Brand Extension Strategy Lessons From Intel -The Brand Portfolio Strategy

(The principal content of this article is from ‘Brand Portfolio Strategy’ by David A Aekar).

Intel grew its microprocessor business from $1.2 billion in 1989 to $3 billion in 2000. Experimentation, Internal culture, fearless environment, decentralised decision making, having the right people at right positions, speedier innovation, bigger budgets, massive infrastructure and operational efficiency had contributed to the Intel’s rapid growth. But David A Aekar feels that Intel’s ‘Brand Portfolio Strategy’ was also one of the major reasons behind Intel's success.

INTEL’s ENTRY INTO MICROPROCESSORS

In the early 1970s, Intel was the leader in selling memory chips(DRAM). But by late 1970s, the company was on the verge of being thrown out of DRAM business as they rapidly lost the market share in memories due to competition from Japanese manufacturers who were selling DRAMs at a lower cost. DRAMs became a commodity product and Intel was losing its relevance in the market.

In the meantime, one of Intel’s development team built a microprocessor which matched IBM’s product requirements of that time.

Because of IBM’s insistence, Intel began to manufacture its first microprocessor 8086 and supplied them. Soon, other PC companies approached Intel. On seeing the demand, Intel exited memory chips business and turned itself into a ‘microprocessor’ chip manufacturer. Slowly, Intel’s microprocessor became an industry standard.

THE GROWTH TRAP

Intel launched 286 processor in 1982, 386 processor in 1985, 486 in 1989. By 1990, Intel became a dominant player in the microprocessor market.

Meanwhile, a lot of competitors entered the market and launched their microprocessors with a naming system similar to Intel’s system. Intel’s 386 was matched by AMD 386. It created confusion among consumers. Since the names were alike, people began to think that the products were almost identical except for the difference in manufacturer name. Intel felt it was losing the differentiation. Further, In 1991, Intel lost its trademark violation case(the numbering system) against AMD. The competitors were free to use the numbering system similar to Intel’s.

In that scenario, it appeared that microprocessors would soon become a commodity product(similar to DRAMs). Instead of looking at the brand, people would just look at the specifications and buy the product. That means a ‘death knell’ for the Intel organisation.

Intel was not ready to go to that path.

What should Intel do? What’s the solution for long term success?

For a sustainable business, the first step is to build a brand. It means finding a way to occupy a position in a consumer’s mind.

But there’s a challenge -Microprocessor chip was not visible to the consumers as it’s always inside a vendor’s product. It was still an unknown component of PC for the end consumers. How to make the Intel brand visible to the consumers?.

BRAND ENERGISER

Aekar writes that a brand might need some energy to make it visible to consumers. How to energize Intel, considering that most of the consumers had no interest or little interest in understanding what’s going on inside the PC.

Aekar suggests that the solution might be to create an ownable, internally branded energizer which is not part of the offering per se but has energy and then to use that “branded energizer” to energize the target brand or sub-brand. The branded energizer could be promotion, sponsorship, symbol or other entity that significantly enhances the target brand.

Intel chose ‘promotion’ as ‘Energiser’ -The famous ‘Intel Inside’ campaign which went on to energise the Intel brand.

  • Intel encouraged its PC partners to advertise their PCs and contributed a share to the partner’s advertising budget.
  • The PC partners were asked to present the “Intel Inside” logo on the outside of the product and in their product advertisements.
  • The TV ads of computers finished with ‘Intel Inside’ logo at the end with a piece of stirring music.

‘Intel’ brand was getting nailed in the minds of consumers.

  • Intel convinced OEM partners to create a sub-brand for PCs having competitor microprocessors. In this scenario — customers realized that they were buying a computer without “Intel Inside”.

OEM partners were happy to implement Intel’s tactics as they got a 10% premium for “Intel Inside” products from end-consumers plus advertising support from Intel.

The ‘Intel Inside’ campaign became a massive success. Consumer began to ask for PCs with Intel microprocessors inside.

THE BRAND DILEMMA

In the meantime, in 1992, Intel’s team was about to launch the next version of 486 microprocessor chip. It was technically superior to 486 processor and had a higher power capability. The senior management was in a confusion whether to call the new chip as Intel 586 or by a new name?

Every brand decision has to be thought from a customer’s perspective and should also consider the long-term prospects of the business and the brand. Intel’s team pondered over the following points -

1) The Problem of Numbers -The numbers(386, 486, 586, 686…) would be confusing for consumers in the long run when the product varieties increase. It would be cognitively hard for consumers to remember the numerals for different generations and categories. By nature, we always look for ways to reduce our cognitive load. A text would be easy for customers to remember. Another problem with the numbers -Competitors were copying them and confusing the consumers. So, the way forward was to discard the 3–4 digit number series.

2) Need For Categories — Within the microprocessor market, in the near future, there would be different target consumer segments based on their needs. A high-end business customer’s requirement would be different from a personal home computer user.

A product for everybody is a product for nobody.

So, as the potential customers increase, categories would arise within the microprocessor market. Can the Intel brand be extended to each category?

