 commandments of brand franchise extensions"

Brand franchise extension - using the brand equity held by one product as a springboard for the creation of a new or modified product with the same brand name - is a process that can be fraught with peril. The road to marketing success is littered with the sun-bleached remains of failed brand franchise extensions that seemed like a good idea at the time yet, for one or more reasons, never found favor with consumers. The road is also marked with monuments to stunning brand growth through brilliant brand franchise extensions, as illustrated by brands like Ivory and Ocean Spray.

The trip down that road need not be so daunting, says Don Dietrich, vice president and group manager for Chilton Research Services, Radnor, Pa. At a seminar on brand equity, Dietrich shared what he labels "the 10 commandments of brand franchise extension," to serve as guidelines for anyone considering such a move. "Brand franchise extension is an area in which both risk and reward can be extremely high," says Dietrich. "There’s no substitute for doing your homework, particularly through the use of a good diagnostic brand equity system, but experience has shown us that these commandments are a good place to start," Dietrich says.

  1. Make sure everyone agrees on what the term brand means. Fundamentally, a brand is a promise that a particular product or service will deliver the same benefits today that the buyer has come to expect. The brand’s promise must be relevant, distinctive and trustworthy. The promise translates into the buyer’s assurance that he knows what he gets by buying that brand - a tremendous asset for any product.
  2. Understand the customer-leverageable attributes of the new category at least as well as you understand those of the base category. Remember that you are marketing a brand, not a category. Pay strict attention to the fit between parent category and child categories" as regards both tangible and intangible attributes.
  3. Be honest about the real level of awareness and reputation of your brand in the customer’s mind. The phrase, "I’ve heard of that" merely indicates a degree of awareness, not a fully-developed reputation. Likewise, national distribution does not necessarily equate with broad-scale appreciation of the benefits of the brand. A brand like Armorall may have a strong reputation among its users, but its user base is limited and so may be the ability to extend its franchise to new categories.
  4. Use the brand franchise extension as part of a brand plan. For example, consider licensing, component branding, family/corporate branding, etc., in the mix, and recognize the trade-offs between focus and efficiency. Licensing offers perhaps the greatest dollar efficiency, but very little focus on your brand. Brand franchise extensions and line extensions offer significantly less dollar efficiency, but much more focus on the brand. The most focused strategy, of course, is simply sticking with a solo brand.
  5. Create a brand organization, not a category organization. The brand plan must not conflict with the company organization. If the brand spans different categories, consider structural changes that will drive conflict resolution and brand thinking versus category thinking.
  6. Only the top two or three brands in a category make any money. That’s what Jack Welch, chief executive ofricer of General Electric, believes and who can dispute his company’s success? Proceed with extreme caution in any brand franchise extension that uses niche positioning in a category that is new to your company. The economies of scale in making, distributing and selling the product won’t be helped by use of a brand extension strategy.
  7. Don’t franchise extend a "near-generic" brand name. For better or worse, some brand names have come to represent an entire category in the mind of many consumers - Scotch tape, Band-Aid and Coke, to name a few. In cases like these, franchise extension is troubled by "ingredient" expectations. You can extend a brand, but you can’t extend a category, except through an "ingredient strategy."
  8. It’s less risky to invade by land than by sea. Brand equity can be diluted by extensions that go too far afield or even confuse the customer. It’s better to stick closer to home.
  9. Multiple brand franchise extensions create multiple brand planning needs. When considering multiple brand franchise extensions, it is definitely NOT "one size fits all." Each brand extension requires its own plan. Bear in mind that every member affects every other member, and sequence counts.
  10. There are three ways to gain the benefits of brand equity, just as there are three ways to obtain wealth: Earn it (build it from scratch); inherit it (through brand franchise extension, for example); and "marry" it (buy it). Often, a good path to growth in a new category is to buy a brand from another firm when you can expand and manage it better.

Adds Dietrich, "While these commandments are not carved in stone like their better-known counterparts, they do have one attribute in common: break them, and there can be hell to pay."

Americans love their VCRs

According to Maritz AmeriPoll, 89 percent of Americans own a VCR, while 44 percent own two or more. Whether or not they own a VCR, 69 percent of Americans rent or watch a video for their own personal entertainment at least once per month. In fact, 37 percent of Americans say they rent or watch weekly. People aged 18-34 are far more likely to rent or watch videos on a weekly basis than those aged 35 and up (56 percent to 28 percent).

On average, Americans rent two videos at a time. Twenty-eight percent say they only rent one video, 47 percent say they rent two, and 24 percent claim to rent more than two each time they visit the video store.

And how about those video rental memberships? Eighty percent of Americans belong to at least one video rental store. In this group, 48 percent belong to one, 30 percent belong to two, and 22 percent belong to three or more video rental stores.

