Importance of Strategic Branding in Inorganic Organizational Growth by:Debiprasad Mukherjee
Abstract:
Abstract:
Brand is a strategic asset that needs to be managed. This is an increasingly important issue for businesses that favor or have favored inorganic growth strategies. To ensure optimal strategic value from the brands they are buying and selling, just calculating brand value does not suffice. They need a process for integrating brand and corporate finance M&A practices and for determining how to brand the acquired company and how to manage the migration of the brand to the new company. Also the impact of brand planning from the perspective of customers perception, employee motivation, organizational goal & cultural aspect are key issue to be analyzed. The ultimate goal is that customers remain happy and loyal to the brand. This article helps to equip acquiring companies with a guidance or framework for incorporating brand evaluation and brand strategy into the M&A transaction process. It helps non-marketers and marketers alike better understand how to conduct marketing due diligence before the deal; think about brand strategy in the context of a portfolio; establish brand migration plans to help maximize the value of brand in the deal. Dont think legal & financial factors are the penultimate; Brand management and associated planning has equal impact; only difference lies in terms of tangibility. And intangible assets like brand and culture driving much of the corporate value in the 21st century business arena.
Introduction:
Today, inorganic organizational growth that arises from mergers or takeovers is one of the hot topics. Strategic decisions are grounded in geographic/footprint expansion, product/service/competency diversification, and brand leveraging. Companies for a long time now have readily adopted this route to business domination and market leadership. Examples of glorious and often controversial M&As are galore in the business world " Procter and Gambles acquisition of Gillette, Adidass merger with Reebok, Mittal Steels merger with Arcelor, HPs merger with Compaq, Tata Steel merger with Corus, Nike with Umbro and the list goes on.
While businesses clearly address the associated legal and financial issues, they often ignore a critical component"brand management. Effective brand management requires an integrated approach to ensure consistency of your corporate message and identity throughout all aspects of your business. Without careful brand management, your M&A effort is vulnerable to failure. Nearly 50% of all mergers fail to sustain or bolster shareholder value.
Merged/Acquired organizations are so much focused on financial plans and strategy but often overlook the importance of proper branding strategy. Due to the lack of vision of highest management, due to the carelessness about brand importance realization, due to scarcity of Brand-expert professionals in the organization brand management frequently overlooked in the M&A process. In most of the cases, branding for a new born (after merging) organization means a new name for the company. Thats it. But ultimately it matters a lot in long run. Improper planning regarding the brand may cause the following problems:
Inconsistent brand management
Lower Brand equity
Communication confusions
Company image loss/brand dilution/devaluation in the market
Decrease of employee morale decreases
Increase of employee turnover
Loss of customers confidence
Customer Churn and gain for competitor
Hiring an outside brand management strategist can bring dedicated resources and an independent perspective to the process. Or an organization can plan to build a dedicated team to focus on branding issues and led by highest level of management (CxO). All successful companies make brand management a cornerstone in their overall M&A strategy. By incorporating brand management in the early discussions around a merger or acquisition, your organization will come out stronger and more focused. Best of all, shareholders, clients, employees and the public will remain loyal to your brand. Brand is not an event but a process. A brand management strategy ensures that your business can withstand the challenges associated with M&A, both today and through future market fluctuations.
Considerations during pre merger brand strategic planning:
M&A effort requires a significant investment in time and money. At this critical juncture, take into careful consideration one of the most critical aspects of this effort " your brand. Addressing brand management as an integral part of the merger or acquisition process will help ensure your companys success and competitive edge in the marketplace.
Feel the essence of business before starting any brand strategic planning
Brand planning should not only focus on the business domain and nature but also encash the customer perception.
Perform SWOT/TOWS analysis to broadly identify the factors and actors.
Marketing communication initiatives for the company. Marketing communication should be SMART.
Evaluation to avoid devaluation of branding with quantitative as well as qualitative brand equity analysis.
Survey internally and from external experts to analyze the best possible nomenclature.
Assess brand expansion/elimination possibilities.
