Functional foods: the risky strategy of brand extensions
Senior management and many marketing executives believe that the least risky way to grow a business is by extending existing successful brands. Launching a new brand is time-consuming, it may need a signifi cant marketing budget to create consumer awareness and growing new brands is a long-term commitment with no short-term boost to profits. Managers believe they can reduce costs and risks by using an established brand to accelerate consumer recognition and trust for a new product.
This is true for many brands – but it is emphatically not always true for brands with some functional or other health benefit, as otherwise very successful brands keep discovering. Here are some examples:
Campbell’s V8 Fusion Tea: Campbell’s venerable V8 vegetable juice brand was revived by launching fruit-plus-vegetable juices as V8 Splash and V8 Fusion. The latter became the brand’s growth driver, propelling it to over $550 million (€423 million) in retail sales in the US.
In 2010 Campbell extended the brand into the fast-growing RTD tea market with V8-Fusion + Tea. Despite heavy marketing investment, first year sales were modest, at around $15 million (€11.5 million), according to SymphonyIRI data. By 2012 sales had slid to just $10 million (€7.7 million). If the product is still on sale a year from now we will be amazed.
Campbell broke some simple rules:
1. Its V8 brand stands for products that provide one or two servings of fruits and vegetables – the proposition cemented in consumers’ minds by tens of millions of dollars of consumer advertising, pack labelling and merchandising. Tea is not a credible fit with a brand strongly identified with the benefit of getting your vegetables in a convenient way.
2. Campbell’s marketers were likely trying to coat-tail on the steady growth of the $2.5 billion (€1.9 billion) US tea drinks market. But Campbell’s V8 has no credibility in the consumer’s mind in tea – that belongs to the established tea brand leaders like Lipton, Coca-Cola and Dr. Pepper (which between them have a 50% market share) or to the entrepreneurial brands with cool appeal like Honest Teas.
Campbell’s product was neither one thing nor the other. If Campbell executives are regretting their extension into tea they can take comfort from the fact that compared to Unilever executives they looked positively wise.
Knorr Vie (pictured top): Back in 2004 Unilever launched a line of fruit and vegetable shots. They were unlike anything else in the Unilever portfolio. But instead of giving it its own strong and clear brand identity, Unilever timidly parked the product under its Knorr brand – a 150-year-old brand that is well-known in Europe and is very strongly identified with instant soup and stock cubes.
Despite the mismatch between the brand and the new product format, sales struggled up to a respectable €50 million ($65 million), Europe-wide, before Unilever withdrew it.
Had Unilever’s management not allowed themselves to be enslaved by the myth of brand extensions, it could have been a different story.
Red Bull Cola: Red Bull has also had to learn – not once but twice – that if your brand is very strongly identified with one format or benefit it is almost impossible to make it extend to another. Although Red Bull is the original new category creator, bringing the “energy” concept from Asia to the West, back in 2008 it decided that it could be a me-too in a mature and well-defended category.
“The cola from Red Bull. Strong and natural,” claimed Red Bull’s first brand extension since its debut back in 1987. Red Bull Simply Cola, a “natural cola” said to be made with cola nut, coca leaf and natural caffeine, sold in 250ml slimline cans and went on sale in the US, Russia and multiple European markets.
A brand’s “extendibility” depends on how strong consumers’ associations are with the brand’s values – and Red Bull is synonymous with “energy drink”. It is not synonymous with “cola”. In consumers’ minds that word belongs to Coke and Pepsi.
Red Bull was also trying to associate its name with the term “natural” – but the brand values of Red Bull are the opposite of “natural” and the brand image has no appeal to the types of consumers who favour natural products.
Ironically, Red Bull had been praised in the past in the Harvard Business Review precisely because it was one of the brands that had not tried to extend itself into the cola category. Clearly, the marketing team at Red Bull are too smart to spend time reading the Harvard Business Review. Red Bull cola has been withdrawn in most markets.
Red Bull Energy Shots: If cola was clearly an illogical extension for Red Bull, then surely energy shots – typically an 80ml- 120ml serving – were more credible, in that they were built around the core proposition of energy? Unfortunately not.
Even though the potential of energy shots was well known to Red Bull from the Asian market – where shots have been around since the 1960s – it failed to seize the opportunity to be first to market with the format in the West. By the time the company did enter the category in the US it was already dominated by the 5-Hour Energy brand (which today has retail sales of over $1 billion).
Red Bull energy shots were simply a me-too with nothing new to offer – in fact the Red Bull brand may have been a positive disadvantage, since energy shots tend to be bought by older consumers and Red Bull, in common with most energy brands, appeals primarily to younger consumers.
