Mktg - Risky branding ploy of beverage companies

When Pernod Ricard stumped up £4.4 billion in April to buy Sweden’s Vin & Spirit, owner of the Absolut vodka brand, managing brand extensions moved to the top of its agenda. After all, drinks brands have, historically, used fresh flavours both to increase a brand’s visibility and maximise shelf space.

However, Pernod Ricard managing director Pierre Pringuet has warned that a core brand risks diluting its image if the range evolves its flavours too much. Absolut is far from alone in grappling with one of marketing’s biggest dilemmas — deciding when a brand extension has gone too far. Drinks companies are in good company in their reliance on extensions to boost sales and awareness — brands as diverse as Ferrari and Cosmopolitan have launched or endorsed products in areas beyond their core market. In the highly competitive drinks sector, extending brands into a growing number of variants has become a primary weapon in securing lucrative shelf space. Even Red Bull, once the shining example of a purist one-product brand, has branched out with a cola-flavoured variant to sit alongside its existing low-sugar offering.

Harry Briggs, co-founder of Firefly Tonics, which recently launched a range of waters, believes it is essential to approach extensions with caution. “If you look at some of the strongest mega-brands around, such as Intel, they tend to be known for doing just one thing very well.” However, he argues that this does not automatically make innovation unwise. “There are an awful lot of people who go to the drinks chiller looking to try something new, and new variants really capture this market.” Launches also provide a brand with lucrative PR coverage, a reason to talk to their suppliers and a new marketing platform.

Putting lots of variants on the shelves has become more widespread. One independent retailer says that when Coca-Cola launched its Glaceau vitaminwater range, a far bigger discount was offered for taking every variant therein, giving the brand all-important standout in the chiller. This tactic has long been employed in the confectionery market, notably by Cadbury, which created abundant variations of its Dairy Milk brand, creating a standout ‘purple patch’ on supermarket shelves.

Nonetheless, this branching-out strategy is not without its risks. Retailers complain that some of the major soft-drinks firms have relied too heavily on flavour innovation to prop up fundamentally ailing brands; Tango is a case in point.

Dorothy MacKenzie, director and co-founder of Dragon Brands, says the extensions that work best are those that support the values of the core brand. “The likes of extensions from Nivea and Olay are successful because they make the original brand appear more exciting.” This, she argues, is the flaw in Tango’s model. “With Tango, the variations have drawn value from the original brand but not added to it. Consumers inevitably forgot what the original Tango brand was all about,” she says.Another challenge facing drinks brands is that by establishing a new variant often they simply cannibalise their existing products rather than attracting additional consumers or adding to distribution points. This was a charge levelled at Coca-Cola following the launch of Coke Zero: rivals claimed its growth came at the expense of the core Diet Coke brand.

In response, many brand extensions are focused on moving into other areas within their sectors, with premium offerings such as Johnnie Walker Blue Label, while Smirnoff has entered the ready-to-drink market with pre-mixed cans of Smirnoff and cranberry juice. Pimm’s, meanwhile, sales of which are linked to the weather and the British summer, broadened its seasonal appeal with the launch of Pimm’s Winter in 2004.

Lucy Unger, managing partner of Fitch, says that the drinks market is driven by product development, which differentiates it. “There is possibly an over-reliance on flavour development, but these aren’t brand extensions in the truest sense of the term — it is simply brands responding to fashions such as the growing popularity of superfruits such as pomegranate,” she adds.Steve Cooper, marketing director of Feel Good Drinks, points out that while diversifying into other flavours under the same brand is a good idea, it is vital not to take your eye off the core brand. “Our first range, which has three flavours, is still our biggest-selling. We only extended into carbonates once we had established the core brand,” he says. Key to this was a gap in the market for healthy carbonated drinks. “Consumers want choice — but you need to ensure a genuine market is there.”

As in most things marketing, Tesco is often cited as a leading example of the successful brand-extension model. It has broadened its offer into a number of areas of consumers’ lives - from car insurance to fashion. Ironically, it is Tesco and its ilk that are now putting the brakes on brand extensions in the drinks market — the growth of ownlabel means shelf space is limited, leaving smaller brands struggling to gain exposure.

Anand Gandesha, marketing manager for offtrade at Cobra, says brands’ biggest challenge is gaining shelf space. “When we embark on the innovation process, we undertake extensive research and due diligence to maximise our chance of success on the shelves,” he says. With successful innovation including Cobra Bite — fruit-flavoured lagers aimed at women — Gandesha is focused on creating additional purchase opportunities.

“Marketing purists believe a brand should be known for one thing, and we had a big dilemma when we launched our antioxidant waters over whether to launch a new brand,” says Firefly’s Briggs. Ultimately, Firefly chose not to. A similar path was trod by Innocent when it launched its This Water range.It is clear that building on existing brand equity is often more cost-effective than launching a standalone brand. However, when additional products dilute and divert attention from the core brand marketers should ask whether this is a price worth paying.