Communicate the merger to employees, clients, shareholders and the public. Brand policies and guidelines as well as training and compliance are critical in helping employees understand and effectively communicate the new brand.
New Brand strategy should support the cultural harmony among the merged entities.
This is important for the deal makers in mergers and acquisitions to feel what the organization's brand strategy is prior to cutting the deal. Usually they don't have a clear understanding of what the value of that brand is over time, they may claim a larger value than the brand really has. With intangible assets driving much of the corporate value in the 21st century, identifying the value of a brand and specifically its equity as an "intangible asset" on the balance sheet is critical to M&As. In most of the cases, branding agencies are called in post-merger(s) to sort out the jambalaya of brands collected from both big and small acquisitions. Intangible assets often outweigh the tangible. Coca-Colas market capitalization of US$ 112.5 billion is 91 percent intangible assets. That adds up to US$ 102 billion tied up in the brand, strength of management, and patents. (Source: Interbrands Worlds Most Valuable Brands study.)
Brand management strategies should be based on the following considerations:
Impact on Customers/shareholders value
Effect on market from leadership and dominance point of view
Cultural impact
Capability and reach analysis
Analysis of brand compatibility
Brand Standpoint Scenarios:
There are three different Merger/Acquisition scenarios and each of which should be treated differently:
1. your company acquires another company
2. your company is acquired by another company
3. your company merges with another company
If your company acquires -
If your company is the acquiring company, you obviously have the most control over the situation. This is not to say that this inherent power should be abused or used without concern for the company that you bought. In fact, you should be more careful in this situation than if you were at the acquired company.
When bringing a new company on board, from a brand standpoint, you must be careful to consider the following:
Does this brand dilute our current brand or strengthen it?
Does the acquired company have sufficient brand equity to keep its identity (even if only partially)?
How will the acquired company's current clients view this acquisition (e.g. does it disregard a brand promise previously made)?
A carefully planned roadmap should be established so that the branding aspects of all acquisitions can be considered at the earliest possible time. The end result of this roadmap will be a clear determination of how the new brand will fit within your current brand. It may be strong, thereby retaining its identity; or, it may have very little equity and subsequently would get completely integrated into your brand.
It's possible that once all of the above considerations are researched you may ask yourself "why did we purchase this company at all?" That's not likely, but the earlier in the due diligence process this takes place, the earlier potential snags can be identified.
If your company is acquired -
When your company is acquired, the situation is changed completely. Many times you are at the mercy of the purchasing company, and you hope beyond hope that they are at least taking a somewhat scientific approach to determining the new brand strategy.
It is tough to be in this situation without being somewhat defensive. This brand that you have worked so hard to build is suddenly in danger of being completely digested into another company and, especially if you are the founder, it can hurt your ego. Just keep in mind that the brand you helped to build is really the ultimate value that has been purchased, so regardless of whether or not the brand is left intact, its value has been validated. And, in reality, the brand is an asset that the acquiring company purchased, so they have the right to do with it as they please.
From a brand management standpoint, you must keep the following points in mind:
Your customers must be kept informed about how this acquisition affects them " stay positive by focusing on additional resources and offerings.
Your employees must also be kept informed. The first thing that goes through your employees' minds will be that they will be receiving a pink slip in the very near future. Be open and honest with them about their futures. This is especially true in this age of blogs and message boards. Rumors can spread through the ranks like wildfire, destroying employee morale.
The key here is to defend what's still valuable about your brand without making it personal. There is value in your company. Just dont be surprised if you have to memorize new corporate colors in the near future.
If your company merges with another company "
Mergers are a different animal altogether. Many times the term "merger" is used as a political tool so that the term "acquisition" is avoided, even though one company obviously is the dominant party in the relationship. Other times, it is truly a coming together of two companies that would benefit from the combined forces of each company.
