Brand Management after Merger and Acquisition of Second-Line National Brands

Brand Management after Merger and Acquisition of Second-Line National Brands

Abstract: In recent years, more and more national brands join the team of mergers and acquisitions (M&A). Among those brands, there are first-line national brands like Lenovo, and there are second-line national brands such as Foshan Lighting and Panda. It is especially easier for those second-line national brands, which have certain brand awareness and reputation in domestic market yet not strong enough to take a stable market share, to be kicked out of the market after M&A. This research analyzes the characteristics of second-line national brands, studies the reasons and problems of M&A of second-line national brands, and then tries to suggest strategies to manage the brand portfolio after M&A in the perspective of the acquiring parties.

CONTENTS
ABSTRACT:

1. INTRODUCTION
2. CHARACTERISTICS OF SECOND-LINE NATIONAL BRANDS
2.1 DEFINITION OF SECOND-LINE NATIONAL BRANDS
2.1.1 National Brand
2.1.2 Second-line Brand
2.1.3 Second-line national brand
2.2 CHARACTERISTICS OF SECOND-LINE NATIONAL BRANDS
2.2.1 Characteristics of first-line national brands
2.2.2 Characteristics of third-line national brands
2.2.3 Characteristics - Comparison with first and third line brands
3. THE STRATEGIC OPTION FOR SECOND-LINE NATIONAL BRANDS – MERGERS AND ACQUISITION
3.1 STATUS QUO OF M&A OF SECOND-LINE BRANDS IN CHINA
3.2 REASONS OF M&A OF SECOND-LINE NATIONAL BRANDS
3.3 POTENTIAL NEGATIVE EFFECTS OF M&A ON BRANDS
3.3.1 Brand cannibalization
3.3.2 Over-branding
3.4 RESULTS OF M&A IN SECOND-LINE NATIONAL BRANDS
4. BRAND MANAGEMENT
4.1 THE ATTITUDE TOWARDS SECOND-LINE NATIONAL BRANDS
4.2 BRAND MANAGEMENT IN M&A- IN CONJUNCTION WITH SECOND-LINE NATIONAL BRANDS
4.2.1 Single-brand management
4.2.2 Multi-brand Management
5. CONCLUSION
6. LIMITATION
REFERENCES

1. Introduction
Since China’s joining the WTO, the competition in Chinese market has become fiercer and fiercer. New technologies, tougher environmental conditions and so forth are challenges for national and local brands. Hence, all brands are undergoing considerable changes in order to increase company value and to be one step ahead of the competitors and thus, they have moved into the era of mergers, acquisitions and strategic alliances. Nowadays, single-brand manufacturers are rare compared to the past and there have been so many multinational companies. Acquiring and selling brands becomes a normal procedure.
Among those mergers and acquisitions (M&A in the subsequent), some national brands do achieve the goal of being stronger. However, most, if not all, of those brands cannot escape from three ordinary fates: withdrawing from their markets, being prevented to develop, or becoming the tools of the foreign companies to absorb Chinese capital.
The second-line national brands always suffer the most especially. Second-line brands are those brands that are famous and popular in Chinese market but not known internationally. They have the potential to be the leader of their industries but they are usually lack of enough capital or effective management. They choose M&A to get bigger but after that, most of those second-line national brands fade away, partially because of the oppression from foreign companies, partially because of the poor management of the brands. Therefore, after mergers and acquisitions, the key to maintain the brands and continue to go big is managing the brands properly.
Managing a brand after an acquisition seems to be an unexplored subject concerning Brand Management. The paper focuses on the brand management of the second-line national brands after M&A. The paper is divided into five parts. The first part defines the term of Second-line National Brands and then analyzes the characteristics of those brands. The second part reviews the reasons, types and the effects of M&A on second-line national brands. And then the fourth part offers some suggestions on the brand management to second-line national brands, hoping that those brands can strategically and effectively take advantage of the merger and acquisition.
