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The Shift to Parent-Level Advertising: UL, PG

December 09, 2011 | About:
The Science of Hitting

The Science of Hitting

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In many cases, consumers are shocked to find who makes the products that they buy each and every day; there are plenty of investors that don’t know that PepsiCo makes Fritos, Doritos, and Tostitos, for example, let alone the average customer perusing the store shelves. In many cases, this has helped to separate the parent company from the product, a move that can be used to effectively position a brand to attract a target market.

However, with the rising importance of corporate sustainability and responsibility, some companies are stepping back and positioning their brand from the parent level, with the goal being to present a uniform brand that can broadly connect to consumers.

An example of this is Unilever (UL), which in early 2010 start using their signature “U” logo in Australian advertising. At the time, David McNeil, vice president of marketing for Unilever Australasia, was quoted as saying, “Making it easier for consumers to identify Unilever brands is good for our business… Our research suggests that people who already buy one Unilever brand are more likely to buy others. Our research also shows that when consumers are made aware of our brand portfolio, their trust in us increases significantly.”

While identification with the brand and its values can become an opportunity to garner brand equity, it also comes with “bad press” risk that has traditionally been mitigated (at least partially) by the use of a diversified branding strategy. As reported by BBC News and The Guardian, Unilever workers at all 12 of the company’s plants across the United Kingdom have decided to strike as a result of pension changed and the canceling of traditional holiday gift vouchers; as a result, the production of multiple Unilever brands including Dove and Hellman's Mayonnaise will likely be affected in the near term.

Although this situation may prove overblown, it is worth remembering that any corporate decision making must now reflect the fact that one brand is not separate from the company as a whole; for investors, I believe this dynamic may increase the business risk resulting from corporate irresponsibility and bad PR, and shouldn’t be overlooked as insignificant during initial research into a possible investment.

In March 2011, Procter & Gamble (PG) announced plans to roll out corporate advertisements in the UK for the first time in the company’s history; as Unilever’s recent challenges show, P&G might want to tread carefully before slapping their corporate logo next to the Old Spice Guy and the Charmin bear.

About the author:

The Science of Hitting
I'm a value investor, with a focus on patience; I look to buy great companies that are suffering from short term issues, and hope to load up when these opportunities present themselves. As this would suggest, I run a fairly concentrated portfolio by most standards, usually with 8-10 names; from the perspective of a businessman rather than a market participant / stock trader, I believe this is more than sufficient diversification.

I hope to own a collection of great businesses; to ever sell one, I would demand a substantial premium to the average market valuation due to what I believe are the understated benefits to the long term investor of superior fundamentals and time on intrinsic value. I don't have a target when I purchase a stock; my goal is to replicate the underlying returns of the business in question - which if I've done my job properly, should be very attractive over many years.

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