Although the multi-brand strategy has many advantages, it also has many limitations.
①With the introduction of new brands, their net market contribution rate will show a marginal decreasing trend. The marginal utility theory in economics tells us that as consumers consume more of a commodity, the marginal utility of the commodity shows a decreasing trend. Similarly, for a company, as the number of brands increases, the marginal market contribution rate of new brands to the company will also show a decreasing trend. On the one hand, this is due to the limited internal resources of the company, and supporting a new brand sometimes requires reducing the budget costs of the original brand: on the other hand, when a company creates a new brand in the market, it will not achieve the desired effect due to the resistance of competitors. Competitors will launch similar competitive brands for the company’s new brands, or increase marketing efforts for existing brands.
In addition, another important reason is that as the number of brands on the same product line increases, each brand will inevitably erode each other’s market. When the total market is difficult to expand suddenly, it is hard to imagine that all the consumers attracted by the new brand are customers of competitors, or people who have never used the product (especially when the product differentiation is small, or the positioning of different brands on the same product line is not very different, the phenomenon of “cannibalization” between the company’s brands is particularly significant).
② The cost of brand promotion is high. When a company implements a multi-brand strategy, it means that limited resources cannot be allocated to a few brands with strong profitability. Each brand requires a long-term and huge publicity budget. For some companies, this is out of reach.