2. Characteristics of second-line national brands
2.1 Definition of second-line national brands
“Second-line brand” is an ambiguous concept. There is little study about it inside and outside China. The concept appears in newspaper or magazines now and then, but the explanation is often simple and one-sided. Thus it seems difficult to define “second-line”. The following parts discuss the concept of national brand and second-line brand separately, and then by combining the characteristics of those two brands, define what a second-line national brand is.
2.1.1 National Brand
With the change of social and economic environment, the meaning of national brand has been changing and refreshing in China. On spiritual level, national brands originally mean those brands that are created by domestic enterprises and originated inside mainland China. Thus national brands are often associated with spiritual concepts such as patriotism and national pride. Chinese people were proud of owning brands of their own and tended to buy “national products” to show their nationalism.(Guo, 2007:67-69)
However, as consumers become more mature and sensible, consumers care more about the quality and pay more attention to their need. The concept of nationalism is no longer a priority that affects their purchasing decision. And more importantly, with the frequent emergence of mergers and acquisitions in China, national brands stuck into an embarrassing situation. On one hand, they are still considered “national” because they are originated in China and Chinese people still have a deep sense of nationalism on them, though they are acquired by foreign companies. But on the other hand, they do not belong to the “national” companies anymore because they are owned by foreign companies as a result of the mergers and acquisitions. For example, many Chinese people still take the brand of “Zhonghua Toothpaste” as national brands. But the truth is, “Zhonghua Toothpaste” is acquired by Uniliver. To a great extent, the brand is no more than a tool of Uniliver to generate profits in Chinese market, and it probably will become a strong competitor of other Chinese toothpaste brands like “Yunnan Baiyao”. Thus “Zhonghua Toothpaste” is no longer a “national brand”, and that is often reluctant to be accepted by those Chinese people who have strong sense of nationalism.
Therefore, nationality should not be the absolute standard to judge whether a brand belongs to national brands. National brands nowadays are evaluated by the amount of value and interest the brand creates to its own nation. (Yang, 2008:977-982)
Under this rational, “Zhonghua Toothpaste” is still a national brand. Though it now belongs to a foreign company, all the raw materials of its products are from China, and the production and management are handled by domestic workers. Besides, the products are also sold in domestic market. From production to sales, “Zhonghua Toothpaste” creates huge value and interest to the country, society and people.
Thus, national brands are those brands that create large amount of value and interest to China. After M&A, national brands can still create value to Chinese market.
2.1.2 Second-line Brand
A brand is a name, sign, symbol, slogan or anything that is used to identify and distinguish a specific product, service, or business. (Aaker, David, 1991)
However, “second-line brand” is an ambiguous concept. There is little study about it inside and outside China. The concept appears in newspaper or magazines now and then, but the explanation is often simple and one-sided. Thus it seems difficult to define “second-line”. Also, there are different standards to define second-line brands. In the case of automobile industry, second-line brands are those whose sales volume is lower than 1000 units in the launch year . But in fashion industry, second-line brands are those derivate brands of the first-line brands, and usually their prices are comparatively lower. For example, Emporio Armani is in the second line while Armani is in the first line. Thus, different products have different standards to classify first line and second line . However, no matter how different the standards are, brands share the same nature of brand awareness. All brands have their own levels of brand awareness, which can distinguish them from others. So this essay tries to define “second-line” brands in terms of the comparatively applicable aspect: the brand awareness of the brands. According to different level of brand awareness, brands can be classified into three lines.

On top of the triangle are famous or leader brands in different industries, such as Coco Cola and Microsoft. They are the first-line brands. In the middle of the triangle are second-line brands, which have certain awareness and reputation, but not yet enjoy loyalty from consumers. Examples are Panasonics and Phillips. In the bottom are brands that are seldom recognized or not even known by consumers.
