Drivers of brand deletion outcomescauses, decision-making and implementation

Resumen

Brands are business assets that can generate sustainable competitive advantage (Kozlenkova et al., 2014; Morgan, 2012). Specifically, brands may be seen as a potential source of value creation through the loyalty they inspire, their reputation, perceived quality, what they are associated with, and other aspects such as copyright (Aaker, 1991). They are also rather rare resources in that they require high levels of investment, and are difficult to replicate, since they help forge a unique relationship with their customers. Yet their mere creation is not enough to ensure that a brand becomes a valuable resource and a source of competitive advantage; they also need to be properly organized and managed by the firm (Kozlenkova et al., 2014). In general, firms do not tend to manage just one brand, but rather a group of them, known as a portfolio. The brands that make up a portfolio are organized such that they create a series of relations and links that endow them with consistency and a meaning that allows them to accomplish the firm’s strategic objectives. To achieve this, managers must design a structure, known as brand architecture, which clearly sets out each brand’s role and the relationships among them (Aaker and Joachimsthaler, 2000). Understandably, this architecture evolves over time so as to adapt to the challenges that emerge and to the firm’s new strategic proposals, which affects three of the portfolio’s key parameters: the number of brands marketed by the company, the internal relations between the brands and how they are positioned among consumers. In other words, as the brand architecture evolves, managers must take decisions aimed at expanding, consolidating or retracting their portfolio (Douglas and Craig, 1996). As a result of economic growth during the 1990s, most countries witnessed a sharp rise in the number of applications for registered trademarks (WIPO, 2013), since company marketing managers reacted to the favorable economic prospects by fostering expansion and creating wider-ranging business and brand portfolios. Nevertheless, the last few decades have seen many changes in the economic situation that have reversed the trend of brand proliferation and forced companies to focus their efforts on fewer but stronger brands, thus retracting the brand portfolio (Varadarajan et al., 2006). Three main reasons, all of which are related to more intense market competition and the challenge this poses vis-à-vis maintaining any brand’s differentiation, sum up this shift in tendency. First, one factor that has brought about a change is that the days of economic growth are over for most industries, which has meant that cost efficiency is now a business priority. As a result, many companies are re-focusing their strategy towards their main activity, disposing of the brands they operated with in less attractive segments or in areas that were less linked to their core competences (Depecik et al., 2014). By doing this, the aim is to improve efficiency when using available resources, in particular those geared towards marketing activities. Portfolios with fewer brands are more efficient since firms incur fewer operating and marketing costs, added to which managing the whole operation is more streamlined. It is economically more viable to meet demand using fewer and stronger brands that convey a more robust image. Secondly, when seeking to understand the drop in the number of brands, the gradual globalization of markets should be taken into account. The disappearance of economic and trade barriers has afforded the opportunity to cut costs by manufacturing in countries where labor costs are lower, yet has also led to firms in these countries competing in western markets. More intense competition brought about by the emerging economies, particularly China, has reshaped the global playing board, and there is now growing pressure to cut costs coupled with a greater emphasis on price as a key factor in the purchase decision. This means that company managers now face a paradox: on the one hand, firms need to be competitive cost-wise, yet, on the other, they do not wish to stop investing in creating brand image, which is a strategic asset that allows them to differentiate themselves and to escape the price war. In an attempt to strike a balance between investing in brands and their quest for greater efficiency so as not forego price sensitive segments, it is increasingly clear that businesses are tending to focus their marketing efforts better and to rationalize their portfolio. Finally, mention should be made of another key occurrence, namely the emergence of private brands, which have “stolen” a large part of the market share from the national brands. This phenomenon of what were formerly known as “own brands” is nothing new, although what is true is that their presence has spread to a wider range of product categories and that, thanks to the privileged position of many distribution chains and to their efforts to reposition their private brands, consumer perception of the quality of products with private brands is ever more favorable. All of this accounts for the enormous growth in market share of these brands over the last few years. Although there are signs that this is slowing down and despite the differences in estimations, the market share of private brands is close to 40% and in many categories private brands control over 50% of the market share, with Spain being one of the countries where they are strongest (PLMA, 2017). This growth