BRANDING Thesis Vineetmalani

Brand Extensions Lead To Brand Dilution - 1 -

ACKNOWLEDGEMENT

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 .


BRANDING BASICS

“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


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 epic-

scale 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


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

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


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.


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:

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 (e.g. Chocolates with nuts,

chocolates with wafer , dark chocolates etc).


MEANING OF BRAND :

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 know-

how. 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.


TYPES OF BRAND EXTENSION :

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. Retailer brands cover the

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. 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

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


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 EXTENSION : HOW ?

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


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 one or more assumptions.

Assumption One. It will help get trial / sell the 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

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.


Guideline Two: Extend a strong Benefit Association.

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 Sun-

protection 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 wear the brand as a

badge: in sports shoes, sports goods, bags, casual wear, even watches.

Guideline Four: Extend the brand based on Brand Essence.

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

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 territory.

Watch-out Two: Is there any link to the brand extensions or is it merely a

convenient, available name that’s being used?

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

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.


RESEARCH METHODOLOGY

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.


QUESTIONNAIRES

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 .


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 ?

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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



a. New Sub-brands eat into the share of Original brands of Nirma


sales of original Nirma brands.

c. Sales of Nirma and rival brands stay unaffected while brand extensions



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 ?





product life cycle

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

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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


NIRMA – QUANTITATIVE ANALYSIS

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 b. Annually c. Bi-Annually

Responses out of 100 :

a. Semi-Annually- 10

b. Annually - 46

c. Bi-Annually - 44

0

510

1520

2530

3540

4550

A B C

Responses

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.

Figure 1


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 b.No


a. Yes - 17

b. No - 83

0

10

20

30

40

50

60

70

80

90

A B

Responses

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 .

Figure 2


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.


a. New Sub-brands eat into the share of Original brands of Nirma


sales of original Nirma brands.

c. Sales of Nirma and rival brands stay unaffected while brand extensions



a. New Sub-brands eat into the share of Original brands of Nirma – 62


sales of original Cadbury brands – 23


bring in new customers – 15


0

10

20

30

40

50

60

70

A B C

Responses


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 .


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

Figure 3


0

10

20

30

40

50

60

70

A B C

Responses

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 for

the new Nirma brands ?





product life cycle

Response out of 100 :

a. Intensive branding in all stages of product life cycles - 34

Figure 4



followed by reduced efforts in mature stages - 41


product life cycle - 25

0

5

10

15

20

25

30

35

40

45

A B C

Responses

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.

Figure 5


NIRMA – QUALITATIVE FINDINGS AND RECOMMENDATIONS

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.

http://www.nirma.co.in/story/market.htm

http://www.nirma.co.in/story/manufac.htm

http://www.nirma.co.in/story/manufac.htm

http://www.nirma.co.in/story/network.htm

http://www.nirma.co.in/story/market.htm#toilet_soap


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 and today leading business

schools are analysing it's strategies to

demystify this miracle. Nirma's core

marketing thrust revolves around prompting

consumer trials by offering a good quality

product at most competitive price and

retaining these new consumers 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


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.


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

Hypotheses/

Research

Question

Information needs

What are the

specific

associations

that consumers

make when

they think of

Nirma-the

Nirma brand,

Nirma detergent

and Nirma

soap?

Nirma soap has

intangible

benefit,

customer

benefit and

relative price

type

associations

Associations that

consumers make

w.r.t.

-Nirma brand

-Nirma detergent

-Nirma soap

What has been

the impact of

the extension

on the core

brand?

Nirma Soap has

enhanced the

brand image of

Nirma

Perception of

Nirma detergent

and Nirma Soap

in the mind of the

consumer

Perception of the

Nirma brand

-before the brand


extension

-after the brand

extension

How has

Nirma’s

extension into

toilet soaps

impacted the

directions and

possibilities for

future

extensions?

Extension of a

brand into not-

so-near product

becomes easier

after intervening

brand

extensions i.e.,

Nirma will now

(after its

extension into

soaps) find it

easier to extend

into more

diverse product

categories.

Consumers’

perception of

viable future

extensions for the

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 Nirma Brand

o Nirma Washing Powder

o 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.

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

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

Lux

Dove

Rexona

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

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

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


Cleaning

Fragrance

Moisturisation

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

Celebrity Association

Product attributes

Customer Benefits

Intangibles

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

Inferences

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 shelf-

presence.

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

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.


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.


CADBURY – QUANTITATIVE ANALYSIS

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


a. Quarterly - 20

b. Semi-Annually- 65

c. Annually - 15

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.

Figure 6


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 .

