When Is It Time to Consider a Spinoff Brand?

When a product doesn't align with your brand, you can't ignore it. Longtime customers have come to expect a certain experience. That means anything that doesn't fit - be it a single message on a social media platform or an entire product line - must adapt or go.

Spinoff brands have a checkered history, though. Ram spent years as a Dodge nameplate, then flourished after becoming its own truck line. Ford's Edsel spinoff, on the other hand, famously cratered after producing a single model.

The success of a spinoff depends on a variety of factors. Spinoff brands require different leadership teams, financial structures, and go-to-market philosophies than their parent brands. Many would-be spinoffs have sputtered out of the gate because their parents refused to give them the space they needed to find their own way.

But not every bold new product requires its own brand. If you aren't sure whether your situation merits a full separation, consider the following reasons to create a spinoff:

An established brand is a blessing and a curse. Many legacy companies have infrastructure that's all but ideal for adjacent products. But when sold under the same brand, products in seemingly similar industries mix like oil and water.

Alcoholic beverages may be mostly water, but that production advantage didn't save Coors Rocky Mountain Spring Water. Distinct bottles weren't enough, the Colorado-based beer brand discovered, to convince bottled water consumers to share a label with beer drinkers.

Sometimes, even products in the same industry merit a new brand. Shelter Insurance Company created Say Insurance to appeal to consumers who desired a simple, tech-savvy auto insurance solution. Shelter General offers multiple lines of insurance with the more traditional strategy that appeals to those who want an agent relationship. The spinoff has allowed Shelter to evolve with the market without diluting the brand experience its customers have come to expect.

There's nothing inherently wrong with operating multiple brands in the same market; problems begin when their identities become tough to distinguish from one another.

For years, Gap reserved its own name for upscale, high-quality clothing; its Old Navy arm sold more affordable, family-oriented apparel. But as the Old Navy brand grew while Gap shrunk, those differences began to disappear. This past February, Gap chose to turn Old Navy into a spinoff, allowing both brands to pursue new opportunities without stepping on the toes of other Gap brands.

The bigger your collection of brands grows, the greater the odds that one brand will compete with the others. When rebranding the product of one brand under the banner of another doesn't make sense (and when the potential spinoff has enough traction to stand on its own), a clean break may be the answer.

Mergers and acquisitions are serious branding challenges. CMOs can choose to keep the two brands separate, stick the acquirer's brand on everything, fuse both brand names, or spin off the acquired company completely.

The decision comes down to audience, name recognition, and brand values. When gaming company Sega acquired communications and technology company Index Corporation, it quickly spun off Index's gaming arm as Atlus. The reason is that few consumers recognized the parent company's name, but many were familiar with that of its Japanese publishing subsidiary, Atlus.

When Alphabet merged Nest with Google, the parent company made a different decision: to use both names on what are now Google Nest products. Because Google and Nest have name recognition and value similar things - such as environmental protection, a strong user experience, and data security - Alphabet executives bet they'd be stronger together.

Before you complete a merger, consider how well the brands harmonize. When Amazon acquired Whole Foods, for example, it didn't rebrand Whole Foods as "Amazon Foods." Although Amazon has been tight-lipped about the decision, shoppers who want a high-end grocery shopping experience likely aren't the same ones who want to click and be done with it.

After years of fast-food dominance, Americans have become hungry for healthier options. To capitalize on that trend, Post Holdings - maker of cereals like Honey Bunches of Oats and Fruity Pebbles - set up BellRing Brands. Although BellRing recently conducted an IPO as its own company, Post Holdings still owns about 71% of BellRing.

Although both brands are in the prepackaged foods space, Post's products aren't exactly health foods. Post's leaders knew that, for products like Joint Juice and PowerBar to be taken seriously by wellness-minded consumers, it would need to sell them under a separate name.

If trends don't pan out, the new brand can separate it in consumers' minds from the parent company. Amazon's efforts to enter the smartphone market with the Fire Phone barely lasted a year. Embarrassing though it was for Amazon, Fire Phone's failure doesn't seem to have damaged the Amazon brand.

Even the most successful companies will debut a few duds. Spinoff brands provide the perfect opportunity for companies to test new waters, optimize product catalogs, and mitigate risk. When your brand portfolio begins to feel crowded, a spinoff strategy may be the perfect solution.

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