Posted by: Chris | July 27, 2007

The Dilution of Brands Through Inorganic Growth

I just finished reading Will Rapid Fire Finance Self-Destruct the Economy, a blog post by Rob May at Businesspundit.com, and then I read the Businessweek post to which Rob refers: The Tyranny Of The Market, by Lawrence Mitchell (George Washington University Law School). I’m sure you will hate to be redirected anywhere else but here {sarcasm}, but right now, read these two posts.

To be brief, I see a few implications for corporate marketing:

1. Brands are being ignored in light of earnings “initiatives.”

2. Brands are being lost through trendy mergers and acquisitions.

3. CEO’s don’t care.

Believe me, I am surely not anti-finance. And I’m not anti-M&A. But all of this has me wondering what it is that CEO’s of companies that focus on inorganic growth are telling their CMO’s? “I realize that our enemy must now become our friend. Just find some place in the middle where the two can meet.” Or, “I like your idea about investing more in our services marketing/social media/existing product line, but if we instead take that money and focus on investments, we’ll provide a better return for our stockholders.” I know this all sounds a little pie-in-the-sky, and I’m really trying to avoid that, but I can’t help but think that this diversion of marketing funding, this willingness to compromise an otherwise strong brand, solely for the purpose of inflating EPS (admittedly a tad melodramatic) is going to bite companies in the butt.

Consider phone companies. Of course, AT&T’s initial split was pretty much out of their hands, but look what has happened with recent reacquisitions. Are you able to articulate what AT&T as a brand stands for? For that matter, what about their competitors who have been doing the same thing? What is Verizon Wireless, and how have they differentiated themselves? What about Sprint? Do you really think that the mission statements of any of these companies differ from any of the others’ (or from the companies whom they acquired)? Think about car rental. Avis and Budget are both under the umbrella of Cendant. Vanguard has National and Alamo. Dollar and Thrifty joined forces a while back. Of Avis, Budget, National, Alamo, Hertz, Dollar, Thrifty, and Enterprise, I can think of only one that differentiates itself, and it is (privately owned)Enterprise. Do any of the previously listed companies (besides Enterprise) mean any more to anyone other than generic car rental at pretty much the best prices a company can offer-or at least at prices that are in the same ballpark as the other guys? Is there anything special or unique about any of these brands (besides Enterprise)? I emphasize, despite how this post sounds, I really have no problem with the idea of publicly traded companies. The problem I have is publicly traded companies’ usually focus on stockholders over their own brand. They are killing the goose that laid the golden egg. I can’t help but wonder how these companies are going to remain unique, differentiated, and true to their brand when so many of them seem to have lost focus of what made them successful in the first place-of who they really are. I think of John Proctor in The Crucible who refuses to sign his name to a list of people who have “confessed” to witchcraft as a result of extreme coersion by the court. His wishes his “confession” to be acceptable as a verbal confession. When the judge asks why, Proctor replies, “Because it is my name! Because I cannot have another in my life…How can I live without my name?” Inorganic growth often compromises a company’s precious name, and can result in a complete dilution of its brand.

I admit, I am simplifying quite a bit here, but don’t lose sight of my original points: a company’s investment in investment for the sake of investment at the expense (no pun intended) of the company’s brand, name, and distinctive reputation absolutely kills loyalty. It automatically, instantly commoditizes a company. And I think that in the end, yes, even the stockholders will lose out-and clearly the former devoted will.

I think there’s a lot more to say about this.

Update: I just read a blog post indicating that this brand-blurring is even affecting my beloved car audio industry. You’ll find the news here.

More on brand dilution though inorganic growth by laura Reis here.

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