The Hindu Business Line : ‘Brand-asset due diligence needed in acquisitions’

The pug has been retained, assures Vodafone, as an ‘endearing symbol’ that signals the continuation of ‘the good things’ even as the new company builds on ‘strong fundamentals’. But it may be some time before the ne w brand name gets etched in the minds of people, and the customers connect with the old pug in its new house. For, rebranding is always a major exercise, especially in the context of big-ticket acquisitions that result in brand changes, as happened in the case of Hutch.

Do companies conduct brand-asset due diligence as part of their acquisition process? “Rarely,” says F. Joseph LePla, co-author of ‘Brand Driven’ and ‘Integrated Branding’ ( www.vivagroupindia.com). “Although I don’t know if that is true in this (Vodafone’s) case, this lack of brand understanding results in decisions that often damage the relationship between the acquired brand and its customers. This is ironic because brand value is often greater than the hard assets or infrastructure of a company,” he adds, in an e-mail interaction with eWorld.

LePla is Principal, Parker LePla ( www.parkerlepla.com), ‘a group of brand shift consultants, who help organisations achieve bigger visions by shifting their brand through brand definition, strategy, internal operations and messaging’. Among the list of ‘clients served’ of the Seattle-based organisation he co-founded with Lynn Parker in 1994 are: Apple Computer, Hewlett-Packard, Microsoft, Virgin Mobile, Philips Medical Systems, Zoka Coffee and so on.

Excerpts from the interview.

What can be the worry of customers during a brand name change?

If I am a Hutch customer, for instance, this abrupt name change will cause me to question whether the new Vodafone brand has the same service and product standards that caused Hutch to be named ‘ Most Respected Telecom Company’ and ‘The Best Mobile Service in the Country.’

How can Vodafone avoid this?

The most successful acquisitions of strong brands are those in which the acquirer introduces itself to the acquired company’s customers and demonstrates its values and standards to them over a period of time—typically from six months to over a year. Once it has raised awareness and earned their trust, customers are typically much more willing to embrace the new brand.

Any examples?

A good example of this is WaMu’s (Washington Mutual — a major US financial institution) purchase of long-established and beloved banks throughout the US. Their transition process typically begins with employee exchanges, and internal and customer newsletters and events. Only after this is done do they move to a name change. This preserves brand equity in the acquired brand and can act as a catalyst for increasing revenues by providing existing customers with new services from the acquiring organisation. In Chapter 17 of our book ‘Brand Driven’, Lynn Parker and I outline a brand-based due diligence model for mergers and acquisitions.

Can you briefly explain your model?

The heart of our due diligence model is based on the belief that to understand the real value of a transaction, you need to keep customers, employees, culture, practices and what customers value beyond products and services at the heart of your valuation and subsequent integration strategy.

A Watson Wyatt survey of 1,000 organisations found that less than 33 per cent of companies attained their profit goals after an M&A (merger and acquisition), and that mergers failed to produce the expected benefits 64 per cent of the time.

Thinking of company valuation in terms of brand assets enables acquiring companies to accurately assess value and create plans for integrating and growing that value — including the all important question of whether to keep or eliminate the acquired company’s brands.

Your views on the ad spend that goes waste, first to create the earlier brand, and then to obliterate it.

Effective advertising helps build the relationship between a company and its customers. The best advertising implies a promise, which when paid off, creates a virtuous circle of value — the customer tries Hutch’s products and service and they like it. Then they see more advertising which reinforces their decision and shows them additional products and services that may even improve their experience.

An example of how this can go wrong is the Macy’s department store takeover and subsequent rebranding of well known geographical retail icons around the US.

In Chicago, the rebranding of Marshall Fields to Macy’s has sparked a grassroots boycott and languishing sales at its flagship store — even a year after the changeover. (See stories on www.chicagotribune.com/business and www.fieldsfanschicago.org).

Should acquiring companies allow the brand of the acquired company to live on in some form, rather than hastily burying it away?

Acquiring companies should always conduct a brand asset audit prior to any purchase agreement and then come to a strategic determination of whether to keep or eliminate a brand.

On the one hand, too many brands can become expensive and unmanageable, on the other, maintaining an existing brand can often be the key to continued business success or significantly higher margins over the long term. Unfortunately, many companies don’t know how to value brand assets and therefore act as if they don’t exist.

Is there a way to know when a brand is (un)fit enough to go into oblivion? Or, when is it the right time to kill a brand?

If an organisation has done a good job of defining the role its brand plays in its customers’ lives, it can be successful for a very long time. Witness Volvo, Johnson & Johnson, Coca Cola or IBM, for instance. In an acquisition where the two organisations greatly overlap, the question is always about the number of committed customers and whether they will accept change. The closer a company is to being a cultural icon whether for a city or a country, the more likely it is that eliminating the brand will not be a wise financial decision.

It makes sense to send a brand into oblivion if the equity can be transferred to another brand, which is most often the case. This saves the organisation money, creates more focus and economies of scale. But there are notable exceptions and in these cases, the company would be better off to take the pile of money it will then cost them to create awareness and less-than-comparable preference for the new brand, and burn it in the company parking lot.

dmurali@thehindu.co.in

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