Brand Architecture’s Impact On Brand Value

Martin BishopJanuary 6, 20163573 min

Brand architecture often comes down to an evaluation of tradeoffs. In my experience, there’s rarely a cost-free benefit or a no-foul cost. That’s why I have found the concept of brand value so helpful. It focuses on the net effect of an initiative — are the benefits worth more than the costs of getting those benefits or are cost-saving initiatives doing more harm than good?

Brand value has been defined by C.W. Park, professor of marketing at USC Marshall School of Business, as: “The difference between customers’ willingness to bear the costs to obtain the brand’s benefits and the firm’s costs expended to create these benefits.”

A house of brands strategy — as exemplified by P&G and its huge range of brands, from Tide to Crest to Gillette — benefits from the fact that each brand has a focused positioning, but it costs a lot to market all these different brands. So P&G (and other packaged goods manufacturers) have been aggressively reducing their brand portfolios. This strategy has a cost — there are lost sales and share from the discontinued or sold-off brands, and the remaining brands can become overextended. But so far, the benefits seem to be worthwhile, and brand value has been increased.

On the other side of the spectrum, the single brand strategy of Accenture is very efficient, and pours all the equity into a single brand. But the downside is that it’s more difficult to highlight specific areas of competitive advantage. Single branded companies typically allow brand architecture “exceptions” when they decide that, for example, folding an acquired brand into the existing business will cost too much in terms of lost brand equity — or that one business does not fit well with the remainder of the portfolio and must be kept at a distance.

Some common drivers of the benefits and costs of brand architecture initiatives are:

Increasing Benefits
1. Targeting the drivers of specific product categories
2. Targeting the needs of specific consumer groups
3. Focusing attention on product innovation or other areas of competitive advantage

Reducing Costs
1. Reducing marketing costs necessary to support multiple brands
2. Reducing the management costs of running a complex brand portfolio
3. Reducing buying costs by giving customers fewer options so that they can find what they’re looking for more quickly

One common brand architecture issue is brand proliferation. Over time, either through organic growth or acquisition, companies increase their portfolio of brands and eventually find that the cost of supporting and managing all these brands is impacting business performance.

This issue is particularly well-served by brand value thinking — anything that does not add value should be eliminated. Brand value puts the burden of proof on keeping brands that add complexity and cost for little benefit. For growth-minded companies that are prone to brand proliferation, it provides a useful check and a source of control.

Brand value also puts a premium on simplicity. The simplest brand architecture will be the least expensive solution, so it should be the default choice, all things being equal. All other things may, of course, not be equal — there can be strong arguments for more brands. But since brands are a source of cost and complexity, they should only be added or kept if the benefit outweighs the costs incurred.

In terms of an overarching principle, brand value thinking says that businesses should cover the market and target consumer groups with the least number of brands necessary. Fewer brands are easier to manage, less expensive to operate and create stronger pools of brand equity. Less, in brand architecture terms, is often more.

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