2. Was falling Sales a prime reason for Cadbury to launch sub brands ?

a. Yes b.No


a. Yes - 43

b. No - 57


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.


Figure 7


a. New Sub-brands eat into the share of Original brands of Cadbury


sales of original Cadbury brands.




a. New Sub-brands eat into the share of Original brands of Cadbury – 57


sales of original Cadbury brands – 21


bring in new customers – 22


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 .

Figure 8


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 .


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

Following patterns were also noticed :

Figure 9


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.

5. What was the status of branding and promotional exercise undertaken for the

new Cadbury brands ?





product life cycle

Results out of 100 :

a. Intensive branding in all stages of product life cycles – 11


followed by reduced efforts in mature stages – 42


product life cycle – 47


Following patterns could also be noticed :

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 .

Figure 10


CADBURY – QUALITATIVE FINDINGS AND

RECOMMENDATIONS

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

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

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 (Maharashtra), Phalton (Maharashtra) and Hyderabad

(Andhra 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

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

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

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).

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 BY VALUE (in %) BY VOLUM- (in %)

CDM 23.7 23.1

Nestle Chocolates* 25.1 24.7

5 Star 12.4 14.1

KitKat 14.3 11.2

Perk 9.2 8.3

Gems 9.5 9.3

Milky Bar 2.7 2.8

Picnic 2.6 2.5

Munch 0.5 0.7


Others - 3.3

Total 100.00 100.00

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

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

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, cricinfo.com and

hungama.com 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 fun-

loving 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

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 multi-

functional 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

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,

cadburyindia.com, cadburygift.com and boumvita.com. 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.

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

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.

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 BRANDS & VARIANTS

*Chocolate • 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


FINANCIAL PERFORMANCE OF CIL (1993-2001)

TABLE 3

(in Rs million)

Year 2001 2000 1999 1998 1997 1996 1995Assets EmployedNet Fixed Assets

1433.2 1398.8 1463.3 1488.3 1527.7 922.9 676.7

Net Current Assets

1215.0 941.3 635.9 518.6 638.2 356.9 330.8

Others 83.5 4.6 33.5 27.1 38.4 43.1 38.7Total 2731.7 2344.7 2122.7 2034.0 2204.3 1322.9 1046.2Financed By (C) (b) (a)Equity Share Capital

357.1 357.1 238.0 238.0 198.4 124.0 124.0

Reserves & Surplus

2168.6 1966.0 1782.0 1588.1 1470.0 821.5 769.1

Shareholders' Funds

2525.7 2322.1 2020.0 1826.1 1708.0 1019.9 893.1

Loan Funds 70.8 22.6 102.7 207.9 496.3 303.0 153.1Deferred Tax Liability (Net)

135.2 - - - - - -

Total 2731.7 2344.7 2122.7 2034.0 2204.3 1322.9 1046.2Sales 6263.2 5711.4 5110.8 4283.3 3541.4 3138.8 2530.8Profit & Appropriations*PBDT 1163.4 1038.1 816.6 578.2 404.6 406.8 389.8Depreciation (237.9) (218.5) (199.5) (193.4) (136.9) (84.6) (64.0)*PBT 925.5 819.6 617.1 383.8 267.7 322.2 325.8Tax (328.3) (296.5) (204.8) (120.6) (82.0) (119.0) (129.0)*PAT Before ExceptionalItems 597.2 523.1 412.3 264.2 185.7 203.2 196.8Exceptional Items

(30.4) (24.0) (29.7) (13.6) - - 4.0

Tax Adjustments of Earlier

-

Years 7.2 21.2 (15.6) 11.6 - - -PAT 574.0 520.3 367.0 262.2 18S.7 203.2 200.8Dividend and Tax on

214.8 219.0 173.1 144.0 83.5 76.3 68.2


Dividend 359.2 301.3 193.9 118.2 102.2 126.9 132.6Per Share Information (Rs)

'

Before Exceptional Items

16.72 14.65 17.32 11.10 7.80 10.24 15.87

Book Value Per Share

70.73 65.03 84.87 76.72 70.34 49.46 71.94

Dividend Per Share

6.00 5.00 6.50 5.50 3.50 3.50 5.5

(Excl. Tax on Dividend)


VIRGIN – INTERNATIONAL PERSPECTIVE

“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.


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.


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


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 virgin.com 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 e-

commerce 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."


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 www.panaceapr.com 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.”


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


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


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


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,


"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."


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,


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?


3. 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 BUSINESS

Virgin Active Health and leisure club operating in the UK and South

Africa.

