In Times of Crisis, Brand Architecture Matters

by | Nov 9, 2015 | Uncategorized

Brand Architecture Modifies Popular Sentiment in the Face of Controversy

Mergers and acquisitions have become familiar headlines. Articles and opinions about topics such as Alphabet becoming the holding company for the diverse Google brands and activities, AbbVie splitting out of Abbott and purchasing Pharmacyclics, and US Airways merging with and adopting the name of American Airlines have become commonplace in business media.
How subsidiary products, services or companies relate to the corporate brand is known as brand architecture.
There are two fundamentally different models of brand architecture: the “Branded House” and the “House of Brands” (and various hybrids of these two pure plays). In the “Branded House,” all subsidiary brands carry the parent name (think General Electric, FedEx and Microsoft). The primary advantage of the “Branded House” architecture is that all products and services are building and supporting one brand name rather than diluting efforts across multiple brands, making this the simplest and most efficient architecture model. The downside is that a major crisis in one subsidiary can damage the whole house (think BP and the Gulf oil spill).

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In the “House of Brands,” subsidiaries or individual product and service offerings are branded separately. This allows the parent company to manage risk, for example, in the event that a crisis engulfs a sub-brand, the corporate brand and other portfolio members may be spared from damage. In addition, it allows a portfolio of brands to be built and managed strategically and synergistically. That is how the same company can offer brands that are designed to go after different segments of the same market without causing marketplace confusion. For example, Procter & Gamble offers Tide, Cheer and Gain brands of detergent. The downside, predictably, is that it costs more to launch and manage more brands.
Many other companies follow a hybrid brand architecture in which the corporate name also serves as a subsidiary company, product or service brand. For example, Ford is the name of a corporation as well as a brand of vehicles. Marriott is a corporation and also a brand of hotel within a portfolio of hotel brands under Marriott Corporation.
Through brand architecture, companies have the option to play up or down the interconnectedness of their subsidiary brands. And the smart companies evaluate and modify brand architecture as they grow to balance strategic imperatives (growth goals, risk assessment, etc.) with market clarity.
In the fast-food industry, Chipotle didn’t highlight that McDonald’s was a majority stakeholder (until 2006) because Chipotle and McDonald’s have such contrasting market positions and brand values. If consumers were constantly reminded of their relationship, each brand’s image would be tarnished and their messages devalued. Similarly, in the automotive industry, a high-end brand like Maserati does not want to publicly advertise the fact that it is owned by Fiat because those two brands seek to achieve very different perceptions and price points among car buyers. When Honda wanted to move upmarket, it knew the Honda brand itself could not credibly stretch that far and created the Acura brand to compete in the entry luxury segment.
Although there are financial and cognitive benefits to the Branded House architecture, controversy can be minimized and risk further diversified by using the House of Brands architecture to keep brands separate in the eye of the consumer. You can bet that Porsche, Bentley and other brands owned by Volkswagen today are (a) glad that VW is not a part of their brand names, and (b) are actively looking at ways to further distance themselves from the VW brand.
Speaking of automotive, take the quiz below to test your knowledge of brand architecture in the automotive industry …

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