Brand on the run

It is ironic that for all the talk about the high and rising value of intangible assets, of which brands are the most important, companies’ propensity to ditch their brands – often, it seems, on a whim – is also growing.

According to Brand Finance’s Invisible Business report of 2005, 78% of the market value of the Fortune 500, 72% of the value of the FTSE-350 and 35% of the market value of all listed companies worldwide is now intangible. Yet recent corporate history is littered with abandoned brands from myriad sectors, including Jif, Marathon, Opal Fruits, Sinclair, Midland Bank, Access, Switch, Austin, Morris, BOAC, Go, Dixons and St Michael’s – not to mention a slew of accountancy firms, including Arthur Andersen.

If such brands are as valuable as the brand valuation experts claim, why do British companies appear to treat them in such cavalier fashion? Does killing off brands – whether deliberately and strategically, or inadvertently and stupidly – damage competitiveness, and who is responsible?

Among the biggest strategic drivers are globalisation, economies of scale and a desire for corporate neatness, says Tom Blackett, deputy chairman of the Interbrand Group. “For example, Marathon’s rebranding to Snickers in the 1990s was a result of Mars’s desire to standardise its portfolio, as was the rebranding of Jif to Cif in 2001 [for brand-owner Unilever],” he says.

Consumers seemed to take the Cif name change in their stride, probably because it is difficult to form a sentimental attachment to a kitchen cleaner. Marathon was another matter. “Research shows that many people stopped buying Marathon when it was rebranded as Snickers, but that they would start buying it again if it reverted to its former name,” says Ian Ryder, chief executive of brand consultancy UffindellWest.

The problem is, what consumers say they do and what they actually do can often be very different. Another problem is that it is impossible to tell whether the value of Snickers in the UK is greater than the value Marathon would have had by now had it kept its old name.

Research by HSBC a year after it rebranded the Midland Bank as HSBC in 1992 showed that favourability scores for the business had risen. But the research findings probably had more to do with consumers’ lack of understanding of what HSBC was than with a more positive association with the brand, says independent marketing consultant Mike Sommers. He explains, “People tended to trust banks less than building societies, and while everyone would have had or heard about negative experiences of the Midland, many non-customers at the time would have been unsure about whether HSBC was a bank or a building society.”

The rebrand certainly offered no real benefits to consumers, despite its much-vaunted and ultimately meaningless strapline, ‘The world’s local bank’.

Brand familiarity
The wisdom of Nestlé’s gradual emasculation of the Rowntree’s brand name since it took over the York-based confectioner in 1988 is also debatable. The Rowntree’s brand has strong associations in consumers’ minds – not just with products like Kit Kat and Fruit Gums, but also with its strong record of corporate responsibility that stretches back to a time before the concept became fashionable. Organisations like the Joseph Rowntree Foundation and the Joseph Rowntree Charitable Trust arguably contribute far more to the Rowntree brand in the UK than the association with a large Swiss multinational with a reputation for secrecy and an image still tarnished by the way it marketed baby milk substitutes in the developing world. “You can’t just toss aside values like that, particularly at a time when corporate responsibility issues have become so important,” says Blackett.

Indeed, mergers and acquisitions is a classic brand battleground, with hundreds of brands being stretchered off because they are surplus to acquirers’ requirements. Sometimes this is legitimate: some of the acquired brands may compete with acquirers’ existing brands, and companies can’t afford to keep every brand going.

Merging brands
But, more often than not, brand value is destroyed during mergers simply because insufficient attention is paid to brands. Hewitt Associates found recently that less than 10% of management time is spent on brand fit during mergers and acquisitiions due diligence, and that reports on M&A strategies rarely mention the words ‘customer’ or ‘brand’ at all.

Terry Tyrrell, worldwide chairman of global branding agency Enterprise IG, says: “One of the objectives of any M&A strategy should be to increase brand equity, but consideration of brand strength and brand migration and sorting out the brand portfolio tends to be done after the deal, normally under the heading of cost structures.”

As with global rebrandings, most mergers are driven by corporate ego, claims Ryder: “The net result is that huge amounts of brand equity can be discarded or not optimised during takeover.” No wonder so many mergers fail to create value for shareholders.