There are a few different types of mergers, each of which has different impacts on the brand strategy:
1. Horizontal Mergers - two companies combine that have similar products or services
2. Vertical Mergers - two companies are combined that have products or services that are at different stages in the production process or are vertically related to serve a particular industry
3. Congeneric Mergers - two companies combine that have no sharing of customers but are in a similar industry
4. Conglomerate Mergers - two companies combine that are in completely different industries and have seemingly no relationship
All mergers have similar challenges from the brand perspective. For each of these, it makes sense to research the marketplace to determine the brand strength and general market opinion of the participating companies. If there is an obvious winner, the new entity would likely just take on that brand identity. An example of this would be the AirTran/ValuJet merger. This merger took place shortly after the ValuJet crash into the Everglades, so it was obvious that AirTran should be the name of the new entity based solely on public opinion of the two brands -- even though AirTran had very little brand recognition at the time. In that case, its relative anonymity worked to its advantage.
In every case during a merger, a logical conclusion could be to do away with both existing brands and create a new one from scratch. One high profile example of this would be the merger of GTE and Bell Atlantic to form Verizon Communications. Also, the company brands could be combined to garner the benefit of both existing brands. Time-Warner is a good example of this, being the combination of the two successful, well-known entities of Time and Warner Brothers. In those cases, I can assure you that much planning went into the decisions either do away with both brands or keep both. Those decisions are rarely made in a vacuum, especially at that level.
Brand Naming strategy:
The classic idea of an M&A is to merge the synergies of two businesses as Prophet's Fenyo, puts it, "one plus one should equal more than two." Cingular upon its acquisition of AT&T Wireless sent its customers quasi-personal "wedding announcements" proclaiming its "together is better" appeal. M&A activity is done to withdraw underperforming brands, leaving the core brand leaner and more fit. This happens through selling a business unit off to another company or spinning off a division that no longer fits the parent company's business strategy. A survey of 250 executives around the world involved in M&A conducted by management consultancy Bain & Co. cited the top reason for deal disappointments as "ignored integration challenges" followed closely by "overestimated synergies."
Before branding decision to be taken, determine the most beneficial identity for the new company. Maybe its keeping one name and getting rid of the other as Cingular did when it acquired AT&T Wireless. It may be a combination of the names like Exxon and Mobil or may be creating a new name entirely as Verizon did when Bell Atlantic and GTE merged. Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. Even combination of them where first the brand awareness is generated by adding both the company names and later remove the acquired firm's name like Subex System acquisition of Azure.All have their pros and cons. Cingular had the stronger brand recognition. For ExxonMobil, both companies boasted loyal customers. Keeping both names helped them to retain both client bases. Bell Atlantic and GTE created a new wireless business with a single brand and the entity became known as Verizon. Subex after acquiring Azure, named Subex-Azure but later continued as Subex System. But for most of the cases, brand name of acquired brand strongly exists if the brand value is high. P&G allows Gillette to operate with old brand name after acquisition. Coca Cola does the same strategy for Thumbs Up, Nike for Umbro. So on.. According to Anspach Grossman, acquirers keep their own name roughly 85 percent of the time. For example, in the case of the Chase Manhattan and Chemical Bank merger, Chemical was the bigger in size and assets but the Chase Manhattan name was more appropriate for the strategy. The loss of the Chemical name and corporate identity did not harm value because Chemicals brand associations survived due to intelligent migration of the equity to the new brand.
Current economic conditions have brought about an unprecedented number of corporate mergers, consolidations, and failures. When two companies merge or a company dissolves, there are often questions about what to do with leftover brands. For instance, when Wells Fargo Bank acquired Wachovia, it announced that it would phase out use of the Wachovia name and replace it with Wells Fargo. The same was the case when JP Morgan acquired Washington Mutual. JP Morgan announced that it would replace the Washington Mutual name with Chase. The Mervyns clothing store chain dissolved, but recently the Mervyns brand name and trademarks were acquired in bankruptcy by members of the founding Morris family.
Depending on the market power, brand equity and the product line of the brand, a company can decide to one of the following three strategies:
1. Acquirer corporate brand: More often than not, the acquirer corporate brand replaces the acquired corporate brand.
2. Joint brand: This is a case where the combined brand will be a combination of the acquired and the acquirer brand. This strategy is resorted to when M&A happens between equals. Further, both brands enjoy an equal or similar market standing, market reach and brand equity. Daimler-Chrysler and AOL-Time Warner serve as cases in point.
