Avoid line extension trap,brand dilution: Learnings from Porsche

by Ashvini on July 4, 2011 · 24 comments

in Business

Last night I was watching the making of Porsche Cars in the Porsche factory on TV. They have got an amazing factory in the city of Stuttgart in Germany. There are so many things to like about Porsche and the way it is manufactured in a systematic way.

The manufacturing process is very interesting. After the basic structure of Porsche is created, a line of Porsches are put on a train ( hanging from the top). Each car on the train passes through 117 stations. At every station, workers at that station have got only five minutes to do their assigned job. That means if some station has not finished its work in five minutes the whole chain of manufacturing suffers.I think that rarely happens though.

Porsche

Porsche Source:wikipedia

Just watching the documentary, it seemed to me that Porsche must have taken a lot of time and efforts to achieve this kind of efficiency.

The brand commands an absolute loyalty among its followers.

However, more than anything, something struck me the most. If you observed, Porsche design has not changed much in last many years, since the time it was created. It has been the same.

That means if you purchased Porsche( if you indeed did ;) ) in 70s or 80s and then you purchased again  it today, you will see that it did not change that much from its original design(look and feel) except for technical improvements.

I think that this has been one of the most important point in the Porsche lovers’ minds. In the market, Porsche occupies the highest brand value.

I often wonder if business care about their brand so much as Porsche does. If a company has a lot of money, most of the time, it is spent on either diversifying the business, extending the product line or just frittering it away on anything unrelated to business.

Diversifying the business is the most common affliction. Companies who have achieved a reasonable level of success in one area begin to assume that they can replicate the business success in other areas with the same ease. They extrapolate one businesses success into other. There are times where these diversification are successful but many times they are devastating to the company’s value itself. The unnecessary diversification sucks the profitability from the original business.

To give you examples, Amazon is essentially a web commerce company, primary selling books and other consumer items. They decided to move into new area called as Cloud services. Cloud services is an expensive operation and I am sure Amazon is having to pay a lot of money to run this business . Is it really working out for them? We don’ know yet.

Faced with declining profits in the existing business, a company is forced to lookout for dissimilar business areas most of the times not proven for their revenue potential. Instead of looking at developing more innovations in their own area they are tempted to spend money earned in unfamiliar business areas(because they feel someone else is making money off it).

Blackberry is trying hard to move from serving corporate world where it has a solid presence to consumer industry. I don’t know if it will be successful in the new area, but surely it is going to lose appeal in the old.

Another way to dilute brand image is called as line extension trap. Most of the time , companies who have successfully build a brand , are tempted to extend the brand name to other product lines. Hence Adidas manufactures Shower gel, Colgate produces medically approved toothpaste , Dell produces tabs.

No doubt some of the brand extension have been successful but most of the time, they have not been able to change the perception of company in the mind of consumer. See Perception is reality in business

A large conglomerate in India is present in almost everything from software to salt. However, it has been truly successful in a few of its business ( in terms of value created for shareholders) under its business name.

It is very important to

a) Position the product/brand well

b) Do not have it fall into the line extension trap

Let us take the case of your small business. Either you are in the business of selling home made pickles or jams or manufacturing products in a small factory, you need to clearly identify what is the message your are trying to project to your customer and your sales force.

If you are running a restaurant , you need to identify what would you be message to your customer.

  • Does your restaurant serve family or singles?
  • Does your restaurant serve fast food or a cuisine?
  • What is cuisine of your restaurant( Italian, Chinese, Japanese)?
  • If you have multicuisine, is it more of buffet or a-la-carte?

Once you know where your product or service fits in , your business is tied to the brand. Tomorrow, if your business changes direction and gets into a new business line , you will probably need to explain the need for the change. If it changes direction or brings in too many businesses in its fold, then somewhere your brand is in threat of dilution.

A few more examples of consistent brand messages ( of course the big ones make more sense)

  • Microsoft as desktop OS company
  • Google as search engine
  • McDonald as a burger company
  • Amazon as world’s largest e-tailer
  • Facebook as premier social networking website

Example of not consistent brand message and probably line extension trap

  • Microsoft cloud services
  • Amazon VPN offering
  • Google Plus( apologies to all my geek friends, it does look like a line extension)
  • etc.

I believe the success of Porsche is also based on the fact that it has been able to create a consistent brand image , reinforcing it over the years. So the moment I say Porsche, you imagine the car. However it cannot be said the same about other brands where probably you would come up with more than one product.

I am fan of book by Al and Laura Ries The origin of brands (affiliate link) from which I have learned a lot. I recommend this book to help you get excellent knowledge about brands.

About The Author

{ 24 comments }

Veronica Cervera October 19, 2011 at 8:10 am

What Porsche is doing is unparalleled. I don’t think there is another company who sticks to one concept of design. And probably for a good reason. It’s very risky to stick to one concept as people tend to like variety. Very few companies can pull this off, if there’s any – and Porsche is one of these companies.

Ryan Critchett July 17, 2011 at 8:01 am

Ashvini, really thorough points my good buddy. Loyalty at it’s best! I never thought about the fact that Porsche really never changed the design, just the mechanics. You really got me thinking man!

