Marketing & Sales Practice

Strike Up the Brands
Top-Performing Portfolios Require a
Well-Orchestrated Management Approach

Marketing & Sales Practice12.2003
Designed by New York Design Center
Copyright©McKinsey&Company
http://marketing.mckinsey.com

Overview

Brand portfolios are growing at a breakneck pace, creating
challenges across the value chain. Consumers are overwhelmed by
the abundance of branded offerings. Retailers are pushing back tomaintain room for their own private-label offerings. Manufacturers
are frustrated by disappointing returns on their portfolio
investments.
What's the answer? There is no single remedy, but we believe
manufacturers can improve performance by taking a moreproactive approach to managing their brand portfolios. A winning
formula requires attention to three improvement levers:• Restructuring the portfolio, not for the success of individual
brands but for the portfolio as a whole• Developing a stronger customer-versus-category perspective forthe portfolio to align brands with consumer needs and to
identify new growth opportunities• Adopting a capital-allocation mind-set to highlight investment
trade-offs among brands to optimize spending across theportfolio
These levers must be underpinned by an organizational structurethat views portfolio management as a top priority. Such acommitment is critical because a successful portfoliotransformation will be a long journey - spanning several years that requires ongoing assessments of potential value creation versus
risks across the portfolio. The impact of this approach, however,may be worth the wait: Experience suggests that an effective
portfolio strategy can generate 5 to 10 percent increases in top-line
growth and up to 15 percent profitability improvements.

For additional information or copies,
please call (203) 977-6800 or e-mailmckinsey_marketing_practice@mckinsey.com

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Page 1

Brand portfolios are expanding at a staggering rate in manyindustries: pharmaceutical companies upped their average
number of brands by 78 percent from 1997 to 2001; beverage
manufacturers increased the size of their portfolios by 25
percent over the same period; companies in the food/household
goods industry added 81 new labels to their portfolios, pushing
the average number of brands beyond 630.
Indeed, more than three-quarters of the 25 consumer goods
companies in the Fortune 1000 manage more than 100
brands, including sub-brands and line extensions(see Exhibit 1).
We see four main drivers behind this surge. The first is the steadystream of M&A activity over the past decade. Mergers announced
worldwide experienced an 11 percent compound annual growth rate
(CAGR) from 1992 to 2000. Often in these deals, a targeted brandacquisition – Pepsi purchasing Gatorade, for instance – brings withit a legacy of additional brands – Rice-A-Roni, Cap’n Crunch, etc.
While the performance of mergers is not wholly dependent on how
well the brand portfolio is managed, research shows that historically
70 percent of mergers fail to create value.
Second, companies are using new brands and new products to drive
growth across a range of increasingly mature sectors. The rush to
capture the latest trend often leads to an abundance of brands,
witness GM’s 15 entries in the SUV category.

McKinsey on Marketing1

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Page 2

Exhibit 1 A Proliferation of Brands
Over 75% of Fortune 1000 consumer
goods companies manage more than
100 brands

Many leading companies have seen an
increase in the number of brands they
manageBreakdown of companies
by number of brands managed
Percent

Average number of brands in company's
portfolio

Manage fewer
than 100brandsFood andhousehold goods

24

634
70
81

32

76

15
24

White goods

16

78

60

40
50

Beverage

Travel/leisure15

18

Pharmaceutical

Company average is
240 brands managed

Increase
Percentchange553

Automotive

Manage morethan 100brands

1997
2001

5
8

25

60

Source: IRI InfoScan Reviews data; J.D. Power and Associates; Evaluate; McKinsey analysis

A third major force behind surging brand portfolios is the rapid
increase of controlled or private-label brands across a range ofcategories. Most major apparel retailers have introduced privatelabel lines, and new store labels have become prominent in a rangeof other consumer categories such as hardware and tools.
The final driver is manufacturers’ own hesitancy in pruning current
brands to make way for new ones. Companies challenged to deliver
both top-line and bottom-line growth view the consolidation or
elimination of brands as too great an uncertainty. For thesecompanies, the perceived risks of brand housekeeping outweigh thebenefits of an easier-to-manage portfolio.

