When companies introduce a new offering as part of their brand architecture, they need to consider the new offering’s relationship with the company’s other brands. Three criteria can help companies consider which brand naming options to use (regardless of their level in the business hierarchy).
1. Brand-Leveraging Benefits
The first concerns how important feedback and extension effects are to the company. All else being equal, extension branding has stronger extension and feedback effects than association branding does, which, in turn, is stronger than the individual branding option. IBM’s extension to cloud computing enhanced the extension’s efficient growth, and also created a strong feedback effect that made IBM seem more innovative and cutting edge than before. Note that extension and feedback effects need to be assessed separately, because their effects may not be equally strong. For example, endorsement branding (such as Courtyard by Marriott) may have a strong extension effect (to Courtyard) but not a strong feedback effect (to Marriott).
2. Asset-Building Benefits
A second criterion concerns how well each of the branding options will build assets for the company. With brand extensions the company loses an opportunity to create an entirely new brand, which can itself be nurtured and leveraged in the future. Individual branding and indirect branding options are better if this criterion is important. Alibaba’s decision to invest in and build an entirely new consumer brand (Taobao) made sense for this reason.
3. Organizational Benefits
A third criterion concerns the organizational benefits of the branding decisions. Different branding options can clarify or muddy employees’ understanding of who is in charge of what and why. They can affect whether employees understand how different parts of a business contribute to the overall profitability and growth of the company. They can also impact whether brand managers see their roles as complementing or competing with managers of other brands in the company. They can thus impact the sharing of assets and information within the company, affecting a company’s culture and its practices.
The three criteria described are trade-offs: pursuing one benefit can make it more difficult to pursue another. To make a decision about branding options, then, the company needs to weigh the importance of each criterion. The weight of each criterion can depend on the level of the business hierarchy and the nature of the new offering. For example, organizational benefits may be weighed more heavily when the branding decision involves a new strategic business unit than when it involves a new subproduct. Asset building may be weighed more heavily when the new offering is very different from the company’s current offering(s).
Organizational benefits are likely to be more important when the new offering and the current one(s) are similar. Because the importance of these benefits varies, companies often use a mix of branding options in their brand architectures. For example, Google systematically used extension branding with modifiers (e.g., Google Fiber, Google X, etc.).
However, its brand architecture also includes the individual branding option (e.g., Android, Calico, Nest, YouTube, etc.), allowing it to build new assets. These same benefits (criteria) can be considered in merger and acquisition decisions, since such decisions often require some brand name changes. For example, in the late 1980s DEC (Digital Equipment Corporation) was the second-largest computer company in the world (IBM was number one). When Compaq acquired DEC in 1998, it stopped using the DEC name. HP (Hewlett-Packard) then acquired Compaq in 2002, and the HP name replaced the Compaq name. While replacing the name of the acquired brand with that of the acquiring brand name may have strong organizational benefits (one company and one culture), this practice leads to a loss of the acquired brand’s equity. Instead, cobranding or indirect branding might have been used. The ultimate branding decision depends on the importance of the criteria.
Think of Whole Foods and the introduction of its 365 stores. The three criteria can be used to assess the potential effectiveness of this decision. Both brands existed previously, making the branding decision an example of cobranding. This cobranding strategy is clearly helped by the strength of Whole Foods’ reputation, while also compensating for its weakness (i.e., high price). Extension effects appear to be strong (organizational benefits such as resource sharing and coordination benefits fostered through the cobranding option), although how successful this cobranded store will be depends on the potential cannibalization of Whole Foods main store customers by 365 by Whole Foods Markets. Feedback effects should be strong, because Whole Foods maintains its natural food concept while adding affordability and value-for-money memory associations to the parent brand name.
Therefore, both extension and feedback effects seem to be strong. Although the ultimate success of this new store depends on many other factors, the branding option it chose appears to be a sound one (there is no asset-building criterion in this case, since 365 is an existing brand).
Google’s reorganization under the holding company Alphabet offers another brand architecture example. This reorganization suggests that web search and other Internet-related businesses represent just one operating arm of the company. Other operating arms include biotech (Calico) and smart-home products (Nest). Organizing Google in this way seems to be a viable option for pursing long-term growth.
Yet Google must also consider how it can build extension and feedback effects from individual brands such as Calico and Nest through their own product and brand extensions. The company’s brand architecture design should be assessed periodically in light of changes in the external environment. For example, if a brand suffers from some type of adverse market reaction, the company may need to consider whether a brand name change is in order. However, changing the name might merely hide these problems while at the same time enormous costs would be incurred promoting the new name.
We recommend that companies should change a brand name when (1) the current brand name has an inherent liability problem, and/or (2) when a brand name change offers very clear benefits to the company. Philip Morris Companies’ name change to Altria made sense, given the first criterion. The company’s strong association with tobacco made it difficult for the brand name to represent the portfolio of non tobacco products that Philip Morris marketed. Andersen Consulting’s name change to Accenture helped it avoid getting hurt from its association with Enron during the Enron scandal.
Key Brand Architecture Considerations
1. Extension branding can create powerful extension and feedback effects. But companies need to be careful because the possibility of parent brand dilution is also greatest in this case.
2. Sub-branding can take advantage of the parent brand’s equity while also building a unique brand identity. When managed effectively, the parent and the sub-brand both drive demand for the new offering.
3. Endorsement branding offers legitimacy and credibility to a new brand while allowing the endorsed brand to operate independently of the parent brand.
4. Indirect branding is appropriate when a company intends to develop a unique brand for a business or product with support from the credibility of the parent brand that the company wishes to be less visible than the support resulting from endorsement branding.
5. Co-branding can convey that a product possesses the strengths of each brand and/or compensates for the weakness of one brand with the strength of the other.
6. The key advantage of individual branding is that a new business will have its own exclusive identity without being associated with the parent brand name.
7. Modifiers are cost-efficient ways of differentiating a business or a product.
8. A company’s brand architecture design is a time-dependent structural description of its business portfolio.
9. Brand architecture designs should be routinely assessed for the (1) financial, (2) asset-building, and (3) organizational benefits they offer to the company.
10. With a company’s growth (or shrinkage) in business portfolio, its brand architecture design will also evolve.