RESEARCH & IDEAS

How to Brand aNext-Generation ProductPublished: April 23, 2012Author: Carmen Nobel

Upgrades to existing product lines make upa huge part of corporate research anddevelopment activity, and with every upgradecomes the decision of how to brand it. HarvardBusiness School marketing professors John T.Gourville and Elie Ofek teamed up withLondon Business School's Marco Bertini tosuss out the best practices for namingnext-generation products. Key conceptsinclude:• Companies often take one of two tacks in

naming a next-generation product—thesequential naming approach or thecomplete name change approach.

• Experimental research showed that eachnaming approach affects customerexpectations. With a name change, researchparticipants expected features that weredistinctly different or new. With a namecontinuation, they just expected improvedperformance on existing features.

• Companies must assess risk versus rewardwhen branding a product upgrade,weighing the excitement generated by a newname against the danger of scaring awaycustomers who worry that new features posethe threat of new glitches and a steeplearning curve.

When Apple launched its latest iPad,experts and nonexperts alike expected it to bedubbed "iPad 3," a natural follow-on to thesecond-generation iPad 2. Instead, the companycalled the new iPad just that: "the new iPad."Observers debated whether this was lazybranding or a very deliberate effort to marketthe iPad as a sibling to the Mac. Macs keeptheir names with each successive upgrade,analysts noted, while iPhones sport sequentialnumbers and letters to indicate improvements.

"Consumers don'tnecessarily read specs tolearn about new features,but they'll always notice anew name."Like Apple, most consumer-centric

companies deal with the dilemma of how tobrand the next- generation of an existingproduct. Product upgrades make up the majorityof corporate research and development activity.That's why Harvard Business School marketingprofessors John T. Gourville and Elie Ofekwere surprised to find a dearth of academicresearch on the subject. "There's a lot ofresearch about new-product branding, but asbest as we could tell, nobody had looked closelyat the issue of how to brand a successivegeneration," Gourville says.

To that end, Gourville and Ofek teamed upwith London Business School professor MarcoBertini (HBS DBA '06) to suss out the bestpractices for branding next-generation products.

"For managers, this is not a trivial decision,"Ofek says. "Consumers don't necessarily readspecs to learn about new features, but they'llalways notice a new name. We thought wecould come in and bring some guidelines andnormative implications that were well groundedin academic research."

Many companies choose either thesequential naming approach (Sony's successivePlayStation, PlayStation 2, and PlayStation 3video game consoles, for example) or thecomplete name change approach (Nintendo'sNintendo 64, GameCube, Wii). The professorsconducted a series of experiments to determinewhen and why each approach made the mostsense.

Brand name continuation vs.name change

In one experiment, 78 participantsconsidered a hypothetical scenario in which awell-known firm is preparing to launch a newversion of its color printer. The participants,who were split into two groups, received a listof seven successive model names. For the firstgroup, the entire series of printers was brandedin a sequential fashion, from 2300W to 2900W.For the second group, the first four models werenamed sequentially—2300W to 2600W, but thelast three models reflected a brand namechange—MagiColor, MagiColor II, andMagiColor III.

Based on the names alone, on a scale of 1 to7, participants gauged the likelihood of

significant changes and improvements for eachsuccessive model. Even though participants hadno information about the actual features of theproducts, participants predicted much greaterchange when the latest version was namedMagiColor than when it was named 2700W.

"With a name change, participants tended toexpect features that were distinctly different ornew," Ofek says. "With a name continuation,they just expected improved performance onexisting features."

"The perception is that ifit's a brand namecontinuation, it'll besomewhat better than theprevious model, but it won'tbe buggy and there won't bea learning curve."A follow-up experiment reversed the task.

Participants learned that the firm Garmin hadadopted a sequential naming approach for thefirst five generations of its in-car GPS receiver,from RoadRunner 610 to RoadRunner 650.Their task was to choose the more appropriatename for the sixth generation: eitherRoadRunner 660 or StreetPilot. In thisexperiment, the researchers varied the list offeatures for the new product. When the list onlyincluded improvements on existing features,61.3 percent of participants choose RoadRunner660 as the preferred name. But when the listincluded several new features, 65.7 percentchose the name StreetPilot.

While these experiments focused onhigh-tech equipment, the professors note thatthe findings hold true across many industries."Take the movies," Gourville says. "In theRocky series, you expect Rocky II to play offRocky. But with James Bond movies, there's noreason to expect that the latest Bond movie[Quantum of Solace] has anything to do withthe previous Bond movie [Casino Royale]. So itgives you added freedom. You can change whoJames Bond is—Sean Connery, Roger Moore,Timothy Dalton, Pierce Brosnan, Daniel

COPYRIGHT 2012 PRESIDENT AND FELLOWS OF HARVARD COLLEGE 1

Craig—without destroying the franchise…Whereas with Rocky, you're pretty much stuckwith Sylvester Stallone."

