Case Study - Target Canada- In 2012, Target expanded its business into Canada. The proximity to the U.S. as well as Canadians’ familiarity with the brand made expansion across the border seem like a n

There is nothing so useless as doing efficiently that which should not be done at all.

—Peter Drucker

If you want to succeed, double your failure rate.

—Thomas Watson, founder, IBM

Anyone can hold the helm when the sea is calm.

—Publilius Syrus

All firms, from Mercedes to GE to Nestlé to Marriott to Intel, should view their business units as a portfolio. Some should receive investment because they are cash-generating stars in the present and will be into the future. The investment is needed to keep them healthy and to exploit growth opportunities. Others need investment because they are the future stars of the company even though they now have more potential than sales and profits. Identifying the priority business units is a key to a successful strategy.

Equally important, perhaps more important, is to identify those business units that are not priorities. Some of them should assume the role of generating cash through a milking or harvesting strategy. These units, termed cash cows, should no longer absorb investments aimed at growing the business. Still other units should be divested or closed or merged because they lack the potential to become either stars or cash cows—their profit prospects may be unsatisfactory, or they may lack a fit with the strategic thrust going forward. These decisions, which are strategically and organizationally difficult, are crucial to organizational success and even survival.

A related issue is dealing with too many brands by eliminating or merging them. Brand strategy and business strategy are closely related because a brand will often represent a business. As a result, brand strategy is often a good vehicle to develop and clarify the business strategy. Too many brands, like too many business units, result in confusion and inefficiency. The firm can support only so many brands, and brand proliferation has often grown to the point of paralyzing the organization. In the automobile field there are now over 300 brands, which have resulted in confusion, overlap, inefficiency, and, worse, an inability to fund promising brands. Certainly, one reason behind the restructuring of GM in 2009, which resulted in the dropping of Oldsmobile and Saturn, was that there were too many brands with the result that some were underfunded and potential scale economies were unrealized.

We start with an overview of portfolio strategy and then discuss the divest and milk strategy options. We then turn to the problem from the perspective of brand strategy and explore how brand portfolios can be reduced so that more brand focus becomes possible and clarity can be enhanced in both the brand strategy and the accompanying business strategy.

Portfolio analysis of business units dates from the mid-1960s with the growth-share matrix, which was pioneered and used extensively by the Boston Consulting Group (BCG). The concept was to position each business within a firm on the two-dimensional matrix shown in Figure 15.1. The market-share dimension (actually the ratio of share to that of the largest competitor) was a summary measure of firm strength and cost advantages resulting from scale economies and manufacturing experience. The growth dimension was defended as the best single indicator of market attractiveness.

The BCG growth-share matrix is associated with a colorful cast of characters representing strategy recommendations. According to the BCG logic, the stars, important to the business and deserving of any needed investment, reside in the high-share, high-growth quadrant. Stars should receive investments to maximize ROI until market growth slows and they are retired to Cash cows (the high-share, low-growth quadrant). These products provide a great deal of the cash for the rest of the portfolio and they should be milked for as long as possible. The dogs, which are cash traps and candidates for liquidation, are in the low-growth, low-share quadrant. They should be removed as soon as possible if there are no other strategic reasons for retaining. Problem children with heavy cash needs but the potential to eventually convert into stars, are in the low-share, high-growth quadrant. Companies should work to identify the potential stars while divesting of the rest of these offerings.

The BCG growth-share model, although naive and simplistic in its analysis and recommendations, was very influential in its day. Its lasting contribution was to make visible the issue of allocation across business units; that some businesses should generate cash that supports others. It also introduced the experience curve (discussed in Chapter 11) into strategy and showed that, under some conditions, market share could lead to experience-curve-based advantage.

A more realistic, richer portfolio model associated with GE and McKinsey also evaluates the business on two dimensions—market attractiveness and the business position. Each of these dimensions, as suggested by Figure 15.2, is richer and more robust than those used in the BCG model. The investment decision is again suggested by the position on a matrix. A business that is favorable on both dimensions should usually be a candidate to grow using the tools of the last four chapters.

When both market attractiveness and business position evaluations are unfavorable, the harvest or divest options should be raised. Of course, even in a hostile environment, routes to profitability can be found. Perhaps the business can turn to new markets, growth submarkets, superpremium offerings, new products, new applications, new technologies, or revitalized marketing. When the matrix position is neither unambiguously positive or negative, the investment decision will require more detailed study.

