Take a second to imagine this. Apple decides to get into the automotive market with the launch of an electric car. At the very least, the news would spark your curiosity. Many would be overcome with excitement and anticipation – what will the car look like? What technologies will it use? How much will it cost? Now imagine Ford decides to launch a cutting-edge smartphone. What would you think? Interested? I dare guess that not only would you be unruffled by the announcement, but you likely wouldn’t trust Ford to sell you a smartphone.
Is this really rational? When you think about it, Ford would be just as capable of launching a smartphone as Apple of launching a car (a smartphone is surely easier to develop). Yet, we as consumers do not accept Ford making smartphones. “They’re a car brand, not a phone brand!” some would say.
This phenomenon, in brand strategy, can be explained by what is known as brand anchoring. Brand anchoring is defined as a brand’s perceived zone of competency and credibility. Note the significance of the word “perceived”. We’re not talking about reality but rather perception (as is often the case in branding). If you visualize an anchor tied to a boat (a business), the circumference the boat can move around in would correspond to its perceived zone of competency and credibility. Ford, anchored as an “American car manufacturer”, would be venturing outside its zone by marketing smartphones. When a company breaks away from its anchor, it runs the risk of losing the trust and interest of its customers.
Failures and successes
There are many examples of brands that have fallen on their faces trying to stray from their anchor. A few of the more well-known: women’s magazine Cosmopolitan’s run at selling yogurt, Volkswagen attempting to enter the luxury sedans market with the VW Phaeton, and the resounding defeat of Harley Davidson perfumes. In contrast, some brands are very aware of their brand anchoring and grow their business accordingly. In the 1980s, Toyota, well aware of their anchoring as “a Japanese car brand with excellent value”, decided to create the Lexus brand to sell high-end vehicles on the American market. Much the same story for Nissan with their launch of the Infinity brand. Closer to home, Nestlé realized their Nescafé anchoring as “a basic everyday product” would not fit their new pod system destined for a more upscale market, so the Nespresso brand was born. In passing, it should be noted that it’s always easier for a brand to move down-market than up.
Brand growth and development
From a brand development perspective, the notion of anchoring is the same for a small business in the full swing of its growth and an established multinational. What points need to be considered before you develop a brand in a new market? What are your options?
Depending on the market in question and your brand(s)’s anchoring, there are four potential strategic approaches: brand repositioning, brand extension, flanker branding or acquiring a new brand.
Brand extension is the use of a known brand name to launch a new product in a new category. The extension hinges on transferring the brand’s anchoring onto the new product. For instance, Caterpillar successfully launched a line of “rugged” smartphones. With the brand’s “robust products” anchoring, it took consumers no time to realize the phones were virtually unbreakable and equipped with a long-lasting battery. In the same vein, the decision to launch a line of sportswear and accessories made perfect sense for fitness app Freelitics, anchored as a “community of fitness aficionados”. Yet if you imagine Let’s Go Fitness coming out with activewear… chances are it would be seen as promotional material.
Brand repositioning is when a brand shifts its anchoring to create new associations. What rookies would call a “change of image”. The process is extremely time-consuming for well-established brands. It took Audi years to be perceived as a luxury car brand. Repositioning often involves operational and structural changes as well (today’s Audi’s are of higher quality), though not always. Within only four years, the EPFL EMBA program went from a “technical Masters for engineers” to an “innovative MBA designed for the age of digital transformation”, attracting nearly 50% more applicants.
To extend their market presence, companies sometimes introduce new complementary brands to sell similar products to a different group of consumers. Take Migros, who launched Migros Budget to attract a most price-conscious clientele. Depending on the intended goal, the name of the main brand (and its anchoring) can be used to bring added value, like with Migros Budget (Migros assures quality) and Emporio Armani that profits from the Italian luxury anchoring of Giorgio Armani’s original brand. In other cases, the main brand vanishes, giving way to the newly created name. Multinational hotel giant Marriott owns over 30 hotel brands intended to appeal to different clienteles, some of which make no reference whatsoever to the Marriott name. These include Ritz Carlton, Bulgari Hotels, Moxy and Aloft who thus avoid any association with Marriott’s anchoring as a “middle-market hotel group”.
Acquiring and creating a brand
In rare cases, companies may venture into a new market with an all-new brand. In 2015, PostFinance came out with the mobile payment app Twint, doing just that. The new name enabled PostFinance to anchor Twint as an innovative product (not only for PostFinance users) from the very beginning. Other companies enter new markets by acquiring existing brands, as for instance Luxottica, world’s largest eyewear company, who produces eyewear under license for brands like Chanel, Prada and Ferragamo, to name a few. With its 2001 acquisition of sunglass retailer Sunglass Hut, Luxottica was able to use the brand’s notoriety to grow its distribution channels, as the connection between the two brands was not apparent to ordinary consumers.
Creating a new brand is always exciting, but it’s costly too. Yet expanding a brand too quickly outside of its anchoring can be catastrophic. That is why, though it may seem self-evident, being able to assess your brand’s anchoring objectively is fundamental. Even the biggest and best have failed. Amazon’s Fire Phone hit the market then was gone as quick as that.
Sometimes, little more than a lopsided stroke of the oar can spell the difference between anchoring and drifting ashore.
The original version of this article has been published on the PME Magazine blog.