McKinsey on Marketing2

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Page 3Complexity Along the Value Chain
The trend toward brand proliferation has made life increasingly
complex for consumers, retailers, and manufacturers alike.
Consumers face a relentless barrage of products (the number ofbrands on grocery store shelves, for example, tripled in the 1990s
from 15,000 to 45,000) along with the requisite pitches for them:
the average American is exposed to 5,000 daily advertising
messages, compared with 1,500 for the average citizen 40 years ago.
Many retailers have become increasingly discerning about thebrands that fill their space for two primary reasons: they are seeking
to keep their own cost structures in check (sourcing from fewer
manufacturers, for instance, will increase their purchasing powerand simplify their ability to manage categories), and they also wantto carve out space for their own newly minted brands.
Manufacturers, forced to provide a more compelling value
proposition to retailers, have responded not by pulling back, but by
introducing a steady stream of new brands in an effort to spark
growth. These companies are discovering, however, that new
products do not necessarily translate into market share growth (seeExhibit 2). In a crowded category, only the top performers tend togrow, while weaker performers lose ground as the landscape
becomes littered with more and more offerings that are notmeaningfully differentiated from one another.
Not only does a larger portfolio often fail to deliver expected
returns but also the complexity of managing multiple brands
imposes additional hidden costs across an organization. A growing
portfolio affects the entire brand life cycle: from productdevelopment and sourcing (more R&D resources, increased raw
material stocks) to manufacturing and distribution (more laborschedules to coordinate, higher shipping costs) to sales and channel
management (increased training needs, a decrease in per-brand focus
by the sales force) to marketing and promotions (moredocumentation, a need for greater coordination of marketing

McKinsey on Marketing3

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Exhibit 2 Fragmentation in Mature Categories Makes It Difficult

for Expanding Portfolios to Perform
Number of brands*

READY-TO-EAT CEREAL CATEGORY

Number of brands
increased by 25
in a declining
category
129
14
104
Other

11

Quaker

17

Kraft

17

Kellogg's

27

Numberof brands

Per-brandmarket share
Percent

1997

2001

1997

2001

9

8

2.8

3.1

18

24

36

GeneralMills

Top 25% of volume

32

37

1997

2001

Bottom 75% of volume
Numberof brands

Per-brandmarket share
Percent

1997

2001

1997

2001

95

121

0.8

0.6

* Brands with less than 0.5% national market share are not included
Source: IRI InfoScan Reviews data; company Web sites; McKinsey analysis

vendors and agencies). In addition, as new brands are added,
marketing resources are often stretched, rendering some underresourced brands vulnerable to competitors.
With these factors in play, why are manufacturers so hesitant totrim back their portfolios? Once they invest in a new brand or a line
extension, companies have a legitimate concern that if they pull thebrand, they won’t get the shelf space – or the revenues – back. In
practice, the economics of eliminating a brand often appear
unattractive. Our experience indicates that the remaining brands ina portfolio may need to capture as much as 45 percent of thevolume of a discontinued brand in order to break even. This is morethan what most companies would consider “fair share” – theamount of volume they expect to recapture from the lost brand.
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A Portfolio Prescription
With a more crowded playing field and less efficient underlying
economics, manufacturers may find themselves hard-pressed toresolve these brand-related issues. Companies cannot stop launchingor acquiring new brands, nor should they casually lop off asignificant portion of their portfolio. But they can become smarter
about managing their portfolios – as opposed to individual brands –in a way that can affect top- and bottom-line growth.
Tapping into these sources of value requires a more structured
approach to portfolio management that comprises three mainelements:
 Positioning your brands to deliver success for the overall portfolio; Developing a stronger customer-versus-category perspective acrossall the brands in the portfolio; Adopting a capital-allocation mind-set for brand investment.

