Brand Portfolio Management. Basic principles and recent trends

Table of Content

1 Abstract

2 Introduction
2.1 Aims and Objectives
2.2 Limitations

3 Literature Review
3.1 Branding
3.2 Brand Equity
3.3 Brand Portfolio Management
3.3.1 Brand Portfolio
3.3.2 Product-defining Roles
3.3.3 Portfolio Roles
3.3.4 Brand Scope
3.3.5 Portfolio Structure
3.3.6 Brand Portfolio Objectives
3.3.7 International Brand Portfolio Management

4 Market Analysis
4.1 Research Methodologies
4.2 Unilever-Case
4.2.1 Marketing Analysis of Unilever
4.2.2 Why did they do it?
4.2.3 How did they do it?
4.2.4 Were they successful?
4.2.5 Financial Analysis
4.2.6 Qualitative Analysis
4.3 Observation of Market Performers

5 Findings, Recommendations and Conclusion
5.1 Findings for main aims
5.1.1 Does the application of brand portfolio management in a company improve the financial performance?
5.1.2 Does the introduction of brand portfolio management in a company simplify the brand architecture from the perspective of different stakeholders?
5.2 Findings for objectives
5.2.1 International fast moving consumer goods companies focus their brands on international markets
5.2.2 Small or unfitting brands got sold or disinvested
5.2.3 Brand portfolios were reshaped and restructured
5.2.4 Brand portfolio structure was clearer after campaigns
5.2.5 Restructuring programs caused high one time costs
5.2.6 Restructuring programs saved revolving annually costs
5.2.7 Restructuring programs did not meet their financial objectives
5.3 Reliability, validity and generalisability of the findings
5.4 Recommendation
5.4.1 Academic
5.4.2 Managerial
5.5 Conclusion

6 References

1 Abstract

This paper argues that brand portfolio management is an inevitable discipline in marketing and has to be applied in the business practice. It presents the current literature about this topic, beginning with the general branding theories, covering basics and first approaches to brand portfolio management, and also takes the international focus on brand portfolio management. It shows a case-study of the fast moving consumer goods producer Unilever. Its “Path to Growth” strategy, where Unilever went through the biggest restructuring efforts in its history, is presented and analysed. The Unilever “Path to Growth” strategy, was a five year restructuring plan launched in 1999, in which Unilever sold an disinvested many established and smaller brands, cut substantial amounts of costs, laid off thousands of employees and restructured their brand portfolio considerably. The weaknesses and the benefits of “Path to Growth” are shown, and also brand portfolio management in general is described in this context. The Unilever case is analysed in detail. The motivations for brand portfolio management in general, and the specific restructuring campaign are shown and explained. Financial and qualitative analysis is taken. The outcome of the restructurings is evaluated and conclusions are taken. Recommendations for further studies are made and an outlook is given.

Table of Figures

Figure 3.1: Brand Equity Chain

Figure 3.2: Correlation between brand equity and market power

Figure 3.3: Complete Model of brand equity with measures

Figure 3.4: Brand Portfolio Henkel KGaA

Figure 3.5: Brand Portfolio Model Laforet & Saunders, 1994

Figure 3.6: Boston Consulting Matrix or Growth Share Matrix

Figure 3.7: Brand Portfolio Structure by Aaker

Figure 3.8: Part of Brand Hierarchy Tree - Toyota

Figure 4.1: Research process onion by Saunders

Figure 4.2: Unilever Brand Portfolio Germany 1999

Figure 4.3: detailed brand portfolio Unilever 1999

Figure 4.4: The Unilever Brand Portfolio 2007

Figure 4.5: Brand Hierarchy Tree of Bertolli Brand

Figure 4.6: Absolute share price development of Unilever shares

Figure 4.7: share price development of Unilever shares in percent compared with benchmark (Dow Jones Euro Stoxx 50)

Figure 4.8: Sales and profit Figures Unilever 1998 - 2004

Figure 4.9: Netsales (left) and operating profit (right) Unilever for three main business areas

Figure 4.10: Development of profit Margins Unilever

Figure 4.11: Development of Unilever-staff (in thousand)

Figure 4.12: Unilever Revenue per employee (left) and total amount of staff costs (right) in thousand Euro

Figure 4.13 Screenshot from Webpage www.unilever.com

Figure 4.14 Procter and Gamble Net Sales figures

2 Introduction

Branding and Brand Management has become one of the major management priorities in companies throughout the last decade. Managers have realised that brands are one of the most valuable intangible assets a company owns (Keller, 2006). Brands serve as product markers, as differentiating element for customers. This fact and its outcome were subject to various academic researches in the past. In recent years, a relatively new part of brand management becomes more prominent. Brand portfolio management displays the approach of managing more than one brand in a company. It sees the amount of brands in the respective company as a portfolio. A portfolio, in general, is “a collection of work and resources that are managed as a group in a way that maximises the total business value” (Ten Step, 2007).

