IMD International

What’s better, a house of brands or a branded house?

IMD Professor reacts: John Walsh on Warren Buffett’s recent branding activities

November 21, 2014

Warren Buffett recently made headlines with an announcement about his Berkshire Hathaway brand and Richard Branson was in the news following the crash of a Virgin Galactic test flight.

These events provide interesting insights into these moguls' similar branding strategies.

Buffett recently announced that the Berkshire Hathaway (BH) brand would be applied to some of the businesses that make up the panoply of its investments. In the future, whether you are in the market for a loan, insurance or a place to live, the BH brand will be one of the choices available to you. The BH brand is well known in the investment community, revered by retail investors who idolize its iconic chairman, but relatively unknown to the average consumer. Buffett intends to change that.

The move has been compared to that of another self-made billionaire's brand. Richard Branson has put the Virgin brand on everything from cola to condoms, trains to space travel. Virgin is the quintessential "branded house" – the many and diverse activities in the Branson portfolio bear the Virgin brand. There are benefits to this – the Virgin brand brings with it consumer awareness and perception. When "Virgin" is placed on a product or service the brand communicates excitement and an alternative approach to doing business.

Other companies have chosen a different strategy. Procter and Gamble is commonly characterized as a "house of brands", owning and managing many brands (Gillette, Pampers, Tide etc.) independently. Many consumers do not know that they form part of the same stable. While it is expensive to manage multiple distinct brands, it brings greater flexibility and lower risk of what happens in one business impacting others in the portfolio.

For shareholders of BH, there are two potential concerns with the branding initiative: 1. What values will the BH brand bring to the consumer marketplace? and 2. How will the businesses that share this brand impact each other?

BH is best known for making its shareholders rich. A reputation for amassing profits is far from a compelling consumer value proposition. BH will need to draw on different characteristics, perhaps those associated with Buffett himself, such as integrity and trust, to be appealing to consumers. And, the many and varied businesses operating under the BH umbrella will each have to operate by these shared values.

When Virgin Galactic crashed in the Mojave Desert recently, killing one of the two pilots on-board, its plans to engage in private space travel clearly took a step backwards. Less clear is whether there was any impact on the rest of the Virgin businesses. Perhaps Virgin is a little more immune to this form of contagion – if your brand stands for excitement and alternativeness, perhaps the market accepts tragedies such as this can happen.

However, if your brand stands for trust and integrity, shoddy sales practices in your insurance business, for example, will probably impact consumers' willingness to purchase a home from your real estate division. Mr Buffett has a history of investing in the world's strongest brands (Coca-Cola, American Express, IBM) and winning. But success might be more elusive when it comes to establishing and building his own consumer brand.

John Walsh is Professor of Marketing at IMD and directs Building on Talent (BOT), a program for high-potential managers early in their career looking to take on greater responsibility.

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