Halmstad University School of Business and Engineering, Sweden Master’s program in Management of Innovation and Business Development Int. International Marketing, 120 credits. The challenges of brand innovation in different brand portfolio strategies Master thesis in Management of Innovation and Business Development, 30 ECTS Final Seminar Date: 30th of May 2014 Authors: Zaoxuan Xu 900403-T275 Supervisor: Henrik Florén Examiner: Jonas Rundquist Abstract In today’s knowledge-based economies, the global competition has become fiercer. In order to respond to competition and gain a competitive advantage or, in some cases, survive, companies take a variety of means to strengthen their competitiveness. Companies that do not assire effective ways to innovate their brands fail to defend or gain a larger market share and there is also a risk of losing their occupied market share. It is therefore important for companies to innovate their brands effectively. The purpose of this thesis is to identify the challenges related to brand innovation in the context of two different types of brand portfolios (i.e. “the house of brands” and “the branded house”). In this thesis, I use a case study to analyze three cases in one company to better understand the importance of brand innovation and its challenges. In order to gather data, I interviewed respondents from the Chinese company Haier which is a large home appliance company. This study helps companies to understand the challenges of brand innovation a company face depending on its brand portfolio strategy. In addition, the study shows that is important for companies to make the right decisions when they innovate their brands, and to learn how to overcome the challenges of brand innovation. Key words: Brand innovation, Brand portfolio, Brand innovation model. ACKNOWLEDGEMENT Firstly, the author gives the best thank you to my supervisor Henrik Florén and Jonas Rundquist for their guidance and supervision in writing this thesis, especially Professor Florén gave me a lot of help in guiding my thesis. Secondly, the author expresses my gratitude and appreciation to Haier and Haier’s brand manager and product manager who devoted time and effort to help me complete my thesis. Without their help, this thesis would not be completed. Finally, the author give my thank you to my opposition group for the supportive comments to this thesis. The author expect that this thesis will be helpful for companies and readers. Halmstad, May 20, 2014 Zaoxuan Xu 3 CONTENT 1. Introduction…………..……………………………………………………………………………………………………………….………..……6 1.1 Background…………………………………………………………………………………………………………..………………….………... 6 1.2 Problem discussion……………………………………………………………………………………….……..……………………….……10 1.3 Purpose………………………………………………………………………………….……………….…………………….………….….……10 1.4 Research question………………………………………………………………………………………………………………………………10 2.Literature review………………………………………………………………………………………………..………………………….……11 2.1 Challenges of brand innovation………………………………………………………………………..………………….………....…11 2.1.1 Challenges from the brand equity perspective…………………………………………………………………………………11 2.1.2 Challenges from the market & finance perspective………………………………………………………………………….13 2.2 Brand innovation model………………………………………………………………………………..…………………………………..14 2.3 Research gap in the literature……………………………………………………………………..…………………………………..…15 3. Methodology……………………………………………………………………………………………..………………………………………..16 3.1 Research method…………………………………………………………………………..……..……………………………………………16 3.2 Research design………………………………………………………………………………………………………………………………….16 3.3 Empirical material………………………………………………………………………………………………………………………………17 3.3.1 Sample…………………………………………………………………………………………………………………………………………….17 3.4 Data collection……………………………………………………………………………………………………………………………………18 3.4.1 Primary data……………………………………………………………………………………..…………………………………….………18 3.4.2 Secondary data………………………………………………………………………………..…………………………………….…….…19 4. Empirical data……………………………………………………………………………………..……………………………………………….20 4.1 The introduction of Haier Group Corporation………………………………….…………………………………………………20 4.2 Brand innovation strategy of Haier………………………………………………..……………………………………………………20 4.3 Brand portfolio strategy of Haier………………………………………………..………………………………………………………22 4.4 The brand innovation model of Leader……………………………………………………………………………………………….23 4.4.1 The introduction of Leader…………………………………………………..……………………………………………………….…23 4.4.2 Challenges of Leader…………………………………………………………..…………………………………………………………..24 4.4.2.1 Challenges from the brand equity perspective………………..……………………………………………………………24 4.4.2.2 Challenges from the market perspective………………………..…………………………………………………………….25 4.5 The brand innovation model of Goodaymart………………………………………………………………………………………27 4.5.1 The introduction of Goodaymart……………………………………………………………………………………………………..27 4.5.2 The challenges from brand equity perspective………………..