So, brand portfolio management takes the focus on managing the brands as a group. As many companies today have very many brands on their balance sheets, this is an approach that can be comprehended. The main aim is to receive something more by managing the brands as a whole, rather then managing all the brands singly. This should not mean that a company now only needs one brand portfolio manager rather than different brand or product managers. It is more, that a brand portfolio needs a centralised steering, that a central unit or person, depending on the size of the company, looks for common objectives, brand associations and identities.

2.1 Aims and Objectives

This work is focusing mainly on the application of brand management theory in practice. The main theories are presented, and a case study is worked with the example of Unilever, a fast moving consumer goods company that went through a big brand portfolio and general restructuring strategy campaign. Therefore the main aims and different objectives of this paper that are researched are:

Aim 1: Does the introduction of brand portfolio management in a company improve the financial performance?

Aim 2: Does the application of brand portfolio management in a company simplify the brand architecture from the perspective of different stakeholders?

Besides these two main aims for this work, different objectives are followed.

- Objective 1: Do International fast moving consumer goods companies focus on specific markets?
- Objective 2: How does their brand portfolio look like in terms of size and structure?
- Objective 3: Did the companies take the effort to restructure their portfolios?
- Objective 4: What was the outcome for the quality of the brand portfolio?
- Objective 5: What were the financial costs for the restructuring?
- Objective 6: What were the financial benefits of the restructurings?
- Objective 7: Did the programs meet their own financial objectives?

These are the main aims and objectives. To measure them, especially the aims, different measures will be identified. The financial measures are mostly set by the companies themselves to measure their success. The financial perspective is used here, because in business practice, all marketing theories and approaches that are applied are also measured from a financial view. The measures for aim 2 can be seen in section 3.3.6.

2.2 Limitations

The limitations of this work are based on the research material. It is based, as section 4.1 describes, on secondary data material and literature like journal articles and books. So the findings are sometimes assumptions based on secondary research.

3 Literature Review

In the following chapter the different opinions and theories of branding are presented. The terms brand equity and brand portfolio management are described and also a brief look on the history of branding and brand management is given. Due to the substantial amount of literature sources about branding, the focus is mainly on brand portfolio management.

3.1 Branding

The word “brand” comes from the Germanic word “brandr” “which describes the “mark made by burning with a hot iron” (Jevons, 2005). This is noted first in the year 1552 and is traced by the Oxford English Dictionary. However, as this describes more the basic action of dividing something from something else (Cattle, Sheep etc) it is transferable to the marketing meaning of branding.

The first often citated definition of a brand in a marketing context by the American Marketing Association was made in 1960 which is “a name, term, sign, symbol or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors” (American Marketing Association, 1960). Although this definition is highly recognized by most leading authors, who adopted it and only slightly changed it. (e.g. Kotler, 1996, pg 556 and Aaker, 1991), it was criticised for being too “product oriented, with emphasis on visual features as differentiating mechanisms” (Wood, 2000; Arnold, 1992; Crainer, 1995). A more customer orientated definition chose Ambler. He defines a brand as “the promise of the bundles of attributes that someone buys and provide satisfaction … The attributes that make up a brand may be real or illusory, rational or emotional, tangible or invisible.” (Ambler, 1992; Wood 2000). This definition explains that the whole brand is influenced and more or less created by the marketing mix^[1]. An even more customer focussed definition is given by Brown. He sees, like many other Authors in branding (de Chernatony and McDonald 1992, Wolfe 1993, Sheth, 1991, Alt and Griggs 1988) more the psychological value of brands in the minds of customers. A brand is in his terms “… nothing more or less than the sum of all the mental connections people have around it” (Brown, 1992). A more detailed explanation of the value of branding is given in section 3.2.

