When deciding whether the right move is to build a brand from scratch or buy an existing brand, companies have to weigh the pros and cons of different approaches to building their business. They also have to take into account the specifics of their company’s situation and ask a number of questions including:

  • What are our company’s capabilities in marketing, purchasing, manufacturing, sales, etc.?
  • What human resources are ready and available to devote to this brand? Do we integrate the brand into our existing structure or manage it separately?
  • How much money are we willing to spend?
  • What is our comfort level in spending the money required?
  • What is our timetable for developing this brand?
  • Where does ego play in our decision?

“I have a bias that suggests that the only time you should consider building a brand is if you have an idea, a solution, and a value proposition where there is a clear void and relevant point of difference in the marketplace,” said Jesse Edelman, ArchPoint’s chief operating officer. “Retailers expect you to have a good story on why you’re new, better, and different than what’s out there and consumers need to understand the unmet need your product fulfills.”

Keurig is an interesting example of a company that did a great job of finding a void in the market. Their real intellectual property was the K-cup. Their success story includes building an entire industry around an idea that three years earlier hadn’t even been considered—individual servings of brewed coffee.

Pinterest is another illustration of finding a niche in an already crowded market. With Pinterest, users create virtual bulletin boards, or so-called “pinboards,” that provide a cool way to organize and share photos of products, places or any other interesting photos or sayings found online. Pinterest has the added benefit of allowing users to browse others’ pinboards, both friends and strangers. In late 2009, Cold Brew Labs began initial development of the app in San Francisco. Pinterest launched in December 2010, and as of February 2012, the site had 10 million users.

Building A Brand

“If we look at brands that have emerged from scratch to a measured level of awareness, only 1 or 2 each year is truly a new brand—the rest are really line extensions,” said Christine Holland Carvalho, ArchPoint’s marketing practice leader. “Establishing new brands is an expensive proposition. It’s also time consuming.”

A good example of a brand exercising the patience to build distribution over time is Method. Method has a very specific proposition and point of difference. They started with a test in a limited number of Target stores, then expanded to national distribution in 2002 and steadily grew both distribution and fans, to over 40,000 retail outlets in 2012.

Edelman offers Jack Links as an alternate example of a successful brand that was willing to spend what it took to create a category at a consumer level that didn’t exist before. With their uber-cool Sasquatch advertisement, Jack Links outspent the competition 20 to 1 and won the category.

On The Flip Side

Purchasing existing brands offers the benefit of instant scale and credibility with both customers and consumers. “The benefits tend to aggregate into two key areas,’” noted Amy Ritchie, ArchPoint’s chief financial officer. They are generally either capability building or consolidating—and capability building provides better return on investment at the one and two year marks.”

Coca-Cola’s purchase of Glaceau/Vitamin Water gave them a significant presence in the fast growing non-carbonated beverage segment and a brand with a perceived healthier positioning and an already established “cool” personality.

Another example is Kraft’s purchase of Cadbury, which they were able to leverage Cadbury’s existing distribution and supply chain networks in emerging markets.

Companies in the process of deciding whether to buy or build a product have to weigh the trade offs between time, the complexities of integrating, and the ROI.

Why Buy An Existing Brand?

  • Buying a brand allows a company the possibility of quickly demonstrating a dominant presence and credibility in a new segment.
  • Buying a brand requires a measured level of investment and helps accelerate the return on investment.
  • Buying a brand gives a company quick access to new sales channels or in some cases, another brand with which to strategically diversify across channels.
  • Buying a brand often creates cost synergies in a certain product space.
  • Buying a brand can provide a particular expertise or capability that a company hasn’t built, such as in research and development or a specific manufacturing process. The benefits of the new expertise can be leveraged with existing brands.

Why Build A Brand From Scratch?

  • A company builds a brand from scratch, if the brand has a clear benefit and point of difference relevant to the market.
  • A company builds a brand from scratch if a dominant competitor has driven the price up and owns the market, offering a way for another brand to come in and under-cut the market’s price standard.
  • A company builds a brand from scratch if there is an opportunity to take advantage of an industry trend—if the brand is in an immature category that’s still got room for growth.
  • A company builds a brand from scratch if it wants short-term gains and has an exit strategy/target buyer.
  • A company builds a brand from scratch if it has competitive leverage (cost or capability). For example, the company may have access to a supplier or raw materials that other companies don’t have.

In closing, Richard Spoon, ArchPoint chief executive officer offered, “Companies really need to think through their strengths and weaknesses and how those will materialize throughout the build/buy process. Sometimes realizing the full value of an acquired brand requires an open and adaptive integration process, with some benefits not materializing after due diligence is complete. Building a brand is almost always more resource intensive in people, time and money than most companies consider in their evaluation.”