Brand Extensions Lead To Brand Dilution


This thesis is a result of efforts , time and skills contributed by a number of people. I would like to take this opportunity to thank all of those who have worked towards successful completion of this thesis. I thank Dr. Swarup , for his valuable inputs and ideas supplied in the beginning. He took great pains to guide us in the right direction and suggested corrective actions from time to time. Periodic meetings with him during the last few months have been hugely beneficial for my development as a management student as well as a human being. I also sincerely acknowledge the help provided by my institute - “Indian Institute of Planning and Management” . The resources made available to me in form of latest literature, journals and books on Branding and Marketing as well as the inputs of visiting and internal faculties of the institute have gone a long way in culmination of this thesis.

Finally, I am grateful to my friends and fellow students currently working in organisations like Hindustan Lever , H.C.L and Metlife Insurance for facilitating the search for raw data for the purpose of research .

Brand Extensions Lead To Brand Dilution



“A house of brands is like a family each needs a role and relationship to others” – Seffrey Sinclair. The brand tells why products exists, where they come from and where they are going. It also sets their guidelines. A brand is not a fact set in stone. It must be able to adapt to the times and to changes in buyer’s behavior and technology. A brand is both memory and future of its products. A brand is built up from day to day; it is never set down once and for all of course its past must not determine its future too narrowly. But when a brand moves out in all direction, it can loose its meaning and become void of content. Brands have been important ever since advertising for mass produced products began. As Sephen Kint said, “A product is made in a factory. A brand is bought by a consumer”. There in lies the rub. The encounter between brands in a competitive

environment enhances consumer expectations which become more and more demanding as advance technology offers marginal improvement and a better price value relationship. The consumer is constantly on the look out for a better product; even more for a better product at a more affordable price. Flop and success; hits and misses; blockbusters and mega flops – is marketing becoming more like the movies? Or is the case of marketing imitating art? Whichever way you look at it, the fact remains that today marketing is an art that needs to be mastered to ensure that brands have a long and successful run at the box-office. Marketing, like the performing arts, has it all : action drama, conflict, climax. And like all good movies, there is a concerted team effort where professionals bring together a diverse range of expertise and competence under

Brand Extensions Lead To Brand Dilution


the creative direction of the leader, the director. Likewise every brands launch, requires a Spielberg, a Richard Attenborough or a James Cameron: a man with vision, passion and a story to tell. Everybody loves a blockbuster, a mega-hit, a box-office bonanza. But flops are an inescapable fact of life. For every Titanic, there are many more that, sink without a trace, A it is not just a combination of big bucks, creative skill and epicscale hype. If it were, the much talked about Waterworld wouldn’t have turned out to be such a damp squib at the box-office. So what is the magic formula? And, more relevant : can there be a magic formula? Therein lies the twist in the tale. For if every movie worked to a magic formula, there would be no magic in the movies. Similarly, no two brands can be marketed according to a precise marketing formula. For in marketing, as in the movies, no single formula can be applied to two brands. Copycat movie abound in the Hindi film industry. Critics may argue that copycat moviemaking works I the Hindi film industry, but that’s far from true. Even Karan Johar’s Kuch Kuch Hota Hai, is only an extension of the cinematic trend that was started by Hum Aapke Hai Koun and Dilwale Dulhaniya Le Jayenge. They will belong to a new genre of films – the family-oriented love story – but each has an appeal that is distinct. As distinct as a Coke form a Pepsi or a Santro form a Matiz. Marketing like movie-making, is all about offering the right product at the right time. Hit movies, like brand successor, are all about creativity, execution and direction. On the creativity front, it all begins with a compelling story. THE EXPERIENCE A bunch of Nike-clad, cell-phone toting kids walk into PVR Anupam, the multiplex at Delhi, to watch Titanic. An upper-middle class couple stroll into Mumbai’s NCPA to see the latest venture of Adoor Gopalakrishnan. Two different movies that promise two different types of experiences. Each has its own set of value perception – on the basis of which it is judged and loved or hated. Now what if

Brand Extensions Lead To Brand Dilution


there was a switch I of “experience mindset”. Say, if the couple went to watch Adoor Gopalkrishnan’s film with the expectation of a Titanic-like experience? The result; disaster, without a doubt. Not just movies, but brands too are constantly being evaluated on the basis of their “perceived value”. With brands very often, it is the price-and-positioning combination that causes blips to occur on the perceived value barometer. The Club Med Holiday makers who thought they were paying the price for a holiday in a Swiss chateau but came back with the feeling that they had been palmed off with a holiday on the beaches of Pattaya. No prizes for guessing what would happen if the cinema halls of Shahjahanpur in Uttar Pradesh were to screen The English Patient? So too, Chennai management plays a crucial part in determining whether the brand s destined to have a golden jubilee run or be wiped off the market in the first week. And finally, direction is the key to a successful film and a brand. How the director of a film orchestrates the various elements is what makes or breaks a film. So is the case with a marketer. How he chooses to deploy his resources, how he connects the brand's current role with a strategic vision for the future and how he priorities organizational capabilities and strategic vision for the future and how he priorities organizational capabilities and strategic competence are all the keys to averting a brand disaster. Ultimately, averting brand flops is all about the art and drama of market leadership.

Brand Extensions Lead To Brand Dilution



We are here to talk about brand extensions. A company my use its existing brand name to launch new products in other categories. Honda uses its company name to market such different products as automobiles, motorcycles, lawn mowers, and snowmobiles. This allows Honda to advertise that it can fit “six Hondas in a two car Garage”. Godrej now features its name on soap, lotion, shampoo, conditioner, shower gel, locks, almirahs, raw chicken and God knows what in future. A new trend in corporate brands building its that corporation are licensing their name to manufacturer of a wide range of products from bedding to shoes. Brand extensions also involves risk. The new product might disappoint buyers & damage their respects for the companies other products. The brand may lose its special positioning in the consumers mind due to dilution. Dilution occurs when consumers no longer associate a brand with a special power or highly similar products. Brand extension is not, however, a recent phenomenon (Gamble, 1967). It has long been prominent in the luxury goods sector. India has always had big business houses like Tatas , Godrejs and Birla who tend to push newer and varied products under one Brand Name. Tata – From Steel to Cars , Godrej – From locks to Farm fresh Chicken . The latest to join the bandwagon have the Ambanis who after decades of excellence in Industrial chemicals have now forayed into telecom and power . WHY EXTEND THE BRAND? Recent attention does not focus on the process of extension as such, but on the benefits which it promises. Firms have come to appreciate that branding does not just amount to an act of customer communication or a graphic exercise on packaging, but implies a total behaviors pattern. The brand survives and fulfils

i.ex e

Brand Extensions Lead To Brand Dilution


its intention only if it permanently surpasses itself by improving its product and adapting it to ever-heightened consumer execrations. Innovation allows the brand to remain up-to date and demonstrates and unceasing attentiveness to the changes in customer taste. Most brands which have pinned their fortunes on a single state of the art product, relying on advertising to update their image, have fallen by the wayside to be modern in today's world means being in tune with developments in user habits(e.g. in the food market, offering simplified meals and individual portions) this in turn did not develop-their own initial level of ability in line with such changes, they run the risk of being left behind. A second major factor in brand extension is the cost of advertising. Brand

reasoning proceeds on competitive lines., Gains in productivity must be sought, right down the line. This is only fully possible when it spreads the scope of its ambition form local to national markets, and then the world wide market. Sacking the widest market possible is the only means of supporting the increasing costs of research and development and industrial investment. The only way to achieve this wider market is through advertising. If your add to this the need to outgun the competition, at least matching their share of voice, it is easy to understand the trend towards increases in advertising expenditure. Advertising is one out come of permanent reinvestment in research, a quest for qualitative progress an better performance in the market. The high cost of Advertising makes it impossible to support an excess of brands- there is no alternative but to concentrate one's means on just a few major brands. Most firms therefore evaluate their brand portfolio at a given time and select those few which are to be the subject of advertising expenditure. These will be the brands with diversified, innovative products. Brands extension therefore results from the concentration of efforts on a few brands. New products which would have been previously have been launched as new brands, under their own name, are now introduced under the aegis of an existing brand, but possessing the full authority of a strategic company brand.

Brand Extensions Lead To Brand Dilution


The surge in brand extension is not, however, totally ascribable to technological factors. For a long time, brand extension was hampered by the classic brand concept.

The classic brand concept rests on the equations : 1 brand = 1 product = 1 promise or customer benefit So it is that Procter and Grumble give every new product a specific name, totally independent of fall their other products. Levi’s corresponds to a certain promise, Dockers to another and Sykes to yet another. Compare this policy with that of Cognate - Palmolive. Palmolive is a toothpaste, a soap, a shower gel and an aroma talc. The classic brand concept leads to an increase in the number of brands. If a brand relates only to one physical products and one promise, one cannot in principle use this to cover other products - a proper name as surely as Aristotle is the name of a well known Greek philosopher (Cabot, 1989). Such a concept gives little opportunity for brand extension, either by permanently increasing the level of adding to the formats to cater for the latest user practices (e.g. packet, drum, mini-drum) or by multiplying the varieties chocolates with wafer , dark chocolates etc). (e.g. Chocolates with nuts,

Brand Extensions Lead To Brand Dilution


The classic brand concept therefore takes the initial phase of the brand for is reality. Though we can accept that the brand starts with a product, it is not the product : the brand is the sense, the meaning of the products. Products have no voice. A customer faced with a washing machine with no brand is confused. How can he gauge whether he will be satisfied with it? The brand signifies the intention of the creator - the value which he seeks to include in this machine. What has the creator sought to inject into this products - a love of tradition, the taste of a job well done, a respect for modern fancies, or finally a wish to find a happy compromise between innovation and durability? Extension cannot go in all directions. It is the brand which defines this source of direction and the ultimate course. The brand carries with in itself the code for future products which it will embrace. What does this concept change in terms of brand extension? In the classic concept, extension scarcely ventures beyond the stage of technological knowhow. The key concept is that of skill. The only question which the businessman is asked is : do you a or do you not the industrial technique or know - how? Such a question is in itself a form of reasoning which still relates to the physical product - it shows a misunderstanding of the nattier of brands. Following this line of reasoning, a Swatch car would make no sense. Swatch does not how to make a car. The wider brand concept implies extension beyond the sphere of the initial technique. The brand is not seen in terms of technological know how, but as a way of dealing with products, transforming them, and giving a common meaning. In that case, the idea of a Swatch car may be reasonable, for one can foresee how the Swatch values can segment the car. It suffices for Swatch to find a good partner : Fiat or Volkswagen, perhaps.

