“HOW ELASTIC IS A BRAND?”
When companies want to expand their business, one good alternative is to use the same brand to play in other market segments. At first, it seems a great strategy as it requires lower marketing investments and instant positive brand associations, however exploring a new segment, sometimes also means talking to a different customer with different needs. So, how many customers can a brand talk in an effective way? How far can a portfolio extension go without hurting the brand? Where is the limit to a brand keeps its personality?
Unfortunately, the answer to these questions depends on different variables and is not unique. A good example to illustrate the implications and challenges of a brand extension is the Black & Decker power tools division and its Tradesmen segment at the beginning of the 90s.
Black & Decker was the world’s largest manufacturer of industrial and domestic tools with a brand recognized worldwide and a presence in 5 different categories (Power tools, Household, Information Systems and Services, Outdoor Products and Security Hardware). The most relevant category was the Power Tools and Accessories, which B&D had 29% of market share and revenue of $395 MM at the beginning of the ’90s. The market divided the Power and Tool category into three segments: Professional Industrial, Professional Tradesmen, and Consumer.
The tradesmen segment was the smallest but the most promising one, with an expectation of a 9% increase in the following years. B&D had a great relevance in the Industrial and Consumer segment, but a poor performance and market share in the Tradesmen, with only 8% of participation, losing marketing to brands like Makita with 50% of share and Milwaukee with 10%. These brands didn’t have the same brand awareness nor quality in customer service as B&D but had a better perception of product quality to the consumer of the Tradesmen segment. The tricky part here is that after performing several quality tests, B&D executives discovered the quality of their products was similar or even better than its competitors. Why then, the consumer was thinking in a different way?
To answer this question, let’s take a step back here. B&D did a good job deciding to play in the three segments (Industrial, Tradesmen, and Consumer) using different sales channels and marketing strategies once the company had the capabilities to do so (tradition, know-how, awareness, and relationships). However, D&B failed to identify the behavior of the consumers for each segment and what made them unique and different, the company assumed the consumers valued the same characteristics and didn’t need a strong differentiation among them. To better understanding, let’s look at the figure below and see the differences between the segments:
The table highlights the different perceptions the customers of each segment had in relation to the Black & Decker brand. We could start to have an idea, why the B&D wasn’t popular with the tradesmen professionals and letting other brands take advantage of it. Makita, for example, was a brand focusing its efforts on this specific segment, with a premium price, high-quality perception and high product differentiation.
But you might think, B&D could easily invest in marketing and try trough different communications approaches to change the brand image. However, it wasn’t just the communication. Black & Decker was reinforcing the perception of a “home brand” to the tradesmen segment by not creating enough product differentiation between the consumer and tradesmen products, using the same brand name and applying a very similar color (while other brands where using red vs grey or green vs grey, B&D was only black and grey).
Black & Decker didn’t notice the Tradesmen segment had created negative associations with the famous brand. As raised at the beginning of the article, B&D had decided to expand its business but wasn’t talking in an effective way with all the customers, and had achieved a point that the success in one segment was negatively correlated to the performance in the other. This is one of the cases that the Black & Decker should have to use its brand in a second plan, just endorsing another one. In this scenario, B&D would benefit from its long term relationship and trust with the trade but would have the “freedom” to play with different colors and communications.