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Brand expansion- tortoise or hare?

May 13, 2007

Post the leaked Schultz Starbucks memo, Daniel Gross wrote a great piece for the  LA Times, about brand expansion.

He talks about the frenzied desire to expand brands faster than their DNA can tolerate and highlights some examples of brands that have expanded slowly.

“But the Schultz memo is interesting and useful nonetheless, because it shows that even an iconic company that serves a highly addictive product can water down the immense value of its brand by expanding too far and too fast and in too many directions at once. Sadly, this is a fate that befalls many American companies. Time and again in recent years, we’ve seen small, cutting-edge and quirky brands gain critical mass — only to lose their charm and customer appeal after they engage in breakneck expansion.

Why does this happen? Companies can’t help it, in part because the huge macroeconomic forces that dictate corporate behavior impel them to expand too fast and too wide. But at the same time, the powerful psychological forces that dictate consumer behavior can cause customers to recoil from the chains they once loved.

Many of America’s best-known chains came of age in a period in which it was easy for companies to go public at a comparatively young age. And publicly held companies, whether they make turbines or tiramisu, are programmed to maximize efficiency and increase sales every quarter — no matter what. Inevitably, this mentality leads to the cutting of corners.”

Gross goes on to talk about the problem rapid expansion caused California Pizza Kitchen, Restoration Hardware and Krispy Kreme and contrasts these strategies with those of slow movers, Trader Joe’s and In and Out Burger.

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