  • The ‘Dial’ was a successful brand in the soap category. It began to extend the name for its products in other categories -Dial Deodorant and so on. What happened? The ‘Dial’ has a large share of the soap market and a very small share of the deodorant market. If you ask consumers, Dial means… they would reply ‘Soap’. Dial holds a strong position for Soap inside a consumer’s mind. The brand never succeeded in other categories.
  • Kleenex was famous for Tissues. It extended its name to other product categories -Eg. Kleenex Towels. For a consumer, Kleenex means tissues. Kleenex never made inroads in other categories.

A brand should mean only one thing to consumers. Not two or three things.

So, Intel should mean only one thing -Microprocessors. But what about different categories inside the microprocessor market?

The same rule had to be applied. In each category within the microprocessor, whatever brand name we use, it should indicate only one thing. It means Intel should use different names for different categories.

  • Take the example of ‘Kraft’ brand -Kraft is there in many categories yet not number one in any category- In mayonnaise, Kraft is second to Hellmann’s. In salad dressing, Kraft is second to Wishbone. Where Kraft is leading brand in the category, they don’t call it Kraft. In cream cheese, it’s Philadelphia, not Kraft. In ice cream, it’s Sealtest, not Kraft. In margarine, it’s Parkay, not Kraft.

A line extension is a weakness, not a strength -Al-Ries & Jack Trout

Different name in different categories helps us to enter a consumer’s mind and hold a strong position there. The brand recall would be great.

So, ideally, Intel should come out with new names for each category.

But, there’s another challenge -Establishing a new brand is very expensive. On what criterion, should we decide whether to go for brand extension or a new brand?

3) The Difference -A new brand would be advisable if there’s a sizeable difference in technology, performance levels than the previous generation model. How much more beneficial to the customer from the previous generation models?

4) The Sales Volume -The projected sales volume of the new product has to justify the investment in the new brand. If the expected sales are low, it would be better to use brand extension than investing in a new brand.

The 586 processor was much more technically advanced and beneficial to customers than the previous generation 486 processor(A sizeable difference). Intel team also strongly felt that the new processor had huge sales potential. So, the Intel team felt it’s worth investing in establishing a new brand.

Intel approached ‘Lexicon Branding’ company to help in coining a new brand name. The branding company suggested Intel consider a name ending with the suffix ‘-ium’ -Similar to chemical elements ending with ‘ium’ -To imply being part of advanced science -To signify an advancement in technology -Microprocessor was like an essential chemical ingredient for the computer. To that ‘-ium’, the branding company added -’Pent’-Penta(gon) -586 -fifth generation X86 processor -Pent also meant strength and power.

Thus the brand name ‘PENTIUM’ was born.

BRAND ENDORSER

Intel wanted to leverage the ‘Intel Inside’ campaign’s success as people were aware of the Intel brand by that time. Moreover, as ‘Pentium’ name is new, it would be tough to grab the attention of the consumers. Besides, people would be afraid to try a new brand. So, it was important to show that the product is from Intel so that Intel’s characteristics of reliability, quality, durability could be transferred to the new brand in the minds of consumers.

Hence, the new brand was launched along with ‘Intel Inside’ logo.

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Image from Fandom.com

Intel brand, in this case, acted as an endorser brand. Pentium brand would need some time to become a stand-alone brand. Till that time, the Intel brand would act as driver brand.

BRAND EXTENSION OF PENTIUM

What about the next generation of products? After 586? It would be costly for the company and confusing for consumers to have a new name for every future generation product.

What would be criteria for creating a new brand(Sub-brand) under Pentium or extend the Pentium brand?

  • If the improvements are minor or it’s the corrections of prior mistakes in the Pentium processor, the company generally ignored it and felt it’s not worthy to signify a major brand announcement.
  • If there are notable improvements from the previous processor, with a bit advanced technology, additional reliability and quality but at the same time, if the new processor was not expected to sell in huge volume as a stand-alone brand, Intel used it as part of Pentium brand. Thus Intel launched Pentium Pro(1995), Pentium II(1997) Pentium III(1999) Pentium IV(2000).

Branded Ingredient -In 1996, Intel developed a chip with superior graphics quality -The product was built on the existing Pentium architecture by adding an MMX instruction set and it also had extra benefits for a certain group of customers. It was basically a Pentium processor with an additional feature. As per the brand decision criteria, the expected volume of sales was low and also there was no substantial difference from available Pentium processors. Instead of calling it as a next-generation Pentium, Intel added the technology name to the brand and called it as Pentium MMX. These brand extensions helped Pentium to repay its investment.

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Source:: Wikipedia

In over a decade, Pentium became a bigger brand than Intel.

SUB BRAND FOR CATEGORIES

Another important criterion which decides whether we have to create a new brand or extend the existing brand is the need for categorisation. Category happens when the brand has to meet the needs of specific customer segments. Remember, each customer segment means a new category. If sales volume permits, each category has to be represented by a new name.

