Introduction
You face a crowded marketplace where endless line extensions dilute brand strength and confuse consumers. You add more products, enter new categories, and watch your margins shrink as marketing costs soar.
The power of a brand is inversely proportional to its scope, requiring you to narrow your focus to own a single word in the consumer's mind.
Al Ries demonstrates how to build enduring brands through immutable laws rather than tactical tricks. You will learn why advertising cannot launch a brand, why quality matters less than perception, and why line extensions destroy market equity.
- How do you build a brand without advertising?
- Why does narrowing your focus increase your market power?
- How do you claim a single word in the mind?
1. Laws of Expansion and Contraction
The Law of Expansion
The power of a brand is inversely proportional to its scope because expanding a product line dilutes its strength in the consumer's mind. While line extensions may boost sales in the short term by appealing to various market segments, they wear down the brand over time until it stands for nothing. Marketers often mistake sales volume driven by weak competition for proof that line extension works.
Expanding your product line dilutes your brand strength, whereas narrowing your focus makes your brand powerful.
Chevrolet dropped from being America's best-selling car brand after launching ten separate car models, while American Express saw its market share fall from 27 to 18 percent after launching a blizzard of new credit cards. Levi's jeans were available in 27 different cuts while its market share fell from 31 to 19 percent, and Crest's stock-keeping units rose to 50 plus while its market share declined to 25 percent from 36 percent.
The Law of Contraction
A brand becomes stronger when you narrow its focus rather than expanding it to encompass everything. Successful category killers and retail giants follow a specific pattern of narrowing their focus, stocking in depth, buying cheap, selling cheap, and ultimately dominating the category.
You must follow a specific operational sequence to build a dominant enterprise:
- Narrow the focus
- Stock in depth
- Buy cheap
- Sell cheap
- Dominate the category
Howard Schultz founded Starbucks by specializing exclusively in coffee instead of offering a full menu like a traditional coffee shop, and Charles Lazarus threw out furniture from his store to focus entirely on toys, creating Toys 'R' Us. Starbucks reached a value of $8.7 billion on the stock market, and Subway grew to 15,000 units across 75 countries while Fred DeLuca paid himself a salary of $60 million in 1994. Toys 'R' Us sold 20 percent of all US toys with 10,000 toys in a typical store versus 3,000 in a large department store.
2. Publicity, Advertising, and Words
New brands are born through publicity and sustained by advertising, ultimately aiming to own a single distinctive word in the mind.
The Law of Publicity
In an overcommunicated society, heavy advertising cannot launch a new brand because consumers are bombarded daily with commercial messages. News media report on what is new and first, making public relations far more effective than advertising for establishing a brand.
There are 15,000 advertising agencies in America, and Americans send 65 billion pages of faxes in a year. Starbucks spent $10 million on advertising in its first ten years, while Miller Brewing spent $50 million to launch Miller Regular, which failed to generate publicity or sales.
Anita Roddick built The Body Shop into a major brand with no advertising at all by traveling the world and generating a torrent of publicity around her environmental ideas.
The Law of Advertising
Once a brand is born and its publicity potential is exhausted, it requires massive advertising to maintain its health and defend its market position. An advertising budget functions like a country's defense budget, acting as insurance against competitive attacks rather than an investment that pays direct dividends. Leaders should advertise their leadership status because consumers equate leadership with superior quality.
A thirty-second commercial on the TV show ER costs $620,000, with an average production cost per commercial of $343,000, while a spot during the Super Bowl costs approximately $2 million.
Xerox pioneered the plain-paper copier in 1959 amidst massive publicity, but once the news potential faded, the company shifted to heavy advertising to defend its leadership position.
The Law of the Word
A brand should strive to own a single, distinct word in the mind of the consumer that no competitor owns. Because the human mind gives meaning to reality using words and can only handle a limited cognitive load, you must sacrifice your laundry list of attributes to focus on a single thought. Becoming generic by being the first in a category locks the brand into the consumer's mind permanently.
An adult knows an average of 50,000 words, and there are 2.5 million registered trademarks in the United States.
Volvo owns the word safety in the automobile market, BMW owns driving, Mercedes-Benz owns prestige, and Federal Express owns overnight.
