Slimming brand portfolio likely to starve your company
The world’s largest consumer products companies such as Unilever and Procter & Gamble have recently announced shedding up to hundreds of brands, keeping only the strongest alive to make more profit. But when it comes to brand portfolio, is less really more? While most companies are convinced these big clean-ups result into increased firm value, new research by Dr Yvonne van Everdingen and Professor Gerrit van Bruggen and PhD candidate Baris Depecik of Rotterdam School of Management, Erasmus University (RSM) reveals that in almost all cases the opposite is true.
Specific brands attract specific customers who relate to that brand and what it stands for. This is especially true for local brands. But brands must have an increasingly global reach and companies must have a ‘one-size-fits-all consumer needs’ mentality. This means cuts need to be made. So what happens to a company’s overall shareholder value after it announces its plans to cut specific brands. For example, how did Unilever’s decision to cut the Jif brand affect the company’s stocks? Did their value go up or down? RSM researchers Dr Yvonne van Everdingen, Baris Depecik and Professor Gerrit van Bruggen found that this depends on the category of the brand you want to cut.
They classified the companies’ brands from their brand portfolios into four categories: core brands and non-core brands divided in local and global brands. A core brand represents a company’s primary product group, for Unilever this is personal care. A non-core brand is a brand that doesn’t represent one of the primary product groups of a company. Dividing them into local and global brands is based on which markets the brand sells on. Companies have different approaches to what brand to keep and which one to cut: Unilever kept most of their global brands, and got rid of most of the local ones.
Procter & Gamble on the other hand kept most of their core brands – while dropping their non-core ones. Van Everdingen, Depecik and Van Bruggen found that for each brand category, the cut has different effects. As expected, discontinuing a non-core brand that sells on a local level, and removing it from your portfolio, has positive effect. It will increase your firm’s value. And when removing a core brand that sells on global scale, this has a negative effect. So far this seems logical. But what if it’s less straightforward, such as discontinuing a non-core brand on global level or removing a local core brand from your portfolio? The researchers discovered that both of these cases will have a negative effect on your firm’s value.
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Stunningly, in three out of the four possible situations, slimming down your brand portfolio has negative effects for your stock prices. This contradicts what most companies think. So, putting your brand portfolio on a diet, can starve your company to death.
Van Everdingen, Depecik and Van Bruggen advise companies who consider rationalising their brand portfolio not to divest core brands nor global brands. Having multiple brands may add to the total costs, but also deliver value. Killing brands means killing value, unless you wipe out non-core business brands with low international presence. This should be taken into consideration when scaling down. Think about who the real owner of a brand is: would that be only you, or your customer as well?
This research was published in Global Strategy Journal (2014, pp. 143-160).