How a strong parent brand can make the difference

Unilever, Nestlé, Coca Cola Company, Cargill, General Motors, Apple, Colruyt Group, Johnson & Johnson, Arvesta… these are all examples of strong brands that have a portfolio of (often very diverse) sub-brands in products or services. These so-called ‘parent brands’ or umbrella brands prefer a sophisticated strategy that allows them to capitalise on the economies of scale and reputation of their group and enables them to approach different market segments with a varied brand portfolio. That combination of smaller sub-brands in turn contributes to the brand equity of the parent brand.

What effect does a parent brand have on the buying preferences or perceptions of (potential) customers? This largely depends on the extent to which the parent brand is played out in communications. Some organizations consciously choose to operate rather as a holding company, with the parent brand only serving as a financial structure or organisational framework above the sub-brands. In that case, sub-brands are marketed independently and can completely run their own course. Others fully draw the card of the parent brand as a kind of hallmark for the various sub-brands. After all, according to research, it can – through its proven reputation, history of quality and authority – adjust buying intentions and reduce perceived risk when making purchases. This approach potentially has a number of advantages:

The opportunity for cross-pollination: customers tend to be more loyal to different brands playing a particular niche or specialisation than to one central brand offering everything. Yet there is often an initial distrust of new products or services from companies that customers have no experience with. The parent brand removes this hesitation more quickly and increases the likelihood that customers will not only sample one particular sub-brand, but also discover the other products or services in the portfolio. An additional opportunity, therefore, to more easily generate sales for the group through different angles and create cross-fertilisation between the sub-brands, requiring them individually to invest less in awareness and lead generation.

The opportunity to reach multiple market segments: a strong brand makes conscious choices to target or exclude specific groups of potential customers. For example, a premium brand will position itself as more exclusive and often more expensive than its competitors, and will not be tempted to offer products or services that do not meet that standard. A parent brand, however, can differentiate more broadly and take more risks, by targeting different audiences with different sub-brands. Target groups sensitive to price, for example, will then not choose a premium sub-brand in the portfolio, but may opt for a cheaper alternative that carries the same parent company seal of approval. Assuming that the situation and motives of target groups can change over time, this offers opportunities for all sub-brands within the group. After all, a consumer who chooses a cheaper alternative now may just as well switch to another product or service within the group over time and vice versa.

The opportunity to build long-term relationships: a parent brand serves as a beacon of trust for target groups over time. It transcends individual sub-brands within its portfolio that gradually evolve, disappear or are added. The scale and constancy of a parent brand means that there are more frequent opportunities to conduct more interactions with target groups (from different sub-brands) and build long-term relationships with customers. The parent brand can see trends in the buying behaviour and expectations of different target groups across various sub-brands, which they can respond to strategically by making changes to the portfolio or approach of the sub-brands.

It is important to note that the aforementioned benefits obviously only apply when the parent brand has a strong market presence and a consistent reputation with its target groups. Damage to the parent brand through misjudgements in brand extensions, lack of trust or loss of reputation can have negative consequences for all individual brands it covers. Another challenge for a strong parent brand with sub-brands is the continuous balance in how the different brands relate to each other. Managing a portfolio of different brands, each with their own positioning, requires a lot of coordination and should not become an obstacle to the parent brand’s position in the market.