Is your brand struggling to keep up with the latest trends?
You’re not alone. Many established brands face pivotal decisions when shifts in technology or consumer preferences threaten to leave them behind. Do they stretch their existing brand to accommodate the change and risk diluting their core identity? Or is now the time to courageously launch a second brand to remain competitive?
More often than not, introducing a separate brand is the wiser strategic choice, especially when the required adaptation differs significantly from the original. Success stories like Dockers, Lexus, DeWalt, and Sam’s Club reveal the power of differentiation. On the other hand, brands that resisted divergence, like IBM, Xerox, and Kodak, paid the price by losing relevance.
As categories continue to fragment in our dynamic world, the diverging path promises increasing rewards. In this article, we’ll explore the critical factors in deciding when to stretch your core brand or when to courageously launch an empowered new identity. Weighing compelling stories of past triumphs and pitfalls, we’ll uncover key principles to guide your brand’s continued success. The timeless lessons ahead provide perspective to help you separate signal from noise when evaluating the branding decision that determines your future.
Successful Second Brand Stories
The annals of business history contain many compelling examples of brands launching empowered new identities to adapt to shifting trends. When executed strategically, second brands enable companies to expand their territory while protecting core equities. Let’s explore some inspirational success stories.
– Dockers – As business casual transformed dress codes in the 1980s, Levi Strauss courageously launched Dockers to meet rising demand for affordable, comfortable khakis and casual pants. Dockers now generates over $1 billion in annual sales across 50 countries, all while allowing Levi’s to refocus on its heritage as the original blue jeans brand.
– Lexus – Witnessing the rising prestige of European luxury vehicles from BMW and Mercedes-Benz, Toyota introduced Lexus in 1989 to compete in the high-end market. Lexus has since become America’s best-selling luxury car brand, letting Toyota retain its reputation for affordable reliability.
– DeWalt – When professional construction tools became a prime business opportunity in the 1960s, Black & Decker responded by launching the DeWalt brand. Its laser-focus on builder needs helped DeWalt tools become the top choice of contractors worldwide, while Black & Decker maintained its strength in consumer hardware.
– Sam’s Club – Walmart revolutionized retail with its Everyday Low Prices but lost out on warehouse club demand. Rather than stretch its brand, it launched Sam’s Club in 1983 to directly combat Price Club (now Costco). Currently the second largest warehouse chain behind Costco, Sam’s Club lets Walmart concentrate resources on its core discount stores.
When Second Brands Stumble
While launching empowered second brands represents a compelling growth opportunity, success is far from guaranteed. Many established companies have stumbled when attempting to stretch their brands into new spaces. Let’s reflect on some cautionary tales of less effective second brand strategies.
IBM – Having pioneered mainframe computing since the 1960s, IBM failed to adapt its hardware and software for the personal computer revolution of the 1980s. Rather than launch a differentiated brand to compete with Apple and Microsoft, IBM used its existing brand equity. Without a clear PC identity, IBM steadily lost market share and now holds just 1% of the global PC market.
Xerox – As photocopiers took over offices in the 1960s thanks to Xerox’s innovative xerography tech, the company tried extending its dominance to the next wave of workplace tech – personal computers. But lacking computer hardware and software expertise, Xerox never gained traction. The Xerox brand continues to represent analog copying rather than digital innovation.
Polaroid – This iconic brand burst onto the scene in 1948 with instant cameras and film, delighting consumers with on-the-spot photo printing. But Polaroid clung to its legacy analog model despite the digital camera revolution in the 1990s. Kodak launched differentiated brands like EasyShare to court digital demand, while Polaroid filed for bankruptcy in 2001.
Kodak – Ironically, despite Kodak having the foresight to launch digital-first brands, it also struggled to unlock the potential of its namesake brand in the digital age. Kodak ultimately sold off its photography business in 2012 after failing to achieve success comparable to its 20th century film photography reign.
The High Costs of Brand Complacency
Visa and Mastercard’s experiences entering the debit card market perfectly illustrate the financial risks of refusing to launch differentiated second brands. Despite debit cards representing a seismic shift from credit’s core value proposition, these dominant payments brands retained their existing identities when expanding into debit in the 1990s.
Rather than empower fresh brands to compete on debit’s turf, Visa and Mastercard took an “honor all cards” approach, strongarming merchants to accept their debit products if they wanted to maintain credit card acceptance. This strategy allowed the brands to bypass building awareness for new debit-focused brands.
