The fracas over at Pepsico as to whether the company should continue to operate a diversified platform or free the snacks division to pursue its goals independently is a reminder of the ongoing debate over diversification vs focus.
It’s not hard to see why diversification has its advocates. Operational synergies make for a more efficient organisation potentially while diversification into other categories, particularly related categories, allows consumers to get more of and from a brand than was available previously. That’s clearly Indra Nooyi’s view. Snacks and drinks belong together.
Diversification also spreads risks, allowing brands to absorb downturns in one area without putting everyone into a tailspin. Again, that strategy appears to be working for Pepsico with the Frito-Lay division helping to maintain company performance in the face of a sustained hammering from arch-rival Coke and a general downturn in the carbonated drinks sector in the developed world over growing health concerns.
The brand case for being singular
But is the age of the single minded brand (with its single minded proposition) over? What’s the brand case for being singular – and what does it take to get it to work well? Here’s five reasons why I believe some brands should still look to lean this way:
No distractions – Focusing on one category in fast-changing markets allows brands to keep their eye on the one rapidly ricocheting ball. Coke continues to move deftly and confidently in response to significant changes in beverage demands because the beverage markets and soda drinkers are the centre of their attention. According to this article in Forbes, Coca-Cola derives more than 70% of its revenues from sparkling beverages, whereas PepsiCo generates more than half its revenues, and more than 60% of company value, from its snacks business. Coke can channel resources in one direction and use past learnings in other markets to model expansion and receptivity.
Ironically, focused brands must cater to universal needs
To work though, especially for scaled brands, the focused brand must cater to a big need – and to do that effectively, the brand itself must be locked into delivering on an idea that has universal appeal. Twitter is as focused as it gets. It works because it’s now ubiquitous with something the whole world loves. Chatting.
Deep rather than wide – Focused brands have the opportunity to explore all the nuances and possibilities of their sector and to tune their in-depth knowledge to delivering products that click with what customers are looking for. Those insights can give them a real edge over their more generalist competitors. They have the potential to tap and develop the market they know so well and may even have helped define. Starbucks is synonymous with coffee (and it got into huge trouble when it forgot that). Red Bull has huge share-of-mind in the energy drinks market. Both use their knowledge of their area to clear advantage. That knowledge establishes these brands as synonymous associations in the minds of many consumers and gives them the ability to combine single-mindedness with footprint to combat convergence. Their singular platform also gives them a strong and clear sense of purpose. Red Bull chases excitement in everything it does.
Simple’s back. According to a report by Siegel and Gale, consumers are willing to spend at least 5% more for brands they perceive as simpler, and 75% of people are more likely to recommend a brand because it provides simpler experiences. This correlates well with research showing that customers are looking for effortless rather than wow! In a world filled with choices and options, there’s a big swing to straight-forward. And a single brand in a single category with a singular point of view is as simple as it gets.
Greater urgency – Higher risk impels focused brands to act more quickly to correct mistakes and maximise opportunities, in theory anyway, because there is no fallback position and no outside support. They thrive and die on what they do. (Equally though, they can be more vulnerable because they don’t have a multi-layered, multi-offer structure around them.) I don’t necessarily buy the argument put up by some that cutting a brand free means it will automatically be more agile but I do think that, with the right leadership, it can encourage the independence and individuality that some brand cultures need to act more assertively than they have whilst sheltered beneath the wings of the mother-ship.
A better ability to handle complexity within set channels – Richard Webster of Bain & Company is quoted here as saying that focus works best in big, developed markets that have complex categories and a finite number of retailers, presumably because there is a mix of scale and defined channels that corral people effectively into looking for the brand. In less-developed countries with fragmented retailing, he says, it makes more sense to have a broad product range and a big sales force. Less disciplined and/or developed markets require a wider net.
A focused brand is not an easy choice. It demands responsiveness and a deep engagement with, and understanding of, consumers. It means faster improvement to stay ahead and great channels to retain presence. It requires the discipline to stay simple and the persistence to retain top of mind. But in a world where more and more brands want to sell more and more in more and more places, there’s certainly a case to be made for concentrating everything you have on doing one thing, and variations of one thing, amazingly well.