 As Salaamu Alaykum, Khabadina Hazrat. I welcome you to the virtual University of Pakistan. We are getting into lecture number 22 of the brand management, MKT 624. Let me give you a recap of the previous lecture, number 21. We learned basically the concept of brand extension. Why do we have to get into brand extensions? That is what we discussed. And I think you will recall that one positioning just cannot satisfy all the needs that customers may have within one market. And therefore, in order to satisfy those needs, you have to have different products and different brands. The big question that the brand managers and marketing managers can have today is what kind of brands or what brand names to use in order to introduce those new offerings. And we learned that it is always the more useful and the cheaper and more effective to go for those brands which already exist on the market. Because of the factor of familiarity of customers with those brands and it is like I said much cheaper to introduce existing brands in relation to new brands altogether, meaning standalone brands. While discussing brand extensions, we arrived at two conclusions. We need to go into an extension when we are dealing with evolving needs with a meaning situation which offers us opportunity to respond to needs which are changing with the changing times and we extend the line in order to satisfy those needs. And we extend the line or stretch the line by satisfying needs of the same customers or the customers within the same segment or the category. Such products are closely related. The other situation that brand managers can find themselves to get into relating to the brand extensions is when there is an opportunity to get into a different market altogether. You are working in one category and just because the brand carries a lot of value and power and there is an opportunity in some other market which is new altogether so you feel the need to go to that market and satisfy that need with the help of the brand which already exists and that makes a lot of sense. In relation to that we discussed the concept of line extension in pretty much detail that we can get into extensions by multiplying the line in terms of different sizes, different formats, different ingredients with the physical characteristics by getting into a lot of add-ons so on and so forth. So there are so many different ways which actuate us to or rather which present us with some solid logic and therefore rationale to decide how should we multiply the line by what kind of mechanism meaning multiplication mechanism. And in relation to that we discussed what are the uses or what are the positive sides of line extension. There are a few sides that we discussed I think four or five. One being it increases the usage of the products and hence provides the company with market depth. It reinforces sales because it increases the usage so it provides you with a bigger and a wider market base within which you play and hence increase your sales. During the process of doing all that the brands present themselves as things which are friendly and which are caring and I'll give you examples of how the brands tend to be friendly and caring. Another positive side that we discussed in the previous lecture relating line extensions is that line extension pushes boundaries and I explained the concept in fairly detailed manner. One more positive side of line extension is that it revitalizes failing brands and we discussed in again detail the ailing and the sick brands how they get propped up with the help of a renewed extension which has renewed features but which certainly has the same value framework so that you do not really move too far away from the inner core. The last positive side which I have in my mind at the moment to discuss with you is that line extension maintains strong relationship between the share of the market and the share of the shelf. Now this is a very delicate and sensitive kind of an aspect which has to be viewed in relation to the retailer's power which we shall be discussing in a few moments again and in relation to the limited space that the supermarkets nowadays have who offer so many different players within the market. You are operating in one particular category and you know that you are not going to be the only one or you are not the only one. There are other players who happen to be major players and all the players like to develop a good relationship with the members of the trade meaning retailers in particular because that's where your products get displayed and that's where the ultimate consumer or the customer who walks in to buy whatever he or she likes. So there is a tremendous pressure on the companies to gain as much share of the space as possible. You can put it this way although this is not a statement that I am going to make that the larger the space that you get in the supermarket, the larger the market share that you may have. Now it is not that always that you are going to get a major chunk of the market share if you have the major chunk of the shelf space. The correlation that is drawn is on the basis of consistent performance which in other words means that if retailers by and large are receptive to the one particular brand or a handful of brands which they perceive as or which they know are powerful brands and which enjoy large shares of the market. The retailers definitely are more inclined to offer a better space not only larger but also the prime space which looks right into the eyes of the customer which is the eye level and the kind of things that you have learned in the basic marketing course. So if there is a larger display area relating to the one brand it can be assumed that this brand has a larger share of the market otherwise the retailer will not provide that particular brand a larger share of the space on a consistent basis. So line extension provides the companies with an opportunity whereby they can gain more space within the supermarket or within a retail outlet so to say and keep the competition out. How do they do that? I think it is very obvious that when you have a strong brand and you have more than one offering it goes without saying that retailer is going to be more receptive to offer a little more space or space not more space space to all those new offerings thereby providing you with an aggregate space more than had you had just one offering. So that is how line extension maintains a good relationship between the market share and the share of the shelf space. Now having said that let me now get to the negative side of line extension like I pointed out to you everything has set in the negative side also and line extension also has a negative side what that side is but the side is let us take a look at that. First of all I would like to maintain a connection between the last the positive side of the line extension which is the relationship between the market share and shelf space here. It is that particular area or that