Saturday, June 13, 2009

On Gulder, Brand Equity and Extension

By Olu Akanmu

The news that Nigeria Breweries (Heinekens subsidiary in Nigeria) is withdrawing GulderMax, an extension of the Gulder Brand from the market offers some important lessons on brand equity and line extension. The M2 Magazine, a Nigeria leading marketing management weekly recently broke the news and did some analysis on the subject, essentially concluding and applying the Al Ries principle that brand extensions typically are bound to fail. It opined that the GulderMax saga is validation of the Al Ries principle. While one will agree with this principle to a large extent, it is also important to note that the principle remains one of the most controversial among marketing practitioners. The history of marketing is full of many extensions that had succeeded as well as those that have failed. The GulderMax saga provides us an opportunity to look at these issues again. Without traveling far away from home in Nigeria, we have in the same alcoholic beverage industry, the successful extension of Guinness Foreign Extra Stout to Guinness Extra Smooth by Guinness (Diageo Nigeria). Guinness Extra Smooth is a lighter stout to reach those who would have found the Guinness FES too strong and rough and will typically drink a good premium beer. GulderMax was a stronger, higher alcohol, darker beer to reach typical stout drinkers who want a stronger, and rougher alcoholic beverage and will consider a typical beer too light and less macho. Why was the Guinness Extra Smooth Extension successful and GulderMax was otherwise? The two extensions from the arch rivals in the brewery industry in Nigeria offer some important context analysis for brand extensions and potential success. I distill the contextual issues in five lessons below.

Lesson 1: Only Strong Brands Can Successfully Extend Themselves. You cannot give to an extension what you don’t have as a mother brand.
The Gulder brand of today is much different from the Gulder that we used to know ten years ago. A lot has happened to Gulder in the last ten years that questions the “ultimateness” of its brand claim. The “ultimateness” of Gulder seems to have been more questioned internally within Nigeria Breweries than from its corporate competitors. Nothing expresses this more than a recent “Heineken” billboard with the big single –minded copy “Chairman”. Take out the entire Heineken picture and replace with Gulder, on that billboard, it could have been the Gulder billboard of 1990. Gulder used to be the “Chairman”, and other brands like Star were the members of the board. Gulder was the hero, the leader, the premium, the “Ultimate”. It is no longer so with Gulder. Even before Heineken in the early 2000s, the “Star” beer carried a coup d’├ętat against the “Chairman” by launching a new premium international bottle before Gulder. The Star brand consolidated its coup d’├ętat by putting itself in a limousine belonging to the Chairman and rode into the city like a SuperStar. It was good for Star but it was not good for Gulder.
In essence, the “ultimateness” of Gulder had become questionable and its extrinsic (lifestyle) character has become amorphous. Its equity had become diluted and weak, yet it sought to extend itself. The result with the benefit of hindsight is largely predictable. An extension out of a weak Gulder is unlikely to be strong.

Lesson 2: If you want to determine the Strength of a Brand and its potential to extend, look at the strength of the brands in the category you want to extend to. Compounding the GulderMax challenge was the fact that it sought to take on the very strong “Authentic” Guinness Stout in its territory. It did not matter if GulderMax was attacking the outside flanks of the Stout category. The Guinness Stout fortress was too strong. Guinness launched the 1759 campaign. It first campaigned its authenticity in huge capital letters on billboards that it has been the original stout since 1759. It followed with a contemporary lifestyle expression of the modern stout drinker who is not the old stereotype physical macho stout drinker, but a young corporate executive meeting his friends for drinks at the bar, after work at six o clock. The launch of the Guinness Extra Smooth, the lighter stout extension, was part of the Guinness defensive game. The fortress built against GulderMax by a strong Guinness range of brands was just too strong.