3. Flexible brand: This strategy is based on geographical separation. When two well known brands have come together and each of these brands are big brands in different geographical regions, then the resulting brand, though a combination of both brands, tend to reflect the dominant brand in the relevant geographical region. The Renault-Nissan is a good example. Nissan is a highly known brand in Asia and also in the US. Renault similarly is a well known brand in Europe. These dominant markets are geographically separated. In line with the flexible strategy, Nissan is the preferred brand name in the US and Renault is the preferred name in Europe. This strategy serves well when each brand is highly regarded in its primary region and letting go of the name will be detrimental to the brand.
The Challenges of Integrating Brands:
Among all the assets exchanged during a merger or acquisition, the most important have to be culture and brand. Evaluating the intangible value in transactions and growing that value through integration are sorely underestimated and poorly understood challenges. The result is that brand opportunities are missed entirely, not realized, or seriously under-leveraged. A recent report by McKinsey claims that only one in every five mergers and acquisitions actually succeeds. Further research has found out that the larger the target firm acquired, the greater the percentage loss in terms of market share after acquisition. In spite of such claims, there seems to be no slowing down the M&A bandwagon.
Studies by Booz-Allen & Hamilton indicate that over 70 percent of merger objectives go unmet. CFO Magazine reports a 50 percent overall drop-off in productivity in the four to eight months following a deal; just 23 percent earn their cost of capital.
A merger or acquisition is basically a new opportunity to create a compelling, ambitious long term vision that is realized and communicated to capture value not present prior to the transaction. This opportunity allows one to build a new brand and/or leverage the strengths of existing brands. These transactions attempt to capture two sources of value; the hard tangible goals established (cost reductions and revenue enhancement) and the softer intangible issues related to people, culture and brand. For the employee, to accept the change they must be aware of the values the merged. Customers must understand the benefits associated with the merged brand and recognize that it solves problems for them that the previously individual companies could not.
The greatest threat to brand equity during a merger or acquisition can be determined before finalizing the transaction. Though no empirical evidence exists, it is clear that deals that are not designed to benefit the ultimate customer run into great difficulties.
Corporate, product, or service brands are not just names or logos. Acquirers or companies merging must understand that the brand represents four components of value comprising its overall equity:
Brand Definition
Brand Culture
Brand Infrastructure
Brand Identity
If any of these elements change during integration, so will the brands equity.
Another major factor for consideration is Brand personality. When brands such as Adidas and Reebok decide to join hands, the stakes are very high. Both brands have been built around unique personalities " personalities so strong that the very identity of the brand is based on the underlying brand personality.
Post Merger branding strategy formulation:
Post merger period is the acid test period for the new company. Most often the combined company is so overwhelmed with the complexities of integration that majority of the actions tend to be reactive to the ensuing flow of events.
It is best to have the new brand in place to provide stability during the chaotic and critical time just after the merger is announced -- when staff, customers, and vendors start to question their relevancy within the new organization; and when the new organization is most vulnerable to competitive market action. Business Strategies & Beyond can create a strategy that combines corporate cultures and products within a cohesive brand to create a leadership role with vision and value to unite each of the stakeholders.
If your company makes the drastic mistake of waiting until after the M&A is completed to first begin steps towards developing a cohesive brand, they become focused internally at the very same time that competitors seize the opportunity to gain market momentum.
One of the key success factors for brands in the post merger scenario is to have a two pronged brand strategy " one engaged in managing the marketplace perceptions given the strategic blueprint of the combined entity and the second engaged with ensuring that all internal stakeholders are motivated and are in line with the overall brand vision.
An essential prerequisite for either of these is clear cut system of brand management. Defining brand strategies under multiple scenarios and establishing guidelines to monitor integration are very important before any corporate level strategy is designed and implemented.
