Can too Many Brands Damage your Business? 🤦♀️Podcast Ep. 53
When companies buy lots of brands – they sometimes have real issues integrating them and differentiating their offer. Can too many brands damage your business?
This can create real pricing issues – by dragging pricing down to the lowest rung.
We discuss this issue today.
TIME-STAMPED SHOW NOTES
[01:55] With no established product differentiator in the same sector, having many brands damage your business
[03:34] Requisition and buying many brands damage your business if it is not aligned with your pricing structure
[06:05] To avoid having many brands that can damage your business, the company needs to understand their brand and their customers.
[09:38] Aidan explains why pricing is not a distinct function.
Does having many brands damage your business?
In this podcast, we want to follow up on our last episode about segmentation and branding. And ask the question… what problems can arise when a company has too many brands or too many legacy brands?
We were talking before about how businesses now through disruption, through market competition, aggressive pricing and downward pressure on pricing. That businesses are now acquiring lots of brands.
Lots of different businesses may be thinking about product innovation. And creating new brands to compete in the market.
We were wondering…
- What is that doing to a pricing structure?
- Do companies know that buying these brands or having these different businesses in their portfolio can have a tremendous impact both positive and negative on the pricing structure?
In particular, when you have a pricing structure you need order and logic to that pricing structure. To ensure that you’re getting the most out of each price point. And, the price aligns with the market and customers are willing to pay for these different brands according to how you hypothesize these brands.
You bought these brands for a reason. And you want to make money out of them. You don’t want to make to cannibalise your product portfolio with competing brands.
So we’re thinking very much about pricing structure…
- What do you need to look at?
- How can you improve that?
- What are the problems?
I think a lot of people become attached to brands then over history, the legacy.
With a brand to build it, you have spent a lot of money in advertising, customer service over the years. You can’t build a brand overnight.
With all that effort there’s often a reluctance on companies or anyone else to stop a brand. Or, to shell a bit or to integrate it into another brand that you may have.
But the issue would be if you have two brands that are in the same sector. And you haven’t invested in the value differentiators between the two. You don’t have that value culture in play.
There is the real danger that what will happen is the two brands will become confused in the customers’ minds. If they are saying similar items let’s give an example of maybe tools or something like that or even vehicles cars.
I will give the example of this car company of Hyundai and Kia owned by the same Korean larger company. I believe chaebol I think is the Korean sort of term for it. But over time those two brands have sort of become similar.
But a lot of people who weren’t very into cars that this sort of integrated into the same thing. And what would happen with that is if one is on sale for a lower significantly lower price than the other. And there’s not about brand recognition the real appreciation of value or perception of value between the two.
Generally, people will either be the more cost-effective or the cheaper one. Or, there will be pressure on the salesperson to reduce their price on the higher branded one to the lower price.
So it’s almost a race to the bottom.
Buying many brands can damage your business if it is not aligned with your pricing architecture
That’s a really good example of when the higher business strategy or requisition and buying brands is misaligned to the sorts of pricing strategy and the pricing structures.
Often it’s symptomatic when that happens that…
(A) There’s not even a pricing team on board managing the show
(B) Or, they’ve got the pricing team but they’re not very strategic.
They’re more of a maintenance operational pricing team making do with what they’ve got sort of second-hand news of the wider business strategy. And they’re sort of a very loose term about how they’re supposed to implement strategy from there.
I often find when there’s a major consolidation on a sort of higher-level from a strategic acquisitions team that they’re often been done. Because they want to increase the product portfolio with the idea to upsell and cross-sell to more customers.
In some people’s minds at the executive level is enough to go on.
Surely the hypothesis here is we have more products. We’ve got a huge market presence in one country, surely we’d have the same market presence in another.
There are a lot of assumptions here that are untested. It possibly is true.
But from a pricing perspective, you’ve got to think…
- Is that true?
- Can we test it?
- Is that cross-sell strategy the right one for us considering we’re going for a more value-based approach?