In 1998, Intel’s team observed that there was a growing demand for high-end servers and workstations among larger business units. The company had capabilities to supply those high-power demands by linking multiple microprocessors. Unfortunately, in the consumer’s mind, the Pentium brand name was associated with lower end personal computers for homes and businesses. They might consider Pentium brand unsuitable for servers and high-end workstations.

What should be the solution? A new brand for the new category. But the Intel’s team was not sure of the expected volume of sales. They could not predict the future of that line of business. Developing another stand-alone brand would be expensive. So, what they did? They created a sub-brand under the ‘Pentium’ brand. The new brand was called Pentium Xeon.

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Image from Fandom.com

Xeon brand would need some time to become a stand-alone brand. Till that time, the Pentium brand would act as driver brand.

As expected, by 2001 Xeon became an established brand on its own with a wider customer segment.

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In 1999, as PC market matured, Intel saw an opportunity for lower-priced PC computers. It was a niche market at that time but was poised to grow massively.

The company saw that competitors were undercutting their product prices to gain a foothold in the microprocessor market. AMD’s K6 chips were cheaper and served the needs of lower-end PC customers. If unchecked, it appeared AMD would soon grow into a big brand and rival Intel.

Intel also had a concern that the lower priced offers from AMD might soon attract customers from the Intel’s premium segment(Pentium). Intel had to find a way to protect its ‘Pentium’ brand.

Solution(s)?

  • Should Intel reduce the prices of their Pentium products and tackle the competition head on? In that scenario, it would not only destroy profits in the short-term, brand equity in the long run but also commodify the product.
  • The next option would be to create a sub-brand under the Pentium brand. Unfortunately, Intel faced a challenge -Pentium meant premium segment processors in the consumer’s mind. A brand cannot mean two things to the customer. Either premium or mass segment. A sub-brand of Pentium would be cannibalising its own business. A risky proposition.

Al Ries, “Before World War II Packard was the premier American automobile. It was a status symbol. Then in the middle thirties, Packard introduced a step-down model, inexpensive Packard Clipper which went on to become the most successful model. The sales were terrific but killed the company”.

  • The FLANKER Brand -The third option would be to launch a fighter brand or a flanker brand -a new stand-alone brand like ‘Pentium’ but aimed to combat and eliminate low-price competitors like AMD while protecting Intel’s premium-price brands.

The value segment was different from what Intel was meant for till that time. The stand-alone brand could modify the association of meaning of Intel brand in a specific way in the minds of the consumer. To add credibility to the new brand, Intel could be an endorser brand. This way, the Pentium brand would not be affected by the success or failure of the new brand. Intel strongly felt that value segment offered a huge volume of sales to justify the investment in establishing a stand-alone brand.

Thus the Celeron brand was born -a cheaper, less powerful version of its Pentium chips to serve the low-priced PC market. It not only kept the competitors from gaining foothold but opened new market opportunities for Intel.

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Image from Jamiebalfour.com

In early 2000, Intel built a new processor to target enterprise server and high-performance computing markets. What should be the brand strategy?

One option was to extend the Xeon brand. But Intel felt that the brand extension would not work as consumers associate the Xeon brand only to low-end computing. Moreover, the new product was a 64-bit microprocessor whereas Pentium and Xeon were part of a 32-bit microprocessor family. The new processor was also built entirely on new architecture(EPIC) and its performance levels were much higher. So, there was a substantial difference between the new microprocessor and the Pentium or Xeon.

The new product also had to indicate the movement of the brand to new technology. Being part of Xeon or Pentium would imply that the product was an incremental innovation and would not symbolise the advanced technology. All those above factors necessitated the creation of a new stand-alone brand under Intel for the new high-performance processor.

Intel team asked the help of ‘Lexicon Branding’. They came out with a new name for the brand based on the chemical element -Titanium without ‘T’ -’Itanium’ -reflecting the strength and performance of the processor.

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Image from Fandom.com

Thus ‘Itanium’ brand was created.

Similarly, for the new category ‘Laptops’, the user requirements were different from other microprocessor markets -extended battery life, integrated wireless connectivity, thinner and lighter design. So, Intel created a new stand-alone brand -Intel CENTRINO.

CONCLUSION

In the late 1970s, microprocessors’ growth was slow as it was a smaller and emerging market. The microprocessor development team had no separate manufacturing or production facility to meet their demands. They had to manage everything whenever the facilities were available after supporting memory business. The priority was memory chips.

Making a microprocessor as a stand-alone brand helped the business to grab enough resources they needed to succeed. It also helped employees to understand the importance of the microprocessor business and gear themselves for achieving the new goals.

David A Aekar also writes that all the brands under a parent brand should be strategised in such a way that every brand should reinforce and support each other and ultimately making the parent brand ‘Intel’ richer.

References:: Brand Portfolio Strategy by David A Aekar, Positioning: The Battle Of Mind by Al Ries-Jack Trout, Wikichip.org, Wikipedia.org, Lexicon-branding-Wikipedia.org.

**Facing problems in business? For suggestions, mail to shah@d-cubedesigns.com.**

Written by

Secular Humanist, Business Growth Consultant, Design Thinker, India. Reach me at mmshah8@gmail.com. or https://www.shahmohammed.com

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