Virgin Atlantic Airline flying to 20 destinations in the US, Caribbean, South

Africa, and Asia.

Virgin Atlantic

Cargo

Using Virgin Atlantic's extensive network. Virgin Atlantic

Cargo offers cargo capacity to over 120 destinations

worldwide.

Virgin Balloon

Flights

Passenger balloon fleet in the UK, Holland and Belgium.

Virgin Bikes Expert advice on bikes, gear, training, servicing and

insurance.

Virgin Blue Low fare airline flying in Australia.

Virgin Books International bestsellers on music, sport, TV, movies and

comedy.

Virgin Brides Comprehensive bridal emporium (gowns, dresses, venue

selection).

Virgin Business

Solutions

A business-to-business service for small/medium sized

businesses.

Virgin Cars Expert advice on cars and related services. ^


Virgin Cinemas Chain of cinemas in Japan. A—\\

Virgin Cosmetics Swiss formulated skin care and sophisticated color

cosmetics"

Virgin Credit

Cards

Credit card service with unique rewards programs.

Virgin Drinks Soft drinks sold in Europe, Asia and Africa.

Virgin Experience Bungee jumping, Ferrari driving, chocolate supplies African

safaris, etc.

Virgin Express Operating scheduled services from the UK to Brussels and

on to European cities.

Virgin Healthcare Charity promoting healthcare issues.

Virgin Holidays UK-based tour operator specializing in long haul holidays to

America, the Far East, Australia, and South Africa.

Virgin Home Home telephone, electricity and gas services.

Virgin Incentives Corporate incentive vouchers exchangeable for goods and

services within the Virgin world-and partner companies.

Virgin Limobike Motorcycle passenger service.

Virgin Limousines Limousines serving Northern California from San Francisco

headquarters.

Virgin

Megastores

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.

Virgin Mobile Mobile phone services in the UK, the US and Australia.

Virgin Money ISA’s, Mortgages, Unit Trusts, Share dealing plus news and

views. \\^/

Virgin.net Internet Service Providers with over one million customers.

Radio Free Virgin Digital radio broadcasting company.

Virgin Student

LTD

One-stop shop to reach UK's student population. Runs UK's

number one student website (Virginstudent.com), a national

discount card (the VCard), and a national on-campus


marketing network (VSMN).

Virginstudent.co

m

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

features, training videos and video press kits.

Babylon Restaurant with a rooftop view of London's city skyline.

Caroline 2 UK-based international wholesale distributor of music-related

products, encompassing both export and import.

HEMS Charity operating the London Helicopter Air Ambulance.

Limited Edition Exclusive collection of hotels selected by Richard Branson for

their individual style, superb cuisine and high-level service.

Necker Islands In the British Virgin Islands. Available as a private holiday

island for families and friends, or top level incentive destination

and inspiring retreat.

The Roof

Gardens

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. ^

Sound and

Media

Distributors of value-for-money CDs, cassettes and videos^ \\

Thetramline.com 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

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

solutions to problems come from all kinds of sources. In a sense. Virgin is like a

community, with shared ideas, values, interests, and goals.

BIBLIOGRAPHY


Websites :

1. www.cadburyindia.com

2. www.indiainfoline.com

3. www.magindia.com

4. www.karvy-com

5. www.agencyfaqs.com

6. www.cadburyschweppes.com

7. www.sharekhan.com

8. www.myris.com

9. www.nirma.co.in

10. www.virgin.com

Selected Readings :

1. Singh Namrata, Price Hike May Not Augur Well, www.indian-express.com,

April 1998.

2. Bhatnagar Mohini, Cadbury's Revitalizes, www.domain-b.com, March 1999.

3. Dhawan Radhika, Sweet Success, www.businessworldindia.com, March 2000.

4. Singh Namrata, Cadbury Targets Kids with Milk Treat, www.expressindia.com,

July 2000.

5. Shatrujeet.N, Cadbury's Perk: Fixing Market Shares, www.agencyfaqs.com,

September 2000.

6. Munshi Toral, Cadbury India, www.indiainfoline.com, April 2001.

7. Krishnan Aarati, What's Sweet and What Isn't, www.blonnet.com, July 2001.

8. Perkins B. Anthony, Like a Virgin, www.redherring.com, December 1995.

9. Virgin Needs to Add Ads, Advertising Age, March 31, 1997.


10.A Good Reputation is the Key to Virgin's Diversity, www.btimes.co.za,

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, www.indiainfoline.com, December 13, 1999.

15.Capell Kerry, Richard Branson is no Techie, but he Loves the Web, Business

Week, January 31,2000.

BRANDING Thesis Vineetmalani

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