Should a boring Fortune 500 company tell the world it is the owner of that red hot maverick brand?

Start-ups are disrupting established business models in a wide array of industries. Established corporates feel the pressure and either develop standalone business units in house, or simply buy young competitors. Our corporate clients often struggle with endorsement issues of their younger daughter brands. Knab for example is an innovative bank, which is actually owned by the established Dutch financial institution Aegon. The Knab name and logo show no connection with Aegon. Knab and Aegon keep the communication about their relationship at a minimum. What is the value of the connection between brands in these situations? Should they leverage brand equity by transferring positive brand associations from the parent brand to the daughter brand and vice versa? Or will this lead to brand dilution? And what does it mean for the innovative and young image of the startup? Globrands researched the effects of parent brand endorsement on brand equity of both brands and generated relevant brand portfolio strategy insights.

What is Brand Portfolio Strategy?

So what is a brand portfolio? A company’s brand portfolio comprises all different brands it uses to communicate to its stakeholders. Brand portfolios differ in the extent to which the parent brand endorses the daughter brands. Two extremes can be identified (Aaker & Joachimsthaler, 2000):

On one side of the spectrum we find the Branded House portfolio strategy. A widely used example of this strategy is the Virgin brand. Richard Brandson chooses to use the brand name Virgin for all business he acquires, no matter how much they differ (trains, holidays, media, airlines etc). The main advantage of this strategy is that marketing efforts can be focused on one brand. Existing positive associations with this brand can be transferred to other businesses. The downside is that negative associations that emerge in one Virgin business can corrupt the image of the Virgin name and therewith all other companies leveraging the brand.

On the other side of the spectrum we find the House of Brands portfolio strategy. A great example is Unilever. It uses different brand names for all its products and most customers do not know nor care that those brands all have one and the same owner. The main advantage is that a daughter brand can specifically focus on its customer segment and build strong brand associations. If the brand or product fails, that will have no effect on other Unilever brands. The downside is that maintaining a broad portfolio of brands requires more marketing budget: every separate brand has to be promoted and that is expensive.

These are the two extremes. Meanwhile, many companies follow a path in which they combine Branded House and House of Brands strategy.

Several determinants can be identified to base the decision on which strategy to follow. Our research shows that when weighing the benefits for the corporate brand against the brand dilution risks, focus should be on the benefits for the corporate brand.

Globrands developed the BrandQuadrants© mapping tool, which is often used when developing or evaluating a corporation’s brand portfolio strategy. Although several reasons to determine which strategy is best are identified in academic literature, every real-world situation is different. Moreover, with 30 years of experience in naming strategy to build on, Globrands offers tailored brand portfolio strategy consulting to companies of all kinds. New trends emerge, and Globrands aspires to stay on top of the latest developments.

What is the Effect of Endorsing a Disruptive Start-up on Brand Equity?

Our research showed that consumers evaluate the corporate parent brand more positively after they found out that the parent brand owns a disruptive daughter brand. Meanwhile, consumers did not evaluate the disruptive daughter brand differently after they found out that they are not a standalone business, but part of a larger corporate organization. For established companies with a conservative or outdated image, this research offers the valuable insight that acquiring a young innovative brand can help to rejuvenate perceptions of their corporate brand. For branding strategists it is interesting to know that placing the newly acquired brand under the umbrella of the corporate brand does not harm the daughter company brand.

What is the Best Strategy for your Bottom Line?

Every organization’s situation is different. Therefore a thorough review of your company’s market position should be conducted. However, ceteris paribus, when corporates own disruptive daughter brands they can associate their name with it without harming its consumer appreciation. Moreover they can boost their brand image by leveraging the positive associations consumers have with young innovative initiatives.

Does your organization struggle in finding the right answers to brand portfolio issues? Feel free to reach out to us via info@globrands.com.