Every year, Forbes creates a list of the “World’s Most Valuable Brands”. The top five most valuable brands in 2020 are – Apple, Google, Microsoft, Amazon, and Facebook. These big-4 have made it to the list because they have successfully achieved what thousand others can only dream of – building a strong brand.
A strong brand increases the company’s goodwill. Being the “face” of the business enhances a firm’s recognition and recall. It also creates trust among customers, attracts potential investors, and helps set the company apart from competitors.
It is believed that if your company owns one or more successful brands, you’re already in an advantageous position. But if you don’t, you can acquire a successful brand. There are many powerful reasons for doing so. Here are four reasons you might consider taking over an external brand.
Gain Access to New Markets
Acquiring an existing brand will allow your company to reach new markets or increase the share of the market you’re already present in. Consider the acquisition of WhatsApp as an example. Meta (earlier known as Facebook) acquired WhatsApp in 2014 for a whopping $21.8 billion. WhatsApp remains one of Facebook’s most successful brand acquisitions.
Why?
For one, the acquisition enabled Facebook to tap into a huge user base in many more countries than it might have managed on its own. Proof – as of June 2021, Facebook has 2.6 billion users, and WhatsApp has 2 billion users. It’s unlikely that Facebook would have managed to achieve 4.6 billion users in the same timeframe on its own. It also helped Facebook to enter markets with low Internet penetration or problematic connectivity. WhatsApp is popular in these countries, so Facebook decided to “piggyback” on WhatsApp’s ubiquitous presence to boost its own presence in these markets.
Implement Vertical Integration
By bringing outsourced operations in-house, a firm expands operations within the supply chain. You can consider SpaceX as the prime example where it cuts the cost by producing the majority of components in-house. Business gurus call it “vertical integration.”
Vertical integration is a great way to streamline your company’s operations and take control of your supply chain. To do this, you can take direct ownership of one or more stages of your production process, such as suppliers, manufacturers, distributors, contractors, retailers, etc. A vertical integration strategy reduces disruptions and quality problems from suppliers, and ultimately improves your company’s profitability.
And you can achieve all these benefits by vertically integrating with a successful brand.
One of the best examples of a company focusing on vertical integration is Amazon. The Amazon marketplace connects buyers and sellers. But the company also offers its own products and services and maintains its own distribution channel. To do this, it has acquired multiple brands, such as IMDb (online movie database), Audible (audiobook service), Zappos (online retailer), and Whole Foods (supermarket chain).
Another company that has also successfully integrated vertically is Ikea. This Swedish furniture retailer has purchased forestland in several countries to control raw material production, and create a sustainable supply chain.
Reduce Excess Capacity and Lower Competition
If there’s too much supply in your industry, it may indicate that there’s too much competition. As your industry matures, existing companies will try to increase production, and new companies will enter the fray. All of this will increase supply even more, and make the sector even more competitive.
So how can you reduce capacity, and eliminate – or at least reduce – the competition?
By acquiring a brand.
The brand acquisition is an effective way to reduce excess capacity. It’s usually not in a company’s interest to simply eliminate or reduce a particular line of business that’s contributing to the oversupply problem. Thus, instead of reducing capacity from the original entity, it’s easier to do so from the larger combined entity resulting from the brand acquisition. Moreover, buying out a competitor brand will also make the competition go away.
Leverage powerful synergies for growth
The acquisition is also an effective way to boost your organization’s growth prospects. Acquiring a promising brand and incorporating it into your revenue stream can create new profit avenues. If your company is facing some constraints that are preventing growth, brand acquisition can help overcome these constraints and accelerate growth. This is because you can now access new markets, diversify your customer base, and also diversify your product or service offerings.
The brand acquisition is also an efficient, fast, and cost-effective way to acquire the latest technologies or highly skilled human resources, and leverage them to accelerate business growth. If you don’t have the time or resources to develop these capabilities in-house, you should consider acquiring a brand for this reason.
Apple is one company that has acquired several brands to get access to their technological capabilities. For instance, it purchased Siri in 2010 to enhance its recently-launched smartphone brand, the iPhone. Apple also purchased a speech-recognition-technology company and a music-streaming service to further strengthen its iPhone and iTunes brands.
Conclusion
A brand’s acquisition can be a critical driver of your company’s growth and success for a very long time. By acquiring a brand, you can boost top-line and bottom-line growth, expand your existing customer base, accelerate expansion into new markets or product lines, and reduce competition in your industry. By picking “winning” brands, you can also exploit their industry-specific scalability, and improve the performance of your company overall.
Of course, that’s not to say that brand acquisitions are a piece of cake, because they most certainly are not. However, the benefits are usually worth it, so you should consider it as part of your future business strategy.
For over 14 years, Ergode has helped brands to scale, nurture their core business, and accelerate top line growth. Our AI-powered solution and tailored services are geared towards enhancing a brand’s value and taking it to the next level of success. Have a look at our AI geared solutions and network reach which has elevated numerous brands over a period of time.
