Many popular brands are actually part of larger brands. One popular brand owned and operated by a larger brand is Quaker Oats, which was acquired by PepsiCo in 2001. Although a soft drink company operating a brand known for oatmeal and other breakfast products might not initially seem logical, doing so can actually be a savvy business move. Operating multiple, diverse brands as a business strategy is known as the brand portfolio strategy.
A brand portfolio is a collection of distinct brands operating under one larger corporate umbrella. While each of these brands maintains its own operational structure, they benefit from shared resources and cross-promotional opportunities with other brands in the portfolio.
Building a brand portfolio has numerous advantages. These include:
- Getting a company into many different markets
- Connecting with diverse consumer markets
- Making cross-promotion between brands simple
- Building newer brands’ credibility by associating them with established brands
However, there are a few potential drawbacks to building a brand portfolio. Adding new brands to a portfolio can divert time, money and other resources from existing brands, causing resources to be spread too thin to be effective in any brand. A key part of brand portfolio analysis is determining whether the advantages of acquiring new brands to a portfolio will outweigh the potential drawbacks of doing so. Purchasing an existing brand is expensive, as is rebranding it to make it fit the market’s needs better.
There are two types of brand portfolio model. One is the House of Brands model and the other is the Branded House model.
Under the House of Brands model, the brands within a portfolio are distinct from each other and operate independently. In many cases, consumers might not even realize that two brands are part of the same portfolio because there is little or no mention of their shared ownership in their publicly available materials. Nestle uses the House of Brands model; globally, the company operates more than 2,000 distinct brands, including DiGiorno frozen pizza and Purina pet foods.
Under the Branded House model, every brand within a portfolio retains a connection to the primary brand while operating as its own brand. An example of a company that uses the Branded House model is Federal Express, which operates FedEx Ground, FedEx Freight, FedEx Office, FedEx Trade Networks and FedEx Express.
Some companies use a mixture of the two recognized brand portfolio models. This model is sometimes known as the Hybrid House model and despite many considering Nestle to use the House of Brands model, certain brands within the Nestle house do bear the primary company’s name. These include Nestle Toll House and Nestle Crunch and with these brands in mind, some consider Nestle’s strategy more of a hybrid than a true House of Brands strategy.
Another famous company that uses the Hybrid House model is Microsoft. Although Microsoft operates numerous brands under its name, like Microsoft Office and Microsoft Azure, it also operates the more independent Xbox brand.
Regular brand portfolio analysis is necessary for any company to successfully operate multiple brands. Brand portfolio analysis is more than assessing how each of a company’s brands is performing; it requires regular assessment of the markets in which the company operates and those it would be strategic for the company to expand into. When PepsiCo acquired Quaker Oats, it did so to acquire Quaker’s sub-brand Gatorade and follow the market’s trend of favoring sports drinks over sodas.
Other considerations to make when developing a brand portfolio strategy are:
- The market’s needs, what consumers need and how they satisfy these needs
- How existing brands in the portfolio can be differentiated
- The role the prospective acquisition will play in the company’s portfolio
- The company’s risk tolerance and the riskiness of the proposed acquisition
- Whether acquiring a new brand can potentially hurt existing brands in the portfolio