1) Porsche A couple of days ago, a piece of news caught my attention. People who study marketing truly lead a joyless life. After reading this news, anyone who understands corporate management would know exactly what's going on. Porsche is about to engage in Line Extension, or LE for short. What is Line Extension? Let's start with a story. In April 2013, an author named Robert Galbreith wrote a new book, The Cuckoo's Calling. On a UK website, it was rated 4 stars. Not a bad score. In two months, it sold 1,500 copies. Seeing the dismal sales, the publisher couldn't sit still. An employee "accidentally" leaked that Robert was a pen name. The real author was none other than the famous J.K. Rowling.

By the weekend, sales of the book had soared by 150,000%.

It jumped to 2,250,000 copies, ranking first on Amazon. This is a very interesting story. It tells us how to achieve "success." Why does the same product, a novel, fail to sell when attributed to unknown writer Robert, but sell like hotcakes when attributed to J.K. Rowling? Because consumers buy into brands; they buy into J.K. Rowling's brand. If you travel for business, you often see oddly long hotel names.

  • Chongqing Wanda Le Méridien Hotel
  • Beijing Haidian Yongtai Four Points by Sheraton
  • Zhangzhou Rongxin Crowne Plaza Hotel Double-barreled names are fine, but there are even triple or quadruple ones. Academically, this is called a "sub-brand" strategy. They sell Sheraton, but also partner with Wanda. Rongxin is a local financial group, typically holding fixed assets as major landlords. 2) Line Extension "Sub-brands" have significant advantages. One obvious benefit is that sub-brands are easy to survive.

J.K. Rowling ----> Harry Potter

J.K. Rowling ----> The Cuckoo's Calling "Harry Potter" is a highly successful product. Consequently, J.K. Rowling is also a highly successful brand. Using AB to promote AC, The Cuckoo's Calling could sell millions of copies. Many people have no concept of the "brutality" of the marketplace. They think entrepreneurship is like a flower in a greenhouse. Currently in the Chinese market, if you want to create a "well-known" brand, any brand, as long as you can name it. Any product, even brands like "Lonkey" or "Little Panda" that you have no positive association with and would never buy. As long as a billion people can name it, the cost is ¥500 million Any brand that can leave a memory in consumers' minds on Walmart's thousands of shelves.

Its cost is 500 million yuan.

Advertising spending must reach at least 500 million yuan. Advertising is like burning money by the sackful. If you make an app and expect everyone in China to know it, just for that "fame," you need to burn 500 million. To save on "brand" awareness, all manufacturers rack their brains to reduce costs. One common practice is to promote using a "parent brand---sub-brand" approach, where the big supports the small. For example, "Sichuan Changhong" started with televisions. Changhong TVs have a good reputation. But if you search on JD.com, you'll find Changhong air conditioners, Changhong refrigerators, Changhong washing machines, Changhong electric fans, and even Changhong phones... Among major Western brands, LV is known for bags, Dior mainly for haute couture, Chanel for perfume, Hermès for leather goods. But Dior now also makes perfume, LV makes women's clothing, and Hermès even sells home goods. Everyone's product lines are "TV + refrigerator + washing machine + air conditioner," covering all white goods. Luxury brands also blur their specialties. It's hard to see their main business. Why? The reason is that you first need a very successful brand. The first success is the hardest and depends on luck. But on the basis of an existing brand, doing a Line Extension, or sub-brand extension, becomes much easier. For example:

  • Dior perfume
  • Dior lipstick
  • Dior watches
  • Dior jewelry
  • Dior handbags 3) Pros and Cons of LE Line Extension has equally obvious pros and cons. Pros: It's extremely profitable, almost a money tree. Cons: It damages the core brand. Hong Kong's Ni Kuang was once hailed as the "Master of White Pages," meaning that due to the huge success of the Wesley series, fans were loyal. Even if Ni Kuang's next work were blank pages, it would still sell out across the city. Sounds great. And Ni Kuang did exactly that. To make money, he wrote at lightning speed, producing the Yuen Zhenxia series and the Mulan series. Terrible books, even I couldn't read them. Ni Kuang's reputation was ruined. Similarly, "Harry Potter" is a huge success, gathering a massive fan base. Die-hard fans spawned countless spin-offs. This ensured J.K. Rowling's reputation and the success of her next work. But J.K. Rowling ----> The Cuckoo's Calling was not a very successful work. While earning 2.5 million copies in sales and royalties, it also consumed her fan base. Let's look at Porsche. Porsche undoubtedly holds a very high status in the minds of Chinese car enthusiasts, with extremely high reputation. If Porsche were to launch a "low-end" entry-level product at 300,000 yuan, it would surely sell well and make a lot of money for the group. But it would damage Porsche's core goodwill of "prestige and dignity." People who understand marketing would immediately know what's going on upon seeing this news. In the company, the CFO must have overpowered the CEO, or some fund company intervened. KPI has become the main assessment indicator. 4) The Role of LE in Marketing The "marketing department" is the brain of the entire company. For the marketing department, we usually draw a table like this. The horizontal axis represents "price," and the vertical axis represents "quality." The green line goes from low to high. Typically, no company can cover the entire market with just one "product." For example, in the automotive market, A, B, C, E, S represent different car classes. A 1 million yuan car and a 100,000 yuan car are definitely not the same. Moreover, capitalists are very greedy. Wall Street is ruthless. The demand for performance never stops. Over time, Line Extension becomes inevitable. Companies will eventually fill all "market segments." For the marketing department, the only real headache is whether to use the parent company's name for the Line Extension. We know that when Lei Jun started Xiaomi, the selling point was "super cost-performance." Positioned at 1,499 yuan, Xiaomi phones could achieve "low price, high specs," leaving competitors a generation behind in cost-performance. This huge idea brought Xiaomi remarkable success, massive sales and profits, and a legion of geek-level fans. But since then, "Xiaomi" has established a whole bunch of business units, entering a series of new industries. Even the so-called "Xiaomi family bucket" was born, including but not limited to: Water purifiers, air purifiers, desk lamps, TVs, light bulbs, power strips, latex spring mattresses, sofas, pillows, socks, electric toothbrushes, water filters, coffee machines, children's watches, humidifiers, projectors, mini fridges, drones... These are all typical Line Extensions. When an "ordinary" OEM product is labeled with the "Xiaomi" brand and a Wi-Fi chip, it can immediately sell at several times the gross margin.

All peripheral "gross profits" are driven by the parent brand.

If messed up, they suck the blood of the parent brand. I believe that when a brand manager sees the "coffee pot" or "water heater" business units also asking to use the "Xiaomi coffee pot" or "Xiaomi water heater" brand names, they must be churning inside, wanting to kill someone. These mediocre products seriously damage the brand value of "Xiaomi," but they increase the group's total profit. 5) The Company's Attitude Many years ago, when I was a marketing trainee in corporate training, the instructor posed a question:

  • Windows was basically killed by Ballmer. He bundled too many goals onto Windows to drive other Microsoft product lines.
  • QQ was basically killed by Tencent. To promote the "Tencent family bucket," QQ became so bloated.
  • Alipay was killed by Jack Ma, poor Alipay social.
  • Only WeChat, thanks to Zhang Xiaolong's persistence, remains streamlined. The instructor asked: "Between damage to the core brand and LE expansion profits, which should a company choose?" Between long-term interests and short-term profits, which should be chosen? As a Chinese person, I almost instinctively gave the answer according to Eastern culture: "Each has its merits. If I must choose, I would defend long-term interests." Well, I was promptly marked with a cross. Remember the instructor's teaching. The correct answer to this question is: "Kill the brand!" When I first learned this answer, I fell off my chair. I was so shocked that I still remember it vividly over a decade later. The instructor explained, "A 'brand' is not real wealth; a brand is not US dollars." It's like when I visited a friend at Aijian Garden. My friend had a Pu'er tea cake from the 26th year of Guangxu, worth 2 million RMB. Should you hold such a precious tea cake, kneel, and enshrine it in a safe? No. When I went, Mr. Li broke the tea cake into pieces and brewed tea for everyone. We drank it continuously for over twenty days, and gradually it was all consumed. Mr. Li's explanation was: "The tea cake is not real wealth; the tea is." Breaking the large tea cake, brewing it with the most suitable hot water and elegant tea sets, and drinking it with friends is the maximum utilization of the "old tea." If you kneel and enshrine the tea cake, locking it in a safe, your standard of living doesn't improve at all.
  • This is the core difference between Eastern and Western thinking.
  • The worldviews of a hungry nation and a commercial nation are vastly different. Similarly, for something like a "brand," if you carefully maintain it and keep it high-end, it won't bring you high profits. Like the "tea cake," you need to break it into pieces and brew it bit by bit to drink. The tea cake eventually disappears, and that is the way to maximize consumption. For brand management, you need to suck the blood of the parent brand bit by bit. Orderly and delicately, convert the intangible brand into tangible money, and eventually kill the brand. That is the way to maximize profits. The brands you all love today, like LV, Prada, Gucci, will one day become common street goods with no brand value. If before the company goes bankrupt, the brand has not been sold down to zero, that is the greatest irresponsibility to the company. -END-