2.1.3 Second-line national brand
So combining the analysis of 2.1.1 and 2.1.2, second-line national brands are those national brands that have certain brand awareness and reputation, but not yet obtain loyalty from consumers. They are originated inside China, familiar to Chinese consumers, and have the potential to be first-line brands. Examples are Maxam, Power 28.
2.2 Characteristics of Second-line national brands
Since second-line brands lie between the first-line and third-line brands, this paper describes the characteristics of second-line brands in the way of comparing with the other two lines respectively.
2.2.1 Characteristics of first-line national brands
The first-line brands are market leaders, usually enjoying a stable and comparatively high market share. Besides, their brand awareness and brand image are also in high level, and thus bring brand loyalty.
Enterprises that own first-line brands are capable to continue to extend the brand equity, because they have the personnel, experience, distribution channels, and capital and management system to achieve the goal.
Examples of first-line national brands are Lenovo, which not only enjoys the largest market share (over 25%) in Chinese market, but also be regarded as the “First Brand” in Asia computer market . The major brand strategy of Lenovo is brand extension. Brand extension is a marketing strategy in which a firm marketing a product with a well-developed image uses the same brand name in a different product category. (Keller, 1990) After gaining brand reputation from producing computers, Lenovo has developed Lenovo mobile phones, Lenovo printer and other products under the same famous brand.
2.2.2 Characteristics of third-line national brands
As mentioned in 2.1.2, third-line brands have little or no brand awareness. Those brands are famous in certain regions, for example second-line and third-line cities, but still unrecognized nationally. Meanwhile, as the enterprises that own third-line brands are in comparatively small scale, they are more flexible than the other two lines. Those firms adopt cost strategy, differentiation strategy and focus strategy to achieve greater brand awareness and reputation. Example is Bage, a shoes brand which is a typical third-line national brand.
2.2.3 Characteristics - Comparison with first and third line brands
Between the two, second-line national brands have the following characteristics:
a. Have certain brand awareness and reputation in the whole Chinese market, not only provincial or regional market.
b. Do not have the brand influence that is strong enough to have stable and comparatively large market share of their industries. Some of those brands may take the largest market share for a certain period, but still not strong enough to keep the position. Meanwhile, they have the financial and R&D abilities, but also in the medium scale .
c. Not as flexible as third lines, so it is difficult for them to adapt to changes and then conduct business reform.
In conclusion, second-line national brands have the potential to be the leader of their industries. One of the most important tasks of those brands is to raise their brand awareness and extend their brand influence. Examples are Feigao, a shaver brand, and Founder, a computer brand.
3. The Strategic Option for Second-line National Brands – Mergers and Acquisition
3.1 Status quo of M&A of second-line brands in China
Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business. (Sudarsanam, 2005)
With the rapid development of China’s economy, the constant optimization of industrial structure and the appearance of some new consumption demands such as automobiles, telecommunication, travelling, housing and so on, China has become a highlight at the global M&A market. General speaking, an acquisition occurs when one company takes a controlling ownership interest in another firm, a legal subsidiary of another firm, or selected assets of another firm such as a manufacturing facility. (Jing, 2005)
The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies – at least, that's the reason behind Mergers and Acquisitions (M&A). Thus more and more foreign companies have merged and acquired second-line national brands. For example, SEB acquired 52.74% of Supor’s stock in 2006; Johnson & Johnson acquired Dabao in 2008 .
This paper discusses the consequences and solutions of M&A in two aspects: single-brand and multi-brands. Single-brand strategy is the case when the acquirer company owning only one brand acquires another brand, for example in 2005 Osram acquired FSL. There is only one brand for the merger companies after M&A; Multi-brand strategy is the case when the acquirer company owning more than one brand acquires other brands, for example in 2003 L’Oreal acquired “Little Nurse”. Several brands coexist after M&A in multi-brand strategy .
