Brand Strategy: Create or Acquire?Thu Feb 14, 2019
When it comes to brand development, why reinvent the wheel? Creating a brand can be expensive and time consuming. Not only can costs easily rise to hundreds of thousands of dollars with timeframes stretching into years, but more products fail than succeed. In fact the failure rate for new products hovers above 80%.
That makes a persuasive argument for acquiring a brand or product rather than developing one from scratch. “Brand and product acquisitions offer a potentially valuable strategic solution for firms that want to limit development costs and reap the benefits of existing products and brands,” report co-authors Casey Newmeyer and Vanitha Swaminathan in “Should Companies Seek Growth by Acquiring Products or Brands?,” an article posted by the American Marketing Association based on a paper, “When Products and Brands Trade Hands: A Framework for Acquisition Success,” published in the Journal of Marketing Theory and Practice.
The decision to create or acquire a brand is influenced by many market, firm and brand portfolio characteristics, according to Randle D. Raggio, Yana Damoiseau and William C. Black in “Brand Creation vs. Acquisition in Portfolio Expansion Strategy,” a paper published in the Journal of Product & Brand Management. Market-level factors include market concentration, competitive intensity and market growth. Firm-level factors involve prior experience, research and development productivity and financial leverage. Portfolio-level factors consist of portfolio diversification and product category depth.
These factors can be seen at play in recent acquisitions by The J.M. Smucker Co. and Unilever. Both companies have excelled with an acquisition strategy, although it should be noted that both firms also have been highly successful in creating brands.
Smucker’s positions acquisitions as one of the four pillars in its strategic roadmap, which also includes innovation, investments and cost savings. Recent acquisitions such as Sahale Snacks, Big Heart Pet Brands, Ainsworth Pet Nutrition and Wesson have had a positive impact on sales, given the company a presence in the growing pet food and pet snacks categories and provided cost-saving synergies. The J.M. Smucker Co. Annual Report 2017 notes, “…we expect acquisitions to play an ongoing role in our future growth….these transactions provide opportunities to add top- and bottom-line growth where we benefit from our existing customers and channels, broaden participation in existing categories and realize synergies in our supply chain.”
Unilever has reaped similar benefits. The Unilever Annual Report and Accounts 2017 explains, “Over the last three years, we have made—or announced—22 acquisitions. Twelve of these came last year alone as we accelerated our portfolio transformation further, making 2017 one of the most active acquisition periods in the company’s history. These new businesses strengthen our portfolio in a variety of ways. Some give us access to fast-growing segments of markets in which we are already active but currently under-represented, such as Carver Korea, which will enable us to leverage the growing demand for Korean skin care products. Others will enable us to expand in complementary, adjacent categories, such as color cosmetics (Hourglass) and air purification (Blue Air). Some give us greater regional scale in existing categories, as is the case with the acquisition of the Quala home and personal care business in Latin America and EAC in Myanmar. And others bring skills and capabilities in new, rapidly emerging segments, including subscription and direct-to-consumer models (e.g., Dollar Shave Club and our Prestige beauty businesses).”
In short, acquisitions can fill in the missing pieces geographically, strengthen market position and open the door to participation in emerging and growing product categories.