Brand Portfolio Management, basic principles and recent trends shown in context of Unilever, a consumer goods company

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.

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Table of Content

1  Abstract  2

2  Introduction  1

2.1  Aims and Objectives  1

2.2  Limitations  2

3  Literature Review  3

3.1  Branding  3

3.2  Brand Equity  4

3.3  Brand Portfolio Management  8

3.3.1  Brand Portfolio  8

3.3.2  Product-defining Roles  10

3.3.3  Portfolio Roles  12

3.3.4  Brand Scope  15

3.3.5  Portfolio Structure  16

3.3.6  Brand Portfolio Objectives  18

3.3.7  International Brand Portfolio Management  19

4  Market Analysis  21

4.1  Research Methodologies  21

4.2  Unilever-Case  23

4.2.1  Marketing Analysis of Unilever  24

4.2.2  Why did they do it?  26

4.2.3  How did they do it?  27

4.2.4  Were they successful?  32

4.2.5  Financial Analysis  33

4.2.6  Qualitative Analysis  39

4.3  Observation of Market Performers  42

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5  Findings, Recommendations and Conclusion  44

5.1  Findings for main aims  44

5.1.1  Does the application of brand portfolio management in a company improve the  

  financial performance?  44

5.1.2  Does the introduction of brand portfolio management in a company simplify the  

  brand architecture from the perspective of different stakeholders?  44

5.2  Findings for objectives  44

5.2.1  International fast moving consumer goods companies focus their brands on  

international  markets  45

5.2.2  Small or unfitting brands got sold or disinvested  45

5.2.3  Brand portfolios were reshaped and restructured  45

5.2.4  Brand portfolio structure was clearer after campaigns  46

5.2.5  Restructuring programs caused high one time costs  46

5.2.6  Restructuring programs saved revolving annually costs  46

5.2.7  Restructuring programs did not meet their financial objectives  46

5.3  Reliability, validity and generalisability of the findings  47

5.4  Recommendation  47

5.4.1  Academic  47

5.4.2  Managerial  47

5.5  Conclusion  47

6  References  49

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Table of  Figures  

  Figure 3 1 : Brand Equity Chain  5

  Figure 3 2 : Correlation between brand equity and market power  6

  Figure 3 3 : Complete Model of brand equity with measures  7

  Figure 3 4 : Brand Portfolio Henkel KGaA  9

  Figure 3 5 : Brand Portfolio Model Laforet Saunders, 1994  10

  Figure 3 6 : Boston Consulting Matrix or Growth Share Matrix  15

  Figure 3 7 : Brand Portfolio Structure by Aaker  16

  Figure 3 8 : Part of Brand Hierarchy Tree - Toyota  17

  Figure 4 1 : Research process onion by Saunders  22

  Figure 4 2 : Unilever Brand Portfolio Germany 1999  28

  Figure 4 3 : detailed brand portfolio Unilever 1999  29

  Figure 4 4 : The Unilever Brand Portfolio 2007  31

  Figure 4 5 : Brand Hierarchy Tree of Bertolli Brand  32

  Figure 4 6 : Absolute share price development of Unilever shares  34

  Figure 4 7 : share price development of Unilever shares in percent compared with  

  benchmark (Dow Jones Euro Stoxx 50 )  35

  Figure 4 8 : Sales and profit Figures Unilever 1998 2004  36

  Figure 4 9 : Netsales (left) and operating profit (right) Unilever for three main business  

  areas  

  36  

  Figure 4 10 : Development of profit Margins Unilever  37

  Figure 4 11 : Development of Unilever-staff (in thousand)  38

  Figure 4 12 : Unilever Revenue per employee (left) and total amount of staff costs  

  (right) in thousand Euro  

  38  

  Figure 4 13 Screenshot from Webpage www unilever com  40

  Figure 4 14 Procter and Gamble Net Sales figures  43

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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.

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• 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.

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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

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)

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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

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

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determines the value of the brand because a strong brand predicts future cash flows (Wood, 2000).

Figure 3.1: Brand Equity Chain

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

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)

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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

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,

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