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3 Essentials for a Successful Brand Diversification Strategy

Posted by PriceBeam on July 25, 2017

brand diversification

In an attempt to expand their market size and invigorate their brand, many firms take a shot at diversifying their brand. ‘Brand diversification’ commonly refers to a process of launching a new product in a new market, as seen in Ansoff’s Growth Matrix; examples of such strategy are the McCafe, Nike’s golfing collection, IBM’s business intelligence & analytics, and UberEATS.

Some cases are more extreme; for instance, Amazon Studios. Most people would agree that there is little connection between ecommerce and movie production.

Typically, firms choose to diversify to utilize their current brand equity, leverage current know-how, gain economies of scale, or simply to become its own supplier.
McCafe is an example of using current brand equity to gain success in another area. McDonald’s is known for its cheap prices, consistent quality, and efficient operations, all of which can be used in a café as well. Essentially, they’re just altering the menu items, while delivering the same experience.
IBM’s move into business intelligence and analytics is an example of a firm using its current know-how (and partially its brand equity, too) for obtaining success in a new market. IBM has delivered corporate technology for decades, and have proved to be quite good at what they do, which they then take into a new market -- with great results.

 

#1: Stay True to Yourself
Don’t lose yourself in the process! This may sound cheesy, but what I’m trying to say is that you shouldn’t dramatically change your brand positioning, especially not if the new product is in the same product category as your remaining portfolio. It makes sense for Nike to sell golfing attire, but luxury fashion clothing? Not so much. Not only will this not sell very well, it will also damage the rest of Nike’s products. It’s confusing, don’t go there.

This is not the same as saying you can’t move into completely different markets. Take Virgin, for instance. This conglomerate started out with Virgin Records, and now they’re operating an airline, a hotel chain, a telecommunication company, and fitness studios. While Virgin has moved into significantly different markets, they have maintained a somewhat consistent brand positioning in all these markets. The same goes for EasyGroup; EasyJet, EasyGym, EasyPizza, and EasyHotel are all perceived by consumers as low-cost options.
In particular, your price positioning is important: you want to make sure it’s consistent across different markets.

 

#2: Understand Your Customer
You found a new product you want to sell in a new market? Great! But remember, you don’t want to confuse your customers. Your new product has to seem credible as a product extension. Does it make sense that COMPANY X is now selling PRODUCT Y? You want your customers to think it does. 

However, we often see managers basing the development of new products on their own perceptions of their current brand- and price positioning. And more often than not, this perception is different from the customers’.
In order to understand how your customers perceive your current brand, it can be useful to see how they perceive its value compared to the competitors’, by comparing their willingness to pay. In that way you’ll be able to develop a product that fits within your current portfolio.

 

#3: Get the Launch-Price Right
When you launch a new product, you want to make sure that your price will maximize profits in the long-run, too. Firms are often tempted to employ a penetration pricing strategy in the beginning to gain some traction, but this is a short-sighted approach. Once you set your launch price, it is hard to make a drastic price increase, as your customers will feel that they’re now getting the same value at a higher price. There are some quite disastrous examples, where companies have set a low launch price and missed out on billions of profit in the long-run, because it simply wasn’t possible to increase prices without too strong an impact on sales quantity.

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Written by PriceBeam

PriceBeam
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