Lesson 3: Depending on the defining character of brand, it will look like it is easier to extend down, (though with significant risk of equity dilution of the mother brand,) than to extend up. Which one is easier to do, a cheaper form of Peak Milk to target the low premium milk market or Cowbell Gold extending upwards from the low premium milk category? If “high-ness” is the defining character of beer, it will look like it is easier to extend into lighter beer than to stronger beer. That seems to be one of the differences between the Guinness move and the Gulder move. Toyota in creating the Lexus range recognized that “quality” at the topmost end of the car market is expressed differently as Luxury which Toyota cannot express. It did not go into the luxury category as an extension but launched a different brand. If the value proposition is distinctively different, a new brand to express the new value proposition single-mindedly may be better than a brand extension. This brand will however need a lot of investment. This perhaps is the role of the Legend Stout in the Nigeria Breweries portfolio.

Lesson 4: For products and categories where the purchases are done on an emotional level, a clear expression of extrinsic character of a brand is critical to unlocking the value of its intrinsic character. While Gulder has done a lot to show its strong intrinsic character as a quality beer through a series of its “Extra-Matured/ Great beer” campaigns, it might not have fully harnessed the benefit of this intrinsic quality because it is not linked to a resonating extrinsic character and claim with its target market. The extrinsic character of Gulder has become amorphous. The man of style, the modern cosmopolitan hero is no longer very visible in its brand identity. It is this modern cosmopolitan man that knows and buys the great ultimate beer, and drink it as badge to who he is. Without the clear visibility of this modern cosmopolitan hero, the intrinsic quality claim of Gulder might just have been standing on its own.

Lesson 5: International alignments of brand portfolio may sometimes compel the change of roles of brands within the company portfolio, sending pearl attackers to the mid-field and sometimes the side-lines. This may not always be visible to those outside the company.
The “Chairman” today is not even Star anymore. It is Heinekens. It is the right thing for Heinekens as a global corporation to ensure that its country and local market portfolio conform to its global portfolio. Without this, its marketing spend at the global level will be largely sub-optimized. The Gulder Ultimateness might have been a victim of the Heineken global portfolio strategy. It is nothing to be sentimental about. Heinekens did the same with Amstel when it took over from it as the sponsor beer for UEFA Champions league. Amstel’s portfolio role became re-defined. This is what Gulder is perhaps going through today. For Heinekens and its Nigeria subsidiary, the Nigeria Breweries, as long as they ensure that beer drinkers who seek premium quality and Ultimateness, (even if they leave Gulder ), go for Heinekens, and even pay a higher premium for its international stature, their cash machine will keep ringing louder and louder.

Olu Akanmu
June 2009

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Demola Olusunmade said...

I respect Al Ries but I find a number of his immutable laws very controversial and somewhat mutable. They however set a good agenda for marketing discourse of this nature. Panadol extended to Panadol Extra, did and is still doing well. Its easy to point to these successes as exceptions rather than the rule but I think the mortality level recorded by extended brands is similar to that of new brands. The key point is to avoid extending into a strong number one's territory. I think Panadol Extra wouldn't have been this successful if the likes of "Alabukun" had not been mismanaged to their death. Eventhough Alabukun was aspirin based against Panadol Extra's Paracetamol and caffeine, the average DE SE class consumer which both targets only know a strong pain reliever and not the active ingredient. To them, Panadol Extra is a good alternative to Alabukun.

I also think brand extension succeeds in varying degrees, depending on the level of consumer purchase involvement. Where a product goes thorugh a chain of decision parameters (technology products for example) people tend to look beyond the brand names and dig further into what's in it for them. That is why General Electric can be GE on a light bulb and still be GE on a dishwasher, an electric cooker, brain scanners and aircraft engines. Same goes for LG, Panasonic, HP, Microsoft etc. At the other end of the ladder are products with low purchase involvement. OK sweet is OK sweet, the brand started out by being deliberately (or accidentally) amorphous so it can offer any variety of candy brands under the OK name and still be relatively succesful. Compare this with TomTom which was built on a mono-flavour menthol platform. Vicks Menthol's "Baba Blue" is another success story in this category.

