In three out of the four possible situations, slimming down a company’s brand portfolio has a negative impact on its stock price, according to new a new research project from Rotterdam School of Management, Erasmus University.
In the wake of Unilever and P&G selling off a large number of their brands in 2014, Dr. Baris Depecik looked at 250 companies that had slimmed down their brand portfolios.
The information was quantified and analysed in a matrix according to the type of brand (core or non-core) and its geographical expansion (global or local/regional).
The results showed that getting rid of global core and non-core brands, as well as local core brands, negatively impacted the value of the company:
- Global brands (core and non-core) hold a high value due to the economies of scale, economies of scope, R&D and marketing.
- Local core brands have high brand equity. The brand recognition and value are high as they solve local needs. This makes it more likely that they build strong and loyal customer bases and enjoy higher profit margins for home region brands than for brands in foreign regions.
The study indicates one solution for companies who struggle to manage a large brand portfolio: shed non-core brands with a low international presence.
Dr. Baris Depecik says: ‘’In practice, brand managers are often reluctant to make difficult decisions for various reasons – they either fear losing their jobs, may not like to admit the failure of a certain brand or, they may bear emotional ties with it. They are the ones that need to know, for example, that for non-core business activities they should pursue a global branding strategy only.’’