particular arena from where stems the power of the retailer. Retailers are so sought after entities and companies are so much interested in cultivating good relationships with the retailers that there is a tremendous competition between the companies to get the better space of the shelf and the more brands that you have on the market the more power that gives the retailer. Why? Because all the managers sitting in all the companies are working on similar lines and this is what we keep discussing frequently because they all are into professional marketing. They do understand that one position cannot satisfy all the needs so that they have similar parameters on which they decide their decisions to go for different brands. So in other words they all work with objectives which are very similar and in the process what happens that at the end of the day they all end up with different products and with different rationale. I mean those products are supported by different rational when that happens that creates what you may call bottlenecks at the retail level. Those are the bottlenecks which necessitate for the retailer a typical retailer to think which products to accommodate more and which to accommodate less. Now naturally a retailer is going to be more receptive to those brands which are more powerful and which enjoy a higher level of sales because it is all about the business. The game of business is free of any emotions and therefore maintaining relationships does not really center on how close you are to a retailer in terms of your personal behavior and personal relationship. It is all about business objectives. If you have a powerful brand, a valuable brand which offers good value and power to the retailer also your personal behavior and relationship with the retailer is going to be of value. If it is otherwise meaning the brand is not very powerful the relationship is very positive it will not take you that far toward achieving your goals. Retailer power is the one thing which becomes the negative side of the line extensions and in the case your brand does not happen to be a powerful brand and somebody else's brand is a powerful brand and that brand offers so many different offerings supported by very solid and logical positionings and thereby keeping you out of the relevant space. To counter this kind of a situation all you can do is to try to make your brand valuable and try to get as high on the brand value pyramid as is possible. One of the implications of retailer power is that it leads to the discrimination and discrimination is obvious because of the factors which I just cited. When you have a brand which is less than strong which is not very powerful naturally you get pushed out and when you get discriminated against you resort to tactics which you might call promotions but you get into those promotions at that particular juncture only because as the marketing people you are a little desperate you have to regain the shelf space and you have to regain the share that you have lost in the market and you resort to promotional tactics. Those promotional tactics may not be very positive all the time. Why? Because it is not only you it is other brands also which are not very strong and also have been discriminated against. So you all on your own but very independently you get into those promotions and the whole thing snowballs it increases in intensity and it leads to what you may call a price war because everybody is offering buy one get one free buy one and get that much discount and everybody is trying to push and precipitate sales by these kind of promotional tactics the result is the market gets very price conscious and if that kind of an activity persists on part of so many different major players while different players let us not call them major players but by different players the chances are it will erode to some extent the element of the brand loyalty and the customers are going to be inclined toward those brands which are offering very interesting and very inviting kind of campaigns or schemes that is where the brands start losing loyalty and there are situations in which the market leader meaning the most powerful brand or powerful brands at the top of the pyramid they also have to follow suit feel dragged into that price war kind of a situation because the market leader thinks that the competitors have made things difficult for them and they have to give them a dose of their own medicine with the meaning that they must be taught a lesson and in thinking so they also jump on the same bandwagon of the so called promotions and start getting into the price distance and cuts with the net result that it becomes kind of a full blown price war in the market where the weaker ones get pushed out and they might be crowded out for all times to come this is what does happen in the markets and those who can withstand the rigors of the war may survive but then you see at a very heavy cost but the net result of the war is that people the customers become so much familiar so much accustomed to the discounts that the points of differentiation get eroded and everybody likes to buy those products or those brands within that particular category at discounts the brands which at one time enjoyed the very top level of the brand value of the pyramid they also slip down and time also comes when all the major brands have to start a new life talking once again or working once again with the basic attributes and the features which is the bottom level of the value pyramid so this is the one negative side of the brand extensions which must lead us to believe that any extension that we get into has got to be based on certain solid logic and a rationale without meaningful points of differences and without very forceful kind of reasons that we should not get into meaningless differentiations and therefore meaningless introductions of the line we should refrain from that kind of a stretch the second negative side of line extension is what we may call lack of scale economies as against a mono product meaning just one brand and one product handling and managing a variety of products or brands is cumbersome it is difficult in relation to production in relation to inventory in relation to logistics and in relation to a constant point of view how these problems come up I think it is obvious that you are dealing with a bunch of products as against just one product but when you have just one product or the whole operation small operation or big operation the whole operation is concentrating on producing just one brand or just one product which is the mainstay of the company conversely you are dealing with a situation in which you have four or five or maybe even more products which have different formats which have different sizes which have different tastes and flavors which have different ingredients and therefore different packaging and different this and different that meaning all the mix of variables relating those products are so