Years ago, I was making a presentation to several hundred marketing people from a Fortune 500 consumer-products company.
The audience sat in silence with little visible reaction. Then I mentioned that , in certain situations, line extensions can work.
Almost immediately, everyone in the audience picked up pens and pencils and started to take notes.
First the sentence, then the trial
That's the way it is in many corporations today. First you decide what you want to do. Then you figure out the reasons why your decision is the right one.
No wonder line extension is so popular. It's logical. And it supports the No. 1 goal of management, which is to "expand the business."
And what better way to expand the business, goes the thinking, than by using our great brand on a number of new products and new markets?
Would you like to smoke? Forget the warnings you read in the paper. You can always find people who smoked all their lives and never got lung cancer.
First the decision. Then the supporting reasons.
The case against line extension
It doesn't depend on case histories. If everyone in an industry line extends brands (as happened in the beer business), then it's not an issue at all. The winner will be the leading brand and its line extension (Budweiser and Bud Light) regardless of what the competition does or doesn't do. (And in the cola business, Coke and Diet Coke.)
The case against line extension is a philosophical exercise. For a brand to exist, it needs to be filed away in the mind. And where does a consumer put your brand in the mind?
If you say, "Would you like a Budweiser?" the consumer thinks "beer." Why is this so? Because apparently the Budweiser brand is filed in a mental category called "beer."
Or if you say, "Xerox this document," the consumer thinks "make a copy." The Xerox brand is apparently filed in a mental category called "copier."
So what happened when Xerox, the copier company, introduced Xerox computers?
Nothing. And Xerox went on to lose billions of dollars.
What's a Yahoo?
Yahoo became the world's most-valuable internet brand by focusing on "search." At one point in time, Yahoo had a market capitalization of $114 billion.
So what did Yahoo do next? You know what it did next because this is what almost all companies do next. It tried to expand the brand.
A decade ago, Yahoo's CEO said: "In online commerce and shopping you can expect to see us extend aggressively by broadening and deepening the range of consumer buying, transaction and fulfillment services we provide across all major categories."
Which is exactly what it did.
Starting as a search engine, Yahoo added a raft of features: auctions, calendars, chart rooms, classifieds, email, games, maps, news, pager services, people searches, personals, radio, shopping, sports, stock quotes, weather reports and yellow pages.
And to further its goal of being all things to all people, Yahoo spent a small fortune on acquisitions: $5 billion for Broadcast.com, a service that delivers audio and video over the Internet; $3.7 billion for GeoCities, a home-page service.
As a result, Yahoo lost its leadership in search to Google. Today, Yahoo is worth $19.4 billion on the stock market and Google is worth $189.1 billion, almost 10 times as much. Furthermore, Yahoo revenue continues to fall, from $7.2 billion in 2008 to $5 billion last year.
(As marketing people know, Google is following in the footsteps of Yahoo by extending its brand into many other categories. Tomorrow Google might become what Yahoo is today, a brand in search of a position.)
In six years, Yahoo has had six chief executives.
What's a Yahoo? Chief Executive Scott Thompson (no longer with the company) recently said it was a media company. "Our online media presence," he wrote in a memo to his staff, "has long been our company's clearest competitive advantage"
Is there a category in the mind for "media company?" Sure, and it's filled with names such as The New York Times Co., The Washington Post Co., Time Inc., News Corp. and many others.
I don't think many Yahoo users consider the brand to be a "media company."
What's a wall, a spear, a snake, a tree, a fan and a rope?
It's an elephant groped by six blind men.
As John Godfrey Saxe's poem put it: "Though each was partly in the right, and all were in the wrong!"
There's a logic to a wall/spear/snake/tree/fan/rope approach. In certain circles, it's call "market segmentation." You market a brand with a different approach for each market segment.
One segment needs a wall. One segment needs a spear. Another segment needs a snake. And so on.
Instead of one position for a brand, you have multiple positions. To the business community, Dell is a direct-to-business computer company. To consumers, Dell is a consumer computer. That was a strategy that was supposed to double sales.
It didn't work. Dell once had 17% of the global personal-computer market. Today, Dell has 11%. Dell stock once sold for $60 a share. Today, it's less than $13 a share.
Everywhere you look, companies are racing to expand their brands when they should be doing exactly the opposite.
Southwest Airlines used to be the low-cost domestic-only airline. After buying AirTran, the company is picking up AirTran's flights to Mexico and the Caribbean. Not a good direction for a domestic-only airline.
As USA Today reported recently, "It's another sign that the one-time niche carrier is increasingly competing on the same turf as the big network airlines, the so-called legacy carriers, such as United, Delta and American."
I hate to mention this, but all the so-called legacy carriers once went bankrupt.
Pizza & Sandwich Hut
Pizza Hut, the leading pizza chain, is launching a new P'Zolo sandwich in an attempt to take market share from Subway, the leading sandwich chain. "Say so long to the footlong" is one of the lines from its national advertising campaign.
How will this campaign help build the Pizza Hut brand? To start with, what's a Pizza Hut? I don't know. Shouldn't its first job be to better define what the brand currently stands for?
Subway has become the largest fast-food chain in the country by number of units (23,850) and the second largest in revenue ($10.6 billion), well ahead of Pizza Hut ($5.5 billion.)
Suppose the Pizza Hut marketing team were working for Subway. Would they recommend adding pizza to the menu? (It might be hard to believe, but Subway once had a pizza, now discontinued.)
Today, Subway has the footlong, Jared Fogle and a theme that resonates with consumers, "Eat fresh."
What does Pizza Hut have except a marketing team that thinks every problem can be solved by line-extending the brand?
What would Steve Jobs do?
Tim Cook, the new CEO of Apple, was recently asked what he'd learned from Steve Jobs. His reply: "I learned that focus is key, not just in running a company but in your personal life."
How many other chief executives would have launched new products like the iPod, the iPhone and the iPad with new brand names when the company's brand (Apple) was one of the best-known brand names in the world?
Not too many. I know the frosty reception I got from Xerox management when I suggested that Xerox computers be launched with a different brand name.
There are two major themes in business today. One is line extension and the other is focus. But at most companies, focus is losing the battle.
It's gotten so bad we're thinking about changing our long-term Ries & Ries positioning slogan from "Focusing consultants" to "Focusing & line-extension consultants."