R

Ashvini Kumar Saxena July 18, 2011 at 1:45 pm

Hi Ryan,

I am glad that I was able to share my knowledge with you. Its true and I did not believe it at first. This is a very difficult thing to achieve in face of all pulls and push of the competition.

Great to see you here again… keep coming back :)

Ryan Critchett July 20, 2011 at 5:45 am

Let’s drive together! Great to be here, I’ll be back for sure my brother.

Wim @ Sales Sells July 15, 2011 at 1:57 am

Hi Ashvini, with the Panamera 4-door and Cayenne SUV, porsche too has gone a bit out of their usual scope, but both models have done very well in terms of sales. Both cars still have the recognizable porsche design and have made porsche available for families too, not only rich guys with a midlife crisis :)

Wim

Ryan Critchett July 17, 2011 at 8:02 am

LOL WIM!

Ashvini Kumar Saxena July 18, 2011 at 1:40 pm

Hi Wim,

As you said, “a bit”. I think that should okay in terms of not extending the brand to other types of vehicles or other business.

Thanks for your comments.

Daria Steigman July 11, 2011 at 1:28 am

Hi Ashvini,

Adidas makes shower gel? And here I was going to congratulate the company on putting their adiPRENE soles into Rockport heels for women (aka, comfortable shoes I actually can wear for work). The latter is a logical extension of the brand; the former certainly makes no sense.

Great point about Porsche’s fidelity to design, because I’ve been seeing luxury car companies lately building cars that all look like Buicks (and that’s not a compliment). Or Range Rover, which left it’s iconic 70s design behind to build a car that looks like a Jeep.

Ashvini Kumar Saxena July 11, 2011 at 5:06 pm

Hi Daria,
Welcome again to my blog.

Yes Adidas makes shower gel( I have used it once) That you were surprised at this is expected. I think your example is the correct way of line extension. It supports the original idea of product and taking it in the right direction.
I think short term pressures force these companies to take short sighted decisions that surprise and confuse customers. It should be done logically as in your example and not because just “there is a market out there somewhere”.
Thanks for some really useful examples to re-enforce the point .
Do Keep coming back!!!! Thank you

Carolyn@The Wonder of Tech July 8, 2011 at 9:44 pm

Hi Ashvini, Great post! I am a big fan of cars and brand extensions fascinate me so I was very excited to read this article on two topics of interest for me.

I have seen companies pollute their most valuable brands by rushing out line extensions with low quality products. I just have to shake my head and wonder who approved of such a move. But I agree with Bill, it’s important to grow in other areas, just make sure you’re not diluting your brand to grow.

I have a couple of friends who collect vintage Porsches from the 1980’s. Their cars have fewer problems than some newer cars built in the 21st century. Their dedication to building a quality product gives them a strong fan base. Plus the cars are fun to drive!

But Porsche hasn’t been 100% pure in their use of their brand name: http://cgi.ebay.com/PORSCHE-DESIGN-Black-Metal-Designer-Sunglasses-W-CASE-/310330743900?pt=US_Sunglasses&hash=item4841275c5c ;-) It’s not exactly Disney though, with their putting Mickey ears on everything.

Thanks for this awesome post that will keep me thinking for a long while!

Ashvini Kumar Saxena July 11, 2011 at 5:13 pm

Hi Carolyn,
Hope you are doing great.
Thanks for providing me the link to the Porsche Glasses. Brand dilution or not , I would love to buy them hahah!!!.
Quality is must for any product and Porsche deserves a name in the sun. I saw how their factory functions and I said “Is it from earth?”. They are just awesome.
Companies do dilute their brand image many many times. I have seen Pizza hut selling pasta ( I love their pasta more than Pizza now.. haha) . But I guess if business demands we need to be flexible but careful that we are not diluting their business image.
As usual, I really appreciate your comments and love to see you here. Do keep coming back.

Carolyn@The Wonder of Tech July 11, 2011 at 6:14 pm

Hi Ashvini, You’ll be pleased to know that in the UK, Pizza Hut changed their name to Pasta Hut a few years ago. They said that the name change was caused by their selling more pasta than pizza in their restaurants. :-)

Sonia July 7, 2011 at 1:33 am

When Apple bursted out with the iPhone it was so “apple”. Apple is the epitome of revolutionary and innovative products today. Anything they touch turns to gold, but products their back in the early 90’s weren’t so fantastic. What they did do was stay within their niche (like Porsche) and just reinvented themselves. Porsche has the fan base and loyal customers (if you can afford their products) as do Apple fans. As a car collector upgrades for the newest Porsche, an Apple fan stands by drooling over the next creation apple conjure’s up. They both understand their customer’s wants and needs.

It’s like seeing Google work their magic as they try to get into many companies that are interested in Virtualization (Cloud Computing) while going up against companies like VMware and Microsoft. When I look at Google, all I see is a “Search Engine” with various added components that make sense. There has been instances where Google has come into companies I know of pitching their “Cloud Services” only for the company to have to go back and rip out their software and use VMware instead. I can take a company like VMware more seriously when it comes to Cloud computing or Virtualization. That is their core, and their “meat and potatoes”.

