Flanking brands and pricing strategy

In 2004, amid the opening of the telecommunications market in Colombia, the international long-distance market was being threatened by calling cards smuggled into the country. In this scenario, the telecom company Orbitel saw its natural market under threat but faced a dilemma: what should they do to serve the most price-sensitive customers attracted by those rates without cannibalizing the Orbitel card? The answer was found in the so-called flanking brands. By launching the Baratel card, the company was able to retain its most price-sensitive customers without destroying value in the segment willing to continue paying the Orbitel card rates. But what exactly are flanking brands, and what are they for? How can they be used as part of a coherent and structured pricing strategy?

Flanking brand or flanker
Flanking brands are those that a company introduces in a category where it already participates with one or more brands, with the objective of expanding its customer base by serving the more price-sensitive segments. Typically, flanking brands have lower market value and help premium brands serve the lower end of the pyramid or other segments they cannot reach. This is how, by launching its flanking-brand calling card, Orbitel managed to triple its revenues in the international long-distance service and participate in a market that had previously been out of reach for the Orbitel card.

The brand, seen as an emotional attribute in the purchase decision, determines the price premium that can be charged for a product compared to another that is functionally identical. This additional value is generated by the positioning the brand holds in the consumer’s mind and is the result of the company’s investment in the market. A flanking brand should not have the same marketing investment as a brand with superior positioning, because this would increase its market value and prevent it from fulfilling its flanking role.

Fewer functional attributes
Typically, flanking brands vary the level of the product’s functional attributes to differentiate themselves from the superior brand. This was the case of the Swiss watchmaking group that launched the Swatch brand in the early 1980s. With striking and affordable designs, the new brand quickly became an attractive option for more price-sensitive customers, where Japanese quartz watches were gaining more ground. By doing this, the Swiss watch group stopped the loss of market share in this segment and preserved the value of less price-sensitive customers with its premium brands, such as Tissot and Omega.

However, a flanking brand does not necessarily need to have different functional attributes from the superior brand. It is possible to find cases where brand differentiation alone is enough to justify the price premium of the superior product over the flanking one. In the late 1990s, Pert Plus shampoo had the same formula as Pantene shampoo. The former was Procter & Gamble’s flanking brand, while the latter played the role of premium brand. Even though both were 2-in-1 shampoos with exactly the same formulation, the emotional value of the Pantene brand was enough to justify the price premium over Pert Plus.

The distribution of flanking brands
But many manufacturing companies fear letting their superior and flanking brands coexist across different distribution channels. A leading apparel company sells its superior brands in large retail chains, restricting the use of its flanking brand to the traditional channel. In doing so, it aims to “avoid” the cannibalization the latter could generate for the former. What this company has failed to recognize is that such cannibalization occurs anyway—not because of its flanking brand, but because of the low-priced brands sold by large chains. And in most channels, there are price-sensitive customers and customers who are not. For this reason, whenever necessary, all of the company’s brands should be made available to all customers, allowing their level of price sensitivity to segment them.

In summary...
Brands have a range of action. Trying to “stretch” them beyond that range to cover all market segments can distort their positioning. Flanking brands are, in conclusion, an excellent option for manufacturing companies to reach the segments that superior brands cannot serve.