Harvard Business review

The Costs and Benefits of Brand Consolidation

We often think of  brand consolidation as a “big business” concern. Take for example the recent $13.7 billion takeover of Whole Foods by Amazon. Should Amazon put its imprint on Whole Foods outlets? But branding issues play out even more frequently with small and medium enterprises. One medical practice takes over or merges with another, one manufacturer acquires another producer, or an accounting firm wants to rebrand itself for a fresh start.

From observing the dos and don’ts of firms in this space, as well as from my personal business branding experience, I can say that there are many places to stumble and fall. One study has found that only one in five brand consolidations succeeds.

Here I review the pros and cons of consolidating small to medium sized brands and provide the case of a successful serial consolidator in the professional service space. This provides some pointers on how you might proceed with any brand consolidation you might be considering.

Market Presence

The Pros: Bigger brands have a bigger impact on the market. This equates to so-called “share of mind,” e.g., if you think “accounting firm” you may think “KPMG.” It’s the same for smaller businesses. For example, following the acquisition and rebranding of another practice, the Mistral Medical Centre in Australia (not its real name) is now twice its previous size. Potential patients are more likely to be aware of its presence.

The Cons: But there’s another side to this story which you may well consider. John is the CEO of a concrete business that chooses not to consolidate brands after acquisition. Clients in this industry are resistant to change and suspicious by nature. They also feel loyal to the old brand and fear that their trusted contacts will change. Consequently, John’s company buys competitors and keeps each existing brand in place. He explains that “little do customers know that when they buy the opposition’s product, they are contributing to our company’s bottom line.”

Another example of not consolidating brands comes from the cosmetics industry. L’Oréal is the world’s largest cosmetics company with an extensive portfolio of brands. Part of its growth has come about via a decade-long series of targeted mergers and acquisitions. Among the most recent are Modiface, Valentino, and Takami Co, a Japanese dermatology business. The company has resisted any pressures to rationalize its 36 international brands preferring instead to concentrate on long-term profitable growth via its multiple brands.

Cost Savings

The pros: There are significant costs in maintaining a brand in professional services today. This is largely driven by the demands of the internet and social media. The pressure to get your branded message “out there” and to “stay in people’s faces” is relentless. And it requires staffing. Reducing brands produces redundancies thus cutting costs.

Rebecca is Marketing Manager of a law firm which maintains several branches nation-wide. She explained what’s involved in maintaining the firm’s brand. She and her three staff update the firm’s website, place Google and Facebook Ads, send out regular and informative “emailers” to clients, produce “socials” three to four times a week on LinkedIn, Facebook and Instagram — and so it goes. Keeping that up for multiple brands would be time-consuming, expensive, and exhausting.

The cons: Brand consolidation doesn’t always lead to cost savings and can turn into revenue loss. If the revenue from the combined brands is less than the revenue from the separate brands, you’ll find you’ve made a costly error. This may be driven by the reputational damage caused by rebranding. Another less visible cost is driven by employee dissatisfaction with resultant de-motivation. Consolidating brands can also lead to staff resignations.

Modernized Image

The pros: Brands can be consolidated when two brands are replaced by a third. This occurred in professional services when Price Waterhouse and Coopers & Lybrand merged to become PwC — now one of the big-four accounting firms. This is undertaken in some cases to signify a fresh start.

The cons: This can backfire if you don’t bring existing clients and staff along with you. Clients may end up losing track of the old brands or fail to find the new one or simply dislike the change. A notorious example of this concerned part of PwC — PwC Consulting. In an attempt to spin it off to a fresh start, the firm announced that PwC Consulting would be rebranded Monday. The name was supposed to signify a new start to the week — fresh. The name change was met by ridicule from the press, clients, and staff. Months later, PwC sold its entire consultancy business to IBM.

Getting it Right

Let’s look at a serial brand consolidator as an example of how to deal with these issues and go about things the right way. Gerry is the CEO and founder of a mid-range accounting firm I’ll call Hutchison. He has 28 branches across Australia. Gerry’s approach to growth has been two-fold. Firstly, to grow his existing branches and secondly to acquire other small accounting firms.

Market presence: Gerry researched the market for accounting services and found that his customers are not looking for a niche or emotionally nuanced brand. Instead, they are choosing prominence, stability and a recognizable name. He sees no benefit in maintaining the brands of the practices he takes over. “That would only complicate things,” he says.

He wants to signal a fresh start to existing clients and to the broader market. As he puts it: “We rip the band-aid off straight away.” The website change, for example, occurs on the first day of the new operation. But he’s very careful to undertake the necessary groundwork with staff and clients before doing that. Otherwise, research and other company examples tell us, things can go belly up.

Cost savings: The purchase of an accounting practice offers the acquired firm centralized marketing, one-point phone reception and lean admin staff — all with pooled data processing. As Gerry explains “future growth is built around that idea.”

However, Gerry is aware that brand consolidation and cost savings can backfire with clients and staff exiting a business. The losses in brand consolidation are counted when the revenue of both brands combined is less than each single brand before consolidation. So, as Gerry explains, “it’s important to monitor any losses or gains.”

Gerry incorporates a “deferred payment” into any acquisition. His acquisitions involve 80% of the purchase price paid at settlement with the remaining two ten per cents paid at 12- and 24-month intervals – if the projected income comes in as forecast. This covers any “leakage” as Gerry refers to it.

Modernized image: Gerry’s third reason for consolidating brands is to modernize the corporate image of the old practices. But this doesn’t always go as expected, and Gerry knows it’s vital that he brings the old clients along for the ride.

He’s insistent that clients are contacted verbally about any changes. He’s crystal clear that the key to holding existing clients in a brand consolidation is to have verbal contact. This, Gerry says, “should occur a month or two prior to the practice purchase date. An email or letter won’t do. The contact can be by phone or in-person, but it must be verbal.”

In Gerry’s case this is undertaken by the practice owners of the acquired firm. As he says, “the aim is to let clients know that there are changes coming, that the principals of the existing practice will remain, and that clients will now be dealing with Hutchison. This verbal interaction,” he continues, “allays any fears that clients won’t be looked after or that service levels will diminish.”

In the case of staff, Gerry is particularly sensitive that they “be informed carefully.” The reason is that, in a service firm, relationships are paramount. “Clients usually have a personal and long-term relationship with a particular accountant or bookkeeper,” he explains. It’s vital to manage any staff concerns, especially as Gerry’s cost savings produce redundancies. “The repercussions of not managing these changes in an accounting practice in, for example, a rural town can really affect the bottom line.”

Tread Carefully

My prescription has particularly concentrated on the case of a professional service firm and its brand consolidation. But these lessons can be applied to businesses in other industries just as easily. Remember though, as you proceed, that failures outweigh successes.

Does this mean that you should never consolidate brands?

Certainly not. But from my personal experience and from research which shows failure in brand consolidation is common, I suggest that, if you’re not clear about the benefits of brand consolidation and how to go about it, you should leave things as they are. 

Source link

Leave a Reply

Your email address will not be published.