There are usually three drivers of a divestment decision besides the current and expected profit drain. The first is market demand. Perhaps demand estimates were overly optimistic in the first place or perhaps the demand was there but deteriorated as the market matured. The second is competitive intensity. New competitors could have emerged or the existing competitors may have been underestimated or could have enhanced their offerings. The third is a change in strategic thrust of the organization, a change that affects the fit of the business. The firm may no longer be a synergistic asset or the business may no longer be a link to the future. In fact, the business may be not only a resource drain, but a distraction to the internal culture and the external brand image.

These factors all came into play in 2011 when Home Depot made the painful decision after a 17-year effort to close its Expo Design Centers, stores that carried high-end products embedded in an upscale design service and elaborate aspirational displays.1 Introduced in the early 1990s as a way to provide a high margin, growth platform, the idea was to introduce chain economies into what is a mom and pop industry buttressed by the buying clout and logistic assets of Home Depot. Even during the housing boom, the concept struggled perhaps because Home Depot's image of functionality and value got in the way of delivering the self-expressive benefits that were the heart of Expo; perhaps because the design culture just did not fit organizationally; and perhaps because the design community turned out to be tougher competitors than envisioned. When new housing construction declined sharply, demand dried up. In addition, Home Depot, in the midst of a recession, needed to sharpen its strategy to focus on its core business and Expo needed to go.

Being able to make and implement an exit decision can be healthy and invigorating. The opportunity cost of overinvesting in a business and of hanging on to business ventures that are not performing and never will perform can be damaging and even disastrous. Further, this cost is often hidden from view because it is shielded by a nondecision. When a business that is not contributing to future profitability and growth absorbs resources in the firm—not only financial capital but also talent, the firm's most important currency—those businesses that do represent the future of the firm will suffer. Perhaps worse, some businesses with the potential to be important platforms for growth will be left on the sidelines, starved victims of false hopes and stubborn, misplaced loyalty.

Jack Welch, the legendary GE CEO, believed that identifying the talent of the future was his most important job. The flip side was identifying those who did not fit the future plans and letting them seek careers elsewhere. He believed the firm would be stronger and the people involved would benefit in the long run as well. He felt the same about business units. Welch, during his first four years as GE's CEO, divested 117 business units, accounting for 20 percent of the corporation's assets. Such an active divestiture program can generate cash at a fair (as opposed to a forced-sale) price, liberate management talent, help reposition the firm to match its strategic vision, and add vitality. The divested businesses often benefit as well, as many will move into environments that are more supportive in terms of not only assets and competencies but also the commitment to succeed. It is healthy all around to trim businesses and there will always be business units to trim. One study by Bain & Company estimated that of 181 growth initiatives that involved moving into a business adjacent to a core business (having much in common with the core business such as customers, technology, distribution, etc.), only 27 percent were deemed successful and about the same number were clear failures.2 In packaged goods, a Procter & Gamble study showed that the number of new products tested that were still on the shelf two years later was only 10–15 percent.3

Achieving sustained growth is rare, and when it appears, it is often fueled by new businesses. One theory advanced by James Brian Quin, a strategy theorist, and others about how to find and develop successful new businesses is to “let a thousand flowers bloom,” tend those that thrive, and let the rest wither. The venture capital industry lives by the mantra that if you fund 10 ventures, two will be home runs, and they will represent overall success. Getting home runs requires funding many ventures. The key to the prescription that it takes many tries to find success is to have a process and the will to terminate business units that are not going to fuel growth in the future. Without that process, a thousand flowers will result in an overgrown garden where none are healthy.

Many firms avoid divestiture decisions until they become obvious or are forced by external forces. In addition to wasted resources, delayed divestiture decisions result in lower prices being obtained for the business. As painful divest decisions are delayed, the forces that create the decline of the business continue to exert pressure and often increase. The result is a declining value often accompanied with more losses. One study showed that organizations are more profitable when they systematically evaluate the strategic fit and future prospects of each business and then regularly make divestiture decisions or place business units on a probationary status.4

When any of the following conditions are present, an exit strategy should be considered:

• Business Position

  • The business position is weak—the assets and competencies are inadequate, the value proposition is losing relevance, or the market share is in third or fourth place and declining in the face of strong competition.

