How a Brand Recovers

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Mergers and acquisitions rarely work. Short term they look great, but long term always reveals that the purchaser paid way too much for a bloated carcass. Or worse yet, the two companies are incompatible. I wish that people who specialize in M&A’s would take some basic marketing classes. It would save them quite a bit of money and make them appear to be geniuses.

For seven years I was involved in a particular car company’s annual meetings. I had access to concept cars as well as the new lineups 8 months before the consumer was given access. I pay close attention to the perception of a brand and how that affects business. It has served me well over the years.

Case in point, the Chrysler Mercedes Benz acquisition. DaimlerChrysler was formed in 1998 by the merger of Daimler-Benz and the Chrysler Corporation. On paper, the merging of German and American ingenuity looked like a sound business decision. Why build brick and mortar show rooms all across the country when you could purchase an established brand here in America? Just reposition the already existing Chrysler showrooms into Mercedes showrooms. Sounds perfectly logical right? It would save the company millions in construction costs, and give Mercedes instant exposure. The only thing they would need to pay for was brand identity collateral, repositioned sales training and new signage.

Create or buy a company with an already existing distribution infrastructure. It seems logical because this strategy has worked beautifully for other brands.

American Express was started by three rival shipping companies owned by Henry Well’s, William Fargo, (ever heard of the Wells Fargo wagon?) and John Butterfield to provide express shipping to the Wild West towns of the mid-1800’s. The American Express company was actually set up temporarily to stop their sometimes bloody rivalry that was taking place during the explosive expansion of the United States. (Remember, first to market wins.)

American Express started its expansion in the area of financial services by launching its money order business in 1882, mainly to compete with the US Post Office and their money orders. This product quickly spread to Europe where no such financial product existed.

Quickly, American Express Traveler’s Checks became the ubiquitous symbol of frontier banking for places where the only banking was several days ride by stage coach. In Europe it took off because it was easier to travel from country to country without having to figure the exchange rate of Deutschemarks to lira. It was easy and convenient.

Almost a hundred years later, Carte Blanche became the first consumer credit card. (Once again, first to market.) But American Express took the lead away from them because their world wide banking network was already established. Instant credibility, instant access and instant worldwide exposure made the American Express Card the number one card in the world. Their already existing infrastructure and brand recognition made them an overnight leader.

Carte Blanche never caught up to the lead position, and the Visa card became the number one competition to AMEX. So merging a company with another company that already has the existing infrastructure seems like a no-brainer right?

When a luxury brand like Mercedes (with its affluent customer base, perceived quality and international brand recognition), acquires a company like Chrysler (with its upper middle class customer base and strong inventory of brands), there can only be one outcome; Mercedes dilutes its brand while Chrysler increases its perceived quality.

Just look at Chryslers brands to get a boost from the Mercedes relationship: The Crossfire, the 350i, even the PT Cruiser got a redesign. But several brands that didn’t get a boost from Mercedes is the entire Jeep line. Boxier and re-designed more for the affluent than for the weekend camper. The Liberty was a complete left turn in design, but attracted the younger more active buyer. The current Liberty redesign for 2008 is more like the boxy G-Class Mercedes Benz SUV.

Mercedes on the other hand came up with this crazy idea that if they could get a Mercedes customer early enough, they would have a customer for life. Hence the cheaper, entry level luxury sedan, a.ka., the C-Class. It costs the same to manufacture the M-Class as it does to build the C-Class. So each C-Class was about losing money while gaining customer loyalty. (great thinking if you make razor blades. Not such a great idea when you manufacture big ticket items.) What Mercedes didn’t count on is once someone is affluent enough to own a Mercedes, they don’t want to know that some 20 year old gamer building websites for summer income can buy one too. Oops.

Watching Mercedes separate themselves from Chrysler is a beautiful thing. Like a bad marriage between two wonderful people (you hope it will work out), but being separated is better for them than just coexisting in a bad situation. It is the re-launch of Mercedes as they emerge from a bad decision into a newer fresher company.

Re-launching the C-Class is brilliant and put my faith back into the Mercedes Company. The line is mature again and says luxury without screaming. They immediately re-established as to why they put all that work into the new sedans, “Because we wanted to give you a Mercedes Benz.” We all know what that means because (whether you own one or not), we all know what the brand represents. Mercedes got their mojo back.

Like I said before, mergers do not work. Short term it appears to be an awesome deal. Long-term? No way. Unfortunately there is a rumor that Mercedes, fresh from its divorce from Chrysler wants to merge with BMW. (Did you just hear me let out a sigh?) Will they ever learn? I originally wanted to end this article with “welcome back Mercedes,” but I would have spoken too soon.

My recommendation for mergers: If the company you are acquiring has a strong brand, let that brand take the lead and remain separate. (your company should basically disappear from ownership.) A good example is Volkswagen and Porsche. They are the same company, but the brands stay rigidly separate. If you are acquiring a lesser known brand, you can spend time and money pumping up the brand, or roll over its unique propositions into your companies offerings and make it disappear.

But what if both brands are strong? Pick one to take the lead and rename the entire company under one logo, this will create a mega brand. But like I said, mergers rarely work long term. It’s just a matter of time before FedEx Kinkos will have to rethink everything.

If you do have to merge, try not to create a fuzzy brand. Have your brand stand for one thing and one thing only. Confusing the consumer is a no-no. Remember Starbuck’s Cafe’s? Yeah, bad idea. Keep your brands separate and focused. Bigger is NOT better.

Thanks again for reading,

Brad Szollose

Here’s some of my research:
http://www.cnn.com/WORLD/americas/9805/07/benz.chrysler.merger/index.html 

http://wardsdealer.com/ar/auto_chrysler_borrows_mercedes/

http://germancarscene.com/2007/02/17/mercedes-to-divorce-chrysler/ 

http://www.thetruthaboutcars.com/?cat=29

http://www.egmcartech.com/2007/10/11/hows-mercedes-doing-without-chrysler-whos-the-next-flavor-of-the-week/ 

http://autos.msn.com/research/vip/overview.aspx?year=2008&make=Mercedes-Benz&model=C-Class

May I suggest the book:
Forbes Greatest Business Stories of All Time.