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Of the many challenges thrown up in the wake of mergers and acquisitions, one in particular is likely to result in disappointment: the task of brand consolidation. Most brand consolidation efforts fail and fail expensively. To beat the odds, early research suggests, it is crucial to choose the right branding endgame and to manage three key transition steps.
Forces at work
Two features of the business landscape make brand consolidation an unavoidable strategic challenge. The first is the explosion in M&A activity over the past decade, notably in the consumer goods and financial industries. In the former, mergers and acquisitions soared from 1,700 in 1985 to 12,000 in 1996. In the latter, the figure rose from 270 to almost 2,000 over the same period. The result has been ballooning brand portfolios, often entirely lacking in strategic rationale.
The second feature is the fact that intangible assets make up most of the value of M&A deals (70 percent in the United Kingdom in the early 1990s, up from 18 percent in 1980), and in most cases, brands account for a considerable portion of these assets.
At least two powerful forces appear to be at work. The first, which drives brand consolidation among markets, is globalization, or the convergence of lifestyles and tastes between populations in different countries, the worldwide reach of the media, and international economies of scale. The second, which drives brand consolidation within markets, is the momentum acquired by dominant brands, whereby the leading brand in any local market tends to have a return on sales so much better than that of competitors that it seems as if the very fact of dominance sets in motion the logic of increasing returns. Put simply, in many but not all product categories, the leading brand sells more because it sells more.
The benefits
Brand consolidation does not necessarily follow from a merger or acquisition, but when it does, it can be a powerful lever. Successful consolidation might, to take an example, take two brands each possessing a 15 percent market share and turn them into a single brand with a 32 percent share (Exhibit 1). The reduction in the cost of goods sold (because the product range has been streamlined and advertising and promotion are more...