Brand Architecture – Strategic Imperatives for M&A

Brand architecture – Strategic imperatives for M&A - Martin Roll

In the recent past, organisations were using brand architecture to manage increasingly complex brand portfolios and implement business strategies that would allow them to manage their innovation pipelines. More recently, the focus has shifted towards:

  • How to use brand architecture as a tool to manage brands acquired through mergers and acquisitions
  • How to adapt architecture after selling brands
  • How to extend existing brand architecture frameworks in new regions due to expansion
  • How to implement effective re-branding and co-branding strategies

For global organisations, designing an effective brand architecture requires an understanding of three critical factors:

  • The position of the brand in the hierarchy (i.e. whether it is a corporate brand or product brand or a product brand variant)
  • The geographic focus of the brand (i.e. global, regional or local)
  • Product scope (i.e. the current range of the products or lines of the brand and the future innovation pipeline for the brand)

These same three factors are increasingly being used by organisations to position brands they acquire via mergers and acquisitions in the brand portfolio.

Among the new and emerging imperatives for brand architecture, mergers and acquisitions comes up as one of the most important. The global business environment has increasingly turned complex with factors like global uncertainty, stagnation in growth rates in the Western economies, higher levels of competition, emerging economies with high growth potential but unpredictable growth rates and increasing fragmentation of markets. Global organisations are increasingly looking at growing via acquisitions in target markets or by selling off non-core businesses to strategically focus on core areas of growth. The third avenue for growth are mergers wherein organisations are increasingly looking at partnering with one another to garner more market share, take on competition more effectively and expanding their global footprint.

Managing an expanded portfolio of brands in a merger and acquisition scenario has direct implications on brand architecture, as it also needs to evolve simultaneously. The key factors that need to be considered are:

Assimilating acquired brands in the existing brand architecture: Brands acquired via a direct acquisition need to be incorporated into the existing brand architecture in a manner that the existing relationships between different levels of the brand architecture are not disturbed. Essentially, acquired brands that are in the same category need to be aligned with the relationship that exists between the corporate brand, product brands and any sub-brands. This requires a strategic re-look at the brand name, existing brand positioning and future positioning in the brand portfolio. This is always a complex task and requires an in-depth overview of the existing and proposed brand architecture.

Directly competing brands in a merger scenario: In many instances corporate mergers leave the merged entity with multiple brands in the portfolio that compete in the same category and segment. Decisions around integrating them into the brand architecture can be two folds: slowly phase out one of the brands and let the bigger brand take over the existing assets or allow both brands to operate as they have always with strong endorsement from the corporate brand. In situations where there is no corporate brand endorsement, the decisions on brand architecture alignment rests on factors like strength of the independent brand, co-branding avenues etc.

Phasing out brands: In many instances, and more commonly in acquisitions, the acquiring company phases out brands of the acquired company over a period of time. This also has implications for brand architecture, as the phase out may not happen immediately but over time. The whole process may take place over three stages: both brands co-exist, the brands to be phased out starts getting endorsed by the stronger brand and finally, the stronger brand replaces the phased out brand completely. Microsoft’s acquisition of Nokia’s global mobile phone business adopted a phasing out strategy of the Nokia corporate brand endorsement. All existing mobile handsets from Microsoft do not have the Nokia brand name anymore, with corporate brand endorsement shifting to Microsoft.

In this whole process it is important to assess how the evolved brand architecture can tie down the new products that the brand has now expanded into. This requires an on-going understanding of the positioning of the products, how the positioning of the new brand can be evolved to account for the new products and how the new relationships can be represented in the brand architecture.

Selling brands: From the seller’s perspective, an acquisition means that the brand portfolio have been rationalised. From a brand architecture point of view, it means realigning the corporate brand, product brands and any sub-brands into a new framework that represents the relationships accurately. Most sell-off decisions are driven by poor performance and non-core businesses but many sell-off decisions can potentially have a strong impact on the equity of the corporate brand (e.g. Nokia selling of its mobile phone business to Microsoft, or Ericsson deciding to discontinue mobile phones products). In such scenarios, a whole redesign of the brand architecture, if required, enables the organisation to understand the new focus areas and its intended positioning in different product segments, which may not have received a lot of attention in the past.

