A very different approach to preserving local brands has been taken by Germany's Henkel KGaA. The company's strategy has been to focus on local heritage brands that can be supported by modern and integrated production methods—an approach that seems to contrast strongly with that of building global power brands.
Like Unilever and Nestlé, Henkel entered the global market by acquiring local companies—adding factories and local brands to its holdings. But after Henkel realized it had more product variety than it needed, it resisted standardizing any brands with strong local identities. In contrast to strategies that seek production economies by reducing stock-keeping units, concentrating marketing support, and leveraging the most powerful brands with retailers, Henkel chose to retain a portfolio of national and international brands.
Henkel has varied its laundry detergent strategies in Europe to address different laundry practices by culture. In Southern Europe, where people have traditionally washed their clothes using cooler water than in the North, consumers have wanted less powerful detergents that they could use with bleach. In Northern Europe, the preference is for hotter water, without the use of bleach.
Packaging preferences in the two regions are also different; in the North, consumers prefer compact products, in the South, they want large boxes. Henkel's solution has been to market its flagship detergent brand (Persil) in Germany, France and the Netherlands with separate product formulations that address local preferences in each country, and separate detergent brands for Italy and Spain.
Henkel markets the whiteness of Persil in Germany and France, but in the Netherlands, a green version of the brand was positioned as an environmentally-friendly product. In Italy, where the preference is for stain-removing ability and blue color, Henkel introduced a brand other than Persil (to allow Persil to fully own the color white in Northern Europe). In Spain, the company acquired an existing brand. (David Arnold, "Henkel KGaA: Detergents Division," Harvard Business School, 2003.)
Contrast this approach with the one taken by Procter & Gamble, which decided to globalize its European laundry detergent operations several years ago. In 2000, the company renamed its popular "Fairy" laundry detergent in Germany "Dawn" to position the latter as a global brand. There was no change in the product's formulation. But by the end of 2001, P&G's market share of Dawn in Germany had fallen drastically. While Fairy had represented a familiar and trusted brand persona to German consumers, Dawn meant nothing. With the renaming, the bond between consumers and the brand was broken; not even changing the brand's name back to Fairy could restore it.
Says Dr. Hans-Willi Schroiff, vice-president of market research/business intelligence at Henkel, "A strict globalization strategy like P&G's [will not be] successful if ‘meaningful' local brands are the corpses on the battlefield. It caused severe share losses for P&G here in Europe. Consumers do not switch to the global brand, but to another brand that looks more [like] ‘home' to them."
Although Professor Levitt may have been serendipitously correct about the potential pitfalls of thoughtlessly acquiring local brands, his predictions about the convergence of consumer demand seem to have missed the target. The globalization of consumer demand has failed to come about, and attempts to override local preferences with global brands have been far less successful than he predicted. For the time being, there is no evidence that consumers are going to stop valuing brands that appeal to their local heritage.
The attempt to achieve global brand positioning by deleting local brands seems problematic. Says Henkel's Schroiff, "Globalization is a sort of hype that is in the press but not in the minds and in the hearts of people."
Interestingly, there have been suggestions that the acquisition—and subsequent shedding, of local brands by multinationals might actually be leading to a fragmentation in consumer demand, rather than to any globalization of it. Professor Luc Wathieu of Harvard Business School believes the current trends in brand rationalization are leading to a polarization in which a few small groups get exactly what they want, while most consumer groups end up constrained to buy more and more mainstream products. Says Wathieu, "I don't see a problem with brand proliferation per se, and I would see brand de-proliferation as a signal of dominant position or as a sacrifice of consumer value in the interest of cost efficiencies."
In the meantime, some local brands are unlikely to go to the scaffold without a fight.
According to Professor Douglas B. Holt of the University of Oxford, brands that become icons are the ones most likely to be missed. Icon brands are not necessarily those that deliver distinctive features, good service, or an innovative technology; they tend rather to be the ones that resonate deeply with a culture. Most of these brands fall into lifestyle categories—food, apparel, alcohol or automobiles. (At the time of this interview, Professor Holt was still on the faculty of Harvard Business School; he is now at Oxford.)
Says Holt, "One of the most important considerations that has been left off the table in the ongoing discussion of brand deletion is a concept I call cultural brand equity. [Some brands] have rich pedigrees, and not only in their home country. While it is possible that the brands may have weak sales and profitability now, their histories are extraordinarily valuable, if dormant, assets. If brands are still lodged in the collective imagination of the country as cultural symbols, there is value on the table for the smart marketer who knows how to restage the brands to make them culturally relevant. No multinational marketing company understands this because they are trapped in what I call the mind share model of branding—a paradigm that blinds them to the cultural value of the brand, and the way brands move through history."
Research has shown that consumers choose brands that appeal to their needs, and then stay with them until something more attuned to those needs comes along or until the brand is no longer available. When a popular brand suddenly disappears, customers are left to consider all brand alternatives when making substitute purchases unless the brand owner provides a compelling migration path to a substitute brand. But influencing customer migration is tricky. When consumers switch brands after the one they used to buy has been deleted, they may be unconcerned with whether an alternative brand is owned by the same company.
While it is true that global brands may address universal tastes, promise high quality, and offer consumers prestige and membership in the global community, customers stick to familiar local brands as often as they switch to global ones. As P&G's experience with Dawn shows, companies that respond to local preferences may have an advantage over those that address a standardized market because significant numbers of consumers do resist global brands, preferring local ones that seem more familiar.