How a Lack of Focus Killed a Top Brand: The Fall of Princeton Review

April 17th, 2012 | Daniel Cohen | 9 Comments

Princeton Review Erased(Disclosure: Testmasters, a Princeton Review competitor, is a client of mine.)

When it comes to entrepreneurs, management experts, professional communicators and other careerist business junkies, the dream of becoming a top brand in the marketplace is near the top of the list.

The point of business is to make money, so topping almost all competitors in an industry is a sign of high performance.

But it’s not easy to get to the top.

In fact, it’s easier to stay on top than it is to get there in the first place. Once you are in the top two in a category, the competition has to work hard just to keep up, much less catch and surpass you.

And not every major brand sticks around forever.

Studebaker was once the number one luxury car. Now, it’s out of business.

Yahoo! was the number one search engine. It’s still number one… in Japan.

As for social networks, you might have heard of a site called MySpace. Needless to say, it’s no longer number one.

The most recent industry to see the fall of a leader, though, is perhaps less exciting than luxury cars, social networks and Internet search. At the same time, it’s an industry that most adult Americans have heard of:

Test prep.

The test prep industry is worth $4.5 billion, a small sum compared to that of most major tech sectors but still more money than most people (and some countries) will ever see in their bank accounts.

Test prep services have succeeded largely because of the essential nature of standardized tests in the college admissions process. Two thirds of Americans go to college, and most colleges require you to take at least some kind of standardized test (maybe even multiple tests) just to get in.

And Princeton Review has capitalized on that trend.

The first test prep company to teach students how to beat standardized tests was Kaplan Inc. Princeton Review was started in 1981 and rose to dominance in the industry within a matter of roughly ten years.

The company was able to create a strong brand in the test prep industry, eventually growing in popularity and rivaling Kaplan Inc., the market leader, for dominance in the industry. Given that Kaplan is the original player in the industry and was a general force to be reckoned with for a long period of time, Princeton Review’s performance was mighty impressive.

Excellent marketing and intense research and development helped them build their brand up over time and put them on an impressive test prep pedestal.

Until now.

Over the last few years, Princeton Review has been hemorrhaging cash, losing dollars with every twist and turn. Since late 2007, its stock has dropped from a bit under $9 to – gulp - ten cents! In 2010, it lost $50.4 million.

Just last month, Princeton Review finally hung up its test prep hat forever, selling its test prep unit to a private equity firm.

So what was the #2 pencil that finally broke the camel’s back?

Convergence.

Princeton Review figured that it could do anything related to education: admissions, scholarship hunting, general college assessment, and online education (something it now plans to focus on). Rather than sharpen and maintain its advantage in its main category, it extended its reach to related categories.

The problem with that is that, as you might know from word association, it doesn’t take long to enter categories you know nothing about.

Ben and Jerry’s is great when it comes to ice cream, but it might not fare so well if it decided to start selling spoons, bowls, sugar and napkins.

There’s a relationship between the products, but it isn’t strong enough to start entering industries with abandon.

And with each new industry a company enters, its focus becomes thinner, losing more and more of its understanding and dominance of its central category. In test prep, that means cheaper courses that are less effective and get less word of mouth buzz.

Contrast this entire idea with, say, that of Testmasters, which focuses only on standardized tests. The company can maintain its guarantees, achieve strong word of mouth, and continue to own test prep, just like it was meant to.

All of a sudden, POOF! Goodbye market advantage, hello losses for Princeton Review.

So what can you do if your company is in Princeton Review’s position?

Nothing. At some point, it becomes impossible to go back to your strengths.

But if you work in a hamburger shop and your boss starts mulling over whether or not you should enter the condiments business, advise against it.

Image: jeffweese via Flickr CC 2.o

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Daniel Cohen

Daniel Cohen

Owner & Lead Writer at RedShift Writers
Daniel J. Cohen is the founder and lead writer at RedShift Writers, LLC. Cohen and his fast-growing team of content writers produce visionary content strategies and prolific content production for a growing portfolio of wonderful businesses from Bengalore to the California Bay. Most of all, he wants to leverage writing to improve the world.
Daniel Cohen
Daniel Cohen
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9 comments
Howie Goldfarb
Howie Goldfarb

I like your case study Mr Daniel.There are many examples of companies in tech that try lots of different product lines and not executing really any outside their core business very well.

Apple is an exception. The reason is you need a leader who will back the new effort to the hilt and keep everyone's focus with their vision.

As a student of business I will say it is hard enough to have a dominant position in one industry or product segment. Rarely does a business dominate two. And almost never three or more. Some CPG's like P&G and Unilever have marketing and infrastructure and power to force their brands on shelves in order to have access to their golden brands, but seriously you can count on your fingers and toes how many companies are like this in the US. Which means zero technically when rounded down.

Erin F.
Erin F.

This post reminds me of an email I received yesterday. It posited that it was possible to be a strong generalist. I suppose the supposition could be true, but the last two years of being an entrepreneur have taught me the power of focus and niches. Can I talk about social media or help people with social media? Sure, but I can't let that so-called opportunity overshadow the real aim of my business (writing right) or let it dilute or distract me from the efforts that will grow Write Right. Such an opportunity quickly becomes a threat (Oh, yes, we're back to the SWOT analysis.).

Daniel J. Cohen
Daniel J. Cohen

 @HowieSPM Hey Howie!

 

Very good points. Taking over an industry is a pretty rare thing, and it takes something special (like a Steve Jobs :p) to accomplish it. P&G is sort of its own case, but I think a lot about what they do as well as what Apple does.

 

I hate to return to some of the PR conversations that have already happened (then again, who am I kidding? I love it). P&G and Apple both may, in principle, focus on more than one industry. But they spread their focus through divergence rather than convergence... And that's both artistically and strategically. Apple makes new products. They don't rehash the same old laptop... they make a pad.

 

P&G does the same thing. When they spread their focus, they make sure to create little units to focus on individual brands and brand families.That way the company doesn't turn into a seamless, confusing mess! COUGH*Microsoft*COUGH!

 

Pinterest is another good case. New network, new focus, sleeker than the older versions. Divergence at work.

Daniel J. Cohen
Daniel J. Cohen

 @Erin F. I am very much with you on this one. Even at my office, I have really leaned toward writing, PR and branding work. Social media is great, but it's not the focus of my business (at least not during the day... I have several other contracts, but that's a wholly different story).

 

I think there is room for people like us to expand a little, into related fields AFTER we get the real core of the business up and running. But my overall take is that curiosity is both the bringer of life and death when it comes to business.

Erin F.
Erin F.

 @Daniel J. Cohen Ha! I think most of us have work outside our work or day jobs. It makes us well-rounded people, right? ;)

 

I'm all for expanding, too...once I get things going with the primary business and if it makes business sense.

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