Becoming something else

Rebranding a business costs a huge amount of money.  The cost is both direct (through ordering new stationery, relaunching a website, changing signs on doors and designing a new logo) and indirect (potential lost business from people not recognising the company, time lost through employee training on how to use a new brand).

What’s more, not all rebranding exercises are a success.  Possibly the most famous failure is Consignia, who were once the Post Office, and changed the brand again to be the Royal Mail Group after a single year.

Why do companies still do it, then?  As economists, we tend to assume (rightly or wrongly) that businesses act in a rational manner, and therefore before spending considerable sums on a new look, they will have considered the benefits of doing so.  Such a cost benefit analysis can be a costly exercise in itself, involving consumer and employee interviews, behavioural analysis, legal advice and market trends analysis.  Using all of these sources, the management team will be presented with a report which estimates the total direct cost of the rebrand, and attempts to put a monetary value on the benefit.

The value of a rebrand will come from a variety of areas, depending on the current market.  If a company has seen a poor few years, gaining a reputation for poor quality or scandal, a rebrand can help to halt declining sales.  If a new product is coming out, or the company is looking to expand its market beyond its traditional customer base, a rebrand can help increase sales.  Changes in brand can be used to increase prices (and therefore profits), reduce costs through a consolidation of international markets, or simply signal to the market that you are looking to stay.  Susan Gunelius splits reasons for rebranding into proactive and reactive reasons, but a key question is missing from that article – how do we measure the benefits?

There’s no easy way of doing so.  What’s more, benefits will change over time.  When in a recession, consumers will be more interested in lower prices than seeing a flashy new name on the box.  The cost benefit analysis will need to be undertaken at exactly the right moment in time in order to give the management a robust basis for their decisions.  And even with such analysis undertaken, it can all go wrong; the analysis carried out for the SciFi Channel obviously overlooked the fact that “SyFy” is a slang word for an STD.


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