13 Sep’18

Should Your Toothpaste Company Launch a Frozen Food Line? A Closer Look at Brand Extendibility

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Brand equity (often equated with brand value) is an all-encompassing measure of the benefits that a company receives from its brand as a result of its cumulative marketing and brand maintenance efforts. There are various valuation methodologies that attempt to assign a specific monetary value to a given brand which range from simple cash flow models to complex combinations of various rankings and analyses (such as the methodology used by Interbrand). In an article titled Brand Equity: An Overview published out of the University of Virginia, brand equity is said to encompass the following measures:

Brand Association: What triggers consumers to think of the brand and what comes to mind when they see the brand

Brand Vision: The way the brand presents itself and reflects the overall business strategy

Brand Positioning: How to brand positions itself in the target market relative to competitors

Brand Image: How consumers view the brand and what target personas the company wants to associate with the brand

Brand Awareness: A measure of how well consumers recognize the brand; on a scale from “Unaware” to “Top of Mind Awareness”

Brand Loyalty: How likely consumers are to switch between brands within the same product category

 Brand Extendibility: Potential to leverage the positive perceptions associated with the brand to new customers

Each one of these components of brand equity deserves to be explored at length; however, this piece will focus on exploring Brand Extendibility in further detail. As mentioned in a previous post, the direct monetary benefits that a well-constructed brand offers the company are traditionally boiled down to 2 main categories; the ability to charge premium prices, and diminishing marginal marketing costs as a company expands. Brand Extendibility is the main value driver of the second category. A company can introduce its brand to new customers in 1 of 2 ways. First, a company can launch a new product in a new product category. Modern tech companies are a great example of utilizing Brand Extendibility in this way. For example, Amazon has successfully launched products in the e-reader, virtual assistant, tablet, and smart TV product categories (among many others) all under the Amazon name which has become known for its highly efficient and customer centric image. The second method of brand introduction to new customers is extending to a different target market within the same product category. Proctor & Gamble has done an excellent job of this over the years. For example, P&G has extended the Tide brand to many different subcategories within the broader detergent category, and has extended its Crest brand to many different subcategories of the broader oral care category. Under both of these brand extension methodologies, a strong brand relieves the parent company of a great deal of marketing and other brand building expenses. Similar to the concept of economies of scale, where a company’s fixed costs become less significant as production of a product increases, Brand Extendibility reduces the significance of marketing costs as the brand extends to new products and customers.

It is important to remember, however, that a brand can be over extended. When this happens, the value of the brand can actually take a hit, as the intended messages and associations begin to get diluted (appropriately called “Brand Dilution”). Think Harley-Davidson Perfume, or Colgate Beef Lasagna. You can imagine the rugged image of Harley taking a hit as bottled fragrances hit the shelves, and Colgate’s association with freshness and cleanliness beginning to fade when depicted next to layers of marinara sauce in the frozen foods section. The lesson is not only to intelligently manage the brand internally, but also to develop restrictions on who licenses your brand and under what terms. Unfortunately, there are times when a brand extension is attempted without the company’s permission.

Such was the case with In-N-Out Burger, when a micro-brewery launched a new beer called the “Neapolitan Milkshake Stout” back in July. The Neapolitan Milkshake may be ubiquitous with the burger chain for some west coast residents, but the real problem was the proposed can design for the beer, which mimicked the In-N-Out soda cup design almost exactly and used a clear copy of the company’s logo bearing the text “In-N-Stout.” You can imagine the In-N-Out executives’ reaction to seeing their clean-cut brand being used to market what some would consider a vice. If this were a deliberate move made by In-N-Out burger to try and extend their brand to the adult beverage market, we would have to question the thought process behind the decision and wonder whether or not this would actually serve to damage the family-friendly brand. In this case, however, the release of the product was out of the company’s control, and thus, swift action was the only way to mitigate such potential damage to brand equity. Fortunately, In-N-Out’s legal team crafted arguably the perfect response; issuing a pun-filled cease and desist notice which has received a great deal of publicity to date. One could argue that this response and the press coverage that followed may have actually resulted in increased brand equity.

Surprisingly, this is not the sole case of a questionable brand extension into the beer arena. Back in 2015, breakfast cereal brand Wheaties teamed up with a micro-brewery in Minnesota to launch the “HefeWheaties” beer in an intentional brand extension effort. Whether or not this extension positively or negatively affected the Wheaties brand equity can be debated; however, the value-add of Brand Extendibility is clear. When a recognizable and respected brand is used in the marketing of a new product, the marketing team benefits from all past branding efforts and is relieved to a certain degree of expenses that they would normally have to incur in launching an entirely new brand. Imagine the relative expenses that Apple (the world’s most valuable brand) will undertake when it finally launches its rumored Apple Car, compared to the expenses that will arise when Wheaties inevitably launches its own electric vehicle.