3.2 Reasons of M&A of second-line national brands
Sudarsanam (1995) sees a number of reasons why companies does cross-border M&A such as; growth orientation in order to extend market and achieve economies of scale, access to inputs such as raw material, technology or labor, exploit unique advantages such as a brand, reputation, design, production and management capabilities, defensive by diversifying products and markets to reduce earning volatility, response to client needs by providing overseas services for domestic clients and opportunism by exploiting temporarily advantages. Generally speaking, those reasons can be classified as follows.
1. To implement International strategy and explore new market
To explore the new market, multinational corporations merge with famous local enterprises, so as to enhance brand recognition and increase market share. EBay, established in 1995, is the biggest website for online transaction. To win the fierce competition with Yahoo, it has to search for a new market. Though eBay is the world’s biggest C2C website, it was not well-known among Chinese. Thus the company merged Powerful Spreading, an informational website in Tainwan with USD 9.5 million, and it acquired all the shares of the Auction King in Tainwan in the first half of 2002. It also merged with Eachnet.com with USD 180 million. All those witnessed the company’s anxiety to enter the Chinese market. Margaret C. Whitman, the CEO of eBay expressed that the cooperation with Eachnet.com is an important step of the internationalize strategy. The potential of the Chinese market appealed to eBay. According to Meg, E-commerce in China will increase 12 times, reaching USD 16 billion in the coming 3 to 4 years .
2. To get familiar with the local market and increase brand recognition.
It takes long to establish a brand or to enter a new market, thus M&A can increase brand recognition in the market in shorter time. Take beer industry as an example. Beer market in China shows obvious regional characteristics as it is relatively disperse and is deeply influenced by local culture. As a result, whether a beer company can successfully establish its brand in the market, to some extent, depends on how familiar it is with the local market and how well its brand is recognized. (Gan, 2004:137-143)
In the 20 century, over 50 countries, including A-B (Anheuser-Bush Limited), SAB intended to set foot in Chinese market, while withdrew after a series of cut-throat competition. After China’s entering the WTO, those companies started to merge with the local beer manufacturers. A-B enhanced its share of Qingdao Beer to 27%. SAB also acquired 29.64% of the company stock of Harbin Beer at a cost of RMB 680 million which make it the biggest shareholder of the company. Interbrew spent USD 19.5million to acquire 24% of the stock of Pearl Beer and later in April 2003, it acquired 70% of the stock of KaiKai Beer operation at a cost of 35 million dollar. The aim of the foreign companies’ merging at a high cost is to increase brand recognition in the Chinese market or a certain regional market so as to lay solid foundation for the business expansion of the company .
3. To make use of the resources of the local brands
The advantageous resource include technology resources, channel resources, production resources etc. With the benefit of the technology, channels and production resources of the merged brand and the target company, the acquirer can improve the technology of the products, increase market share and productivity, lower risks and realize cross-industries and cross-fields operation in short time. (Gan, 2004:151-157)
For example, in October 2001, Huali Corporation, a private electric energy company based in Zhengjiang, merged with the CDMA mobile communication department of Koninklijke Philips Electronics N.V., and obtained intellectual property rights, R&D results, equipments and tools as well as experienced R&D personnel. With all the resources, it established American Huali Communication Corporation. On one hand, the corporation enhanced its brand recognition with the help of the well-known brand Philips; on the other hand, it acquired the technology which is advanced in the existing CDMA field. (Gan, 2004:200-207)
4. To enrich and perfect the product lines
After becoming strong in the market, some multinational corporations try to explore relative ones. Some of them are facing product line deficiency resulted from some traditional reasons. Large sum of capital is needed to reestablish a brand, and the risk is huge. Merging with mature brands can not only greatly lower the risks, but also can enrich and perfect product lines and supplementing brand combination. For example, merging between P&G and Gillette offered both companies an opportunity to supplement each other on the health and personal care businesses.
Traditionally, P&G has advantage on female personal care products. Its major brands include OLAY, Whisper, and Max Factor while Gillette owns a perfect product line and rich knowledge of male care products. Its brands include the whole product line of Gillette and Braun, Crest, and Oral-B. The two companies also supplement each other in skin care and oral care technologies.