  • The business is now losing money and future prospects are dim.

• Market Attractiveness

  • Demand within the category is declining at an accelerating rate and no pockets of enduring demand are accessible to the business. It is unlikely that a resurgence of the category or a subcategory will occur.

  • Price pressures are expected to be extreme, caused by determined competitors with high exit barriers and by a lack of brand loyalty and product differentiation.

• Strategic Fit

  • The firm's strategic direction has changed so that the business has become superfluous or even unwanted.

  • The firm's financial and management resources are being absorbed when they could be employed more effectively elsewhere.

Even when the decision seems clear, there may be exit barriers that need to be considered. Some involve termination costs. A business may support other businesses within the firm by providing part of a system, by supporting a distribution channel, or by using excess plant capacity. Long-term contracts with suppliers and labor groups may be expensive to break. The business may have commitments to provide spare parts and service backup to retailers and customers, and it may be difficult to arrange alternative acceptable suppliers.

An exit decision may affect the reputation and operation of other company businesses, especially if that business is visibly tied to the firm. Thus, GE was concerned about the impact its decision to discontinue small appliances would have on its lamp and large-appliance business retailers and consumers. At the extreme, closing a business could affect access to financial markets and influence the opinion of dealers, suppliers, and customers about the firm's other operations.

If there is any reason to believe the market may change to make the business more attractive, the exit decision could be delayed. Remaining in the business may be a contingency play.

There are well-documented psychological biases in analyzing a business. One such bias is reluctance to give up. There may be an emotional attachment to a business that has been in the “family” for many years, or that may even be the original business on which the rest of the firm was based. It is difficult to turn your back on such a valued friend, especially if it means laying off good people. Managerial pride also enters in. Professional managers often view themselves as problem solvers and are reluctant to admit defeat.

Another obstacle is due to the confirmation bias.5 People naturally seek out information that supports their position and discount disconfirming information, whatever the context. Confirmation bias can be rampant in evaluating a business to which some have emotional and professional ties. Information that confirms that the business can be saved is more likely to be uncovered and valued than disconfirming information. Questions asked in market research may be slanted, perhaps inadvertently, toward providing an optimistic future for the business. When there is uncertainty, the bias can get large. When predicting future sales or costs, for example, extreme numbers may be put forth as plausible. Such a tendency is seen in major governmental decisions, such as funding a fighter plane or building a bridge.

Another bias to deal with is the escalation of commitment. Instead of regarding prior investments as sunk costs, there is a bias toward linking them to the future decisions. Thus, a decision to invest $10 million more is framed as salvaging the prior $100 million investment.

All three biases were in view when Tenneco Oil Company made decisions that helped lead to its demise.6 Tenneco Oil was a healthy company, a top 20 in the Fortune 500, but stole defeat from the jaws of victory, so to speak. It had a division, J. I. Case, a manufacturer of agricultural and construction equipment, which was doing badly. Case had weak products, weak distribution, high costs, and a 10 percent market share facing a declining, low-profit industry with excess capacity that was dominated by John Deere. Instead of facing reality, Tenneco doubled down by buying International Harvester, a competitor of Case, that had 20 percent share, but was on the verge of bankruptcy. The market did not improve, synergies did not materialize in a timely fashion, and the losses of the combined equipment company were substantial. Meanwhile, the profit flow of the energy operations faltered as the price of oil fell. These events coupled with high leverage meant the end of Tenneco Oil; the company was sold off in pieces. A series of bad decisions was driven not by an objective analysis but rather by these biases coupled with the illusion that success and cash flow largely dependent on external events will continue.

To deal with these biases, the decision needs to be more objective in terms of both process and people. The process should be transparent and persuasive, thereby encouraging the discussion to be professional, centered on key issues and discouraging emotional gut reactions. It helps if it is applied to a spectrum of business units instead of just the marginal ones. For example, it is well known that the only way to close down a military plant is to evaluate all of them and let the process identify which ones are no longer needed. When politicians are faced with such objective evidence and required to make an up or down vote, it becomes harder to fight for their “base.”