3.2 Brand Equity

The term “Brand Equity” is defined differently from accountants and marketing authors. The approaches to define are either customer oriented or company oriented, but both describe the relationship of the brand or the company to the customer. In 1996 Feldwick broke down the many different approaches to three main meanings of brand equity. First he describes Brand Equity as the value of a brand. It is separable, can be part of the balance sheet, and is an asset itself. It can be sold and therefore its value can be expressed in terms of money. Secondly, he describes the approach to see Brand Equity as a measure. It shows the strength of the attachment customers have to the brand. And the third grouping of approaches sees Brand Equity mainly as “a description of the associations and beliefs the consumer has about the brand” (Wood, 2000; Feldwick 1996).

Whereas accountants mostly use the first approach of defining brand equity, mainly because it is most practicable in their business, marketers tend to use the second two groups of definition. So it can be said, that accountants use the more company oriented definitions, while marketers tend to use definitions that are consumer based. The three approaches can be categorised (see table 1)

Table 1: Categories of Brand Equity

illustration not visible in this excerpt

Own Design, content from Wood, 2000

Wood also assumes a relationship between the different approaches. In her “Brand Equity Chain” she describes that the relation between the interpretations is very simple and practicable. In Figure 3.1, this relationship is shown. The chain can be understood as following: the brand description is created with the marketing mix, which should create strength (other term: brand loyalty). The loyalty or strength again determines the value of the brand because a strong brand predicts future cash flows (Wood, 2000).

Figure 3.1: Brand Equity Chain

illustration not visible in this excerpt

taken from Wood, 2000

Feldwick disagrees with this Chain. He says that the common term of brand equity is misleading because an operational relationship between the three terms is not demonstratable in practice (Feldwick, 1996).

Another definition, taken by Amber and Styles (Amber and Styles 1996) and Srivastava and Shocker (Srivastava and Shocker 1991), could be placed into the brand strength context. They see brand equity as “the aggregation of all accumulated attitudes and behavior patterns in the extended minds of consumers, distribution channels, and influence agents, which will enhance future profits and long term cash flows”.

Keller (1993) covers with his definition more the left part of the Chain (Figure 3.1) when he sees brand equity as a sort of condition. The Customer should be able to recall certain positive attributes and features of the brand. This is a “Function of brand description” (Wood 2000). Close to this approach comes Leuthessers definition of brand equity. He sees it as “the set of associations and behaviour on the part of a brand´s customers, channel members and parent corporation that permits the brand to earn greater volume or greater margins than it could without the brand name” (Leuthesser, 1988). But where Keller covers more the description and strength part of the chain, Leuthesser also touches the value dimension with “greater volume” for the brand. This goes slightly wider than Keller.

Aaker (Aaker, 1991) sees brand equity, or also “strong brands” as he also calls them, as a basis for further extension strategies. Therefore, brand equity is itself a part of the extension strategy, because a “strong brand” basis supports brand extension^[2] and further growth within the brand is possible. But Aaker and Keller (Aaker and Keller, 1992) and Dacin and Smith (Dacin and Smith, 1994) also point out, that a reverse relation is very likely, that brand extension can have a positive or negative impact on the brand equity. Farquhar covers this matter of positive or negative impact of brand extension and brand building on brand equity with his term of “market power”. “The competitive advantage of firms that have brands with high equity includes the opportunity for successful extensions, resilience against competitors´ promotional pressures, and creation of barriers to competitive entry” (Farquhar 1989). Wood (Wood, 2000) shows this relation in Figure 3.2. She sees the influence of the marketing shaped term of brand equity (description and strength, as described above) on the market power directly. This chain differs from Figure 3.1 in the last part. But as Wood (Wood, 1999) also argued, brand value can be a measure for market power, the two chains are closely linked.

Figure 3.2: Correlation between brand equity and market power

illustration not visible in this excerpt

taken from Wood, 2000

These two chains (Figure 3.1 and Figure 3.2) and the assumption that brand value is a measure for market power leads to the thought that brands should be taken as long term corporate assets. This gives the conclusion that brands should be managed actively on a long term scope. This thought is not new. Dean (Dean, 1966) already suggested this, but recently this has become more and more prominent (Wood 2000). E.G. Davis recommends that “management wants to change its ways and start managing its brands much more like assets – increasing their value over time.” (Davis 1995).

