The power brand route for a stagnant market

The power brand route for a stagnant market
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First Published: Tue, Oct 14 2008. 09 58 PM IST

Updated: Tue, Oct 14 2008. 09 58 PM IST
During a global financial crisis, advertisers may hike or slash ad budgets but will definitely focus on spending more wisely to get optimal brand mileage for their money. Media buyers tell me that certain multi-brand advertisers are directing most of their advertising budgets to their power brands instead of spreading the ad rupee too thin across numerous brands across categories.
What is a power brand exactly? Well, it is a brand that contributes significantly to a company’s revenues and profits and plays a strategic role in the company’s long-term growth plans. When resources are limited, companies tend to invest most of their resources behind those few brands likely to give maximum return on investment instead of spreading their resources thin across too many brands, not all of which may yield significant results, says Chandradeep Mitra, president at Mudra Max, media specialist of the Mudra Group. “Since media investments below certain threshold levels don’t make sense, companies choose to invest their media budgets only on those power brands. Power brands get full media support in terms of high decibel campaigns, association with big media properties, sponsorships.”
To be sure, there’s nothing new about the power-brand focus. Sam Balsara, chairman of media specialist Madison Group, says such a focus happens in both good and bad times and is a good strategy. This discipline develops over the years and does not happen overnight, he adds. “Today, it is extremely expensive to build brands and hence, some advertisers prefer to use restricted budgets on fewer brands and do a good job.”
Normally, the power approach is taken in a category that is crowded and where growth is stagnant. Also, the advertiser is either a leader in the category or enjoys a huge market share, says Mitra. He lists the benefits of this approach:
1. These selected brands have the potential to give high return on investment.
2. Due to focused investment, the equity of power brands is likely to grow which will enable them to counter rivals at lower media budgets.
3. Value creation for shareholders.
Consumer goods company Hindustan Unilever Ltd had taken this approach over the last decade, where a lot of small- or low-priority brands were either phased out or retained as a regional or local brand with minimal media support, as opposed to a national brand. For example, toilet soap brands such as Jai were withdrawn from the portfolio, whereas Hamam, which has strong equity in Tamil Nadu, was retained as a regional brand.
“Some believe that marketing returns (profits) are better with spending on power rather than secondary brands,” Tim Ambler, professor of marketing at the London Business School, tells me. He cites the example of liquor firm Diageo Plc., which was formed through the merger of Guinness Plc., and Grand Metropolitan Plc., in the mid-1990s, when they decided on a power brand strategy to increase profits and to give them more bargaining power with the media.
Ravi Kiran, chief executive officer of media network Starcom South Asia, however, says power brand as a concept is management hogwash and that focus is often read by line managers as contraction of marketing thinking and activity which can be counter productive.
His reasoning: This strategy is based on focusing marketing resources on a few large brands and growing them at a rate fast enough to more than cover the loss of sales from “unsupported” brands over a short period. The truth is, since brands can rarely be built over a short period, a lot of investment in power brands is channelized to fuel short-term sales growth through price reduction and promotions, which are not sustainable long tactics. Result: Smaller, not-so-power brands often die or vegetate or are sold off.
Sometimes, brands with just threshold support can deliver value as long as they remain relevant to the customer and the brand manager knows how to manage her profit and loss account, says Kiran. Still, different flavours of the 80:20 approach—where 80% of a marketer’s advertising budget could be used for about 20% of its top revenue earning brands—could emerge in the days ahead.
Mitra has some suggestions on how marketers facing a resource crunch can adopt certain strategies which can impact media spending for relevant brands:
1. Adopt a defensive strategy: protect the brand’s strongholds and invest in markets where the brand is strong.
2. Adopt a niche strategy: aim only at certain segments that can be served through minimal niche media investments (for example, youth through the Internet).
3. Adopt a promotion-driven strategy: ensure short-term sales by diverting part of the media budget towards promotions.
4. Adopt a flighting strategy: provide threshold media support only around purchase cycles to optimize media budgets without compromising short-term sales.
5. Adopt a trade-push strategy: divert a part of the media budget to trade promotions to maintain primary sales and save costs.
Marion Arathoon is Mint’s advertising editor. Your comments are welcome at advalue@livemint.com
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First Published: Tue, Oct 14 2008. 09 58 PM IST