2015-08-18 10:32:29
Kevin Lane Keller
August 14, 2015
The Google brand is one of the most valuable brands in the world. In 2014,
Interbrand placed a valuation of the brand at $107.43 billion, only trailing
the Apple brand in value.
A reasonable person might ask, if the Google brand is so well-known, why muddy
the waters by introducing a new parent brand, Alphabet? To help answer this
question, the stories of two other iconic brands Starbucks and Virgin are
instructive.
Starbucks
Starbucks offers a cautionary tale. There is a danger to any brand from
diluting its brand promise or overextending into areas where that brand promise
is not relevant.
At the turn of the century, having experienced two decades of spectacular
growth, Starbucks began to view itself as more than a brand about coffee or a
coffee experience, but as a lifestyle brand that transcended those roots to
reflect more of an attitude that would be relevant to many other categories.
Reflecting this broader viewpoint, the company began to expand its market
footprint, by, for instance, investing in a start-up that planned to sell
furniture via the internet.
Concerned about the company s lack of focus, Wall Street hammered the Starbucks
stock, resulting in a drop in share price of 28% in one day a $2 billion loss
in the company s market capitalization. Hearing the message from the financial
analysts, Starbucks went back to basics to focus more on its core business of
coffee and a coffee experience and reaped the rewards, maintaining their price
premiums and profit margins throughout the subsequent economic downturn.
However, as the decade wore on, the company made a series of decisions using
bagged coffee rather than freshly ground coffee, no longer scooping fresh
coffee from the bins and grinding it fresh in front of the customer, blocking
the visual sight line customers previously had to watch their drink being made,
and so on that collectively resulted in a significant loss of the personal
experience that consumers had with Starbucks and its baristas. By failing to
deliver on the Starbucks brand promise of providing the richest possible
sensory experience, sales naturally slumped as unhappy customers chose to go
elsewhere.
Again, Starbucks responded by going back to basics, making a number of
changes such as introducing new coffee-making machines and selling coffee
paraphernalia in stores again, bringing back freshly roasted coffee and
introducing new blends (Pike Place & Blond), and famously closing all 7,100
U.S. stores in February 2008 for three hours to re-train baristas. As founder
Howard Schultz remarked, We lost the focus on what we once had, and that is
the customer.
Through these different episodes, Starbucks has come to appreciate the
importance of keeping a tight focus and delivering on its brand promise.
Virgin
Virgin has taken an entirely different tack from Starbucks by directly
expanding its corporate brand into an incredibly diverse set of industries.
Internally, their businesses are organized into seven categories:
Entertainment, Health & Wellness, Leisure, Money, People & Planet, Telecom &
Tech and Travel. In all that they do, Virgin s brand promise is to be the
champion of the consumer to go into categories where consumer needs are not
well met and to do things differently and do different things to better satisfy
them.
Such an abstract brand promise has potential relevance across a vast array of
categories. Actually delivering on that promise, however, has proven to be
extremely difficult, as evidenced by the problems or even failures the Virgin
brand has encountered across a whole set of product and service markets.
Consumers evidently felt their needs were met sufficiently well enough that
they didn t need a cola, vodka, or bridal apparel from Virgin, among many other
products and services which Virgin has introduced and subsequently withdrawn.
The danger to Virgin of continuing down that hit-or-miss path is that as young,
hip or cool as their brand might be now, repeatedly violating their brand
promise will raise doubts in customers minds and weaken their bonds to the
brand over time.
Think of the equity of a brand in terms of a bank account. When the brand does
good things, such as introduce a highly innovative new product, a deposit is
put into the brand bank account. But when the brand does something bad, such
as introduce a new product that fails to satisfy or excite consumers or even
fails, that results in a withdrawal from that account. Virgin has benefited
from the launch of some highly successful new products through the years
Virgin Megastores, Virgin Atlantic, and Virgin Mobile among others that
placed huge deposits in their brand bank account. If they are not careful,
however, they run the risk of drawing down that account with too many
compromises of the brand promise. The recent tragic crash of a Virgin Galactic
test flight underscores the dangers associated with adopting such an expansive
corporate brand strategy and the potential tarnishing of the brand that could
result.
In contrast to Starbucks, the Virgin brand strategy is a high-wire act that
requires incredible management and marketing skill and creativity.
Google is wise to learn from these two brand histories. Up to this point, the
company has employed both a branded house strategy, where they have used
their Google corporate brand one way or another across a broad range of
products (such as Google Glass and Google Play), as well as a house of brands
strategy where they assembled a brand portfolio of different brands where the
Google brand is not present (such as with Nest, Calico, Fiber, etc). Hybrid
brand strategies are not uncommon, but it is important to ensure that all
aspects of the brand strategy are designed and implemented properly.
In Google s case, they have no doubt come to the realization that as strong as
the Google brand is, like all brands, it has boundaries and takes on more
meaning and value in certain areas. Just as a rich, rewarding coffee
experience is at the core of the Starbucks brand, relevant, available
information is at the core of the Google brand, following directly from its
stated corporate mission to organize the world s information and make it
universally accessible and useful. Their search product exemplified that brand
promise as well as the related different extensions that followed, maps, books
etc.
As Google moved farther and farther afield, however, into areas such as
driverless cars and curing diseases, the relevance of that brand promise and
corporate mission seemed remote and fairly removed. The brand was being
associated with too many different areas, potentially blurring its meaning and
creating confusion as to its purpose for both consumers and financial analysts.
With the creation of Alphabet, Google has codified and clarified this dual
brand strategy that allows them to have the best of both worlds a tight focus
with the Google brand, as well as a broad portfolio approach with the Alphabet
brand. Alphabet will allow the Google brand to focus more directly on its
corporate brand promise and mission. That sharpened focus will benefit their
business partners, drive profitability, and be rewarded by financial analysts.
Separation also allows the Alphabet brand to serve as an umbrella brand over a
diverse portfolio of individual brands. The Alphabet brand would be in the
background to the individual brands making up the portfolio, although it could
be used, if desired, as an implicit or explicit endorser brand.
Fundamentally, brands survive and thrive on their ability to deliver on a
compelling brand promise to provide superior delivery of desired benefits in
ways that can t be matched by another other brand or firm. By aligning their
brand architecture strategy with their brand promise and product development
strategies, Google has brought needed clarity to the consumer marketplace and
to financial markets.
Kevin Lane Keller is the E. B. Osborn Professor of Marketing at the Tuck School
of Business at Dartmouth College and the author of the best-selling textbook
Strategic Brand Management.