Brand Extensions Lead To Brand Dilution


Brand extension is a leap away from the initial technology. Here again we must make the distinction between associated extension or continuity extension and discontinuous extension. A major optics brand may extend to photocopying : this happened with Cannon, Minolta, Kodak, and Agfa. A sports brand can embrace every sporting requirement (Adidas, Nike and Puma). Discontinuous extensions do away with technological affinities - the physical bridge between products. These are true diversification's. For example, Yamaha manufacture both motor cycles and classical pianos of repute. whole field of consumer products and even durables. Some extensions are therefore far removed from the brand's initial territory whilst other are in close proximity. This leads to brands with a narrow outlook-specialist brands - or brands with a wide spectrum (Philips, General Electric). Is it better to have a specialist or a broad approach? This question cannot be answered in general terms. We have to remember that the brand is arbitrary and can choose whichever path it desires. If Gillette decides to put is name on soaps, nothing can stop it. wide spectrum. Degree of product dissimilarity changes the meaning and status of the brand need to cover these products. Close extensions are compatible with formula brands – Samsung can put it’s name on Televisions , DVD Players , LCD Monitors and Refrigerators without risking equity dilution since products are closely related. Extension one degree further corresponds to a 'know - how' brands. Palmolive ,for instance , adds hygiene to every thing it touches, be it personal hygiene (shower gels) or oral care(Colgate). T-series is the ultimate in economy and therefore sells the audio cassttes as good a bargain as their washing powder. When it first came on the scene, Sony was exclusively a high fidelity brands. In a few years it acquired a name in television and video and by If the company strategy is to give greater consideration to capitalizing on one name, thus saving on advertising, it will opt for a brand with a Retailer brands cover the

Brand Extensions Lead To Brand Dilution

- 10 -

the same token has seen its image and significance develop. Technology, sensitivity and innovation, however, still remain its central values. The furthest degree relates to a brand define Donny by a deeper philosophy. In concrete terms ,brands having no depth, no identity apart from a physique(a product or formula), can not support wide ranging extension. If they extended, they decline and regress to the level of a port-brand-that of a factory brand worth only a guarantee of origin. They become diluted, with no more meaning . This is the case with Mitsubishi. Its name does not really relate to a unifying brand, capable of leaving its impairing. It is a corporate or factory name. It does not signify any meaning other than that of the generic image of Japan. Mitsubishi cars do not seem to manifest any particular ideal of design, nor do Mitsubishi television or machine tools, for example. It is also the case with Philips. In contrast brands given too great a dimension, some are under exploited. These only cover a narrow field of products but ,have an inner mystique which could impart a significance to a wide spread of products. A typical case of brand under exploitation is that of Nike.While Reebok continues to sell more and more pullovers and T-Shirts and Adidas makes it’s footing stronger in Personal hygiene market , Nike is just contend to sell shoes

Brand Extensions Lead To Brand Dilution

- 11 -

Before setting about any practical extension , there are two preparatory stages. The first -and exploratory stage-probes all the associations with the brand which are present in the collective public mind. This stage allows conjecture as to which products would be compatible with the brand's meaning . once this has been established, we have to turn our eyes back to the market. This brings into play the second study phase- testing the new products ideas. A decision can not be made on the strength of this information alone. Brand extension is the result of strategic decision. It also involves factors linked with production , marketing , finance and human resources. Extension always involves a certain risk-no form of study can accurately predict the effect of extension on the brand itself over a period. How will its status, its meaning ,its equity be affected? It cannot be over-emphasised that extension can not be contemplated without complete knowledge of the brand's attributes: What are its attributes? What is its personality? What is the purpose? What is its heart? What contract does it offer to customers and consumers? What is its latent potential?

This questions can only be answered through both quantitative enquiry (to establish the popularity of the brand and its image)and qualitative approaches. The brand's latent potential and source of inspiration are not revealed by more image surveys. Access to its prism of identity and its motivating force requires

Brand Extensions Lead To Brand Dilution

- 12 -

qualitative investigation..The qualitative phase finally allows an under standing of the brand's function from the user angle. Is the brand one's own personal , or a symbol for the multitude? If I said “shaving system”, “after-shave” and “shaving gel” and asked someone to name a brand, which is common across these categories, Gillette might come readily to mind. On the other hand, if I asked the same question after mentioning “airline”, “cola” and “records”, Virgin might not be recalled so readily. And yet, both brands have been extended successfully. Both have a shared quality that provides an ‘agglomerating glue’ which determines the success of brand extensions. The ‘agglomerating glue’ of Gillette is ‘Shaving products’, for Virgin, it is ‘Richard Branson’. The first question about Brand Extensions is: Why should one consider them at all? The most common would be that it will grow the Brand franchise. If it were only that simple! The reason why the effort could fail is that this strategy presupposes Assumption One. It one will help or get trial / more sell the assumptions. new product.

This need not be inevitable, even if it seems ‘reasonable’. Because the extension of the brand name will help to get trial only if it is seen to Add Value to the new product. Some years ago, Nirma introduced a toothpaste – but the many consumers who saw a value in Nirma washing powder, did not find it in the toothpaste.

The most critical failing in many brand extention initiatives is that they start with the marketer, not the consumer Assumption Two. It will help to strengthen the existing product. A brand extension can achieve this, but only if the new product incorporates a truly New Idea. For example, the Apple computers brand was actually enhanced

Brand Extensions Lead To Brand Dilution

- 13 -

by the introduction of the iPod MP3 Player - but that happened only because the iPod is a sensationally new idea. The Apple brand could not have achieved this, if the iPod were just another MP3 player. Assumption Three. The brand equity will ensure ready acceptance in the new category. A common assumption is that the brand has enough Stretch to carry its strength into a new category. But Bournvita was unable to stretch its strength as a health beverage to biscuits. Internationally, Xerox couldn’t stretch the brand to computers. And consider the recent announcement that Amul will extend the brand into sugar. Will the brand stretch that far? What do you think? The most critical failing in many Brand extension initiatives, however, is that they start with the marketer, not the consumer. Because while the trademark may belong to the marketer, the brand finally exists in the mind and heart of the consumer. Brand Extensions will succeed only when they create a Consumer Connect. Here are some guidelines on looking for them.

Guideline One: Extend a strong Attribute / Performance Characteristic Association. This is the simplest level at which to begin. Amul stands for pure milk. Indeed it is likely that to many consumers, Amul is milk. Therefore, it is easy to extend the brand from wet milk, to butter, to cheese, to dairy whitener, and recently, to ice cream. However, with pizza, Amul may now be moving just a bit too far from the core ‘milk’ association. Does the consumer think Pizza = cheese (=milk) or is Pizza = baked food? In a like manner, Sunsilk is a brand that stands for beautiful hair. So it seems legitimate to extend it beyond shampoo to hair colour.

Brand Extensions Lead To Brand Dilution

- 14 -








Fair & Lovely owns the skin fairness benefit strongly enough to extend the brand from the original fairness cream to a lotion to a soap to an under-eye cream. Lux is strongly linked to the beauty benefit. So it can extend from the toilet soap to an entire range of beauty products such as Moisturing body wash and Sunprotection products. Guideline Three: Extend an association with a Consumer Attitude or Belief. An intangible like this can actually be a very strong basis for extending a brand. Think of Body Shop. The brand represents an ethical, environment- friendly world view. For consumers who share this point of view, this is strong enough to prefer Body Shop products across a host of categories. Nike and its swoosh stand for pushing oneself beyond the limit and an individualistic attitude – so the brand appeals to those who share this view and who Guideline wear Four: the Extend the brand brand based as on Brand a Essence. badge: in sports shoes, sports goods, bags, casual wear, even watches. Brand Essence is one of the most slippery aspects of branding. It is not the Brand benefit, it is not the Brand Differentiator, it is not the Brand Personality; it may incorporate aspects of all of these and yet be beyond them. To put it in another context, there is a “Bogie-ness” that makes Humphrey Bogart unique and something “Marilyn-esque” that keeps every buxom blonde from being another Marilyn Monroe. That is Brand Essence! The essence of the Ferrari brand is thrill and excitement. The essence of the Dunhill brand is old-world, refined, sophisticated luxury. Brands with such

Brand Extensions Lead To Brand Dilution

- 15 -

indelibly etched essences can carry the essence across a wide spectrum of products. So Ferrari is not just fast cars, it is also expensive clothes and fragrances. Dunhill is cigarettes; but it is also lighters, jewelry, watches, writing instruments, men’s clothes and more. There are also several watch-outs to note before extending brands. Watch-out One: Is your brand extension sending out contradictory signals? This could be happening in the case of Nivea, where after offering skin-care products for women for years, a range of men’s toileteries was introduced under the same name. Bad idea. Another brand, Zodiac, avoided such a situation. Zodiac is formal, sober, mature. Not exactly the right associations for trendy clothes! Zodiac has created the Zod brand to enter this category, rather than extend Zodiac into potentially incompatible convenient, available name territory. that’s being used? Watch-out Two: Is there any link to the brand extensions or is it merely a Maggi came into India with 2-Minute noodles - a hearty, anytime snack. Since then the Maggi brand has been extended to sauces, soup cubes, even pickles. There is nothing that holds this set of products together. Is it surprising that the extensions are not resounding successes? Watch-out Three: Check the interpretation of the link across extensions. Dettol was the ubiquitous antiseptic liquid (and then cream). When the brand was first extended to soaps, the antiseptic property was interpreted to mean care and Dettol was launched as ‘The Love and Care Soap’. It did not work. Today, many years later, Dettol soap offers protection – a more realistic interpretation of the antiseptic property, and the soap is doing far better. In closing, I’d like to state that brand extensions are certainly a valid strategic option for a brand manager. With the right basis of extension, they can offer advantages in terms of getting trade support, reducing barriers to trial, improved media-spend multiplier effects, and so on. The key issue is whether there is an underlying linkage binding and mutually strengthening the brand extensions. If you’re Richard Branson, you can stretch

Brand Extensions Lead To Brand Dilution

- 16 -

your brand across an airline, a cola, and a record label. If you are Michael Jordan, a line of basketball shoes makes sense. If you are Lata Mangeshkar a fragrance is probably not such a great idea.

Brand Extensions Lead To Brand Dilution

- 17 -

INITIAL OR NULL HYPOTHESIS: “Unrelated Brand Extension When Done With The Sole Purpose Of Boosting Sales and Capitalizing on existing equity Lead To Brand Equity Dilution .” SAMPLE SIZE : 100 Respondents SAMPLE TYPE : 50 out of 100 respondents were solely shopkeepers , retailers and store managers . In their case , the certain open ended queries were also made apart from the structured questionnaire . During analysis , their response was given a better weightage . The remaining 5 respondents were from all types of backgrounds and walks of life – Housewives , Salaried Professionals , Working women , Senior citizens etc. SELECTION OF BRANDS TO BE STUDIED : The selection of brands to be covered under the purview of this research was done with due care in order to cover all diversity of Branding . Nirma was selected as it belonged to Habitual Buying behavior, low involvement category with it’s majority customers being adult ladies . Cadbury , the other selected brand was chosen for exactly the opposite attributes – high involvement variety seeking category with children and teenagers being principal buyers. In order to prove the hypothesis on the international scale , Virgin (of Richard Branson fame was also included . Most of the data pertaining to Virgin was acquired through direct in depth interviews with Virgin Officials in India.

Brand Extensions Lead To Brand Dilution

- 18 -


Cadbury (Shopkeepers, Store Managers)
1. In what intervals does Cadbury launches sub brands ? a. Quarterly b. Semi-Annually c. Annually

2. Was falling Sales a prime reason for Cadbury to launch sub brands ? a. Yes b.No

3. How does the pattern of sales changes after brand extension ? a. New Sub-brands eat into the share of Original brands of Cadbury b. New Sub-brands help cut into the share of rival brands while not affecting sales of original Cadbury brands. c. Sales of Cadbury and rival brands stay unaffected while brand extensions bring in new customers.

4. What was the pattern regarding prices of Extended Brands ? a. Prices were on par with old original Cadbury brands. b. Prices were lower than the prices of original Cadbury brands .

Brand Extensions Lead To Brand Dilution

- 19 -

c. Prices were higher than the prices of original Cadbury brands . 5. What was the status of branding and promotional exercise undertaken for the new Cadbury brands ? a. Intensive branding in all stages of product life cycles b. Intensive branding and promotional expenditure in early growth stages followed by reduced efforts in mature stages c. Expenditure which is below par than that of original brand in all stages of product life cycle

6. How did the customers warm up to the new brands ? ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

QUESTIONNAIRE - Nirma (Shopkeepers, Store Managers)
1. In what intervals does Nirma launches sub brands ? a. Semi-Annually b. Annually c. Bi-Annually

2. Was falling Sales a prime reason for Nirma to launch sub brands ? a. Yes b.No

Brand Extensions Lead To Brand Dilution

- 20 -

3. How does the pattern of sales changes after brand extension ? a. New Sub-brands eat into the share of Original brands of Nirma b. New Sub-brands help cut into the share of rival brands while not affecting sales of original Nirma brands. c. Sales of Nirma and rival brands stay unaffected while brand extensions bring in new customers.

