Do Business Well

Leadership first, perception second. To try to reverse this sequence is almost impossible.

What if you do everything right? What if you are the first in a new category and subsequently go on to dominate that category domestically? Then you should try to expand the market in the U.S. at the same time that you take your brand to the global market.

Coca-Cola did all of these things. But what’s next? Are there no second acts in branding history?

Most assuredly there are. A company can do two things at once (keep a narrow focus and expand its business) by the simple strategy of launching a second, or even a third and fourth, brand.

• Coca-Cola owns Coca-Cola, the leading cola, and Sprite, the leading lemon-lime soda.
• Anheuser-Busch owns Budweiser, the leading regular beer; Michelob, the leading premium beer; and Busch, the leading low-price beer.
• Darden Restaurants owns Olive Garden, the leading Italian restaurant chain, and Red Lobster, the leading seafood restaurant chain. (Darden is the world’s largest casual dining company.)
• Toyota also owns Lexus.
• Black & Decker also owns DeWalt.
• Levi Strauss owns both Levi’s and Dockers.
• The Gap also owns Banana Republic and Old Navy.

America Online is using the same multiple-brand strategy on the Internet. AOL is its premium brand for which subscribers pay $21.95 a month. The service includes nineteen separate topic channels, fifteen thousand chat rooms, and ICQ, a popular instant messaging capability. CompuServe is the company’s value brand. For the same monthly access charge, CompuServe offers cash rebates to new subscribers who agree to purchase certain computers.

Instead of launching second brands, however, most companies take the vanity route instead. “What’s wrong with our name? We’re famous. Why do we need a second brand? We can use our own name on that line extension.”

Some companies that practice line extension seem to be successful, at least in the short term. Microsoft is a good example.

After dominating the personal computer operating system business, Microsoft has gone into a raft of different businesses, all under the Microsoft name. “If Microsoft can do it, why can’t we?” is a constant refrain of our consulting clients.

Our answer: You’re not Microsoft. When you have more than 90 percent of a market, when you are worth more than half a trillion dollars on the stock market, you are extremely powerful. You can do almost anything and still appear to be successful.

Leadership changes the rules of the game. Try telling your spouse, “If Bill Clinton can do it, why can’t I?”

Most CEOs are not Bill Clinton either. They are not the leader of the most powerful country in the world. They have to follow ordinary rules.

Leaders, especially dominant leaders like Microsoft, can break all the laws and still stay on top . . . for now

Look again at Yahoo!, a company that is following the Microsoft game plan. CEO Timothy Koogle says: “In online commerce and shopping you can expect to see us extend aggressively by broadening and deepening the range of consumer buying, transaction, and fulfillment services we provide across all major categories.”

(Don’t be too critical of Yahoo!’s behavior. You only live once. Being young and rich and foolish is a lot more fun than being old and wise.)

Many sites are going in the same direction, but without Yahoo!’s powerful brand-name recognition. They include Buy.com, Shopping.com, Shopnow.com, and a host of other copycat sites. “Anything you want to buy, we can get it for you at a discount.”

What does a site like BuyltNow.com sell? Jewelry, consumer electronics, toys, kitchen equipment, home decorating products, sporting goods, tools, pet supplies, garden supplies, gifts, luxury items. “You name it, we’ve got it.”

Snap.com goes one step further. Not only can you buy everything by visiting the Snap site, but you can buy it from any store. “Any product. Any store. Any time. Snap shopping” is the theme. Vanity is working overtime at Snap.com.

When Internet fever cools down, when the Internet is just one of the places you can go to buy things, those generic sites that sell everything to everybody are unlikely to be with us. Yahoo!, on the other hand, is in no danger because it has a powerful, dominant position in the portal category. As does Amazon.com in the books and music category.

A question remains for leader brands like Yahoo! and Amazon.com. Would these companies have been better off with a multiple-brand strategy rather than a line-extension strategy?

We think so. But it is getting harder and harder to find leaders that want to introduce second brands.

Their vanity leads them astray.

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