………………………………………………………………27 4.5.3 The challenges from market perspective………………………..……………………………………………………………….29 4.6 The brand innovation model of Haier medicine……………..…………………………………………………………………..30 4.6.1 The introduction of Haier medicine…………………………..…………………………………………………………………….30 4.6.2 The challenges from brand equity perspective………..………………………………………………………………………30 4.6.3 The challenges from market perspective………………..……………………………………………………………………….31 4 5. Analysis…………………………………………..………………………………………………………………..…………………………….……33 5.1 Challenges from brand equity perspective………………………………………………………………………………………….33 5.1.1 Brand awareness……………………………………………………………………………………………………………………………..33 5.1.2 Brand loyalty……………………………………………………………………………………………………………………………………35 5.1.3 Brand association…………………………………………………………………………………………………………………….………35 5.2 Challenges from market and financial perspective…..…………………………………………………………………….…..36 6. Conclusion……………………………………………………………………………………………………………………………………………37 6.1 Managerial implications and further research…………………………………………………………………………………….38 6.2 Limitations and further research………………………..…..………………………………………………………………………….38 Reference……………………………………………………………………………………………...…………………………………………………40 Appendix………………………………………………………….…………………….………………..………………………………………………46 5 1. Introduction In introduction chapter, the author divides it into three parts (Background, Problem Discussion, and Purpose & Research Questions). The first part begins with a brief presentation that is aimed at introducing the subject and highlighting its significance. In the second part, the author pays attention on the problem discussion where it demonstrates the importance and the reason why I focus on this field. Lastly, the purpose of this research and the research question will be referred. 1.1 Background In today’s knowledge-based economies, the global competition has become fiercer (Kuzler, 2012; Simon, 2004). In order to respond to competition and gain a competitive advantage or, in some cases, survive, company takes a variety of means to improve its competitiveness (Sicco, 2005). One of the most important means is that the company expands and innovates its brands to sustain its competitiveness (Davis, 2004). Nowadays, more and more consumers value the brand of the company from which they buy products. The brand stands for not only the product itself, but also a comprehensive image of the company (Adrian, 2011). Furthermore, consumers choose products according to the brand of company. Consequently, companies pay more attention on building their brand, for example, Coca-Cola pay more than 2.9 billion only on advertising in 2010, and Coca-Cola have not changed its products and receipt for decades (McWilliams, 2011). An important activity is therefore the brand innovation (BI) strategy that can help them to improve the brand performance and consequently occupy a greater market share (Aaker, 2007). According to previous research, there are no distinct definition of brand innovation because of different interpretations and usage of the term in the literature. There are different definitions of brand innovation in different articles. Dinnie (2007) in his book “Brand Innovation Manifesto” gave the understanding of brand innovation as a concept of how to use branding strategy to build brand in order to improve brand performance. Other scholars such as Chimhundu, Hamlin & McNeill (2010) defined brand innovation as: “The term brand innovation here is used to capture all innovative activities ranging from incremental to radical; thus the entire continuum from minor product or packaging changes to the introduction of totally new products/brand is taken into account, as well as the marketing activities associated with the innovation” (Chimhundu, Hamlin & McNeill, 2010, p. 10). In order to define the concept of brand innovation in this thesis, it is necessary to discuss both the concept of “brand” and the concept of “innovation”. The concept of brand was first used in 1870 (Alan, 2012). As a name, term, design, symbol or any other feature, “brand” is used to identify one firm’s product (or service) distinct from those of other firms (Wood, 2000). In order to succeed in the market, every company use various strategies such as brand extension, introducing new brands, continuous technological development and changing logotype to improve brand performance or brand equity (Weerawardena, O'cass & Julian, 2006; Sawhney, Wolcott & Arroniz, 2011; Abbing & Gessel, 6 2008). Secondly, the concept of innovation is accepted as “change” by many scholars such as Baregheh, Rowley, & Sambrook (2009) and Rogers (1998). So putting these two concepts together, I define brand innovation as how