has been to the detriment of the national brands, which on many occasions have been forced to sacrifice their second and third tier brands in order to be able to maintain their leading brands. Other manufacturers have gone one step further and have done away with virtually all their own brands and now produce private brands. The situation shows no sign of letting up and even the commitment to innovation, which was one of manufacturers’ major assets, also faces the challenge of retailers and their private brands. In sum, contextual features such as the slowdown in economic growth, market globalization and, therefore, global competition, coupled with the arrival of private brands, have reversed the trend towards the proliferation of brands and have forced companies to focus their efforts on top brands. This has not, however, led to the brand losing its importance as a competitiveness factor, and there are clear signs that the brand as a strategic asset has strengthened its position in recent years (Veloutsou and Guzmán, 2017). Countries traditionally seen as manufacturers for western businesses, such as China or South Korea, have for some time been committed to creating reputable brands. For years, China has managed to place Huawei and Lenovo in the top 100 most valuable world brands of the Interbrand ranking. South Korea has been appearing in this ranking for several years now with three brands: Samsung, Hyundai and Kia. It is not only Interbrand that has been reflecting the surge in brands from China, Korea and other emerging economies such as Brazil or India. Other rankings, such as BrandZ Top 100 by Millward Brown or the Global 500 by Brand Finance also bear witness to this boom and are including an increasing number of brands from these areas. All of these consulting agencies publish specific reports for a number of countries, highlighting the growing importance of brands as a business asset, and which ties in with the wave of brand takeovers by major firms that has been seen in recent years, brands that are breaking records in terms of their valuation. Facebook, for example, bought WhatsApp in 2014 for 18,000 million dollars, much of which is attributable to intangible aspects of the brand, according to Facebook’s valuation of the company. Two years earlier it had bought Instagram for 1,000 million dollars. In the food sector, Kellogg Company’s purchase in 2012 of the brand Pringles from P&G meant an outlay of 2,700 million dollars. The commitment of distribution chains to developing their own brand architecture which merges competitively priced brands with others that target the premium segment is yet another indication of the key role played by brands in their customer acquisition and loyalty policies. It is therefore logical to claim that a good brand strategy is a key factor in the success of many companies in virtually all markets –from the most developed economies to the emerging ones– and in virtually all sectors, from the food industry and other sectors that manufacture fast-moving consumer goods to new technologies, and spanning the car industry, fashion, the luxury sector... not forgetting the service sector, including banking and insurance, transport, telecommunications, gas and electricity, and many others. What is the corollary of this paradox? In other words, why are brands being disposed of when their strategic importance is increasing? Without going into detail concerning the particular reasons that might lead to a specific brand being deleted from the company’s portfolio, broadly speaking it can be said that a brand should be removed if it fails to evidence that the investment required to keep it on the market is profitable (Shah, 2017b). Having many brands on the portfolio may give rise to an insufficient amount being invested in each, which then fails to give the expected returns. As a result, removing a brand should not always be seen as bad news resulting from market problems (Temprano et al., 2017). Firms must be aware of the opportunity costs involved in maintaining certain brands in the portfolio that have little potential and whose strategic role cannot be adequately justified. For firms wishing to have sufficient resources available to promote their leading brands, disposing of secondary brands might be a smart move so as to be able to free up resources that will subsequently be reinvested in those brands which firms wish to set up as their most valuable assets. This will enable better and more profitable use to be made of the marketing efforts undertaken. Unilever and P&G are paradigmatic examples of companies that have recently revised their portfolios of businesses and brands in depth and that have undertaken extensive brand deletion programs. Unilever’s “Path to Growth” strategy led the company to focus its efforts on fewer strategic markets and to keep only strong brands (i.e., No. 1 or 2), removing hundreds of brands such as Bertolli, Skippy, etc. in just a few years (Morgan and Rego, 2009; Shah, 2015). Likewise, P&G continued with an ambitious brand consolidation programme which meant eliminating up to 100 brands in 2015 alone, and the disposal of very well-known and successful brands such as Pringles, Wella or Duracell, to name but a few, that were sold to other corporations for billions of dollars. Within their automobile division, GM sold Saab to the Dutch company Spyker, although the new owner was not able to revive it. GM also attempted to sell Hummer, but disposal was not possible and GM finally killed off the brand during its 2009 bankruptcy, as it did with other emblematic