Thinking Too Big Can Kill Successful, Small BrandsBy: John Malmo
There seems to be an assumption among most large companies that any successful, niche brand can be grown into a national, even international, power brand if placed in the hands of a large, sophisticated brand marketing company.
This assumption is the root of many unsuccessful mergers and acquisitions.
There are fundamental differences in mind-set and strategic thinking between people who create niche brands, and those people who have spent their careers with market leader brands.
These differences are cultural to each brand, and the incompatibilities seldom can be overcome. So, the thinking of the acquirer dominates, the strategies that made the smaller brand successful are abandoned, and a profitable brand at three percent market share becomes an unprofitable brand with six percent share.
One such difference is that of distribution. Niche brands often are created with limited, protected distribution.
For example, Yardley’s of London was a highly respected cosmetics line sold for many decades only in the company’s elegant retail store in London, department stores, and a few high-end drugstores. Subsequently, the company underwent several acquisitions, and after each one its distribution was expanded.
In a few years, Yardley’s was in every chain drugstore and discount store. A brand that once enjoyed an impeccable image and high margins became a low-end football kicked all over the retail map. The London store was closed, and the brand has vanished from upper-end retailers.
Snapple is a more recent example of a highly successful niche brand that after acquisition by Quaker Oats was decimated.
The fundamental misunderstanding by both the Yardley’s and Snapple acquirers is that in both cases the brands’ limited distribution was one reason for their success.
The problem begins when the acquirer pays too much for the smaller brand. To recoup its overpayment, the acquirer must increase sales quickly. Expanding distribution is the fastest way. So, there’s an immediate sales spike, as pipelines of new outlets are filled.
When the brand starts showing up everywhere, consumers perceive that the brand has lost its cache, and they lose interest. As the brand gathers dust on retail shelves, heavy promotional activity and deep discounting follow as nails in the coffin.
Distribution is only one factor. Other strategic differences between acquirer and acquiree include advertising and pricing policies; publicity, packaging, sales representation, and every other promotional tactic.
Successful niche brands are created by entrepreneurs who operate at 180 degrees from brand leaders. If Revlon or CocaCola geed, Yardley’s and Snapple hawed. That’s a basic principle of competing against a brand leader.
It is unrealistic to believe that marketers of brand leaders can change their stripes to those of a niche player. And, in most cases, they are too arrogant to allow the smaller brand’s people to continue exercising their own ideas.
It will be interesting to watch Gatorade now that it is owned by PepsiCo.
© Copyright 2001, John Malmo
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