5. To obtain better corporate image and recognition in international market.
This situation mostly happen in companies which is not well-known around the world but actually are fully reinforced in the developing countries. By merging with famous big companies or brands under those companies, they upgrade their own corporate image with the help of the wide brand recognition in the international market of the merged corporation. Lenovo’s merging with IBM and TCL’s merging with Thomson and Schneider are good examples.
6. To undertake hostile takeover
A hostile takeover is an acquisition of a firm despite resistance by the target firm's management and board of directors. (Monika, 1996)For hostile takeover, the most classic examples are the multinational corporations’ M&A with domestic brands in 90s which include Jiehua Brand soap, Peacock Brand TV, Yangzi Brand Refrigerator, Panda Brand Washing-Powder etc. But in the case of hostile takeover, the acquirer has no intention to develop the acquired brands. So this paper will not discuss this case.
The above six are reasons why M&A happens. But why the acquirer merges or acquires second-line brands, instead of first-line or third-line brands? That is significantly relies on the characteristics of those three lines of brands. First-line brands are of great brand image and brand loyalty, so the owners seldom give up those profitable brands. As to third-line brands, they are not famous or not even recognized by the customers. Perhaps they will grow to be second or first line brands one day, but when they are not sure whether a brand will generate any potential benefits, few acquirers will take the risk to acquire it and then invest even more to develop it.
Therefore, it is a good choice for foreign acquirer to acquire second-line brands. They can help the acquirer to get familiar with the local market and increase brand recognition. The acquirer can take use of the brand and resources, and then enrich and perfect the product lines and supplementing brand portfolio.
3.3 Potential negative effects of M&A on brands
Even though many have written about the consequences of M&A in the larger business perspective, little is known about the effects of M&A on brands.
Despite such tremendous M&A activity, a recent report by McKinsey claims only one in every five M&A actually succeeds. CFO magazine has stated a 50% drop in productivity in the first four to six months following a deal and only 23% earn their cost of capital. Further research has found that the larger the target firm acquired, the greater the percentage loss in terms of market share after acquisition (Timothy, 2002:2). In spite of such claims, there seems to be many corporations that have jumped on the M&A bandwagon.
Above all, with a strong brand portfolio a firm has the ability to maximize brand equity. All brands in a portfolio play in the best case together and not harm or decrease the equity of the others. At best, each brand maximizes equity in combination with all other brands in the portfolio. (Keller, 2008: 434-435)
Brand acquisitions are a mixed blessing. It is an ideal situation when each brand in the portfolio takes as many sales as possible away from competitors, but takes as few as possible from the other players among the own portfolio.
3.3.1 Brand cannibalization
Brands of different companies usually have their own unique identities, personalities and philosophies. By creating a multi-brand portfolio through acquisitions cannibalization may occur. Brand cannibalization takes place when brand “A” of a company impacts brand “B” from the same company negatively. This happens because the brands belong to the same product category. (Randall, 2000: 146-147)
For example, Seat, Skoda, and Audi belong to the Volkswagen group. These brands have been separated geographically, however, they are still found in several countries. Thus, Volkswagen is currently subject to the “cannibalization” risk. Although, the Volkswagen group try to control the brands through for instance differentiation and price policies they are faced with a problem here. Most people are aware of the fact that these three brands come from the same factories. As some of GM’s brands are built on the same techniques, so are different Volkswagen cars. The lower price brands as Skoda and Seat use this as sales arguments, may have negative impact on Audi in terms of price and brand image, and thus it entails ideal conditions for internal cannibalization. (Kapferer, 2004: 347)
3.3.2 Over-branding
Furthermore, brand acquisitions may produce over branding. Most firms have too many brands, sub brands or endorsed brands. Some brands reflect product types and others may reflect price-value and so forth. Customers as well as employees may be overstrained by the portfolio and they have a hard time understanding what is being offered and what to buy. For the acquirer, too many brands will bring disorder and confusion to brand management. And it is more complicated to allocate company resources to develop too many brands. (Aaker, 2008: 251)
3.4 Results of M&A in second-line national brands
M&A is an important strategy for second-line brands. However, it is important to notice the cost and risks of M&A. In the following parts, the problems of M&A of second-line brands will divide into two aspects: single-brand and multi-brand.
