Line extensions and Krusty the Clown
When I speak to state associations I often stray off into the weeds and find the Simpson’s cartoon character, Krusty the Clown. Krusty is a shameless shill who will put his name on any product… and I mean ANY product. All of them being of rather dubious quality.
A tale of two strategies
I use this amusing – hopefully ;-) illustration to make the point on the difference in strategy between MillerCoors and ABI as they roll out new products. MillerCoors has historically been hesitant to do line extensions, especially on major brands. ABI has no such qualms. First a disclaimer… I use Krusty as a humorous example, not a reflection of quality. ABI and MillerCoors produce GREAT products of the highest quality. They all may not be your cup of tea, but the quality is always world-class.
But whose strategy is “better”? That is easy… the one that works the best. Although Brito never did seek my advice prior to the acquisition – his loss ;-) I’ve always thought they saw more value in the brand names than did others (both for the US and world-wide markets). Yes of course they saw a shockingly corpulent cash cow but I think they also felt the value of the brand names was not completely reflected in the stock price. My gosh, it wasn’t that long ago that one in four beers consumed in this country was a single brand, Budweiser. THAT is a mega-brand. And this fact was reflected throughout the marketplace. How many distributors are named “Budweiser Distributing" or "Bud of …” rather than “Anheuser Busch Distributing”?
Therefore that they have proceeded with a line-extension strategy (ala Krusty) is not really too surprising. In the past many producers have been wary of line-extensions (especially for major, important brands) and feared the potential risk of losing total market share based on several factors including:
- The line extension would dilute and weaken the overall brand.
- Failure of the line extension would damage the overall image of the brand in the customer’s eye.
- The cannibalization of other brands in the portfolio.
In the past these may have been true (and of course anything taken to excess will have negative repercussions) but I think they are less true today.
Today’s beverage consumer is used to (expects?) a lot of brands. And these brands often come and go. The negative impact of a “failed” brand extension is more often than not, simply not noticed by the vast majority of consumers. And let us not forget the long and twisted path that got us to Bud Light (and others).
So I think the downside of well-executed brand-extensions is much less than many think. It seems to me as if ABI is building the Bud Light brand into a mega-brand name under which various other products are grouped. Obviously you have the various beer line-extensions but you also have Bud Light Lime-a-Rita, Bud Light Lime Straw-Ber-Rita. Some might ask what does a ready to drink margarita-in-a-can have to do with Bud Light… but this is an extension of Bud Light Lime.
They are doing the same with the brand Budweiser but for now are keeping the extensions down the beer lane. I’d have to guess this might also change. These names give instant recognition to these brands. At some point do these extensions begin to take a toll on the strength of the brand name? Perhaps. But if enough are hits, I think they will over-shadow the losers… and as noted above, today’s consumer doesn’t seem to really care about (or keep track of) of disappearing brands.
In addition, I believe another factor in the ABI brand strategy is control of “their” distribution network. There is only so much time in the sales day (and only so much room in the warehouse) so these brands have the added benefit of forcing these wholesalers to spend limited time focusing on ABI brands rather than chasing the next hot craft beer. Brito and the guys are pretty good at strategy and this must be one aspect of it. I sure haven’t seen any ABI distributors dumping brands to grab that golden ring of Anchor Wholesaler. So this achieves the same distributor network goal…control; whether the distributors want to play along or not.
Now MillerCoors has been much more careful with their brand names. Sure they do things with Genuine Draft… but let’s get real. That’s not much of a risk for them. For them the big dogs would be Coors Light and Miller Lite. They (or Miller) have put the Miller name on various products (and might be planning to do it again soon) but the Miller brand name is not remotely the Budweiser brand name. Or at least that’s my read of the marketplace.
MillerCoors is rather attempting to build completely new brand identities based on differentiation within the portfolio. In some ways this makes sense especially when we are seeing an explosion of new craft - and crafty ;-) brands. People are trying new things… looking for new tastes, new emotional bonds… so customer trials should be pretty high. And perhaps those hapless consumers will be fans of the product before they discover it is really brewed by MillerCoors. And of course once a few of these brands are successful, they provide new avenues for THEIR own line extensions. Over the course of a decade or so, this “multiplier affect” could prove to be substantial. So one could go with a new brand building strategy and then roll into a line/brand extension strategy to capitalize on these successes – assuming there are any successes ;-)And of course there is that old saying, “don’t put all your eggs in one basket”, so there is perhaps some strategic protection from these multiple new brand platforms.
But ultimately I think the different strategies reflect the different realties ABI and MillerCoors face. The strength, breadth and reach of their brand names are as diverse as their brand strategies. Their power (and space) at retail is simply not the same. Just think of the strategic impact of space at retail. In many high market share markets, one could argue ABI has too much space for various brands. These line extensions allow them to keep this space/handles (and from their perspective, hopefully grab more) rather than allowing the competition to make the argument to cut their space. MillerCoors on the other hand generally losses the space battle (this is the definition of a zero-sum game). So if they do a line extension, is the retailer more likely to demand that they squeeze it into their present space? Or if they come with a new brand, are they more likely to take some of that “extra” space from ABI? There are a lot of moving parts in these analyses.
MillerCoors long ago accepted the wisdom (or is it the reality, whether they liked it or not?) that they are best served in a multi-brand distributor. AB and then ABI have never accepted this (nor do I expect them to do so in the near future).
The importance of supplier/distributor alignment
The best strategy always is based on the realities one faces. These two face different facts on the ground (and different goals via distribution) and thus their individual strategies for brands (and many other things) will by necessity be different. Only time will tell which is the “best” strategy. My guess is that both will be successful. This isn’t an “either/or” situation.
Work hard my friends, stay the course....THE BEST STRATEGY WILL ULTIMATELY BE THE ONE THAT GAINS THE BEST ALIGNMENT OF THE THREE TIERS TO MEET CONSUMER NEEDS. Don’t forget who is driving the bus!
As a side note, I’ve heard from many ABI distributors that they do like some aspects of ABI’s brand creation. In the past AB would study the hell out of some new product idea before they even considered taking it to market. This created a lumbering process where new brand introductions were very slow (and costly). Under Brito and company they do a quick study and if the results look good, they roll. Saves money, gets the product out there for the consumers to decide, and keeps “their” distributors hopping on THEIR products. Pretty good strategy indeed.
Would Krusty approve? I think he would give it a hearty, “HEY HEY!”.