diverse that managing all those becomes more challenging than managing a mono product so we can say with confidence that a mono product is a large volume product and the extended brands or extended offerings are low volume or lower volume I shouldn't say low lower volume items it goes without saying that anything which is larger in volumes has a higher capacity and capability to offer the company with scale economies and anything which is smaller in volumes has a lower capability of offering scale economies if at all those lower volume items do so in turn we can say that smaller runs that deprived the company of scale economies which is something that every company likes to achieve how do you go for a mix of products so that scale economies can also be achieved that is the job of not just one manager but all the managers could put together who decide based on so many different factors and so many different results could be produced by those offerings you being one of those no question about that mono product is cheaper to produce and others are diverse products are more expensive to produce this is the net result according to the one study carried out in the United States if we compare the cost of production of a mono product keeping 100 as the index for that cost of production and compare that against the corresponding costs of production for diversified products the results are very interesting and let me show you those results with the help of this graphical illustration as you can see mono product is 100 this could be 100 rupees or maybe 100 any currency look at the category of foods this is the research finding of an actual study and in the area of foods as against the index of 100 as cost of production the cost of production in foods is 132 this increases to 135 when you start operating in Housery for example and this goes for a further jump to 145 if you are dealing within the car category meaning you are manufacturing cars so this is the very convincing kind of research finding which tells us the difference between different costs of production while you are dealing with mono product and you are dealing with diversified products now this is not to say that diversified products are to be voided or you are to shy away from getting into line extensions this is to educate you on the side of the line extensions which has a direct bearing on costs and therefore you being brand manager you must know how that cost factor comes into play and what are the implications and how to handle those and we are going to talk about that also so we can also say based on this factor of scale economies that scale economies get hurt if you are dealing with a mono product and that mono product has huge volumes that are spread over a huge geographical area that you have now introduced diversified products which certainly have a strong rationale and reason for being but they have their own set of an accompanying set of dynamics which are not to lose sight of if you are losing scale economies to some extent you have to see to it that factor is offset to buy something else meaning that the buyer going for higher pricing because there is something which is a result of smaller runs thereby giving you higher costs so those higher costs are to be met somewhere you are not incurring those costs because just for the sake of incurring costs you have to recover those discussion on that in a moment wait until that time the third negative side of line extensions could be what you marketing people may call that non-controlled extensions weaken range logic what is the range logic the range logic is a function of different positions you are trying to satisfy different needs within the category you are hitting different segments and you are being responsive in a very effective way now there is a limit to that you have introduced something like 6 or 7 different offerings and maybe you have reached a point which is the optimal point and going beyond that is going to translate into something undifferentiated or something with meaningless and trivial differentiation because getting into a new position with very strong logic is very challenging and it is not easy so what happens at that juncture you proliferate the brands and when you proliferate the brands unnecessarily you are providing the retailers with an awesome power which is not really called for and you are also hurting your own logic of extending the range because the customers and also members of the trade who also happen to be your customers are going to think that the company has lost all the logic of getting into extensions and now they are extending their brands only for the sake of extending meaning the extendability is not supported by credibility so making sure that you are credible and reliable you are not to get into extensions which are very trivial and which are not very highly differentiated one implication of this proliferation is that you end up cannibalizing your own brands by cannibalization it is meant just like cannibals if you do not know about the dictionary like cannibals eat each other fish for example eat fish just like that unnecessary offerings on the market can eat into each other's volume now this is a very interesting concept and this is something which does happen in the market if you start introducing brands or extended brands losing sight of the range logic what happens is you are selling the 100 units of one brand and you have unnecessarily gone into the multiplication by offering if not more and you now have the two brands the volume you thought would jump into something like 125 let us not talk about something very highly ambitious let us talk about something ambitious but still achievable you are talking about 25% increase which is not a joke that 25% increase instead of that increment coming your way what happens is that your volume stays at 100 how does that stay at 100 because the brand that you were selling 100 units of has gone down to 75 and 25 you are selling with the help of the new offering so you are static and you think to yourself I think it is quite a frustrating and embarrassing situation in which you may find yourself you still have the same volume and you have gone through all the hassles that new entry and the hassles of the variables of production inventory logistics and so on and so forth the mix of so many variables all the variables of marketing mix ending up with something which is which is not productive which is rather unproductive because it has started eating into the volumes once enjoyed so you must avoid that kind of a situation let me add here that this situation of cannibalization does occur when you go for the opt for a price for because you are going to opt for a price for not only with the help of your existing brand but by offering a new entry which carries a low price tag and through that customers get accustomed and that is how that low price for the brand eats into the volumes of the other brand which enjoyed at one time