This two M&A strategies of brands have different potential problems with second-line brands. In single-brand M&A, the problem is brand cannibalization. After M&A, the second-line brand may have negative effect to the acquirer brand because of the difference in customer segmentation and price. Second-line national brands are usually not mature brands, so the brand reputation is usually not so good as the acquirer brand. That may lose some royalty of the acquirer brands from customers. After single-brand M&A, there is a problem for the acquirer: how to name the new company. Usually the two brands have different brand image. Changing the name of the companies may lose certain royalty from customers of both brands. If not handled well, either of the two brands has to be withdrawn from the market in the end.
As to multi-brands strategy, the common problem is over-branding. When the acquirer company focuses on acquiring more and more brands, the management of brands will be a considerable and tough work. Take Unilever as an example, in 2000, Unilever owned about 1600 brands . Those brands are of ambiguous brand positions and different marketing strategies, which brought disorder and confusion to the brand management.
Without appropriate solutions, all of the above problems concerning brands after M&A will have a negative effect to not only the acquirer brand but also the acquired brand. So how to manage the brands becomes one of the most important issues of the acquirers after M&A.
4. Brand Management
4.1 The attitude towards second-line national brands
Thus brand management in a post-merger scenario assumes high significance, given the high percentage of M&A failures. So how shall the acquirer view the second-line national brands? This part adopts the BCG Matrix, which is used as an analytical tool in brand marketing, to evaluate those brands. Thus this analysis offers the proper attitude for the acquirer, and helps the company allocate resources. BCG Matrix has two dimensions: market share and market growth. The basic idea behind it is that the bigger the market share a product has or the faster the product’s market grows, the better it is for the company. Placing products in the BCG Matrix results in four categories in a brand portfolio of a company, as the following chart shows:

Figure 2: BCG Matrix
Source: http://www.valuebasedmanagement.net/methods_bcgmatrix.html
According to the earlier analysis of the characteristics of second-line national brands, products of second-line national brands belong to the categories of Question Mark. Because the potential for those brands to become first-line brands is very high due to their existing brand awareness and brand reputation. Some of those brands may be Star due to their high market share.
A question mark has the potential to gain market share and become a Star, and eventually a cash cow when the market growth slows. And if invested more, a Star have the chance to become the next cash cows. As second-line national brands are either Question Marks or Stars, there is significant meaning to develop them after M&A. They are the potential cash cows that shall not be given up after M&A.
4.2 Brand Management in M&A- in conjunction with Second-line National Brands
There are three brand strategies after M&A: brand protection, brand extension and brand reposition. Brand protection is the strategy to protect the acquired brands instead of abandoning them. Brand extension is to replace the acquired brands with the acquirer brands. More often than not, the acquirer corporate brand replaces the acquired corporate brand. In such a case, the acquirer corporate brand becomes the brand of the combined entity. This is the case when the acquirer brand is the market leader and the acquisition would have been done primarily to consolidate its position rather than to leverage the equity of the acquired brand for market growth. And brand re-positioning involves changing the identity of a brand, product or service utilizing traditional marketing placement strategies (i.e. price, promotion, distribution, packaging, and competition). (Sudarsanam, 1995)
In general, second-line national brands should not be abandoned by the acquirer due to their brand awareness. So brand protection is the basic strategy after M&A, and brand extension will not be discussed here as that means the abandon of the acquired brands.