This understanding of managing the brand as an equity or asset leads directly to the understanding of a company’s portfolio of brands and how this should be managed. Uncles points out that “If brands do have value then the way a company uses its portfolio of brands is a top management decision” (Uncles 1995). However, the literature about branding, and especially brand equity is very wide and unrelated. The status is best described by Winters “There has been a lot of interest lately in measures of brand equity. However, if you ask ten people to define brand equity, you are likely to get ten (maybe 11) different answers as to what it means” (Winters 1991, pg. 70). Before explaining the Brand Portfolio Management approach deeper (section 3.3) the measures for brand equity are explained. Wood suggests a relatively easy model (

Figure 3.3). The determination of brand description by the marketing mix was described already earlier, also the relationship between brand strength and description (function). Wood suggests that the last point of the model is the “competitive advantage”, which consists of market power, brand value (both explained earlier), added value^[3] and profit (Wood, 2000). These four parts of the competitive advantage are all measures for brand equity.

Figure 3.3: Complete Model of brand equity with measures

illustration not visible in this excerpt

taken from Wood 2000

Besides these measures, many other can be found throughout marketing literature. E.G. things like brand awareness^[4], brand attitude^[5], brand preference^[6] or brand loyalty^[7] are taken and mostly evaluated by market research consultancies like AC Nielsen or GFK.

Besides all these different measures, the brand value which Wood proposes shows certain advantages. Wood names it as an “additional advantage over other measures, in that it addresses the health of the market, as well as the health of the brand within the market. […] A key benefit of adopting brand value as a performance measure is that it creates long-term focus for management” (Wood, 2000). The approach of managing more than just one brand with its specific brand equity is described in the following section.

3.3 Brand Portfolio Management

Brand Portfolio Management is highly prevailing in theory and practice. Unfortunately, the literature about this very specific topic is not as deep as with branding or brand equity topics. Aaker, who is a highly recognised author in marketing and branding, said in his 2004 book “Brand Portfolio Strategy” that “this book will be the first to explicitly define the scope and structure of brand portfolio strategy” (Aaker, 2004, pg. XIV). However, the topic is very attractive for big multinational companies who have many different brands to be managed. The reasons why it is such an actual topic are diverse, but one of the main is brand proliferation. The amount of brands from 1991 to 2001 in US Grocery stores have tripled from 15,000 to 45,000. Companies can not handle widely and deeply segmented markets with only a few big brands (Wise and Pearce, 2005).

The target should be to get a balanced portfolio which has brands performing different tasks. Aaker describes it with his metaphor of an American Football Team where the different players play different roles. The management job is to put the brands in the right context and the right position in the portfolio. “One of the coach´s jobs is to place each player in the right position” (Aaker, 2004, pg 10). The different aspects of brand portfolio management are discussed in the following sections.

3.3.1 Brand Portfolio

The brand portfolio covers all different types of brands the company owns or that are in a direct relation to other owned brands. In the Aaker-theory, these are master brands, endorser brands, subbrands, branded differentiators, co-brands and branded energizers. They will all be explained briefly in section 3.3.2. One of the basic tasks of brand portfolio is the composition of brands in the portfolio. Questions like if brands should be deleted or added have to be answered in this context. “It starts with the right questions about which brands have the most clout with consumers now and in future, which brands are fading fast, and what mix will produce the best growth results” (Wise and Pearce, 2005).

The main problem is the sheer amount of brands of multinational corporations.
Figure 3.4 shows the brand portfolio of Henkel, a German fast moving consumer goods company that is mainly focussed on chemical products. It gives the impression how deep and wide a brand portfolio is, and how challenging it is to get it balanced.

Figure 3.4: Brand Portfolio Henkel KGaA

illustration not visible in this excerpt

taken from Bräutigam, 2004

An important fact about taking these (addition or deletion) decisions is the view of the decision-makers. Decentralized organisations can often not see the whole scope of a portfolio. The decision is taken best by centralized managers who have the full view and understanding of the portfolio and know their interdependencies. (Aaker, 2004, pg. 16). However, Laforet and Saunders came to the conclusion, that not active management, but different other reasons (e.g. company history or acquisitions) are responsible in different companies for their set of brands in their portfolios, especially in their packaging (Laforet and Saunders, 1994).

The Laforet and Saunders approach is based on a survey how companies brand their products on their packaging and how many brands appear on the packaging. They established a company-orientated brand portfolio model (see Figure 3.5), which is on one hand very accepted because it has an empirical fundament, but on the other hand also highly criticized to be very theoretical from a customer perspective.

