Laura Ries: One problem now is that for the short term, Google gets tremendous credit with the stock market, when they make all the announcements that they are getting into this and they are getting into that. It pumps up the stock. For the short term, everyone is happy. All of a sudden, ten years later, it hasn’t panned out. We have seen that with Microsoft. It luckily still dominates on the operating system, but all of the other things they have gotten into they haven’t been successful. They have lost tonnes of money, but initially people got so excited. Oh MSN is going to rule the world. Xbox is going to rule the world. All of these things were supposed to take over, but none of this has happened. Seemingly nobody seems to learn from history.
Al Ries: They reportedly have lost $6 billion on the Xbox, for example. I believe outside their software business, they have not made any money on anything. If they would have stuck with software they would have been a stronger company. Now take the case of Google. The revenue growth rates have constantly fallen for Google as they have introduced more and more products into the market. Look at the year-over-previous-year revenue growth rates for Google’s past seven years. It doesn’t take a mathematician to figure out that Google’s rapid growth is coming to a screeching halt. Then what? Instead of expanding in all directions, a better strategy for Google might have been to launch a second brand.
A second brand?
Al Ries: As a matter of fact, almost any large company should be thinking about launching a second, a third or a fourth brand.One of the most successful companies in the world is Procter & Gamble and they have got 22 brands that each do more than a billion dollars of business in a year. There are another 20 that do between a $500 million and a billion a year. Last year, for example, Procter & Gamble had a net profit margin after taxes of 17.2%. I don’t know how accurate this, is but I worked out this afternoon that the Tata group of companies has a net profit margin of 2.7%. The most successful companies in the world are ones that have multiple brands.
What’s the biggest branding mistake that a company can make?
Al Ries: I guess you have to say the most common mistake for big companies is launching a line extension instead of launching another brand. We have worked with a lot of companies on this issue, actively recommended to IBM that they launch a second brand, to Microsoft, as a matter of fact, and others as well. I have been on a lot of boards of directors. The word you hear in the boardrooms is how do you expand the brand. I have never heard anyone say how do we narrow the focus on a product, except for me. How do we narrow the focus that we stand for something?
Can you elaborate?
Laura Ries: A part of the problem is that companies are so in love with their brands. Company people in launching a second brand sometimes feel disloyal, and that lures them into the line extension mode, where they can’t even consider a second brand and that is a true problem. They need to sit back and realise that we need to do the best thing for the company and to keep that brand standing for something. The question about Tata always comes up, whether or not they should be launching more second brands without the Tata name. People love Tata, but the fact it isn’t making money because the strategy of putting Tata name on too many things is not effective branding. So that’s truly a problem that we see over and over again and hopefully will change some day.
So you suggest that Tatas should be launching more brands?
Laura Ries: Of course. Any company that has the means and ability to be looking for new opportunities should. Consumers don’t care about brands. The advantage in business comes from dominating categories and only brands that dominate individual categories and keeps that as clear as possible, progress. The best thing Google had was YouTube and they had to buy it. But why can’t they be launching things like that with a separate name?
Al Ries: What we have been saying is that every category as time goes on will diverge and become two or more categories. You see that happening, for example, in cellphones. Very definitely, we are going to have cellphones to make the phone calls and we are going to have smart phones for tapping on to the internet. Now this ties in with the second brand idea. If companies appreciate the fact that categories divide, they are more likely think about second brands. Nokia, we think, is getting into a weak position with smart phones because they did not launch a second brand. Yet, if we don’t understand the philosophy of divergence then you won’t see this. And guess what most big companies think? The opposite. They don’t talk about divergence, they talk about convergence.
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