4. What was the pattern regarding prices of Extended Brands ? a. Prices were on par with old original Nirma brands. b. Prices were lower than the prices of original Nirma brands . c. Prices were higher than the prices of original Nirma brands . 5. What was the status of branding and promotional exercise undertaken for the new Nirma brands ? a. Intensive branding in all stages of product life cycles b. Intensive branding and promotional expenditure in early growth stages followed by reduced efforts in mature stages c. Expenditure which is below par than that of original brand in all stages of product life cycle

6. How did the customers warm up to the new brands ? ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Brand Extensions Lead To Brand Dilution

- 21 -

QUESTIONNAIRE (Cadbury and Nirma) (Customers)
1. What did you feel about the brand extension?  Very good  Good  OK  Bad

2. What do you think about the prices  Very good  Good  OK  Bad

3. Do you think the price is worth the quality?  Yes  No

4. Do you think that the brand extension is worth the original brand's reputation?  Yes  No

5. Do you think it’s a successful brand extension and it would prove the worth?  Yes  No THANK YOU

Brand Extensions Lead To Brand Dilution

- 22 -


Following is the question wise analysis of the questionnaire which the store managers and retailers were asked to fill :

1. In what intervals does Nirma launches sub brands ? a. Semi-Annually Responses out of 100 : a. Semi-Annuallyb. Annually c. Bi-Annually 10 46 44 b. Annually c. Bi-Annually

50 45 40 35 30 25 20 15 10 5 0


Figure 1

Following are the salient features of the Responses : 1. 90% of respondents believe that Nirma extends it’s brands in long intervals , i.e. in an year or more . Nirma is in a comparatively stable product category where customer doesn’t experiments much.

Brand Extensions Lead To Brand Dilution

- 23 -

2. The fact that Nirma decided to launch a beauty soap for everyday use deviated from it’s original market of detergents. With no core competency in this new product category, failure was bound to happen

2. Was falling Sales a prime reason for Nirma to launch sub brands ? a. Yes Responses out of 100 : a. Yes b. No 17 83
90 80 70 60 50 40 30 20 10 0 A B Responses


Figure 2

Following patterns were also observed : 1. An overwhelming number of people believed that Nirma’s foray in other markets was ill advised simply because they were doing so well in their original washing powder market. A quick look at the sales records for the financial years 1999-2000 ,2000-2001 and 2001-2002 confirm that the sales were on a steady rise all through at a rate of around 8%. In the year 2002-2003 , profits took a beating because of Nirma beauty soap and extra power dishwashing bar .

Brand Extensions Lead To Brand Dilution

- 24 -

2. Although extending from washing powder to dishwash powder seems a logical step , industry insiders believe that it is a highly fragmented market with each segment having it’s own leader. Dishwash brands like Pril are hard to dislodge from their position in an already saturated market.

3. How does the pattern of sales changes after brand extension ? a. New Sub-brands eat into the share of Original brands of Nirma b. New Sub-brands help cut into the share of rival brands while not affecting sales of original Nirma brands. c. Sales of Nirma and rival brands stay unaffected while brand extensions bring in new customers. Responses out of 100 : a. New Sub-brands eat into the share of Original brands of Nirma – 62 b. New Sub-brands help cut into the share of rival brands while not affecting sales of original Cadbury brands – 23 c. Sales of Cadbury and rival brands stay unaffected while brand extensions bring in new customers – 15

Brand Extensions Lead To Brand Dilution

- 25 -

70 60 50 40 30 20 10 0 A B C Responses

Figure 3

Following patterns were also observed : 1. Nirma has always belonged to the economy class of washing powder market where it leads other brands like Wheel and Rin. When it tries to compete with premium brands like Surf and Ariel with sub brand like Nirma Super, it fails to deliver because it lacks the basic core competence. 2. The saturated nature of the market is the reason why Nirma, or for that matter any brand would fail to bring in new customers with a new sub-brand. This explains such a low response for option C .

4. What was the pattern regarding prices of Extended Brands ? a. Prices were on par with old original Nirma brands. b. Prices were lower than the prices of original Nirma brands . c. Prices were higher than the prices of original Nirma brands . Responses out of 100: a. Prices were on par with old original Nirma brands – 23 b. Prices were lower than the prices of original Nirma brands - 16 c. Prices were higher than the prices of original Nirma brands – 61

Brand Extensions Lead To Brand Dilution

- 26 -

70 60 50 40 30 20 10 0 A B C Responses

Figure 4

Following patterns were also noticed : 1. An overwhelming proportion of respondents suggesting that brand extensions are often expensive point towards the precise reason for their downfall ,i.e. high prices . While the customer may like to experiment once , high prices will prevent him from becoming a regular buyer. 2. The lower end of washing powder market is any way extremely price sensitive. No brand enjoys any brand loyalty among customers as they switch brands on the price perimeter alone . Nirma thus flirted with danger by introducing expensive variants.

5. What was the status of branding and promotional exercise undertaken the new Nirma brands ? a. Intensive branding in all stages of product life cycles


b. Intensive branding and promotional expenditure in early growth stages followed by reduced efforts in mature stages c. Expenditure which is below par than that of original brand in all stages of product life cycle Response out of 100 : a. Intensive branding in all stages of product life cycles - 34

Brand Extensions Lead To Brand Dilution

- 27 -

b. Intensive branding and promotional expenditure in early growth stages followed by reduced efforts in mature stages - 41 c. Expenditure which is below par than that of original brand in all stages of product life cycle - 25

45 40 35 30 25 20 15 10 5 0 A B C Responses

Figure 5

Following patterns could also be noticed : 1. The results are equally staggered and don’t point in any specific direction . However , we can draw a few conclusions from the one-to-one interactions with the dealers . Many dealers believed that whatever branding took place was at the customer level through television and print media. Nirma paid scant attention to dealer management and hardly ever listened to their feedbacks. The fact that Nirma had grown into a giant brand made it believe that whatever product they will introduce in the market will succeed . 2. With reduced margins it was a Catch 22 situation for Nirma. Large expenditure on branding and promotions would reduce the profits further while very low expenditure would not generate enough margins to break even . This was one company which would have been best advised to stick with their core product.

Brand Extensions Lead To Brand Dilution

- 28 -


Nirma is an over Rs. 17 billion brand with a leadership presence in Detergents, Soaps and Personal Care Products, offering employment to over 15,000 people. The Brand was introduced by Mr. K. K. Patel in 1969. Making phosphate free synthetic detergent powder by hand and selling it at Rs. 3/- per kg., when the lowest priced detergent brand was Rs. 13/-. This value-for-money plank revolutionised the industry and made fabric wash detergents available to the masses. Today, Nirma sells over 800,000 tonnes of it's detergent products annually, giving it a 35% share of the Indian market, which is the world's second largest fabric wash products market. This makes Nirma India's largest detergent marketer and one of the world's biggest detergent brands. Even though Nirma was a late entrant in 1990 in the highly competitive toilet soaps market, it is already the second largest manufacturer, selling close to 1,06,000 MT of bathing soaps in 1999-00. The brand has over the years introduced products in toiletries and personal care with soaps, shampoos and toothpaste, thus offering the consumer a complete product portfolio. Carrying on Nirma's mission of providing 'Better Products, Better Value, Better Living' to its over 300 million consumers through an efficient distribution network. Nirma's philosophy of providing quality products at the best prices has led to investment in the latest technologies for our multi-locational manufacturing facilities, with full-scale integrated complexes at Mandali - Mehsana, Ahmedabad, Baroda, Bhavnagar, Kanpur and Indore. To have a greater control on the quality and price of its raw materials, Nirma has undertaken backward integration into manufacture of Industrial Products like Soda Ash, Linear Alkyl Benzene (LAB), Alfa Olefin Sulphonates (AOS), Fatty Acid, Glycerine and Sulphuric Acid.

Brand Extensions Lead To Brand Dilution

- 29 -

Nirma's vision, based on it's Indian experience and aided by a professional management team, is to replicate it's leadership position internationally. Within the short span of a year, Nirma achieved commandable position in the leadership of detergent market in Bangladesh through it's joint venture there, M/s. Commerce Overseas Limited. Nirma is aptly considered as a marketing miracle and this is reflected in the strength of the brand. Nirma has successfully challenged and changed the conventions of detergents marketing demystify and this today leading business core schools are analysing it's strategies to miracle. Nirma's marketing thrust revolves around prompting consumer trials by offering a good quality product retaining at most these competitive price new consumers and by

continuously offering the same 'Value For Money' equation. This is borne by the fact that today Nirma can boast of a strong brand loyalty from it's 400 million consumer base.

Nirma sells over 800,000

tonnes of detergent products every year and

commands a 35% share of the Indian detergent market, making it one of the world's biggest detergent brands. The brand promotion efforts are complemented by Nirma's distribution reach and market penetration, through a country wide network of 400 distributors and over 2 million retail outlets, making Nirma products available from the smallest rural village to the largest metro, in a continent sized country like India. Based on the pragmatic concept of 'Umbrella Branding', Nirma has been increasingly successful in extending it's brand equity to other product categories like Premium Detergents, Premium Toilet Soaps, Shampoos, Tooth pastes

Brand Extensions Lead To Brand Dilution

- 30 -

and Iodized Salt, thus opening new vistas to the field of Brand building.

Nirma has followed up it's original marketing success in the economy segment of the detergent powder and cake market, with Nirma Super Cake and Nirma Super Powder in the premium segment. Nirma's entry into the soaps market was marked with the introduction of Nirma Bath, a carbolic soap, today an established brand in this segment. Close on the heels of this, was launched Nirma Beauty Soap in three variants, which in a matter of a few years has become the third largest toilet soap brand in India. This encouraging market reception has been kept going with the launch of Nirma Premium and Nirma Lime Fresh. In fact, 17 million packs of Nirma Lime Fresh were sold in the very first month of its launch and that too without any advertising support. That's the power of the Nirma Brand.

Today Nirma has expanded into the personal care market with Nirma Shikakai, Nirma Beauty Shampoo and Nirma Toothpaste and into products like Iodised Salt, thus providing the consumer with a more complete product portfolio. Qualitative Research Study Objective: To determine the primary associations that consumers make with Nirma and its products, specifically Nirma washing powder & Nirma beauty bar in the middle and upper classes. Gauging Consumer Perception, both before and after the launch of Nirma Beauty Bar. Data collection approach: Non structured In-depth interviews.

Brand Extensions Lead To Brand Dilution

- 31 -

Output: Associations with Nirma & its products and how well these support the hyothesis. Importance Ranking as well as Rating of specific attributes, relevant to the product portfolio and performance of Nirma and its products on these attributes. Brand Image of Nirma and Brand recall Type of Study: Exploratory study. Research Matrix

Research Problem What are the specific associations that consumers make when they think of Nirma-the Nirma brand, Nirma detergent and Nirma soap? What has been the impact of the extension on the core brand?

Hypotheses/ Research Question Nirma soap has intangible benefit, customer benefit and relative price type associations

Information needs

Associations that consumers make w.r.t. -Nirma brand -Nirma detergent -Nirma soap

Nirma Soap has Perception of enhanced the brand image of Nirma Nirma detergent and Nirma Soap in the mind of the consumer Perception of the Nirma brand -before the brand extension

Brand Extensions Lead To Brand Dilution

- 32 -

-after the brand How has Nirma’s extension into toilet soaps impacted the directions and possibilities for future extensions? Extension of a brand into notso-near product becomes easier brand extensions i.e., Nirma will now (after its extension into soaps) find it easier to extend into more diverse product categories. extension Consumers’ perception of viable future extensions for the

after intervening Nirma brand

Data Analysis Plan The data analysis after the pre-testing was over, was carried for both the sets of questionnaires separately first and inferences from them were later clubbed to arrive at the overall perspective. We will now illustrate the specific input derived from each question for each information need as per the requirements stated in the research matrix.

Associations that consumers make w.r.t.
o o o

Nirma Brand Nirma Washing Powder Nirma Beauty Bar

The eleven categories in the Brand specific association model were used to categorise the responses to the above questions, in the form of frequency tables.

