When a company decides to compete with itself the idea is actually to beat the competition

Many companies have multiple brands within the same category. For example, Starwood Hotels and Resorts Worldwide has W, St Regis, Sheraton and Westin. For a multi-brand portfolio to be successful, each brand must be targeted to a specific segment and must embody a unique selling proposition, commonly known as USP. Consider Procter & Gamble’s laundry detergent portfolio in the United States some time ago. To keep things simple for the purposes of this exposition, assume P&G had only the following four brands with the respective USPs:

• Tide, positioned as a complete family detergent
• Era, positioned as a stain fighter
• Cheer, positioned as protecting colours
• Gain, positioned as clothes that come out smelling clean

The advantage of a multi-brand portfolio is that it allows the company to cover all the different needs in a given category, especially when some of those needs are perceived by customers as being negatively correlated with other needs. For instance, it would be hard to convince customers that a laundry detergent protects colours from fading while also being a stain fighter.

A well-designed brand portfolio can cover the entire scope of preferences in a category and, thereby, deny competitors any opportunity to establish themselves. As a result, sales from a multi-brand portfolio should be greater than if the company were trying to cover the entire category with a single brand.

Unfortunately, managing multi-brand portfolios, particularly within the same product category, is not easy. The overlapping positioning of brands in a portfolio results in cannibalisation of sales and unnecessary duplication of effort. Also, marginal brands consume a disproportionate amount of company resources.

Management challenge

Let me use an analytical analogy to demonstrate the management challenge. Imagine there is a beach, 100 metres long, with beachgoers distributed evenly across this stretch. If one were to set up a single hot dog stand, the optimal location would be at the 50-meter mark. This would minimise the total distance that consumers in aggregate would travel. As a result, total sales would be maximised. Now assume that to increase sales by improving consumer accessibility, it is decided to set up two identical stands. Clearly, these stands should be located at 25 and 75 meters.

To manage the two stands, one would need a person to run each stand. These two – let’s call them managers – would be compensated through the profits and sales from their respective stands. In the absence of location restrictions, both managers would be tempted to move their stands slightly towards the centre as that would allow them to encroach on the other stand’s territory. Without strong central governance, both stands would ultimately end up next to each other at the 50-metre line. No additional sales, only additional costs!

In my experience, this "brand creep" from their original intended USPs is a trap that multi-brand portfolios find hard to avoid. It requires strong management above the individual brand managers to keep each brand consistent with its intended strategy. Otherwise, over time brand overlaps are inevitable. Under some conditions, slight overlap may be functional. But, the frustration of continuously having to engage in boundary management is usually not worth it.

As an alternative to multiple brands, other approaches can be deployed to achieve the objective of reaching different segments. These include sub-brands and observable product differentiation. Sub-brands can take many forms from Diet Coke and Coke Zero to the BMW 3, 5, and 7 series.

One of my favourite stories is when Mercedes introduced the A class car, which was going to be priced substantially below any of the prevailing models of C, E and S class. The fear was that the A class would drag down the entire Mercedes brand. But one only had to look at the A class to know that it would not be confused with the other models (and thus limit any cannibalisation). In addition, it was explained that the brand would not suffer because the positioning of Mercedes (as having the best car in each segment) was enhanced by the A class. The A class was positioned as the best and most expensive small car.

My belief has always been to introduce another brand in the portfolio only as a last resort since the associated management hassles are usually not worth it. However, it is appropriate to launch a second brand in the same category under the following conditions:

• The two customer segments targeted do not wish to mix with each other and cannot be easily segregated (e.g., first and economy class on an airplane).
• The positioning of each brand is on attributes that consumers see as negatively correlated.
• The value network – the set of activities to design, develop, produce, market and distribute – of the two brands has been examined thoroughly to see where one needs to separate (to help create the differentiation between brands for customers) and where it can be combined (to gain economies of scale). Here one has to be careful not to be seduced by emotional arguments of brand managers that everything needs to be kept distinct for their brand.
• A strong multi brand-governance mechanism is in place to ensure the brands are continuously monitored against unintended brand creep.
• The cost of managing the two brands is less than the profits from the additional sales generated by having two brands.

Nirmalya Kumar is Member-Group Executive Council at Tata Sons and Visiting Professor of Marketing at London Business School. His Twitter handle is @ProfKumar. This article is written in his personal capacity.