4.2.1 Single-brand management
As discussed earlier, brands of both merged companies usually have their own unique identities, personalities and philosophies. There is an unavoidable situation after M&A: how to treat these brands - one brand, joint brand, flexible brand or a new brand. Depending on the market power, brand equity and the product line of the brand, a company can decide on one of the following two strategies (Sudarsanam, 1995):
Joint brand: This is a case where the combined brand will be a combination of the acquired and the acquirer brands. Companies resort to this strategy when the M&A happens between equals, and both brands enjoy an equal or similar market standing, market reach and brand equity. For example, when Carlsberg, the fifth largest beer company, acquired Yunnan Dali Beer in 2003, Carlsberg renamed the company in China as Carlsberg-Dali Beer. Yunnan Dali Beer was a famous brand. Especially Yunnan people had strong affection on the brand. Noticing the nationalism of Chinese to the national brand, Carlsberg adopted a joint brand. That strategy not only helped Carlsberg explore the south-China market, but also increased Dali Beer’s product capacity to 200,000 ton from 100,000 ton in five years .
Flexible brand: This strategy is based on geographical separation. When two well-known brands have come together and each is big brand in different geographical regions, then the resulting brand tends to reflect the dominant brand in the relevant geographical region. Renault-Nissan is a good example. Nissan is a well-established brand in Asia and the US. Similarly, Renault is a well-known brand in Europe. These dominant markets are geographically separated. In line with the flexible strategy, Nissan is the preferred brand name in the US and Renault is the preferred name in Europe . This strategy serves well when each brand is highly regarded in its primary region and letting go of the name will be detrimental to the brand. Therefore, after M&A, two brand names can still exist in different markets. In Chinese market, the acquirer can use the name of second-line national brand, especially when the acquirer brand is not so famous in Chinese market, because Chinese consumers usually favor national brands and are familiar to them.
4.2.2 Multi-brand Management
As discussed earlier, second-line national brands have certain brand awareness and reputation, but they do not have the brand influence that is strong enough to be the market leader of their industries. Meanwhile, they have the financial and R&D resources, but also in the medium scale. If the acquirer adopts the strategy of Brand Reposition, second-lines national brands can survive the fierce competition and then continue to develop the brands under the synergy of the acquirer’s brand.
The acquirer tends to easily abandon second-line brand because of its weaker market effect. However, if hastily giving up the second-line brand, the acquirer may also abandon the brand reputation of the second-line brand in local market. Usually the acquirer can adopt the solution of brand reposition to solve the problems. (Clemente, 2001)
Brand repositioning is the strategy to reevaluate the brand basing on the need of the local market, and then to set a new marketing strategy for the brand. In 1985, Pantene was still a small brand little known by customers when it was acquired by P&G. The price was high and it was only sold in shopping malls. After the acquisition, P&G repositioned the brand image of Pantene as “Health and Beauty”, and adjusted the price and distribution channels. Thus Pantene was hot sold in the market and is still a strong brand now .
Except for brand reposition, another common way for the acquirer to develop second-line brand is innovation and promotion. (Duan, 2006) Second-line national brands accumulate certain brand awareness and reputation inside Chinese market, but they need more pushes to go bigger. The acquirer can take use of its advanced technologies to develop new series of product line for second-line brands, and then promote the brands with new package and more advertisement. Besides, the acquirer can also arrange experienced personnel to manage those brands. It is unnecessary to change the channels or the essence of the second-line brands, because the channels and the brand image of those brands are usually not so weak, but the innovation through the acquirer’s technology will help to upgrade the second-line brand. And at last, the brand awareness and reputation of the acquirer brand will be also improved.
Solutions above can also be adopted to solve the problem of brand cannibalization
Over-branding is the most common problem of multi-brand strategy. And the most common solutions to deal with this problem are to reduce the brands and strengthen several strong brands. That is brand integration. (Kevin, 2001) Brand integration needs lots of evaluation before actual proceed. The acquirer should study the need of the customers in the market, the brand image, brand awareness, brand royalty and profitability of the brands. The evaluation will help the acquirer decide which brands to be strengthened and which brands to be abandoned.