Position brands to deliver portfolio successover individual brand successA winning brand strategy does not necessarily beget a winning
portfolio strategy. Brand teams are adept at optimizing performanceof their individual brands – and often are supported byorganizational structures and incentives that historically reward
successful brands, even to the detriment of other brands in theportfolio. A more effective approach requires aligning the portfolio
so that all brands, not just the flagship or core brands, can prosper
in their designated roles. This focus on the greater good involves
three activities (see Exhibit 3):
1. Understand where current brands play. The key to understanding
the current brand positioning lies in mapping how your brands –and those of your competitors – align with consumer needs (asopposed to customer demographics, which typically drive brandalignment efforts).

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Exhibit 3 Three-Phase Approach to Aligning the Brand Portfolio
BOATING EXAMPLE

Determine required roles
and brand moves

Understand where
current brands play

Premium

Luxury6 Leverage
into newcategories

1
Reposition brands to
avoid cannibalization

Brand
A
Brand
C

4

Brand
F

Divest
brand

Brand
A
Brand
B

Extendinto newsegments

Brand
B

3

Brand E

New
Brand
F

Brand D

Brand E

Consolidate overlapping
brands

Value

Brand
C

2

Brand D

Mid-price

Price/image

Integrate brand moves
to transform portfolio

Launch or acquire

5 a new brandRelax/
rewardFamily Sports- Perforfirst
men
mance
enthusiast

Consumer segments

Relax/
rewardFamily Sports- Perforfirst
men
mance
enthusiast

Consumer segments

Relax/
rewardFamily Sports- Perforfirst
men
mance
enthusiast

Consumer segments

2. Determine required roles and brand moves. Where do individual
brands have the greatest opportunity to play in the future, and what
will it take to evolve them into this space? Brand roles must be
established based on consumer and strategic opportunities: Is Brand A
better suited to be a prestige/luxury leader to address Segment 1, or atechnology/design innovator to address Segment 2? Is Brand B
fulfilling an important price-positioning role for the channel? In many
situations, there are alternate paths forward for a brand, as historical
positioning lacks the clarity necessary to deliver successfully against
any specific consumer segment. In the absence of clear positioning,
consumers often position the brand for themselves, resulting in amurky and diluted equity.
3. Integrate brand moves to transform the portfolio. With the propertargeting and roles defined for each brand, the portfolio can betransformed. This is a complex process, as there are any number ofbrand “moves” available to the portfolio manager: competing brands

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Page 7

must be separated; redundant or ineffective brands must be eliminatedor consolidated; and/or gaps must be filled by leveraging existing
brands into a new category, launching new brands, or acquiring abrand from a third party. A critical issue to manage throughout thisprocess is the domino effect – repositioning one brand often requires
realignment across multiple brands in the portfolio. To account for thisdynamic, alternate brand moves should be evaluated based on holistic
portfolio scenarios, versus discrete brand events.
The resulting portfolio may look quite a bit different, depending on
consumer dynamics and strength of brand assets. For example, the“one brand per segment” rule of thumb is not always the optimal
portfolio strategy. Consumers may require multiple brands to meettheir needs for variety or novelty. Additionally, it may be appropriate
to eliminate well-positioned, sub-scale brands over time in favor of
extending a powerful equity across categories. The objective is tominimize cannibalization, capture value more efficiently, and accelerate
growth for the entire portfolio.
Develop a stronger customer perspective
In our experience, a company’s view of a category in which itcompetes often is static and incompletely informed by the consumer’s
perspective. It’s important to understand the broader context in which
consumers make their choices – including the range of possible
alternatives they consider. This means defining portfolios and brands
not by category, but from the perspective of the benefits – both
functional and emotional – that consumers derive from them (andthose of competitors).
Does a consumer say, “I want to chew gum?” or does she say, “I wantto freshen my breath?” The former is a narrow view of the category;the latter recognizes the consumer’s real need, which provides a clearerview into the interactions of various brands (e.g., chewing gum versus
mints versus breath strips). The categories in which you compete
should include product “substitutes” that offer the same relative
benefits to the consumer.