Brand strategy in a post merger scenario assumes high significance given the high percentage of M&A failures. Brands of the two merged companies usually have their own unique identities, personalities and philosophies. As such the fundamental question of brand strategy would be " how to treat these brands " one brand, joint brand, flexible brand or a new brand. Then Brand Integration is probably the most challenging of all issues after a merger. Integration, like branding, encompasses all functions of the company. Especially when two companies have come together either through a merger or an acquisition, integration of organizational capabilities becomes quintessential for the merged entities survival and success. Management should establish clear internal organizational expectations and guidelines for the interaction of employees, resources and brands to ensure that all activities are channeled towards the objective of a smoother transition. A branding platform must be set up whereby brand managers of both companies can discuss the possibilities and future paths of individual brands. This would ensure that brand managers would work in tandem with each other.
During this phase, 10-80-10 rule of focus is useful here:
Acknowledge your heritage (10%)
Address the needs of today (80%)
Look forward to the future (10%)
This gives continuity, ensures relevance, and shows that youre thinking ahead. Before a mature brand can be redeveloped, it needs to be thoroughly understood.
New brand should be powerful and should be built on four elements:
Identity"particular set of ownable characteristics by which your brand is known
Familiarity"Customer perception that they have enough knowledge about a brand to have an opinion about it.
Specialness"Perception of relevance and differentiation
Authority"A reputation as a quality, leading, trustworthy source
Post acquisition Brand equity development plan must be a measure of brand strength and consists of three sets of metrics: knowledge, preference and financial.
Knowledge metrics measures a brand's awareness and associations through the many stages of recognition, aided, unaided and top of mind recall. Similarly the functional and emotional associations of a brand are important drivers of brand equity.
Preference metrics measure a brand's competitive position in the market and how it benchmarks to competing brands. Customers pass through various levels of preference towards the brand which ranges from mere awareness and familiarity to strong loyalty and recurrent revenues from the customer base.
Financial metrics measure a brand's monetary value through the various parameters of market share, price premium a brand commands, the revenue generation capabilities of a brand, the transaction value, the lifetime value of a brand and the rate at which brands sustains growth. These measures facilitate a company to estimate an accurate financial value of brand equity.
Conclusion:
Mergers and acquisitions should include a considered plan for combining (or not) the brands in question. This consideration can avoid the embarrassing situation of simply mashing two brands together (often referred to as a train wreck) and diluting the value of both. Conducting a brand audit as part of your due diligence will give you valuable information for valuing the business and for capitalizing on the real synergies that exist.
The founder of SONY, Akio Morita, once said: "I have always believed that the company name is the life of an enterprise. It carries responsibility and guarantees the quality of the product". Therefore, a strong and well-balanced corporate brand orchestrated throughout the corporation by a passionate higher management can lead to very successful and sustainable financial results. A brand name is a corporate identifier and almost always a companys most visible (and sometimes most valuable) piece of property. Years of use, and millions of dollars invested in brand promotion and advertising, can create brands and marks with significant value in the form of consumer and marketplace goodwill. John Philip Jones said Every successful brand is a rational grain of info enclosed in an emotional envelope. All of that value and goodwill can be lost in relatively short order, and fall into the hands of a competitor or anyone else for free, if a company does not act prudently in connection with any recently acquired (or its own) brands and trademarks. The property loss alone can be staggering and, if a competitor is now able to use the mark, there will be further losses in the marketplace.
Reference:
http://www.brandchannel.com http://www.bain.comhttp://www.wharton.upenn.eduhttp://www.forbes.comhttp://www.boozallen.com/ http://www.venturerepublic.comR Grant, The Resource-based Theory of Competitive Advantage: Implications for Strategy Formulation, California Management Review, 33, Issue 3 (1991): 114-135.
The Art of M&A: A Merger/Acquisition/Buyout Guide " Page 669 by Stanley Foster Reed, Alexandra Reed Lajoux, H. Peter Nesvold
http://www.synaxisworks.comAbout the author
Debiprasad Mukherjee is a Business Process Management Consultant in IT Telecom domain. He has experience of working with Siemens, IBM, Tech Mahindra in India and abroad. He holds Post graduation in management from Indian Institute of Social Welfare & Business management, India and Bachelor in Technology in Electrical Engineering.
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