Of Branding And The Parent Company

Jack TroutMay 2, 20083 min

How does a Tyco or a United Technologies or even a General Electric get investors excited about a company that’s in multiple businesses? The answer: with great difficulty.

The inherent problem with these kinds of programs is that you have to advertise a client with multiple personalities. And it’s exceptionally difficult for an analyst to get his or her head around these types of  companies. How do I evaluate all these different businesses and assign a buy, a hold or even a sell recommendation? How does an investor do the same? You might like one personality but dislike the others. It’s all very confusing.

This is an old problem that has led corporate America to act like an accordion. First, they expand and acquire a lot of diverse businesses. Diversification is good, but then they realize not only that it is hard to manage all these different businesses and competitors, but that Wall Street doesn’t understand them. So they contract and sell off all their acquisitions. Focus is good. Wall Street gets it–at least for awhile.

The standard reason for all these marketing-the-stock activities is “to create a brand for the parent company.” Another favorite is expressing a need “to educate the public investors and analysts about our far reaching operations.” Well, history has pretty much proved that these types of multimillion-dollar programs rarely live up to expectations.

The real reason for many of these programs is what I call “the cocktail party problem.” Consider the following: A CEO of a large corporation is meeting and greeting people at some fancy event. Someone asks him or her, what company are you with? When you announce the name of the company and all you get is a blank stare or a “what do you sell?” question, the CEO gets uncomfortable. If that tableau is repeated a number of times, trust me, pretty soon the company will begin to plan a “we have got to tell our story” program.

I hate to be a killjoy, but I think most of these programs are a waste of money. A company is in business to generate customers for its products and services, not to sell stock. If you do the former very well, chances are the latter will take care of itself.

Consider one of my favorite companies, United Technologies. This is a company with some of the best brands in the business world: Carrier Air Conditioning, Otis Elevator, Pratt and Whitney jet engines, Sikorsky helicopters. Business is good, and its stock is considerably above, say, General Electric. But it’s not high enough to make the company happy. So it’s are launching a $20 million corporate campaign with the tagline, “You can see everything from here.” I’m not so sure what that means, but anyone who’s buying any of the brands could care less about the parent company.

In fact, it’s the opposite. What United Technologies has is a powerful portfolio of specialists. Carrier, Sikorsky and Otis practically invented the categories of air conditioning, helicopters and elevators. People are impressed with them because they see them as specialists, not a part of a big conglomerate. And you don’t want to undermine those perceptions; people perceive specialists as the best because that’s all they do.

That’s exactly General Electric’s problem. They have a bunch of businesses, all with the same name. This puts them in the generalist category, and generalists tend to lose to specialists in the market. (The small appliance specialists drove GE out of the business.)

But don’t think I’m against all corporate advertising. What United Technologies could do is run a program in the likes of Forbes magazine, or on Forbes.com, about “the power of specialists.” And why they nurture them and stay out of their way. That kind of program would differentiate them from all those other conglomerates. And if people are impressed with that business strategy, they might even see their stock go up.

Because what United Technologies is doing is exactly how you should run a multiple business company.

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Jack Trout

One comment

  • Chris Shiflett

    May 3, 2008 at 1:56 pm

    I think these are interesting points and make a lot of sense for a house of brands like United Technologies. However, I do think a “branded house” conglomerate can benefit from corporate level advertising. In this situation, the master brand has a brand promise whose attributes, in theory, should permeate through out all of the conglomerate’s products and services, regardless of the customer segment that business is targeting. My opinion is that corporate advertising can help customers, investors, current and future employees alike develop a consistent understanding of the organization and what they should expect in whatever their relationship is with that company. Communicating this promise to the aforementioned parties can build positive affect over time with their constituents and as Jack mentions, should eventually have a positive impact on the stock price. If and only if the perception of their strategies and tactics seem to support the communicated promise.

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