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The Science of Hitting
The Science of Hitting
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The Shift to Parent-Level Advertising: UL, PG

December 09, 2011 | About:

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 (NYSE: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 (NYSE: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 long-term focus. As it relates to portfolio construction, my goal is to make a small number of meaningful decisions a year. In the words of Charlie Munger, my preferred approach to investing is "patience followed by pretty aggressive conduct". I run a concentrated portfolio, with a handful of equities accounting for the majority of its value. In the eyes of a businessman, I believe this is sufficient diversification.

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