However, by clinging to their legacy credit card brands, Visa and Mastercard locked themselves into an inferior debit infrastructure reliant on signatures rather than more secure PIN authorizations. Merchants rebelled against paying 5-10X higher fees for signature debit despite its heightened fraud risk.
In 2003, Walmart and other retailers sued Visa and Mastercard for antitrust violations around mandated “honor all cards” policies. By trying to stretch powerful credit brands into debit without differentiation, Visa and Mastercard faced existential legal threats.
In 2021, the case was settled for a whopping $6.2 billion, with Visa paying $4.1 billion and Mastercard paying $2.1 billion. Beyond these staggering payouts, the brands face ongoing challenges competing in debit without purpose-built brands tailored to this unique category.
The Inevitable Divergence of Categories
Visa and Mastercard’s “honor all cards” strategy falsely assumed enduring convergence between the credit and debit categories. However, established brands entering new spaces must recognize that categories intrinsically diverge over time, not converge.
Though subtle at first, fundamental distinctions between credit and debit emerged:
* Infrastructure – Debit cards are optimized for PIN authorizations rather than signatures, facilitating security and lower fees. Visa and Mastercard’s signature debit rail was the wrong foundation.
* Economics – Credit provides float and revolving debt, while debit offers real-time spending control. This drives diverging financial models.
* Consumers – Credit users seek financing while debit users want spending discipline. Diverging psychographics and behaviors emerge.
Rather than leverage these emerging differences with tailored branding and positioning, Visa and Mastercard stubbornly insisted that credit and debit were converging. This led them to stretch incompatible brands into debit.
However, category convergence is a myth. The passage of time only accentuates latent category differences. Debit and credit are fundamentally distinct products, demanding differentiated brands even when introduced by the same parent company.
Visa and Mastercard are now paying the price for refusing to launch debit-specific brands. By stretching across too broad a range of financial services, these brands have diluted their core identities. And their debit operations remain disadvantaged against purpose-built competitors.
The moral is clear: emerging categories should not be treated as mere line extensions but rather as opportunities for game-changing second brands. Market leaders must recognize and embrace category divergence rather than forcing convergence under the hubris of legacy brand equity.
Seize the Day: Launch Your Second Brand
The diverging debit and credit landscapes provided ideal conditions for second brand launches. Yet Visa and Mastercard clung to convergence delusions, squandering first-mover advantage.
Their strategic rigidity afforded openings for disruptive competitors. Nimble debit pure-plays filled the vacuum, catering to an underserved customer segment with appropriately positioned brands, superior economics, and security-focused infrastructure.
Visa and Mastercard now face an uphill battle to regain lost ground across a diverged debit landscape. And the damage extends beyond missed profits to weakened core brand identities through category overextension.
In contrast, category pioneers who launch second brands set themselves up for success:
* Agility – A second brand circumvents organizational obstacles to innovation, facilitating quick responses to emerging trends.
* Focus – An independent brand, team, and P&L sharpens focus on the distinct needs of a divergent category.
* Relevance – With their own brand tailored to evolving customer requirements, second brands maintain heightened relevance.
So when your category shows early signs of divergence, don’t hesitate. Seize the moment to launch your second brand, or risk ceding leadership to more nimble competitors.
Category convergence is a myth – the passage of time only makes latent differences more acute. Forward-looking brands recognize and embrace this divergence, launching disruptive second brands to own the future.
The rewards for category pioneers who take the leap are worth the perceived risk. Don’t wait until divergence makes stretch-brand failures inevitable. Be bold and introduce your second brand today!
Greetings! I’m Jack, founder of Scythos – where I’ve helped over 50 brands transform into unforgettable identities and stunning digital presences. As a brand strategist and creative consultant, I have over a decade of experience taking brands from wallflowers to the centre of attention.
Looking to get your branding noticed and your business thriving? Reach out anytime to brainstorm creative strategies for making your brand impossible to ignore. I love collaborating with passionate entrepreneurs to conceptualize innovative ways to connect with their audiences.
Whether you need help with a logo, website, content or entire rebrand – let’s chat! I’m always eager to share my ideas, creative concepts and expertise to help brands reach the next level. Together, we can make sure your business gets seen and heard. Follow along on social or send me a message to get the conversation started!