Marriages of inconvenience

Merger main

The last two weeks have been eventful to say the least for big brand mergers. We’ve seen two announced, two collapse and one as good as confirmed.

The deals illustrate the obstacles facing brands as they look to consolidate their position in their respective markets and why bigger doesn’t always mean better.

Thank you for the music

There are plenty of theories about why Apple is buying Beats (including most recently that it’s all about moving into online video). But one thing’s for sure – it has nothing to do with the headphones. It’s a defensive move designed to ensure Apple continues to dominate digital music by swallowing Beats Music, while snaring industry mogul and Beats CEO, Jimmy Iovine, as part of the deal.

Apple puts rigour into its design process, headed by Jonny Ives. It goes through massive industrial manufacturing processes to turn out phenomenal products that require very low maintenance in the marketplace. You can’t say the same about Beats headphones. They look great – but they’re not well designed and they have come under fire for breaking. There’s a jarring of quality and design there between the two brands.

Apple’s iTunes is music. The brand association is so strong and has been for more than a decade. But consumers are moving to streaming services like Spotify – and Apple can see its synergy with digital music slipping if it doesn’t act. Buying Beats (and by proxy Beats Music) gives it a stronger foothold in streaming, with iTunes Radio so far failing to replicate the immediate success of its download counterpart. For all the guesswork and debate, this deal is nothing more than a brand moving to future-proof its position in a critical market.

Stumbling giants

The merger between ad agency powerhouses Omnicom and Publicis was never going to be a smooth journey. The $35 billion deal would see the creation of the largest ad player globally, bringing Publicis brands like Fiat, Citigroup, Diageo and Coca-Cola together with Omnicom clients including AT&T, Visa, M&Ms and Guinness, under one roof. The companies focused so much on becoming the biggest media agency that the real value of the deal became distorted. The major challenge here was company culture – the pair couldn’t be more different. They weren’t aligned, in terms of behaviour and outlook, evidenced by endless wrangles over internal processes.

It’s a similar situation to the Daimler-Chrysler merger in 1998. Daimler wanted to increase their footprint globally, but the merger ultimately failed because the two parties weren’t aligned culturally. It’s not just about footprints and numbers, if there’s a clash of cultures it’s never going to last.

The culture and character of our clients are two of the main elements we focus on – whatever the project. That's part of our philosophy. Any piece of work – from a single email to a full-blown advertising campaign – is a representation of a company’s brand.

Publicis and Omnicom didn’t consider what a brand clash would mean for them and the deal ran out of steam, dragging on for nearly a year. It comes back to basics: if you’re not culturally aligned and you can’t agree the terms quickly, then you should ask yourself what you’re really trying to achieve.

Either side of the pond

Similar issues face US pharmaceutical giant Pfizer and UK rival AstraZeneca, as the former looks to have ended its pursuit of the latter. People think that because the Americans and the English speak the same language we’re aligned – but in the way we do business, we’re far from it.

The Brits and Americans go to work for different reasons. In the UK we’re safer – there’s not that same culture of risk. We’ll go to work more for security and comfort, while Americans are generally pretty intense about business. They want a win – quickly. They want to make that step up the ladder and if it doesn’t happen fast, they’ll want to move on to the next challenge.

Pfizer, the second largest pharmaceuticals company globally behind Johnson and Johnson, has taken a battering in the UK for its overtures toward AstraZeneca – itself placed in the top 10 companies by revenue. Obstacles already experienced by the pair, in a process that now appears to be dead in the water, illustrates the differences in culture between the two firms – with AstraZeneca continuously rebuffing Pfizer’s advances including its latest, “final” offer.

Full of beans

The potential $5 billion merger of Cadbury owner Mondelez’s coffee division and Douwe Egberts owner DE Master Blenders 1753 makes sense on the surface, but it’s not without potential pitfalls.

In the retail sector, brand momentum is everything. When two businesses merge, will a brand be dragged up or down? In retail, the chances are you’ll drag a brand down.

DE’s Senseo used to be a cool and convenient coffee machine brand, but it’s surrendered the advantage to Nestlé’s Nespresso, which is leading the market. Senseo has flagged in recent years, with acting DEMB CEO Jan Bennink conceding the youth don't want to be associated with the brand; they reckon the machine is “unsexy”. The comments were reminiscent of Gerald Ratner’s in the early 1990s and reinforce the dangers of damaging a brand in retail. The sensible option now would be to scrap it in favour of Mondelez’s stronger Tassimo brand – if the merged company wants to mount a realistic challenge to Nespresso.

It takes more than just sexy products to become a leading retail brand – and it’s even harder to stay there. Years of hard graft, clever marketing and building the right brand associations doesn’t change the fact that you can damage it all in minutes.

The hot beverage merger of the moment will see Mondelez and DEMB, the third and second largest coffee companies globally, boast a combined $7 billion in annual sales – compared to the $23 billion generated by Nestlé’s “powdered and liquid beverages” division. But they’ll have to work hard to achieve the perfect blend.

Drew has left The Frameworks.


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