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Vigorous discussion about brands and branding has taken central focus in the boardrooms of corporations around the world. Here's why:

Perhaps most important, CEOs recognize the market value of their companies is increasingly tied to intangible assets. McKinsey & Co.'s analysis of consumer companies in the Fortune 250 found roughly half of their market value was tied to intangible asset values (like brands); some of the most valuable companies have valuations where better than three-quarters of the value is tied to intangibles.


Underlying this value is the recognition that brands continue to play important roles in shaping marketplace decisions. Market research shows brands shape customer purchase and loyalty decisions. In fact, 1998 McKinsey research results show that 77% of consumers would find it very difficult to change brands once they find one they like, up from 72% in 1993.

As strong brands shape customer and employee decisions in the marketplace, they in turn shape the growth of the company. In the quest for shareholder value, growth is still the No. 1 driver, with the rate of growth explaining more than a third of the variance in the total return to shareholders.

Many companies evolve their brands to help drive growth. Unfortunately, however, not every attempt to leverage the brand or extend its reach has been successful. As an example of brand leverage gone wrong, consider what happened when Cadillac tried to extend its brand down market with the Cimarron, or when Gucci allowed the brand to over-extend into too many products.

Recognizing this gap between winners and losers, we conducted research to understand the relationship between a company's brand leverage approach and shareholder value. This analysis was built on a sample base of 130 companies with recognizable consumer corporate brands.

McKinsey interviewed 6,000 customers to assess their perception of a brand's strength, based on underlying perceptions of quality. This market research enabled us to group brands into relatively stronger and relatively weaker brands.


We then calculated how leveraged the company's corporate brand was across products and services (what percentage of revenues was tied to different categories).

Finally, we calculated the company's total return to shareholders relative to an industry average. We were then able to determine the relative economic returns from weaker versus stronger brands.

We found, not surprisingly, strong brands outperformed weaker brands: strong brands generated, on average, total returns 1.9% above industry average; weaker brands lagged the average by 3.1%.

Then we looked at performance of strong brands in conjunction with the range of products and categories across which each company competed.

Here, we found companies such as Walt Disney Co., had leveraged their strong brands more powerfully, earned 5% over their peers; less leveraged (but still strong) brands earned only 0.9% more.

Now, this does not mean that every company should pursue a more leveraged strategy. But the results are a compelling reason why companies need to spend more time thinking about how to leverage what may be their most important intangible assets -- their brands.


The shareholder value winners go further than creating and sustaining a strong brand: they leverage their brands into other businesses.

A simple example of leverage is Procter & Gamble Co.'s Ivory. From its base in the bar soap business, Ivory has moved into shampoo and laundry detergent. Both of these extensions obviously leverage the core brand's performance and personality characteristics. At the other end of the spectrum is Virgin Group. From one point of view, Virgin appears to have leveraged its brand in a relatively unrelated set of steps from music stores to airlines, financial services and Virgin Cola.

But this is to look only at the products. At the level of personality, Virgin as fun, exciting and a rebel against the system resonates across all of these opportunities.

Just as brands are being built faster, they seem to be being leveraged faster. General Electric Co. focused almost entirely on lighting products for 40 years before leveraging the brand name into appliances. Charles Schwab & Co. evolved from discount brokerage to PC trading after only 10 years.


Our research again helped us gain some insight. McKinsey picked segments judged to be moderate to strong brands and industries that represented a large cross-section of the economy. Those industries were consumer focused, and were often facing leverage issues beyond line extensions or limited product introductions.

Our first objective was to understand clearly the brand's current starting position in terms of both performance and personality. We asked respondents to react to 30 performance characteristics. The common themes for performance were quality, distinctiveness and consistency. We also asked the respondents to react to 25 personality characteristics including fun, useful, trusted and respected.

We explored how receptive consumers might be to each brand being leveraged in different ways. For each brand, we developed leverage options reflecting realistic expansion opportunities. Then we asked consumers two questions about each brand's leverage within and outside its current category: would it be appropriate for this brand to offer a product or service in this area and would you expect the brand to perform better, the same, or worse than what is currently available.

Naturally, what makes a good leverage opportunity moves around for different brands. We found, for example, that Levi Strauss & Co. has a fairly narrow cross-category leverage potential; in contrast, American Express Co. has a much broader leverage potential across categories.

In the next round of analysis, we married our prior analysis of brands' historical leverage moves with these new consumer perceptions about a brand's future leverage potential.

Companies fell into a wide range of different positions. Brands like Levi's had been fairly narrowly leveraged and, in the consumer's mind, still needed to remain so.