Figure 3.5: Brand Portfolio Model Laforet & Saunders, 1994

illustration not visible in this excerpt

Adapted from Laforet and Saunders, 1994

The critics say, that customers will not differ or realise if e.g. Maggi is a corporate or a house brand. They do not know the organisational relationships in a company. Moreover, the authors’ classification of dual or endorsed brands (depending how prominent the logos are on the packaging) is subjective, and questionable if the customer would classify it accordingly (Bräutigam, 2006, pg. 33).

3.3.2 Product-defining Roles

Brands can play different roles seen as single brands or in context of the whole portfolio. In the following, the roles of individual brands are described. The various portfolio roles are explained in section 3.3.3.

Master Brands

Master brands are “the primary indicator of the offering, the point of reference. Visually it will take top billing” (Aaker, 2004, pg. 43). Master brands should not be messed up with corporate brands^[8], a company can have more than only one master brand. E.G. The Walt Disney Company (corporate brand) runs at least four master brands (Disney, Touchstone Pictures, ESPN and ABC). Often master brands can be found with endorser brands, subbrands or co-brands.

Endorser Brands

Endorsers are most often organisational brands rather than product brands. The strategy is to take the positive association of the organisation (e.G. Marriott Hotels) and endorse the brand with these associations (e.G. Courtyard by Marriott) (Aaker, 2004, pg 43). Endorsements are also often taken by charity or health organisations. For example, the sirco tomato drink by Provexis, is endorsed by Heart UK, a heart health charity organisation, stating that the drink minimises the risk of heart attacks (Nutraingredients, 2005).

Subbrands

The “sub” from subbrand relates to its function, to be an additional brand to a master brand. Its role can be either to be not as prominent as the master brand itself or equally prominent (co-driver role) (Bräutigam, 2004, pg 35). Its function is to distinguish the master brand in different contexts and different sub-categories. It is therefore more than just a description of a product; it can itself produce brand equity and stretch the master brand into new segments, they were not recognised before (Aaker, 2004, pg. 44).

Branded Differentiators

The branded differentiator can be a brand or a special form of subbrand that is product related and explains the product in a more explicit way. The forms can be the explanation of a feature (Audi A4 – with direct fuel injection system), ingredient (North Face parkas – Gore Tex), service (FedEx Money Back Guarantee) or program (Lufthansa – Miles and More). It can create value to the brand an helps boosting new or less established brands (Aaker, 2004, pg. 19-20)

Co-Brands

Or also Brand Alliances “involve brands from different firms that combine to engage in effective strategic or tactical brand building programs or to create co-branded market offerings” (Aaker, 2004, pg. 20). In creating a brand alliance, external brands are becoming a part of the brand portfolio. The portfolio manager must be aware of the fact, that customer association with the external allied brand feedbacks also on his brand, without having control of it. Examples for successful co-brands are “Braun & Oral B” (electric toothbrushes), “Philishave & Nivea for men” (Shaver with skin lotion), “Philips & Alessi” (Kitchenappliances) or “Langnese and Toblerone” (Ice Cream).

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^[1] Definition Marketing Mix: those controllable marketing variables - product, place, price, and promotion - that the enterprise makes use of to satisfy the demands of the target market and that together comprise the enterprise's marketing effort (Sexty, 2001)

^[2] Definition Brand Extension: A brand extension means using a brand name successfully established for one segment or channel to enter another one in the same broad market. (Wood, 2000)

^[3] Definition added value: The attributes that differentiate a brand and provide the customer with satisfaction and benefits for which they are willing to pay (Wood, 2000)

^[4] Definition brand awareness: The proportion of target customers that recall a brand. Realisation by a consumer of the existance and availability of a particular product. Brand awareness is a common measure of marketing communications effectiveness. Unaided awareness is spontaneous; aided or prompted awareness is when the name is recognised among others that are listed or identified (allaboutbranding, 2005)

^[5] Definition brand attitude: a necessary communication objective reflecting the link between the brand and its benefit (Percy, 2005)

^[6] Definition brand preference: The degree of brand loyalty in which a customer prefers one brand over competitive offerings (Dibb, 2000, pg. 271)

^[7] Definition brand loyalty: A strongly motivated and long standing decision to purchase a particular product or service (Dibb, 2000, pg. 271)

^[8] Definition corporate brand: a corporate brand is a brand that represents a corporation –or, more generally, an organization- and reflects its heritage, values, culture, people, and strategy (Aaker, 2004, pg.16)