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16 Jan’18

Insights from WIPO’s “World IP Indicators 2017” Report: Key Patenting Trends Around the Globe

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The World IP Organization (WIPO) has recently published its annual report titled: “World Intellectual Property Indicators 2017”, covering world IP filing activity for 2016.  The report is a comprehensive coverage of global patent and trademark filing trends, comparing and ranking the world’s leading regional patent and trademark offices (“IP Offices”) by their level of activity in the various categories.

At a high level, it seems like many of the trends observed in 2015 continue into 2016: the global number of filings and grants keeps trending up; China continues to dominate in terms of annual filings and grants (breaking another record of 1.3 million filings this year); and the top 10 filing companies worldwide are all Asia-based multinationals.

Patent Filing Trends

A record number of 3 million patent applications were filed worldwide in 2016, up 8.3% from 2015, as seen in the figure below:

Source: World IP Indicators 2017, WIPO

Driving the strong growth in global filings was an exceptional number of filings in China. The State Intellectual Property Office of the People’s Republic of China (SIPO) received 1.3 million patent applications in 2016 – more than the combined total for the United States Patent and Trademark Office (USPTO; 605,571), the Japan Patent Office (JPO; 318,381), the Korean Intellectual Property Office (KIPO; 208,830) and the European Patent Office (EPO; 159,358). Together, these top five offices accounted for 84% of the world total in 2016.

Below is a summary table showing the activity in the top 10 IP Offices in 2016:

Source: World IP Indicators 2017, WIPO

When it comes to understanding China’s continued explosive growth in new patent applications – over 1.3 million filed in 2016, an increase from the 1.1 million in 2015 (the first year the 1 million filings barrier has been exceeded in any country) — the circumstances surrounding the increase in Chinese patent filings are unique and should have come as no surprise to anyone following the Chinese government’s five-year plan of 2011. As explained in an article published in Nov. 2016 in the EE Times by Foresight’s president, Efrat Kasznik, over the last 50 years the Chinese Communist Party implemented a series of five-year plans which guided China’s rapid economic growth.  The 2011 five-year plan’s themes of sustainable growth included some specific targets for patent filing per capita.  The increased filing activity over the last five years is the direct result of a calculated government effort, enabled by an unprecedented allocation of legislative and administrative resources to support China’s State IP Office. Thus, the sharp rise in Chinese patent filings between 2010 and 2016 is very unique to China’s political circumstances, and is not necessarily correlated with the natural progression of innovation.

When reviewing filing trends by country, one of the most critical observations is the ratio of resident to non-resident filings.  A higher ratio of non-resident filings in any given country, is usually an indication not only of the size of that market for the underlying innovations, but also of the strength of the IP enforcement regime in that country.  Here, the trends from 2015 are repeating in 2016: as explained by Ms. Kasznik in her article, ratio in China is about 90% resident filers to 10% non-resident filers, a reflection of the relatively weak enforcement regime in China.  Conversely, the USPTO and the European Patent Office exhibit a ratio of resident to non-resident filings of about 50/50, attesting to the strength of IP enforcement regimes in those regions.

Patent Grants Trends

In 2016, an estimated 1.35 million patents were granted worldwide, up 8.9% on 2015.

Source: World IP Indicators 2017, WIPO

SIPO granted 404,208 patents in 2016, followed by the USPTO (303,049), the JPO (203,087), KIPO (108,875) and the EPO (95,956). The top five IP offices issued more than 1.1 million combined, accounting for 83% of the world total.

Not surprisingly, the number of new grants is trending upwards over time along with the number of new filings.  The WIPO report also includes statistics related to the operational efficiency of IP offices, such as: the number of examiners, application pendency times, and patent examination outcomes.  The workload of IP offices as measured by the number of incoming patent applications has increased over time, but so has their examination capacity to process those applications. The WIPO data show there has been no significant increase in application-to examiner ratios, and for a number of IP offices, growth in numbers of examiners has outstripped the increase in applications.

Another interesting metric reported is the number of patents in force in 2016: the estimated number of patents in force worldwide rose from 7.8 million in 2009 to 11.8 million in 2016. The USPTO leads with 2.8 million patents in force in 2016, followed by the JPO (2 million), SIPO (1.8 million) and KIPO (1 million). These four IP offices account for 63% of all patents in force worldwide.

Filing by Company

The top 10 patent applicants worldwide are Asia-based multinationals: Canon Inc. (Japan) was the top applicant for the period from 2011 to 2014, with 30,476 patent families worldwide, followed by Samsung Electronics (Korea) with 26,609 patent families, and Japanese companies Panasonic (22,899), Toshiba (22,627) and Toyota (22,190). Robert Bosch of Germany (16,582) was the highest-ranking non-Asian company at number 12.

Only 9 countries of origin comprise the top 100 list of applicant companies for the period from 2011 to 2014: Japan (40), China (26), Korea (15), U.S. (9), Germany (6) and one each from France, the Netherlands, Sweden and Taiwan.

 

 

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