Brand transfers are everywhere. This is hardly surprising since this is the age of mergers and acquisitions, which always give rise to the rationalisation of ranges, products and brand portfolios. Companies have to choose between brands that have hitherto been competitive with parallel ranges.
On mature, low-growth markets, the need to make economies, create synergies and increase efficiency has the same result. Finally, globalization brings its share of brand transfers to the advantage of the global brand. For all the above reasons, reducing the number of brands is the order of the day.
This explains the wealth of publicity announcing – if you know how to read between the lines – an imminent brand transfer. For example, the Swedish company Electrolux, the world’s leading manufacturer of household appliances, prepared the worldwide transfer of its local brands – the historic leaders of their market, acquired country by country. It acted as the endorsement for these local brands – Zanussi Electrolux in the UK, Arthur Martin Electrolux in France, Rex Electrolux in Italy, and so on – and appeared as such in the promotional publicity. It has to be said that, in 2003, only 15 per cent of sales were made under the brand name of this international group.
The aim was to increase this figure to between 60 and 70 per cent by 2007, so that 55 per cent of consumers would include Electrolux among the ‘three brands they have in mind when entering an electrical appliance store’ – what is known as an ‘evoked set’ or ‘consideration set’. In 2001, this could be said of only 21 per cent of consumers. In 2007 the local names became Electrolux.
Berated by financial analysts the world over for not having enough global brands with a turnover of more than US $1 billion, the Unilever Group made the decision to reduce drastically the number of these brands in a process known as the ‘path to growth’. The group’s Elida-Fabergé division played a pioneering role – by reducing the number of brands from 13 to 8, growth increased from less than 2 per cent to 11 per cent.
But this objective of reducing the size of brand portfolios also creates challenging problems in certain product categories. This happens when the brands to be merged are well established and do not have the same positioning on the market. For example, the famous detergents category is not particularly profitable compared with other categories since distribution costs are extremely high and the market is fragmented.
Many of the smaller brands no longer justify the promotional support. Throughout Europe, Lever has organised its portfolio in three price-related segments – the premium segment with Skip (in competition with Procter & Gamble’s Ariel), the smart buyer segment with Omo for example, and the economy (or low-price) segment with Persil (except in the UK where, for historical reasons, Persil replaced Skip).
The question therefore arises, given the market shares and Lever’s declared intention of concentrating its business around strong brands, how to unite the brand in the smart buyer segment with the brand in the economy segment. The difficulty becomes all the more apparent since in many countries, these are well-established brands that, over time, have forged a very specific bond with a section of the public.
The issue should involve the distributors who, throughout Europe, are wondering about the future of the low-price segment, positioned just above their distributors’ brands. Should this segment in fact be allowed to survive?
Another illustration of the risks associated with brand transfers is provided by the example of Phas and La Roche Posay, two brands of cosmetics in the l’Oréal Group that were merged in 2000. Each represented approximately 15 per cent of the market share in a sector that was losing momentum, namely pharmacy.
This should make it possible to begin internationalising the brands under a single banner, with critical mass. Named after a thermal spring used to treat skin disorders, La Roche Posay is associated with a guarantee of proven effectiveness in the treatment of skin conditions. Its business model was based on recommendation by dermatologists.
Conversely, Phas was a brand of cosmetics – with no dermatological endorsement – for skins that were extremely sensitive to ordinary make-up. Its strength was hypo-allergenic tolerance rather than effectiveness. It is easy to understand why this – albeit necessary – transfer ran the risk of diluting the brand capital for La Roche Posay. The brand was going to have to put its signature to products formerly under the Phas label and which had no guarantee of effectiveness.
When the risks are too great, it is better to avoid them and choose another strategy.