Tuesday, July 31, 2007

Marketing Funda : Power Brand Strategy

Power Brands strategy was the much hyped brand strategy of Unilever's which debuted in India in 2001. The father of this strategy was Niall Fitzgerald who was the Chairman of Unilever during that period.

Mr. MS Banga, one of the youngest Chairman of HLL at that time thought it was a good strategy that can be implemented ( or imported) in India. But four years later, the entire strategy was shelved. The much hyped power brands strategy was laid to rest quietly. Fitzgerald exited Unilever and Mr. Banga moved out of HLL to become the President of Unilever's Foods Division.

What is Power brand strategy?

Power branding refers to building multi-product, Multi-category brands which have global reach. (Marketing Week Dec. 2000) . The idea behind this strategy is to build global brands which endorse multiple products in various categories ( something like an umbrella brand).

To understand the relevance of this strategy, it is important that we understand the background under which this was mooted by Fitzgerald. In 2000, the $44 bn giant Unilever was reeling under the pressure to balance Size and Growth. Over these years, the company has grown to become a behemoth which was under severe marketing attack from small agile companies. This pressure forced Unilever to relook their brand portfolio. Unilever had a whopping 1600 brands ( mind you Brands and not SKU's) across various categories. The top management thought that this many number of brands is the main reason for the lack of growth momentum.
In an interview in Advertising Age, Unilever's Chairman remarked that there were hundreds of brand which existed in the company portfolio but nobody knew Why these brands existed?

Along with that there were other issues in the global market such as

Retailer Power: Large retailers like Walmart changed the power equations in the market. The power moved from manufacturers to distributors. Retailers began to aggressively market their Private Labels. Shelf Space became scarce and Retailers began to stock only large brands.

Brand Proliferation : The huge number of brands and their extensions along with the plethora of private labels forced customers to go for economical private labels because no longer brands provided meaningful differentiation.

This paved the way for the thought that it makes sense to have a limited number of large brands which could be extended to multiple categories / product lines which would reduce the clutter in the market. Another logic was the Pareto Principle of 80/20. Twenty percent of the brands contributed 80 % revenue, hence why not spent the marketing budget on those big brands that contributed to the revenue.
The result of all these thinking was the much hyped Power Brands Strategy which was the core strategy in Niall Fitzgerald's "Path To Growth" agenda for Unilever. Under this Unilever was going to prune its brand portfolio from 1600 brand to a core 400 Power Brands.

HLL's Power Brand strategy

Taking a cue from this, Mr Banga introduced the same strategy in HLL in the year 2000. HLL was also facing growth issues at that time . Like the parent, HLL had a huge brand portfolio consisting of 110 brands and hundreds of SKU's. Competition was hotting up and HLL was struggling to retain market share in various categories.
Mr. Banga decided to rationalize the brand portfolio by concentrating on 30 Power Brands and 10 regional jewels. The company expected that with a reduced number of brands, it will be able to concentrate on the large brands with more promotional budgets.
The plan was like this :
a. Reduce the number of brands from 110 to 40. This can help in increasing operational efficiency and reduce brand clutter.
b. Increase promotions for Power brands thus offsetting the loss from the brand rationalization.
c. Migrate users from small brands to Power brands.
d. Have ambitious growth plans for Power brands ( 8-10%).

The Power brands was chosen on the basis of Size, Brand Strength, Uniqueness and Growth Potential.
But the results were disastrous. After the Power brand strategy implementation, HLL' s topline took a major hit. Profits went down by 22%. In many smaller markets, HLL 's brands were knocked out by small regional brands.

Why Power Brands failed in India?

The primary reason for failure of Power Brand strategy was that HLL miscalculated the power utility of small brands especially in the Indian context. Although there were issues of competition, Indian market was different from global markets at that point of time. Retailers were not that powerful ( compared to Europe or America) and there was no Private label competition.

The withdrawal of smaller brands was the big mistake done by HLL. Smaller brands, although did not contribute significantly to the profitability had lot of uses. It acted as flanker brands for large brands thus preempting competition. Small brands was more accepted locally and when these brands were withdrawn, HLL lost its presence in the smaller markets. The brand rationalization also pulled down the distribution because many brands piggybacked other brands in various markets. The cutdown also helped the surfacing of many regional brands which established in small markets and later grown to fight large brands from its base.
Another strategy that failed was the migration effort of Power brands. The pruning of smaller brands was initiated with the assumption that users of these brands would be migrated to power brands. This assumption failed miserably. A classic case is the failed migration effort of Rexona to Lux. The users of the smaller brands of HLL moved away from the company to brands of other companies.

These issues snowballed into a situation where HLL 's topline got affected which inturn affected the investor sentiments. As a result, HLL went in for a face saving restructuring exercise which led to the exit of Mr Banga from HLL and a silent burial of Power Brand strategy.