At the other end of the spectrum, companies like Disney, Sears, Roebuck & Co. and IBM Corp. have had a fairly broad leverage effort in the past and will continue to have a broad-ranging future leverage potential.

Our research suggests the two ends of the spectrum are in fact the most important areas on which to focus.

* Focused brands (those brands with narrow historical and future leverage potential) need to focus primarily on their core category, while seeking to capture close-in leverage opportunities. Examples would include Victoria's Secret, Gillette Co. and Coca-Cola Co.

* Diversified brands (having historical and future leverage potential such as Sears) have opportunities to build a much broader brand across multiple products and categories.

While both focused and diversified positions represent very successful models, they also entail very different approaches to building and leveraging the brands.


Focused brands have tended to succeed by adhering to three major themes:

1. Owning and broadening the category. When we asked consumers to rate a range of brands based on 25 personality characteristics, we found six characteristics were most often cited as defining focused brands: youthful, fun, adventurous, exclusive, outdoorsy and romantic. For example, Victoria's Secret scored 72 percentage points higher as a romantic brand than the other apparel brands. Similarly, Levi's scored 40 points higher on outdoorsy. Both brands spike on a limited number of personality elements. This is an important factor in creating distinctiveness. Advertising imagery of these brands emphasizes these strong personality elements.

Focused brands continuously seek to broaden the definition of the category. Gillette made a transition from a simple focus on razor blades to add shaving cream and aftershave lotion, thereby redefining the market to men's grooming products. Category redefinition opens the consumer's mind to what the category is about and encourages the organization to think more aggressively about building the brand.

2. Capturing all occasions. Focused brands also drive shareholder value by capturing all occasions. Coca-Cola is one of the best examples of a company that swarms the channels and geographies. It has aggressively developed its business across a wide variety of channels (e.g., vending, fountain, supermarkets, convenience stores) -- and pursued a leadership position in each.

3. Using alliances. Focused brands create value by using alliances to expand their presence. Intel is perhaps the classic example of partnering with other computer leaders to become the only consumer top-of-mind computer chip.


At the other end of the spectrum, diversified brands transcend multiple products and categories by pursuing three strategies:

1. Creating the golden thread. Companies can create what we call the golden thread -- a value proposition and/or personality that is something the consumer can count on and value. For example, Sony consistently weaves a theme of simple elegant design into all of its products. These threads help expand the consumer of what the brand represents.

2. Building high-credibility personalities. McKinsey research shows broadly diversified brands distinguish themselves on highly credible personality elements like trustworthiness, leadership, imagination and caring. The examples of IBM and AT&T perhaps best illustrate the point. The personality measures for these brands are relative to competitors. These brands tend to have personalities that cut across more personality elements than some of the lifestyle-oriented brands. They are significantly stronger on these elements than their competition, and communicate a feeling of confidence.

3. Aggressively leveraging the brand. Diversified brands then move to capture the value in their brands by expanding into new opportunities. They frequently target low brand-intensity or emerging industries, where their brand is an important competitive advantage.

Almost 75% of Sears' growth over the last 10 years comes from developing new businesses outside of its core retail business, often in low brand intensity businesses such as home repair. Other strong brands have moved aggressively into what have historically been more sleepy, low brand-intensity sectors.


A large number of companies sit somewhere in the middle. How do they choose the right leverage strategy? That depends somewhat upon a company's own aspirations. But the results of McKinsey research can help a company decide whether a brand would be better suited to be a more diversified -- or a more focused -- brand. We found essentially two strategic themes each company should keep in mind:

First, a company has to determine how many underdeveloped or low brand intensity businesses are close to its own business and how well its brand could compete in these businesses.

Second, brand personality can affect your choice of direction. Broader messages that communicate the high-credibility personality with more confidence and trustworthiness probably have more leverage potential outside the core category.

In contrast, if the brand is more focused on lifestyle themes, a more focused brand leverage strategy may make more sense. Shifting from a focused brand to a high-credibility personality has risks and might dilute core equities. It may be more appropriate to maintain a focus on the core lifestyle personality elements such as Victoria's Secret has held with its romantic core personality.

Clearly, the game for many companies is shifting from a world of brand building to a world of brand leverage, as brand leverage can be an important source of shareholder value. As such, its planning belongs both in the brand manager's office and in the boardroom if a company wants to capture that value.

A company must make a conscious choice on its high-level brand leverage strategy because the business development choices and the organizational support can be quite different depending on that choice.

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