Hugh Davidson, visiting professor at Cranfield School of Management and author of Even More Offensive Marketing, believes it is “a major failing” of marketers over the past 30 years that they haven’t got more involved in mergers and acquisitions, and the reason comes back to the old issue of marketers being unable to communicate in the language of business – finance.

But the blame for the destruction of brand value can’t be laid purely at the marketers’ door.

“The brand is owned by the company, not the marketing department,” says Tim Ambler, senior fellow in marketing at London Business School. “If a valuable brand dies it is the company’s fault. Accountants are as much to blame as marketers, and shareholders are also culpable because they don’t hold boards sufficiently to account for the health of their brands.”

And pure neglect is one of the principal reasons that brands die, he continues. “Brands are living organic things and, like plants, they thrive with care, fertilisation and water.”

An example of a once powerful brand that seems to be gradually withering on the vine is Terry’s. Run imaginatively by the founding family for two centuries, it has taken just four decades for Terry’s to suffer near death by a thousand cuts at the hands of a succession of corporate owners. One analyst recently dismissed Chocolate Orange as “something you buy your grandmother,” but how did new pretender Green & Black’s get to have a more quality, luxury and ethical reputation than Terry’s of York, whose 1767 and Spartan assortments were to die for, and which owned its own plantation in Venezuela?

Managing portfolios
The problem, says Marcus Mitchell, strategist at brand consultancy Corporate Edge, is that while the trend is for companies to build up portfolios of brands, they are far less sophisticated at managing those portfolios than they are at managing individual brands.

“Until about 20 or 30 years ago the approach even of the big brand companies like Procter & Gamble and Unilever was to let their brands fight it out against each other in some kind of Darwinian struggle for supremacy,” he says. “And there are still far fewer tools and techniques and marketing books for managing brand portfolios than there are for managing individual brands.”

Brand portfolio management may seem less exciting than managing individual brands, says Mitchell, but if companies are not to squander the valuable equity tied up in their brands, attitudes need to change.

“Brand portfolio management is behind the curve, but things are changing – we are getting a lot more assignments in this area,” he says. “Twenty or 30 years ago, clients were using consultancies like ours to develop brand strategy, but as tools and techniques have evolved, clients are increasingly doing that in-house. The same thing will happen with brand portfolio management.”

But Davidson argues that there are too many, not too few, brands and that half the brands currently in existence should be killed off or sold.

“A supermarket or hypermarket might stock 20,000 to 30,000 brands – and has probably turned away another 100,000,” he says. “But consumers have too much choice. There is a multiplicity of very similar products and the overall effect is confusion. Marketers are often tempted to extend the brand equity of a famous name by applying it in other areas, without ensuring that they are offering something different, better or cheaper. Instead of thinking about how to extend brands, they should be more ruthless in getting rid of weak ones.”

The finance director has a constructive role to play in discussing with the marketing director the rationale for, and role of, each brand in a range, continues Davidson. “They should regularly look at the bottom 20% of brands in volume and profit terms and figure out the real cost of continuing to support those brands. Small brands tend to eat up a disproportionate percentage of cost – and that often doesn’t show through in the conventional P&L. A good marketing director and FD would agree criteria for delisting brands.”

Lapse or sell
They then have two choices – sell them to a smaller or more relevant player, which can justify continuing investment in them, or let them lapse. Unilever took the former path and has reduced its portfolio from around 1,000 brands to nearer 400 during the past ten years. Premier Brands has made a nice business out of picking up some of these second and third-tier brands – including Branston, Ambrosia and Oxo – and breathing new life into them, increasing their sales through more assiduous brand management.

Big companies also sell to entrepreneurs. Interbrand founder John Murphy bought Plymouth Gin from Allied-Domecq in 1996. For decades the world’s best-selling gin, with a long and glamorous pedigree, Plymouth’s sales had dwindled to almost nothing. Murphy paid a fraction of what he thought it was worth, changed the bottle’s design to reflect the brand’s glory days and boosted the alcohol content. Domestic and foreign sales rose rapidly.

Private equity companies are also on the look-out for under-valued brands and, says Brand Finance chief executive David Haigh, “Contrary to popular opinion, just because they want to make a quick buck, it doesn’t always mean they are not prepared to invest in brands.”

Cranfield’s Davidson claims that “It is rare for a strong brand to be killed off unproductively.” Of far greater concern, he believes, is the number of British brands that are sold to foreign companies, transactions that are generally judged to be part of a healthy and dynamic free market.