McKinsey on Marketing7

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Page 8This broader view of the portfolio has the added benefit of helping
you identify new opportunities as well as potential competitive
threats. By looking beyond the “usual suspects,” you can identify –and attack – opportunities by leveraging existing brands in new
categories or by developing new brands to capture unmet customer
needs.
While adopting a consumer view of the competitive space will
enable the portfolio to tap into additional sources of margin, thisstance must be balanced against your company’s capabilities. Some
portfolio opportunities may appear attractive through the consumer
lens, but they may be economically unattractive based on their fit
with existing manufacturing or distribution capabilities.
Adopt a capital-allocation mind-set
Too often, portfolio investment priorities stem from historical or
institutional biases toward the best current brand or other near-term
benefits. When managers face trade-offs among brands, funding
usually goes to the plans that offer the most tangible near-term
returns. Although this strategy may seem appropriate, it can destroy
value over time (e.g., building plans based on coupons or otherdiscount activity at the expense of longer-term equity building). A
successful portfolio design must be supported by forward-looking
investment decisions; therefore, a winning approach involves
translating the mind-set of capital budgeting into one of budgetingbrand investments across the portfolio.
This effort requires the same consistent consumer context in which
all of the brands can be discussed – thus providing a common
approach to evaluating investment across the entire portfolio.
Many companies have adopted ROI-related criteria instead ofbrand-specific measures such as share of voice or share of market.
Resource allocation then can be based on a brand’s ability toachieve the objectives of the portfolio based on common metrics.
This, in turn, makes investments across the portfolio moretransparent to all brand managers.
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Page 9The most successful investment approaches, however, go beyond
ROI metrics, which often simply reward the big, the tangible, andthe immediate. Investments should be based on the strategic role ofa brand and an assessment of its long-term potential. Many
investments in branding pay back over different time horizons,
based on where the brand is in its life cycle or what the investment
is designed to achieve. The goal is to develop a consistent set of
metrics for a particular type of goal (e.g., maintenance versus
growth versus investment) and to measure all brands accordingly.

Making the Commitment
Defining effective portfolio management would be incomplete without
a discussion of how companies should organize to succeed at it – andhow long the transformation will take.
Employing a systematic approach across the company, with seniorlevel accountability, is the key to developing consistent and clearly
defined objectives and criteria for all brands. Although there is no
single organizational model to follow, we believe successful companies
will build three key elements into their portfolio management
structures.
1. The most important organizational requirement is a portfolio
manager. A surprisingly large number of companies have no single
individual who actively manages the brand portfolio for anythingother than budget allocation decisions. The portfolio manager musthave line responsibility and must be explicitly tasked with articulatinga portfolio strategy. Depending on how dynamic the portfolio is, theCMO or VP of marketing often can take on the role of portfolio
manager; a full-time position usually is not required. However, in our
experience, this often requires a more proactive, top-down approach tobrand planning than typically exists.
2. The portfolio manager must be given a mandate to identify the roleof each brand within the portfolio and the implications for brand