To apply these principles, you can follow specific practices:
- Make your product or service more expensive than the competition
- Find a code word for prestige
3. Credentials, Quality, Categories, and Names
Customers are suspicious of product claims. A claim to authenticity or category leadership elevates the brand above competitors and makes all other claims believable.
Authenticity, category leadership, and a unique name matter far more for a brand than objective product quality.
The Law of Credentials
When a brand lacks the top spot in an existing market, its best strategy is to create a new category where it can claim leadership. Leadership is the most direct way to establish these credentials.
Coca-Cola established powerful credentials with its real thing campaign. Act software achieved 70 percent of the contact software market by positioning itself as the largest-selling contact software.
In a studied group of 25 brands over a timespan of 75 years, only 5 lost their leadership positions. Datastream initially held 32 percent market share in maintenance software.
The Law of Quality
Quality is important for a product, but brands are not built by quality alone. There is little correlation between marketplace success and objective product testing.
The perception of quality resides in the consumer's mind rather than in comparative testing or showroom specifications. You build this perception by following branding laws such as narrowing the focus to become a specialist, using a superior name, and commanding a higher price.
General Electric and General Motors are massive sales successes yet weak as brands because they are omnibus brands or mile-wide brands that are too broad in scope. General Electric lost $300 million when it tried to compete in mainframe computers against IBM. Premium-priced brands like Rolex and Häagen-Dazs benefit from high price points that signal high quality.
The Law of the Category
A leading brand should promote the overall category rather than the brand itself to expand the size of the market. Creating a new category by narrowing focus is the most efficient aspect of branding.
When you pioneer a category, you should market the concept so that the category takes off and pulls the brand along with it. You should avoid fighting competing brands as market share naturally drops.
To build market leadership, you must follow specific practices:
- Launch the brand to create the perception that it was the first, leader, pioneer, or original
- Promote the new category
Domino's focused on home delivery of pizza and Prince introduced the oversize tennis racquet, successfully creating and promoting new categories to dominate their respective fields. Americans spent $207 billion on restaurant meals, and 51 percent of restaurant spending was allocated to takeout or home delivery. EatZi's operations achieved $14 million in average annual per-unit sales, while Tavern on the Green in New York City achieved approximate annual revenue of $35 million.
The Law of the Name
In the long run a brand is nothing more than a name. The choice of what to name a product or service is the most important decision you can make.
While a unique idea or category pioneering helps in the short term, product differences eventually disappear. Only the perception of the brand name remains. Omnibus and line-extension naming strategies common in East Asian economies destroy brand power and reduce profitability.
A recent year showed total sales of the top hundred US companies reached $3.2 trillion, while the top hundred Japanese companies reached $2.6 trillion. Average net profit on sales was 6.2 percent for the top hundred US companies and 0.8 percent for the top hundred Japanese companies. Korean chaebol Hyundai, a giant reaching $71 billion in size, used its single name for everything from microprocessors to supertankers and cargo ships.
Xerox succeeded because its name was short, unique, and connoted high technology.
4. Extensions, Fellowship, Generics, and Siblings
Putting a well-known brand name on multiple new products destroys core equity and alienates customers.
Manufacturers use line extensions under the false assumption that they need more brands to maintain volume. They measure only the success of the extension while ignoring the erosion of the core brand. This practice shifts power from manufacturers to retailers through demands for slotting fees and trade promotions. It also signals to consumers that the regular product is flawed.
90 percent of all new products introduced in the U.S. grocery and drug trade are line extensions. In a typical store, 5,500 out of 23,000 items in a Kroger store sold nothing in an entire month.
Miller Lite triggered a flood of light beer line extensions. Bayer spent $116 million launching Bayer Select pain relievers, which resulted in regular Bayer aspirin sales falling 10 percent a year. Bayer Select sold 26 million dollars in its first year in a 2.5 billion dollar market.
If the market is moving out from under you:
- Stay where you are and launch a second brand if the market is moving out from under you.
- Stay where you are and continue building your brand if the market is not shifting.
Dominant brands should welcome healthy competition rather than trying to capture the entire market.
Competitors increase the noise level and make customers more conscious of the category. Having multiple major brands reassures customers that the category is sound. This allows individual brands to stay focused on specific segments while expanding the overall market. 50 percent is about the upper limit of market share that a dominant brand can realistically achieve. The number of independent office stationery stores is 3,000, down from about 10,000 in the past decade. Planet Hollywood located its restaurant directly across the street from its arch rival, Hard Rock Cafe, to capture customers already drawn to the area.