In addition to these specific scenarios, overall management of the evolving brand architecture is critical. This is where the integration of newly acquired brands into the framework, working out new relationships, ensuring existing portfolio relationships are not disturbed and understanding how positioning needs to be amended come into play as important factors.

Many global organisations grow and expand by acquiring local entities in markets of strategic interest. Whenever such an acquisition occurs, a host of brands get added into the portfolio of the organisation. As the organisation expands by more acquisitions, the portfolio of brands at a local level keeps on growing significantly. If some of the acquired businesses have a regional footprint, then the portfolio expands by the addition of regional brands. Some of the key decisions around brand architecture that need to be taken after every acquisition are:

Deciding local and regional positioning for acquired brands: When acquisitions are of established regional and local businesses, then the number of brands that get added into the portfolio can be significant. Alternately, even if the number of brands acquired is a smaller number, all these brands will have significant market strength. Decisions around streamlining these new brands and how to position them in the brand portfolio can take multiple forms. In many instances where there is no corporate brand or product brand endorsement and the local brand is strong, it may just be allowed to continue undisturbed (e.g. Mondelez has adopted this strategy while treating the Cadbury brand portfolio in different countries). In situations where there is a product brand endorsement that needs to be phased, then the new product brand starts co-endorsing before taking over completely. In terms of brand architecture, if the local brand is good fit in terms of positioning, then it occupies an additional place among all brands receiving endorsement.

In terms of overarching brand architecture, when local brands remain undisturbed even after an acquisition, they do not form a part of the master architecture of the corporate brand. They are generally the fourth or fifth level in the architecture hierarchy operating at a local level. Majority of global organisations have a portfolio of successful local brands that operate independently. The only exception to this rule is when local or regional brands have the potential to become “superstars”, which is elaborated in the next paragraph.

In many instances, acquired brands at a regional level are identified as potential high-growth opportunities or future “superstars”. In such instances, these brands are elevated in the brand architecture framework and have close functional and positional relationships either with the corporate brand or with the product master brand. Over a period of time, conscious branding and marketing efforts help in aligning the positioning of the newly acquired brands with the product master brand.

Implementing strong and consistent brand management practices: As acquired brands come into the organisational portfolio, it is important to ensure that strong and consistent brand management practices are followed. These have direct implications on integration of new brands into the brand architecture framework. Strong brand management practices that ensure consistent positioning, operating within brand guardrails, continuous audit and assessment of brand assets for consistency and best practice examples ensure that acquired brands are managed in a similar way like existing brands.

Development and management of acquired brands need to happen over a spectrum ranging from independent existence to becoming a core part of the global brand architecture. The decision on where the acquired brands will fall on this spectrum in turn decides the scope of brand management practices for them.

Appointing a brand custodian or brand champion: In every merger and acquisition scenario, there needs to be an individual within the organisation who is responsible for the integration of newly acquired brands into the portfolio and also for understanding and implementing the process of evolving the brand architecture. This individual should be responsible for managing and implementing the guidelines that ensure acquired brands are positioned and built in line with their relationships with the corporate or product master brand in the architecture. The brand custodian will monitor the consistency of brand positioning in international markets, if the acquired brand is a global or regional brand.

In addition to the above factors, it is important to realise that brand architecture is a dynamic and evolving entity and needs to be managed in a similar fashion. In addition to global mergers and acquisitions, organisations grow by numerous acquisitions at local country levels. The impact of country level acquisitions on expanding brand portfolios and the resultant brand architecture should be carefully monitored. This is important due to the following reasons:

Proliferation of brands at a local level: Local acquisitions can quickly lead to a proliferation of brands owned at a local level. These local portfolios need to be rationalised before the local brands can be integrated into the brand architecture. Some of the important decisions that need to be taken at a local level include the number of brands to keep in the portfolio, the number of brands to sell-off, forms of corporate or master brand endorsement required and implementing standardised brand management practices. These decisions will influence the positioning of the local brands in the brand architecture.

Diversification: Country level acquisitions are often part of a diversification strategy to enter new categories. In such instances, new brand architecture needs to be designed for this new portfolio. While designing brand architecture for a new category, alignment with existing brand architectures need to be carefully considered. This is important from the point of view of the corporate brand have synergistic relationships with all product master brands, even if the relationship is weak (no endorsement) or strong (endorsement).