Brand Extensions Lead To Brand Dilution

- 33 -

These would provide input to validate the hypothesis about the associations related to Nirma products.Perception of Nirma, Nirma detergent and Nirma Soap in the mind of the consumer, especially after the launch of Nirma beauty bar. This information need required multiple questions, involving ranking of relevant attributes for the brand and the two product categories and then rating of Nirma and its products on those attributes. Information regarding the possible future extensions was gathered through an open-ended question in both the questionnaires (Qn 7 in 1 and 2). The responses are later classified in broad product categories, where required. Results The results from the data analysis are presented in this section. The top of the mind brands in the Washing powder category were:
• • •

Surf Ariel Nirma Lux Dove Rexona

The top of the mind brands in the beauty soap category were:
• • •

Thus, it was observed that Nirma Beauty Bar did not feature in the top of the mind recall (unaided) in this segment. The respondents personified Nirma in the following manner: Nirma is a middle-aged, average-looking housewife, dressed in a saree, traditional and competent by nature. The relevant attributes, in order of decreasing importance, in the choice of any brand as a whole were found to be:
• • •

Quality Performance Value for money

Brand Extensions Lead To Brand Dilution

- 34 -

The attribute of price was also considered to be important but it was reflected more in the respondents’ preference for ‘value for money’ products. The respondents were also asked to rate Nirma on the same attributes as above. The ratings revealed that Nirma was perceived to be a brand that was strong on the aspects of availability, value for money and price. However, the respondents felt that Nirma was not a very high quality or high performance product. The associations that the respondents have with the Nirma brand are as follows:
• • •

Customer Benefits:(Clean, Whiteness, Value for Money) Product Attributes:(Yellow) Celebrity: (Advertisements of Nirma)

The association of relative price also came out very clearly but the emphasis was clearly on Nirma being a value for money brand. The 3 most important attributes in importance ranking for the category of washing powder were as follows:
• • •

Performance Mild on hands Lathers well

The attributes of price, availability and good for hand washing were also considered to be important. To a certain extent, the attribute of lathers well indicates good performance in the mind of the consumer. The rating of Nirma washing powder on these attributes is as follows: The respondents considered Nirma washing powder to be very strong in the areas availability, price, good for hand-washing and Lathers well. However, Nirma does not fare too well on the aspect of Mild on hands and performance. The associations of the respondents with Nirma washing powder is as follows:
• • • •

Customer Benefits Use/Application Price Celebrity Cleaning

The attribute importance ranking for the category of beauty soap is as follows:

Brand Extensions Lead To Brand Dilution
• •

- 35 -

Fragrance Moisturisation Celebrity Association Product attributes Customer Benefits Intangibles

The associations of the respondents with Nirma Beauty Bar is as follows:
• • • •

Nirma Beauty bar has been personified as: “Nirma beauty bar is a young glamourous woman in her early twenties, dressed in Western or Indian casuals, trendy and modern in her outlook towards life”. The broad product categories in which Nirma could launch extensions, according to consumer perception are as follows:
• • • • •

Clothes Whiteners Starch Liquid soaps Skin care products Dishwashing liquids and other cleaning liquids Nirma beauty soap does not enjoy top of the mind recall in spite of it being the third largest selling soap in the Indian market. This is because of the availability of Nirma beauty soap. Although availability is not one of the important attributes in the mind of the consumer, in this low involvement product buying behaviour is very significantly influenced by shelfpresence.


Nirma as a brand is more associated with the core product of washing powder rather than the beauty soap. This was reflected in the similar associations for Nirma as a brand and Nirma washing powder.

The common associations between Nirma brand, Nirma washing powder and Nirma beauty soap is that of Customer Benefits, specifically Value for money. The secondary research also revealed that initially Nirma was perceived as a cheap, medium quality product, in the period of time before

Brand Extensions Lead To Brand Dilution

- 36 -

the launch of Nirma beauty soap. However, Nirma then moved towards a Value for money product, which was reinforced through the successful launch of Nirma beauty bar.

The attribute rating of Nirma washing powder clearly indicates the consumer perception that Nirma washing powder delivers medium quality at a very reasonable price thereby proving to be a Value for Money product.

The attribute rating of Nirma soap, on the other hand indicates very good performance on all the relevant attributes. Therefore, based on a better performance plank combined with the reasonable price, allowed it to develop the Value for money image.

The options suggested by the respondents for future expansions clearly place Nirma as a company that is linked with superior cleaning abilities. The associations of Nirma with the washing powder category and the Use category of Clothes indicate that Nirma is very strongly associated with this particular aspect of cleaning. The success of Nirma in the beauty soaps category further strengthens this observation, because cleaning is considered a very important attribute for beauty soaps also. The fact that most of the future extension possibilities are linked with cleaning or clothes, Nirma cannot immediately consider diverse brand extensions.

The consumers therefore have three very strong associations with Nirma. The first of these continues to be its cleaning ability. The aspect of Value for money follows closely. Then there is the Celebrity association. The success of Nirma soap can be explained on the basis of the first and the third factors and based on these two factors it also managed to impart the attribute of Value for money to the parent brand to a large extent.

The difference in the personification of Nirma washing powder and Nirma beauty soap also corroborates the shift in the perception of consumers.

Brand Extensions Lead To Brand Dilution

- 37 -

Conclusions The hypothesis the group started with was that Nirma Beauty bar has the following associations in the minds of the consumers:
• • •

Intangible benefits Customer benefits Relative price

After our study, we have found that though the first two associations hold, the last one i.e. Relative price, does not come through. Instead the primary customer benefit of Value for Money partly reflects the relative price association. The price of Nirma bar is comparable (slightly lower) to that of Lux, and it performs well on most of the important aspects of a beauty soap. This has given it the connotation of a Value for Money product. This has also been the extension’s major contribution to the parent brand’s equity. Nirma as a whole is now associated with Value for Money products and this has been borne out in our study. Nirma beauty soap has drawn upon and extended the positive association from the parent brand but has also developed unique associations for itself like the Celebrity association. Thus, the model helps us to explain the Nirma’s brand extension into soap category and the resultant effect on consumer perception about the brand. However, the extension into the soap category is still related to the parent, in so much that it continues with the cleanliness attribute as one of the primary functional benefits. As we have seen, cleanliness and application for clothes are the primary associations for the parent brand (the same as for Nirma washing powder) and thus, for the time being at least the future extensions will have to be in related categories. Over time, if the extensions are successful in developing new, stronger associations like Nirma beauty bar has done, they may lend a broader meaning to the core brand and thus, facilitate its foray into more diverse product categories.


Brand Extensions Lead To Brand Dilution

- 38 -

Following is the question wise analysis of the questionnaire which the store managers and retailers were asked to fill :

1. In what intervals does Cadbury launches sub brands ? a. Quarterly b. Semi-Annually c. Annually

Responses out of 100 : a. Quarterly c. Annually 20 65 15 b. Semi-Annually-




Figure 6

Following are the salient features of the Responses : 1. 85% of respondents believe that Cadbury extends it’s brands frequently , i.e. in less than six months . With such a high rate of brand extensions , the resources of Cadbury are bound to dilute and become less efficient. 2. Those who responded with option c (Annually) , were actually small retailers who did not stock the full range of Cadbury products and hence were ignorant towards certain recent offerings of Cadbury .

Brand Extensions Lead To Brand Dilution

- 39 -

2. Was falling Sales a prime reason for Cadbury to launch sub brands ? a. Yes Responses out of 100 : a. Yes b. No 43 57 b.No



Figure 7

Following patterns were also observed : 1. Since responses are almost equal for both the options , it is hard to draw conclusions from this question . However , when asked in detail , respondents revealed that since chocolates induce a variety seeking buying behavior in customers , brand extensions were introduced to keep the customers loyal to Cadbury umbrella brand. 2. A large number of respondents believed that the combined sales of all Cadbury brands after the extensions remains almost same ,i.e. new brands reduce the sales of old Cadbury brands.

3. How does the pattern of sales changes after brand extension ? a. New Sub-brands eat into the share of Original brands of Cadbury

Brand Extensions Lead To Brand Dilution

- 40 -

b. New Sub-brands help cut into the share of rival brands while not affecting sales of original Cadbury brands. c. Sales of Cadbury and rival brands stay unaffected while brand extensions bring in new customers. Responses out of 100 : a. New Sub-brands eat into the share of Original brands of Cadbury – 57 b. New Sub-brands help cut into the share of rival brands while not affecting sales of original Cadbury brands – 21 c. Sales of Cadbury and rival brands stay unaffected while brand extensions bring in new customers – 22




Figure 8

Following patterns were also observed : 1. Over 50% respondents believed that new sub brands like Picnic and Caramello only eat into the share of existing flagship brand of Cadbury – “Dairy Milk”. Such results make the entire exercise of extending brands very futile . 2. Retailers who chose options B and C were again small time store keepers and were also at times unaware of new innovations introduced by Cadbury .

Brand Extensions Lead To Brand Dilution

- 41 -

4. What was the pattern regarding prices of Extended Brands ? a. Prices were on par with old original Cadbury brands. b. Prices were lower than the prices of original Cadbury brands . c. Prices were higher than the prices of original Cadbury brands .

Result out of 100 : a. Prices were on par with old original Cadbury brands – 19 b. Prices were lower than the prices of original Cadbury brands – 10 c. Prices were higher than the prices of original Cadbury brands - 71




Figure 9

Following patterns were also noticed : 1. An overwhelming proportion of respondents suggesting that brand extensions are often expensive point towards the precise reason for their downfall ,i.e. high prices . While the customer may like to experiment once , high prices will prevent him from becoming a regular buyer.

Brand Extensions Lead To Brand Dilution

- 42 -

5. What was the status of branding and promotional exercise undertaken for the new Cadbury brands ? a. Intensive branding in all stages of product life cycles b. Intensive branding and promotional expenditure in early growth stages followed by reduced efforts in mature stages c. Expenditure which is below par than that of original brand in all stages of product life cycle Results out of 100 : a. Intensive branding in all stages of product life cycles – 11 b. Intensive branding and promotional expenditure in early growth stages followed by reduced efforts in mature stages – 42 c. Expenditure which is below par than that of original brand in all stages of product life cycle – 47




Figure 10

Following patterns could also be noticed :

Brand Extensions Lead To Brand Dilution

- 43 -

1. Here , another reason for failure of brand extensions gets highlighted . The budgets and resources earmarked for the new brands are often lower than the actual brand. As a result , customers soon forget about the brand . 2. Cadbury being a brand which operates in low involvement category , such reduced expenditure becomes even more detrimental. Since customers find the taste and quality almost same across all chocolate brands , the key differentiator is promotion which is lacking in case of new sub brands .


CIL and the Cadbury's brand are synonymous with chocolate in the minds of Indian consumers. A part of the leading US-based global confectionery and beverages major, the Cadbury Schweppes group,2 CIL has been the leader in the Indian chocolate market for many decades. The company began manufacturing operations in Mumbai in 1946. CIL was initially incorporated as a wholly owned subsidiary of Cadbury Schweppes in 1948 and was called Cadbury

Brand Extensions Lead To Brand Dilution

- 44 -

Fry (India) Ltd. The first product to be launched in the country was the globally successful brand, CDM. In the early 1960s, CIL shifted its manufacturing base to a plant in Thane, Maharashtra. The plant, which expanded substantially over the years, manufactured a range of CIL products. The company's R&D and engineering development divisions were also located in Thane. In the 1960s, CIL launched a range of products such as Crackle, 5 Star, Gems, Tiffins, Nutties, Butterscotch and Caramels. Most of these products became instant successes and led to rapid growth in chocolate consumption in India. Following this, the company launched Cadbury's Eclairs in 1972, priced at 25 paise.3 Eclairs, Cadbury chocolate, was a runaway success, despite being priced higher than the available sugar confectioneries in the market at that time. In 1978, Cadbury Schweppes had to dilute 60% of its equity in Cadbury Fry to comply with FERA guidelines.4 Cadbury Schweppes's stake in CIL was further diluted to 40% in 1999. In 1982, Cadbury Fry was renamed Hindustan Cocoa Products. In 1983, Cadbury Schweppes increased its stake in the company to 51%. In the 1980s, CIL focused on acquiring and applying advanced technology in the production and packaging of CIL products. The company laid emphasis on innovative packaging that would make an impact on customers. In 1982, the company set up a factory at Induri (Talegaon district, Pune, Maharashtra) to increase the milk-yield (required for Cadbury products' preparation). The factory was engaged in the manufacture of intermediate products such as condensed fresh cream milk and a few brands of chocolates. Over the next few decades, CIL ventured into various segments of the food industry. In addition to the chocolates and sugar confectionery segment, the company entered the mailed foods, cocoa powder, drinking chocolate and malt extract segments. The company brands gained high popularity in most of these