Even in Europe, where there were no established shot brands to compete with, the idea of a Red Bull shot was an extension too far for consumers. As with cola, this particular brand extension has been withdrawn in most markets.
Danone Activia: Danone’s Activia yoghurt is arguably the world’s biggest and most successful brand of probiotic yoghurt for digestive health, but even it has had only a modest success with brand extensions. Activia hit the US market in 2006 and with skilful messaging about digestive health benefits, supported by a memorable advertising campaign that featured actress Jamie Lee Curtis, it rapidly became a major success, with sales exceeding $450 million (€346 million) after just four years on the market.
Danone can take credit for creating the probiotic market in the US. “To be synonymous with a category is a sizeable accomplishment, kind of like Kleenex” has become synonymous with facial tissue, according to Danone spokesperson Michael Neuwirth.
“Activia is a big brand for being only six and a half years old [in the US]. Others have used the term ‘probiotics’ but we’ve focused on building the Activia brand. We don’t have to use that word. But using ‘probiotics’ is intentional by other brands to benefi t from the rapid rise in interest in Activia.”
Recently Activia’s US sales growth came to an end as Greek-style yoghurts seized consumer’s attention. The same loss of momentum has affected just about every other yoghurt segment except Greek-style products.
Danone launched a wealth of extensions to the Activia brand in a bid to revive growth. Unsurprisingly, they have failed to do so:
• Activia Fiber: Featuring “scrumptious cereal pieces” and fi bre, introduced in 2008. By 2010 sales were about $35 million (€27 million) in SymphonyIRImeasured outlets. But in 2011 sales plunged by 30% and dropped another 30% in 2012.
• Activia Dessert: Introduced in 2010 it initially hit $23 million (€17.8 million) in sales for 2011 – before sales nose-dived, down to less than $5 million (€3.8 million) in 2012.
• Activia Parfait Crunch: Introduced in 2011, this dessert-type extension booked $9 million (€7 million) in sales but in 2012 appears to have dropped below the threshold at which SymphonyIRI can measure it.
More recent extensions might perform better, but to put them into some kind of context:
• Back in 2009 two Activia extensions earned $55 million (€43 million) in sales.
• In 2012 six extension products together earned just $70 million (€54 million) in sales.
It’s an expensive way to do business. Every time you create an extension it’s a use of NPD and marketing resources. Giants like Danone can afford such a scatter-gun strategy – but 95% of companies can’t.
Creating new flavours is a valid way to keep consumers interested in a brand. So too is delivering very logical, very “adjacent” benefits – such as Red Bull’s successful launch of a sugar-free variant. But for a successful functional brand to stray further from its core proposition is risky.
As a general principle, good marketers and business school gurus alike know that extending strong brands with a strong and clear benefit platform into new formats yields modest results at best – as the Activia figures illustrate – and usually results in failure. The facts are confirmed by data from SymphonyIRI which show that – consistent with all the data it has gathered over the last 15 years – brand extensions accounted for the majority (92%) of all new products brought to market in 2011. But brand extensions perform less well than new brands, SymphonyIRI points out, adding that they have always performed worse than new brands – and the gap is widening.
In the period 2002-2011, a brand extension earned an average $27.7 million (€21 million) first year sales – and this had declined to $21.6 million (€16.4 million) in 2011.
New brands, by contrast, are performing better. In simple terms, new brands outperform extensions by 64% (up from 61% in 2010) and the gap is widening. And yet the myth of brand extension persists – and many senior managers cling to it in the teeth of all the evidence.
The current wisdom of business gurus is that successful organisations must constantly challenge their own thinking. It’s clear that, when it comes to the idea of brand extension, that’s just not happening in our industry.
This editorial from New Nutrition Business’s magazine was first published in its April 2013 edition.
About New Nutrition Business
New Nutrition Business is a London-based research, publishing and consulting company which specialises in researching, analysing and forecasting developments in the business of food, nutrition and health around the world.
The strategies and success factors it has identified in the 1990s have become the benchmarks for strategy development and brand positioning in the worldwide nutrition business. It works with companies all around the world, from the United States to Australia and from Sweden to South Africa.
New Nutrition Business is headed by executive director Julian Mellentin (right), one of the world’s very few global specialists in the business of food, nutrition and health.
He is the editor-in-chief of New Nutrition Business and Kids Nutrition Report, the only industry journal in the world on the rapidly developing kids’ nutritional marketplace. See www.new-nutrition.com
Trackback from your site.