I don’t mind a company or brand branching out into other areas so as long as they still more closely to their own niche. Once they start trying to be McDonalds and they sell panties and bra’s is where I draw the line. I just won’t take them or their pitch seriously. Great post Ash!

Ashvini Kumar Saxena July 8, 2011 at 2:21 pm

Hey Sonia,

How are you doing?

You got the message perfectly right and thanks for supporting it with wonderful example of VMWare and Google. It is exactly the same ‘brand message’ I was talking about. Overextending the brand to totally unrelated business areas is going to confuse customers like hell. Even if the short term Euphoria of branching out in new business always triumph business sense, in long term mostly it is a loss of value proposition.
I have seen corporates here buying Cricket teams for millions of $$$ while their core businesses could be made much better with this money. The end result is all show-offs and wastage of precious resources on totally unrelated things. They could use the money to improve customer satisfaction, go global or just to increase capacity but buying sports team is totally out of league.
I really appreciate that you understood what I wanted to say.
Keep coming back and I just love those huge comments :).

Adam Paudyal July 5, 2011 at 10:15 pm

Yes indeed Ash. One of the reasons why Porsche is my dream car because of it’s high brand value.

The insights you shared here are worth keeping in mind. Unnecessary diversification can even kill the original business. I have seen this first hand with one of my relative’s business. But sometimes, you never know if the diversification works out good up front. I believe you just have to try it out and see how it works.

Consistent brand image reinforced over the years is what makes it possible to be successful just like Porsche. But, like Bill mentioned, we should also be careful about putting all the eggs in one basket (O:

There is always new and interesting things I learn from you Ash.
Keep it coming brother (O:

Ashvini Kumar Saxena July 8, 2011 at 2:14 pm

Hi Adam,

Thanks for your comments bro :).

Also I am glad that you liked my post. Diversification is necessary and is a must to find the right business niche but we have to be careful. Once our brand starts conveying one message and then we add another business to it , we reduce its effectiveness. Just that ;)

Keep coming back :)

Adam Paudyal July 10, 2011 at 1:20 am

Ash,

I am back (O:

What you said is so very true my friend especially if one adds a less or non relevant business to an existing one (O: Even if one thinks it is totally relevant, it might not work out as they thought.

Later brother..

Ashvini Kumar Saxena July 11, 2011 at 5:08 pm

Very true. I will be sending you the details of the framework we talked about soon :)

Bill Dorman July 5, 2011 at 12:04 am

Interesting article and Porsche certainly does an excellent job of brand identity.

The flip side of this is, I’ve seen businesses who are branded very well and have been doing a great job for a long time. However, the last 3 years the economy literally took their legs out from under them. Those who were able to diversify and hanging on; those who didn’t are gone in some instances. Having all you eggs in one basket can be a double edged sword, but at the end of the day I would prefer the brand recognition.

I live in Lakeland, Fl and know some Saxena’s. Just thought I’d pass that on……

Ashvini Kumar Saxena July 5, 2011 at 4:12 pm

Hi Bill,

Welcome to my blog and thanks for your comment. I am delighted to have you here .

When I said when business should have consistent message, I meant that they should not fritter away or dilute their brand to accommodate other business lines. If they are struggling, they should anyway move out of that business but should again make the message consistent.

Nice to know a little bit about you. There are a few relatives of mine at Florida but no Saxenas that I know of. Glad that you found some for me :) .

Keep coming back to my blog and thanks.
Ashvini

Aswani July 4, 2011 at 8:59 pm

Very interesting post…Ashvini. I have heard about Porsche and have seen some of its cars on TV and the internet. Apart from knowing that these are really expensive and meant for the affluent class, I was never aware of the the fact that the design of the Porsche cars have remain unchanged throughout its development. This is truly amazing! Anyways, the brand speaks and Porsche has been phenomenal in this regard. Yes..time for other companies to learn from the Porsche story and follow the same to see if it brings them the desired profits which otherwise can also happen but maybe not as expected.

Ashvini Kumar Saxena July 8, 2011 at 2:25 pm

Dear Aswani,

Thanks once again for your wonderful comment :).

There is so much to learn from Porsche in terms of its brand image. I did not know that design had not changed for years until I watched the program on Nat Geo. They are company of engineering marvel and they have a lesson for all companies who just spread around money than just to focus on core and related business. The results are loss of market share and customer dissatisfaction because of lack of focus on core business.
Keep coming back :)

Stephen Guise July 4, 2011 at 6:08 pm

Hey, I’ve been to the Stuttgart Porsche Museum! It was really cool and interesting (even as a non-car person). Your point about over-diversifying is a great one. I have been tempted to start more blogs/sites, but I decided to focus all of my energy on my current one (for now).

As Porsche knows, it is better to have one great line of products than several average ones.

Ashvini Kumar Saxena July 4, 2011 at 6:19 pm

Hi Stephen,

Nice to know !!! I missed it when I was in Germany :(. I hope to see it esp. after I saw the program on Nat Geo.

I have come to realization that a razor sharp focus on one thing at a time can really work wonders. I think with your blog, you are truly doing great. No need to diversify in my opinion.

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