At a time of stagnating markets, technological disruption, and rapid changes in consumer behavior, where can big brands find growth? One popular path is through brand extension: stretching a brand into an adjacent market where its value proposition is still relevant to consumers.
Incumbents have a number of assets and advantages that they can exploit to act as attackers in new markets. We believe there are three fundamental success factors:
Distinctive brand equity and trust. Virgin´s entry into High Street banking at a time when trust in the sector was at an all-time low enabled it to take advantage of its status as a brand known for giving customers a better deal.
Strong relationships with customers. BMW used its understanding of customers´ mobility needs as well as its existing perception of being a premium brand to enter a new category with a service that enables it to tap into a different need state. It also further strengthens its relationship with consumers who could, in the future, move out of town and buy its products.
Access to data, capabilities, and other institutional assets. Disney´s expertise in delivering distinctive customer experiences enabled it to rethink language learning in the Chinese market and create and execute a value proposition that no other provider could match.
Not every established brand can succeed at entering new markets. To find out if yours can, start by asking, Does it have brand extension "angles," or emotional benefits that could travel to other categories? If so, what might those categories be? And how can you use your benefits to create something new and different?
Next, Where do you want to play? Define your brand´s aspirations to ensure you focus your innovation efforts appropriately. Then identify trends and discontinuities in tangential markets, analyze the competitive landscape, and evaluate any customer relationships your brand may already have. Also important: successful attackers are careful to deconstruct their assets and understand which ones can drive value in new markets. Having selected your target markets, define your brand´s value proposition in them–a process that calls for a good dose of creativity, deep immersion in customer needs, and sharp insight into decision journeys. Many extensions have failed through lack of brand relevance. So ask, What is our brand´s value proposition? Does our brand fit this new angle? Does it serve an unmet need?
As an incumbent, you need to assess a new market as thoroughly as a start-up would. The best performers invest in detailed analysis to estimate the scale of an opportunity. Is the growth potential worth the effort? What do the competitive dynamics look like? Such an analysis should uncover unmet needs that can highlight how much scope there is to introduce disruptive products or services.
To understand customer needs and customer decision journeys, leading companies go beyond the basics of existing data sets, focus groups, and surveys by adopting advanced qualitative research techniques. They use ethnographic studies, home interviews, in-store observations, mobile-photo journals, "netnography" (customer-sentiment mining), "shop alongs," and a range of other innovative methods to check the fit between their proposed brand extension and their target consumers.
Once you´ve identified the right angle for your brand extension, embark on a rapid prototyping phase. Accept that some innovations–like Virgin Cola–won´t succeed, and adopt a test-and-learn, “fail fast” mentality. That way, an operation that flops can be quickly closed down before it does any real damage to your brand. We find that some pilots can be launched in as little as 12 weeks. Don´t allow a failure to drag on; it will weigh down your brand and taint it with mediocrity. Use conjoint analysis on any feedback you get to assess product trade-offs and define the value attached to various features.
Finally, make sure your organization is fully prepared and ready to go. By definition, a brand-driven innovation will take you outside your core expertise. Make sure you have enough knowledge about the new business to judge the right moment to enter. Develop a rigorous “reverse profit and loss” that helps clarify the objectives and assumptions underlying your business model. Think about how competitors might react and what your response should be. Check out any regulatory aspects governing the new market and identify the variables that could affect cost projections and supply.