Heneiken's global strategy sounds good on the face of it but I think global brands still owe their local brands and consumers some soft landing in their attempt to align local brands with global positioning. Heneiken may have become the chairman today to Gulder's detriment but someone should have taken the economic circumstance of the average Nigerian into consideration before taking that decision. Heneiken may do well amongst the social elite and upwardly mobile beer drinkers, but Gulder will mostlikely remain the preference of the C1C2 who form the middle critical mass. I think the average Nigerian Gulder person will also somewhat feel betrayed that a new chairman took over without "consulting" the "shareholders" or putting their feelings into consideration. Nigerian Breweries can get away with this since there's really no brand of comparable stature in the premium beer market. After the Satzenbrau fiasco, Guinness Nigeria practically abandorned that sphere and dangerously left the beer market to Nigeria Breweries (or so it seems to those of us looking from the outside). Nothing spectacular seems to be happening with Harp eventhough the inside vibe is that the brand is practically struggling to meet up with consumer demand.

I still believe that brand extension is not inherently wrong or suicidal as Ries will have us believe. The challenge is to be careful not to want to take on someone (brand) whose stature is overwhelmingly dominant in an attempt to upscale, or alienate your critical mass in an attempt to downscale.

Demola Olusunmade

Olakunle Arofin said...

This is quite an interesting read. Thanks for this, here are a few comments from me. For full disclosure I am ex-Diageo and Guinness Nigeria, so the Gulder guys used to be the enemy.
It is interesting to look at the Nigerian beer market in retrospect and also with the knowledge of the consumers in the market. I am sure a lot has changed but the majority would still be the same.
taking your points one at a time:
1. Ultimateness: Gulder appears to have been undermined with Star due to the nature of Brand financing. Whilst Gulder is owned externally, Star was mainly African. What this means is that royalties are paid for every bottle of Gulder and Star sold. Where the brand is African you can expect the royalties to be lower than an internationally owned brand. It therefore made more sense to sell more Star as the company would get to keep more of the money. Undermining of Star and Gulder by Heineken is a different matter and I believe you got it right in your final point. Sometimes we have to sacrifice the castle to keep the king alive.
Another point to raise here is risk aversion. We tend to be afraid of extending strong brands for fear of diluting the strength whilst the reverse is true when the brand is not so strong. This seems to go against logic but in truth no one wants to risk killing the goose that is laying the golden eggs. When it becomes an old layer we start relishing the taste of the thighs.
2. Extending into another category: this is a risky play. There have been many in history, even the great Guinness once tried a Guinness Lager to leverage it's strength - didn't succeed. Truth be told the same Guinness Extra Smooth that is working so well in Nigeria failed in Ghana. Sometimes we need to understand the market dynamics and also BE FIRST. In Ghana it came after Castle Milk Stout and ended up looking like a me-too despite the statute of the Guinness brand.
Now, The Gulder Max proposition was built on a similar play in South Africa where a stronger lager brand was introduced and took the market overnight. I dare to say that Nigerians are not big drinkers. I have never in my life heard Nigerians boasting about going out to get drunk or pissed as the British would say. This is common in Kenya and South Africa. We are 'social' drinks. We drink for the fun of socialising. I have seen young men beat up their friend for getting drunk and 'embarrassing' them by throwing up. We like our clean image. I have also learnt from a previous brand that tried to go this route and failed. In 1995, I led the research into the 'Gulder killer', Satzenbrau. We so wanted to kill Gulder that we decided to offer more alcohol (it was 6% versus Gulder at around 5.2% then) and more of the alcohol (it offered 65cl versus Gulder at 60cl). Everything in terms of Marketing was fantastic. The Final Word had the NBL guys scared but then came complains about headaches and hang-overs. It was just too much. Could it have been done differently? That is for historians and academics but it FAILED! Gulder obviously felt the market had grown since.
Globally, the image of the careful, well-groomed metro-sexual is gaining currency everywhere. Gulder must have felt Nigerians are not catching onto it.
3. I agree totally with your points here.