- Another thing to consider is, Is the brand that you’re acquiring competing with the local brand?
- And then inadvertently, are you competing with yourself on price?
You’ve got to have those clear fences between brands from a pricing team perspective. A pricing team will look very closely at that.
Because otherwise really what you’ve got is you’re playing with is a volume game. Just based simply on revenue and volume. There’s no real tiering system based on value.
From a market perspective and a customer perspective, it indicates that
(A) You don’t have that market Intel
(B) You’re not sure what your customers are willing to buy and you don’t have a leadership position.
You’re just playing it on a very tactical level.
Bottomline: To avoid the business damage of having too many brands companies needs to understand their brand and customers
I think it all comes back certainly in branding to this concept of the value culture that should be embedded throughout the business. Certainly in the pricing perspective.
It’s one thing for the company to understand their brand.
To know what it is to emphasise those aspects. But at the same time, you also have to make sure the customer knows as well.
Educating the customer and getting it across to the customer.
In many instances, there can be confusion in the customer mind. If that message isn’t getting across perfectly it can create issues.
One example I gave is the luxury watch market. So everybody’s heard of Rolex I was heard of certain brands like that. One of the biggest or most luxurious brands in the world from a technical perspective is the Japanese brand Grand Seiko.
Which is probably more famous for the lower end brands Seiko. So just a small one-word difference Grand Seiko versus Seiko, there’s probably a price differential of 10 times.
But in many people’s mindsets if you want to watch aficionados there would be confusion added. With that outside of Japan and some Asian countries, Grand Seiko may not have brand recognition. Or the acceptance as a luxury competitor to people like Rolex.
The technical specifics etc of the watch are very similar. But to some extent, the branding, the image, and making people aware through the marketing of that value differential.
What it does is breaks down the potential differentiators. The potential division between the two brands.
Would they do better if they’re distinctly different names?
It probably is a good question.
There’s great difficulty in making the choice about changing brands once you’ve built them both up. And that’s something that really should consider from the beginning.
I think that’s the point when you consolidate buy new brands to existing portfolios. You’ve got to understand on a very detailed level or like on a skill level.
- What is each of those products?
- What their value profile is?
- Where do they fit?
- Is the hot product price hierarchy built based on an understanding of the SKU’s profile?
Now I’m getting quite detailed here but this is what the good pricing team should do. When a team doesn’t know what to do, there’s no pricing strategy. Because the business strategies are vague.
It’s hard to sort of translate into a value-based strategy. And, the team is just all of a sudden giving a huge product portfolio that’s all in a mess.
It comes down to serious hard work. It comes down to understanding what you’re selling.
From your perspective first, and then you’ve got to then test all those assumptions in the market. Because often what you find is like an important high-value product or fast-moving it may be. That’s such a vague definition.
It’s not good enough to say oh this is fast-moving, therefore, we’ll price this. You need to know…
- Why do people are buying?
- How do people are consuming your products?
This comes down to B2B, from tools. You’ve got to say yeah we’ve acquired this brand. But, are these tools the same as our tools, our existing tools under this brand.
And you can’t just say… “oh yeah we think that they are, we think that they’re all the same”.
It just doesn’t work like that from a pricing perspective. You need to create some order in the price structure to make money out of them. That does require a lot of work from a line item analysis.
I think, one final point I’m making in this instance is it highlights pricing is not a distinct function.
It needs to work hand in hand with other functions. So let’s give the example of starting a brand, building a brand, and understanding the brand.
You have to be working with whoever’s designing, building and developing the service. Whoever the marketing people, advertising and sales. You have to be working with all of them.
Because your message from the marketing department is not completely congruent with your message from the pricing department. It just won’t work.
What are you hoping to achieve?
This is why we say the value culture has to be embedded throughout the entire business. Pricing is one important aspect of doing that and it is seen as a specialist skill set.
But that skill set massively overlaps and one of them falls. It just isn’t going to work. So yeah that’s about it for me on this topic. I’m gonna say Have a nice day.
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