Bachelor’s Thesis Managing Brands during Acquisitions - An Empirical Study of Ford Motor Company and Volvo Car Corporation Jenny Forberg Linda Johansson INTERNATIONAL BUSINESS AND ECONOMICS PROGRAMME Department of Business Administration and Social Sciences Division of Industrial Marketing 2000-09-19 Acknowledgements Acknowledgements This bachelor thesis is the outcome of ten weeks of work during the spring of 2000. We would like to give many thanks for all the valuable guidance and always-present support from our supervisor, Economic Licentiate Tim Foster at the division of Industrial Marketing, Luleå University of Technology. In addition, we would like to express our gratitude to both the companies in allocating their time for answering our questions and thereby having contributed to the completion of this thesis. Special thanks to Mr. Peter Chadwick the Manager of Public and Governmental Af- fairs at Ford Motor Company in Stockholm, Sweden and Mr. Lennart Ström the Head of In- formation and Public Relations at Volvo Car Corporation in Gothenburg, Sweden. Furthermore, we would like to thank Dr. Bryan A. Lukas for all the inspiration he gave us through his course “Product and Brand Management” which we attended during the fall of 1999 at the University of Melbourne, Australia. Finally, we would like to thank all the persons having contributed to the completion of this thesis through their assistance and guidance. Luleå, 8th of June, 2000 Jenny Forberg Linda Johansson Abstract Abstract The globalisation has lead to an increasing importance of branding in creating competitive advantages for companies. During the past decade an increasing number of companies have undertaken acquisitions of established brands as an alternative to building new brands. The purpose of this thesis is to gain a better understanding of how brands are managed during ac- quisitions. Two case studies were conducted, using a qualitative research method, at Ford Motor Company and Volvo Car Corporation in order to study an acquisition from the perspective of the acquiring company as well as the acquired company. The study shows that motives for brand acquisitions are based on the fact that they are more effective than building new brands as well as opportunities to create synergy effects. Furthermore, very few risks were involved due to the strength of the acquired brand. Finally, strong brands do not require rebuilding strategies to the same extent as weak brands. It is also of great importance to man- age different brands in a portfolio separately to maintain their distinct identity. Table of Contents Table of Contents 1 INTRODUCTION _______________________________________________________________________1 1.1 BACKGROUND _______________________________________________________________________1 1.2 PROBLEM DISCUSSION _________________________________________________________________3 1.3 PURPOSE____________________________________________________________________________5 1.3.1 Research questions________________________________________________________________5 1.4 OUTLINE OF THE STUDY ________________________________________________________________6 2 REVIEW OF LITERATURE______________________________________________________________7 2.1 MOTIVES FOR BRAND ACQUISITIONS ______________________________________________________7 2.2 RISKS OF BRAND ACQUISITIONS __________________________________________________________9 2.3 REINFORCEMENT AND REVITALISATION OF BRAND EQUITY ___________________________________10 2.3.1 Sources of Brand Equity___________________________________________________________10 2.3.2 Brand Reinforcement _____________________________________________________________11 2.3.3 Brand Revitalisation______________________________________________________________13 2.4 CONCEPTUALISATION _________________________________________________________________17 2.4.1 Motives for Brand Acquisitions _____________________________________________________17 2.4.2 Risks of Brand Acquisitions ________________________________________________________18 2.4.3 Reinforcement and Revitalisation of Brand Equity ______________________________________18 3 METHODOLOGY _____________________________________________________________________20 3.1 RESEARCH PURPOSE __________________________________________________________________21 3.2 RESEARCH METHOD __________________________________________________________________22 3.2.1 Deduction versus Induction ________________________________________________________22 3.2.2 Qualitative versus Quantitative _____________________________________________________22 3.3 RESEARCH STRATEGY ________________________________________________________________23 3.4 SAMPLE SELECTION __________________________________________________________________24 3.5 DATA COLLECTION METHOD ___________________________________________________________25 3.6 DATA ANALYSIS_____________________________________________________________________26 3.7 RELIABILITY AND VALIDITY____________________________________________________________27 4 DATA PRESENTATION – CASES________________________________________________________29 4.1 CASE ONE:FORD MOTOR COMPANY _____________________________________________________29 4.1.1 Motives for Brand Acquisitions _____________________________________________________29 4.1.2 Risks of Brand Acquisitions ________________________________________________________32 4.1.3 Reinforcement and Revitalisation of Brand Equity ______________________________________34 4.2 CASE TWO:VOLVO CAR CORPORATION___________________________________________________37 4.2.1 Motives for Brand Acquisitions _____________________________________________________38 4.2.2 Risks of Brand Acquisitions ________________________________________________________39 4.2.3 Reinforcement and Revitalisation of Brand Equity ______________________________________41 5 ANALYSIS____________________________________________________________________________45 5.1 WITHIN-CASE ANALYSIS ______________________________________________________________45 5.1.1 Motives for Brand Acquisitions _____________________________________________________45 5.1.2 Risks of Brand Acquisitions ________________________________________________________48 5.1.3 Reinforcement and Revitalisation of Brand Equity ______________________________________51 5.2 CROSS-CASE ANALYSIS _______________________________________________________________56 5.2.1 Motives for Brand Acquisition ______________________________________________________56 5.2.2 Risks of Brand Acquisition _________________________________________________________57 5.2.3 Reinforcement and Revitalisation of Brand Equity ______________________________________57 6 CONCLUSIONS AND IMPLICATIONS ___________________________________________________60 6.1 MOTIVES FOR BRAND ACQUISITIONS _____________________________________________________60 6.2 RISKS INVOLVED IN BRAND ACQUISITIONS ________________________________________________61 6.3 REINFORCEMENT AND REVITALISATION OF BRAND EQUITY ___________________________________62 Table of Contents 6.4 IMPLICATIONS_______________________________________________________________________63 6.4.1 Implications for Management ______________________________________________________63 6.4.2 Implications for Theory ___________________________________________________________63 6.4.3 Implications for Further Research___________________________________________________63 LIST OF REFERENCES__________________________________________________________________65 APPENDIX A: INTERVIEW GUIDE - IN ENGLISH APPENDIX B: INTERVIEW GUIDE - IN SWEDISH Chapter 1. Introduction 1 Introduction This chapter gives an introduction to the topic of our thesis. First, a background to the re- search problem is given. In the problem discussion, the area of research is circled and dis- cussed. The problem discussion will then land in some specific research questions. Finally, an outline of the study is given. 1.1 Background Today, many products are indistinguishable from each other and technological developments are rapidly available to all companies acting on the global market place. The globalisation, integration of markets and diminishing product differences make it hard for companies to dif- ferentiate their products by their functional benefits such as price or quality. (Urde, 1997) A product is defined as “anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a need or want” (Keller, 1998, p. 3). Functional benefits are values based on a product attribute that provides functional utility to the consumer. Such benefits are usually related to the functions performed by the product. (Aaker, 1996) The limitations of functional benefits in differentiating products have lead to a focus on branding and the creation of emotional benefits as the prime differentiator and creators of value for the consumer and the brand owner. (Joy, 1998; Urde, 1997; Aaker, 1996) Emotional benefits add richness and depth to the experience of owning and using a brand (Aaker, 1996). It is argued that brands have the ability to evoke feelings such as happiness, confidence and amusement (Biel, 1992). A brand’s ability to enhance the value of a product to be able to dis- tinguish it is highlighted in two definitions. First, a brand is defined as “a name, symbol, de- sign or mark that enhances the value of a product beyond its functional value” (Cobb-Walgren & Ruble, 1995, p. 26). Furthermore, a brand is a “name, term, sign, symbol, or design, or a combination