Olakunle Arofin said...

4. Emotional hook: Star succeeded with 'Cold Filtered' because it was combined with the bottle change and it was a damn good beer. Every beer is cold filtered in Nigeria and has been for ages but he who claims it first owns it. The problem was how to repeat this success for Gulder. Whilst 'Extra Matured' sounds good it seems to hang in the air as far as consumers are concerned. Add to that the fact that Star now seemed to be for the Upwardly mobile, young and dynamic man, Gulder was gradually relegated to being for the oldies, The guys in the exclusive section of the Big Social Clubs.
I believe we have an issue in Nigeria of managing more than 1 successful brand in most organisations. I would like to be corrected but very few companies have 2 or more successful brands and by successful I mean growing and not at the expense of each other.
5. International Brand Status: Heineken will remain the top priority for a long time to come. The aim is to make it the number 1 brand in Nigeria and tick one more market in which it is growing. With the pressure in Europe and the Americas, Africa has to stand in the gap for the declining volumes. No one in Amsterdam or Dublin is really interested in your local brands apart from the revenues they bring. When it comes to brands, they have and will always look after number 1: Their brand. I have seen enough local brands and brand ideas die at that altar to know this will not change anytime soon.

Once again, a pleasure to engage on this topic.

poeticallytinted said...

I found this article really insightful and brilliantly written. It read like an excerpt from one of those "MBA in a book" kind of literature. However, I idly wondered if this was not inspired by the benefit of hindsight. I am certain the makers of GulderMax had a resonating argument at the time for pushing the brand forward. If we (by "we" I mean you or I or any market strategist) had been involved and faced with this would we have done it any differently? I suppose though, that's what case studies are there for. To learn from others mistakes and successes.

Tokunbo said...

An interesting article. In the final analysis the true owners of any brand are the consumers. And as long as the brand stays "loyal" to its consumers they will remain loyal to the brand. Premium brands built largely on emotional benefits and connection with consumer tend to be very difficult candidates for extension. More especially when such brands own specific positions in the mind of the consumers. Any attempt to extend the brand with a different value proposition will be seen as a completely different offering and often times rejected. Carefully thought out and well executed extensions around the core property that the brand owns in the mind of the consumer increases the likelihood of success of the extension. Inward looking and overtly optimistic assessment of a brand's equity is always a recipe for failure when considering an extension.

Deocess said...

A very good analysis you've done here. Just like you said, Al Reis principle is controversial and does not always hold.It depends on the circumstance. Brand extension could be dangerous whichever direction you head towards. If you upscale, you stand a risk of incuring the wrath of the the market leader and if you downscale, your brand might be diluted. Brand extension within the same category might just be safer or to a higher category where there is no clear leader. In my opinion, it wasn't Gulder max that killed Gulder but Star lager.The rebirth and subsequent hyping of the Star brand, seriously undermined Gulder.The result is what we are seeing now.It may have something to do with the politics around paying royalties, but only NB insiders can answer that.Gulder Max just made things worse for the brand. On Gulder Max, I had a strong feeling from the word go that it was going to crash like the old Satzenbrau did. My reason: they were both based on the same premise that Nigerians view drinking of high alcohol content beers as a sign of masculity. This is not necessarilly so. In Nigeria, I have noticed that any increment in ABV above the standard 5.5% is less important than the beer volume. It could even be detrimental. That is the reason why smaller beer bottles hardly sell in Nigeria(Foreign Extra stout is an exception here). Laying claim to beer drinking prowess around here is not usually about the alcohol content but the number of big bottles(volume) one can consume. That's the reason why people tend to drink beers with higher ABV in excess and ending up with big hangovers.Three bottles of Gulder and three bottles of Gulder Max are not the same and many people don't know that. On Heineken, i believe it will continue to be a premium brand with high contribution margin and low annual sales volume. It will not directly cannibalise Gulder. Instead, Gulder will continue to be canibalised by Star and other competitor brands in the same category like Harp etc, if NB does not do something urgent to re-invent the brand. It is a pleasure to be part of this discourse and I appreciate all the comments made by other contibutors. I hope to be back again.Thanks.