As discussed earlier, the acquirer shall view the acquired second-line national brands as Question Marks or even Stars. In fact, most acquirers acquire more second-line national brands because they need more brands of different product lines to supplement their brand portfolio. In 2003, L’Oreal acquired Mininurse in order to develop a low-end brand in Chinese market. Before the acquisition, the brand portfolio of L’Oreal had high-end brands like Lancôme, middle-end brands like Vichy. However, L’Oreal lacked a low-end brand. L’Oreal studied Chinese market before the acquisition and found that consumption level was low. So L’Oreal needed a second-line brand to penetrate the market. After several measures such as brand reposition and innovation, Mininurse was launched to the market with new formula and package, which turned out to be a great success .
In fact, the management for single-brand can also be adopted in multi-brand strategy, as the object of multi-brand strategy is a certain individual brand in the brand portfolio. So basing on the study and evaluation of the acquired brand, the acquirer can plan to allocate company resources to different brands and then build up a complete brand portfolio.
5. Conclusion
M&A have a tremendous impact on second-line national brands. The challenge for companies is to devise a system whereby the basic objectives of the M&A are always kept in mind so that post-M&A challenges will not drive the new entity from the path that has been set. Most importantly, all strategies for the new entity should be guided by the underlying brand blueprint so that all post-M&A decisions are in line with the overall brand vision and driven by the brand identity. Solutions to the problems of single and multi brand merging and acquisition are put forward in this paper. This research analyzes the characteristics of second-line national brands, gives analysis on the reasons of M&A of second-line national brands, problems of single and multi brand management, and puts forward related solutions based on the analysis. Generally speaking, this paper offers multinational corporations a useful analyzing structure for single and multi brand M&A of second-line national brands.
Based on the theory of M&A and brand management, this paper focuses on the cases of brand management in multinational corporations which see merging as turning point for development. Based on the discussion, the author’s conclusions are as follows:
First, M&A of second-line national brands is important opportunity for overseas company to explore international market.
As consumers become more sophisticated, age of brand consumption arrives. “The worth of a strong brand is rarely represented fully in a company’s stock price. It does not appear on a balance sheet. But it is the motor behind the numbers, the fuel that drives consumers to the marketplace and helps them make choices.” (Keller, 2008: 413)Thus, merging with brands not only can enrich the brand combination of the merging side, enhance market share, market recognition, but also can debit the brand assets of the company which is the origin of profit. Meanwhile, the combination of the newly-merged brand and the existed brands can integrate resources and other advantages to reinforce the company’s position in the market. Therefore, M&A of second-line brands can become significant opportunity for the company to explore international market or take the lead as famous international giant.
Second, not only the motives of M&A shall be taken into account, but also the possibility of conflicts between the acquirer brands and acquired brands.
Different motives of M&A can result in different brand strategies. Different connotation of the target brand, perspective of appreciation, traditional strategies and the specific environment also require different brand management. Besides, difference between the target brand and the acquirer brand will bring obstacles to brand connection and follow-up propagation. How to break through those obstacles, besides solutions mentioned earlier in the paper, needs further discussion.
The final goal of brand management strategy is make use of the strong brand, establish clear brand position, create brand portfolio suitable for the dynamic market, and adopt brand combination strategy with great compatibility.
Brand management after the M&A is artful and dynamic. It is also a field requires further research. The research integrating multinational M&A and brand management is a relatively advanced issue which is worth more profound discussion.
6. Limitation
As to the whole period from materials collection to the complement of this research only takes six months, this research may not analyze deeply enough to all aspects of M&A with second-line national brands. Should the acquirer conducts M&A with second-line national brands in different situations, the problems he/she may face will also be different. The analysis and problems presented in this research may not be all-sided. Again, should more brand management models and analytical software have been applied in this research, the findings of the result would have been more persuasive, the researcher have done away with it so as to make the dissertation easier to understand.

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