Giving a brand a generic name dooms it to obscurity because the human mind processes brand communication verbally.
Companies historically used broad generic or corporate names like General or National. These only succeeded when they were the absolute first movers. Because communication happens primarily through sound in the listener's mind, generic words disappear into the background. McAfee Associates dropped its own brand name in favor of the generic Network Associates. Lee Iacocca launched EV Global Motors for an electric bicycle. McAfee Associates paid 1.3 billion dollars to buy Network General and spent 10 million dollars on its first television campaign. Nature's Resource spends 5 million dollars a year to break into the nutritional supplement market.
Brands and companies are separate entities, and brand names must always take precedence over company names.
Managers are company-oriented because the company is on their paycheck. Customers are brand-oriented and care about the physical substance inside the package. Company names should either be omitted or relegated to a tiny, secondary position. Service Merchandise is a company whose generic name dooms it to relative obscurity at 4 billion dollars in size. Procter & Gamble uses just the brand names like Tide boldly on the package while placing the corporate name in tiny type at the bottom.
Subbranding destroys the singular identity built by a core brand by pushing it in contradictory directions.
Management invents subbrands like upscale hotel suffixes or cheaper product lines. These concepts have no meaning to consumers in the marketplace, who look for dedicated category leaders. Holiday Inn introduced Holiday Inn Crowne Plaza. Consumers perceived it as too expensive for a Holiday Inn, eventually forcing the company to drop the megabrand connection.
A company can dominate a category long-term by building a family of separate, uniquely named sibling brands.
Instead of stretching a single brand, you should create independent sibling brands with distinct identities segmented by a single attribute. Black & Decker created a separate brand called DeWalt for the professional power-tool market instead of using a name like Black & Decker Pro. DeWalt achieved a business size of 350 million dollars in less than three years.
You must follow specific rules to manage a sibling family:
- Focus on a common product area such as passenger cars or chewing gum.
- Select a single attribute to segment, such as price, distribution, age, calories, sex, or flavors.
- Set up rigid distinctions among brands to avoid overlap.
- Create different, not similar brand names and avoid alliteration.
- Launch a new sibling only when you can create a new category.
- Keep control of the sibling family at the highest level.
A logotype should be designed in a horizontal shape that fits side-by-side human eyes.
The ideal logotype is roughly two and one-fourth units wide and one unit high, providing maximum impact in retail environments. Elaborate trademarks and extreme typefaces hinder communication. Arby's uses a cowboy-hat logo that suffers from the penalty of verticality in the neon jungle.
A brand should use a signature color that is the direct opposite of its major competitor's color.
Colors carry physical and psychological properties, with red acting as an aggressive retail color and blue acting as a corporate color. Leaders have first choice of the category's symbolic color, forcing competitors to select opposing colors. 45 percent of all national flags use red as their dominant color, while 20 percent is the threshold where blue dominates. Kodak uses yellow, so Fuji chose green. Hertz picked yellow, so Avis chose red.
Brands should know no borders and can achieve global expansion by keeping a narrow focus at home.
Consumers attribute specific values to products based on their country of origin. Heineken leveraged its proximity to Germany and a German-sounding perception to become a dominant global beer brand from the Netherlands, a country with a population of 15 million. Coca-Cola generates 62 percent of its sales and 76 percent of its profits outside of North America.
10 Key Ideas
- Expanding a product line dilutes its strength in the consumer's mind, whereas narrowing your focus makes your brand powerful.
- New brands are born through publicity and sustained by advertising, ultimately aiming to own a single distinctive word in the mind.
- Authenticity, category leadership, and a unique name matter far more for a brand than objective product quality.
- A leading brand should promote the overall category rather than the brand itself to expand the size of the market.
- In the long run a brand is nothing more than a name, making the choice of what to name a product or service your most important decision.
- Putting a well-known brand name on multiple new products destroys core equity and alienates customers.
- Dominant brands should welcome healthy competition rather than trying to capture the entire market.
- Giving a brand a generic name dooms it to obscurity because the human mind processes brand communication verbally.
- Brands and companies are separate entities, and brand names must always take precedence over company names.
- A company can dominate a category long-term by building a family of separate, uniquely named sibling brands.