Sade O. said...

The prospect of driving incremental category growth and revenue is typically the reason why most marketing companies embark on the risky venture of brand extension without counting the cost and in most cases serves as the primary reason why most brand extensions fail.

Evidence abounds that nearly 70% of new product launches fail within the first six to twelve months of introduction bringing along with them a myriad of problems like hidden cost increases, a damaged brand image and worse still - a severely undermined brand loyalty.

In spite of these obvious disadvantages, many marketers hardly query the rationale behind their product line-extension strategies but perceive it as a shorter and easier route to market and a low-cost alternative to serving the needs of various customer segments using one single brand. The result is that the marketplace today is littered with so many products- all competing in the has-been and also-ran category with hardly a memorial stone to remind consumers that they were once the toast of the market.

Several factors may account for the reason many companies pursue line extensions as part of their marketing strategies – they perceive they know what customers want and are inclined to pursue new product innovation on this premise without the benefit of hindsight or a thorough understanding of the strategic role the brand plays in the first place and because they hinge their business objective on short term gain rather than long term planning and brand building, the result is often an increase is often a sustained collateral damage to the brand’s equity and persistently dipping revenues.

A second factor is the lure of easy profits. Next to sales promotions, line extensions provide the quickest and most effective way to shore up declining sales. This aggression is often spurred by pressures from the trade and most times, a sharp reaction to the aggressive onslaught posed by competitors. Many managers will, in their bid to gain short term sales and outdo their competitors refuse to painstakingly research their marketing objectives and understand the pitfalls inherent in indiscriminate product proliferation neither will they seek to understand the logic of investing in a well managed product line to reduce the risks of market fragmentation and the damaging effects to overall product profitability.

An additional factor may include the desire to improve operational efficiencies with structural adjustments to existing production lines and adaptation of current products. This may result in excess capacity and thus provide sufficient reason for the introduction of new SKUs. Sadly many of these new products fail primarily because they are often a little more than filler products that end up being the least profitable- contributing little or nothing to the bottom line but bringing about significant increases in production and packaging costs.

If the truth be told, line extensions do not necessarily increase demand. If demand is limited within a product category, any additions to that category will remain insignificant. It will cannibalize the existing parent brand by encouraging consumers to switch to alternatives thereby whittling down the overall impact, profitability and equity of that brand.

The temptation to stretch a brand’s equity to full advantage is great but the consequent dilution of its essence and erosion of its credibility hardly makes it a worthwhile venture. Managers should instead focus their energies on building strong brands with a genuine value proposition and an immutable brand promise. Only with this can a company successfully reinvent itself and provide the much needed bulwark against the activities of competitors.

Thanks for another great and inspiring article!

Elikplim Dzrekey said...

i find article very interesting but could it not be seen from this anglr too;
1. its not alwways easy to extend down, referring to the case of Guinness extra smooth, contrary to the Nigerian senario, Ghana was a flop because SAB's Castle could not allow extra extra smooth to encroch its turf hence created a perception to the target market as it being a watered down version of the foriegn extra stout.
2. GulderMax could be an exeptional in terms of loosing its ultimateness, my reason being that Gulder is placed as a local premium brand unlike star which is mainstream, it percieved that lager drinkers are promiscuous hence could reflect in their purchase patten since premium comes with extra value.
3.Must a brands potential to expand depend on its strengh and rather not the market or consumer needs and preferences. i stand to be corrected but i think innovation in reference to product line succeed mostly by chance within the 6th to 12 month and not strengh.