The Best Way to Name a New Product

The Best Way to Name a New Product
The Best Way to Name a New Product

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Resumen:

When an established consumer-packaged-goods (CPG) company introduces a new product, it faces a potentially make-or-break decision: how to brand it. Tying it to an existing brand (as was the case for Cherry Coke and Avon Hand Lotion) is tempting. Customers are more likely to try a new product with a familiar association, and companies have to expend fewer marketing resources to launch it. But the strategy has risks, too: Weak or failed brand extensions can harm the parent company. When the maker of Coors beer introduced a nonalcoholic beverage, Coors Rocky Mountain Spring Water, customers were confused, with some wondering about the alcohol content of the beverage. Sales of both water and beer suffered, and the new product was ultimately discontinued. A new study can help companies make the right branding decision—and shows that those who do will be rewarded with higher returns.

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When an established consumer packaged goods (CPG) company introduces a new product, it faces a potentially make-or-break decision: how to brand it. Tying it to an existing brand (as was the case for Cherry Coke and Del Monte Tomato Sauce) is tempting. Customers are more likely to try a new product with a familiar association, and companies have to expend fewer marketing resources to launch it. But the strategy has risks, too: Weak or failed brand extensions can harm the parent brand. When the maker of Coors beer introduced a nonalcoholic beverage, Coors Rocky Mountain Sparkling Water, customers were confused, with some wondering about its alcohol content. Sales of Coors water and Coors beer suffered, and the new product was ultimately discontinued.

A new study can help companies make the right branding decision—and shows that those who do will be rewarded with higher returns. “A strong existing brand is a strategic resource for managers wishing to introduce a new product,” says Boston College’s Larisa Kovalenko, one of the authors of the study. “But they must be careful not to kill the golden goose.”

The researchers examined nearly 20,000 products introduced by U.S. CPG firms from 2000 to 2012. They determined which of three branding strategies had been used: new brand (an entirely original name, as when Coca-Cola launched Dasani bottled water), direct extension (an existing brand name plus a descriptive word or phrase: Tide Washing Machine Cleaner), or sub-brand (an existing brand name plus a nondictionary or nonspecific word or phrase: Olay ProX, Arm & Hammer Complete Care). By analyzing the new products’ performance and their companies’ financial returns, the researchers identified five product and firm characteristics that guided the most successful branding choices.

Fit with the company’s other offerings.

When a new product doesn’t tie in naturally to an existing brand portfolio, customers may become confused or put off if that product uses a familiar brand name, as happened with Coors Rocky Mountain Sparkling Water and another short-lived beverage, Frito-Lay Lemonade. In cases of an obvious mismatch, managers would be better off creating wholly new brands. That’s why the Coca-Cola Company introduced its noncarbonated sports beverage as Powerade.

Innovativeness of the new product.

Innovation is inherently risky, and so companies bringing out a truly novel product generally should use a new brand to avoid imperiling their existing one should things not pan out. Unilever introduced Persil Power—a detergent with a special cleaning formula—in Britain in the 1990s, positioning it as a sub-brand of its popular Persil detergent. However, customers using hot water in their machines discovered that their clothes were falling apart after being washed with the new detergent—something Unilever hadn’t foreseen because it had done most of its testing at cooler water temperatures. The firm recalled the product and abandoned it, but not before damaging the reputation of its flagship detergent.

Conversely, when an innovative product has an entirely new name and enjoys commercial success, it becomes an asset that can be leveraged with appropriate brand extensions down the road.

The breadth of the existing portfolio.

When a company owns many active brands, odds are it can find a good fit for a new product and so should favor a direct-extension brand name. “If you are Procter & Gamble, you will find it much easier to tie a new product to an existing brand than a company with only a few options to choose from,” Kovalenko says.

The risk of brand dilution.

Some companies introduce so many products under one brand that the brand loses its magic. Consider how the luxury brand Pierre Cardin overextended itself. After successfully moving beyond fashion into perfumes and cosmetics, it started losing margins, revenue, and brand equity when it extended into numerous unrelated categories, introducing, for example, Pierre Cardin baseball caps and cigarettes. The researchers also point to Virgin Group, which has been criticized for unclear brand positioning and a lack of focus owing to its several dozen sub-brands in categories including record labels, cruise lines, retail banks, telecommunications, and airlines.

Amount of advertising funds.

Firms lacking the resources to provide strong advertising support should avoid the capital-intensive task of building a brand with an entirely new name. Well-resourced firms can be bolder, as they stand a better chance of getting a new-to-the-world brand name off the ground.

Analyzing the brands in their study, the researchers calculated that companies that followed the guidance of the five principles when branding a new product saw, on average, a 0.18% increase in stock market value in the five days around the product launch—which for large firms translates to as much as $26 million in shareholder value. Firms whose new products deviated from the guidance saw no increase around launch. Tracking Tobin’s q—a measure of long-term performance that compares the market value of a firm to the replacement value of its assets—the researchers found that firms that followed the guidance did better in that regard as well. “While the branding of an individual new product could be seen as a minor corporate action, our research demonstrates that…these decisions significantly impact the stock market value of firms,” the researchers write.

None of this is an exact science, Kovalenko cautions. For instance, managers must use their judgment to determine whether a product is a good fit with their firm’s existing brands and what constitutes a “sufficient” advertising budget. And branding decisions involve balancing sometimes competing factors. When PepsiCo developed a protein-rich energy drink, in 2006, the product was in theory a nice fit for several existing brands (such as Gatorade), suggesting that a brand extension or a sub-brand would be a good choice. But managers went with a new name, Fuelosophy, presumably because they felt the product was innovative and could be supported by their formidable advertising war chest. The beverage ultimately failed to take off, demonstrating one reason to give a highly novel product a name unrelated to core brands.

The study’s findings obviously don’t apply to firms that use a single brand, such as Sony and Patagonia. They’re also not relevant to private-label brands, which have unique dynamics. And the researchers discovered that market leaders appear to have more leeway to make suboptimal branding decisions without imperiling the parent brand. But that leaves 90% of the world’s CPG companies—and for them, the research promises to bring structure and rigor to a highly consequential choice.

About the research: “ What Brand Do I Use for My New Product? The Impact of New Product Branding Decisions on Firm Value,” by Larisa Kovalenko, Alina Sorescu, and Mark B. Houston ( Journal of the Academy of Marketing Science, 2022).

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