It is also helpful to have people interjected into the analysis who do not have histories that prevent them from being objective. Such people can be from within the firm, but sometimes an outside party from a consulting company or a new hire can be more objective. This can be done vicariously as well. There is the often-repeated story of how Intel made the painful decision to turn its back on the memory business, which represented not only its heritage but also the bulk of its sales. Intel's president, Andy Grove, at one point looked at CEO Gordon Moore and asked what a new outside CEO would do. The answer was clear—get out of memory. So the two men symbolically walked out the door and walked back in and then made the fateful decision to exit a business that had been destroyed by Asian competitors. Even after making the decision, it was difficult to cut out all R&D and close it down. Two people sent to close the business dragged their heels and continued to invest. Finally, Grove himself had to step in. It turns out that the implementation of an exit decision is also difficult.

Peter Drucker recounted a story about a leading firm in a specialized industry that organized a group of people every three months to look critically at one segment of the company's offerings. This group was a cross-section of young managers and changed every quarter. They addressed the Andy Grove question—if we were not in this business now, would we go into it? If the answer was no, an exit strategy would be considered. If the answer was yes, then the next question was whether the existing business strategy would be used. A negative judgment would lead to proposed changes. One key to the firm's success was that this process led to the exit or modification of every single one of its businesses over a five-year period.

THE MILK STRATEGY

A milk or harvest strategy aims to generate cash flow by reducing investment and operating expenses to a minimum even if that causes a reduction in sales and market share. The underlying assumptions are that the firm has better uses for the funds, that the involved business is not crucial to the firm either financially or synergistically, and that milking is feasible because sales will stabilize or decline in an orderly way. The milking strategy creates and supports a cash cow business.

There are variants of milking strategies. A fast milking strategy would be disciplined about minimizing the expenditures toward the brand and maximizing the short-term cash flow, accepting the risk of a fast exit. A slow milking strategy would sharply reduce long-term investment, but continue to support operating areas such as marketing and service. A hold strategy would provide enough product development investment to hold a market position, as opposed to investing to grow or strengthen the position.

Conditions Favoring a Milking Strategy

A milking strategy would be selected over a growth strategy when the current market conditions make investments unlikely to improve a negative environment caused by competitor aggressiveness, consumer tastes, or other factors. Sometimes it is precipitated by a new entrant that turns a market hostile. Chase & Sanborn was once a leading coffee; the “Chase & Sanborn Hour,” starring Edgar Bergen, was one of the most popular radio shows of its time. After World War II, though, Chase & Sanborn decided to retreat to a milking strategy rather than fight an expensive customer retention battle that was occurring in the instant coffee market and the introduction of General Foods' heavily advertised Maxwell House brand.

Several conditions support a milking strategy rather than an exit strategy:

• The business position is weak, but there is enough customer loyalty, perhaps in a limited part of the market, to generate sales and profits in a milking mode. The risk of losing relative position with a milking strategy is low.

• The business is not central to the current strategic direction of the firm, but still has relevance and leverages assets and competencies.

• The demand is stable or the decline rate is not excessively steep, and pockets of enduring demand ensure that the decline rate will not suddenly become precipitous.

• The price structure is stable at a level that is profitable for efficient firms.

• A milking strategy can be successfully managed.

One advantage of milking rather than divesting is that a milking strategy can often be reversed if it turns out to be based on incorrect premises regarding market prospects, competitor moves, cost projections, or other relevant factors. Oatmeal, for example, has experienced a sharp increase in sales because of its low cost and associations with nutrition and health. In men's apparel, suspenders have shown signs of growth. Fountain pens, invented in 1884, were virtually killed by the appearance in 1939 of the ballpoint. However, the combination of nostalgia and a desire for prestige has provided a major comeback for the luxury fountain pen. As a result, the industry has recently seen years in which sales doubled.

Implementation Problems

It can be organizationally difficult to assign business units to a cash cow role because in a decentralized organization (and most firms pride themselves on their decentralized structure), it is natural for the managers of cash-generating businesses to control the available cash that funds investment opportunities. The culture is for each business to be required or encouraged to fund its own growth, and of course all business units have investment options with accompanying rationales. As a result, a fast-growing business with enormous potential but relatively low sales volume will often be starved of needed cash. It requires a sometimes disruptive centralized decision to assign a large business unit a cash cow role. The irony is that the largest businesses involving mature products may have inferior investment alternatives, but because cash flow is plentiful, their investments will still be funded. The net effect is that available cash is channeled to areas of low potential and withheld from the most attractive areas. A business portfolio analysis helps force the issue of which businesses should receive the available cash.