Such a view is dangerously complacent, particularly as it is much more difficult for British companies to acquire foreign brands, believes Davidson. Within the past year brands such as Orange and O2 joined a long list of British assets passing into foreign ownership, including Rowntree, Jaguar, Mini, P& O, Pilkington, Body Shop, Abbey and a number of energy companies including PowerGen and Eastern.

“Brands create most wealth for their owners, because the closer to the marketplace you operate, the higher the margins you make. Margins in manufacturing are paper-thin. Most of the profits in any industry come from R &D, branding and distribution,” says Davidson.

So, although Britain is proud of its strong car manufacturing industry, most of the profits are expatriated to Honda and Toyota in Japan, he points out. “We no longer have a car manufacturing industry of our own. And if we continue to allow foreign predators to lay siege to our brands, within the next 50 years we will end up where the developing world is at the moment – as a producer of p rivate-label goods for other countries to brand.”

Foreign interest
Ambler ascribes the problem not just to a lack of understanding of brands by UK businesses, but a lack of understanding of business by government – and claims that our predominantly financial orientation is largely to blame. It also explains our love of deal-making and why shareholders are so quick to snap up offers from foreign predators rather than invest in companies longer term, he believes.

“We are as good as any other country at making things – hence the interest from foreign predators – but we are less good than the French, Spanish, Americans and others at managing and exploiting them because we suffer from financial myopia and are not prepared to back our judgement,” he concludes.

There is obviously considerable scope to make money out of reviving flagging brands. As Murphy says: “An old brand gives you a head start. It would have cost millions of pounds to create the bond with the consumer that Plymouth Gin had when we bought it.”

The question is, what is UK plc doing letting such valuable assets slip out of its grasp in the first place? Shouldn’t it be focusing on what it’s already got, rather than running around trying to find more and then spreading itself too thinly in the way it manages them?

Pssst! Wanna buy a moribund brand?
Doing ‘a Plymouth Gin’ is not as easy as it might sound, warns Corporate Edge’s Marcus Mitchell. “The first thing you have to do is assess whether the brand is dead or dormant, because there’s no point flogging a dead horse. If it has no sales, but people know and like it, that doesn’t mean it is relevant to them today.

”Next, he advises, you need to establish whether you can deliver the right levels of profit and revenue to make it viable, and the extent of innovation or renovation it needs to make it relevant and fit for purpose today and in the future.

Hugh Davidson of Cranfield says you also have to determine why the brand went downhill in the first place. “If it was due to poor quality and service, then it will be hard to recover, but if it was poor key account management, lack of distribution or neglect, then it could be resuscitated,” he says. “And the beauty of the crop of modern marketing communications tools, including blogs, means you don’t need to spend £20m advertising it on TV.

”Corporate Edge helped breathe new life into Triumph Motorcycles three years ago. Sales had dwindled since its heyday of the late 1950s and early 1960s and though a new owner had bought the business, his engineering focus kept the bikes firmly in the old classic category. Corporate Edge worked with Triumph’s PR and marketing agencies to create contemporary and compelling brand attributes for Triumph, which won the Walpole British Brand of the Year award in 2004 and became Europe’s fastest-growing motorcycle manufacturer.

Trademark law
Some brands are allowed to lapse, but their owners are usually at pains to stop others picking them up because they often have considerable latent value for many years after passing out of use. How well might Woodbine still play, for example, with hard-core smokers wanting to cock a snook at the forthcoming ban on smoking in public places? And you could imagine the Business-Only Airline Corporation – BOAC – becoming the favoured choice of the discerning executive traveller.

But to stop others using lapsed brands, their owners must re-register the trademark every five years and demonstrate that they are still using it in some capacity.

“The same law applies across Europe – it’s a case of use it or lose it,” says Stephen Groom, head of marketing and privacy law at legal firm Osborne Clarke.

A trademark is classed as a name, logo, phrase, picture or shape that is recognisable as coming from a particular source. It takes about two years to register a trademark and costs around £200. You register it under one or more of 45 different classes of services and products, but your monopoly rights extend only to the class of assets you register for.

However, even if you have not registered your trademark you can still stop others using it on the grounds that they are ‘passing off’. The law on passing off in the UK says that as long as a brand has a reputation and association with a particular company, attempts by others to use it may be damaging to the original owner.