Brand Portfolio Strategy: How Many Brands Is Too Many?

Posted by Mitch Duckler
How Many Brands Are Too Many? Portfolio Strategy
The Proliferation of Choice

In the early days of brand management, there were fewer options in the market across the board—fewer categories, fewer brands within those categories, and fewer alternatives within any given brand. Today more competitors are going to market with more brands than ever before. A more crowded and competitive marketplace makes it infinitely harder for brands to stand out from the pack.

Launching and managing a plethora of brands is referred to as brand proliferation — the opposite of brand extension. In brand extension, new offerings are added using an existing brand name, and several products are offered under the same brand name. Conversely, in brand proliferation, more items are added to the product line with different brand names.

The proliferation of choice affects consumers. When faced with an overwhelming number of available options for virtually any given purchase decision, people opt to walk away rather than make a difficult decision. In this respect, choice indeed can be debilitating.

A well-known research study conducted in California demonstrated this phenomenon using jars of jam. The researchers set up a booth to sell jam and offered samples to customers passing by. At times they offered 24 selections; other times, only six. Sixty percent of passersby stopped at the stand with 24 choices, but only three percent of those visitors made a purchase. While only 40 percent of visitors stopped to see the smaller stand, 30 percent of those people bought something.

Brand Build-Up

Historically, multinational consumer goods company Procter & Gamble employed a combination of organic growth and acquisition to own more than 200 brands around the world at its peak. However, that massive collection quickly proved unsustainable.

In the early 2000s, P&G’s portfolio optimization efforts shed brands that fell outside its primary product categories. Even though Cinch cleaners, Biz bleach, and Clearasil skincare brands were profitable, they resided in categories where P&G did not want to focus. Because of that, they were sold.

As it turned out, those sales were just the beginning. In 2014, P&G was still bloated by too many brands. Investors were worried such a stretched company could not navigate an increasingly competitive landscape. To solve the issue, P&G announced that it would sell more than half its brands, keeping only those that generated 90 percent of its sales and 95 percent of its profits.

In addition to enhanced growth and profits, this type of portfolio rationalization can also provide additional cash flow. Following the restructuring, P&G’s days inventory outstanding results decreased from 78 days to 58 days. This meant cash was no longer tied up in inventory and could be used for other purposes. As of 2018, P&G’s portfolio had only 65 brands in 10 product categories — a far cry from the 200-plus at its peak.

This portfolio strategy was a financial exercise to improve profitability and efficiency while maintaining market leadership for top-selling brands. Although P&G did not intend for the move to affect consumers directly, its divestment of so many brands empowered the company to focus on the needs of existing customers and bring new ones into the fold.

More recently, the coronavirus pandemic has incited the worst year on record for the travel industry forcing business leaders into a survival mode of shedding unnecessary expenses and underperforming assets.

Industry critics have chastised hotel companies in recent years for adding too many brands. Five of the world’s prominent hotel companies — Accor, Hilton, Hyatt, Marriott, and Wyndham — have more than 120 between them, ranging from Red Roof Inn to the Ritz-Carlton and everything in between. In fact, there are brands around today that were here in the 1960s.

The success of early hotels was a result of consumers’ desire for consistency. This desire ushered in an era of “cookie-cutter” hotels, where people knew that no matter where in the country they traveled, they could expect the same standards, whether that meant their children stayed free of charge or that breakfast was provided. However, competition grew, customer preferences changed, and hotels began to differentiate themselves, which ultimately led to the creation of new brands.

As a brand architecture firm, we believe “fewer, stronger brands” is the best philosophy for managing a portfolio, given the expense and effort required to build and maintain brands. Our consultants have extensive experience aligning top brands with overall business strategy. Contact us to learn how we can help grow your brand.

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