brands such as Pontiac or Saturn that were also withdrawn from the market (Shah, 2017). The Santander financial group has eliminated some important local brands, such as Abbey in the UK or Banesto in Spain, and focused its marketing efforts on the name Santander, which is now a strong global brand (Interbrand, 2017). All of these major examples serve to illustrate the topicality of the brand deletion strategy. However, despite its relevance in recent decades, scholarly research remains so scarce and fragmented that it is virtually impossible to identify any body of knowledge on this topic. Very few theoretical articles on brand deletion have been identified and are geared towards identifying the explanatory factors underlying the brand deletion adoption propensity, either in general (Shah, 2015; Varadarajan et al., 2006) or in multinationals (Ketkar and Podoshen, 2015). Published empirical papers also remain few and far between and deal with the effects on performance of brand deletion, either considering consumer evaluations as a performance measure (Mao et al., 2009) or analyzing the impact on the firm’s value by examining stock market reactions after the announcement of a brand disposal (Depecik et al., 2014; Wiles et al., 2012). Not enough empirical research has focused on the perspective of the company and scrutinized how its decisions and actions shape brand deletion results. Only Shah’s qualitative studies (2013, 2017b) have started to explore questions such as why firms delete brands and what factors explain the outcomes and the success or failure of a brand deletion, and, as far as we know, no single paper has been published in a refereed journal that has quantitatively examined the determinants of brand deletion performance. In sum, given that brand deletion is as important a decision in today’s business context as it is unexplored in the academic field, the present work aims to fill the wide research gap identified from the company perspective. In particular, we try to expand scientific knowledge in this field by explaining and providing empirical evidence of how the causes, the decision-making approach and the implementation of the brand deletion determine the outcomes of such a strategy and its eventual success. The doctoral thesis comprises six chapters. In Chapter 1, we introduce the brand deletion issue by defining and relating the brand, brand management and brand deletion concepts. Inspired by the intrinsic mechanisms suggested by Carlile and Christensen (2004) to scientifically understand a phenomenon –i.e., its causes, processes and outcomes–, we structure the brand deletion literature review in three main broad topics: brand deletion causes, process (decision-making and implementation) and outcomes. Research gaps are also identified. In Chapter 2, we propose a holistic conceptual model of brand deletion. To operationalize its empirical testing, we define three research sub-models relating the causes, the decision-making approach and the implementation factors with the outcomes of brand deletion. This chapter ends with a description of the empirical research method and data gathering process. In particular, the sub-models have been tested using primary data of 155 cases of brand deletion undertaken by a representative sample of 111 companies covering a broad group of industries, which enhances the generalizability of our findings. Chapters 3 to 5 focus on the development and testing of each of the three sub-models defined in Chapter 2. Specifically, in Chapter 3 we analyze the impact of the causes which trigger brand deletion –distinguishing between proactive and reactive causes– on the success of brand deletion. The effect of the firm’s brand orientation on the occurrence of proactive versus reactive deletions is also explored. Implicitly, in this sub-model we suggest that brand orientation has a twin positive indirect effect on brand deletion success: first, through the increased number of successful brand deletions due to proactive causes and, second, through the reduction of unsuccessful brand deletions precipitated by reactive causes. Chapter 4 addresses the decision-making process. The sub-model presented and tested in this chapter examines the effect on brand deletion success of three different approaches to decision making –rational, intuitive and political–. The interaction between the rational and political approaches is also considered, as is the moderating effect of the type of brand deletion –i.e., whether the brand was totally killed off or disposed of, or whether it occurred through a brand name change–. This study confirms the positive effects of rationality and intuition on brand deletion success and reveals situations in which the political approach is more or less detrimental to performance. In Chapter 5, we explore how the implementation of the brand deletion decision affects the deletion’s contribution to firms’ economic performance. In particular, we propose a sub-model that considers four implementation variables derived from the distinction between context and process factors and between structural and interpersonal behavior factors. Thus, main and interaction effects of decentralization, consensus, formalization and communication on the economic results attributed to brand deletion are examined. Chapter 6 provides a summary of the doctoral thesis, comments on the main conclusions and the managerial implications of our findings. It also acknowledges the research limitations and suggests ideas for future inquiry so as to further expand scientific understanding of brand deletion.