The Third Way: Nurturing the Core of a Struggling Brand

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What would you do if your brand was struggling and in obvious decline? Clearly, innovation is the key. But how can you innovate to revive the brand and restart growth?

One common response is more—more products for more customers, more features or more performance for current products, and more channels of distribution or expansion into more geographic markets. This is usually the first and easiest strategy to revive sales.

But “more” has limits. Expanding distribution and adding new product variants will quickly hit a point of diminishing returns, after which each addition generates fewer marginal sales but just as much additional cost. When taken too far, new product versions begin to lose money, and, eventually, there are no new distribution channels to fill.

Conventional thinking about innovation would point us in a different direction. It says the only real alternative is to go big. Hundreds of articles and books, with more appearing every year, explain how to pursue revolutionary, radical change: look for “blue oceans”, develop new “disruptive” products or business models, turn your product into a memorable experience, or act like a lean startup.

Of course, there are differences among these approaches, as their advocates will quickly point out. In spite of those differences, however, they all share certain basic features. All promise dramatic growth and all agree: more of the same won’t cut it. They typically call for large and risky investments, not just in money but also in time, effort, and strategic focus. And because these approaches typically take organizations into new territory, the full consequences they produce are often unforeseeable, failure is common, and the cost of failure is large.

Disney innovated around the core product – their animated feature films.

Where does this leave our struggling brand? Innovating small or innovating big: are these the only options?

No, they’re not. As the case of Walt Disney shows, there is a Third Way. An alternative that’s often less risky and less costly than radical change, but is in many cases equally powerful.

Anyone looking at The Walt Disney Company today is most likely to say it began with animated cartoons, moved on to animated feature films, which it invented, and then steadily expanded over the years to become a diversified entertainment powerhouse that incorporates animated films, live-action movies, theme parks, television programs, a chain of Disney retail stores, Disney merchandise, and a host of lesser ventures.

We see a different story. Yes, Disney is a diversified entertainment company that evolved from its early success in animated films. But we think the Disney-branded portion of the company is best understood as a practitioner of the Third Way.

By the early 1950s, it was clear to Walt and Roy Disney that producing animated feature films was a very risky business. The costs to produce a new film were high, and audience reaction difficult to predict. Disney’s animated film business—if separated from the rest of the company— cannot be considered a success on any commercial dimension. In fact, as we will show next, if the studio had depended only on those films and cartoons to support itself, it would have failed. What allowed the studio to survive and ultimately thrive were the complementary innovations the Disney brothers created around those films.

Rather than changing or improving a product to make it more appealing, Disney innovated around the core product – their animated feature films. They added complementary innovations, so called because the innovations complemented the core product without changing it. Those innovations then worked together and with the core product to make the core more attractive to key customers. This is the first distinctive feature of the Third Way.

To understand this, we must return to the early days of Mickey Mouse cartoons. The first complementary innovation appeared just as Mickey Mouse’s popularity was building. The manager of a suburban Los Angeles theater invited Walt to a regular matinee meeting the manager held to fill his theater with youngsters on Saturday afternoons: the Mickey Mouse Club. At club meetings, members took the Mickey Mouse pledge, sang a Mickey Mouse song, recited the Mickey Mouse creed, and watched Mickey Mouse cartoons. Walt embraced the idea and authorized the manager to expand the club to theaters all across the country. At their peak, the Mickey Mouse Clubs had an estimated one million members spread over eight hundred chapters from coast to coast.Mickey was only the beginning.

The studio vigorously pursued a similar approach with all its animated characters—for example, in 1938, fans bought $2 million worth of Snow White handkerchiefs

And there was Mickey Mouse merchandise. Mickey’s picture appeared on cereal boxes, Cartier sold a diamond Mickey Mouse bracelet, and there was a Mickey Mouse version of almost every article of children’s clothing, as well as Mickey Mouse dolls, comic books, candy, watches, and toy trains. In 1934, sales of Disney merchandise (mostly Mickey Mouse items) totaled $70 million worldwide. That same year, Walt commented that he made more money from Mickey’s ancillary rights than he made from the mouse’s cartoons.

Mickey was only the beginning. The studio vigorously pursued a similar approach with all its animated characters—for example, in 1938, fans bought $2 million worth of Snow White handkerchiefs. By 1947, sales of Disney-related merchandise rose to roughly $100 million per year. By 1948, five million Mickey Mouse watches had been sold, and there were more than two thousand Disney-related products. Sales of that merchandise, in a giant virtuous circle, built the audience for Mickey Mouse cartoons and—later—the company’s animated features.

This process has typically been considered as the company’s opportunistic diversification over the years, but it is better understood as complementary innovation around its core type of product —animated feature films and the cherished characters within them.

The success of a Third Way project depends on maintaining a strong and vibrant core, even if that core doesn’t generate the most revenue. Following this Third Way, which is neither sustaining nor disruptive, but complementary, Disney nurtured its core, and its core and complementary business thrived.

Reprinted by permission of Harvard Business Review Press. Excerpted from The Power of Little Ideas: A Low-Risk, High-Reward Approach to Innovation. Copyright 2017 David Robertson. All rights reserved.

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