Brands Crank Up Efforts to Diversify Their Product Portfolios

The following is republished with the permission of the Association of National Advertisers. Find this and similar articles on ANA Newsstand.

By Chris Warren

A display of Taco Bell merchandise at the Taco Bell Hotel and Resort in Palm Springs, Calif., which opened in 2019. The fast-food chain is just one of several major brands that are diversifying their portfolios in an effort to enlarge their audiences and develop new revenue streams.

The cosmetics company HipDot has a history of collaborating with brands to release new products. In addition to releasing their own namesake pieces, HipDot has previously worked with everyone from SpongeBob Squarepants to Tapatio hot sauce to the band My Chemical Romance to develop different makeup collections.

“Generally speaking, initial inspiration is drawn from in-house, as we internally are huge fans of the artists and brands we work with,” says Jeff Sellinger, co-founder and CEO of HipDot. “We like to keep people on the edge of their seat. We’re all about the unexpected: unexpected inspiration, unexpected storytelling, and unexpected collaborations.” It’s a flavorful and revenue-enhancing approach to marketing, and it’s proliferating among some of globe’s top brands.

This past spring HipDot teamed up with Reese’s — known for its famed Peanut Butter Cup and Reese’s Pieces candy — to launch a limited edition makeup line that includes “milk chocolate” and “white chocolate” eye shadow palettes. (Neither contain any chocolate.)

For Reese’s, HipDot’s track record of successful collaborations was a draw for the candy company’s first foray into the cosmetics market. While Reese’s offers a range of core confectionary and various licensed products, the company was also eager to capitalize on the attention pairing like Reese’s and Hip Dot can generate for the brand.

Reese’s limited edition makeup line, a collaboration with HipDot, is just one example of a series of recent moves by some of the world’s biggest brands to break into nontraditional markets and develop alternative revenue streams. Courtesy of HipDot and Reese’s

“Like most collaborations, the marketing value and consumer buzz is central to the effort,” says Ernie Savo, senior director of global licensing at The Hershey Company. “Confectionary is a highly impulse-driven category, so keeping your brand top-of-mind is paramount.”

He adds, “Strong collaborations not only generate a lot of social buzz, but the products themselves serve as a constant reminder of your love of Reese’s, in this case, every time you use the cosmetics — not to mention the value of conversation around what you’re wearing.”

Wave of Product Extensions

The HipDot–Reese’s partnership is just one example of a proliferating number of brands that are branching out from their core products and getting into entirely new sectors. In a hypercompetitive landscape, companies are waging that brand affinity among consumers can irrigate new revenue streams.

Examples abound. Dunkin’ recently announced a partnership with the paint brand Backdrop to release the donut brand’s iconic pink and orange paint colors. Taco Bell has also bet big on diversifying its portfolio, opening the company’s first-ever hotel in Palm Springs, Calif., in 2019.

Netflix is also getting into the act, launching Netflix.shop, in early June, with products like “Lupin” pillows and “Yasuki” shorts for fans of the TV series that run on the streaming service.

For some brands, the rationale for diversification is clear: market potential, and the ability to leverage their existing appeal with consumers.

“Bud Light has always maintained a leadership position in the beer category, so it was a no-brainer for us to evolve our portfolio and develop a hard seltzer as our latest innovation,” says Andy Goeler, VP of marketing at Bud Light. “The past few years have seen tremendous growth in hard seltzer, with the category up 160 percent in 2020, which has been a great thing for the beer category as a whole. As consumers’ tastes change, we know we must continue to innovate to meet their evolving needs.”

A new ad plugging Bud Light Seltzer, which comes in a variety of flavors. The beer brand is making a major play into the hard-seltzer market, while still appealing to its core consumers. (The seltzers include 5 percent alcohol.) Bud Light Seltzer/YouTube

While portfolio diversification may seem like a smart move when it comes to generating additional revenue, it’s not something brand managers should pursue without considerable thought.

After all, legacy brands are attractive because they offer something valuable and that consumers can rely on. So it’s crucial that companies not dilute those special brand characteristics when developing their diversification strategy.

“The key is to make sure that the extension is looked at from a brand safety as well as opportunity standpoint,” says Brian Rafferty, global director of business analytics and insights at branding firm Siegel+Gale. “Leaders need to understand what drives preference in the new category and how the brand’s current equities and perceptions help or hinder that. People were happy to go to a Harley-Davidson café but likely would not be giving their money to a Harley-Davidson fund manager. So, it is crucial to understand where a brand can and cannot stretch.”

New Customers to Engage

For marketers diversifying their product portfolios, the aim is to build on the existing strengths of a brand. For Bud Light Seltzer, that meant cementing the existing bond with Bud Light consumers while also proactively engaging potential new customers.

The marketing of Bud Light Seltzer, for instance, which launched in January of 2020, was complicated by the onslaught of COVID-19 two months later.

In some ways, though, Goeler thinks the pandemic has forced marketers to be more innovative than ever, relying on virtual gaming competitions, social media, and live- stream concerts, for example, to spread the word about their new product line.

“In August 2020 we announced via Instagram we were hiring our first ever CMO, aka Chief Meme Officer for Bud Light Seltzer,” Goeler says.

He adds, “We received an incredible response from our fans, getting nearly 3,000 submissions for the role in less than 48 hours. It was a fun and unique way to engage our current fan base while also attracting approximately 2,000 new followers to the Bud Light community on Instagram as a result of the campaign.”

Leveraging the Best of Both Assets

One concern Bud Light Seltzer was spared was developing creative content that could tap into the strengths of two distinct brands, which can sometimes be an obstacle for partners hoping to drive more top-line revenue.

“The creative needs to take the assets and equity of both brands into consideration, but also think about what will drive relevance and preference in the product or service category the collaboration is happening in,” Rafferty says.

He adds, “Siegel+Gale does a lot of work with American Express on its partner cards. The key to successful design is one that best leverages the equities of both brands and is mindful of the role each plays in the collaboration.”

In the case of HipDot and Reese’s, the cosmetics company took the lead in driving the creative process. “After all, they’re in the cosmetics business and we’ve partnered with them because of their success in the space,” Reese’s Savo says. “We provide guardrails, work collaboratively with the partner on vision, and then ensure we have the right amount of flexibility to have the shared vision come to life in a way that’s relevant for the category and pays adequate respect to the brands.”