Brand Architecture: Branded House vs. House of Brands, is the verdict out?
Making sense of Brand Architecture
Probably brand architecture is the branding framework that non-marketers have the most difficult comprehending. While as consumers they are probably used to experiencing brand architectures, in the author’s experience, non-marketers really tend to associate the tool to the infamous lipstick on the pig. Interestingly enough, general public gets purpose, gets digital, but not really brand architecture.
When in conversations with brand architecture skeptics, what usually convinces them to give the framework a second chance, stems from explaining its strategic insights in terms of risks and returns, synergies and brand dilution, niche customer focus vs. a broader and diversified audience. We traditionally tend to explain the framework as a continuum between the branded house and the house of brands, which stand at the extreme of the range, with the first being the highest in terms of economic efficiency (e.g., only one brand to build, larger budget for the single brand) and highest in terms of risks (e.g., dilution and cross-contamination); whereas the latter reduces the risks to almost null, but comes with lower degree of efficiency in terms of brand building efforts. We have been doing this for nearly 15 years, and it turns out we were wrong.
A recent study concluded that the possible choices of the brand architecture might not deliver on risks and returns as initially expected. First of all, it is important to understand the context for the study, which takes in consideration companies listed on the stock market, and therefore does not cover private companies in its sample. Moreover this research effort considers risks starting from a share/stock point of view, by looking at “brand-relevant drivers of idiosyncratic risk”, which does not fully overlap with the marketers’ definition of brand related risks in the context of a brand architecture (albeit is a fairly good proxy for it). Finally the investigation takes in consideration a financial performance related to the stock market (adjusted for industry related volatility), which has a weak link with brands performance in the marketplace. Net, of the 5 brand architecture archetypes tested (i.e., Branded House, Sub-brands, Hybrid, Endorsed Brands, and House of Brands) the main result is that by far:
- Sub-brands – and not the Branded House as expected – deliver the better performance and have the highest risks.
- Interestingly enough Endorsed Brands tend to reduce risk to the minimum, whereas the House of Brands is riskier than an endorsed one.
- Also unexpectedly, the House of Brands – which I always expected to have the lowest returns – performs better than Endorsed Brands (by 20%) and Hybrid models (by nearly a third).
What does that really mean from a marketing point of view?
First and foremost, Hybrid Brand architectures, which are cumbersome from a brand marketer point of view, and often unclear from a consumer and customer standpoint, actually do not create real value for investors. In all fairness those Hybrid Brand Architectures are the off spring of strategic moves into adjacent categories, and therefore make sense from a strict product/ category marketing point of view. Should one make only a financial consideration, then Hybrid Architectures should be transformed in a direction of a sub-brand, which is easier said than done.
Moreover, Endorsed brands seem to perform better than we would have expected. But on the other end we should not be surprised, specially considering the efforts that Unilever and P&G made, in the past 10 years, to strengthen their corporate brands: those corporate brands are now in a position to endorse any of the house-of-brands assets, they own.
 Hsu, L., Fournier, S. and Srinivasan, S., 2016. Brand architecture strategy and firm value: how leveraging, separating, and distancing the corporate brand affects risk and returns. Journal of the Academy of Marketing Science, 44(2), pp.261-280.