Risk vs. rewardCompanies also must assess risk versus

reward when branding a product upgrade. Onthe one hand, changing the brand name mayinduce excitement among prospectiveconsumers who value new bells and whistlesover small improvements. On the other hand,customers may worry that new features pose therisk of new glitches and a steep learning curve.It's important for a firm to predict the likelihoodof risk aversion in its branding decision.Sometimes this is an unpredictable matter of aconsumer's individual personality; for everyCautious Carl in the world, there's a Risky Rita.But many times, it's a matter of the situation athand.

Ofek cites the example of Intel, which in2001 introduced a 64-bit processor calledItanium, indicating that the product wasmarkedly different than Xeon, its 32-bitpredecessor. These types of processors powerhuge computer servers, which play vital roles incompanies' day-to-day operations. Servers are amajor expenditure, and a faulty server can leadto a crisis. "Even though Intel promised thatItanium had backward compatibility with Xeon,IT directors really worried about it," Ofek says."That created a real delay in purchasing forItanium, which really never took off."

To illustrate this point scientifically, theprofessors conducted an experiment with 203participants, who each were told to imagine thata close friend was getting married soon, andthat the friend had asked them to photographthe ceremony as a favor. However, becausetheir Ricoh camera had been stolen, they wouldhave to buy a new one shortly before the event.Each participant had a choice: replace thecamera with the exact same model that wasstolen, or upgrade to the next-generationversion that Ricoh had recently introduced.

All the participants received the same list ofspecs for both the old and the new cameras,including information on features such asresolution, memory, zoom, and motion sensor.

But the researchers manipulated the experimentin two key ways.

In some cases, participants were told thatthey were among several people taking picturesat the wedding, indicating a low-risk situationbecause if one person's photos came out badly,another person's photos could pick up the slack.In other cases, they were told that they wouldbe the wedding's sole photographer, a muchhigher-risk proposition.

Participants also learned that the stolencamera model, named FS-E40, was the fourth ina line of sequentially named products: theFS-E10 through FS-E30. While someparticipants learned that the next-generationmodel followed that pattern, the FS-E50, otherswere told that the new model had a new name:the Spectra.

As expected, participants in the high-risksolo-photographer scenario were more likely tochoose the FS-E50 over the FS-E40; thesequential naming approach indicated small,manageable changes. Given the choice betweenthe FS-E40 and the Spectra, however, theystuck with the FS-E40--presumably fearing thechallenges of moving to a significantly newdesign, Gourville says.

"In the Rocky series, youexpect Rocky II to play offRocky."Participants in the low-risk scenario were

much more likely to go with the new modelregardless of whether it was called Spectra orFS-E50; given the choice of either new model,the low-risk set tended toward the Spectra.

"The perception is that if it's a brand namecontinuation, it'll be somewhat better than theprevious model, but it won't be buggy and therewon't be a learning curve," Gourville says."With a brand name change, you infer that theremay be a steep learning curve, and it may workdifferently from your previous camera."

Creative sequencesA brand name change also comes with the

risk of disappointing consumers who expect

more from the product than they otherwisewould have.

"If you're really just tweaking the previousgeneration of your product, it's probably muchbetter to use brand name continuation thanbrand name change," Gourville says."Otherwise people will be led to believe thatthere are massively new features in there, andyou'll just lead them to disappointment."

On the other hand, a brand sequencingapproach can be tricky in a crowdedmarketplace where competitors are using thesame approach. No company wants to releaseDoodad 3 when its chief rival is launchingThingamabob 4, for fear of apparently laggingbehind.

But there are ways around that.For instance, Microsoft released its Xbox

video game well behind Sony's PlayStationlaunch such that its second-generation Xboxcompeted directly against the third-generationPlayStation. Fearful of being perceived as alaggard, Microsoft chose the name Xbox360—sneaking that "3" in there with the addedpromise of 360-degree comprehension,Gourville explains.

Microsoft also shows us that if a companyswitches from a sequential naming approach toa name change approach, it's perfectly OK toswitch back. With its Windows operatingsystem platform, the company succeededWindows 98 and Windows 2000 with WindowsXP and then the oft-criticized Windows Vista.And then came Windows 7. Windows 8, dueout later this year, is still in development, butMicrosoft has already confirmed its name.

"Windows 7 brought us back to the notionof sequential indicators," Ofek says. "Microsoftlearned that when you break from sequentialnames, people often overemphasize the risk ofsignificant change."

Readers: Have you encountered brandingdecisions of this type? How did you handlethem? Let us know in the comments sectionbelow.

About the authorCarmen Nobel is senior editor of HBS

Working Knowledge.

HARVARD BUSINESS SCHOOL | WORKING KNOWLEDGE | HBSWK.HBS.EDU

COPYRIGHT 2012 PRESIDENT AND FELLOWS OF HARVARD COLLEGE 2