Cover image adapted from “Cheating on Your Corporate Job: A Comic Look at the Startup Dream” by Kriti and Shivraj Vichare
These days, the required knowledge for innovation increasingly resides outside the boundaries of a corporation (Chesbrough, 2003; von Hippel, 2005; Kohler, 2016). Therefore, it has become a popular strategy among established companies to implement startups within their organization. Startups are a valuable source of innovation as they make use of emerging technologies and reinvent business models (Dushnitsky and Lenox, 2005; Kohler, 2016). One way of implementing entrepreneurship within a bigger corporation is by having corporate startups. A corporate startup is a team of employees working on one product or service concept. These teams are called corporate startups because they act as a startup within the organization of the corporate. Consequently, these corporate startups make it possible for the corporate to manage innovation while executing on the core business. But, unlike regular startups which brand their product/service under a non-existing brand, corporate startups often also have the choice to brand their product or service under the brand of the established company. When this happens we speak of a brand extension. Thus, corporate startups deal with a brand extension decision: do they brand their product/service under a new brand name or under the brand name of the established company?
The effect on new product success
It is important for corporate startups to make the brand extension decision wisely as it can have serious consequences for their new product success. In this article new product success is defined as the success coming from the number of customers adopting the new product or service. Hence, it is possible that customers do not accept a new product or service based on their perceptions towards the established company. You may assume that this mainly has to do with whether the customers perceive the new product or service to fit the industry the established company is in. However, this does not explain successful extensions such as that of the record company Virgin which entered the airline industry. Actually, when corporate startups brand their product or service under the brand of the established firm, they should fit the perceived brand image customers have of the corporate (Salinas and Pérez, 2009). In other words, it should fit the functional and symbolic associations customers have with the corporate brand. If this is not the case, innovators and early adopters will not accept the new product or service. As a consequence, less innovative customers, who mainly buy products/services when they are widely adopted, will also not accept the product/service which prevents the product/service from becoming a success.
Making the brand extension decision
To help firms in making the brand extension decision, I have researched the effect of the potential decision outcomes on new product success. The results of this research create a step-by-step approach for how a firm should make the decision for their specific corporate startup:
1. As a corporate startup, define what your new product/service stands for and thus what you want to communicate to the customers. Phrasing this into a brand positioning statement often helps. By phrasing a positioning statement you make sure everyone in the team is aligned on what the product/service’s brand should stand for. Note that this makes the next step, step 2, also more easy. A positioning statement can be: For [target customer] who [need/opportunity]. [Product name] is a [product category] that [key benefit/reason to buy]. Unlike [competitive alternatives] our product is [primary differentiator].
2. Think of 7 personality traits which you want the product/service’s brand to represent. E.g. visionary, decent, secure, playful, open, stable, inspiring.
3. Compare the 7 personality traits with the associations customers have with the corporate brand, in other words, the company’s brand image. Are they similar? Then there is a fit and branding the corporate startup under the corporate would even be beneficial for their new product success. Are the personality traits not similar to the company’s brand image? Then it is better to brand the corporate startup under a new brand name.
Note, that this step-by-step approach is based on the perception of customers towards a brand and does not take the organizational factors into account as these are different for each company.
In addition to the step-by-step approach, the research results also indicated that there is a specific strategy for when there is a fit and the corporate startup is branded under the established company. This strategy, together with the step-by-step approach, is integrated into a toolkit, which I have designed for corporate startups to use.
This article was published on LinkedIn
Author: Josephine Scholtes
Published: August 2019
Chesbrough, H. (2003a). The era of open innovation. MIT Sloan Management Review, 44(3), 35—41.
von Hippel, E. (2005). Democratizing innovation. Cambridge, MA: MIT Press.
Kohler, T. (2016). Corporate accelerators: Building bridges between corporations and startups. Business Horizons, 59(3), 347-357.
Dushnitsky, G., & Lenox, M. J. (2005). When do firms undertake R&D by investing in new ventures?. Strategic Management Journal, 26(10), 947-965.
Salinas, E. M., & Pérez, J. M. P. (2009). Modeling the brand extensions’ influence on brand image. Journal of Business Research, 62(1), 50-60.