We recently ran across a write up of Evernote’s “5% problem”. This tale of an entrepreneurial venture is a nice analog for existing brands from established companies.
Evernote is a prime example of a brand that fell into the trap of trying to do everything for everyone — a little bit at a time. The app’s downward spiral was ultimately the result of a “5% problem”: there were lots of consumers using Evernote, but most were only using the program for 5% of what it could actually do. The issue was that it was a different 5% for everyone, so there was no one area they could cut to drop the dead weight, or optimize to grow efficiently.
So, how does this relate to established brands?
Have you ever walked up to a store shelf to find it overflowing with an exhaustive variety of offerings from one brand? It might seem like a smart move for brands to line-extend into product skus that each appeal to a smaller and smaller group of consumers, but collectively appeal to a breadth of target markets. But, too many brand extensions lead to a “jack of all trades, master of none” type of problem, and leaves the consumer confused about the core identity of the brand.
This problem translates to real business model challenges. Often, low-performing/niche line extensions are collectively too profitable to get rid of, but each individual extension is not profitable enough on its own to keep. So, if a brand cuts smaller skus, it takes a huge volume/profit hit; but if it keeps them all, the brand’s core identity suffers (and distribution inconsistencies can send shoppers to consider different brands), confusing–and ultimately losing–consumers. It’s a catch-22.
The best way to solve this “5% problem” is to establish a core identity from the beginning–and stick to it. Be selective. Companies should only roll out products that truly support the foundational architecture of the brand. We’re all about innovation and trying new directions, but once that innovation translates into off-brand product extensions, and a too-small niche that causes a brand’s essence to become muddled, it defeats the purpose. The most successful brands have a consistent core offering or experience that they can neatly package up and easily explain to consumers across a limited set of extensions, each that is sufficient on it’s own.
Think about your own company. Can you clearly and concisely explain what you do and what you offer? Or are you, too, falling prey to the “5% problem”?
The Garage Group enables corporate teams to innovate and grow like startups, including building strong Brand Architectures that define the right boundaries for innovation and extension.
Photo licensed under Creative Commons 2.0 via Flickr user: othree