Here is a brief excerpt from an article written by Jean-Baptiste Coumau, Victor Fabius, and Thomas Meyer for the McKinsey Quarterly, published by McKinsey & Company. They explain how and why big companies are finding growth in new markets by harnessing an underused asset—their brands. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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What it takes

Incumbents have a number of assets and advantages that they can exploit to act as attackers in new markets. We believe there are three fundamental success factors:

o Distinctive brand equity and trust. Virgin’s entry into High Street banking at a time when trust in the sector was at an all-time low enabled it to take advantage of its status as a brand known for giving customers a better deal. An established brand name can also act as a powerful form of endorsement in new markets: National Geographic Society’s shift from magazines to television channels, expeditions, and more recently, retail stores—that sell books, clothes, and travel gear—is just one example.

o Strong relationships with customers. BMW used its understanding of customers’ mobility needs as well as its existing perception of being a premium brand to enter a new category with a service that enables it to tap into a different need state. It also further strengthens its relationship with consumers who could, in the future, move out of town and buy its products. Similarly, the German baby-food manufacturer HiPP entered the baby-care market by appealing to customers’ desire for organic, natural, and caring products for their new babies. The brand is now the main challenger in the German baby- and child-care category, with a market share of 4.5 percent, trailing only the top three international incumbents.

o Access to data, capabilities, and other institutional assets. Disney’s expertise in delivering distinctive customer experiences enabled it to rethink language learning in the Chinese market and create and execute a value proposition that no other provider could match. In Europe, Inditex, owner of the Zara fashion chain, combined its intimate knowledge of customer preferences with its extensive supply and distribution networks and operational expertise to launch its interiors chain Zara Home in 2003. The Zara brand proposition of making runway fashion accessible to all has made a successful transition to the home-furnishing sector, with ten new markets entered in 2013 alone and almost 400 stores in 45 countries. Other types of assets can range from the technical—such as know-how, which drove Honda Motor Company’s extension from cars to lawn mowers—to emotional, as seen in the “companionship” offered by Sony Corporation’s MP3 players and TVs.

Successful brand extensions are likely to make use of all three of these advantages, rather than one in isolation. For instance, Disney’s venture into English-language teaching is built on its established brand equity in entertainment, its deep understanding of how to engage customers, and its operational capabilities and expertise in multiple countries and cultures.

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Here is a direct link to the complete article.

Jean-Baptiste Coumau is a principal in McKinsey’s Paris office, where Victor Fabius is an associate principal; Thomas Meyer is a senior expert in the London office.