Moreover, Americans seem to prefer renting from big-name video franchises over grocery stores or other sources. Forty-three percent say they are most likely to get the videos they watch on a VCR from a franchise, 32 percent would rather frequent an independent supplier, 16 percent are most likely to rent from grocery or convenience store video departments, and nine percent get their videos from other sources.

Maritz AmeriPoll is a national consumer opinion poll conducted regularly by Maritz Marketing Research Inc., St. Louis. Mo. Results are based on telephone interviews with American adults. Accuracy of the results is within +/-3.09 percent.

Jiang’s control secure for now

The death of China’s paramount leader Deng Xiaoping will not produce any traumatic political changes in the short term, and the government’s desire to attract foreign investment is unlikely to be affected by his passing, according to a report from The PRS Group (formerly Political Risk Services), an East Syracuse, N.Y., firm that monitors political, financial and economic risk in 147 countries. Although President Jiang Zemin does not enjoy the power or the prestige of Deng, he has moved in recent years to strengthen his control of the government. His authority is respected at the upper levels of the military, and he faces no serious threat from the armed forces as long as stability is maintained and the interests of military leaders are not threatened. For the time being, top Chinese officials will present a unified front, ruling through a collective leadership that recognizes Jiang as the first among equals.

Jiang’s political fortunes have been helped by the country’s economic performance. Foreign investment has been strong over the past two years, and with real GDP growth of nearly 10 percent and inflation stable at 6 percent in 1996, the basic economic signs are good and look set to remain so through the end of the decade. As long as conditions remain positive, Jiang’s conservative opponents will have difficulty altering the balance of power within the government. At the same time, Jiang is unlikely to make any bold moves in the area of economic liberalization.

Deng’s death is likely to impact the relationship between the military and the government over the longer term. The power of the armed forces has been growing since Deng was forced to call out troops to suppress the demonstrations in Tiananmen Square in 1989. Aggressive actions in the second half of 1996 with respect to Taiwan and territorial claims in the South China Sea reflect the military’s growing strength. Lacking Deng’s symbolic connection to the revolution, the current civilian leadership will find itself hard-pressed to reverse the trend of military assertiveness in political affairs.

Perhaps the greatest threat to Jiang’s position is the potential for social unrest as the Chinese people face the harsh realities of growing income differentials, layoffs as enterprises seek greater efficiency, and attempts by the central government to reverse the trend toward greater autonomy in the provinces. Organized demonstrations that require military assistance would undermine Jiang’s control and could instigate a power straggle within the central leadership.

Apparel sales grew moderately in 1996

Total retail dollar sales of apparel reached $161.4 billion in 1996, a 5.8 percent increase over 1995 sales, according to The NPD Group Inc., Port Washington, N.Y. In its 1996 Topline Report, the firm reported that unit sales were also up, rising 3.8 percent in 1996.

While womenswear underperformed slightly with a 5.1 percent growth rate, sales were much stronger than last year’s 1 percent increase for the women’s apparel market. Total retail dollar sales for women’s apparel for 1996 were $85.1 billion, NPD reported. Top-performing segments of the market were juniors (up 7.4 percent) and large sizes (up 6.1 percent).

For the second year in a row, sales of men’s apparel outpaced the total market. During 1996, menswear sales grew 7.3 percent, reaching a total dollar volume of $49.3 billion. The top performing categories were those which fit into more casual wardrobes, such as knit sport shirts, sweaters and casual slacks, all of which posted double digit dollar sales gains. Combined results for men’s tailored clothing categories were nearly flat, up only 1.5 percent.

Boys’ and girls’ apparel posted moderate increases. Sales of boyswear were stronger, with dollar sales up 4.4 percent. Girlswear posted a 1.9 percent increase.

The NPD report showed that much of the growth in apparel spending is being driven by consumers with annual household incomes over $60,000. During 1996, these consumers increased their apparel spending by nearly 14 percent, or more than double that of the general population.

In 1996, consumers with annual household incomes over $60,000 accounted for 38 percent of all retail dollars spent on apparel. Their share of spending has risen six percentage points since 1993, when consumers with household incomes over $60,000 accounted for 32 percent of total apparel spending.

Major chains (including Sears, JC Penney, Kohl’s and others) posted a 7.5 percent increase in dollar sales, making them one of the fastest growing retail channels for 1996 in dollar terms. Discount stores also performed better than the market average, up 6.2 percent in dollar sales.

According to NPD, department stores continued to show weak growth in 1996, with dollar sales up only 2.7 percent, following a period of no growth from 1994 to 1995. Specialty stores were also a "nonwinner," with sales up only 2.4 percent for the year. Specialty chains, however, were a bright spot, with an increase of 6.3 percent shown.

The NPD Toptine Report for apparel is compiled quarterly from information provided by NPD’s American Shoppers Panel. The American Shoppers Panel has operated since 1977 and currently consists of 16,000 households nationwide. The panel is constructed to reflect the behavior of the U.S. consuming public, and information provided by the panel is projected to represent consumer behavior on a national level.

