When mergers and acquisitions happen these days, the first people from the outside to get very excited are the marketing folks. The easy debate for them is whether the merged company should consolidate their brands into one brand, or leave the brands separate and on their own. The Vodafone-Idea merger was a stimulation for yet another marketing debate. One brand or two? Traditional thinking about brand architecture is based on a few well-documented models. These outline the way different stakeholders experience and interact with the brand.
The immediate question and the starting point for these models is still relevant today: ‘Who is my Audience?’ ‘How does it differ across the breadth and depth of my portfolio?’ House of brands and branded house are the best-known options, but there is no one- size-fits-all model for brand architecture. It is important to build a framework based on flexibility.
The problem with thinking of brands in a merger situation is that first of all companies merge for many other reasons other than just the brands. The merger could be for a greater share of the market, to increase revenue and scale, for economies of scale, sharing R & D, for a better return for shareholders or better valuations, for consolidating distribution and a host of other reasons. Somewhere in that vast array of reasons for a merger is the question of marketing and brands.
A look at the International Automobile Market
In the new era of mergers and acquisitions, the car market is a particularly interesting one. Toyota Motor Company owns: Lexus, Scion, Daihatsu and Hino Motors, with a stake in Fuji Industries (Subaru’s parent company) and Isuzu. Volkswagen owns: Audi, Bentley, Bugatti, Lamborghini, Porsche, and overseas-brands SEAT and Skoda. Volvo is owned by Chinese-automaker Zhejiang Geely Holding Group, aka Geely.
Volkswagen is a good example of an auto manufacturer who is exploring the values of its various brands intelligently. Volkswagen stands for mid-priced middle-class cars, somewhat more expensive than their competitors from Italy or Korea. Having a choice of brands helps VW to tailor cars to the needs of markets without damaging their core brand. A VW is seen as more valuable as a Seat or a Skoda, therefore you can sell Seats and Skodas to markets which can’t afford VWs and Audis. There are also huge R & D and platform synergies. The Volkswagen Vento and Skoda Rapid in India are great examples of cars with the same engine, design, and chassis. And yet each brand has its own audience and market.
Because brands are positioned to different audiences, it makes no sense to combine a brand into a single company brand for marketing economies of scale. The difference between a company brand and a consumer brand is a moot point when considering how companies should behave in the mergers and acquisitions scenario.
The Confectionery Market
Mondolez is a great example of a company of brands, rather than a branded company. With the acquisition of Kraft and Cadbury in the space of a few years it now has a whole array of brands under its fold. The Cadbury purchase was part of the long-term strategy of Irene Rosenfled CEO and Kraft chairman since March 2007, who developed a three-year turnaround plan to increase Kraft Foods’ profits.
Rosenfeld wanted to develop new markets and expand Kraft’s product range when she became chairman. It was assumed that the purchase of Cadbury would help Kraft products in new markets, such as Brazil and India, because of Cadbury’s presence in those markets. India is one of its most resilient markets, with 20-percent sales growth and a 30-percent increase in profits. The Cadbury purchase gave Kraft 14.8 percent of the global candy and gum market and the company wanted to avail itself of Cadbury distribution in the developing markets of India, Brazil, and Mexico.
Those two cases then broadly cover the spectrum of mergers and acquisitions and implications for marketing of brands. Now lets look at Vodafone and Idea.
The implications for Vodafone and Idea
Vodafone Group CEO Vittorio Colao said that both brands are very strong and that both will continue to operate in the market. He was speaking after Vodafone and Idea announced that they were merging their businesses to create a 1.55 lakh crore entity which will be the largest Indian telco and second largest globally by users. The combined entity would be renamed at a later stage. This is the first reason for retaining the equity of the existing Vodafone and Idea brands. To build a new company brand, in a fairly mature Indian telecom market, is itself a great challenge. A number of experts hailed the decision to keep two separate brands.
“Vodafone has an urbane connect while Idea Cellular is more popular in the tier II and rural areas. They have a balance and it does not make sense to fold one brand under another,” said Santosh Desai, Managing Director and CEO of Futurebrands. ( Economic Times, March 22, 2017)
And this might well be the strongest reason for two brands. Somehow over the years Idea and Vodafone have developed with two very different personalities, therefore appealing to very different audience mindsets. No doubt this has something to do with the product itself. I, for example, have two sims, one is an Idea and the other is Vodafone. Unfortunately, Vodafone which is my main service provider in Mumbai has very bad service near my second home which is a small village in Maharastra with just 50 families. What prompted me to buy the Idea sim was that I saw the other villagers using it.
An important point to keep in mind is that when the merger of Vodafone and Idea is complete in a few years, the combined entity will have a new company brand name. In view of the new company brand name which is unfamiliar to consumers, it makes even more sense to retain the strong equities built over time in the Vodafone and Idea brands. Another important point is that having two brands gives the new company a very key opportunity to flank the other brands in the market. For example, Unilever could never have been able to attack Colgate the market leader in the oral care category, with just one brand. Which is why Unilever had a strategy to overcome Colgate with two distinct brands: Pepsodent to attack Colgate at the therapeutic end of the market, and Close-up to attack Colgate at the cosmetic end of the market.
Similarly, the Vodafone-Idea new merged company will have the Vodafone brand to speak to more urban consumers while Idea talks more to the lower end of the market. It is difficult to shake off the inherited values for both brands: Vodafone is clearly an international brand with global values, while Idea is a homegrown indigenous Indian brand. With the strong resurgence of going back to Indian brands and the Made in India movement, Idea like Patanjali can appeal to the audience that loves homegrown brands.
Of course, there is also the alternative of building a completely new master brand. This option could be both expensive and fraught with risk. The telecom sector is a particularly interesting one because, given the price-parity situation, the only differentiator that telecom companies have is the brand. So it hardly makes sense to give up equities of brands that you already own.
The pressure if anything will be on the other two major players Airtel and Reliance Jio who have only one overarching brand to straddle the entire market which is so wide and diverse for one brand to cover and do justice to. If India was more homogenous like some other countries, it might have made sense to have only one brand for the Vodafone-Idea merged entity.
Brands build value by creating strong bonds with their customers. Brand architecture is increasingly important because it is the external representation of how your brands interrelate.
( This article was first published on LinkedIn on May 2, 2017 )
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