Another serious problem is the difficulty of placing and motivating a manager in a milking situation. Most SBU managers do not have the orientation, background, or skills to engage in a successful milking strategy. Adjusting performance measures and rewards appropriately can be difficult for both the organization and the managers involved. It might seem reasonable to use a manager who specializes in milking strategies, but that is often not feasible simply because such specialization is rare. Most firms rotate managers through different types of situations, and career paths simply are not geared to creating milking specialists.

There are also market risks associated with a milking strategy. If employees and customers suspect that a milking strategy is being employed, the resulting lack of trust may upset the whole strategy. As the line between a milking strategy and abandonment is sometimes very thin, customers may lose confidence in the firm's product and employee morale may suffer. Competitors may attack more vigorously. All these possibilities can create a sharper-than-anticipated decline. To minimize such effects, it is helpful to keep a milking strategy as inconspicuous as possible.

The Hold Strategy

A variant of the milking strategy is the hold strategy, in which growth-motivated investment is avoided, but an adequate level of investment is employed to maintain product quality, production facilities, and customer loyalty. A hold strategy will be superior to a milk strategy when the market prospects and/or the business position is not as grim. There may be more substantial and protected pockets of demand, better margins, a superior market position, a closer link to other business units in the firm, or the possibility of improved market prospects. A hold strategy would be preferable to an invest strategy when an industry lacks growth opportunities and a strategy of increasing share would risk triggering competitive retaliation. The hold strategy can be a long-term strategy to manage a cash cow or an interim strategy employed until the uncertainties of an industry are resolved.

Sometimes a hold strategy can result in a profitable “last survivor” of a market that is declining slower than most assume. A survivor may be profitable, in part because there may be little competition and in part because the investment to maintain a leadership position might be relatively low. The cornerstone of this strategy is to encourage competitors to exit. Toward that end, a firm can be visible about its commitment to be the surviving leader in the industry by engaging in increased promotion or even introducing product improvements. It can encourage competitors to leave by pricing aggressively and by reducing their exit barriers by purchasing their assets, by assuming their long-term obligations, or even by buying their business. Kunz, which made passbooks for financial institutions, was able to buy competitor assets so far under book value that the payback period was measured in months. As a result, Kunz had record years in a business area others had written off as all but dead decades earlier. A hold strategy is particularly problematic if a disruptive innovation appears and the strategy prevents a firm from making necessary investments to remain relevant. As a result, firms may be slow to convert from film to digital, to reduce trans fats from packaged goods, or to adapt hybrid technology. The result could be a premature demise of a cash cow business.

A problem with the hold strategy is that if conditions change, reluctance or slowness to reinvest may result in lost market share. The two largest can manufacturers, American and Continental, failed to invest in the two-piece can process when it was developed because they were engaged in diversification efforts and were attempting to avoid investments in their cash cow. As a result, they lost substantial market share.

Brands are the face of a business strategy, and getting the brand strategy right is often a route to making the right business strategy decisions. One element of brand strategy is to set priorities within the brand portfolio, identifying the strong strategic brands, other brands playing worthwhile roles, brands that should receive no investment, and brands that should be deleted.7

One reason to prioritize brands and trim the brand portfolio is that the exercise provides a good way to prioritize the business portfolio because the brand will usually represent a business. When the brand perspective is used, the business prioritization analysis can sometimes be more objective and the resulting conclusion more transparent and obvious. The brand is usually a key asset of the business and represents its value proposition. Thus, a recognition that the brand has become weak can be a good signal that the business position is weak. Without prioritization of the brand portfolio, strategic brands will lose equity and market position because marginal brands are absorbing brand-building dollars and, worse, managerial talent. Managers simply follow an instinct to solve problems rather than exploiting opportunities, and too many marginal brands create a host of problems.

A second reason is that prioritizing and trimming the brand portfolio can correct the debilitating confusion associated with overbranding. Most firms simply have too many brands, subbrands, and endorsed brands, all part of complex structures. Some brands may reflect product types, others price value, and still others customer types or applications. The branded offerings may even overlap. The totality often simply reflects a mess. Customers have a hard time understanding what is being offered and what to purchase. Even employees may be confused. The business strategy therefore operates at a huge disadvantage.

