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.