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United companies, divided brands Add to ...

Visit any airport car rental counter these days, and your eyes may deceive you.

What you will see is a rainbow of brands – Avis red, Hertz yellow, Budget orange, and Thrifty blue among them – but things are not as multicoloured as they appear. Years of consolidation in the car rental industry have pushed competitors together, but many have kept the old names on the key chains.

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In the United States, nine separate brands drew 94 per cent of the industry revenue in 2011, but all of those were held in only four parent companies, according to statistics from Auto Rental News. The industry picture is much the same in Canada, except that Canadian company Discount Car and Truck Rental is also a dominant presence alongside the major U.S. players.

Now, things are about to get cozier: reports last week suggested Hertz Global Holdings Inc. could announce soon its acquisition of Dollar Thrifty Automotive Group Inc., itself a product of an earlier merger.

The deal raises important questions about branding in this industry and others. Why have car rental companies, such as Avis and Budget, or Enterprise and its counterparts National and Alamo, kept their marketing images separate? And on a larger scale, how should companies handle their branding efforts during mergers and acquisitions? When does it make sense to maintain separate brands and when should companies unite their marketing images under one umbrella?

The unifying strategy has been in progress at United Continental Holdings Inc. since the airlines merged in 2010; the company has been phasing out the Continental name.

There are other industries where it can make sense to maintain different brands under one corporate name, often for price differentiation purposes. Marriott International Inc., for example, owns Ritz-Carlton hotels as a private subsidiary, but keeps the luxury Ritz image separate. It also operates other hotel brands such as Courtyard and Residence, targeted to different markets.

Separate branding is often common in retail as well – Gap and Banana Republic, which Gap bought in the 1980s, provide clothing at different levels of quality, different prices, and with different customers in mind.

The ad industry itself is an example, with major holding companies such as Omnicom Group and WPP containing constellations of agencies that are brand giants in themselves, such as DDB Worldwide and Ogilvy & Mather, respectively.

“Combining brands [after a merger]means you’re taking something that has had a lot of investment in it, and killing it,” said Meghan Busse, a professor at Northwestern University’s Kellogg School of Management who studies price discrimination.

“The big issue is, do we think that there is a meaningful underlying heterogeneity in the customers that we have … that we can make higher total profits by tailoring prices to different consumer segments?” she said.

That is the case in the car rental industry, said Pat Farrell, chief marketing officer of privately held Enterprise Holdings Inc., which owns the Enterprise, Alamo and National rental brands.

“From a marketing perspective, there has not been consolidation,” he said. When the company bought Alamo and National in 2007, there were discussions about how to market them, but the company kept them distinct because they serve different markets.

National, for example, is targeted heavily at the business traveller who is accustomed to renting cars and wants to get through the line and behind the wheel as quickly as possible.

Enterprise, by contrast, focuses on “the infrequent flyer” as Mr. Farrell calls them – travellers for whom a more hands-on customer service approach plays best. And Alamo is for the “shoppers,” who are making their decisions primarily based on price. For that reason, a much larger portion of Alamo’s marketing spend is on digital advertising, since the Web is where people tend to shop around.

“A lot of people will suggest that the industry is a commodity and you won’t get differentiation – it’s become the same as wheat or any other commodity, that it’s price-driven only,” said Bill McNeice, president of Associated Canadian Car Rental Operators. He disagrees, and believes there is a purpose in having different brands for different types of customers.

But that may not always be the most effective strategy, said Jonathan Knowles, chief executive officer of New York-based Type 2 Consulting, which advises companies on marketing after mergers. While it is easier to simply continue running brands separately, companies that rebrand under a new, unified identity have tended to show better market performance after a merger, according to research Mr. Knowles did in collaboration with two marketing professors from the University of North Carolina and IE Business School in Madrid.

Their 2010 Marketing Sciences Instituteworking paper evaluated 216 mergers of U.S. public companies between 1997 and 2006. More than half assimilated the weaker brand and continued business under one name (as Air Canada did when it merged with Canadian Airlines). About one-quarter continued business under the original, separate brands (as the car rental companies did). Only 20 per cent fused the brands, either under a new name (Exxon Mobil, for example), or by combining one brand’s name with the other’s logo (as United Airlines did by adopting Continental’s blue globe logo).

The research tracked the stock returns of each company in the three years after the merger. Those that went with the fusion strategy, combining their brands, slightly outperformed the market as a whole.

The brand strategy adopted after a merger can vary greatly, depending on the type of company, the industry and the consumer base, Mr. Knowles noted, adding: “People tend to favour the appearance of choice.”

But too much choice can be self-defeating for a company – as a major Canadian retailer recognized this week. On Wednesday, Canadian Tire Corp. Ltd. announced it is pursuing a “superbranding” strategy for FGL Sports, which was known as Forzani Group Ltd. before Canadian Tire acquired it last year.

After years of gobbling up sports retail competitors in its pre-Canadian Tire days, FGL is retiring a number of brands to focus on three: Sport Chek, Sports Experts (which has a large presence in Quebec) and Atmosphere.

“If you have a group of brands that serve the same purpose, sooner or later it’s in your best interest to consolidate them,” said Duncan Fulton, chief marketing officer for FGL Sports. Keeping the brands separate, he said, wasted marketing dollars that could have been spent advertising the main brands more effectively.

“We have the opportunity to create a superbrand.”

 
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