Unfortunately, many companies have gotten into the habit of investing in nonstrategic brands. These often include low-performing brands within high-performing product segments. Recognizing this weakness, leading CPG companies have begun to put more emphasis on strategic coherence. For example, Cadbury-Schweppes has recently moved aggressively to strengthen its confectionery business and to exit the poorly performing European beverages business.
Enhance Economic Currency. The final question for companies to ask is, Are there sufficient growth opportunities in the brands that we’re keeping to make up for the loss in revenue from the brands that we’re shedding, and are we in the best position in the category to capture these opportunities?
No matter how bad brands are, no matter how nonstrategic, they do generate earnings. Companies that slim down their brand portfolios must rely on cost reductions or increased sales in their remaining brands to replace the earnings from those that they’ve sold. Of course, if a company can realize a significant sale price for its divested brands, its current brands will have less distance to cover in giving the operation a neutral, or preferably positive, net present value; alternatively, a weak sale price necessitates more sales or tighter cost cutting for the rest of the portfolio.
The objective of brand-portfolio restructuring is not merely to divest brands, but to remove some brands to achieve higher rates of growth for the brands that remain. View the portfolio-management process as an ongoing economic fitness program. Establish brand portfolio metrics, and use them for a regular portfolio checkup. One round of portfolio contraction is not enough: Cutting portfolio fat and building brand muscle will take ongoing and disciplined effort.
Nikhil Bahadur ([email protected]) is a principal with Booz Allen Hamilton in Cleveland. He advises large consumer-focused organizations on growth and brand strategies, their organizational design, and the development of marketing capabilities.
Edward Landry ([email protected]) is a vice president with Booz Allen Hamilton in New York. He focuses on strategy and sales and marketing effectiveness for consumer packaged-goods and health-care companies.
Steven Treppo ([email protected]) is a principal with Booz Allen Hamilton in Cleveland. His work is primarily conducted in the area of growth strategy development with consumer packaged-goods companies, with a focus on analytical marketing.