Brand Extensions Lead To Brand Dilution

- 45 -

segments. During the mid-1980s, CIL launched biscuits under the Cadbury Butter and Glucose brands. However, these products did not do well and the company discontinued them by the late 1980s. In 1986, the company launched the mailed food brand, Boumvita, which became a runaway success (Refer Exhibit I for CIL's product/brand profile). In 1989, CIL set up another manufacturing plant at Malanpur (Madhya Pradesh). The company also had third party factories at Warana Pradesh). In 1989, the company was renamed as CIL. The company continued to diversify and ventured into the ice cream segment. It launched brands such as Dollops and Lopstop. However, as the ice cream business did not generate the synergies CIL had planned, it sold its ice-cream business to Brook Bond in 1994. CIL was present in all major sub-segments of the chocolates segment and many of its brands were market leaders in their respective segments. Since its entry into India, CIL had been the leader in the chocolates segment. Analysts attributed its success to its rigorous marketing efforts, which stayed in line with changing consumer needs, year after year. The company launched various products in different pack sizes, available at various price points. As people generally purchased confectionery products on impulse, the company gave importance to product visibility and availability. CIL introduced Visicoolers, vending machines and jars, and placed then at Star Outlets5 and amusement parks. The company also introduced 'Sheet Metal Dispensers,’ which were placed at the cash counters of thousands of retailing shops for dispensing chocolates. These dispensers attractively displayed the range of CIL's chocolates, thus helping the company position its brands strongly in the minds of Indian consumers. In 1990, CIL's domination of the Indian chocolates segment was threatened by the entry of Nestle India (Nestle), the Indian subsidiary of global FMCG major, Nestle S.A (Switzerland), into the Indian chocolate segment. Nestle, which (Maharashtra), Phalton (Maharashtra) and Hyderabad (Andhra

Brand Extensions Lead To Brand Dilution

- 46 -

entered India in the 1950’s, was a leading player in the coffee and milk products segments in India. It entered the chocolate segment in India with the launch of a range of premium chocolates under the Nestle brand name. In 1994, Nestle introduced BarOne (chocolate bar with peanuts) and soon garnered a respectable, market share in the chocolate segment CIL carried out many successful advertisement campaigns on TV and other media. As a result, CIL brands gained high consumer recognition. During the 1980s, CIL identified children as its target audience and developed campaigns that appealed to this segment. However, by the mid-1990s, chocolates were being positioned as near-meal substitutes by both Nestle and CIL. This was because the market was moving from being children-centric' to encompass adults as an important target segment.6 In 1994, to cope with this change in) the composition of the target audiences, CIL decided to target CDM at adults instead of only children. The result was a new campaign which repositioned CDM. The company brought out a series of advertisements that carried the tagline, Kya Swaad Hai Zindagi Mein' (Real Taste of Life - RTOL). These advertisements depicted people from various backgrounds 'celebrating life,' with CDM in the backdrop. One such commercial (called the 'cricket' commercial) reportedly became one of the most popular TV advertisements in the history of Indian advertising. It featured a girl breaking into an impromptu dance on a cricket field after her boyfriend scored the winning run in a highly tense match. Through a few other such commercials, the RTOL campaign succeeded in extending its reach to adults by steering the adults towards self-expression and spontaneity. Subsequently, sales of the entire range of chocolates, 5 Star, Gems, Eclairs, Fruit & Nut, Crackle, Nutties, Butterscotch and Tiffins, grew by 20%. In 1995, Nestle entered the wafer-chocolate segment by launching its global 'bestselling' wafer chocolate brand KitKat in India. CIL responded quickly by

Brand Extensions Lead To Brand Dilution

- 47 -

launching its own wafer chocolate brand, Perk, to meet the KitKat challenge. Both the brands were backed by promotional campaigns and decibel advertising. CIL even roped in upcoming Hindi movie actresses Rageshwari and Priety Zinta for its 'Thodi Si Pet Pooja - Kabhi Bhi, Kahin Bhi' (Satisfy hunger - Anytime, Anywhere) campaign. Even though KitKat's 'Have a Break, Have a KitKat' campaign becoming a huge hit, Nestle's sales lagged far behind CIL's. In 1996, while CIL's market share was 76%, Nestle's was only 10%. Though CIL continued to be the market leader in the chocolate segment during the late 1990s, it faced problems regarding the market shares of 5 Star and Perk. 5 Star's market share had declined to 15% in 1997 from over 20% in 1995; and Nestle's aggressive marketing of KitKat had placed Perk under threat. CIL's management thus decided to focus on new product launches stay ahead of the competition and regain market share.

REINVENTING THE BRANDS - CEASELESSLY CIL launched a number of new products in 1998, such as Picnic (a chocolate bar with wafer, peanuts, raisins and caramel), Byte (a strawberry flavoured candy), English, Toffee (a chewy toffee) and Cadbury Gold (a CDM with a soft center). While Picnic was promoted as a 'solid, filling and ingredient-packed' chocolate, Cadbury Gold was promoted through an 'emotional' appeal. The advertisement featured a woman by a poolside eating a bar of Cadbury Gold and fantasizing about being in the men's changing room, with the men running separately to cover themselves. The commercial ended with the woman smiled in a self-chiding but mischievous manner. This advertisement aimed at changing the existing brand image in the consumer's mind (of family values and

Brand Extensions Lead To Brand Dilution

- 48 -

wholesomeness), by emphasizing self-indulgence and mood-upliftment. Cadbury Gold thus tried to add a new dimension to traditional CIL brand values of family values and wholesomeness. Much to the company's dismay, these new products failed to click with the consumers, largely because of their taste. During that same period (the late 1990s) Nestle's range of snack-substituting chocolates such as Charge, Nuts, KitKat orange and Crunch, ate into the share of most of CIL's new launches (Picnic and Cadbury Gold were eventually discontinued). In late 1999, a new two-fold vision was formulated for CIL - one, doubling shareholder value and, two, putting 'a Cadbury in every pocket.' To achieve this, the company planned to increase the depth of chocolate consumption by adding 10 million consumers every year, launching more new and innovative products, relaunching existing major brands, and revampimg the marketing mix, advertising and promotional strategies, and focusing on the gifts segment. To increase the depth of chocolate consumption, CIL strengthened its distribution network to reaching 80,000 additional retail outlets every year. It also offered low-priced packs for the masses and launched new products that targeted different age groups. CIL decided to focus on the availability and affordability of its products to increase chocolate consumption in the country. Small affordably priced packs of all the leading brands were launched to help improve the penetration of CIL's chocolates. CDM was made available at various price points such as Rs 1, Rs 2, Rs 5 (13gms), Rs 10 (26gms), Rs 15 (43gms), Rs 50 and even at Rs 100. The high priced packs were positioned as ideal gifts for various festival and family occasions and festivals. 5 Star was also offered at two price points, Rs 5 (14gms) and Rs 10 (33gms).

Brand Extensions Lead To Brand Dilution

- 49 -

As a result of the above measures, by late 2000, CIL succeeded in adding over 8 million customers to its existing consumer base of 65 million. During the period CDM's market share increased significantly from 23% to 25%. 5 Star's sales also increased from 12% to 14%. In 2000, CIL enjoyed over 70% share of the 22,500 tonnes Indian chocolate market (Refer Table I).

MARKET SHARES OF BRANDS IN THE CHOCOLATE MARKET (2002-2003) TABLE I BRAND CDM Nestle Chocolates* 5 Star KitKat Perk Gems Milky Bar Picnic Munch Others Total BY VALUE (in %) 23.7 25.1 12.4 14.3 9.2 9.5 2.7 2.6 0.5 100.00 BY VOLUM- (in %) 23.1 24.7 14.1 11.2 8.3 9.3 2.8 2.5 0.7 3.3 100.00

Source: The ORG-Marg Retail Audit *Nestle's other chocolate brands such as Premium chocolates, Nestle Classic etc. However, CIL realized that the share of chocolates in the total amount spent by consumers on impulse products (mainly chips/wafers, non-core biscuits, ice creams, soft drinks and chocolates) had been declining in the late 1990s. In light of this the-company decided to focus on expanding the share of chocolates in the impulse buying category. This marked the beginning of numerous product launches and relaunches by CIL during 2000-2002. In 2000, Perk 'Slims' was launched – lighter and crisper than the previous version, its packaging had also been modified. In addition, Perk was introduced

Brand Extensions Lead To Brand Dilution

- 50 -

in different flavours – strawberry, mango and mint, to satisfy the varying preferences of consumers. A new product, Relish, was launched in the same year. In July 2000, CIL launched Milk Treat (a white chocolate-coated wafer) targeted at children. The advertisement campaign promoted it as a product that had 'the goodness of milk married to the fun of chocolate.' According to CIL, "Milk Treat is an ideal product for children as it combines food- health and nutritional values of milk with values of excitement and fun that children generally associate with a Cadbury chocolate product." Milk Treat was launched to compete with Nestle's Milky Bar, a moulded white chocolate. CIL's other launch during the year was Chocobix (a glucose biscuit with chocolate covering). In February 2001, Mathew Cadbury (Mathew) became CIL's Managing Director. He continued with the policy of placing 'a Cadbury in every pocket. The company therefore went ahead with the launch and relaunch of chocolates. In June 2001, CIL relaunched Eclairs with new packaging that carried the caption 'Kar De Dil Pe Jadu' (Do Magic on the Heart). Eclairs were made available in various pack sizes that ranged from cartons to 90 gm pouches priced at Rs 15. CIL also launched the Eclairs Tub Pack (Rs 25) in the gift segment. In July 2001, CIL relaunched 5 Star, with a new tagline, 'non-stop energy.' This was an extension of its previous taglines 'an energy bar' and 'reach for the stars.' To reach its core target segment (for 5 Star) - the youth - the company undertook extensive on-ground promotional activities, outdoor advertising and TV campaigns. 5 Star was usually positioned as something that made 'one's dreams come true,' but the new 'Rok sako to rok to' (Stop if You Can) commercial was strikingly different. It portrayed the inexhaustible energy of a young man who runs up the floors of a skyscraper to plead forgiveness (for his delay) of his girlfriend. The girlfriend keeps shuttling between the floors in a lift, only to find

Brand Extensions Lead To Brand Dilution

- 51 -

that her boyfriend has reached the floor before her. The advertisement ends with the girl giving up and forgiving the young man. On-ground promotional activities for the new 5 Star included two days of road shows that ended with a rain dance and live music performance. CIL also entered into an alliance with youth websites like indya-com, and to communicate the core brand features of 5 Star to young people. Commenting on these innovative promotional activities, a CIL spokesperson said, "Our principle objective is to modernize 5 Star's brand image and chance youth connect. Through effectively communicating the functional attribute of 5 Star along with the fun elements associated with chocolate, we intend to make the brand the 'top of mind' energy enhancer in the youth's life space." In mid-2001, Gems was relaunched. The brand was given a new packaging and the formula was improved. The new Gems were crispier, crunchier and had more chocolate. Targeted at children, it came in a flip top tube and was also offered at low price points, Rs. 5 (14gms., and Rs. 1 (three Gems), to aid self-purchase (by children). A new commercial was also developed to position Gems as a funloving children's product. In late 2001, CIL launched the 'Temptations' range of chocolates. Temptations was available in five flavors - Old Jamaica, Roast Almond Coffee, Mint Crunch. Honey Apricot and Black Forest According to company sources, the Temptations range, had been specially formulated to remain solid in a tropical climate. The range targeted the premium ‘adult' sector between the ages of 25-40 years and was priced at Rs 30 (64 gms). The Temptations range was promoted through both print and electronic media (TV and FM radio). In addition, visuals were placed at outlets and points ornate of the product. One TV commercial featured a couple playing pranks on each

Brand Extensions Lead To Brand Dilution

- 52 -

other to-avoid snaring their 'Temptations.' As part of the brand's promotional activities, CIL included a card in the 'Temptations' pack that gave a brief history of Cadbury chocolates. The card also provided consumers with a number that enabled them to log on to the company's website and participate in a contest and win prizes (including a trip to Seychelles, a popular tourist destination. During 2001, CIL also launched a range of gift packs for various festive occasions and celebrations such as Diwali (Diwali Range), Valentine's Day (Sweet Nothings Range), and Rakhi. In addition, CIL offered special chocolates such as Ice Monds (almonds coated with white chocolate) and Kaju Maaza (cashew coated with chocolate) for special festive occasions. Other unique gift packs of CIL included a musical jewellery box; an executive desk set in a multifunctional leather case filled with chocolate coated almonds; a cut glass plate and bowl filled with assorted confectionery and an air tight cookie-jar. These gifts were priced between Rs 85 and Rs 1,500.

