Brand Diversification: When Is it a Good Idea?

Brand Diversification: When Is it a Good Idea?

In April I posted a SlideShare presentation (below) about tech startups and key brand considerations as they grow. In it I described Facebook’s decision to retain the WhatsApp and Instagram brands as part of a brand diversification strategy. Retaining acquired brands (rather than renaming and assimilating them into the parent brand) can be useful if they appeal to audiences, or deliver services that are not aligned with your core brand. While Facebook has 1.2 billion users, both Instagram and WhatsApp have hundreds of millions of loyal users. Since many of these users prefer these acquired apps over Facebook, it may make sense to keep those brands separate.

I also remarked that Facebook could continue to grow by following this type of diversification strategy, although it risks cannibalizing some of the popularity of its flagship brand. Now Facebook has publicly committed to this diversification strategy, which has been dubbed by some as “unbundling.”

In a recent Harvard Business Review article, author Niraj Dawar suggests that this strategy makes good business sense.

“By having multiple brands in the marketplace… by serving and defining multiple segments or ‘use cases,’ and by experimenting with products and features such as Paper and Graph Search, the company both hedges competitive risk and stays ahead of customer needs.”

We agree that diversification can be a smart strategy, and that attracting audience share through multiple apps can create a bigger, more profitable footprint for Facebook. But we would also like to offer three pieces of advice for successful execution of this strategy:

• Be clear about what each new brand represents.
  If these brands intend to draw in or satisfy audiences in ways that are different from Facebook, these reasons must be clear and appealing. Acquisitions such as Instagram have that built in, but new efforts such as Graph Search will not.
• Continue to invest in each brand.
  If these new and separate brands fail to deliver on their promises, or grow their audiences they will eventually stagnate. This will benefit neither the new brand, nor the parent.
• Draw people into the Facebook network, not away from it.
  Because these brands are a part of the Facebook family, they should be additive to, not a complete departure from, the Facebook experience. You want as many customers using, and becoming loyal to, Facebook and Graph Search, not just one or the other.

One brand that has successfully diversified across digital and physical worlds is Disney, who has built and acquired several entertainment franchises, keeping each distinctly unique and yet additive to each other. The common thread is high-quality entertainment for the audience it serves, with an appeal that can be extended into experiences and merchandising.

By diversifying its brands in a disciplined and committed way, Facebook may be able to build a solid family of brands, without distracting its users away from its core value.

Tech Giants: As You Acquire, Take Note from Marshall Strategy