Yes, buying existing brands can leapfrog a company ahead while inventing them looks like a costly, lengthy, hit-or-miss strategy. Witness the buy-not-build trend that's rampant in package goods, as we reported in last week's issue. Standby brands like Mennen, Robitussin and Windex are now under owners other than those that built them. Even powerhouse brand-maker Procter & Gamble Co. markets more Olay's and Vicks and Pepto-Bismol's (acquired) than Aleve's (started from scratch).
Now a $6.8 billion merger gives Kimberly-Clark control of Scott Paper's brands, and along with it the marketing muscle K-C's brand lineup has needed to battle P&G in North America and Europe. And the Zenith consumer electronics brand has just been gobbled up by South Korea's LG Electronics (Goldstar).
We don't object to this. The big dollars spent to acquire good brand names confirm what marketing people hold dear-that well-supported brand names generate profits and marketplace strength (and stock market value) that new and no-name goods cannot easily match. Moreover, it appears a good number of strong brands have been languishing at companies just not up to the demands of marketing today. So there's been a rush to grab them, and no wonder.
But big-dollar acquisitions of big brands can be a big-risk strategy. Last week's Ad Age also reported Quaker Oats Co.'s plight, where a $1.7 billion buy of Snapple beverages, completed just nine months ago to complement its huge Gatorade business, is causing Quaker real problems.
Quaker bought the established Gatorade brand and successfully turned it into a powerhouse product line. But merging the Gatorade and Snapple operations and expanding the Snapple distribution system while retaining an existing supermarket sales system has created enormous problems and declining sales. Another factor is Coca-Cola and Pepsi-Cola: Each company has new brands attacking Snapple and Gatorade. The situation is bad enough that Wall Street is nervous about Quaker as a whole.
We don't count Quaker out. And we're certain there will be more big-brand acquisitions before the current wave runs its course. But Quaker's headaches should remind enthusiastic top managements and marketing executives to always do their homework. The payoff from buying today's brands, like investing in tomorrow's "sure-fire" new products, is no sure thing.