Avoid line extension trap,brand dilution: Learnings from Porsche

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. [caption id="" align="alignleft" width="131" caption="Porsche Source:wikipedia"][/caption] 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.