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performance and investment. Many times, the portfolio manager either
is not sufficiently discriminating among brands in the portfolio(“All our brands are growth brands”) or does not actually allow thebrand role to play out in the P&L. This can result in the goals ofbrand managers becoming misaligned with the broader portfolio,
leading to poor portfolio performance.
3. Management must clearly define the roles of both the portfolio
manager and the individual brand managers. Both sides must be
explicitly engaged in order for the process to be successful. Without
brand involvement, the portfolio solution will not take hold within theorganization. On the other hand, without adequate support andattention from the portfolio manager, the process will likely bog down
in disputes among various brand managers.
Strong commitment from top management also will ensure a smoothrollout of the portfolio transformation plan. A successful rollout
requires prioritizing the right combination of brand moves, based on
potential value creation and a feasibility/risk assessment (see Exhibit 4).
Some moves can be made more quickly than others, and each may
have a different set of investment requirements. The plan must balance
the need to transform the portfolio with constraints on investment,
organizational capacity, and a consumer understanding of what you
are doing.
When committing to a portfolio transformation, management needs tounderstand that the transition won’t happen overnight. A full portfoliotransformation is, at minimum, a 3-year journey. It also is not a onetime event. Brand portfolios are dynamic, thanks to customer trends,
competitive activity, and brand life cycles, and as such require periodic
monitoring and adjustments. A one-time realignment will result in anunderperforming portfolio. Reexamining the portfolio too often,
however, is an unnecessary outlay of time and money. Examination
should take place periodically or when triggered by a major event,such as the launch of a major new product or an acquisition in which
a significant number of new brands or potential new brands are added
to a current category.

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Page 11

Exhibit 4 Prioritizing the Transformation Plan
FOOD EXAMPLE

Prioritizing portfolio moves
3-year plan

Portfolio transformation plan

Year 3
Year 2

Potential value creation
Incremental NPV, $ Millions

100
Leveraging
brand into
new category
Repositioning to
improve relevance

Launching
new brand(s)50
Acquiringnew brand
Repositioning
to minimize
cannibalization0
Low

Consolidating
brandsHigh
Feasibility/risk assessment
Divesting brands (no opportunity)

Year 1Brandpriorities
A
B
C
D
Overall
portfolio
management

Refocus todrive sharein priority"customerneed" state

Extendbrand tofurther
penetrateyouthmarketLaunchhealthextension
off Brand A

Institutionalize
integrated
portfolio
perspectivein brandplanning

Focus onSKU
management/
rationalization acrossportfolio

Drivedevelopment of kids'
strategy
platform

A healthy and carefully integrated brand portfolio can be one of acompany’s strongest strategic advantages. In a time when the forcesat work in many industries are leading to increasingly complex
portfolios, companies need to focus on superior portfolio
management in order to increase the returns they receive from thebrand assets they have – and those they plan to develop.

– Steve Carlotti is a Principal and Mary Ellen Coe is an Associate
Principal in McKinsey’s Marketing & Sales Practice. The authors
wish to acknowledge Christopher Halsall, Katy Kendall Furton
and Tamara Jurgenson for their contributions to this article.

McKinsey on Marketing11Overview

Brand portfolios are growing at a breakneck pace, creating
challenges across the value chain. Consumers are overwhelmed by
the abundance of branded offerings. Retailers are pushing back tomaintain room for their own private-label offerings. Manufacturers
are frustrated by disappointing returns on their portfolio
investments.
What's the answer? There is no single remedy, but we believe
manufacturers can improve performance by taking a moreproactive approach to managing their brand portfolios. A winning
formula requires attention to three improvement levers:• Restructuring the portfolio, not for the success of individual
brands but for the portfolio as a whole• Developing a stronger customer-versus-category perspective forthe portfolio to align brands with consumer needs and to
identify new growth opportunities• Adopting a capital-allocation mind-set to highlight investment
trade-offs among brands to optimize spending across theportfolio
These levers must be underpinned by an organizational structurethat views portfolio management as a top priority. Such acommitment is critical because a successful portfoliotransformation will be a long journey - spanning several years that requires ongoing assessments of potential value creation versus
risks across the portfolio. The impact of this approach, however,may be worth the wait: Experience suggests that an effective
portfolio strategy can generate 5 to 10 percent increases in top-line
growth and up to 15 percent profitability improvements.

For additional information or copies,
please call (203) 977-6800 or e-mailmckinsey_marketing_practice@mckinsey.com

Marketing & Sales Practice

Strike Up the Brands
Top-Performing Portfolios Require a
Well-Orchestrated Management Approach

Marketing & Sales Practice12.2003
Designed by New York Design Center
Copyright©McKinsey&Company
http://marketing.mckinsey.com