In January 2002, CIL launched 'Celebrations,' a selection of assorted chocolates in three flavors aimed at the 'gifting' segment. Priced at Rs 50 (74 gms), Rs 100 (148 gms) and Rs 200 (324 gms), the product was targeted at the premium end of the market. Explaining the rationale behind the launch, Bharat Puri (Puri), Director (Sales & Marketing), CIL, said, "The launch of Celebrations arrives to leverage the inferences of a consumer research conducted by the company that reveals the socio-psychographic leaning of the Indian demography which displays a preference for lending a more contemporary youthful gift on any gifting occasion." In order to promote the product as an ideal gift for all occasions, CIL focused on product visibility at retail points. According to Puri, "Celebrations will be available in top-end retail food outlets as well as key gifting outlets. Being a premium gifting product, the emphasis at the retail level will be on ensuring adequate

Brand Extensions Lead To Brand Dilution

- 53 -

display and visibility for the product as well as the appropriate standards for storage." Innovative promotional and advertisement strategies were developed to support all the above launches/relaunches. (The company allocated over 11% of its sales for its advertising and promotional activities in 1999-00 and planned to maintain this figure for a few years.) Many of CIL's advertisement campaigns became very popular and the company bagged various awards for the same, such as 'Advertising Campaign of the Century' (Cadbury Gold), 'Advertiser of the Year' (2000) and the 'Grand Effie' Award for Milk Treat (2000). To increase the visibility of its products, CIL targeted areas near bus stops, colleges, schools, cafes and places of entertainment like theaters and amusement parks. CIL also launched three company websites,, and In addition, the company entered into marketing alliances with various portals to offer products (on those portals that were developed for festive occasions and celebrations such as Valentines Day and Friendship Day. In 2001, CIL's sales volumes grew by 5.8% (against a targeted volume growth of 10%). This growth was attributed to the launch of small pack variants of the leading brands and the new advertisement campaigns. The company reported that Milk-Treat had garnered 3% of market share, and that Perk and 5 Star had also registered marginal volume growth. CIL was still the market leader in the Indian chocolate business with a 69.2% market share and a consumer base of over 65 million. Sales increased from Rs 2.531 billion in 1995 to more than Rs 6.263 billion in 2001. Net profits also increased from Rs 200.8 million to Rs. 574 million during the same period (Refer Exhibit II for CIL's financial performance). When Puri replaced Matthew as the Managing Director in January 2002, there was a radical shift in the company’s policies.

Brand Extensions Lead To Brand Dilution

- 54 -

A CHANGE IN FOCUS Puri changed CIL's vision statement from 'A Cadbury in every pocket' to 'Life full of Cadbury and Cadbury full of life.' As a result, the company shifted its focus from launching new brands to rejuvenating and strengthening the existing brands (CDM, 5-Star, Perk, Gems and Eclairs). In addition, CIL planned to extend its reach to semi-urban and rural markets. Puri said, "Small towns present tremendous opportunities. CIL also decided to sell its products through 'non-traditional' outlets like music stores (such as MusicWorld), malls, renowned bookstores and popular apparel outlets (such as Pantaloons and Wills Sport boutiques). The company planned to put chocolate carts (similar to traditional bicycle ice-cream carts) in malls and near college campuses to increase its reach. Commenting on this Puri said, "Making the product available in the right places will always give dividends." The March 2002 decision to change the positioning and advertising of CDM was essentially a part of the above shift in strategy. Commenting on the reason discarding the 'excuses' plank for CDM, Roy said, "You don't always need an excuse to do what your heart commands. It's like falling in love." Despite me numerous measures taken by CIL during 2000-2001, only CDM managed to show positive growth; the market shares of the other brands remained stagnant. According to analysts, for the past few years, the company had failed to achieve the growth volumes it had set for itself. Meanwhile, Nestle managed to take away over 6% of CIL's market share between 2000-2002. According to analysts, of the 6%, 3% of the market share was acquired by Nestle during the first quarter of 2002 alone. Both Nestle and CIL had launched many products during 2001-2002. Unlike Cadbury's 'new' products Nestle's products differed substantially from its existing

Brand Extensions Lead To Brand Dilution

- 55 -

range. By providing variety, Nestle was able to increase its share in the chocolates and confectioneries market from 26% in 2000 and 29% in 2001 to 32% in March 2002. Analysts felt that because Cadbury did not launch new products, its product portfolio lacked variety compared to Nestle's. According to them, this was the main reason for the decline in CIL's volume share from 66% in 2001 to 63% in March 2002. However, even when CIL brought out new products - Picnic, Cadbury Gold, Triffle, Relish - many of them were non-starters. Some analysts attributed the failure of many CIL brands to the slump in the confectionery market. While Nestle derived its revenues from various sectors such as milk products, coffee, culinary products, confectionery and other beverages, CIL was present only in the chocolate sugar confectionery and mailed food segment. Thus, Nestle had the option of diversifying its risks across its vast product portfolio, something CIL could not do (Refer Exhibits III ^TV for Nestle's Product Portfolio and Financial Results). In addition, Nestle had 1 million retail outlets, while CIL had only 0.45 million outlets. In mid-2002, CIL launched 'CDM Chunky' in three variants — plain chocolate, raisins and cashew - priced at Rs 15 (plain chocolate, 42 gms) and Rs 20 (42gms). The company also launched variants of Perk such as Perk XL and Perk XXL, priced at Rs 10 (15.5gms) and Rs 20 (28gms). The usual advertising and promotional campaigns supported the launches. In mid-2002, the KitKat/Perk story was repeated when CIL launched a new brand Chocki (a chocolate in liquid/paste form) in response to Nestle's Choco-Stick launched a few months earlier. Choco-Stick, launched in Tamil Nadu (and later in Andhra Pradesh), had become a huge hit with the kids. CIL was thus forced to launch Chocki.

Brand Extensions Lead To Brand Dilution

- 56 -

Priced at Rs 2 (8 gms), Chocki began picking up volumes. The fact that Chocki's launch went against Puri's decision not to focus on new product launches was something CIL did not seem to be bothered about - at least for the time being. CIL - PRODUCT PROFILE TABLE 2 SEGMENT *Chocolate BRANDS & VARIANTS • Cadbury Dairy Milk (Fruit & Nut, Relish, CDM Gold, )M Chunky in

Chocolate, Raisin and Cashew Flavours) Five Star • Gems • Perk (Perk Slims, Perk XL, Perk XXL) Crackle • Creamy Bar Roast Almond • Nutties • Tiffins • Truffle • Picnic • Milk Treat • Temptations Celebrations • Chocki *Malted Foods • Boumvita *Confectionery (Sugar) • Eclairs • Googly • Frutus • Jelly

Brand Extensions Lead To Brand Dilution

- 57 -

Brand Extensions Lead To Brand Dilution

- 58 -

FINANCIAL PERFORMANCE OF CIL (1993-2001) TABLE 3 (in Rs million) Year Assets Employed Net Fixed Assets Net Current Assets Others Total Financed By Equity Share Capital Reserves & Surplus Shareholders' Funds Loan Funds Deferred Tax Liability (Net) Total Sales Profit & Appropriations *PBDT Depreciation *PBT Tax *PAT Before Exceptional Items Exceptional Items Tax Adjustments of Earlier Years PAT Dividend and Tax on Dividend 2001 1433.2 1215.0 83.5 2731.7 357.1 2168.6 2525.7 70.8 135.2 2731.7 6263.2 1163.4 (237.9) 925.5 (328.3) 597.2 (30.4) 2000 1398.8 941.3 4.6 2344.7 (C) 357.1 1966.0 2322.1 22.6 2344.7 5711.4 1038.1 (218.5) 819.6 (296.5) 523.1 (24.0) 1999 1463.3 635.9 33.5 2122.7 238.0 1782.0 2020.0 102.7 2122.7 5110.8 816.6 (199.5) 617.1 (204.8) 412.3 (29.7) 1998 1488.3 518.6 27.1 2034.0 238.0 1588.1 1826.1 207.9 2034.0 4283.3 578.2 (193.4) 383.8 (120.6) 264.2 (13.6) 1997 1527.7 638.2 38.4 2204.3 (b) 198.4 1470.0 1708.0 496.3 2204.3 3541.4 404.6 (136.9) 267.7 (82.0) 185.7 1996 922.9 356.9 43.1 1322.9 (a) 124.0 821.5 1019.9 303.0 1322.9 3138.8 406.8 (84.6) 322.2 (119.0) 203.2 7.2 574.0 214.8 359.2 21.2 520.3 219.0 301.3 (15.6) 367.0 173.1 193.9 11.6 262.2 144.0 118.2 18S.7 83.5 102.2 203.2 76.3 126.9 200.8 68.2 132.6 1995 676.7 330.8 38.7 1046.2 124.0 769.1 893.1 153.1 1046.2 2530.8 389.8 (64.0) 325.8 (129.0) 196.8 4.0

Brand Extensions Lead To Brand Dilution

- 59 -

Per Share Information (Rs) Before 16.72 Exceptional Items Book Value Per 70.73 Share Dividend Per 6.00 Share (Excl. Tax on Dividend)

' 14.65 65.03 5.00 17.32 84.87 6.50 11.10 76.72 5.50 7.80 70.34 3.50 10.24 49.46 3.50 15.87 71.94 5.5

Brand Extensions Lead To Brand Dilution

- 60 -

“I believe there is almost no limit to what a brand can do. You can ignore those who go on about brand stretching." 1 - Richard Branson, Chairman & CEO, Virgin Group, in October 1998. "There are times that a brand just has to say 'no' to a brand extension. Weak brand extensions weaken the entire brand, and that is a terrible thing to do to a strong brand name. "3 - John L. Mariotti, President & CEO, The Enterprise Group, commenting on Virgin's brand extension strategies, in July 2002. THE DEBATE ON VIRGIN The story of Virgin, one of the United Kingdom's (UK) most globally popular brands, evolving into the "most stretched brand ever" in the history of the corporate world, had become a part of marketing folklore by the end of the 1990s. The issue of the role played by the man behind the brand, Richard Branson (Branson), in building it through unconventional publicity stunts, has also been done to death. The amount of media coverage that their Virgin group and Branson have generated is indeed impressive. In fact, Virgin is often cited as THE answer to silence those who claim that no brand can be everything to everyone. Spanning a wide range of businesses, such as music, aviation, FMCGs, broadcasting, publishing, bridal emporiums, cosmetics, telecommunications financial services and utilities, Virgin seems to defy many widely believed marketing postulates, particularly the ones related to brand extensions. Supporters of the Virgin group's business strategies claim that in a world of one product/idea companies, such as Coca-Cola, McDonald's and Southwest, Virgin was one of those select few that were equally at home with selling condoms and running trains.

Brand Extensions Lead To Brand Dilution

- 61 -

Virgin - Brand Extension or Brand Dilution? But did these brand extensions translate into financial success? Since the late 1990s, many of Virgin's extensions had fared rather poorly, particularly its cola, vodka, utilities, train services, computers and mobile telephony (in Singapore) businesses. Since the Virgin group was a private entity, analysts did not have access to its financials, and hence could not categorically comment on its overall performance.4 The fact that Branson and his team made elaborate efforts to balance the poor showing of one venture with profits of another further complicated the matter. Given these circumstances, it was but natural for marketing experts and industry observers to take divergent stands regarding the soundness of Virgin's branding strategies. Commenting on the issue, Jeremy Bullmore, advertising industry veteran and outside director for advertising firm WPP Group, said, "I cannot think of a company that has put its brand on so many products. Overstretching ends up in only one way: snapping." BUILDING THE VIRGIN EMPIRE The Virgin empire's origins can be traced to a music record shop started by Branson in London in 1972. The name Virgin was chosen since all the people involved in the record shop venture were virgins (denoting novices) as far as the world of business was concerned. From the very beginning, Virgin Record Company was a success, with artists and groups such as Mike Oldfield, Phil Collins, Peter Gabriel, Paula Abdul, Janet Jackson, Bryan Ferry, Belinda Carlisle, The Rolling Stones, Simple Minds, The Human League, Culture Club and Genesis in its portfolio. Unlike other companies in the industry, Virgin did not license its music production to other companies in various countries. Instead, it set up its own outfits to handle its business, a move that helped the company retain its independence. By the early 1980s, the company had become one of UK's top six recording companies. The first instances of extending operations were related to the music business: the company set up a recording studio, a video studio, an export company and entered the movie production business.

