The Costs and Benefits of Brand Building
We often think of brand building as a “big business” concern. Take for example the recent Buyout of Whole Foods by Amazon for $13.7 billion. Should Amazon put its stamp on Whole Foods outlets? But branding issues arise even more frequently with small and medium-sized businesses. A medical firm takes over or merges with another, an industrialist buys another producer, or an accounting firm wants to rename itself for a fresh start.
From observing the do’s and don’ts of businesses in this space, as well as my personal experience with branding, I can say that there are many places to stumble and fall. A study found that only one in five brand consolidations succeeds.
Here, I review the pros and cons of consolidating small and medium brands and present the case of a successful serial consolidator in professional services. This provides some guidance on how you might proceed with any brand consolidation you might consider.
Benefits: Big brands have a greater impact on the market. This equates to what is called ‘shared minds’, for example, if you think ‘accounting firm’, you may think ‘KPMG’. It’s the same thing for small businesses. For example, following the acquisition and rebranding of another practice, the Mistral Medical Center in Australia (not its real name) is now twice as large as before. Potential patients are more likely to be aware of its presence.
The inconvenients : But there is another side to this story that you might well consider. John is the CEO of a hands-on company that chooses not to consolidate brands after acquisition. Customers in this industry are resistant to change and distrustful by nature. They also feel loyal to the old brand and fear that their trusted contacts will change. Therefore, John’s business buys competitors and keeps every existing brand in place. He explains that “customers don’t know that when they buy the opposition’s product, they are contributing to our company’s bottom line.”
Another example of not the consolidating brands come from the cosmetics industry. L’Oréal is the largest cosmetics company in the world with an extensive brand portfolio. Part of its growth is the result of a decade-long series of targeted mergers and acquisitions. Some of the most recent include Modiface, Valentino and Takami Co, a Japanese dermatology company. The company resisted any pressure to streamline its 36 international brands preferring to focus on long-term profitable growth through its multiple brands.
Benefits: Today, maintaining a brand in professional services entails significant costs. This is largely driven by the demands of the internet and social media. The pressure to get your brand message “out there” and to “stay in people’s faces” is relentless. And that requires staff. Reducing brands produces layoffs, thereby reducing costs.
Rebecca is the marketing director of a law firm that has several branches nationwide. She explained what is involved in maintaining the company’s brand. She and her three employees update the company’s website, place Google and Facebook ads, send regular and informative “emailers” to customers, produce “socials” three to four times a week on LinkedIn, Facebook and Instagram – and so on. Keeping this for multiple brands would be time consuming, expensive and exhausting.
The inconvenients : Brand consolidation does not always lead to cost savings and can turn into lost revenue. If the revenue from the combined brands is lower than the revenue from the separate brands, you will find that you have made a costly mistake. This may be motivated by reputational damage caused by rebranding. Another less visible cost is related to employee dissatisfaction and the resulting demotivation. Brand consolidation can also lead to staff resignations.
Benefits: Trademarks can be consolidated when two marks are replaced by a third. It happened 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 new beginning.
The inconvenients : This can backfire if you don’t bring existing customers and staff with you. Customers may end up losing track of old brands or not finding the new one or just not liking the change. A notorious example of this involved part of PwC — PwC Consulting. In an attempt to give a fresh start, the company announced that PwC Consulting would be rebranded on Monday. The name was meant to signify a fresh start for the week – fresh. The name change was ridiculed by the press, customers and staff. A few months later, PwC sold its entire advisory business to IBM.
Make the right choices
Let’s look at a serial brand aggregator as an example of how to deal with these issues and do things the right way. Gerry is the CEO and founder of a mid-range accounting firm that I will call Hutchison. It has 28 branches across Australia. Gerry’s growth approach has been twofold. First, to expand its existing branches and second to acquire other small accounting firms.
COMMERCIAL presence: Gerry has researched the accounting services market and found that his clients are not looking for a niche or emotionally nuanced brand. Instead, they choose prominence, stability, and a recognizable name. He sees no advantage in maintaining the marks of the practices he is taking over. “That would only complicate things,” he says.
It wants to signal a fresh start to existing customers and the market in general. As he says, “We take the bandage off right away. The change of website, for example, occurs on the first day of the new operation. But he takes great care to undertake the necessary preparatory work with staff and clients before doing so. Otherwise, research and other business examples tell us, things can go wrong.
Cost savings: The purchase of an accounting firm offers the acquired company centralized marketing, centralized telephone reception and reduced administrative staff, all with shared data processing. As Gerry explains, “Future growth is built around this idea.”
However, Gerry is aware that brand consolidation and cost savings can backfire on customers and staff leaving a business. Brand consolidation losses are recognized when the revenue of the two brands combined is lower than that of each brand before consolidation. So, as Gerry explains, “it’s important to watch for losses or gains.”
Gerry incorporates a “deferred payment” into any acquisition. Its acquisitions involve 80% of the purchase price paid at the time of settlement, with the remaining two tens being paid at 12 and 24 month intervals, if projected revenues are in line with forecasts. This covers any “leakage” as Gerry calls it.
Modernized image: Gerry’s third reason for consolidating the brands is to modernize the corporate image of old practices. But that doesn’t always go to plan, and Gerry knows it’s essential that he takes past clients with him.
He insists that customers be contacted verbally about any changes. It’s crystal clear that the key to retaining existing customers in brand building is having verbal contact. This, says Gerry, “should take place a month or two before the date of purchase of the cabinet. An e-mail or a letter will not suffice. Contact can be by phone or in person, but must be verbal.
In Gerry’s case, this task is undertaken by the practice owners of the acquired business. As he puts it, “the goal is to let clients know that there are changes coming, that the principles of the existing firm will remain and that clients will deal with Hutchison from now on. This verbal interaction, he continues, allays any fear that customers will not be taken care of or that service levels will decline.
In the case of staff, Gerry is particularly sensitive that they “be carefully informed”. The reason for this is that, in a service business, relationships are everything. “Clients usually have a personal, long-term relationship with a particular accountant or bookkeeper,” he explains. Managing staff concerns is critical, especially as Gerry’s cost savings lead to layoffs. “The repercussions of not managing these changes in an accounting practice, say in a rural town, can really affect the bottom line.”
My prescription particularly focused on the case of a professional services company and the consolidation of its brand. But these lessons can be applied to businesses in other industries just as easily. Remember though, as you go forward, failures outweigh successes.
Does that mean you should never consolidate brands?
Certainly not. But based on my personal experience and research that shows brand building failure is common, I suggest that if you are unclear about the benefits of brand building and how to go about it, you should leave things as they are.