a higher price so the results are obvious and I think you will agree with me that at any cost you must try to avoid the possibility of cannibalization but then the marketing people argue that they do not get into these kind of situations by choice they are dragged into these kind of situations so in order to make sure that you are not dragged into these situations you have to preempt these situations with things which are more positive and the more positive things are I would say the preemptive management process is a big thing of extending your brands on positive lines and to be ahead of the competition and to be able to find those points of the difference which really carry meaning for your customers if you follow that logic then you do not lose sight of the logic and run into a situation which becomes embarrassing for the marketing department to bring the marketing department under a tremendous pressure from the top management and all others within the company so having said all that about the negative side of the line extension let us now talk about the reaction which the managers show to the negative side of a meaning what are the fixes they can go for in order to make sure that the effect of the negative side of line extensions is offset or if totally nullified if not totally nullified it stands offset to a large extent one of the practices which companies have started undertaking I would give you an example of a huge multinational P&G the company into host of consumer items started desegmenting or counter segmenting that is what you may call this is part of the marketing literature by the way their product offerings their brands and in early 90s which is not for that far back into the history of marketing they shrank their base of brands by a factor of like 225% now the offerings which they did a bit through of course there were those offerings which were not highly profitable and which were rather turning in with the lower levels of financial contribution in the marketing part by withdrawing these offerings they would be better off and they would do those so this is one of the steps which companies have started taking and you will also agree with me that the proliferation also leads to the consumer frustration and we can relate with in one of the lectures I talked about as consumer revolt so in order to see to it that there is no consumer revolt in the marketplace in terms of their brands companies like the one I have mentioned have started getting into the concept of desegmentation and counter segmentation because they are convinced that a little bit lesser number of brands they are going to make more profits than by offering a larger number of brands you are an expert by now on these other matters and you will know why I am talking about that because it is not only customer revolt it also is the cost of production but just imagine the advantages that follow a few of those entries which were not profitable for you and you are a happier lot or happy lot if you were really frustrated and angry by concentrating on just those which are profitable and which have all the potential in the world to keep the company very viable what are the immediate actions which companies can take apart from counter segmentation or desegmentation in order to see to it that line extensions do not really carry a lot of negative factors meaning the negative side of line extensions does not outweigh the positive side of line extension one of the factors which companies have started the following apart from counter and desegmentation is who have improved the cost accounting systems now my intention here is not to get into the cost accounting side of the brand management but this most certainly is one of the factors which have to be understood by the brand managers because it is seen through the marketing literature and through the practical experience you know in most of the countries of the world that many companies lack the good costing systems you might be astonished to hear that but that is a fact that industry in marketing literature is full of examples of the dealing with companies that do not really have very good costing systems in place and therefore running into situations in which they do not know what kind of costs to charge what kinds of different brand heads and that is what is spent by improved costing systems which must dictate that cost has got to be very fairly and very judiciously and very accurately charged to the items to which it belongs it is not that you are incurring a lot of costs on one particular brand and start charging another one of which is very highly profitable just in order to you know create some reality that the brand which happens to be the darling of the brand managers should remain away from the site of top management or you know due to any of the reasons you must be very very realistic and very accurate in charging costs to the right heads the cost has got to be charged to the brand where it belongs not only that but also that you have got to look at the costing of the factory in terms of the financial contribution that each brand brings to the company meaning those brands or those offerings which bring the company a higher level of financial contribution have got to be supported with a higher level of the marketing resource or overall resource so to say there are situations in which you have the brands which are huge in terms of volume but they may not be carrying a compatible level of profitability and at a higher level of profitability you are getting through a brand which is not a volume seller that kind of situation within the company is how to divide the resource meaning the marketing resource very judiciously well different situations carry different dynamics and the marketing people and the costing and finance people within the same company you are going to be in the most appropriate situation to decide what to do and the logic goes the brands with higher levels of financial contributions have got to be supported accordingly meaning the brands which attract occasional buyers cannot be supported or should not be supported as much as you support those which have a huge following while you consider how to offset the negative side of brand extensions is to take sales people into the fold and when I say taking them into the fold what I mean is that sales people have got to be able to define everything I mean every single offering in its sales context and whatever they do in the market or whatever they insist on introducing because the marketing process starts from the market and people who are in the market perpetually they are the sales people so it is the sales people who come back to you again and again suggesting to you that this is the kind of offering in which we should have in order to satisfy that particular need of the target market because they are the people remember we talked about that earlier they are the people who are very familiar with the purchase criteria of the