Chapter 1: Brand Portfolio Strategy
We hire eagles and teach them to fly in formation.
-- D. Wayne Calloway, former CEO of PepsiCo
You don't get harmony when everyone sings the same note.
-- Doug Floyd
Nobody has ever bet enough on a winning horse.
-- Richard Sasuly
The Intel Case
During the 1990s, Intel achieved remarkable success in terms of increase in sales, stock return, and market capitalization. Sales of its microprocessors went from $1.2 billion in 1989 to more than $33 billion in 2000. Its market capitalization grew to more than $400 billion in just over thirty years. Intel's ability and willingness to reinvent its product line again and again -- making obsolete business areas in which it had big investments -- certainly played a key role in its success. Its operational excellence in creating complex new products with breathtaking speed and operating microprocessor fabrication plants efficiently and effectively was also critical.
Intel's brand portfolio strategy, however, played a critical role as well. And this brand portfolio strategy could not have emerged without the brilliance of Dennis Carter, Intel's marketing guru during the 1990s, and the support of Andy Grove at the very top of the organization. Few organizations, particularly in the high-tech sector, are blessed with such assets.
Intel's brand story really starts in 1978, when it created the 8086 microprocessor chip, which won IBM's approval to power its first personal computer. The Intel chip and its subsequent generations (the 286 in 1982, the 386 in 1985, and the 486 in 1989) defined the industry standard and was the dominant brand.
In early 1991, Intel was facing pressure from competitors exploiting the fact that Intel failed to obtain trademark protection on the X86 series. These firms created confusion by calling their "clone" products names like the AMD386, implying that they were as effective as any other 386-powered PC.
To respond to this business challenge, Intel in the spring of 1991 began a remarkable ingredient-branding program ("Intel Inside"), with an initial budget of around $100 million. This decision was very controversial within Intel -- such a large sum of money could have been used for R&D, and many argued that brand building was irrelevant for a firm that only sold its products to a handful of computer manufacturers. Within a relatively short time, however, the Intel Inside logo became ubiquitous, and the program became an incredible success. The logo, shown in Figure 1-1, has a light, personal touch, as if someone wrote it on an informal note -- a sharp departure from the formal corporate logo (Intel with a dropped e).
The Intel Inside program involved a tightly controlled partnership between Intel and computer manufacturers. Each partner received a 6 percent rebate on its purchases of Intel microprocessors, which was deposited into a market development fund that paid for up to 50 percent of the partner's advertising. (To qualify, the advertising needed to pass certain tests, the main one being to present the Intel Inside logo correctly on product and in the ad.) Computer partners were required to create subbrands for products using a competing microprocessor so buyers would realize that they were buying a computer without Intel Inside. Although the program became expensive -- its structure caused the budget to grow to well over $1 billion per year as sales rose -- it also created a huge differential advantage over competitors trying to make inroads with computer manufacturers.
The bottom line was that for many years, "Intel Inside" meant a roughly 10 percent premium on the sales price of a computer featuring the logo. Because of the exposure of the branding program, Intel was given credit for creating products that were reliable, compatible with software products, and innovative, and for being an organization of substance and leadership. All this happened even though most computer users had no idea what a microprocessor was or why Intel's were better.
There were important secondary benefits. The Intel Inside program caused advertising for computers to explode. Ironically, advertising agencies, at first unhappy having their artistry compromised by foreign logos, became creatively flexible when they realized that advertising billings were going to skyrocket. In addition, the computer partner firms became attached to the advertising allowance; in fact, with margins squeezed, they had a hard time competing without it. The program thus became a significant loyalty incentive for Intel. "Intel Inside" became one of the most important brands in their portfolio.
In the fall of 1992, Intel was ready to announce the successor to the 486 chip in the face of increasing competitor confusion, even given the Intel Inside campaign. A huge decision loomed. Should the successor be called Intel 586, thereby leveraging the Intel Inside brand and providing a familiar and logical roadmap to customers who had adapted the X86 progression? Or should it be given a new name, such as Pentium? It was a very difficult decision.
