Product Contraction

Lessons from Bruce: Part Three

(My fifth book will be hitting store shelves in March and this series of notes draws on some of the key business insights in that text. Six Tires, No Plan is the biography of Bruce Halle, who founded a commodity business (Discount Tire Company) in a saturated market and ended up 96^th on the Forbes 400 list. The lessons Halle learned on the way to the top offer important insights—and questions—for the rest of us.)

Brand extensions and new products that fill the pipeline can appear to be surefire investments that offer outsized returns. When a company is leveraging its marketing dollars across a broader product line or increasing capacity utilization in its distribution system, what could possibly go wrong?

Unfortunately, but not surprisingly, product and brand extensions prove conclusively that there is no such thing as a “no-brainer.” Sometimes, one plus one equals zero.

The limits of product line expansion came home forcefully for Bruce Halle early in the development of Discount Tire Company. Noting that competitors offered general repair services in addition to tire sales, Halle introduced wheel alignments and related services at one of his first stores.

While the addition seemed to be a natural fit, the reality was quite different. Fast turnaround was an important competitive issue for the young company; so keeping customers in the shop too long would undermine any satisfaction received from lower prices. When bays were tied up with alignments, however, turnaround time increased for every other customer coming into the shop.

Halle attempted other product extensions as the company grew, but each one failed to improve on his initial model of delivering low-price tires quickly. Ultimately, he found that doing the same thing, consistently and well, can generate returns and customer loyalty far behind the search for incremental margins.

Sustainable success flows naturally from focusing on core values—as recognized by customers—and delivering those values every day. Brand leverage is possible, of course, but returns are far from certain and the risk of failure is higher than it appears in the marketing plan.