Brand Extensions Lead To Brand Dilution

- 62 -

The first major extension of the Virgin brand name was in the aviation business, when the company started a passenger airline service between London and New York (in 1984). The venture, named Virgin Atlantic Airways (Virgin Airways), aimed at offering high quality service to air travelers at competitive prices. Virgin Airways took off to a good start and soon became one of the leading airline companies in the US. To complement this business, Virgin entered the freight, courier and holiday services businesses over the next row years. In 1986, Virgin went public and became a listed company. However, in 1988, the share prices almost halved in the wake of the 1987 stock market crash. Since this happened even though Branson believed that the businesses had performed satisfactorily, he bought back the entire equity that had been floated in 1988, making Virgin a fully private enterprise once again. By the early 1990s, the group's airline business was facing problems, largely due to intense competition from the dominant player, British Airways. Reportedly, the Virgin group's gross debt in 1991 was £468 million, with pre-tax losses of £34 million. Branson sold off Virgin Record Company's assets to Thorn EMI for $1 billion and used the amount to help the airline business survive (although Branson said that he had sold off the immensely successful music business since it was not posing any major challenges to him). Over the next few years, Branson brought many more diverse businesses under the Virgin banner (Refer Exhibit I for a list of the companies and Exhibit II for a chronological profile of some major events in the company's history). While many of the new ventures were joint ventures with leading companies, many others were brought into the Virgin fold simply by being given the license to use the Virgin brand name for their businesses. Though Virgin was comfortable running small businesses (such as the bridal emporium), it did not hesitate to take up big businesses (such as Virgin Airways) that required large investments. By the mid-1990s, the Virgin group comprised over 100 companies, operating in 15 countries, with combined annual sales of $1 billion. In 1997, when the British government decided to privatize a part of British Rail, Virgin decided to take up

Brand Extensions Lead To Brand Dilution

- 63 -

the challenge of running two rail lines. Since the airline venture, this was being seen as the most radical (and hence dangerous) extension of the Virgin brand. In an interview to Forbes magazine in February 1997, Branson was asked about his views regarding Virgin's ability to manage so many diverse businesses. Branson said, "I knew nothing about the airline business, financial service industry, soft drink business, any of them started. If you can run one company, you can run any company. You can learn the nuances of a particular industry in two months. And it is so great being in so many different businesses. That is the fun of it. During the late 1990s, Virgin entered the Internet and telecommunication business. While was to be made into one of the world's top ten portals, the cellular telephony business was expected to complete Virgin's transformation into a new-economy major. By-now, the Virgin name encompassed over 340 businesses under 200 companies. In^(l999, the group employed 25,000 people across the world and posted revenues of $5 billion. In December 1999, Virgin sold a 49% stake in Virgin Airways (Singapore Airlines Ltd. for $979 million. Branson planned to use this money to expand into ecommerce ventures. In 1999, the mobile phone venture became operational in UK. All these new businesses were under the Virgin umbrella. In an interview to Business Week in January 2001, Branson said, "We are lucky to have a brand that works with almost any business." In late 20ah^Vtfgm began offering mobile phone services in Singapore as well. BUILDING THE VIRGIN BRAND According to Branson since the Virgin brand conveyed a sense of youth, quality, innovation and fun to young people across the globe the decision to launch products such as cola, vodka and clothing under the label made perfect sense. He said, "I think the Virgin name is the most valuable, as long as we could apply the name to any product or any industry we wanted to. A brand name that has a global reputation for quality is more powerful than almost anything. If you have that to start with, it is relatively easy to build industries."

Brand Extensions Lead To Brand Dilution

- 64 -

Talking of the rationale behind the decision to tap so many businesses, MT Rainey, Managing Partner of Rainey Kelly Campbell Roalfe (Virgin's main advertisement agency), said, "Virgin has a reputation for being innovative and taking on large, lazy competitors. If your products match that reputation, you can swap between diverse businesses." All along. Virgin tried to portray itself as an entity that sought to compete with companies that were exploiting customers because of their stranglehold on the market. From its very first venture, music records, to its entry into the cola business, the idea of a brand fighting it out with existing market leaders for the customer's sake was carefully nurtured. Virgin sources referred to the above approach as entering markets that were in "need of reinvention." Even industry observers referred to Virgin as an 'anti-establishment' brand that worked innovatively to build its image of being a consumer champion. Branson claimed that making money was not the main motive behind Virgin's entry into so many different businesses. The main motive was the group's belief that it could radically change the way business was done. He said, "We like to use the brand to take on some very large companies that we believe exert too much power."8 Company sources, however, claimed that no brand extension decision was made recklessly or without adequate market research (Refer Exhibit II for a note on the group's expansion philosophy). Interestingly, the Virgin brand had become famous all over the world without any heavy global brand-building campaigns on the company's part! Most of its popularity could be attributed to Branson's personality and his smart public relations (PR) skills. According to a article, all new Virgin businesses were built primarily through PR, and advertising played only a minor role. While a competitor spent $40 million on advertising its financial services business, Virgin Direct spent just $4 million in the same time period. Branson said, "When we launched Virgin Direct we found word of mouth, fueled by a small PR campaign, was more than 30 times as effective as the small amount we spent on advertising.”

Brand Extensions Lead To Brand Dilution

- 65 -

These PR efforts generally took the form of unusual stunts in which Branson himself was a key player. His eccentric moves - dressing up in full bridal finery to launch Virgin Bride, appearing almost naked at the launch of Virgin's mobile services, and driving a tank up to the Coke sign at Times Square to launch Virgin Cola - not only attracted attention to him, they built a unique and positive image for Virgin. Andrew Craissati (Craissati), Chairman and CEO of Virgin (Asia) Management Ltd, said that besides attracting attention, Branson's tactics were prompted by another, very basic issue – the lack of funds to advertise on the scale of big multinational companies. He said, "Richard did not have any money, so he could not afford to buy an advertisement in the newspaper. So he thought, if I jump out of a tall building, all the journalists are going to take a picture of me, and I get coverage for free." Thanks largely to Branson's antics, Virgin was able to bring Microsoft's co-founder Paul Alien and world renowned investor George Soros (as investors), and many leading companies (for technical and other business collaborations) under the brand's fold over the years. Commenting on the way the Virgin brand was nurtured over the years, Craissati said, "While brand diversification can pose a risk to companies who do not have the finesse to manage it. Virgin welcomes the challenge with open arms. In other words, the multi-faceted Virgin brand is kept together simply by behaving as if the brand does not exist."" Rita Clifton, CEO of global brand consultancy firm Interbrand, said that since the Virgin brand had been built around fun and goodwill, entering various businesses using these two attributes was quite easy for the group. Appreciating Virgin's branding strategies, Kay Carey, Brand Development Manager, Unilever Australia, said, "Virgin is all about 'power to the people.' Taking on global issues and attitudes can be a way for global brands to gain new consumer relevance and resonance." As the Virgin name began appearing on increasingly diverse products and services, industry observers and analysts began criticizing many of the group's

Brand Extensions Lead To Brand Dilution

- 66 -

ventures. Some even claimed that the group seemed to be violating its claim that it extended the Virgin brand only into those areas that suited its image. For instance, while the cosmetics and clothing businesses seemed to fit Virgin's 'youth-oriented' image, other extensions such as telecommunications and financial services (among others) seemed to have nothing to do with its image. VIRGIN IN TROUBLE According to a Business Week article. Virgin had experienced the perils of entering unrelated businesses early on, when it entered the aviation business. After all, problems with Virgin Airways had led to the distress sale of the profitable Virgin Records. Contrary to his earlier stand that he sold the music business because he did not find it challenging enough, Branson said “I had to sell a company I loved." Reportedly, his bankers had pressurized him to sell the music business. After the sale, instead of focusing on entering businesses with synergies, Branson simply decided not to rely on bank loans in future. Thus, Virgin's future businesses, such as financial services, cola and trains, were funded largely by wealthy joint venture partners. In return for the Virgin brand name and a minimal investment, Branson took a controlling interest in all these companies (for instance, Branson invested £1000 in Virgin Vie, a cosmetics company, in which he owned a 50% share while the joint venture partner, Victory Corporation, invested £20 million for its 50% share!) However, over the years, Virgin had to buy back the stake of many such partners at hefty prices. This was primarily because Branson did not want to give up the control over any venture to the partners. Commenting on the entry into the business of running cinemas after Virgin acquired MGM in 1995, Branson himself admitted, "We put the Virgin Cinemas in perhaps slightly sooner than I would have liked.” This was indeed one of those

Brand Extensions Lead To Brand Dilution

- 67 -

rare instances in which Branson openly acknowledged that his extension strategies had not turned out as planned. Meanwhile, the cola business in the US proved to be a dismal failure, as even a year and a half after its launch. Virgin Cola was nowhere near Coca-Cola and Pepsi. The financial services business, which was launched in the mid-1990s, had lost over $33 million by late 1998, and the company was not even expecting to earn profits in the near future. By now, the vodka venture had proven to be a miserable flop as well; the brand was available only in Virgin's flights and a few duty-free shops. In 1999, only the travel, entertainment, rail and hotel businesses were profitable; most of the other ventures, such as Virgin Direct, V2 Records, Virgin Express, Virgin Trading, Virgin Bride, and Virgin Net, were making losses. After the failure of many ventures (such as clothing, computers and a magazine), Branson appointed Gordon McCallum (McCallum), a former McKinsey consultant as Group Strategy Director, Gordon's main task was to keep a check on the use of the Virgin brand name for future ventures. While Virgin had claimed that it would change the way trains were run in the UK (faster and on- time), the company could not deliver on its promise. Not only was the group unable to improve service, it also faced problems from the unionized workforce. In fact, delays in Virgin trains prompted the then Deputy Prime Minister John Prescott to refer to the privatized rail line initiative as "a national disgrace."15 Customer complaints also increased substantially since Virgin took over the operations of the rail lines. Virgin sources stated that since the group did not prepare consolidated accounts, it was not possible to ascertain the group's financial standing as a whole. According to a study conducted by The Economist (published in February 1998), Virgin either owned firms (around 200 at that point of time) or had a 50% or less

Brand Extensions Lead To Brand Dilution

- 68 -

equity in them. The group claimed that many of its ventures airlines, retailing and railways were profitable. Of these businesses, only the airlines venture published its accounts. Since accounts were not available for the other businesses, there was no way of ascertaining their profitability. Mark Ritson (Ritson), Assistant Professor of Marketing at the London Business School, said that though Virgin had been extended to so many brands, it had failed miserably at generating value for customers, for its various stakeholders, and for itself. He said, "For every Virgin Atlantic or Virgin Music Group there have been numerous failures. Unfortunately, the successes in music or flights are sold off to support the failed ventures." Summing up the precarious position Virgin was in, a February 1998 article in The Economist said, "For a company so diversified, it is vulnerably dependent on a single brand." Ritson supported this stand, saying that just because the Virgin brand had the potential to be extended, the group could not always earn profits by doing so. THE ISSUE OF BRAND EXTENSION/BRAND DILUTION Branson responded to criticisms of Virgin's brand extension strategies by arguing that Virgin looked at long-term growth and not short-term profit. On the issue of dilution of brand equity, he said, "The key to making sure the Virgin name stays fresh and successful is obviously not to overdo it, and to make sure any product we apply it to is really going to go in there and shake up the industry it is in. So we are really only working with products that we think can grow into global billion dollar businesses within five years.” Commenting on the detractors of brand stretching, Branson said, "They think that brands only relate to products and that there is only a limited amount of stretch that is possible. They seem to have forgotten that no one has a problem playing a Yamaha piano, having ridden a Yamaha motorbike that day, or listening to a Mitsubishi stereo in a Mitsubishi car driving past a Mitsubishi bank."18 He added,

Brand Extensions Lead To Brand Dilution

- 69 -

"There is always a danger of diluting the brand if you do not do things with good value, panache and style. The idea of diversification in a brand, I think we have proven it can be done." In June 2000, in an interview to the Australian Broadcasting Corporation, Branson admitted that the way he managed Virgin was very different from the way most leading businesses in the Western world managed theirs. According to Branson, most companies remained focused in specific product/service categories as they were answerable to their shareholders, the fund managers and a host of regulatory authorities. He said, "Fortunately, we are not a public company - we are a private group of companies, and I can do what I want." Branson often made such statements. Those who had been following the group's evolution over the years felt that Branson's "I can do what I want" attitude stemmed from the fact that the Virgin brand and Branson were inseparable. Even the employees at Virgin were staunch supporters of his way of managing the wide portfolio of businesses. Branson received this support because the group empowered its employees, continuously motivated and inspired them to get the work done, and treated them as part of the Virgin family. In 1994, an opinion poll was conducted in UK for PR Week. The survey revealed that while 93% of the people were aware of the Virgin brand, 97% of them were aware of Branson. This highlighted the fact that the man behind the brand had become more popular than the brand itself. Commenting on the relation between Branson and the brand, Jean Oelwang Virgin Mobile's Director (Marketing), said, "He lives and breathes the brand's values." Analysts felt that the above scenario could prove counter-productive for the company in the long run. A September 1997 Financial Times article had this to say on the above issue, "Finding the right distances between Branson and his branded businesses will be one of the keys to the group's future success."

