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The case of industrial brand portfolios

The case of industrial brand portfolios

In the industrial world, multi-brand strategies either have very few constraints, or there is a multitude that is very often underestimated.

The first case is illustrated by the chemical industry in the agricultural market. As each herbicide brand is associated with one unique active principle, a single company often stocks 500 trademarks or even more! When a brand is strategic and the portfolio corresponds to the segmentation of the final market, the brand must mean more than a mere difference in name or logo on the product.

In this way BASF used to sell paint to coach builders worldwide under two brands, Glasurit and RM. They are, in fact, the same product. In the car world there is a difficulty with the idea of two different qualities – no one would buy the inferior one. The two brands are thus supplementary and not complementary.

Glasurit is aimed at the technically minded coach builder. As its international slogan points out, Glasurit is the ‘Preferred Technology Partner’. As its slogan indicates, RM is the thoughtful coach builder partner, ‘The key to your success’. It is aimed at the other segment of coach builder who expect service to increase their activity. They see themselves rather as company directors than as painters.

To maximise their chances of success, BASF gave each brand the necessary means to defend itself. Dictating who did what would only weaken both brands and give the advantage to their competitor Akzo. Instead BASF decided to:

create two separate management teams (as opposed to a common marketing department, which was for a long time the case), based in two different countries;have two separate sales forces in charge of the distribution, so as to minimise cannibalization from the inside;avoid all references to the parent company BASF, in order to increase the perceived difference between the two brands;develop services in line with the positioning of each brand;have different advertising campaigns on a worldwide scale.

This is how BASF maximised its cover of the market. It adapted itself to the two distinct segments of the car refinish market and to the psychology of the constructors. Mercedes, for instance, would not like the idea that its paint supplier also supplied Lada!

The constraints associated with multi-brands are often underestimated in the industrial world, where a brand is considered just a name or a reference in a catalogue. When a brand corresponds to a strategic segmentation this underestimation can undermine or even break the strategy.

In the industrial electrical equipment market, the manufacturers have to decide whom to favour, the installing company, the wholesaler/ distributor or the end-user. It is impossible to favour all three at the same time. Merlin-Gerin, who concentrated on the distributors, were losing touch with the fitters.

For the latter, the Sarel company was created. This increased the proportion of the market that could be reached, provided that all links with Merlin- Gerin were hidden. In practice, in the various countries they operated in, because of the different turnovers of Merlin-Gerin and Sarel the constraints of their multi-brand strategy were soon forgotten for the sake of saving costs.

Sarel could sometimes be found in the same office block as Merlin-Gerin’s local headquarters.The published organisation charts did nothing to hide the Sarel–Merlin-Gerin link. Sound management on the organizational front could instead dictate that, despite its small size, Sarel be directly linked with Schneider’s, their common parent company, and not Merlin-Gerin’s local manager.On occasions, in order to save money, both Sarel and Merlin-Gerin shared the same trade exhibition stands.

The organisation of brands in the businessto- business sector poses specific problems that need to be addressed as such. For example, industrial groups whose growth typically involves the acquisition of companies soon begin to wonder whether or not to keep the brand name of the newly  acquired company, and how much independence it should have in relation to the purchasing group.

Furthermore, the engineering culture might make the product central to the group or company identity, while the brand is little more than an appendage and is often the name of a reference. This explains the increasing number of references, registered throughout the world, that preoccupy companies’ legal departments and give rise to regular complaints about the excessive number of brands. However, although there may be a brand name in legal terms, there is every reason to believe that these names are not in fact real brands with real market power.

It is therefore a question of reducing the number of brand names in the portfolio, and reorganising them around a few valid megabrands that serve as an umbrella, a central point of reference. From this it can be seen that the task of rationalising the brand portfolio is in fact indicative of the need to reorganize the business.

How do you manage multi-product mega-brands within a structure of business units, knowing that the megabrand may well cover several business units? Do you need to create a brand committee, from across the business units, that meets on a regular basis with a view to making decisions about problems of coherence in the development of the brand – coherence in terms of products and services, price positioning on the various markets, advertising and catalogues? At this stage, large-scale industry begins to consider how other more ‘lowly’ sectors – the mass-consumer market and FMCG market – have resolved this type of problem.

The role of the sales force in designing the portfolio organisation

In business-to-business contexts, it is essential to include sales in any consideration of brands since it is ultimately the sales force, the technical and commercial engineers, and the front office who represent the brand. It is therefore important to distinguish four types of brand:

The integrating brand is usually the corporate brand when it is used to sell a global service to a single client. It is clientcentred. To this end, it brings together the skills and synergies of the different business units. The front office and sales force represent the name of the group. Typical examples of this are Vinci, Schneider Electric in its promotion of global services, and Suez Industrial Solutions.The integrating brand (usually the group) also ensures the transversality of the product brands at the level of the catalogue, invoicing and shared vision (for example, when the brand/group issues a communication on ‘security’).The integrated brand is usually the name of an acquired company, internationally renowned for a particular application, a particular need or a particular area of expertise. However, the front office and sales force operates under the name of the groupThe endorsed brand only uses the name of the group as an endorsement (as with, a company that is a member of XXXX) and has its own name and front office. This is typically the case when the brand uses a business model that is different from the group’s area of expertise.The independent brand is presented as completely independent, with no links to the group, which in theory implies separate offices in the different countries concerned. It therefore has its own name and front office and there is no visible relationship with the group.

This type of brand makes it possible to overcome the problem of expanding market coverage when a brand is already dominant. Thus, when a brand in the group already covers more than 50 per cent of a particular market, it is logical to launch an independent brand for all those who do not want to work with the first. Furthermore, the independent brand is often used to advocate a policy that contradicts the official policy of the group, in order to increase market coverage without placing the group in a precarious position. The US group Rockwool is a typical example of this type of portfolio organisation.

Strategic Brand Management Related Practice Tests

Strategic Management Practice Tests