A third reason is to address the strategic paralysis created by an overbranded, confused brand portfolio without priorities. It is all too common for a firm to be immobilized by an inability to commit to how a new offering or new business should be branded. To provide a brand to a new offering or business that will foster success, there needs to be a sense of what brands will be strategic going forward and what their role and image will be. Assigning a brand that lacks a strategic future or whose future is incompatible with that assignment can be a serious handicap to a business strategy.

One partial step to reduce overbranding is to be more disciplined about the introduction of new offerings and new brands; avoid ad hoc business expansion decisions made without a systematic justification process. In particular, any proposed new brand should represent a business that is substantial enough and has a long enough life to justify brand-building expenses. It should have a unique ability to represent a business—that is, no other existing brands would work.

Controlling the introduction of new brands is only half the battle. There needs to be an objective process to phase out or redeploy marginal or redundant brands after they have outlived their usefulness. The strategic brand consolidation process, summarized in Figure 15.3, addresses that challenge. It involves five distinct steps: identify the relevant brand set, assess the brands, prioritize brands, create a revised brand portfolio strategy, and design a transition strategy.

1. Identify the Relevant Brand Set

The brand set will depend on the problem context. It can include all brands or subsets of the portfolio. For example, an analysis for GM might include the brands GMC, Chevrolet, Pontiac, Buick, and Cadillac. Or it might include the brand set within a narrow context such as the Chevrolet Silverado truck brands 1500, Hybrid, 2500HD, 3500HD, and Chassis. When brands are involved that share similar roles, it becomes easier to evaluate the relative strength.

2. Brand Assessment

If brand priorities are to be established, evaluation criteria need to be established. Further, these criteria need to have metrics so that brands can be scaled. A highly structured and quantified assessment provides stimulation and guidance to the discussion and the decision process. There should be no illusion that the decision will default to picking the higher number. The criteria will depend on the context, but, in general, there are four areas or dimensions of evaluations:

• Brand Equity

  • Awareness—Is the brand well known in the marketplace?

  • Reputation—Is the brand well regarded in the marketplace? Does it have high perceived quality?

  • Differentiation—Does the brand have a point of differentiation?

  • Relevance—Is it relevant for today's customers and today's applications?

  • Loyalty—How large a segment of loyal customers is there?

• Business Prospects

  • Sales—Is this brand driving a significant business?

  • Share/market position—Does this brand hold a dominant or leading position in the market? What is the trajectory?

  • Profit margin—Is this brand a profit contributor and likely to remain so? Or are the market and competitive conditions such that the margin prospects are unfavorable?

  • Growth—Are the growth prospects for the brand positive within its existing markets? If the market is in decline, are there pockets of enduring demand that the brand can access?

• Strategic Fit

  • Extendability—Does the brand have the potential to extend to other products as either a master brand or an endorser? Can it be a platform for growth?

  • Business fit—Does the brand drive a business that fits strategically with the direction of the firm? Does it support a product or market that is central to the future business strategy of the firm?

• Branding Options

  • Brand equity transferability—Could the brand equity be transferred to another brand in the portfolio by reducing the brand to a subbrand or by developing a descriptor?

  • Merging with other brands—Could the brand be aggregated with other brands in the portfolio to form one brand?

Brands need to be evaluated with respect to the criteria. The resulting scores can be combined by averaging or by insisting on a minimal score on some key dimensions. For example, a low score on strategic fit may be enough to signal that the brand's role needs to be assessed. Or, if the brand is a significant cash drain, then it might be a candidate for review even if it is otherwise apparently healthy. In any case, the profile will be important and judgment will be needed to make final assessments of the brand's current strength.

3. Prioritize Brands

The brands that are to live, be supported, and be actively managed need to be prioritized or tiered in some way. The number of tiers will depend on the context, but the logic is to categorize brands so that precious brand-building budgets are allocated wisely. The top tier will include the strategic power brands—those with existing or potential equity that are supporting a significant business or have the potential to do so in the future. A second tier could be those brands involving a smaller business, perhaps a niche or local business, or brands with a specialized role such as a flanker brand (a price brand that deters competitors from penetrating the market from below). A third tier would be the cash cow brands, which should be dialed down with little or no investment of brand-building resources.