Brand Extensions Lead To Brand Dilution

- 70 -

Martin Campbell, an employee in the marketing department of Virgin Direct (the financial services arm), acknowledged that Branson's name had helped the business) take off smoothly; but he also commented that the strong relation between the brand and the person was unsettling, "People investing pension money need to feel comfortable and secure for the long term. We are going to exist for 200 years, and clearly Richard is not." However, Branson did not agree with these views. He said, "When artists die, their products sell for twice or three times as much. Hopefully, the same thing will happen to Virgin products if I go." WHERE DOES VIRGIN GO FROM HERE? Meanwhile, problems with various Virgin businesses continued into the 21st century. Virgin Clothing was closed in 2000 and Virgin Cosmetics posted a loss of £6.7 million for the financial year ending March 2001. After the terrorist attacks in the US in September 2001, Virgin's airlines businesses suffered from the global slump in the industry. Virgin Rail was also expected to become a problem when the subsidies from the UK government that were making the venture profitable ceased. However, due to their strong belief in the brand, people at the Virgin group seemed to be unwilling to accept that any son of brand dilution existed. In fact, there were plans to keep exploring new options in the future. In March 2002, Branson said, "Virgin is not a one-product brand, like Nike or Coca-Cola. It is different and diverse, so there are opportunities to extend it across a wider range of marketing areas. I want to make Virgin the number one brand in the world, instead of around 10th, which is where it is now. There is great scope for this globally." In an unprecedented move, Virgin appointed Ashley Stockwell (Stockwell) as the first ever Brand Marketing Director of the Virgin group in July 2002. Reportedly,

Brand Extensions Lead To Brand Dilution

- 71 -

Stockwell was appointed to deal with the negative publicity surrounding Virgin Energy (due to accusations of mis-selling in early 2002). There were also reports that this move was aimed at helping the group sail through the new launches planned at that time (mobile telephony in the US and Virgin Blue airline in Australia). Stockwell himself said that as the Virgin group was growing very fast someone was needed to take responsibility for protecting the brand's values and developing the existing guidelines for brand building. Meanwhile, Virgin's problems continued into October 2002, The mobile phone venture in Singapore had to be closed down since Virgin managed to garner just 1% of market share in its first year of operations. Some analysts said that now that the Virgin brand had a guardian in the form of Stockwell, things were bound to improve. However, many industry observers felt that it was quite probable that the Virgin brand would continue to make unsuccessful brand extensions in the future. Uncertainly regarding the profitability of Virgin’s future brand extensions would in all probability continue to plague those studying the group's brand management strategies. For the time being, Branson had made at least one thing certain, “Well, we would not launch a cigarette.' QUESTIONS FOR DISCUSSION: 1. Analyze the values associated with the Virgin brand (as envisaged by the Virgin group). How did these values help the brand extend itself into different businesses over the years? 2. What role has Branson played in the evolution of the Virgin brand?

Branson has been criticized for the way in which he runs the group. Is this criticism justified? Why/Why not?

Brand Extensions Lead To Brand Dilution

- 72 -


Do you think that the group's brand extension strategies have diluted the

Virgin brand's equity? Give reasons to justify your stand. Briefly sum up the advantages and disadvantages of using an umbrella branding strategy for related as well as unrelated businesses. 4. In light of the problems plaguing the group in the early 21st century and the failure of numerous Virgin ventures in the past, what do you think the future has in store for the brand? What should the group do to ensure that the extensions do not severely erode the existing brand equity? THE VIRGIN GROUP OF COMPANIES* TABLE 4 COMPANY Virgin Active Virgin Atlantic Virgin Cargo Virgin BUSINESS Health and leisure club operating in the UK and South Africa. Airline flying to 20 destinations in the US, Caribbean, South

Africa, and Asia. Atlantic Using Virgin Atlantic's extensive network. Virgin Atlantic Cargo offers cargo capacity to over 120 destinations worldwide. Balloon Passenger balloon fleet in the UK, Holland and Belgium. Expert advice on bikes, gear, training, servicing and insurance. Low fare airline flying in Australia. International bestsellers on music, sport, TV, movies and comedy. Comprehensive bridal emporium (gowns, dresses, venue

Flights Virgin Bikes Virgin Blue Virgin Books Virgin Brides Virgin

selection). Business A business-to-business service for small/medium sized businesses. Expert advice on cars and related services. ^ Chain of cinemas in Japan. A—\\ Swiss formulated skin care and sophisticated

Solutions Virgin Cars Virgin Cinemas Virgin Cosmetics Virgin


cosmetics" Credit Credit card service with unique rewards programs.

Brand Extensions Lead To Brand Dilution

- 73 -

Cards Virgin Drinks Virgin Experience Virgin Express Virgin Healthcare Virgin Holidays Virgin Home Virgin Incentives Virgin Limobike Virgin Limousines Virgin Megastores

Soft drinks sold in Europe, Asia and Africa. Bungee jumping, Ferrari driving, chocolate supplies African safaris, etc. Operating scheduled services from the UK to Brussels and on to European cities. Charity promoting healthcare issues. UK-based tour operator specializing in long haul holidays to America, the Far East, Australia, and South Africa. Home telephone, electricity and gas services. Corporate incentive vouchers exchangeable for goods and services within the Virgin world-and partner companies. Motorcycle passenger service. Limousines serving Northern California from San Francisco headquarters. Music, movies, computers games and books. More than 80 Megastores in ((Europe, Japan. Canada and the US, plus the world's largest entertainment store on London's Oxford Street. Mobile phone services in the UK, the US and Australia. ISA’s, Mortgages, Unit Trusts, Share dealing plus news and

Virgin Mobile Virgin Money

views. \\^/ Internet Service Providers with over one million customers. Radio Free Virgin Digital radio broadcasting company. Virgin Student One-stop shop to reach UK's student population. Runs UK's LTD number one student website (, a national discount card (the VCard), and a national on-campus marketing network (VSMN). Student website providing free email, SMS, online photo albums, articles, instant messaging and competitions. Virgin Trains Over 1600 train services a week to over 130 stations. Virgin Travelstore Online travel agency. Virgin Wines Wines. V2 Music Independent record label. Arcadia Video production company providing in-flight entertainment for Virgin Atlantic, corporate videos, destination guides, music Babylon features, training videos and video press kits. Restaurant with a rooftop view of London's city skyline.

Brand Extensions Lead To Brand Dilution

- 74 -

Caroline 2 HEMS Limited Edition Necker Islands

UK-based international wholesale distributor of music-related products, encompassing both export and import. Charity operating the London Helicopter Air Ambulance. Exclusive collection of hotels selected by Richard Branson for their individual style, superb cuisine and high-level service. In the British Virgin Islands. Available as a private holiday island for families and friends, or top level incentive destination

The Gardens

and inspiring retreat. Roof One and a half acres of themed gardens, ornamental fountains and palm trees, flamingos and natural wildlife. Available for exclusive hire for private functions. It has a night club for private members. ^ and Distributors of value-for-money CDs, cassettes and videos^ \\ Online service to help people find out train timings book tickets and reserve seats online for every train service in mainland UK



THE VIRGIN PHILOSOPHY Virgin believes in making a difference. In customers' eyes, Virgin stands for value for money, quality, innovation, fun, and a sense of competitive challenge. Virgin delivers a quality service by empowering its employees, and facilitating and monitoring customer feedback to continually improve the customer's experience through innovation. Virgin's growth has not only been impressively fast, it has also been based on developing good ideas through excellent management principles rather than on acquisition. Virgin looks for opportunities where it can offer something better, fresher, and more valuable, and then seizes them. It often moves into areas where the customer has traditionally received a poor deal, and where the competition is complacent, And with its growing e-commerce activities. Virgin also looks to

Brand Extensions Lead To Brand Dilution

- 75 -

deliver 'old' products and services in new ways. Virgin is proactive and quick to act, often leaving bigger and more cumbersome organizations behind. When Virgin starts a venture, it bases it on hard research and analysis. Typically, Virgin reviews the industry and puts itself in the customer's shoes to see what could make it better. Virgin asks fundamental questions: Is this an opportunity for restructuring a market and creating competitive advantage? What are the competitors doing? Is the customer confused or badly served? Is this an opportunity for building the Virgin brand? Can the Virgin brand add value? Will it interact with our other businesses? Is there an appropriate tradeoff between risk and reward? Virgin is also able to draw on talented people from throughout the group. New venture are often steered by people transferred from other parts of Virgin, who bring with them Virgin's trademark management style, skills, and experience, virgin frequently creates partnerships with others to combine skills, knowledge, market presence, and so on. Contrary to what some people may think. Virgin's constantly expanding and eclectic empire is neither random nor reckless. Each successive venture demonstrates Virgin's skill in picking the right market and the right opportunity. Once a Virgin company is up and running, several factors contribute to making it a success: the power of the Virgin name; Richard Branson's-personal reputation; Virgin's unrivaled network of friends, contacts, and partners the Virgin management style; the way talent is empowered to flourish within the group. To some traditionalists, these may not seem hardheaded enough. To them, the fact that Virgin has minimal management layers, no bureaucracy, a tiny board, and no massive-global HQ is anathema. Virgin's companies are part of a family rather than a hierarchy. They are empowered to run their own affairs, yet other companies help one another, and

Brand Extensions Lead To Brand Dilution

- 76 -

solutions to problems come from all kinds of sources. In a sense. Virgin is like a community, with shared ideas, values, interests, and goals.

Websites :
1. 2. 3. 4. www.karvy-com 5. 6. 7. 8. 9. 10.

Brand Extensions Lead To Brand Dilution

- 77 -

Selected Readings :
1. Singh Namrata, Price Hike May Not Augur Well,, April 1998. 2. Bhatnagar Mohini, Cadbury's Revitalizes,, March 1999. 3. Dhawan Radhika, Sweet Success,, March 2000. 4. Singh Namrata, Cadbury Targets Kids with Milk Treat,, July 2000. 5. Shatrujeet.N, Cadbury's Perk: Fixing Market Shares,, September 2000. 6. Munshi Toral, Cadbury India,, April 2001. 7. Krishnan Aarati, What's Sweet and What Isn't,, July 2001. 8. Perkins B. Anthony, Like a Virgin,, December 1995. 9. Virgin Needs to Add Ads, Advertising Age, March 31, 1997. 10.A Good Reputation is the Key to Virgin's Diversity,, September 21, 1997. 11.Behind Branson, The Economist, February 02, 1998. 12.Flynn Julia, Zellner Wendy, Light Larry & Weber Joseph, Then Came Branson, Business Week, October 15, 1998. 13.Branson Richard, Making Brand Extensions Work, Sales & Marketing, October 1998. 14.Dutta Anirudha, Features,, December 13, 1999. 15.Capell Kerry, Richard Branson is no Techie, but he Loves the Web, Business Week, January 31,2000.

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.