Four key issues guided the decision to develop the Pentium brand. First, despite the success of the Intel Inside program, the basic confusion issue would remain if the product was named Intel 586, thanks to market entries such as AMD586. Second, the cost of creating a new brand and transitioning customers to it, although huge, was within the capacity and will of Intel -- few new products in any industry are so blessed. The fact that a new brand had news value would make the job easier. Third, the Intel Inside equity and program, rather than being wasted, could be leveraged by linking the two brands. A visual presentation of the Pentium brand was integrated into the Intel Inside logo, as shown in Figure 1-1; in essence the Intel Inside brand became an endorser for the Pentium brand. Finally, the new product was judged to be substantive enough to justify a new name, even though a new name for every future generation would ultimately be costly and confusing. Because a costly new fabrication plant needed healthy initial demand to pay off, one motivation for the new brand was to signal to customers that the new generation was worth an upgrade.
Intel subsequently developed an improvement to the Pentium that provided superior graphic capability. Rather than naming the chip a Pentium II, or giving it an entirely new name, the branded technology name MMX was added to the Pentium brand (the graphical representation is shown in Figure 1-1). The Pentium brand would thus have more time to repay its investment, and a new-generation impact could be reserved for a time in which the advance was more substantial. Later generations did emerge, leveraging the Pentium brand and equity with names like Pentium Pro (1995), Pentium II (1997), Pentium III (1999), and Pentium 4 (2000). The advent of the Pentium 4 ushered in a new visual design (shown in Figure 1-1) to emphasize its newness and to provide a look that suggested substance, reliability, and quality.
Clearly, a crucial, ongoing brand portfolio strategy issue is how to use branding to identify product improvements. When the improvements are minor or involve corrections of prior mistakes, then it is not appropriate or worthwhile to signal a change. When the improvements are significant, the choice lies between a branded feature (like MMX), a new generation (like Pentium III), or a totally new brand (like the replacement of the X86 series with Pentium). The communication cost, the risk of freezing sales of the existing brand, and the degree of preempting the news value of future technological developments will all depend on which of the three brand signals is used.
In 1998 Intel decided that it needed to participate in the market for mid-range and higher servers and workstations. To address this market, Intel developed features that allowed four or eight processors to be linked to supply the power needed for these higher-end machines. A branding issue then arose. On one hand, the Pentium brand was strongly associated with lower-end personal computers for homes as well as businesses, and as such it would not be regarded as suitable for servers and workstations. On the other hand, the market would not support developing yet another standalone brand alongside Intel Inside and Pentium. The solution was to introduce a subbrand, the Pentium II Xeon. The subbrand distanced the new microprocessor enough from Pentium to make it palatable for the higher-end users. It had the secondary advantage of enhancing the Pentium brand. Another practical consideration was that the use of the Xeon name by itself had some trademark complications that disappeared when it was merged with the Pentium II name.
In 1999 another problem -- or opportunity -- emerged. As the PC market matured, a value segment emerged, led by some Intel competitors eager to find a niche and willing to undercut the price points of the premium microprocessor business. Intel needed to compete in this market, if only defensively, but using the Pentium brand (even with a subbrand) would have been extremely risky. The solution was a stand-alone brand, Celeron, that was not directly linked to Pentium (as Figure 1-1 shows). The brand-building budget, like that of many value brands, was minimal: the target market found the brand, rather than the other way around.
A decision was made to link the Celeron to Intel Inside, so there was an indirect link to Pentium. The trade-off was the need for the Intel endorsement to provide credibility to Celeron, versus the need to protect the Pentium brand from the image tarnishment of the lower-end entry.
In 2001, the Intel Xeon processor was introduced with the logo shown in Figure 1-1. Several factors combined to allow the subbrand to step out from behind the Pentium brand. Technological advances such as NetBurst architecture rather dramatically improved the processor's power, and now that the Xeon brand had been established it was thus more feasible to suppor...