customers and therefore the model that you developed in terms of that model having a very strong orientation toward customers also had input from the sales people so sales people have got to define what is the reason for the existence of one particular offering or all the offerings for that matter in the context of a very decent level of sales I mean that level of sales has got to be decent that is what I am saying and sales people have got to stay committed to the sales of that offering or those offerings they cannot just escape the or evade the responsibility which must lie on their shoulders because they are fighting the war and they must fight the war on the marketing front or the sales front by being very clear about the objectives which laid the foundation for the introduction of that offering and now they should be the people to be able to sell the way they committed or the way they very positively indicated sales people have got to understand not only the volume side of the sales which they are responsible for they also have to have a very good understanding of the costing factor which I talked about a moment ago it is not that the sales people also have to be the costing experts it is that they should know the kind of contributions being brought by different offerings that they are handling in the marketplace and they should know that any brand which is very close to their heart should be the one which also brings to the company a fairly decent level of contribution so this is how you involve these people and this is how you educate these people and this is how you maximize the positioning offerings by educating your peers this is part of the audience you remember that acronym as part of the positioning concept and the E being the last letter of the word audience that relates education so you have got to educate these people about the factors which are so delicate and which really are very sensitive in relation to their contribution to the overall goals of the company because you are out to make sure that the vision of the company is fulfilled and therefore the brand vision which has translated into different strategies that has got fulfilled as well that is very important the argument generally given by sales people is that they just look at the overall level of sales which existed so many months ago let us start talking about the same example of 100 units and they might turn around and tell you look at the sales volume that we have today it is 125 and we have brought to you an increase of 25% now the question is if that increment of 25% coming the way of the company if that has come with the help of like 5 different brands what is the beauty of carrying all those brands if you have so many different problems in the areas of production in the areas of logistics and in other areas that I talked about now I am not talking about the brand manager or counter marketing here no all I am saying is that you have got to take a balanced view of business management when you are working in any department of the company or you are responsible for any function falling within the overall ambit of the game of business you have got to make sure that there are compatibilities and you have got to make sure that there is sanity in all the decisions and in all the actions that are going to be followed and undertaken in the marketplace so in other words you if you are in a position to sell that volume of 125 by having a lesser number of brands in relation to a larger number of brands you should go for a lesser number of brands now the challenge here is how do you do that well that is what you may call as another fix or as another factor which helps you to offset the negative side of an extension is withdrawing those offerings which are not very highly profitable meaning product withdrawal this might sound very painful we are going to house it that the brand which within the company should be withdrawn that amounts to the killing something that we created with our own hands but then you have got to be realistic now the important thing and the most sensitive thing here is that you are assuming a situation which is a situation of brand proliferation you are talking about a situation mainly to the cannibalization and you are talking about a situation which is not very attractive in terms of the number of brands that you carry and the relationship of that with the level of volume that you have now that there has got to be some kind of sanity there has got to be some kind of equation you know you should withdraw those which will not burn your customers away that is where the key lies you now you might argue how is it that a brand which has some following maybe it has a very small following some customers are going to be turned away and they will switch over to competition well the answer lies you want to retain those customers to your other offerings and you can retain those customers to your other offerings by talking or by communicating a lot of sense about those which you want to retain because what is happening is if you are drawing on one hand you are fortifying or strengthening others on the other hand so those which are fortified by you should be the ones who are going to win over your customers in small number of course who switched over to your offering which you have now somehow decided to withdraw from the market so that is all about withdrawing having talked about that I would say that that completes our understanding about the concept of line extension having done with that let us now start talking about the concept of brand extension do not confuse that with the overall loose terminology which we use in the market by calling everything brand extension brand extension like I told you is that we deal with different categories that we deal with different product areas that we deal with different opportunities which are being offered to the company to get into different market only because their brands happen to be valuable and the brands happen to be highly profitable and very powerful so you get into brand extension what is brand extension and why it has come into so much practice nowadays the factors that we are going to talk about are very close to the ones that we talked about in relation to line extension but there are certain subtle differences and we have got to have a clear understanding of those subtle differences so that we should not be the ones to start making decisions very sensitive and very strategic decisions about getting into a new area altogether which may be very hostile and which may not be very business friendly in relation to our company not in relation to overall business but in relation to our company so what are those factors that we have got to have a very clear understanding of that and I shall as a matter of fact look forward to the talking about those factors with you in the next lecture because it looks like it is running out of time so Allah Hafiz until that and see you in the next lecture