Brand Extension and Large Companies
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John Parham's article at Fast Company explains a concept, brand extension, that large companies need to understand if they want to keep growing. When a restaurant has thousands of stores around the world, or a consumer product company already has cleaning products in everyone's household, more opportunities to sell the product that made the company famous are limited. Using strong brands to enter new industries is one of the only ways left for these companies to grow. I found a few major companies with brand expansion strategies that could pay off.
Microsoft (NASDAQ: MSFT) made a major brand extension push in 2012 when it shocked hardware manufacturers by deciding to build its own Surface tablets. Julianne Pepitone and David Goldman, at CNN Money, reported that Microsoft even caught its own staff off guard with this move. Microsoft built its brand on business software, but the company's real selling point is that its products make businesses more productive, so the tablet brand extension seems like an effective move.
Church & Dwight (NYSE: CHD) successfully extended its Arm & Hammer brand to create several product lines that make homes cleaner, but now Church & Dwight plans to buy the vitamin maker Avid Health, reports Bloomberg Businessweek. Baking soda does show up in many recipes, but Church & Dwight expanded beyond baking soda by adding toothpaste, cleaning products, and deodorants that aren't meant for people to eat. Acquiring a vitamin company does make sense if shoppers view Church & Dwight as a health company, instead of just a baking soda manufacturer.
Starbucks (NASDAQ: SBUX) extended its brand further into health products with its Evolution Fresh acquisition. Evolution Fresh juice bars retain Starbucks' upscale appeal and convenience, and Starbucks can also produce packaged juice containers to sell at its traditional coffee shops. Lisa Baertlein, at Reuters, reported that Starbucks opened its first Evolution Fresh test store in March. The Seattle test store seems like it worked out well for Starbucks, as Tiffany Hsu, at the Los Angeles Times, reported that Starbucks plans to build a new Evolution Fresh juice factory that will open in 2013. Starbucks does seem like it can capitalize on the juicing trend here, and Starbucks has the resources to roll out a new product quickly if it looks like a hit.
Campbell Soup (NYSE: CPB) could pick up some new customers with its Bolthouse Farms purchase. Campbell already has a very prominent drink brand, its V8 tomato juice, which sold well this quarter even though Campbell's traditional soup sales fell, reported Courtenay Edelhart at the Bakersfield Californian. With Bolthouse Farms, Campbell now has fruit smoothies and chai tea in its lineup. To keep paying out steady dividends, Campbell periodically adjusts its product lineup to fit modern shoppers' tastes, and the Bolthouse Farm acquisition extends Campbell's drink brand and reduces Campbell's dependence on soup alone.
Microsoft's move into hardware has the most potential out of all of these brand extension moves to become a gamechanger, but Microsoft also picked the biggest fight, because the Microsoft Surface has to compete with the Amazon Kindle and Apple iPad. Microsoft does have lots of cash to invest in its Surface tablet though, so this initiative should show investors whether Microsoft can regain its tech innovator reputation. Church & Dwight also made a riskier decision, but health supplements are popular right now, so vitamin sales could also provide some profit growth. Evolution Fresh gives Starbucks another product to sell to people who don't want coffee, and could boost the coffee shop's health reputation. Campbell's brand extension seems more defensively oriented. Campbell doesn't seem like it will get a huge revenue boost from Bolthouse Farms, but the acquisition could help Campbell keep paying out dividends in future years.
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enovinson has no positions in the stocks mentioned above. The Motley Fool owns shares of Microsoft and Starbucks and is short Starbucks. Motley Fool newsletter services recommend Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