Do loyalty cards work?

You can’t buy love, but how about loyalty? That’s not an idle question. An article in a recent issue of Audits & Surveys Worldwide’s Report to Retailers newsletter says an increasing number of retailers in the U.S. and abroad are trying to do just that.

Loyalty cards are designed to help retailers keep their customers faithful and free-spending by offering discounts on merchandise, Nfts or other incenfives. The cards have the added benefit of producing a shopper database that enables the retailer to target offers to consumers based upon their past buying habits.

Supermarkets are at the forefront of loyalty card issuance. Some offer a small discount on all purchases. Other retailers have taken a page from the Las Vegas and Atlantic City marketing book by targeting incentives at high spenders who contribute disproportionately to sales volume at the expense of shoppers at the lower end of the food purchasing chain, who tend to cherry-pick sales items.

Some supermarkets have a three-tiered incentive system in which customers spending less than $20 get a slight discount, those spending $20 to $50 get a bit more and those spending more than $50 receive a discount as high as 20 percent occasionally. Others have opted for a dual-pricing system in which they sell some or all items at either the regular "shelf price" or the discounted "members’ price" for those using a loyalty card.

Another variation on this theme has cardholders swiping their plastic through readers as they enter the store. The readers are connected to a database in which the consumers’ previous shopping history has been recorded. The shoppers are then rewarded with a customized collection of discount coupons good for specific products that fit each shopper’s past buying profile.

Loyalty cards are a powerful tool for capturing large amounts of data, but huge databases are of little value unless the retailer is prepared to devote the resources to use them. Merchants that make the effort are often rewarded for their trouble. Wal-Mart has mined its extensive database to analyze shoppers) market baskets in search of buying patterns that go beyond the obvious and have used this insight to improve product placement.  For example, when research revealed that many buyers of cold remedies also bought fresh orange juice, Wal-Mart beefed up orange juice sales by placing a juice display in the pharmacy aisle.

While most retailers have neither the resources nor the inclination to use their growing databases in ways that seriously threaten the privacy of customers, the potential for abuse is understandably alarming to civil libertarians. Law enforcement agencies could monitor the sale of such perfectly legal products as fertilizer or scales and target individuals for special scrutiny because they may be engaged in bomb making or drug dealing. This data could also be abused by non-governmental entities. Employers or insurance companies, believing that we are what we eat and drink, could use the data to identify applicants whose past purchases suggest an unhealthy lifestyle. The possibilities for misuse are obvious.

Concern about consumer privacy is mounting. The National Retail Federation and other groups would like to pre-empt government regulation with industry-drafted guidelines to restrict disclosure. It remains to be seen whether self-regulation will work or if it will succeed in derailing anticipated legislafive attempts to impose limits on data collection and stiff sanctions for privacy violations.

It may be that the only regulation loyalty cards run afoul of is the "truth in labeling" law. Many consumers collect loyalty cards the way kids collect baseball cards - they can never have too many. Disloyal cardholders may be on to something. They continue to buy bargains wherever they find them and reveal less of their personal shopping habits to any given vendor.

Outsourcing index predicts 35 percent growth

The first quarterly Outsottrcing Index, measuring the use of external staff resources by companies, projects 35 percent outsourcing growth in the 12-month period ending June 1997, an increase in outsourcing industry revenues from about $80 billion annually to $108 billion. Developed jointly by The Outsourcing Institute and Dun & Bradstreet Receivable Management Services, the Outsourcing Index is designed to reflect historical, current and planned levels of outsourcing activity by U.S. corporations with more than $80 million in annual sales.

More than 50 percent, or $40 billion a year, of current outsourcing is concentrated in information technology, marketing and sales, and financial functions, such as banking, credit and collections, according to the Index. Informarion technology represents the largest single area of outsourcing, an estimated 22 percent, currently worth over $17 billion. Finance, marketing and sales, and administration account for about 13 percent, or $10.4 billion annually. Manufacturing makes up 11 percent, or about $8 billion per year, of the total.

Additional key findings include:

  • more than half of the organizations surveyed have increased their level of outsourcing in the second haft of 1996;
  • current users planning to expand outsourcing to additional functions within their company will account for approximately 75 percent of the expected increase;
  • approximately 15 percent of all functional areas within large companies use some outsourcing activity.

"The Index reflects just how rapidly outsourcing is being adopted as a management strategy. The period growth of 35 percent is especially significant when compared to the 15 percent growth of the highly touted computer software industry," says Marq Ozanne, vice president, market research and planning of D&B, and an adjunct professor of business at the University of Connecticut.

The initial Index findings project growth in the U.S. for the 12-month period from July 1996 to June 1997, with a 95 percent confidence level and a margin of error of+3 percent. Projections were made based on a survey with 600 respondents conducted during the second and third quarters of 1996.