One of the most misunderstood aspects of branding is brand architecture. And because it is so misunderstood, many brands are undervalued when they are bought, sold or merged with other brands. Brand architecture defines the relationships different brands have to one another within a business portfolio. The management of these relationships involves a multitude of critical decisions – whether the brands should be sibling brands, whether they should be sub-brands to a master brand, whether or not that master brand should be expected to imbue the sub-brands with a “halo” effect, whether the brands should be distinct business units with their own brand positioning and marketing budgets, etc. Every one of these decisions can have a serious effect on brand valuation. It’s critical that the owners of brand assets understand their brand architecture and manage it in a way that maximizes brand value.
There are three types of brand architecture. 1 – “Branded House”, in which every product or service on offer carries the master brand’s name. 2 – “House of Brands”, in which each product operates as a differentiated business unit, with it’s own brand name. 3 – “Hybrid,” in which both strategies are followed. Coca-Cola follows the hybrid model and offers a clear example of how all three types of brand architecture work.
On the one hand Coca-Cola operates as a “Branded House”. Coca-Cola is both the name of the company (that’s one brand) and the name of the company’s principal product (that’s the second brand). And, because that product has been enormously successful, they’ve been able to create dozens of spin-off, Coca-Cola sub-brands like Diet Coke, Coca-Cola Life, Coca-Cola Zero, ad infinitum. Part of this, of course, is so they can dominate shelf space at the supermarket and crowd out weaker competitors. But it also allows the company to attract more and more customers. The parent brand lends its cachet – in what’s called a halo effect – to the sub-brands, tempting consumers to sample them and, perhaps, get into the habit of buying them. The advantage of the “Branded House” model is simple. It’s less expensive. When you only have one story to tell, you can keep your marketing expenses from getting out of control. Even if Coke has to allocate some dollars to promote Diet Coke and the others, the principal story is the original Coca-Cola story. If you love Diet Coke, that love is reinforced every time you see an ad for the parent brand.
But we said Coca-Cola follows the “Hybrid” model. That’s because they also operate as a “House of Brands”. They own several other beverage brands that are decidedly “non-Coke” – brands like Powerade, Fanta, Disani, Odwalla, etc. (Their portfolio could have changed in the years since this article was first published but that just proves the larger point.) These brands are distinct business units with their own management teams, marketing budgets and advertising campaigns. They are expected to compete with each other, with other beverage brands not owned by Coke and even with Coca-Cola itself and its sub-brands. Obviously, the increased overhead means this is a much more expensive way to manage your brands. So why do it this way? Flexibility. If Coca-Cola decides its time to sell off Odwalla, they can do it without having a deleterious effect on their portfolio of brands or on their master brand. Comparatively, selling off Diet Coke is just not an option.
Google learned that the hard way. A few years back they came out with a product called Google Glass, spectacles that kept the wearers hooked up to the internet, full-time. As useful as product might have been for some people, the brand was a notorious fashion flop and the enterprise failed. Now, Google might well have wanted a buyer to take the product off its hands. Having the internet inside your glasses could well be a huge benefit to some niche markets. But Google couldn’t really sell Google Glass. The product, without the Google Glass name, would be of little value to any prospective buyer. And Google can’t really allow anyone else to take even partial management of the Google name. Like most startups on a tight budget, Google, at its inception, had adopted the “Branded House” model and never really changed. That limited its options when it came time to sell Google Glass.
So Google created a parent company called Alphabet. Alphabet now owns Google and continues to run that business like a “Branded House”. Any new product or service that naturally fits into the Google family, like Google+ (also now gone) and Google Drive, will carry the Google name. But the creation of Alphabet allows the company to follow the “Hybrid” model. Even though it might cost more, Alphabet can now also run a “House of Brands”. (Money is not quite the problem it was when Google was a startup.) It can now manage other independent business units that can be bought and sold – brands like YouTube, Nest and Fitbit.
It’s important for anyone building a brand portfolio to note that each brand within it should be able to add more than just the sum of its parts. Like the members of a championship team, each brand should contribute, but also help make the other brands in the portfolio a little bit better, a little more valuable. That said, if you’re running the “House of Brands” strategy, care must also be taken to ensure the brands are managed in a way that they could contribute to anybody else’s portfolio. Potential buyers must be able to see the brand can make a profitable contribution to their own brand positioning. Brands attain value when they are seen as positive, potential assets to any team.
So how do your brand assets relate to one another? Are you running a “House of Brands”? A “Branded House”? A h\”Hybrid” of the two? What model of brand architecture will maximize the value of your brands? Call in Boardwalk to provide clarity on the matter.
BEST BRANDING READS – WEEK OF JUNE 7, 2021
4 Ways B2B Marketers Can Successfully Combine Brand And Purpose
An interesting case study from LinkedIn
Branding’s Perfect 10 – Absolute Marketing
Some of the greatest home runs in branding history.
Why Brands Really Matter
Sometimes it’s worth reminding yourself why you drank the KoolAid in the first place.
How Purchase Decisions Are Made
Again, if you think people reason their way to a decision, you’re wrong.
Walk the Talk – How Brands Lead by Example
Two great examples here.
Building Brands For A Commitment-Free Economy
I’m 100 percent behind this idea. I’d subscribe to a transportation service where I take the bus most days but drive a Ferrari once a month.
Market Research for Success, Purpose, and Connection
At least once a day, I’m trying to convince a potential client of this. From now on I’ll just send this article.