Acquisition of competitor brands: Integrating competitor brands into a brand portfolio is always a complex process because of the different positioning, strengths and weaknesses and value perceptions. If the competitor brand has a dominant market share, then cannibalisation is a definitive threat that needs to be accounted for. Direct competitor brands are also challenging to integrate into portfolio architecture as relationships with master product brands and corporate brands are generally in conflict to start with. In most instances, positioning of acquired brands that were direct competitors in architecture is a medium to long-term process, with strategic decisions taken along the way.

Keep a long-term lens

Taking a step back, evolution of brand architecture in the context of mergers and acquisitions is a continuous one and may take a significant amount of time to get formalised. This is driven by the fact that acquired brands and businesses take a long time to get fully integrated into the existing business structure of the acquiring organisations. The international branding strategy of organisations is generally a step-by-step process with decisions taken at a country, division or product level.

As the brand strategy evolves at a country level, it impacts the evolution of the overall brand architecture. In essence, brand architecture in the context of mergers and acquisitions, is all about how acquired brands will be treated. In addition to identifying positioning of brands in the portfolio, another key decision that the management needs to take is around defining the geographic scope of acquired brands. As mentioned before, these decisions revolve around allowing local brands to operate undisturbed or elevating them to a regional power brand level if they have the potential to grow beyond a single country.

The brand architecture implications of mergers

Mergers, in contrast to direct acquisitions, present a different set of challenges. Depending on terms of agreement and majority-minority stakeholder status, the merged entity needs to take decisions on rationalising the expanded brand portfolio. In these circumstances, the decisions around rationalising are complex. Brands coming from different stables that are direct competitors need to be treated carefully and a brand strategy needs to be adopted going forward. Small brands in each portfolio need to be rationalised along the lines of phasing-off, independent co-existence, co-branding or a complete name change. In many instances, the merged entity has a new brand name, which in turn changes the way of how the corporate brand will endorse brands in the portfolio (in 1999, French pharmaceutical major Rhone-Poulenc S.A. merged with the German corporation Hoechst Marion Roussel to form “Aventis”). As mergers and acquisitions become more common, it is crucial to accurately understand the impact and implications on international branding strategy and consequently, brand architecture.

Conclusion: Brand architecture is a critical factor influencing M&A success

The concept of having in place coherent brand architecture is increasingly becoming a continuous practice, rather than a point in time occurrence. Annual brand audits and brand architecture reviews are increasingly becoming common practice in global organisations. These are considered crucial strategic checks to assess whether ever expanding brand portfolios are still making rational sense in brand architecture and whether brand management practices are showing the required results or not.

Brand architecture audits can take multiple forms depending on the level of accuracy and comprehensiveness desired. The audit can be done at an individual brand level to assess the fit of each brand in the architecture in terms of relationships with the product master brand or corporate brand. Essentially audits try to measure mismatches or divergent positioning of individual brands from what was originally intended. These identify positioning conflicts or sub-standard brand management practices that led to the deviations. Additionally, audits also identify whether the market structure in which the brand operates has also changed, which implies that the position of the brand in the architecture needs to be changed.

Another form of audit, which should generally be conducted along with individual brand audits, is a strategic one. This examines the existing brand architecture in its entirety and conducts a stress test to understand whether the brand architecture still holds in light of recent market and category changes. More importantly, the strategic audit tries to measure the applicability of the brand architecture in light of how the organisation itself has evolved due to a merger or a series of acquisitions.

Mergers and acquisitions have significantly changed operating models and structures of organisations. These strategic changes have, in turn, impacted the management processes of brands. Although not a focus of this article, the people element in this whole process of change is crucial to understand and manage. Because mergers and acquisitions are primarily done to identify and unlock growth opportunities, it is imperative that the vehicles of growth, namely brands, are managed efficiently in the whole process. To achieve this, national and international branding strategies should focus on creating sustainable, coherent, clearly defined and actionable brand architecture for the portfolio. This acts as a navigation map for the organisation’s management and brand custodians to manage the portfolio in a manner that leads to a sustainable, medium and long-term growth path.