The remaining brands need to be eliminated, placed on notice, merged, or restructured.

• Eliminate. If a brand is judged to be ill-suited for the portfolio because of weak or inappropriate brand equity, business prospects, strategic fit, or redundancy issues, a plan is needed to eliminate the brand from the portfolio. Selling it to another firm or simply killing it become options.

• On notice. A brand that is failing to meets its performance goals but has a plan to turn its prospects around might be put on an on-notice list. If the plan fails and prospects continue to look unfavorable, elimination should then be considered.

• Merged. If a group of brands can be merged into a branded brand group, the goal of creating fewer, more focused brands will be advanced. Microsoft combined the products Word, PowerPoint, Excel, and Outlook into a single product called Office. The original product brands are now reduced to descriptive subbrands.

• Restructure. Firms can attempt to transfer brand equity and customers from a de-prioritized brand to another. This is what Unilever did when it moved from a focus on Rave hair products to Suave and from Surf detergent products to All.

Nestlé has long had a system of brand portfolio prioritization. Twelve global brands are the tier one brands on which the company focuses. Each of the global brands has a top executive who is designated as its brand champion. These executives make sure that all activities enhance the brand. They have final approval over any brand extensions and major brand-building efforts. Peter Brabeck, who became CEO, has elevated six of these brands—Nescafe for coffee, Nestea for tea, Buitoni for pasta and sauces, Maggi for bouillon cubes, Purina for pet food, and Nestlé for ice cream and candy—as having priority within Nestlé. Nestlé has also identified 83 regional brands that receive management attention from the Swiss headquarters. In addition, there are hundreds of local brands that are either considered strategic, in which the headquarters is involved, or tactical, in which case they are managed by local teams.

4. Develop the Revised Brand Portfolio Strategy

With brand priorities set, the brand portfolio strategy will need to be revised. Toward that end, several brand portfolio structures should be created. They could include a lean structure with a single master brand, such as Sony or HP, or a “house of brands” strategy like P&G, which has over 80 major product brands. The most promising options are likely to be in between. The idea is to create structures around two or three viable options, with perhaps two or three suboptions under each.

The major brand portfolio structure options, together with suboptions, need to be evaluated with respect to whether they:

• Support the business strategy going forward

• Provide suitable roles for the strong brands

• Leverage the strong brands

• Generate clarity both to customers and to the brand team

5. Implement the Strategy

The final step is to implement the portfolio strategy, which usually means a transition for the existing strategy to a target strategy. That transition can be made abruptly or gradually.

An abrupt transition can signal a change in the overall business and brand strategy; it becomes a one-time chance to provide visibility and credibility to a change affecting customers. So when Norwest Bank acquired Wells Fargo and changed the name of Norwest to Wells Fargo, it had the opportunity to communicate new capabilities that would enhance the offering for customers. In particular, Norwest customers could be assured that the personal relationships they expected would not change, but they could also expect upgraded electronic banking services because of the competence of Wells Fargo in that area. The name change reinforced the changed organization and the repositioning message. An abrupt transition assumes that the business strategy is in place; if not, the effort will backfire. If, for example, the Wells Fargo technology could not be delivered, the best course would have been to delay the name change until the substance behind the new position could be delivered.

The other option is to migrate customers from one brand to another gradually perhaps with intervening steps where the brand becomes an endorsed brand and then a subbrand before disappearing. Each stage may involve years. This will be preferred when:

• There is no newsworthy reposition that will accompany the change.

• Customers who may not have high involvement in the product class may need time to learn about and understand the change.

• There is a risk of alienating existing customers by disrupting their brand relationship.

KEY LEARNINGS

• The exit decision, even though it is psychologically and professionally painful, can be healthy both for the firm because it releases resources to be used elsewhere but even for the divested business, which might thrive in a different context.

• A milking or harvest strategy (generating cash flow by reducing investment and operation expenses) works when the involved business is not crucial to the firm financially or synergistically. For milking to be feasible, though, sales must decline in an orderly way.

• Prioritizing and trimming the brand portfolio provides another perspective on prioritizing businesses, can clarify brand offerings, and can remove the paralysis of not being able to brand new offerings. A five-step prioritization process involves identifying the relevant brand set, assessing the brands, prioritizing brands, creating a revised brand portfolio strategy, and designing a transition strategy.